FSA =Financial Statement Analysis

==> Presentation of the transactions

==> in a Summary
-Income Statement (IAS 1)
-Balance Sheet (IAS 1) Analyse
-Cash Flow Statement (IAS 7)
-Statement of changes in Equity (IAS 1)

Assumptions & Concepts:-

-Business Entity Concept
-Accrual Concept

Record the income when it is earned and not when received

Record the expense when it is ocuureed and not when paid.

Muskaan will purchase the furniture today (1st March)

But she will pay Animesh on 1st July

1-Mar 1-Mar

In Animesh's Book In Muskaan's Book

==> Has Animesh received the money? ==> Did Muskaan paid the mo
No…. No…
==> Has Animesh earned the money? ==> Did Muskaan occurred th
Yes… Yes…

What is Business Operation?

-Business operation is the activities that business perform in order to fulfill the purpose of its existan

Raw Materials Finished goods Office & Admin

Labour or Selling & Distribution

Machinary
Production non-Production

Entire Business Operation

 Types of Transaction:-
-Cash Transaction
-Credit Transaction

In Muskaan's Book
Did Muskaan paid the money?

Did Muskaan occurred the expenditure?

the purpose of its existance.

Distribution
 Income Statement
-It is the summary of all the income and expenses of the company for a given period.
Sales - Cost = Profit

Particular Amt
Revenue from operation 41600
- COGS/COS (WN1) -21200
= Gross Profit 20400

- Off. & Admin (WN2) -5725

- Sell. & Dist. (WN2) -6125
= EBIT 8550

+ Other Income 900

- Finance Cost -1050
= PBT 8400

- Tax -3000
= PAT/NP/NI 5400

=> Who has the right on this

profit?
Owners…

=> The profit is transferred in the Statement of Changes

in Equity (SOCE)
=> SOCE, is a statement that tells you what is the status of
owners money within the co.
=> Out of PAT some portion will be distributed to the owners
as dividend.
=> And the remaining profit will be retained by the co. making
it to be retained profit. This is done, to have some money
within the co. for future expansion or to survive in bad performace
years.
=> All the retained profit throughout the year is accumulated and
termed as Retained Earning, which is shown under Equity in the BS
 Types of Expenditure:-
1 Revenue Exp
given period. 2 Capital Exp

WN1 COS
Particular Amt
Op. Inventory 13000
Purchases 22600 Method
Cl Inventory -15600 Rate
Hire of Machi 500 Cost
Prod. Wages 400 Dep Amt
Dep. WM 300
Total 21200

Production 1000 units

Sold 800 units
Cl. Inventory 200 units

Do you have the intention of You need to transfer (carry it forward)

selling it in the next period? in the next period.
Yes…. So it will bring economic benefit
So it will be transferred with value (cost)
Do you own that inventory?
Yes…. So in the next period that will be termed
as Op. Inventory
Cl. Inventory is filfulling the defination of asset. and will be recorded as exp in our COGS
And thus, it will be recorded in BS for that period.

WN2 OA SD
Admin exp 5000
Dist. Cost 6000 Method SLM
Dep MV 125 125 Cost 1000
Irr. Debt 600 Rate 25%
Total 5725 6125 Dep Amt 250
-Recurring by nature; generally value is not high; it is not occurred to purchase/acq. a non current assets
-Non recurring by nature;genarally the value is high';it is occurred to purchase/acq. a non current assets

Depreciation -Reduction in the value of the tangible non current asset due to wear and tear. (Treat it as r
Amortisation -Reduction in the value of the intangible non current asset due to time. (Treat it as revenue

SLM SLM (Straight Line Method) WDV (Written Down Value)

10% -Dep will be charged by keeping cost -Dep will be charged by keeping lates
3000 value of the asset as base value of the asset as base
300
Rate 10% Rate
2015 Cost 50000 2015 Cost
2015 Dep 5000 2015 Dep
2016 Book Value 45000 2016 Book Value
2016 Dep 5000 2016 Dep
Book Value 40000 Book Value

