balance sheet analysis ppt @ bec doms bagalkot mba finance

BALANCE SHEET ANALYSIS

Sources of Funds

1) Capital2) Reserves & Surplus3) Term Liabilities4) Current Liabilities


Uses of Funds 1) Fixed Assets 2) Intangible Asets 3) Non Current Assets 4) Current Assets


Capital 1) Authorised Capital 2) Issued Capital 3) Subscribed Capital 4) Paid-up Capital


Reserves 1) Subsidy Received From The Govt 2) Development Rebate reserve 3) Revaluation of fixed assets 4) Issue of Shares at Premium 5) General Reserves Surplus The credit balance in profit and loss account


Tangible Net Worth This refers to the total funds arrived by

paid-up capital , Reserves and P&L Surplus

Less Intagible Assets


Term Liabilities Redeemable preference shares Debentures Deferred payment gaurantees Public Deposits(Repayable after 12 months) Term loans and unsecured loans from friens,

relatives,directors repayable over a period of time Remark : The company can raise public deposits to the

extent of 25% of paid up capital plus free reserves and 10% from share holders for the maturity period ranging from 6 months to 3 yrs


Current Liabilities Working capital bank borrowings T.loans deferred credit inst falling due in 12 mths public deposits maturing within 12 months unsecured loans, unless the repayment is on deferred terms sundry creditors advances from dealers and customers interest accrued but not paid tax provisions Dividend declared and payable


Contingent Liabilities Tax disputes Legal litigations Bills and cheques discounted with banks Claims against the company not

acknowledged


Fixed Assets Infrastructure like land & building plant & machinery Vehicles Furniture & fixtures Depreciation Straight line method Written down Value Method Remark : Dep added to profit to arrive repayment

obligation especially in term loans


Investments 1) Shares And Securities 2) Associate Companies 3) Fixed deposits with banks/finance companies Remark : While analysing bal sheet we can analyse

necessity of such investments Remark : While fixed deposits with banks are

considered as fixed assets, the investmetns in associate concerns are treated as non current assets.


Non Current Assets Deferred recievables/Overdue recievables(like

disputed amounts and Over Due > 6 mths) Non moving stocks/inventory/un usable spares Investment/Lending to associate concern Borrowing of the directors from the company Telephone deposits/ ST deposits etc


Intangible Assets Preliminary & Preoperative expenses Deferred Revenue Expenditure Goodwill Trade mark Patents Rem : The o/s balance to be written off every

year by charging P&L account


Current Assets Raw materials, work-in-progress,finished

goods,spares and consumables Sundry debtors and recievables < 6 mths Advances paid to suppliers of raw materials Cash and bank balances Interest recievables Other current assets such as Government

securities, Bank deposits ..etc


Notes All expenses or provisions or advances or loans

etc which are accrued and payable within 12 months are current liablities

When a company makes investments in unconnected avenues such as shares, securites, associate concerns are to be treated as non cur ast

The slow moving and absolete inventory - NCA


Notes Bal Sh Analy not only to be quantitative but to be

qualitative It is the fin pos on a part date. Min three years bal sh ana

would be more meaningful It is a mixture of facts, opinions and conventions While opinions are of the company’s management, the

conventions are practiced by the finance managers of the company.

( ex Over due recievable > 6 mths as NCA is a acccounting convention


Notes The valuation of the stock is done as per the

opinion of the management Depreciation method may be changed to boost

profit It may be silent on key personnel and staff

turnover Marginal changes in the classification of certain

items would lead to different results.


Notes Management competence Investment decision Resorting to window dressing experience of the promoters Board comprises of only family members The key personnel of the company The structure of the organisation The authority and decision making are decentralised


Notes The state of industrial relations Financial systems and procedures management control planning, budgeting, forecasting capacity utilisation status of the technology awareness of the market, competitions ..etc for listed co: share prices, EPS, book value, dividend

record, public response ..etc

Profit & Loss Account

It is a summary of revenue earned and expenses incurred which ultimately results in profit or loss of to the company

No defined format in law Operating revenue = Sales revenue Non_operating revenue = Other income ( out of sale of

investments, interest, commission and discount etc) Hence operating profit is a yard stick for operating

profit of the company Operating profit = Sales Revenue- Operating Cost


Gross Sales Gross sales includes excise duty to be charged to the

customer, central sales tax applicable, state sales tax applicable, the discount o be allowed to distributors/dealers/customers. The gross sales appears in the P&L account comprises of all the above part from the basic unit price.

Net Sales The sales figure excluding all the factors explained

above are the net sales.


Cost of production This is the cost incurred right from the procurement of raw

material to the finished good. For ex in a garment firm following cost is incurred while

production 1) cost of raw material cloth, buttons, canvas, hooks, zips etc 2) Maintenace of sewing machines 3) payment of wages to workers 4) power 5) washing, ironing,packing etc. Cost of Prod exclu selling & admn exp & int cost


Selling And General Administarative Expenses

Maintaining office staff for admn & acctg marketing effort payment of salaries/Tr All to marktg personnel All the expenses which are not directly connected

to manufacturing are classifed as selling and/or general expenses


Cost of goods sold Cost of goods sold includes all manufacturing

expenses and the adjustments for opening and closing stock

Cost of Goods sold = Opening stock + Purchases + Manufacturing expenses - Closing stock

Gross Profit is arrived deducting figure of cost of goods sold from the sales figure

ie Gross profit = Sales - Cost of goods sold.


Operating Profit is arrived deducting selling, administrative and general expenses , provision for bad debts, interest and miscellaneous expenses from the gross profit.

ie Op Profit = Gr Prof - (Sel & adm exp + Prov bad debt + mis exp )

Profit Before Tax When other income is added and other expenses are deducted from the operating profit we get profit before Tax

ie PBT = Op Profit + oth Inc - oth exp Net Profit When provision for taxes is deducted from the Profit

Before Tax we get Net profit ie Net Profit = PBT - taxes


Non Operating Income/Expenses The income earned by the unit from other than manufacturing

and seling operations is classified under this head . i.e a) Interest earned on fixed deposits b) Dividends and profit earned by sale of assets and

share. All those expenses which are not directly connected with

operations of the unit are classified under this head. i.e

a) Preliminary expenses written off b) Loss suffered due to sale of assets & share

balance sheet analysis ppt @ bec doms bagalkot mba finance

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