BALANCE SHEET
It is a statement of financial position of a business at a point of time. It represents all assets owned by the firm at a particular time and the claims (or equities) of the owners and outsiders against these assets at that time.
It is in a way snapshot of the financial position of the business at that time.
The important distinction between an Income Statement and Balance Sheet is that the Income Statement is for a period while Balance is on a particular date.
Income Statement is therefore, a flow report as contrasted with the Balance Sheet which is a static report.
INCOME STATEMENT
The Income Statement (also termed as profit and loss Account) is generally considered to be the most useful of all financial statements.
It explains what has happened to a business as a rewind operation between two dates. For this purpose it matches the revenues and costs incurred during the given period and also shows the net profit eauned or loss suffered.
The nature of the 'Income' which is the focal item the Income Statement can be well understood from the 'Inputs' and 'Outputs' of a business is the goods and services that the business providing to its customers.
The values of these outputs are the amounts paid by the customers for them. Such amounts are called 'Revenues' in accounting.
The inputs are the economic resources used by the business in providing these goods and services. Their values are termed as 'expenses' in accounting.
MEANING AND TYPES OF FINANCIAL STATEMENTS
A financial statement is an organised collection of data according to logical and consistent accounting procedures.
It will convey an understanding of financial aspects of a business firm. It shows the financial position at a point of time.
The term financial statements generally refers to two basic statements.
What are the main functions of financial manager
1. How important would you say is the necessity of maximising shareholders' profits to financial decision making?
2. What are the main functions of financial manager?
3. Why is wealth maximisation a better operating goal than profit maximisation?
4. What is the nature of the risk-return trade-off fed in financial decision making?
5. °What role does utility maximisation performs in finance theory?
6. What activities of financial managers are depicted by diagram?
7. What are the tasks of financial management?
8. Discuss the salient features of traditional approach to corporate finance?
9. Discuss the distinctive features of the modern approach to corporate finance?
10. What is the normative goal of financial management?
11. Discuss some of the problems that financial managers in a developing country like India have to grapple with.
12. Explain the relationship of Financial Manager with other Functional Areas.
13. What are the basic financial Decisions? How do they involve risk-return trade-off?
14. Define the scope of Financial Management. What role should the financial manager play in the modern enterprise?
Introduction
Managing and types of Financial. Statements Formats of Financial Statements
Income Statement
Balance Sheet
Nature of Financial Statements
Limitations of Financial Statements
Objectives of Financial. Analysis
Tools of Financial Analysis
GREATER UNCERTAINTY IN THE SUPPLY ON INPUTS
Business firms in India have to contend with erratic and inadequate availability of power and irregular supply of essential raw materials. This renders the task of forecasting and planning difficult. Often, unanticipated developments create financial strains and difficulties.
COMPLEX AND TARDY BUREAUCRACY
Corporate investment and financing activities are subject to numerous governmental regulations. Financial managers have to wrestle with complex and time-consuming bt4reauer9iie procedures to obtain various sanctions, concessions, rellefS, and subsidies.
RESTRICTION ON INVESTMENT OPPORTUNITIES
The areas in which a business firth, particularly a large business firm or a foreign concern„ can invest in India are some what restricted. The opportunities for investment, however, have been widened recently.
POORLY DEVELOPED SECURITIES MARKET
Securities market in India is poorly developed. Trading activity is confined to a small proportion of securities listed on stock exchanges.
The secondary market for debentures is virtually nonexistent. As a result, many firms find it difficult. to raise funds through the securities market.
RATIONING OF COMMERCIAL BANK CREDIT
Commercial Banks in India, saddled with the responsibility of serving the needs of priority sectors like agriculture.
Small scale business, and weaker sections of the society, are unable to cope with the credit requirements of industry, Industry is expected to reduce its dependence on bank credit.
FEWER INSTRUMENTS OF FINANCING
In advanced countries business firms can employ abroad range of financing instruments.
In the U.S., for example, a firm may employ several types of equity and preferred capital and a variety of debt instruments. In India, however, the choice of financing instruments is rather limited,
RESTRICTION ON CAPITAL STRUCTURE
In an advanced country like the U.S. there are hardly any restrictions on the capital structure a firm may employ and the interest rates the firm may pay on its borrowings.
However, restrictions apply to capital structure and interest rates payable on borrowings.
Land development and construction loans
Land development and construction loans, the main problem so far for East West, total about 20% of the bank's loan portfolio. Now Ng says he is nervously watching delinquencies on commercial mortgages - about 40% of East West's loans.
Uncollectable commercial mortgages quadrupled over the last three quarters of 2008, according to data reported to regulators. Uncollectable commercial construction loans increased eightfold during the same period.
Most of the loans were secured not only by the properties but also by the personal fortunes of the developers. Now, many have been wiped out by the recession, making the loans uncollectable.
"Some of the borrowers say: 'Go ahead, come after me. I have absolutely nothing left,' " Ng said. "The net worth completely disappeared in 12 months."
East West's plight is repeated at financial institutions throughout the state, as well as other places hit hard by the real estate crash, including Florida, Nevada, Arizona and Oregon.
According to the data filed with regulators, uncollectable commercial loans tripled at City National Corp. of Beverly Hills in the last three quarters of 2008, as did similar loans at California Bank & Trust of San Diego.