Accumulated Depreciation -Summing up all the dep of the same assets over the years
Cost value - Acc. Dep = Latest Book value
 (IS)
(BS)

ear and tear. (Treat it as revenue exp.)

time. (Treat it as revenue exp.)

en Down Value)
charged by keeping latest book
asset as base

10%
50000
5000
45000
4500
40500

me assets over the years

 Balance Sheet
- It presents the finacial value/position of the co. as per that point of time
Assets = Equity + Liability
Bring the money
to do the business

Where the money Souces from where the money

is being used by the is coming in the business
co.

Assets
-Any element that business owns
-It will give some eco benefit in the future

Non-Current Assets Current Assets

=> which gives eco benefit => which gives eco benefit
for more than a year within a year
=> PPE (IAS 16) => Inventories (IAS 2)
=> Intangible (IAS 38) => Trade Rec.
Assets => Cash & Cash Eq (IAS 7)
=> Long Term Investment => Prepayment
=> Inv. In Assoc(IAS 28)

Liabilities
-They are the Financial Obligation
-Which the business has to meet in the future

Non-Current Liabilities Current Liabilities

=> Time period to meet the => Time period to meet the
obligation is more than one year. obligation is within a year.
=> Long Term Borrowings => Trade Payables
=> Acc. Exp/Outstanding Exp.
=> Short Term Borrowings

Equity
-Owner's Money
 -That is with the business

Share Capital Share Premium Retained Earning

(Refer IS sheet)

Balance Sheet as on 31 March'21

Assets Amt Amt

==> Non Current Assets 307520

-PPE (WN1) 307520
-Intagible Assets 0
-Long Term Investment 0
-Invt. In Associate 0

==> Current Assets 860000

-Trade Rec. 200000
-Inventories 320000
-Cash & Cash Eq. 180000
-Prepayments 160000

Total Assets 1167520

Equity & Liabilities Amt Amt

==> Equity 707520

-Share Capital 400000
-Share Premium 15000
-Retained Earning (WN2) 292520

==> Non Current Liabilities 80000

-6% Loan 80000

==> Current Liabilities 380000

-Trade pay. 280000
-Accr. Exp 60000
-6% Loan 20000
-Tax Payable 20000

Total Equity & Liabilities 1167520

 Equity & Liability Assets To perform the business and generate income, e

X (Parent Co.)

X is purchasing 70% stake of Y

Y (Subsdary Co.)
100% stake

Y 100% 1000 Rs.

X 70% 700 Rs.

Z 30% 300 Rs. Investment in Associate

X 1000 Rs.
Z 400 Rs.

X 300 Acq goodwill

Z 100 Acq goodwill Intangible Assets

ABC co. needs funds to expand

For that, Co. is planning to go public.
For that Co. will be breaking down the ownership right
into small equal segment termed as Shares.
public will try to purchase the share, and in order to do that they will have to pay a price.

1 2 3 4 5
6 7 8 9 10 Share Price 100
11 12 13 14 15
16 17 18 19 20 Share Capital 5000
21 22 23 24 25
26 27 28 29 30
31 32 33 34 35
36 37 38 39 40
41 42 43 44 45 ABC co. claimes that the shareholder of its co. w
46 47 48 49 50 So ABC will be charging premium price on every
So in order to purchase the share you will have t

Premium 20
Share Premium 1000

WN1 PPE
Particular PM Factory Total
Cost 150000 400000 550000
Acc. Dep -60000 -152000 -212000
Op. Book Value 90000 248000 338000

Purchase 20000 0 20000

Disposal/Sold -25600 0 -25600
Adj. Op B. Value 84400 248000 332400

Method WDV SLM

Rate 20% 2%
Dep Amt -16880 -8000 -24880
Cl. Book Value 67520 240000 307520

Cl Retained earning = Op. Retained Earning + Retained profit of the current yea
Retained profit of the current year =Profit of the current year - Dividend paid

