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Financial Statement Analysis

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M&M posts 4% rise in PAT at Rs 242

cr

Mahindra & Mahindra (M&M) reported

a 4% growth in its profit after tax (PAT)

for the quarter ended December 31, 2006at Rs 242 crore. Income from operations

during the quarter improved 17% at Rs

2,576 crore. Operating profit was up 8%at Rs 350 crore.

However, profit after tax in the October-

December 2006 quarter includedexceptional items of Rs 46.9 crore on

account of sale of the company’s light

commercial vehicles business to group

company Mahindra International andoctroi receipts. Profit after tax in the

third quarter was up 35% if theexceptional items in the previous year

are excluded.

Operating margin stood at 12.02%compared to 12.02% (excluding the

octroi refund) in the same period of the

previous fiscal. Bharat Doshi, executivedirector finance and corporate affairs

said the company had succeeded in

combating input cost increases by“aggressive and stringent cost

management”.

“Inspite of input cost increases we have

been able to contain costs. We are

looking at the current year with

optimism but how much more we can doto keep costs down is the question. There

is a lot of volatility in the global

commodity market and it is difficult to predict which way prices will swing,”

said Mr Doshi.

M&M has already increased prices of its

flagship sports utility vehicle Scorpio by

Rs 6,000-10,000 and is looking at

increasing the price of the Bolero next

week. Pawan Goenka, president of the

automotive sector at M&M, said, “Thereis an interest rate hike threat. A further

growth in the interest rate could have a

negative effect.”

M&M’s tractor sales were up 18% at

26,644 units in the third quarter compared to a 15% growth in the overall

tractor industry. Utility vehicle sales

grew 12.6% at 33,312 units during the

quarter as compared with a 15% increasein the overall industry, as the company’s

soft-top utility vehicle sales continued to

slide.

Sales of pick-up vehicles improved 44%

while of light commercial vehicles wasup 41%. Three-wheeler sales were down

36% at 3163 units. Vehicle exports grew

36.5% at 1954 units despite a slump in

exports to Malaysia following somechanges in the duty structure there. On a

consolidated basis, M&M posted a 102%

growth in net profit at Rs 530 crore for the quarter ended December 31, 2006.(

TIMES NEWS NETWORK

FEBRUARY 01, 2007)As potential shareholder visit the web-

site of M&M and find the following :

• Is M&M doing better than itscompetititors?

• Is the share price of M&M

reflects the fundamentals of

company?

• Did the company pay dividend in

the recent past?

•What is the return a shareholder can expect from this company?

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Financial Statement Analysis: Introduction

For answering the above mentioned questions one has to undertake a detailed analysis of the financial statements. Financial statement analysis is a comprehensive analysis of all

three financial statements: balance sheet, income statement, and cash flow statement.

Financial statements provide useful information. However, one has to meticulously look for the right information from the right data. One can undertake the financial statement

analysis from different stakeholders’ perspective: creditors, bankers, credit rating

agencies, existing shareholders, potential shareholders, internal management, andemployees too. There are different tools of financial statement analysis: common-size

statement, comparative statements, and ratio analysis. Before we get into the financial

statement analysis, in the first section we will recapitulate the financial statements. For

this purpose we will the financial statements of companies forming a part of NIFTYIndex of the National Stock Exchange of India (www. nse-india.com).

Balance sheet

Following exhibit shows the consolidated balance sheet of non-banking companiesforming a part of NIFTY. For the convenience sake the balance sheet is divided into six

major blocks

Balance Sheet of CBC as on 31st March 2006

Sources/Liabilities Uses/ Assets

OF 345,696 FA 246,498

0

LTL 85,146 Investments 91,144

CL 207,691 CA 300,890

Total 638,532 638,532

Fixed Assets

Fixed assets is an important component of the balance sheet. Generally fixed assets areshown in the form of Gross Block and Net Block. Net Block is net of depreciation. In the

consolidated balance sheet the net block account for around 39% of the total assets. As

mentioned in the previous chapter, it signifies, that 39% of the total assets are investedwithin the business. However, the percentage of fixed assets differs from company to

company.

