Financial Statements

• Zerodha

  • Ground brokerage house
  • Fundamental Analysis (FA) module

• ARBL’s annual report contains 9 sections

• Management Statement: the board of directors will be analyzing what has been happening in the course of the year

• Chairman Statement

• Guidelines and strategies that will be adopted in the upcoming year.

• The Financial Statements

  • P&L statement: the difference between revenues and expenses over the course of the entire year. Revenue Expenditure.
  • Balance sheet: The Capital Expenditure will go to the balance sheets.
  • Cash flow statement: The entire years cash flows, classified under three main categories

How do we analyze financial statements?

Transclude of Financial-Statements-2024-12-16-04.11.00.excalidraw

• Why do this?

  • Better organization of operations due to specialized handling.
  • Separate board of directors.

• 40% of the stake of Coca-cola has been shifted to Jubilant Bharatiya Group, instead of bottling through Hindustan Beverages group, by accepting Pepsi’s strategy to

• Note no. tells you the exact composition of the particulars

Balance sheet
Liabilities	Assets
LTD	FA
CL	CA

• Working capital is Current Assets (CA) - Current Liabilities (CL) in order to deal with short term sources for finance.

• For a public limited company, we will have to report two different financial reports:

  • One for the income tax filing
  • One for the stock market
  • Why?
    • Income Tax A/c allowed Depreciation is 25% (higher rates implies lower profits, which means lower tax filings)
    • In our books we have Depreciation of 10%.

• CIF Bombay: Cost of the goods, Insurance: for the transportation. Fret: Cost of the transportation till Bombay.

Invoice Value	100,000
Import Duty		 10,000
Port charges	  1,000
Handling charge		500
Installation	  5,000
TOTAL		   1,16,500

• Capital cost to the asset also includes the charges that are associated to make the capital operational (not just the buying cost)
• The depreciation for the individual asset can be spread out in any manner which will make it profitable for the firm (to save on tax, for example).
• The total depreciation however, should be only the full capital cost of the asset.

PARTICULARS		NOTE NO.	CURRENT YEAR	PREVIOUS YEAR
EQUITY and LIABILITIES
Shareholder Funds
Share Capital		2
Reserves and surplus	Companies profits not distributed by means of dividends1
Non-current liabilities
Long-term borrowings
Deferred tax liabilities (net)
Long-term provisions	Future payments2
Current Liabilities
Short-term borrowings
Trade Payable	“I will pay you later for this”
Other current liabilities
Short-term provisions
Note 2 explains share capital.

• What is Profit before EBIDTA?

Summary:

This note discusses financial statement analysis, focusing on the P&L statement, balance sheet, and cash flow statement. Key concepts covered include:

• Purpose of Financial Statements: Understanding company performance and financial health. The note mentions using Zerodha’s Fundamental Analysis module for this purpose.
• Components of Financial Statements: The note details the balance sheet (assets, liabilities, including long-term and current items), and mentions reserves and surplus as undistributed profits. It also explains the difference between capital expenditure (balance sheet) and revenue expenditure (P&L statement).
• Working Capital: Defined as Current Assets - Current Liabilities.
• Depreciation: The note highlights the difference in depreciation rates for tax filing versus company books, explaining how companies can strategically use depreciation to minimize tax burden. It emphasizes that total depreciation should equal the asset’s full capital cost.
• Included Costs: The note explains that the capital cost of an asset includes all costs necessary to make it operational (installation, import duties, etc.). An example calculation is provided.
• Notes to Financial Statements: The importance of note numbers for understanding the details behind the summarized figures is emphasized. For example, Note 2 explains share capital.
• Other Concepts: The note briefly touches on topics like profit before EBITDA and the reasons for separate financial reports for tax and stock market purposes. It also provides an example of how Coca-Cola restructured its bottling operations.

Footnotes

1. Companies profits that are not distributed to the public by means of dividends. Berkshire-Hathaway (Warren Buffet) gives 0% dividends, so a large amount of taxes are saved. ↩

2. Provisions are usually short term, but depending on the contract and the way its financed it may exceed 1 year and become a long-term provision. ↩