Fundamental Analysis

FINANCIAL STATEMENTS

Financial Statements provide useful financial information to investors and creditors for predicting, comparing and evaluating potential cash flow of a company in terms of amount, timing and related uncertainty. The main body of financial statements are composed of (i) Profit & Loss Account, (ii) Balance Sheet and (iii) Cash Flow Statement.

Profit & Loss Account, also called Income Statement, is a summary of a company's revenues, costs, and expenses within an accounting period. It shows how much money was made and presents the company's result of operations during that period of time.

Balance Sheet, listing all the assets and liabilities of a company, and the difference between the two (i.e. the shareholders’equity), is a statement of a company’s relative wealth or financial position at a given point of time. It states what a company owns and owes and presents its financial position at that given point of time.

Assets mainly comprise Fixed Assets, Current Assets, Intangible Assets and Investments. Fixed assets include leasehold land and buildings, plant and equipment, etc. Current Assets include cash & equivalents, securities, accounts receivable, inventories, short-term investments, etc. Intangible Assets include goodwill, trademark, patent, etc.

Liabilities mainly comprise Current Liabilities, Long-term Liabilities and Minority Interests. Current Liabilities include accounts payable, notes payable, accrued expenses, short-term borrowings, current portion of long-term debt and lease obligations, etc. Long-term Liabilities include long-term debt, convertible loans, etc.

Shareholders’Equity mainly comprises share capital and reserves. It is the difference between the assets and liabilities.

Cash Flow Statement is a summary of the sources and uses of cash of a company over an accounting period, which classifies cash receipts (i.e. cash inflows) and cash payments (i.e. cash outflows) of the company into returns on investments and servicing of finance, taxation, operating activities, investing activities and financing activities. It reflects a company's liquidity and solvency and presents changes in cash position of the company during that accounting period.

Returns on investments and servicing of finance include cash receipts of interest and dividends, and cash payments for interest and dividends.

Operating Activities include cash receipts from customers, cash payments to suppliers and employees, and other payments for operating expenses.

Investing Activities include cash receipts and payments arising from the purchase or sale of property, plant, and equipment; acquisition or sale of equity, investments or debt instruments (including acquisition or sale of subsidiaries but excluding cash equivalents); and advances and loans made to, or repaid from, related parties.

Financing Activities include cash receipts and payments arising from an issue of shares or other equity securities (i.e. equity financing) and payments made to redeem these securities; proceeds arising from issuing debentures, loans and notes (i.e. debt financing), and repayments of these securities. They are transactions whereby the resources are obtained from, or repaid for, owners and creditors.

Cash Flow Statement eliminates the long-term provisions and other allocations associated with accrual accounting, and depicts the historical cash generating or cash absorption mechanisms of an entity. In conjunction with Profit & Loss Account and Balance Sheet, Cash Flow Statement provides comprehensive information on liquidity, validity and financial adaptability of a company.