1.

Introduction to the Study

1.1 INTRODUCTION :-
Financial statements are written records that convey the business activities and the financial
performance of a company.Financial statements (or financial reports) are formal records of
the financial activities and position of a business, person, or other entity. Financial statements
are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for
tax, financing, or investing purposes. Relevant financial information is presented in a
structured manner and in a form which is easy to understand. They typically include four
basic financial statements accompanied by a management discussion and ananalysis.

Financial statements include:

Balance Sheet -A balance sheet or statement of financial position, reports on a company's
assets, liabilities, and owners equity at a given point in time.
Income Statement - An income statement—or profit and loss report (P&L report), or
statement of comprehensive income, or statement of revenue & expense—reports on a
company's income, expenses, and profits over a stated period. A profit and loss statement
provides information on the operation of the enterprise. These include sales and the various
expenses incurred during the stated period.
Cash Flow Statement - A cash flow statement reports on a company's cash flow activities,
particularly its operating, investing and financing activities over a stated period.

Investors and financial analysts rely on financial data to analyze the performance of a
company and make predictions about its future direction of the company's stock price. One of
the most important resources of reliable and audited financial data is the annual report, which
contains the firm's financial statements.The financial statements are used by investors, market
analysts, and creditors to evaluate a company's financial health and earnings potential. The
three major financial statement reports are the balance sheet, income statement, and statement
of cash flows.

1.2 OBJECTIVES :-

1.The main objective of this study is to understand the financial position of banks and
changes in it.

2.It helps to understand the position of banks and take the decision which will favour them in
earning profits.
1.3 RESEARCH METHODOLOGY :-

The process used to collect information and data for the purpose of understanding the
financial position of the banks. The methodology may include publication research,
interviews, surveys and other research techniques, and could include both present and
historical information.

1.3.1 Research Type :-

The type of research used in this study is Quantitative and Analytical in nature.

1.3.2 Data Collection :-

The data used in this study is Secondary Data.
Secondary Data - The data used is Secondary Data as it has been collected from different E-
commerce portals.

1.3.3 Instruments :-
Quantitative Data has been used as an instrument under this study.

1.4 SCOPE :-

The Scope of the study is to understand the financial performance and financial position of
the banks. It helps to understand the future course of action of banks. Financial statements
provide relevant and reliable information of the banks.

1.5 IMPORTANCE :-

1.To study and analyse the financial position of the banks for economic development.

2.To understand the financial performance of the banks for the economy.

3.To study the detailed information of the banks with accurate information.

4.To understand the profit earnings of the banks by using different financial statements.

5.To analyse the banking structure and their financial statements in detail.

1.6 LIMITATIONS :-

1.The study is restricted to a particular area.

2.There is limited funds available and it is time consuming.

3.Appropriate information is not available.

4.Accurate data of financial statements are not possible.

5.The study is limited to few banking sector.

 2. Review of Literature

1. Manish Mittal and Arunna Dhademade (2005) they found that higher profitability is the
only major parameter for evaluating banking sector performance from the shareholders point
of view. It is for the banks to strike a balance between commercial and social objectives.
They found that public sector banks are less profitable than private sector banks. Foreign
banks top the list in terms of net profitability. Private sector banks earn higher non-interest
income than public sector banks, because these banks offer more and more fee based services
to business houses or corporate sector. Thus there is urgent need for public sector banks to
provide such services to stand in competition with private sector banks.

2. I.M. Pandey (2005): An efficient allocation of capital is the most important financial
function in modern times. It involves decision to commit the firm's funds to the long term
assets. The firm’s value will increase if investments are profitable and add to the shareholders
wealth. Financial decisions are important to influence the firm’s growth and to involve
commitment of large amount of funds. The types of investment decisions are expansion of
existing business, expansion of new business and replacement and modernization. The capital
budgeting decisions of a firm has to decide the way in which the capital project will be
financed. The financing or capital structure decision. The assets of a company can be
financed either by increasing the
owners claims on the creditors’ claims. The various means of financing represent the
financial structure of an enterprise.

3. DR.S. Gurusamy (2009): One of the key elements of importance for shaping the financial
system of a country is the pension fund. The fund contributes to the development of social
security systems of a country is the pension fund. The fund contributes to the development of
social security system of a country. A fund is established by private employers, governments,
or unions for the payment of retirement benefits. Pension funds are designed to provide for
poverty relief, consumption smoothing etc. Pension funds not only provide compensation for
the loyal service rendered in the past, but in a broader significance. Works as a measure of
socio-economic justice. Pension system refers to the framework of arrangement under which
individuals gain specified entitlements to a regular income in retirement called pension.

4.Prasana Chandra (2010): Fundamental of financial management covers all the aspects of
the subject from the basics overview of the financial environment to the financial analysis
and financial planning. The basic consists of forms of business organization which gives
detailed information about the financial management of the organization. After the analysis
part budgeting of capital and fundamental valuation of concept is in detail. It provides an
introduction to the financial management and to the financial environment. The fundamental
of financial management provides a good coverage of the basic concepts relating to the
financial environment. The topics are explained with various examples like the tax system,
financial
institution, banking arrangement & the regulatory framework.
5.Ramchandan Azhagasahi and Sandanvn Gejalakshmi (2012): In their study found the
impact of assets management operational efficiency and bank size on the financial
performance of the public sector and private sector bank. The research revealed that bank
with higher total capital deposits and total assets do not always mean that they have better
financial performance. The overall banking sector is strongly influenced by assets utilization,
Operational efficiency and interest income.

6. NutanTroke and P K Pachorkar (2012): The study related that the private sector bank
the percentage of other income in the total income is higher than public sector bank. Public
sector bank depend on intent income for their efficiency and performance. The operational
efficiency of private sector banks is better than public sector banks. Private sector bank use
their assets quality better than public sector banks.

7.Dr. Anurag B Singh and Ms.Priyanka Tandon (2012): The researcher has mentioned the
importance of the banking sector in the economic development of the country. In India
banking system is featured by large network of Bank branches, serving many kinds of
financial services
of the people. The research Methodology used by there is a comparative analysis of both the
banks based on the mean and compound growth rate (CGR). The study is based on secondary
data collected from magazines, journals & other published documents. Which was a
limitation since it’s difficult to prove the geniuses of the data.

8.AlpeshGajera (2015) in his research article an financial performance evaluation of private

and public sector banks found that there in significance difference in the financial
performance of these banks and private sector banks are performed better than public sector
banks in respect of capital adequacy ratio and financial performance of private and public
sector banks and their financial position for the economic development of the economy.

9.Medhat Tarawneh (2006) financial performance is a dependent variable and measured by

Return on Assets (ROA) and the intent income size. The independent variables are the size of
banks as measured by total assets of banks, assets management measured by asset utilization
ratio (Operating income divided by total assets) operational efficiency measured by the
operating
efficiency ratio (total operating expenses divided by net income)

10.Cheenu Goel, Chitwan Bhutani Rekhi, (2013)

The commercial banking system provides a large portion of the medium of exchange of a
given country and is the primary instruments through which monetary policy is implemented.
Commercial banks make the productive utilization of idle finds and thus assist the society to
produce wealth. Berry, Kehoe and Lindgreen’s study (1980) revealed that the most frustrating
aspects of bank marketing were lack of management support, lack of interdepartmental co-
operation, crisis management and government intrusion. It shows that during the earlier
period there was not much focus on marketing of financial services. There was hardly any
marketing done by banks but after 1991 there are tremendous changes in the banking sector
in India competition among banks emerged due to entry of private sector banks and foreign
banks.
 3. The Conceptual Background

3.1 A BRIEF INTRODUCTION

In any organization, the two important financial statements are the Balance sheet & Profit and
loss account of the business. Balance sheet is a statement of the financial position of an
enterprise at a particular point of time. Profit and loss account shows the net profit or net loss
of a company for a specified period of time. When these statements of the last few year of
any organization are studied and analyzed, significant conclusions may be arrived regarding
the changes in the financial position, the important policies followed and trends in profit and
loss etc. Analysis and interpretation of the financial statement has now become an important
technique of credit appraisal. The investors, financial experts, management executives and
the bankers all analyze these statements. Though the basic technique of appraisal remains the
same in all the cases but the approach and the emphasis in analysis vary. A banker interprets
the financial statement so as to evaluate the financial soundness and stability, the liquidity
position and the profitability or the earning capacity of borrowing concern. Analysis of
financial statement is necessary because it help in depicting the financial position on the basis
of past and current records. Analysis of financial statement help in making the future decision
and strategies. Therefore, it is very necessary for every organization whether it is a financial
or manufacturing etc. to make financial statement and to analyse it.

3.2 OBJECTIVE

The main objective of this report are the following:

 To study about ICICI BANK and its related aspects like its products & services, history,
organizational structure, subsidiary companies etc.

 To analyse the financial statement i.e P&L account and Balance sheet of ICICI BANK.

 To learn about P&L Account, Balance-sheet and different type of Assets& Liabilities.

 To understanding the meaning and need of Balance Sheet and profit and loss account.

 The purpose is to portray the financial position of ICICI BANK with the help of balance
sheet and profit and loss account.

 To evaluate the financial soundness ,stability and liquidity of ICICI BANK.

3.3 ICICI BANK

ICICI Bank is India’s second-largest bank with total assets of Rs.3,446.58 billion (US$ 79
billion) at March 31, 2007 and profit after taxof Rs. 31.10 billion for fiscal 2007. ICICI Bank
is the most valuable bank in India in terms of market capitalization and is ranked third
amongst all the companies listed on the Indian stock exchanges .In term of free float market
capitalization. The Bank has a network of about 950branches and 3,300 ATMs in India and
presence in 17 countries. ICICI Bank offers a wide range of banking products and financial
services to corporate and retail customer through a variety of delivery channels and through
its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life
insurance, venture capital and asset management. The Bank currently has subsidiaries in the
United Kingdom, Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri Lanka
and Dubai International Finance Center and representative offices in the United States,
United Arab Emirates ,China, South Africa, Bangladesh, Thailand, Malaysia and
Indonesia.UK subsidiary has established a branch in Belgium.

ICICI Banks equity shares are listed in India on Bombay Stock Exchange(BSE) and the
National Stock Exchange (NSE) of India Limited and itsAmerican Depositary Receipts
(ADRs) are listed on the New York Stock Exchange(NYSE).

3.3.1 HISTORY

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly owned subsidiary. ICICIs shareholding in ICICI Bank was
reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering
in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Banks acquisition of Bank of
Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by
ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at
the initiative of the World Bank, the Government of India and representatives of Indian
industry. The principal objective was to create a development financial institution for
providing medium-term and long-term project financing to Indian businesses. In the 1990s,
ICICI transformed its business from a development financial institution offering only project
finance to a diversified financial services group offering a wide variety of products and
services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In
1999, ICICI become the first Indian company and the first bank or financial institution from
non-Japan Asia to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the context of the

emerging competitive scenario in the Indian banking industry, and the move towards
universal banking, the managements of ICICI and ICICI Bank formed the view that the
merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities,
and would create the optimal legal structure for the ICICI groups universal banking strategy.
The merger would enhance value for ICICI shareholders through the merged entitys access to
low-cost deposits, greater opportunities for earning fee-based income and the ability to
participate in the payments system and provide transaction-banking services. The merger
would enhance value for ICICI Bank shareholders through a large capital base and scale of
operations, seamless access to ICICIs strong corporate relationships built up over five
decades, entry into new business segments, higher market share in various business segments,
particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries.
In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of
ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial
Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was
approved by shareholders of ICICI and ICICI Bank in January2002, by the High Citst of
Gujarat at Ahmedabad in March 2002, and by the High Citst of Judicature at Mumbai and the
Reserve Bank of India in April2002. Consequent to the merger, the ICICI groups financing
and banking operations, both wholesale and retail, have been integrated in a single entity.
ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and
employees.

