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Financial Statement Analysis

1

M&M posts 4% rise in PAT at Rs 242
cr
Mahindra & Mahindra (M&M) reported
a 4% growth in its profit after tax (PAT)
for the quarter ended December 31, 2006
at Rs 242 crore. Income from operations
during the quarter improved 17% at Rs
2,576 crore. Operating profit was up 8%
at Rs 350 crore.
However, profit after tax in the October-
December 2006 quarter included
exceptional items of Rs 46.9 crore on
account of sale of the company’s light
commercial vehicles business to group
company Mahindra International and
octroi receipts. Profit after tax in the
third quarter was up 35% if the
exceptional items in the previous year
are excluded.
Operating margin stood at 12.02%
compared to 12.02% (excluding the
octroi refund) in the same period of the
previous fiscal. Bharat Doshi, executive
director finance and corporate affairs
said the company had succeeded in
combating input cost increases by
“aggressive and stringent cost
management”.
“Inspite of input cost increases we have
been able to contain costs. We are
looking at the current year with
optimism but how much more we can do
to keep costs down is the question. There
is a lot of volatility in the global
commodity market and it is difficult to
predict which way prices will swing,”
said Mr Doshi.
M&M has already increased prices of its
flagship sports utility vehicle Scorpio by
Rs 6,000-10,000 and is looking at
increasing the price of the Bolero next
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week. Pawan Goenka, president of the
automotive sector at M&M, said, “There
is an interest rate hike threat. A further
growth in the interest rate could have a
negative effect.”
M&M’s tractor sales were up 18% at
26,644 units in the third quarter
compared to a 15% growth in the overall
tractor industry. Utility vehicle sales
grew 12.6% at 33,312 units during the
quarter as compared with a 15% increase
in the overall industry, as the company’s
soft-top utility vehicle sales continued to
slide.
Sales of pick-up vehicles improved 44%
while of light commercial vehicles was
up 41%. Three-wheeler sales were down
36% at 3163 units. Vehicle exports grew
36.5% at 1954 units despite a slump in
exports to Malaysia following some
changes in the duty structure there. On a
consolidated basis, M&M posted a 102%
growth in net profit at Rs 530 crore for
the quarter ended December 31, 2006.(
TIMES NEWS NETWORK
FEBRUARY 01, 2007)
As potential shareholder visit the web-
site of M&M and find the following :
• Is M&M doing better than its
competititors?
• Is the share price of M&M
reflects the fundamentals of
company?
• Did the company pay dividend in
the recent past?
• What is the return a shareholder
can expect from this company?
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Financial Statement Analysis: Introduction

For answering the above mentioned questions one has to undertake a detailed analysis of
the financial statements. Financial statement analysis is a comprehensive analysis of all
three financial statements: balance sheet, income statement, and cash flow statement.
Financial statements provide useful information. However, one has to meticulously look
for the right information from the right data. One can undertake the financial statement
analysis from different stakeholders’ perspective: creditors, bankers, credit rating
agencies, existing shareholders, potential shareholders, internal management, and
employees too. There are different tools of financial statement analysis: common-size
statement, comparative statements, and ratio analysis. Before we get into the financial
statement analysis, in the first section we will recapitulate the financial statements. For
this purpose we will the financial statements of companies forming a part of NIFTY
Index of the National Stock Exchange of India (www.nse-india.com).

Balance sheet
Following exhibit shows the consolidated balance sheet of non-banking companies
forming a part of NIFTY. For the convenience sake the balance sheet is divided into six
major blocks

Balance Sheet of CBC as on 31st March 2006

Sources/Liabilities Uses/ Assets OF: Owners’ Fund
OF 345,696 FA 246,498 LTL: Long Term
0 Liabilities
LTL 85,146 Investments 91,144 CL: Current Liabilities
FA: Fixed Assets
CL 207,691 CA 300,890 CA: Current Assets
Total 638,532 638,532

Fixed Assets
Fixed assets is an important component of the balance sheet. Generally fixed assets are
shown in the form of Gross Block and Net Block. Net Block is net of depreciation. In the
consolidated balance sheet the net block account for around 39% of the total assets. As
mentioned in the previous chapter, it signifies, that 39% of the total assets are invested
within the business. However, the percentage of fixed assets differs from company to
company.

