TERM PAPER ON ANALYSIS OF FINANCIAL STATEMENTS OF A COMPANY

PAPER: ACCOUNTING FOR MANAGERS PAPER CODE: MGT 515

COMPANY:

PRIME FOCUS INDIA Ltd.

Submitted to
Ms Kiran Mehta Lecturer Accounting for Managers LSB

Submitted by
Varun Puri Roll no.-R 322 A 09 Reg. no. - 10800464

Lovely School of Business

Lovely Professional University

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

INDEX
Page no.

Acknowledgement Motive of Term Paper Parameters worked on Preface of Term Paper Company Introduction Profitability Position Asset Position Liability Position Directors’ Report Notes to Accounts Corporate Governance Report Methods Applied Balance Sheet Profit & loss Account References

2 3 3 4 5 6 12 17 22 25 29 31 32 33 35

Page no. 1

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

Acknowledgement
Through my gratitude towards my supporters yet I like to add a few hearts full for the
people who were part of this project in numerous ways. People who gave understanding support right the project ideas were conceived.

First I want to thank to Ms. Kiran Mehta, Lecturer Accounting for managers, Lovely Professional University, Phagwara for assigning this term paper & I also want to give hands full gratitude to her for her help & guidance. I would like to thank all the faculty of Lovely Business School for having faith in me & for their kind inspirations & helping mw whenever asked.

Last but not least, I expand my heartiest gratefulness all people who have been directly or indirectly involved in this project & have given me their best wishes & all help that I needed for the completion of the term paper.

Varun Puri

D D A D

SA A D AD A DD

Page no. 2

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

Motive

of

Term Paper

Term paper assigned to me is to analyze the financial position of a company & the
company allotted is PRIME FOCUS INDIA Ltd. The motive behind this assignment is to bring out our analytical skills for analyzing the final accounts i.e. Profit & Loss Account & Balance Sheet & to understand what information is to be disclosed by Directors in the annual report.

Parameters Worked Out
A) B) C) D) E) F)

Profitability Position Asset Position Liability Position Directors Report Notes to Accounts Corporate Governance Report

Page no. 3

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

Preface of the Term Paper
Term paper is brought out by working in several Financial Statement& reports of the
company. Financial Statements used:Profit & Loss Account ( 5 years) Balance Sheet (5 yeas) Notes To Accounts Reports worked out Directors Report (2007) Auditors Report (2007) Corporate Governance Report (2007)

Page no. 4

Analysis

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Financial Position

of a company

PRIME FOCUS Ltd.

Company Introduction- Prime Focus India Ltd.

Prime Focus India is one of the largest end-to-end post production services companies
in world. Currently prime focus provides cutting edge creative & technical services in the three major entertainment makers of mumbai, chennai & hydrabaad, in india & throughout its subsidries in UK From the modest beginning in 1995 with four core team member, Prime Focus now has a team of over 1000 members with the best talent in the business. In the year 1995, the company started out of a garage with a single non-linear editing system, providing packaging for many long form episodes.

Mission Statement
To build a globally competitive business through the use of talent and technology

To be a leader in the business by harnessing creativity and passion with a zeal to change convention through conviction

To provide a platform for our people where growth = focus + hard work

To earn profit respectably by always delivering greater value for money To deliver to our shareholders a commitment to working with full integrity and intelligence at all the times
- Namit Malhotra

Page no. 5

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

Profitability

Position

Profit is the excess of revenues over the expenses of a given period of time, usually a
year. For this reason profit is also termed as net profit.

Profits are results in increase in owner’s capital. So, profit can also be defined as that part of revenue which increases owner’s capital.

The primary objective of a company is to earn profits. Profit earning is considered essential for survival of the business. In the word of Keynes, “profit is the engine that drives the business enterprise”. A business needs profits not only for existence but also for expansion & diversification.

