Finance Presentation - Sample

Your Logo
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Understanding Basics of
Financial Statements
Client Company’s Name
Trainer’s Name
Qualifications
Objectives of the Presentation Your Logo
Here
 Understanding the basic concepts and terms

used in the Financial Statements.
 Understanding the ratios used for analyzing

the Financial Statements.
 Discussing factors that drive corporate

valuations.
2 Brianna Knowledge Resources Pvt. Ltd.

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Contents Here
 Objectives of Financial Statements
 Basic Accounting Concepts
 Structure of Profit & Loss Statement
 Structure of Balance Sheet & Cash flow

Statement
 Q&A

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Which Company will you choose to invest in?
Here
 Name of Company: Wise Co. Prudent Co.

 Sales Rs. Crore 1000 800
 Net Profit 120 200
 Profit Margin 12% 25%
 Equity Capital 200 500
 Debt Funds 200 100
 Return on Equity 60% 40%
 There are other financial / non-financial factors that would

influence investment decisions.

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Objectives of Financial Statements
Here
 To provide information to stakeholders about:
 Performance of the company during a given period:

 Financial health of the company as on a specified date.
 To furnish information useful in making

decisions relating to investment and lending.

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Basic Financial Statements Here
 Profit and Loss Statement.
 Balance Sheet.
 Cash Flow Statement.
 Statement of Accounting Policies and Notes

to Accounts.

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Dual Impact of Financial Transactions
Here
INCOME EXPENDITURE
ASSETS LIABILITIES

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Examples of Financial Transactions
Here
 Salary Receipt
 Rent payment
 Purchase of House
 Taking of Housing Loan
 Buying MF Units
 Loan EMI

Your own P & L & Balance SheetYour Logo
Here
Personal P & L A/C (Monthly) Personal Balance Sheet

 Income Rs.  Assets Rs. Lakhs
Salary 15,000 House Property 11
Interest 1,000 Bank balances 2
Total Income 16,000
Shares 1
 Expenditure
Mutual Funds 1
Utilities 3,000
Groceries 3,000
 Total assets 15
Education 2,000
Maintenance 2,000  Liabilities
Total Exps. 10,000 Housing Loan 4
Personal Loan 1
 Net Income 6,000 Total Liabilities 5
Loan EMI 3,000
 Net Savings 3,000  Net wealth 10

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Fundamental Accounting Concepts
Here
 Business Entity: An Enterprise is different
from the persons who own it.
 Going Concern: Enterprise will continue to

exist in a foreseeable future.
 Accrual: Revenue and expenses are

recognised as they are incurred and not as
money is received or paid.
 Substance over form: Substance of a

transaction takes precedence over legal form.
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Fundamental Accounting Concepts
Here
 Prudence: Recognise all known expenses and

losses. Do not recognise revenue and profits unless
you are sure of realisation of the same.
 Capital Expenditure: Expenditure which brings into

existence asset or benefit of a long term nature. e.g.
Building, computers, furniture, equipment.
 Revenue Expenditure: Expenses which are

incurred to earn revenue and which are written off
over a normal accounting period. e.g. salary, rent,
stationery, electricity.

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Profit and Loss (P&L) Account Here
 A statement showing revenues and expenditure

over a defined period of time. It shows results of
business operations for a defined duration.
 Profit =Total Income – Total Expenditure.
 It is a measure of financial performance.
 Income and Expenditure are recognised in

accordance with Generally Accepted Accounting
Principles (GAAP).

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Structure of a P & L Account Here
Revenue
Cost of
Material
Employee Costs
Selling, General
& Admn (SGA)
Operating Profit
(EBIDTA)
Depreciation
Interest
Tax
Profit After Tax

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Revenue
Here
 Total Revenue = Sales + other income.
 Sales is usually the amount invoiced during the

period for product and services.
 Some of the amounts invoiced may not have

been collected at the year end.
 Other income would include dividend, interest etc.

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Expenditur Here
e
 Material Cost - Raw Materials and Consumables.
 Employee Related Expenses (ERE) - Salary &

allowances, bonus, staff welfare and benefits.
 Selling, General & Administration Expenses (SGA)

- Bizdev., Advertisements, Commission, Travel,
Marketing office expenses, Rent, Electricity,
Maintenance, Insurance, Housekeeping,
Telephones, Internet link etc.

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Depreciation Here
 Depreciation is a charge for use of capital assets.
 Non – cash charge to the P&L.
 Depreciation method ensures that the original

cost of an assets less its salvage value is spread
over estimated useful life of an asset.
 Depreciation methods: Straight Line /

Reducing Balance.

