23 August Financial Analysis For Business


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23 August Financial Analysis For Business

  2. 2. FINANCIAL ANALYSIS FOR BUSINESS Dr. T.K. Jain. AFTERSCHO☺OL Centre for social entrepreneurship Bikaner M: 9414430763 [email_address] www.afterschool.tk www.afterschoool.tk
  3. 3. Terms. . . <ul><li>ROI = Return on investment = (NOPAT/CAPITAL EMPLOYED) </li></ul><ul><li>NOPAT= Net operating profit after taxes </li></ul><ul><li>ROCE = return on capital employed </li></ul><ul><li>ROE = Return on equity </li></ul><ul><li>EBIT= earnings before interest and taxes </li></ul><ul><li>PAT = profit after taxes </li></ul><ul><li>EAT = Earnings after taxes </li></ul>
  4. 4. Current assets are? <ul><li>Cash </li></ul><ul><li>Inventory (not considered liquid asset) </li></ul><ul><li>Debtors </li></ul><ul><li>BR (Bills receivables) </li></ul><ul><li>Short term investments </li></ul><ul><li>Etc. </li></ul>
  5. 5. Current liabilities are ? <ul><li>Creditors </li></ul><ul><li>OD (bank overdraft facility) </li></ul><ul><li>CC (cash credit facility by bank – a type of working capital loan) </li></ul><ul><li>PC (packing credit loan for purpose of pre-exports) </li></ul><ul><li>LC (Letter of credit for post export) </li></ul><ul><li>BP (bills payable). </li></ul>
  6. 6. My cost of goods sold is Rs. 10 Lakhs, my opening inventory is 2 lakh and my closing inventory is 5 lakhs. What is my inventory turnover ratio and what does it denote? <ul><li>My average inventory is (5+2)/2 = 3.5 </li></ul><ul><li>My COGS = 10 Inventory turnover =10/3.5 = 2.8 </li></ul><ul><li>Inventory turnover ratio of 2.8 shows that I have very high inventory (it depends on average industry ratio).. I should either reduce inventory or try to push sales. </li></ul>
  7. 7. My annual sales is Rs. 100 Crore (50% is credit sales). My debtors at the end of the year are 2 crores and in the beginning of the year, they were 8 crores. How is my credit management? <ul><li>My daily average sales = 100/365 = .3 crore per day </li></ul><ul><li>My daily credit sales = 50/365 = .136 crore per day </li></ul><ul><li>Average debtors = (2+8)/2 = 5 crore </li></ul><ul><li>My average collection period: = 5 /.13= 35 (with is approx. 1 month, it is quite reasonable). </li></ul>
  8. 8. My Cash is 1 Lakh, Inventory is 2 lakh, Debtors are 3 lakhs and Creditors are 3 lakhs, OD is 2 Lakhs, CC is 1 Lakh, LC is .5 lakh, PC is .5 lakh. What is my liquidity position? <ul><li>Current assets = 6 lakh </li></ul><ul><li>Current liability = 7 Lakh </li></ul><ul><li>Current ratio = 6/7 = .8 (should be >2:1) </li></ul><ul><li>Liquidity ratio = 4/7 = .57 (must be >1) </li></ul><ul><li>Both are extremely bad, and I have to immediately take WCTL or bring additional capital / debt to avoid crisis. </li></ul>
  9. 9. My EBIT are 20 crores, I have Equity of 40 crores and 10%Debt of 60 crores. How are my returns? Tax=.3 <ul><li>EBIT – I – T = PAT or EAT </li></ul><ul><li>PAT = (20-6)=14*.7 = 9.8 </li></ul><ul><li>ROE = 9.8/40 = .245 or 24.5% returns </li></ul><ul><li>ROCE = 20/100 = .2 or 20% </li></ul><ul><li>ROI = (9.8+6)/100 = .158 or 15.8% </li></ul><ul><li>These are reasonable returns. </li></ul>
  10. 10. I am planning to start a new business. I shall get raw material on 1 month credit. I shall sell at 2 month credit. My GP ratio is 25%, my expected sales in first year is 10 Lakh. Raw material is 50% of cost, Labour cost is 30% of cost. What is my working capital requirement? <ul><li>My cost of goods sold is 10*100/125 = 8 </li></ul><ul><li>Raw material = 4, Labour 2.4 other expenses = 1.6. </li></ul>
  11. 11. Computation of working capital requirements: <ul><li>-Raw material = 4*1/12 (creditors) </li></ul><ul><li>-Labour 2.4*1/12 (liability) </li></ul><ul><li>Cash = (we assume) = 1.6*1/12 </li></ul><ul><li>Inventory of raw material = 4*1/12 </li></ul><ul><li>Inventory = (we assume) =8*1/12 </li></ul><ul><li>Sales (debtors) = 8*2/12 </li></ul><ul><li>Working capital = ? </li></ul><ul><li>Gross WC, = ? Net working capital =? </li></ul><ul><li>Thus on an average we have ? lakh of funds </li></ul>