Fixed Asset as % of Total Asset as on 31 March 2006 (Rs. in crores)

Bharti Airtel Ltd. 13735.53 78% Dr. Reddy'S Laboratories Ltd. 630.27 16%

A C C Ltd. 3255.77 67% Sun Pharmaceutical Inds. Ltd. 543.67 15%Reliance Industries Ltd. 61572.53 67% Bajaj Auto Ltd. 1265.82 13%

Gujarat Ambuja Cements Ltd. 2359.23 58% Larsen & Toubro Ltd. 1608.77 12%

Indian Petrochemicals Corpn. Ltd. 5964.03 57% H C L Technologies Ltd. 418.56 12%

Investments:

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OF: Owners’ Fund

LTL: Long Term

LiabilitiesCL: Current Liabilities

FA: Fixed Assets

CA: Current Assets

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Investment includes long term holding of shares/bonds/debentures/other securities issued

by other companies. Not all investments are shown in this manner. If the company holds

a majority of the shares and has right to control the other company, it would be called aholding company. In such case, the accounts of the subsidiary company is totally

consolidated with the holding company accounts. So it is only investments in non-

consolidated companies are shown as a separate item called “Investments”. Investmentsaccount for16% of the total assets of the consolidated balance sheet. However, the

percentage varies with the companies as shown in the following table.

Fixed Asset as % of Total Asset as on 31 March 2006 (Rs. in crores)

Reliance Communications Ltd. 12074.09 78% Suzlon Energy Ltd. 292.74 7%

H C L Technologies Ltd. 2654.66 73% Reliance Industries Ltd. 5871.18 6%

Zee Entertainment Enterprises Ltd. 1486.77 60% A C C Ltd. 293.75 6%

Bajaj Auto Ltd. 5856.97 59% Bharti Airtel Ltd. 719.69 4%

Hero Honda Motors Ltd. 2061.89 54% A B B Ltd. 87.14 4%

Current AssetsCurrent assets contains all the short-term assets of the company. These assets are

normally convert back into cash quickly. The current assets consist of the following

major items:

• Inventories

• Receivables

• Cash

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Current Assets as on 31st March 2006

Inventories 66,933 22%

Receivables 175,429 58%

Cash and bank balance 58,529 19%

Total CA 300,890


Sources/Liabilities Assets

Of 345,696 FA 246,498


CL 207,691 CA 300,890

Total 638,532 638,532

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Current assets are in constant movement. Raw materials are converted into finished

goods. These when sold are converted into receivables or cash. Thus returns from theoperation or in other words, the profit depends on this cycle. This cycle is also known as

the Operating Cycle. The composition of current assets also differs from company to

company.

Composition of Current Assets as % of Total Liabilities as on 31st March 2006

Inventorie

sCash/Bankbalance Receivables

A B B Ltd. 9% 17% 59%

A C C Ltd. 12% 2% 12%

Bajaj Auto Ltd. 3% 1% 25%

Bharat Heavy Electricals Ltd. 18% 20% 52%

Bharat Petroleum Corpn. Ltd. 32% 2% 13%

Bharti Airtel Ltd. 0% 2% 15%

Cipla Ltd. 28% 1% 37%

Dabur India Ltd. 15% 5% 16%Dr. Reddy'S Laboratories Ltd. 11% 17% 33%

Now let us see the liabilities of the consolidated BS Company. The following figure

shows three subdivisions of the liabilities:

Owners’ Funds (OF)

OF is the sum of the money contributed by the owners i.e. capital and the moneygenerated by the business i.e. profit. Owners’ fund consists of the following:

• Share Capital

• Reserves

Share capital is the money collected or raised by issuing shares to the public. The shares

can be issued at par, premium, or discount. However, the share capital is always shown inthe balance sheet at the face value. Discount or premium, if any, is adjusted in the reserve

account. The details of the capital is available in Chapter-XXX.

The reserves consists of capital reserve and revenue reserves. Revenue reserve shows the

profit from the operation or the business, whereas the capital reserve shows the profits

from all other activities which do not fall under the category of main business. Theowners’ fund changes due to the following reasons:

• Issue of capital

• Profit from the operations

• Profit from any other sources

• Buy back of shares

Whereas the following transactions will have no effect on the owners’ fund:

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• Issue of bonus shares

• Issue of debentures or bonds

• Splitting of shares

Owners’ fund accounts 54% of the total sources. In other words, large chunk of the

business has been financed by the owners’ fund. It is important to note that reservesaccount for more that 90% of the owners’ fund. This shows that the selected companies

have used their profits for financing the business. The composition of owners’ fund also

varies with the nature of the business.

