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ABOUT MYSELF

• Name
• Qualifications

:

Sarbesh Mishra.

• Experience

: 1. B.Com.(Hons) 2. Post-graduate Commerce. 3. M.Phil (Commerce) 4. Ph.D. (Commerce) submitted. : Joined University of Delhi as Lecturer in Commerce in 2001 and continued till 2005 and then joined Army Institute as Senior Faculty, Finance Area prior to current appointment at NICMAR.

Need of Knowing Finance – A Managerial Perspective

by

Mr. Sarbesh Mishra,
Assistant Professor, Finance Area. National Institute of Construction Management & Research (NICMAR)

COVERAGE UNDER THIS TOPIC
• INTRODUCTION • BASIC CONCEPTS • LEGAL FRAMEWORK & BRIEF REVIEW OF PROVISIONS • THE BALANCE SHEET & ITS KEY ELEMENTS • THE PROFIT & LOSS A/C & ITS KEY ELEMENTS

Qs:. understand financial applications / Analyse of Financial statements? • The successful manager will need to be much more of a team player that has the knowledge and ability to move not just vertically within an organization but horizontally as well. Developing cross-functional capabilities will be the rule. not the exception.If I have no intention of becoming a financial manger. . why do I need to.

Contd…. the acquiring of funds (cash) and the directing of these funds to meet particular objectives. • Finance is the study of money management. . Good financial management helps businesses to maximize returns while simultaneously minimizing risks. • The mastery of basic financial management skills is key ingredient that will be required in the work place of yours not in too distant future.

Financial Appraisal .Hierarchy of Finance in any Project 1. Technical Appraisal 2.

Goal Of The Firm Goal “STAKEHOLDER WEALTH MAXIMISATION” .

Goal Of The Firm Creating the Firm EQUITY DEBT ASSETS .

Goal Of The Firm Building Up The Firm ASSETS SALES .

Goal Of The Firm Building Up The Firm ASSETS SALES EARNINGS .

Goal Of The Firm Building Up The Firm INTEREST ASSETS SALES EARNINGS DIVIDEND .

Goal Of The Firm The Key Links * INTEREST A T/O * NPM * ASSETS SALES EARNINGS * Payout DIVIDEND Rate??? .

Goal Of The Firm Dividend Policy And Re-investment Rate: The Critical Factor INTEREST A T/O * NPM * ASSETS SALES EARNINGS * Payout DIVIDEND At what rate / cost ??? .

Finance Measures  Cost  Revenue  Profit  ROI  EVA .

UNDERSTANDING FINANCE & ACCOUNTS What is the NEED for this ? .

ETC.MANAGERS. SHAREHOLDERS. WANT TO KNOW : • WHAT IS THE FINANCIAL POSITION OF THE FIRM AT A GIVEN POINT OF TIME ? • HOW HAS THE FIRM PERFORMED FINANCIALLY OVER A GIVEN PERIOD OF TIME ? • ANSWER GIVEN BY THE FIRM’S BALANCE SHEET • ANSWER GIVEN BY THE FIRM’S PROFIT & LOSS ACCOUNT . CREDITORS.

BASIC CONCEPTS UNDERLYING FINANCIAL ACCOUNTING • • • • • • • • • • ENTITY CONCEPT GOING CONCERN CONCEPT MONEY MEASUREMENT CONCEPT COST CONCEPT CONSERVATISM CONCEPT DUAL ASPECT CONCEPT ACCOUNTING PERIOD CONCEPT REALIZATION CONCEPT MATCHING CONCEPT MATERIALITY CONCEPT .

1956 : • Compulsory for Cos.LEGAL FRAMEWORK WITHIN COMPANIES’ ACT. (Secs. to keep proper books of accounts & to prepare annual statements in the prescribed form & time.209-223) .

