Project on Published Corporate Annual Report of Muthoot Finance Ltd 2013- 14 ABSTRACT The project – REVIEWING PUBLISHED CORPORATE ANNUAL REPORT OF MUTHOOT FINANCE . An Annual Report is a comprehensive report on a company's activities throughout the preceding year . Annual reports are intended to give information about the company's activities and financial performance. Most jurisdictions require companies to prepare and disclose annual reports, and many require the annual report to be filed at the company's registry. The responsibility of Muthoot Finance is to conduct the audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. The first step of this project is to understand how company prepare all the essential report whole year and then submit annual report. To take an in depth knowledge of Financial Report, Accounting Policies, Annual Reports and different forms of reporting. The second step of this project is to understand and review the Annual Report made by company which notify the Financial Report, Accounting Policies and reports of all the transaction took place in the whole year. The details provided in the report are of use to investors and other interested person to understand the company's financial position and future direction.
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Project on Published Corporate Annual Report of Muthoot Finance Ltd 2013-14
ABSTRACT
The project – REVIEWING PUBLISHED CORPORATE ANNUAL REPORT OF
MUTHOOT FINANCE.
An Annual Report is a comprehensive report on a company's activities throughout the
preceding year. Annual reports are intended to give information about the company's
activities and financial performance. Most jurisdictions require companies to prepare and
disclose annual reports, and many require the annual report to be filed at the company's
registry.
The responsibility of Muthoot Finance is to conduct the audit in accordance with the
Standards on Auditing issued by the Institute of Chartered Accountants of India.
The first step of this project is to understand how company prepare all the essential report
whole year and then submit annual report. To take an in depth knowledge of Financial
Report, Accounting Policies, Annual Reports and different forms of reporting.
The second step of this project is to understand and review the Annual Report made by
company which notify the Financial Report, Accounting Policies and reports of all the
transaction took place in the whole year. The details provided in the report are of use to
investors and other interested person to understand the company's financial position and
future direction.
The final step of this project is to suggest measures to make this whole process more
Project on Published Corporate Annual Report of Muthoot Finance Ltd 2013-14
CONTENTS OF ANNUAL REPORT
1. STATUTORY :
a. Profit & Loss A/c
b. Balance Sheet
c. Director`s Report
d. Auditor`s Report
e. Notes to Accounts
2. ACCOUNTING STANDARDS :
f. Disclosure of accounting policies (AS 1)
g. Cash flow statement (AS 3)
h. Consolidated financial statements (AS 21)
i. Segment reporting (AS 17)
j. Related party Disclosures (AS 18)
3. LISTING REQUIREMENTS :
k. Cash flow statement
l. Management Discussion and Analysis
m. Report on corporate Governance
4. EXTENDED REPORTING :
n. Chairman`s speech
o. Financial highlights
p. Ten year`s summary
q. Value Added statement
r. Shareholder`s Information
s. Segment Reporting
t. Human Resource Accounting
u. Inflation Adjusted Accounts
v. Social Reporting
w. Important Ratios
x. Economic Value Added
y. Shareholder`s reference
z. Risk Management
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Project on Published Corporate Annual Report of Muthoot Finance Ltd 2013-14
Annual Report and Accounts - Contents
Contents: non-audited information
Narrative items
– Chairmen’s statement
– Directors’ report
– Operating and financial review
– Review of operations
– Statement of corporate governance
– Auditors report
– Statement of directors’ responsibilities for the financial statements
– Shareholder information
• Non-narrative
– Highlights
– Historical summary
– Shareholder analysis
Balance sheet
• A balance sheet is a statement of the resources owned and controlled by a business at a
single point in time.
• It gives a snapshot of assets, liabilities and capital at a point in time.
• It provides information about the company’s funds and how they are used in the business.
Profit and loss account
• The Profit and Loss Account is a statement which shows total business revenue less
expenses.
• The P&L account quantifies and explains the gains or losses of the company over the
period of time bounded by two balance sheets
• It provides a summary of the year’s trading activities:
– Revenue from sales (turnover)
– Business costs
– Profit or (loss)
– How the profit was used.
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Cash flow statement
• This is a statement which shows the flow of cash into and out of the business.
• It is not the same as a profit and loss account.
• The cash flow statement only records movements of cash and, for example, does not
include credit sales or purchases until such time as cash actually flows.
• This statement became mandatory because of some high profile business failures of the
1980s/90s - these were companies that, in terms of the P&L, were profitable but were short
of cash to pay their debts.
• The cash flow statement should not be confused with a cash flow forecast. The former is
historical whereas the latter is a forecast about the future.
Statement of total recognised gains and losses
• The STRGL is a financial statement which attempts to highlight all shareholder gains and
losses and not just those from trading.
• It is a summary of all the profits and losses made during the year.
• It is necessary because not all gains and losses are shown on the P and L account.