Fixed Asset as % of Total Asset as on 31 March 2006 (Rs. in crores)

Bharti Airtel Ltd. 13735.53 78% Dr. Reddy'S Laboratories Ltd. 630.27 16%
A C C Ltd. 3255.77 67% Sun Pharmaceutical Inds. Ltd. 543.67 15%
Reliance Industries Ltd. 61572.53 67% Bajaj Auto Ltd. 1265.82 13%
Gujarat Ambuja Cements Ltd. 2359.23 58% Larsen & Toubro Ltd. 1608.77 12%
Indian Petrochemicals Corpn. Ltd. 5964.03 57% H C L Technologies Ltd. 418.56 12%

Investments:

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Investment includes long term holding of shares/bonds/debentures/other securities issued

by other companies. Not all investments are shown in this manner. If the company holds
a majority of the shares and has right to control the other company, it would be called a
holding company. In such case, the accounts of the subsidiary company is totally
consolidated with the holding company accounts. So it is only investments in non-
consolidated companies are shown as a separate item called “Investments”. Investments
account for16% of the total assets of the consolidated balance sheet. However, the
percentage varies with the companies as shown in the following table.

Fixed Asset as % of Total Asset as on 31 March 2006 (Rs. in crores)

Reliance Communications Ltd. 12074.09 78% Suzlon Energy Ltd. 292.74 7%
H C L Technologies Ltd. 2654.66 73% Reliance Industries Ltd. 5871.18 6%
Zee Entertainment Enterprises Ltd. 1486.77 60% A C C Ltd. 293.75 6%
Bajaj Auto Ltd. 5856.97 59% Bharti Airtel Ltd. 719.69 4%
Hero Honda Motors Ltd. 2061.89 54% A B B Ltd. 87.14 4%

Current Assets
Current assets contains all the short-term assets of the company. These assets are
normally convert back into cash quickly. The current assets consist of the following
major items:
• Inventories
• Receivables
• Cash

Balance Sheet of CBC as on 31st March 2006 Current Assets as on 31st March 2006
Sources/Liabilities Assets Inventories 66,933 22%
Of 345,696 FA 246,498 Receivables 175,429 58%
Cash and bank balance 58,529 19%
LTL 85,146 Investments 91,144
Total CA 300,890
CL 207,691 CA 300,890
Total 638,532 638,532

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Current assets are in constant movement. Raw materials are converted into finished
goods. These when sold are converted into receivables or cash. Thus returns from the
operation or in other words, the profit depends on this cycle. This cycle is also known as
the Operating Cycle. The composition of current assets also differs from company to
company.

Composition of Current Assets as % of Total Liabilities as on 31st March 2006

Inventorie Cash/Bank
s balance Receivables
A B B Ltd. 9% 17% 59%
A C C Ltd. 12% 2% 12%
Bajaj Auto Ltd. 3% 1% 25%
Bharat Heavy Electricals Ltd. 18% 20% 52%
Bharat Petroleum Corpn. Ltd. 32% 2% 13%
Bharti Airtel Ltd. 0% 2% 15%
Cipla Ltd. 28% 1% 37%
Dabur India Ltd. 15% 5% 16%
Dr. Reddy'S Laboratories Ltd. 11% 17% 33%

Now let us see the liabilities of the consolidated BS Company. The following figure
shows three subdivisions of the liabilities:

Owners’ Funds (OF)

OF is the sum of the money contributed by the owners i.e. capital and the money
generated by the business i.e. profit. Owners’ fund consists of the following:

• Share Capital
• Reserves

Share capital is the money collected or raised by issuing shares to the public. The shares
can be issued at par, premium, or discount. However, the share capital is always shown in
the balance sheet at the face value. Discount or premium, if any, is adjusted in the reserve
account. The details of the capital is available in Chapter-XXX.

The reserves consists of capital reserve and revenue reserves. Revenue reserve shows the
profit from the operation or the business, whereas the capital reserve shows the profits
from all other activities which do not fall under the category of main business. The
owners’ fund changes due to the following reasons:
• Issue of capital
• Profit from the operations
• Profit from any other sources
• Buy back of shares

Whereas the following transactions will have no effect on the owners’ fund:

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• Issue of bonus shares

• Issue of debentures or bonds
• Splitting of shares

Owners’ fund accounts 54% of the total sources. In other words, large chunk of the
business has been financed by the owners’ fund. It is important to note that reserves
account for more that 90% of the owners’ fund. This shows that the selected companies
have used their profits for financing the business. The composition of owners’ fund also
varies with the nature of the business.

