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ANALYSIS OF BALANCE SHEET & INCOME STATEMENT

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Financial Statement Analysis-FIN621
VU
Lesson-44
ANALYSIS OF BALANCE SHEET & INCOME STATEMENT
5
1
Fixed Assets
a) Decreasing.
b) No depreciation reserve (unable to replace old
assets out of its own resources).
·
Bibo had made counter claims
6
1
Current Assets:
·
These are doubtful debts.
·
No provision for bad debts.
m Bibo:Rs.17 m
·
Liquidity overstated.
·
Interest
treated
as
miscellaneous
-Book  debt
=
Income.
Rs.6.71 m
·
Treating interest as misc. income  understated
on 30.06.72
operating losses by Rs.10.29 million.
·
Accumulated loss rises from 114 million to 124
-Interest over the=
million.
Rs.10.29 m
period 1972-80
____
17
m
7
1
Other Receivables
·
Loans given to cane growers.
·
Aging detail.
·
Loans of Rs.0.5 million outstanding for 6-10
years.
·
Doubtful/bad loans.
·
No provision.
·
Liquidity overstated.
8
3
Liquidity
·
Current and quick ratios.
·
Poor liquidity.
·
Actual ratios much lower in view of doubtful
debts.
·
Cannot repay its current obligations.
Table-2
ACCUMULATED LOSS
Rs. in million
At the end of year
1976-77
1977-78
1978-79
1979-80
Loss for the year
9.5
16.0
12.03
19.8
Accumulated loss
66.0
82.0
94.3
114.1
% increase in accumulated loss
24%
43%
73%
over base year (1976-77)
157
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Financial Statement Analysis-FIN621
VU
Table-3
CURRENT AND QUICK RATIOS
Rs. in million
Year end June 30
1977
1978
1979
1980
Current assets
33
40
35
24
Current assets less inventory & pre- 19
19
21
22
paid
Current liabilities
40
55
53
51
Current ratio
0.8:1
0.7:1
0.6:1
0.5:1
Quick ratio
0.5:1
0.3:1
0.3:1
0.4:1
Table-4
XYZ SUGAR MILLS
PROFIT AND LOSS ACCOUNT
Rs. in thousands
Year
1976-77
1977-78
1978-79
1979-80
Sales
58,000
%
52,000
%
42,000
%
20,000
%
Cost of Sales
Cane, carriage & 35,000
60
38,000
73
24,000
57
16,000
80
incidentals
Salaries & Wages 6,000
10
7,000
13
6,000
14
6,000
30
Excise duty
15,000
26
11,000
21
11,000
26
2,000
10
Depreciation
1,000
2
1,000
2
800
2
800
4
Others
3,000
5
3,400
7
3,000
7
2,000
10
Total:
60,000
103
60,400
116
44,800
106
26,800
134
Gross Profit (loss) (2,000)
3
(8,400)
16
(2,800)
6
(6,800)
34
Operating & non-operating expenses
Admin & selling
3,000
5
3,000
5
4,000
10
5,000
25
Financial
4,500
8
4,600
9
5,500
13
8,000
40
Total:
7,500
13
7,600
14
9,500
23
13,000
65
Operating (loss)
(9,500)
16
(16,000)
30
(12,300)
29
(19,800)
99
158
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Financial Statement Analysis-FIN621
VU
`Others' consist of:
-
Cloth & packing material
-
Stores & Spares
-
Insurance
ANALYSIS OF PROFIT & LOSS ACCOUNT
No.
DATA/FACTS/DOCUMENTS
FINDING
1.
Table-4 Profit & Loss Accounts
·
Bottom line figures: operating losses.
·
Never made profit.
2.
Table-4
-do-
·
Various costs as % of sales.
·
Constantly reducing sales.
3.
Table-5 Production and capacity
·
Reduced sugar production.
Utilization.
·
Below capacity utilization.
4.
Non availability of cane; feasibility report
·
Erroneous assumption in PC 1
5.
Table-6 Sugarcane procured locally
·
Only 5 to 44% of plant's requirement (of
185,000 tons) met locally.
6.
Table-7 Total procurement of cane.
·
Cane crushing capacity = 1500 tons/day
normal crushing season = 120 days.
·
Full requirement of cane never met.
·
During 1979-80, growers switched to
turmeric, they also preferred gurmaking
due to its high price.
7
Table-8  Area-wise
procurement of
·
Between 42% to 60% cane brought from
sugar-cane
far-off places.
·
Result
was
excessive
cost
of
transportation, drying up of cane (less
recovery percentage).
8
Table-9 Cost of transportation
9% to 14% of cost of cane.
9
Table-10 Per ton cost of
·
Between Rs.15 to 21.
transportation.
·
Double the cost of other factories.
10
Table-4 P&L Account
·
High percentage of sale revenues.
