Professional Documents
Culture Documents
Submitted to:
Submitted By:
Miss Sukhwinder Kaur
Mr. Vikas Joshi
SEC:- T1001
I-flex Solutions Ltd. offers a wide range of services including custom solutions,
services related to consulting and application software. This helps the financial
organizations to reduce costs. Some of the esteemed customers of this company
include Banco de Chile, Citibank, IMF (International Monetary Fund), UBS and
Shinsei Bank. It also helps the companies to comply with the market needs at the
opportune moment and increase customer service facilities by diminishing risks.
Brief History about Oracle
Financial Services Ltd
I-flex Solutions Ltd was established in the 1989. It has branches in the USA,
Netherlands, Greece, Singapore and India. The company has been ranked among
the best 100 companies throughout Asia. Besides, the company has successfully
collaborated with corporate giants like IBM, HP, Intel, Microsoft and Sun
Microsystems.
About The Company
Date of Establishment:
1989
Management team
Revenue:
Sergio Giacoletto
Rs. 2,061 Crores Roggio-Additional
Market Cap: Director
Core Systems
• Oracle FLEXCUBE Lending and Leasing
• Oracle FLEXCUBE Enterprise Limits and Collateral Management
• Oracle Daybreak
• Oracle FLEXCUBE Core Banking
• Oracle FLEXCUBE Islamic Banking
• Oracle FLEXCUBE Private Banking
• Oracle FLEXCUBE Direct Banking
• Oracle Lease Management
Oracle Technology
• Identity Management
• Oracle Portal
• Oracle SOA Suite
• Oracle Fusion Middleware
• Application Server
• Business Integration
• Developer Tools
Database
Procurement
• Oracle Purchasing
• Oracle Services Procurement
• Oracle iSupplier Portal
• Oracle Sourcing
• Oracle Procurement Contracts
• Oracle iProcurement
HR Management
• Oracle Learning Management
• Oracle Time and Labor
• Oracle Payroll
• Oracle iRecruitment
• Oracle Human Resources
• Oracle Self-Service HR
• Oracle Advanced Benefits
• PeopleSoft Human Capital Management
Accounting
• Oracle Advanced Collections
• Oracle Financial Services Accounting Hub
• Oracle E-Business Suite Financials
• Oracle Internet Expenses
• Oracle iReceivables
• PeopleSoft Enterprise Financial Management
Apart from these, the company also provides services that cater to the Capital
Markets.
Address
Andheri (East), Mumbai,
Maharashtra - 400096
India.
Phone: +91-22-28291020
+91-22-28291020
Financial statements, the end product of the accounting process, are prepared following the
accounting concepts, accounting principles consistently followed and the legal environment in
which the enterprise operates. Financial statements are used by a number of users to arrive at the
conclusion and decisions.
Financial statements are the summarized statements of accounting data produced at the end of
the accounting process by an enterprise through which it communicates the accounting
information to the internal (management) and external users. The external users can be investors,
lenders, suppliers and trade creditors, customers, government and their agencies and employees.
Customarily, a set of financial statements include:
2. Profit and Loss Account: It shows the net result of business operations during an
accounting period. It is also known as ‘income statements’.
3. Schedules and Notes to Accounts: The Balance sheet and profit and loss account are
supported by the schedules having details of items in the balance sheet and profit and loss
account, while the notes to accounts are the statement of accounting policies and
explanation to materials items.
Financial Statements: According to the John N. Myer, “The Financial Statements provide a
summary of accounts of a business enterprise, the balance sheet reflecting the assets, liabilities
and capital as on a certain date and income statement showing the results and operations during a
certain period.”
Financial statements indicate certain absolute information about assets, liabilities, equity,
revenues, expenses and profit or loss of an enterprise. They are not readily understandable to the
external users of financial statements. A financial analyst can adopt the following tools and
techniques for analysis of the financial statements:
1.Comparative Statements.
3.Trend Analysis.
4.Ratio Analysis.
