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Handbook of Finance for Non Finance Professionals

Author(s): B D Chatterjee

Published by Bloomsbury Publishing India Pvt. Ltd

Publication Date: Tue Nov 12 00:00:00 UTC 2024 Available in all formats

ISBN: 9789356407367

Pages: 448

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Table of contents

Biographical note

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The book brings together finance topics for non-finance professionals under one cover. It comprises the following sections:

Section A: Building blocks of finance

• basic concepts of finance encompassing investment decisions, financing decisions and returns;

• broad understanding of financial statements which comprises

- Balance Sheet including equity, assets and liabilities;

- Statement of Profit & Loss;

- Statement of changes in equity; and

- Cash flows and its components.

Section B: Interpretation of financial statements

• Comparative financial statement analysis;

• Common size statements;

• Trend ratios;

• Forecasting techniques;

• Ratio analysis including profitability analysis, liquidity analysis, solvency analysis, return on investment and DuPont Financial Analysis.

Section C: Application of finance in business

• Developing a business plan based on business strategy, annual budget and rolling cash forecasts;

• Strategic cost management techniques for decision making;

• Financial due diligence as a pre-requisite to mergers and acquisitions;

• Concepts of business valuation in a simplified form;

• Enterprise risk management;

• Corporate restructuring in the form of expansion, contraction and corporate control;

• Broad understanding of consolidated financial statements for a group based on financial statements of individual organizations.

Contents at a glance

About the author

Preface

Contents at a glance

Table of contents

Section ABuilding blocks of finance

- Chapter 1Basic concepts of finance
- Chapter 2Financial statements – an overview
- Chapter 3Components of financial statements – non-current and current liabilities
- Chapter 4Components of financial statements – non-current assets
Chapter 5Components of Financial Statements – Current assets
Chapter 6Components of Financial Statements – Statement of Profit and Loss and Other Comprehensive Income
Chapter 7Contingent Liabilities and Assets, other Notes on Accounts
Chapter 8Statement of cash flows

Section BInterpretation of financial statements

- Chapter 9Financial statement analysis

Section CApplication of finance in business

- Chapter 10How to set up a business plan
- Chapter 11Strategic cost management for decision making
- Chapter 12Financial due diligence
- Chapter 13Enterprise risk management
Chapter 14Simplified approach to Business Valuation
Chapter 15Corporate restructuring
Chapter 16Consolidated financial statements