. . • FORM & CONTENTS OF P&L A/C & B/S (Sec.Responsibility fixed on co. . . insurance & electricity companies governed by special statutes. • REPORTS REQUIRED TO BE ATTACHED WITH B/S : .’s Directors.211) : .B/s to be in form set out in Sch.VI or as near thereto. . .Punishment laid down for non-compliance.Auditor’s (including special or supplementary.Period for A/cs is “Financial Year”.210) : .Directors’.To present B/S & P&L A/c at every AGM.if any) . forms for banking.Slightly diff.BRIEF REVIEW OF PROVISIONS • PREPARATION OF FINAL STATEMENTS (Sec.To give a TRUE & FAIR view of state of affairs.

Reqd.3 sets of final accounts & other documents to be filed with the Registrar of Companies within 30 days of annual general meeting. if there is one) & Secretary.) • AUTHENTICATION OF B/S & P&L A/C (Sec.220) : . • FILING OF ACCOUNTS (Sec. to be signed by atleast 2 Directors (including MD.BRIEF REVIEW (Contd. .215) : .

Horizontal form .BALANCE SHEET Sec 211 : Form to be as prescribed in Part I of Schedule VI .Vertical form .

HORIZONTAL FORM OF B/S LIABILITIES • • • • • Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions ASSETS • Fixed Assets • Investments • Current Assets. Expenditures and Losses . Loans and Advances • Misc.

08 TOTAL 31. Shareholders’ Funds (i) Capital (ii) Reserves And Surplus as at 30th Sep.54 27.21 5.94 15.935.321. 2003 736..41 (ii) Provisions 1.67 11.95 14./Lacs) Sources of Funds 1.89 .201..385.87 1. ANNUAL ACCOUNTS BALANCE SHEET (Figs.464.066.57 as at 30th Sep.063.81 7.856.107.95 14.743. Loan Funds (i) Secured Loans (ii) Unsecured Loans 4.SIS LTD. Current Liabilities & Provisions (i) Current Liabilities 9.947.92 15.593. in Rs.91 863.976.86 3.21 2.36 2. 2004 736.30 8.348.95 4.484.083.89 2.118.

Current Assets.462.64 16.60 (Figs.83 97.13 3./Crores) as at 30th Sep.17 283.880..803.30 5.989.465.16 8.935.823.647.34 (ii) Sundry Debtors 8. Investments 3. 2003 8.2004 9.341.88 3.71 5.25 4..Application of Funds 1.96 7.89 2.686.50 (iii) Cash & Bank Balances 754.54 . in Rs.832.365.290.80 (iv) Loans And Advances 3.305.375.238.98 TOTAL a+b+c = 31.11 5.34 Sub-total c 20.16 27.175.44 16.809. Loans & Advances (i) Inventories 6.57 5. Fixed Assets (i) Gross Block Less : Depreciation Net Block (ii) Capital Work in Progress Sub-total a b as at 30th Sep.47 3.52 3.743.322.

of P&L A/c (not appropriated) Note : Share Capital + Reserves & Surplus = Owners’ Equity . etc. Preference Capital Dividend payable at fixed rate • Reserves Revenue Reserves . Risk capital.assets revaluation res Bal. Capital No fixed rate of dividend. & Surplus Capital Reserve .Liabilities (or Equities) = What the Business Owes Others • Share Capital Equity Theoretical owners of co.share premium a/c .capital redemption reserve.general reserve .

borrowings without Promoters. 3) Inter-corporate Borrowings and 4) any specific securities) Short-term Loans & Advances from Banks. 2) Loans & Advances from (i.e. borrowings against specific securities) 1) Debentures. • Current Liabilities & Provisions : 1) Bills Payable. 4) within the next 1 year) Unclaimed Dividends & 5) Provisions for Taxes.OTHER LIABILITIES • Secured Loans : (i. Dividends. Insurance Premia. . 2) Payments (obligations maturing Received in Advance. • Unsecured Loans: 1) Fixed Deposits. etc. 2) Loans from Financial Institutions and 3) Loans from Commercial Banks. 3) Accrued Expenses. Pensions.e.

