ANALYSIS OF FINANCIAL STATEMENTS

Question 1
Cash Flow Statement for FY 2018-19
Particulars Amount ₹ Amount ₹
     
A. Cash Flow from Operating
Activities    
     
Net Profit for the year (945000 -
625000) 3,20,000  
Add -    
Depreciation on Land and Building 1,72,400  
Depreciation on Plant and Machinery 2,12,500  
Provision of Tax 2,15,000  
Decrease in Sundry Debtors 1,80,000  
Decrease in Misc. Expenses 28,000  
Transfer to General Reserve 75,000  
Less -    
Decrease in Sundry Creditors -1,31,000  
Decrease in Outstanding Expenses -75,000  
Increase in Closing Stock -60,000  
Income Tax Paid -1,35,000 8,01,900
     
     
B. Cash Flow from Financing Activities    
Add -    
Issue of Equity Shares Capital 3,50,000  
Less -    
Repayment of 10% Debentures -77,000 2,73,000
     
     
C. Cash Flow from Investing Activities    
Add -    
Sale of Plant and Machinery 1,05,000  
Less -    
Purchase of Plant and Machinery -12,24,900  
Purchase of Investments -3,80,000 14,99,900
     
     
Net Cash Flow (A+B+C)   4,25,000
Add - Opening Cash Balance   5,23,000
     
Closing Cash Balance   98,000

Dr Plant and Machinery A/c Cr

Particulars Amount ₹   Particulars Amount ₹

To Opening Balance 9,25,000   By Depreciation 2,12,500

To Bank (Purchase) 12,44,900   By Sale of Machine 1,25,000

      By Closing Balance 18,32,400
         

  21,69,900     21,69,900

Dr Provision for Tax A/c Cr

Particulars Amount ₹   Particulars Amount ₹

To Bank 1,35,000   By Opening Balance 1,25,000

      By Profit and Loss 2,15,000

By Closing Balance 2,05,000      

         

  3,40,000     3,40,000

Dr Land and Building A/c Cr

Particulars Amount ₹   Particulars Amount ₹

To Opening Balance 17,24,000   By Depreciation 1,72,400

         
    By Closing Balance 15,51,600
         

  17,24,000     17,24,000

Sale of Machinery -  

Book Value 1,25,000

Less - Sale Price 1,05,000

Loss on sale 20,000

Question 2

Consolidated Balance Sheet of Green Ltd as on 31st March, 2019

Liabilities Amount Assets Amount Amount
Amount
Equity Share (Rs.   40,00,00 Land and    
10 Each) 0 Building -
Profit & Loss 5,25,80   Green Ltd 12,15,00  
Appropriation 0 0
Less - Stock 1,29,60 3,96,200 Apple Ltd 17,12,50 29,27,50
Reserve 0 0 0
General Reserve   3,20,000      
           
8% Debentures -     Plant and    
Machinery -
Green Ltd -   Green Ltd 3,28,30  
0
Apple Ltd 2,27,50 2,27,500 Apple Ltd 6,20,50 9,48,800
0 0
           
Sundry Creditors -     Inventory -    
Green Ltd 2,78,30   Green Ltd 6,48,00  
0 0
Apple Ltd 91,300   Apple Ltd 2,12,50  
0
       
3,69,60 8,60,50
0 0
Less - 1,05,00 2,64,600 Less - Stock 1,29,60 7,30,900
Intercompany 0 Reserve 0
           
Other Current     Sundry    
Liabilities - Debtors -
Green Ltd 54,700   Green Ltd 1,77,50  
0
Apple Ltd 55,800 1,10,500 Apple Ltd 4,15,20  
0
        5,92,70  
0
      Less - 1,05,00 4,87,700
 Intercompany 0
           
Minority Interest   7,70,840 Cash and Bank -    
      Green Ltd 6,32,50  
0
      Apple Ltd 1,01,300 7,33,800
           
      Other Current    
Assets -
      Green Ltd 52,500  
      Apple Ltd 65,600 1,18,100
           
