Corporate Financial Reporting

CA. Bimal R. Bhatt

hitabhatt@gmail.com
9825408120
 User of Financial Statements

Investors
Employees
Lenders
Suppliers and Other creditors
Customers
Governments and their agents
Public

Fundamental Assumptions
Going concern
Accrual
Consistency

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 Three Major Considerations

Prudence
Substance over form
Materiality

Companies Act, 1956 and The Institute of Chartered

Accountants of India (ICAI), New Delhi

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 Schedule VI
(section 211)

Schedule No. Figures as at the Figures as at the

end of current end of previous
financial year financial year

Sources of Funds:
(1)Shareholders funds
Capital
Reserves & Surplus
(2) Loan Funds
Secured loans
Unsecured loans
TOTAL
Application of Funds:
(1)Fixed Assets
a) Gross Block
b) Less Depreciation
c) Net Block
d) Capital work-in-progress

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 Schedule VI contd.

(2) Investments
(3) Current Assets, Loans &
Advances
a) Inventories
b) Sundry Debtors
c) Cash & Bank Balances
d) Other Current assets
e) Loans & Advances
Less:
Current Liabilities & Provisions
a) Liabilities
b) Provisions
Net Current Assets
(4) a) Miscellaneous expenditure
to the extent not written of
b) Profit & Loss Account

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 Board of Directors Report
(Section 217)

Brief Financial summary of Operational Result

Dividend declaration, if any
State of Companys Affairs
Material changes between two years.
Conservation of Energy, Technology Absorption, Foreign
Exchange Earnings & Outgo R & D efforts, etc.
Employee List for higher remuneration.
Information about Company's Subsidiaries.
Directors Responsibility Statement {217 (2AA)}
-followed applicable accounting standards
-selection & consistent application of accounting policies
-proper & sufficient care for maintenance of adequate accounting records
-preparation of annual accounts on a going concern

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 Management Discussion and
Analysis
Industry Structure and Developments
Opportunities and Threats
Segment-wise or Product-wise Performance
Outlook
Risks and Concerns
Internal control Systems and Their Adequacy
Discussion on Financial Performance with respect to
Operational Performance
Material Developments in Human Resources/ industrial
Relations Front including number of people employed

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 Risk Management

Business Objectives

Financial Performance

Achieve Revenue Growth

Sustain Profitability
Increase Revenue Productivity

Customer and Market Focus

Grow Customer Relationships

Differentiate Customer Offerings
Broaden Geographical Footprint

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Execution Excellence

Leverage Global Delivery Model

Control Operational Costs
Improve Quality and Productivity

Organizational Development

Develop and Retain Competencies

Develop Global workforce
Develop Tiers of Leadership

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 External Risk Factors

Macro Economic Factors

Exchange Rate Fluctuations
Political Environment
Competitive Environment
Concentration of Revenues
Inflation & Cost Structure
Immigration Regulations
Security & Business Continuity
Technology Obsolescence

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 Internal Risk Factors

Financial Reporting Risks

Liquidity and Leverage
Contractual Compliance
Compliance with Local Laws
Intellectual Property management
Engagement Execution
Integration of Subsidiaries, if any
Human Resource Management
Culture, Values and Leadership

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Financial & Operational Performance

Operating IncomeSales, Other Income

Operating Expenses
-Material Cost, Excise Duty & Processing Charges
-Personnel Cost
-Manufacturing ,Selling, Distribution & General Expenses
-Depreciation & Amortization
-Interest & Financial Charges
-Profits & Margins
Net Worth
Debt
Fixed Assets & Capital Expenditure
Working Capital & Liquidity
Capital Employed & Operating Efficiency

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 Accounting Standards

List of Accounting Standards (AS)