About the author

Preface

Contents at a glance

Table of contents

Section ABuilding blocks of finance

- Chapter 1Basic concepts of finance
- - 1.1Introduction
  - 1.2Decisions in finance
  1.2.1Investment decision
  1.2.2Financing decision
  1.2.3Dividend decision
  1.2.4Finance and Accounting regulatory bodies
- Chapter 2Financial statements – an overview
- - 2.1Introduction
  2.2Accounting quality
  2.3Elements of financial statements
  2.4Elements of statement of financial position
  2.4.1Assets
  2.4.2Liabilities
  2.4.3Equity
  2.4.4Income
  2.4.5How are expenses defined?
  2.5Going concern assumption
  2.6Process of recognition of Financial statements
  2.6.1Recognition criteria
  2.6.2Relevance
  2.6.3Faithful representation
  2.7Measurement of equity
  2.8Accrual accounting
  2.9Information elements the financial statements need to provide
  2.10Components under financial statements
  2.10.1Equity and liabilities
  2.10.2Assets
  2.10.3Income
  2.10.4Expenses
  2.11financial statements - specimen format
- Chapter 3Components of financial statements – non-current and current liabilities
- 3.1Classification of liabilities classified between current and non-current
  3.2Operating cycle
  3.3Shareholders funds
  3.4Definition of shareholders’ funds
  3.5Components of shareholders’ funds
  3.6Share capital
  3.6.1Equity share capital
  3.7Reserves and surplus
  3.8Other equity
  3.9Statement of changes in equity
  3.9.1Reconciliation of statement of changes in equity
  3.9.2Restatement owing to prior period error
  3.9.3Presentation of remeasurement of defined benefit plans and fair value changes
  3.10Reserves
  3.10.1Capital redemption reserve
  3.10.2Debenture redemption reserve
  3.10.3Share options outstanding account
  3.10.4Capital reserve
  3.10.5Securities premium
  3.10.6Gain / Loss on changes in the proportion held by non-controlling interests
  3.10.7Retained earnings
  3.10.8Reserve earmarked by investments
  3.10.9Debit balance of statement of profit and loss
  3.10.10Share application money pending allotment
  3.10.11Equity component of compound financial instruments
  3.10.12Debt instruments through other comprehensive income
  3.10.13Equity instruments through other comprehensive income
  3.10.14Effective portion of cash flow hedges
  3.10.15Revaluation surplus
  3.10.16Exchange differences on translating the financial statements of a foreign operation
  3.10.17Other items of “other comprehensive income” (specific nature)
  3.10.18Money received under share warrants
  3.11Long term liabilities
  3.12Definition of non-current liabilities
  3.13Components of non-current liabilities
  3.14Long term borrowings
  3.15Lease liabilities
  3.16Deferred payment liabilities
  3.17Liability component of compound instruments
  3.18Disclosure of security
  3.19Deposits accepted from public
  3.20Loans from related parties
  3.21Security and guarantee by promoters, directors or others related to borrowings
  3.22Redemption of debentures and bonds
  3.23Deferred tax liabilities (net)
  3.23.1Differences between taxable income and accounting income
  3.23.2Principle of recognition of deferred tax
  3.23.3Taxable temporary differences
  3.23.4Deductible temporary differences
  3.23.5Unused tax losses and unused tax credits
  3.23.6Reassessment of unrecognised deferred tax assets
  3.24Other Non-current liabilities
  3.24.1Non-current trade payables
  3.24.2Non-current trade payables related to The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006
  3.24.3Non-current “other financial liabilities”
  3.24.4Contract liabilities
  3.24.5Other non-current liabilities
  3.25Long term provisions
  3.26Non-current provisions
  3.27Quality of accounting of non-current liabilities
  3.28Current liabilities
  3.29Definition of current liabilities
  3.30Components of current liabilities
  3.30.1Loans payable on demand
  3.30.2Current maturities of long-term borrowings
  3.30.3Other financial liabilities
  3.30.4Interest accrued
  3.30.5Trade payables
  3.30.6Other current liabilities
  3.30.7Other advances
  3.30.8Others
  3.30.9Provisions
  3.31Accounting quality of current liabilities
- Chapter 4Components of financial statements – non-current assets
4.1non-current assets
4.2Definition of non-current assets
4.3Components of non-current assets
4.3.1Recognition of non-current assets
4.3.2Property, plant and equipment
4.3.3Assets under lease
4.3.4Investment Property
4.3.5Capitalisation of borrowing cost
4.3.6Government grant
4.3.7Impairment of assets
4.3.8Intangible Assets
4.3.9Goodwill
4.4Non-Current Assets Held for Sale and Discontinued Operations
4.4.1Assets held for sale
4.4.2Discontinued operations
4.4.3Non-Current Investments
4.4.4Hedge accounting
4.4.5Long term trade receivables
4.4.6Long term loans
4.4.7Other Financial Assets
4.4.8Other non-current assets
4.4.9Accounting quality under non-current assets
Chapter 5Components of Financial Statements – Current assets
5.1.Definition of current assets
5.2.Components of current assets
5.3.Current investments
5.4.inventories
5.4.1Measurement of inventories
5.4.2Cost of inventories
5.4.3Costs excluded from valuation of inventories
5.4.4Borrowing cost and inventories
5.4.5Inventories purchased on deferred settlement terms
5.4.6Cost of agricultural produce harvested from biological assets
5.4.7Techniques for the measurement of cost
5.4.8Inventories: cost formulae
5.4.9Net realisable value
5.5.Trade receivable
5.6.Cash and cash equivalent
5.7.Loan
5.8.Other financial assets
5.9.Other current assets
5.10.Quality of current assets
Chapter 6Components of Financial Statements – Statement of Profit and Loss and Other Comprehensive Income
6.1Statement of profit and loss
6.1.1The Statement of Profit and Loss shall include
6.2Components of statement of profit and loss
6.3Revenue from operations
6.3.1Revenue from contract with customers (Ind AS 115)
6.4Other income
6.5Other operating revenue versus Other income
6.6Other comprehensive income
6.7Expenses
6.7.1Cost of materials consumed
6.7.2Purchases of stock-in-trade
6.7.3Changes in inventories of finished goods, work-in-progress and stock-in-trade
6.7.4Employee benefit expenses
6.7.5Finance costs
6.7.6Foreign currency transactions
6.7.7Depreciation/amortization
6.7.8Other expenses
6.7.9Exceptional items
6.7.10Discontinuing operations
6.8Accounting quality of components of statement of profit and loss
Chapter 7Contingent Liabilities and Assets, other Notes on Accounts
7.1Definition of Contingent Liabilities and Contingent Assets
7.2Components of Contingent Liabilities and Commitments
7.3Guarantees
7.4Commitments
7.5Proposed dividend
7.6Contingent liabilities
7.7Contingent assets
7.8Additional information
7.8.1Employee benefits
7.8.2Depreciation and Amortization Expenses
7.8.3Other expenses
7.8.4Interest Income
7.8.5Finance costs
7.8.6Net gain/loss on sale of investments
7.8.7Net gain/loss on foreign currency transaction and translation (other than considered as finance cost);
7.8.8Payments to auditor
7.8.9Undisclosed income
7.8.10Corporate Social Responsibility (CSR)
7.8.11Crypto Currency or Virtual Currency
7.8.12Tax expenses
7.8.13Related Party Disclosures
7.8.14Earnings per share
7.8.15Operating Segments
7.9Disclosure on distribution of dividends
7.10Disclosure of use of unutilized amounts from issue of securities made for a specific purpose
7.11Disclosure of use of unutilized amounts on account of borrowings from banks and financial institutions received for a specific purpose
7.12Retrospective application of accounting policy
7.13Share application money pending allotment
7.14Preference shares
7.15Compound financial instruments
7.16Additional Regulatory Information (Clause L. of General instructions for preparation of balance sheet in Division II of Schedule III)
Chapter 8Statement of cash flows
8.1Cash flow statement
8.2Operating activities
8.3Investing activities
8.4Financing activities
8.4.1Reporting cash flows from operating activities
8.4.2Reporting cash flows from investing and financing activities
8.4.3Reporting cash flows on a net basis
8.5Cash flows for financial institutions
8.6Foreign currency cash flows
8.7Interest and dividends
8.8Taxes on income
8.9Investments in subsidiaries, associates and joint ventures
8.10Changes in ownership interests in subsidiaries and other businesses
8.11Non-cash transactions
8.12Specimen format
8.12.1Direct method - statement of cash flows
8.12.2Indirect method - statement of cash flows

