Balance Sheet Analysis

Lecture - 4
04/08/2012 Ramesh. Selvaraj 1

Agenda
1. What is a Balance Sheet?

2. Discussion on BS line items

3. Relation with other financial statements

4. Decision making ratios from BS

5. Discussion on various industry BS

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What is a Balance Sheet?

A quantitative summary of a company's financial condition at a specific point in time, including assets, liabilities and net worth.

A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time.

It is a snapshot of a company capital position at a particular point in a year.

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How to read / analyze a BS

When given a balance sheet, what will be your mode of analysis?

Will have a look at the current assets Will have a look at the long term asset
Analyze the short debt and its sources

Analyze the long term debt and its sources

Analyze the shareholders equity along with the reserves Depending on the industry and the end result, one can analyze the BS.
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Discussion on BS line items

Cash and marketable securities

Inventories
Trade and other receivables Any short term investments Short term loans and advances Other current assets
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Discussion on BS line items

Tangible Assets (depreciation) Capital work in progress (depreciation) Intangible assets and Goodwill (amortization) Non current investments

Deferred tax assets

Long term loans and advances
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Discussion on BS line items

Short term borrowings

Trade payables
Short term provisions Advances against orders Current income tax liabilities Other current liabilities
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Discussion on BS line items

Long term borrowings

Long term provisions

Deferred tax liabilities Employee benefits payable Other long term liabilities Off balance sheet items
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Discussion on BS line items

Share capital

Share premium
Retained earnings Reserves and others Minority shareholders / interest Preferred shareholders
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Relation with other financial stmts.

Line items related to Income Statement

Sales
Cost of sales Net Profit Shares outstanding Interest income / expenses
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Relation with other financial stmts.

Line items related to Cash Flow Statement

Depreciation and amortization Working capital line items

All fund raising and fund repayments All capital expenditure related line items All cash related line items
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Decision making ratios from BS

Return on Equity Return on Capital Employed / Net Worth Return on invested capital Return on Assets

BVPS
Cash per share
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Decision making ratios from IS

Current ratio

Quick ratio
Cash ratio

Interest services coverage ratio

Debt service coverage ratio

Interest bearing debt to Assets ratio
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Decision making ratios from IS

Total Debt / Total Equity

Total Equity / Total Capital

Total Debt / Total Capital

Long term debt / Short term debt

Minority interest / Total Capital

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Discussion on various industry IS

IT Infosys Technologies

FMCG Nestle India

Automobiles (two wheeler) Hero MotoCorp Telecom

Shipping
Steel manufacturing
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Discussion on various industry IS

Mining

Airlines
Capital goods Oil and Gas Banks Pharmaceuticals
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Discussion on various industry IS

Real estate Infrastructure / Construction

Healthcare / Hospitals
Retail Logistics Travel & Tourism
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Questions please

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