Professional Documents
Culture Documents
Bachelor of Technology
in
Mining Engineering
By
SUDIP DAS
Roll: 10605038
Bachelor of Technology
in
Mining Engineering
By
SUDIP DAS
Roll: 10605038
2010
National Institute of Technology
Rourkela
CERTIFICATE
Financial statements (or financial reports) are formal records of the financial
activities of a
business, person, or other entity. Financial statements provide an overview of a
business or
person's financial condition in both short and long term. All the relevant finan
cial information of
a business enterprise, presented in a structured manner and in a form easy to un
derstand is called
the financial statements. There are four basic financial statements:
1. Balance sheet: It is also referred to as statement of financial position or c
ondition, reports on a
company's assets, liabilities, and Ownership equity as of a given point in time.
2. Income statement: It is also referred to as Profit and Loss statement (or "P&
L"), reports on a
company's income, expenses, and profits over a period of time. Profit & Loss acc
ount provide
information on the operation of the enterprise. These include sale and the vario
us expenses
incurred during the processing state.
3. Statement of Retained Earnings: It explains the changes in a company's retain
ed earnings
over the reporting period.
4. Cash Flow Statement: It reports on a company's cash flow activities, particul
arly its
operating, investing and financing activities.
2.1 BALANCE SHEET
In financial accounting, a balance sheet or statement of financial position is a
summary of a
person's or organization's balances. A balance sheet is often described as a sna
pshot of a
company's financial condition. It summarizes a company's assets, liabilities and
shareholders'
equity at a specific point in time. These three balance sheet segments give inve
stors an idea as to
what the company owns and owes, as well as the amount invested by the shareholde
rs. Of the
four basic financial statements, the balance sheet is the only statement which a
pplies to a single
point in time.
A company balance sheet has three parts: assets, liabilities and ownership equit
y. The main
categories of assets are usually listed first and are followed by the liabilitie
s. The difference
between the assets and the liabilities is known as equity or the net assets or t
he net worth or
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capital of the company. It's called a balance sheet because the two sides balanc
e out. A typical
format of the balance sheet has been given in Table 2.1. It works on the followi
ng formula:
Assets = Liabilities + Shareholders' Equity
2.1.1 FORMAT OF BALANCE SHEET
Table 2.1: Balance Sheet of XYZ Company
LIABILITIES
· Share capital (1)
· Reserves and surplus (2)
· Secured Loans (3)
· Unsecured loans (4)
Total Liabilities = (1)+(2)+(3)+(4)
ASSETS
Fixed Assets (5)
· Gross Block
· Less: Accelerated Depreciation
· Net Block
· Capital work in progress
· Investments
Current Assets (6)
· Inventories
· Sundry Debtors
· Cash and Bank balances
· Loans and Advances
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Current Liabilities (7)
· Current liabilities
· Provisions
Net Current Assets (6) (7) = (8)
Total Assets = (5) +(8)
2.1.2 CONTENTS OF BALANCE SHEET
(A) Assets
In business and accounting, assets are economic resources owned by business or c
ompany. Any
property or object of value that one possesses, usually considered as applicable
to the payment of
one's debts is considered an asset. Simplistically stated, assets are things of
value that can be
readily converted into cash.
The balance sheet of a firm records the monetary value of the assets owned by th
e firm. It is
money and other valuables belonging to an individual or business.
Types of Assets
Two major types:
· Tangible assets
· Intangible assets
Tangible Assets
Tangible assets are those have a physical substance, such as equipment and real
estate.
Intangible Assets
Intangible assets lack physical substance and usually are very hard to evaluate.
Assets which do
not possess any material value.
They include patents, copyrights, franchises, goodwill, trademarks, trade names,
etc.
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Types of Tangible Assets
· Fixed assets.
· Current assets.
Fixed Assets
This group includes land, buildings, machinery, vehicles, furniture, tools, and
certain wasting
resources e.g., timberland and minerals.
It is also referred to as PPE (property, plant, and equipment), these are purcha
sed for continued
and long-term use in earning profit in a business.
