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UNDERSTANDING ANNUAL REPORTSUNDERSTANDING ANNUAL REPORTS
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An An annualannual reportreport isis aa documentdocument whichwhich aa companycompany presentspresents inin itsits Annual AnnualGeneralGeneral MeetingMeeting for for approvalapproval byby itsits shareholdersshareholders.. ItIt isis intendedintended toto givegive thetheownersowners anan insightinsight intointo thethe performanceperformance of of thethe companycompany duringduring thethe financialfinancialyear year..
ItIt isis aa documentdocument whichwhich cancan provideprovide keykey insightinsight intointo thethe affairsaffairs of of thethe companycompanyif if readread andand understoodunderstood properlyproperly sincesince mostmost oftenoften thanthan notnot itit providesprovides aa rosyrosypicturepicture of of thethe companycompany..
HenceHence itit isis veryvery imperativeimperative thatthat annualannual reportsreports bebe understoodunderstood properlyproperly soso asastoto enableenable thethe user user toto taketake rightright decisiondecision onon anyany aspectaspect of of thethe companycompany..
TheThe detailsdetails providedprovided inin thethe reportreport areare of of useuse toto investorsinvestors inin gaininggaining ananunderstandingunderstanding of of thethe company'scompany's financialfinancial positionposition andand futurefuture directiondirection..
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Contents of an Annual ReportContents of an Annual Report
1. Directors Report1. Directors Report
2. Auditors Report2. Auditors Report
3. Corporate Governance Report3. Corporate Governance Report
4. Financial Statements4. Financial Statements
Balance SheetBalance Sheet
Profit and Loss AccountProfit and Loss Account
Annexures to above Annexures to above
Notes to AccountsNotes to Accounts5. Cash Flow Statement5. Cash Flow Statement
6. Balance Sheet Abstract and general business profile6. Balance Sheet Abstract and general business profile
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Directors ReportDirectors Report
-- Current industrial and economic scenario in which theCurrent industrial and economic scenario in which thecompany is operatingcompany is operating
-- Financial performance of the company for the year Financial performance of the company for the year
-- Dividend declared for the year Dividend declared for the year -- Expansion plans and future growth prospectsExpansion plans and future growth prospects
-- Note on corporate social responsibilityNote on corporate social responsibility
-- Report on energy conservation/technical absorptionReport on energy conservation/technical absorption
-- Employee particulars ( Annexure )Employee particulars ( Annexure )
The above information throws light on the company¶sThe above information throws light on the company¶sphilosophy, future plans, vision.philosophy, future plans, vision.
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Corporate Governance ReportCorporate Governance Report
ThisThis isis aa compliancecompliance reportreport onon corporatecorporate governancegovernance adoptedadopted byby
thethe companycompany
ThisThis reportreport givesgives informationinformation regardingregarding thethe compositioncomposition of of BoardBoardof of DirectorsDirectors ,, existenceexistence of of auditaudit committee,committee, grievancesgrievances committeecommittee
etcetc..
ThisThis reportreport helpshelps thethe user user toto gaugegauge thethe levellevel of of transparencytransparency inin
whichwhich thethe companycompany operatesoperates..
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Auditors ReportAuditors Report
TheThe statutorystatutory auditorsauditors reportreport assuresassures thethe shareholdersshareholders thatthat thethe
financialfinancial statementsstatements reflectreflect thethe truetrue andand fair fair statestate of of affairsaffairs of of thethe
companycompany andand allall relevantrelevant regulations,regulations, accountingaccounting principlesprinciples inin soso
far far asas itit concernsconcerns thethe preparationpreparation of of financialfinancial statementsstatements hashasbeenbeen adheredadhered toto..
ItIt isis importantimportant toto notenote anyany qualificationsqualifications mademade byby thethe auditor auditor inin
thethe reportreport..
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CARO
CARO ReportReport isis anan annexureannexure toto thethe auditorsauditors reportreport wherewhere thethe auditor auditor hashas totocommentcomment onon certaincertain mattersmatters relatedrelated toto systems,systems, policiespolicies andand methodsmethods followedfollowed
byby thethe companycompany whilewhile recordingrecording thethe transactionstransactions..
ThisThis reportreport isis alsoalso veryvery relevantrelevant becausebecause itit commentscomments onon certaincertain issuesissues likelike::
-- DefaultDefault inin paymentpayment of of duesdues toto financialfinancial institutionsinstitutions /debenture/debenture holdersholders
-- whether whether termterm loansloans werewere appliedapplied for for thethe purposepurpose for for whichwhich itit waswas procuredprocured..
TheseThese commentscomments cancan highlighthighlight thethe liquidityliquidity positionposition of of thethe companycompany
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FINANCIAL STATEMENTSFINANCIAL STATEMENTS
TheThe mostmost importantimportant partpart of of anyany annualannual reportreport areare thethe financialfinancial statementsstatements ..TheThe financialfinancialstatementsstatements andand thethe accompanyingaccompanying notesnotes explainexplain aa company¶scompany¶s financialfinancial performanceperformance..
Analysing Analysing thethe financialfinancial statementsstatements cancan helphelp thethe user user evaluateevaluate thethe company¶scompany¶s overalloverallperformance,performance, identifyidentify itsits strengthsstrengths andand weaknessesweaknesses andand anticipateanticipate futurefuture problemsproblems
Also Also itit bringsbrings toto lightlight operationsoperations whichwhich maymay bebe lossloss makingmaking or or identifyidentify strugglingstruggling enterprisesenterprises thatthatareare turningturning aroundaround..
TheThe objectiveobjective of of financialfinancial analysisanalysis maymay differ differ fromfrom user user toto user user.. For For thethe managementmanagement itit isis notnot onlyonlytoto planplan itsits futurefuture strategiesstrategies butbut alsoalso toto findfind answersanswers toto allall thethe queriesqueries raisedraised byby investors,investors,employees,employees, regulators,regulators, generalgeneral publicpublic andand maybemaybe eveneven thethe mediamedia.. ManagementManagement studiesstudies financialfinancialstatementsstatements toto knowknow ::
-- PerformancePerformance of of thethe companycompany inin relationrelation toto ManagementManagement goalsgoals asas wellwell asas
industrialindustrial standardsstandards
-- OperationsOperations whichwhich areare profitableprofitable andand whichwhich areare notnot
-- FutureFuture planplan of of actionaction
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Balance Sheet
Balance Sheet
Sources of fund :Sources of fund :
It contains data about the amount of Share capital. Reserves & Surplus,It contains data about the amount of Share capital. Reserves & Surplus,Borrowed funds and the quantum of deferred tax liabilityBorrowed funds and the quantum of deferred tax liability
The capital mix enables the user to gauge the company¶s leverage and alsoThe capital mix enables the user to gauge the company¶s leverage and alsothe quantum fixed cash outflow in the form of interest payments. At this pointthe quantum fixed cash outflow in the form of interest payments. At this pointit is necessary to compare the company¶s average rate of return with that of it is necessary to compare the company¶s average rate of return with that of the interest rates.the interest rates.
Also note any contingent liability pertaining to the company. Also note any contingent liability pertaining to the company.
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Application of fundsApplication of funds
FixedFixed AssetsAssets TheThe user user cancan knowknow aboutabout of of capitalisationcapitalisation inin fixedfixed assetsassets.. Also Also
seesee thethe profileprofile of of fixedfixed assetsassets ii..ee land,land, buildings,buildings, plantplant andand machinerymachinery etcetc..,,
additionsadditions duringduring thethe year,year, salessales duringduring thethe year year
InvestmentsInvestments ± ± MarketableMarketable investments,investments, other other investments,investments, investmentsinvestments inin
securitiessecurities etcetc.. ThisThis givesgives anan indicationindication regardingregarding thethe movementmovement of of fundsfunds..
CurrentCurrent AssetsAssets ,, LoansLoans andand AdvancesAdvances :: TheseThese itemsitems areare indicatorsindicators aboutabout
thethe operationaloperational efficiencyefficiency of of thethe companycompany.. TheThe movementmovement of of stock,stock, receivablereceivable
managementmanagement ,, recoveryrecovery of of shortshort termterm loansloans etcetc..
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INCOME STATEMENTINCOME STATEMENT
IncomeIncome statementstatement isis anan indicator indicator aboutabout thethe bottombottom lineline of of thethecompanycompany.. TheThe operationaloperational efficiencyefficiency of of thethe company¶scompany¶s businessbusinessactivitiesactivities isis reflectedreflected inin thisthis statementstatement
IndicatorsIndicators
Gross ProfitGross Profit
Manufacturing and other expensesManufacturing and other expenses
Non operating incomes and expensesNon operating incomes and expenses
Transfers to reservesTransfers to reserves
Dividend proposedDividend proposedProvisions made for any liability including taxProvisions made for any liability including tax
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Notes to AccountsNotes to Accounts
NotesNotes toto accountsaccounts containscontains veryvery pertinentpertinent informationinformation aboutabout thethe
accountingaccounting principlesprinciples andand policiespolicies followedfollowed byby thethe managementmanagement inin
respectrespect of of depreciationdepreciation ,, stockstock valuation,valuation, retirementretirement benefits,benefits,
contingentcontingent liabilitiesliabilities
ThisThis becomesbecomes moremore importantimportant whenwhen thethe companycompany changeschanges thethe
methodmethod of of accountingaccounting or or policypolicy for for aa specificspecific transactiontransaction.. TheThe effecteffect of of
suchsuch transactionstransactions onon thethe netnet profitprofit of of thethe companycompany hashas toto bebe lookedlooked
intointo..
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Cash Flow statementCash Flow statement
CFSCFS isis aa veryvery importantimportant statementstatement whilewhile analysinganalysing aa companycompany.. ItIt givesgives thethemovementmovement of of cashcash duringduring thethe year year ii..ee sourcessources fromfrom whichwhich cashcash hashas comecome inin(inflows)(inflows) andand howhow itit hashas beenbeen spentspent (outflows(outflows ))..
Is cash flow statement a summary of cash book ? Is cash flow statement a summary of cash book ?
Components of CFSComponents of CFS
Cash flowsCash flows from operating activitiesfrom operating activitiesCash flows from investing activitiesCash flows from investing activities
Cash flows from financing activitiesCash flows from financing activities
The inflows and outflows of cash highlightsThe inflows and outflows of cash highlights ::
1.1. Ability to generate cash flows from its operating activities Ability to generate cash flows from its operating activities
2.2. Ability to generate income from investing activities Ability to generate income from investing activities
3.3. Dependence on external financingDependence on external financing4.4. Effective implementation of financial strategiesEffective implementation of financial strategies
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Guidelines for f inancial statement analysisGuidelines for f inancial statement analysis
Use ratios as a clue to look for further informationUse ratios as a clue to look for further information
Employ proper standards / benchmarks for comparisonEmploy proper standards / benchmarks for comparison
Get knowledge about latest reporting practices and how windowGet knowledge about latest reporting practices and how windowdressing is donedressing is done
Evaluate the management vision with its performance.Evaluate the management vision with its performance.
Look for litigation that could impair equity or accounting changes thatLook for litigation that could impair equity or accounting changes thatthat increased profitthat increased profit
Read auditors report for any qualificationRead auditors report for any qualification
Read notes to accounts for relevant details.Read notes to accounts for relevant details.
Check inventory figuresCheck inventory figures
Check the breakup of fixed assets. What assets does the company ownCheck the breakup of fixed assets. What assets does the company ownand what assets are leased?and what assets are leased?
G o for substance not formG o for substance not form..
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Tool kit of a f inancial analystTool kit of a f inancial analyst
Multi step income statementMulti step income statement
Analytical Balance Sheet Analytical Balance Sheet
Comparative Balance Sheet & P/L A/cComparative Balance Sheet & P/L A/c
Trend AnalysisTrend Analysis
Ratio AnalysisRatio Analysis
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Financial analysis of a FMCG companyFinancial analysis of a FMCG company
Illustrative exampleIllustrative example
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Comparative ( Hor izontal )Prof it & Loss A/c) 2007Comparative ( Hor izontal )Prof it & Loss A/c) 2007 2006 % ̂ / v2006 % ̂/ v
SalesSales 182.05182.05 158.20 14%158.20 14%
Materials costMaterials cost 82 .12 72.64 13 %82 .12 72.64 13 %
Manufacturing costManufacturing cost 68 .16 57.92 18%68 .16 57.92 18%
Provision for contingencies 1.81 2.94 38%Provision for contingencies 1.81 2.94 38%
Other operating incomeOther operating income (0.63) (0.28) 122%(0.63) (0.28) 122%
PBDTPBDT 30.59 24.97 23%30.59 24.97 23%
DepreciationDepreciation 4.35 3.79 15%4.35 3.79 15%
Impairment loss on fixed assets 0.14 0.33 (58%)Impairment loss on fixed assets 0.14 0.33 (58%)
Loss on sale of assetsLoss on sale of assets 0.33 0.23 42%0.33 0.23 42%
PBITPBIT 25.77 20.61 25%25.77 20.61 25%InterestInterest 0.98 1.49 (34%)0.98 1.49 (34%)
Non operating incomeNon operating income (0.99) (0.79) 27%(0.99) (0.79) 27%
PBT 25.77 19.91 29%PBT 25.77 19.91 29%
Provision for income taxProvision for income tax
Current taxCurrent tax 9.25 8.05 15%9.25 8.05 15%
Deferred tax (0.79)Deferred tax (0.79) --
PATPAT 17.31 11.86 46%17.31 11.86 46%
Appropr iationsAppropr iations
DividendsDividends 14.8014.80 12.4012.40
Transfer to reservesTransfer to reserves 1.731.73 1.181.18
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Comparative Balance SheetComparative Balance Sheet 20072007 20062006 % ̂/v% ̂/v
Sources of fundsSources of funds
Shareholders fundsShareholders funds
CapitalCapital 9.64 9.649.64 9.64 --
ReservesReserves 16.88 16.15 4.52%16.88 16.15 4.52%
Loan FundsLoan Funds
SecuredSecured 13.99 7.90 77.09%13.99 7.90 77.09%
UnsecuredUnsecured -- 0.600.60 (100%)(100%)
Total 40.52 34.30 18Total 40.52 34.30 18%%
Application of fundsApplication of funds
Fixed AssetsFixed Assets
Gross BlockGross Block 70.81 67.71 5%70.81 67.71 5%Less: DepreciationLess: Depreciation 30.04 26.45 13.61%30.04 26.45 13.61%
Net Block 40.77 41.26Net Block 40.77 41.26 (1.20) %(1.20) %
Capital Work in progressCapital Work in progress 1.88 0.49 2.16 %1.88 0.49 2.16 %
Investments 1.05Investments 1.05 -- --
Current Assets, Loans and AdvancesCurrent Assets, Loans and Advances
InventoriesInventories 21.27 20.64 3.07%21.27 20.64 3.07%
Sundry debtors 2.92Sundry debtors 2.92 3.113.11 (6.05) %(6.05) %
Cash & Bank balances 0.42 1.01Cash & Bank balances 0.42 1.01 (59%)(59%)
Loans and Advances*Loans and Advances* 11.33 8.72 ( 30%)11.33 8.72 ( 30%)Less : Current liabilities and ProvisionsLess : Current liabilities and Provisions
LiabilitiesLiabilities 20.10 19.22 4.5620.10 19.22 4.56
Provisions 18.11 21.72Provisions 18.11 21.72 (16 %)(16 %)
Net current assetsNet current assets 2.26 7.452.26 7.45 (70%)(70%)
Deferred Tax liabilities (net )Deferred Tax liabilities (net ) (0.92)(0.92) -- --
* Mainly ICDs* Mainly ICDs
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AnalysisAnalysis
Prof it & Loss AccountProf it & Loss Account
Net sales growth by 15%Net sales growth by 15%
Increase in mater ial cost / depreciation less than growthIncrease in mater ial cost / depreciation less than growth
in salesin sales Increase in manufactur ing expenses / loss on assetIncrease in manufactur ing expenses / loss on asset
more than growth in salesmore than growth in sales
Impairment loss / interest show a negative growthImpairment loss / interest show a negative growth
Other income growth more than growth in sales.Other income growth more than growth in sales.
Prof it at every stage more than the growth in salesProf it at every stage more than the growth in sales
Overrall a positive impact on PATOverrall a positive impact on PAT
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Balance SheetBalance Sheet
Total Assets / Liabilities increase by 18%Total Assets / Liabilities increase by 18%
Net worth increases by 2 % only inspite of growth in loan fundsNet worth increases by 2 % only inspite of growth in loan fundsby 65%by 65%
Gross block increases by 5% only showing eff icient utilizationGross block increases by 5% only showing eff icient utilizationwhen compared to increase in saleswhen compared to increase in sales
High increase in Capital WIP showing heavy investment inHigh increase in Capital WIP showing heavy investment inincome generating assetsincome generating assets
Current assets growth only 7% showing eff icient utilization of Current assets growth only 7% showing eff icient utilization of current assets since sales have grown by 15%current assets since sales have grown by 15%
Current liabilities increase by only 5% inspite of increase inCurrent liabilities increase by only 5% inspite of increase inmater ial costs and manufactur ing expenses by around 15%mater ial costs and manufactur ing expenses by around 15%
Overall effective current asset management. Apparently thereOverall effective current asset management. Apparently thereis a inflow of funds towards f ixed assets and loans & advancesis a inflow of funds towards f ixed assets and loans & advancessignifying future income earning prospects.signifying future income earning prospects.
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Common size f inancial statementsCommon size f inancial statements ± ±
supplement comparative analysis, studysupplement comparative analysis, study
changes in assetchanges in asset ± ±liability ratio and their impactliability ratio and their impacton profits and to find trends in expense patternon profits and to find trends in expense pattern
to identify critical areas. Also called asto identify critical areas. Also called as verticalvertical
analysisanalysis..
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Common size Prof it & Loss A/c 2007Common size Prof it & Loss A/c 2007 2006 % ̂ / v2006 % ̂/ v
SalesSales 182.05 100% 158.20 100%182.05 100% 158.20 100%
Materials costMaterials cost 82 .12 45% 72.64 46%82 .12 45% 72.64 46%
Manufacturing costManufacturing cost 68 .16 37% 57.92 37%68 .16 37% 57.92 37%
Provision for contingencies 1.81 1% 2.94 2%Provision for contingencies 1.81 1% 2.94 2%
Other operating incomeOther operating income (0.63) (0.35%) (0.28) (0.18%)(0.63) (0.35%) (0.28) (0.18%)
PBDTPBDT 30.59 17% 24.97 16%30.59 17% 24.97 16%
DepreciationDepreciation 4.35 2.38 % 3.79 2.39%4.35 2.38 % 3.79 2.39%
Impairment loss on fixed assets 0.14 0.08% 0.33 0.21%Impairment loss on fixed assets 0.14 0.08% 0.33 0.21%
Loss on sale of assetsLoss on sale of assets 0.33 0.18% 0.23 0.14%0.33 0.18% 0.23 0.14%
PBITPBIT 25.77 14.16% 20.61 13.04%25.77 14.16% 20.61 13.04%
InterestInterest 0.98 0.54% 1.49 0.94%0.98 0.54% 1.49 0.94%
Non operating incomeNon operating income (0.99) (0.54%) (0.79) (0.49%)(0.99) (0.54%) (0.79) (0.49%)
