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An overview into what needs to be seen while evaluating the financial statements.
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Analysis offinancial statements
CA. Dhruv SethFCA, DISA (ICAI)[email protected]
Coverage of the presentation
• Legal forms of business
• Basic principles of accounting
• Components of financial statements
• Understanding the key elements
• Deciphering the numbers
• Illustrations
Legal Forms
of business
Legal forms of business
• Proprietorship / HUF
• Partnership Firms
• Limited Liability partnerships (LLP)
• Companies Incorporated– Private Limited– Public Limited
• Societies / Trusts
Basic principles
of accounting
Basic principles of accounting
• Accrual
• Matching
• Consistency
• Going Concern
• Disclosure– Prudence– Materiality– Substance over form
Components of
financial
statements
Components of Audited FS
• Balance Sheet
• Profit and Loss
• Cash Flow
• Accounting Policies
• Notes to Accounts
• Board Reports
• Auditors Reports
• Auditors report on CARO
Legal Format and
Understanding
Key elements
Sch III to Companies Act, 2013I. EQUITY AND LIABILITIES AMOUNT
(1) Shareholders’ funds(a) Share capital xxxx.xx
(b) Reserves and surplus xxxx.xx
(c) Money received against share warrants xxxx.xx
(2) Share application money pending allotment xxxx.xx
(3) Non-current liabilities(a) Long-term borrowings xxxx.xx(b) Deferred tax liabilities (Net) xxxx.xx(c) Other Long term liabilities xxxx.xx(d) Long-term provisions xxxx.xx
(4) Current liabilities(a) Short-term borrowings xxxx.xx(b) Trade payables xxxx.xx(c) Other current liabilities xxxx.xx(d) Short-term provisions xxxx.xx
Sch III to Companies Act, 2013II. ASSETS AMOUNT
(1) Non Current Assets(a) Fixed Assets
(i) Tangible assets xxxx.xx(ii) Intangible assets xxxx.xx(iii)Capital work-in-progress xxxx.xx(b) Non-current investments
xxxx.xx(c) Deferred tax assets (net)
xxxx.xx (d) Long-term loans and advances xxxx.xx
(e) Other non-current assets xxxx.xx(2) Current Assets
(a) Current investments xxxx.xx(b) Inventories xxxx.xx(c) Trade receivables xxxx.xx(d) Cash and cash equivalents xxxx.xx(e) Short-term loans and advances xxxx.xx(f) Other current assets xxxx.xx
Particulars Cr. Yr
Pr. Yr.
I. Revenue from operations Xxxxx
Xxxxx
II. Other income Xxxxx
Xxxxx
III. Expenses:• Cost of materials consumed• Employee benefits expense• Finance costs• Depreciation and amortization expense• Other expenses• Total expenses
XxxxxXxxxxXxxxxXxxxxXxxxxXxxxx
XxxxxXxxxxXxxxxXxxxxXxxxxXxxxx
IV. Profit before exceptional and extraordinary items and tax (I + II – III) Xxxx
xXxxxx
V. Exceptional Items Xxxxx
Xxxxx
VI. Profit before extraordinary items and tax (IV – V)
Xxxxx
Xxxxx
Sch III to Companies Act, 2013
Particulars Cr. Yr
Pr. Yr.
VII. Extraordinary Items xxxxx
xxxxx
VIII. Profit Before Tax (VI – VII) xxxxx
xxxxx
IX. Tax expense:(1) Current tax(2) Deferred tax
XxxxxXxxxx
XxxxxXxxxx
X. Profit (Loss) for the period from continuing operations Xxxx
xXxxxx
XI. Profit/(loss) from discontinuing operations
Xxxxx
Xxxxx
XII. Profit/(loss) for the period (X + XI) Xxxxx
Xxxxx
XIII. Earnings per share(1) Basic(2) Dilluted
XxxxxXxxxx
XxxxxXxxxx
Sch III to Companies Act, 2013
Deciphering the
numbers
Ways and Means
• Ratio Analysis– Horizontal– Vertical– Industry Norms
• Cash Flow statement
• Segment Report
• Change in Accounting Policies
• Notes to accounts
Ways and Means
• Report on Corporate Governance
• Board Report
• Deferred Tax Asset / Liability
• Contingent Liabilities
• Consolidated Financial statements
• CARO report
• Auditors report
Where to Invest ?Particulars ABC Ltd XYZ
LtdFixed Assets 10.00 20.00
Inventory 20.00 25.00
Sundry Debtors 35.00 60.00
Cash and Bank 15.00 25.00
Deferred Revenue Expenditure 50.00 0.00
ASSETS TOTAL 130.00 130.00
Share Capital 70.00 60.00
Long Term Loans 40.00 30.00
Current Liabilities 20.00 40.00
LIABILITIES TOTAL 130.00 130.00
Where to Invest ?Particulars ABC Ltd XYZ
LtdEarning Before Interest and Tax 45.00 40.00
Interest 8.00 8.00
Tax 18.00 17.00
Net Profit 19.00 15.00
Balance Sheet - Liabilities
Share Capital 50.00 60.00
Long Term Loans 20.00 30.00
Current Liabilities 60.00 40.00
LIABILITIES TOTAL 130.00 130.00
Industry Average Debt Equity 0.60 0.60
AnalyzeParticulars 2014 2013
Sales 150.00 160.00
Purchases 60.00 55.00
Interest Paid 12.00 15.00
Staff Salary 50.00 48.00
Administrative Expenses 20.00 22.00
Bad Debts 10.00 12.00
Staff Welfare 3.00 9.00
Electricity 6.00 7.00
Opening Stock 35.00 50.00
Closing Stock 55.00 35.00
Debtors 30.00 80.00
Balance Sheet
Other components of Financial statements
THANK YOU
CA Dhruv [email protected]