Académique Documents
Professionnel Documents
Culture Documents
Submitted to:
Mr.N.K.Puri
Submitted by:
Surabhi Jain
Roll No. 85
Section A
Q1. State and explain the contents of the Annual Reports.
1. Director’s report
2. Management Discussion and Analysis
3. Corporate Governance Report
This report sets out the compliance status of the Company with the requirements of
corporate governance, as set out in Clause 49.
4. Financial Statements
a. Auditor’s Report
b. Balance Sheet
Profit and loss statement (P&L) Income statement, also called and Statement of
Operations, is a company's financial statement that indicates how the revenue (money
received from the sale of products and services before expenses are taken out, also
known as the "top line") is transformed into the net income (the result after all
revenues and expenses have been accounted for, also known as the "bottom line").
The purpose of the income statement is to show managers and investors whether the
company made or lost money during the period being reported.
The important thing to remember about an income statement is that it represents a
period of time. This contrasts with the balance sheet, which represents a single
moment in time.
d. Cash Flow Statement
In financial accounting, a cash flow statement or statement of cash flows is a financial
statement that shows how changes in balance sheet and income accounts affect cash
and cash equivalents, and breaks the analysis down to operating, investing, and
financing activities. As an analytical tool, the statement of cash flows is useful in
determining the short-term viability of a company, particularly its ability to pay bills.
International Accounting Standard 7 (IAS 7) , is the International Accounting
Standard that deals with cash flow statements.
People and groups interested in cash flow statements include:
• Accounting personnel, who need to know whether the organization will be able to
cover payroll and other immediate expenses
• Potential lenders or creditors, who want a clear picture of a company's ability to
repay
• Potential investors, who need to judge whether the company is financially sound
• Potential employees or contractors, who need to know whether the company will
be able to afford compensation
Purpose
The cash flow statement was previously known as the statement of changes in
financial position or flow of funds statement. The cash flow statement reflects a firm's
liquidity or solvency.
The balance sheet is a snapshot of a firm's financial resources and obligations at a
single point in time, and the income statement summarizes a firm's financial
transactions over an interval of time. These two financial statements reflect the
accrual basis accounting used by firms to match revenues with the expenses
associated with generating those revenues. The cash flow statement includes only
inflows and outflows of cash and cash equivalents; it excludes transactions that do not
directly affect cash receipts and payments. These noncash transactions include
depreciation or write-offs on bad debts to name a few. The cash flow statement is a
cash basis report on three types of financial activities: operating activities, investing
activities, and financing activities. Noncash activities are usually reported in
footnotes.
The cash flow statement is intended to-provide information on a firm's liquidity and
solvency and its ability to change cash flows in future circumstances
1. provide additional information for evaluating changes in assets, liabilities and
equity
2. improve the comparability of different firms' operating performance by
eliminating the effects of different accounting methods
3. indicate the amount, timing and probability of future cash flows
The cash flow statement has been adopted as a standard financial statement because it
eliminates allocations, which might be derived from different accounting methods,
such as various timeframes for depreciating fixed assets.
a. Schedules forming part of Balance Sheet and Profit and Loss Account
Q2. State, briefly, five major accounting policies followed by the companies.
The accounts have been prepared to comply in all material aspects with applicable accounting
principles in India, the Accounting Standards and the relevant provisions of the Companies Act,
1956.
(b) Use of Estimates:
The preparation of financial statements, in conformity with the generally accepted accounting
principles, requires estimates and assumptions to be made that affect the reported amounts of
assets and liabilities on the date of financial statements and the reported amounts of revenues
and expenses during the reported year. Differences between the actual results and estimates are
recognised in the year in which the results are known / materialised.
Fixed assets are stated at cost less accumulated depreciation. Costs comprise of purchase price
and attributable costs, if any.
(d) Leases:
Assets taken on lease are accounted for as fixed assets in accordance with Accounting Standard
19 on Leases, (AS-19).
Assets taken on finance lease are accounted for as fixed assets at fair value. Lease payments are
apportioned between finance charge and reduction of outstanding liability.
Assets taken on lease under which all risks and rewards of ownership are effectively retained by
the lessor are classified as operating lease. Lease payments under operating leases are
recognised as expenses on accrual basis in accordance with the respective lease agreements.
i) The Company computes depreciation for all fixed assets including for assets taken on lease
using the straight-line method based on estimated useful lives. Depreciation is charged on a pro-
rata basis for assets purchased or sold during the year. Managements estimate of the useful life
of fixed assets is as follows :
Buildings - 15 years
Computers - 3 years
iv) Intellectual property rights are amortised over a period of seven years.
v) Assets costing upto Rs.5,000 are fully depreciated in the year of purchase.
The financial statements have been prepared and presented under the historical cost convention
on the accrual basis of accounting except for certain financial instruments which are measured
at fair values and comply with the Accounting Standards prescribed by Companies (Accounting
Standards) Rules, 2006, as amended, other pronouncements of the Institute of Chartered
Accountants of India (ICAI) and the relevant provisions of the Companies Act, 1956, (theAct) to
the extent applicable.