Current Assets
Current assets are cash and other assets expected to be converted to cash, sold,
or consumed
either in a year or in the operating cycle. These assets are continually turned
over in the course of
a business during normal business activity. There are 5 major items included int
o current assets:
· Cash and Cash Equivalents
It is the most liquid asset, which includes currency, deposit accounts, and nego
tiable
instruments (e.g., money orders, cheque, bank drafts).
· Short-term Investments
It includes securities bought and held for sale in the near future to generate i
ncome on short-
term price differences (trading securities).
· Receivables
It is usually reported as net of allowance for uncollectable accounts.
· Inventory
The raw materials, work-in-process goods and completely finished goods that are
considered to be the portion of a business's assets that are ready or will be re
ady for sale.
· Prepaid Expenses
These are expenses paid in cash and recorded as assets before they are used or c
onsumed (a
common example is insurance). The phrase net current assets (also called working
capital) is
often used and refers to the total of current assets less the total of current l
iabilities.
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I. Gross Block
Gross block is the sum total of all assets of the company valued at their cost o
f acquisition. This
is inclusive of the depreciation that is to be charged on each asset. Net block
is the gross block
less accumulated depreciation on assets. Net block is actually what the asset ar
e worth to the
company.
II. Capital Work in Progress
Work that has not been completed but has already incurred a capital investment f
rom the
company. This is usually recorded as an asset on the balance sheet. Work in prog
ress indicates
any good that is not considered to be a final product, but must still be account
ed for because
funds have been invested toward its production.
III. Investments
Shares And Securities , such as bonds, common stock, or long-term notes
Associate Companies
Fixed deposits with banks/finance companies
Investments in special funds (e.g., sinking funds or pension funds).
Investments in fixed assets not used in operations (e.g., land held for sale).
Remark: While fixed deposits with banks are considered as fixed assets, the inve
stments in
associate concerns are treated as non current assets.
IV. Loans and Advances include
· House building advance
· Car, scooter, computer etc. advance
· Multi purpose advance
· Transfer travelling allowance advance
· Tour travelling allowance advance
· DRS payment.
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V. Reserves
· Subsidy Received From The Govt.
· Development Rebate reserve
· Issue of Shares at Premium
· General Reserves
(B) Liability
A liability is a debt assumed by a business entity as a result of its borrowing
activities or other
fiscal obligations (such as funding pension plans for its employees). Liabilitie
s are debts and
obligations of the business they represent creditors claim on business assets.
Types of Liabilities
Current Liabilities
Current liabilities are short-term financial obligations that are paid off withi
n one year or one
current operating cycle. These liabilities are reasonably expected to be liquida
ted within a year.
It includes:
· Accrued expenses as wages, taxes, and interest payments not yet paid
· Accounts payable
· Short-term notes
· Cash dividends and
· Revenues collected in advance of actual delivery of goods or services.
Long-Term Liabilities
Liabilities that are not paid off within a year, or within a business's operatin
g cycle, are known
as long-term or non-current liabilities. Such liabilities often involve large su
ms of money
necessary to undertake opening of a business, major expansion of a business, rep
lace assets, or
-7
make a purchase of significant assets. These liabilities are reasonably expected
not to be
liquidated within a year. It includes :
· Notes payable-debt issued to a single investor.
· Bonds payable debt issued to general public or group of investors.
· Mortgages payable.
· Capital lease obligations contract to pay rent for the use of plant, property or
equipments.
· deferred income taxes payable, and
· pensions and other post-retirement benefits.
Contingent Liabilities
A third kind of liability accrued by companies is known as a contingent liabilit
y. The term refers
to instances in which a company reports that there is a possible liability for a
n event, transaction,
or incident that has already taken place; the company, however, does not yet kno
w whether a
financial drain on its resources will result. It also is often uncertain of the
size of the financial
obligation or the exact time that the obligation might have to be paid.
Fixed Liability
The liability which is to be paid of at the time of dissolution of firm is calle
d fixed liability.
Examples are Capital, Reserve and Surplus.
Secured Loans
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or
property)
as collateral for the loan, which then becomes a secured debt owed to the credit
or who gives the
loan.
