Loading

Mega May PDF Sale - NOW ON! 25% Off Digital Certs & Diplomas Ends in : : :

Claim My Discount!

Module 1: Case Study: Zee TV and Hindalco

Study Reminders
Support
Text Version

Set your study reminders

We will email you at these times to remind you to study.
  • Monday

    -

    7am

    +

    Tuesday

    -

    7am

    +

    Wednesday

    -

    7am

    +

    Thursday

    -

    7am

    +

    Friday

    -

    7am

    +

    Saturday

    -

    7am

    +

    Sunday

    -

    7am

    +

Namaste.In our last session we had started a detailed case on Hindalco limited, we have alreadyprepared their profit and loss account.And, if you remember in the last session we had done a discussion on balance sheet andyou were to prepare a complete balance sheet and we were to discuss the solution today.Those of who have missed the session, once again I will request you to download thatcase take that problem try to complete it, and then have a look at the solution becausetoday we will be discussing the solution of balance sheet.Are you prepared let us go there?Ok.So, now the marks items which were marked under NCA or CA you have to put in the properformat and have a look at the solution.So, under assets NCA non- current assets, first fixed assets are shown.So, we always follow the order of permanence.So, most permanent asset is perhaps property, plant and equipment and this is the note numberthose of who really want to know more details, you can go to Hindalco annual report shakethe note number 2 for more details.The total amount is also very big, it is 39,999 crore.Next is capital work in progress they have not given any note for it, the total amountis also relatively small it is 736.Investment property perhaps in our earlier balance sheets this was not there that is9.Then intangible assets there are also intangible assets under development.So, these items together actually formed the fixed assets of the company.Then under NCA the next category is financial assets.So, these are long term financial assets mainly the investments.So, investment in subsidiary you can say see is the biggest amount 16,000 crores investmentin associates other investments.Then loans given and other financial asset; this is more refined and more latest terminologyused in by the bigger companies.So, have a look at this balance sheet carefully; then non-current tax assets.So, these are mainly deferred tax assets for which they have not given any note, but thetotal amount is given and then other non-current assets which is 861.So, at this stage you get the total of total NCAs.Now, let us go to current assets, inventory after inventory other assets have been nomenclatureuse for them is financial assets.So, you have got other investments short term which is also a substantial amount 3700 crores,trade receivables, cash and cash equivalent, bank balances other than cash and cash equivalentsee this is also a current asset this is also a current asset then why it is classifiedseparately?It is classified because it will make difference in the cash flow statement, that is why youhave to note that all bank balances may not be C and CEs.Normally, we say that bank balance is the cash equivalent which is true, but if thereis some exception it needs be to separately shown that is how they have shown it.Then loans given short term other financial assets.So, this is the total of financial assets from 7 from this item to this item.Then next you get current tax assets and other current assets.So, this is the total of CAs and 8,2000 crore is a total of both 60 plus 21 that is non-current plus current getting it.So, this is the asset side now, let us go to the liability side.In liability side the first item return is authorised share capital although keep inmind that this is not to be taken in the total.It is just written their by way of a note, do not mistake it to take it in the total;it is the breakup of it is given like this.Share capital which is paid up 222.89 which should be taken in total and other equitywhich is 49.227.So, you get 49450 as the total of equity.So, other equity the note is given which mainly consists of reserves and surplus, but theyhave used a different nomenclature.The next is liabilities, within liabilities you have got non-current liabilities in thatagain financial liabilities.So, financial liabilities you can see the liabilities how they are separated here, withinNCL financial liabilities are given separately and provisions and tax liabilities are givenseparately.Because they arise from business whereas, financial liabilities are in the nature ofraising of funds now we have learned cash flow statement.So, something coming from financial liability will go in the cash flow statement as a whichitem?As not as a operating item it will be treated as a financing item that is how it has beenproperly classified.For smaller companies often you may not see this classification, but since is a very bigcompany it has used more latest format.So, borrowings that is the loans is the biggest amount note number 18A, trade payables whichis relatively very small; that means, they do not have