12 mths 12 12
mths mth
s
Operating Profit 455.4 654.0 853. 198.63 43.6166 199.26 30.4664
3 29 0079 9236
PBDIT 492.06 775.4 785. 283.37 57.5885 9.59 1.23673
3 02 0547 3167
Interest 0.21 0.29 0.23 0.08 38.0952 -0.06 -
381 20.6896
5517
PBDT 491.85 775.1 784. 283.29 57.5968 9.65 1.24493
4 79 283 6399
Depreciation 60.31 42.84 37.4 -17.47 - -5.43 -
1 28.9670 12.6750
0381 7003
Other Written Off 0 0 0 0 0 0 0
Profit Before Tax 431.54 732.3 747. 300.76 69.6945 15.08 2.05926
38 8219 5328
Extra-ordinary items 0 0 0 0 0 0 0
PBT (Post Extra-ord 431.54 732.3 747. 300.76 69.6945 15.08 2.05926
Items) 38 8219 5328
Tax 20.67 36.58 86.5 15.91 76.9714 49.94 136.522
2 5622 69
Reported Net Profit 410.87 695.7 660. 284.84 69.3260 -34.86 -
1 85 6421 5.01070
8485
Total Value Addition 1,337.57 1,558 1,39 221.02 16.5239 -168.4 -
.59 0.19 9501 10.8046
3752
Preference Dividend 0 0 0 0 0 0 0
Equity Dividend 0 0 0 0 0 0 0
Corporate Dividend 0 0 0 0 0 0 0
Tax
Per share data
(annualised)
Shares in issue 837.47 837.6 838. 0.22 0.02626 0.86 0.10266
(lakhs) 9 55 9598 3276
Earning Per Share 49.06 83.05 78.8 33.99 69.2825 -4.24 -
(Rs) 1 1121 5.10535
8218
Equity Dividend (%) 0 0 0 0 0 0 0
335.85 418.9 498. 83.09 24.7402 79.21 18.9072
Book Value (Rs) 4 15 114 4209
ANALYSIS:-
1)Net sales growth in the year 2008-2009 was 23.4052%,while in the year 2009-
2010 it declined to just 1.39427. This shows that the sales of the company has
declined. This is not a good situation for the company.
2) The total income in the year 2008-2009 increased by 27.56786891, while in the
year 09-10, it decreased by 20.763299969 and remained only 6.804568941.
4)D epriciation decreased to -28.9670 in the year 08-09, while it decreased to only
-12.6750 in the year 09-10,with decrease in the net sales.
12 12 12
mths mths mths
Income
Sales Turnover 1,792. 100.00 2,212. 100.00 2,243. 100
97 62 47
Excise Duty 0 0 0 0 0 0
Net Sales 1,792. 100.00 2,212. 100.00 2,243. 100
97 62 47
Other Income 36.66 2.044652 121.4 5.486708 -68.27 -
169 066 3.043053841
Stock Adjustments 0 0 0 0 0 0
12 12 12
mths mths mths
Operating Profit 455.4 25.39919 654.03 29.55907 853.29 38.03438424
798 476
PBDIT 492.06 27.44385 775.43 35.04578 785.02 34.99133039
015 283
Interest 0.21 0.011712 0.29 0.013106 0.23 0.010251976
41 634
PBDT 491.85 27.43213 775.14 35.03267 784.79 34.98107842
774 619
Depreciation 60.31 3.363692 42.84 1.936166 37.41 1.66750614
644 174
Other Written Off 0 0 0 0 0 0
ANALYSIS:-
1) Total income was 102.04% in the year 2008, it increased to
105.49% in the year 2009, but decreased to 96.95694616% in the
year 2010.
2) Total expenditure was 74.60 in the year 2008, but it decreased to
70.44 in the year 2009, and again decreased to 61.96561576 in the
year 2010, which is a good sign for the company.
3) The net profit of the company was 22.9156093% in the year 2008,
which rises to 31.4428144% in the year 2009, but declined a little
to 29.4566071 in the year 2010, which means that the company is
quite struggling in the last year.