3.3.2 BOARD OF DIRECTORS

 MR. N.Vaghul (CHAIRMAN)

 MR. Sridar Iyengar

 MR. Lakshmi N. Mittal

 MR. Narendra Murkumbi

 MR. Anupam Puri

 MR. Vinod Rai

 MR. M. K. Sharma

 MR. P.M. Sinha

 Prof. Marti G. Subrahmanyam

 MR. T. S. Vijayan

 MR. V. Prem Wasta

 MR. K. V. Kamath (MANAGING DIRECTOR & CEO)

 MR. Chanda Kochhar (JOINT MANAGING DIRECTOR)

 MR. Nachiket Mor (DEPUTY MANAGING DIRECTOR)

 MR. V. Vaidyanathan, (EXECUTIVE DIRECTOR)

 MR. Sonjoy Chatterjee (EXECUTIVE DIRECTOR)

3.3.4 BOARD COMMITTEES

Audit Committee

Mr. Sridar Iyengar

Mr. Narendra Murkumbi

Mr. M. K. Sharma

Board Governance & Remuneration Committee

Mr. N. Vaghul

Mr. M. K. Sharma

Mr. Anupam Puri

Mr. P. M. Sinha

Prof. Marti G. Subrahmanyam

Customer Service Committee

Mr. N. Vaghul

Mr. Narendra Murkumbi

Mr. M.K. Sharma

Mr. P.M. Sinha

Mr. K. V. Kamath

Credit Committee

Mr. N. Vaghul

Mr. Narendra Murkumbi

Mr. M .K. Sharma

Mr. P. M. Sinha

Mr. K. V. Kamath

Fraud Monitoring Committee

Mr. M. K. Sharma

Mr. Narendra Murkumbi

Mr. K. V. Kamath
Ms. Chanda D. Kochhar

Mr. V. Vaidyanathan

Risk Committee

Mr. N. Vaghul

Mr. Sridar Iyengar

Prof. Marti G. Subrahmanyam

Mr. V. Prem Watsa

Mr. K. V. Kamath

Share Transfer & Shareholders/ Investors Grievance Committee

Mr. M. K. Sharma

Ms. Chanda D. Kochhar

Mr. Narendra Murkumbi

Ms. Madhabi Puri-Buch

Asset-Liability Management Committee

Ms. Chanda D. Kochhar

Dr. Nachiket Mor

Ms. Madhabi Puri-Buch

Mr. V. Vaidyanathan

Committee of Directors –

Mr. K. V. Kamath

Ms. Chanda D. Kochhar

Dr. Nachiket Mor

Ms. Madhabi Puri-Buch

Mr. V. Vaidyanathan

3.4 ORGANISATIONAL STRUCTURE OF ICICIBANK

ICICI Bank’s organisation structure is designed to be flexible and customer-focused, while
seeking to ensure effective control and supervision and consistency in standards across the
organisation and align all areas of operations to overall organisational objectives. The
organisation structure is divided into six principal groups – Retail Banking, Wholesale
Banking, International Banking, Rural (Micro-Banking) and Agriculture Banking,
Government Banking and Corporate Center.

RETAIL BANKING

The Retail Banking Group is responsible for products and services for retail customers and
small enterprises including various credit products, liability products, distribution of third
party investment and insurance products and transaction banking services.

WHOLESALE BANKING

The Wholesale Banking Group is responsible for products and services for large and
medium-sized corporate clients, including credit and treasury products, investment banking,
project finance, structured finance and transaction banking services.

INTERNATIONAL BANKING

The International Banking Group is responsible for its international operations, including
operations in various overseas markets as well as its products and services for non-resident
Indians and its international trade finance and correspondent banking relationships.

RURAL AND AGRICULTURAL BANKING

The Rural, Micro-Banking & Agri-Business Group is responsible for envisioning and
implementing rural banking strategy, including agricultural banking and micro-finance.

GOVERNMENT BANKING

The Government Banking Group is responsible for government banking initiatives.

CORPORATE CENTER

The Corporate Center comprises the internal control environment functions(including

operations, risk management, compliance, audit and legal);finance (including financial
reporting, planning and strategy, asset liability management, investor relations and corporate
communications); humanresitsces management; and facilities management & administration.

BUSINESS REVIEW

During fiscal 2007, the Bank continued to grow and diversify its asset base and revenue
streams by leveraging the growth platforms created over the past few years. It maintained its
leadership position in retail credit, achieved robust growth in its fee income from both
corporate and retail customers ,grew its deposit base and significantly scaled up its
international operations and rural reach.

RETAIL BANKING

ICICI is the largest provider of retail credit in India. ICICI’s total retail disbursements in
fiscal 2007 were approximately Rs. 777.00 billion, compared to approximately Rs. 627.00
billion in fiscal 2006. It’s total retail portfolio increased from Rs. 921.98 billion at March 31,
2006 toRs. 1,277.03 billion at March 31, 2007, constituting 65% of it’s total loans at that
date. It continued its focus on retail deposits to create as table funding base. At March 31,
2007 it had more than 25 million retail customer accounts.

During fiscal 2007, it expanded its branch network. At March 31, 2007,it had 755 branches
and extension counters compared to 614 branches and extension counters at March 31, 2006.
Pursuant to the amalgamation of The Sangli Bank Limited with it effective April 19,2007, it
acquired over 190additional branches and extension counters. It continued to expand its
electronic channels, namely internet banking ,mobile banking, call centres, point of sale
terminals and ATMs, and migrate customer transaction volumes to these channels. During
fiscal 2007, over 80% of customer induced transactions took place through these electronic
channels. It increased its ATM network to 3,271 ATMs.

