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FINANCIAL STATEMENT ANALYSIS

Have you ever wondered what an


analyst does with the financial
statements of a company?
FINANCIAL STATEMENT ANALYSIS
Do you believe that the financial position of a
company as revealed by its financial statements
is as clear as a blue sky without any clouds?
FINANCIAL STATEMENT ANALYSIS
A good growth of a company in the recent past implies
the same story in future and hence, it represents a
good investment opportunity!!! Will you like to grab it?
FINANCIAL STATEMENT ANALYSIS
Do not you ever wonder that a company is
earning good profits but they have no money to
pay any dividend to the shareholders??!!!!!!!!!
FINANCIAL STATEMENT ANALYSIS

And, so on
FINANCIAL STATEMENT ANALYSIS
If you are really and seriously
looking answers of all these

Then ...
Financial Statement Analysis
Financial Statement Analysis comprises all
techniques employed by users of financial
statements to show important relationships in
the financial statements so as to understand
business and make decisions in a better way.

is a process of evaluating the relationship


between components parts of financial
statements to obtain a better understanding
of a firms financial position and performance.
Steps in Financial Statement Analysis

First Step
Select Information relevant to
decision under consideration

Second Step
Process the information to
Highlight significant relationships

Third Step
Interpret and draw
Necessary inferences
Who are the people doing Financial Statement Analysis?

Two sets of people

INTERNAL USERS

EXTERNAL USERS
What is the source of information for the EXTERNAL
PEOPLE?

External users rely


on publicly-available
information to
perform financial
analysis

Such information is
contained in a
companys annual
report
Annual Report contains
THREE BASIC FINANCIAL STATEMENTS

1
Annual Report contains

THREE BASIC FINANCIAL STATEMENTS

FOOTNOTES/SCHEDULES TO THE 1
FINANCIAL STATEMENTS
2
Annual Report contains

THREE BASIC FINANCIAL STATEMENTS

FOOTNOTES/SCHEDULES TO THE 1
FINANCIAL STATEMENTS
2
SUMMARY OF ACCOUNTING METHODS
3
Annual Report contains

THREE BASIC FINANCIAL STATEMENTS

FOOTNOTES/SCHEDULES TO THE 1
FINANCIAL STATEMENTS
2
SUMMARY OF ACCOUNTING METHODS
3
MANAGEMENTS DISCUSSION AND 4
ANALYSIS OF FINANCIAL STATEMENTS
Annual Report contains

FOUR BASIC FINANCIAL STATEMENTS

FOOTNOTES/SCHEDULES TO THE 1
FINANCIAL STATEMENTS
2
SUMMARY OF ACCOUNTING METHODS
3
MANAGEMENTS DISCUSSION AND 4
ANALYSIS OF FINANCIAL STATEMENTS
5
AUDITORS REPORT
Annual Report contains

THREE BASIC FINANCIAL STATEMENTS

FOOTNOTES/SCHEDULES TO THE 1
FINANCIAL STATEMENTS
2
SUMMARY OF ACCOUNTING METHODS
3
MANAGEMENTS DISCUSSION AND 4
ANALYSIS OF FINANCIAL STATEMENTS
5
AUDITORS REPORT 6

COMPARATIVE FINANCIAL DATA FOR A


SERIES OF YEARS
EXAMPLE #1.
THREE BASIC FINANCIAL STATEMENTS

1
EXAMPLE #1.
THREE BASIC FINANCIAL STATEMENTS

1
EXAMPLE #1.
THREE BASIC FINANCIAL STATEMENTS

1
EXAMPLE #2.
FOOTNOTES/SCHEDULES TO THE
FINANCIAL STATEMENTS
2
EXAMPLE #3.
SUMMARY OF ACCOUNTING METHODS
3
EXAMPLE #4.
MANAGEMENTS DISCUSSION AND 4
ANALYSIS OF FINANCIAL STATEMENTS
EXAMPLE #5.
5
AUDITORS REPORT
EXAMPLE #6. 6

COMPARATIVE FINANCIAL DATA FOR A


SERIES OF YEARS
Now, we are ready with ALL NECESSARY BAGGAGE OF
FINANCIAL INFORMATION.
FINANCIAL STATEMENT ANALYSIS

First, we take Balance sheet

Sources of Funds Side


FINANCIAL STATEMENT ANALYSIS

Our journey starts with

BALANCE SHEET
FINANCIAL STATEMENT ANALYSIS

BALANCE SHEET
A statement that shows assets
and liabilities of a company at a
particular date

A statement that shows balances


of various accounts to be carried
to next accounting period
FINANCIAL STATEMENT ANALYSIS

BALANCE SHEET gives

an important accounting identity


i.e Liabilities = Assets

Liabilities Assets
FINANCIAL STATEMENT ANALYSIS

Another way to understand

BALANCE SHEET
FINANCIAL STATEMENT ANALYSIS
BALANCE SHEET A DIFFERENT
PERSPECTIVE!!!

