Finance Presentation - Sample PPT

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Understanding Basics of Financial Statements

Client Company’s Name

Trainer’s NameQualifications

Brianna Knowledge Resources Pvt. Ltd.2

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Objectives of the Presentation

Understanding the basic concepts and terms

used in the Financial Statements.

Understanding the ratios used for analyzing the Financial Statements.

Discussing factors that drive corporate valuations.


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Objectives of Financial Statements

Basic Accounting Concepts

Structure of Profit & Loss Statement

Structure of Balance Sheet & Cash flow Statement

Q & A

Contents


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Name of Company: Wise Co. Prudent Co. Sales Rs. Crore 1000 800 Net Profit 120 200 Profit Margin 12% 25% Equity Capital 200 500 Debt Funds 200 100 Return on Equity 60% 40%

There are other financial / non-financial factors that would influence investment decisions.

Which Company will you choose to invest in?


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To provide information to stakeholders about:

Performance of the company during a given period: Financial health of the company as on a specified date.

To furnish information useful in making decisions relating to investment and lending.

Objectives of Financial Statements


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Profit and Loss Statement.

Balance Sheet.

Cash Flow Statement.

Statement of Accounting Policies and Notes to Accounts.

Basic Financial Statements


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Dual Impact of Financial Transactions

INCOME EXPENDITURE

ASSETS LIABILITIES


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Examples of Financial Transactions

Salary Receipt

Rent payment

Purchase of House

Taking of Housing Loan

Buying MF Units

Loan EMI


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Your own P & L & Balance Sheet

Personal P & L A/C (Monthly) Income Rs. Salary 15,000

Interest 1,000Total Income 16,000

ExpenditureUtilities 3,000Groceries 3,000Education 2,000Maintenance 2,000Total Exps. 10,000

Net Income 6,000 Loan EMI 3,000 Net Savings 3,000

Personal Balance Sheet Assets Rs. Lakhs

House Property 11

Bank balances 2

Shares 1

Mutual Funds 1 Total assets 15

Liabilities

Housing Loan 4

Personal Loan 1

Total Liabilities 5

Net wealth 10


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Business Entity: An Enterprise is different from the persons who own it.

Going Concern: Enterprise will continue to exist in a foreseeable future.

Accrual: Revenue and expenses are recognised as they are incurred and not as money is received or paid.

Substance over form: Substance of a transaction takes precedence over legal form.

Fundamental Accounting Concepts


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Prudence: Recognise all known expenses and losses. Do not recognise revenue and profits unless you are sure of realisation of the same.

Capital Expenditure: Expenditure which brings into existence asset or benefit of a long term nature. e.g. Building, computers, furniture, equipment.

Revenue Expenditure: Expenses which are incurred to earn revenue and which are written off over a normal accounting period. e.g. salary, rent, stationery, electricity.

Fundamental Accounting Concepts


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A statement showing revenues and expenditure over a defined period of time. It shows results of business operations for a defined duration.

Profit =Total Income – Total Expenditure.

It is a measure of financial performance.

Income and Expenditure are recognised in accordance with Generally Accepted Accounting Principles (GAAP).

Profit and Loss (P&L) Account


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Revenue

Cost of Material

Selling, General & Admn (SGA)

Employee Costs

Operating Profit(EBIDTA)

Depreciation

Interest

Tax

Profit After Tax

Structure of a P & L Account


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Total Revenue = Sales + other income.

Sales is usually the amount invoiced during the period for product and services.

Some of the amounts invoiced may not have been collected at the year end.

Other income would include dividend, interest etc.

Revenue


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Material Cost - Raw Materials and Consumables.

Employee Related Expenses (ERE) - Salary & allowances, bonus, staff welfare and benefits.

Selling, General & Administration Expenses (SGA) - Bizdev., Advertisements, Commission, Travel, Marketing office expenses, Rent, Electricity, Maintenance, Insurance, Housekeeping, Telephones, Internet link etc.

Expenditure


Your Logo HereDepreciation

Depreciation is a charge for use of capital assets.

Non – cash charge to the P&L.

Depreciation method ensures that the original cost of an assets less its salvage value is spread over estimated useful life of an asset.

Depreciation methods: Straight Line / Reducing Balance.


Your Logo HereInterest cost

Interest is an amount payable to the lenders, e.g. Banks, Financial Institution, etc.

The interest will arise in relation to Working capital loans Term Loans


Your Logo HereProvision for Tax

Provision for tax relates to income tax payable on the company profit.

It is a notional Figure arrived at by using the provisions of Income Tax Law, but the Final tax liability is assessed by the assessing officer of the Income tax Dept and the difference is settled accordingly


Your Logo HereProfit & Loss Account

Material Cost 45

Interest 2

Revenue:100

OPG Profit 35Depreciation 10

Employee Cost 5

G & A Exp 15

Tax 0.5 PBT 23PBIT 25

PAT 22.5


Your Logo HereDividend

Dividend: A portion of profit which is paid to the share - holders.

Lenders are paid fixed rate of interest, whereas shareholders are paid dividend depending upon the profits and the policy of the company.

