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Financial Statement Analysis

This document discusses financial statement analysis and its objectives, tools, and techniques. It provides examples of: 1) Horizontal analysis and common-sized analysis of the income statements and balance sheets of two companies, finding that Bajaj Auto is more profitable and better managed than TVS Motors. 2) Ratio analysis of the companies' financial statements showing Bajaj Auto is larger, more solvent, and more efficiently operated than TVS Motors. 3) The overall assessment that financial statement analysis can evaluate a company's financial health, future prospects, and cash generation ability. A variety of analytical methods were demonstrated.

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83 views

Financial Statement Analysis

This document discusses financial statement analysis and its objectives, tools, and techniques. It provides examples of: 1) Horizontal analysis and common-sized analysis of the income statements and balance sheets of two companies, finding that Bajaj Auto is more profitable and better managed than TVS Motors. 2) Ratio analysis of the companies' financial statements showing Bajaj Auto is larger, more solvent, and more efficiently operated than TVS Motors. 3) The overall assessment that financial statement analysis can evaluate a company's financial health, future prospects, and cash generation ability. A variety of analytical methods were demonstrated.

Uploaded by

bhavinii
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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FINANCIAL STATEMENT ANALYSIS

Faculty Facilitator: Rajesh Sadhwani

Objective of Financial Statement Analysis

To check the financial health of the company Future growth outlook of the company Its ability to generate enough cash and cash equivalents and the timing and certainty of their generation.

Various Stakeholders & Their Interest

Promoters & Shareholders Lenders such as financial institutions, banks & public Customers Employees Government & regulatory bodies Public at large Management and Research analysts

Tools & Techniques

Horizontal Analysis Common-sized analysis Trend analysis Analytical balance sheet Ratio analysis Cash flow analysis

Components of Balance Sheet


Liabilities
Share Capital

Assets
Fixed Assets

Reserve & surplus


Secured Loan Unsecured Loan Current Liabilities & Provisions

Investments
Current Assets

Components of Profit & Loss Accounts


Net Sales Cost of Goods Sold Gross Profit Operating expenses Operating profit

Other income
PBIT Interest PBT Tax PAT

Horizontal Analysis (P&L Account)

Net Sales Grows by 24% Increase in other expenses 22.00% is lower than growth in net sales Depreciation is even down by 0.38% despite higher net sales Growth in other income by 378.5% much more than growth in net sales but the absolute figure is not high compared to sales Though profit at every stage is (PBIT, PBT, PAT) is higher in absolute terms but growth not maintained as net sales.

Horizontal Analysis (Balance Sheet)

Total Assets/ Liabilities is up by 14.36% Total Share holders fund up by 16.% against 10.78% growth in loan funds. Indicates strong financial position. Fixed assets up 12.17%. While net sales grew 24.40%. Hence efficient fixed assets utilization. Growth in inventory only 13.47% despite 24.40% rise in net sales. Hence inventory management efficient

Overall Assessment

PAT Growth not even 50% of sales growth. Hence margins are under pressure, profit through volume. Need to contain material cost Very efficient fixed assets utilization Inventory management Is efficient Overall strong financial position

Common-Sized Analysis

It is a useful comparison tool of two companies financial performance. In common-sized statements Net sales in P&L account is taken 100 proportionally other components are compared While in Balance sheet Sources of fund/Application of fund are considered 100 and proportionally other component are calculated

Common-sized analysis (P&L)

Net Sales of Bajaj Auto is just 41.48% of the TVS motors, size of the two companies is very different Other expenses higher at 21.07% for TVS vs 13.28% of Bajaj. Hence Bajaj auto is managing expenses more efficiently. Depreciation to net sales is again very lower in case of Bajaj Auto against TVS Bajaj Auto is more profitable because, despite in decline in PAT Bajaj Auto maintained it at 13.33% vs 1.76% of the TVS. Profit are driven by volume as net profit margin are lower in case of both the companies. Industry has higher profit margins at that time period.

Common-sized analysis (Balance Sheet)

Bajaj Auto Balance sheet 7233.92 Cr. Against 1601.84 Cr. of TVS Motors. Hence, Bajaj Auto is far bigger company than TVS motors. TVS motors Ltd. Equity only 50.52%. While Bajaj Auto is having 76.51%. Thus Bajaj Auto far sound than TVS. Bajaj Auto tax liability 1.02% vs 9.93% of TVS. Efficient tax management. Better fix assets utilization,

Conti

Investments at 89.13% by Bajaj, while 21.52% by TVS. In absolute term gape phenomenal, hence Bajaj in better positioned and can encash the opportunities like acquisitions. Inventory of Bajaj at just 4.28% against 24.76% of TVS. Hence efficient inventory management. Bajaj has net current liabilities against TVS net current assets. Hence making money on outstanding suppliers.

Overall Assessment

Bajaj Auto emerges to be a far bigger, solvent and efficiently managed company compared to TVS motors Ltd. It is running its core operation and making money out of non-interest bearing outstanding of its suppliers.

Ratio Analysis

Ratio Analysis Excel Sheet

Thank You

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