WN2 Cl. RE
Particular Amt Amt
Op Retained Earn. 122000
Profit of the year 175520
Partial Profit of the year 222000
-Loss on Disposal -1600
-Dep Amt (WN1) -24880
-Tax -20000
Dividend Paid -5000
Cl. Retained Earn. 292520

Loan Amt 100000

No. of Installemt 5
Installment Amt. 20000
today's date 31-Mar-21

Installment No. Date Obligation Tenure

Installment 1 31-Dec-21 275 Days
Installment 2 31-Dec-22 640 Days
Installment 3 31-Dec-23 1005 Days
Installment 4 31-Dec-24 1371 Days
Installment 5 31-Dec-25 1736 Days
usiness and generate income, exp, profit and losses

X & Y together will be termed as a group

Z
Z has purchase the 30% stake of Y
In the eyes of the group, Z will be termed as NCI (Non Controlling Interest)
And in the eyes of Z,Y will be termed as Associate
And the money invested to get that 30% stake in Y, will be termed as Investment in Associate

Intangible Assets
 Rs.

Rs. (This value is the capital which the co. raised by selling the shares)
And the individual who have purchased the share whill be termed as
shareholders as they are holding the share of the co.

hat the shareholder of its co. will be receiving a premium return

arging premium price on every single share
rchase the share you will have to pay share price and premium price both.

Rs.
Rs.

Cost Value - Acc. Dep = Book Value

32000 - 6400 = 25600

tained profit of the current year

rent year - Dividend paid Book value - Price = Profit/Loss
25600 - 24000 = -1600
Current Liabilities

Non Current Liabilities

Cash Flow Statement
It presents the cash movement for the given period in the co. with its reason for diff activities
Op Cash & Cas Eq. + Net Flow of Cash in the period = Cl. Cash & Cash Eq.

Operating Activity Investment Activity Financing Activity

Cash Movement due Cash Movement due
to Non Current Assets to Sources of funds

=> Net Cash Flow coming from the operation

=> PBT in IS = Net cash Flow coming from operation ?
No…. Because it has few pollutents
=> But if we remove/adjust those pollutents out of the PBT, then it will be equal to Net Cash
=> Polluents:-
-Non Cash Item Nullify (Single Adjustment)
-Non Operating Item Nullify (Double Adjustment)
-Accrual Effect Working Capital (Current Assets - Current Liabilities)

Cash Flow Statement

I. Operating Activity Amt Amt

PBT 196
+/- Adjustments:- 82
-Dep 59
-Loss on Disposal 9
-Finance Cost 14
= Cash Flow Before WC changes 278

+/- WC changes:- -4
-Inventory -2
-Trade rec. -8
-Trade Pay. 6
= Cash Flow after WC changes 274

- Tax paid in cash (WN1) -57

= Cash Flow from Operating Act. 217

II. Investment Activity Amt Amt

 Purcahse of PPE (WN2) -45
Sale of PPE (WN2) 6
= Cash Flow from Investment Act. -39

III. Financing Activity Amt Amt

Share Capital 10
Share Premium 6
Repayment of Debt -150
Dividend Paid -36
Interest paid in cash -12
= Cash Flow from Financing Act. -182

+/- Net Flow of the year (I+II+III) -4

+ Op. Cash & Cash Eq. 28
= Cl. Cash & Cash Eq. 24
on for diff activities

will be equal to Net Cash flow coming from operation.

Indirect Method

s - Current Liabilities)

WN1 Tax Payable.

Dr. Cr.
Particular Amt Particular Amt
Cash 57 Op. Value 35
Cl Value 40 Tax of the 62

Total 97 Total 97

WN2 PPE Book Value -

 Dr. Cr. 15 -
Particular Amt Particular Amt
Op. value 668 Dep 59
Cash O/F Purchase 45 Diposal 15

Cl Value 639
Total 713 Total 713

WN1 Interest Payable.

