Financial statement analysis session 1.ppt

8/11/2019 Financial statement analysis session 1.ppt

1/31

Financial

statement

analysis


2/31

Financial StatementsBasic Relationships

Financial Statements

Cash Flow Statement

Profit & Loss AccountBalance Sheet

Primary


3/31

Tools India Ltd.

Profit & Loss Account

For the year ended December 31, 2000

Amount in 000 in Rs.

Sales Net 255

Other income 5

Total Revenue 260

Cost of goods sold 130

Gross profit 130

Operating expenses:

Personnel 49

Depreciation 11

Other expenses 28

Operating profit 42Interest 12

Profit before taxes 30

Income tax provision 12

Net profit after tax 18


4/31

Data used for analysis

Absolute terms (Size issue)

Net profits of Companies X, Y and Z; for

the year ended 31stMarch, 2010 are Rs.

100 each.

Sales of Companies X, Y and Z for the

year ended 31st

March, 2010 are Rs.1000, 10,000, 20,000 each

Net profit to sales ratio for X, Y, Z stands

at 10%, 1% and 0.5%


5/31

Data in relational form

Analysis within one financial statement??

Common size statements/intra component

analysis

Analysis across financial statements??

Ratio analysis/inter component analysis


6/31

Data in comparative form

Comparisons of current performance canbe made: With Companys past performance (trend

analysis/longitudinal analysis) With Competing Firms (Cross section analysis) Comparison of same variable over number of years

and across competing firms (pooled analysis)

With Industry averages With pre determined standards or budgets (for

internal users)


7/31

Financial analysis cont..

Year/Company X Y Z

Industry

average

Y1 10 160 150 106.67

Y2 20 155 135 103.33

Y3 30 150 120 100.00

Y4 40 145 105 96.67

Y5 50 140 90 93.33

Y6 60 135 75 90.00Y7 70 130 60 86.67

Y8 80 125 45 83.33

Y9 90 120 30 80.00

Y10 100 115 15 76.67

(sales in 000s in Rs.)


8/31

Time series analysis

10

20

30

40

50

60

70

80

90

100

0

20

40

60

80

100

120

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

X

X


9/31

Cross section analysis

10

160

150

0

20

40

60

80

100

120

140

160

180

X Y Z

Y1

Y1


10/31

Cross section analysis

0

20

40

60

80

100

120

140

X Y Z

Y10

Y10


11/31

Pooled series analysis

10

20

30

40

50

60

70

80

90

100

160155

150145

140135

130125

120115

150

135

120

105

90

75

60

45

30

15

0

20

40

60

80

100

120

140

160

180

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

X

Y

Z


12/31

Industry level comparison

0

20

40

60

80

100

120

140

160

180

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

X

Y

Z

Industry average


13/31

Industry level comparison


14/31


15/31


16/31

Common size financial statements/

intra-component analysis


17/31

Express each item on a particular statementas a percentage of a single base amount.

Total assets

on the balance

sheet

Net sales

on the income

statement

Common size financial statements/

intra-component analysis


18/31

Balance sheet of Vinyl Chemicals Limited as

on 31stMarch..