much of credit purchases got itbecause their purchases are big, but trade payables are very small.If you go for comparison with assets, they have got substantial amount of trade receivables,but trade payables are very small.Are you getting it?Please note this because these are non-current in nature that is very small.Regular trade payables are is a very big amount ok, but we will come to it.But so, this is a non-current trade payables which is a small amount, then other financialliabilities, then we go to long term provisions deferred tax liabilities and other currentother non- current liabilities.So, total NCL is 2328.Then we will go to current liabilities borrowings current liabilities in that financial liabilities;borrowings trade payables and other current financial liabilities; now provisions andother current liabilities current tax liabilities.So, total CLs are 12 whereas, total NCL was 20 plus equity.So, both the liabilities taken together first is taken total and then the total is 82728,at this stage they are disclosing the current liabilities contingent liabilities as wellas contingent asset.Note number 1 is a note for contingent liabilities are you getting me?Ok.So, this is about the balance sheet, it looks very simple here, but compare it with theanswer which you have made if you are able to solve it correctly that is very good.Now, let us go to the third part of the case, that is for preparation of cash flow statementok.So, take your sheet once again and we will go for discussion of cash flow statement.It is a very long statement so, be very attentive, we know that there are three sections in cashflow what are the three sections?First is operating, investing and financing in that also operating is complicated becausewe have to go in a; how why because we have to go in which method do we use direct orindirect?We use indirect method starting from profit we do adjustments.Anyway right now the figures are given to you, you have to just arrange them properly.And there are several items which do not form part of cash flow they also you have to becareful.Then unrealised loss on derivative transactions where will it go?Next is unrealised for its loss.These are unrealised items.So, they have no impact.So, we will not consider them short term liquid investment in mutual fund its already giventhat it is cash equivalent.So, we will mark it as C; C is the marking we make here for cash equivalent.Sale of shares in subsidiaries for this here it is dash, but where will it go?Sale of shares; so, it is an investment which have been sold.So, we will write it as I.Sale of property plant equipment and intangible assets again it is I, return of capital fromsubsidiary it is I its dash, but earlier years there was some figure.So, what is meant by this return of capital?We have invested in capital in subsidiary, the subsidiary company might have return thesame, but it is a investment coming back.Repayment of non-current borrowings; so, loans we have taken and we have repaid.So, it is a F type of transaction.Repayment of loans and deposits: where will it go?So, perhaps we have taken loans and deposits and we are repaying it.So, we will treat it as F. Repayment of financial lease liability; financiallease is one of the its a type of loan, its one of the way of financing the company.So, it is F. Realised gain of cash flow on hedges in OCI, this is other comprehensiveincome related item and it is related to cash flow hedges so, we will not consider it rightnow.Sale of investment others as the name suggests it is related to sale of investments.So, I you can see here the amount is substantial 5000 crores.Purchase of property plant equipment and intangible assets, this is the purchase of investments.So, it is I.Profit before tax do we require it?Yes because in cash flow statement we are going to start with PBT and making the adjustments.So, we will go it and mark it as O.Payment of current borrowings, repayment of current borrowings; normally borrowings wetreat as F, but since these are current borrowings we will treat it as O.Then proceeds from issue of equity shares, it is F type of transaction it is a financingtransaction tree you can just read it full including share application money.So, share application money received or return both will be also part of financing transaction.Pre payment of non- current borrowings, this is a big amount company had taken some loan,but it is non- current in nature it has been prepaid; that means, if the loan is takenfor 10 years they have repaid it within 8 years.Still since it is non- current in nature it is for raising of funds.So, we will mark it as F. Payment of direct taxes net of refund this is O because taxesis treated as a operating item.If you remember the format we will calculate first all items and at the end we write thepayment of taxes.Non other non-operating income or expenses where will it go?Since it is non-operating many times we feel that it may not be O, but since it is incomeor expense it should be treated as O right now since it is dash we can ignore it.Novation and restructuring of long term borrowings: where will it go?What is