understanding annual reports 1

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UNDERSTANDING ANNUAL REPORTSUNDERSTANDING ANNUAL REPORTS



An An annualannual reportreport isis aa documentdocument whichwhich aa companycompany presentspresents inin itsits Annual AnnualGeneralGeneral MeetingMeeting for for approvalapproval byby itsits shareholdersshareholders.. ItIt isis intendedintended toto givegive thetheownersowners anan insightinsight intointo thethe performanceperformance of of thethe companycompany duringduring thethe financialfinancialyear year..

ItIt isis aa documentdocument whichwhich cancan provideprovide keykey insightinsight intointo thethe affairsaffairs of of thethe companycompanyif if readread andand understoodunderstood properlyproperly sincesince mostmost oftenoften thanthan notnot itit providesprovides aa rosyrosypicturepicture of of thethe companycompany..

HenceHence itit isis veryvery imperativeimperative thatthat annualannual reportsreports bebe understoodunderstood properlyproperly soso asastoto enableenable thethe user user toto taketake rightright decisiondecision onon anyany aspectaspect of of thethe companycompany..

TheThe detailsdetails providedprovided inin thethe reportreport areare of of useuse toto investorsinvestors inin gaininggaining ananunderstandingunderstanding of of thethe company'scompany's financialfinancial positionposition andand futurefuture directiondirection..



Contents of an Annual ReportContents of an Annual Report

1. Directors Report1. Directors Report

2. Auditors Report2. Auditors Report

3. Corporate Governance Report3. Corporate Governance Report

4. Financial Statements4. Financial Statements

Balance SheetBalance Sheet

Profit and Loss AccountProfit and Loss Account

Annexures to above Annexures to above

Notes to AccountsNotes to Accounts5. Cash Flow Statement5. Cash Flow Statement

6. Balance Sheet Abstract and general business profile6. Balance Sheet Abstract and general business profile



Directors ReportDirectors Report

-- Current industrial and economic scenario in which theCurrent industrial and economic scenario in which thecompany is operatingcompany is operating

-- Financial performance of the company for the year Financial performance of the company for the year

-- Dividend declared for the year Dividend declared for the year -- Expansion plans and future growth prospectsExpansion plans and future growth prospects

-- Note on corporate social responsibilityNote on corporate social responsibility

-- Report on energy conservation/technical absorptionReport on energy conservation/technical absorption

-- Employee particulars ( Annexure )Employee particulars ( Annexure )

The above information throws light on the company¶sThe above information throws light on the company¶sphilosophy, future plans, vision.philosophy, future plans, vision.



Corporate Governance ReportCorporate Governance Report

ThisThis isis aa compliancecompliance reportreport onon corporatecorporate governancegovernance adoptedadopted byby

thethe companycompany

ThisThis reportreport givesgives informationinformation regardingregarding thethe compositioncomposition of of BoardBoardof of DirectorsDirectors ,, existenceexistence of of auditaudit committee,committee, grievancesgrievances committeecommittee

etcetc..

ThisThis reportreport helpshelps thethe user user toto gaugegauge thethe levellevel of of transparencytransparency inin

whichwhich thethe companycompany operatesoperates..



Auditors ReportAuditors Report

TheThe statutorystatutory auditorsauditors reportreport assuresassures thethe shareholdersshareholders thatthat thethe

financialfinancial statementsstatements reflectreflect thethe truetrue andand fair fair statestate of of affairsaffairs of of thethe

companycompany andand allall relevantrelevant regulations,regulations, accountingaccounting principlesprinciples inin soso

far far asas itit concernsconcerns thethe preparationpreparation of of financialfinancial statementsstatements hashasbeenbeen adheredadhered toto..

ItIt isis importantimportant toto notenote anyany qualificationsqualifications mademade byby thethe auditor auditor inin

thethe reportreport..



CARO

CARO ReportReport isis anan annexureannexure toto thethe auditorsauditors reportreport wherewhere thethe auditor auditor hashas totocommentcomment onon certaincertain mattersmatters relatedrelated toto systems,systems, policiespolicies andand methodsmethods followedfollowed

byby thethe companycompany whilewhile recordingrecording thethe transactionstransactions..

ThisThis reportreport isis alsoalso veryvery relevantrelevant becausebecause itit commentscomments onon certaincertain issuesissues likelike::

-- DefaultDefault inin paymentpayment of of duesdues toto financialfinancial institutionsinstitutions /debenture/debenture holdersholders

-- whether whether termterm loansloans werewere appliedapplied for for thethe purposepurpose for for whichwhich itit waswas procuredprocured..

TheseThese commentscomments cancan highlighthighlight thethe liquidityliquidity positionposition of of thethe companycompany



FINANCIAL STATEMENTSFINANCIAL STATEMENTS

TheThe mostmost importantimportant partpart of of anyany annualannual reportreport areare thethe financialfinancial statementsstatements ..TheThe financialfinancialstatementsstatements andand thethe accompanyingaccompanying notesnotes explainexplain aa company¶scompany¶s financialfinancial performanceperformance..

Analysing Analysing thethe financialfinancial statementsstatements cancan helphelp thethe user user evaluateevaluate thethe company¶scompany¶s overalloverallperformance,performance, identifyidentify itsits strengthsstrengths andand weaknessesweaknesses andand anticipateanticipate futurefuture problemsproblems

Also Also itit bringsbrings toto lightlight operationsoperations whichwhich maymay bebe lossloss makingmaking or or identifyidentify strugglingstruggling enterprisesenterprises thatthatareare turningturning aroundaround..

TheThe objectiveobjective of of financialfinancial analysisanalysis maymay differ differ fromfrom user user toto user user.. For For thethe managementmanagement itit isis notnot onlyonlytoto planplan itsits futurefuture strategiesstrategies butbut alsoalso toto findfind answersanswers toto allall thethe queriesqueries raisedraised byby investors,investors,employees,employees, regulators,regulators, generalgeneral publicpublic andand maybemaybe eveneven thethe mediamedia.. ManagementManagement studiesstudies financialfinancialstatementsstatements toto knowknow ::

-- PerformancePerformance of of thethe companycompany inin relationrelation toto ManagementManagement goalsgoals asas wellwell asas

industrialindustrial standardsstandards

-- OperationsOperations whichwhich areare profitableprofitable andand whichwhich areare notnot

-- FutureFuture planplan of of actionaction



Balance Sheet

Balance Sheet

Sources of fund :Sources of fund :

It contains data about the amount of Share capital. Reserves & Surplus,It contains data about the amount of Share capital. Reserves & Surplus,Borrowed funds and the quantum of deferred tax liabilityBorrowed funds and the quantum of deferred tax liability

The capital mix enables the user to gauge the company¶s leverage and alsoThe capital mix enables the user to gauge the company¶s leverage and alsothe quantum fixed cash outflow in the form of interest payments. At this pointthe quantum fixed cash outflow in the form of interest payments. At this pointit is necessary to compare the company¶s average rate of return with that of it is necessary to compare the company¶s average rate of return with that of the interest rates.the interest rates.