A statement that shows the sources


and the application of funds.
FINANCIAL STATEMENT ANALYSIS

Balance Sheet as on ...


Liabilities Assets

Sources of funds Application of funds


FINANCIAL STATEMENT ANALYSIS

Now, we try to understand the financial statements


of TATA STEEL!
FINANCIAL STATEMENT ANALYSIS

First

The Balance Sheet


The Sources of Fund


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

Particulars 2008 2009 2010 2011


SOURCES OF FUNDS:
SHAREHOLDER'S FUNDS
Share Capital 6,203.30 6,203.45 887.41 959.41
Share Warrants 178.20
Reserves and Surplus 21,097.43 23,972.81 36,074.39 45,807.02
Total Shareholders' Fund 27,300.73 30,176.26 36,961.80 46,944.63
LOAN FUNDS
Secured Loans 3,520.58 3,913.05 2,259.32 2,009.20
Unsecured Loans 14,501.11 23,033.13 22,979.88 26,291.94
18,021.69 26,946.18 25,239.20 28,301.14

DEFERRED TAX LIABILITY (NET) 681.80 585.73 867.67 936.80

PROVISION FOR EMPLOYEE SEPARATION


COMPENSATION 1,071.30 1,033.60 957.16 873.34
TOTAL 47,075.52 58,741.77 64,025.83 78,555.91
FINANCIAL STATEMENT ANALYSIS

The Balance Sheet

The Uses of Fund


BALANCE SHEET OF TATA STEEL LIMITED AS AT 31ST MARCH
(Rs. in Crores)
Particulars 2008 2009 2010 2011
APPLICATION OF FUNDS
FIXED ASSETS
Gross Block 20,847.04 23,544.69 26,149.66 29,815.64
Less: Amortization 100.47 100.47 106.07 126.30
Less: Depreciation 8,123.01 8,962.00 10,037.56 10,914.86
Net Block 12,623.56 14,482.22 16,006.03 18,774.48
Capital Work in Progress - - - -
12,623.56 14,482.22 16,006.03 18,774.48

INVESTMENTS 4,103.19 42,371.78 44,979.67 46,564.94

FOREIGN CURRENCY MONETARY ITEM TRANSLATION


DIFFERENCE ACCOUNT - 471.66 (206.95) -

CURRENT ASSETS, LOANS & ADVANCES


Inventories: Stores and Spare Parts 557.67 612.19 623.76 716.18
Inventories: Stock-in-Trade 2,047.31 2,868.28 2,453.99 3,237.58
Sundry Debtors 543.48 635.98 434.83 428.03
Cash in Hand and at Bank 465.04 1,590.60 3,234.14 4,141.54
Loans and Advances 33,348.74 4,578.04 5,499.68 15,688.97
Interest Accrued on Investments 0.20 - 0.29 -
36,962.44 10,285.09 12,246.69 24,212.30

Less: CURRENT LIABILITIES & PROVISIONS


Current Liabilities 3,855.26 6,039.86 6,653.09 7,447.83
Provisions 2,913.52 2,934.19 2,346.52 3,547.98
6,768.78 8,974.05 8,999.61 10,995.81

Net Current Assets 30,193.66 1,311.04 3,247.08 13,216.49

Miscellaneous Expenses (to the extent not written off or adjusted) 155.11 105.07 - -

TOTAL 47,075.52 58,741.77 64,025.83 78,555.91


Sources of Funds Tata Steel

FROM WHERE THE FUNDS OF TATA STEEL LIMITED ARE RAISED?

(Rs. IN CRORES) 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09 31-Mar-10 31-Mar-11

SHARE CAPITAL 369.18 553.67 553.67 727.73 6,203.30 6,203.45 887.41 1,137.61

RESERVES AND SURPLUS 4,830.67 7,120.85 9,905.36 13,914.83 21,624.12 24,453.47 36,942.06 46,743.82

LOANS 3,382.21 2,739.70 2,516.15 9,645.33 18,021.69 26,946.18 25,239.20 29,801.14

CURRENT LIABILITIES &


PROVISIONS 2,715.37 3,699.99 3,808.72 5,453.66 6,768.78 8,974.05 8,999.61 10,995.81

OTHERS 1,563.06 1,514.26 1,388.71 1,107.08 1,071.30 561.94 1,164.11 873.34

TOTAL SOURCES OF FUNDS 12,860.49 15,628.47 18,172.61 30,848.63 53,689.19 67,139.09 73,232.39 89,551.72
SOURCES OF FUNDS-2011: TATA STEEL

12.28% SHARE CAPITAL


0.98%
1.27%

RESERVES AND SURPLUS

LOANS

CURRENT LIABILITIES &


PROVISIONS

OTHERS

33.28%

52.20%
Where this
money is utilized?
Uses of Funds Tata Steel

WHERE THE FUNDS OF TATA STEEL LIMITED ARE USED?