meant by novation first of all?That means, existing loans the terms of loan are changed.Suppose the loan is taken for 5 years maybe it is changed to 8 years, some type of obligationor some mortgage under it might have change, the loan terms have changed that is calledas novation and restructuring of long term loans where will it be marked as?Should it be an F item?There is neither any repayment nor any new loan taken.So, this is a non-cash item it should not come in the cash flow statement.So, we will mark it as NC.Loans and deposits given we have given loans, weare not sure whether as investment or as a borrowing, but since the word given is usedwe will treat it as I. Liabilities no longer required written back; that means, some liabilitiesexisted those liabilities have exhausted now.So, we will have to write it back; that means, they would be taken back to P and L accountthey are no longer existing as a liability.So, under which head we will put it as?It is a non- cash item.So, we will put it as NC.See we have not repaid the loan it is just written back.Investment in subsidiary it is I, interest received its a simple it is when we make ininvestment we receive income as in.So, we will put it as I, interest income that is also I.Increase in non- financial liabilities, this is only increase in liability.So, should we ignore it or we should take it?Increase in trade and other payables increase in inventory should we take it?We should because it is a part of operating item we know we start with PBT do adjustmentsfor non-operating items then do adjustments for working capital items.So, working capital items like trade, debtors and creditors they should be considered underO either you mark it as working capital or you can mark it as O right now I am just markingit as O. Increase in inventory also is O increase in financial liabilities also is O financecosts.Finance costs is of course, F item, but this is again tricky; you can see finance costsfinance cost paid.So, we will consider basically the finance cost paid not just the finance cost.Now, fair value gain on modification of borrowings; so, they have obtained some loans, those loanshave been restructured and there is some fair value go gain on it, it is a non-cash transaction.So, we will not take it we will just mark it as NC.Employee share option expenses what is employee share option?Employs are issued shares either as free or at a discount which they can convert intoequity shares.This is to incentivise the employees, but for us right now it is a finance item or itis a O type of item it can go either way, but we will mark it as O. Dividend receivedwe have received dividend.So, it is a investment income we will mark it as I.Dividend paid including dividend distribution taxes, this is a F. Dividend income we havereceived the dividend.So, we will mark it as I, you can see the amount is coming two types dividend receiveddividend income.So, do not take it twice we should only take the amount which is actually received.So, I will just cut it to avoid the confusion.Same way here we had interest income and interest received.So, we should go for interest received.So, I will just cut it otherwise later on there will be a confusionthen dividend income.So, we have then depreciation and amortisation should it be considered?Yes because it is a non-cash expense we add it to PBT.So, mark it as O. Deposit with bank with less than 3 months of initial maturity this isa deposit with bank.So, insignificant risk the maturity is also very small so, we can consider it as a cashequivalent.So, we have marking it as C.Decrease in trade and other receivables, this is a working capital item let us mark it asO. Decrease in non-financial assets again let us mark it as O.Decrease in financial assets this is also O, cheques and drafts in hand.Cheques and drafts being a day to day item as a part of bank balance this is a cash andcash equivalent.So, we will mark it as C. Cash on hand again it is C balances with current accounts inbanks again it is C. Bad debts and provisions for doubtful debts should we consider it?It is a non-cash item, but it will have impact on P and L. So, we will mark it as O. Acquisitionof property plant and equipment by means of a non-cash government grant.This is the acquisition of property so, it looks like I, but it is since it is by meansof non-cash government grants, we will not consider it as a cash flow item we are markingit as NC.Acquisition of property by means of financial lease; acquisition is being made by lease,but still it is a acquisition in cash terms so, we will mark it as I. Loss of PPE; PPErefers to property plant and equipment and intangible sold or discarded; that means,old fixed assets are being sold or discarded we have received some small amount of cash.So, it is a I.Gain on investments measured at FVTPL that is by fear value calculation the investmentshow some gain, but not a cash can transaction because it is not a sale of investment.So, we will ignore it.Cash on assets held for sale sorry loss on assets held for sale shall we consider orignore it?We will need to consider it because we are following indirect