SMALL AND MEDIUM ENTERPRISES

In this segment it’s strategy has been focused around customer convenience in transaction
banking services, and working capital loans to suppliers or dealers of large corporations and
clusters of small enterprises that have a homogeneous profile. During fiscal 2007, it’s
customer base increased by more than 50% to over 900,000 transaction banking customers.
These customers are serviced by over 580 branchesof the Bank, covering over 200 locations.
During fiscal 2007, theEmerging India Award entered in the Limca Book of Records as
thebiggest business award in India.

CORPORATE BANKING

It’s corporate banking strategy is based on providing comprehensive and customized

financial solutions to its corporate customers. It offer a complete range of corporate banking
products including rupee and foreign currency debt, working capital credit, structured
financing, syndication and transaction banking products and services.

Fiscal 2007 saw continuing demand for credit from the corporate sector, with growth and
additional investment demand in almost all sectors. It is now a preferred partner for Indian
companies for syndication of external commercial borrowings and other fund raising in
international markets.
RURAL BANKING

It’s rural strategy is based on enhancing value at every level of the supply chain in all
important farm and non-farm sectors. Towards this end, it offer arange of financial products
and services that cater to the rural masses in all the important sectors like infrastructure,
horticulture, food processing, dairy, poultry, seeds, fertiliser and agrochemical industries.
Customised financial solutions are offered to individual customers, agri small & medium
enterprises, agri corporates and members of their supply chains. On the rural retail side, the
Bank offers crop loans, farm equipment financing, commodity-based loans, working capital
loans for agri-enterprises, microfinance loans, jewel loans as well as savings, investment and
insurance products. In addition bank is introducing products like rural housing finance to
cater to the needs of rural customers. During fiscal 2007, it introduced loans to rural
educational institutions for expansion of their facilities.

it have developed a hybrid distribution channel strategy, a combination of branch and non-
branch channels (credit access points). Ithas embarked on a “no white spaces” strategy
wherein it aim to setup an ICICI Bank touch point within 10 km of any customer. The
amalgamation of Sangli Bank would extend its outreach in rural areas. During fiscal 2007, a
provision of Rs. 0.9 billion (USS$ 22million) was made on account of identified frauds in
warehouse receipt financing business of agricultural credit.

INTERNATIONAL BANKING

ICICI Bank has established a strong franchise among non-resident Indians (NRI). It has
established strong customer relationships by offering a comprehensive product suite,
technology-enabled access for overseas customers, a wide distribution network in India and
alliances with local banks in various markets. It has over 450,000 NRI customers. It has
undertaken significant brand-building initiatives in international markets and have emerged
as a well-recognised financial services brand for NRIs. It’s market share in inward
remittances into India has increased to over 25%. It has consolidated it’s global remittance
initiative, targeting non-Indian communities, by leveraging it’s core capabilities of
technology-based service delivery. A large number of remittance products were introduced to
complement the existing suite of products. The business focus has been on rolling out
successful products across multiple geographies and getting into high volume correspondent
arrangements.

3.5 PRODUCTS AND SERVICES

BANKING ACCOUNTS

ICICI Bank offers a wide range of banking accounts such as Current, Saving, Life Plus
Senior, Recurring Deposit, Young Stars, Salary Account etc. tailor-made for every customer
segments, from children to senior citizens. Convenience and ease to access are the benefits of
ICICI Bank accounts.

 YOUNG STARS ACCOUNT

A special portal for children to learn banking basics, manage personal finances and have a lot
of fun.

 BANK@CAMPUS

This student banking services gives students access to their account details at the click of a
mouse. Plus, the student gets a chequebook, debit card and annual statements.

 SAVINGS ACCOUNTS

Convenience is the name of the game with ICICI bank’s savings account. whether it is an
ATM/debit card, easy withdrawal, easy loan options or internet banking, ICICI bank’s saving
account always keep you in touch of money.

 FIXED DEPOSITS

ICICI Bank offers a range of deposit solutions to meet varying needs at every stage of life. It
offers a range of tenures and other features to suit all requirements.

INSURANCE

The ICICI group offers a range of insurance products to cover varying needs ranging from
life, pensions and health, to home, motor and travel insurance. The products are made
accessible to customers through a wide network of advisors, banking partners, Corporate
agents and brokers with the added convenience of being able to buy online.

 LIFE INSURANCE

The ICICI group provides the many life insurance product through ICICI Prudential Life
Insurance Company.

 GENERAL INSURANCE

The ICICI group provides the many general insurance products like motor, travel and home
insurance through ICICI Lombard General Insurance Company.

LOAN

SICICI bank offers a range of deposits solutions to meet varying needs at every stage of life.
It offers a range of tenures and other features to suit all requirements.

 HOME LOAN

The No. 1 Home Loans Provider in the country, ICICI Bank Home Loans offers some
unbeatable benefits to its customers -Doorstep Service, Simplified Documentation and
Guidance throughout the Process. Its really easy !

 PERSONAL LOAN
ICICI Bank Personal Loans are easy to get and absolutely hassle free. With minimum
documentation you can now secure a loan for an amount upto Rs. 15 lakhs.

 VEHICLE LOANS

The No. 1 financier for car loans in the country. Network of more than 2500 channel partners
in over 1000 locations. Tie-ups with all leading automobile manufacturers to ensure the best
deals. Flexible schemes & quick processing are the main advantages are here. Avail attractive
schemes at competitive interest rates from the No 1 Financier for Two Wheeler Loans in the
country . Finance facility up to 90% of the On Road Cost of the vehicle, repayable in
convenient repayment options and comfortable tenors from 6 months to 36 months

CARDS

ICICI Bank offers a variety of cards to suit different transactional needs. Its range includes
Credit Cards, Debit Cards and Prepaid cards. These cards offer you convenience for financial
transactions like cash withdrawal, shopping and travel. These cards are widely accepted both
in India and abroad.

