Money related Statement Analysis .

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Layout. Significance of Financial Statements and Financial Statement AnalysisSignificance of Financial StatementsTypes of Financial StatementsIncome StatementBalance SheetCash Flow StatementStatement of Retained EarningsRatio Analysis including Du Pont AnalysisLimitations of Financial Statement Analysis.
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Money related Statement Analysis Financial Policy and Planning

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Outline Meaning of Financial Statements and Financial Statement Analysis Significance of Financial Statements Types of Financial Statements Income Statement Balance Sheet Cash Flow Statement of Retained Earnings Ratio Analysis including Du Pont Analysis Limitations of Financial Statement Analysis

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Focus The attention will be on monetary articulation investigation and its utilization in corporate back. monetary articulation examination from administrative point of view and not from a speculator as well as loan boss\' viewpoint. How to utilize monetary articulation examination to guarantee that shareholder riches is boosted and the stock value keeps on rising?

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Meaning of Financial Statements Financial proclamations are synopses of the working, financing, and venture exercises of a firm. As per the Financial Accounting Standards Board (FASB) , the money related articulations of a firm ought to give adequate data that is helpful to speculators and banks in settling on their venture and credit choices in an educated way.

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The money related articulations are relied upon to be set up as per an arrangement of measures known as proper accounting rules (GAAP). The budgetary proclamations of traded on an open market firms must be examined at any rate every year by autonomous open bookkeepers. The reviewers are relied upon to confirm the way that these budgetary explanations of a firm have been set up as per GAAP.

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Significance of Financial Statements Wall Street experts and other modern speculators incline toward such money related exposure archives as 10-Ks, which contain more point by point data about the organization Financial explanations compress and give an outline of occasions identifying with the working of a firm. Monetary explanation examination distinguishes a company\'s qualities and shortcomings with the goal that administration can exploit a company\'s qualities and make arrangements to counter shortcomings of the firm. The qualities must be comprehended on the off chance that they are to be utilized to appropriate favorable position and shortcomings must be perceived if remedial move should be made

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For instance, are inventories satisfactory to bolster the anticipated level of offers? Does the firm have too overwhelming an interest in record receivable? Does expansive record receivable mirror a careless gathering approach? To guarantee productive operations of an association\'s assembling office, does the firm have an excessive amount of or too little put resources into plant and gear? Money related explanation investigation gives answers to these inquiries.

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Types of Financial Statements and Reports Ø       The Income Statement Ø       The Balance Sheet Ø       The Statement of Retained Earnings Ø       The Statement of Cash Flows

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The Income Statement Ø A salary explanation is a synopsis of the incomes and costs of a business over a timeframe, more often than not it is possible that one month, three months, or one year. Ø   Summarizes the aftereffects of the association\'s working and financing choices amid that time. Ø   Operating choices of the organization apply to creation and promoting, for example, deals/incomes, cost of products sold, authoritative and general costs (publicizing, office compensations) Ø  Provides working pay/profit before intrigue and expenses (EBIT)

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Results of financing choices are reflected in the rest of the wage articulation. At the point when intrigue costs and expenses are subtracted from EBIT, the outcome is net wage accessible to shareholders. Ø   Net salary does not really break even with real income from operations and financing.

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The Balance Sheet A synopsis of the advantages, liabilities, and value of a business at a specific point in time, ordinarily toward the end of the company\'s monetary year. Resources = Liabilities + Equity (Resources of the (Obligations of (ownership left over business enterprise) the business) Residual) Fixed Assets Long-term Common stock extraordinary (Plant, Machinery, Equipment (Notes, securities, & Additional paid-in capital Buildings) Capital Lease Retained Earnings Current Assets Obligation) (Cash, Marketable Securities, Current Liabilities Account Receivable, Inventories) (Accounts Payable, Wages and compensations, Short-term advances Any segment of long haul Indebtedness due in one-year)

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THE STATEMENT OF CASH FLOWS The announcement is intended to show how the association\'s operations have influenced its money position and to answer inquiries, for example, these: Is the firm producing the money expected to buy extra settled resources for development? Is the development so quick that outer financing is required both to keep up operations and for interest in new settled resources? Does the firm have abundance money streams that can be utilized to reimburse obligation or to put resources into new items?

