6. BALANCE SHEET
A statement that shows assets and
liabilities of a company at a particular
date
A statement that shows balances of
various accounts to be carried to next
accounting period
7. BALANCE SHEET gives …
an important accounting identity
i.e Liabilities = Assets
Liabilities Assets
22. INTRODUCTION
• Old Schedule VI had outlived its utility;
• Revised Schedule VI effective from 1st April, 2011;
• Being a statutory format its early adoption is not permitted;
• Revised Schedule VI has been framed as per the existing
non-converged Indian Accounting Standards notified under
the Companies (Accounting Standards), Rules, 2006;
23. NEW FORMAT OF BALANCE SHEET
EQUITIES AND LIABILITIES
Shareholders’ Funds
Capital
Reserve & Surplus
Money Reserved against share warrants
Share Application money pending Allotment
Non Current Liabilities
Current Liabilities
TOTAL
ASSETS
Non-Current Assets
Fixed Assets
Non Current Investments/Assets
Current Assets
TOTAL
24. REQUIREMENTS UNDER REVISED SCHEDULE VI
• Accounting Standards will prevail over the Schedule;
• Revised Schedule VI has eliminated the concept of „schedule‟;
• Terms in the Revised Schedule VI will carry the meaning as defined
by the applicable Accounting Standards;
• All items of assets and liabilities are to be bifurcated between
Current and Non-Current portions and presented separately on
the face of the Balance Sheet
25. REQUIREMENTS UNDER REVISED SCHEDULE VI
• Vertical format for presentation only prescribed;
• Prescribes minimum disclosure requirements. AS disclosures are
additional;
• Source of Funds now is Equity and Liabilities;
• Application of Funds now is Assets;
• Shareholding of more than 5% shares in the company now needs to
be disclosed;
• Share allotments for non-cash consideration, buy back to be
disclosed;
• Statement of Profit and Loss (Dr. Bal.) will be disclosed under the
head “Reserves and Surplus” as a negative item.
26. REQUIREMENTS UNDER REVISED SCHEDULE VI
• Share application money pending allotment not refundable is to be
included under „Equity‟ and share application money to the extent
refundable is to be separately shown under „Other current liabilities‟.
• “Sundry Debtors” has been replaced with the term “Trade
Receivables”;
• Disclosure of trade receivables outstanding for a period exceeding
six months from the date the bill/invoice is due for payment;
• Tangible assets under lease are required to be separately specified
under each class of asset;
• Current Liabilities will no longer be shown as deduction from Current
Assets
27. REQUIREMENTS UNDER REVISED SCHEDULE VI
• Defaults in repayment of loans and interest to be
specified in each case;
• New name for P & L Account as “Statement of Profit and
Loss”;
• Segregation of Revenue components into revenue from:
1. sale of products,
2. sale of services, and
3. other operating revenues
28. REQUIREMENTS UNDER REVISED SCHEDULE VI
• Separate head for Intangible Assets and Intangible Assets under
Development;
• Information about Investments bought/ sold need not be disclosed;
• Capital Advances have to be shown separately under “Loans and
Advances” instead of CWIP/ Fixed Assets;
• Miscellaneous Expenditure as a separate head does not exists
now.
29. REQUIREMENTS UNDER REVISED SCHEDULE VI
• Net exchange gain/loss on foreign currency borrowings
to the extent considered as an adjustment to interest cost
needs to be disclosed separately as finance cost.
30. REQUIREMENTS UNDER REVISED SCHEDULE VI
• Disclosures no longer required:
– Disclosures relating to managerial remuneration and
computation of net profits for calculation of commission;
– Information relating to licensed capacity, installed capacity
and actual production;
– Information on investments purchased and sold during the
year;
– Investments, sundry debtors and loans & advances
pertaining to companies under the same management;
– Maximum amounts due on account of loans and advances
from directors or officers of the company
31. CURRENT/ NON-CURRENT DISTINCTION
An item is classified as current
if it is involved in the entity's operating cycle; or
is expected to be realized/ settled within twelve
months; or
If it is held primary for trading; or
Is cash or cash equivalent; or
If entity does not have unconditional right to defer
settlement of liability for atleast 12 months after
reporting period
Other assets and liabilities are non current
36. PROFIT & LOSS ACCOUNT
It records flows of income and
expenses over a period of time.
The flows are recorded on the
ACCRUAL basis and not on the
cash/fund basis.
The NET BALANCE of Profit and Loss
Account is either Profit After Tax or
Net Loss.
37. INCOME side… …
PROFIT AND LOSS ACCOUNT OF TATA STEEL LIMITED FOR THE
YEAR ENDING ON 31ST MARCH…
(Rs. in Crores)
Particulars 2008 2009 2010 2011
INCOME
Sale of Products and Services 22,191.80 26,843.73 26,757.80 31,902.14
Less: Excise Duty 2,498.52 2,527.96 1,735.82 2,505.79
19,693.28 24,315.77 25,021.98 29,396.35
Other Incomes 335.00 308.27 853.79 790.67
Total Income 20,028.28 24,624.04 25,875.77 30,187.02
TOP LINE!!!