Capital and Reservest as % of Total Funds as on 31 March 2006

Capital Reserves Capital Reserves
Satyam Computer Services Ltd. 1% 84% Tata Motors Ltd. 2% 31%
H C L Technologies Ltd. 2% 77% Hindustan Lever Ltd. 3% 31%
Tata Consultancy Services Ltd. 1% 75% Bharat Petroleum Corpn. Ltd. 1% 31%
Infosys Technologies Ltd. 2% 74% Bharti Airtel Ltd. 10% 28%
Videsh Sanchar Nigam Ltd. 3% 70% Siemens Ltd. 1% 26%

Long Term Funds

LTF includes borrowing from financial institutions, public in the form of bonds,
debentures etc. The funds mature after a period of twelve months. LTF account for less
than 15% of the total funds. However, companies like Infosys and Satyam have no
borrowing what so ever.

LTL as % of Total Funds as on 31 March 2006 (Rs. in crores)

LTL % LTL %
Jet Airways (India) Ltd. 5015 55% Steel Authority Of India Ltd. 3388 10%
Sun Pharmaceutical Inds. Ltd. 1746 48% G A I L (India) Ltd. 1917 9%
Bharat Petroleum Corpn. Ltd. 8370 29% Suzlon Energy Ltd. 335 7%
Reliance Energy Ltd. 4290 29% Hero Honda Motors Ltd. 186 5%
Tata Power Co. Ltd. 2755 28% Bharat Heavy Electricals Ltd. 555 3%

Short Term Funds:

Short term funds are also known as the current Liabilities. STF consists of accounts
payables or creditors, short term loans, provisions for taxation and proposed dividend.

CLas % of Total Funds as on 31 March 2006 (Rs. in crores)

CL % CL %
Siemens Ltd. 2023 73% Tata Power Co. Ltd. 1321 14%
Hindustan Lever Ltd. 4253 67% National Aluminium Co. Ltd. 940 13%
Glaxosmithkline Pharmaceuticals Ltd. 1616 64% Gujarat Ambuja Cements Ltd. 396 10%
Bharat Heavy Electricals Ltd. 12522 64% Sun Pharmaceutical Inds. Ltd. 290 8%
A B B Ltd. 1424 61% Reliance Communications Ltd. 615 4%

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Various Combination of Balance Items

• Total Assets
• Capital Employed
• Net worth
• Working Capital

Let us go back to the combined balance sheet (CBC).

Balance Sheet of CBC as on 31st March 2006

Sources/Liabilities Uses/ Assets
Of 345,696 FA 246,498
0
LTL 85,146 Investments 91,144

CL 207,691 CA 300,890
Total 638,532 638,532

Total Assets
Total assets is the sum of fixed assets, investments, and current assets
• TA = FA + Investments+ CA = 638532
• Total assets are also equal to the sum of the sources = OF +LTLF+CL

Net worth
• OF = FA + Investments+ CA-CL =345,696
• OF = Total sources – LTL –CL =345,696
• OF = TA – Outsider sources (LTL and CL) = 345,696

Capital Employed
This is one of the important balance sheet terms and is very used in undertaking financial
statement analysis. Capital employed shows the long term funds used in the business.
Capital employed can be calculated as follows:
• CE = OF + LTL – Investment = 339,698
• CE = FA +CA – CL = 339,698
• CE = TA – Investments – CL = 339698
• CE = FA + Working Capital = 339,698

Working Capital
Working capital represents excess of current assets over the current liabilities. Work
capital of the combined balance sheet can be calculated as follows:
• Working Capital = CA –CL = 93,199

Income Statement
Income statement shows profit from operating and non-operating activities of a company.
The nature of expenses depend on the nature of the business. Following table shows some
of the important expense as a percentage of total income

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Expenses as Percentage of Total income for the year ending 2006

salaries Raw Material Advertisement Dep Interest
A B B Ltd. 5% 60% 0% 1% 0%
A C C Ltd. 5% 18% 1% 4% 2%
Bajaj Auto Ltd. 3% 60% 1% 2% 0%
Bharat Heavy Electricals Ltd. 12% 46% 0% 2% 0%
Tata Power Co. Ltd. 4% 66% 0% 6% 3%
Tata Steel Ltd. 8% 21% 0% 4% 1%
Tata Consultancy Services Ltd. 46% 1% 0% 2% 0%
Satyam Computer Services Ltd. 57% 0% 0% 3% 0%
Infosys Technologies Ltd. 46% 0% 0% 4% 0%
Mahindra & Mahindra Ltd. 6% 59% 1% 2% 0%
Source: CMIE data base

Cash Flow Statement

Cash flow statement show net cash generated during a period. Cash can be generated
through financing activities, investment activities, and operating activities. Details of
these activities were discussed in chapter relating to the cash flow statement. Following
exhibit shows the cash flows of some of the companies forming a part of the NIFTY.
Cash Flows during the year March ending 2006 (rs.in crore)
CFF CFI CFO
Bharti Airtel Ltd. 593 -5000 4331
-
Hero Honda Motors Ltd. 413 -323 877

Mahindra & Mahindra Ltd. -63 -503 660

-
National Aluminium Co. Ltd. 294 -233 1965
-
Tata Consultancy Services Ltd. 880 -1409 2340
Infosys Technologies Ltd. 301 -392 2187

Financial Statement Analysis

The purpose of the financial statement analysis is to help users to understand the
organisation and the business decisions. These users are both internal and external. The
internal users include the management, employees, and the external users include the
shareholders, researchers, bankers, customers, suppliers government representatives..

Board of directors analyse the financial statements to understand the impact of the
decisions and use the same for future decision making. Employees use the financial
statements to negotiate the union demands. Potential investors use the financial
statements to decide about the investment to be made. The common goal of these users is
to understand the past and use the data to predict the future.

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Balance Sheet ABB Balance Sheet HLL

LTF 39% LT Assets 15% LTF 33% LT Assets 61%

STF 61% ST Assets 85% STF 67% ST Assets 43%

Analysis is Comparison
While analysing the financial statement we generally undertake the a)Interfirm
comparison or b) Intra-firm comparison

Inter-firm Comparison:
The financial statements of a company are compared with the financial statements of
another company belonging to the same industry. Inter-firm comparison is also known as
vertical comparison. The following table shows the inter firm comparison relating to
some of the financial performance of the automobile companies.

Inter Firm Comparison for the year ending 2006

FA OF LTL Investments
M &M 26% 51% 15% 29%
Maruti 24% 73% 2% 27%
Tata Motors Ltd. 30% 37% 18% 13%

Intra-firm Comparison
In this case a particular company’s performance is compared over a period. This is also
known horizontal comparison.

Intra-Firm Comparison of Mahindra and Mahindra

Rs. Crore Mar 2004 Mar 2005 Mar 2006
PAT 303.8 474.1 551.2
GFA 2539.2 2781.3 3033.3
Net worth 1750.5 1947.8 2877.5
Borrowings 729.8 1052.6 883.4
PBDIT/sales % 10.8 11.6 11.2
PAT/sales % 5.2 6.2 5.9
RONW 18.6 25.6 22.8
ROCE 19 27.4 26

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What to Compare?
Financial statement help in understanding the performance of the organisation. The
performance of an organisation can be explained on the basis of the four important
aspects of the business:

a) Liquidity: Liquidity shows the ability of the business to service the short term
obligation.
b) Solvency: Solvency shows the ability fo the business to meet the long term
obligation.
c) Efficiency: Efficiency shows the ability of the business to use the resources of the
business.
d) Profitability: Profitability shows the ability to the business to generate and
distribute profit.

Tools for Financial Statement Analysis

Following the important tool which are used for undertaking FSA:
a) Comparative Statements
b) Common Size Statements
c) Ratio Analysis
d) Trend Analysis

Comparative Statements
Comparative statements facilitate comparison by showing financial amounts in absolute
terms and percentage change in the columnar form. Both changes are relevant.
Absolute change = Amount in Current Period – Amount in Base Period
Percentage Change = Amount in Current Period – Amount in Base Period /Amount in
Base Period

Comparative Balance Sheet and Income Statements of Hindalco are as follows:

Comparative Balance Sheet of Mahindra and Mahindra

Change
2006 2005 Rs. %
OF 2877 1974 904 46%
LTL 883 1053 -169 -16%
CL 2254 1981 274 14%
6015 5007 1008 20%
Fa 1541 1461 81 6%
Investment 1669 1190 479 40%
CA 2805 2356 449 19%
6015 5007 1008 20%

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Visit the website of Mahindra and Mahindra and check the changes in the
current year. Investigate the reasons for the change in the current liabilities by
180%.

To have a better understanding compare the above balance sheet with that of
Tata Motors or Maruti
Comparative Income Statement
Comparative income statement shows incomes and expenses for two or more periods,
with additional column for absolute change and percentage change. Let us see the
comparative income statement of Mahindra and Mahindra:

Comparative Income Statement

2006 2005 Change
in Rs %
Net Operating Income 8137 6595 1542 23%
Cost of Sales 7265 5876 1389 24%
PBDIT 872 719 153 21%
Other Recuring Income 196 186 9 5%
Adjusted PBDIT 1067 905 162 18%
Depreciation 200 184 16 9%
Adjusted PBIT 867 721 146 20%
Finanical Expenses 27 30 -3 -11%
PBT 840 691 149 22%
Tax Charges 242 202 41 20%
Adjusted PAT 598 489 108 22%

The income statement can not address whether the increase in the sales is due to price
effect or quantity effect. For such an investigation one has to undertake a detailed
company level analysis.

Refer to the comparative balance sheet and the income statement comment on
the change in profit.

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Comparative statements can also be used for undertaking Trend Analysis. Trend analysis
reveal pattern in data over a period of time. It involves determining the trend percent for a
series of financial numbers. Let us take the sales value, cost of sales, and PBDIT of
Mahindra and Mahindra and understand the trend analysis.
Mahindra & Mahindra Ltd.
Mar-03 Mar-04 Mar-05 Mar-05
Total Incomes 4585.97 6030.37 8001.1 9569.74
Expense 4440.44 5689.85 7488.43 8712.64
PAT 145.53 340.52 512.67 857.1

Following steps are required to determine the trend percentage :

1. Select a base year: Let 2003 be the base year

2. Express the financial items of the succeeding years as a percentage of the base
year number

Trend Percent = Current year value

* 100
Base year value

Mahindra & Mahindra Ltd.

Mar-03 Mar-04 Mar-05 Mar-06
Total Incomes 100 31% 74% 109%
Expense 100 28% 69% 96%
PAT 100 134% 252% 489%

The trend analysis shows that the sales in the latest year is 1094% of the base year,
whereas, the profit is much higher. The above data can also be presented graphically.

Trend

600%
400%
200%
0%
1 2 3

Total Incomes Expense PAT

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The trend analysis shows an overall decent growth in the profit too. However, to make
the comparison more meaningful , an inter-company comparison can be undertaken. Let
us take one of the items viz. PAT of Mahindra and compare it with that of Maruti.
Following table and graphs show the comparison the recent five years. PAT of Maruti
sharply increased.

PAT Comparison
Mar-02 Mar-03 Mar-04 Mar-05 Mar-06
Mahindra & Mahindra Ltd. 96.91 145.53 340.52 512.67 857.1
Maruti Udyog Ltd. 104.5 146.4 542.1 853.6 1189.1

Profit Comparison

1500
1000
500
0
2002 2003 2004 2005 2006
Mahindra & Mahindra Ltd.
Maruti Udyog Ltd.

Visit the website of Mahindra and Maruti and investigate reasons for
such differences in the behaviour of PAT.

Common Size Statements

Common size statements show the position of an item vis-à-vis other items. It shows the
composition of balance sheet and the income statement. All individual items are shown
in percentage. Comparative statements help in comparing two companies independent of
the scale of operation.

Common Size Balance Sheet (CSBS)

Common size balance sheet expresses each item as a percentage of the total funds or total
assets. Common size balance sheet shows the composition of the total funds or total
assets. It helps in comparing two companies of different scales.

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Balance Sheet (2005 year end) Rs. In crores Common Size Balance Sheet (2005 year end)
Marico HLL Marico HLL
Net worth 219 2093 Net worth 55% 28%
Long Term Liabilities 52 1471 Long Term Liabilities 13% 20%
Current Liabilities 124 3953 Current Liabilities 31% 53%
395 7516 100% 100%
Fixed Assets 99 1521 Fixed Assets 25% 20%
Investment 29 2328 Investment 7% 31%
Current Assets 266 3667 Current Assets 67% 49%
395 7516 100% 100%

Is the net worth of Marico low in comparison to HLL? To answer this question one has
to see the common size balance sheet rather than the balance sheet. CSBS shows that
Merico’s position with respect to net-worth is much better than that of HLL. So absolute
levels of net worth or any other financial item may not be useful.