Also note any contingent liability pertaining to the company. Also note any contingent liability pertaining to the company.



Application of fundsApplication of funds

FixedFixed AssetsAssets TheThe user user cancan knowknow aboutabout of of capitalisationcapitalisation inin fixedfixed assetsassets.. Also Also

seesee thethe profileprofile of of fixedfixed assetsassets ii..ee land,land, buildings,buildings, plantplant andand machinerymachinery etcetc..,,

additionsadditions duringduring thethe year,year, salessales duringduring thethe year year

InvestmentsInvestments ± ± MarketableMarketable investments,investments, other other investments,investments, investmentsinvestments inin

securitiessecurities etcetc.. ThisThis givesgives anan indicationindication regardingregarding thethe movementmovement of of fundsfunds..

CurrentCurrent AssetsAssets ,, LoansLoans andand AdvancesAdvances :: TheseThese itemsitems areare indicatorsindicators aboutabout

thethe operationaloperational efficiencyefficiency of of thethe companycompany.. TheThe movementmovement of of stock,stock, receivablereceivable

managementmanagement ,, recoveryrecovery of of shortshort termterm loansloans etcetc..



INCOME STATEMENTINCOME STATEMENT

IncomeIncome statementstatement isis anan indicator indicator aboutabout thethe bottombottom lineline of of thethecompanycompany.. TheThe operationaloperational efficiencyefficiency of of thethe company¶scompany¶s businessbusinessactivitiesactivities isis reflectedreflected inin thisthis statementstatement

IndicatorsIndicators

Gross ProfitGross Profit

Manufacturing and other expensesManufacturing and other expenses

Non operating incomes and expensesNon operating incomes and expenses

Transfers to reservesTransfers to reserves

Dividend proposedDividend proposedProvisions made for any liability including taxProvisions made for any liability including tax



Notes to AccountsNotes to Accounts

NotesNotes toto accountsaccounts containscontains veryvery pertinentpertinent informationinformation aboutabout thethe

accountingaccounting principlesprinciples andand policiespolicies followedfollowed byby thethe managementmanagement inin

respectrespect of of depreciationdepreciation ,, stockstock valuation,valuation, retirementretirement benefits,benefits,

contingentcontingent liabilitiesliabilities

ThisThis becomesbecomes moremore importantimportant whenwhen thethe companycompany changeschanges thethe

methodmethod of of accountingaccounting or or policypolicy for for aa specificspecific transactiontransaction.. TheThe effecteffect of of

suchsuch transactionstransactions onon thethe netnet profitprofit of of thethe companycompany hashas toto bebe lookedlooked

intointo..



Cash Flow statementCash Flow statement

CFSCFS isis aa veryvery importantimportant statementstatement whilewhile analysinganalysing aa companycompany.. ItIt givesgives thethemovementmovement of of cashcash duringduring thethe year year ii..ee sourcessources fromfrom whichwhich cashcash hashas comecome inin(inflows)(inflows) andand howhow itit hashas beenbeen spentspent (outflows(outflows ))..

Is cash flow statement a summary of cash book ? Is cash flow statement a summary of cash book ?

Components of CFSComponents of CFS

Cash flowsCash flows from operating activitiesfrom operating activitiesCash flows from investing activitiesCash flows from investing activities

Cash flows from financing activitiesCash flows from financing activities

The inflows and outflows of cash highlightsThe inflows and outflows of cash highlights ::

1.1. Ability to generate cash flows from its operating activities Ability to generate cash flows from its operating activities

2.2. Ability to generate income from investing activities Ability to generate income from investing activities

3.3. Dependence on external financingDependence on external financing4.4. Effective implementation of financial strategiesEffective implementation of financial strategies



Guidelines for f inancial statement analysisGuidelines for f inancial statement analysis

Use ratios as a clue to look for further informationUse ratios as a clue to look for further information

Employ proper standards / benchmarks for comparisonEmploy proper standards / benchmarks for comparison

Get knowledge about latest reporting practices and how windowGet knowledge about latest reporting practices and how windowdressing is donedressing is done

Evaluate the management vision with its performance.Evaluate the management vision with its performance.

Look for litigation that could impair equity or accounting changes thatLook for litigation that could impair equity or accounting changes thatthat increased profitthat increased profit

Read auditors report for any qualificationRead auditors report for any qualification

Read notes to accounts for relevant details.Read notes to accounts for relevant details.

Check inventory figuresCheck inventory figures

Check the breakup of fixed assets. What assets does the company ownCheck the breakup of fixed assets. What assets does the company ownand what assets are leased?and what assets are leased?

G o for substance not formG o for substance not form..



Tool kit of a f inancial analystTool kit of a f inancial analyst

Multi step income statementMulti step income statement

Analytical Balance Sheet Analytical Balance Sheet

Comparative Balance Sheet & P/L A/cComparative Balance Sheet & P/L A/c

Trend AnalysisTrend Analysis

Ratio AnalysisRatio Analysis



Financial analysis of a FMCG companyFinancial analysis of a FMCG company

Illustrative exampleIllustrative example



Comparative ( Hor izontal )Prof it & Loss A/c) 2007Comparative ( Hor izontal )Prof it & Loss A/c) 2007 2006 % ̂ / v2006 % ̂/ v

SalesSales 182.05182.05 158.20 14%158.20 14%

Materials costMaterials cost 82 .12 72.64 13 %82 .12 72.64 13 %

Manufacturing costManufacturing cost 68 .16 57.92 18%68 .16 57.92 18%

Provision for contingencies 1.81 2.94 38%Provision for contingencies 1.81 2.94 38%

Other operating incomeOther operating income (0.63) (0.28) 122%(0.63) (0.28) 122%

PBDTPBDT 30.59 24.97 23%30.59 24.97 23%

DepreciationDepreciation 4.35 3.79 15%4.35 3.79 15%

Impairment loss on fixed assets 0.14 0.33 (58%)Impairment loss on fixed assets 0.14 0.33 (58%)

Loss on sale of assetsLoss on sale of assets 0.33 0.23 42%0.33 0.23 42%

PBITPBIT 25.77 20.61 25%25.77 20.61 25%InterestInterest 0.98 1.49 (34%)0.98 1.49 (34%)