Unsecured Loans
An unsecured loan is a loan that is not backed by collateral. Also known as sign
ature
loan or personal loan. Unsecured loans are based solely upon the borrower's cred
it rating. An
unsecured loan is considered much cheaper and carries less risk to the borrower.
However, when
an unsecured loan is granted, it does not necessarily have to be based on a cred
it score.
-8
2.2 PROFIT & LOSS STATEMENT
Income statement, also called profit and loss statement (P&L) and Statement of O
perations
is financial statement that summarizes the revenues, costs and expenses incurred
during a
specific period of time -usually a fiscal quarter or year. These records provide
information that
shows the ability of a company to generate profit by increasing revenue and redu
cing costs. The
purpose of the income statement is to show managers and investors whether the co
mpany made
or lost money during the period being reported. The important thing to remember
about an
income statement is that it represents a period of time. This contrasts with the
balance sheet,
which represents a single moment in time. A typical format of the Profit & Loss
Statement has
been given in Table 2.2.
2.2.1 FORMAT OF PROFIT & LOSS STATEMENT
Table 2.2: Profit & Loss Statement of XYZ Company
Turnover
Cost of sales
Gross Profit
Distribution cost
Administration Expenses
Other income
Operating Profit
Income from other investments
Profit before interest
Net interest
Profit before Tax
Tax Payable
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Profit after tax
Dividend
Retained profit
2.2.2 CONTENTS OF PROFIT & LOSS STATEMENT
(a) Revenue -Cash inflows or other enhancements of assets of an entity during a
period from
delivering or producing goods, rendering services, or other activities that cons
titute the entity's
ongoing major operations.
(b) Expenses -Cash outflows or other using-up of assets or incurrence of liabili
ties during a
period from delivering or producing goods, rendering services, or carrying out o
ther activities
that constitute the entity's ongoing major operations.
(c) Turnover
The main source of income for a company is its turnover, primarily comprised of
sales of its
products and services to third-party customers.
(d) Sales
Sales are normally accounted for when goods or services are delivered and invoic
ed, and
accepted by the customer, even if payment is not received until some time later,
even in a
subsequent trading period.
(e) Cost of Sales (COS)
The sum of direct costs of goods sold plus any manufacturing expenses relating t
o the sales (or
turnover) is termed cost of sales, or production cost of sales, or cost of goods
sold. These costs
include:
· costs of raw materials stocks
· costs of inward-bound freight paid by the company
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Packaging costs
direct production salaries and wages
production expenses, including depreciation of trading-related fixed assets.
(f) Other Operating Expenses
These are not directly related to the production process, but contributing to th
e activity of the
company, there are further costs that are termed other operating expenses .
These comprises of costs like:
The variation of different financial ratios from 2004-09 of all the companies ha
s been shown
below:
5.1 ACC Ltd.
1
0.6
0.9
0.5
0.8
Net Profit Margin (in %)
Current Ratio
0.7
Debt -Equity
0.4
0.6
0.5
0.4
0.3
0.3
0.2
0.1
0.2
0.1
0
0
Years Years
25
50
20
15
10
10
5
0
Years Years
Fig. 5.1: Variation of ratios of ACC Ltd.
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5.2 JINDAL STEEL & POWER LTD.
1.6
1.6
1.4
1.4
1.2
Debt-Equity
Return on Investment (in %)
1
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0
0
Years Years
23.5
60
23
22.5
22
50
40
21.5
21
20.5
20
30
20
19.5
19
18.5
10
0
18
Years Years
Fig. 5.2: Variation of ratios of Jindal Steel & Power Ltd.