Common Size Income statement (CSIS)

In case of common size income statement, all items are converted into percentage of the
total revenue. CSIS helps in comparing two companies of different scales.

Income Statement (Rs. In crores)

Common Size Income Statement
2005 2005
2005 2005
HLL Marico
HLL Marico
Net Sales 11009.73 953.79
Net Sales 96% 99%
Other Income 462.32 13.23
Other Income 4% 1%
11472.05 967.02
100% 100%

Raw Materials 5413.77 603.69

Raw Materials 47% 62%
Selling & Manufacturing Exp. 4419.3 272.95
Selling & Manufacturing Exp. 39% 28%
Depreciation 120.9 10.54
Depreciation 1% 1%
9953.97 887.18
87% 92%

Profit Before Tax 1518.08 79.84

Profit Before Tax 13% 8%
Provision for Taxation 320.74 6.05
Provision for Taxation 3% 1%
Profit After Tax 1197.34 73.79
Profit After Tax 10% 8%

Is HLL spending abnormally higher amount on selling and manufacturing expenses?

Answer to this question can be found by looking at the CSIS. In absolute terms the
selling and manufacturing expenses of HLL was more than 20 times. However, as
percentage of total income it is comparable with that of Marico.

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CSIS can also be used to compare the performance of a company over two time periods.

Income Statement of ITC Ltd (Rs. In crores)

Common Size Income Statement of ITC Ltd
2005 2004
2005 2004
Net Sales 7639.45 6470
Net Sales 97% 97%
Other Income 235.81 225.32
Other Income 3% 3%
7875.26 6695.32

Raw Materials 35% 36%

Raw Materials 2769.55 2383.33
Selling & Manufacturing Exp. 27% 26%
Selling & Manufacturing Exp. 2119.77 1751.31
Depreciation 4% 4%
Depreciation 312.87 241.62
66% 65%
5202.19 4376.26 Profit Before Tax 34% 35%
Profit Before Tax 2673.07 2319.06

Is the profit generating capacity of ITC improving? The increase in profits in absolute
terms may convey such misleading message. CSIS shows that the Profit before tax,
which shows the profit generating ability of the business has actually reduced during the
period.

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Key Terms
• Financial statement analysis
• Owners fund
• Reserves and surplus
• Long term funds
• Capital employed
• Short term funds
• Working capital
• Inter-firm comparison
• Intra-firm comparison
• Liquidity
• Solvency
• Profitability
• Efficiency
• Ratio Analysis
• Trend Analysis
• Common size statements
• Comparative statements

Theoretical Questions
1. What is financial statement analysis?
2. What are the tools of financial statement analysis?
3. Financial statement analysis is the solution to the problem of inefficiency of a
company. Comment.
4. Financial statement analysis will help in improving the efficiency of a company.
Do you agree with the statement/
5. What is a common size balance sheet?
6. What is a comparative income statement?
7. What is the purpose of common size analysis?
8. What is trend analysis?
9. What is liquidity?
10. How liquidity differs from solvency?

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Numerical Questions
1. Following table shows the financial items of ABC ltd.

Financial Items of ABC ltd

Miscellaneous Expenses not written off 216
Investments 292
Capital Work-in-progress 758
Secured Loans 1,122
Unsecured Loans 3,175
Equity Share Capital 4,130
Reserves & Surplus 8,471
Net Block 12,162
Current Liabilities & Provisions 15,318
Current Assets, Loans & Advances 18,789

Required
• Balance Sheet
• Common Size balance sheet

2. Following table shows the financial items of ABC ltd.

Balance Sheet Items of ABC
Year Year
2 1
Current Assets, Loans & Advances 18,789 15,521
Current Liabilities & Provisions 15,318 13,198
Net Block 12,162 12,485
Reserves & Surplus 8,471 6,176
Unsecured Loans 3,175 4,166
Equity Share Capital 4,130 4,130
Secured Loans 1,122 1,604
Investments 292 607
Capital Work-in-progress 758 366
Miscellaneous Expenses not written off 216 295