g.ASSETS • Fixed Assets : Used over relatively long periods for the business Ordinarily not meant for resale e. debentures. Preliminary or Pre-operative Expenses not written off. Loans & Advances and Prepaid Expenses. etc. Patents & Copyrights. • Miscellaneous Expenditures and Losses : e. Net Loss carried forward from P&L A/c. Goodwill.g. Loans: Resources convertible into cash during and Advances operating cycle of firm e. equity shares of other companies. . • Current Assets. Sundry Debtors (Bills Receivable) Inventories. Cash in hand or bank. Plant & Machinery. Land. Buildings. Commission/ Brokerage on underwriting or subscription of shares/debentures. Investments in govt. etc. securities. • Investments : Financial securities owned by the firm e.g.g.

as per Part II of Schedule VI.PROFIT & LOSS ACCOUNT (Also known as INCOME STATEMENT)  NO STANDARD OR SPECIFIED FORMAT UNDER INDIAN COMPANIES ACT. However. any format must disclose the following :            Net Turnover or Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Profit Non-operating Surplus/Deficit Profit Before Interest and Tax (PBIT) Interest Profit Before Tax (PBT) Tax Profit After Tax (PAT) .

Fuel & Water Repairs & Maintenance Insurance Depreciation Miscellaneous Expenses Profit Before Interest & Tax Interest Profit Before Tax Provision for Tax Profit After Tax (i.FORMAT OF A TYPICAL P&L A/C EXPENSES • • • • • • • • • • • • Raw Materials Consumed Salaries & Wages Power. Net Profit) INCOME • Sales • Other Income .e.

Other income Total Income 28. in Rs... 30th Sep.407.539. Sales 2.68 30.64 25.PROFIT & LOSS A/C INCOME (Figs.77 .558.07 23. 2004 2003 1.lakhs) For the year ended 30th Sep.420.39 2.868.13 1.137.

12 Manufacturing Expenses 15. 3.719.33 PBIT Interest Profit before Tax Tax Profit after tax 1.83 375.92 1.204..91 975.91 (-)995.756. 4.49 332.150.08 Employee Cost 4. For the year ended 30th Sep.702.231. 2004 2003 Cost of Goods for Resale 6. 5.30 2.623.71 Total Expenditure 28.21 24.52 553.64 10.549. 30th Sep.43 530.EXPENDITURE 1..27 Depreciation 593. 2.13 2.838.34 1.323.83 .88 8.279.084. & Selling Exp.06 562.059. 2.74 743.15 Admn.

DETAILS OF CONTENTS OF P&L A/C • Net Sales : Sales .Depreciation • Operative Profit : Gross Profit .Sales Discounts • Cost of Goods Sold : Sum of costs incurred for manufacturing the goods SOLD during the accounting period. DIRECT LABOUR COST and FACTORY OVERHEADS. Returns) . etc.General Administrative Expenses .g. . disposal of assets.Cost of Goods Sold • Operating Expenses : . income/loss from investments.e.Operating Expenses • Non-operating Surplus/Loss : Gains/Losses Sources Other Than Normal Business of the Co. Consists of DIRECT MATERIAL COST. e.Sales Inwards (i. • GrossProfit : Net Sales .Selling & Distribution Expenses .

) • PBIT (or EBIT) : Operating Profit + Non-operating Surplus • Interest : Expense incurred for borrowed funds like Long-term Loans.I Tax : Income Tax payable on the taxable profit of the year. Debentures. Retained Earnings : = PAT . Public Deposits & Working Capital Advances.Dividends . PAT : = PBT .DETAILS OF P&L A/C (Contd.T Dividends : Amount earmarked for distribution to shareholders. • • • • • PBT : = PBIT .

ONE REQUIRES A GOOD UNDERSTANDING OF THE FINANCIAL STATEMENTS OF THE COMPANY .TO ASSESS THE FINANCIAL HEALTH OF ANY COMPANY.