Financial Statement #1 - 2010

FINANCIAL STATEMENT ANALYSIS
Have you ever wondered what an analyst does with the financial statements of a company?
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?
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?
Do not you ever wonder that a company is earning good profits but they have no money to pay any dividend to the shareholders??!!!!!!!!!
And, so on
If you are really and seriously looking answers of all these
Then ...
Dr. C. P. Gupta Professor, Department of Financial Studies, South Campus, University of Delhi.
Humble objectives of the Course are

make the participants comfortable with the mysteries lying behind the financial numbers contained in financial statements. make the participants aware of the properties of numbers derived from financial statements. equip the participants with necessary tools and techniques to derive meaningful information to make sound decisions that require use of information from financial statements. allow the participants to explore and fathom out the strengths and limitations of the numbers derived from financial statements.
Our FIRST STEP is
Towards
Understanding..
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 publiclyinformation to perform financial analysis Such information is contained in a companys annual report
Annual Report contains

THREE BASIC FINANCIAL STATEMENTS 1

THREE BASIC FINANCIAL STATEMENTS FOOTNOTES/SCHEDULES TO THE FINANCIAL STATEMENTS 1 2

THREE BASIC FINANCIAL STATEMENTS FOOTNOTES/SCHEDULES TO THE FINANCIAL STATEMENTS SUMMARY OF ACCOUNTING METHODS 1 2 3

THREE BASIC FINANCIAL STATEMENTS FOOTNOTES/SCHEDULES TO THE FINANCIAL STATEMENTS SUMMARY OF ACCOUNTING METHODS MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS 1 2 3 4

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

THREE BASIC FINANCIAL STATEMENTS FOOTNOTES/SCHEDULES TO THE FINANCIAL STATEMENTS SUMMARY OF ACCOUNTING METHODS MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS AUDITORS REPORT COMPARATIVE FINANCIAL DATA FOR A SERIES OF YEARS 1 2 3 4 5 6
EXAMPLE #1.
EXAMPLE #1.
EXAMPLE #1.
EXAMPLE #2.
FOOTNOTES/SCHEDULES TO THE FINANCIAL STATEMENTS 2
EXAMPLE #3.
SUMMARY OF ACCOUNTING METHODS 3
EXAMPLE #4.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS 4
EXAMPLE #5.
AUDITORS REPORT
EXAMPLE #6.
COMPARATIVE FINANCIAL DATA FOR A SERIES OF YEARS
Now, we are ready with ALL NECESSARY BAGGAGE OF FINANCIAL INFORMATION.
And, proceed for understanding financial statements of Tata Steel
First, we take Balance sheet
Sources of Funds Side

BALANCE SHEET OF TATA STEEL LIMITED AS AT 31ST MARCH
(Rs. in Crores)
Particulars
2008
2009
2010
SOURCES OF FUNDS:
SHAREHOLDER'S FUNDS Share Capital Share Warrants Reserves and Surplus Total Shareholders' Fund LOAN FUNDS Secured Loans Unsecured Loans 6,203.30 21,097.43 27,300.73 3,520.58 14,501.11 18,021.69 681.80 1,071.30 6,203.45 23,972.81 30,176.26 3,913.05 23,033.13 26,946.18 585.73 1,033.60 887.41 36,074.39 36,961.80 2,259.32 22,979.88 25,239.20 867.67 957.16
DEFERRED TAX LIABILITY (NET) PROVISION FOR EMPLOYEE SEPARATION COMPENSATION
TOTAL
47,075.52
58,741.77
64,025.83

(Rs. in Crores)
Particulars
2008
2009
2010
SOURCES OF FUNDS:
TOTAL
47,075.52
58,741.77
64,025.83

(Rs. in Crores)
Particulars
2007
2008
2009
SOURCES OF FUNDS:
SHAREHOLDER'S FUNDS Share Capital Share Warrants Reserves and Surplus Total Shareholders' Fund LOAN FUNDS Secured Loans Unsecured Loans 3,758.92 5,886.41 9,645.33 DEFERRED TAX LIABILITY (NET) PROVISION FOR EMPLOYEE SEPARATION COMPENSATION 748.94 1,107.08 3,520.58 14,501.11 18,021.69 681.80 1,071.30 3,913.05 23,033.13 26,946.18 585.73 1,033.60 580.67 147.06 13,368.42 14,096.15 21,097.43 27,300.73 23,972.81 30,176.26 6,203.30 6,203.45
TOTAL
25,597.50
47,075.52
58,741.77

(Rs. in Crores)
Particulars
2008
2009
2010
SOURCES OF FUNDS:
TOTAL
47,075.52
58,741.77
64,025.83

(Rs. in Crores)
Particulars
2008
2009
2010
SOURCES OF FUNDS:
TOTAL
47,075.52
58,741.77
64,025.83

(Rs. in Crores)
Particulars
2008
2009
2010
SOURCES OF FUNDS:
TOTAL
47,075.52
58,741.77
64,025.83

(Rs. in Crores)
Particulars
2008
2009
2010
SOURCES OF FUNDS:
TOTAL
47,075.52
58,741.77
64,025.83

(Rs. in Crores)
Particulars
2008
2009
2010
SOURCES OF FUNDS:
TOTAL
47,075.52
58,741.77
64,025.83
Innovative Ways of Funding

