In The Previous Class, We Started With Financial Statement Analysis

FINANCIAL STATEMENT
FINANCIAL STATEMENT ANALYSIS

ANALYSIS
In the previous class, we started with

Financial Statement Analysis …
Financial Statement Analysis …
• No#1… Understanding
• No#2… Analysis
FINANCIAL STATEMENT
ANALYSIS
First, we proceed for understanding

financial statements of Tata Steel …
FINANCIAL STATEMENT
ANALYSIS
FINANCIAL STATEMENT
ANALYSIS
First, we take Balance sheet …
…Sources of Funds Side

FINANCIAL STATEMENT
ANALYSIS
BALANCE SHEET OF TATA STEEL LIMITED AS AT 31ST
MARCH…
(Rs. in Crores)
Particulars 2007 2008
SOURCES OF FUNDS:
SHAREHOLDER'S FUNDS
Share Capital 580.67 6,203.30
Share Warrants 147.06
Reserves and Surplus 13,368.42 21,097.43
Total Shareholders' Fund 14,096.15 27,300.73
LOAN FUNDS
Secured Loans 3,758.92 3,520.58
Unsecured Loans 5,886.41 14,501.11
9,645.33 18,021.69
DEFERRED TAX LIABILITY (NET) 748.94 681.80

PROVISION FOR EMPLOYEE SEPARATION
COMPENSATION 1,107.08 1,071.30
TOTAL 25,597.50 47,075.52
FINANCIAL STATEMENT
ANALYSIS
MARCH…
(Rs. in Crores)
SOURCES OF FUNDS:
SHAREHOLDER'S FUNDS
LOAN FUNDS
Secured Loans 3,758.92 3,520.58
9,645.33 18,021.69

TOTAL 25,597.50 47,075.52
FINANCIAL STATEMENT
ANALYSIS
MARCH…
(Rs. in Crores)
SOURCES OF FUNDS:
SHAREHOLDER'S FUNDS
LOAN FUNDS
Secured Loans 3,758.92 3,520.58
9,645.33 18,021.69

TOTAL 25,597.50 47,075.52
FINANCIAL STATEMENT
ANALYSIS
MARCH…
(Rs. in Crores)
SOURCES OF FUNDS:
SHAREHOLDER'S FUNDS
LOAN FUNDS
Secured Loans 3,758.92 3,520.58
9,645.33 18,021.69

TOTAL 25,597.50 47,075.52
FINANCIAL STATEMENT
ANALYSIS
MARCH…
(Rs. in Crores)
SOURCES OF FUNDS:
SHAREHOLDER'S FUNDS
LOAN FUNDS
Secured Loans 3,758.92 3,520.58
9,645.33 18,021.69

TOTAL 25,597.50 47,075.52
FINANCIAL STATEMENT
ANALYSIS
MARCH…
(Rs. in Crores)
SOURCES OF FUNDS:
SHAREHOLDER'S FUNDS
LOAN FUNDS
Secured Loans 3,758.92 3,520.58
9,645.33 18,021.69

TOTAL 25,597.50 47,075.52
FINANCIAL STATEMENT
ANALYSIS
MARCH…
(Rs. in Crores)
SOURCES OF FUNDS:
SHAREHOLDER'S FUNDS
LOAN FUNDS
Secured Loans 3,758.92 3,520.58
9,645.33 18,021.69

TOTAL 25,597.50 47,075.52
FINANCIAL STATEMENT
ANALYSIS
Now, let’s move to …
…Application of Funds Side