Dr. Cr.
Particular Amt Particular Amt
Cash 12 Op. Value 5
Cl Value 7 Int. of the 14

Total 19 Total 19

Note*-
As per US GAAP, we put interest paid in cash in Financing Act. The way we did it over here.
But IAS 7, it gives us a choice, and that is.,
either we can put interest paid in cash in financing act. The way we did it over here
or we can put it in the operating act, after working capital changes, just like what we
did with tax paid in cash
Once the place decided, be consistent about it and don't change it.
Price = Profit/loss
 6 = -9

Cash I/F

e did it over here.

ke what we
 Date Business Activity Income Statement
1-Apr-19 Rs.2,00,000 capital introduced in business Particular Amt
3-Apr-19 Purchase office equipment for Rs. 10,000.
Equipments have an estimated life of 2 yrs
8-Apr-19 Pay to landlord Rs. 3,000 as deposit and
Rs. 2,000 as advance rent for the first month.
13-Apr-19 Receive Rs.6,000 as one year magazine
subscription to the monthly newsletter.
18-Apr-19 Purchase and receive 1000 books at a cost
of Rs.50 per book for a total of Rs.50,000.
Paid 50% amount in cash and the remaining
50% amount is payable in 30 days.
18-Apr-19 Spent Rs.2,500 in advertisement
19-Apr-19 Took a loan of Rs.20,000 from bank for
working capital, Interest rate is 10%
and loan is to be repaid after 2 years.
21-Apr-19 Sell for cash 50 books at Rs.100 each book.
Sell 25 books at Rs.100 each book,
Payment is due in 30 days
27-Apr-19 Hire a part time clerk to whom company
will pay Rs.100/hr. Clerk works for 25 hrs
before 30th Apr 2019. 50% amount paid
in cash and the remaining 50% paid in May.
30-Apr-19 Mail out the first month's newsletter to
customer. This subscription had been
sold on 13-Apr-19.
 Balance Sheet
Liability LP TP Assets LP TP
Cash Flow Statement
 Business Activity Income Statement
ABC is a high end restaurant which started operations Particulars Amount
on 1st Jan 2019. Following transactions
occurred during 2019
Capital introduced Rs.1,000,000, on 1/1/19
Fixed Assets bought Rs.500,000, depreciation 20% SLM
5 Waiters and an accountant were hired on 01/01/19
at Rs.250,000 per month, for the full year
Office rental of 250,000 for full year, paid on 1/1/19
Food & Beverages sold for cash Rs.6,500,000
Food and Beverage items taken on credit worth
Rs.2,000,000 during the year. Of this Rs.300,000 was
unpaid at the end of year
5 year memebership scheme for Rs.250,000 each was
offered. They sold 30 memberships in cash in 2019
On 1/1/19 Rs.700,000 was borrowed at rate of 8%
Out of this Rs.350,000 was repaid on 20/6/19.
Interest in full was pid on 31/12/19.
On 31/12/19 half of the Net Income was distributed
as dividends to shareholders

Build the Income Statement, Balance Sheet

and Cash Flow Statement as of 31/12/2019
 Balance Sheet Cash Flow Statement
Liability LP TP Assets LP TP
Cash Flow Statement
Capital Employed =Equity + Debt
Capital Employed =Total Assets-Current Liabilities
Capital Employed =Total Liabities - Current Liabilities

Particular Last Year This Year

Equity 407420 546165
Debt 83100 61600
Capital Emp. 490520 607765
Quick Assets =Cuurent Assets - Inventories - Prepayemnt
Particular Last Year This Year
Current Assets 390710 528855
Inventories 88760 109400
Quick Assets 301950 419455

Particular Last Year This Year

COGS 753450 1050825
OA&SD 170950 161450
Op. Exp 924400 1212275
Daily Op. Exp. 2533 3321