Share Warrants a way to keep a Source of Funds ready
for any future requirement.
Right Issue a quicker way of raising funds as compared to

general public issue and with some kind of underwriting from Tata Sons.
2% Cumulative Convertible Preference Shares a

way to keep a least pressure on companys cash flows.
Foreign Currency Convertible Alternative Reference Securities carrying a coupon of 1% p.a. and if
it is to be redeemed then, it will be redeemable at a premium of 23.34% of the principal amount.
WHAT NEXT IN OUR 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 TWENTY FIVE 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.
Share WarrantsPrice
Where the equity shares of a company have been listed on a stock exchange for a period of six months or more as on the relevant date, the issue of shares on preferential basis (other than an issue of shares on preferential basis to Qualified Institutional Buyers not exceeding five in number,) shall be made at a price not less than higher of the following:
i) The average of the weekly high and low of the closing prices of the related
shares quoted on the stock exchange during the six months preceding the relevant date; OR ii) The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date.
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:

The differences between taxable income and accounting income can be classified into PERMANENT DIFFERENCES and TIMING DIFFERENCES.
Permanent differences are those differences between taxable income and accounting income which originate in one period and do not reverse subsequently. subsequently. Timing differences are those differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods. periods.
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, loss; in the balance sheet. sheet.
FINANCIAL STATEMENT ANALYSIS Look 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 assets net selling price and value in use.
Accounting for Investments(AS 13)

Investments 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 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)
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 to the profit and loss statement. statement.
Disclosure AS 13
Investments should be disclosed in financial statements as the aggregate amount of quoted giving and the unquoted aggregate investments, investments
market value of quoted investments.
ACCOUNTING FOR CHANGES IN FOREIGN EXCHANGE RATES (AS-11)

AS-11 requires that any exchange differences arising due to reinstatement/translation/
settlement
of monetary items are to be
recognized in Profit and Loss Account.
FINANCIAL STATEMENT ANALYSIS The Companies (Accounting Standards) Amendment Rules, 2009 relating to Accounting Standard (AS) 11:
In respect of accounting periods commencing on or after 7th December, 2006 and ending on or before 31st March, 2011, at the option of the enterprise, exchange differences arising on reporting of long-term foreign currency monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, insofar as they relate to the acquisition of a depreciable capital asset, can be added to or deducted from the cost of the asset and shall be depreciated over the balance life of the asset, and in other cases, can be accumulated in a Foreign Currency Monetary Item Translation Difference Account in the enterprises financial statements and amortized over the balance period of such long-term asset/liability but not beyond 31st March, 2011, by recognition as income or expense in each of such periods.
Whats 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 Reserve may be created for general purpose as well. Provision are not invested in outside securities. Reserves reduces divisible profit can be invested in outside securities.

Financial Statement #1 - 2010

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Financial Statement #1 - 2010

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FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

If you are really and seriously looking answers of all these

FINANCIAL STATEMENT ANALYSIS

Humble objectives of the Course are

Our FIRST STEP is

Financial Statement Analysis

Steps in Financial Statement Analysis First Step

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?

Annual Report contains

Annual Report contains

Annual Report contains

Annual Report contains

Annual Report contains

Annual Report contains

Now, we are ready with ALL NECESSARY BAGGAGE OF FINANCIAL INFORMATION.

FINANCIAL STATEMENT ANALYSIS

And, proceed for understanding financial statements of Tata Steel

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

First, we take Balance sheet

Sources of Funds Side

FINANCIAL STATEMENT ANALYSIS

DEFERRED TAX LIABILITY (NET) PROVISION FOR EMPLOYEE SEPARATION COMPENSATION

FINANCIAL STATEMENT ANALYSIS

DEFERRED TAX LIABILITY (NET) PROVISION FOR EMPLOYEE SEPARATION COMPENSATION

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

DEFERRED TAX LIABILITY (NET) PROVISION FOR EMPLOYEE SEPARATION COMPENSATION

FINANCIAL STATEMENT ANALYSIS

DEFERRED TAX LIABILITY (NET) PROVISION FOR EMPLOYEE SEPARATION COMPENSATION

FINANCIAL STATEMENT ANALYSIS

DEFERRED TAX LIABILITY (NET) PROVISION FOR EMPLOYEE SEPARATION COMPENSATION

FINANCIAL STATEMENT ANALYSIS

DEFERRED TAX LIABILITY (NET) PROVISION FOR EMPLOYEE SEPARATION COMPENSATION

FINANCIAL STATEMENT ANALYSIS

DEFERRED TAX LIABILITY (NET) PROVISION FOR EMPLOYEE SEPARATION COMPENSATION

FINANCIAL STATEMENT ANALYSIS

Innovative Ways of Funding

Right Issue a quicker way of raising funds as compared to

2% Cumulative Convertible Preference Shares a

WHAT NEXT IN OUR AGENDA?

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

Security Premium Account

FINANCIAL STATEMENT ANALYSIS

Deferred Tax Assets/Deferred Tax Liabilities ACCOUNTING STANDARD 22:

FINANCIAL STATEMENT ANALYSIS

What is the difference between Depreciation Amortization Depletion Impairment

FINANCIAL STATEMENT ANALYSIS

All assets are subject to depreciation except freehold land.

FINANCIAL STATEMENT ANALYSIS

Impairment Loss (AS-28)

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS