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

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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

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IMPORTANCE

Bhavuk Chandak-103

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•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

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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.

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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

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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.

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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