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Financial Statements
Financial statements provide information about the
financial activities and position of a firm.
Important financial statements are:
Balance sheet
Profit & Loss statement
Funds flow statement
Cash flow statement
Balance Sheet
Balance sheet indicates the financial condition of a
firm at a specific point of time. It contains information
about the firms: assets, liabilities and equity.
Assets are always equal to equity and liabilities:
Assets = Equity + Liabilities
Assets
Assets are economic resources or properties owned
by the firm.
There are two types of assets:
Fixed assets
Current assets
Current Assets
Current assets (liquid assets) are those which can
be converted into cash within a year in the normal
course of business. Current assets include:
Cash and bank balance
Accounts receivable (debtors)
Inventory (stocks)
Advances to suppliers
Prepaid expenses
Fixed Assets
Fixed assets are long-term assets.
Tangible fixed assets are physical assets like
plant.
Intangible fixed assets are the firms rights and
claims, such as patents, copyrights, goodwill etc.
Gross block represent all tangible assets at
acquisition costs.
Net block is gross block net of depreciation.
Liabilities
Liability is a firms obligation to pay cash or provide
goods or services in the future. Two types of liabilities
are:
Current liabilities
Long-term liabilities
Current Liabilities
Current liabilities are payable within a year in the
normal course of business. They include:
Accounts payable (creditors)
Outstanding expenses
Advances from customers
Provision for tax
Provision for dividend
Long-term Liabilities
Long-term liabilities are payable after a year. They
include:
Borrowings from financial institutions and banks
etc.
Debentures/bonds:
Non-convertible
Fully convertible
Partly convertible
Nature of Revenues
Revenue is the amount received or receivable within
the accounting period from the sale of the firms goods
or services.
Operating revenue is the one that arises from main
operations of the firm, and the revenue arising from
other activities is called non-operating revenue.
Nature of Expenses
Expense is the amount paid or payable within the
accounting period for generating revenue.
Examples: raw material consumed, salary and
wages, power and fuel, repairs and maintenance,
rent, selling and marketing expenses, administrative
expenses.
Expenses are expired costs and capital expenditures
represent un-expired costs and appear as assets in
balance sheet.
Depreciation
Depreciation is a charge for the use of fixed assets;
it is an expense. It is a non-cash expense since cash
was paid at the time fixed assets were acquired.
Expenditures incurred on acquiring assets are called
capital expenditures. Depreciation is allocation of
these expenditures over the life of assets that have
helped in generating revenue.
Methods of Depreciation
Depreciation may be provided on
straight line basis or
written down value basis (DWV). DWV basis is
allowed for taxation in India.
Concepts of Profit
Gross profit = sales cost of goods sold (CGS)
CGS = raw material consumed + manufacturing
expenses of goods that have been sold
PBDIT = Profit before dep., interest and tax
= sales expenses, except dep., interest and tax
PBIT= Profit before interest and tax
= PBDIT DEP
PBT= Profit before tax = PBIT Interest
PAT = Profit after tax = PBT Tax
2005
Rs. Crore
2004
33.09
2047.22
2080.31
0.00
2080.31
33.08
1,356.56
1389.6392
0.00
1389.64
33.08
800.23
833.30
0.00
833.30
960.6
393.03
567.57
150.67
718.24
44.44
24.22
631.14
244.13
387.01
170.65
557.66
34.12
0.00
284.03
133.65
150.38
56.96
207.34
13.83
0.00
336.73
772.22
643.87
1752.82
126.11
333.3
1293.41
2080.31
302.37
385.06
430.28
1,117.71
134.92
184.93
797.86
1,389.64
136.18
431.79
210.13
778.10
67.15
98.82
612.13
833.30
Rs crore
2005
2,552.47
51.12
2,603.59
1,874.03
26.54
1,900.57
1,224.82
1,378.77
129.79
211.35
341.14
1,037.63
0.00
160.65
876.98
66.41
0.00
943.39
135.43
807.96
0.00
807.96
807.96
870.83
1,029.74
92.07
172.82
264.89
764.85
0.00
112.89
651.96
59.37
15.29
696.04
72.71
623.33
5.49
628.82
628.82
132.36
49.63
82.73
5.06
670.54
807.96
66.16
16.54
49.62
8.70
553.96
628.82
Financial Ratios
2006
2005
Activity Ratios
Income/Assets
Income/Debtors
1.25
7.73
1.37
6.29
Current Ratios
CA/CL
CA/Assets
NCA/Assets
3.82
0.84
0.62
3.49
0.80
0.57
39.85%
33.68%
31.03%
40.24%
34.30%
32.80%
49.88%
42.16%
38.84%
55.04%
46.92%
44.86%
Profitability Ratios
Margin
PBDIT/Income
PBIT/Income
PAT/Income
Return on Investment
PBDIT/Assets
PBIT/Assets
PAT/NW
Rs crore
2006
2005
978.07
244.3
746.77
1969.14
901.55
96.46
874.08
1872.09
4989.26
630.09
5619.35
7588.49
3582.6
1088.29
4670.89
6542.98
3470.36
704.01
2766.35
2093.31
1715.74
6575.4
130.87
1640.28
498.14
1142.14
2740.66
2231.85
6114.65
135.79
257.37
389.69
53.9
1018.31
1719.27
259.48
250.4
77.7
907.61
1495.19
1150.7
18.86
1169.56
549.71
134.37
1185.39
18.61
1204
291.19
1.35
198.14
7588.49
_
6542.98
2238.89
25.18
2264.07
3.95
3.95
823.04
7.77
43.99
269.94
890.84
345.96
206.33
15.32
2576.5
312.43
0.03
312.46
100.52
1425.48
11.65
1437.13
33.7
33.7
778.15
9.32
21.79
118.83
306.72
100.13
79.89
15.32
1433.21
3.92
0.32
0.07
3.67
106.59
8.09
0.73
13.07
-198.14
_
118.35
_
-198.14
-198.14
17.83
100.52
118.35
Cash Flow
Liquidity refers to resources currently available with the
firm. It is reflected by the cash flows rather than the
stock of current assets and liabilities.
Cash flow is a change in the firms cash position. Cash
flows occur due to changes in items in the balance
sheet and profit & loss statement. Thus liquidity
analysis involves measurement of changes in assets,
liabilities and equity.
2005
ASSETS
Cash
Debtors
Stock (inventory)
Total current assets
Fixed assets (net)
Other assets
Total Assets
LIABILITIES & NET WORTH
Bank borrowing
Creditors
Provision for taxes
Accrued expenses
Total current liabilities
Long-term debt
Total liabilities
Paid-up share capital
Reserves and surplus
Total Liabilities
2006
(Rs 000)
Change
54
6,750
10,125
16,929
2,970
945
20,844
135
8,235
22,680
31,050
6,075
1,890
39,015
81
1,485
12,555
14,121
3,105
945
18,171
3,510
2,835
270
810
7,425
1,944
9,369
8.37
3,105
20,844
8,664
6,615
972
2,700
18.951
1,404
20,355
8,370
10,290
39,015
5,154
3,780
702
1,890
11,526
-540
10,986
7,185
18,171