Financial Statement #1 - 2010

8/3/2019 Financial Statement #1 - 2010

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FINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSIS


Have you ever wondered what an

analyst does with the financialstatements of a company?


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Do you believe that the financial position of a

company as revealed by its financial statements

is as clear as a blue sky without any clouds?


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A good growth of a company in the recent past impliesA good growth of a company in the recent past implies

the same story in future and hence, it represents athe same story in future and hence, it represents a

good investment opportunity!!! Will you like to grab it?good investment opportunity!!! Will you like to grab it?


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Do not you ever wonder that a company isDo not you ever wonder that a company is

earning good profits but they have no money toearning good profits but they have no money to

pay any dividend to the shareholders??!!!!!!!!!pay any dividend to the shareholders??!!!!!!!!!


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And, so on


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If you are really and seriously

looking answers of all these

Then ...


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Dr. C. P. Gupta

Professor, Department of Financial Studies,South Campus, University of Delhi.


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FINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSIS

HumbleHumble objectivesobjectives of the Course are make the participants comfortable with the mysteries lying

behind the financial numbers contained in financial statements.

make the participants aware of the properties of numbersderived from financial statements.

equip the participants with necessary tools and techniques toderive meaningful information to make sound decisions thatrequire use of information from financial statements.

allow the participants to explore and fathom out the strengthsand limitations of the numbers derived from financialstatements.


9/62Our FIRST STEP is Our FIRST STEP is


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TowardsTowards

Understanding..


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Financial Statement Analysis

Financial Statement Analysis comprises alltechniques employed by users of financialstatements to show important relationships inthe financial statements so as to understandbusiness and make decisions in a better way.

is a process of evaluating the relationship

between components parts of financialstatements to obtain a better understandingof a firms financial position and performance.


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Steps in Financial Statement Analysis

First StepSelect Information relevant to

decision under consideration

Second StepProcess the information to

Highlight significant relationships

Third StepInterpret and draw

Necessary inferences


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Who are the people doing Financial Statement Analysis?

Two sets of people

INTERNAL USERS

EXTERNAL USERS


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What is the source of information for the EXTERNAL

PEOPLE?

External users relyExternal users relyon publiclyon publicly--availableavailableinformation toinformation to

perform financialperform financialanalysisanalysis

Such information isSuch information iscontained in acontained in acompanys annualcompanys annual

reportreport


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THREE BASIC FINANCIAL STATEMENTS

1

Annual Report contains


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FOOTNOTES/SCHEDULES TO THE

FINANCIAL STATEME

NT

S

1

2



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FINANCIAL STATEME

NT

S

SUMMARY OF ACCOUNTING METHODS

1

2

3



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FINANCIAL ST

ATEME

NT

S


MANAGEMENTS DISCUSSION AND

ANALYSIS OF FINANCIAL STATEMENTS

1

2

3

4



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FOUR BASIC FINANCIAL STATEMENTS


FINANCIAL ST

ATEME

NT

S




AUDITORS REPORT

1

2

3

4

5



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EXAMPLE #1.


1


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EXAMPLE #1.


1


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EXAMPLE #1.


1


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EXAMPLE #2.


FINANCIAL STATEMENTS

2


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EXAMPLE #3.

SUMM

ARY

OF ACCOU

NT

INGMETH

OD

S 3


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EXAMPLE #4.



4


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EXAMPLE #5.

AUDITORS REPORT

5


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EXAMPLE #6.

COMP

AR

AT

IVE

FINANCIALD

AT

A FOR

ASERIES OF YEARS

6


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Now, we are ready with ALL NECESSARY BAGGAGE OF

FINANCIAL INFORMATION.