      Goodwill   1,42,840
           
Total   60,89,64 Total   60,89,64
0 0

Working Note 1 - Minority Interest

Shares %
Total Shares of Apple Ltd 1,50,000 100
Less Shares Owned by Green Ltd 1,08,000 72
Shares with minority shareholders 42,000 28

Total Worth of Apple Ltd (Liability side approach)

Equity Share Capital 15,00,000
Profit & Loss Appropriation 7,28,000
General Reserve 5,25,000
Total Worth of Apple Ltd 27,53,000

Share belonging to Green Ltd (72%) 19,82,160

Share belonging to Minority Shareholders (28%) 7,70,840

Working Note 2 - Goodwill

Calculation

Share of holding company in subsidiary Company 19,82,160

Less - Consideration Paid 21,25,000

 Goodwill 1,42,840

Working Note 3 - Stock Reserve

Profit is calculated on cost. While the stock appearing in the balance
sheet is at selling price. Hence profit cannot be calculated directly
%
Cost 100
Add Profit 25
Selling Price 125
Selling price of a stock as per adjustment which represent 125% as per
above calculation
Sale Profit
125 25
6,48,000 1,29,600
Stock reserve need to be created for Rs. 1,29,600
Minority interest is the portion of a subsidiary corporation's stock that is not
owned by the parent corporation. It is reported on the consolidated income
statement as a share of profit belonging to minority shareholders.

Minority Interest is important because it determines the voting rights of the

company and also understand the decision-making ability of the organization.

The latest example of minority interest is the Reliance Jio and Facebook deal in
which Reliance sold its 9.99% holding of Reliance Jio to Facebook so with this
Facebook became the minority shareholder of Reliance Jio.

Question 3
YES BANK

On March 5, 2020, the Reserve Bank of India (RBI) imposed a 30-day

moratorium on YES Bank, superseded the private-sector lender’s board, and
appointed Prashant Kumar, who was serving as chief financial officer and deputy
managing director at State Bank of India (SBI), as an administrator. Under the
terms of the moratorium, deposit withdrawals were capped at Rs 50,000 per
person. The central bank proposed a reconstruction scheme under which SBI
might take a maximum of 49% stake in the restructured capital of the bank.
Analysts believed the new management of YES Bank, headed by former
Deutsche Bank India head Ravneet Gill, who joined the bank in early 2019, could
turn around the ship. Gill, however, has struggled to do so.
 
A brief history of YES Bank
 
YES Bank Ltd runs three units – YES Asset Management Services, YES Capital
and YES Bank. Once the country’s fifth-largest private lender by market
capitalisation, YES Bank had been founded by Rana Kapoor and Ashok Kapoor in
2004. In the year 2005, the bank forayed into retail banking with the launch of
International Gold and Silver debit card in partnership with MasterCard
International. In June 2005, YES Bank came out with a public issue and its
shares were listed on the stock exchanges. The bank was ranked number 1 bank
in the Business Today-KPMG Best Banks Annual Survey 2008. YES Bank was the
first institution globally to receive funding through IFC's Managed Co-Lending
Portfolio Programme and the first Indian bank to raise loan under IFC's A/B
loan facility. On September 2014, YES Bank announced it had received a ratings
upgrade from credit rating agency ICRA and CARE for its various long-term
debt programmes. On December 18, 2017, YES Bank made its entry in the 30-
share S&P BSE Sensex. A few months later, YES Bank announced the listing of
the bank's debut $600-million bond issue under its maiden $1 billion MTN
programme on Global Securities Market (GSM) – India's first capital-raising
platform for international investors in any currency located at the Gujarat
International Finance Tec-City (GIFT City) IFSC.
In December 2017, the bank's branch network stood at 1,050 and its ATM
network at 1,724.
 
What has led to a crisis at YES Bank?
 
