ABOUT MYSELF • Name : Sarbesh Mishra. • Qualifications : 1. B.Com.(Hons) 2. Post-graduate Commerce. 3. M.Phil (Commerce) 4. Ph.D. (Commerce) submitted. • Experience : Joined University of Delhi as Lecturer in Commerce in 2001 and continued till 2005 and then joined Army Institute as Senior Faculty, Finance Area prior to current appointment at NICMAR.
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ABOUT MYSELF
• Name : Sarbesh Mishra.• Qualifications : 1. B.Com.(Hons)
submitted.• Experience : Joined University of Delhi as
Lecturer in Commerce in 2001 and continued till 2005 and then joined Army Institute as Senior Faculty, Finance Area prior to current appointment at NICMAR.
Need of Knowing Finance – A Managerial Perspective
byMr. Sarbesh Mishra,
Assistant Professor, Finance Area.National Institute of Construction Management
& Research (NICMAR)
COVERAGE UNDER THIS TOPIC• INTRODUCTION• BASIC CONCEPTS• LEGAL FRAMEWORK & BRIEF REVIEW OF
PROVISIONS• THE BALANCE SHEET & ITS KEY ELEMENTS• THE PROFIT & LOSS A/C & ITS KEY ELEMENTS
Qs:- If I have no intention of becoming a financial manger, why do I need to, understand financial applications / Analyse of Financial statements?
• The successful manager will need to be much more of a team player that has the knowledge and ability to move not just vertically within an organization but horizontally as well. Developing cross-functional capabilities will be the rule, not the exception.
Contd….
• The mastery of basic financial management skills is key ingredient that will be required in the work place of yours not in too distant future.
• Finance is the study of money management, the acquiring of funds (cash) and the directing of these funds to meet particular objectives. Good financial management helps businesses to maximize returns while simultaneously minimizing risks.
Hierarchy of Finance in any Project
1. Technical Appraisal
2. Financial Appraisal
Goal Of The Firm
“STAKEHOLDER WEALTH MAXIMISATION”
Goal
ASSETS
EQUITY DEBT
Creating the Firm
Goal Of The Firm
ASSETS SALES
Building Up The Firm
Goal Of The Firm
ASSETS SALES EARNINGS
Building Up The Firm
Goal Of The Firm
Goal Of The Firm
ASSETS SALES EARNINGS
INTEREST
Building Up The Firm
DIVIDEND
Goal Of The Firm
ASSETS SALES EARNINGS
INTEREST
The Key Links *
DIVIDEND
A T/O*
NPM*
*Payout
Rate???
Goal Of The Firm
ASSETS SALES EARNINGS
INTEREST
Dividend Policy And Re-investment Rate: The Critical Factor
DIVIDEND
A T/O*
NPM*
*Payout
At what rate /cost ???
Finance Measures
Cost
Revenue
Profit
ROI
EVA
UNDERSTANDING FINANCE & ACCOUNTS
What is the NEED for this ?
MANAGERS, SHAREHOLDERS, CREDITORS, ETC. WANT TO KNOW :
• WHAT IS THE FINAN-CIAL POSITION OF THE FIRM AT A GIVEN POINT OF TIME ?
• HOW HAS THE FIRM PERFORMED FINANCIALLY OVER A GIVEN PERIOD OF TIME ?
• ANSWER GIVEN BY THE FIRM’S BALANCE SHEET
• ANSWER GIVEN BY THE FIRM’S PROFIT & LOSS ACCOUNT
• Compulsory for Cos. to keep proper books of accounts & to prepare annual statements in the prescribed form & time. (Secs.209-223)
BRIEF REVIEW OF PROVISIONS
• PREPARATION OF FINAL STATEMENTS (Sec.210) :- To present B/S & P&L A/c at every AGM.- Period for A/cs is “Financial Year”.- Responsibility fixed on co.’s Directors.- Punishment laid down for non-compliance.
• FORM & CONTENTS OF P&L A/C & B/S (Sec.211) : - To give a TRUE & FAIR view of state of affairs. - B/s to be in form set out in Sch.VI or as near thereto. - Slightly diff. forms for banking, insurance & electricity companies governed by special statutes.