Capital and Reservest as % of Total Funds as on 31 March 2006

Capital Reserves Capital Reserves

Satyam Computer Services Ltd. 1% 84% Tata Motors Ltd. 2% 31%

H C L Technologies Ltd. 2% 77% Hindustan Lever Ltd. 3% 31%

Tata Consultancy Services Ltd. 1% 75% Bharat Petroleum Corpn. Ltd. 1% 31%

Infosys Technologies Ltd. 2% 74% Bharti Airtel Ltd. 10% 28%

Videsh Sanchar Nigam Ltd. 3% 70% Siemens Ltd. 1% 26%

Long Term Funds

LTF includes borrowing from financial institutions, public in the form of bonds,

debentures etc. The funds mature after a period of twelve months. LTF account for less

than 15% of the total funds. However, companies like Infosys and Satyam have no

borrowing what so ever.

LTL as % of Total Funds as on 31 March 2006 (Rs. in crores)

LTL % LTL %

Jet Airways (India) Ltd. 5015 55% Steel Authority Of India Ltd. 3388 10%

Sun Pharmaceutical Inds. Ltd. 1746 48% G A I L (India) Ltd. 1917 9%

Bharat Petroleum Corpn. Ltd. 8370 29% Suzlon Energy Ltd. 335 7%

Reliance Energy Ltd. 4290 29% Hero Honda Motors Ltd. 186 5%

Tata Power Co. Ltd. 2755 28% Bharat Heavy Electricals Ltd. 555 3%

Short Term Funds:

Short term funds are also known as the current Liabilities. STF consists of accounts

payables or creditors, short term loans, provisions for taxation and proposed dividend.

CLas % of Total Funds as on 31 March 2006 (Rs. in crores)

CL % CL %

Siemens Ltd. 2023 73% Tata Power Co. Ltd. 1321 14%

Hindustan Lever Ltd. 4253 67% National Aluminium Co. Ltd. 940 13%

Glaxosmithkline Pharmaceuticals Ltd. 1616 64% Gujarat Ambuja Cements Ltd. 396 10%

Bharat Heavy Electricals Ltd. 12522 64% Sun Pharmaceutical Inds. Ltd. 290 8%

A B B Ltd. 1424 61% Reliance Communications Ltd. 615 4%

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Various Combination of Balance Items

• Total Assets

• Capital Employed

• Net worth

• Working Capital

Let us go back to the combined balance sheet (CBC).


Sources/Liabilities Uses/ Assets

Of 345,696 FA 246,498

0


CL 207,691 CA 300,890

Total 638,532 638,532

Total Assets

Total assets is the sum of fixed assets, investments, and current assets

• TA = FA + Investments+ CA = 638532

• Total assets are also equal to the sum of the sources = OF +LTLF+CL

Net worth

• OF = FA + Investments+ CA-CL =345,696

• OF = Total sources – LTL –CL =345,696

• OF = TA – Outsider sources (LTL and CL) = 345,696

Capital Employed

This is one of the important balance sheet terms and is very used in undertaking financialstatement analysis. Capital employed shows the long term funds used in the business.

Capital employed can be calculated as follows:

• CE = OF + LTL – Investment = 339,698

• CE = FA +CA – CL = 339,698

• CE = TA – Investments – CL = 339698

• CE = FA + Working Capital = 339,698

Working Capital

Working capital represents excess of current assets over the current liabilities. Work capital of the combined balance sheet can be calculated as follows:

• Working Capital = CA –CL = 93,199

Income Statement

Income statement shows profit from operating and non-operating activities of a company.

The nature of expenses depend on the nature of the business. Following table shows some

of the important expense as a percentage of total income

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Expenses as Percentage of Total income for the year ending 2006

salaries Raw Material Advertisement Dep Interest

A B B Ltd. 5% 60% 0% 1% 0%

A C C Ltd. 5% 18% 1% 4% 2%

Bajaj Auto Ltd. 3% 60% 1% 2% 0%

Bharat Heavy Electricals Ltd. 12% 46% 0% 2% 0%

Tata Power Co. Ltd. 4% 66% 0% 6% 3%

Tata Steel Ltd. 8% 21% 0% 4% 1%

Tata Consultancy Services Ltd. 46% 1% 0% 2% 0%

Satyam Computer Services Ltd. 57% 0% 0% 3% 0%

Infosys Technologies Ltd. 46% 0% 0% 4% 0%

Mahindra & Mahindra Ltd. 6% 59% 1% 2% 0%

Source: CMIE data base

Cash Flow Statement

Cash flow statement show net cash generated during a period. Cash can be generated

through financing activities, investment activities, and operating activities. Details of these activities were discussed in chapter relating to the cash flow statement. Following

exhibit shows the cash flows of some of the companies forming a part of the NIFTY.