The bank’s loan book on March 31, 2014, was Rs 55,633 crore, and its deposits
were Rs 74,192 crore. Since then, the loan book has grown to nearly four times
as much, at Rs 2.25 trillion as on September 30, 2019. While deposit growth
failed to keep pace and increased at less than three times to Rs 2.10 trillion.
The bank’s asset quality also worsened and it came under regulator RBI’s
scanner. YES Bank has a substantial exposure to several troubled borrowers,
including the Anil Ambani-led Reliance group, DHFL and IL&FS. The tipping point
came when one of the bank’s independent directors Uttam Prakash Agarwal,
resigned from the board in January 2020 citing governance issues.
 
Here are several reasons behind the crisis at the new-age private-sector
bank
 
1. NPAs: YES Bank ran into trouble following the central bank's asset quality
reviews in 2017 and 2018, which led to a sharp increase in its impaired loans
ratio and uncovered significant governance lapses that led to a complete change
of management. The bank subsequently struggled to address its capitalisation
issues. YES Bank suffered a dramatic doubling in its gross NPAs between April
and September 2019 to Rs 17,134 crore.
 
2. NBFC crisis: The crisis in India's shadow-banking space started with the
unravelling of Infrastructure Leasing & Financial Services (IL&FS) and then
extended to Dewan Housing Finance Limited (DHFL). YES Bank’s total exposure
to IL&FS and DHFL was 11.5 per cent as of September 2019. In April 2019, the
bank had classified about Rs 10,000 crore of its exposures, representing 4.1 per
cent of its total loans under watch list, as potential non-performing loans over
the next 12 months.
 
3. Governance issue: YES Bank faced several governance issues that led to its
decline. On January 10, independent director Uttam Prakash Agarwal quit citing
deteriorating corporate governance standards and compliance failure at the
lender. In 2018-19, the bank under-reported NPAs to the tune of Rs 3,277
crore, prompting RBI to dispatch R Gandhi, one of its former deputy governors,
to the board of the bank. Rana Kapoor, who was instrumental in building YES
Bank from scratch, was asked to step down as chief executive in January 2019.
 
4. Excessive withdrawals: YES Bank’s financial condition dissuaded many
depositors from keeping funds in the bank over a longer term. The bank showed
a steady withdrawal of deposits, which burdened its balance sheet and added to
its woes. The bank had a deposit book of Rs 2.09 trillion at the end of
September 2019.
 
What action has RBI taken against YES Bank?
 
— RBI has taken over the YES Bank management
 
— The central has imposed a moratorium on the lender
 
— RBI announced a draft ‘Scheme of Reconstruction’ that entails SBI investing
capital to acquire a 49% stake in the restructured private lender.
 
Why was a moratorium imposed on YES Bank?
 
The banking regulator, while recommending a moratorium, cited a steady decline
in YES Bank’s financial position, mainly due to the lender’s inability to raise
adequate capital to make provisions for potential non-performing assets. This
failing resulted in downgrades by credit rating agencies, which in turn made
capital raising even more difficult. This apart, there were serious lapses in
corporate governance at the bank.
 
How does a moratorium work?
 
A moratorium is a temporary suspension of activity until future events warrant
lifting of the suspension or related issues have been resolved. In case of YES
Bank, RBI has imposed a month-long moratorium which is scheduled to end on
April 3. Hence, a customer can withdraw a maximum of Rs 50,000 during this
period from their savings or current or any other deposit accounts. In case a
depositor has more than one deposit account with YES Bank, then the
moratorium will apply cumulatively on all their accounts. There’s a small relief to
depositors in cases of emergencies. RBI has said that one could withdraw up to
Rs 5 lakh for medical emergencies, higher education expenses, payments
towards marriage, other ceremonies and "unavoidable emergencies".
 
Yes Bank shares locked in for 3 years, what it means for you and your
funds?

