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Financial Statement Analysis: Deepali Malhotra

The document discusses three key financial statements - the balance sheet, income statement, and statement of cash flows. It provides examples of what each statement depicts: - The balance sheet describes a company's financial position at a specific date by listing assets, liabilities, and equity. - The income statement depicts revenues and expenses over a period of time to show profitability. - The statement of cash flows shows changes in a company's cash balance over a period. Together these statements provide important information about a company's performance, health, and ability to generate profits.

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64 views19 pages

Financial Statement Analysis: Deepali Malhotra

The document discusses three key financial statements - the balance sheet, income statement, and statement of cash flows. It provides examples of what each statement depicts: - The balance sheet describes a company's financial position at a specific date by listing assets, liabilities, and equity. - The income statement depicts revenues and expenses over a period of time to show profitability. - The statement of cash flows shows changes in a company's cash balance over a period. Together these statements provide important information about a company's performance, health, and ability to generate profits.

Uploaded by

himanshsgh
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Statement Analysis

Deepali Malhotra
Three Basic Financial Statements are
Balance Sheet Describes where the
enterprise stands at a
Depicts the
Income Statement specific date.
revenue and
expenses for Statement of Cash Flows
a designated Depicts the ways
period of cash has changed
time. during a
designated period
of time.

● These financial statements are windows to a company's


performance and health.
Relationships Among Financial
Statements

Date at beginning Date at end


of period Time of period

Balance Balance
Sheet Sheet

Income Statement
Statement of Cash Flows
Why do we need an Income Statement ?
Because
Income statement answers the question, "How well is
the company's business?
“Does it performing well?
Basically, the question is "Is it making money?"

Firms with low expenses and high


profits relative to revenues are
INVESTORS’
typically more desirable for
PERSPECTIVE
investment because it brings more
money directly to a shareholder.
A sudden substantial increase in
INVESTORS’
profit could be caused by
PERSPECTIVE
non-operating income
A company reported an operating income of $200,000 for one year. In addition to
running its core business, the company also made some investments, which brought
in $10,000 in dividends and $8,000 in interest income. During the year, the company
paid a $6,000 interest for its previous financing and sold a piece of land at a loss of
$4,000. Also, it was sued and was charged for $15,000.
Assuming a 25% tax rate, calculate net income
Custom duty 15,000
COGS: 2,82,000
GP-1,10,000
5,47,100
2. Format of P&L Account
for Companies
Other income
Interest Income (in case of a company other than
a finance company);
Dividend Income;
Net gain/loss on sale of investments;
Other non-operating income
Employees benefit expense
i. Salaries and wages,
ii. Contribution to provident and other funds,
iii. Share-based payments to employees
iv.staff welfare expenses
Finance Costs
Interest expense;
Other borrowing costs
The Balance Sheet
ASSETS
LIABILITIES EQUITY
Cash
Accounts Payable Capital Stock
Inventory
Accrued Retained
Accounts Receivables Expenses Earnings
Prepaid expenses = Prepaid Income +
Accrued income Taxes Payable
Land/ Buildings Short Term
Equipment provision

Vehicles Long Term Debts

Intangible Assets
Assets = Liabilities + Owners’ Equity

• Anil started business


Anil started business with cash 5000=
0 + 5000
with cash- $5000
Purchased goods on credit 400 = 400 + 0
• Purchased goods on credit- $400
5400= 400 + 5000
Purchased goods on cash
• Purchased goods+on0 cash- $100
100 =
(100)
0

5400= 400 + 5000


• Purchased furniture
Purchased furniture on cash 50 =
+
on cash-$50
0 0
(50)
• Withdrew for personal use- $70
5400= 400 + 5000
Withdrew for personal use (70) = 0 + (70)
5330= 400 + 4930
Rent Paid (20) = 0 + (20)
• 5310=
Rent Paid-
400 +
$20
4910
Assets = Liabilities + Owners’ Equity
Rent Paid (20) = 0 + (20)
5310= 400 + 4910
Received interest 10 = 0 + 10
• Received
5320= 400 + interest- 10
4920
Sold goods 70 = 0 + 20
• Sold
(50)
5340=
goods
400 +
worth
4940
$50 for $70 in cash
Paid to creditor • Paid to creditors-
(40) = (40) $400
+
5300= 360 + 4940
Paid for salaries• Paid for (20) salaries-
= 0 + $20
(20)
5280= 360 + 4920
• Further capital
Further capital invested 1000= invested-
0 + 1000 $1000
6280= 360 + 5920
Borrowed from P 1000= 1000+ 0
• Borrowed
7280= from P- $1000
1360+ 5920

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