Cash Flows during the year March ending 2006 (rs.in crore)

CFF CFI CFO

Bharti Airtel Ltd. 593 -5000 4331

Hero Honda Motors Ltd.-

413 -323 877

Mahindra & Mahindra Ltd. -63 -503 660

National Aluminium Co. Ltd.-

294 -233 1965

Tata Consultancy Services Ltd.-

880 -1409 2340

Infosys Technologies Ltd. 301 -392 2187

Financial Statement Analysis

The purpose of the financial statement analysis is to help users to understand theorganisation and the business decisions. These users are both internal and external. The

internal users include the management, employees, and the external users include the

shareholders, researchers, bankers, customers, suppliers government representatives..

Board of directors analyse the financial statements to understand the impact of the

decisions and use the same for future decision making. Employees use the financial

statements to negotiate the union demands. Potential investors use the financial

statements to decide about the investment to be made. The common goal of these users isto understand the past and use the data to predict the future.

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Balance Sheet ABB

LTF 39% LT Assets 15%

STF 61% ST Assets 85%

Analysis is Comparison

While analysing the financial statement we generally undertake the a)Interfirm

comparison or b) Intra-firm comparison

Inter-firm Comparison:

The financial statements of a company are compared with the financial statements of another company belonging to the same industry. Inter-firm comparison is also known as

vertical comparison. The following table shows the inter firm comparison relating to

some of the financial performance of the automobile companies.

Inter Firm Comparison for the year ending 2006

FA OF LTL Investments

M &M 26% 51% 15% 29%

Maruti 24% 73% 2% 27%

Tata Motors Ltd. 30% 37% 18% 13%

Intra-firm Comparison

In this case a particular company’s performance is compared over a period. This is also

known horizontal comparison.

Intra-Firm Comparison of Mahindra and Mahindra

Rs. Crore Mar 2004 Mar 2005 Mar 2006

PAT 303.8 474.1 551.2

GFA 2539.2 2781.3 3033.3

Net worth 1750.5 1947.8 2877.5

Borrowings 729.8 1052.6 883.4

PBDIT/sales % 10.8 11.6 11.2

PAT/sales % 5.2 6.2 5.9

RONW 18.6 25.6 22.8

ROCE 19 27.4 26

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Balance Sheet HLL

LTF 33% LT Assets 61%

STF 67% ST Assets 43%

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What to Compare?

Financial statement help in understanding the performance of the organisation. The

performance of an organisation can be explained on the basis of the four importantaspects of the business:

a) Liquidity: Liquidity shows the ability of the business to service the short termobligation.

b) Solvency: Solvency shows the ability fo the business to meet the long term

obligation.c) Efficiency: Efficiency shows the ability of the business to use the resources of the

business.

d) Profitability: Profitability shows the ability to the business to generate and

distribute profit.

Tools for Financial Statement Analysis

Following the important tool which are used for undertaking FSA:

a) Comparative Statements b) Common Size Statements

c) Ratio Analysisd) Trend Analysis

Comparative Statements

Comparative statements facilitate comparison by showing financial amounts in absoluteterms and percentage change in the columnar form. Both changes are relevant.