The Board of the Company recommends the rate of dividend based on the profitability and policy of the Company.

In India, currently there is no tax on dividend received by the shareholder as the company pays dividend tax.


Your Logo HereRetained Earnings (RE)

Profit After Tax 22.5

Retained Earnings 20

Dividend 2.5


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Profitability Ratios

Operating Profit Margin

or EBIDTA Margin

= Operating Profit / Sales

= 35 / 100 = 35%

Operating Profit shows intrinsic profitability of a business.

P & L Account Amount Rs. Cr.

Revenue 100

Emp. Costs 45

SGA 20

Operating Profit 35

Depreciation 10

PBIT 25

Interest 2

PBT 23

Tax 0.5

PAT 22.5


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PBIT Ratio

= PBIT / Sales %

= 25 / 100 = 25%

PBIT Ratio shows profitability of a business after accounting for depreciation.


Revenue 100

Emp. Costs 45

SGA 20

Operating Profit 35

Depreciation 10

PBIT 25

Interest 2

PBT 23

Tax 0.5

PAT 22.5


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Net Profit (PAT) Ratio

= PAT / Sales %

= 22.5 / 100 = 22.5%

Net Profit Ratio shows profitability of a business after accounting for all expenses including depreciation, interest & tax.


Revenue 100

Emp. Costs 45

SGA 20

Operating Profit 35

Depreciation 10

PBIT 25

Interest 2

PBT 23

Tax 0.5

PAT 22.5


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Drivers of Profitability in Business Segment

Revenue side

Actual Drivers of your business segment

Expenditure Side

Actual Drivers of your business segment


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Particulars (Rs. Crs.)

YOUR CO % PEER CO%

Net Sales 100 100

Other Income

Total Expenditure

Operating Profit

Depreciation Latest Actual Income Statements

PBIT

Interest (Net)

PBT & EI

Tax & Other Adj.

Net Profit (PAT)


Your Logo HereBalance Sheet

A statement of Assets and Liabilities of the Company.

A snapshot view of a business at a defined point of time.

Balance Sheet is a measure of financial resources or wealth of a company whereas Profit and Loss Account is an indicator of performance of a company,

Balance Sheet is always balanced. Assets are equal to liabilities.


Your Logo HereAssets and Liabilities

Liabilities: Amounts owed by the Company to parties external to the Company – sources of funds.

Assets: Resources owned by the company – Application of funds.

It could be presented in either a Horizontal or vertical format.


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Balance Sheet: Horizontal Structure

Equity Capital (10)&

Reserves (60)

Fixed Assets (70)(e.g. Land & building, Plant & machinery ,Computers, DG set)

Loan Funds (30)

Current Liabilities (10)(e.g. creditors, provision)

Current Assets(40)(e.g. cash, inventories,

Debtors)

Liabilities Assets

Total (110) Total (110)


Your Logo HereBalance Sheet: Vertical Structure

Assets(owned)

Application

Liabilities(owed)

Sources

Loan Funds (30)

Fixed Assets (70)

Net Current Assets (30)[Current Assets (40)

less: Current Liabilities (10)]

Equity Capital (10)

Reserves (60)


Your Logo HereFind the items in the wrong heading

Fixed Assets Land Building Finished products Machinery Computers Furniture and

fixtures

Current Assets Cash Account receivables Raw material Motor vehicles Loans and advances


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Balance Sheet31 March 2008

Profit & Loss Account

Cash Flow

Balance Sheet31 March 2009


Your Logo HereNet Worth

Net worth

= Share Capital +Reserves

= Rs. 10 +Rs. 60 = Rs. 70 Cr.

OR

Net worth

= Total Assets – Loan Funds

= Rs.100 – Rs.30 = Rs. 70 Cr

Balance Sheet Amount Rs. Cr.

Share Capital 10

Reserves 60

Net Worth 70

Loan Funds 30

Total Liabilities 100

Net Fixed Assets 70

Current Assets 40

Current Liabilities 10

Net Current Assets 30

Total Assets 100


Your Logo HereWorking Capital

Working Capital

= Current Assets – Current Liabilities

= Rs. 40 - Rs.10

= Rs. 30 Cr.


Share Capital 10

Reserves 60

Net Worth 70

Loan Funds 30


Net Fixed Assets 70

Current Assets 40


Net Current Assets

30

Total Assets 100


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Balance Sheet Ratios: Debt to Equity

Debt to Equity Ratio

= Long Term Debt / (Equity + Reserves)

= Rs. 30 / (Rs.10+60)

= Rs. 30 / Rs. 70

= 0.42:1


Share Capital 10

Reserves 60

Net Worth 70

Loan Funds 30


Net Fixed Assets 70

Current Assets 40


Net Current Assets

30

Total Assets 100


Your Logo HereBalance Sheet Ratios: Current Ratio

Current Ratio

= Current Assets / Current Liabilities

= Rs. 40 / Rs.10

= 4:1


Share Capital 10

Reserves 60

Net Worth 70

Loan Funds 30


Net Fixed Assets 70

Current Assets 40

Current Liabilities

10

Net Current Assets

30

Total Assets 100


Your Logo HereMixed Ratio: Return on Equity

Return on Equity

= Profit After Tax / Average Equity Cap.

and Reserves

= Rs. 22.5 / ((Rs. 70 + Rs. 50) / 2)

= Rs. 22.5 / 60

= 37.5%

P & L Account 31.3.06

Rs. Cr.