(Rs. IN CRORES) 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09 31-Mar-10 31-Mar-11

FIXED ASSETS (Rs. IN 7,857.85 9,112.24 9,865.05 11,040.56 12,623.56 14,482.22 16,006.03 18,774.48
CRORES)

INVESTMENTS 2,194.12 2,432.65 4,069.96 6,106.18 4,103.19 42,371.78 44,979.67 46,564.94

CURRENT ASSETS 2,808.52 4,083.58 4,237.60 13,701.89 36,962.44 10,285.09 12,246.69 24,212.30

TOTAL ASSETS 12,860.49 15,628.47 18,172.61 30,848.63 53,689.19 67,139.09 73,232.39 89,551.72
USES OF FUNDS - 2011: TATA STEEL

27.04% 20.96%

FIXED ASSETS (Rs. IN CRORES)

INVESTMENTS

CURRENT ASSETS

52.00%
REVISED BALANCE SHEET
FORMAT
Revised Schedule - VI
INTRODUCTION

Old Schedule VI had outlived its utility;

Revised Schedule VI effective from 1st April, 2011;

Being a statutory format its early adoption is not permitted;

Revised Schedule VI has been framed as per the existing


non-converged Indian Accounting Standards notified under
the Companies (Accounting Standards), Rules, 2006;
NEW FORMAT OF BALANCE SHEET
EQUITIES AND LIABILITIES
Shareholders Funds
Capital
Reserve & Surplus
Money Reserved against share warrants
Share Application money pending Allotment

Non Current Liabilities


Current Liabilities
TOTAL
ASSETS
Non-Current Assets
Fixed Assets
Non Current Investments/Assets
Current Assets
TOTAL
Balance Sheet : Equity/Liabilities
Particulars Note Figures at the Figures at the
No. end of current end of
reporting previous
period reporting
period

Shareholders Funds
Share Capital
Reserve & Surplus
Money Reserved against share warrants

Share Application money pending Allotment

Non Current Liabilities


Long Term Borrowings
Deferred Tax Liabilities (Net)
Other Long Term Liabilities
Long Term Provisions

Current Liabilities
Short Term Borrowings
Trade Payables
Other Current Liabilities
Short Term Provisions
Balance Sheet : Assets
Particulars Note Figures at the Figures at the
No. end of current end of
reporting previous
period reporting
period
Non- Current Assets
(a) Fixed Assets
Tangible Assets
Intangible Assets
Capital Work in progress
Intangible Assets under development
(b) Non- Current Investments
(c) Deferred Tax Assets (net)
(d) Long Term Loans & Advances
(e) Other Non-Current Assets

Current Assets
(a) Current Investments
(b) Inventories
(c) Trade Receivables
(d) Cash and Cash Equivalents
(e) Short Term Loans and Advances
(f) Other Current Assets
REQUIREMENTS UNDER REVISED SCHEDULE VI
Accounting Standards will prevail over the Schedule;
Revised Schedule VI has eliminated the concept of schedule;
Terms in the Revised Schedule VI will carry the meaning as defined
by the applicable Accounting Standards;
All items of assets and liabilities are to be bifurcated between
Current and Non-Current portions and presented separately on
the face of the Balance Sheet
REQUIREMENTS UNDER REVISED SCHEDULE VI
Vertical format for presentation only prescribed;
Prescribes minimum disclosure requirements. AS disclosures are
additional;
Source of Funds now is Equity and Liabilities;
Application of Funds now is Assets;
Shareholding of more than 5% shares in the company now needs to
be disclosed;
Share allotments for non-cash consideration, buy back to be
disclosed;
Statement of Profit and Loss (Dr. Bal.) will be disclosed under the
head Reserves and Surplus as a negative item.
REQUIREMENTS UNDER REVISED SCHEDULE VI
Share application money pending allotment not refundable is to be
included under Equity and share application money to the extent
refundable is to be separately shown under Other current liabilities.
Sundry Debtors has been replaced with the term Trade
Receivables;
Disclosure of trade receivables outstanding for a period exceeding
six months from the date the bill/invoice is due for payment;
Tangible assets under lease are required to be separately specified
under each class of asset;
Current Liabilities will no longer be shown as deduction from Current
Assets
REQUIREMENTS UNDER REVISED SCHEDULE VI
Defaults in repayment of loans and interest to be
specified in each case;