Absolute change = Amount in Current Period – Amount in Base Period

Percentage Change = Amount in Current Period – Amount in Base Period /Amount inBase Period

Comparative Balance Sheet and Income Statements of Hindalco are as follows:

Comparative Balance Sheet of Mahindra and Mahindra

Change

2006 2005 Rs. %

OF 2877 1974 904 46%

LTL 883 1053 -169 -16%

CL 2254 1981 274 14%

6015 5007 1008 20%

Fa 1541 1461 81 6%

Investment 1669 1190 479 40%

CA 2805 2356 449 19%

6015 5007 1008 20%

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Comparative Income Statement

Comparative income statement shows incomes and expenses for two or more periods,with additional column for absolute change and percentage change. Let us see the

comparative income statement of Mahindra and Mahindra:

Comparative Income Statement

2006 2005 Change

in Rs %

Net Operating Income 8137 6595 1542 23%

Cost of Sales 7265 5876 1389 24%

PBDIT 872 719 153 21%

Other Recuring Income 196 186 9 5%

Adjusted PBDIT 1067 905 162 18%

Depreciation 200 184 16 9%

Adjusted PBIT 867 721 146 20%

Finanical Expenses 27 30 -3 -11%

PBT 840 691 149 22%

Tax Charges 242 202 41 20%

Adjusted PAT 598 489 108 22%

The income statement can not address whether the increase in the sales is due to price

effect or quantity effect. For such an investigation one has to undertake a detailedcompany level analysis.

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Visit the website of Mahindra and Mahindra and check the changes in the

current year. Investigate the reasons for the change in the current liabilities by

180%.

To have a better understanding compare the above balance sheet with that of

Tata Motors or Maruti

Refer to the comparative balance sheet and the income statement comment on

the change in profit.

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Comparative statements can also be used for undertaking Trend Analysis. Trend analysis

reveal pattern in data over a period of time. It involves determining the trend percent for a

series of financial numbers. Let us take the sales value, cost of sales, and PBDIT of Mahindra and Mahindra and understand the trend analysis.

Mahindra & Mahindra Ltd.

Mar-03 Mar-04 Mar-05 Mar-05Total Incomes 4585.97 6030.37 8001.1 9569.74

Expense 4440.44 5689.85 7488.43 8712.64

PAT 145.53 340.52 512.67 857.1

Following steps are required to determine the trend percentage :

1. Select a base year: Let 2003 be the base year 2. Express the financial items of the succeeding years as a percentage of the base

year number

Trend Percent = Current year value

Base year value

Mahindra & Mahindra Ltd.

Mar-03 Mar-04 Mar-05 Mar-06

Total Incomes 100 31% 74% 109%

Expense 100 28% 69% 96%

PAT 100 134% 252% 489%

The trend analysis shows that the sales in the latest year is 1094% of the base year,whereas, the profit is much higher. The above data can also be presented graphically.

Trend

0%200%

400%

600%

1 2 3

Total Incomes Expense PAT

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The trend analysis shows an overall decent growth in the profit too. However, to make

the comparison more meaningful , an inter-company comparison can be undertaken. Let

us take one of the items viz. PAT of Mahindra and compare it with that of Maruti.Following table and graphs show the comparison the recent five years. PAT of Maruti

sharply increased.

PAT Comparison

Mar-02 Mar-03 Mar-04 Mar-05 Mar-06

Mahindra & Mahindra Ltd. 96.91 145.53 340.52 512.67 857.1

Maruti Udyog Ltd. 104.5 146.4 542.1 853.6 1189.1

Common Size Statements

Common size statements show the position of an item vis-à-vis other items. It shows the

composition of balance sheet and the income statement. All individual items are shownin percentage. Comparative statements help in comparing two companies independent of

the scale of operation.

Common Size Balance Sheet (CSBS)

Common size balance sheet expresses each item as a percentage of the total funds or total

assets. Common size balance sheet shows the composition of the total funds or total

assets. It helps in comparing two companies of different scales.

Profit Comparison

0500

1000

1500

2002 2003 2004 2005 2006

Mahindra & Mahindra Ltd.Maruti Udyog Ltd.

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Visit the website of Mahindra and Maruti and investigate reasons for such differences in the behaviour of PAT.

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Balance Sheet (2005 year end) Rs. In crores

Marico HLL

Net worth 219 2093

Long Term Liabilities 52 1471

Current Liabilities 124 3953

395 7516

Fixed Assets 99 1521

Investment 29 2328

Current Assets 266 3667

395 7516

Is the net worth of Marico low in comparison to HLL? To answer this question one hasto see the common size balance sheet rather than the balance sheet. CSBS shows that

Merico’s position with respect to net-worth is much better than that of HLL. So absolute

levels of net worth or any other financial item may not be useful.

Common Size Income statement (CSIS)

In case of common size income statement, all items are converted into percentage of thetotal revenue. CSIS helps in comparing two companies of different scales.