Non operating incomeNon operating income (0.99) (0.79) 27%(0.99) (0.79) 27%

PBT 25.77 19.91 29%PBT 25.77 19.91 29%

Provision for income taxProvision for income tax

Current taxCurrent tax 9.25 8.05 15%9.25 8.05 15%

Deferred tax (0.79)Deferred tax (0.79) --

PATPAT 17.31 11.86 46%17.31 11.86 46%

Appropr iationsAppropr iations

DividendsDividends 14.8014.80 12.4012.40

Transfer to reservesTransfer to reserves 1.731.73 1.181.18



Comparative Balance SheetComparative Balance Sheet 20072007 20062006 % ̂/v% ̂/v

Sources of fundsSources of funds

Shareholders fundsShareholders funds

CapitalCapital 9.64 9.649.64 9.64 --

ReservesReserves 16.88 16.15 4.52%16.88 16.15 4.52%

Loan FundsLoan Funds

SecuredSecured 13.99 7.90 77.09%13.99 7.90 77.09%

UnsecuredUnsecured -- 0.600.60 (100%)(100%)

Total 40.52 34.30 18Total 40.52 34.30 18%%


Fixed AssetsFixed Assets

Gross BlockGross Block 70.81 67.71 5%70.81 67.71 5%Less: DepreciationLess: Depreciation 30.04 26.45 13.61%30.04 26.45 13.61%

Net Block 40.77 41.26Net Block 40.77 41.26 (1.20) %(1.20) %

Capital Work in progressCapital Work in progress 1.88 0.49 2.16 %1.88 0.49 2.16 %

Investments 1.05Investments 1.05 -- --

Current Assets, Loans and AdvancesCurrent Assets, Loans and Advances

InventoriesInventories 21.27 20.64 3.07%21.27 20.64 3.07%

Sundry debtors 2.92Sundry debtors 2.92 3.113.11 (6.05) %(6.05) %

Cash & Bank balances 0.42 1.01Cash & Bank balances 0.42 1.01 (59%)(59%)

Loans and Advances*Loans and Advances* 11.33 8.72 ( 30%)11.33 8.72 ( 30%)Less : Current liabilities and ProvisionsLess : Current liabilities and Provisions

LiabilitiesLiabilities 20.10 19.22 4.5620.10 19.22 4.56

Provisions 18.11 21.72Provisions 18.11 21.72 (16 %)(16 %)

Net current assetsNet current assets 2.26 7.452.26 7.45 (70%)(70%)

Deferred Tax liabilities (net )Deferred Tax liabilities (net ) (0.92)(0.92) -- --

* Mainly ICDs* Mainly ICDs



AnalysisAnalysis

Prof it & Loss AccountProf it & Loss Account

Net sales growth by 15%Net sales growth by 15%

Increase in mater ial cost / depreciation less than growthIncrease in mater ial cost / depreciation less than growth

in salesin sales Increase in manufactur ing expenses / loss on assetIncrease in manufactur ing expenses / loss on asset

more than growth in salesmore than growth in sales

Impairment loss / interest show a negative growthImpairment loss / interest show a negative growth

Other income growth more than growth in sales.Other income growth more than growth in sales.

Prof it at every stage more than the growth in salesProf it at every stage more than the growth in sales

Overrall a positive impact on PATOverrall a positive impact on PAT




Total Assets / Liabilities increase by 18%Total Assets / Liabilities increase by 18%

Net worth increases by 2 % only inspite of growth in loan fundsNet worth increases by 2 % only inspite of growth in loan fundsby 65%by 65%

Gross block increases by 5% only showing eff icient utilizationGross block increases by 5% only showing eff icient utilizationwhen compared to increase in saleswhen compared to increase in sales

High increase in Capital WIP showing heavy investment inHigh increase in Capital WIP showing heavy investment inincome generating assetsincome generating assets

Current assets growth only 7% showing eff icient utilization of Current assets growth only 7% showing eff icient utilization of current assets since sales have grown by 15%current assets since sales have grown by 15%

Current liabilities increase by only 5% inspite of increase inCurrent liabilities increase by only 5% inspite of increase inmater ial costs and manufactur ing expenses by around 15%mater ial costs and manufactur ing expenses by around 15%

Overall effective current asset management. Apparently thereOverall effective current asset management. Apparently thereis a inflow of funds towards f ixed assets and loans & advancesis a inflow of funds towards f ixed assets and loans & advancessignifying future income earning prospects.signifying future income earning prospects.



Common size f inancial statementsCommon size f inancial statements ± ±

supplement comparative analysis, studysupplement comparative analysis, study

changes in assetchanges in asset ± ±liability ratio and their impactliability ratio and their impacton profits and to find trends in expense patternon profits and to find trends in expense pattern

to identify critical areas. Also called asto identify critical areas. Also called as verticalvertical

analysisanalysis..



Common size Prof it & Loss A/c 2007Common size Prof it & Loss A/c 2007 2006 % ̂ / v2006 % ̂/ v

SalesSales 182.05 100% 158.20 100%182.05 100% 158.20 100%

Materials costMaterials cost 82 .12 45% 72.64 46%82 .12 45% 72.64 46%

Manufacturing costManufacturing cost 68 .16 37% 57.92 37%68 .16 37% 57.92 37%

Provision for contingencies 1.81 1% 2.94 2%Provision for contingencies 1.81 1% 2.94 2%

Other operating incomeOther operating income (0.63) (0.35%) (0.28) (0.18%)(0.63) (0.35%) (0.28) (0.18%)

PBDTPBDT 30.59 17% 24.97 16%30.59 17% 24.97 16%

DepreciationDepreciation 4.35 2.38 % 3.79 2.39%4.35 2.38 % 3.79 2.39%

Impairment loss on fixed assets 0.14 0.08% 0.33 0.21%Impairment loss on fixed assets 0.14 0.08% 0.33 0.21%

Loss on sale of assetsLoss on sale of assets 0.33 0.18% 0.23 0.14%0.33 0.18% 0.23 0.14%

PBITPBIT 25.77 14.16% 20.61 13.04%25.77 14.16% 20.61 13.04%

InterestInterest 0.98 0.54% 1.49 0.94%0.98 0.54% 1.49 0.94%

Non operating incomeNon operating income (0.99) (0.54%) (0.79) (0.49%)(0.99) (0.54%) (0.79) (0.49%)

PBT 25.77 14.16% 19.91 12.59%PBT 25.77 14.16% 19.91 12.59%

Provision for income taxProvision for income tax

Current taxCurrent tax 9.25 8.059.25 8.05

Deferred tax (0.79)Deferred tax (0.79) --

PATPAT 17.31 9.51% 11.86 7.50%17.31 9.51% 11.86 7.50%



Common size Balance Sheet Balance SheetCommon size Balance Sheet Balance Sheet 20072007 20062006

