22-06-2012, 02:09 PM
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS: CASE STUDIES
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INTRODUCTION
Financial statements are records that provide an indication of the organization’s financial status.
It quantitatively describes the financial health of the company. It helps in the evaluation of
company’s prospects and risks for the purpose of making business decisions. The objective of
financial statements is to provide information about the financial position, performance and
changes in financial position of an enterprise that is useful to a wide range of users in making
economic decisions. Financial statements should be understandable, relevant, reliable and
comparable. They give an accurate picture of a company’s condition and operating results in a
condensed form. Reported assets, liabilities and equity are directly related to an organization's
financial position whereas reported income and expenses are directly related to an organization's
financial performance. Analysis and interpretation of financial statements helps in determining
the liquidity position, long term solvency, financial viability, profitability and soundness of a
firm. There are four basic types of financial statements: balance sheet, income statements, cashflow
statements, and statements of retained earnings.
Mining industries are capital intensive. Hence a lot capital is invested in it. Unfortunately very
limited work has been done on analysis and interpretation of financial statements of Indian for
mining companies. An attempt has been carried out in this project to analyze and interpret the
financial statements of five coal and non- coal mining companies.
OBJECTIVES
· To understand, analyze and interpret the basic concepts of financial statements of different
mining companies.
· Interpretation of financial ratios and their significance.
· Development of programs in C++ for calculation of different financial statements and
financial ratios.
· Use of Tally 9.0 package for the analysis and interpretation of financial statements of mining
companies.
FINANCIAL STATEMENTS
Financial statements (or financial reports) are formal records of the financial activities of a
business, person, or other entity. Financial statements provide an overview of a business or
person's financial condition in both short and long term. All the relevant financial information of
a business enterprise, presented in a structured manner and in a form easy to understand is called
the financial statements. There are four basic financial statements:
1. Balance sheet: It is also referred to as statement of financial position or condition, reports on a
company's assets, liabilities, and Ownership equity as of a given point in time.
2. Income statement: It is also referred to as Profit and Loss statement (or "P&L"), reports on a
company's income, expenses, and profits over a period of time. Profit & Loss account provide
information on the operation of the enterprise. These include sale and the various expenses
incurred during the processing state.
3. Statement of Retained Earnings: It explains the changes in a company's retained earnings
over the reporting period.
4. Cash Flow Statement: It reports on a company's cash flow activities, particularly its
operating, investing and financing activities.
BALANCE SHEET
In financial accounting, a balance sheet or statement of financial position is a summary of a
person's or organization's balances. A balance sheet is often described as a snapshot of a
company's financial condition. It summarizes a company's assets, liabilities and shareholders'
equity at a specific point in time. These three balance sheet segments give investors an idea as to
what the company owns and owes, as well as the amount invested by the shareholders. Of the
four basic financial statements, the balance sheet is the only statement which applies to a single
point in time.
A company balance sheet has three parts: assets, liabilities and ownership equity. The main
categories of assets are usually listed first and are followed by the liabilities. The difference
between the assets and the liabilities is known as equity or the net assets or the net worth or
capital of the company. It's called a balance sheet because the two sides balance out. A typical
format of the balance sheet has been given in Table 2.1. It works on the following formula:
CONTENTS OF BALANCE SHEET
(A) Assets
In business and accounting, assets are economic resources owned by business or company. Any
property or object of value that one possesses, usually considered as applicable to the payment of
one's debts is considered an asset. Simplistically stated, assets are things of value that can be
readily converted into cash.
The balance sheet of a firm records the monetary value of the assets owned by the firm. It is
money and other valuables belonging to an individual or business.
Types of Assets
Two major types:
· Tangible assets
· Intangible assets
Tangible Assets
Tangible assets are those have a physical substance, such as equipment and real estate.
Intangible Assets
Intangible assets lack physical substance and usually are very hard to evaluate. Assets which do
not possess any material value.
They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc.