fOREVISION

fOREVISION
 Expenses For a FY
Income Size &
Statement
Revenues - 12 months
Profitability
period
Profits

Liabilities Financial
Balance Assets (Non-Current + Current) As on last
Position &
Sheet (Non-Current + Current) date of FY
Net Worth
Equity

CF from Operations
For a FY
Cash Flow Cash
Statement
Total Cash Flows CF from Financing - 12 months
Movement
period
CF from Investing
 PARTICULARS

Revenue from Operations

Income
Other Income Dividend, Interest Received, Profit on Sale of Assets

Total Income

Raw Materials Expenses

Power & Fuel Expenses

Operating
Expenses Employee Cost

Other Expenses Spares & Consumables, Rent, Admin, Mktg, Commission, etc.
Total Expenses
Operating
EBITDA Earning Before Interest, Tax, Depreciation & Amortization
Profit
 PARTICULARS
EBITDA
Depreciation & Amortization Depreciation on Tangible Fixed Assets
Amortization on Intangibles
EBIT
Finance Expenses Interest on Long Term as well as Short Term Borrowings
Profit Before Tax (PBT)
Tax
Profit After Tax (PAT)
 LIABILTIIES
Share Capital Equity Shares at Face Value
Net Worth/
Total Equity Reserves & Surplus Securities Premium, Retained Earnings

Bonds/Debentures, Bank loans raised generally for

Non-Current Long Term Borrowings building fixed assets
Liabilities Other Non-Current Liabilities Deferred Tax, Deposits from Contractors, Employee
Benefits like Gratuity

Loans for Working Capital. Given for a period of <= 1

Short Term Borrowings year on renewal basis
Current Trade Payables Money yet to be paid to suppliers for credit purchases
Liabilities
Other Current Liabilities Current Maturities of Long Term Borrowings, Deposits
from Contractors, Tax Outstanding
 ASSETS
Plant, Property, Equipment (PPE)
Capital Work in Progress (CWIP) Fixed Assets
Non-
Current Intangible Assets
Assets Investments which cannot be readily sold. Typically
Non-Current Investments Investment in Subsidiaries, Joint Ventures, etc
Other Non-Current Assets Types – Loans to related parties, Advanced to
contractors/suppliers, Security Deposits
Investments which can be readily sold. Typically those
Current Investments which are listed like Traded Equities, Mutual Funds etc
Trade Receivables Money to be received from clients for credit sales
Current
Inventory Value of Raw materials, Finished goods lying as
Assets
inventory
Cash & Cash Equivalents
Types – Loans to related parties, Advanced to
Other Current Assets
contractors/suppliers, Security Deposits
 –

❑ Internal Sources ❑ External Sources

Website / Press Bloomberg /

Annual Report Credit Ratings CRISIL Research
Release Reuters

Investor Disclosure to BSE / CMIE / Capital MCA (for unlisted

Sector Ministry
Presentations NSE Line companies)

Investor Sector Bodies/ Websites like BSE

Relationship Cell Committees (eg / NSE /
/Earnings NASSCOM, SIAM) Moneycontrol
Call/Analyst Meet
 Management Discussion
Financial Statements Schedules
& Analysis
Financial
Performance ❑ Income Statement ❑ Detailed Break-up of all ❑ Industry View
❑ Balance Sheet line items of Financial ❑ Company’s Performance
❑ Cashflow Statement Statements ❑ Future Plans

Related Party
Segmental Performance Contingent Liabilities
Transactions
Additional
❑ Business Vertical-wise ❑ Inter-Group Transactions ❑ Off Balance Sheet item
Information
Performance ❑ Liabilities may or may not
materialize

Company
Investor Presentations Analyst Call Transcripts
Announcements
Additional
Resources ❑ Quarterly Performance ❑ Quarterly Performance ❑ Event Announcements
❑ Future Plans Results Discussion ❑ Disclosure to NSE/BSE
❑ Event Details ❑ News Clarifications
 Fixed Assets

Tangible Intangible

Plant,
Capital Work Intangible
Property,
in Progress Intangibles under
Equipment
(CWIP) Development
(PPE)

Tangible Assets which are

All Tangible Assets which are under construction.
completed and generating CWIP denotes the money
revenues spent on developing these
Assets till Balance Sheet date
Intellectual Property related
Intangibles which are under
items like Patents,
development
Trademarks, Copyright
 STRAIGHT LINE METHOD (SLM) WRITTEN DOWN VALUE (WDV) METHOD

Cost of Asset is spread uniformly over the life years Fixed rate is charged on asset, over its useful life.
Depreciation calculated on Original Cost Depreciation calculated on Written Down Value of Asset
Same Amount of Depreciation every year Reducing Depreciation Amount every year
Initially lower as compared to WDV Initially higher than SLM

PARTICULARS Y0 Y1 Y2 Y3 Y4 Y5
Asset 100 80 60 40 20 0
SLM - 20 - 20 - 20 - 20 - 20

Asset 100 60.0 36.0 21.6 13.0 7.8

WDV @ 40% - 40.0 - 24.0 - 14.4 - 8.6 - 5.2
 PARTICULARS Y0 Y1 Y2 Y3 Y4 Y5
Asset 100 80 60 40 20 0
SLM Depreciation - 20 - 20 - 20 - 20 - 20

Asset 100 60.0 36.0 21.6 13.0 7.8

WDV @ 40%
- 40.0 - 24.0 - 14.4 - 8.6 - 5.2
Depreciation

Money Spent in Year 0.

Taken directly to Cash P&L has depreciation
Depreciation is a way to Hence, Depreciation is
Flow & Balance Sheet as expense for 5 years,
get this expense from called a non-cash expense
Asset will be utilized for however money was
Balance Sheet to P&L. or an accounting expense
more than 1 year – more already spent in Year 0.
than the P&L Period
 ASSET TYPE DEPRECIATION RATE
Land 0%
Buildings 10%
Furniture 10%
Plant & Machinery 15%
Vehicles 60%
Computer / Laptops 60%
Intangibles 25%
❑ Assume, we take a loan of Rs 100 crs to be repaid in 5 years in equal installments

PARTICULARS Y0 Y1 Y2 Y3 Y4 Y5
Loan + 100
Loan Repayment - 20 - 20 - 20 - 20 - 20
Net O/s 100 80 60 40 20 0

❑ 5 year loan is a Non-Current Liability – as it is more than a year

❑ However, there is a portion of that 5 year loan which will be repaid in a year’s time
❑ That portion needs to be reclassified into Current Liabilities
PARTICULARS Y0 Y1 Y2 Y3 Y4 Y5
Loan + 100
Loan Repayment - 20 - 20 - 20 - 20 - 20
Net O/s 100 80 60 40 20 0

BALANCE SHEET
Y0 Y1 Y2 Y3 Y4 Y5
Year End
LTB 80 60 40 20 0 -
CMLTB 20 20 20 20 20 -
Total Debt 100 80 60 40 20 0
 PARTICULARS Y0 Y1 Y2 Y3 Y4 Y5
Loan + 100
Loan Repayment - 30 - 30 - 40
Net O/s 100 100 100 70 40 0

BALANCE SHEET
Y0 Y1 Y2 Y3 Y4 Y5
Year End
LTB 100 100 70 40 0 -
CMLTB 30 30 40 -
Total Debt 100 100 100 70 40 0

❑ CMLTB is the debt repayment amount due in next financial year

❑ As it is due within a year, it is separated from Long Term Borrowings and shown in Current Liabilities
 50%

Tata Motors India 100% Jaguar Land Rover

China Joint Venture
(TAMO) (JLR)

PARTICULARS TAMO JLR CHINA JV

Revenues 100 200 50
Expenses 80 150 45
Profit 20 50 5

Consolidated of
TAMO
= Standalone of
TAMO
+ JLR + China JV
PARTICULARS TAMO JLR CHINA JV TAMO Consol
Shareholding % - 100% 50%
Revenues 100 200 50 = 100 + 100%*200 + 50%*50 = 325
Expenses 80 150 45 = 80 + 100%*150 + 50%*45 = 252.5
Profit 20 50 5 = 20 + 100%*50 + 50%*5 = 72.5