• REPORTS REQUIRED TO BE ATTACHED WITH B/S : - Auditor’s (including special or supplementary,if any) - Directors’.
BRIEF REVIEW (Contd.)
• AUTHENTICATION OF B/S & P&L A/C (Sec.215) :
- Reqd. to be signed by atleast 2 Directors (including MD, if there is one) & Secretary.
• FILING OF ACCOUNTS (Sec.220) :- 3 sets of final accounts & other documents
to be filed with the Registrar of Companies within 30 days of annual general meeting.
BALANCE SHEET
Sec 211 : Form to be as prescribed in Part I of Schedule VI
- Horizontal form- Vertical form
HORIZONTAL FORM OF B/S LIABILITIES ASSETS
• Share Capital• Reserves and Surplus• Secured Loans• Unsecured Loans• Current Liabilities and
Provisions
• Fixed Assets• Investments• Current Assets, Loans
and Advances• Misc. Expenditures
and Losses
SIS LTD. ANNUAL ACCOUNTS BALANCE SHEET
(Figs. in Rs./Lacs)
Sources of Funds as at 30th as at 30th Sep., 2004 Sep., 2003
1. Shareholders’ Funds (i) Capital 736.95 736.95 (ii) Reserves And Surplus 14,856.94 14,464.92
borrowings without Promoters, 3) Inter-corporate Borrowings and 4) any
specific securities) Short-term Loans & Advances from Banks.
• Current Liabilities & Provisions : 1) Bills Payable, 2) Payments (obligations maturing Received in Advance, 3) Accrued Expenses, 4) within the next 1 year) Unclaimed Dividends & 5) Provisions for Taxes,
Insurance Premia, Pensions, Dividends, etc.
ASSETS• Fixed Assets : Used over relatively long periods for the business
Ordinarily not meant for resalee.g. Land, Buildings, Plant & Machinery, Patents & Copy-rights, Goodwill, etc.
• Investments : Financial securities owned by the firme.g. Investments in govt. securities, equity shares of other companies, debentures, etc.
• Current Assets, Loans: Resources convertible into cash during and Advances operating cycle of firm
e.g. Cash in hand or bank, Sundry Debtors (Bills Receivable)Inventories, Loans & Advances and Prepaid Expenses.
• Miscellaneous Expenditures and Losses :e.g. Preliminary or Pre-operative Expenses not written off, Commission/ Brokerage on underwriting or subscription ofshares/debentures, Net Loss carried forward from P&L A/c.
PROFIT & LOSS ACCOUNT (Also known as INCOME STATEMENT)
NO STANDARD OR SPECIFIED FORMAT UNDER INDIAN COMPANIES ACT. However, as per Part II of Schedule VI, any format must disclose the following :
Net Turnover or Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Profit Non-operating Surplus/Deficit Profit Before Interest and Tax (PBIT) Interest Profit Before Tax (PBT) Tax Profit After Tax (PAT)
FORMAT OF A TYPICAL P&L A/C EXPENSES INCOME
• Raw Materials Consumed• Salaries & Wages• Power, Fuel & Water• Repairs & Maintenance• Insurance• Depreciation• Miscellaneous Expenses• Profit Before Interest & Tax• Interest• Profit Before Tax• Provision for Tax• Profit After Tax (i.e. Net Profit)
• Sales• Other Income
PROFIT & LOSS A/C
INCOME (Figs. in Rs.lakhs)
For the year ended 30th Sep., 30th Sep.,
2004 2003
1. Sales 28,420.39 23,868.132. Other income 2,137.68 1,539.64
• Cost of Goods Sold : Sum of costs incurred for manufacturing the goods SOLD during the accounting period. Consists of DIRECT MATERIAL COST, DIRECT LABOUR COST and FACTORY OVERHEADS.
• GrossProfit : Net Sales - Cost of Goods Sold
• Operating Expenses : - General Administrative Expenses - Selling & Distribution Expenses - Depreciation