The Investors want an adequate return on their investments, workers want higher wages, and creditors want higher security for their interest & loan & so on. Profits to management are test of efficiency & measurement

Net Profit analysis:Trend analysis of Net Profit (for 5 years) YEAR 2003 2004 2005 2006 2007 NET PROFIT
(IN RS. CRORE)

TREND PERCENTAGE 100% 142% 355% 605% 865%

2.32 3.30 8.24 14.02 20.08

The net profits have shown a drastic increase within the period of 5 years the profits have been increased in multiple terms this type of increase attracts the new investors & also creates a faith in the mind of the old investors of the company.

Page no. 6

Analysis

of

Financial Position X 100

of a company

PRIME FOCUS Ltd. Net profit Ratio = Net Profit. Net Sales YEAR NET SALES 2003 2004 2005 2006 2007 16.24 20.32 31.75 45.41 62.68 2.32 3.30 8.24 14.02 20.08 14.28 % 16.24 % 25.95 % 30.87 % 32.03 %

NET PROFIT (IN RS. CRORE) NET PROFIT RATIO

As we see the net profit ratio is continually increasing every year this type of profitability position creates a growing image of the organization & this relaxes the investors & creditors of the company about the risk of their investment in the company.

Operating Profit analysis
Trend analysis of Operating Profit (for 5 years) YEAR 2003 2004 2005 2006 2007 OPERATING PROFIT
(IN RS. CRORE)

TREND PERCENTAGE 100% 119% 105% 330% 441.51%

7.66 9.11 8.04 25.29 33.82

Operating profit is nothing the sum of cost of goods sold & other operating expenses. The increase in operating profit shows that the operating cost i.e. sum of cost of goods sold & other operating expenses is decreasing. As we know increasing operating profit means the lesser operating cost than the operating income.

Page no. 7

Analysis

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Financial Position

of a company

PRIME FOCUS Ltd. This analysis is generally used by the managers, cost department & the selling department of the company, in order to be in full knowledge how the cost is affecting the increasing sales & profits

Sales trend analysis:
Trend analysis of sales (for 5 years) YEAR 2003 2004 2005 2006 2007 SALES (IN RS. CRORES) 16.24 20.16 31.28 42.50 55.26 TREND PERCENTAGE 100% 130% 192% 261% 340%

The sales of the company have been increased to 3 times from its base year of 2003. This increase is also one of reason of increase in profits

Above analysis of various trends depicts a sound Profitability position of the company.

But it can not be said it the profitability position is purely sound we can also consider the earning per share for knowing the position.

Earning per share analysis:Earning per share is directly related to the net profit earned Earning per share in percentage (for 5 years) EPS . X 100 YEAR
BOOK VALUE
(RS. CRORE)

PERCENTAGE 17.85 % 16.85 % 26.55 % 13.58 % 15.78 %

2003 2004 2005 2006 2007

5.80 / 32.48 X 100 3.96 / 23.50 X 100 9.34 / 35.17 X 100 13.58 / 67.86 X 100 15.78 / 149.45 X 100

Page no. 8

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

As we see the above analysis we came to know, the earning per share has been fluctuating & it has been at its highest in year 2005, & lowest in last year 2007. This method of knowing the profitability position is generally followed by the Share holders of the company.

Return on Investment – ROI Ratio
ROI = Net profit after tax X 100 Share holders fund YEAR PROFITS AFTER TAX 2005 2006 2007 8.25 14.02 20.8 SHARE HOLDERS FUND 31.03 70.06 190.14 RETURN ON INVESTMENT 26.57 % 20.00 % 10.93 %

This ratio is one of the important ratios used for measuring the overall efficiency of organization. As the primary objective of the business is to maximize its earnings, this ratio indicates the extent to which this primary objective of the company is being achieved. This ratio is of great importance to the present & prospective shareholders of the company as well as the management of the company. This ratio indicates how well the resources of the company are being used, higher the ratio better are the results.

Here in our company the ROI ratio is showing a decreasing trend with the increase in the shareholders’ fund, no doubt the results of the last year are not much bad of 10.93% but still these are less than the results of the previous years, so the companies profitability position in views of the current & perspective shareholders’ is not food.