PBT 25.77 14.16% 19.91 12.59%PBT 25.77 14.16% 19.91 12.59%
Provision for income taxProvision for income tax
Current taxCurrent tax 9.25 8.059.25 8.05
Deferred tax (0.79)Deferred tax (0.79) --
PATPAT 17.31 9.51% 11.86 7.50%17.31 9.51% 11.86 7.50%
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Common size Balance Sheet Balance SheetCommon size Balance Sheet Balance Sheet 20072007 20062006
Sources of fundsSources of funds
Shareholders fundsShareholders funds
CapitalCapital 9.64 24% 9.64 28%9.64 24% 9.64 28%ReservesReserves 16.88 42% 16.15 47%16.88 42% 16.15 47%
Loan FundsLoan Funds
SecuredSecured 13.99 34% 7.90 23%13.99 34% 7.90 23%
UnsecuredUnsecured -- 0.60 20.60 2%%
Total 40.52 100% 34.30 100%Total 40.52 100% 34.30 100%
Application of fundsApplication of funds
Fixed AssetsFixed Assets
Gross BlockGross Block 70.81 175% 67.71 197%70.81 175% 67.71 197%
Less: DepreciationLess: Depreciation 30.04 74% 26.45 77%30.04 74% 26.45 77%Net Block 40.77 101% 41.26 120%Net Block 40.77 101% 41.26 120%
Capital Work in progressCapital Work in progress 1.88 5% 0.49 1%1.88 5% 0.49 1%
Investments 1.05 3%Investments 1.05 3% --
Current Assets, Loans and AdvancesCurrent Assets, Loans and Advances
InventoriesInventories 21.27 53% 20.64 60%21.27 53% 20.64 60%
Sundry debtors 2.92 7% 3.11 9%Sundry debtors 2.92 7% 3.11 9%
Cash & Bank balances 0.42 1% 1.01 3%Cash & Bank balances 0.42 1% 1.01 3%
Loans and Advances*Loans and Advances* 11.33 28% 8.72 25%11.33 28% 8.72 25%
Less : Current liabili ties and ProvisionsLess : Current liabili ties and ProvisionsLiabilitiesLiabilities 20.10 50% 19.22 56%20.10 50% 19.22 56%
Provisions 18.11 45% 21.72 63%Provisions 18.11 45% 21.72 63%
Net current assetsNet current assets ( 2.26) (6%) ( 7.45) (22%)( 2.26) (6%) ( 7.45) (22%)
Deferred Tax liabilities (net )Deferred Tax liabilities (net ) (0.92) (2%)(0.92) (2%) -- --
* Mainly ICDs* Mainly ICDs
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AnalysisAnalysis
Prof it & Loss AccountProf it & Loss Account
Cost of materials has fallen to 45.11 on sales from 45.92 lastCost of materials has fallen to 45.11 on sales from 45.92 last
year but manufacturing and other expenses increase to 37.44year but manufacturing and other expenses increase to 37.44% thereby wiping out the savings% thereby wiping out the savings
Other operating income increases leading to an increasedOther operating income increases leading to an increasedPBDITPBDIT
Depreciation is relatively constant and loss on impairment isDepreciation is relatively constant and loss on impairment isdown. Hence increase in PBITdown. Hence increase in PBIT
Total income tax lower over previous year due to deferred taxTotal income tax lower over previous year due to deferred tax. Hence PAT has improved .. Hence PAT has improved .
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Balance SheetBalance Sheet
Proportion of loan funds increased to 35% as against 25%Proportion of loan funds increased to 35% as against 25%
Gross Block has come down but capital WIP has gone up . This indicates effectiveGross Block has come down but capital WIP has gone up . This indicates effectiveutilization of assets in view of higher sales.utilization of assets in view of higher sales.
Investments of surplus funds is indicatedInvestments of surplus funds is indicated
Current Assets , loans & advances, current liabilities have decreased despite higher
Current Assets , loans & advances, current liabilities have decreased despite higher sales showing effective current asset managementsales showing effective current asset management
In conclusion loan funds have been diverted to capital WIP and Loans and advancesIn conclusion loan funds have been diverted to capital WIP and Loans and advances( ICDs) both being income generating assets. However this policy of deployment will( ICDs) both being income generating assets. However this policy of deployment willbe good only if interest earned is more than interest paid.be good only if interest earned is more than interest paid.
This also validates our findings through horizontal analysisThis also validates our findings through horizontal analysis
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Ratio AnalysisRatio Analysis
Return on investment ratiosReturn on investment ratios ± ± RONW , EPS, Cash earningsRONW , EPS, Cash earnings
per share (CEPS)per share (CEPS)
Leverage ratiosLeverage ratios ± ± Net asset value, Debt equity , Debt serviceNet asset value, Debt equity , Debt service
coveragecoverage
Profitability ratiosProfitability ratios ± ± GP ratio, Multi step NP ratiosGP ratio, Multi step NP ratios
Liquidity ratiosLiquidity ratios ± ± Current ratio, Quick ratio, Debtors Turnover,Current ratio, Quick ratio, Debtors Turnover,
Inventory turnover ratioInventory turnover ratio
Turnover ( Efficiency ) ratiosTurnover ( Efficiency ) ratios -- Fixed assets Turnover ratio,Fixed assets Turnover ratio,
Net worth turnover ratioNet worth turnover ratio
Valuation ratiosValuation ratios ± ± PE ratio, Market price to NAV, MarketPE ratio, Market price to NAV, Market
capitalization, Yeild to investors.capitalization, Yeild to investors.
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ROI ratiosROI ratios
I.I. Analytical value in decision making Analytical value in decision making
II.II. Comparative Standards / BenchmarkingComparative Standards / Benchmarking
Industry leader Industry leader Industry averageIndustry average
WACCWACC
Cost of borrowingsCost of borrowings
III.III.Influencing factorsInfluencing factors
SalesSales
Cost economiesCost economies
Optimum capital structureOptimum capital structure
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ROI ratiosROI ratios
2007 20062007 2006
RONW =RONW = PATPAT ± ± Preference dividendPreference dividend * 100 = 65%* 100 = 65% 49%49%
Net worth ( ESHs Fund )Net worth ( ESHs Fund )
High ratio means high dividend , better growth prospects and high valuation in capital market.High ratio means high dividend , better growth prospects and high valuation in capital market.However adjust the PAT for extra ordinary items fro proper analysis.However adjust the PAT for extra ordinary items fro proper analysis.
EPS =EPS = PATPAT ± ± Preference dividendPreference dividend Rs.17.96Rs.17.96 Rs 12.30Rs 12.30
Number of equity sharesNumber of equity sharesThis ratio is the basis for valuation of companies in the event of mergers etc, strategicThis ratio is the basis for valuation of companies in the event of mergers etc, strategicinvestments by owners. Higher ratio shows company in a positive light.investments by owners. Higher ratio shows company in a positive light.
CEPS =CEPS = PATPAT ± ± preference dividend + non cash chargespreference dividend + non cash charges Rs.26.76 Rs.20.80Rs.26.76 Rs.20.80
Number of equity sharesNumber of equity shares
This ratio takes into account cash earnings. In case of companies with very low profits thisThis ratio takes into account cash earnings. In case of companies with very low profits this
ratio is an indicator that the company position may improve in future.ratio is an indicator that the company position may improve in future.
