CAIIB%20-%20Financial%20Management

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• CAIIB - Financial Management
• Module B Study of Financial Statements
• - Balance Sheet Analysis
• M. Syed Kunmir

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BALANCE SHEET ANALYSIS

• Sources of Funds

1) Capital 2) Reserves Surplus 3) Term
Liabilities 4) Current Liabilities
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BALANCE SHEET ANALYSIS

• Uses of Funds
• 1) Fixed Assets
• 2) Intangible Asets
• 3) Non Current Assets
• 4) Current Assets

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BALANCE SHEET ANALYSIS

• Capital
• 1) Authorised Capital
• 2) Issued Capital
• 3) Subscribed Capital
• 4) Paid-up Capital

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BALANCE SHEET ANALYSIS

• Reserves
• 1) Subsidy Received From The Govt
• 2) Development Rebate reserve
• 3) Revaluation of fixed assets
• 4) Issue of Shares at Premium
• 5) General Reserves
• Surplus
• The credit balance in profit and loss account

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BALANCE SHEET ANALYSIS

• Tangible Net Worth
• This refers to the total funds arrived by paid-up
  capital , Reserves and PL Surplus
• Less
• Intagible Assets

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BALANCE SHEET ANALYSIS

• Term Liabilities
• Redeemable preference shares
• Debentures
• Deferred payment gaurantees
• Public Deposits(Repayable after 12 months)
• Term loans and unsecured loans from friens,
  relatives,directors repayable over a period of
  time
• Remark The company can raise public deposits to
  the extent of 25 of paid up capital plus free
  reserves and 10 from share holders for the
  maturity period ranging from 6 months to 3 yrs

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BALANCE SHEET ANALYSIS

• Current Liabilities
• Working capital bank borrowings
• T.loans deferred credit inst falling due in 12
  mths
• public deposits maturing within 12 months
• unsecured loans, unless the repayment is on
  deferred terms
• sundry creditors
• advances from dealers and customers
• interest accrued but not paid
• tax provisions
• Dividend declared and payable

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BALANCE SHEET ANALYSIS

• Contingent Liabilities
• Tax disputes
• Legal litigations
• Bills and cheques discounted with banks
• Claims against the company not acknowledged

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BALANCE SHEET ANALYSIS

• Fixed Assets
• Infrastructure like land building
• plant machinery
• Vehicles
• Furniture fixtures
• Depreciation
• Straight line method
• Written down Value Method
• Remark Dep added to profit to arrive repayment
  obligation especially in term loans

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BALANCE SHEET ANALYSIS

• Investments
• 1) Shares And Securities
• 2) Associate Companies
• 3) Fixed deposits with banks/finance companies
• Remark While analysing bal sheet we can analyse
  necessity of such investments
• Remark While fixed deposits with banks are
  considered as fixed assets, the investmetns in
  associate concerns are treated as non current
  assets.

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BALANCE SHEET ANALYSIS

• Non Current Assets
• Deferred recievables/Overdue recievables(like
  disputed amounts and Over Due gt 6 mths)
• Non moving stocks/inventory/un usable spares
• Investment/Lending to associate concern
• Borrowing of the directors from the company
• Telephone deposits/ ST deposits etc

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BALANCE SHEET ANALYSIS

• Intangible Assets
• Preliminary Preoperative expenses
• Deferred Revenue Expenditure
• Goodwill
• Trade mark
• Patents
• Rem The o/s balance to be written off every
  year by charging PL account

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BALANCE SHEET ANALYSIS

• Current Assets
• Raw materials, work-in-progress,finished
  goods,spares and consumables
• Sundry debtors and recievables lt 6 mths
• Advances paid to suppliers of raw materials
• Cash and bank balances
• Interest recievables
• Other current assets such as Government
  securities, Bank deposits ..etc

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BALANCE SHEET ANALYSIS

• Notes
• All expenses or provisions or advances or loans
  etc which are accrued and payable within 12
  months are current liablities
• When a company makes investments in unconnected
  avenues such as shares, securites, associate
  concerns are to be treated as non cur ast
• The slow moving and absolete inventory - NCA

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BALANCE SHEET ANALYSIS

• Notes
• Bal Sh Analy not only to be quantitative but to
  be qualitative
• It is the fin pos on a part date. Min three
  years bal sh ana would be more meaningful
• It is a mixture of facts, opinions and
  conventions
• While opinions are of the companys management,
  the conventions are practiced by the finance
  managers of the company.
• ( ex Over due recievable gt 6 mths as NCA is a
  acccounting convention

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BALANCE SHEET ANALYSIS

• Notes
• The valuation of the stock is done as per the
  opinion of the management
• Depreciation method may be changed to boost
  profit
• It may be silent on key personnel and staff
  turnover
• Marginal changes in the classification of certain
  items would lead to different results.

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BALANCE SHEET ANALYSIS

• Notes
• Management competence
• Investment decision
• Resorting to window dressing
• experience of the promoters
• Board comprises of only family members
• The key personnel of the company
• The structure of the organisation
• The authority and decision making are
  decentralised

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BALANCE SHEET ANALYSIS

• Notes
• The state of industrial relations
• Financial systems and procedures
• management control
• planning, budgeting, forecasting
• capacity utilisation
• status of the technology
• awareness of the market, competitions ..etc
• for listed co share prices, EPS, book value,
  dividend record, public response ..etc

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Profit Loss Account

• It is a summary of revenue earned and expenses
  incurred which ultimately results in profit or
  loss of to the company
• No defined format in law
• Operating revenue Sales revenue
• Non_operating revenue Other income ( out of
  sale of investments, interest, commission and
  discount etc)
• Hence operating profit is a yard stick for
  operating profit of the company
• Operating profit Sales Revenue- Operating Cost

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Profit Loss Account

• Gross Sales
• Gross sales includes excise duty to be charged to
  the customer, central sales tax applicable, state
  sales tax applicable, the discount o be allowed
  to distributors/dealers/customers. The gross
  sales appears in the PL account comprises of all
  the above part from the basic unit price.
• Net Sales
• The sales figure excluding all the factors
  explained above are the net sales.

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Profit Loss Account

• Cost of production
• This is the cost incurred right from the
  procurement of raw material to the finished good.
• For ex in a garment firm following cost is
  incurred while production
• 1) cost of raw material cloth, buttons, canvas,
  hooks, zips etc
• 2) Maintenace of sewing machines
• 3) payment of wages to workers
• 4) power
• 5) washing, ironing,packing etc.
• Cost of Prod exclu selling admn exp int cost

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Profit Loss Account

• Selling And General Administarative Expenses
• Maintaining office staff for admn acctg
• marketing effort
• payment of salaries/Tr All to marktg personnel
• All the expenses which are not directly connected
  to manufacturing are classifed as selling and/or
  general expenses

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Profit Loss Account

• Cost of goods sold
• Cost of goods sold includes all manufacturing
  expenses and the adjustments for opening and
  closing stock
• Cost of Goods sold Opening stock Purchases
  Manufacturing expenses - Closing stock
• Gross Profit is arrived deducting figure of cost
  of goods sold from the sales figure
• ie Gross profit Sales - Cost of goods sold.

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Profit Loss Account

• Operating Profit is arrived deducting selling,
  administrative and general expenses , provision
  for bad debts, interest and miscellaneous
  expenses from the gross profit.
• ie Op Profit Gr Prof - (Sel adm exp Prov
  bad debt mis exp )
• Profit Before Tax When other income is added and
  other expenses are deducted from the operating
  profit we get profit before Tax
• ie PBT Op Profit oth Inc - oth exp
• Net Profit When provision for taxes is deducted
  from the Profit Before Tax we get Net profit
• ie Net Profit PBT - taxes

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Profit Loss Account

• Non Operating Income/Expenses
• The income earned by the unit from other than
  manufacturing and seling operations is classified
  under this head . i.e
• a) Interest earned on fixed deposits
• b) Dividends and profit earned by sale
  of assets and share.
• All those expenses which are not directly
  connected with operations of the unit are
  classified under this head. i.e
  
• a) Preliminary expenses written off
• b) Loss suffered due to sale of
  assets share