Page no. 9

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

Return on Net Capital Employed:
Return on Net Capital Employed = Profit before tax . X 100 Net Capital Employed

Net Capital Employed = Total Assets - Current Liabilities YEAR PROFITS BEFORE NET CAPITAL TAX 2005 2006 2007 13.02 20.92 29.21
(RS. CRORE)

RETURN ON NET CAP. EMPLOYED 46% 46.65% 15%

EMPLOYED
(RS. CRORE)

28.08 44.85 192.7

In year 2005 & 2006 the ratio was some about constant but last year in 2007 the ratio felled, this proves lesser degree of proper utilization of resources. As we know this ratio can be used in formulating the borrowing policy of the company, i.e. borrowing rate must be less than the return on capital employed. The outsiders like bankers, creditors, financial institutions will not take the concern as a viable one for giving credit or extending loans.

Page no. 10

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

Causes of increase in Profits

So after analyzing the above data we came to know the causes of increase in Profits
of the company. These are as below 1) Increase in sales. 2) Decrease in the operating cost of producing services

Results of the Increase in Profits of the company:1) Increase in Earning per share. 2) Increase in Return on Investments. 3) Above increases results to the attraction of new investors. 4) Increases the viability of the company in the mind of creditors of the company, because they are always looking for the growth of the company. 5) Decrease in operating cost of the production of the services.

Profitability Position of Company:
1) The company has a very sound position on the basis of the profits earned by them. 2) The company is enjoying a stage of growth. 3) The operating cost is decreasing which indicates a effective & efficient management.

Page no. 11

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

Asset
Assets

Position

In business and accounting, assets are everything of value that is owned by a person or
company. The Balance Sheet of a firm records the monetary value of the assets owned by the firm. The 2 major Asset Classes are Tangible Assets and Intangible Assets. Tangible Assets contain various subclasses, including Financial Assets and Fixed Assets. Financial Assets include such items as Accounts Receivable, Bonds, Stocks and Cash; while Fixed Assets include such items as Buildings and Equipment. Intangible Assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the Market Place. Examples of Intangible Assets are Goodwill, Copyrights, Trademarks, Patents and Computer Programs

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.

Long-term
near future.

investmentsOften referred to simply as "investments". Long-term

investments are to be held for many years and are not intended to be disposed in the

Fixed

assets also referred to as PPE (property, plant, and equipment), or tangible

assets, these are purchased for continued and long-term use in earning profit in a business. This group includes land, buildings, machinery, furniture, tools, and certain wasting resources e.g., timberland and minerals. They are written off against profits over their anticipated life by charging depreciation expenses (with exception of land). Accumulated depreciation is shown in the face of the balance sheet or in the notes.These are also called capital assets in management accounting.

Page no. 12

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

Intangible assets Intangible assets lack physical substance and usually are very hard to
evaluate. They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc. Websites are treated differently in different countries and may fall under either tangible or intangible assets.

Assets position of a campany can verified in various ways. Firstly a intrested party to the company will check for the degree of current assets & fixed assets. Creditors of the company will like more current assets in the total assets

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. Here in our company following is the trnd analysis of the current assets Trend analysis YEAR 2003 2004 2005 2006 2007 CURRENT ASSETS
(RS. CRORE)

TREND PERCENTAGE 100 % 203 % 250 % 445 % 584 %

6.00 12.23 14.96 26.65 35.05

Total Current assets of the company have been increased from base year of 2003 i.e. 6 crores to 35.05 crores in 2007 year i.e. about 6times the base year. Generally short term creditors are the main intrested parties to current asset. More curent assets of company relaxes the short term creditors & suppliers of the company because these assets can be easily convertible into cash..

Page no. 13

Analysis

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Financial Position

of a company

PRIME FOCUS Ltd.