 CREDIT CARD

ICICI Bank Credit Cards give you the facility of cash, convenience and a range of benefits,
anywhere in the world. These benefits range from life time free cards, Insurance benefits,
global emergency assistance service, discounts, utility payments, travel discounts and much
more.

 DEBIT CARD

The ICICI Bank Debit Card is a revolutionary form of cash that allows customers to access
their bank account around the clock, around the world. The ICICI Bank Debit Card can be
used for shopping at more than 3.5 Lakh merchants in India and 24 million merchants
worldwide.

 TRAVEL CARD

ICICI Bank Travel Card. The Hassle Free way to Travel the world. Traveling with US Dollar,
Euro, Pound Sterling or Swiss Francs; Looking for security and convenience; take ICICI
Bank Travel Card. Issued in duplicate. Offers the Pin based security. Has the convenience of
usage of Credit or Debit card.

MOBILE BANKING

Bank on the move with ICICI Bank Mobile Banking. With ICICI Bank, Banking is no longer
what it used to be. ICICI Bank offers Mobile Banking facility to all its Bank, Credit Card,
Demat and Loan customers. ICICI Bank Mobile Banking can be divided into two broad
categories of facilities:
Alert facility : ICICI Bank Mobile Banking Alerts facility keeps you informed about the
significant transactions in its Accounts. It keeps you updated wherever you go.

Request facility : ICICI Bank Mobile Banking Requests facility enables you to query for yits
account balance.

INVESTMENT PRODUCTS:

Along with Deposit products and Loan offerings, ICICI Bank assists you to manage yits
finances by providing various investment options ranging from ICICI Bank Tax Saving
Bonds to Equity Investments through Initial Public Offers and Investment inPure Gold. ICICI
Bank facilitates following investment products:

• ICICI Bank Tax Saving Bonds

• Government of India Bonds

• Investment in Mutual Funds

• Initial Public Offers by Corporates

• Investment in "Pure Gold"

• Foreign Exchange Services

• Senior Citizens Savings Scheme, 2004

TRADE-SERVICES: ICICI Bank offers online remittances as well as online processing of

letters of credit and bank guarantees.

ASSET-MANAGEMENT:

Prudential ICICI Asset Management Company offers a wide range of retail mutual fund
products tailored to suit varied risk and maturity profiles.

CASH MANAGEMENT:

ICICI Bank offers a complete range of highly customized solutions for managing both the
collections and payments requirements of clients by leveraging technology. Daily customized
transactions reports and real time web-enabled downloads, provide on-tap information
facilitating effective working capital management.

CORPORATE BANKING:

ICICI Bank offers comprehensive and customized financial solutions for its corporate clients,
including rupee and foreign currency debts, working capital credit, structured financing
syndication and transaction banking products and services.
INTERNET BANKING:

Internet banking is available to all ICICI bank savings and deposit account holders, credit
card, demat and loan customers. Internet banking service offers customers a world of
convenience with services such as balance enquiry, transaction history, account statement,
bill payments, fund transfers and accounts related service requests.

ATMs: With more than 2500 ATMs across the country, ICICI Bank has one of the largest
ATM networks in India

PHONE BANKING: Phone banking offers 24*7 service across liability, asset and
investment products to both retail and corporate customers.

NRI-BANKING: A gamut of services to take care of all NRI banking needs including
deposits, money transfers and private banking.

MONEY2INDIA: A complete range of online and offline money transfer solutions to send
money to India.

PROPERTY: For millions of home buyers across the country, ICICI Bank offers not just
great deals on home loans but also a wealth of expert advice. ICICI Bank offers home search
service which can help a customer identify the property of his choice based on his budget and
other requirements.

DEMAT ACCOUNTS: ICICI Bank’s de-mat services after unique features like e-
constructions, consolidation, digitally signed statements, mobile requests and corporate
benefit tracking.

RURAL-BANKING: Bank offers technology-based solutions, financial innovations and

multiple delivery channels to meet the financial needs of rural areas.

MICROFINANCE: ICICI Bank assists over 2.5 million low income clients to build
livelihoods by partnering With over 100 microfinance institutions.

BRANCHES: ICICI Bank has a network of over 630 branches ( of which51 are extension
counters) across the country. The network puts a wide range of banking products and
financial services with in easy reach of retail and corporate customers.

3.6 RISK ASPECTS OF ICICI BANK

RISK MANAGEMENT

Risk is an integral part of the banking business and bank aim at delivering superior
shareholder value by achieving an appropriate trade-off between risk and returns. Bank is
exposed to various risks, including credit risk, market risk and operational risk. Bank’s risk
management strategy is based on a clear understanding of various risks, disciplined risk
assessment and measurement procedures and continuous monitoring. The policies and
procedures established for this purpose are continuously benchmarked with international best
practices. Bank has two dedicated groups, the RISK MANAGEMENTGROUP (RMG) and
COMPLIANCE & AUDIT GROUP (CAG) which is responsible for assessment,
management and mitigation of risk in ICICI Bank. These groups from part of the corporate
center are completely independent of all business operations and are accountable to the Risk
and Audit committees of the Board of directors. RMG is further organized into the Credit
Risk Management group, Market Risk Management group, Retail Risk Management group
and Operational Risk Management group. CAG is further organised into the Credit Policies,
RBI Inspection & Anti-Money Laundering Group and the Internal Audit Group.