Cane, Chemical and
·
Include increased cost of transportation.
incidentals.
11
Table-4 Salaries, Wages and
·
Constantly increasing as % of sales.
benefits.
·
Heavy fixed cost due to:
- normal increases.
- increase in employee strength.
159
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Financial Statement Analysis-FIN621
VU
12
Table-11 Employees strength
·
53-73% over PC1 strength/seasonal staff
as routine.
13
Table-12 Cost of establishment
·
Very high due to:-
per ton of sugar produced
- excess employees.
- reduced production.
14
Table-13 Productivity per employee
·
Decreasing.
15
Table-4 Administrative expenses
·
Increasing as % of sales.
·
Excess employee strength.
16
Table-4 Financial expenses
·
Increasing as % of sales
Table-14
(range: 8% to 40%)
·
Why? Because of increased debt burden,
and Unit's inability to pay owing to
persisting losses: vicious circle.
Table-5
PRODUCTION AND CAPACITY UTILISATION
TONS
1976-77
1977-78
1978-79
1979-80
Cane crushing capacity
185,000
185,000
185,000
185,000
Cane crushed
140,292
166,271
93,931
14,375
Capacity utilization
76%
90%
51%
8%
Sugar produced
11.344
14,015
8,007
1,206
% recovery
8.08%
8.43%
8.55%
8.38%
Table-6
PROCUREMENT OF SUGAR CANE LOCALLY
1976-77
1977-78
1978-79
1979-80
160
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Financial Statement Analysis-FIN621
VU
Quality procured (Tons)
81,444
81,367
37,857
8,392
Procurement  as
%
of
total 44%
44%
20%
5%
requirements.
Table-7
TOTAL PROCUREMENT OF SUGAR-CANE
1976-77
1977-78
1978-79
1979-80
·
Cane procured (tons)
140,292
166,271
93,731
14,375
·
% of requirement
76%
90%
51%
8%
Table-8
AREA-WISE PROCUREMENT OF SUGAR-CANE
TONS
1976-77
1977-78
1978-79
1979-80
Qty
%
Qty
% Qty
%
Qty
%
Sugar-cane
produced from
· Local area
40%
49% 37857
81367
58%
81444
58%
8392
17%
27% 15976
44415
20%
Distt. 28316
6%
801
·A
(200km
North)
20%
11% 19164
18361
9%
12395
17%
2439
·B
Distt.
(150km
14%
11% 12870
18268
12%
16707
18%
2627
South)
·C
Area
9%
7864
2%
3860
1%
(150km East) 1430
1%
116
·D
Area
(300km
100%
100% 93,731
166,271
140,292 100%
100%
14,375
West)
Total:
161
Table of Contents:
  1. ACCOUNTING & ACCOUNTING PRINCIPLES
  2. Dual Aspect of Transactions
  3. Rules of Debit and Credit
  4. Steps in Accounting Cycle
  5. Preparing Balance Sheet from Trial Balance
  6. Business transactions
  7. Adjusting Entry to record Expenses on Fixed Assets
  8. Preparing Financial Statements
  9. Closing entries in Accounting Cycle
  10. Income Statement
  11. Balance Sheet
  12. Cash Flow Statement
  13. Preparing Cash Flows
  14. Additional Information (AI)
  15. Cash flow from Operating Activities
  16. Operating Activities’ portion of cash flow statement
  17. Cash flow from financing Activities
  18. Notes to Financial Statements
  19. Charging Costs of Inventory to Income Statement
  20. First-in-First - out (FIFO), Last-in-First-Out (LIFO)
  21. Depreciation Accounting Policies
  22. Accelerated-Depreciation method
  23. Auditor’s Report, Opinion, Certificate
  24. Management Discussion & Analyses (MD&A)
  25. TYPES OF BUSINESS ORGANIZATIONS
  26. Incorporation of business
  27. Authorized Share Capital, Issued Share Capital
  28. Book Values of equity, share
  29. SUMMARY
  30. SUMMARY
  31. Analysis of income statement and balance sheet:
  32. COMMON –SIZE AND INDEX ANALYSIS
  33. ANALYSIS BY RATIOS
  34. ACTIVITY RATIOS
  35. Liquidity of Receivables
  36. LEVERAGE, DEBT RATIOS
  37. PROFITABILITY RATIOS
  38. Analysis by Preferred Stockholders
  39. Efficiency of operating cycle, process
  40. STOCKHOLDERS’ EQUITY SECTION OF THE BALANCE SHEET 1
  41. STOCKHOLDERS’ EQUITY SECTION OF THE BALANCE SHEET 2
  42. BALANCE SHEET AND INCOME STATEMENT RATIOS
  43. Financial Consultation Case Study
  44. ANALYSIS OF BALANCE SHEET & INCOME STATEMENT
  45. SUMMARY OF FINDGINS