Financial Statement Analysis 2

FINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSIS

In the previous class, we started In the previous class, we started

with Financial Statement Analysis with Financial Statement Analysis

……

Financial Statement Analysis …

•No#1… Understanding

•No#2… Analysis

FINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSISFirst, we proceed for understanding financial statements of Tata Steel …

First, we take Balance sheet …

…Sources of Funds Side

Particulars 2007 2008

SOURCES OF FUNDS:SHAREHOLDER'S FUNDS

Share Capital 580.67 6,203.30 Share Warrants 147.06 Reserves and Surplus 13,368.42 21,097.43

Total Shareholders' Fund 14,096.15 27,300.73

LOAN FUNDSSecured Loans 3,758.92 3,520.58 Unsecured Loans 5,886.41 14,501.11

9,645.33 18,021.69

DEFERRED TAX LIABILITY (NET) 748.94 681.80

PROVISION FOR EMPLOYEE SEPARATION COMPENSATION 1,107.08 1,071.30

TOTAL 25,597.50 47,075.52

(Rs. in Crores)

BALANCE SHEET OF TATA STEEL LIMITED AS AT 31ST MARCH…

9,645.33 18,021.69

TOTAL 25,597.50 47,075.52

(Rs. in Crores)

9,645.33 18,021.69

TOTAL 25,597.50 47,075.52

(Rs. in Crores)

9,645.33 18,021.69

TOTAL 25,597.50 47,075.52

(Rs. in Crores)

9,645.33 18,021.69

TOTAL 25,597.50 47,075.52

(Rs. in Crores)

9,645.33 18,021.69

TOTAL 25,597.50 47,075.52

(Rs. in Crores)

9,645.33 18,021.69

TOTAL 25,597.50 47,075.52

(Rs. in Crores)

Now, let’s move to …

…Application of Funds Side

BALANCE SHEET OF TATA STEEL LIMITED AS AT 31ST MARCH…(Rs. in Crores)