Section BInterpretation of financial statements

- Chapter 9Financial statement analysis
- - 9.1Financial statement analysis
  - 9.2Comparative financial statements
  9.3Common size statements
  9.4Trend ratios
  9.5Forecasting techniques
  9.5.1Need for forecasting techniques
  9.5.2Three critical questions to answers
  9.5.3Types of forecasts
  9.5.4Essential attributes of a good forecast
  9.6Ratio analysis
  9.6.1Liquidity Ratios
  9.6.2Capital Structure Ratios
  9.6.3Coverage Ratios
  9.6.4Profitability Ratios
  9.6.5Expense Ratios
  9.6.6Activity Ratios
  9.6.7Asset Turnover Ratios
  9.6.8Return on Investment Ratios
  9.6.9Shareholders’ Ratios
  9.7Specimen formats
  9.8Return on investment
  9.9Return on Equity (ROE)
  9.10DuPont financial analysis
  9.10.1Operating Profit margin drivers
  9.10.2Turnover drivers
  9.10.3Return on Assets (ROA)
  9.10.4Break down of Return on Equity (ROE)
  9.11Financial analysis
  9.11.1Financial analysis (with illustrations)
  9.11.2Sales analysis
  9.11.3Performance analysis
  9.11.4Cost analysis
  9.11.5Working capital analysis