CREDIT RISK

Credit risk is the risk that a borrower is unable to meet its financial obligations to the lender.
Bank measure, monitor and manage credit risk for each borrower and also at the portfolio
level. Bank has standardized credit-approval processes, which include a well-established
procedure for comprehensive credit appraisal and rating. ICICI Bank has well developed
internal credit rating methodologies for rating obligors. The rating factors in quantitative,
qualitative issues and credit enhancement features specific to the transaction. The rating
serves as a key input in the approval as well as post-approval credit processes. Industry
knowledge is constantly updated through field visits and interactions with clients, regulatory
bodies and industry experts. In retail credit operations, the Board or a Board Committee
approves all products, policies and authorizations. Credit approval authority lies only with the
credit officers who are distinct from the sales team. Credit scoring models are used in the
case of certain products like credit cards. External agencies such as field investigation
agencies and credit processing agencies are used to facilitate a comprehensive due diligence
process including visits to offices and homes in the case of loans to individual borrowers.

MARKET RISK

Market risk is the risk of loss resulting from changes in interest rates, foreign currency
exchange rates, equity prices and commodityprices. The objective of market risk
management is to minimize the impact of losses on earnings and equity capital due to market
risk. Market risk policies include the Investment Policy and the Asset-Liability Management
(ALM) Policy. The policies are approved by the Board of Directors. The Asset Liability
Management

Committee (ALCO) of the Board of Directors stipulate liquidity and interest rate risk limits,
monitors adherence to limits, articulates the organisation’s interest rate view and determines
the strategy in light of the current and expected environment. These policies and processes
are articulated in the ALPM policy. The investment policy addresses issues related to
investment in various trading products. RMG exercises independent control over the process
of market risk management and recommends changes in process and methodologies for
measuring market risk Interest rate risk is measured through the use of re-pricing gap analysis
and duration analysis. Liquidity risk is measured through gap analysis. Bank ensure adequate
liquidity at all time through systematic funds planning and maintenance of liquid investment
as well as focusing on more stable funding sitsces such as retail deposits. ICICI Bank limit
exposure to exchange rate risk by stipulating position limits. The treasury Middle Office
Group monitors the asset-liability position under the supervision of the ALCO. The Treasury
Middle Office Group is also responsible for processing treasury transactions, tracking the
daily funds position and complying with all treasury related management and regulatory
reporting requirements.

OPREATIONAL RISK

Operational risk is the risk of loss that can result from a variety of factors, including failure to
obtain proper internal authorizations, improperly documented transactions, failure of
operational and information security procedures, computer systems, software or equipment,
fraud, inadequate training and employee errors. Bank’s approach to operational risk
management is designed to mitigate operational risk by maintaining a comprehensive system
of internal controls, establishing systems and procedures to monitor transactions, maintaining
key back-up procedures and undertaking regular contingency planning. Effective operational
risk management system would ensure that bank has sufficient information to make
appropriate decisions about additional controls, adjustments to controls, or other risk
responses. Operational risk management policy aims at minimizing losses and customer
dissatisfaction due to failure in processes, focusing on flaws in products and their design that
can expose the bank to losses due to fraud, analyzing the impact of failures in systems,
developing mitigant to minimize the impact and developing plans to meet external shocks
that can adversely impact continuity in the bank’s operations.

3.3.7 SUBSIDIARY COMPANIES

• DOMESTIC SUBSIDIARIES

 ICICI Home Finance Company Limited

 ICICI Investment Management Company Limited

 ICICI Lombard General Insurance Company Limited

 ICICI Prudential Life Insurance Company Limited

 ICICI Securities Limited

 ICICI Trusteeship Services Limited

 ICICI Venture Funds Management Company Limited

 ICICI Securities Primary Dealership Limited

 ICICI Prudential Asset Management Company Limited

 ICICI Prudential Trust Limited

• INTERNATIONAL SUSIDIARIES

 ICICI Bank Canada

 ICICI Bank Eurasia Limited Liability Company

 ICICI International Limited

 ICICI Securities Holding Inc

 ICICI Securities Inc

 ICICI Bank U k Limited

3.7 KEY GROUP COMPANIES

ICICI PRUDENTIAL INSURANCE COMPANY

ICICI Life continued to maintain its market leadership among private sector life insurance
companies with a market share of 29% on the basis of weighted received premium. Life
insurance companies worldwide make losses in the initial years, in view of business set-up
and customer acquisition costs in the initial years as well as reserving for actuarial liability.
While the growing operations of ICICI Life had a negative impact of Rs. 480 crore (US$ 110
million) on the Bank’s consolidated profit after tax in FY2007 on account of the above
reasons, thecompany’s unaudited New Business Achieved Profit (NBAP) forFY2007 was Rs.
881 crore (US$ 203 million) as compared to Rs. 528crore (US$ 121 million) in FY2006.

ICICI LOMBARD GENERAL INSURANCE COMPANY

ICICI Lombard General Insurance Company (ICICI General) enhanced its leadership
position with a market share of about 35% among private sector general insurance companies
and an overall market share of about 12.4%during April 2006-February 2007. ICICI
General’s gross written premium grew by 89% from Rs. 1,592 crore (US$ 366 million) in
FY2006 to Rs.3,004 crore (US$ 691 million) in FY2007. ICICI General is required to
expense upfront, on origination of a policy, all sitscing expenses related to the policy. While
ICICI General’s profit after tax for FY2007 was Rs. 68crore (US$ 16 million), its combined
ratio for FY2007 was 97%. The combined ratio is the sum of net claims and expenses as a
percentage of premiums and indicates the surplus generated on an annualised basis from the
business written during a period (excluding investment income). The surplus based on the
combined ratio, and investment income aggregated Rs.180 crore (US$ 41 million) on a pre
tax basis in FY2007.

ICICI PRUDENTIAL AMC & TRUST

At March 31, 2007, ICICI Prudential Asset Management Company (ICICIAMC) was among
the top two asset management companies in India with assets under management of over Rs.
37,900 crore (US$ 8.7 billion). ICICI AMC’s profit after tax increased by 55% to Rs. 48
crore (US$ 11 million) inFY2007 from Rs. 31 crore in FY2006 (US$ 7 million).