PARTICULARS TAMO JLR CHINA JV TAMO Consol

Shareholding % - 100% 50%
Revenues 100 200 50 = 100 + 100%*200 + 100%*50 = 350
Expenses 80 150 45 = 80 + 100%*150 + 100%*45 = 275
Profit 20 50 5 = 20 + 100%*50 + 100%*5 = 75
 INCOME STATEMENT Rs BALANCE SHEET
Total Income 350 Total Equity
Total Expenses 275 Non-Controlling (Minority) Interest
EBITDA 75
Depreciation - Non-Current Liabilities
Finance Cost - Current Liabilities
PBT 75 Total Equity & Liabilities
Tax -
PAT 75
Non-Current Assets
(-) Share of Non-Controlling
2.5 Current Assets
(Minority) Interest
PAT for shareholders 72.5 Total Assets
 10%
TAMO BRAZIL CO
INCOME STATEMENT Rs INCOME STATEMENT Rs
Total Income 350 Total Income 100
Total Expenses 275
Total Expenses 50
EBITDA 75
EBITDA 50
Depreciation -
Finance Cost - Depreciation -
Add: Share of Profit of JV / Finance Cost -
5
Associates PBT 50
PBT 80
Tax -
Tax -
PAT 50
PAT 80
(-) Share of Non-Controlling (-) Share of Non-Controlling
2.5 5
(Minority) Interest (Minority) Interest (TAMO)
PAT for shareholders 77.5 PAT for shareholders 45
❑ Two basic procedures to be followed

❑ Cancel out all the items that are accounted as an asset in one company and a liability in another

❑ Add together all uncancelled items

❑ Two main type of items that cancel each other out from the consolidated statement of financial position.

❑ "Investment in subsidiary companies" which is treated as an asset in the parent company will be
cancelled out by "share capital" account in subsidiary's statement. Only the parent company's "share
capital" account will be included in the consolidated statement.

❑ If trading between different companies in one group happens, then the payables of one company will
be cancelled by the receivables of another company.
Common
Trend Ratio Unit
Size
Analysis Analysis Analysis
Analysis
COMMON ❑ Displays all items as percentages of a common base figure, i.e. Sales
❑ Easy analysis between companies or between time periods of a company
SIZE ❑ Also referred to as Vertical Analysis
ANALYSIS
❑ % change (Increase / Decrease) in financial items over a period of time
TREND ❑ Also referred to as Horizontal Analysis
ANALYSIS

❑ Use of relationships among various items to gauge financial performance

RATIO ❑ Ratios are used to identify trends over time for one company or to
compare two or more companies at one point in time
ANALYSIS

❑ To gauge the movement of price / cost over a period of time

UNIT ❑ Price/Costs can vary in total as the quantity of goods sold changes, but may
ANALYSIS stay constant on a per-unit basis
REVENUE = Quantity of Goods Sold
Internal Factors
❑ Capacity
❑ Capacity Utilization
❑ Production issues
❑ New Product
❑ Technological Changes
❑ Supply of Raw Materials
❑ Cost of Raw Materials
❑ Financing of Expansion /
Working Capital
❑ Change in Selling Price
❑ Marketing & Sales Plan
x Selling Price
External Factors
❑ Economic Activity
❑ Consumer Purchasing
Power
❑ Seasonality of Business
❑ Political Events
❑ Govt Policy
❑ Import Export Scenario
❑ Weather (Monsoons)
❑ Technological Changes
❑ Availability of Substitutes
Events
❑ Labour Strike
❑ Fire at Manufacturing Plant
❑ Floods / Earthquake, etc.
❑ Govt Policy (with
immediate effect)
❑ Ban on Products
❑ Change in Accounting
Standards
 Profitability ❑ EBITDA Margin = EBITDA / Total Income
Ratio ❑ = (EBITDA – Other Income) / Sales

Leverage & ❑ Operating Profitability/viability of the Company

Coverage Ratio ❑ Without factoring accounting adjustments like depreciation,
financing decisions, or tax environments
❑ Easy to compare with competitors
Liquidity &
Turnover Ratio ❑ Ideally, if a Company is making EBITDA losses, it should shut
down its operations as the operations are not profitable

Return &
Shareholders
Ratio
 Profitability ❑ PAT Margin = PAT / Total Income
Ratio
❑ Net Profitability/viability of the Company

Leverage & ❑ Provides the impact of accounting / financial and taxation on

Coverage Ratio Business Profitability (i.e.) Movement from EBITDA Margin to
PAT Margin
❑ Difficult to company across companies, due to impact of different
Liquidity &
Turnover Ratio Capital Structure, Fixed Assets, etc. Hence, EBITDA Margin is a
better comparable.