T he company gives very high returns on equity with substantial improvement. CompareT he company gives very high returns on equity with substantial improvement. Comparewith industry average. CEPS is very high than EPS . It shows a large amount of hiddenwith industry average. CEPS is very high than EPS . It shows a large amount of hiddenreserves due to high element of non cash charges and provisionsreserves due to high element of non cash charges and provisions..
NAV = ESHs Funds / No. of equity sharesNAV = ESHs Funds / No. of equity shares
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Leverage ratios ( Long term solvency ratios )Leverage ratios ( Long term solvency ratios )
I.I. Analytical value in decision making Analytical value in decision making
II.II. Comparative Standards / BenchmarkingComparative Standards / Benchmarking
Industry averageIndustry average
NAV of industry leader / laggardNAV of industry leader / laggard
Institutional normsInstitutional norms
Growth / Decline over the previous yearsGrowth / Decline over the previous years
III.III. Influencing factorsInfluencing factors
ROI & EPSROI & EPS
Dividend policyDividend policy
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Gear ing or leverage ratiosGear ing or leverage ratios
Debt equity ratio =Debt equity ratio = Long termLong term DebtDebt 0.19 : 10.19 : 1 0.21.10.21.1Total net worth ( ESHs Funds + PC )Total net worth ( ESHs Funds + PC )
This ratio helps in assessing whether the company is relying on own funds or This ratio helps in assessing whether the company is relying on own funds or borrowed funds. Higher the debt more fixed liabilities by way of interest. FI s generallyborrowed funds. Higher the debt more fixed liabilities by way of interest. FI s generallylook for a D/E of 1.5 :1 while financing projects.look for a D/E of 1.5 :1 while financing projects.
Debt Sevice coverage ratio =Debt Sevice coverage ratio =
PAT + Interest on long term debts+ non cash chargesPAT + Interest on long term debts+ non cash chargesInterest on long term debts + Instalments on principal dueInterest on long term debts + Instalments on principal due
36.59 times 3.48 times36.59 times 3.48 times
This ratio indicates the ability of the company to service loan funds. FI s generally lookThis ratio indicates the ability of the company to service loan funds. FI s generally lookfor a DSCR of 1.6 and above.for a DSCR of 1.6 and above.
NAV has improved over the previous years. It could have been better since the
NAV has improved over the previous years. It could have been better since thecompany has very high provisioning. Long term solvency is strong due to very company has very high provisioning. Long term solvency is strong due to very
low D/E ratio. Interest coverage is also high. N o default risk. T he company will low D/E ratio. Interest coverage is also high. N o default risk. T he company will enjoy a very high credit in the market. It has sufficient capacity to raise long enjoy a very high credit in the market. It has sufficient capacity to raise long term debt term debt ..
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Liquidity ratiosLiquidity ratiosI.I. Analytical value in decision making Analytical value in decision making
II.II. Comparative Standards / BenchmarkingComparative Standards / Benchmarking
Institutional normsInstitutional norms
Effective asset utilisationEffective asset utilisation Cost economiesCost economies
Proportion of non cash charges in expense structureProportion of non cash charges in expense structure
III.III.Influencing factorsInfluencing factors
Proper asset liability managementProper asset liability management
Credit period availed and credit period allowedCredit period availed and credit period allowed
Inventory management / Supply chain management/ level of Inventory management / Supply chain management/ level of
obsolescenceobsolescence
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Liquidity ratiosLiquidity ratios
Current ratio =Current ratio = Current Assets, loans & Advances and short term investmentsCurrent Assets, loans & Advances and short term investments
Current liabilities +Provisions+ Short term debtsCurrent liabilities +Provisions+ Short term debts
1.16:11.16:1 1.05:11.05:1Quick ratio =Quick ratio = Current Assets, loans & AdvancesCurrent Assets, loans & Advances ± ± Inventories + short term investmentsInventories + short term investments
Current liabilities +Provisions+ Short term debtsCurrent liabilities +Provisions+ Short term debts ± ± Bank overdraftBank overdraft
0.68:10.68:1 0.44:10.44:1
These 2 ratios helps in analyzing the current assets and current l iabilities of the company and its ability toThese 2 ratios helps in analyzing the current assets and current l iabilities of the company and its ability todischarge its day to day obligations Quick ratio is more realisticdischarge its day to day obligations Quick ratio is more realistic
Debtors turnover ratio =Debtors turnover ratio = Receivables *Receivables * 365365 5 days5 days 6 days6 days
Credit salesCredit salesCreditors turnover ratio =Creditors turnover ratio = Payables * 365Payables * 365 85 days85 days 87 days87 days
Credit purchasesCredit purchases
These ratio helps us to understand the credit policy of the company towards its customers and the creditThese ratio helps us to understand the credit policy of the company towards its customers and the creditallowed to it by the suppliers. Generally a successful company will be able to extend a shorter credit period andallowed to it by the suppliers. Generally a successful company will be able to extend a shorter credit period andenjoy a longer credit period.enjoy a longer credit period.
Inventory holding period =Inventory holding period = Inventory * 365Inventory * 365 55 days55 days 62 days62 days
Cost of goods soldCost of goods sold
This ratio indicates in how many days company¶s inventory is converted into sales. Hence an appropriate levelThis ratio indicates in how many days company¶s inventory is converted into sales. Hence an appropriate levelof inventory is required to ensure minimum blockage of funds in inventory and also be able to service theof inventory is required to ensure minimum blockage of funds in inventory and also be able to service thecustomers promptly.customers promptly.
Efficient management of customers.V ery low collection period. High credit standing in the market.T heEfficient management of customers.V ery low collection period. High credit standing in the market.T hecompany is enjoying reduction in purchase price as well as increased credit limits. However inventory company is enjoying reduction in purchase price as well as increased credit limits. However inventory holding period looks quite high. Improvement in supply chain of finished goods may be needed. Check holding period looks quite high. Improvement in supply chain of finished goods may be needed. Check for old and obsolete stocks in the inventory break up. Current ratio looks fine however quick ratiofor old and obsolete stocks in the inventory break up. Current ratio looks fine however quick rationeeds improvement. But in view of the leverage enjoyed due to low credit to customers and high credit needs improvement. But in view of the leverage enjoyed due to low credit to customers and high credit from suppliers, it does not require a high liquidity. Reserves may be invested in income generating from suppliers, it does not require a high liquidity. Reserves may be invested in income generating assets. However inventory levels may be reduced.assets. However inventory levels may be reduced.
