Empirical

perspectives on the
financial
characteristics

Financial Statement
O Financial statement refers to formal and

original statements prepared by business

concern to disclose its financial information.
The following reasons the financial
statement is prepared:
O Presenting periodical review or report on the
progress by the management
O Deal with status of investments in the
business
O The result achieved during the period.

Financial Statement
Types
O The statement disclose
the status of investments is

known as balance sheet

O Statement showing result means that is P&L a/c or
income statement.
O Another statement also being prepared called
surplus statement or retained earnings
statement
O Schedule of fixed assets, schedule of investments,
schedule of creditors, schedule of debtor.
supplementary schedules.
O All of the above is called package of financial
statement

Functions and Uses Importance

of Financial Statement
O For Management: Legal requirement, Decision

making
O For Creditors: Creditor Extension
O For Investor: Investing prospective
O For Owners: Their capital is properly used or not
O For Employees: Remuneration , Bonus
O For Consumers: Product price is reasonable or
justified
O Government: Formulate tax policies, Export
Import policies
O For tax authorities: levied and collected tax

Objectives of Analysis and

Interpretation
1.

2.
3.
4.
5.
6.

To interpret the profitability and efficiency of

various business activities with the help of profit
and loss account
To measure managerial efficiency of the firm
To measure short-term and long-term solvency
of the business
To ascertain the earning capacity of the concern
To measure utilization of various assets during
the period.
To compare operational efficiency of similar
concern engaged in the same industry

Techniques or Tools of
financial statement analysis
O The most important techniques of analysis

and interpretation of financial statements

are listed below:
1. Ratio Analysis
2. Comparative financial statements
3. Common measurement or size statements
4. Cash flow analysis
5. Fund flow analysis
6. Net working capital analysis
7. Trend analysis

Cash flow analysis

O Increased interest has developed among

financial analysts in a firms operational

income and cash flow. Since net earnings
may be affected by non recurring items for
example profit on sale of fixed assets, some
financial analysts place more emphasis on
cash flow.
O The argument is that the cash flow

generated by a firms operations is a better

indication of its profitability and value

Cash flow analysis

O The emphasis is not on the income

or the firms assets and liabilities but

on the inflow and outflow of cash
from the firms operations,
investments, and financing
decisions.
O By placing emphasis on cash,the
statement permits the individual to
see where the firm generated cash
and how these funds were used.

Cash flow analysis

O The cash flow statement can also help investors examine

the quality of earnings.

O For example: if inventories are rising more quickly than
sales, this can be a real sign of trouble demand is
weakening.
O If a firm is cutting back on its capital expenditures, this
could be a signal of problems down the road.
O If accounts receivables are rising at a greater rate than
sales are increasing a company may be having trouble
collecting money owed.
O If accounts payable are rising too high this may indicate
that the company is trying to conserve cash by delaying
payment to creditors and suppliers which may lead to
problems for the company.

Leverage, Ownership
structure
O There are only two ways in which a business

can raise money.

O The first is debt. The essence of debt is that
you promise to make fixed payments in the
future (interest payments and repaying
principal). If you fail to make those
payments, you lose control of your business.
O The other is equity. With equity, you do get
whatever cash flows are leY over aYer you
have made debt payments.

Ownership structure

Ratio analysis
O Ratios, are probably the most frequently used tool to analyse a

company, and are popular because they are readily understood

and can be computed with ease.
O In addition, the information used in ratio analysis is easy to
obtain, for many ratios employ data available in a firms annual
report and quarterly reports.
O Ratios are used not only by investors but also by a firms
management and its creditors.
O Creditors use the analysis to establish the ability of the
borrowers to pay interest and retire debt.
O Management use ratios to plan, control, and to
identifyweaknesses within the firm.
O Shareholders use ratios to measure firms profitability.
O The ratio is a statistical yardstick that provides a measure
ofrelationship between any two variables

Profitability ratio
O Ability

to make maximum profit from optimum utilization of resources

by a business concern is termed as profitability.
Return on investment (or) overall profitability ratio:
This ratio is called Return on Investment or Return or capital
employed
It measures the sufficiency or otherwise of profit in relation to capital
employed.
ROI = Operating Profit/ Capital employed *100
The term operating profit means profit before tax and interest
The term capital employed have different meaning those are,
O Total of all assets i.e., fixed as well as current assets
O Total of fixed assets
O Total of long term funds employed in the business i.e., share
capital + Reserves and Surplus+ Long term loans)- Non
business assets + Fictitious assets)
O Net working capital + Fixed assets

Return on Investment
O Return on investment is used to

measure the operational and

managerial efficiency. How efficiently
the long term funds of owners and
creditors put into use.
O Higher the ratio the more efficient is the
use of capital employed
O Return on investment can be computed
for measuring the return for various
purpose ,

Return on Equity
O Similar to ROI
O This is defined as:
O ROEC = Net profit (after tax)-

PreferenceDividendx 100
Paid up equity
share capital
O it indicates to the equity

shareholders who are interested to

know profits earned by the company
and those profits which can be made
available to them.