The final reconstruction scheme for Yes Bank notified by the government on 13
March has locked in existing shareholders for a period of three years up to 75%
of their shareholding. Only those shareholders who have less than 100 shares in
the bank, can sell their entire shareholding. The move is unprecedented in
India's corporate history and will affect the 16.18 lakh retail shareholders in
the Bank, many of whom may own more than 100 shares depending on when they
entered the stock. Even at its peak in August 2018, 100 shares in Yes Bank cost
just ₹39,320. A retail shareholder is defined as those with shareholding up to
₹2 lakh. Collectively, retail shareholders own 43.66% of Yes Bank. High Net
Worth Individuals, those whose shareholding is more than ₹2 lakh, own another
4.30% of the stock. Index Funds may also see a rise in their tracking error,
since they will not be able to properly replicate the Index they are tracking.
Yes Bank has a 0.21% weight in the Nifty and will exit the Index on 27 March.
According to data from Rupeevest as of 29 Feb, 72 funds held around 14 crore
shares in Yes Bank. The highest shareholding as a percentage of scheme assets
was in DSP Equal Nifty 50 at 1.53% of assets. Yes Bank is also present in the
Bank Nifty which several index funds and ETFs track.

Monthly Chart: On the day of 51% fall, the stock has given bounce from the
levels of 6/7. The reason was monthly support and as we know “After a big fall
 recovery should happen”. If monthly closing comes above 45 then trend can
change.

Fundamental: If the basic fundamental is analysed then the data is mix and
match.

Plus

 Stock is trading at 0.24 times its book value.

 Company has been maintaining a healthy dividend payout of 19.39%

Minus

 Promoter holding has decreased by -11.44% over last quarter

 Promoter holding is low: 8.34%
The company has a low return on equity of 13.63% for the last 3 years.
If we see net profit then last year was too bad. Now we have to wait for this
year's results.
What is the impact on banking customers?
1. Amount deducted towards loan and premium payments will be impacted if it is
higher than Rs.50, 000.

2. It will have an impact on customers whose salary account is linked to Yes Bank

3. The possibility of renewing or granting loans and making investments by the

bank will reduce.

What next for YES Bank?

 
The RBI has a draft reconstruction plan for YES Bank which proposes that
depositors’ funds would be protected. The employees would also have the same
service conditions, including remuneration, at least for one year. However, in the
case of key managerial personnel, the new board would be empowered to take a
call. The SBI, which has received a board approval to invest in YES Bank, will
pick up to a 49% stake, according to the scheme, at a price that is not less than
Rs 10 for each share having a face value of Rs 2. SBI also cannot reduce its
holding below 26% before the completion of three years from the date of
infusion of the capital.

Banking part:

NPA’s & bad loan divergence and the potential impact of the RBI’s new
framework for stressed assets released in February.
RBI has taken control of bank. Restricted withdrawal of more than 50k.

Stocks part:

Government has directed SBI and LIC to buy stake in yes bank.
One thing is for sure that government is not going to De-list the stock because
they have directed SBI and LIC to buy stake. So they will never be de-listing
the stock.

Question 4 –
 Tata motors is a leading global automobile manufacturing company
which includes cars, sports, trucks, buses, defence vehicles, etc.
  Tata motors are working in Domestic and International. One of the
largest or we can say core product of company is JLR which is acquire
in 2008.From starting years JLR sales are better which impacted o
company financial performance also.
 If we analysis shareholding pattern promoter & promoter group
holding 38.37 % and rest of 61.63 % in public as per march 2019 data.
If we go through public shareholding pattern major shareholding by
mutual funds 8.12 %, FPI 19.14 % insurance companies 7.68 %, LIC 5.10
rest of in others. So by analyzing shareholding pattern we can say
company in good hand but one major issue is promoter holding which is
38.37 %.
 Management of Tata motors also well so there is no issue regarding
that

Now let us understand financial data of company

 If we see in above Data of Company net profit also decreased which

impacted on dividend payout I highlighted some figures which are
important. If we go through compounded sales and profit growth for past
5 years in negative which impacted on stock price from 600 to 300 on
that same year.

 In above image I compared with red line for past quarter

performance you can see which is drastically decreased.
 If we analysis Balance sheet of company nothing bad reserves are
increasing with total liabilities and assets are also increasing which is
good so for long term bet it is good choice for investment as per my
view.