• Example: upward revaluation of a fixed asset is not classed as revenue from trading
operations and so it will not shown up on the P and L Account. It does show up as an
addition to revaluation reserves on the balance sheet.
Certification of the annual report
A company’s annual report must be provided with a certification that it is a true copy of the
original document. Read more on the page Certification of annual reports, see the menu.
Notes to the accounts
• Provides a more detailed analysis of some of the entries in the accounts
• Disclosure of accounting policies used (e.g. depreciation) and any changes to these
policies.
• An explanation for any deviation from accounting standards.
• Sources of turnover from different geographical areas.
• Details of fixed assets, investments, share capital, debentures and reserves.
•Directors emoluments (how much the Directors earned)
• Earnings per share.
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Accounting policies
• Companies must describe the accounting policies they use in preparing financial
statements.
• Companies have a choice of accounting policies in many areas such as foreign currencies,
goodwill, pensions, sales and stocks.
• As different accounting policies will result in different figures it is necessary to state the
policy that was used so that readers of the accounts can make an informed judgement about
performance.
• It is also important to state the effect of any changes in accounting policies – restating prior
year numbers where this is materially significant.
Chairpersons statement
• An overview of the trading year.
• A personalise overview of the company’s performance over the past year.
• Usually covers strategy, financial performance and future prospects.
Directors’ Report
• Its principal objective is to supplement the financial information with other information
consider necessary for a full appreciation of the companies activities. It includes:
• A description of the principal activities of the company.
• A fair review of the current and future prospects of the business.
• Information on the sale, purchase or valuation of assets.
• Recommended dividends.
• Employee statistics.
• Names of directors and their interests.
• Details of political or charitable donations.
Operating and financial review
• This is a statement in the annual report which provides a formalised, structured explanation
of financial performance.
• The operating review covers items such as operating results, profit and dividend.
• The financial review discusses items such as capital structure and treasury policy.
Operating and financial review
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Operating review
• New product development
• Details of shareholders returns
• Risks and uncertainties
• Future investment
• Sensitivity of financial results to specific accounting policies.
Financial review
• Current cash position.
• Sources of finding.
• Treasury policy.
• Capital structure.
• Confirmation of the business as a going concern.
• Factors outside the balance sheet impacting on the value of the business.
• Taxation.
Other features
• Highlights
– An “at a glance” summary of selected figures and ratios.
• Historical summary
– Five years of selected data from the balance sheet and profit and loss account
– Tables and graphs to illustrate trend and comparison of turnover, profit, dividend and
earnings per share.
• Shareholder analysis
– Detailed analysis of the shareholders, for example by size of shareholding.
Auditors report
• Auditors are independent accountants who are registered to carry out this work.
• They also have to certify that the accounts are drawn up in accordance with the
requirements of the Companies Act.
• Auditors must make a brief report to confirm that the accounts give a true and fair view of
the firm’s financial position.
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Shareholder`s fund and policy holder`s fund
•Shareholder`s fund are usually the shares in the company, any share issue premium,
retained profits and possibly other reserved that have been accumulated.
•Policy holder`s fund represents customer deposit plus interest credited at current rates.
CAG Report
CAG Report shows all receipts and expenditure of the government of India and the state
government.
Report of board of directors to member
Board of directors issue a report quarterly, half yearly and annually giving details about the
companies, policies, programs and formulating strategies about the company to members
Annual general meeting
Gathering of the directors and stockholders of every incorporated firm required.
Management report
Management report is the statement made by management and it is used to compare the
actual results achieved with the budgeted forecast levels. This report helps the management
to see where they went wrong and they apply measures to improve it.
Segment reporting schedule
In an annual report the purpose of business segment reporting is to provide an accurate
picture of a public company`s performance to its shareholder`s. For upper management,
business segment reporting is used to evaluate each segment`s income, expenses, assets,
liabilities and so on in order to assess profitability and riskiness.
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Project on Published Corporate Annual Report of Muthoot Finance Ltd 2013-14
NOTES TO ACCOUNTS
Financial Statements are prepared as per historical cost convention on accrual basis of
accounting. These statements comply with the companies Act 1956 and the Accounting
Standards issued by the ICAI. The significant Accounting Policies are about the following:
1. Fixed assets depreciation and amortisation
2. Investments
3. Inventories
4. Provision for doubtful debts/advances
5. Foreign currency transactions
6. Revenue Recognition
7. Retirement benefits
8. R & D
9. Excise / Custom duty
10. Income tax
11.Borrowing cost
12.Provision for current and Deferred Tax
13.Premium on Redemption of Debentures.
NOTES TO ACCOUNTS
Annual Report of every company must contain notes to accounts due to the following
1. Financial statements are prepared in vertical format in abridged form.
2. Notes to Accounts give the contents of every item in the financial statements.
3. Notes to Accounts explain the policies of the company.
4. Notes to Accounts bring out the effect of change in method of accounting on profits of
the company.
