Case Study - 1

Case Study on understanding 201 Corporate financial statement and cash 1 flows Unit -1 and 2
Notes On Case Study: Study the annual report of reliance given in Khan and Jain reference book and answer the following questions. After the completion of Analysis of Financial Statement the next unit you should repeat the exercise by comparing 34 companies in an industry and find out the comparative performance
1.
Statutory requirement of P&L and BS

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Analysis - Dr R Soundara Rajan
a. Should disclose clearly the working of the company during the
period covered and should give fair and true picture.

b. S 209 Proper books of accounts to be maintained in registered
office. Records of financial transactions to be stored for 8 years.

c. For every annual general body meeting board of directors to
present Bs and P&L ( 210) and should provide true and fair view of business and as per Schedule 6 Part I for Balance sheet( S 211) and follow the guidelines given in Schedule 6 Part II for Profit and Loss d. Should follow the GAAP and accounting Standards. Any deviation should be mentioned and should give the accounting policies followed. Balance Sheet should annex P &L
e. Should disclose material feature including receipts and expenditure.
Arrange the income and expenditure in most convenient head.

f. Should follow the guidelines given by Part II, Schedule 6 of Company
Act 1956. It should give a true and fair view of account and as per S 349 and S 350
g. Provides the following information and expenditure as per S 349
and depreciation provided as per 350 and work out profit or loss. ( Pl read the Page 4.8 to 4.11 of Khan and Jain and make additional notes) i. Turnover indicate Sales, commission paid, brokerages and other discounts. In case of manufacturing Company- Opening Balance, Closing Balance and raw material consumed. Incase of trading company Purchases, opening and closing Stock. In case of services Gross income from services ii. In case of WIP the amounts for which such works have been completed at the commencement of period and at the end of the period
Analysis - Dr R Soundara Rajan Page 2
iii. The amount provided for Depreciation, renewals or diminution in value of fixed assts. iv. Amount of interest on company debenture and other fixed loans stating separately the loans to manager and MD v. Income tax and any statutory taxes differentiating under the category vi. Reserves Amount transferred to repayment of loans, repayment of shares vii. Specific liabilities viii. Only Revenue items ix. Note down the additional requirement of manufacturing company x. Pl note the requirement for imported items xi. Amount paid to auditors xii. Incase of manufacturing company Installed capacity and licensed capacity xiii. Value of Imports xiv. Foreign currency transactions, export, royalty, and other feed h. Profit and Loss Account balance sheet ( S216) and auditors report annexed to
i. Listing agreement requires the unaudited/ limited review report on quarterly basis j. The report should be published in leading newspaper with in 48 hours of the board meeting adopting the report
k. The information should be sent to the stock exchange with in 15
minutes of the board meeting

2. Analysis of P&L
a. How much is the income generated in the current year? How
much more than previous year? What is the percentage increase b. Bifurcate income from sales- Investments and other income c. What is the percentage of sales income and other income to total income?
d. What is the Value of stock? Bifurcate the value as given below:
i. Raw material ii. WIP iii. FG b. What is the ratio of raw material , WIP and FG stock available? What is the percent to total sales? What is the trend?
a. Total expenses? How much money is paid for purchase? What is
the total manufacturing expense? Percentage to total expenses of manufacturing expenses, purchases? What is the ratio of purchase to sale? What is trend?
b. What are the expenses shown for Sales and distribution and
Establishment expenses? What is the percent of these expense to total expense? Is it increasing or decreasing? c. What are the provisions given to employee welfare? What is the percent on revenue and net income? d. What I the ratio of Raw material and manufacturing, Employee welfare, sales and distribution expenses and establishment expenses? What is the trend? e. What are the interest and finance charges? What is the percentage to total sales?
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f. What are all the provisions provided? What is the percentage of provisions to bad debts to the sales? g. What are the expenses written off? h. How much interim dividend and final dividend paid? What is percent to face value? What is the pay out ratio? i. What is the tax Paid on dividend? j. How much transferred to general reserves? k. What is the net profit? l. What is the percentage of gross profit to sales?
m. What is the percentage of net profit to sales?
n. What is the cash coverage ratio?- CCR = Pretax Operating Profit + Interest + Non cash expenses / Interest Expenses ? o. Profit Margin = PAT/Net Sales*100 p. Look at the industry standards and compare. q. What is the profit margin, expense to income, expense to sales, sales to sales and distribution and establishment expenses r. How do you review the performance on major parameters such as Sales, Operating Profit, PAT and EPS and major expense items? s. What is your summary finding on P&L?
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3.
Balance sheet Requirement: ( Read Page 4.4 to 4.6 of khan and Jain)
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a. For every annual general body meeting board of directors to
present Bs and P&L ( 210) and should provide true and fair view of business and as per Schedule 6 Part I for Balance sheet( S 211) and follow the guidelines given in Schedule 6 Part II for Profit and Loss b. Should follow the GAAP and accounting Standards. Any deviation should be mentioned and should give the accounting policies followed. Balance Sheet should annex P &L c. S 215- Should be authenticated d. Vertical Form
e. Note down the requirement of Schedule -6 class notes ( Read Page
4.7 and 4.8 of Khan and Jain)
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4.
Balance Sheet Analysis ( Read reference book of Khan and Jain Page 4.14- 4.23 and answer the questions)
increase in 2008 as compared to 2007? What is the authorized share capital and Issued subscribed and paid up capital? What is the ratio of equity and preference shares?
a. What Is the share capital and share holders fund? What is the
b. How much is the reserves and surplus? What is the percent increase? c. What are the reserves shown and what is the percent in total reserves? What is the percent total liability and capital reserves and general reserves? Is there any increase or decrease? What is your observation? d. What are the items shown in Capital reserves? e. What are the sources of loan fund and percent increase? f. How much is the value of debentures and term loan? Is it increased or decreased and what percent? What is the percent on total liability?
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g. What is the unsecured loan shown in the balance sheet? What is the ratio of unsecured to secured loan? What is the percent to total liability?
h. What is the debt equity Ratio. ? Work out the ratio considering only
Secured loans and then unsecured loans and then both. i. What are the assets shown in balance sheet j. What is the increase or decrease? k. What is the percent fixed assts to total assets? Is it increasing or decreasing? l. What are the intangible assets shown? What is the ratio of intangible assets to total assets and fixed assets? Is it increasing or decreasing what are your observations? m. What are the investments shown? What is the percent to total assets? What is the return on total investment? n. Do the analysis for Current assets. o. Work out return on assets, Earning per share, ROCE, Asset turn over, Dividend pay out, Inventory turn over, Debtors turn over Ratios
5.
Cash Flow Statement ( Read Page 5.21 Annexure 5.I)