Sources of fundsSources of funds

Shareholders fundsShareholders funds

CapitalCapital 9.64 24% 9.64 28%9.64 24% 9.64 28%ReservesReserves 16.88 42% 16.15 47%16.88 42% 16.15 47%

Loan FundsLoan Funds

SecuredSecured 13.99 34% 7.90 23%13.99 34% 7.90 23%

UnsecuredUnsecured -- 0.60 20.60 2%%

Total 40.52 100% 34.30 100%Total 40.52 100% 34.30 100%


Fixed AssetsFixed Assets

Gross BlockGross Block 70.81 175% 67.71 197%70.81 175% 67.71 197%

Less: DepreciationLess: Depreciation 30.04 74% 26.45 77%30.04 74% 26.45 77%Net Block 40.77 101% 41.26 120%Net Block 40.77 101% 41.26 120%

Capital Work in progressCapital Work in progress 1.88 5% 0.49 1%1.88 5% 0.49 1%

Investments 1.05 3%Investments 1.05 3% --

Current Assets, Loans and AdvancesCurrent Assets, Loans and Advances

InventoriesInventories 21.27 53% 20.64 60%21.27 53% 20.64 60%

Sundry debtors 2.92 7% 3.11 9%Sundry debtors 2.92 7% 3.11 9%

Cash & Bank balances 0.42 1% 1.01 3%Cash & Bank balances 0.42 1% 1.01 3%

Loans and Advances*Loans and Advances* 11.33 28% 8.72 25%11.33 28% 8.72 25%

Less : Current liabili ties and ProvisionsLess : Current liabili ties and ProvisionsLiabilitiesLiabilities 20.10 50% 19.22 56%20.10 50% 19.22 56%

Provisions 18.11 45% 21.72 63%Provisions 18.11 45% 21.72 63%

Net current assetsNet current assets ( 2.26) (6%) ( 7.45) (22%)( 2.26) (6%) ( 7.45) (22%)

Deferred Tax liabilities (net )Deferred Tax liabilities (net ) (0.92) (2%)(0.92) (2%) -- --

* Mainly ICDs* Mainly ICDs



AnalysisAnalysis

Prof it & Loss AccountProf it & Loss Account

Cost of materials has fallen to 45.11 on sales from 45.92 lastCost of materials has fallen to 45.11 on sales from 45.92 last

year but manufacturing and other expenses increase to 37.44year but manufacturing and other expenses increase to 37.44% thereby wiping out the savings% thereby wiping out the savings

Other operating income increases leading to an increasedOther operating income increases leading to an increasedPBDITPBDIT

Depreciation is relatively constant and loss on impairment isDepreciation is relatively constant and loss on impairment isdown. Hence increase in PBITdown. Hence increase in PBIT

Total income tax lower over previous year due to deferred taxTotal income tax lower over previous year due to deferred tax. Hence PAT has improved .. Hence PAT has improved .




Proportion of loan funds increased to 35% as against 25%Proportion of loan funds increased to 35% as against 25%

Gross Block has come down but capital WIP has gone up . This indicates effectiveGross Block has come down but capital WIP has gone up . This indicates effectiveutilization of assets in view of higher sales.utilization of assets in view of higher sales.

Investments of surplus funds is indicatedInvestments of surplus funds is indicated

Current Assets , loans & advances, current liabilities have decreased despite higher

Current Assets , loans & advances, current liabilities have decreased despite higher sales showing effective current asset managementsales showing effective current asset management

In conclusion loan funds have been diverted to capital WIP and Loans and advancesIn conclusion loan funds have been diverted to capital WIP and Loans and advances( ICDs) both being income generating assets. However this policy of deployment will( ICDs) both being income generating assets. However this policy of deployment willbe good only if interest earned is more than interest paid.be good only if interest earned is more than interest paid.

This also validates our findings through horizontal analysisThis also validates our findings through horizontal analysis



Ratio AnalysisRatio Analysis

Return on investment ratiosReturn on investment ratios ± ± RONW , EPS, Cash earningsRONW , EPS, Cash earnings

per share (CEPS)per share (CEPS)

Leverage ratiosLeverage ratios ± ± Net asset value, Debt equity , Debt serviceNet asset value, Debt equity , Debt service

coveragecoverage

Profitability ratiosProfitability ratios ± ± GP ratio, Multi step NP ratiosGP ratio, Multi step NP ratios

Liquidity ratiosLiquidity ratios ± ± Current ratio, Quick ratio, Debtors Turnover,Current ratio, Quick ratio, Debtors Turnover,

Inventory turnover ratioInventory turnover ratio

Turnover ( Efficiency ) ratiosTurnover ( Efficiency ) ratios -- Fixed assets Turnover ratio,Fixed assets Turnover ratio,

Net worth turnover ratioNet worth turnover ratio

Valuation ratiosValuation ratios ± ± PE ratio, Market price to NAV, MarketPE ratio, Market price to NAV, Market

capitalization, Yeild to investors.capitalization, Yeild to investors.



ROI ratiosROI ratios

I.I. Analytical value in decision making Analytical value in decision making

II.II. Comparative Standards / BenchmarkingComparative Standards / Benchmarking

Industry leader Industry leader Industry averageIndustry average

WACCWACC

Cost of borrowingsCost of borrowings

III.III.Influencing factorsInfluencing factors

SalesSales

Cost economiesCost economies

Optimum capital structureOptimum capital structure



ROI ratiosROI ratios

2007 20062007 2006

RONW =RONW = PATPAT ± ± Preference dividendPreference dividend * 100 = 65%* 100 = 65% 49%49%

Net worth ( ESHs Fund )Net worth ( ESHs Fund )

High ratio means high dividend , better growth prospects and high valuation in capital market.High ratio means high dividend , better growth prospects and high valuation in capital market.However adjust the PAT for extra ordinary items fro proper analysis.However adjust the PAT for extra ordinary items fro proper analysis.

EPS =EPS = PATPAT ± ± Preference dividendPreference dividend Rs.17.96Rs.17.96 Rs 12.30Rs 12.30

Number of equity sharesNumber of equity sharesThis ratio is the basis for valuation of companies in the event of mergers etc, strategicThis ratio is the basis for valuation of companies in the event of mergers etc, strategicinvestments by owners. Higher ratio shows company in a positive light.investments by owners. Higher ratio shows company in a positive light.