  12. 12. We have issued 1 lakh shares. We have taken debt of Rs. 20 Lakhs. Market price per share is now 205. What is value of my company? <ul><li>Value of equity = 205 * 1 lakh </li></ul><ul><li>= 205 lakhs </li></ul><ul><li>Debt = 20 lakh </li></ul><ul><li>Total value of firm is 225 Lakhs Ans. </li></ul>
  13. 13. We have issued 1 lakh shares. We have taken 15% debt of Rs. 20 Lakhs. Investors expect 20% return. This year we have earned Rs. 12 Lakhs . Tax rate = 40% What is value of my company? <ul><li>EBIT= 12 lakh, EBT=-12 interest = 9 Lakh </li></ul><ul><li>EAT = Deduct tax = 9*.6 = 5.4 lakhs </li></ul><ul><li>Value of equity = 5.4/.2 = 27 lakhs. </li></ul><ul><li>Value of Debt = 20 lakhs </li></ul><ul><li>Total value = 47 Lakhs. </li></ul>
  14. 14. We have issued 1 lakh shares. We have taken 15% convertible debenture of Rs. 20 Lakhs. Investors expect 20% return. This year we have earned Rs. 12 Lakhs . Tax rate = 40%Should we convert debt into equity to increase value? <ul><li>The value of the firm is 47 Lakhs. If we have all equity, the value of the firm will be as: </li></ul><ul><li>EAT = 12*.6 =7.2 </li></ul><ul><li>Value = 7.2 /.2 = 36 lakh (the value is reducing, so we should not convert). </li></ul>
  15. 15. We have issued 1 lakh shares. We have taken 15% convertible debenture of Rs. 20 Lakhs. Investors expect 20% return. We want to take additional Debt of Rs. 20 Lakh at 18%, Investors’ expectation will go up to 25%. Earnings will increase by 10%. Should we go for it?(EBIT 12 laksh) <ul><li>EBT = 13.2 – (3+3.6) = 6.6 </li></ul><ul><li>EAT = 6.6*.6 = 3.96 </li></ul><ul><li>Equity value = 3.96/.25 = 15.84 </li></ul><ul><li>Debt = 40. Total value = 55.84 </li></ul><ul><li>Total value has increased, we can go for it. </li></ul>
  16. 16. ABOUT AFTERSCHOOOL <ul><li>Afterschoool conducts three year integrated PGPSE (after class 12 th along with IAS / CA / CS ) and 18 month PGPSE (Post Graduate Programme in Social Entrepreneurship) along with preparation for CS / CFP / CFA /CMA / FRM . This course is also available online also. It also conducts workshops on social entrepreneurship in schools and colleges all over India – start social entrepreneurship club in your institution today with the help from afterschoool and help us in developing society. </li></ul>
  17. 17. Why such a programme? <ul><li>To promote people to take up entrepreneurship and help develop the society </li></ul><ul><li>To enable people to take up franchising and other such options to start a business / social development project </li></ul><ul><li>To enable people to take up social development as their mission </li></ul><ul><li>To enable people to promote spirituality and positive thinking in the world </li></ul>
  18. 18. Who are our supporters? <ul><li>Afterschoolians, our past beneficiaries, entrepreneurs and social entrepreneurs are supporting us. </li></ul><ul><li>You can also support us – not necessarily by money – but by being promotor of our concept and our ideas. </li></ul>
  19. 19. About AFTERSCHOOOL PGPSE – the best programme for developing great entrepreneurs <ul><li>Most flexible, adaptive but rigorous programme </li></ul><ul><li>Available in distance learning mode </li></ul><ul><li>Case study focused- latest cases </li></ul><ul><li>Industry oriented practical curriculum </li></ul><ul><li>Designed to make you entrepreneurs – not just an employee </li></ul><ul><li>Option to take up part time job – so earn while you learn </li></ul><ul><li>The only absolutely free course on internet </li></ul>
  20. 20. Workshops from AFTERSCHOOOL <ul><li>IIF, Delhi </li></ul><ul><li>CIPS, Jaipur </li></ul><ul><li>ICSI Hyderabad Branch </li></ul><ul><li>Gyan Vihar, Jaipur </li></ul><ul><li>Apex Institute of Management, Jaipur </li></ul><ul><li>Aravali Institute of Management, Jodhpur </li></ul><ul><li>Xavier Institute of Management, Bhubaneshwar </li></ul><ul><li>Pacific Institute, Udaipur </li></ul><ul><li>Engineering College, Hyderabad </li></ul>