2. Use of estimates:
The preparation of financial statements in conformity with the generally accepted accounting
principles in India requires management to make estimates and assumptions that affect the
reported amounts of income and expenses of the period, assets and liabilities and disclosures
relating to contingent liabilities as of the date of the financial statements. Actual results could
differ from those estimates. Any revision to accounting estimates is recognised prospectively in
future period.
3. Fixed assets:
3.1 Fixed assets are carried at cost of acquisition (including directly attributable costs such as
freight, installation, etc.) or construction less accumulated depreciation. Borrowing costs
directly attributable to acquisition or construction of those fixed assets, which necessarily take a
substantial period of time to get ready for their intended use, are capitalised.
3.2 Leases under which the Company assumes substantially all the risks and rewards of
ownership are classified as finance leases. Such assets acquired on or after April 1, 2001 are
capitalised at fair value of the asset or present value of the minimum lease payments at the
inception of the lease, whichever is lower. Lease payments under operating leases are recognized
as an expense in the statement of profit and loss on a straight-line basis over the lease term.
3.3 Advances paid towards the acquisition of fixed assets, outstanding at each balance sheet date
and the cost of the fixed asset not ready for its intended use on such date, are disclosed under
capital work-in-progress.
3.4 Depreciation is provided on the straight-line method. The rates specified under schedule XIV
of the Companies Act, 1956 are considered as the minimum rates. If the managements estimate
of the useful life of a fixed asset at the time of the acquisition of the asset or of the remaining
useful life on a subsequent review is shorter than envisaged in the aforesaid schedule,
depreciation is provided at a higher rate based on the managements estimate of the useful
life/remaining useful life. Pursuant to this policy, the management has estimated the useful life as
under:
Building 30 years
3.5 Fixed assets individually costing Rs. 5,000 or less are fully depreciated in the period of
purchase/ installation. Depreciation on additions and disposals during the year is provided on
proportionate basis.
3.6 The cost of leasehold land is amortized over the period of the lease. Leasehold
improvements and assets acquired on lease are amortized over the lease term or useful life,
whichever is lower.
4. Investments:
4.1 Long-term investments are carried at cost less any other-than-temporary diminution in value,
determined on the specific identification basis.
4.2 Current investments are carried at the lower of cost (determined on the specific identification
basis) and fair value. The comparison of cost and fair value is carried out separately in respect of
each investment.
4.3 Profit or loss on sale of investments is determined on the specific identification basis.
5. Employee benefits:
5.1 Gratuity is a defined benefit scheme and is accrued based on actuarial valuations at the
balance sheet date, carried out by an independent actuary. The Company has an employees
gratuity fund managed by ICICI Prudential Life Insurance Company and SBI Life Insurance
Company. Actuarial gains and losses are charged to the profit and loss account.
5.2 Leave encashment is a long-term employee benefit and is accrued based on actuarial
valuations at the balance sheet date, carried out by an independent actuary. The Company
accrues for the expected cost of short - term compensated absences in the period in which the
employee renders services.
5.3 Contributions payable to the recognised provident fund, which is a defined contribution
scheme, are charged to the profit and loss account.
Q3. Explain briefly what disclosure techniques these companies have adopted. How the
contingent assets and contingent liabilities are disclosed in the annual reports?
A3.
Contingent liabilities
These, if any, are disclosed in the notes on accounts. Provision is made in the accounts if it
becomes probable that any outflow of resources embodying economic benefits will be required
to settle the obligation arising out of past events.
Disclosures
Mindtree Ltd.
Contingent liabilities
The Company creates a provision when there is a present obligation as a result of a past event
that probably requires an outflow of resources and a reliable estimate can be made of the amount
of the obligation. A disclosure for a contingent liability is made when there is a possible
obligation or a present obligation that may, but probably will not, require an outflow of
resources. When there is a possible obligation or a present obligation in respect of which the
likelihood of outflow of resources is remote, no provision or disclosure is made.
Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting
the obligations under the contract exceed the economic benefits expected to be received under it
are recognised when it is probable that an outflow of resources embodying economic benefits
will be required to settle a present obligation as a result of an obligating event, based on a
reliable estimate of such obligation.
a) Guarantees given by Companys bankers as at March 31, 2009 are Rs. 30,902,359 (previous
year- Rs. 43,317,454).
b) Estimated amount of contracts remaining to be executed on capital account and not provided
for as at March 31, 2009isRs. 78,979,164 (previousyear-Rs. 160,583,022).
c) On September 19, 2007, the Company received a notice from the Honorable High court of
Karnataka to appear before the Honorable court in respect of assessment of income for A.Y
2001-02. The Assessing Officer (AO) has held that interest receipts are not eligible for deduction
under section 10B of the Act even though they are business income and disallowed the same and
raised a demand of Rs. 616,530. Further AO also mentioned that losses from export earnings
cannot be set off against other income. The AO also rejected the claim of carry forward of
business loss and unabsorbed depreciation. The order of the AO was not upheld by Income Tax
Appellate Tribunal (ITAT) and the AO preferred an appeal with the Honorable High Court of
Karnataka against the order of the ITAT. Management believes that the position taken by it on
the matter is tenable and hence, no adjustment has been made to the financial statements for year
end March 31, 2009.