Avg Value =Op Value + Cl. Value

2

A B C D
31-May 12-Jun 27-Jun 6-Jul
Purchase of We made the payment We sold the We rec the money
Inventory inventory

Pay days 12 days Balanced

IHD 27 days lower
Rec Days 9 days lower

Working Capital =Current Assets - Current Liabilities

Working Cap. Days =Current asset days - current liabilities days
=Rec. Days + IHD - Pay day.
24 Days lower

CCC 24 Days lower

PAT 500000 31-Mar-21 Convertible debt 31-Mar-25
Total Share 2000 31-Mar-21

Animesh 800 1-Apr-20

Sandhya 800 1-Aug-20
Aditi 400 1-Feb-21

Animesh 800
Sandhya 533
Aditi 67
T. WA shar 1400

Basic EPS 357

 Ratio Analysis
=> It is not a rule based concept, but it is a tool based concept.
=> Measure the performance of the co.
=> We will be analysing the financial statements

Basis of comparision:-
1 Time Series Indigo (2020)
2 Cross Section Indigo (2021)
3 Both Indigo (2020), Indigo (2021)

Areas of performance measurement:-

1 Profitability To measure how profitable is the business
2 Liquidity To measure the financial strength, to see if
3 Activity To measure, how efficient does the co. run
4 Solvency To measure the financial strength, to see if

Sno Profitability Ratios Formula

1 Gross Profit Margin =Gross Profit
Sale

2 EBIT Profit Margin =EBIT

Sale

3 EBITDA Profit Margin =EBITDA

Sale

4 Pretax Margin =PBT

Sale

5 Net Profit Margin =Net Profit

Sale

6 ROCE =EBIT
(Return on Capital Employed) Capital Employed

7 ROA =Net Profit

(Return on Assets) Total Assets

8 ROE =Net Profit

(Return on Equity) Equity

Sno Liquidity Ratios Formula

 1 Current Ratio =Current Assets
Current Liabilities

2 Quick Ratio =Quick Assets

(Acid Test Ratio) Current Liabilities

3 Cash Ratio =Cash & Cash Eq

Current Liabilities

4 Defensive Interval Ratio =Quick Assets

Daily Op. Exp.

5 Cash Conversion Cycle =Working Capital Days

(CCC)

Sno Activities Ratios Formula

1 Assets Turnover Ratio =Sales
(ATR) Cl. Assets/Avg. Assets

2 Rec. Turnover Ratio =Sales

(RTR) Cl. Rec./Avg. Rec.

3 Rec. Days =365

RTR

4 Inventory Turnover ratio =COGS

(ITR) Cl. Inv./Avg. Inv.

5 Inventory Holding Days =365

(IHD) ITR

6 Payable Turnover Ratio =COGS

(PTR) Cl. Pay./Avg. Pay.

7 Pay. Days =365

PTR

8 Working Cap. Days =Rec. Days + IHD - Pay day.

Sno Solvency Ratios Formula

1 Gearing Ratios:-
a. Debt to Equity Ratio (D/E) =Debt
Equity
 b. Debt to Capital Ratio =Debt
T. capital

c. Debt to Assets Ratio =Debt

Total Assets

2 Interest Coverage ratio =EBIT

Finance Cost

3 Financial Leverage =Assets

(Equity Multiplier) Equity
(Refer DuPont Sheet)

Additional Ratios
1 Basic EPS =Earning Available for the owners
(Earning Per share) Weighted Avg. No. of share

2 Diluted EPS =Earning Available for the owners adjusted

Weighted Avg. No. of share adjusted as pe

IAS 33 EPS

3 PE Ratio =Market price per share

Price to earning Earning per share
 Indigo (2021)
Spice Jet (2021)
Spicejet (2020), Spicejet (2021)

profitable is the business

financial strength, to see if the co. is capable enough to pay its short term liabilities.
w efficient does the co. runs its operating activities.
financial strength, to see if the co. is capable enough to pay its long term liabilities.