  21. 21. Flexible Specialisations: <ul><li>Spiritualising business and society </li></ul><ul><li>Rural development and transformation </li></ul><ul><li>HRD and Education, Social Development </li></ul><ul><li>NGO and voluntary work </li></ul><ul><li>Investment analysis,microfinance and inclusion </li></ul><ul><li>Retail sector, BPO, KPO </li></ul><ul><li>Accounting & Information system (with CA / CS /CMA) </li></ul><ul><li>Hospital management and Health care </li></ul><ul><li>Hospitality sector and culture and heritage </li></ul><ul><li>Other sectors of high growth, high technology and social relevance </li></ul>
  22. 22. Salient features: <ul><li>The only programme of its kind (in the whole world) </li></ul><ul><li>No publicity and low profile course </li></ul><ul><li>For those who want to achieve success in life – not just a degree </li></ul><ul><li>Indepth knowledge and expertise </li></ul><ul><li>Professional approac: World class approach </li></ul><ul><li>Strong intellectual and business capabilities </li></ul><ul><li>Flexible – you may stay for a month and continue the rest of the education by distance mode. / you may attend weekend classes </li></ul><ul><li>Scholarships for those from poor economic background </li></ul><ul><li>Latest and constantly changing curriculum – keeping pace with the time </li></ul><ul><li>Placement for those who are interested </li></ul><ul><li>Admissions open throughout the year </li></ul><ul><li>Latest and most advanced technologies, books and study material </li></ul>
  23. 23. Components <ul><li>Pedagogy curriculum and approach based on IIM Ahmedabad and ISB Hyderabad (the founder is alumnus from IIMA & ISB Hyderabad) </li></ul><ul><li>Meditation, spiritualisation, and self development </li></ul><ul><li>Essential softwares for business </li></ul><ul><li>Business plan, Research projects </li></ul><ul><li>Participation in conferences / seminars </li></ul><ul><li>Workshops on leadership, team building etc. </li></ul><ul><li>Written submissions of research projects/articles / papers </li></ul><ul><li>Interview of entrepreneurs, writing biographies of entrepreneurs </li></ul><ul><li>Editing of journals / newsletters </li></ul><ul><li>Consultancy / research projects </li></ul><ul><li>Assignments, communication skill workshops </li></ul><ul><li>Participation in conferences and seminars </li></ul><ul><li>Group discussions, mock interviews, self development diaryng </li></ul><ul><li>Mind Power Training & writing workshop (by Dr. T.K.Jain) </li></ul>
  24. 24. Pedagogy <ul><li>Case analysis, </li></ul><ul><li>Articles from Harvard Business Review </li></ul><ul><li>Quiz, seminars, workshops, games, </li></ul><ul><li>Visits to entrepreneurs and industrial visits </li></ul><ul><li>Presentations, Latest audio-visuals </li></ul><ul><li>Group discussions and group projects </li></ul><ul><li>Periodic self assessment </li></ul><ul><li>Mentoring and counselling </li></ul><ul><li>Study exchange programme (with institutions out of India) </li></ul><ul><li>Rural development / Social welfare projects </li></ul>
  25. 25. Branches <ul><li>AFTERSCHOOOL will shortly open its branches in important cities in India including Delhi, Kota, Mumbai, Gurgaon and other important cities. Afterschooolians will be responsible for managing and developing these branches – and for promoting social entrepreneurs. </li></ul>
  26. 26. Case Studies <ul><li>We want to write case studies on social entrepreneurs, first generation entrepreneurs, ethical entrepreneurs. Please help us in this process. Help us to be in touch with entrepreneurs, so that we may develop entrepreneurs. </li></ul>
  27. 27. Basic values at afterschoool <ul><li>Share to learn more </li></ul><ul><li>Interact to develop yourself </li></ul><ul><li>Fear is your worst enemy </li></ul><ul><li>Make mistakes to learn </li></ul><ul><li>Study & discuss in a group </li></ul><ul><li>Criticism is the healthy route to mutual support and help </li></ul><ul><li>Ask fundamental questions : why, when, how & where? </li></ul><ul><li>Embrace change – and compete with yourself only </li></ul>
  28. 28. www.afterschoool.tk social entrepreneurship for better society