New name for P & L Account as Statement of Profit and


Loss;

Segregation of Revenue components into revenue from:


1. sale of products,

2. sale of services, and

3. other operating revenues


REQUIREMENTS UNDER REVISED SCHEDULE VI
Separate head for Intangible Assets and Intangible Assets under
Development;

Information about Investments bought/ sold need not be disclosed;

Capital Advances have to be shown separately under Loans and


Advances instead of CWIP/ Fixed Assets;

Miscellaneous Expenditure as a separate head does not exists


now.
REQUIREMENTS UNDER REVISED SCHEDULE VI

Net exchange gain/loss on foreign currency borrowings


to the extent considered as an adjustment to interest cost
needs to be disclosed separately as finance cost.
REQUIREMENTS UNDER REVISED SCHEDULE VI

Disclosures no longer required:


Disclosures relating to managerial remuneration and
computation of net profits for calculation of commission;
Information relating to licensed capacity, installed capacity
and actual production;
Information on investments purchased and sold during the
year;
Investments, sundry debtors and loans & advances
pertaining to companies under the same management;
Maximum amounts due on account of loans and advances
from directors or officers of the company
CURRENT/ NON-CURRENT DISTINCTION
An item is classified as current
if it is involved in the entity's operating cycle; or
is expected to be realized/ settled within twelve
months; or
If it is held primary for trading; or
Is cash or cash equivalent; or
If entity does not have unconditional right to defer
settlement of liability for atleast 12 months after
reporting period
Other assets and liabilities are non current
BALANCE SHEET OF TATA
STEEL LIMITED
2011-12 2010-11
Now, we move to

PROFIT AND LOSS ACCOUNT


PROFIT & LOSS ACCOUNT
It records flows of income and
expenses over a period of time.

The flows are recorded on the


ACCRUAL basis and not on the
cash/fund basis.

The NET BALANCE of Profit and Loss


Account is either Profit After Tax or
Net Loss.
Part II : Statement of Profit & Loss
Particulars Note Figures at the Figures at the
No. end of current end of
reporting previous
period reporting
period
Revenue from Operations
Other Income
Total Revenue ( I + II)
Expenses
Cost of Material Consumed
Purchases of Stock in Trade
Changes in inventories of finished goods
Work in progress and stock in trade

Employee Benefit expense


Finance Costs
Depreciation and amortization expense
Other expenses

Profit Before Exceptional and extraordinary items


and tax

Exceptional Items
Part II : Statement of Profit & Loss
Particulars Note Figures at the Figures at the
No. end of current end of
reporting previous
period reporting
period

Profit Before extraordinary items and tax

Extraordinary Items

Profit Before Tax

Tax Expense
Current Tax
Deferred Tax

Profit (loss) for the period from continuing operations

Profit (loss) from discontinuing operations

Tax expense of discontinuing operations

Profit(loss) from discontinuing operations (after tax)

Profit (loss) for the period

Earnings per equity share


Basic
Diluted
INCOME side
PROFIT AND LOSS ACCOUNT OF TATA STEEL LIMITED FOR THE
YEAR ENDING ON 31ST MARCH
(Rs. in Crores)
Particulars 2008 2009 2010 2011
INCOME

Sale of Products and Services 22,191.80 26,843.73 26,757.80 31,902.14

Less: Excise Duty 2,498.52 2,527.96 1,735.82 2,505.79

19,693.28 24,315.77 25,021.98 29,396.35

Other Incomes 335.00 308.27 853.79 790.67

Total Income 20,028.28 24,624.04 25,875.77 30,187.02

TOP LINE!!!
EXPENSES side
PROFIT AND LOSS ACCOUNT OF TATA STEEL LIMITED FOR THE YEAR ENDING ON 31ST MARCH

(Rs. in Crores)
Particulars 2008 2009 2010 2011
EXPENDITURE
Manufacturing, and Other Expenses 11,645.24 15,525.99 16,396.00 18,162.27
Depreciation 834.61 973.40 1,083.18 1,146.19
12,479.85 16,499.39 17,479.18 19,308.46
Less: Expenditure (Other than Interest)
175.50 343.65 326.11 198.78
Transferred to Capital and Other Accounts
12,304.35 16,155.74 17,153.07 19,109.68

