financial statement analysis and beneish manipulation index

FINANCIAL STATEMENT ANALYSIS AND BENEISH MANIPULATION INDEX

Sandeep K BiswalAshish BaghelAnand Avakanvar

CONTENTS

• Management Discussion Analysis (MDA) and Director’s Report (DR)

• Notes on Accounting Procedure

• Balance Sheet Analysis

• P&L Analysis

• Financial Ratio Analysis

• Beneish Index Analysis

MDA & DR

• Greek sovereign debt crisis

• Japan Earthquake

• RBI’s contractionary monetary policy

• Persistent hike in fuel price

• COGS increased

• Reduced production cost backed by R&D

• Auto ancillary sector growth has declined

NOTES ON AP• Value of fixed assets include

transportation and installation costs

• All R&D expenses capitalized

• Provision has been made to review fixed asset prices

• Sona Koyo understated depreciation on intangible assets

• Lease hold depreciation considers less of useful life and lease period

B/S ANALYSIS (VA)

B/S ANALYSIS (HA)

P&L ANALYSIS (VA)

P&L ANALYSIS (HA)

FINANCIAL RATIOS

• In comparison to other two firms Sona Koyo has better inventory management

• WCT is the least in case of Sundaram Clayton

• Sundaram Clayton is in a better position to meet short term debt obligations

• Gabriel India is generating more income from operations

FINANCIAL RATIOS contd.

• Long term risk prospects are more in case of Gabriel India

• Sundaram Clayton has a better net profit margin

• Due to high ROE Gabriel India can raise more equity capital at reduced cost

BENEISH INDEX ANALYSIS

• Considering a cut off value of 11.72 %, the probability of manipulation received for three companies show a slight inclination towards GAAP violation

• The companies under study have significant figures of leveraging which is necessary for the industry they belong to. Hence, the cut off value can be increased a little

ROAD AHEAD

• Increased competition and inflation remains a major concern

• However, buoyant demand side factors are expected to keep growth momentum of the sector going

• Hence, cost and efficiency optimization shall be the key words

THANK YOU