Constituents of Current Assets (3-years)
Year Sundry Debtors %age in Total Current Assets Cash & Bank %age in Total Current Assets Loans & Advances %age in Total Current Assets Fixed Deposits %age in Total Current Assets Total 2003 5.66 67% 0.34 4.04% 2.41 28.96% 0 ~ 8.41 14.87 2004 8.02 53% 4.21 29% 2.64 18% 0 ~ 2005 14.2 46.14% 0.76 2.47% 5.52 18% 10.29 33.40% 30.77 2006 20.77 29% 5.88 8% 13.21 18% 33.77 45% 73.16 2007 32.69 26% 2.36 1.87% 60.55 48% 30.17 24.13% 125.77 Fluctuating Sudden Increase Decreasing Decreasing

(Rs. crore)
Above table shows the current assets & its constituents. As we know current assets are the assets which can be coverted into cash within a short period of time & these assets are taken as the liquid assts of the copmany but sometime it constitutes of such assets which are not much easily convertible to cash. In our company cash & bank balances are less than the other assets & these are decreasing in subsequent years which is not a good indication of a sound asset position & same is the case with deptors.
<<

On the other hand Loans & advances & fixed deposits are increasing & occupy a more part in total current assets. This type of structure of current assts in a company is not dezirefull by the short term creditors & suppliers & other intrested parties to the company. Company should try to increase applying funds in more liquid assets than others.

Fixed Assets analysis
Fixed assets to Net Worth Ratio = Fixed assets ( after depriciation) X 100 Shareholder’s funds

Page no. 14

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd. The ratio establishes the relationship between the fixedassets of the copmany & the shareholder’s funds. YEAR FIXED ASSETS
(RS. CRORE)

SHAREHOLDERS FUNDS (RS. CRORE) 12.99 19.60 31.03 70.06 190.14

RATIO

2003 2004 2005 2006 2007

14.94 13.37 16.53 17.78 111.38

115% 68% 53% 26% 58%

The ratio of fixed aseetts to the net worth indicated the extent to which the shareholders’ funds are sunk into fixed assets. Genrally, the purchase of fixed assets should be financed by shareholders’ equity icluding th ereserves, surpluses & retained earnings. If the ratio is less than 100 %, it implies that owner’s funds are more than the total fixed assets & a part of working capital is provided by shareholders. When the ratio is more than the 100 %it implies that the owners funds are not sufficient to finance the fixed assets of the company & the company has to depent on upon outsiders to finance the fixed assets. In our company the ratio in last four years has been between 60 to 70 % which is assumend to be a satisfactory positionof the company. He rule of thumb also says the same about the ratio. So, the company has financed their fixed assets from the shareholders’ funds, the shareholders will asssume the companies asset position as a sound one.

Page no. 15

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

Proprietory Ratio or Eqity Ratio
Proprietory Ratio = Shareholder’s funds Total Assets YEAR SHAREHOLDERS FUNDS 2003 2004 2005 2006 2007 12.99 19.60 31.03 70.06 190.14
(RS. CRORE)

X 100 TOTAL ASSETS
(RS. CRORE)

RATIO

23.35 28.24 47.30 90.94 237.15

55.63 % 70.00 % 66.17 % 77.00 % 80.12 %

This ratio establishes the relationship between shareholders’ fund & total assets of the company. It helps in determining the long term solvency of the company. As equity ratio relationship between shareholders’ fund & total assets, higher the raio or share of the shareholders in th total capital of the company, better is the long termsolvency position of the company.the ratio indicates the extent to which the assets of the company can be lost without affecting the intrest of creditors of the company.

Assets Positon of Company
Total Current assets of yhe company are incresing which is good for attrcting creditors for fesible credit policy but the constituents of total current assets are less liquid which is not desired by the both company & creditors as well, so company should recover the Loans & advances in order to increase liquid assets & if we see decreasing Debtors is taken as indication of increasing cash sales but on analyzing we see that cash portion in current assets has not increases as propotionatly to decrease in the Debtors percentage,

Page no. 16

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd. Companys fixed assets have been increased & these are purchased from the long term funds which as required. Company’s total assets are capable of paying off the long term liabilites.

