2. Who is a Non Finance Person?
A Non Finance Person is an
individual who does not take
complete responsibility of
Managing his or her Finances.
3. Learning Finance for Personal Growth
Personally, Some of the aspects of Finance one should cover would
include:
1. Savings
2. Investments
3. Financial Planning
4. Wealth Creation & Management
5. Asset Allocation
6. Risk Management
7. Succession Planning & Management
4. Learning Finance for Professional Growth
Professionally, One needs to know following concepts:
1. Balance Sheet
2. Assets
3. Fixed Assets
4. Current Assets
5. Liabilities
6. Long Term Liabilities
7. Current Liabilities
5. c) Capital
d) Net worth
e) Working Capital
f) Off Balance Sheet Items
2. Income Statement
a) Incomes
b) Expenses
c) Profit
d) Loss
e) Cash profit/ loss
f) Reported profit/ loss
6. 3. Cash Flow
a. Cash inflow
b. Cash outflow
c. Impact of Non-Cash Items on Cash flow
4. Accounting Policies & Notes to Accounts
a) Disclosure
b) Revenue Recognition
c) Depreciation
d) Other Policies
5. Other aspects of Financial Reports
a) Director’s Report
7. b) Management Discussion & Analysis of Financial Statement
c) Auditor’s Report
d) Other critical Financial information
8. Personal P & L A/C (Monthly)
Income Rs.
Salary 15,000/-
Interest 1,000/-
Total Income 16,000/-
Expenditure
Utilities 3,000/-
Groceries 3,000/-
Education 2,000/-
Maintenance 2,000/-
Total Expenses 10.000/-
Net Income 6,000/-
Loan EMI 3,000/-
Net Saving 3,000/-
9. Personal Balance Sheet (Annual)
Assets Rs. Lakhs
House Property 11
Bank Balance Plus Funds 2
Shares 1
Mutual Funds 1
Total Assets 15
Liabilities
Housing Loan 4
Personal Loan 1
Total Liabilities 5
Net Wealth 10
10. Pillars of Financial Statements
• Business Entity
• Going Concern
• Accrual
• Substance over Form
• Prudence
• Capital Expenditure
• Revenue Expenditure
11. Why are Financial Statement
Prepared
• To know the performance of the entity for a given period.
(Profit & Loss Statement)
• To know the financial health of the entity on a given date.
(Balance Sheet)
• To know where the money is coming from an where it is
going. (Cash Flow Statement)
12. Income Statement
Income statement is one of the basic financial statements. It
shows the Income & Expenditure of the company for a
particular period, a quarter or a year, usually. It is also called
profit & loss account. Profit is arrived by using the
following formula and profit usually includes negative
profit, i.e. loss.
TOTAL INCOME – TOTAL EXPENSE = PROFIT
13. Operating Expenses
An operating expense is an expense a business incurs through its
normal business operations. Often abbreviated as
OPEX, operating expenses include rent, equipment, inventory
costs, marketing, payroll, insurance, step costs, and funds
allocated for research and development. It can be broadly
classified as
1. Factory Overheads
2. Administrative Overheads
3. Selling & Distribution Overheads
14. Assets
Assets are things which have value and capability of
generating income.
Types of Assets
• Net Fixed Assets
• Investments
• Deferred Tax Asset
• Current Assets
15. Liabilities
Liabilities are money taken from stakeholders to do business. That
means they are to be repaid by the business to its stakeholders at a
date, in the future.
Types of Liabilities
• Equity Share Capital
• Reserves
• Loan Funds
• Deferred Tax Liability
16. Interest
Interest is generally paid to the lenders as a form of
remuneration for parting with their liquidity. Interest rates
are generally decided mutually by the lenders and the
borrowers.
Types of Interest
• Fixed Rate of Interest
• Floating Rate of Interest
17. Ratios
Ratios are very important tools which helps in dissecting the
financial statement of an individual or an enterprise. Ratios provide
the story behind the numbers.
Types of Ratios
• Liquidity Ratio
• Solvency Ratio
• Efficiency Ratio
• Profitability Ratio
18. Liquidity Ratio
• Current Ratio
Current Assets/Current Liabilities
• Quick Ratio
Quick Assets/Current Liabilities
• Acid-Test Ratio
Cash & Cash Equivalents/Current Liabilities
19. Solvency Ratio
• Debt Equity Ratio
Total Debt/ (Equity + Reserves)
• Debt to Asset Ratio
Total Debt/Total Assets
• Interest Coverage Ratio
Profit Before Interest & Tax(PBIT)/Interest Cost
20. Efficiency Ratio
• Inventory Turnover Ratio
Net Sales/Average Inventory
• Debtors Turnover Ratio
Net Sales/ Average Debtors
• Creditors Turnover Ratio
Cost of Goods Sold/ Average Creditors
• Current Assets Turnover Ratio
Net Sales/Average Current Assets
• Working Capital Turnover Ratio
Net Sales/ Average Net Working Capital