AS-1 Disclosure of Accounting Policies
AS-2 Valuation of Inventories
AS-3 Cash Flow Statements
AS-4 Contingent and Events Occurring after the Balance Sheet Date
AS-5 Net Profit or Loss for the Period, Prior Period Items anChanges
in Accounting Policies.
AS-6 Depreciation Accounting
As-7 Construction Contracts
AS-8 Accounting for Research and Development
AS-9 Revenue recognition
AS-10 Accounting for Fixed Assets

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AS-11 Effects of Changes in Foreign Exchange Rates
AS-12 Accounting for Government Grants
AS-13 Accounting for Investments
AS-14 Accounting for Amalgamations
AS-15 Accounting for Retirement Benefits
AS-16 Borrowing Costs
AS-17 Segment Reporting
AS-18 Related Party Transactions
AS-19 Leases
AS-20 Earning Per Share
AS-21 Consolidated Financial Statements
AS-22 Accounting for Taxes on Income
AS-23 Accounting for Investments in Associates in Consolidated
Financial Statements

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AS-24 Discounting Operations
AS-25 Interim Financial Reporting
AS-26 Intangible Assets
AS-27 Financial Reporting of Interests in Joint Ventures
AS-28 Impairment of Assets
AS-29 Provisions, Contingent Liabilities and Contingent Assets

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 Notes to Accounts

Contingent Liabilities
Related Party Transactions
Segment Reporting
Quantitative Data for Production, Sales, purchase, etc.
Foreign Exchange Earnings and outgoes.
Any material developments on business fronts and its
impact, if any on financial performance.
Consumption of material, stores, etc.
Managerial Remuneration Under Section 198 & 309 of
Companies Act, 1956.

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 Cash Flow Statement

Particulars Rs. in Lacs

A Cash Flow From Operating Activities :
Net Profit /(loss) before Tax
Add:
Depreciation
Loss on Sale of Fixed Assets
Interest paid
Profit on sale of fixed Assets
Interest received
Dividend received
Operating Profit before change in working Capital
Adjustment for:
Inventories
Trade Receivables
Loans & Advances
Trade Payables
Cash Generated from Operating Activities (A)

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B Cash Flow From Investing Activities:
Sale of investments
Interest received
Purchase of Fixed Assets
Dividend received
Investment in Subsidiary company
Net Cash Utilized In Investing Activities (B)

C Cash Flow From Financing Activities:

Proceeds from Borrowings
Interest paid
Dividend paid
Net Cash Generated in Financing Activities

Net Increase in Cash & Cash Equivalents

Closing Cash & Cash Equivalents
Opening Cash & Cash Equivalents

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 Ratio Analysis

Return on Capital Employed

Earning per Share
Book Value
Price Earning
Debt Equity
Current Ratio
Asset Turnover
Debtors Turnover
Dividend Coverage

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 Current Ratio: Current Assets
Current Liabilities

Debt Equity Ratio: Debt

Equity

Gross Profit Ratio: Gross Profit x 100

Net Sales

Net Profit Ratio: Net Profit x100

Net Sales

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 Return on Capital Employed: Net Profit x100
Capital Employed
(Capital Employed: Fixed Assets+ Current Assets-
Current Liabilities)

Earning Per Share: Profit after tax less Preference Dividend

Total No. of Equity Shares

Price-Earning ratio: Market Price of a Share

Earning per Share

Book Value per Share = Net Worth (Shareholders Funds)

No. of Equity Shares

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 Unaudited Quarterly Result
3 months Correspond Year to Year to Date Previous
ended ing 3 Date figures for accounting
(dd/mm/yy months figures for the previous year ended
yy) ended in current year (dd/mm/yyy
Audited/ the Period ended(dd/m y)Audited/
Unaudited previous ended(dd/ m/yyyy) Unaudited*
* year(dd/m mm/yyyy) Audited/
m/yyyy) Audited/ Unaudited*
Audited/ Unaudited*
Unaudited*