Liability

Position

Liability is defined as an obligation of an entity arising from past transactions or
events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. Individual or group must adopt corporate charter and file it with the state. They embody a duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services or other yielding of economic benefits, at a specified or determinable date, on occurrence of a specified event, or on demand; The duty or responsibility obligates the entity leaving it little or no discretion to avoid it; and, The Australian Accounting Research Foundation defines liabilities as “Future sacrifice of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions and other past events” Classification of accounting liabilities Liabilities are reported on a balance sheet and are usually divided into two categories: Current liabilities — these liabilities are reasonably expected to be liquidated within a year. They usually include payables such as wages, accounts, taxes, and accounts payables, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations (e.g. from purchase of equipment), and others. Long-term liabilities — these liabilities are reasonably expected not to be liquidated within a year. They usually include issued long-term bonds, notes payables, long-term leases, pension obligations, and long-term product warranties.

Page no. 17

Analysis

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Financial Position

of a company

PRIME FOCUS Ltd.

Funded Debt or Total Captilization Ratio
The ratio establishes relationship between the long term funds & the total long term funds availeble in the company. Funded Debt = Debentures + Mortgage Loans + Other long Term Loans Total Capitalization = Equity Share cap. + Pref. Sh. Cap. + Reserve & surplus + Other undistributed + Debentures + Mortgage Loans + Other long Term Loans OR Total Capitalization = Equity Share cap. + Pref. Sh. Cap. + Reserve & surplus + Other undistributed + Funded Debt Funded Debt is that part of total capitalization hich is financed by outsiders. Funded Debt Ratio = Funded Debt X 100 Total Capitalization FUNDED DEBT
(RS. CRORE)

YEAR

TOTAL (RS. CRORE) CAPITLALIZATION 23.34 28.23 47.29 90.96 237.14

RATIO

2003 2004 2005 2006 2007

10.35 8.63 16.26 20.90 47.00

44.34 % 30.57 % 34.38 % 23.00 % 20.00 %

The above indicates the liability position of company towrds the outsiders, i.e. reliance of company for finanance on outsiders’. The copmpany have more relied on the share holders, that is on public offering or eqity share capital than on outsiders funds. As we see proportion of outsiders funds (funded debt is decresing every year & know it is only 20 %. The rule of thumb says the ratio should lie beyond 50 – 60 % & above that is not desired & tolerable.

Page no. 18

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd. The cause of decresing reliance on outsiders funds is increase in equity share capital or issue of public offerings.

Fixed Assets analysis
Fixed assets to Net Worth Ratio = Fixed assets (after depriciation) X 100 Shareholder’s funds The ratio establishes the relationship between the fixedassets of the copmany & the shareholder’s funds. YEAR FIXED ASSETS
(RS. CRORE)

SHAREHOLDERS FUNDS (RS. CRORE) 12.99 19.60 31.03 70.06 190.14

RATIO

2003 2004 2005 2006 2007

14.94 13.37 16.53 17.78 111.38

115% 68% 53% 26% 58%

The ratio of fixed aseetts to the net worth indicated the extent to which the shareholders’ funds are sunk into fixed assets. Genrally, the purchase of fixed assets should be financed by shareholders’ equity icluding th ereserves, surpluses & retained earnings.

If the ratio is less than 100 %, it implies that owner’s funds are more than the total fixed assets & a part of working capital is provided by shareholders.

When the ratio is more than the 100 % it implies that the owners funds are not sufficient to finance the fixed assets of the company & the company has to depend on upon outsiders to finance the fixed assets.

In our company the ratio in last four years has been between 60 to 70 % which is assumend to be a satisfactory positionof the company.

Page no. 19

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd. He rule of thumb also says the same about the ratio. So, the company has financed their fixed assets from the shareholders’ funds, the shareholders will asssume the companies asset position as a sound one.

