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FINANCIAL STATEMENTS
ImportanceUses
Principles of PreparationLimitations
FINANCIAL STATEMENTSWhat are they?
POINTS TO BE COVEREDTYPES OF STATEMENTS
USES OF FINANCIAL STATEMENTS
PRINCIPLES OF PREPARATION
LIMITATIONS
IMPORTANCE OF FINANCIAL STATEMENTS
ON
TARGET
FINANCIAL STATEMENTS
Abbas Sheikh Dawood-101Siddharth Devnani-302
What are Financial Statements?Financial Performance AnalyzersLanguage understandable by interested parties
Trade Creditors Bondholders
Investors Management
TYPES OF STATEMENTS
Balance Sheet
Income Statement
Cash Flow Statement
FACTORS CONNSIDERED BEFORE INVESTING
Growth Potential
Operational efficiency
Dedicated management team
Reasonable Stock Prices
SHOULD I INVEST ?
EVALUATION METHODS
1.Ratio Analysis
2.Cash Flow analysis
EVALUATION OF INVESTMENTS BY RATIO ANALYSIS
• Income as a percentage of revenues
Common size Income Statements
•Balance sheet as a percentage of total assets
Common size Balance Sheets
ON
TARGET
IMPORTANCE
Bhavuk Chandak-103
ON
TARGET
•Shows how a business is doing
•Are very useful within the organization for a company's stockholders and to its board of directors, its managers and some employees, including labour unions.
•The firm owes too much or
•They are lending too much or
•They have too much in the inventory.
Balance Sheet
•The prices or goods sold are high enough to make sufficient profit.
P&L Statement
•Internally generated money is fulfilling most of the needs or
•Money is borrowed from outside for some needs.
Cash Flow Statement
IMPORTANCE
Delete this graphic or copy it and use it on another page or in another presentation.
IMPORTANCE TO MANAGERS
Among the many users Managers are the most beneficial and frequent users of financial statements particularly those good in analyzing and understanding the financial statements.
Business Managers discover problems in the statements and find the action needed to be taken and executes the actions planned.
ON
TARGET
USES
Dharmendra Choudhary-104
USES OF FINANCIAL STATEMENTS• To make business decisions
Owners & Mangers
• To assess the creditabilityBusiness Investors
• Making collective bargaining agreements (CBA)• In the case of labour unions or• For individuals in discussing their compensation, promotion and
rankingsEmployees
• To assess the creditworthiness of the business
Vendors
Financial institution s (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditure and other duties declared and paid by a company.
Media and the general public are also interested in financial statements for a variety of reasons. For example if any person wants to become a shareholder in the company then the financial statements of the company’s previous years will help the person in checking the creditability of the company
ON
TARGET
PRINCIPLES FOR PREPARING
Vaibhav Choudhary-301
Economic Entity AssumptionThe accountant keeps all the owner’s personal transactions different from the transactions of his business.
Monetary Unit AssumptionAny Economic activity taking place is measured in U.S. dollars, and the ones which can be expressed in U.S. dollars are recorded.accountants do not take into account the effect of inflation on recorded amounts.
Time Period AssumptionAccording to this principle it is possible to report the ongoing activities of a business in relatively short, distinct time intervals such as the five months ended June 31, 2009, or the 5 weeks ended June 1, 2009.
Cost PrincipleFrom an accountant's view point, the term "cost" refers to the money spent (cash equivalent or cash) when an item was originally obtained, whether that purchase happened 2 years ago or fifty years ago.
Full Disclosure PrincipleIf certain information is important to an investor or lender using the financial statements, that information should be disclosed within the statement or in the notes to the statement.
Going Concern PrincipleThis accounting principle assumes that a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future.
Matching PrincipleThe matching principle requires that expenses be matched with revenues. For example, sales commissions expense should be reported in the period when the sales were made (and not reported in the period when the commissions were paid)
Revenue Recognition PrincipleUnder the accrual basis of accounting (as opposed to the cash basis of accounting), revenues are recognized as soon as a product is sold, and not when the money was received.
Time Period AssumptionAccording to this principle it is possible to report the ongoing activities of a business in relatively short, distinct time intervals such as the five months ended June 31, 2009, or the 5 weeks ended June 1, 2009.
Cost PrincipleFrom an accountant's view point, the term "cost" refers to the money spent (cash equivalent or cash) when an item was originally obtained, whether that purchase happened 2 years ago or fifty years ago.
Full Disclosure PrincipleIf certain information is important to an investor or lender using the financial statements, that information should be disclosed within the statement or in the notes to the statement.
ON
TARGET
LIMITATIONS
Shruti P Bihani-201
QUANTATIVE BUT NOT QUALATATIVE
LOSS OF MAJOR CUSTOMERS
CHANGE IN MANAGEMENT
COMPETETIVE ENVIORENMENT
FORGED COMPANY IMAGE
FROM P&L
DIFFERENT ACCOUNTING STANDARDS
LIMITATIONS
REFERENCE TO CASE STUDY
Reasons for low operating
expenses of Costco
Impact of frequent
management change on SAM
Wall-Mart & SAMs Clubs beside each
other
Powerful leadership by
Thomas Grimm
THANK YOUAbbas Sheikh Dawood-101
Siddharth Devnani-302Bhavuk Chandak-103
Dharmendra Choudhary-104Vaibhav Chaudhary-301
Shruti Bihani-201