Last Year This Year

406400 340995 -
1159850 1391820 =
35.04% 24.50% -
235450 179545 -
1159850 1391820 =
20.30% 12.90% -
NA NA =
1159850 1391820 -
NA NA =
221450 169545
1159850 1391820
19.09% 12.18%
155150 118745
1159850 1391820
13.38% 8.53%
235450 179545
490520 607765
48.00% 29.54%
155150 118745
732110 1038445
21.19% 11.43%
155150 118745
407420 546165
38.08% 21.74%

Last Year This Year

 390710 528855
241590 430680
1.62 1.23
301950 419455
241590 430680
1.25 0.97
95400 0
241590 430680
0.39 0.00
301950 419455
2533 3321
119 126
21 28

Last Year This Year

1159850 1391820
732110 1038445
1.58 1.34
1159850 1391820
206550 419455
5.62 3.32
365 365
5.62 3.32
65 110
753450 1050825
88760 109400
8.49 9.61
365 365
8.49 9.61
43 38
753450 1050825
179590 345480
4.20 3.04
365 365
4.20 3.04
87 120
21 28

Last Year This Year

83100 61600
407420 546165
0.20 0.11
 83100 61600
490520 607765
17% 10%
83100 61600
732110 1038445
0.11 0.06
235450 179545
14000 10000
17 18
732110 1038445
407420 546165
1.80 1.90

Actual EPS of the current year

e for the owners is Basic EPS adjusted as per the future possible event

e for the owners adjusted as per the future event

o. of share adjusted as per the future event

Less
More
Rev from operation
COGS EBIT Profit from the operation
Gross Profit + Dep & Amort non cash item
O&A = EBITDA Profit from the operation, but in that impact of non cash
S&D
EBIT
Finance Cost
PBT
Tax
PAT/NI/NP
S of the current year

PS adjusted as per the future possible event

n that impact of non cash element should be removed
 Financial Leverage =Assets
Equity

Optimistic View

S1
Assets = Equity + Liabilities
100 = 80 + 20
$ 100 FL 1.25 Rate 10%
It the value $ 88
generated
by the assets After 5 yea $88
Assets = Equity + Liabilities
200 = $168 + $32
EM 2.10

S2
Assets = Equity + Liabilities
100 = 20 + 80
$ 100 FL 5 Rate 10%
It the value $ 51
generated
by the assets After 5 yea $51
Assets = Equity + Liabilities
200 = $71 + $129
EM 3.56

DuPont Analysis:-
-We break down ROE into several factors
-Bcoz we want to see which factor is driving the ROE
-As we want that those factor shouls drive the ROE which can bring sustainable gro

2 Factor
ROE = FL * ROA
Net Profit = Assets * Net Profit
Equity Equity Assets
 Dynamic Operationaly
Factor Effeciency

3 Factor
ROE = FL * ATR *
Net Profit = Assets * Sales *
Equity Equity Assets

Dynamic Operationaly
Factor Effeciency
 Pessimistic View

S1
Assets = Equity + Liabilities
100 = 80 + 20
$12 $ 10 FL 1.25 Rate 10%
Finance Cost It the value $ (2)
Cost of leveraging generated
by the assets After 5 yea ($2)
Assets = Equity + Liabilities
110 = $78 + $32
EM 0.97

S2
Assets = Equity + Liabilities
100 = 20 + 80
$49 $ 10 FL 5 Rate 10%
Finance Cost It the value $ (39)
Cost of leveraging generated
by the assets After 5 yea ($39)
Assets = Equity + Liabilities
110 = ($19) + $129
EM -0.94

hich can bring sustainable growth in ROE.

NPM
Net Profit
Sales

Operationaly
Effeciency
 $12
Finance Cost
Cost of leveraging

$49
Finance Cost
Cost of leveraging