But from liability perspective we see that amount of fixed asstes is less than the share holders funds which in case of liqidation of the company is not dezired because shreholdes’ are the parties who has to be paid from these fixed assets, so the from yhis analysis we can say the liability position toward the share holders is not sound & reason behind is use of share holders funds in working capital formation & underutilizatin of shareholders funds..

Solvency Ratio
Solvency Ratio = Total Liabilities to ousiders X 100 Total Assets YEAR LIABILITIES TO OUSIDERS
(RS. CRORE)

TOTAL ASSETS
(RS. CRORE)

RATIO

2003 2004 2005 2006 2007

10.35 8.63 16.26 20.90 47.00

23.34 28.23 47.29 90.96 237.14

44.34 % 30.57 % 34.38 % 23.00 % 20.00 %

The ratio indicates relationship between liabilities to outsiders yo total assets of the company. Generally, lower the ratio is, the stable & solvent is the companies position from the perspective of liabilities.

So, after analysing the ratio we can say company is in good liquid posision to met with the outsiders liabilities.

Page no. 20

Analysis

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Financial Position

of a company

PRIME FOCUS Ltd.

Current Liqidity Position
Current or short run liability position is the mesure that all short term creditors & parties uses to take decisions regarding the farmulation of credit policies for the company, so that to minimize the risk of their money.

Current Ratio = YEAR

Current Assets Current Liabilities CURRENT ASSETS
(RS. CRORE)

X

100 RATIO

CURRENT LIABILITES
(RS. CRORE)

2003 2004 2005 2006 2007

8.41 14.87 30.77 73.16 125.77

6.83 7.88 19.22 46.09 44.46

1.2 : 1 1.88 : 1 1.60 : 1 1.58 : 1 2.82 : 1

Current ratio indicates the relationship between current assets & the current liabilities. A relatively high ratio is an indication that the firm is liquid & has ability to pay its current liabilities/obligations in time as they become due. An increase in the current ratio represents imptovement in the liqidity position of thr company. The rule of thumb fr this ratiio is two is one ratio In our company the current ratio has been improoved from 1.2 : 1 in 2003 to 2.82 in 2007. but with this 5 fgure wew cant say that now the companies shrt term financial position is stable because it has improved its position & have not yet shown a place of stability in the current ratio. The reason behind the incease in current ratio is the increase of current assets more than increase of current liabilities & the company was able to invest more in current asstes

Page no. 21

Analysis

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Financial Position

of a company

PRIME FOCUS Ltd. due to the surplus avible in shreholders funds which was used to increase the working capital.

Directors’
Overall Performance:

Report

Directors report includes the following points

The Gross Income increased by Rs. 1930.13 Lacs in 2006-2007, which is 43.98% increase over PreviousYear. The Profit after Tax of the Company increase from Rs. 1402.26 Lacs in 2005-06 to Rs. 2007.80 Lacs in 2006-2007 which is 43.18% increase over Previous Year.

Share Capital:
The Company has issued 23,98,088 Equity Shares of Rs. 10/- each at premium of Rs. 407/- each, on 12th June, 2006 pursuant to the Initial Public Offer, due to which, the paid up capital of the Company now stands increased from Rs. 10,32,45,000 as on 31st March, 2006 to Rs. 12,72,25,880/- as on 31st March, 2007.

Subsidiary Company:
The Company has obtained permission from the Central Government under Section 212(8) of the Companies Act, 1956 and accordingly the individual Annual Accounts of VTR Plc, the subsidiary company for the year ended 31st March, 2007 have not been attached to the Annual Report. Copies of these Accounts will be made available to any member upon request.

Directors:
Mr. Rakesh Jhunjhunwala and Mr. Rivkaran Chadha shall retire from the Board under the Articles of Association and they are eligible for reappointment.

Page no. 22

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd.

