Session 1&2

Financial Statement Analysis and Business

Valuation

Presented By:
Varun Dawar
IMT Ghaziabad
2
3
 Equity Investing- What is it all about?

 A. No Company is good or bad….it is the Price at

which it is available is good or bad….Satyam???

 B. Never attempt to make quick money on the stock

market. Buy on the assumption that they could close
the market the next day and not reopen it for five
years....

 C. Be Fearful When Others Are Greedy and Greedy

When Others Are Fearful...

4
5
6
 MF AUM

7
 Markets

8
 Markets...contd
Issue Size Listing Current
Date IPO Name (in crores) Listing Open Listing Close Gains(%) CMP Gains (%)
7/2/2019 Chalet Hotels 1628.84 291 290.4 3.71 320.05 14.3
4/2/2019 Xelpmoc Design 23 56 58.8 -10.91 71 7.58
8/10/2018 AAVAS Financier 1729.2 758 773.15 -5.83 1,151.00 40.19
23-08-18 CreditAccess Gr 1126.44 393 420.8 -0.28 476 12.8
30-07-18 TCNS Clothing C 1121.98 715 657.8 -8.13 784.8 9.61
2/7/2018 RITES 453.6 190 212.7 14.97 254.95 37.81
2/7/2018 Fine Organics 597.87 815 822.8 5.08 1,275.00 62.84
21-05-18 Indostar Capita 1844 600.6 585.5 2.36 356.95 -37.6
5/4/2018 ICICI Securitie 4016 435 444.9 -14.44 249.2 -52.08
4/4/2018 Mishra Dhatu Ni 438.38 93.1 90 0 139.85
28-03-18 Hindustan Aeron 4229 1159 1128.35 -7.13 710.95 -41.49
27-03-18 Bandhan Bank 4473 485 477.2 27.25 503.5 34.27
23-03-18 Bharat Dynamics 960.94 360 390.7 -8.71 286.4 -33.08
9/3/2018 HG Infra Engg 457.7 270 270.05 0.02 276 2.22
26-02-18 Aster DM Health 980.14 182 179.85 -5.34 154 -18.95
8/2/2018 Galaxy Surfacta 937.09 1525 1698.1 14.74 1,120.70 -24.28
30-01-18 Amber Enterpris 600 1175 1237.25 44.03 790.6 -7.96
29-01-18 Newgen Software 424.62 256 253 3.27 317.05 29.41
22-01-18 Apollo Micro Sy 156 478 454.1 65.13 108.45 -60.56
9
 Markets...contd
 On the basis of Maturity….can be classified into money and capital markets

 Money markets: Trades instruments with less than one year maturity….treasury
bills (91, 182 and 364 day maturity), Commercial papers, certificates of deposits
and repos.

 Capital Market: Trades in instruments with more than 1 year maturity- equity,
treasury bonds….

10
11
12
 ANNUAL REPORT
 Annual report is a comprehensive yearly document that enables the company to
communicate with its stakeholders, and particularly investors (existing and potential)
on annual progress or health of the state of affairs, including the audited financial
statements, management discussion and analysis, director’s report and message from
the Chairman.
 A typical annual report at its basic includes:
 General information about the business segment/segments in which the company
is involved
 Director’s Report along with audited financial statements of Profit &Loss,
Balance sheet, Cash flow and notes to accounts
 Management Discussion and Analysis section providing a composite summary of
performance of various businesses of the Company along with prospective
analysis
 Corporate Governance Report
 Listing of the company’s board of directors, management committee and
statutory auditor
 Share price data and Dividends declared
13
 CONTENTS OF ANNUAL REPORT

 Financial Highlights
 The Management Statement
 Management Discussion & Analysis
 10 year Financial highlights
 Corporate Information
 Director’s Report
 Report on Corporate governance
 Financial Section, and
 Notes to Account

14
 FINANCIAL HIGHLIGHTS

15
 FINANCIAL HIGHLIGHTS

16
 CHAIRMAN’S MESSAGE

17
 MANAGEMENT DISCUSSION AND ANALYSIS (MD&A)
 Management Discussion And Analysis (MD&A): MD&A section in an annual report
is to provide investors with an understanding of the historical and future prospects of
the business/businesses through the eyes of management.
 MD&A gives an opportunity to management to interact with stakeholders so as to
provide a meaningful assessment of a company’s state of affairs through a balanced
discussion of financial and non-financial parameters.
 According to clause 49 of the Listing agreement, Management Discussion & Analysis
should include discussion on the following matters within the limits set by the
company’s competitive position
 Industry structure and developments
 Opportunities and Threats
 Segment–wise or product-wise performance.
 Outlook

18
 MANAGEMENT DISCUSSION AND ANALYSIS (MD&A)

19
 MANAGEMENT DISCUSSION AND ANALYSIS (MD&A)

20
 MANAGEMENT DISCUSSION AND ANALYSIS (MD&A)

21
 BALANCE SHEET

22
 INCOME STATEMENT

23
 CASH FLOW STATEMENT

24
 GROUPS OF FINANCIAL RATIOS
 To study various aspects of a firm’s performance, financial ratios may be categorized
into the following groups:
 Liquidity ratios
 Working capital ratios
 Profitability ratios
 Capital structure ratios
 Turnover ratios
 Return on investment ratios

 Liquidity ratios: Liquidity ratios measure the short-term solvency of a company and
focus on the size and relationship of current assets and current liabilities. Commonly
used ratios to analyze the liquidity position of a firm are the current ratio and the
quick (or acid test) ratio.

26
 GROUPS OF FINANCIAL RATIOS
 Current ratio: Current Ratio shows the amount of current assets as multiple (or
times) of current liabilities and thus indicates the firm’s capacity to comfortably
discharge its current liabilities from its current assets
Current Ratio = Current assets (including marketable securities)/Current
liabilities (including current portion of long-term debt)
A high current ratio shows that the firm had adequate liquid resources to pay up its
current liabilities, indicating little risk of default in settling its dues on time. From
creditors’ point of view, the higher the current ratio more secure they would feel because
the firm has more than adequate liquid resources to settle their dues

27
 GROUPS OF FINANCIAL RATIOS
 Quick (or Acid Test) Ratio: Quick (or acid test) ratio ignores inventories while
calculating ratio of current assets to current liabilities
Quick (or acid test) Ratio = (Current Assets –Inventories) / Current Liabilities

 Difference between the `current' and `quick' assets is the speed with which these
assets can be converted into cash. Among current assets, inventories are regarded as
the least liquid and are therefore excluded in the calculation of quick assets

28