Section CApplication of finance in business

- Chapter 10How to set up a business plan
- - 10.1What is a business plan?
  - 10.2Business strategy
  10.2.1Introduction
  10.2.2Broad types of strategies
  10.2.3Creating a strategy
  10.3Development of annual budget
  10.4Budget management responsibilities
  10.5Management of overhead
  10.6Rolling cash forecast
- Chapter 11Strategic cost management for decision making
- - 11.1Introduction
  11.2Conventional costing
  11.2.1Variable costs
  11.2.2Fixed costs
  11.2.3Semi-variable costs
  11.2.4Cost-volume-profit analysis
  11.2.5Contribution margin
  11.2.6Break-even point
  11.2.7Margin of safety
  11.3Activity-based cost management (ABM)
  11.4Target costing
  11.4.1Features of target costing
  11.4.2Target costing and impact on profitability
  11.5Lifecycle costing
  11.6Kaizen costing
  11.7Cost of quality and quality management
  11.7.1Features of TQM
  11.8Decision making and pricing strategies
  11.9Balanced scorecard
  11.10Distress analysis
  11.11How to predict corporate distress
- Chapter 12Financial due diligence
- 12.1Introduction
  12.2Objectives of due diligence
  12.3Due diligence coverage
  12.4Financial due diligence
  12.4.1Objectives of financial due diligence
  12.4.2Fundamental principles of financial due diligence
  12.4.3Methods of financial due diligence
  12.5Two sides of due diligence
  12.6Consequences of not doing a due diligence
  12.7Due Diligence checklist
- Chapter 13Enterprise risk management
13.1What is risk?
13.2Types of risk
13.2.1Political risk
13.2.2Country risk
13.2.3Economic risk
13.2.4Social risk
13.2.5External risk
13.2.6Exchange risk
13.2.7Business risk
13.2.8Financial risk
13.2.9Systematic risk
13.2.10Unsystematic risk
13.2.11Market risk
13.2.12Interest rate risk
13.2.13Purchasing power risk
13.2.14Default risk
13.2.15Liquidity risk
13.2.16Callability risk
13.2.17Convertibility risk
13.2.18Currency risk
13.2.19Industry risk
13.3Enterprise risk management (ERM)
13.3.1Risk assessment
13.3.2Control activities
13.3.3Information and communication
Chapter 14Simplified approach to Business Valuation
14.1What is fair value?
14.2Fair Value Measurement of Assets and Liabilities
14.2.1Transaction
14.2.2Price
14.2.3Application to non-financial assets
14.2.4Application to liabilities and an entity’s own equity instruments – general principles
14.2.5Liabilities and equity instruments held by other parties as assets
14.2.6Liabilities and equity instruments not held by other parties as assets
14.2.7Non-performance risk
14.2.8Restriction preventing the transfer of a liability or an entity’s own equity instrument
14.2.9Financial liability with a demand feature
14.2.10Application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk
14.3What are the general approaches to valuation?
14.3.1Cost (net assets) approach
14.3.2Replacement Cost method
14.3.3Reproduction Cost method
14.3.4Summation method
14.3.5Market based approach
14.3.6Guideline Publicly Traded Comparable method
14.3.7Income based approach
14.4What are the different bases of valuation?
14.5What are the different valuation models?
14.5.1Market based valuation model
14.5.2Dividend discount model
14.5.3Discounted cash flows valuation
14.5.4Net asset value method
14.5.5Earnings method
14.5.6Relative valuation
14.5.7Contingent claim valuation
14.5.8Economic value added (EVA)
14.6What are the factors that affect valuation?
14.7What is the difference between fundamental valuation and relative valuation?
Chapter 15Corporate restructuring
15.1Introduction
15.2Forms of corporate restructuring
15.2.1Expansion
15.2.2Contraction
15.2.3Corporate control
15.3Legislative provisions related to the corporate restructuring
15.3.1Companies Act, 2013
15.3.2Income Tax Act, 1961
15.3.3Demerger
15.3.4Accounting Standards
Chapter 16Consolidated financial statements
16.1Introduction
16.2Consolidated Financial Statements
16.2.1Concept of group
16.2.2Concept of Control
16.2.3Consolidated Financial Statements
16.2.4Process followed in consolidation of parent with subsidiaries
16.2.5Purchase consideration
16.2.6Non-controlling interest (NCI)
16.2.7Measurement and recognition of goodwill in Consolidated Financial Statements
16.2.8Treatment for acquisition related costs
16.2.9Accounting treatment of pre-acquisition and post-acquisition profit
16.2.10Consolidated Income Statement
16.2.11Consolidated statement of changes in equity
16.2.12Treatment of unrealized profit on inventories
16.2.13Treatment of sale of non-current assets
16.2.14Treatment of intra-group interest expenses
16.2.15Treatment of intra-group dividend
16.2.16Treatment of fair value in consideration paid for a subsidiary
16.3Investment in Associates and Joint Venture
16.4Joint Arrangements

B D CHATTERJEE FCA, ACMA, ACS, DIP IFR (ACCA – UK)

B D Chatterjee is a senior business and finance leader with over 40 Years of rich industry experience in overall business and finance function. He is a Chartered Accountant with CS and CMA qualifications and holds a diploma in IFRS from UK.

He possesses expertise in implementation of best practices in finance, corporate governance, change management through business process and financial reengineering and enterprise Risk Management. He has rich experience in Mergers and Acquisitions including financial due diligence and business valuation.

He has extensive knowledge and experience in industries like industrial gases, engineering polymers, agro chemicals, FMCG and dairy products, health care and manpower services, among others.

Apart from consulting practice, he has handled many high- profile leadership positions like CFO / VP / Director Finance assignments in global MNCs (Linde group, DuPont, and Kelly Services) and large Indian conglomerates (Mother Dairy group, Max India).

Currently, he is associated with a reputed International Think Tank ACCESS Health International Inc as their global CFO for over six and a half years.

He is also an established author and his books include contemporary business and finance topics like International Financial Reporting Standards (IFRS), Indian Accounting Standards (Ind AS), Business Valuation, Financial Due Diligence, Enterprise Risk Management and Corporate Governance published by reputed publishers. For details of the books please visit his website bdchatterjee. com

Email: bdchatterjee105@gmail.com

LinkedIn profile: in.linkedin.com/pub/biswajeet-chatterjee/2/5a9/b6/

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