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And, proceed for understanding

financial statements of Tata Steel


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Particulars 2008 2009 2010

SOURCES OF FUNDS:

SHAREHOLDER'S FUNDS

Share Capital 6,203.30 6,203.45 887.41

Share Warrants

Reserves and Surplus 21,097.43 23,972.81 36,074.39

Total Shareholders' Fund 27,300.73 30,176.26 36,961.80

LOAN FUNDS

Secured Loans 3,520.58 3,913.05 2,259.32

Unsecured Loans 14,501.11 23,033.13 22,979.88

18,021.69 26,946.18 25,239.20

DEFERRED TAXLIABILITY (NET) 681.80 585.73 867.67

PROVISION FOREMPLOYEESEPARATION

COMPENSATION 1,071.30 1,033.60 957.16

TOTAL 47,075.52 58,741.77 64,025.83

(Rs. in Crores)

BALANCE SHEET OF TATA STEELLIMITEDAS AT 31STMARCH


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SOURCES OF FUNDS:

SHAREHOLDER'S FUNDS

Share Capital 6,203.30 6,203.45 887.41

Share Warrants



LOAN FUNDS

Secured Loans 3,520.58 3,913.05 2,259.32

Unsecured Loans 14,501.11 23,033.13 22,979.88

18,021.69 26,946.18 25,239.20



COMPENSATION 1,071.30 1,033.60 957.16

TOTAL 47,075.52 58,741.77 64,025.83

(Rs. in Crores)



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BALANCE SHEETOF TATA STEELLIMITEDAS AT 31STMARCH

(Rs. in Crores)


SOURCES OF FUNDS:

SHAREHOLDER'S FUNDS

Share Capital 580.67 6,203.30 6,203.45

Share Warrants 147.06



LOAN FUNDS

Secured Loans 3,758.92 3,520.58 3,913.05

Unsecured Loans 5,886.41 14,501.11 23,033.13

9,645.33 18,021.69 26,946.18


PROVISION FOREMPLOYEESEPARATIONCOMPENSATION 1,107.08 1,071.30 1,033.60

TOTAL 25,597.50 47,075.52 58,741.77


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SOURCES OF FUNDS:

SHAREHOLDER'S FUNDS

Share Capital 6,203.30 6,203.45 887.41

Share Warrants



LOAN FUNDS

Secured Loans 3,520.58 3,913.05 2,259.32

Unsecured Loans 14,501.11 23,033.13 22,979.88

18,021.69 26,946.18 25,239.20



COMPENSATION 1,071.30 1,033.60 957.16

TOTAL 47,075.52 58,741.77 64,025.83

(Rs. in Crores)



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SOURCES OF FUNDS:

SHAREHOLDER'S FUNDS

Share Capital 6,203.30 6,203.45 887.41

Share Warrants



LOAN FUNDS

Secured Loans 3,520.58 3,913.05 2,259.32

Unsecured Loans 14,501.11 23,033.13 22,979.88

18,021.69 26,946.18 25,239.20



COMPENSATION 1,071.30 1,033.60 957.16

TOTAL 47,075.52 58,741.77 64,025.83

(Rs. in Crores)



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SOURCES OF FUNDS:

SHAREHOLDER'S FUNDS

Share Capital 6,203.30 6,203.45 887.41

Share Warrants



LOAN FUNDS

Secured Loans 3,520.58 3,913.05 2,259.32

Unsecured Loans 14,501.11 23,033.13 22,979.88

18,021.69 26,946.18 25,239.20



COMPENSATION 1,071.30 1,033.60 957.16

TOTAL 47,075.52 58,741.77 64,025.83

(Rs. in Crores)



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SOURCES OF FUNDS:

SHAREHOLDER'S FUNDS

Share Capital 6,203.30 6,203.45 887.41

Share Warrants



LOAN FUNDS

Secured Loans 3,520.58 3,913.05 2,259.32

Unsecured Loans 14,501.11 23,033.13 22,979.88

18,021.69 26,946.18 25,239.20



COMPENSATION 1,071.30 1,033.60 957.16

TOTAL 47,075.52 58,741.77 64,025.83

(Rs. in Crores)





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SOURCES OF FUNDS:

SHAREHOLDER'S FUNDS

Share Capital 6,203.30 6,203.45 887.41

Share Warrants



LOAN FUNDS

Secured Loans 3,520.58 3,913.05 2,259.32

Unsecured Loans 14,501.11 23,033.13 22,979.88

18,021.69 26,946.18 25,239.20



COMPENSATION 1,071.30 1,033.60 957.16

TOTAL 47,075.52 58,741.77 64,025.83

(Rs. in Crores)





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Innovative Ways ofFunding

Share WarrantsShare Warrants a way to keep a Source ofFunds readyfor any future requirement.

