4.5. There are some other measures of earnings which are frequently used for
various kinds of analyses. Earnings Before Interest and Taxes (EBIT) is
obtained by subtracting depreciation from EBIDT. Cash Profits are defined
as PAT plus all non-cash expenses, primarily depreciation.
4.6. Most investors are interested in the Earnings Per Share (EPS) which is
obtained by dividing PAT by the number of shares. In case of Shatabdi
Industries, EPS for 1991 is Rs.29.22 as compared toRs.18.73 in the previous
year.
- Sources and Uses of Funds
5.1. The identification of sources and uses of funds is known as Funds Flow
Analysis. We shall regard funds and cash as synonymous for our discussion.
Cash can be generated by retaining profits rather than paying them out as
dividends, selling existing assets, borrowing money or raising money from
shareholders by issuing new securities. Cash is used to purchase assets or
pay off debt. The starting point for drawing up a funds flow statement is to
compute the changes in each Balance Sheet item from one statement date to
the next, and classify them using the following scheme.
Increase DecreaseAsset
Use
SourceLiability
Source
Use5.2. While doing this we must look at the changes in the Gross Block rather than
the Net Block because this correctly captures the additions to and sale of
fixed assets.
5.3. Once this has been done, there is only one important source of funds left.
This is the Cash Profits generated by the firm which as stated earlier is PAT
plus all non cash expenses. The Statement of Sources and Uses of Funds for
Shatabdi Industries for the year ended 31.03.1991 is contained in Table 3.