CEPS =CEPS = PATPAT ± ± preference dividend + non cash chargespreference dividend + non cash charges Rs.26.76 Rs.20.80Rs.26.76 Rs.20.80

Number of equity sharesNumber of equity shares

This ratio takes into account cash earnings. In case of companies with very low profits thisThis ratio takes into account cash earnings. In case of companies with very low profits this

ratio is an indicator that the company position may improve in future.ratio is an indicator that the company position may improve in future.

T he company gives very high returns on equity with substantial improvement. CompareT he company gives very high returns on equity with substantial improvement. Comparewith industry average. CEPS is very high than EPS . It shows a large amount of hiddenwith industry average. CEPS is very high than EPS . It shows a large amount of hiddenreserves due to high element of non cash charges and provisionsreserves due to high element of non cash charges and provisions..

NAV = ESHs Funds / No. of equity sharesNAV = ESHs Funds / No. of equity shares



Leverage ratios ( Long term solvency ratios )Leverage ratios ( Long term solvency ratios )



Industry averageIndustry average

NAV of industry leader / laggardNAV of industry leader / laggard

Institutional normsInstitutional norms

Growth / Decline over the previous yearsGrowth / Decline over the previous years

III.III. Influencing factorsInfluencing factors

ROI & EPSROI & EPS

Dividend policyDividend policy



Gear ing or leverage ratiosGear ing or leverage ratios

Debt equity ratio =Debt equity ratio = Long termLong term DebtDebt 0.19 : 10.19 : 1 0.21.10.21.1Total net worth ( ESHs Funds + PC )Total net worth ( ESHs Funds + PC )

This ratio helps in assessing whether the company is relying on own funds or This ratio helps in assessing whether the company is relying on own funds or borrowed funds. Higher the debt more fixed liabilities by way of interest. FI s generallyborrowed funds. Higher the debt more fixed liabilities by way of interest. FI s generallylook for a D/E of 1.5 :1 while financing projects.look for a D/E of 1.5 :1 while financing projects.

Debt Sevice coverage ratio =Debt Sevice coverage ratio =

PAT + Interest on long term debts+ non cash chargesPAT + Interest on long term debts+ non cash chargesInterest on long term debts + Instalments on principal dueInterest on long term debts + Instalments on principal due

36.59 times 3.48 times36.59 times 3.48 times

This ratio indicates the ability of the company to service loan funds. FI s generally lookThis ratio indicates the ability of the company to service loan funds. FI s generally lookfor a DSCR of 1.6 and above.for a DSCR of 1.6 and above.

NAV has improved over the previous years. It could have been better since the

NAV has improved over the previous years. It could have been better since thecompany has very high provisioning. Long term solvency is strong due to very company has very high provisioning. Long term solvency is strong due to very

low D/E ratio. Interest coverage is also high. N o default risk. T he company will low D/E ratio. Interest coverage is also high. N o default risk. T he company will enjoy a very high credit in the market. It has sufficient capacity to raise long enjoy a very high credit in the market. It has sufficient capacity to raise long term debt term debt ..



Liquidity ratiosLiquidity ratiosI.I. Analytical value in decision making Analytical value in decision making


Institutional normsInstitutional norms

Effective asset utilisationEffective asset utilisation Cost economiesCost economies

Proportion of non cash charges in expense structureProportion of non cash charges in expense structure


Proper asset liability managementProper asset liability management

Credit period availed and credit period allowedCredit period availed and credit period allowed

Inventory management / Supply chain management/ level of Inventory management / Supply chain management/ level of

obsolescenceobsolescence



Liquidity ratiosLiquidity ratios

Current ratio =Current ratio = Current Assets, loans & Advances and short term investmentsCurrent Assets, loans & Advances and short term investments

Current liabilities +Provisions+ Short term debtsCurrent liabilities +Provisions+ Short term debts

1.16:11.16:1 1.05:11.05:1Quick ratio =Quick ratio = Current Assets, loans & AdvancesCurrent Assets, loans & Advances ± ± Inventories + short term investmentsInventories + short term investments

Current liabilities +Provisions+ Short term debtsCurrent liabilities +Provisions+ Short term debts ± ± Bank overdraftBank overdraft

0.68:10.68:1 0.44:10.44:1

These 2 ratios helps in analyzing the current assets and current l iabilities of the company and its ability toThese 2 ratios helps in analyzing the current assets and current l iabilities of the company and its ability todischarge its day to day obligations Quick ratio is more realisticdischarge its day to day obligations Quick ratio is more realistic

Debtors turnover ratio =Debtors turnover ratio = Receivables *Receivables * 365365 5 days5 days 6 days6 days

Credit salesCredit salesCreditors turnover ratio =Creditors turnover ratio = Payables * 365Payables * 365 85 days85 days 87 days87 days

Credit purchasesCredit purchases

These ratio helps us to understand the credit policy of the company towards its customers and the creditThese ratio helps us to understand the credit policy of the company towards its customers and the creditallowed to it by the suppliers. Generally a successful company will be able to extend a shorter credit period andallowed to it by the suppliers. Generally a successful company will be able to extend a shorter credit period andenjoy a longer credit period.enjoy a longer credit period.

Inventory holding period =Inventory holding period = Inventory * 365Inventory * 365 55 days55 days 62 days62 days

Cost of goods soldCost of goods sold

This ratio indicates in how many days company¶s inventory is converted into sales. Hence an appropriate levelThis ratio indicates in how many days company¶s inventory is converted into sales. Hence an appropriate levelof inventory is required to ensure minimum blockage of funds in inventory and also be able to service theof inventory is required to ensure minimum blockage of funds in inventory and also be able to service thecustomers promptly.customers promptly.

Efficient management of customers.V ery low collection period. High credit standing in the market.T heEfficient management of customers.V ery low collection period. High credit standing in the market.T hecompany is enjoying reduction in purchase price as well as increased credit limits. However inventory company is enjoying reduction in purchase price as well as increased credit limits. However inventory holding period looks quite high. Improvement in supply chain of finished goods may be needed. Check holding period looks quite high. Improvement in supply chain of finished goods may be needed. Check for old and obsolete stocks in the inventory break up. Current ratio looks fine however quick ratiofor old and obsolete stocks in the inventory break up. Current ratio looks fine however quick rationeeds improvement. But in view of the leverage enjoyed due to low credit to customers and high credit needs improvement. But in view of the leverage enjoyed due to low credit to customers and high credit from suppliers, it does not require a high liquidity. Reserves may be invested in income generating from suppliers, it does not require a high liquidity. Reserves may be invested in income generating assets. However inventory levels may be reduced.assets. However inventory levels may be reduced.