5. Details of the changes in policies are disclosed through notes.
6. The reader can interpret the financial statements with the help of Notes to Accounts.
7. Notes to Accounts explain about the compliance of SEBI Guidelines, RBI Guidelines,
Accounting Standards etc.
8. Notes to Accounts throw light on the methods/procedure of accounting followed by the
organisation.
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Project on Published Corporate Annual Report of Muthoot Finance Ltd 2013-14
Significant Accounting Policies in Financial Statements
Significant Accounting Policies are specific accounting principles and methods a
company employs and considers to be the most appropriate to use in current circumstances
in order to fairly present its financial statements. The disclosure of Accounting Policies helps
users of financial statements (e.g., investors, creditors, vendors) to understand how
particular accounting principles were used in preparing the company’s financial statements.
Description of significant accounting policies also helps in comparing financial statements of
different companies.
Disclosure of significant accounting policies should be done in the following situations:
A selection of existing acceptable alternatives.
Principles and methods that are specific in a particular industry in which the company operates.
Unusual or innovative application of GAAP.
Some areas for which significant accounting policies can be disclosed in financial statements are presented below:
Basis of consolidation Accounts receivables and determination of allowance for bad debts Advertising costs Cash and cash equivalents Changes in accounting policies Deferred income taxes Derivatives and hedging activities Fair value elections, methods, assumptions, inputs used Fiscal year (52-53 week year) Foreign currency translation Goodwill Impairment of long-lived assets, goodwill, other intangibles, investments, etc. Intangible assets Interest capitalization Internal-use software Inventories and their pricing (FIFO, LIFO, Weighted-average, etc.) Nature of operations Operating cycle Pension and other postretirement or postemployment plans Property and equipment and related depreciation and amortization Reclassifications Research and development costs and their basis of amortization Revenue recognition Stock-based compensation
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Shipping and handling costs Start-up costs Use of estimates Warranties
Companies normally present significant accounting policies in a separate note to financial
statements or in a separate summary of significant accounting policies preceding the notes
to financial statements.
RATIO TO ANALYSE FINANCIAL STATEMENT
Annual reports contain information about financial highlights and the key indicators. The key
ratios are given for the last 10 years. These ratios help to interpret financial position of the
company. The analyst should draw conclusion about the following from the reported ratios:
1. Liquidity Position With the help of ratio conclusions can be drawn about liquidity position of a company.
Liquidity is the ability of a company to meet its current obligations when they become
due. A firm is said to have food liquidity position when it has sufficient liquid assets to
meet the current obligations.
2. Long term Solvency
Ratio analysis is useful for assessing the long term financial position of a company.
The position can judged from capital structure ratio, debt equity ratio and proprietary
ratio.
3. Operating efficiency
Operating efficiency of the management is judged from operating ratio, net operating
profit ratio, inventory turnover, debt collection etc.
4. Overall Profitability
It is the ability of the company to generate adequate income so that the shareholders
can be rewarded adequately. This is judged from return on investment, return on
equity capital, E.P.S etc.
5. Utilisation of resources
The management efficiency in utilization of resources can be judged from assets
turnover ratios, return on investment etc.
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Project on Published Corporate Annual Report of Muthoot Finance Ltd 2013-14
CHAPTER - II
MUTHOOT FINANCE LIMITED
Muthoot Finance was founded by M George Muthoot in 1939.Muthoot Finance to enter
capital market through IPO route - Economic Times. The company has been licensed by
Reserve Bank of India under Section 45 I (a) of the RBI Act, 1934 to function as a Non-
banking financial company (NBFC) without accepting public deposits and is specifically
exempted from the provisions of the Money Lenders Act in Karnataka and other states. The
company's gold loan business constitutes more than 99 percent of its total income. Its retail
loan assets stand at Rs. 23,763 Crs. the total number of shares of Muthoot Finance held by
Individuals/Hindu Undivided Family stood at 80.12 percent and the public shareholdings from
Mutual Funds/UTI totalled 3.52 percent.
Muthoot finance is a flagship company of the Muthoot Group based in Southern India.
Company was formed with a vision of “creating an organization capable of serving the
versatile need of the growing Indian financial market” the focus of the company is on
creating liquidity with an asset class, namely gold that has the largest consumer market.
Muthoot Finance Ltd (MFL), incorporated in 1997, is the Kerala based largest gold financing
company in India in terms of loan portfolio. The company offers gold loan to individuals like
small businessmen, vendors, traders, and salaried individuals who cannot access formal
credit for reasons like lack of credit history, documentation, accessibility. They have
deployed 25000 people in over 4400 branches spread over 21 states and 4 union Territories.
Muthoot finance is a major market player dedicated to make a positive impact on countless
people ranging from farmers to salaried employees seeking financial aid. The target market
of Muthoot Finance includes small businesses, vendors, farmers, traders, SME business
owners, and salaried individuals.
Muthoot finance India Ltd has 4,270 branches across 26 states and Union Territories,