CAIIB-Financial Management-Module B Study of Financial Statements
CAIIB-Financial Management-Module B Study of Financial Statements
CAIIB-Financial Management-Module B Study of Financial Statements
MODULE B
STUDY OF FINANCIAL
STATEMENTS
M Syed Kunmir
email kunmir@yahoo.co.uk
Financial management involves
the application of general
management principles to
particular financial operation.
-Measurement
problems
-Uncertainty
-Temporal spread
Phases of capital budgeting
1) Planning
2) Analysis
3) Selection
4) Implementation
5) Review.
Levels of Decision Making
-Operating decisions
-Administrative decisions
-Strategic decisions
o Profitability Study important facets are
-Market analysis
-Technical analysis
-Financial analysis
-Economic analysis
-Ecological analysis
The basic characteristic of a
capital project is that it
typically involves
- Cash credit
- Overdraft
- Billsdiscounting
- Commercial papers and
- Trade credit.
Short term & long term cash forecasts
Balance Sheet
Income Statement
Fund flow statement
Basic concepts while preparing balance
sheet
- Entity concept
- Money measurement concept
- Going concern concept
- Cost concept
- Consevatism concept
- Dual aspect concept
- Accounting period concept
- Accrual concept
- Realisation concept
- Matching concept
What is revenue reserve & capital
reserve?
Sources and
Uses Statement
The letters labeling
the boxes stand for
Uses,
U ses,
ses SSources,
ources,
ources A L
Assets,
A ssets,
ssets and
Liabilities
L iabilities (broadly
defined). The pluses
(minuses) indicate
S - +
increases
(decreases) in
assets or liabilities.
U + -
7-7
Accounts payable-These are current
liabilities payable within one year from
date of balance sheet.
Fund Flow Statement-It shows the
sources and uses of funds during a
given accounting period.
Horizontal analysis and Vertical analysis-
Horizontal analysis is comparing the
operations over a time period
ie.comparing past performance with
current position for predicting the future
performance.
In vertical analysis we use percentages to
show
the relationship between various items in
the
balance sheet.
a)X contributes Rs.10,000 to his
properietory concern and the amount is
deposited in the bank.What is the nature
of liability?
i)Owners equity
ii)Loan
iii)Short term finance
iv)Fixed Asset.
Cost of goods sold and Cost of
production refer to the same
amount(T/F)
Net profit is calculated before
tax(T/F)
Balance sheet and Income
statement can be prepared every
quarter for internal use(T/F)
A loss is shown as asset in the
balance sheet(T/F).
Provisions for taxes and accrued
expenses to be paid within a year are
current assets(T/F)
Debtors(also known as accounts
receivable)represent the amount of
money to be paid by the firm to the
suppliers(T/F)
Fund Flow statements can be prepared
without the basis of balance
sheets(T/F).
Fund flow statements represent only
bank borrowing and trade credit(T/F)
State whether following are sources or
uses
-Buying materials
-Payment of dividend to shareholders
-Advance received from buyer of goods
-Investment in machinery
-Issue of debentures
-Retained earnings
-Increase in Inventories
-Sale of old machinery
Tools of Analysis
Horizontal
Horizontal Analysis
Analysis
Comparing a companys financial condition
and performance across time
Time
Horizontal Analysis
Now, lets
look at
some ways
to use
horizontal
analysis.
Time
The term horizontal analysis arises from
left-to-right (or right-to-left) movement of
our eyes as we review comparative
financial statements across time.
Comparative Statements
Calculate Change in Dollar Amount
Trend
Trend analysis
analysis is
is used
used to
to reveal
reveal patterns
patterns in
in data
data
covering
covering successive
successive periods.
periods.
Financial
FinancialStatement
Statement Base
BaseAmount
Amount
Balance
BalanceSheet
Sheet Total
TotalAssets
Assets
Income
IncomeStatement
Statement Revenues
Revenues
($12,000 $315,000) 100% = 3.8%
a)Accept NPV>0
b) Accept NPV<0
c) Accept NPV=0
d) none of the above
Criterion for IRR(Internal Rate of
Return)
a) Change in wealth
b) Change in income
c) Change in profit
d) none of the above
THANK YOU
Email kunmir@yahoo.co.uk