Efficiency ratiosEfficiency ratiosI.I. Analytical value in decision making Analytical value in decision making



Industry leader Industry leader

Trend over a period of timeTrend over a period of time

III.III.Influencing factorsInfluencing factors Production efficienciesProduction efficiencies

Investment in relevant technologiesInvestment in relevant technologies

Price and quality of productsPrice and quality of products



Eff iciency ratiosEff iciency ratios

Fixed assets turnover ratioFixed assets turnover ratio -- Net salesNet sales

Net block of fixed assetsNet block of fixed assets

4.47 times4.47 times 3.83 times3.83 times

Fixed assets are income generating assets for any company.Fixed assets are income generating assets for any company.Higher the ratio better is the utilization of assets for generatingHigher the ratio better is the utilization of assets for generatingsales.sales.

Net worth turnover ratio =Net worth turnover ratio = Net salesNet salesNet worthNet worth

6.86 times6.86 times 6.56 times6.56 times

Fixed assets are f inanced through equity and borrowings.Fixed assets are f inanced through equity and borrowings.The results of f ixed assets eff iciency net of interest belongsThe results of f ixed assets eff iciency net of interest belongsto shareholders. An optimum capital structure provides thisto shareholders. An optimum capital structure provides thisadvantage to the shareholdersadvantage to the shareholders..



Profitability ratiosProfitability ratios



Trend over a period of timeTrend over a period of time


Industry leader / laggardIndustry leader / laggard

WACCWACC


Qualitative and quantitative growth in salesQualitative and quantitative growth in sales

Age of fixed assets ( depn ) Age of fixed assets ( depn )

Cost of borrowingCost of borrowing

Efficient tax planningEfficient tax planning



Prof itability ratiosProf itability ratios

GP ratio =GP ratio = GPGP*100*100SalesSales

Operating Profit ratio =Operating Profit ratio = PBIT * 100PBIT * 100SalesSales

14 %14 % 13%13%

Net profit ratio =Net profit ratio = PAT * 100PAT * 100SalesSales

10%10% 8%8%

Effective tax rate =Effective tax rate = Current Income TaxCurrent Income Tax * 100* 100

PBTPBTThese ratios helps to assess the business performanceThese ratios helps to assess the business performancestarting from Gross Prof it. Multi level prof itability ratiosstarting from Gross Prof it. Multi level prof itability ratioshelps to understand the levels at which there is pressure onhelps to understand the levels at which there is pressure onmar gin.mar gin.



Valuation ratiosValuation ratios




Leaders & laggards in industryLeaders & laggards in industry Trend over a period of timeTrend over a period of time


Dividend policyDividend policy

Size of the companySize of the company

Market conditionsMarket conditions

NAVNAV



Valuation ratiosValuation ratios

P/E ratio =P/E ratio = Market price of equity shareMarket price of equity share 516/ 17.96516/ 17.96 542/12.30542/12.30

EPSEPS 2929 444444

This ratio is important for valuation of shares in the event of many strategic decisionThis ratio is important for valuation of shares in the event of many strategic decisionmaking. It reflects the investors perception of the company.making. It reflects the investors perception of the company.

Market value to NAV =Market value to NAV = Market price of the equity shareMarket price of the equity share

NAVNAV

516/ 27.51516/ 27.51 542/ 24.98542/ 24.98

18 times 24 times18 times 24 times

Market price of a share is generally higher than the NAV. At times due to the industryMarket price of a share is generally higher than the NAV. At times due to the industrynot doing well or other reasons the market price may be lower than NAV. This is anot doing well or other reasons the market price may be lower than NAV. This is avery good investment opportunity.very good investment opportunity.

Yield to investors = (Yield to investors = (Dividend received + market appreciation) * 100Dividend received + market appreciation) * 100

Initial investmentInitial investment

This ratio helps in understanding the returns being earned by the shareholders or theThis ratio helps in understanding the returns being earned by the shareholders or thelosses suffered by it.losses suffered by it.

20 + (51620 + (516--542 ) * 100542 ) * 100 12.50 + (54212.50 + (542--430)*100430)*100

542542 430430

--1.11%1.11% 28.95%28.95%



Du Pont AnalysisDu Pont Analysis

RONW = Net profit margin * Net worth turnover RONW = Net profit margin * Net worth turnover Net profitNet profit ** Net salesNet sales

Net sales Net worthNet sales Net worth

20072007 9.51% * 6.86 times = 65.28%9.51% * 6.86 times = 65.28%

20062006 7.50% * 6.56 times = 49.23%7.50% * 6.56 times = 49.23%

When RONW is being compared then it helps us to knowWhen RONW is being compared then it helps us to knowwhether the improvement / deterioration is due to improved /whether the improvement / deterioration is due to improved /deteriorated net margin or improved / deteriorated net worthdeteriorated net margin or improved / deteriorated net worthturnover so that suitable strategies can be formed.turnover so that suitable strategies can be formed.

T here is an improvement in both the parts. N et profit T here is an improvement in both the parts. N et profit margin improvement is higher than net worthmargin improvement is higher than net worthimprovement showing better operating efficiency improvement showing better operating efficiency ..



Overall summationOverall summation

Good f inancial performanceGood f inancial performance No solvency r iskNo solvency r isk

High f ixed asset utilizationHigh f ixed asset utilization

High provisioning and high hidden reservesHigh provisioning and high hidden reserves

High inventory holding per iod . Need to study the break up of inventoryHigh inventory holding per iod . Need to study the break up of inventoryinto raw mater ials, WIP , f inished goods, spare parts to zero down on theinto raw mater ials, WIP , f inished goods, spare parts to zero down on theexact cause.exact cause.

High CWIP . Need to understand the projects / products where investmentHigh CWIP . Need to understand the projects / products where investmentmade to estimate future earnings.made to estimate future earnings.

Deferred tax liabilities are not considered while computing current ratio asDeferred tax liabilities are not considered while computing current ratio asper AS 22.per AS 22.

Due to high dividend payout and maybe declining market the marketDue to high dividend payout and maybe declining market the marketvaluation has been adversely affected leading to negative yield. In case of valuation has been adversely affected leading to negative yield. In case of MNC due to high stake of foreign shareholders dividend payout may beMNC due to high stake of foreign shareholders dividend payout may behigher due to non taxability of dividend in the hands of shareholders.higher due to non taxability of dividend in the hands of shareholders.Capital market may be sluggish leading to high dividend payout.Capital market may be sluggish leading to high dividend payout.