31.3.05 Rs. Cr.

Sales 100 80

PBIT 25 20

PAT 22.5 18

Balance Sheet 31.3.06

Rs. Cr.

31.3.05 Rs. Cr.

Share Capital 10 10

Reserves 60 40

Net Worth 70 50

Loan funds 30 20

Total Capital Employed

100 70


Your Logo HereMixed Ratio: Return on Capital Employed

ROCE

= Profit before Interest & Tax (PBIT) / Avg. Capital Employed.

= Rs. 25 / ((100+70) / 2)

= 29.4%


Rs. Cr.

31.3.05 Rs. Cr.

Sales 100 80

PBIT 25 20

PAT 22.5 18


Rs. Cr.

31.3.05 Rs. Cr.

Share Capital 10 10

Reserves 60 40

Net Worth 70 50

Loan funds 30 20

Total Capital Employed

100 70


Your Logo HereROCE

ROCE = PBIT / Average Capital employed

= (PBIT / Sales) X (Sales / Avg.Capital Empl.)

= Profit Margin X Capital Turnover Ratio

= Operating Efficiency x Efficiency in utilising capital.


Your Logo HereMixed Ratio: Earnings Per Share (EPS)

EPS

= Profit After Tax / No. of shares outstanding

= Rs. 22.5 Cr. / 1 Crore Shares

= Rs. 22.5


Sales 100

PBIT 25

PAT 22.5


Share Capital

(1 Crore shares)

10

Reserves 60

Net Worth 70

Loan Funds 30



Your Logo HereAsset Turnover Ratios

Fixed Asset Turnover Ratio

= Sales / Avg. Fixed Assets

= Rs. 100 Cr / ((70+50)/2)

= 1.67


Rs. Cr.

31.3.05 Rs. Cr

Sales 100 80

PBIT 25 20

PAT 22.5 18


Rs. Cr.

31.3.05 Rs. Cr

Net Fixed Assets 70 50

Net Current Assets 30 20

Total Assets 100 70


Your Logo HereAsset Turnover Ratios

Inventory Turnover Ratio =

Sales / Avg. Inventory

Debtors Turnover Ratio =

Sales / Avg. Debtors

Capital Turnover Ratio =

Sales / Avg. Capital Employed


Your Logo HereIndustry Comparison – Balance Sheet

Particulars

(Rs. Crs.)

YOUR CO % PEER CO %

Equity

Reserves

Shareholder Funds

Loan Funds Latest Actual Balance Sheets

Deferred Tax Liability

Total Liabilities 100 100

Net Fixed Assets

Investments

Current Assets

Less: Current Liabilities

Net Current Assets

Misc. exp not W/Off.

Total Assets 100 100


Your Logo HereConcept of Valuation of Equity Shares

Face Value

Book Value

Market Value


Your Logo HereValuation of Equity Shares: Face/Book Value

Face Value is par value of the share appearing on the face of share certificate

= Rs. 10 per share.

Book Value is the net worth

divided by a no. of outstanding shares.

= (Share Capital + Reserves) / No. of outstanding shares.

= Rs. 70 Cr. / 1 Cr.

= Rs. 70 per share.


Share Capital

(1 Cr. Shares of Rs.10 each)

10

Reserves 60

Net Worth 70

Loan Funds 30


Net Fixed Assets 70

Current Assets 40


Net Current Assets 30

Total Assets 100


Your Logo HereValuation of Equity Shares: Market Value

Market Value (MV) of a listed share is the price of the share quoted on a recognized stock exchange.


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Current Valuations of select Auto Companies

Name of the Company

Face Value (Rs.)

Book Value

(Rs.)

Market Value (Rs.)*

YOUR CO Actual Data

PEER CO 1

PEER CO 2

* As on DATE


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Price Earning Ratio

PE = MV / EPS 100 / 10 = 10

PE is driven by a no. of subjective and objective factors associated with the company and the industry it belongs to: Projected Growth of sales, profit,cash flow and EPS. Company brand equity, management practices, corporate

governance. Market sentiment

MV = EPS x Price Earnings (PE) Ratio

EPS = PAT / No. of outstanding shares


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Current PE Ratios of select Auto Companies

Name of the Company

EPS (Rs.) PE MV Rs.*

YOUR CO Actual Data

PEER CO 1

PEER CO 2

* As on DATE


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Market Value of a Company

Market Value of a company or Market Capitalization is the price you will pay to buy all the shares of a company at a given point of time.= No. of shares outstanding x Market value of a share.

For Example, market capitalization of M & M is as follows: No. of Shares = Actual no. of SharesPrice of a share = Rs. 0.00 per shareMarket Cap. = Rs. Actual Crs


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Q & A


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Thank you!!

Sooner or Later, those who win are those who think they can

-Anonymous

Finance Presentation - Sample PPT

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