Price Earnings Ratio

O This ratio indicates earnings per

share reflected by the market price.

O P/E Ratio = Market price per
equity share / Earnings per
equity share
O This ratio is of use to prospective
investors to decide whether to invest
in the equity shares of a company at
a particular market price or not.

Pay out ratio

O This ratio also indirectly throws light on the

financial policy of the management in ploughing

back.
O Pay out Ratio = Equity dividend / Net profit
after tax and preference dividend*100
O Pay out Ratio= Dividend per equity share/
Earnings per share equity share*100
O Retained earnings are essential for growth and
expansion of business. In fact retaining at
least20% of the net profit before declaring any
dividend is a statutory requirement.

Dividend yeild ratio

O The dividend yield is a financial ratio

that measures the amount of cash

dividends distributed to common
shareholders relative to the market
value per share.
O The dividend yield is used by investors
to show how their investment in stock is
generating either cash flows in the form
of dividends or increases in asset value
by stock appreciation.

CNX NIFTY
O The CNX Nifty is a well-diversified 50 stock index

accurately reflecting overall market conditions.

O CNX Nifty is based upon solid economic research

and is well respected internationally as a

pioneering effort in better understanding how to
make a stock market index. CNX Nifty Index is
computed using free float market capitalization
method, wherein the level of the index reflects
the total free float market value of all the stocks
in the index relative to particular base market
capitalization value

CNX NIFTY
O CNX Nifty can be used for a variety

of purposes such as benchmarking

fund portfolios, launching of index
funds, ETFs and structured products.

Important criteria for CNX

nifty index
O Market impact cost is the best measure of

the liquidity of a stock. It accurately reflects

the costs faced when actually trading an
index. For a stock to qualify for possible
inclusion into the CNX Nifty, have traded
at an average impact cost of 0.50% or less
during the last six months for 90% of the
observations, for the basket size of Rs. 20
Million.

CNX NIFTY Sector Representation

Sector Representation
Sector Weight
1. FINANCIAL SERVICES
2. IT
3. ENERGY
4. CONSUMER GOODS
5. AUTOMOBILE
6. PHARMA
7. CONSTRUCTION
8. METALS
9. CEMENT & CEMENT PRODUCTS
10. TELECOM
11. MEDIA & ENTERTAINMENT
12. INDUSTRIAL MANUFACTURING

(%)
30.91
16.73
10.43
9.99
9.10
8.29
4.65
3.24
2.84
2.35
0.75
0.73

S&P BSE SENSEX

O The S&P BSE SENSEX is Indias most

tracked bellwether index. It is

designed to measure the
performance of the 30 largest, well
established, most liquid and
financially sound companies across
key sectors of the Indian economy
that are listed at BSE Ltd. It is the
oldest index in the country

S&P BSE SENSEX - The Barometer of

Indian Capital Markets

O Since September 1, 2003, S&P BSE SENSEX

is being calculated on a free-float market

capitalization methodology. The "free-float
market capitalization-weighted"
methodology is a widely followed index
construction methodology on which
majority of global equity indices are based;
all major index providers like MSCI, FTSE,
STOXX, and Dow Jones use the free-float
methodology.