38. EXPENSES side… …
PROFIT AND LOSS ACCOUNT OF TATA STEEL LIMITED FOR THE YEAR ENDING ON 31ST MARCH…
(Rs. in Crores)
Particulars 2008 2009 2010 2011
EXPENDITURE
Manufacturing, and Other Expenses 11,645.24 15,525.99 16,396.00 18,162.27
Depreciation 834.61 973.40 1,083.18 1,146.19
12,479.85 16,499.39 17,479.18 19,308.46
Less: Expenditure (Other than Interest)
175.50 343.65 326.11 198.78
Transferred to Capital and Other Accounts
12,304.35 16,155.74 17,153.07 19,109.68
Interest 878.70 1,152.69 1,508.40 1,300.49
Total Expenditure 13,183.05 17,308.43 18,661.47 20,410.17
PROFIT/(LOSS) BEFORE TAXATION AND
6,845.23 7,315.61 7,214.30 9,776.85
EXCEPTIONAL ITEMS
Employee Separation Compensation (226.18) - - -
Profit on the Sale of Long-Term Investments - - - -
Contribution For Sports Infrastructure (150.00) - - -
Exchange Gain/(Loss) 597.31 - - -
PROFIT/(LOSS) BEFORE TAXATION 7,066.36 7,315.61 7,214.30 9,776.85
Current Tax 2,252.00 2,173.00 1,998.00 2,857.00
Education Cess on Income Tax - - - -
Fringe Benefit Tax 19.00 16.00 - -
Deferred Tax 108.33 (75.13) 169.50 54.16
PROFIT/(LOSS) AFTER TAXATION 4,687.03 5,201.74 5,046.80 6,865.69
39. Mastering Terms …
EBIDTA – Earnings Before Interest
Depreciation Taxation and Amortization
PBIT- Profit Before Interest and Taxation
PBT - Profit Before Taxation
PAT- Profit Before Taxation
40.
41. Our Challenge No. 1: Determining the ability
of a company to pay its current liabilities.
43. NET WORKING CAPITAL
CURRENT ASSETS – CURRENT LIABILITIES
IS CALLED
NET WORKING CAPITAL
44. LIQUIDITY RATIOS
Current assets
CURRENT RATIO =
Current liabilities
Quick Assets
QUICK RATIO =
Current liabilities
Quick Assets are (Current Assets – Inventory-Loans
and Advances)
45. LIQUIDITY RATIOS
CASH TO CURRENT LIABILITIES RATIO
= CASH AND BANK BALANCE /CURRENT
LIABILITIES
AVERAGE COLLECTION PERIOD
= DEBTORS*365/SALES
46. LIQUIDITY ANALYSIS of TATA STEEL LIMITED ………….
31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09 31-Mar-10 31-Mar-11
CURRENT RATIO 1.03 1.10 1.11 2.51 5.46 1.15 1.36 2.20
QUICK RATIO 0.33 0.22 0.22 1.52 0.15 0.25 0.41 0.42
CASH TO CURRENT
LIABILITIES
9.23% 6.67% 7.57% 140.85% 6.87% 17.72% 35.94% 37.66%
AVERAGE COLLECTION
PERIOD (in days)
20 13 11 12 9 9 6 5
NET WORKING CAPITAL
(IN CRORES OF 93.15 383.59 428.88 8,248.23 30,193.66 1,311.04 3,247.08 13,216.49
RUPEES)
47. The Challenge of Working Capital
Management has to be seen in the light of …
LIQUIDITY
The task before the PROFITABILITY
Management is to keep
HARMONY between them.
48. Our Challenge No. 2: How to measure a
company’s ability to Generate Sufficient
Profits.
49. CHALLENGE # 2:
How to know …“whether a company
is earning desired profits?”
51. PROFITABILITY RATIOS
Operating Profit Ratio = EBIT/Sales
Net Profit Ratio = Net Profit/Sales
Return on Net Worth/Equity = Profit After
Tax/Net Worth
Return on Total Assets = Profit before
interest and Tax /Total Assets
52. PROFITABILITY RATIOS
Earning Per Share = Net Profit/No. of
Shares
Return on Capital Employed = Profit
Before Interest and Tax/Capital
Employed
55. CHALLENGE # 3: How to know “whether
a company is a sound company?”
56. THIS CHALLENGE MEANS …
How to determine the
soundness of the company?
It is a challenge of
Measuring the
Company’s Ability to
Pay Long-Term Debt
57. NET WORTH
SHARE CAPITAL + RESERVES
AND SURPLUS – FICTITIOUS
ASSETS
IS CALLED
NET WORTH
58. SOLVENCY RATIOS
Debt Equity Ratio = Long Term
Debts/Net Worth
Equity to Total Assets Ratio = Net
Worth/Total Assets
Interest Coverage Ratio = Profit
Before Interest and Tax/Interest paid
59. SOLVENCY ANALYSIS of TATA STEEL LIMITED ………….
31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09 31-Mar-10 31-Mar-11
TOTAL DEBT/EQUITY
65.04% 35.70% 24.06% 65.87% 64.76% 87.90% 66.72% 59.11%
RATIO (%)
TOTAL
LIABILITIES/TOTAL 59.57% 50.89% 42.45% 52.53% 48.17% 55.04% 48.06% 44.86%
ASSETS RATIO
TIMES INTEREST
24.64 29.84 45.69 37.88 8.79 7.35 5.78 8.52
EARNED RATIO
NET WORTH (Rs.
Crores) 5,199.85 7,674.52 10,459.03 14,642.56 27,827.42 30,656.92 37,829.47 47,881.43
NET WORTH TO
TOTAL ASSETS 40.43% 49.11% 57.55% 47.47% 51.83% 45.66% 51.66% 53.47%
RATIO
61. CHALLENGE # 4: How to know
“PERFORMANCE OF A COMPANY’S SHARE?”
62. THIS CHALLENGE MEANS …
How to determine the
performance of the share of a
company at a stock market?
63. MARKET RATIOS
Book Value Per Share = Net Worth/No. of Equity
Shares
Earning Per Share Ratio (EPS) = Net Profit/No. of
Equity Shares
Dividend Per Share Ratio (DPS) = Dividend
paid/No. of Equity Shares
Price Earning Ratio or P/E Ratio = Market
Price/EPS
Market Value to Book Value = Market Price/Book
Value