4) Earning per share was 2.736242 in the year 2008, which increased
to 3.753468738;which was a good signal, but it slightly decreased
to 3.512861722 in the year 2010;which is not good for the
company.
BALANCE
SHHET( COMPARITIVE
STATEMENT)
Mar' Mar' Mar' INC/DEC(0 %CHNGE(0 INC/DEC(09 %CHNGE(09
08 09 10 8-09) 8-09) -10) -10)
12 12 12
mths mths mths
Sources Of Funds
Total Share Capital 41.8 41.8 41.9 0.01 0.023883449 0.05 0.11938873
7 8 3
Equity Share 41.8 41.8 41.9 0.01 0.023883449 0.05 0.11938873
Capital 7 8 3
Share Application 0.03 0.01 0.81 -0.02 - 0.8 8000
Money 66.66666667
Preference Share 0 0 0 0 0 0 0
Capital
Reserves 2,77 3,46 4,13 696.78 25.14770369 667.8 19.25866539
0.75 7.53 5.33
Revaluation 0 0 0 0 0 0 0
Reserves
Networth 2,81 3,50 4,17 696.77 24.77272323 668.65 19.05300591
2.65 9.42 8.07
Secured Loans 0 0 0 0 0 0 0
Unsecured Loans 0 0 0 0 0 0 0
Total Debt 0 0 0 0 0 0 0
Total Liabilities 2,81 3,50 4,17 696.77 24.77272323 668.65 19.05300591
2.65 9.42 8.07
Mar' Mar' Mar'
08 09 10
12 12 12
mths mths mths
Application Of
Funds
Gross Block 403. 500. 487. 97.76 24.2568607 -12.8 -2.55601262
02 78 98
Less: Accum. 222. 264. 281. 41.56 18.66942186 17.24 6.526100617
Depreciation 61 17 41
Net Block 180. 236. 206. 56.2 31.15126656 -30.04 -
41 61 57 12.69599763
Capital Work in 131. 101. 130. -29.69 - 29.08 28.69831244
Progress 02 33 41 22.66066249
Investments 723. 720. 724. -3.27 - 4.59 0.637376066
41 14 73 0.452025822
Inventories 0 0 0 0 0 0 0
Sundry Debtors 903. 1,17 877. 267.73 29.63877296 -293.8 -
31 1.04 24 25.08880995
Cash and Bank 87.9 135. 356. 47.65 54.17235107 220.42 162.5396357
Balance 6 61 03
Total Current 991. 1,30 1,23 315.38 31.81575151 -73.38 -
Assets 27 6.65 3.27 5.615887958
Loans and 705. 904. 1,09 198.4 28.11353105 186.53 20.63133911
Advances 71 11 0.64
Fixed Deposits 552. 948. 1,40 396.49 71.81098654 454.59 47.92119078
13 62 3.21
Total CA, Loans & 2,24 3,15 3,72 910.27 40.47245355 567.74 17.96998145
Advances 9.11 9.38 7.12
Deffered Credit 0 0 0 0 0 0 0
Current Liabilities 427. 642. 532. 214.16 50.04089072 -109.84 -
97 13 29 17.10557052
Provisions 43.3 65.9 78.4 22.57 52.0886222 12.57 19.07435508
3 7
Total CL & 471. 708. 610. 236.73 50.22915341 -97.27 -
Provisions 3 03 76 13.73811844
Net Current Assets 1,77 2,45 3,11 673.54 37.88593832 665.01 27.12831705
7.81 1.35 6.36
Miscellaneous 0 0 0 0 0 0 0
Expenses
Total Assets 2,81 3,50 4,17 696.78 24.77307877 668.64 19.05266667
2.65 9.43 8.07
165. 170. 195. 5.1 3.082315968 25.19 14.76899625
46 56 75
Contingent
Liabilities
ANALYSIS:-
1) Total debt of the company was 0 in both the years; this is a good sign for the
company.