Net Profit margin (in %) Current Ratio
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5.3 TATA STEEL
1
4
4.5
0.9
0.8
3.5
Debt-Equity
0.6
0.5
0.4
0.3
1
0.2
0.1
0
0.5
0
Years Years
80
24.5
70
24
23.5
60
23
50
22.5
22
21.5
40
30
21
20.5
20
20
10
19.5
0
Years
Years
Fig. 5.3: Variation of ratios of Tata Steel
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5.4 HINDUSTAN ZINC LIMITED
0.3
3
0.25
2.5
Debt -Equity
0.2
0.15
0.1
Current Ratio
1.5
1
0.5
0.05
0
0
Years Years
60
90
80
Net Profit Margin (in %)
Return on Investment (in %)
50
40
30
70
60
50
40
30
20
20
10
10
0
Years
Years
Fig. 5.4: Variation of ratios of HZL
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5.5 GUJARAT MINERAL DEVELOPMENT CORPORATION
1.6
3
1.4
2.5
1.2
1
0.8
Net Profit Margin (in %) Current Ratio
Return on Investment (in %)
Debt -Equity
1.5
0.6
0.4
0.5
0.2
0
0
Years Years
45
40
35
30
25
20
15
10
5
0
Years
Years
Fig. 5.5: Variation of ratios of GMDC
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CHAPTER -06
COMPARISON OF RATIO ANALYSIS OF ALL COMPANIES
Financial ratios of all the companies from 2004-09 has been compared below:
6.1 Comparison of Current ratio of Different Companies from 2004-09
Table 6.1: Comparison of Current ratio
ACC JSPL TATA
STEEL
HZL GMDC REMARKS
Dec , 2004-05 0.81 1.34 0.71 1.17 2.48
GMDC has a
better ratio
Dec , 2005-06 0.94 1.26 0.72 1.54 1.96
GMDC has a
better ratio
Dec , 2006-07 0.86 1.1 1.77 1.31 1.33
Tata Steel has a
better ratio
Dec , 2007-08 0.89 1.5 3.92 1.99 1.29
HZL has a better
ratio
Dec , 2008-09 0.66 1.26 0.97 2.39 1.26
HZL has a better
ratio
From the above table, it can be concluded that current ratio of ACC Ltd. was alw
ays less than 1
from 2004 -09. Short term liquidity of Jindal Steel & Power Ltd. and HZL was goo
d as current
ratio was more than 1. Liquidity position of Tata steel was not satisfactory as
the ratio varied
from 0.71 to 0.97 in five years. Current ratio of GMDC was more than 1 from 2004
-09.
-121
Current Ratio
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
dec ,2004-05 dec,2005-06 dec,2006-07 dec,2007-08 dec,2008-09
ACC Ltd
Tata Steel
JSPL
GMDC
HZL
Fig. 6.1: Comparison of Current ratio of all companies
In this graph, Tata steel has the highest current ratio of 3.92 in the year 2007
-08, followed by
others. By 2008 -09, the ratio of Tata steel dropped to 0.97, with HZL has the h
ighest ratio of
2.39 and JSPL & GMDC with 1.26. It can also be seen that, in the period of 5 yea
rs HZL has
improved its liquidity position compared to others, while positions of companies
like Tata Steel
and GMDC have come down. Current ratio of Tata Steel decreased steeply from 2007
-09 due to
its decrease in current assets position.
6.2 Comparison of Debt Equity ratio Different Companies from 2004-09
Table 6.2: Comparison of Debt Equity ratio
ACC JSPL TATA
STEEL
HZL GMDC Remarks
Dec , 2004-05 0.5 1.13 0.38 0.27 1.45 JSPL has a better ratio
Dec , 2005-06 0.24 1.48 0.25 0.16 1.38 GMDC has a better ratio
Dec , 2006-07 0.07 1.4 0.68 0.00005 1.14 GMDC has a better ratio
Dec , 2007-08 0.1 1 0.66 0.000033 0.63 JSPL has a better ratio
Dec , 2008-09 0.09 0.91 0.91 0.0006 0.39
JSPL &Tata Steel has a
better ratio
-122
From table 6.2 it can be seen that D-E ratio of ACC Ltd. decreased from 0.5 to 0
.07 from 2004 07
and then increased to 0.09 in 2009. Debt position of JSPL was satisfactory as th
e ratio varied
from 1.13 to 0.91 from 2004-09. Similarly debt position of GMDC was more than 1
from 200407
because of increasing investment and then came down to 0.39. However D-E ratio o
f Tata
Steel & HZL remained less than 1 from 2004-09 as their debts were paid off.
Debt-Equity
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
dec ,2004-05 dec,2005-06 dec,2006-07 dec,2007-08 dec,2008-09
ACC Ltd.
