Banking and Trading

8/3/2019 Banking and Trading

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FINANCIAL ANALYSIS

RATIOS

COST ANALYSISFINANCE COMMISSION

BUDGET ANALYSIS

RESERVE BANK OF INDIA

WTOINDAIAN BANKING

BANKING AND TRADING


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FIANANCIAL ANALYSIS


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Financial Analysis

Assessment of the firms past, present

and future financial conditions

Done to find firms financial strengthsand weaknesses

Primary Tools:

Financial Statements

Comparison of financial ratios to past,industry, sector and all firms


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FINANCAIL ANALYSIS

FUNCTIONS

SOLVE EXTERNALISSUES

CREDIT POLICIES

EFFICIENCY OFOPERATIONEVALUATE

INTERNAL ISSUES

Source: WWB research


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Financial Statements

Balance Sheet

Income Statement Cashflow Statement

Statement of RetainedEarnings


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Review: Major Balance Sheet

ItemsAssets

Current assets:

Cash & securities Receivables

Inventories

Fixed assets:

Tangible assets

Intangible assets

Liabilities and Equity

Current liabilities:

Payables Short-term debt

Long-term liabilities

Shareholders'equity


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An Example: Dell

Abbreviated Balance Sheet Assets:

Current Assets: $7,681.00

Non-Current Assets: $3,790.00

Total Assets: $11,471.00

Liabilities:

Current Liabilities: $5,192.00

LT Debt & Other LT Liab.: $971.00

Equity: $5,308.00

Total Liab. and Equity: $11,471.00


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Review: Major Income

Statement Items Gross Profit = Sales - Costs of Goods Sold

EBITDA

= Gross Profit - Cash OperatingExpenses

EBIT = EBDIT - Depreciation - Amortization

EBT = EBIT - Interest NI or EAT = EBT- Taxes

Net Income is a primary determinant of thefirms cashflows and, thus, the value of the

firms shares


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An Example: Dell

Abbreviated Income StatementSales $25,265.00Costs of Goods Sold -$19,891.00Gross Profit $5,374.00

Cash operating expense -$2,761.00EBITDA 2,613.00Depreciation & Amortization -$156.00Other Income (Net) -$6.00

EBIT $2,451.00Interest -$0.00EBT $2,451.00Income Taxes -$785.00Special Income/Charges -$194.00

Net Income (EAT) $1,666.00


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FINANCIAL STATEMENTS


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TWO BASIC FINANCIALSTATEMENTS

Profit and lossaccount or income

statementBalance sheet

Liabilities

Assets

Expenses

Revenues


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Financial Ratios

Financial ratio analysis is one tool used toimprove financial decision making

Ratios use financial data to summarizeorganizational performance


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RATIO ANALYSIS


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Objectives of Ratio Analysis Standardize financial information for

comparisons

Evaluate current operations

Compare performance with pastperformance

Compare performance against otherfirms or industry standards

Study the efficiency of operations

Stud the risk of o erations


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Groups of Financial Ratios

Liquidity

Activity

DebtProfitability


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Evaluation of operating performance and financialcondition of a company

Financial leverageratio

Liquidity ratio Shareholder ratio

Profitability ratio

Activity ratiio


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Analyzing Liquidity

Liquidity refers to the solvency of thefirm's overall financial position, i.e. a

"liquid firm" is one that can easilymeet its short-term obligations as theycome due.

A second meaning includes theconcept of converting an asset intocash with little or no loss in value.


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Three Important Liquidity Measures

Net Working Capital (NWC)

NWC = Current Assets - Current Liabilities

Current Ratio (CR)

Current AssetsCR =Current Liabilities

Quick (Acid-Test) Ratio (QR)Current Assets - Inventory

QR = Current Liabilities


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Analyzing Activity

Activity is a more sophisticatedanalysis of a firm's liquidity,

evaluating the speed with whichcertain accounts are converted

into sales or cash; alsomeasures a firm's efficiency


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Inventory Turnover (IT)

Average Collection Period (ACP)

Average Payment Period (APP)

Fixed Asset Turnover (FAT)

Total Asset Turnover (TAT)

Cost of Goods SoldIT =Inventory

Accounts ReceivableACP =

Annual Sales/360

Accounts PayableAPP=

Annual Purchases/360

SalesFAT =

Net Fixed Assets

SalesTAT =

Total Assets

Five Important Activity Measures


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Analyzing Debt

Debt is a true "double-edged" sword as itallows for the generation of profits with theuse of other people's (creditors) money, but

creates claims on earnings with a higherpriority than those of the firm's owners.

