FUNDAMENTALS OF FINANCE &

ACCOUNTING
 Statement of Retained Earnings

Retained earnings, January 31, 2012 57,900

Net income for February 63,900
Total =121,800
Dividends declared 50,000
Retained earnings 71,800

Assets = Liabilities + Paid-in-Capital + Retained Earnings

Beginning Balance+ Revenues-Expenses-Dividend =Ending

Retained earnings balance
 Problem
• Given the following information
• Revenue 50,000
• Expenses 40,000
• Retained earnings at the beginning 15,000
• Retained earnings at the end of the year
17,000
• Find amount of dividends declared?
 1. Earnings Per Share (EPS)
• Net income divided by the average number of
common shares outstanding
• How much of a period’s net income belongs to
each share of common stock
Net.income
EPS 
AverageNumberOfCommonSharesOuts tan ding

• It must be reported in the income statements

Earnings per share (Top 15 companies)
Sr Company EPS
1 MRF 1,803.95
2 Zandu Realty 1,127.57
3 Tide Water Oil 772.27
4 Strides Arcolab 588.59
5 Polson 350.67
6 Bosch 320.46
7 Shree Cements 225.98
8 Godfrey Phillip 218.76
9 JK Bank 207.23
10 Infosys 185.71
11 Lakshmi Machine 183.63
12 Eicher Motors 158.74
13 Piramal Enter 150.76
14 Bajaj Finance 150.50
15 Page Industries 147.91

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 Example 1
MRF Ltd-Earnings Per Share
Earnings per share Year Ended Year Ended Year Ended
30.09.2014 30.09.2013 30.09.2012
Profit after taxation Crore 764.67 802.21 572.36
(Net profit)
Number of equity shares (face Nos. 4241143 4241143 4241143
value Rs 10)
Earnings per share Rs 1803 1891.49 1349.52
Source: Annual reports, MRF Ltd

MRF Q2 net dips 19% at Rs.171 crore

•Shares of tyre maker MRF on Tuesday plunged over 7 per cent after the company
reported 18.86 per cent decline in net profit for the second quarter ended March
31, 2014.
•MRF Ltd. follows September-October as its financial year.
Source: The Hindu, MUMBAI, April 22, 2014

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 2. Price-Earnings ratio
Market Pr icePerShareOfCommonStock
P  E.Ratio 
EarningsPerShareofCommonStock

• It varies throughout a given year

• Also, known as earnings multiple
• it shows how much the market is willing to
pay for the company’s potential earnings
• A high P-E ratio depicts that company’s net
income will grow rapidly
 Example 2
MRF-Price-Earnings Ratio
Earnings per share
Market price of the common stock 26700.00
Earnings per share 1891.49
Price-earnings ratio 14.12

Source:
http://www.kotaksecurities.com/stock-market-news/equity/1024/pe-ratio-BSE-ALL-M/7

https://in.finance.yahoo.com/q/hp?s=MRF.NS&a=07&b=13&c=2014&d=08&e=4&f=2014&g=
 3. Dividend-Yield ratio
• Profitability of the personal investments in
common stock
• Profitability: (a) Cash dividends (b) Market-
price appreciation
• Dividend-yield ratio: Common dividends per
share divided the current market price of the
stock
•
 Dividend-Yield ratio
Dividend-Yield
Dividend per share 30
Latest Market Price(Unit Curr.) as on 3/Sep/2014 25536
Dividend Yield % 0.117 (0.12)

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 Dividend-Payout ratio
• It shows what proportion of net income a
company elects to pay in cash dividends to its
shareholders
• D-P ration : Common dividends per share
divided by earnings per share
• Common dividends per share 30
Earnings per share 1804
Dividend Yield % 1.66
 Problem
• On February 3, 2002, The home depot stock
sold for Rs 49 per share. The company had net
income of Rs 3,044 million for the fiscal year
ending February 3,2002, had an average of
2,335 million shares outstanding during the
year, and paid dividends of Rs .11 per share.
Calculate all the four ratios
 Income statement
R Moss BMW, Inc.
Statement of Profit and Loss
December 31, 20X3
Revenues
Sales 1,050,000
Increase in Market value
of Land and Building 2,00,000 12,50,000
Deduct Expenses
Advertising 1,00,000
Sales commissions 50,000
Utilities 20,000
Wages 1,60,000
Dividends 1,00,000
Cost of cars purchased 7,00,000 1,130,000
Net Profi 1,20,000

Identify the shortcomings of this statement

 Prepare income statement for the
month of February
Greenville Company
Analysis of Transaction for June
(In Thousands of Dollars)

Assets =Liabilities and Stockholders' Equity

AccountsMerchandise Accounts Paid–in Retained

Transactions Cash+ Receivable + M Inventory+ Prepaid rent + Equipment = Payable + Capital Earnings
Balance,
6January
/2002 351000 + 155,000 +59,200 +4000 +13,900 = 25,200 4,00,000 57,900
 Prepare income statement for the
month of February-Transactions in Feb
1. Collection of account receivables, Rs 1,30,000
2. Payment of accounts payable 15,000
3. Acquisition of inventory on open account , 80,000 and for
cash 10,000
4. Sales of Merchandise for 176000, of which 1,25,000 was
on open account and 51,000 was for cash. The company
sold Merchandise in inventory at a cost of 1,10,000
5. Recognition of rent expenses (Rs 2000) for February
6. Recognition of depreciation expense (Rs 100) for February
7. Borrowing of 10,000 from a bank, which company used to
buy 10,000 of store equipment on February 28