Deferred Liabilities 19999 19999
Net Worth 23792 15834
Total Liabilities 57598 49640The impact of both of the changes is to reduce the fixed assets and to
reduce the net worth and the combined effect is indeed stunning. The net
worth falls steeply to two thirds of the reported value. The book value per
share drops from Rs.127.70 as per reported figures to Rs.85.00. Similarly,
the Profit and Loss Account also undergoes a change: the increased
depreciation charge for the year reduces the profit before tax by nearly 25%
from the reported figure of 7612 to 5773.We should not get bogged down with the question as to which method –
SLM or WDV – is the ‘correct’ one. The important point is that before
comparing two companies, we must recast their accounts on the basis of
uniform accounting policies: either both on SLM or both on WDV.
Otherwise, the comparison is meaningless. This point applies with equal
force to ratio analysis where we are comparing the ratios with some
industry norms. The reader would do well to recompute the ratios of
Shatabdi Industries using the recast figures and see whether it changes his
earlier assessment of the company.Contingent liabilities disclosed in the notes is the another important thing
that we should look out for. Amounts which are in dispute, which are
indeterminate or which for other reasons the company believes it will not be
required to pay are often shown as contingent liabilities in the notes instead
of being provided for in the Balance Sheet as a liability or a provision. If
the amount is large, the investor must be careful; if for some reason, the
liability does materialize, it would erode the net worth of the company.Business Analysis
The annual reports also contain a good deal of other information about the
lines of business of the company, the capacity utilization, trends in volume
and value of business, and some assessments about the future.
In case of Shatabdi Industries, we find that there are three major lines of
business. The percentage of sales contributed by these three lines is as
follows:
Export Business 25%
Industrial Synthetics 3 5%
Cement 40%While we know the sales revenues for each business separately, we are
unable to extract from the annual report the costs and profits of each of them.