d) On January 2, 2008, MindTree has received an assessment order for A.Y 2005-06 from the
AO with a demand amounting to Rs. 6,479,880 on account of certain disallowances /
adjustments made by income tax department. A significant portion of this amount arises from
manner of adjustment of brought forward losses in arriving at the taxable profits of the
Company. Management believes that the position taken by it on the matter is tenable and hence,
no adjustment has been made to the financial statements for the year ended March 31, 2009. The
Company has filed an appeal against the demand received. The Income-tax department has
adjusted the amount of demand against the refund due for A.Y 2006-07.
e) On January 5, 2009, MindTree has received an assessment order for A.Y 2006-07 from the
Assistant Commissioner of Income-tax (ACIT) with a demand amounting to Rs. 51,446,560 on
account of certain disallowances / adjustments made by income tax department. A significant
portion of this amount arises from manner of adjustment of brought forward losses in arriving at
the taxable profits of the Company. Management believes that the position taken by it on the
matter is tenable and hence, no adjustment has been made to the financial statements for the
year ended March 31, 2009. The Company has filed an appeal against the demand received.
Disclosures
a. The company had compied with all requirements on matters related to capital market
since listing.
b. The company had complied with all requirements prescribed by SEBI and other statutory
authorities on all matters relating to capital from the period april 1 2008 to march 31
2009.
c. Compliance with mandatory and non mandatory requirements under clause 49 of the
listing agreement.
Q4. Calculate the two ratios under each of the following categories of the two companies
and state your viewpoint on their comparative position:
a. Liquidity Ratios
In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a company
to use its near cash or quick assets to immediately extinguish or retire its current
liabilities. Quick assets include those current assets that presumably can be quickly
converted to cash at close to their book values.
Generally, the acid test ratio should be 1:1 or better, however this varies widely by
industry.
Notice that very often Acid test refers instead of Quick ratio to Cash ratio:
They can also be termed as :
Current ratio
Current Assets = Inventories + Sundry Debtors + Cash and bank balance + Loans and
advances + Fixed Deposits
Mindtree Ltd.
Current Assets = Inventories + Sundry Debtors + Cash and bank balance + Loans and
advances + Fixed Deposits
The current ratio of Tech Mahindra Ltd. is near to 2 which is satisfactory but the current
ratio of Mindtree Ltd. is 1.43 which is much lesser than 2 but greater than 1 which shows
that the current creditors are financing the day to day operations in entirety but the firm
has no margin and any loss of current assets would mean loss to current creditors.
The quick ratio of both the firms is greater than 1:1 which is good enough but Tech
Mahindra with a higher quick ratio can repay the debts more quickly.
b. Profitability Ratios
Profitability ratios measure the firm's use of its assets and control of its expenses to
generate an acceptable rate of return.
1) Gross margin, Gross profit margin or Gross Profit Rate
OR
Note: Operating income is the difference between operating revenues and operating
expenses, but it is also sometimes used as a synonym for EBIT and operating profit. This
is true if the firm has no non-operating income. (Earnings before interest and taxes /
Sales)
Note: this is somewhat similar to (ROI), which calculates Net Income per Owner's Equity
14)Efficiency ratio
Gross Profit = Net sales – Cost of goods sold (all manufacturing expenses included)
Mindtree Ltd.
The Gross Profit Ratio is almost the same for both the firms so they both are doing good
business.
The Net Profit ratio is very high for Tech Mahindra Ltd. as compared to Mindtree Ltd.
This shows that Tech Mahindra is getting much higher returns on sales but a low return
on sales may not particularly mean that the company’s profitability is low as the return on
investment may be really high.
a. Activity Ratios
3) DSO Ratio
Mindtree Ltd.
Higher Asset Turnover ratio of Tech Mahindra Ltd. shows that it is utilizing the available
financial resources at its disposal in a better way.
The capital structure ratio shows the percent of long term financing represented by long
term debt.
A capital structure ratio over 50% indicates that a company may be near their
borrowing limit (often 65%).
Q5. Explain and calculate the following for the two companies :
Earnings per share (EPS) are the earnings returned on the initial investment
amount.
Calculating EPS
The EPS formula does not include preferred dividends for categories outside of
continued operations and net income. Earnings per share for continuing
operations and net income are more complicated in that any preferred dividends
are removed from net income before calculating EPS. Remember that preferred
stock rights have precedence over common stock. If preferred dividends total
$100,000, then that is money not available to distribute to each share of common
stock.
Only preferred dividends actually declared in the current year are subtracted. The
exception is when preferred shares are cumulative, in which case annual
dividends are deducted regardless of whether they have been declared or not.
Dividends in arrears are not relevant when calculating EPS. EPR = N.P A.T OR
P.D divided by number of equity share.
Mindtree Ltd.
Mindtree Ltd.
• Comparing the market value to the book value can indicate whether or
not the stock in overvalued or undervalued.
Tech Mahindra Ltd.
Mindtree Ltd.