Income Statement (Rs. In crores)

2005 2005

HLL Marico

Net Sales 11009.73 953.79

Other Income 462.32 13.23

11472.05 967.02

Raw Materials 5413.77 603.69

Selling & Manufacturing Exp. 4419.3 272.95

Depreciation 120.9 10.54

9953.97 887.18

Profit Before Tax 1518.08 79.84

Provision for Taxation 320.74 6.05

Profit After Tax 1197.34 73.79

Is HLL spending abnormally higher amount on selling and manufacturing expenses?Answer to this question can be found by looking at the CSIS. In absolute terms the

selling and manufacturing expenses of HLL was more than 20 times. However, as

percentage of total income it is comparable with that of Marico.

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Common Size Income Statement

2005 2005

HLL Marico

Net Sales 96% 99%

Other Income 4% 1%

100% 100%

Raw Materials 47% 62%

Selling & Manufacturing Exp. 39% 28%

Depreciation 1% 1%

87% 92%

Profit Before Tax 13% 8%

Provision for Taxation 3% 1%

Profit After Tax 10% 8%

Common Size Balance Sheet (2005 year end)

Marico HLL

Net worth 55% 28%

Long Term Liabilities 13% 20%

Current Liabilities 31% 53%

100% 100%

Fixed Assets 25% 20%

Investment 7% 31%

Current Assets 67% 49%

100% 100%

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CSIS can also be used to compare the performance of a company over two time periods.

Income Statement of ITC Ltd (Rs. In crores)

2005 2004

Net Sales 7639.45 6470

Other Income 235.81 225.32 7875.26 6695.32

Raw Materials 2769.55 2383.33

Sell ing & Manufacturing Exp. 2119.77 1751.31

Depreciation 312.87 241.62

5202.19 4376.26

Profit Before Tax 2673.07 2319.06

Is the profit generating capacity of ITC improving? The increase in profits in absolute

terms may convey such misleading message. CSIS shows that the Profit before tax,which shows the profit generating ability of the business has actually reduced during the period.

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Common Size Income Statement of ITC Ltd

2005 2004

Net Sales 97% 97%

Other Income 3% 3%

Raw Materials 35% 36%

Selling & Manufacturing Exp. 27% 26%

Depreciation 4% 4%

66% 65%

Profit Before Tax 34% 35%

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Key Terms

• Financial statement analysis

•Owners fund

• Reserves and surplus

• Long term funds

• Capital employed

• Short term funds

• Working capital

• Inter-firm comparison

• Intra-firm comparison

• Liquidity

• Solvency

•

Profitability• Efficiency

• Ratio Analysis

• Trend Analysis

• Common size statements

• Comparative statements

Theoretical Questions

1. What is financial statement analysis?2. What are the tools of financial statement analysis?

3. Financial statement analysis is the solution to the problem of inefficiency of a

company. Comment.4. Financial statement analysis will help in improving the efficiency of a company.

Do you agree with the statement/

5. What is a common size balance sheet?

6. What is a comparative income statement?7. What is the purpose of common size analysis?

8. What is trend analysis?

9. What is liquidity?10. How liquidity differs from solvency?

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Numerical Questions

1. Following table shows the financial items of ABC ltd.

Financial Items of ABC ltd

Miscellaneous Expenses not written off 216

Investments 292

Capital Work-in-progress 758

Secured Loans 1,122

Unsecured Loans 3,175

Equity Share Capital 4,130

Reserves & Surplus 8,471

Net Block 12,162

Current Liabilities & Provisions 15,318

Current Assets, Loans & Advances 18,789

Required

• Balance Sheet

• Common Size balance sheet

2. Following table shows the financial items of ABC ltd.

Balance Sheet Items of ABC

Year

2Year

1

Current Assets, Loans & Advances 18,789 15,521

Current Liabilities & Provisions 15,318 13,198

Net Block 12,162 12,485

Reserves & Surplus 8,471 6,176

Unsecured Loans 3,175 4,166

Equity Share Capital 4,130 4,130

Secured Loans 1,122 1,604

Investments 292 607

Capital Work-in-progress 758 366

Miscellaneous Expenses not written off 216 295

Required

• Balance Sheet

• Comparative balance sheet

3. Find the missing items

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Balance Sheet of ABC ltd

2 1

Equity 6028 ? 5802 ?