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Interest cost Here
 Interest is an amount payable to the lenders,

e.g. Banks, Financial Institution, etc.
 The interest will arise in relation to

 Working capital loans
 Term Loans

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Provision for Tax Here
 Provision for tax relates to income tax payable

on the company profit.
 It is a notional Figure arrived at by using the

provisions of Income Tax Law, but the Final tax
liability is assessed by the assessing officer of
the Income tax Dept and the difference is settled
accordingly

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Profit & Loss Account Here
Revenue:100
Material Cost 45
Employee Cost 5
G & A Exp 15
Depreciation 10
OPG Profit 35
Interest 2
PBIT 25
PBT 23 Tax 0.5
PAT 22.5

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Dividend Here
 Dividend: A portion of profit which is paid to the share -

holders.
 Lenders are paid fixed rate of interest, whereas

shareholders are paid dividend depending upon the
profits and the policy of the company.
 The Board of the Company recommends the rate of dividend

based on the profitability and policy of the Company.
 In India, currently there is no tax on dividend received by the

shareholder as the company pays dividend tax.

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Retained Earnings (RE) Here
Profit After Tax 22.5
Dividend 2.5
Retained Earnings 20

Profitability Ratios Your Logo
Here
P & L Account Amount Rs. Cr.
Operating Profit Margin
or EBIDTA Margin Revenue 100
Emp. Costs 45
= Operating Profit / Sales SGA 20
Operating Profit 35
= 35 / 100 = 35% Depreciation 10
PBIT 25
Operating Profit shows
Interest 2
intrinsic profitability of a
business. PBT 23
Tax 0.5
PAT 22.5

Here
PBIT Ratio
= PBIT / Sales % Revenue 100
Emp. Costs 45
= 25 / 100 = 25% SGA 20
Operating Profit 35
PBIT Ratio shows Depreciation 10

profitability of a
business after PBIT 25
accounting for Interest 2

depreciation. PBT 23
Tax 0.5
PAT 22.5

Here
Net Profit (PAT) Ratio
= PAT / Sales % Revenue 100
Emp. Costs 45
= 22.5 / 100 = 22.5% SGA 20

Operating Profit 35
Net Profit Ratio shows Depreciation 10

profitability of a business PBIT 25
after accounting for all Interest 2
expenses including
PBT 23
depreciation, interest &
tax. Tax 0.5
PAT 22.5

Drivers of Profitability in Business
Segment
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Here
 Revenue side
 Actual Drivers of your business segment
 Expenditure Side
 Actual Drivers of your business segment

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Industry Comparison – P&L Here
Particulars YOUR CO % PEER CO %
(Rs. Crs.)
Net Sales 100 100

Other Income
Total Expenditure
Operating Profit
Depreciation Latest Actual Income Statements
PBIT
Interest (Net)
PBT & EI
Tax & Other Adj.
Net Profit (PAT)
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Balance Sheet Here
 A statement of Assets and Liabilities of the Company.
 A snapshot view of a business at a defined point of

time.
 Balance Sheet is a measure of financial resources or

wealth of a company whereas Profit and Loss
Account is an indicator of performance of a company,
 Balance Sheet is always balanced. Assets are equal

to liabilities.

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Assets and Liabilities Here
 Liabilities: Amounts owed by the Company

to parties external to the Company – sources
of funds.
 Assets: Resources owned by the company –

Application of funds.
 It could be presented in either a Horizontal or

vertical format.

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Balance Sheet: Horizontal Structure
Here
Liabilities Assets
Equity Capital (10) Fixed Assets (70)

& (e.g. Land & building,
Reserves (60) Plant & machinery ,
Computers, DG set)
Loan Funds (30)
Current Liabilities (10) Current Assets(40)

(e.g. creditors, provision) (e.g. cash, inventories,
Debtors)
Total (110) Total (110)

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Balance Sheet: Vertical Structure
Here
Liabilities Equity Capital (10)

(owed)
Sources Reserves (60)
Loan Funds (30)

Assets
(owned) Fixed Assets (70)
Application Net Current Assets (30)

[Current Assets (40)
less: Current Liabilities (10)]

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Find the items in the wrong heading
Here
 Fixed Assets  Current Assets

 Land  Cash
 Building  Account receivables
 Finished products  Raw material
 Machinery  Motor vehicles
 Computers  Loans and advances
 Furniture and
fixtures

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How do they relate to each other?
Here
Profit & Loss Account
Balance Sheet Balance Sheet

31 March 2008 31 March 2009
Cash Flow

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Net Worth Here
Balance Sheet Amount Rs. Cr.
 Net worth Share Capital 10
= Share Capital +Reserves Reserves 60
= Rs. 10 +Rs. 60 = Rs. 70 Cr. Net Worth 70