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a. What is the cash flow from operating activities? Has it increased or decreased compared to previous year? What is the percent? b. What is the difference between Net Profit of P&L and Operating profit before WC changes? Has it increased or decreased compared to previous year? c. What is the ratio of Cash flow from operation, investments, financing activities? d. What is the percentage of cash flow from operation to total cash flow? e. How the investment activities are financed? f. How much cash raised from financing activity? from Equity , warrants and Loans g. How the Capital structure change?
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6.
What are the details given in Balance Sheet Abstract and company General business Profile?
7.
Significant Accounting Policies ( Read Page
4.23 to 4.27 and answer the questions)

a. What are the polices mentioned for
b. Basis for preparation- historical or revalued? c. Estimates- How are the difference between actual and estimate recognized? d. Statement of fixed assts and leased assets- What cost? e. Intangible assets How stated? What is the software life cycle? f. Depreciation Policy g. How the assets are treated impaired? h. How the foreign currency transaction treated i. How investment are treated? j. How the inventory are valued? Explain the valuation of raw material, WIP and FG k. How th turn over reported l. What is the policy for recognizing the employee welfare and recognizing employee separation cost m. How the company account borrowing cost. n. Clearly mention how the accounting for oil and gas activity accounting is done? o. How the provision for contingent liability is done?
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8.
Directors Report ( Page 4.51)
a. What are the information provided by report of board of directors as per S 217( Read page 4.27 28 and s 217 of company Law)
b. What is director responsibility statement? c. What are the summary of financial results- Profit before
depreciation, PBT, PAT, Appropriations, Dividend paid?
9. Management Discussion analysis Report. ( Read 4.414.46 of Khan and Jain and answer the questions)
a. What are the significant achievements stated by reliance in that FY? b. What is the net profit achieved and annual compounded growth rate? c. What is the dividend announced return on equity and revenue in terms of GDP? d. How much tax paid to exchequer e. How do you rate reliance on exports? f. What is the gross debt equity ratio? g. How the company meets working capital requirement? h. What are the challenges faced during the year in exploration and production? i. What are the opportunities as seen by reliance? j. What are the risk concerns? k. What are the internal controls measures adopted by Reliance?
l. What is the policy on human resource? m. What are the awards and recognition received by Reliance- Area wise and your observations?
10.
Corporate Governance report
a. What is the company philosophy on CG? b. What is the board composition? What is the requirement by company Law and listing agreement? Is the company compliant? c. What is the procedure followed for board meeting and scheduling agenda items? d. What are the board committees? e. What are the basic roles of audit committee and what is the composition? What is the requirement as per company Law and listing agreement? f. What are the other statutory committees of board and their roles, composition ? g. Do they have code for board of directors and Senior management personnel?
h. Have the non complied any provisions and penalty imposed?
11.
Disclosures
a. What are the means of communications to share holders? b. What are the dates of AGM, Venue and Book closure? c. What is the dividend payment dates
12.
a. What are the contents?
Auditors report
b. Whether the company maintain all statutory books? c. Have they obtained all information required from company? d. What is their observation on Schedule O with note 5 e. Has any director disqualified under Law? f. Do the company follow the accounting Policy properly?
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Case Study on understanding 201 Corporate financial statement and cash 1 flows Unit -1 and 2

Statutory requirement of P&L and BS

Analysis - Dr R Soundara Rajan

a. Should disclose clearly the working of the company during the

period covered and should give fair and true picture.

office. Records of financial transactions to be stored for 8 years.

Arrange the income and expenditure in most convenient head.

minutes of the board meeting

a. How much is the income generated in the current year? How

Analysis - Dr R Soundara Rajan

Analysis - Dr R Soundara Rajan

Analysis - Dr R Soundara Rajan

4.7 and 4.8 of Khan and Jain)

Analysis - Dr R Soundara Rajan

Analysis - Dr R Soundara Rajan

Cash Flow Statement ( Read Page 5.21 Annexure 5.I)

Analysis - Dr R Soundara Rajan

Analysis - Dr R Soundara Rajan

Significant Accounting Policies ( Read Page

4.23 to 4.27 and answer the questions)

Analysis - Dr R Soundara Rajan

Directors Report ( Page 4.51)

depreciation, PBT, PAT, Appropriations, Dividend paid?

Corporate Governance report

Analysis - Dr R Soundara Rajan

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