Core ratiosCore ratios

ROIROI -- RONW , EPSRONW , EPS

LeverageLeverage ± ± NAV, D/E, DSCRNAV, D/E, DSCR

LiquidityLiquidity ± ± CR, QR, Collection period, Suppliers credit,CR, QR, Collection period, Suppliers credit,

Inventory holding periodInventory holding period

EfficiencyEfficiency ± ± Fixed Assets Turnover, Net worth Turnover Fixed Assets Turnover, Net worth Turnover

ProfitabilityProfitability ± ± PBT , PAT , Effective Tax ratePBT , PAT , Effective Tax rate

ValuationValuation -- P/E, Yield to investorsP/E, Yield to investors



Creative Financial PracticesCreative Financial Practices

Increasing the estimates of useful life of intangible assetsIncreasing the estimates of useful life of intangible assets

Write offs of preliminary expenses against profitsWrite offs of preliminary expenses against profits

Non provisioning of expenses , doubtful , disputed debtsNon provisioning of expenses , doubtful , disputed debts

Non operating income not disclosed seperatelyNon operating income not disclosed seperately Changing accounting policy w.r.t valuation of assetsChanging accounting policy w.r.t valuation of assets

Making inadequate provisions for certain liabilities or treatMaking inadequate provisions for certain liabilities or treatcertain liabilities as contingent after getting suitable legalcertain liabilities as contingent after getting suitable legalopinionopinion

Making extra provisions in good years and writing them backMaking extra provisions in good years and writing them backin lean yearsin lean years



Listing Agreement with SEBIListing Agreement with SEBI ± ± Clause 49 on CorporateClause 49 on Corporate

GovernanceGovernance

Company¶s philosophy on code of governanceCompany¶s philosophy on code of governance

Board of DirectorsBoard of Directors

Audit Committee Audit Committee

Remuneration CommitteeRemuneration Committee

Shareholders CommitteeShareholders Committee

General Body meetingsGeneral Body meetings

DisclosuresDisclosures

Means of communicationMeans of communication

General Shareholder informationGeneral Shareholder information



Going beyond the figuresGoing beyond the figures

Are the company¶s revenues tied to one key customer Are the company¶s revenues tied to one key customer

Are the company¶s revenues tied to a single product Are the company¶s revenues tied to a single product

What part of company¶s operations are situatedWhat part of company¶s operations are situatedoverseasoverseas

Is the company dependant on a single supplier Is the company dependant on a single supplier

Likely actions of current competitorsLikely actions of current competitors

Legal and regulatory environmentLegal and regulatory environment



Analysts should take the following precautions Analysts should take the following precautions

Analysis of trends over a long period of time Analysis of trends over a long period of time

Interpretation of observation against industry benchInterpretation of observation against industry bench

markmark

Analysis of core ratios only Analysis of core ratios only

Inter firm comparison for variations in accountingInter firm comparison for variations in accounting

policiespolicies In case of conglomerates comparative performance of In case of conglomerates comparative performance of

different lines of businessdifferent lines of business



CFSCFS isis aa veryvery importantimportant statementstatement whilewhile analysinganalysing aa companycompany.. ItIt givesgives thethemovementmovement of of cashcash duringduring thethe year year ii..ee sourcessources fromfrom whichwhich cashcash hashas

comecome inin (inflows)(inflows) andand howhow itit hashas beenbeen spentspent (outflows(outflows ))..

Is cash flow statement a summary of cash book ? Is cash flow statement a summary of cash book ?

Components of CFSComponents of CFS

Cash flows

Cash flows from operating activitiesfrom operating activities

Cash flows from investing activitiesCash flows from investing activities

Cash flows from financing activitiesCash flows from financing activities

The inflows and outflows of cash highlightsThe inflows and outflows of cash highlights ::

1.1. Ability to generate cash flows from its operating activities Ability to generate cash flows from its operating activities

2.2. Ability to generate income from investing activities Ability to generate income from investing activities

3.3. Dependence on external financingDependence on external financing

4.4. Effective implementation of financial strategiesEffective implementation of financial strategies



Cash Flow StatementCash Flow Statement

Ability to generate cash Ability to generate cash

Indicator of the amount and certainty of future cashIndicator of the amount and certainty of future cash

flowsflows Relationship between profitability and net cash flow.Relationship between profitability and net cash flow.



Other important sources of financial informationOther important sources of financial information

MagazinesMagazines

NewspapersNewspapers

DatabasesDatabases ± ±C

MIE ,C

apitaline plusC

MIE ,C

apitaline plus Research reports prepared by leading securitiesResearch reports prepared by leading securities

firms, credit rating agenciesfirms, credit rating agencies

RBI reports on economy and industryRBI reports on economy and industry

Research reports prepared byResearch reports prepared by WebsitesWebsites ± ± SEBI , Capital market, BSE, NSESEBI , Capital market, BSE, NSE

Websites of leading companies in the industryWebsites of leading companies in the industry



Points to be kept in mind by a analystPoints to be kept in mind by a analyst

Connect business model with Balance Sheet

Connect business model with Balance Sheet

Differentiate between Cash Flows & ProfitabilityDifferentiate between Cash Flows & Profitability

Evaluate performance properlyEvaluate performance properly ''

Evaluate segmentEvaluate segment--wise resultswise results

Bifurcate Fixed Costs & Variable costsBifurcate Fixed Costs & Variable costs

Working capital managementWorking capital management Focus on Return on Net Worth (RONW) and Return on CapitalFocus on Return on Net Worth (RONW) and Return on Capital

Employed (ROCE)Employed (ROCE)

Evaluate justification for CapexEvaluate justification for Capex

Secret ReservesSecret Reserves -- When value of the assets in the Balance Sheet isWhen value of the assets in the Balance Sheet is

LOWER . . than the. estimated realisable / market value of those assetsLOWER . . than the. estimated realisable / market value of those assets.. _. . . _. . .

Impaired AssetsImpaired Assets -- When value of the assets in the Balance Sheet isWhen value of the assets in the Balance Sheet ishigher than the estimated realisable / market value of those .assetshigher than the estimated realisable / market value of those .assets



ISSUES.ON FLXED ASSETSISSUES.ON FLXED ASSETS

.C

apitalisation of pre_operative expenses during construction period'.C

apitalisation of pre_operative expenses during construction period' . Interest capitalisation during construction period. Interest capitalisation during construction period

. Delayed capitalisation of project. Delayed capitalisation of project ..

. Depreciation rates under Schedule XIV of Companies Act. Depreciation rates under Schedule XIV of Companies Act -- muchmuchlower thanlower than

economic life of asseteconomic life of asset Depreciation not provided as per the economic life of the assetDepreciation not provided as per the economic life of the asset

. Difficult to estimate impaired value of Fixed Assets. Difficult to estimate impaired value of Fixed Assets ..

. Capitalising repair expenditure.. Capitalising repair expenditure.