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Efficiency ratiosEfficiency ratiosI.I. Analytical value in decision making Analytical value in decision making
II.II. Comparative Standards / BenchmarkingComparative Standards / Benchmarking
Industry averageIndustry average
Industry leader Industry leader
Trend over a period of timeTrend over a period of time
III.III.Influencing factorsInfluencing factors Production efficienciesProduction efficiencies
Investment in relevant technologiesInvestment in relevant technologies
Price and quality of productsPrice and quality of products
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Eff iciency ratiosEff iciency ratios
Fixed assets turnover ratioFixed assets turnover ratio -- Net salesNet sales
Net block of fixed assetsNet block of fixed assets
4.47 times4.47 times 3.83 times3.83 times
Fixed assets are income generating assets for any company.Fixed assets are income generating assets for any company.Higher the ratio better is the utilization of assets for generatingHigher the ratio better is the utilization of assets for generatingsales.sales.
Net worth turnover ratio =Net worth turnover ratio = Net salesNet salesNet worthNet worth
6.86 times6.86 times 6.56 times6.56 times
Fixed assets are f inanced through equity and borrowings.Fixed assets are f inanced through equity and borrowings.The results of f ixed assets eff iciency net of interest belongsThe results of f ixed assets eff iciency net of interest belongsto shareholders. An optimum capital structure provides thisto shareholders. An optimum capital structure provides thisadvantage to the shareholdersadvantage to the shareholders..
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Profitability ratiosProfitability ratios
I.I. Analytical value in decision making Analytical value in decision making
II.II. Comparative Standards / BenchmarkingComparative Standards / Benchmarking
Trend over a period of timeTrend over a period of time
Industry averageIndustry average
Industry leader / laggardIndustry leader / laggard
WACCWACC
III.III.Influencing factorsInfluencing factors
Qualitative and quantitative growth in salesQualitative and quantitative growth in sales
Age of fixed assets ( depn ) Age of fixed assets ( depn )
Cost of borrowingCost of borrowing
Efficient tax planningEfficient tax planning
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Prof itability ratiosProf itability ratios
GP ratio =GP ratio = GPGP*100*100SalesSales
Operating Profit ratio =Operating Profit ratio = PBIT * 100PBIT * 100SalesSales
14 %14 % 13%13%
Net profit ratio =Net profit ratio = PAT * 100PAT * 100SalesSales
10%10% 8%8%
Effective tax rate =Effective tax rate = Current Income TaxCurrent Income Tax * 100* 100
PBTPBTThese ratios helps to assess the business performanceThese ratios helps to assess the business performancestarting from Gross Prof it. Multi level prof itability ratiosstarting from Gross Prof it. Multi level prof itability ratioshelps to understand the levels at which there is pressure onhelps to understand the levels at which there is pressure onmar gin.mar gin.
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Valuation ratiosValuation ratios
I.I. Analytical value in decision making Analytical value in decision making
II.II. Comparative Standards / BenchmarkingComparative Standards / Benchmarking
Industry averageIndustry average
Leaders & laggards in industryLeaders & laggards in industry Trend over a period of timeTrend over a period of time
III.III.Influencing factorsInfluencing factors
Dividend policyDividend policy
Size of the companySize of the company
Market conditionsMarket conditions
NAVNAV
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Valuation ratiosValuation ratios
P/E ratio =P/E ratio = Market price of equity shareMarket price of equity share 516/ 17.96516/ 17.96 542/12.30542/12.30
EPSEPS 2929 444444
This ratio is important for valuation of shares in the event of many strategic decisionThis ratio is important for valuation of shares in the event of many strategic decisionmaking. It reflects the investors perception of the company.making. It reflects the investors perception of the company.
Market value to NAV =Market value to NAV = Market price of the equity shareMarket price of the equity share
NAVNAV
516/ 27.51516/ 27.51 542/ 24.98542/ 24.98
18 times 24 times18 times 24 times
Market price of a share is generally higher than the NAV. At times due to the industryMarket price of a share is generally higher than the NAV. At times due to the industrynot doing well or other reasons the market price may be lower than NAV. This is anot doing well or other reasons the market price may be lower than NAV. This is avery good investment opportunity.very good investment opportunity.
Yield to investors = (Yield to investors = (Dividend received + market appreciation) * 100Dividend received + market appreciation) * 100
Initial investmentInitial investment
This ratio helps in understanding the returns being earned by the shareholders or theThis ratio helps in understanding the returns being earned by the shareholders or thelosses suffered by it.losses suffered by it.
20 + (51620 + (516--542 ) * 100542 ) * 100 12.50 + (54212.50 + (542--430)*100430)*100
542542 430430
--1.11%1.11% 28.95%28.95%
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Du Pont AnalysisDu Pont Analysis
RONW = Net profit margin * Net worth turnover RONW = Net profit margin * Net worth turnover Net profitNet profit ** Net salesNet sales
Net sales Net worthNet sales Net worth
20072007 9.51% * 6.86 times = 65.28%9.51% * 6.86 times = 65.28%
20062006 7.50% * 6.56 times = 49.23%7.50% * 6.56 times = 49.23%
When RONW is being compared then it helps us to knowWhen RONW is being compared then it helps us to knowwhether the improvement / deterioration is due to improved /whether the improvement / deterioration is due to improved /deteriorated net margin or improved / deteriorated net worthdeteriorated net margin or improved / deteriorated net worthturnover so that suitable strategies can be formed.turnover so that suitable strategies can be formed.
T here is an improvement in both the parts. N et profit T here is an improvement in both the parts. N et profit margin improvement is higher than net worthmargin improvement is higher than net worthimprovement showing better operating efficiency improvement showing better operating efficiency ..
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Overall summationOverall summation
Good f inancial performanceGood f inancial performance No solvency r iskNo solvency r isk
High f ixed asset utilizationHigh f ixed asset utilization
High provisioning and high hidden reservesHigh provisioning and high hidden reserves
High inventory holding per iod . Need to study the break up of inventoryHigh inventory holding per iod . Need to study the break up of inventoryinto raw mater ials, WIP , f inished goods, spare parts to zero down on theinto raw mater ials, WIP , f inished goods, spare parts to zero down on theexact cause.exact cause.
High CWIP . Need to understand the projects / products where investmentHigh CWIP . Need to understand the projects / products where investmentmade to estimate future earnings.made to estimate future earnings.
Deferred tax liabilities are not considered while computing current ratio asDeferred tax liabilities are not considered while computing current ratio asper AS 22.per AS 22.
Due to high dividend payout and maybe declining market the marketDue to high dividend payout and maybe declining market the marketvaluation has been adversely affected leading to negative yield. In case of valuation has been adversely affected leading to negative yield. In case of MNC due to high stake of foreign shareholders dividend payout may beMNC due to high stake of foreign shareholders dividend payout may behigher due to non taxability of dividend in the hands of shareholders.higher due to non taxability of dividend in the hands of shareholders.Capital market may be sluggish leading to high dividend payout.Capital market may be sluggish leading to high dividend payout.
