Understanding Financial Statement / Report

Understanding Financial Statment / Report ( Annual Report)

Dahej LNG TerminalGIDC Industrial Estate, Plot No.7/A, Dahej,Talukavagra, Distt. Bharuch-Gujarat - 392130Tel. : 02641- 257004 to 257007 & 253182Fax : 02641- 253179 & 300310

Prepared by…

Mayur Khatri

What is Balance Sheet?

• Balance Sheet is the snap shot of financial strength of any company at any point of time. (usually within 12 months) It gives the details of the assets and the liabilities of the company. Understanding balance sheet is very important because it gives an idea of the financial strength of the company at any given point of time.

Major Heads of Balance Sheet

Liabilities:-1. Share Capital2. Reserve and Surplus3. Secured Loans4. Unsecured Loans5. Current Liabilities and Provisions

Assets :-1. Fixed Assets2. Investments3. Current Assets, Loans of Advances4. Miscellaneous Expenses5. Profit and Loss Account (Debit balance)

Liabilities Site of balance SheetLNG limited

Asset Site of balance SheetLNG limited

Notes & Understanding of Financial Statements

Additional information provided in a company's financial statements. Notes to the financial statements report the details and additional information that are left out of the main reporting documents, such as the balance sheet and income statement.

Note 1. Share capital

Funds raised by issuing shares in return for cash or other considerations. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase. Share capital can be composed of both common and preferred shares.

Also known as "equity financing".

Note 2. Reserve & Surplus

Reserves and surplus:

At the end of an accounting period the company may decide to transfer part of the profits to a reserve and retain the balance in the profit and loss account. The reserve created out of profits transferred from profit and loss account is called general reserve. The balance in the profit and loss account is called a surplus and will be shown under this head in the balance sheet.The company can use the general reserve for various purposes including issue of bonus shares to shareholders and payment of dividend when profits are insufficient.

Note 3. Long Term Borrowing

Loans and financial obligations lasting over one year. Long-term debt for a company would include any financing or leasing obligations that are to come due in a greater than 12-month period. Such obligations would include company bond issues or long-term leases that have been capitalized on a firm's balance sheet.

Note 4. Fixed Assets

Fixed Asset:

An asset not readily convertible to cash that is used in the normal course of business. Examples of fixed assets include machinery, buildings, and fixtures. A firm whose total assets are made up primarily of fixed assets is in a less liquid financial position, thus entailing greater risk of a big tumble in profits if its revenues fall.

Note 5. Investment

An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time.

Note 6. Current Asset

A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.  

Note 7. Inventories

The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.

Note 8. Sundry Debtors

SUNDRY DEBTOR : is an entity from who amounts are due for goods sold or services rendered or in respect of contractual obligations. Also termed: debtor, trade debtor, and account receivable.

more understandable detail

Miscellaneous small or infrequent customers that are not assigned individual ledger accounts but are classified as a group.

Note 9. Cash & Bank Balance

bank balance:A bank balance is that amount which is actually deposited in any of the bank. or the amount which has been credited in your bank account. cash balance:It is an amount which is there in your hand. i.e., it is otherwise called as cash in hand. or else we can say that the hot cash which is there with you right now is called as a cash balance.

Note 10. Loan & Advance

Loans and advances are general descriptions of debt obligations companies owe and must show on their balance sheet as part of total liabilities. Formal contracted loans are typically designed as "notes payable" on a balance sheet, whereas advances or purchases on credit are recorded as accounts payable.

Note 11. Current Liabilities

Current liabilities are the debts a company owes which must be paid within one year. They are the opposite of current Assets. Current liabilities includes things such as short term loans, accounts payable, dividends and interest payable, bonds payable, consumer deposits, and reserves for Federal taxes.

Note 12. Other Income

Income for a company that comes from anything other than its ordinary operations. Other income includes items such as interest from the company's bank accounts, profit from the sale of a fixed asset, and so forth. Other income is not recurring and, as a result, is not included in some calculations of profit or loss.

Note 13. Revenue from Operations

Income derived from sources related to a company's everyday business operations. For example, in the case of a retail business, inventory sales generate operating revenue, whereas the sale of a warehouse does not. Instead, the latter sale is considered to be an unexpected, or "one-time", event.

Note 14. Employee benefit expenses

Employee benefits are indirect means of compensating workers; employees receive these benefits above and beyond their wages. Unlike wages alone, benefits foster economic security and stability by insuring beneficiaries against uncertain events such as unemployment, illness, and injury. Furthermore, some benefit programs serve to protect the income and welfare of families.

Note 15. Finance Cost

Finance costs are also known as “financing costs” and “borrowing costs”. Companies finance their operations either through equity financing or through borrowings and loans. These funds do not come for free. The providers of funds want reward for against there funds.

Note 16. Other Expenses

Other Expense accounts reflect expenses that your company incurs that are not related to your normal business operations its is general expenses. These expenses are grouped with Other Income accounts at the bottom of the Profit and Loss report.

Understanding Cash Flow Statement

• What is Cash Flow Statement.?

A cash flow statement is important to business because it can be used to assess the timing, amount and predictability of future cash flows and it can be the basis for budgeting. A cash flow statement can answer the questions, “Where did the money come from?” and “Where did it go?”

• Focuses on the liquidity of a business, by measuring cash inflows and outflows.

• Three components of cash flow statement:– +/- Operating Cash Flows– +/- Investing Cash Flows– +/- Financing Cash Flows

Operating Activities

Outflows:• Pay wages• Purchase inventory• Pay other expenses• Pay interest• Pay taxes

Inflows:• Sale of goods• Revenue from

services• Interest income

Investing Activities

Inflows: • Sale of fixed assets• Sale of investment

securities

Outflows:• Purchase of fixed

assets• Purchase of

investment securities

Financing Activities

• Inflows:• New loans• Sale of stock

Outflows:• Repayment of loans• Repurchase of a firm’s

own securities (treasury stock)

• Payment of dividends

Financing Activities

• Inflows:• New loans• Sale of stock

Outflows:• Repayment of loans• Repurchase of a firm’s

own securities (treasury stock)

• Payment of dividends

Methods For preparing Cash flow Statement

The Direct MethodThe first method performed will be the direct method of calculating cash flow. This method combines information from both the Income Statement and the Cash Flow worksheet we created using the Balance Sheet.

The Indirect MethodThe second method used to calculate the Cash Flows from Operating Activities is referred to as the Indirect Method. Using the Indirect Method, cash flows from Operating Activities are reported by adjusting net income for revenues, expenses, gains, and losses that appear on the income statement but do not have an effect on cash.