.Revaluation of Fixed Assets.Revaluation of Fixed Assets -- inflated valuationinflated valuation

. Non. Non--moving Capital Workmoving Capital Work--inin--ProgressProgress . Exchange fluctuation on Forex borrowing used for acqiuiring fixed. Exchange fluctuation on Forex borrowing used for acqiuiring fixed

assets to be taken to cost of assetassets to be taken to cost of asset -- Schedule VISchedule VI (t. .(t. .



ISSUES ON INVESTMENT'SISSUES ON INVESTMENT'S ..

Depreciation in value of quoted Investments notDepreciation in value of quoted Investments not

recognisedrecognised

Depreciation inDepreciation in--value of unquoted .Investmentvalue of unquoted .Investmentnot evaluatednot evaluated

Funding to promoters Partnership firms may notFunding to promoters Partnership firms may not

have underlying assetshave underlying assets

Investment into Subsidiary / JVInvestment into Subsidiary / JV's's / Associate/ Associate

companiescompanies -- impaired valuationimpaired valuation



ISSUES ON DEBTORSISSUES ON DEBTORS

Running accounts of customers does not indicateRunning accounts of customers does not indicate

nonnon--realisable amounts .realisable amounts .

Material rejected by customer not accountedMaterial rejected by customer not accounted Associate company balances may not be fully Associate company balances may not be fully

recoverablerecoverable

Long overdue Debtors may not be realisableLong overdue Debtors may not be realisable ..

Balance outstanding against Performance GuaranteeBalance outstanding against Performance Guarantee



Number of Number of ititems under Schedule VI schedule not trulyems under Schedule VI schedule not truly

Current AssetsCurrent Assets

Money advanced to a loss making subsidiary /Money advanced to a loss making subsidiary /

associate company may not be realisable . .associate company may not be realisable . .

Money advanced to supposed unconnected partiesMoney advanced to supposed unconnected partiesare actually controlled byare actually controlled by

promoters. and may not be realizablepromoters. and may not be realizable



C ASH & BANK BALANCESC ASH & BANK BALANCES

Rotating associate company balance's withoutRotating associate company balance's withoutmovement of fundsmovement of funds

DEFERRED REVENUE EXPENDITUREDEFERRED REVENUE EXPENDITURE ..

VRS expenditure amortisedVRS expenditure amortised

Advertisement expenditure amortised Advertisement expenditure amortised Goodwill on acquisitionGoodwill on acquisition



ISSUES INISSUES IN LOANS & ADVANCES / CURRENTLOANS & ADVANCES / CURRENT

LIABILITIESLIABILITIES

Provisions not made for all known liabilitiesProvisions not made for all known liabilities

Gratuity liability not providedGratuity liability not provided

Contingent liability may actually be tangibleContingent liability may actually be tangibleliabilityliability

Transfer of Creditors to Deposit receivedTransfer of Creditors to Deposit received

accountsaccounts

Quasi Equity from Promoters withdrawn after Quasi Equity from Promoters withdrawn after

loan disbursement from bankloan disbursement from bank



Disconnect between business model and f inancial statementsDisconnect between business model and f inancial statements

100% Diamond exporter gets into local sales, but Debtors ratio deteriorates100% Diamond exporter gets into local sales, but Debtors ratio deteriorates

instead of improving. Also huge inventory buildinstead of improving. Also huge inventory build--up : Just not possibleup : Just not possible

Chemical company manufacturing an almost monopoly product for localChemical company manufacturing an almost monopoly product for local I I

exportt marketexportt market -- Debtors at over 120 days instead of having minimal DebtorsDebtors at over 120 days instead of having minimal Debtors

since most customers were paying in advance. Just not possible.since most customers were paying in advance. Just not possible.

Car Dealer margins provided by manufacturer much lower than operating profitCar Dealer margins provided by manufacturer much lower than operating profitdisclosed in the audited accountsdisclosed in the audited accounts

Projected Gross Margins not in sync with past performanceProjected Gross Margins not in sync with past performance -- dramatic changesdramatic changes

Projected operating margins not in sync with Industry "norms . Insurance for lower Projected operating margins not in sync with Industry "norms . Insurance for lower value of Fixed / Current Assetsvalue of Fixed / Current Assets



ParticularsParticulars AmtAmt ParticularsParticulars AmtAmt

SourcesSources ApplicationApplication

Share capitalShare capital 2929 Net fixed AssetsNet fixed Assets 9090

R & SR & S 319319 InvestmentsInvestments 495495

Net worthNet worth 348348 CA, Loans & Adv.CA, Loans & Adv.

Secured loansSecured loans 208208 Inventories 43Inventories 43

Unsec. LoansUnsec. Loans 4949 Debtors 26Debtors 26DebtDebt 257257 Cash & Bank 3Cash & Bank 3

Loans & AdvLoans & Adv 5959 131131

Current liabilitiesCurrent liabilities

Current liab 97Current liab 97ProvisionsProvisions 1414 111111

Net current AssetsNet current Assets 2020

TotalTotal 605605 605605



Additional information Additional information

Investments include Rs.475 lacs investment in subsidiaryInvestments include Rs.475 lacs investment in subsidiary

Loans & Advances includes Rs.33 lacs advances toLoans & Advances includes Rs.33 lacs advances to

subsidiarysubsidiary

Secured loans include Rs.58 lacs bank financeSecured loans include Rs.58 lacs bank finance



Recasting Balance Sheet & Profit & loss A/cRecasting Balance Sheet & Profit & loss A/c

Recast P/L A/c segment wise /Product wiseRecast P/L A/c segment wise /Product wise

Analyse fixed & variable cost Analyse fixed & variable cost

Slow moving drs to be classified as non currentSlow moving drs to be classified as non current

Slow moving / non moving stock as non currentSlow moving / non moving stock as non current

Advances / Deposits as non current Advances / Deposits as non current

Loans due within 1 year as current liabilitiesLoans due within 1 year as current liabilitiesShort term/ unsecured loans as current liabilitiesShort term/ unsecured loans as current liabilities



TELLTELL-- TALE SIGNS!!TALE SIGNS!!

Deteriorating Debtors to Sales ratioDeteriorating Debtors to Sales ratio

Deteriorating Inventory Turnover ratioDeteriorating Inventory Turnover ratio Increasing reliance on Short Term LoansIncreasing reliance on Short Term Loans

Increasing CreditorsIncreasing Creditors I I Current LiabilitiesCurrent Liabilities

Deteriorating Current ratioDeteriorating Current ratio

Increased Off Increased Off --Balance Sheet financingBalance Sheet financing

understanding annual reports 1

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