BALANCE SHEET OF TATA STEEL LIMITED AS AT 31ST MARCH…
(Rs. in Crores)
APPLICATION OF FUNDS
FIXED ASSETS
Gross Block 18,526.93 20,847.04
Less: Amortization 100.41 100.47
Less: Depreciation 7,385.96 8,123.01
Net Block 11,040.56 12,623.56
Capital Work in Progress
11,040.56 12,623.56
INVESTMENTS 6,106.18 4,103.19
CURRENT ASSETS, LOANS & ADVANCES
Inventories: Stores and Spare Parts 505.44 557.67
Inventories: Stock-in-Trade 1,827.54 2,047.31
Sundry Debtors 631.63 543.48
Cash in Hand and at Bank 7,681.35 465.04
Loans and Advances 3,055.73 33,348.74
Interest Accrued on Investments 0.20 0.20
13,701.89 36,962.44
Less: CURRENT LIABILITIES & PROVISIONS
Current Liabilities 3,523.20 3,855.26
Provisions 1,930.46 2,913.52
5,453.66 6,768.78
Net Current Assets 8,248.23 30,193.66
Miscellaneous Expenses (to the extent not written off or adjusted) 202.53 155.11
TOTAL 25,597.50 47,075.52
(Rs. in Crores)
FIXED ASSETS
Gross Block 18,526.93 20,847.04
Net Block 11,040.56 12,623.56
11,040.56 12,623.56
INVESTMENTS 6,106.18 4,103.19
13,701.89 36,962.44
Provisions 1,930.46 2,913.52
5,453.66 6,768.78
TOTAL 25,597.50 47,075.52
(Rs. in Crores)
FIXED ASSETS
Gross Block 18,526.93 20,847.04
Net Block 11,040.56 12,623.56
11,040.56 12,623.56
INVESTMENTS 6,106.18 4,103.19
13,701.89 36,962.44
Provisions 1,930.46 2,913.52
5,453.66 6,768.78
TOTAL 25,597.50 47,075.52
(Rs. in Crores)
FIXED ASSETS
Gross Block 18,526.93 20,847.04
Net Block 11,040.56 12,623.56
11,040.56 12,623.56
INVESTMENTS 6,106.18 4,103.19
13,701.89 36,962.44
Provisions 1,930.46 2,913.52
5,453.66 6,768.78
TOTAL 25,597.50 47,075.52
(Rs. in Crores)
FIXED ASSETS
Gross Block 18,526.93 20,847.04
Net Block 11,040.56 12,623.56
11,040.56 12,623.56
INVESTMENTS 6,106.18 4,103.19
13,701.89 36,962.44
Provisions 1,930.46 2,913.52
5,453.66 6,768.78
TOTAL 25,597.50 47,075.52
(Rs. in Crores)
FIXED ASSETS
Gross Block 18,526.93 20,847.04
Net Block 11,040.56 12,623.56
11,040.56 12,623.56
INVESTMENTS 6,106.18 4,103.19
13,701.89 36,962.44
Provisions 1,930.46 2,913.52
5,453.66 6,768.78
TOTAL 25,597.50 47,075.52
(Rs. in Crores)
FIXED ASSETS
Gross Block 18,526.93 20,847.04
Net Block 11,040.56 12,623.56
11,040.56 12,623.56
INVESTMENTS 6,106.18 4,103.19
13,701.89 36,962.44
Provisions 1,930.46 2,913.52
5,453.66 6,768.78
TOTAL 25,597.50 47,075.52
(Rs. in Crores)
FIXED ASSETS
Gross Block 18,526.93 20,847.04
Net Block 11,040.56 12,623.56
11,040.56 12,623.56
INVESTMENTS 6,106.18 4,103.19
13,701.89 36,962.44
Provisions 1,930.46 2,913.52
5,453.66 6,768.78
TOTAL 25,597.50 47,075.52
(Rs. in Crores)
FIXED ASSETS
Gross Block 18,526.93 20,847.04
Net Block 11,040.56 12,623.56
11,040.56 12,623.56
INVESTMENTS 6,106.18 4,103.19
13,701.89 36,962.44
Provisions 1,930.46 2,913.52
5,453.66 6,768.78
TOTAL 25,597.50 47,075.52
Now, let’s move towards
understanding of ……
PROFIT AND LOSS ACCOUNT…

PROFIT AND LOSS ACCOUNT OF TATA STEEL LIMITED FOR THE
YEAR ENDING ON 31ST MARCH…
(Rs. in Crores)
INCOME
Sale of Products and Services 19,762.57 22,191.80
Less: Excise Duty 2,210.55 2,498.52
17,552.02 19,693.28
Other Incomes 433.67 335.00
Total Income 17,985.69 20,028.28
TOP – LINE OF TATA STEEL