Right IssueRight Issue a quicker way of raising funds as compared to

general public issue and with some kind of underwriting fromTata Sons.

2% Cumulative Convertible Preference Shares2% Cumulative Convertible Preference Shares away to keep a least pressure on companys cash flows.

Foreign Currency Convertible AlternativeForeign Currency Convertible AlternativeReference SecuritiesReference Securities carrying a coupon of 1% p.a. and ifit is to be redeemed then, it will be redeemable at a premium of23.34% of the principal amount.


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WHAT NEXT IN OURWHAT NEXT IN OUR

AGENDA?AGENDA?




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Share Warrants

The preferential issue of equity shares/ Fully Convertible

Debentures (FCDs)/ Partly Convertible Debentures (PCDs) or

any other financial instruments which would be converted into

or exchanged with equity shares at a later date, by listed

companies whose equity share capital is listed on any stockexchange, to any select group of persons under Section 81(1A)

of the Companies Act 1956 on private placement basis shall be

governed by these guidelines.

An amount equivalent to at least TWENTY FIVE percent ofthe price fixed as per Chapter-XIII of DISCLOSURE AND

INVESTOR PROTECTION GUIDELINES, SEBI shall become

payable for the warrants on the date of their allotment.




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Share WarrantsPrice

Where the equity shares of a company have been listed on a stockexchange for a period of six months or more as on the relevant date,the issue of shares on preferential basis (other than an issue ofshares on preferential basis to Qualified Institutional Buyers notexceeding five in number,) shall be made at a price not less thanhigher of the following:

i) The average of the weekly high and low of the closing prices of the relatedshares quoted on the stock exchange during the six months preceding therelevant date;

OR

ii) The average of the weekly high and low of the closing prices of the relatedshares quoted on a stock exchange during the two weeks preceding the

relevant date.




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Security Premium Account

The Securities Premium Account may be applied by the

company-

(a) in paying up unissued shares of the company to be issued

to members of the company as fully paid bonus shares;

(b) in writing off the preliminary expenses of the company;

(c) in writing off the expenses of, or commission paid or

discount allowed on, any issue of shares or debentures of

the company; or

(d) in providing for the premium payable on the redemption of

any redeemable preference shares or of any debentures of

the company.




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Deferred Tax Assets/Deferred Tax Liabilities

ACCOUNTING STANDARD 22:

The differences between taxable income and accounting income can be classified into

PERMANENT DIFFERENCES and TIMINGDIFFERENCES.

PermanentPermanent differencesdifferences areare thosethose differencesdifferences betweenbetween taxabletaxable incomeincomeandand accountingaccounting incomeincome whichwhich originateoriginate inin oneone periodperiod andand dodo notnotreversereverse subsequentlysubsequently..

TimingTiming differencesdifferences areare thosethose differencesdifferences betweenbetween taxabletaxable incomeincome andandaccountingaccounting incomeincome forfor aa periodperiod thatthat originateoriginate inin oneone periodperiod andand areare

capablecapable ofof reversalreversal inin oneone oror moremore subsequentsubsequent periodsperiods.. TheThe taxtax effectseffects ofof timingtiming differencesdifferences areare includedincluded inin thethe taxtax expenseexpense inin thethe

statementstatement ofof profitprofit andand lossloss;; andand asas deferreddeferred taxtax assetsassets oror asas deferreddeferred taxtax liabilities,liabilities,

inin thethe balancebalance sheetsheet..