2)The total liability was 696.77 crore in 08-09, but it decreased to 668.65 crore in
the year 09-10, which is a good sig for the company.
3)Investment of the company has increased from -0.4520258% from the year 08-
09 to 0.637376066% in the year 09-10. This is a good sign.
12 12 12
mths mths mths
Sources Of Funds
Total Share Capital 41.87 1.4886317 41.88 1.1933595 41.93 1.00357342
17 86
Equity Share Capital 41.87 1.4886317 41.88 1.1933595 41.93 1.00357342
17 86
Share Application Money 0.03 0.0010666 0.01 0.0002849 0.81 0.019386942
1 47
Preference Share Capital 0 0 0 0 0 0
Reserves 2,770.7 98.51 3,467.5 98.81 4,135.3 98.97703964
5 3 3
Revaluation Reserves 0 0 0 0 0 0
Networth 2,812.6 100.00 3,509.4 100.00 4,178.0 100
5 2 7
Secured Loans 0 0 0 0 0 0
Unsecured Loans 0 0 0 0 0 0
Total Debt 0 0 0 0 0 0
Total Liabilities 2,812.6 100.00 3,509.4 100.00 4,178.0 100
5 2 7
Mar'08 Mar'09 Mar'10
12 12 12
mths mths mths
Application Of Funds
2) Gross block was 14.328835% in the year 08, and decreases to 14.26959441% in
09, and again decreases to 11.67955539% in the year 10.
ANALYSIS:-
1) There is an increase in the assets of the company from 124.7730788% to
148.5456776% from year 08-09 to 09-10. This shows the strong financial position
of the company.
2) There is a huge decline in the net block of the company. It decline from
131.1512666% in the year 08-09 to 114.5003049% in 09-10.
Accounting Ratios
Ratio analysis is an important and age-old technique of financial analysis. The following are
some of the advantages / Benefits of ratio analysis:
The ratios analysis is one of the most powerful tools of financial management. Though ratios are
simple to calculate and easy to understand, they suffer from serious limitations.
1. Limitations of financial statements: Ratios are based only on the information which
has been recorded in the financial statements. Financial statements themselves are subject
to several limitations. Thus ratios derived, there from, are also subject to those
limitations.
2. Comparative study required: Ratios are useful in judging the efficiency of the business
only when they are compared with past results of the business. However, such a
comparison only provide glimpse of the past performance and forecasts for future may
not prove correct since several other factors like market conditions, management policies,
etc. may affect the future operations.
3. Ratios alone are not adequate: Ratios are only indicators; they cannot be taken as final
regarding good or bad financial position of the business.
4. Problems of price level changes: A change in price level can affect the validity of ratios
calculated for different time periods. In such a case the ratio analysis may not clearly
indicate the trend in solvency and profitability of the company. The financial statements,
therefore, be adjusted keeping in view the price level changes if a meaningful
comparison is to be made through accounting ratios.
5. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There
are no well accepted standards or rule of thumb for all ratios which can be accepted as
norm. It renders interpretation of the ratios difficult.
6. Limited use of single ratios: A single ratio, usually, does not convey much of a sense.
To make a better interpretation, a number of ratios have to be calculated which is likely
to confuse the analyst than help him in making any good decision.
7. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios
have to interpret and different people may interpret the same ratio in different way.
8. Incomparable: Not only industries differ in their nature, but also the firms of the similar
business widely differ in their size and accounting procedures etc. It makes comparison
of ratios difficult and misleading.
A company's ability to turn short-term assets into cash to cover debts is of the utmost
importance when creditors are seeking payment. Bankruptcy analysts and mortgage
originators frequently use the liquidity ratios to determine whether a company will be
able to continue as a going concern. They comprise of current ratio, liquidity ratio,
absolute liquidity ratio.
Calculation:
Year Mar '08 Mar '09 Mar '10
current assets 2249.11 3159.38 3727.12
current liabilities 471.3 708.03 610.76
current ratio 4.772 4.4622 6.1024
Formula:
Calculation:
Quick ratio
Mar- Mar- Mar-
Year 08 09 10
2249.1 3159.3 3727.1
current assets 1 8 2
Inventories 0 0 0
2249. 3159. 3727.