Interest 878.70 1,152.69 1,508.40 1,300.49


Total Expenditure 13,183.05 17,308.43 18,661.47 20,410.17
PROFIT/(LOSS) BEFORE TAXATION AND
6,845.23 7,315.61 7,214.30 9,776.85
EXCEPTIONAL ITEMS

Employee Separation Compensation (226.18) - - -


Profit on the Sale of Long-Term Investments - - - -
Contribution For Sports Infrastructure (150.00) - - -
Exchange Gain/(Loss) 597.31 - - -
PROFIT/(LOSS) BEFORE TAXATION 7,066.36 7,315.61 7,214.30 9,776.85
Current Tax 2,252.00 2,173.00 1,998.00 2,857.00
Education Cess on Income Tax - - - -
Fringe Benefit Tax 19.00 16.00 - -
Deferred Tax 108.33 (75.13) 169.50 54.16

PROFIT/(LOSS) AFTER TAXATION 4,687.03 5,201.74 5,046.80 6,865.69


Now, we move to

CASH FLOW STATEMENT


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

CASH FROM OPERATIONS


(All Rupees in Crores)
2007 2008

A) CASH FLOW FROM OPERATING ACTIVITIES


Net Profit Before Tax 6261.65 7066.36
Adjustments for:
Depreciation 819.29 834.61

OF TATA STEEL
(Profit)/Loss on sale of Assets/Discarded Assets written off (11.19) (28.26)
(Profit)/Loss on sale of current investments (15.63) (9.98)
(Profit)/Loss on sale of long term investments
Impairment of Assets 6.22 0.06
Amount received on cancellation of forward covers/options (82.69) (124.30)
Provision for diminution in value of investments 0.10
Loss on cancellation of own debentures
Reversal of Impairment Loss
Interest income (77.35) (50.33)
Dividend income/Income from Investments (324.16) (170.67)
Interest charged to Profit and Loss Account 251.25 929.03
Miscellaneous Expenditure - Employee Separation Compensation (amortised)
152.10 226.18
Provision for Wealth Tax 0.97 0.95
Amortisation of long term loan expenses 65.10 57.99
Contribution for sports infrastructure written off 150.00
Exchange (Gain)/Loss on revaluation of foreign currency loans (743.60)
Operating Profit before Working Capital Changes 7045.66 8138.04
Adjustments for
Trade and other Receivables (21.94) (143.44)
Inventories (158.22) (272.00)
Trade and other Payables 512.04 806.34
331.88 390.90
Cash Generated from Operations 7377.54 8528.94
Direct Taxes paid (2034.59) (2060.20)
Cash Flow before Exceptional Item 5342.95 6468.74
Employee Separation Compensation paid (224.85) (214.54)
Net Cash Flow from Operating Activities 5118.10 6254.20
CASH FLOW STATEMENT OF TATA STEEL LTD FOR THE
YEAR ENDING ON MARCH 31,

CASH USED IN INVESTING


(All Rupees in Crores)
2007 2008

B) CASH FLOW FROM INVESTING ACTIVITIES

OF TATA STEEL
Purchases of Fixed Assets (2007.68) (2458.97)
Sales of Fixed Assets 17.85 63.88
Purchases of Investments (18306.13) (31595.17)
Purchase of investments in Subsidiaries (118.17) (29587.40)
Sale of Investments 14623.48 34110.46
Intercorporate deposits (20.00) (85.80)
Shareholder's loan to subsidiary
Interest received 58.89 63.75
Dividend received 324.16 170.67
Exceptional Items :
Sale of long term investments in subsidiary
Sale of other investments
Net Cash used in Investing Activities (5427.60) (29318.58)
CASH FLOW STATEMENT OF TATA STEEL LTD FOR THE
YEAR ENDING ON MARCH 31,

CASH FROM FINANCING


(All Rupees in Crores)
2007 2008

C) CASH FLOW FROM FINANCING ACTIVITIES


Issue of Equity Capital 1393.20 4881.45

TATA STEEL
Issue of Cumulative Convertible Preference Shares 5472.52
Issue of Share Warrants 147.06
Capital contributions received 5.59
Proceeds from borrowings 8043.69 17632.70
Repayment of borrowings (916.31) (10386.61)
Amount received on cancellation of forward covers/options 93.65 134.41
Long term loan expenses (118.88) (202.38)
Interest paid (227.85) (746.07)
Dividends paid (717.69) (937.95)
Net Cash from Financing Activities 7702.46 15848.07

Net increase in Cash and Cash Equivalents 7392.96 (7216.31)


Opening Balance - Cash and Cash Equivalents 288.39 7681.35
Closing Balance - Cash and Cash Equivalents 7681.35 465.04