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Core ratiosCore ratios
ROIROI -- RONW , EPSRONW , EPS
LeverageLeverage ± ± NAV, D/E, DSCRNAV, D/E, DSCR
LiquidityLiquidity ± ± CR, QR, Collection period, Suppliers credit,CR, QR, Collection period, Suppliers credit,
Inventory holding periodInventory holding period
EfficiencyEfficiency ± ± Fixed Assets Turnover, Net worth Turnover Fixed Assets Turnover, Net worth Turnover
ProfitabilityProfitability ± ± PBT , PAT , Effective Tax ratePBT , PAT , Effective Tax rate
ValuationValuation -- P/E, Yield to investorsP/E, Yield to investors
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Creative Financial PracticesCreative Financial Practices
Increasing the estimates of useful life of intangible assetsIncreasing the estimates of useful life of intangible assets
Write offs of preliminary expenses against profitsWrite offs of preliminary expenses against profits
Non provisioning of expenses , doubtful , disputed debtsNon provisioning of expenses , doubtful , disputed debts
Non operating income not disclosed seperatelyNon operating income not disclosed seperately Changing accounting policy w.r.t valuation of assetsChanging accounting policy w.r.t valuation of assets
Making inadequate provisions for certain liabilities or treatMaking inadequate provisions for certain liabilities or treatcertain liabilities as contingent after getting suitable legalcertain liabilities as contingent after getting suitable legalopinionopinion
Making extra provisions in good years and writing them backMaking extra provisions in good years and writing them backin lean yearsin lean years
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Listing Agreement with SEBIListing Agreement with SEBI ± ± Clause 49 on CorporateClause 49 on Corporate
GovernanceGovernance
Company¶s philosophy on code of governanceCompany¶s philosophy on code of governance
Board of DirectorsBoard of Directors
Audit Committee Audit Committee
Remuneration CommitteeRemuneration Committee
Shareholders CommitteeShareholders Committee
General Body meetingsGeneral Body meetings
DisclosuresDisclosures
Means of communicationMeans of communication
General Shareholder informationGeneral Shareholder information
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Going beyond the figuresGoing beyond the figures
Are the company¶s revenues tied to one key customer Are the company¶s revenues tied to one key customer
Are the company¶s revenues tied to a single product Are the company¶s revenues tied to a single product
What part of company¶s operations are situatedWhat part of company¶s operations are situatedoverseasoverseas
Is the company dependant on a single supplier Is the company dependant on a single supplier
Likely actions of current competitorsLikely actions of current competitors
Legal and regulatory environmentLegal and regulatory environment
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Analysts should take the following precautions Analysts should take the following precautions
Analysis of trends over a long period of time Analysis of trends over a long period of time
Interpretation of observation against industry benchInterpretation of observation against industry bench
markmark
Analysis of core ratios only Analysis of core ratios only
Inter firm comparison for variations in accountingInter firm comparison for variations in accounting
policiespolicies In case of conglomerates comparative performance of In case of conglomerates comparative performance of
different lines of businessdifferent lines of business
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CFSCFS isis aa veryvery importantimportant statementstatement whilewhile analysinganalysing aa companycompany.. ItIt givesgives thethemovementmovement of of cashcash duringduring thethe year year ii..ee sourcessources fromfrom whichwhich cashcash hashas
comecome inin (inflows)(inflows) andand howhow itit hashas beenbeen spentspent (outflows(outflows ))..
Is cash flow statement a summary of cash book ? Is cash flow statement a summary of cash book ?
Components of CFSComponents of CFS
Cash flows
Cash flows from operating activitiesfrom operating activities
Cash flows from investing activitiesCash flows from investing activities
Cash flows from financing activitiesCash flows from financing activities
The inflows and outflows of cash highlightsThe inflows and outflows of cash highlights ::
1.1. Ability to generate cash flows from its operating activities Ability to generate cash flows from its operating activities
2.2. Ability to generate income from investing activities Ability to generate income from investing activities
3.3. Dependence on external financingDependence on external financing
4.4. Effective implementation of financial strategiesEffective implementation of financial strategies
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Cash Flow StatementCash Flow Statement
Ability to generate cash Ability to generate cash
Indicator of the amount and certainty of future cashIndicator of the amount and certainty of future cash
flowsflows Relationship between profitability and net cash flow.Relationship between profitability and net cash flow.
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Other important sources of financial informationOther important sources of financial information
MagazinesMagazines
NewspapersNewspapers
DatabasesDatabases ± ±C
MIE ,C
apitaline plusC
MIE ,C
apitaline plus Research reports prepared by leading securitiesResearch reports prepared by leading securities
firms, credit rating agenciesfirms, credit rating agencies
RBI reports on economy and industryRBI reports on economy and industry
Research reports prepared byResearch reports prepared by WebsitesWebsites ± ± SEBI , Capital market, BSE, NSESEBI , Capital market, BSE, NSE
Websites of leading companies in the industryWebsites of leading companies in the industry
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Points to be kept in mind by a analystPoints to be kept in mind by a analyst
Connect business model with Balance Sheet
Connect business model with Balance Sheet
Differentiate between Cash Flows & ProfitabilityDifferentiate between Cash Flows & Profitability
Evaluate performance properlyEvaluate performance properly ''
Evaluate segmentEvaluate segment--wise resultswise results
Bifurcate Fixed Costs & Variable costsBifurcate Fixed Costs & Variable costs
Working capital managementWorking capital management Focus on Return on Net Worth (RONW) and Return on CapitalFocus on Return on Net Worth (RONW) and Return on Capital
Employed (ROCE)Employed (ROCE)
Evaluate justification for CapexEvaluate justification for Capex
Secret ReservesSecret Reserves -- When value of the assets in the Balance Sheet isWhen value of the assets in the Balance Sheet is
LOWER . . than the. estimated realisable / market value of those assetsLOWER . . than the. estimated realisable / market value of those assets.. _. . . _. . .
Impaired AssetsImpaired Assets -- When value of the assets in the Balance Sheet isWhen value of the assets in the Balance Sheet ishigher than the estimated realisable / market value of those .assetshigher than the estimated realisable / market value of those .assets
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ISSUES.ON FLXED ASSETSISSUES.ON FLXED ASSETS
.C
apitalisation of pre_operative expenses during construction period'.C
apitalisation of pre_operative expenses during construction period' . Interest capitalisation during construction period. Interest capitalisation during construction period
. Delayed capitalisation of project. Delayed capitalisation of project ..
. Depreciation rates under Schedule XIV of Companies Act. Depreciation rates under Schedule XIV of Companies Act -- muchmuchlower thanlower than
economic life of asseteconomic life of asset Depreciation not provided as per the economic life of the assetDepreciation not provided as per the economic life of the asset
. Difficult to estimate impaired value of Fixed Assets. Difficult to estimate impaired value of Fixed Assets ..
