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Financial Statement Analysis-FIN621
VU
Lesson-43
CASE STUDY
Assumption
The company you have chosen has hired you as a financial consultant.
Assignment
Based on your analysis of the firm's financial statements and any relevant
supplementary information you can obtain about the firm and its operating environment, identify areas
in which the company is performing well (strengths) and problem areas (weaknesses); Also advise
management of corrective measures for improvement.
Data
The time period for the analysis should include five full years or four years plus interim
statements for the most recent year. In addition to the financial statements and other material in the
annual reports, you should review relevant materials from outside sources such as newspapers,
periodicals and investment resources.
Outline
The following outline is provided for guidance, but the analysis should be adjusted, as
appropriate, to conform to the individual characteristics of the firm.
Suggested Outline for the Financial Statement Analysis
I.
Introduction
A.
Objective of paper
B.
Summary of Findings
II.
Firm, Industry, and Environment
A.
Description of firm and its management
B.
Discussion of competitive environment
C.
Economic climate and outlook
D.
Other factors, e.g. governmental regulations, Labour relations,
Litigations.
III.
Evaluation of Financial Statements
A.
Overview
B.
Short-term liquidity
C.
Operating efficiency
D.
Capital structure and long-term solvency
E.
Profitability
F.
Market measures
IV.
Outlook, Summary, and Conclusions
A.
Outlook for performance, earnings projection
B.
Summary and Conclusions
Table-1
XYZ
SUGAR
MILLS
154
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Financial Statement Analysis-FIN621
VU
BALANCE
SHEET
AS
ON
JUNE
30,
.
Rs. in million
Year
1977
1978
1979
1980
CAPITAL & LIABILITIES
Owners' equity
Original  Investment by the Controlling
10
10
10
10
Corporation (CC)
Current A/C with CC
55
59
65
71
Total equity
65
69
75
81
Less accumulated losses
66
82
94
114
(1)
(13)
(19)
(33)
Net equity
Current Liabilities
1977
1978
1979
1980
Short-term borrowing
25
26
29
37
Trade creditors (liabilities for
7
12
11
4
expenses)
Liabilities for other finances 8
17
13
10
40
55
53
51
Fixed Liabilities
Long-term loans
10
13
15
20
49
55
49
38
Total capital & Liabilities
Assets
Fixed assets
16
15
14
14
Current assets
- Cash
5
4
3
2
-Receivable from Bibo
12
13
15
17
-Other Receivables
2
2
3
3
-Pre-paid
1
1
1
1
- Inventory
13
20
13
1
Total current assets
33
40
35
24
Total Assets
49
55
49
38
ANALYSIS OF BALANCE SHEET
No.
Table Data/Facts
Findings
155
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Financial Statement Analysis-FIN621
VU
1
1
Balance Sheets for the
·
Accumulated losses (Rs.114 million as at
June
year 1976-80
30, 1980)
·
Constantly losing enterprise.
2
2
Accumulated
losses
·
Losses increasing over the years.
over the period.
3
1
Balance Sheet
a) Capital cost of the project was Rs.26
million,
met through:
-  Equity Fund from CC Rs.10 million.
-  Loans from CC: Rs.16 million
b) "Current account with "CC" comprises, funds
given by CC over the years as working capital.
c) Total equity as on 30.06.1980
= Rs.81 million.
d) Equity completely eroded by accumulated loss of
Rs.114 million.
e) Equity eroded since 1976-77
4
1
Borrowing
(short-
a) Increased from Rs.35 million in 1976-77 to
term & long term)
Rs.57 million in 1979-80.
b) Debt burden increasing because of unit's
inability to repay the principal owing to
persistent losses.
c) Vicious circle.
d) Huge financial charges (Rs.8 million during
1979-80)
156
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