Required
• Balance Sheet
• Comparative balance sheet

3. Find the missing items

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Balance Sheet of ABC ltd

2 1
Equity 6028 ? 5802 ?
Debt 662 10% ? 10%
6689 6416 100%
Fixed Assets 3195 48% ? 54%
Net Working Capital 910 ? 547 9%
Investments ? ? 2425 ?
6689 100% 6416 100%

4. Fixed assets = 60% of total funds. Current liabilities = 25% of the total funds.
Current assets = 30,000. Prepare the balance sheet.
5. Capital employed = 75% of total funds. Working capital = 25000; Current Assets
= 70,000. Prepare the balance sheet

6. Following table shows financial items of ABC ltd.

Financial Items
Cash & Bank 56
Loans (Long term) 165.14
Capital WIP 186.15
Equity Share Capital (10) 249.43
Debtors 527.76
Other Current Assets, Loans and
Advances 952.88
Provisions 1108.18
Stock 2002.99
Current Liabilities 2381.95
Investments 3874.68
Net Fixed Assets 3950.76
Reserve & Surplus 7646.18
Required:
• Balance Sheet
• Common-size balance sheet

7. Following is the common size balance sheet of XYZ ltd.

Common size Balance Sheet of XYZ ltd

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Equity Share Capital (10) 2% Net Fixed Assets 34%

Reserve & Surplus 66% Capital WIP 2%
Loans (Long term) 1% Investments 34%
Current Liabilities 21% Stock 17%
Provisions 10% Debtors 5%
Other Current Assets 8%
100% 100%

Capital employed = 7896. Find the following:

• Reserves & Surplus
• Working capital
• Total Assets
• Current assets
8. Convert the following items into a common size balance sheet.
Financial Items of X ltd
Equity Share Capital (10) 5000
Reserve & Surplus 7000
Loans (Long term) 8000
Current Liabilities 7600
Net Fixed Assets 19000
Investments 3600
Current Assets 5000

Accounting in Real Life

1. Following is balance sheet of HLL

Balance sheet of HLL (Rs. In crores)

2004 2003 2004 2003

Equity Share Capital 220 220 Fixed Assets 1427 1296

Reserves and surplus 1873 1919 Capital W.I.P 94 74
Long term Loans 1471 1608 Investments 2328 2575
Current Liabilities 2731 2656 Inventories 1470 1393
Provisions 1222 1311 Debtors 489 471
Cash and Bank Balances 699 806
Other Current Assets 1008 1099
7516 7714 7516 7714
Required
• Common size balance sheet
• Comparative balance sheet
• Comment on the liquidity and solvency position

2. Following is the balance sheet of Marico.

Balance sheet of Marico (Rs. In crores)
Mar-05 Mar-04 Mar-05 Mar-04

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 Draft for Review

Equity Share Capital 58 29 Fixed Assets 88 82

Reserves and surplus 161 151 Capital W.I.P 12 8
Long term Loans 52 9 Investments 29 14
Current Liabilities 109 94 Inventories 112 95
Provisions 15 12 Debtors 35 33

Cash and Bank Balances 18 24

Other Current Assets 101 40

395 296 395 296
Required
• Common size and comparative balance sheet
• Compare liquidity and solvency of HLL and Marico
3. Profit after tax of ITC ltd. for the year ending March 2005 was 21900 mn. Other
relevant information are given in the following table:
Financial items as % of Total Income
Net Sales 97%
Raw Materials 35%
Selling & Manufacturing Expenses 27%
total expense 66%
Profit Before Tax 34%
Profit After Tax 28%
Required
• Income Statement of ITC for the year ending 31st March 2005

4. Following table shows relevant financial items of SAIL as on 31st March 2005
Equity Share Capital 13%
Reserves & Surplus 26%
Secured Loans 3%
Unsecured Loans 10%
Current Liabilities 48%

Working capital 3,471

Current Assets 18,789
Required
• Capital employed
• Capital
• Other Assets
• Balance Sheet
5. Following table shows relevant financial items of SAIL.

SAIL (financial items as % of Total Assets)

2006/03 2005/03
Net worth 39% 35%
Capital 13% 14%
Long Term funds 52% 54%
Fixed Assets 40% 44%

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 Draft for Review

Current Assets 59% 54%

Equity capital of SAIL was 4130 crores. No change in the capital during this
period.

Required:
• Capital Employed
• Working Capital
• Balance Sheet

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