Financial Statements

1
Financial Statements

• Issues for discussion

2
FS

• BD FI FS
• FS
• BS Sources and Assets
• IS Incomes and Expenses
• CFS Receipts and Payments

3
Why to analyse FS?

• To understand the performance
• What is performance?
• To predict the future performace
• To predict bankruptcy
• For Equity and Credit Rating

• Manager
• Investor
• Equity
• Debt
• Tax authority
• Government
• Analysts

4
Tools of FSA

• Ratio Analysis
• Dupont Analysis
• Common Size statements
• Comparative Statements
• Trend Analysis

• Comparison
• Inter-firm Comparison
• Intra-firm Comparison
• Ratio Relationship between two variable

5
What to compare?

• Profitability
• Profit Generating Ability (PBIT)
• Profit Distributing Ability ( PAT)
• Liquidity Ability to meet the ST liabilities
• Solvency Ability to meet the LT liabilities
• Efficiency Ability to use the assets optimally
• Performance f( L,S,E,P)

6
Ration Analysis

• Ratio Relationship between two variables
• Ratios can be presented
• Xy
• Days or months
• Times

7
Ratios Classification

• On the basis of the source of the items
• Balance Sheet Ratios (DER)
• Income Statement Ratios (P to Sales )
• Combined Ratios (ROI)

• Functional Classification
• Liquidity Ratios
• Solvency Ratios
• Efficiency Ratios
• Profitability Ratios

8
Liquidity Position

• Working Capital CA - CL
• Current Ratio CA/CL

9
Liquidity Ratios

• LR are set of ratios which will provide an answer
  to the following questions
• Can the company meet its STL ?
• Current Ratio
• How are the assets being financed?

10
Current Ratios

• CR shows the relationship between CA and CL
• CA Cash Debtors Stock Other CA
• CL Creditors OS Expenses Other CL

• Definition
• Components
• Interpretation
• Application

11
Current Ratio

• Higher the CR better is the liquidity
• Howerver the CR has the following limitations
• It ignores the quality of the assets
• It is subject to window dressing

12
Current Ratios

• Window dressing Showing better picture This
  limitation can be addressed by calculating the
  following ratios
• Liquid Ratio CA Stock/CL
• Abosulte Cash Ratio CA Stock Debtors/CL

• Focus on quantity not on the quality