Quick assests 11 38 12
current liabilities 471.3 708.03 610.76
4.772 4.462 6.102
quick ratio 1 2 4
b) Absolute Liquid Ratio: Absolute liquidity is represented by cash and near cash items. It
is a ratio of absolute liquid assets to current liabilities. In the computation of this ratio only
the absolute liquid assets are compared with the liquid liabilities. The absolute liquid assets
are cash, bank and marketable securities. It is to be observed that receivables
(debtors/accounts receivables and bills receivables) are eliminated from the list of liquid
assets in order to obtain absolute4 liquid assets since there may be some doubt in their
liquidity.
Calculations:
Total Debt 0 0 0
Equity Share Capital 41.87 41.88 41.93
2770. 3467. 4135.
Reserves 75 53 33
2812. 3509. 4178.
Shareholder funds 65 42 07
Debt equity ratio
This ratio gains much significance only when it is used in conjunction with the current
and liquid ratios. A standard of 0.5 : 1 absolute liquidity ratio is considered an acceptable
norm. That is, from the point of view of absolute liquidity, fifty cents worth of absolute
liquid assets are considered sufficient for one dollar worth of liquid liabilities. However,
this ratio is not in much use.
Proprietary Ratio or Equity Ratio: This is a variant of the debt-to-equity ratio. It is also
known as equity ratio or net worth to total assets ratio. This ratio relates the shareholder's
funds to total assets. Proprietary / Equity ratio indicates the long-term or future solvency
position of the business.
Computation: The ratio is ascertained as follow:
Calculations:
Interest Coverage Ratio: Interest coverage ratio is also known as debt service ratio or debt
service coverage ratio. This ratio relates the fixed interest charges to the income earned by
the business. It indicates whether the business has earned sufficient profits to pay
periodically the interest charges. It is calculated by using the following formula.
Inventory Turnover Ratio or Stock Turnover Ratio (ITR): Every firm has to maintain a
certain level of inventory of finished goods so as to be able to meet the requirements of the
business. But the level of inventory should neither be too high nor too low. A too high
inventory means higher carrying costs and higher risk of stocks becoming obsolete whereas
too low inventory may mean the loss of business opportunities. It is very essential to keep
sufficient stock in business.
The ratio is calculated by dividing the cost of goods sold by the amount of average stock
at cost.
Generally, the cost of goods sold may not be known from the published financial
statements. In such circumstances, the inventory turnover ratio may be calculated by
dividing net sales by average inventory at cost. If average inventory at cost is not known
then inventory at selling price may be taken as the denominator and where the opening
inventory is also not known the closing inventory figure may be taken as the average
inventory.
Calculation:
Cost of goods sold/net 1792. 2212. 2243.
sales 97 62 47
Inventory 0 0 0
inventory turnover ratio 0 0 0
Debtors Turnover Ratio: A concern may sell goods on cash as well as on credit. Credit is one
of the important elements of sales promotion. The volume of sales can be increased by
following a liberal credit policy. The effect of a liberal credit policy may result in tying up
substantial funds of a firm in the form of trade debtors (or receivables). Trade debtors are
expected to be converted into cash within a short period of time and are included in current
assets. Hence, the liquidity position of concern to pay its short term obligations in time
depends upon the quality of its trade debtors. Debtors turnover ratio or accounts receivable
turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates
the number of times average debtors (receivable) are turned over during a year.
Or
DEBTORS TURNOVER
RATIO
1792. 2212. 2243.
TOTAL SALES 97 62 47
903.3 1171. 877.2
TOTAL DEBTORS 1 04 4
DEBTORS TURNOVER 1.984 1.889 2.557
RATIO 8 4 4
Creditors Turnover Ratio: This ratio is similar to the debtors turnover ratio. It compares
creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in
paying creditors. Accounts payable include both sundry creditors and bills payable. Same
as debtors turnover ratio, creditors turnover ratio can be calculated in two forms, creditors
turnover ratio and average payment period.