APPLICATION OF FUNDS

FIXED ASSETS

Gross Block 18,526.93 20,847.04

Less: Amortization 100.41 100.47

Less: Depreciation 7,385.96 8,123.01

Net Block 11,040.56 12,623.56

Capital Work in Progress

11,040.56 12,623.56

INVESTMENTS 6,106.18 4,103.19

CURRENT ASSETS, LOANS & ADVANCES

Inventories: Stores and Spare Parts 505.44 557.67

Inventories: Stock-in-Trade 1,827.54 2,047.31

Sundry Debtors 631.63 543.48

Cash in Hand and at Bank 7,681.35 465.04

Loans and Advances 3,055.73 33,348.74

Interest Accrued on Investments 0.20 0.20

13,701.89 36,962.44

Less: CURRENT LIABILITIES & PROVISIONS

Current Liabilities 3,523.20 3,855.26

Provisions 1,930.46 2,913.52

5,453.66 6,768.78

Net Current Assets 8,248.23 30,193.66

Miscellaneous Expenses (to the extent not written off or adjusted) 202.53 155.11

TOTAL 25,597.50 47,075.52

FIXED ASSETS

Gross Block 18,526.93 20,847.04

Net Block 11,040.56 12,623.56

11,040.56 12,623.56

INVESTMENTS 6,106.18 4,103.19

13,701.89 36,962.44

Provisions 1,930.46 2,913.52

5,453.66 6,768.78

TOTAL 25,597.50 47,075.52

FIXED ASSETS

Gross Block 18,526.93 20,847.04

Net Block 11,040.56 12,623.56

11,040.56 12,623.56

INVESTMENTS 6,106.18 4,103.19

13,701.89 36,962.44

Provisions 1,930.46 2,913.52

5,453.66 6,768.78

TOTAL 25,597.50 47,075.52

FIXED ASSETS

Gross Block 18,526.93 20,847.04

Net Block 11,040.56 12,623.56

11,040.56 12,623.56

INVESTMENTS 6,106.18 4,103.19

13,701.89 36,962.44

Provisions 1,930.46 2,913.52

5,453.66 6,768.78

TOTAL 25,597.50 47,075.52

FIXED ASSETS

Gross Block 18,526.93 20,847.04

Net Block 11,040.56 12,623.56

11,040.56 12,623.56

INVESTMENTS 6,106.18 4,103.19

13,701.89 36,962.44

Provisions 1,930.46 2,913.52

5,453.66 6,768.78

TOTAL 25,597.50 47,075.52

FIXED ASSETS

Gross Block 18,526.93 20,847.04

Net Block 11,040.56 12,623.56

11,040.56 12,623.56

INVESTMENTS 6,106.18 4,103.19

13,701.89 36,962.44

Provisions 1,930.46 2,913.52

5,453.66 6,768.78

TOTAL 25,597.50 47,075.52

FIXED ASSETS

Gross Block 18,526.93 20,847.04

Net Block 11,040.56 12,623.56

11,040.56 12,623.56

INVESTMENTS 6,106.18 4,103.19

13,701.89 36,962.44

Provisions 1,930.46 2,913.52

5,453.66 6,768.78

TOTAL 25,597.50 47,075.52

FIXED ASSETS

Gross Block 18,526.93 20,847.04

Net Block 11,040.56 12,623.56

11,040.56 12,623.56

INVESTMENTS 6,106.18 4,103.19

13,701.89 36,962.44

Provisions 1,930.46 2,913.52

5,453.66 6,768.78

TOTAL 25,597.50 47,075.52

FIXED ASSETS

Gross Block 18,526.93 20,847.04

Net Block 11,040.56 12,623.56

11,040.56 12,623.56

INVESTMENTS 6,106.18 4,103.19

13,701.89 36,962.44

Provisions 1,930.46 2,913.52

5,453.66 6,768.78

TOTAL 25,597.50 47,075.52

Now, let’s move towards Now, let’s move towards understanding of ……understanding of ……

PROFIT AND LOSS ACCOUNT…PROFIT AND LOSS ACCOUNT…

TOP – LINE OF TATA STEEL

INCOMESale of Products and Services 19,762.57 22,191.80

Less: Excise Duty 2,210.55 2,498.52 17,552.02 19,693.28

Other Incomes 433.67 335.00

Total Income 17,985.69 20,028.28

PROFIT AND LOSS ACCOUNT OF TATA STEEL LIMITED FOR THE YEAR ENDING ON 31ST MARCH…

(Rs. in Crores)

M – L

EXPENDITUREManufacturing, and Other Expenses 10,814.77 11,645.24 Depreciation 819.29 834.61

11,634.06 12,479.85

Less: Expenditure (Other than Interest) Transferred to Capital and Other Accounts

236.02 175.50

11,398.04 12,304.35

Interest 173.90 878.70

Total Expenditure 11,571.94 13,183.05 PROFIT/(LOSS) BEFORE TAXATION AND

EXCEPTIONAL ITEMS 6,413.75 6,845.23

Employee Separation Compensation (152.10) 221.13 Profit on the Sale of Long-Term InvestmentsContribution For Sports Infrastructure (150.00)Exchange Gain/ (Loss) 597.31

PROFIT/(LOSS) BEFORE TAXATION 6,261.65 7,066.36 Current Tax 2,076.01 2,252.00 Education Cess on Income TaxFringe Benefit Tax 16.00 19.00 Deferred Tax (52.51) 108.33

PROFIT/(LOSS) AFTER TAXATION 4,222.15 4,687.03

(Rs. in Crores)

APPROPRIATION OF PROFIT OF TATA STEEL

Particulars 2007 2008APPROPRIATION OF PROFIT

PROFIT/(LOSS) AFTER TAXATION 4,222.15 4,687.03 Add:

Balance brought forward 2,976.16 4,593.98

PROFIT/(LOSS) AVAILABLE FOR APPROPRIATION

7,198.31 9,281.01

APPROPRIATIONProposed Dividend 943.91 1,168.93

Dividend on Cumulative Convertible Preference Shares

Tax on dividend 160.42 202.43 General Reserve 1,500.00 1,500.00 Balance Carried to The Balance Sheet 4,593.98 6,387.46