Tata Steel
JSPL
GMDC
HZL
Fig. 6.2: Comparison of Debt Equity ratio of all Companies
From the preceding graph it can be concluded that JSPL has the highest debt-equi
ty ratio of 1.48
and 1.40 from 2005-07 compared to other companies. Tata Steel has improved its r
atio from 0.38
to 0.91 in five years. Though owner s share in the company has decreased but more
outsiders
have started investing in the company and that has lead to desirable ratio. GMDC
has performed
very badly as the ratio came down from 1.45 to 0.39. This is due to decrease in
investment of
creditor s. Investment in ACC Ltd. and HZL have also come down in the five years.
-123
6.3 Comparison of Net Profit margin of different companies from 2004-09
Table 6.3: Comparison of Net Profit Margin
ACC JSPL TATA
STEEL
HZL GMDC REMARKS
Dec , 2004-05 17.28 % 22.88% 23.97% 29.9% 28.04%
HZL has a better net
profit margin.
Dec , 2005-06 21.4% 22.33% 23.17% 38.10% 8.1% HZL has a better net
profit margin.
Dec , 2006-07 20.8% 19.9% 24.19% 51.9% 16.07%
HZL has a better net
profit margin.
Dec , 2007-08 16.77% 23.04% 23.8% 55.6% 26.9%
HZL has a better net
profit margin.
Dec , 2008-09 20.03% 20.01% 21.36% 47.9% 23.6% HZL has a better net
profit margin.
From Table 6.3 it can be seen that HZL has the highest profit margin in all the
five years which
is because of their increase in sales. Profitability of ACC Ltd. varied marginal
ly from 17% to
20%. Profit Margin of GMDC came down from 28.04 % to 23.6% from 2004-09. Though
sales
of the company JSPL, Tata Steel and GMDC increased, their profit percentage decr
eased from
2004-09 due to their decrease in net profit.
0
10
20
30
40
50
60
ACC Ltd
Tata Steel
JSPL
GMDC
HZL
Net Profit Margin(in %)
dec ,2004-05 dec,2005-06 dec,2006-07 dec,2007-08 dec,2008-09
Fig. 6.3: Comparison of Net Profit Margin of all Companies
-124
HZL remained the single most profitable firm in the five years with net profit i
ncreasing from
29% in 2004-05 to 47% in 2008-09. Tata Steel and JSPL maintained a constant grow
th for the
period while net profit of GMDC after declining for the first two years increase
d up to 23 % in
the last year. Profit Margin for ACC Ltd. fluctuated during the period from 17 %
to 20 %.
6.4 Comparison of ROI of Different Companies from 2004-09
Table 6.4: Comparison of ROI
ACC JSPL Tata Steel HZL GMDC Remarks
Dec , 2004-05 18.16% 52.31% 74.57% 43.04% 22.41%
Tata steel has a
better ratio
Dec , 2005-06 45.37% 39.64% 53.28% 63.94% 8.63%
HZL has a
better ratio
Dec , 2006-07 41% 37.48% 44.89% 83.30% 14.77%
HZL has a
better ratio
Dec , 2007-08 33.70% 44.14% 25.01% 47.91% 39.11%
HZL has a
better ratio
Dec , 2008-09 37.7% 39.44% 23.62% 22.69% 30.97%
JSPL has a
better ratio
From the above table it can be seen that ROI of ACC Ltd. increased from 18.16% t
o 37.7% in
five years due to substantial increase in its profit before tax. Similarly ROI o
f GMDC increased
marginally from 22.41% to 30.97 %. From 2005-09 overall profitability of HZL was
better than
other companies, though its ROI decreased from 43.04 % to 22.69%. ROI of Tata St
eel was
highest in 2004-05 with 74.57% and then it declined to 23.62%. Similarly ROI of
JSPL
decreased from 52.31 % to 39.41 % due to significant increase in its expenses.
-125
Fig. 6.4: Comparison of ROI of all Companies
From the graph it can be concluded that, overall profitability of GMDC has impro
ve
five years from 22.41% in 2004-
in profit before tax. ROI of Tata St
increase in its expenses. Profitability of ACC Ltd. after rising
came down to 33.70% in the next two years
year. ROI of HZL increased gradually from
because of fall in operating profit during
2004-05 to 39.41 % 2008-09.