(Rs. in Crores)
EXPENDITURE
Manufacturing, and Other Expenses 10,814.77 11,645.24
BOTTOM – LINE
Depreciation 819.29 834.61
OF TATA STEEL
11,634.06 12,479.85
Less: Expenditure (Other than Interest)
236.02 175.50
Transferred to Capital and Other Accounts
11,398.04 12,304.35
Interest 173.90 878.70

Total Expenditure 11,571.94 13,183.05
PROFIT/(LOSS) BEFORE TAXATION AND
6,413.75 6,845.23
EXCEPTIONAL ITEMS
Employee Separation Compensation (152.10) 221.13

Profit on the Sale of Long-Term Investments
Contribution For Sports Infrastructure (150.00)
Exchange Gain/(Loss) 597.31
PROFIT/(LOSS) BEFORE TAXATION 6,261.65 7,066.36
Current Tax 2,076.01 2,252.00
Education Cess on Income Tax
Fringe Benefit Tax 16.00 19.00
Deferred Tax (52.51) 108.33
PROFIT/(LOSS) AFTER TAXATION 4,222.15 4,687.03

(Rs. in Crores)
APPROPRIATION OF PROFIT
PROFIT/(LOSS) AFTER TAXATION 4,222.15 4,687.03
Add:
Balance brought forward 2,976.16 4,593.98
PROFIT/(LOSS) AVAILABLE FOR

7,198.31 9,281.01
APPROPRIATION
APPROPRIATION
Proposed Dividend 943.91 1,168.93
Dividend on Cumulative Convertible Preference
22.19
Shares
Tax on dividend 160.42 202.43
General Reserve 1,500.00 1,500.00
Balance Carried to The Balance Sheet 4,593.98 6,387.46
Total 7,198.31 9,281.01
APPROPRIATION OF PROFIT
OF TATA STEEL
Now, we move to …
CASH FLOW STATEMENT …

CASH FLOW STATEMENT OF TATA STEEL LTD FOR THE
YEAR ENDING ON MARCH 31,
CASH FROM OPERATIONS

(All Rupees in Crores)
2007 2008
A) CASH FLOW FROM OPERATING ACTIVITIES

Net Profit Before Tax 6261.65 7066.36
Adjustments for:
Depreciation 819.29 834.61
OF TATA STEEL
(Profit)/Loss on sale of Assets/Discarded Assets written off (11.19) (28.26)
(Profit)/Loss on sale of current investments (15.63) (9.98)
(Profit)/Loss on sale of long term investments — —
Impairment of Assets 6.22 0.06
Amount received on cancellation of forward covers/options (82.69) (124.30)
Provision for diminution in value of investments 0.10 —
Loss on cancellation of own debentures — —
Reversal of Impairment Loss — —
Interest income (77.35) (50.33)
Dividend income/Income from Investments (324.16) (170.67)
Interest charged to Profit and Loss Account 251.25 929.03
Miscellaneous Expenditure - Employee Separation Compensation (amortised)
152.10 226.18
Provision for Wealth Tax 0.97 0.95
Amortisation of long term loan expenses 65.10 57.99
Contribution for sports infrastructure written off 150.00
Exchange (Gain)/Loss on revaluation of foreign currency loans (743.60)
Operating Profit before Working Capital Changes 7045.66 8138.04
Adjustments for
Trade and other Receivables (21.94) (143.44)
Inventories (158.22) (272.00)
Trade and other Payables 512.04 806.34
331.88 390.90
Cash Generated from Operations 7377.54 8528.94
Direct Taxes paid (2034.59) (2060.20)
Cash Flow before Exceptional Item 5342.95 6468.74
Employee Separation Compensation paid (224.85) (214.54)
Net Cash Flow from Operating Activities 5118.10 6254.20
CASH USED IN INVESTING

2007 2008
B) CASH FLOW FROM INVESTING ACTIVITIES
OF TATA STEEL
Purchases of Fixed Assets (2007.68) (2458.97)
Sales of Fixed Assets 17.85 63.88
Purchases of Investments (18306.13) (31595.17)
Purchase of investments in Subsidiaries (118.17) (29587.40)
Sale of Investments 14623.48 34110.46
Intercorporate deposits (20.00) (85.80)
Shareholder's loan to subsidiary — —
Interest received 58.89 63.75
Dividend received 324.16 170.67
Exceptional Items :
Sale of long term investments in subsidiary
Sale of other investments
Net Cash used in Investing Activities (5427.60) (29318.58)
CASH FROM FINANCING