Return &
Shareholders
Ratio
 Profitability ❑ Debt / Equity Ratio
Ratio ❑ Debt = Long Term Borrowings (LTB) + Short Term Borrowing +
Current Maturities of LTB + Non-Convertible Preference Shares +

Leverage & Optionally Convertible Preference Shares

Coverage Ratio ❑ Equity = Share Capital + Reserves & Surplus + Compulsory
Convertible Preference Shares + Non-Controlling (Minority)
Interest
Liquidity &
Turnover Ratio
❑ Shows the amount of leveraging on a Company’s Balance Sheet

Return & ❑ High D/E ratio is often associated with high levels of risk
Shareholders ❑ D/E ratio is also driven by sectors – infra sectors are debt heavy
Ratio as there are capital intensive, IT is not.
❑ Preference Shares are a medium / instrument to raise financing

❑ The holder of the preference shares can receive a fixed rate of dividend, and these dividends are always
paid before dividends on ordinary shares (hence the word ‘preference’)

❑ Preference Shares can be redeemed i.e. repaid like debt

❑ Preference Shares are neither debt nor common equity. Hence, Treatment of Preference shares has been a
debate for a long time

Type of Preference Share Treated As

Compulsory Convertible Preference Shares Equity
Optionally / Partially Convertible Preference
Debt
Shares
Non-Convertible / Compulsory Redeemable
Debt
Preference Shares
 Profitability ❑ Net Debt / EBITDA
Ratio ❑ Net Debt = Total Debt – Cash & Cash equivalents

Leverage & ❑ Net Debt is a financial liquidity metric that measures a company’s
Coverage Ratio ability to pay all its debts if they were due today
❑ Net debt compares total debt with liquid assets i.e. Cash
❑ Net Debt / EBITDA ratio is a quick calculation to understand the
Liquidity &
Turnover Ratio debt repayment capacity of the company.
❑ It suggests the number of years it will take to repay Debt if the

Return & same level of EBITDA is generated

Shareholders ❑ Eg: If Loan period is 5 years & ratio is 3 years, repayment can
Ratio happen in time, but if ratio is 7 years, then repayment is not likely.
 Profitability ❑ Interest Service Coverage Ratio = EBIT / Interest
Ratio ❑ = EBITDA / Interest

Leverage & ❑ Interest Payment ability of the Company

Coverage Ratio ❑ How much money company has for making interest payment
❑ Text Book formula is EBIT/Interest, however depreciation is a
non-cash expense, hence in Industry EBITDA/Interest is
Liquidity &
Turnover Ratio preferred
❑ Generally, a ratio of 1.5 or 2 + is considered safe

Return & ❑ Higher the ratio, the better for Company and its lenders
Shareholders
Ratio
 Profitability ❑ Debt Service Coverage Ratio = PAT + Depreciation + Interest
Ratio ❑ Loan Repayment + Interest

Leverage & ❑ Debt Repayment ability of the Company

Coverage Ratio ❑ How much money company has for meeting its debt obligations
❑ Generally, a ratio of 1.25+ is considered safe
❑ Banks use DSCR as one of the main decision making parameter
Liquidity &
Turnover Ratio ❑ Banks stress test a company projected financials, and if DSCR is
still in the range of 1 – 1.25+, then only it approves the loans

Return & ❑ Higher the ratio, the better for Company and its lenders
Shareholders
Ratio
 Profitability ❑ Current Ratio = Current Assets / Current Liabilities
Ratio
❑ Ability to repay Current Liabilities

Leverage & ❑ Current Ratio of 1 means that CA is exactly equal to CL, and any
Coverage Ratio delay in monetizing CA would in turn delay payment of CL
❑ Hence, a ratio above 1.33 / 1.5 / 2 is considered good, depending
on the nature of business.
Liquidity &
Turnover Ratio
❑ Variations include – removing Stock from CA (Quick Ratio), Cash

Return & from CA, Current Maturities of LTB from CL.

Shareholders ❑ Net Working Capital (NWC) = CA - CL
Ratio
Working Capital Cycle Negative NWC Scenarios
❑ CA is my money stuck
❑ CL is others money stuck with us
❑ Negative NWC means more CL than CA
❑ i.e. more cash available for the business

❑ 1) For companies in bad health, Negative NWC is

bad because they are not able to fulfill their
liabilities
❑ 2) Good Companies – able to bargain better with
suppliers, hence long credit period and
outstanding Trade Payables
❑ 3) Using short term money for long term assets
which may not be permitted use of loans
 Profitability ❑ Debtor Turnover = Gross Sales / Trade Receivables
Ratio ❑ Debtor days = Trade Receivables / Gross Sales * 365