Formula:
Average payment period ratio gives the average credit period enjoyed from the
creditors. It can be calculated using the following formula:
Average Daily Credit Purchase= Credit Purchase / No. of working days in a year
Or
Average Payment Period = (Trade Creditors × No. of Working Days) / Net Credit
Purchase
The average payment period ratio represents the number of days by the firm to pay its
creditors. A high creditors turnover ratio or a lower credit period ratio signifies that the
creditors are being paid promptly. This situation enhances the credit worthiness of the
company. However a very favorable ratio to this effect also shows that the business is not
taking the full advantage of credit facilities allowed by the creditors.
Average Collection Period Ratio: The Debtors / Receivable Turnover ratio when
calculated in terms of days is known as Average Collection Period or Debtors Collection
Period Ratio. The average collection period ratio represents the average number of days
for which a firm has to wait before its debtors are converted into cash.
Working Capital Turnover Ratio: Working capital turnover ratio indicates the velocity of the
utilization of net working capital. This ratio represents the number of times the working
capital is turned over in the course of year and is calculated as follows:
The two components of the ratio are cost of sales and the net working capital. If the
information about cost of sales is not available the figure of sales may be taken as the
numerator. Net working capital is found by deduction from the total of the current assets
the total of the current liabilities.
a) Gross Profit Ratio (GP Ratio): Gross profit ratio (GP ratio) is the ratio of gross profit to
net sales expressed as a percentage. It expresses the relationship between gross profit and
sales. Gross profit ratio may be indicated to what extent the selling prices of goods per
unit may be reduced without incurring losses on operations. It reflects efficiency with
which a firm produces its products. As the gross profit is found by deducting cost of
goods sold from net sales, higher the gross profit better it is. There is no standard GP
ratio for evaluation. It may vary from business to business. However, the gross profit
earned should be sufficient to recover all operating expenses and to build up reserves
after paying all fixed interest charges and dividends.
It should be observed that an increase in the GP ratio may be due to the following factors.
1. Increase in the selling price of goods sold without any corresponding increase in
the cost of goods sold.
2. Decrease in cost of goods sold without corresponding decrease in selling price.
3. Omission of purchase invoices from accounts.
4. Under valuation of opening stock or overvaluation of closing stock.
On the other hand, the decrease in the gross profit ratio may be due to the following
factors.
1. Decrease in the selling price of goods, without corresponding decrease in the cost
of goods sold.
2. Increase in the cost of goods sold without any increase in selling price.
3. Unfavorable purchasing or markup policies.
4. Inability of management to improve sales volume, or omission of sales.
5. Over valuation of opening stock or under valuation of closing stock
Hence, an analysis of gross profit margin should be carried out in the light of the
information relating to purchasing, mark-ups and markdowns, credit and collections as
well as merchandising policies.
Formula:
Calculations:
Gross profit
Net sales
Gross profit ratio
b) Net Profit Ratio (NP Ratio): Net profit ratio is the ratio of net profit (after taxes) to net
sales. It is expressed as percentage. NP ratio is used to measure the overall profitability
and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not
sufficient, the firm shall not be able to achieve a satisfactory return on its investment.
This ratio also indicates the firm's capacity to face adverse economic conditions such as
price competition, low demand, etc. Obviously, higher the ratio the better is the
profitability. But while interpreting the ratio it should be kept in mind that the
performance of profits also be seen in relation to investments or capital of the firm and
not only in relation to sales.