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RATIO ANALYSIS Financial articulations report both on an association\'s position at a point in time and on its operations over some past period. From administration\'s perspective, monetary proclamation investigation is helpful both as an approach to suspect future conditions and more imperative, as a beginning stage for arranging activities that will impact the future course of occasions or to indicate whether an association\'s position has been enhancing or breaking down after some time.

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Ratio investigation starts with the figuring of an arrangement of monetary proportions intended to demonstrate the relative qualities and shortcomings of an organization when contrasted with Other firms in the business Leadings firms in the business The earlier year of a similar firm Ratio examination indicates whether the association\'s position has been enhancing or disintegrating Ratio investigation can likewise get ready for the future

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Types of Ratios Liquidity Ratios Current Ratio Quick Ratio/Acid Test Ratio Asset Management Ratios Inventory Turnover Ratio Days Sales Outstanding Fixed Assets Turnover Ratio Total Assets Turnover Ratio Debt Management Ratio Total Debt to Total Assets Ratio Times Interest Covered Ratio Profitability Ratios Profit Margin on Sales Return on Assets Return on Equity Basic Earning Power Ratio

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Liquidity Ratio A fluid resource would one say one is that can be effortlessly changed over into money at a honest esteem Liquidity address manages this question Will the firm have the capacity to meet its present commitments? Two measures of liquidity Current Ratio Quick/Acid Test Ratio

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Asset Management Ratios Asset administration proportion measures how adequately the firm is overseeing/utilizing its advantages Do we have an excess of interest in resources or too little interest in resources in perspective of present and anticipated deals levels? What happens if the firm has Too much interest in resources Too little interest in resources

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Asset Management Ratios Inventory Turnover Ratio Measures the proficiency of Inventory Management A high proportion shows that stock does not stay in stockrooms or on racks, yet rather transforms over quickly into deals Two alerts Market costs for deals and inventories at cost Sales throughout the year and stock toward the end of the year

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Asset Management Ratio Days Sales Outstanding (DSO) To evaluate the nature of records receivables Average period of time that the firm should hold up in the wake of making a deal before accepting money from clients Measures viability of a firm credit strategy Indicates the level of speculation required in receivables to keep up company\'s business level What happens if this proportion is Too high, or Too low

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Asset Management Ratios Fixed Assets Turnover Ratio Measures productivity of long haul capital venture How successfully a firm is utilizing its plant and hardware to create deals? What amount settled resources are expected to accomplish a specific level of offers? Alerts

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Asset Management Ratio Total Asset Turnover Ratio Measure productivity of aggregate resources for the organization all in all or for a division of the firm Core competency

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Debt Management Ratio Implications of utilization of borrowings Creditors look to Stockholders\' value as a security edge Interest on borrowings is a legitimate obligation of the firm Interest is to be paid out of working pay Debt amplifies return and hazard to basic stockholders

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Total Debt to Total Assets Ratio Measures rate of advantages being financed through borrowings Too high a number means expanded danger of chapter 11 Leverage What rate of aggregate resources are being financed through value?

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Times Earned Interest (TIE) Measure the degree to which working pay can decrease before the firm can\'t meet its yearly premium costs Failure to pay premium can bring about legitimate activity by leasers with conceivable liquidation for the firm

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Profitability Ratios Net consequence of various approaches and choices Show the consolidated impact of liquidity, resource administration, and obligation administration on working outcomes

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Net Profit Margin on Sales Relates net salary accessible to normal stockholders to deals Basic Earning Power Relates EBIT to Total Assets Useful for contrasting firms and diverse assessment circumstances and distinctive degrees of budgetary influence Return on Assets (ROA) Relates net pay accessible to basic stockholders to aggregate resources Return on Common Equity (ROE) Relates net pay accessible to basic stockholders to basic stockholders value

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PROBLEMS IN FINANCIAL STATEMENT ANALYSIS Ø       Developing and Using Comparative Data Ø       Distortion of Comparative Data Ø       Notes to Financial Statements Ø       Interpretation of Results Ø       Differences in Accounting Treatment Ø       Window Dressing Ø       Effects of Inflation

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