 If we analysis cash flow from past many years cash flows are in
negative because of decrease in sales and investing higher financing.
  If we analysis some of ratio like dividend yield 0.00% ,ROCE 8.55%
and ROE 10.04 % which is impacted by company net profit, sales,
borrowing, etc. which dropped sock from high to 52 week low same
year.
 As per technical analysis if we go stock is oversold in 1 month chart
and there are maximum chance after some points correction towards
big rally main support will 188 and resistance will be 257 for next
movement.

Now we come to the point why stock is going down despite of good
fundamentals 

There is only one reason for stock correction which is JLR. JLR is more than
half weightage on Tata motors financial performance. So if JLR financial
performance weak means sales down or margin down which directly impact on
Tata motors financial which reflect in stock price. From past many quarters JLR
sales are down because of two reason one is CHINA- US trade war which is
directly impact on automobile industry mainly JLR an second is BREXIT on which
Europe depended which leads decrease in sales of JLR , Because of this two
main reasons company shut down also some operations and plant which reduce
the sales of JLR because of that reason company financial performance weak
which impacted on stock price from 600 to 180 and one thing also because in
domestic Tata motors performance is good so stock is stable at 180 otherwise
more downside expected. Currently company running mainly on domestic sales.
Another big problem is Nano plant which making huge loss its also impacted on
Tata motors financial performance. And another reason is auto sector not
performing well you can see Maruti stock price corrected 35 % .So above all
reasons are which reflected on stock price of Tata motors and its down from
6000 to 300 and 300 to 180. But as per my view for long term investment
company is good because all above reasons are for short term impact if JLR
back company performance will good and stock will good recover.

Summary of above data:

 Despite continued weakness in the Indian market, Tata Motors Ltd.

stand-alone, or TML, cut losses versus the second fiscal quarter and the
third fiscal quarter a year ago.
 Over the past 10 years, competitors have entered the Indian commercial
vehicle market and Tata's share of commercial trucks has retreated to
45% from a peak of 64% in 2010. This was driven by Tata taking longer to
introduce new models versus its peers, deregulation of diesel prices
 compromising its diesel range, new competitors entering a rapidly growing
market (6% CAGR since 2008).
 JLR confirmed guidance that consolidated EBIT margin would remain in
the low-single-digit range through fiscal 2021. We expect the rough road
to turnaround will continue, especially due to the unexpected plunge in
India demand, but we think the 5-star-rated shares of Tata Motors
represent compelling value for long-term investors relative to our
expectations for cash flow and returns on invested capital. The stock
currently trades at a discount to our Rs 465 fair value estimate.
However, our fair value estimate may be negatively affected by an
increased share count as TML announced an equity warrant sale to parent
Tata Sons.
 With new facilities in China, Slovakia, and Brazil, Jaguar Land Rover will
have a manufacturing presence in the world's top seven automobile
markets. Global volume growth in luxury segment vehicles is bolstered by
an increasing population of upper-middle-class as well as roughly 15 million
high-net-worth individuals with investable assets of $1 million or higher.
We expect 1%-3% average annual growth in overall global automotive
demand, but because of the increase in the world’s wealthy population, we
think luxury vehicle segment demand will grow at average annual rate in
excess of 3%. We believe JLR will continue to roll out new products that
sustain its luxury brand image and premium pricing, supporting our narrow
economic moat rating.

Threats Tata Motors 

 Fuel Price: The cost of fuel affects the sales of vehicle not only in India
but all over the globe. The fuel price and the sale of the cars directly
negatively relates. So, if the product prices increases it my reduce the
sales. This is one of the biggest threat for tata motors. Government
Laws: Increasing trend toward isolationism in the American economy can
lead to similar reaction from other government thus negatively impacting
the international sales.
 Liability laws in different countries are different and Tata Motors
Limited may be exposed to various liability claims given change in
policies in those markets.
 As the company is operating in numerous countries it is exposed to
currency fluctuations especially given the volatile political climate in
number of markets across the world.
  The company can face lawsuits in various markets given - different
laws and continuous fluctuations regarding product standards in those
markets.
 Many countries are developing on carbon emission. If india develops
such kind of law the TATA might need to develop more carbon
efficiency car which may need more of investment to the company.
 The company can face lawsuits in various markets given - different
laws and continuous fluctuations regarding product standards in those
markets.
 Market competition:

 Other competing car manufacturers have been in the passenger car

business for 40, 50 or more years. Therefore Tata Motors Limited has
to catch up in terms of quality and lean production.
 Since the company has focused upon the commercial and small vehicle
segments, it has left itself open to competition from overseas
companies for the emerging Indian luxury segments. For
example ICICI bank and DaimlerChrysler have invested in a new Pune-
based plant which will build 5000 new Mercedes-Benz per annum.
Other players developing luxury cars targeted at the Indian market
include Ford, Honda and Toyota. In fact the entire Indian market has
become a target for other global competitors
including Maruti Udyog, General Motors, Ford and others.
 Stable profitability has increased the number of players in the
industry over last two years which has put downward pressure on not
only profitability but also on overall sales.
 No regular supply of innovative products – Over the years the company
has developed numerous products but those are often response to the
development by other players. Secondly the supply of new products is
not regular thus leading to high and low swings in the sales number
over period of time.
 Other Threats:
 There are some other threats that need to be taken into account. For
instance, the increasing price of raw materials such as steel and
aluminum may badly impact on the cost of production, potentially
resulting in lower profit margin.
 Changing consumer buying behavior from online channel could be a
threat to the existing physical infrastructure driven supply chain
model.
https://www.marketing91.com/swot-tata-motors/

https://www.thestrategywatch.com

https://www.morningstar.in

https://www.businesstoday.in

Question 5 -
This in the respect of NSE’s NIFTY 50 Index. The share market has been quite
a crucial from past 2 months due to the spread of Covid-19 virus. As we were
touching high in the market i.e. 12,430. Yes, it is quite hard to believe that we
were touching sky in our market and then one news around the world and global
economy was in threat. Indian market has seen down side of around 35-40% in
past 2 months. The share market made high of 12,430 and the low was of 7,511.
Yes, that is a whopping fall of around 5,000 points in just 2 months.

Due to spread of virus country decided to lockdown and all the operations were
put on hold, which means that no tourism would we allowed, no import-export, no
commercial flights will be allow to fly, no intra state travel. All the industry
operations were stopped. The lockdown 1.0 lasted for 21 days which further
extended for 21 days in the form of lockdown 2.0 and which further extended
for 14 days as lockdown 3.0. The country as huge as India putting hold to its
operation will put its economy into recede.

Equity investor in the share market as faced losses up to 60% which means that
their portfolio was almost wiped off. There was huge selling pressure in the
share market due to the spread of corona virus and due to the lockdown as the
country was on stand still. There was a huge panic among the investor in the
share market as there was no surety about the market to be stable and form a
bottom and show the reversal.

Due to the spread of the Covid-19 virus many foreign institution investors have
withdrawn their money from the Indian share market and also due to the loss of
confidence in the Indian share market. Besides its Domestic institutional buyer
invested more in the falling market on the concept of buying on dips as no one
knows the bottom of the market.

How much investor have lost in the share market in 2020?

Is economic slowdown big worry now?

Is crash attracting people who have never invested before?

CONCLUSION:

Though the share market has fallen 5,000 points from past 2 months we can
also consider this as an opportunity to invest in quality stocks for better return
in 2-3 years. Buy on dip is the strategy which investor should consider as we
don’t know the bottom yet. From past 2 weeks there has been boom in Indian
share market i.e. from 7,510 to 9,890 because the investor is pushing in money
to buy quality stocks and RBI scheme has given a good flow of cash among the
people.