. Capitalising repair expenditure.. Capitalising repair expenditure.
.Revaluation of Fixed Assets.Revaluation of Fixed Assets -- inflated valuationinflated valuation
. Non. Non--moving Capital Workmoving Capital Work--inin--ProgressProgress . Exchange fluctuation on Forex borrowing used for acqiuiring fixed. Exchange fluctuation on Forex borrowing used for acqiuiring fixed
assets to be taken to cost of assetassets to be taken to cost of asset -- Schedule VISchedule VI (t. .(t. .
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ISSUES ON INVESTMENT'SISSUES ON INVESTMENT'S ..
Depreciation in value of quoted Investments notDepreciation in value of quoted Investments not
recognisedrecognised
Depreciation inDepreciation in--value of unquoted .Investmentvalue of unquoted .Investmentnot evaluatednot evaluated
Funding to promoters Partnership firms may notFunding to promoters Partnership firms may not
have underlying assetshave underlying assets
Investment into Subsidiary / JVInvestment into Subsidiary / JV's's / Associate/ Associate
companiescompanies -- impaired valuationimpaired valuation
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ISSUES ON DEBTORSISSUES ON DEBTORS
Running accounts of customers does not indicateRunning accounts of customers does not indicate
nonnon--realisable amounts .realisable amounts .
Material rejected by customer not accountedMaterial rejected by customer not accounted Associate company balances may not be fully Associate company balances may not be fully
recoverablerecoverable
Long overdue Debtors may not be realisableLong overdue Debtors may not be realisable ..
Balance outstanding against Performance GuaranteeBalance outstanding against Performance Guarantee
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Number of Number of ititems under Schedule VI schedule not trulyems under Schedule VI schedule not truly
Current AssetsCurrent Assets
Money advanced to a loss making subsidiary /Money advanced to a loss making subsidiary /
associate company may not be realisable . .associate company may not be realisable . .
Money advanced to supposed unconnected partiesMoney advanced to supposed unconnected partiesare actually controlled byare actually controlled by
promoters. and may not be realizablepromoters. and may not be realizable
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C ASH & BANK BALANCESC ASH & BANK BALANCES
Rotating associate company balance's withoutRotating associate company balance's withoutmovement of fundsmovement of funds
DEFERRED REVENUE EXPENDITUREDEFERRED REVENUE EXPENDITURE ..
VRS expenditure amortisedVRS expenditure amortised
Advertisement expenditure amortised Advertisement expenditure amortised Goodwill on acquisitionGoodwill on acquisition
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ISSUES INISSUES IN LOANS & ADVANCES / CURRENTLOANS & ADVANCES / CURRENT
LIABILITIESLIABILITIES
Provisions not made for all known liabilitiesProvisions not made for all known liabilities
Gratuity liability not providedGratuity liability not provided
Contingent liability may actually be tangibleContingent liability may actually be tangibleliabilityliability
Transfer of Creditors to Deposit receivedTransfer of Creditors to Deposit received
accountsaccounts
Quasi Equity from Promoters withdrawn after Quasi Equity from Promoters withdrawn after
loan disbursement from bankloan disbursement from bank
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Disconnect between business model and f inancial statementsDisconnect between business model and f inancial statements
100% Diamond exporter gets into local sales, but Debtors ratio deteriorates100% Diamond exporter gets into local sales, but Debtors ratio deteriorates
instead of improving. Also huge inventory buildinstead of improving. Also huge inventory build--up : Just not possibleup : Just not possible
Chemical company manufacturing an almost monopoly product for localChemical company manufacturing an almost monopoly product for local I I
exportt marketexportt market -- Debtors at over 120 days instead of having minimal DebtorsDebtors at over 120 days instead of having minimal Debtors
since most customers were paying in advance. Just not possible.since most customers were paying in advance. Just not possible.
Car Dealer margins provided by manufacturer much lower than operating profitCar Dealer margins provided by manufacturer much lower than operating profitdisclosed in the audited accountsdisclosed in the audited accounts
Projected Gross Margins not in sync with past performanceProjected Gross Margins not in sync with past performance -- dramatic changesdramatic changes
Projected operating margins not in sync with Industry "norms . Insurance for lower Projected operating margins not in sync with Industry "norms . Insurance for lower value of Fixed / Current Assetsvalue of Fixed / Current Assets
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ParticularsParticulars AmtAmt ParticularsParticulars AmtAmt
SourcesSources ApplicationApplication
Share capitalShare capital 2929 Net fixed AssetsNet fixed Assets 9090
R & SR & S 319319 InvestmentsInvestments 495495
Net worthNet worth 348348 CA, Loans & Adv.CA, Loans & Adv.
Secured loansSecured loans 208208 Inventories 43Inventories 43
Unsec. LoansUnsec. Loans 4949 Debtors 26Debtors 26DebtDebt 257257 Cash & Bank 3Cash & Bank 3
Loans & AdvLoans & Adv 5959 131131
Current liabilitiesCurrent liabilities
Current liab 97Current liab 97ProvisionsProvisions 1414 111111
Net current AssetsNet current Assets 2020
TotalTotal 605605 605605
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Additional information Additional information
Investments include Rs.475 lacs investment in subsidiaryInvestments include Rs.475 lacs investment in subsidiary
Loans & Advances includes Rs.33 lacs advances toLoans & Advances includes Rs.33 lacs advances to
subsidiarysubsidiary
Secured loans include Rs.58 lacs bank financeSecured loans include Rs.58 lacs bank finance
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Recasting Balance Sheet & Profit & loss A/cRecasting Balance Sheet & Profit & loss A/c
Recast P/L A/c segment wise /Product wiseRecast P/L A/c segment wise /Product wise
Analyse fixed & variable cost Analyse fixed & variable cost
Slow moving drs to be classified as non currentSlow moving drs to be classified as non current
Slow moving / non moving stock as non currentSlow moving / non moving stock as non current
Advances / Deposits as non current Advances / Deposits as non current
Loans due within 1 year as current liabilitiesLoans due within 1 year as current liabilitiesShort term/ unsecured loans as current liabilitiesShort term/ unsecured loans as current liabilities
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TELLTELL-- TALE SIGNS!!TALE SIGNS!!
Deteriorating Debtors to Sales ratioDeteriorating Debtors to Sales ratio
Deteriorating Inventory Turnover ratioDeteriorating Inventory Turnover ratio Increasing reliance on Short Term LoansIncreasing reliance on Short Term Loans
Increasing CreditorsIncreasing Creditors I I Current LiabilitiesCurrent Liabilities
Deteriorating Current ratioDeteriorating Current ratio
Increased Off Increased Off --Balance Sheet financingBalance Sheet financing