Course Code: ACC306 Course Title: Financial Statement Analysis

Course Instructor: Dr. Sachin

Academic Task No.: 3 Academic Task Title: Online Assignment

Date of Allotment: 13-04-2022 Date of submission: 22-04-2022

Student’s Roll no: RQ4E64A01 Student’s Reg. no: 12001141

Evaluation Parameters:

Declaration:

I declare that this Assignment is my individual work. I have not copied it from any other
student’s work or from any other source except where due acknowledgement is made
explicitly in the text, nor has any part been written for me by any other person.

Student’s Signature: Pankaj Mahanta

Evaluator’s comments (For Instructor’s use only)

General Suggestions for Best part of
Observations Improvement assignment

Evaluator’s Signature and Date:

Marks Obtained: _______________ Max. Marks: ______________

 Comparison of Operating Activities
Operating expenses may also be known as Selling, General, and Administrative (SG&A)
expenses. They’re the costs a company generates that don’t relate to the production of a
product.

Operating expenses can really impact the profitability of a business. To understand how,
consider the basic formula of a company’s profit and loss statement:

Why operating expenses are super important

If we are a business owner wanting to improve the bottom line, you have several options, but
reduce operating expenses may be the best one. Here’s why:

 You can try increasing the price of your product or service to increase revenues, but
customers may not be willing to pay more.
 You can try decreasing your COGS by using cheaper labour or materials, but quality
may suffer and lead to lost business.

On the other hand, operating expenses typically don’t directly impact price or quality. So
controlling operating expenses can improve your bottom line without making your product
worse, meaning you can keep more cash in your business.

Operating expenses are summarized on a company’s income statement. Every company has
different operating expenses based on their industry and setup.

Below I am sharing and comparing last 5 year’s of Gillette India Operating Activities:
Year 2016-17-

Year 2017-18-
2018-19-

2019-20-
2020-21-

Comparison of Operating Activities-

Comparision Of Last 5 Year's

50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Net Cash Generated

2016-17 2017-18 2018-19 2019-20 2020-21

Cash Flow from Operating Activities in the year 2018-19 and 2019-20 decreases due to
1. Increase in Current Assets
2. Decrease in Current Liabilities
 Comparison of Investing Activities
Cash flow from investing activities refers to cash inflow and outflow of cash from investing
in assets (including intangibles), purchasing of assets like property, plant and equipment,
shares, debt and from sale proceeds of assets or disposal of shares/debt or redemption of
investments like collection from loans advanced or debt issued.

Investing activities are one of the most important line items reported on a business’s cash
flow statement. They can give you insights into how a business might grow in future and
earn more revenue.

If a company reports a negative amount of cash flow from investing activities, that’s a good
clue that the business is investing in capital assets, which means in the future, you can expect
their earnings to grow. That’s especially true in capital-driven industries like manufacturing,
which require big investments in fixed assets to grow their businesses.

Examples of Investing Activities:

 The Purchase of Investments: If a business purchases an investment in cash,

whether it’s stocks, bonds or another type of investment, the cost of that investment
will mean a decrease in the company’s cash flow from investing activities. That’s
because cash is flowing out of the business to cover the purchase.
 Proceeds from the Sale of Investments: When a company sells off one of its
investments for cash, the sale will result in an increase in cash flow from investing
activities. Even in the case where a company loses money on an investment by selling
it for less than the purchase price, the cash flow from investing will still increase.
 The Purchase of Fixed Assets: Fixed assets, including buildings, land and vehicles,
are usually purchased on credit, not using cash. Because of that, the purchase of fixed
assets usually shows up in the cash flow from investing activity section slowly over
time. Every time the company makes a cash payment toward the credit purchase (for
example, $1,000 per month over the span of a year), it will show up as a decrease on
the cash flow from investing activity line item.

Below I am sharing and comparing last 5 year’s of Gillette India Investing Activities:

2016-17:
2017-18:

2018-19:

2019-20:

2020-21
Comparison of Investing Activities-

-10,000 -8,000 -6,000 -4,000 -2,000 0 2,000

2020-21 2019-20 2018-19 2017-18 2016-17

As we can see in Gillette India numbers, the main uses of cash for investing have been in
purchasing property/equipment/software/websites, acquiring other businesses, and buying
marketable securities (stocks and bonds).

It’s also important to point out that the purchase of land has been fairly proportional to
depreciation, which indicates the company is consistently except 2016-17 reinvesting to
keep its assets in good shape.

The quality of Capex can be determined by reading the management discussion & analysis.
This will provide great insights into where the company is planning to be in the next few
years. Some important points to look are

(i) quality of Product.

(ii) Business proposition of the linked Product.
(iii) Proportion of the maintenance.
 Comparison of Financing Activities

Cash flow from financing activities refers to inflow and the outflow of cash from the
financing activities of the company like change in capital from the issuance of securities like
equity share, preference shares, issuing debt, debentures and from the redemption of
securities or repayment of a long term or short term debt, payment of dividend or interest on
securities.
It is the last of the three parts of the cash flow statement that shows the cash inflows and
outflows from finance in an accounting year; Financing activities include cash inflows that
are generated from getting funds like inflows from receipts from the issue of shares, receipts
from a loan taken, etc. and cash outflows that are incurred while repaying such funds such as
redemption of securities, payment of dividend, loan & interest repayment, etc.

Examples of Financing Activities:

(i) Long-Term Liabilities

An example of financing activities involving long-term liabilities (noncurrent
liabilities) is the issuance or redemption of debt, such as bonds. A positive amount
signifies an improvement in the bonds payable and indicates that cash has been
generated by the additional bonds issued.

(ii) Stockholder’s Equity

An escalation in the owner’s stock accounts is stated as positive totals in the
financing activities segment of the cash flow statement. It indicates that the cash was
offered by issuing more shares of stock.

Below I am sharing and comparing last 5 year’s of Gillette India Financing Activities:

2016-17:
2017-18:

2018-19:

2019-20:

2020-21:
Comparison of Financing Activities-
₹ 30,000.00

₹ 25,000.00

₹ 20,000.00

₹ 15,000.00

₹ 10,000.00

₹ 5,000.00

₹-
1

2016-17 2017-18 2018-19 2019-20 2020-21

The most interesting thing one can see from the above statement is that the company has
been taking long-term debts. This might be one of the ways the company is financing its
activities.

However, as Gillette India, which is overall sitting on a pile of cash, it would be interesting
to question why such an entity will take in more long-term debt. It can be either a business
decision, or is it because of the fact that borrowing rates have been at an all-time low, and the
cost of financing through equity is not feasible.

Also, note that the company, on the one hand, is repurchasing shares, and hence taking more
money from the equity market can be counterproductive.
 Conclusion
Investors earlier use to look into the income statement and balance sheet for clues about the
situation of the company. However, over the years, investors have now also started looking at
each one of these statements alongside the conjunction of cash flow statements. This actually
helps in getting the whole picture and also helps in taking a much more calculated investment
decision.
If the company has surplus cash, then it can be assumed that the company is operating in the
so-called safe zone. If a company is consistently generating more cash than the cash used, it
will come out in the form of dividend payments, share buybacks, reduction in debt, or case of
acquisition to grow the company inorganically. All of these are perceived as good points to
create good stockholder value.
Thank You