Debt 662 10% ? 10%

6689 6416 100%

Fixed Assets 3195 48% ? 54%

Net Working Capital 910 ? 547 9%

Investments ? ? 2425 ?

6689 100% 6416 100%

4. Fixed assets = 60% of total funds. Current liabilities = 25% of the total funds.

Current assets = 30,000. Prepare the balance sheet.

5. Capital employed = 75% of total funds. Working capital = 25000; Current Assets= 70,000. Prepare the balance sheet

6. Following table shows financial items of ABC ltd.

Financial Items

Cash & Bank 56

Loans (Long term) 165.14

Capital WIP 186.15

Equity Share Capital (10) 249.43

Debtors 527.76Other Current Assets, Loans andAdvances 952.88

Provisions 1108.18

Stock 2002.99

Current Liabilities 2381.95Investments 3874.68

Net Fixed Assets 3950.76

Reserve & Surplus 7646.18

Required:

• Balance Sheet

• Common-size balance sheet

7. Following is the common size balance sheet of XYZ ltd.

Common size Balance Sheet of XYZ ltd

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Equity Share Capital (10) 2% Net Fixed Assets 34%

Reserve & Surplus 66% Capital WIP 2%

Loans (Long term) 1% Investments 34%

Current Liabilities 21% Stock 17%

Provisions 10% Debtors 5%

Other Current Assets 8%

100% 100%

Capital employed = 7896. Find the following:

• Reserves & Surplus

• Working capital

• Total Assets

• Current assets

8. Convert the following items into a common size balance sheet.

Financial Items of X ltd

Equity Share Capital (10) 5000

Reserve & Surplus 7000

Loans (Long term) 8000

Current Liabilities 7600

Net Fixed Assets 19000

Investments 3600

Current Assets 5000

Accounting in Real Life

1. Following is balance sheet of HLL

Balance sheet of HLL (Rs. In crores)

2004 2003 2004 2003

Equity Share Capital 220 220 Fixed Assets 1427 1296

Reserves and surplus 1873 1919 Capital W.I.P 94 74

Long term Loans 1471 1608 Investments 2328 2575

Current Liabilities 2731 2656 Inventories 1470 1393

Provisions 1222 1311 Debtors 489 471

Cash and Bank Balances 699 806

Other Current Assets 1008 1099

7516 7714 7516 7714

Required• Common size balance sheet

• Comparative balance sheet

• Comment on the liquidity and solvency position

2. Following is the balance sheet of Marico.

Balance sheet of Marico (Rs. In crores)

Mar-05 Mar-04 Mar-05 Mar-04

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Draft for Review

Equity Share Capital 58 29 Fixed Assets 88 82

Reserves and surplus 161 151 Capital W.I.P 12 8

Long term Loans 52 9 Investments 29 14

Current Liabilities 109 94 Inventories 112 95

Provisions 15 12 Debtors 35 33

Cash and Bank Balances 18

24

Other Current Assets 101 40

395 296 395 296

Required

• Common size and comparative balance sheet

• Compare liquidity and solvency of HLL and Marico

3. Profit after tax of ITC ltd. for the year ending March 2005 was 21900 mn. Other relevant information are given in the following table:

Financial items as % of Total Income

Net Sales 97%

Raw Materials 35%

Selling & Manufacturing Expenses 27%

total expense 66%

Profit Before Tax 34%

Profit After Tax 28%

Required

• Income Statement of ITC for the year ending 31st March 2005

4. Following table shows relevant financial items of SAIL as on 31st March 2005Equity Share Capital 13%

Reserves & Surplus 26%

Secured Loans 3%

Unsecured Loans 10%

Current Liabilities 48%

Working capital 3,471

Current Assets 18,789

Required

• Capital employed

• Capital

• Other Assets

• Balance Sheet5. Following table shows relevant financial items of SAIL.

SAIL (financial items as % of Total Assets)

2006/03 2005/03

Net worth 39% 35%

Capital 13% 14%

Long Term funds 52% 54%

Fixed Assets 40% 44%

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8/6/2019 FSA May22


Draft for Review

Current Assets 59% 54%

Equity capital of SAIL was 4130 crores. No change in the capital during this

period.

Required:

•Capital Employed

• Working Capital

• Balance Sheet

fsa may22

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