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CAIIB - Financial Management - Module

The document provides an overview of balance sheet analysis and profit and loss account concepts. It discusses the key components of the balance sheet including sources of funds like capital, reserves, liabilities and uses of funds like assets. It also explains various line items under these categories. For profit and loss account, it describes the components of sales, costs, expenses and derivation of gross profit, operating profit and net profit.

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Santosh
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1K views

CAIIB - Financial Management - Module

The document provides an overview of balance sheet analysis and profit and loss account concepts. It discusses the key components of the balance sheet including sources of funds like capital, reserves, liabilities and uses of funds like assets. It also explains various line items under these categories. For profit and loss account, it describes the components of sales, costs, expenses and derivation of gross profit, operating profit and net profit.

Uploaded by

Santosh
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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• CAIIB - Financial Management

• Module B – Study of Financial


Statements
• - Balance Sheet Analysis

• M. Syed Kunmir
BALANCE SHEET ANALYSIS
• Sources of Funds

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

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

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

• Tangible Net Worth


• This refers to the total funds arrived by paid-
up capital , Reserves and P&L Surplus
• Less
• Intagible Assets
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
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
BALANCE SHEET ANALYSIS

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

• Non Current Assets


• Deferred recievables/Overdue recievables(like
disputed amounts and Over Due > 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
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 P&L account
BALANCE SHEET ANALYSIS
• Current Assets
• Raw materials, work-in-progress,finished
goods,spares and consumables
• Sundry debtors and recievables < 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
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
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 company’s management,
the conventions are practiced by the finance
managers of the company.
• ( ex Over due recievable > 6 mths as NCA is a
acccounting convention
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.
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
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
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
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 P&L 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.
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
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
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.
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
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

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