Loan Funds 30
OR Total Liabilities 100
Net Fixed Assets 70

 Net worth Current Assets 40
= Total Assets – Loan Funds Current Liabilities 10
= Rs.100 – Rs.30 = Rs. 70 Cr Net Current Assets 30
Total Assets 100

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Working Capital Here
 Working Capital Share Capital 10
= Current Assets – Reserves 60

Current Liabilities Net Worth 70
= Rs. 40 - Rs.10 Loan Funds 30
= Rs. 30 Cr. Total Liabilities 100
Net Fixed Assets 70
Current Assets 40
Current Liabilities 10
Net Current Assets 30
Total Assets 100

Balance Sheet Ratios: Debt to
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Equity Here
 Debt to Equity Ratio
Share Capital 10
= Long Term Debt /
(Equity + Reserves) Reserves 60
= Rs. 30 / (Rs.10+60) Net Worth 70
= Rs. 30 / Rs. 70 Loan Funds 30

Total Liabilities 100
= 0.42:1
Net Fixed Assets 70
Current Assets 40
Total Assets 100

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Balance Sheet Ratios: Current Ratio
Here
 Current Ratio
= Current Assets / Current Share Capital 10
Liabilities Reserves 60
= Rs. 40 / Rs.10 Net Worth 70
= 4:1 Loan Funds 30

Net Fixed Assets 70

Current Assets 40
Total Assets 100

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Mixed Ratio: Return on Equity Here
P & L Account 31.3.06 31.3.05
 Return on Equity
Rs. Cr. Rs. Cr.
= Profit After Tax / Sales 100 80
Average Equity Cap.
PBIT 25 20
and Reserves
PAT 22.5 18
= Rs. 22.5 / ((Rs. 70 + Rs.
50) / 2) Balance Sheet 31.3.06 31.3.05
Rs. Cr. Rs. Cr.
= Rs. 22.5 / 60
Share Capital 10 10
= 37.5%
Reserves 60 40
Net Worth 70 50
Loan funds 30 20
Total Capital 100 70
Employed

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Mixed Ratio: Return on Capital Employed
Here
P & L Account 31.3.06 31.3.05

 ROCE
Rs. Cr. Rs. Cr.
= Profit before Interest Sales 100 80
& Tax (PBIT) / Avg. PBIT 25 20
Capital Employed.
PAT 22.5 18
= Rs. 25 / ((100+70) / 2) Balance Sheet 31.3.06 31.3.05

Rs. Cr. Rs. Cr.
Share Capital 10 10
= 29.4% Reserves 60 40
Net Worth 70 50
Loan funds 30 20
Total Capital 100 70
Employed

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ROCE Here
ROCE = PBIT / Average Capital employed
= (PBIT / Sales) X (Sales / Avg.Capital Empl.)
= Profit Margin X Capital Turnover Ratio
= Operating Efficiency x Efficiency in utilising

capital.

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Mixed Ratio: Earnings Per Share (EPS)
Here
 EPS
= Profit After Tax / No. of Sales 100
shares outstanding
PBIT 25
= Rs. 22.5 Cr. / 1 Crore
Shares PAT 22.5
= Rs. 22.5 Balance Sheet Amount Rs. Cr.
Share Capital 10
(1 Crore shares)
Reserves 60
Net Worth 70
Loan Funds 30

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Asset Turnover Ratios Here
P & L Account 31.3.06 31.3.05
 Fixed Asset Turnover Rs. Cr
Rs. Cr.
Ratio
Sales 100 80
= Sales / Avg. Fixed
Assets PBIT 25 20
= Rs. 100 Cr / ((70+50)/2)
PAT 22.5 18
= 1.67
Balance Sheet 31.3.06 31.3.05
Rs. Cr. Rs. Cr
Net Fixed Assets 70 50
Net Current Assets 30 20
Total Assets 100 70

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Asset Turnover Ratios Here
 Inventory Turnover Ratio =

Sales / Avg. Inventory
 Debtors Turnover Ratio =

Sales / Avg. Debtors
 Capital Turnover Ratio =

Sales / Avg. Capital Employed

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Industry Comparison – Balance Sheet
Here
Particulars YOUR CO % PEER CO %
(Rs. Crs.)
Equity
Reserves
Shareholder Funds
Loan Funds Latest Actual BalanceSheets
Deferred Tax Liability
Total Liabilities 100 100
Net Fixed Assets
Investments
Current Assets
Less: Current Liabilities
Net Current Assets
Misc. exp not W/Off.
Total Assets 100 100
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Concept of Valuation of Equity Shares
Here
 Face Value
 Book Value
 Market Value

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Valuation of Equity Shares: Face/Book Value
Here
 Face Value is par value of the
share appearing on the face of Share Capital 10
share certificate (1 Cr. Shares of Rs.10
= Rs. 10 per share. each)
Reserves 60
 Book Value is the net worth Net Worth 70
divided by a no. of outstanding Loan Funds 30
shares. Total Liabilities 100
= (Share Capital + Reserves) / Net Fixed Assets 70
No. of outstanding shares.
= Rs. 70 Cr. / 1 Cr. Current Assets 40
= Rs. 70 per share. Current Liabilities 10
Total Assets 100

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Valuation of Equity Shares: Market Value
Here
 Market Value (MV) of a listed share is the price of

the share quoted on a recognized stock exchange.