1.(a) Net Sales/Income

from Operations
(b) Other Operating
income
2. Expenditure
a. Increase/decrease in stock in
trade and work in progress
b. Consumption of raw materials
c. Purchase of traded goods
d. Employees cost
e. Depreciation
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f. Other expenditure
g. Total
(Any item exceeding 10% of the total
expenditure to be shown separately)
3. Profit from Operations before Other
Income, Interest and Exceptional
Items (1-2)
4. Other Income
5. Profit before Interest and
Exceptional Items (3+4)
6. Interest
7. Profit after Interest but before
Exceptional Items (5-6)
8. Exceptional items
9. Profit (+)/ Loss (-) from Ordinary
Activities before tax (7+8)
10. Tax expense
11. Net Profit (+)/ Loss (-) from
Ordinary Activities after tax
(9-10)

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12. Extraordinary Item (net of
tax expense Rs. ________)
13. Net Profit(+)/ Loss(-) for
the period (11-12)
14. Paid-up equity share capital
(Face Value of the Share
shall be indicated)
15. Reserve excluding
Revaluation Reserves as
per balance sheet of
previous accounting year
16. Earnings Per Share (EPS)
a) Basic and diluted EPS before
Extraordinary items for the period, for the
year to date and for the previous year
(not to be annualized)
b) Basic and diluted EPS after Extraordinary
items for the period, for the year to date
and for the previous year
(not to be annualized)
17. Public Shareholding
- No. of shares

-
Percentage of shareholding

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 Brand Valuation

A brand is much more than a trademark or a logo, It

is a trust marka promise of quality and
authenticity that customers or clients can rely on.
Brand Equity is the value addition provided to a
product or an organization by its brand name. It is
the financial premium that buyer is willing to pay for
the brand over a generic or less worthy brand, It is
not created overnight. It is the result of relentless
pursuit of quality in manufacturing, selling, service,
marketing, etc. It is integral to the quality of
customer or client experiences in dealing with the
organization and its services over a sustained
period.

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 Brand Valuation-Infosys
(Rs. In crores)

2008 2007 2006

Profit before interest & tax 4,640 3,877 2,654

Less: Non brand income 634 335 125
Adjusted profit before tax 4,006 3,542 2,529
Inflation factor 1.000 1.075 1,156
Present value of brand profits 4,006 3,808 2,924
Weightage factor 3 2 1
Weighted average profits 3,760
Remuneration of capital 626
Brand-related profits 3,134
Tax
1,065
Brand earnings
2,069
Brand multiple
15.4
BRAND VALUE (in crores)
31,863
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 Assumptions

The figures above are based on consolidated Indian GAAP financial

statements.

Brand revenue is total revenue excluding other income after adjusting

for cost of earning such income, since this is an exercise to determine
our brand value as a company and not for any of our products or
services.

Inflation is assumed at &% per annum, 5% of the average capital

employed is used for purposes other than promotion of the brand and
tax rate is at 33.99%.

The earnings multiple is based on our ranking against the industry

average based on certain parameters (exercise undertaken internally
and based on available information).

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Economic Value Addition (EVA)

EVA measures the profitability of a company

after taking into account the cost of all capital.
It is the post-tax return on capital employed
(adjusted for tax shield on debt) less the cost of
capital employed. Companies which earn higher
returns than cost of capital create value.
Companies which earn lower returns than cost
of capital are deemed destroyers of shareholder
value.

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 2008 2007

Cost of Capital:
EVA-Infosys
Return on Risk free investment(%) 8.00 8.00
(Rs. In crores except otherwise stated)
Market premium 7.00 7.00
Beta variant 0.76 0.99
Cost of equity(%) 13.32 14.97
Average debt /Total capital (%) - -
Cost of debt-net of tax( %) NA NA
Weighted Average Cost of Capital (WACC) (%) 13.32 14.97
Average capital employed 12,527 9,147
Economic Value-Added (EVA)
Operating profit
4,640 3,877
Less: Tax
685 386
Cost of capital
1,669 1,369
Economic Value-Added ( in crores)
2,286 2,122

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