SECTORWISE MARKET
CAPITALIZATION OF BSE SENSEX

sl.no

List of Nifty 50
companies

Company Name

Industry

Symbol

1 ACC Ltd.

CEMENT & CEMENT PRODUCTS

ACC

2 Ambuja Cements Ltd.

CEMENT & CEMENT PRODUCTS

AMBUJACEM

3 Asian Paints Ltd.

CONSUMER GOODS

ASIANPAINT

4 Axis Bank Ltd.

FINANCIAL SERVICES

AXISBANK

5 Bajaj Auto Ltd.

AUTOMOBILE

BAJAJ-AUTO

6 Bank of Baroda

FINANCIAL SERVICES

BANKBARODA

7 Bharat Heavy Electricals Ltd.

INDUSTRIAL MANUFACTURING

BHEL

8 Bharat Petroleum Corporation Ltd.

ENERGY

BPCL

9 Bharti Airtel Ltd.

TELECOM

BHARTIARTL

AUTOMOBILE

BOSCHLTD

10 Bosch Ltd.

11 Cairn India Ltd.

List of Nifty 50
companies
ENERGY

CAIRN

12 Cipla Ltd.

PHARMA

CIPLA

13 Coal India Ltd.

METALS

COALINDIA

14 Dr. Reddy's Laboratories Ltd.

PHARMA

DRREDDY

15 GAIL (India) Ltd.

ENERGY

GAIL

16 Grasim Industries Ltd.

CEMENT & CEMENT PRODUCTS

GRASIM

17 HCL Technologies Ltd.

IT

HCLTECH

18 HDFC Bank Ltd.

FINANCIAL SERVICES

HDFCBANK

19 Hero MotoCorp Ltd.

AUTOMOBILE

HEROMOTOCO

20 Hindalco Industries Ltd.

METALS

HINDALCO

List of Nifty 50
companies

21 Hindustan Unilever Ltd.

CONSUMER GOODS

HINDUNILVR

Housing Development Finance

22 Corporation Ltd.

FINANCIAL SERVICES

HDFC

23 I T C Ltd.

CONSUMER GOODS

ITC

24 ICICI Bank Ltd.

FINANCIAL SERVICES

ICICIBANK

25 Idea Cellular Ltd.

TELECOM

IDEA

26 IndusInd Bank Ltd.

FINANCIAL SERVICES

INDUSINDBK

27 Infosys Ltd.

IT

INFY

28 Kotak Mahindra Bank Ltd.

FINANCIAL SERVICES

KOTAKBANK

29 Larsen & Toubro Ltd.

CONSTRUCTION

LT

30 Lupin Ltd.

PHARMA

LUPIN

List of Nifty 50
companies

31 Mahindra & Mahindra Ltd.

AUTOMOBILE

M&M

32 Maruti Suzuki India Ltd.

AUTOMOBILE

MARUTI

33 NMDC Ltd.

METALS

NMDC

34 NTPC Ltd.

ENERGY

NTPC

35 Oil & Natural Gas Corporation Ltd.

ENERGY

ONGC

36 Power Grid Corporation of India Ltd.

ENERGY

POWERGRID

37 Punjab National Bank

FINANCIAL SERVICES

PNB

38 Reliance Industries Ltd.

ENERGY

RELIANCE

39 State Bank of India

FINANCIAL SERVICES

SBIN

40 Sun Pharmaceutical Industries Ltd.

PHARMA

SUNPHARMA

List of Nifty 50
companies
41 Tata Consultancy Services Ltd.

IT

TCS

42 Tata Motors Ltd.

AUTOMOBILE

TATAMOTORS

43 Tata Power Co. Ltd.

ENERGY

TATAPOWER

44 Tata Steel Ltd.

METALS

TATASTEEL

45 Tech Mahindra Ltd.

IT

TECHM

46 UltraTech Cement Ltd.

CEMENT & CEMENT PRODUCTS

ULTRACEMCO

47 Vedanta Ltd.

METALS

VEDL

48 Wipro Ltd.

IT

WIPRO

49 Yes Bank Ltd.

FINANCIAL SERVICES

YESBANK

50 Zee Entertainment Enterprises Ltd.

MEDIA & ENTERTAINMENT

ZEEL

List of BSE SENSEX

CONSTITUENT STOCK

List of BSE SENSEX

CONSTITUENT STOCK

List of BSE SENSEX

CONSTITUENT STOCK

Select a constituent from

Nifty And Sensex
O Collect the following financial

statements
1. Balance sheet
2. Statement of profit and loss
3. Cash flow statements
4. Compute ratios
5. Analyze

Consolidated Balance sheet

of BHEL

Consolidated Balance sheet

of BHEL

Statement of Profit and loss

of BHEL

Statement of Profit and loss

of BHEL

Cash flow statement of

BHEL

Cash flow statement of

BHEL

Consolidated Balance sheet of Infosys

Consolidated Balance sheet

of Infosys

Statement of Profit and loss

of Infosys

Statement of Profit and loss

of Infosys

Cash flow statement of

Infosys

Cash flow statement of

Infosys

Cash flow statement of

Infosys