method.So, this is a non-operating type of losses.So, we will mark it as O we will add it to PBT.Now, cash and cash equivalents as at the beginning net cash generated or used in operation.So, you are required to calculate all this figures, opening cash, the cash generatedfrom operating activities, then cash generated from investing activities, cash generatedfrom financing activities, total decrease of cash operating profit before working capitalchanges and cash and cash equivalent at the end of the year.Now, how will you do all the things?It is possible because cash at the end of the year is you can take it from balance sheet,then do all other calculations and by reverse working you can calculate the cash at thebeginning of the year.So, are you ready now to prepare the cash flow statement?So, you can pause the video here complete the calculation and right away we will discuss,talk about the solution.. I hope you are ready with the solution.So, I will show the solution to you.Just try to understand each and every term it is a very long cash flow statement.So, we start with PBT then adjust for lot of items.Remember we are going to adjust for non- cash and non-operating both types of items.So, we are adjusting for finance cost, depreciation, employee share option expenses mark this isa very peculiar item because its a share related item, but since it is a employee related itemwe show it under O not under F. Then bad debts, long term provisions no longer required writtenback see mark the sign also its a negative because it is a profit to us we are now reducingit.Then unrealised FOREX losses, unrealised gains these are not directly cash flow items, butsince they have an impact on P and L we are considering them here.Then fair value gain on modification of borrowings again it is a non-cash item, but since thatgain was included in P and L we have included it here as a negative item Gain or loss onassets held for sale gain or loss on PPE interest income, dividend income, mark it the itemswere given two times earlier.There was interest received which will be an investment item, but interest income itis a operating item.Then dividend income non-operating income or expenses realised gain on cash flow hedgesin OCI.Now, this is again not directly impacting our cash, but it has a impact on our P andL and it is a gain.So, right now we are showing it here, then loss on investment held at FVTPL that is alsoin a way a non-cash item, but has an impact on P and L. So, we are considering it underO.Now, after all these we get operating profit before working capital changes, then we willconsider all the working capital changes like increasing inventory, trade another receivable,financial assets, non-financial assets increase in trade and other payables financial liabilitiesnon-financial liabilities.So, we at this stage get cash generation from operations, then payment of direct taxes netof refund.This is the actual tax paid, we get net cash generated or used in operating activities.I know its bit longish, but read it 2-3 times so, that you understand how it is for a largecompany, if your own company is also large one compare it with the cash flow of yourown company.Next one is very simple now cash flow from investing activities but bit longish.Purchase of plant, sale of plant, investment in subsidiaries, sale of shares in subsidiary,return of capital from subsidiary, purchase on investments, purchase or sale of investmentrepayment of loan and deposits, loan and deposits given, interest and received and dividendreceived mark here the term received here there it was interest income now it is interestactually received.So, we get net cash generated or used in investing activity.Next is financing activities proceeds from issue of shares pre payment of non- currentborrowing this is the biggest amount.Since company had lot of cash you can see here there good cash generation, they haveused it for repaying their loans.Then repayment of non- current borrowings, repayment of finance lease, proceeds fromcurrent borrowings which is also negative because they have repaid it, then dividendpaid finance cost paid.So, you get net cash generated or used in financial activities which is a substantialamount, it is a negative amount this company has repaid there old liabilities, a net increasein cash and cash equivalent which is 2490.Then you get net cash and cash flow as deported which is 1809, there is some supplementaryinformation also regarding non- cash transactions.So, just noted acquisition of property by means of financial lease, acquisition of propertyof by means of non-cash government grants, novation and restructuring.So, these three are treated as non-cash transactions.Then you get the reconciliation of cash and cash equivalent, which is cash in hand, cashand drafts in bank under bank there are two items, current account balances and shortterm deposits and short term investments in mutual funds.So, here you get total.So, are you getting it?It is big longish, but the study will be very much useful to you to understand the terminologyparticularly the cash flow statement.So, we will stop here Namaste.