2007 2008
C) CASH FLOW FROM FINANCING ACTIVITIES

Issue of Equity Capital 1393.20 4881.45
TATA STEEL
Issue of Cumulative Convertible Preference Shares 5472.52
Issue of Share Warrants 147.06 —
Capital contributions received 5.59 —
Proceeds from borrowings 8043.69 17632.70
Repayment of borrowings (916.31) (10386.61)
Amount received on cancellation of forward covers/options 93.65 134.41
Long term loan expenses (118.88) (202.38)
Interest paid (227.85) (746.07)
Dividends paid (717.69) (937.95)
Net Cash from Financing Activities 7702.46 15848.07
Net increase in Cash and Cash Equivalents 7392.96 (7216.31)

Opening Balance - Cash and Cash Equivalents 288.39 7681.35
Closing Balance - Cash and Cash Equivalents 7681.35 465.04
FINANCIAL STATEMENT
ANALYSIS
All this is ………… our story about

understanding financial statements
WHAT NEXT IN OUR
AGENDA?
FINANCIAL STATEMENT
ANALYSIS
Share Warrants…
 The preferential issue of equity shares/ Fully Convertible Debentures
(FCDs)/ Partly Convertible Debentures (PCDs) or any other financial
instruments which would be converted into or exchanged with equity
shares at a later date, by listed companies whose equity share capital is
listed on any stock exchange, to any select group of persons under
Section 81(1A) of the Companies Act 1956 on private placement basis
shall be governed by these guidelines.
 An amount equivalent to at least ten percent of the price fixed as per

Chapter-XIII of DISCLOSURE AND INVESTOR PROTECTION
GUIDELINES, SEBI shall become payable for the warrants on the date
of their allotment.
FINANCIAL STATEMENT
ANALYSIS
Security Premium Account …

 The Securities Premium Account may be applied by the company-
(a) in paying up unissued shares of the company to be issued to
members of the company as fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or commission paid or discount
allowed on, any issue of shares or debentures of the company; or
(d) in providing for the premium payable on the redemption of any
redeemable preference shares or of any debentures of the company.
FINANCIAL STATEMENT
ANALYSIS
Deferred Tax Assets/Deferred Tax Liabilities

ACCOUNTING STANDARD 22 or IAS-12:
• The differences between taxable income and accounting income can be classified into
PERMANENT DIFFERENCES and TIMING DIFFERENCES.
 Permanent differences are those differences between taxable income
and accounting income which originate in one period and do not reverse
subsequently.
 Timing differences are those differences between taxable income and
accounting income for a period that originate in one period and are
capable of reversal in one or more subsequent periods.
• The tax effects of timing differences are included in the tax expense in the statement
of profit and loss; and as deferred tax assets or as deferred tax liabilities, in the
balance sheet.
FINANCIAL STATEMENT
ANALYSIS
Look at the following information and suggest what
should be the cost of plant and machinery
purchased!!!!!
Suggest at what cost the

asset will be shown in the
Balance Sheet.
FINANCIAL STATEMENT
ANALYSIS
What is the difference between …
 Depreciation
 Amortization
 Depletion
 Impairment
FINANCIAL STATEMENT
ANALYSIS
All assets are subject to

depreciation except
freehold land.
FINANCIAL STATEMENT
ANALYSIS
Impairment Loss (AS-28)

 An enterprise should assess at each balance sheet date whether
there is any indication that an asset may be impaired. If any
such indication exists, the enterprise should estimate the
recoverable amount of the asset.
 An impairment loss is the amount by which the carrying
amount of an asset exceeds its recoverable amount.
 This Standard defines recoverable amount as the higher of an
asset’s net selling price and value in use.
FINANCIAL STATEMENT
ANALYSIS
Accounting for Investments…(AS 13)

 Investments are assets held by an enterprise for earning income by way of
dividends, interest, and rentals, for capital appreciation, or for other benefits to
the investing enterprise. Assets held as stock-in-trade are not 'investments'.
 A Current Investment is an investment that is by its nature readily realizable

and is intended to be held for not more than one year from the date on which
such investment is made.
 A Long Term Investment is an investment other than a current investment.
 An Investment Property is an investment in land or buildings that are not

intended to be occupied substantially for use by, or in the operations of, the
investing enterprise.
FINANCIAL STATEMENT
ANALYSIS
Types of Investments…(AS 13)
Current Long Term