Leverage & ❑ Text Book formula says ‘Credit Sales’ instead of total Gross Sales,
Coverage Ratio however that information is not available, hence Gross Sales is
considered
❑ Resulting days shows us – after how many days Company is
Liquidity &
Turnover Ratio receiving payment from its Debtors i.e. Trade Receivables

Return &
Shareholders
Ratio
 Profitability ❑ Creditor Turnover = Raw Materials / Trade Payables
Ratio ❑ Creditor days = Trade Payables / Raw Materials * 365

Leverage & ❑ Text Book formula says ‘Credit Purchases’ instead of total Raw
Coverage Ratio Material cost, however that information is not available, hence
Raw Material expense is considered
❑ Resulting days shows us – after how many days Company is
Liquidity &
Turnover Ratio making payment to its Creditors i.e. Trade Payables

Return &
Shareholders
Ratio
 Profitability ❑ Inventory Turnover = Total Expenses / Inventory
Ratio ❑ Inventory days = Inventory / Total Expenses * 365

Leverage & ❑ Text Book formula says COGS instead of Total Expenses, however
Coverage Ratio it is difficult of bifurcate expenses, hence Total Expenses is used
❑ Resulting days shows us how many days inventory is the
company holding
Liquidity &
Turnover Ratio ❑ Inventory consist of RM + WIP + FG

Return &
Shareholders
Ratio
 Profitability ❑ Fixed Asset Turnover = Revenue / Fixed Assets
Ratio
❑ Indicates how well the business is using its fixed assets to

Leverage & generate sales

Coverage Ratio ❑ Higher the ratio, better. Higher ratio can indicate:
❑ Company is utilizing fixed Assets optimally
❑ Company has spent less money on Fixed Assets – Capex
Liquidity &
Turnover Ratio rationalization

Return &
Shareholders
Ratio
 Profitability ❑ Return on Equity = PAT / Equity
Ratio ❑ PAT for shareholders to be considered
❑ Equity = Share Capital + Reserves & Surplus + Compulsory

Leverage & Convertible Preference Shares

Coverage Ratio
❑ Return Generated for the equity share holders
❑ Higher the ROE, the more efficient the company's operations are
Liquidity &
Turnover Ratio making use of funds
❑ Companies with a high ROE are usually more capable of

Return & generating cash internally, and therefore less dependent on debt
Shareholders ❑ Also known as Return on Net Worth (RONW)
Ratio ❑ It’s a notional return
 Profitability ❑ Return on Assets = PAT / Total Assets
Ratio ❑ PAT for Company to be considered

Leverage & ❑ How much profit a company is able to generate from its assets
Coverage Ratio ❑ How efficient a company is in generating earnings from assets
❑ Also measures the asset intensity of a business
❑ Lower the ROA, the more asset-intensive a company is
Liquidity &
Turnover Ratio considered to be.
❑ Highly asset-intensive companies require big investments to

Return & purchase machinery and equipment in order to generate income.

Shareholders
Ratio
 Profitability ❑ Earnings Per Share (EPS) = PAT / No of Shares
Ratio ❑ PAT for shareholders to be considered
❑ Subscribed & paid up shares to be considered

Leverage &
Coverage Ratio
❑ Earning generated on a per share basis
❑ Serves as an indicator of a company's profitability
Liquidity &
Turnover Ratio ❑ It’s a notional amount, the real amount is the dividend distributed
❑ EPS is one of the components of PE Ratio – used to check the price

Return & given by market based on earning

Shareholders
Ratio
 Profitability ❑ Dividend Per Share (DPS) = Total Dividend / No of Shares
Ratio ❑ Subscribed & paid up shares to be considered

Leverage & ❑ Dividend declared by the Company on a per share basis

Coverage Ratio ❑ EPS is notional earning of shareholders, DPS is the real earning
❑ Generally, EPS > DPS. However, Company can declare higher
dividends and pay it through the reserves & surplus, in such
Liquidity &
Turnover Ratio cases DPS > EPS.

Return &
Shareholders
Ratio
 Profitability ❑ Dividend Payout Ratio = Dividend / PAT
Ratio ❑ = DPS / EPS
❑ PAT for shareholders to be considered

Leverage &
Coverage Ratio ❑ To understand what percentage of PAT is declared as Dividend
❑ Provides an indication of how much money company is returning
to shareholders versus how much it is keeping on hand to
Liquidity &
Turnover Ratio reinvest in growth
❑ Ratio can be more than 100%, when the Company declares higher

Return & dividends and pays it through the reserves & surplus
Shareholders
Ratio