Formula:
Calculation:
Calculations:
Return on Equity Capital (ROEC) Ratio: In real sense, ordinary shareholders are the
real owners of the company. They assume the highest risk in the company. (Preference
share holders have a preference over ordinary shareholders in the payment of dividend as
well as capital. Preference share holders get a fixed rate of dividend irrespective of the
quantum of profits of the company). The rate of dividends varies with the availability of
profits in case of ordinary shares only. Thus ordinary shareholders are more interested in
the profitability of a company and the performance of a company should be judged on the
basis of return on equity capital of the company. Return on equity capital which is the
relationship between profits of a company and its equity can be calculated as follows:
Significance:
This ratio is more meaningful to the equity shareholders who are interested to know
profits earned by the company and those profits which can be made available to pay
dividends to them. Interpretation of the ratio is similar to the interpretation of return on
shareholder's investments and higher the ratio better is.
Method--1. If it is calculated from the assets side, It can be worked out by adding the
following:
1. The fixed assets should be included at their net values, either at original
cost or at replacement cost after deducting depreciation. In days of inflation, it is
better to include fixed assets at replacement cost which is the current market
value of the assets.
2. Investments inside the business
3. All current assets such as cash in hand, cash at bank, sundry debtors, bills
receivable, stock, etc.
4. To find out net capital employed, current liabilities are deducted from the
total of the assets as calculated above.
Gross capital employed = Fixed assets + Investments + Current assets
Method--2. Alternatively, capital employed can be calculated from the liabilities side of
a balance sheet. If it is calculated from the liabilities side, it will include the following
items:
Share capital:
Issued share capital (Equity + Preference)
Reserves and Surplus:
General reserve
Capital reserve
Profit and Loss account
Debentures
Other long term loans
Adjusted Net Profit = Net profit before interest and tax - Income from investments.
2. Earnings Per Share (EPS) Ratio: Earnings per share ratio (EARNINGS PER
SHARE Ratio) is a small variation of return on equity capital ratio and is calculated by
dividing the net profit after taxes and preference dividend by the total number of equity
shares.
Significance:
The earnings per share is a good measure of profitability and when compared with
Earnings Per Share of similar companies, it gives a view of the comparative earnings or
earnings power of the firm. Earnings per share ratio calculated for a number of years
indicates whether or not the earning power of the company has increased.
In a narrow sense: It means cash only and funds flow statement prepared on this basis is
called a cash flow statement.
In a broader sense: The term ‘funds’ refers to money values in whatever form it may
exist. Here ‘funds’ means all financial resources, used in business whether in the form of
men, material, money, machinery and others.
In a popular sense: the term ‘funds’ means working capital i.e. the excess of current
over current liabilities. The working capital concept of funds has emerged due to the fact
that total resources of a business are invested partly in fixed assets in the form of fixed
capital and partly kept in the form of liquid or near liquid form as working capital.
Flow of funds: The term ‘flow’ means movement and includes both ‘inflow’ and
‘outflow’. The term flow of funds, means transfer to economic values from one asset of
equity to another. Flow of funds is said to have taken place when any transaction makes
changes in the amount of funds available before happening of the transaction. If the
effect of transaction results in the increase of funds, it is called a source of funds and if it
results in the decrease of funds, it is known as application of funds.
The flow of funds occur when a transaction changes on the one hand a non-current
account and on the other a current account and vice-versa.
Funds Flow Statement: The funds flow statement which shows the movement of funds
and is a report of the financial operations of the business undertaking. It indicates various
means by which funds were obtained during a particular period and the ways in which
these funds were employed. In simple words, it is a statement of sources and application
of funds.
Funds flow statement is not a substitute of an income statement, i.e. a profit and loss
account, and a balance sheet. The profit and loss account is a document which indicates
the extent of success achieved by a business in earnings profits. It reports the results of
business activities and indicates the reasons for the profitability or lack thereof. The
profit and loss account done not highlight the changes in the financial position of a
business. It does not reveal the inflows and outflows of funds in business during a
particular period.
