Escolar Documentos
Profissional Documentos
Cultura Documentos
Sitaram Dhakal
Contents
Evaluation Scheme
Class Participation
20%
Presentations
20%
Quizzes
10%
Assignments
20%
Behaviour and
discipline in the class
Class test
20%
10%
35% of
total mark
is carried
out as
faculty
marks.
Balance sheet
Everest Limited
Balance Sheet
As on 31st December, 2013
Assets
Amount
(Rs. in thousands)
Accounts Payables
Rs. 500 Notes payables
700 Accruals
1,000
2,200 Total Current Liabilities
Long term debts
Preference Share Capital
Total Assets
Amount
Rs. 400
300
1,000
1,700
1,300
500
2,500
Rs. 6,000
Balance Sheet
The statement of firms financial position at
a specific point in the time.
Balances the firms assets against its
financing sources - debt and equity.
Liabilities
Represents the amount to be paid to
outsiders.
Classified into two parts current liabilities
and long term debts.
Current liabilities are due for payments
within one year.
Long term liabilities or debts have
maturities over one year.
Owners equity
Represents the capital fund of the corporate.
Includes paid up capital, paid in capital and
retained earnings.
Also called shareholders equity, stockholders
equity, net worth, common equity or simply
total equity.
Equity holders are owners and they have
voting right.
Preference share
A hybrid security.
Priority claim rather than shareholders
equity in case of liquidation.
Carries fixed dividend to the shareholders.
Income Statement
ABC CORPORATION
2010 Income Statement
Particular
Net sales
Cost of goods sold
Depreciation
Earnings before interest and taxes
Interest paid
Taxable income
Taxes
(Rs. in millions)
Amount
Rs.1,509
(750)
(65)
694
(70)
Rs.624
212
Net income
Dividends
Addition to retained earnings
Rs.412
Rs.103
309
Income Statement
GAAP
Generally Accepted Accounting principles.
Shows the assets at historical cost.
Shows the net income of the firm no matter
whether cash comes in or does nor come
in.
Based on realization principles.
Income is recognized at the time of sale,
but does not matter the time of collection.
Case - 1
Butwal Hydro power company had sales of
Rs.50000, cost of goods sold of 60% of sales,
administrative and selling expenses of Rs.5000,
depreciation of Rs.10000, and interest
expenses of Rs.1000. The firm has net
investment in operating capital is Rs. 1300. If the
corporate tax rate is 40%:
Case - 2
ABC company recently paid dividend of Rs. 960
from the net income of 2013. Dividend payout
ratio is 40% and the cost of goods sold of 60%
of sales, administrative and selling expenses of
Rs.5000, depreciation of Rs.10000, and interest
expenses of Rs.1000. If the corporate tax rate is
40%, you are required to determined the annual
sales of 2013.
Thank You
Ratio Analysis :
A tool to quantify the relationship between
two or more sets of financial data taken from
income statement and balance sheet.
Provides information relating to strengths
and weaknesses of the firm.
Liquidity Ratios
Measure the firms ability to satisfy its
short-term commitments out of current
or liquid assets.
Focus on current assets and liabilities
and are used to ascertain the short-term
solvency position of a firm.
The two primary tests of liquidity are
current ratio and quick ratio.
a. Current Ratio
The quantitative relationship between
current assets (CA) and current liabilities
(CL).
Measures the ability of the firm to meet
obligations due within one year.
b. Quick Ratio
Termed as acid-test ratio or liquid ratio, measure
of short-term solvency of a firm.
The quantitative relationship between quick
assets and current liabilities.
Case - 3
The Petry Company has $1,312,500 in current assets
and $525,000 in current liabilities. Its initial inventory
level is $375,000, and it will raise funds as additional
notes payable and use them to increase inventory. How
much can Petrys short-term debt (notes payable)
increase without pushing its current ratio below 2.0?
What will be the firms quick ratio after Petry has
raised the maximum amount of short-term funds? What
is quick ratio after financing?
Case - 4
1. Barnaby Cartage Company has current assets of
$800,000 and current liabilities of $500,000. What effect
would the following transactions have on the firms current
ratio (and state the resulting figures)?
a. Two new trucks are purchased for a total of $100,000 in
cash.
b. The company borrows $100,000 short term to carry an
increase in receivables of the same amount.
c. Additional common stock of $200,000 is sold and the
proceeds invested in the expansion of several terminals.
d. The company increases its accounts payable to pay a
cash dividend of $40,000 out of cash.
Equations of ITOR
It is calculated as:
Case - 5
Thank You
a. Debt-Assets Ratio
b. Debt-Equity Ratio
d. Equity multiplier
Equations of EM
EM = 1+DE
Case - 6
4. Profitability Ratio
Measures how efficiently the firm is
being operated and managed.
Owners, managers, creditors are eager
to know their returns whereas managers
are interested in their operating
efficiency.
Evaluated in terms of profit earned by
the firm.
Case - 7
Midwest Packagings ROE last year was only 3
percent, but its management has developed a
new operating plan designed to improve things.
The new plan calls for a total debt ratio of 60
percent, which will result in interest charges of
$300,000 per year. Management projects an
EBIT of $1,000,000 on sales of $10,000,000, and
it expects to have a total assets turnover ratio of
2.0. Under these conditions, the tax rate will be
34 percent. If the changes are made, what return
on equity will the company earn?
b. Market-to-Book Ratio
c. Payout Ratio
Case - 8
Du Pont chart
ROE
ROA
EM
ATR
NPM
NI
Sales
Sales
TA
d. Du Pont equation
The Du Pont Equation is:
Return on equity (ROE)
Case - 9
Thank You