ICICI SECURITIES LIMITED

The securities and primary dealership business of the ICICI group have been reorganised.
ICICI Securities Limited has been renamed as ICICI Primary Dealership Limited. ICICI
Brokerage Services Limited has been renamed as ICICI Securities Limited and has become a
direct subsidiary of ICICI Bank. Erstwhile ICICI Web trade Limited was amalgamated with
ICICI Securities Limited during fiscal 2007. ICICI Securities achieved a profit after tax of
Rs. 0.63 billion and ICICI Securities Primary Dealership achieved a profit after tax of Rs.
1.33 billion, in fiscal 2007.

ICICI VENTURE FUNDS MANAGEMENT COMPANY LIMITED

ICICI Venture Funds Management Company Limited (ICICI Venture)strengthened its

leadership position in private equity in India, with funds under management of about Rs.
98.00 billion at year-end fiscal 2007. ICICI Venture achieved a profit after tax of Rs. 0.70
billion in fiscal 2007compared to Rs. 0.50 billion in fiscal 2006.

3.8 PUBLIC RECOGNITION

During fiscal 2007, ICICI Bank received several prestigious award in recognition of overall
business strategies, specific objectives and technology focus:

 Bank of the Year 2006 India by The Banker

 Best Transaction Bank in India by Asset Triple AAA

 Best Trade Finance in India by Asset Triple AAA

 Best Domestic Custody in India by Asset Triple AAA

 Best Bank of the Year 2006 by Business India

 Business Leadership Award in the Banking category by NDTV Profit

 National Award for Excellence in Energy Management by CII

 Most Admired Bank by Business Baron

 Best Integrated Consumer Bank Site in Asia by Global Finance

 Best Presentment and Payment in Asia by Global Finance

 Best Consumer Internet Bank in India by Global Finance

 Best Corporate/Institutional Internet Bank in India by Global Finance

 Best Retail Bank India by Asian Banker

 Excellence in Multi Channel Distribution by Asian Banker

 Excellence in Automobile Lending Award by Asian Banker

 Most Trusted Brand Award by Readers Digest

3.9 STUDY OF PROFIT& LOSS A/C

MEANING:

It is a financial statement, which shows net loss of a company for a specified period. The
accounting year means calendar year of 12 months or less or more than 12 months.

CONTENTS: This presents the revenues and expenses of a company and shows the excess
of revenues over expenses for profit and vice versa for a loss.

FORMAT: The Companies act does not provide any specific format for this account.
However it is required to be prepared on the basis of the instructions given in part ii of
schedule (vi) of the companies act.

MAIN ITEMS OF PROFIT AND LOSS ACCOUNT

Turnover or sales: The aggregate amount of sales and connected items with the sales such as
commission paid to sole-selling agents and other selling agents and brokerage and discounts
on sales other than usual trade discount.

Depreciation: The amount of depreciation of fixed assets and the arrears of depreciation as
per section 205(2) shall be disclosed by way of foot-note.

Interest on loans and debentures: Interest on loans and debentures has to be stated
separately. It will include the amount of interest paid as well as outstanding.

Miscellaneous expenses: In this head items such as rates and taxes, insurance premium etc.,
must be stated separately.

Preliminary expenses: Such expenses include the costs of formation of a company and since
their amount is usually large, it is not desirable to write off them in one year.

Provision for taxation: The profit and loss account of a company must be debited with the
estimated liabilities for tax on the current profits at current rates of taxation.

Unclaimed dividends: it is shown on the liabilities side of the balance sheet under the
heading ‘current liabilities ‘.

Interim dividends: It is an item of appropriation. It is transferred to the debit side of the

Profit and loss appropriation account. Final dividend as an item of the trial balance: This is
shown in the debit side of the appropriation section of the profit and loss account.

Proposed dividend or final dividend proposed: Since it is an adjustment item, it has to be

shown at two places- In the debit side of the profit and loss appropriation account and on the
liabilities side of the balance sheet under the head ‘current liabilities and provisions’.

Political donations: It must be shown as a separate item in the profit and loss account.
Dividend on interest income: This item is transferred to the credit side of the profit and loss
account.
Payment to auditors: It must be stated separately. This will include consultancy fee,
auditing fees management services etc.

Managerial remuneration: This includes the payments made to managerial remuneration

director’s fee, pension, other allowances and commission.

3.10 STUDY OF BALANCE SHEET

MEANING: The balance sheet is a financial snapshot of a companys condition at a single

point in time. A balance sheet contains a listing of the companys asset, liability and Capital
accounts. When someone, whether a creditor or investor, asks you how your company is
doing, you want to have the answer ready and documented. The way to show off the success
of your company is a balance sheet. A balance sheet is a documented report of your
companys assets and obligations, as well as the residual ownership claims against your equity
at any given point in time. It is a cumulative record that reflects the result of all recorded
accounting transactions since your enterprise was formed. You need a balance sheet to
specifically know what your company net worth is on any given date. With a properly
prepared balance sheet, you can look at a balance sheet at the end of each accounting period
and know if your business has more or less value, if your debts are higher or lower, and if
your working capital is higher or lower. By analyzing your balance sheet, investors, creditors
and others can assess your ability to meet short-term obligations and solvency, as well as
your ability to pay all current and long-term debts as they come due. The balance sheet also
shows the composition of assets and liabilities, the relative proportions of debt and equity
financing and the amount of earnings that you have had to retain. Collectively, external
parties to help assess your company’s financial status, which is required by both lending
institutions and investors before they will allot any money toward your business, will use this
information.