Financial Leverage is a term used to

describe the magnification of risk and returnresulting from the use of fixed-cost financingsuch as debt and preferred stock.


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Measures of Debt

There are Two GeneralTypes of Debt Measures

Degree of Indebtedness

Ability to Service Debts

F I t t D bt


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Debt Ratio

(DR)

Debt-Equity Ratio

(DER)

Times Interest Earned

Ratio (TIE)

Fixed Payment Coverage Ratio

(FPC)

Total LiabilitiesDR=Total Assets

Long-Term DebtDER=

Stockholders Equity

Earnings Before Interest& Taxes (EBIT)

TIE=Interest

Earnings Before Interest &Taxes + Lease Payments

FPC=Interest + Lease Payments+{(Principal Payments +Preferred Stock Dividends)

X [1 / (1 -T)]}

Four Important DebtMeasures


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Analyzing Profitability

Profitability Measures assess the firm'sability to operate efficiently and are ofconcern to owners, creditors, and

management

A Common-Size Income Statement, whichexpresses each income statement item

as a percentage of sales, allows for easyevaluation of the firms profitability relative

to sales.

Se en Basic Profitabilit


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Gross Profit Margin

(GPM)Operating Profit Margin

(OPM)

Net Profit Margin (NPM)Return on Total Assets

(ROA)

Return On Equity (ROE)Earnings Per Share

(EPS)

Price/Earnings (P/E)

Ratio

Gross ProfitsGPM=Sales

Operating Profits (EBIT)OPM =

Sales

Net Profit After Taxes

NPM= Sales

Net Profit After TaxesROA=

Total AssetsNet Profit After Taxes

ROE=Stockholders Equity

Earnings Available forCommon StockholdersEPS =

Number of Shares of CommonStock Outstanding

Market Price Per Share ofCommon Stock

P/E =Earnings Per Share

Seven Basic ProfitabilityMeasures


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CLASSIFICATIONBY

CONSTRUCTION

Componentpercentage ratio

Coverage ratio Return ratio


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COST ANALYSIS


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COSTS

MARGINAL COST

VARIABLE COST

FIXED COSTOPPORTUNITYCOST


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BREAK-EVEN ANALYSIS


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BUDGET ANALYSIS


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BUDGET

Expressed infinancial terms

Plan for the firms

operations andresources

Future plan for a

specified period

Flexible Loans

Small initial loan sizes Larger loans over time Longer terms

compressive andcoordinate plan

BASIC FEATURES OF BUDGET:


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FINANCIAL INSTITUTIONS ININDIA

SPECIALISEDFINANCIAL

INSTITUTIONS ININDIA

RESERVE BANKOF INDIA

CREDIT RATINGAGENCIES

COMMERCIALBANKS

SECURITIES ANDEXCHANGE

BOARD OF INDIA

INSURANCECOMPANIES


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FINANCE COMMISSION IN INDIA


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FUNCTIONS:

The distribution of net proceeds of taxes between theunion territories and the states

Evaluate the increase in the consolidated fund of astate to affix the resources of the panchayat in the

state

Evaluate the increase in the consolidated fund of astate to affix the resources of the municipalities in the

state


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POWERS:

The Commission has all the powers of the Civil Court as per the Code of Civil Procedure,1908.

Encouragement of development and economic reform

Transparency

Encouraging free trade

Promoting a fair competition


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WORLD TRADE ORGANISATION


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PRINCIPLES

Non-discrimination

Encouragement of development and economic reform

Transparency

Encouraging free trade

Promoting a fair competition


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FUNCTIONS:

Administers WTO trade agreements Makes forums for trade negotiations that further help

in trade liberalisation

Handles trade disputes between member countries

Monitors national trade policies

Provides technical assistance and training fordeveloping countries

Cooperates with other international organisations suchas the IMF and World Bank.


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STRUCTURE

OF WTO


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Banking and Trading