Listing on the Stock Exchanges:
The Company’s shares are listed on the following Stock Exchange: 1. The Stock Exchange, Mumbai Phiroze Jeejobhoy Towers. Dalal Street, Fort, Mumbai – 400 001. 2. The National Stock Exchange Bandra Kurla Complex Mumbai – 400 051 The Company has been complying with the listing agreement stipulations from time to time. The Company has made the payment of Annual Listing Fees for F.Y. 2007-08 to Mumbai Stock Exchange and the National Stock Exchange.

Corporate Governance:
The Company has been proactive in following the principles and practices of good corporate governance. The company has taken adequate steps to ensure that the conditions of Corporate Governance as stipulated in clause 49 of the Listing agreements of the Stock Exchanges are complied with. A separate statement on corporate governance is produced as a part of the Annual Report along with the Auditors certificate on its compliance.

Fixed Deposits:
The Company has not accepted or renewed any Fixed Deposits within the meaning of Section 58-A of the Companies Act, 1956.

Particulars of employees:
There is no employee during the year under review in respect of whom the particulars as required to be disclosed with reference to the Companies (Particulars of Employees) Rules, 1975 as amended.

Page no. 23

Analysis

of

Financial Position

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PRIME FOCUS Ltd.

Directors’ Responsibility Statement u/s 217 (2AA) of the Companies Act, 1956:
The Directors confirm that in the preparation of the annual accounts for the year ended 31st March 2007: 1. The applicable accounting standards have been followed along with proper explanations relating to material departures, if any. 2. That the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit or loss of the Company for the period ended 31st March, 2007. 3. That the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. 4. That the directors had prepared the annual accounts on a going concern basis.

Conservation of Energy and Technology Absorption: The Company is not engaged in manufacturing activities and as such the particulars relating conservation of energy and technology absorption are not applicable. The Company makes every effort to conserve energy as far as possible in its post production facilities, Studios, Offices, etc.

Directors’ Explanation on Auditor’s Remarks With respect to the Group Subsidiary’s auditors reservations regarding their inability to express an opinion for lack of their being unable to carry out certain audit procedures as they were appointed mid-term for lack of certain evidence and inadequate assurance on operations from the erstwhile auditors on opening balances as at 31st August, 2006 wherein even we are unable to arrive at the reluctance of the erstwhile auditors since

Page no. 24

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd. we had certified that all relevant information was disclosed at all times. We therefore believe that the issue referred to above is only academic in nature.

Notes

To

Acccounts

Prime Focus India is one of the largest end-to-end post production services companies
in world. Currently prime focus provides cutting edge creative & technical services in the three major entertainment makers of mumbai, chennai & hydrabaad, in india & throughout its subsidries in UK. So in order to meet the standards of their imperial clients they follow the accounting principles very carefully & get the accounts audited as prescribed by the corporate governing authority i.e. Securities & exchange board of India.

Major Accounting Policies of Accounting followed are as follows: 1) Basis of Accounting The Financial Statements are prepared under historical cost convention on an accrual basis and comply with the Accounting Standards issued by the Institute of Chartered Accountants of India referred to in section 211(3C) of the Companies Act, 1956.

2) Fixed Assets (I) Fixed Assets a. Fixed Assets are stated at their original cost of acquisition, including incidental expenses related to acquisition, installation and other attributable costs to bring the assets to their working condition. The Fixed Assets are stated at cost of acquisition less accumulated depreciation. b. Borrowing costs that are directly attributable to the acquisition of a qualifying asset are capitalized as part of the cost of that asset.

(II) Depreciation

Page no. 25

Analysis

of

Financial Position

of a company

PRIME FOCUS Ltd. Depreciation on fixed assets is provided on Written down Value Method as per the provisions of Companies Act, 1956 and at the rates and in the manner specified in Schedule XIV of the Companies Act, 1956.

3) Impairment of Assets The company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the profit and loss account. If at the balance sheet date there is an indication that if a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount.

4) Foreign Currency Transactions Transactions in Foreign Currencies are recorded at the exchange rate prevailing on the date of transaction or at the exchange rates under related forward exchange contracts if any. Current Assets and Current Liabilities in foreign currencies are restated at the exchange rates prevailing on the date of Balance Sheet. Any gain / loss arising on such restatement or on realization is charged to the Profit and Loss Account. Overseas Investments are recorded at the rate of exchange in force on the date of allotment / acquisition.

The notes to accounts of prime focus india ltd also throws light on 1) Stetement of IPO as on 31st march 2007. 2) Related parties diclosures & designations of respective. 3) Expenditures & earnings made in foreign currency. 4) Capital raised during the year. 5) Balance sheet abstract & company’s general profile.

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The company has presented the notes to accounts in such a way that if some one wants have an overviw of the company the same can go Balance sheet abstract & company’s general profile (included in Notes to accounts) & the pupose can be fulfilled. Following is the Abstact of the same.

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From stement one can easily extract information required by him. This statement indicates the overview of growth of companies operations & helps the reader o attain a niche knowledge about the company.

CORPORATE GOVERNANCE
REPORT

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Corporate governance is the set of processes, customs, policies, laws and institutions
affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large. Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focus on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world. In A Board Culture of Corporate Governance business author Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'.

Impact of Corporate Governance
The positive effect of good corporate governance on different stakeholders ultimately is a strengthened economy, and hence good corporate governance is a tool for socio-economic development.

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Parties to corporate governance
Parties involved in corporate governance include the regulatory body (e.g. the Chief Executive Officer, the board of directors, management and shareholders). Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large. In corporations, the shareholder delegates decision rights to the manager to act in the principal's best interests. Prime Focus India Ltd is one of the largest industry in indian film industry. They have ccompany’s as clients who are larger than them & to comply with their standards they have compileied themselves with the relevent corporate governance standards, some of them have been extracted from their annual report & wrote downhere. 1) Acceptable composition of Board of directors. With adequate numbers of executive directors, Independent directors & non executive diretors. 2) Board of meetings:-

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Methods Applied
Ratio Analysis
A ratio is an expression which compares quantities relative to each other. The most common examples involve two quantities, but in theory any number of quantities can be compared. Mathematically they are represented by separating each quantity with a colon, for example the ratio 2:3, which is read as the ratio "two to three".

Ratio analysis in accounting is a technique of analysis & interpretation of financial statements. It is the process of establishing & interrating various ratios for helping in making certain decisions. Uses & Significance of Ratio Analysis 1. Managerial Uses of Ratio Analysis Helps in Financial Forecasting & Planning Helps in Communicating Helps in Control 2. Utility to Share holders & Investors 3. Utility to Creditors 4. Utitlity to Employees 5. Utility to Tax Audit Requrements

Trend Analysis
The term "trend analysis" refers to the concept of collecting information and attempting to spot a pattern, or trend, in the information. In some fields of study, the term "trend analysis" has more formally-defined meanings. Although trend analysis is often used to predict future events, it could be used to estimate uncertain events in the past, such as how many ancient kings probably ruled between two dates, based on data such as the average years which other known kings reigned.

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Balance Sheet

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Profit & Loss Account

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Book References
Gupta S., Sharma R., “ Management Accounting & Busines Finance Ch.4 Ratio Analysis. Bagga R., Juneja C., “ Accounting for Management & Information Technology”

Web Site References
Company Introduction http://primefocusworld.co.in/company _history Final Statements http://money.rediff.com/money/jsp/balancesheet.jsp?companyCode=17040159 http://money.rediff.com/money/jsp/p_l.jsp?companyCode=17040159 Directors’ Report http://primefocuworld.co.in pdf. Doc. Annual report 2007 pp 34-36 Corporate Governance Report http://primefocuworld.co.in pdf. Doc. Annual report 2007 pp 37-43 Meaning of Trend Analysis http://en.wikipedia.org/wiki/Trend_analysis Meaning of Profits http://en.wikipedia.org/wiki/Profitability Meaning of Assets http://en.wikipedia.org/wiki/Profitability Meaning of Liability http://en.wikipedia.org/wiki/Liability

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