As the Covid-19 virus is not permanent nor is the fall in the market so with the
positive mind and good strategy investor should invest small amount in the
market. The lockdown will further last for 2-3 months but the good news is that
the area has been divide among the red, orange, and green zones and the
operations are going to start in green zones. Though we have slowed economy in
this quarter but we hope our economy to boom in next coming quarter as there
will be excess demand in the market once the lockdown is lifted.
Source for the chart:
https://economictimes.indiatimes.com/wealth/invest/coronavirus-impact-on-
equities-buy-sell-or-stay-put-what-investors-plan-to-do-
now/articleshow/74979981.cms?from=mdr
Question 6

Balance Sheet of A Ltd include investment in shares of B Ltd, A Ltd is a holding

company and B Ltd is a subsidiary company
Consolidated Balance Sheet of A Ltd as on 31st March, 2019
Liabilities Amount Amount Assets Amount ₹ Amount
₹ ₹ ₹
Equity Share (Rs. 25,00,0 Land and Building
10 Each) 00 -
Profit and Loss 4,31,600 A Ltd 6,00,000
Appropriation
Less - Stock 22,500 4,09,10 B Ltd 13,25,000 19,25,0
Reserve 0 00
General Reserve 6,55,00
0

Capital Reserve 1,10,50 Plant and

0 Machinery -
A Ltd 7,52,500
B Ltd 5,67,000 13,19,5
00

Sundry Creditors Stock -

-
A Ltd 2,12,500 A Ltd 2,25,300
B Ltd 40,500 B Ltd 1,12,500
2,53,000 3,37,800
Less - 13,600 2,39,40 Less - Stock 22,500 3,15,30
Intercompany 0 Reserve 0

Term Loan from Bills Receivable -

Bank -
A Ltd 3,52,000 A Ltd 1,68,300
B Ltd 1,55,000 5,07,00 B Ltd 6,66,000
0
8,34,300
Less - 13,600 8,20,70
Intercompany 0
Minority Interest 2,67,80 Cash and Bank -
0
A Ltd 1,05,000
B Ltd 2,03,000 3,08,00
0

Total 46,88,8 46,88,5

00 00
 Working Note 1 - Minority Interest
Shares %
Total Shares of B Ltd 1,80,000 100
Less Shares Owned by A Ltd 1,62,000 90
Shares with minority shareholders 18,000 10

Total Worth of B Ltd (Liability side

approach)
Equity Share Capital 18,00,000
Profit & Loss Appropriation 3,78,000
General Reserve 5,00,000
Total Worth of B Ltd 26,78,000

Share belonging to A Ltd (90%) 24,10,200

Share belonging to Minority Shareholders (10%) 2,67,800

Working Note 2 - Goodwill / Capital Reserve

Calculation

Share of holding company in subsidiary Company 24,10,200

Less - Consideration Paid 23,00,000

Capital Reserve -1,10,200

Working Note 3 - Stock Reserve

Profit is calculated on cost. While the stock appearing in the balance
sheet is at selling price. Hence profit cannot be calculated directly
%
Cost 100
Add Profit 33.33
Selling Price 133.33
Selling price of a stock as per adjustment which represent 125% as per
above calculation
Sale Profit
133.33 33.33
90,000 22,500
Stock reserve need to be created for Rs. 22,500
Question 7 –
Hindustan Unilever Ltd

HUL cash flow statement analysis:

HUL’s cash flow from operating activities (CFO) during FY19 stood at RS 58
billion on a YoY basis.

Cash flow from investing activities (CFI) during FY19 stood at RS -4 billion on a
YoY basis.

Cash flow financial activities (CFF) during FY19 stood at RS -54 billion on a YoY
basis.

Overall, net cash flow for the company during FY19 stood at RS -280 million
from the RS 210 million net cash flows seen during FY18.

Positive cash flow from operating activities shows that the company is healthy
and can use that money to reinvest and grow its business.

Negative cash flow from financial activities means that company has a poor
choice of investment or the investment of the company has gone down. However,
we cannot judge the investment activities by only one criteria.

For example: HUL has made investment in long term fixed assets like land and
equipment’s on time to time basis which shows their investing activity negative.
Negative cash flow from financing activities means that the company has paid
out capital, such as retiring or paying off long term debt or making a dividend
payment to shareholders.

In case of HUL it has paid 2 dividends i.e. interim dividend of RS 11 per share
and final dividend of RS 13 per share.

