1. CAIIB - Financial Management
Module B – Study of Financial Statements
- Balance Sheet Analysis
M. Syed Kunmir

2. BALANCE SHEET ANALYSIS
Sources of Funds
1) Capital
2) Reserves & Surplus
3) Term Liabilities
4) Current Liabilities

3. BALANCE SHEET ANALYSIS
Uses of Funds
1) Fixed Assets
2) Intangible Asets
3) Non Current Assets
4) Current Assets

4. BALANCE SHEET ANALYSIS
Capital
1) Authorised Capital
2) Issued Capital
3) Subscribed Capital
4) Paid-up Capital

5. BALANCE SHEET ANALYSIS
Reserves
1) Subsidy Received From The Govt
2) Development Rebate reserve
3) Revaluation of fixed assets
4) Issue of Shares at Premium
5) General Reserves
Surplus
The credit balance in profit and loss account

6. BALANCE SHEET ANALYSIS
Tangible Net Worth
This refers to the total funds arrived by paid-up capital , Reserves and P&L Surplus
Less
Intagible Assets

7. BALANCE SHEET ANALYSIS
Term Liabilities
Redeemable preference shares
Debentures
Deferred payment gaurantees
Public Deposits(Repayable after 12 months)
Term loans and unsecured loans from friens, relatives,directors repayable over a period
of time
Remark : The company can raise public deposits to the extent of 25% of paid up capital
plus free reserves and 10% from share holders for the maturity period ranging from
6 months to 3 yrs

8. BALANCE SHEET ANALYSIS
Current Liabilities
Working capital bank borrowings
T.loans deferred credit inst falling due in 12 mths
public deposits maturing within 12 months
unsecured loans, unless the repayment is on deferred terms
sundry creditors
advances from dealers and customers
interest accrued but not paid
tax provisions
Dividend declared and payable

9. BALANCE SHEET ANALYSIS
Contingent Liabilities
Tax disputes
Legal litigations
Bills and cheques discounted with banks
Claims against the company not acknowledged

10. BALANCE SHEET ANALYSIS
Fixed Assets
Infrastructure like land & building
plant & machinery
Vehicles
Furniture & fixtures
Depreciation
Straight line method
Written down Value Method
Remark : Dep added to profit to arrive repayment obligation especially in term loans

11. BALANCE SHEET ANALYSIS
Investments
1) Shares And Securities
2) Associate Companies
3) Fixed deposits with banks/finance companies
Remark : While analysing bal sheet we can analyse necessity of such investments
Remark : While fixed deposits with banks are considered as fixed assets, the
investmetns in associate concerns are treated as non current assets.

12. BALANCE SHEET ANALYSIS
Non Current Assets
Deferred recievables/Overdue recievables(like disputed amounts and Over Due > 6
mths)
Non moving stocks/inventory/un usable spares
Investment/Lending to associate concern
Borrowing of the directors from the company
Telephone deposits/ ST deposits etc

13. BALANCE SHEET ANALYSIS
Intangible Assets
Preliminary & Preoperative expenses
Deferred Revenue Expenditure
Goodwill
Trade mark
Patents
Rem : The o/s balance to be written off every year by charging P&L account

14. BALANCE SHEET ANALYSIS
Current Assets
Raw materials, work-in-progress,finished goods,spares and consumables
Sundry debtors and recievables < 6 mths
Advances paid to suppliers of raw materials
Cash and bank balances
Interest recievables
Other current assets such as Government securities, Bank deposits ..etc

15. BALANCE SHEET ANALYSIS
Notes
All expenses or provisions or advances or loans etc which are accrued and payable
within 12 months are current liablities
When a company makes investments in unconnected avenues such as shares,
securites, associate concerns are to be treated as non cur ast
The slow moving and absolete inventory - NCA

16. BALANCE SHEET ANALYSIS
Notes
Bal Sh Analy not only to be quantitative but to be qualitative
It is the fin pos on a part date. Min three years bal sh ana would be more meaningful
It is a mixture of facts, opinions and conventions
While opinions are of the company’s management, the conventions are practiced by the
finance managers of the company.
( ex Over due recievable > 6 mths as NCA is a acccounting convention

17. BALANCE SHEET ANALYSIS
Notes
The valuation of the stock is done as per the opinion of the management
Depreciation method may be changed to boost profit
It may be silent on key personnel and staff turnover
Marginal changes in the classification of certain items would lead to different results.

18. BALANCE SHEET ANALYSIS
Notes
Management competence
Investment decision
Resorting to window dressing
experience of the promoters
Board comprises of only family members
The key personnel of the company
The structure of the organisation
The authority and decision making are decentralised

19. BALANCE SHEET ANALYSIS
Notes
The state of industrial relations
Financial systems and procedures
management control
planning, budgeting, forecasting
capacity utilisation
status of the technology
awareness of the market, competitions ..etc
for listed co: share prices, EPS, book value, dividend record, public response ..etc

20. PROFIT & LOSS ACCOUNT
It is a summary of revenue earned and expenses incurred which ultimately results in
profit or loss of to the company
No defined format in law
Operating revenue = Sales revenue
Non_operating revenue = Other income ( out of sale of investments, interest,
commission and discount etc)
Hence operating profit is a yard stick for operating profit of the company
Operating profit = Sales Revenue- Operating Cost

21. PROFIT & LOSS ACCOUNT
Gross Sales
Gross sales includes excise duty to be charged to the customer, central sales tax
applicable, state sales tax applicable, the discount o be allowed to
distributors/dealers/customers. The gross sales appears in the P&L account
comprises of all the above part from the basic unit price.
Net Sales
The sales figure excluding all the factors explained above are the net sales.

22. PROFIT & LOSS ACCOUNT
Cost of production
This is the cost incurred right from the
procurement of raw material to the finished
good.
For ex in a garment firm following cost is
incurred while production
1) cost of raw material cloth, buttons, canvas,
hooks, zips etc
2) Maintenace of sewing machines
3) payment of wages to workers
4) power
5) washing, ironing,packing etc.

23. PROFIT & LOSS ACCOUNT
Selling And General Administarative Expenses
Maintaining office staff for admn & acctg
marketing effort
payment of salaries/Tr All to marktg personnel
All the expenses which are not directly
connected to manufacturing are classifed as
selling and/or general expenses

24. PROFIT & LOSS ACCOUNT
Cost of goods sold
Cost of goods sold includes all manufacturing
expenses and the adjustments for opening
and closing stock
Cost of Goods sold = Opening stock +
Purchases + Manufacturing expenses -
Closing stock
Gross Profit is arrived deducting figure of cost
of goods sold from the sales figure
ie Gross profit = Sales - Cost of goods sold.

25. PROFIT & LOSS ACCOUNT
Operating Profit is arrived deducting selling,
administrative and general expenses ,
provision for bad debts, interest and
miscellaneous expenses from the gross
profit.
ie Op Profit = Gr Prof - (Sel & adm exp + Prov
bad debt + mis exp )
Profit Before Tax When other income is added
and other expenses are deducted from the
operating profit we get profit before Tax
ie PBT = Op Profit + oth Inc - oth exp
Net Profit When provision for taxes is
deducted from the Profit Before Tax we get

26. PROFIT & LOSS ACCOUNT
Non Operating Income/Expenses
The income earned by the unit from other than
manufacturing and seling operations is
classified under this head . i.e
a) Interest earned on fixed deposits
b) Dividends and profit earned by sale of
assets and share.
All those expenses which are not directly
connected with operations of the unit are
classified under this head. i.e
a) Preliminary expenses written off
b) Loss suffered due to sale of assets &