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Look at the following information and suggest what

should be the cost of plant and machinery purchased!!!!!

Suggest at what cost the

asset will be shown in the

Balance Sheet.




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What is the difference between

Depreciation

Amortization

Depletion

Impairment




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All assets are subject todepreciation except

freehold land.




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Impairment Loss (AS-28)

An enterprise should assess at each balance sheet date

whether there is any indication that an asset may be

impaired. If any such indication exists, the enterprise

should estimate the recoverable amount of the asset.

An impairment loss is the amount by which the carrying

amount of an asset exceeds its recoverable amount.

This Standard defines recoverable amount as the higher

of an assets net selling price and value in use.




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Accounting for Investments(AS 13)Accounting for Investments(AS 13)

InvestmentsInvestments are assets held by an enterprise for earning income by way of

dividends, interest, and rentals, for capital appreciation, or for other benefits to

the investing enterprise. Assets held as stock-in-trade are not 'investments'.

A CurrentCurrentInvestmentInvestment is an investment that is by its nature readily realizableand is intended to be held for not more than one year from the date on which

such investment is made.

A Long Term Investmentis an investment other than a current investment.

An Investment Property is an investment in land or buildings that are not

intended to be occupied substantially for use by, or in the operations of, the

investing enterprise.




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Types ofInvestments(AS 13)Types ofInvestments(AS 13)

Current

Investments

Long Term

Investments




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Current Investments

A current investment is an investment that is by itsnature readily realizable and is intended to be held fornot more than one year from the date on which suchinvestment is made.

The carrying amount for current investments is thelower of cost and fair value. In respect of investmentsfor which an active market exists, market valuegenerally provides the best evidence of fair value.

For current investments, any reduction to fair value and anyreversals of such reductions are included in the profit and lossaccount.




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Long-Term Investment

A long term investment is an investment otherthan a current investment.

Long-term investments are usually carried at cost.However, when there is a decline, other thantemporary, in the value of a long term investment, thecarrying amount is reduced to recognize the decline.

Where there is a decline, other than temporary, in the carryingamounts of long term investments, the resultant reduction inthe carrying amount isis chargedcharged toto thethe profit profit andand losslossstatementstatement..




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Disclosure AS 13

Investments should be disclosed in

financial statements as the aggregateamount of quotedquoted andand unquotedunquoted

investmentsinvestments , giving the aggregate

market value of quoted investments.




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ACCOUNTING FOR CHANGES IN

FOREIGN EXCHANGE RATES (AS-11)

AS-11 requires that any exchange differences

arising due to reinstatement/translation/

settlement of monetary items are to be

recognized in Profit and LossAccount.




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The Companies (Accounting Standards) Amendment

Rules, 2009 relating to Accounting Standard (AS) 11:

In respect of accounting periods commencing on or after 7th December, 2006

and ending on or before 31st March, 2011, at the option of the enterprise,

exchange differences arising on reporting of long-term foreign currency

monetary items at rates different from those at which they were initiallyrecorded during the period, or reported in previous financial statements,

insofar as they relate to the acquisition of a depreciable capital asset, can be

added to or deducted from the cost of the asset and shall be depreciated over

the balance life of the asset, and in other cases, can be accumulated in aForeign Currency Monetary Item Translation Difference Account in the

enterprises financial statements and amortized over the balance period of

such long-term asset/liability but not beyond 31st March, 2011, by

recognition as income or expense in each of such periods.




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Whats the difference betweenReserve and Provision?

Provision is charged to Profit and LossAccount where as Reserve is anappropriation of profit.

Provision is charged to Profit and Loss

Account before calculating the net profitor loss, but Reserve can be made onlywhen there is profit.

Provision is created for specificpurpose, while ReserveReserve may be createdfor general purpose as well.

Provision are not invested in outsidesecurities. ReservesReserves reduces divisibleprofit can be invested in outsidesecurities.

Documents

Financial Statement #1 - 2010