Question 8 –

I. EV/EBITDA : The EV/EBITDA ratio is a comparison of enterprise value

and earnings before interest, taxes, depreciation and amortization.  This
is a very commonly used metric for estimating the business valuations. It
compares the value of a company, inclusive of debt and other liabilities, to
the actual cash earnings exclusive of the non-cash expenses.
The company A is more valued then company B & I think that company B is
having more debt as compared to company A.

II. Price/Book Value : Price to book ratio analysis (PBV ratio or P/B ratio)

expresses the relationship between the stock price and the book value of
each share. In general, the lower the PBV ratio, the better the value is.
However, the value of the ratio varies across industries. A
better benchmark is to compare with industry average.
Here the company B is good as compared to company A.

III. Earning Per Share : Earnings per share or EPS is an important financial
measure, which indicates the profitability of a company. It is calculated
by dividing the company’s net income with its total number of outstanding
shares. It is a tool that market participants use frequently to gauge the
profitability of a company before buying its shares.
The company A is having much higher EPS as compared to company B. So
there can be a issue with the working pattern of company B.

IV.  EBITDA Margin: EBITDA margin is a profitability ratio that measures

how much earnings a company is generating before interest, taxes,
depreciation, & amortization, as a percentage of revenue. EBITDA Margin
= EBITDA/Revenue.
 Here also company A is leading compared to company B. Company A is able
to generate good profit as compared to company B.

V. EBIT MARGIN: The EBIT margin is a financial ratio that measures the
profitability of a company calculated without taking into account the
effect of interest and taxes. It is calculated by dividing EBIT (earnings
before interest and taxes) by sales or net income.
Here also company A is leading compared to company B. Company A is able
to generate good profit as compared to company B.

VI. PAT MARGIN: An after-tax profit margin is a financial performance

ratio calculated by dividing net income by net sales. A company's after-
tax profit margin is significant because it shows how well a company
controls its costs. The after-tax profit margin is the same as the net
profit margin.
The profit margin of company A is higher as compared to company B. If
the sales of a particular company is higher then it is natural that profit
margin of its product will be higher as compared to its competitors
because there is something in its product which customers want &
competitor is not able to provide it to customers.
 
VII. ROE: The Return On Equity ratio essentially measures the rate of return
that the owners of common stock of a company receive on their
shareholdings. Return on equity signifies how good the company is in
generating returns on the investment it received from its shareholders.
The management of company A are using the money invested by
shareholders very efficiently. The management of company B is not able
to grab the opportunity and us the shareholders capital very effectively.

VIII. ROCE : Return on capital employed or ROCE is a profitability ratio that

measures how efficiently a company can generate profits from its capital
employed by comparing net operating profit to capital employed.
The money which the management has brought in its business is utilized
by company A better than company B.

IX. ASSET TURNOVER RATIO: The asset turnover ratio, also known as the
total asset turnover ratio, measures the efficiency with which a company
uses its assets to produce sales. The asset turnover ratio formula is equal
to net sales divided by the total or average assets of a company. A
 company with a high asset turnover ratio operates more efficiently as
compared to competitors with a lower ratio.
The company B is using its assets properly as compared to company A. So
company A can further increase its sales by proper utilization of all its
Assets.

X. CURRENT RATIO : Current ratio is a liquidity ratio which measures a

company's ability to pay its current liabilities with cash generated from
its current assets. It equals current assets divided by current liabilities.
The current assets hold by company A are higher as compared to company
B.

XI. QUICK RATIO : The quick ratio, also referred to as the acid test ratio,
is a liquidity ratio that measures the ability of a company to pay off its
short-term liabilities with quick assets that can be converted into cash
within 90 days.
Company A will liqudify its Assets quickly as compared to company B at
the time of crisis.

XII. INVENTORY : The inventory turnover ratio is an efficiency ratio that

shows how effectively inventory is managed by comparing cost of goods
sold with average inventory for a period. This measures how many times
average inventory is “turned” or sold during a period.
Since the sales of company A is higher, so it is having higher inventory
turnover ratio as compared to company B.