Investments Investments
FINANCIAL STATEMENT
ANALYSIS
Current Investments …
 A current investment is an investment that is by its
nature readily realizable and is intended to be held for
not more than one year from the date on which such
investment is made.
 The carrying amount for current investments is the

lower of cost and fair value. In respect of investments
for which an active market exists, market value
generally provides the best evidence of fair value.
 For current investments, any reduction to fair value and any

reversals of such reductions are included in the profit and loss
account.
FINANCIAL STATEMENT
ANALYSIS
Long-Term Investment …
 A long term investment is an investment other
than a current investment.
 Long-term investments are usually carried at cost.

However, when there is a decline, other than
temporary, in the value of a long term investment, the
carrying amount is reduced to recognize the decline.
 Where there is a decline, other than temporary, in the carrying

amounts of long term investments, the resultant reduction in
the carrying amount is charged to the profit and loss statement.
FINANCIAL STATEMENT
ANALYSIS
Disclosure – AS 13
 Investments should be disclosed in
financial statements as the aggregate
amount of quoted and unquoted
investments,
investments giving the aggregate
market value of quoted investments.
FINANCIAL STATEMENT
ANALYSIS
What’s the difference between

Reserve and Provision?
 Provision is charged to Profit and Loss
Account where as Reserve is an appropriation
of profit.
 Provision is charged to Profit and Loss
Account before calculating the net profit or
loss, but Reserve can be made only when
there is profit.
 Provision is created for specific purpose,
while Reserve may be created for general
purpose as well.
 Provision are not invested in outside
securities. Reserves reduces divisible profit
can be invested in outside securities.

In The Previous Class, We Started With Financial Statement Analysis

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In The Previous Class, We Started With Financial Statement Analysis

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FINANCIAL STATEMENT

FINANCIAL STATEMENT ANALYSIS

In the previous class, we started with

First, we proceed for understanding

First, we take Balance sheet …

…Sources of Funds Side

DEFERRED TAX LIABILITY (NET) 748.94 681.80

DEFERRED TAX LIABILITY (NET) 748.94 681.80

DEFERRED TAX LIABILITY (NET) 748.94 681.80

DEFERRED TAX LIABILITY (NET) 748.94 681.80

DEFERRED TAX LIABILITY (NET) 748.94 681.80

DEFERRED TAX LIABILITY (NET) 748.94 681.80

DEFERRED TAX LIABILITY (NET) 748.94 681.80

Now, let’s move to …

…Application of Funds Side

PROFIT AND LOSS ACCOUNT…

Total Income 17,985.69 20,028.28

TOP – LINE OF TATA STEEL

Interest 173.90 878.70

Employee Separation Compensation (152.10) 221.13

PROFIT/(LOSS) AFTER TAXATION 4,222.15 4,687.03

PROFIT/(LOSS) AVAILABLE FOR

CASH FLOW STATEMENT …

CASH FROM OPERATIONS

A) CASH FLOW FROM OPERATING ACTIVITIES

CASH USED IN INVESTING

B) CASH FLOW FROM INVESTING ACTIVITIES

CASH FROM FINANCING

C) CASH FLOW FROM FINANCING ACTIVITIES

Net increase in Cash and Cash Equivalents 7392.96 (7216.31)

All this is ………… our story about

 An amount equivalent to at least ten percent of the price fixed as per

Security Premium Account …

Deferred Tax Assets/Deferred Tax Liabilities

Suggest at what cost the

What is the difference between …

All assets are subject to

Impairment Loss (AS-28)

Accounting for Investments…(AS 13)

 A Current Investment is an investment that is by its nature readily realizable

 A Long Term Investment is an investment other than a current investment.

 An Investment Property is an investment in land or buildings that are not

Types of Investments…(AS 13)

Current Long Term

 The carrying amount for current investments is the

 For current investments, any reduction to fair value and any

 Long-term investments are usually carried at cost.

 Where there is a decline, other than temporary, in the carrying

What’s the difference between

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