Current Valuations of select Auto Companies
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Here
Name of the Face Value Book Value Market Value

Company (Rs.) (Rs.) (Rs.)*
YOUR CO Actual Data
PEER CO 1
PEER CO 2
* As on DATE
Price Earning Ratio Your Logo
Here
 PE = MV / EPS 100 / 10 = 10
 PE is driven by a no. of subjective and objective

factors associated with the company and the industry
it belongs to:
 Projected Growth of sales, profit,cash flow and EPS.
 Company brand equity, management practices, corporate
governance.
 Market sentiment
 MV = EPS x Price Earnings (PE) Ratio
 EPS = PAT / No. of outstanding shares

Current PE Ratios of select Auto Companies
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Name of the EPS (Rs.) PE MV Rs.*

Company
YOUR CO Actual Data
PEER CO 1
PEER CO 2
* As on DATE
Market Value of a Company Your Logo
Here
 Market Value of a company or Market Capitalization is the

price you will pay to buy all the shares of a company at a
given point of time.
= No. of shares outstanding x Market value of a share.
 For Example, market capitalization of M & M is as follows:

No. of Shares = Actual no. of Shares
Price of a share = Rs. 0.00 per share
Market Cap. = Rs. Actual Crs

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Q&A

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Thank you!!
Sooner or Later, those who win are

those who think they can
-Anonymous

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 Understanding the basic concepts and terms

 Understanding the ratios used for analyzing

 Discussing factors that drive corporate

2 Brianna Knowledge Resources Pvt. Ltd.

 Objectives of Financial Statements

 Basic Accounting Concepts

 Structure of Profit & Loss Statement

 Structure of Balance Sheet & Cash flow

3 Brianna Knowledge Resources Pvt. Ltd.

 Name of Company: Wise Co. Prudent Co.

 There are other financial / non-financial factors that would

4 Brianna Knowledge Resources Pvt. Ltd.

 To provide information to stakeholders about:

 Performance of the company during a given period:

 To furnish information useful in making

5 Brianna Knowledge Resources Pvt. Ltd.

 Profit and Loss Statement.

 Cash Flow Statement.

 Statement of Accounting Policies and Notes

6 Brianna Knowledge Resources Pvt. Ltd.

7 Brianna Knowledge Resources Pvt. Ltd.

 Taking of Housing Loan

8 Brianna Knowledge Resources Pvt. Ltd.

Personal P & L A/C (Monthly) Personal Balance Sheet

9 Brianna Knowledge Resources Pvt. Ltd.

 Going Concern: Enterprise will continue to

 Accrual: Revenue and expenses are

 Substance over form: Substance of a

 Prudence: Recognise all known expenses and

 Capital Expenditure: Expenditure which brings into

 Revenue Expenditure: Expenses which are

11 Brianna Knowledge Resources Pvt. Ltd.

 A statement showing revenues and expenditure

 Profit =Total Income – Total Expenditure.

 It is a measure of financial performance.

 Income and Expenditure are recognised in

12 Brianna Knowledge Resources Pvt. Ltd.

13 Brianna Knowledge Resources Pvt. Ltd.

 Total Revenue = Sales + other income.

 Sales is usually the amount invoiced during the

 Some of the amounts invoiced may not have

 Other income would include dividend, interest etc.

14 Brianna Knowledge Resources Pvt. Ltd.

 Employee Related Expenses (ERE) - Salary &

 Selling, General & Administration Expenses (SGA)

15 Brianna Knowledge Resources Pvt. Ltd.

 Depreciation is a charge for use of capital assets.

 Non – cash charge to the P&L.

 Depreciation method ensures that the original

 Depreciation methods: Straight Line /

16 Brianna Knowledge Resources Pvt. Ltd.

 Interest is an amount payable to the lenders,

 The interest will arise in relation to

17 Brianna Knowledge Resources Pvt. Ltd.

 Provision for tax relates to income tax payable

 It is a notional Figure arrived at by using the

18 Brianna Knowledge Resources Pvt. Ltd.

19 Brianna Knowledge Resources Pvt. Ltd.