All figures in Rs. Crores

Liabilities 2002 2001 Assets 2002 2001

Current liabilities 8.18 8.64

Cash and bank

balance 1.01 1

Long term

liabilities 12.32 8.08

Accounts

receivables 16.74 13.01

Owners' equity 53.18 49.55

Loans and

advances 3.76 3.44

Inventories 11.53 11.98

Total current assets 33.04 29.43

Other Assets 3.42 4.41

Fixed assets (net) 37.22 32.43

Total 73.68 66.27 Total 73.68 66.27

Vinyl Chemicals Ltd is a mid

sized organic chemicals

manufacturer owned by the

Pidilite Parekh group


19/31

Common size/Intra component analysis for

balance sheet

Liabilities 2002 2001 Assets 2002 2001

Current liabilities 11.10 13.04

Cash and bank

balance 1.37 1.51

Long term liabilities 16.72 12.19 Accounts receivables 22.72 19.63

Owners' equity 72.18 74.77 Loans and advances 5.10 5.19

Inventories 15.65 18.08

Total current assets 44.84 44.41

Other Assets 4.64 6.65

Fixed assets (net) 50.52 48.94

Total 100 100 Total 100 100


20/31

Assets Industryaverage 2002 2001

Cash and bank balance 2.00 1.37 1.51

Accounts receivables 21.00 22.72 19.63

Loans and advances 7.00 5.10 5.19

Inventories 25.00 15.65 18.08

Total current assets 55.00 44.84 44.41

Other Assets 3.4 4.64 6.65

Fixed assets (net) 41.60 50.52 48.94

Total 100 100 100

Assets side


21/31

Liabilities side

Liabilities

Industry

average 2002 2001

Current liabilities 12 11.10 13.04

Long term liabilities 22 16.72 12.19

Owners' equity 66 72.18 74.77

Total 100 100 100


22/31

Income statement of Vinyl Chemicals

Limited for the year ended 31stMarch..

All figures in Rs. Crores

2002 2001

Net Sales 92.46 88.18

COGS (87.17) (90.04)Gross Profits 5.29 -1.86

Non -operating incomes 3.18 1.11

Interest expense (0.82) (0.58)

Profits before taxes 7.65 -1.33Taxes (1.62) 0

Profits after taxes 6.03 -1.33

Dividends 1.83 0


23/31

Common size/Intra component

analysis for income statement

2002 2001

Net Sales 100.00 100.00

COGS (94.28) (102.11)

Gross Profits 5.72 -2.11Non -operating incomes 3.44 1.26

Interest expense (0.89) (0.66)

Profits before taxes 8.27 -1.51

Taxes (1.75) 0.00

Profits after taxes 6.52 -1.51

Dividends 1.98 0.00


24/31

Common size/Intra component

analysis for income statement

Industry

average 2002 2001

Net Sales 100 100.00 100.00

COGS (83) (94.28) (102.11)Gross Profits 17 5.72 -2.11

Non -operating incomes 0.5 3.44 1.26

Interest expense (1.5) (0.89) (0.66)

Profits before taxes 16 8.27 -1.51Taxes (5) (1.75) 0.00

Profits after taxes 11 6.52 -1.51

Dividends 5 1.98 0.00


25/31

Ratio analysis/Inter component

analysis


26/31

Financial ratios

Liquidity ratios

Efficiency ratios

Current assets

Long lived assets

Solvency ratios (financial leverage)

Profitability ratios Margin on sales

Overall profitability/Return on investment


27/31

Liquidity ratios

Current AssetsCurrent Ratio =Current Liabilities

Factors to be considered:

Composition of current assetsSpeed of conversion of current assets

into cash

Speed of maturity of current liabilities


28/31

Liquidity ratios cont

Quick (Acid-Test) Ratio (QR)

Current AssetsInventoryprepaid expense

QR = Current Liabilities

Absolute liquid ratio (ALR) =

Absolute liquid assetsALR = Current Liabilities

Absolute liquid assets = Cash + Bank Balance +Marketable Securities


29/31

Expenses Cover

Expense cover ratio (ECR) =

Cash and cash equivalentsECR =

Average daily operating expenses

Measured in days


30/31

Example

Particulars 20X4 20X3

Cash (Rs Million) 19 11

Average Daily expenses (Rs Million) 0.6027 0.5726

Cash holding

sufficient for a

months

expenses

Cash cover (number of days) 32 19


31/31

The balance sheet of Shreyas Ltd. as on 31st

March, 2006 was follows:

Liabilities Rs. Assets Rs.Share capital 650000 Goodwill 265500

Capital Reserve 2500 Land 129000

General Reserve 162910 Premises 150000

P&L A/c 18777 Plant 234395

5% Debentures 157500 Furniture 8575

Sundry Creditors 73900 Stock 196770

Proposed Dividends 75000 Debtors 227617

Provision for Taxation 25000 MF Liquid Scheme Units 71400

Cash and Bank 121280

Total 1165587 Total 1165587

From the above information compute:

a) Current Ratio

b) Quick Ratio

c) Absolute liquid ratio

Financial statement analysis session 1.ppt

Documents