Funds flow statements an essential tool for the financial analysis and is of primary
important to the financial management. The basic purpose of a funds flow statement is to
reveal the changes in the working capital on the two balance sheet dates. It also describes
the sources from which additional working capital has been financial and the uses to
which working capital has applied. Such a statement is particularly useful in assessing
the growth of the firm. The significance or importance of funds flow statement can be
well followed form its various used given below:
To balance b/d (closing balance) 660.85 By balance b/d (opening balance) 695.71
To depriciation 37.41
To income tax 86.52
To general reserves 667.8
1452.58 By fund from operation 756.87
1452.58 1452.58
Cash plays a very important role in the entire economic life of a business. A firm needs
cash to make payments to its suppliers, to incur day-to-day expenses and to pay salaries,
wages, interest and dividend, etc. In fact, what blood is to a human body, cash is to a
business enterprise. It is very essential for a business to maintain an adequate balance of
cash. But many a times, a concern operates profitable and yet it becomes very difficult to
pay taxes and dividend. This may be because (i) although huge profits may have been
earned yet cash not have been received or (ii) even if cash has been received, it may have
drained out (used) for some other purpose. This movement of cash is of vital importance
to the management.
The terms cash, cash equivalents and cash flows are used in this statement with the following
meaning:
The cash flow statement should report cash flows during the period classified by
operating, investing and financial activities. Thus, cash flows are classified into three
main categories:
a) Cash flows from operating activities: Operating activities are the principal revenue-
producing activities of the enterprise and other activities that are not investing or
financial activities. The amount of cash flows arising from operating activities is a key
indicator of the extent to which the operating capability of the enterprise, pay dividends,
repay loans, and make new investments without recourse to external sources of
financing. Information about the specific components of historical operating cash flows
is useful, in conjunction with other information, in forecasting future operating cash
flows.
Cash flows from operating activities are primarily derived from the principal revenue-
producing activities of the enterprise. Therefore, they generally result from the
transaction and other events that enter into the determination of net profit or loss.
Some transitions, such as the sale of an item of plant, may give rise to a gain or
loss which is included in the determination of net profit or loss. However, the
cash flows relating to such transactions are cash flows from investing activities.
b) Cash flows from investing activities: Investing activities are the acquisition and
disposal of long-term and other investments not included in cash equivalents. The
separate disclosure of cash flows arising from investing activities is important because
the cash flows represent the extent to which expenditures have been made for resources
intended to generate future income and cash flows. Example of cash flows arising from
investing activities are:
i) Cash payments to acquire fixed assets. These payments include those relating to
capitalized research and development costs and self constructed fixed assets.
ii) Cash receipts from disposal of fixed assets.
iii) Cash payments to acquire shares, warrants, or debt instruments of other
enterprises and interest in joint ventures.
iv) Cash receipts from disposal of shares, warrants, or debt instruments of other
enterprises and interest in joint venture.
v) Cash advance and loans made to third parties.
vi) Cash receipts form the repayment of advance and loans made to third parties.
vii) Cash payments for future contracts, forward contracts, opinion contracts and
swap contract except when the contracts are held for dealing or trading purpose,
or the receipts are classified as financial activities.
c) Cash flows from financial activities: Financial activities are activities that results in
changes in the size and composition of the owners’ capital and borrowing of the
enterprise. The separate disclosure of cash flows arising from financial activities is funds
(both capital and borrowing) to the enterprises. Example of cash flows arising from
financial activities are:
Cost analysis:-
Concepts of cost
The term cost has a wide variety of meanings. Different people use this term in different senses
for different purpose. In common use, the word cost means price. For our purpose cost is not the
same as price. I management terminology, the term cost refers to expenditures and not the price.
It also refers to something that must be sacrificed to obtain a particular thing. In fact, the scope
of term ‘cost’ is so broad and general that it has caused some confusion.
To make the concept clear, some important definition about cost as follows:
According to the terminology of the British Institute of cost and works Accountants, “Cost is the
amount of expenditure (actual or notional) incurred on or attributable to a given thing.”
According to the W.M. Harper, “Cost is the value of economic resources used as a result of
producing or doing the things costed.”
BIBLOGRAPHY:-
• www. Moneycontrol.com
• www.rediff.com
• www.wikkipedia.com
• www.i-flex solution ltd.