Total 7,198.31 9,281.01

(Rs. in Crores)

Now, we move to …Now, we move to …

CASH FLOW STATEMENT …

2007 2008

6261.65 7066.36

819.29 834.61

(11.19) (28.26)

(15.63) (9.98)

— —

6.22 0.06

(82.69) (124.30)

0.10 —

— —

(77.35) (50.33)

(324.16) (170.67)

251.25 929.03

152.10 226.18

0.97 0.95

65.10 57.99

150.00

(743.60)

7045.66 8138.04

(21.94) (143.44)

(158.22) (272.00)

512.04 806.34

331.88 390.90

7377.54 8528.94(2034.59) (2060.20)

5342.95 6468.74(224.85) (214.54)

5118.10 6254.20

Amount received on cancellation of forward covers/ options

Reversal of Impairment Loss

Impairment of Assets

Contribution for sports infrastructure written off

Exchange (Gain)/ Loss on revaluation of foreign currency loans

Direct Taxes paid

Cash Flow before Exceptional ItemEmployee Separation Compensation paid

Net Cash Flow from Operating Activities

Inventories

Trade and other Payables

Cash Generated from Operations

Operating Profit before Working Capital Changes

Adjustments forTrade and other Receivables

Amortisation of long term loan expenses

(Profit)/ Loss on sale of long term investments

Interest charged to Profit and Loss Account

Miscellaneous Expenditure - Employee Separation Compensation (amortised)

Provision for Wealth Tax

Provision for diminution in value of investments

Loss on cancellation of own debentures

Interest income

Dividend income/ Income from Investments

A) CASH FLOW FROM OPERATING ACTIVITIES

CASH FLOW STATEMENT OF TATA STEEL LTD FOR THE YEAR ENDING ON MARCH 31,

(All Rupees in Crores)

Net Profit Before Tax

Adjustments for:Depreciation

(Profit)/ Loss on sale of Assets/ Discarded Assets written off

(Profit)/ Loss on sale of current investments

2007 2008

(2007.68) (2458.97)

17.85 63.88

(18306.13) (31595.17)

(118.17) (29587.40)

14623.48 34110.46

(20.00) (85.80)

— —

58.89 63.75

324.16 170.67

(5427.60) (29318.58)

Purchase of investments in Subsidiaries

Exceptional Items :Sale of long term investments in subsidiary

Sale of other investments

Dividend received

Net Cash used in Investing Activities

Sale of Investments

Intercorporate deposits

Shareholder's loan to subsidiary

Interest received

Purchases of Fixed Assets

Sales of Fixed Assets

Purchases of Investments

B) CASH FLOW FROM INVESTING ACTIVITIES

2007 2008

1393.20 4881.455472.52

147.06 —5.59 —

8043.69 17632.70(916.31) (10386.61)

93.65 134.41(118.88) (202.38)

(227.85) (746.07)(717.69) (937.95)

7702.46 15848.07

7392.96 (7216.31)

288.39 7681.35

7681.35 465.04

Opening Balance - Cash and Cash Equivalents

Closing Balance - Cash and Cash Equivalents

Net Cash from Financing Activities

Net increase in Cash and Cash Equivalents

Amount received on cancellation of forward covers/optionsLong term loan expenses

Capital contributions received

Proceeds from borrowingsRepayment of borrowings

Interest paidDividends paid

Issue of Equity Capital

Issue of Share Warrants

Issue of Cumulative Convertible Preference Shares

C) CASH FLOW FROM FINANCING ACTIVITIES

All this is ………… our story about understanding financial statements

WHAT NEXT IN OUR WHAT NEXT IN OUR AGENDA?AGENDA?

Share Warrants… The preferential issue of equity shares/ Fully Convertible

Debentures (FCDs)/ Partly Convertible Debentures (PCDs) or any other financial instruments which would be converted into or exchanged with equity shares at a later date, by listed companies whose equity share capital is listed on any stock exchange, to any select group of persons under Section 81(1A) of the Companies Act 1956 on private placement basis shall be governed by these guidelines.