0
10
20
30
40
50
60
70
80
90
dec ,2004- 05 dec,2005
Return on Investment
(in %)
- 126 -
-05 to 30.97% in 2008-09. This is because of their improvement
a Steel declined steeply from 74.57% to 23.62% due to substantial
steeply in the first year
years, and then increased marginally to
43.04 % to 83.30 % and then decreased
rofit the period. ROI of JSPL decreased from
2005-06 dec,2006-07 dec,2007-08 dec,2008-09
improved in the last
to 45.37 %
37.7% the last
to 22.69%
L 52.31 % in
ACC Ltd.
Tata Steel
JSPL
GMDC
HZL
CONCLUSION
It was observed that current ratio of ACC Ltd. was always less than 1 from 2004
-09 which
indicates that liquidity position of the company was not good. Current ratio of
Jindal Steel &
Power Ltd. and HZL was satisfactory as it remained more than 1 for all the five
years. Liquidity
position of Tata steel was not satisfactory as the ratio varied marginally from
0.71 to 0.97 in five
years whereas current ratio of GMDC decreased from 2.48 to 1.26.
D-E ratio of ACC Ltd. decreased from 0.5 to 0.07 from 2004 -07 and then increase
d to 0.09 in
2009 which indicates the debts have been cleared. Debt position of JSPL was sati
sfactory as the
ratio varied from 1.13 to 0.91 from 2004-09. GMDC s D-E ratio was 1.45 from 2004-0
7 because
of increasing investment and then came down to 0.39. However D-E ratio of Tata S
teel & HZL
was less than 1 in five years as their debts were paid off.
From 2004-09, net profit margin of HZL increased from 29.9% to 47.9%. It remaine
d the most
profit making company compared to others due to their substantial increase in sa
les. Profitability
of ACC Ltd. varied marginally from 17.28% to 20.03%. Profit Margin of GMDC came
down
from 28.04% in 2004-05 to 23.6% in 2008-09. Though sales of the company JSPL, Ta
ta Steel
and GMDC increased, their profit percentage decreased from 2004-09 due to their
decrease in
net profit.
ROI of ACC Ltd. increased from 18.16% to 37.7% in five years due to substantial
increase in its
profit before tax. Similarly, ROI of GMDC increased marginally from 22.41% to 30
.97% in five
years. From 2004-06, ROI of HZL increased from 43.04% to 83.30% and in 2009 it d
eclined to
22.69%. ROI of Tata Steel was highest in 2004-05 with 74.57% and then it decline
d to 23.62%.
Similarly ROI of JSPL decreased from 52.31% to 39.44%.
-129
REFERENCES
Khan, M.Y. (1988). Financial Management , Tata Mc-Graw Hill , New Delhi, 1st
edition, Chapter -03 , Financial Statement Analysis: Ratio Analysis, pp.114-158
Bhattacharya, Asish. K. (2007). Introduction to Financial Statement Analysis , Else
vier
, New Delhi , 1st edition, Chapter -03 , Ratio Analysis, pp.32-45
Wanless, R.M. (1983). Finance For Mine Management , Chapman & Hall Ltd , New
York , 1st edition, Chapter -06 , Financial Accounting , pp. 109-112
1st
http://en.wikipedia.org/wiki/Financial_statements
http://en.wikipedia.org/wiki/Balance_sheet
http://en.wikipedia.org/wiki/Asset
http://en.wikipedia.org/wiki/Liability_%28financial_accounting%29
http://en.wikipedia.org/wiki/Secured_loan
http://en.wikipedia.org/wiki/Financial_statement
http://en.wikipedia.org/wiki/Unsecured_loan
http://en.wikipedia.org/wiki/Income_statement
http://en.wikipedia.org/wiki/Cash_flow_statement
www.jpec.org/handouts/jpec71.pdf
http://en.wikipedia.org/wiki/Statement_of_retained_earnings
http://en.wikipedia.org/wiki/Retention_ratio
http://economictimes.indiatimes.com/bsheet.cms
http://economictimes.indiatimes.com/profitloss.cms
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