An amount equivalent to at least ten percent of the price fixed as per Chapter-XIII of DISCLOSURE AND INVESTOR PROTECTION GUIDELINES, SEBI shall become payable for the warrants on the date of their allotment.

Security Premium Account … The Securities Premium Account may be applied by the

company-

(a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares;

(b) in writing off the preliminary expenses of the company;

(c) in writing off the expenses of, or commission paid or discount allowed on, any issue of shares or debentures of the company; or

(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.

Deferred Tax Assets/Deferred Tax Liabilities

ACCOUNTING STANDARD 22 or IAS-12:• The differences between taxable income and accounting income can be classified into

PERMANENT DIFFERENCES and TIMING DIFFERENCES. Permanent differences are those differences between taxable Permanent differences are those differences between taxable

income and accounting income which originate in one period and income and accounting income which originate in one period and do not reverse subsequently. do not reverse subsequently.

Timing differences are those differences between taxable income Timing differences are those differences between taxable income and accounting income for a period that originate in one period and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods.and are capable of reversal in one or more subsequent periods.

• The tax effects of timing differences are included in the tax expense in the The tax effects of timing differences are included in the tax expense in the statement of profit and loss; and as deferred tax assets or as deferred tax liabilities, statement of profit and loss; and as deferred tax assets or as deferred tax liabilities, in the balance sheet.in the balance sheet.

FINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSISLook at the following information and suggest what should be the cost of plant and machinery purchased!!!!!

Suggest at what cost the

asset will be shown in

the Balance Sheet.

What is the difference between …

Depreciation

Amortization

Depletion

Impairment

All assets are subject to depreciation except

freehold land.

Impairment Loss (AS-28) An enterprise should assess at each balance sheet

date whether there is any indication that an asset may be impaired. If any such indication exists, the enterprise should estimate the recoverable amount of the asset.

An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

This Standard defines recoverable amount as the higher of an asset’s net selling price and value in use.

Accounting for Investments…(AS 13)Accounting for Investments…(AS 13)

InvestmentsInvestments are assets held by an enterprise for earning income by way of dividends, interest, and rentals, for capital appreciation, or for other benefits to the investing enterprise. Assets held as stock-in-trade are not 'investments'.

A Current InvestmentCurrent Investment is an investment that is by its nature readily realizable and is intended to be held for not more than one year from the date on which such investment is made.

A Long Term Investment is an investment other than a current investment.

An Investment Property is an investment in land or buildings that are not intended to be occupied substantially for use by, or in the operations of, the investing enterprise.

Types of Investments…(AS 13)Types of Investments…(AS 13)

Current Investments

Long Term Investments

Current Investments … A current investment is an investment that is by its

nature readily realizable and is intended to be held for not more than one year from the date on which such investment is made.

The carrying amount for current investments is the lower of cost and fair value. In respect of investments for which an active market exists, market value generally provides the best evidence of fair value.

For current investments, any reduction to fair value and any reversals of such reductions are included in the profit and loss account.

Long-Term Investment … A long term investment is an investment other

than a current investment.

Long-term investments are usually carried at cost. However, when there is a decline, other than temporary, in the value of a long term investment, the carrying amount is reduced to recognize the decline.

Where there is a decline, other than temporary, in the

carrying amounts of long term investments, the resultant reduction in the carrying amount is charged is charged to the profit and loss statement.to the profit and loss statement.

Disclosure – AS 13 Investments should be disclosed

in financial statements as the

aggregate amount of quoted and quoted and

unquoted investmentsunquoted investments, giving the

aggregate market value of quoted

investments.

What’s the difference between Reserve and Provision?

Provision is charged to Profit and Loss Account where as Reserve is an appropriation of profit.

Provision is charged to Profit and Loss Account before calculating the net profit or loss, but Reserve can be made only when there is profit.

Provision is created for specific purpose, while ReserveReserve may be created for general purpose as well.

Provision are not invested in outside securities. ReservesReserves reduces divisible profit can be invested in outside securities.

Financial Statement Analysis 2

Economy & Finance

Transcript of Financial Statement Analysis 2