LEARN THE DIFFERENT ASSETS

Current assets: Current assets include cash and other assets that in the normal course of
events are converted into cash within the operating cycle. For example, a manufacturing
enterprise will use cash to acquire inventories of materials. These inventories of materials are
converted into finished products and then sold to customers. Cash is collected from the
customers. This circle from cash back to cash is called an operating cycle. In a merchandising
business one part of the cycle is eliminated. Materials are not purchased for conversion into
finished products. Instead, the finished products are purchased and are sold directly to the
customers. Several operating cycles may be completed in a year, or it may take more than a
year to complete one operating cycle. The time required to complete an operating cycle
depends upon the nature of the business. It is conceivable that almost all of the assets that are
used to conduct your business, such as buildings, machinery, and equipment, can be
converted into cash within the time required to complete an operating cycle. However, your
current assets are only those that will be converted into cash within the normal course of your
business. The other assets are only held because they provide useful services and are
excluded from the current asset classification. If you happen to hold these assets in the
regular course of business, you can include them in the inventory under the classification of
current assets. Current assets are usually listed in the order of their liquidity and frequently
consist of cash, temporary investments, accounts receivable, inventories and prepaid
expenses.

Cash: Cash is simply the money on hand and/or on deposit that is available for general
business purposes. It is always listed first on a balance sheet. Cash held for some designated
purpose, such as the cash held in a fund for eventual retirement of a bond issue, is excluded
from current assets.

Marketable Securities: These investments are temporary and are made from excess funds
that you do not immediately need to conduct operations. Until you need these funds, they are
invested to earn a return.

Accounts Receivable: Simply stated, accounts receivables are the amounts owed to you and
are evidenced on your balance sheet by promissory notes. Accounts receivable are the
amounts billed to your customers and owed to you on the balance sheets date. You should
label all other accounts receivable appropriately and show them apart from the accounts
receivable arising in the course of trade. If these other amounts are currently collectible, they
may be classified as current assets.

Inventories: Your inventories are your goods that are available for sale, products that you
have in a partial stage of completion, and the materials that you will use to create your
products. The costs of purchasing merchandise and materials and the costs of manufacturing
your various product lines are accumulated in the accounting records and are identified with
either the cost of the goods sold during the fiscal period or as the cost of the inventories
remaining.

Prepaid expenses: These expenses are payments made for services that will be received in
the near future. Strictly speaking, your prepaid expenses will not be converted to current
assets in order to avoid penalizing companies that choose to pay current operating costs in
advance rather than to hold cash. Often your insurance premiums or rentals are paid in
advance. Investments: Investments are cash funds or securities that you hold for a designated
purpose for an indefinite period of time. Investments include stocks or the bonds you may
hold for another company, real estate or mortgages that you are holding for income-
producing purposes. Your investments also include money that you may be holding for a
pension fund.

Plant Assets: Often classified as fixed assets, or as plant and equipment, your plant assets
include land, buildings, machinery, and equipment that are to be used in business operations
over a relatively long period of time. It is not expected that you will sell these assets and
convert them into cash. Plant assets simply produce income indirectly through their use in
operations.

Intangible Assets: Your other fixed assets that lack physical substance are referred to as
intangible assets and consist of valuable rights, privileges or advantages. Although your
intangibles lack physical substance, they still hold value for your company. Sometimes the
rights, privileges and advantages of your business are worth more than all other assets
combined.

Other Assets: During the course of preparing your balance sheet you will notice other assets
that cannot be classified as current assets, investments, plant assets, or intangible assets.
These assets are listed on your balance sheet as other assets. Frequently, your other assets
consist of advances made to company officers, the cash surrender value of life insurance on
officers, the cost of buildings in the process of construction, and the miscellaneous funds held
for special purposes.

LEARN THE DIFFERENT LIABILITIES

Current Liabilities: On the equity side of the balance sheet, as on the asset side, you need to
make a distinction between current and long-term items. Your current liabilities are
obligations that you will discharge within the normal operating cycle of your business. In
most circumstances your current liabilities will be paid within the next year by using the
assets you classified as current. The amount you owe under current liabilities often arises as a
result of acquiring current assets such as inventory or services that will be used in current
operations. You show the amounts owed to trade creditors that arise from the purchase of
materials or merchandise as accounts payable. If you are obligated under promissory notes
that support bank loans or other amounts owed, your liability is shown as notes payable.
Other current liabilities may include the estimated amount payable for income taxes and the
various amounts owed for wages and salaries of employees, utility bills, payroll taxes, local
property taxes and other services.

Long-Term Liabilities: Your debts that are not due until more than a year from the balance
sheet date are generally classified as long-term liabilities. Notes, bonds and mortgages are
often listed under this heading. If a portion of your long-term debt is due within the next year,
it should be removed from the long-term debt classification and shown under current
liabilities.

Deferred Revenues: Your customers may make advance payments formerchandise or

services. The obligation to the customer will, as a general rule, be settled by delivery of the
products or services and not by cash payment. Advance collections received from customers
are classified as deferred revenues, pending delivery of the products or services.
Owners Equity: Your owners equity must be subdivided on your balance sheet: One portion
represents the amount invested directly by you, plus any portion of retained earnings
converted into paid-in capital. The other portion represents your net earnings that are
retained. This rigid distinction is necessary because of the nature of any corporation.
Ordinarily, stockholders, or owners, are not personally liable for the debts contracted by a
company. A stockholder may lose his investment, but creditors usually cannot look to his
personal assets for satisfaction of their claims. Under normal circumstances, the stockholders
may withdraw as cash dividends an amount measured by the corporate earnings. The
distinction in this rule gives the creditors some assurance that a certain portion of the assets
equivalent to the owners investment cannot be arbitrarily withdrawn. Of course, this portion
could be depleted from your balance sheet because of operating losses. The owners equity in
an unincorporated business is shown more simply. The interest of each owner is given in
total, usually with no distinction being made between the portion invested and the
accumulated net earnings. The creditors are not concerned about the amount invested. If
necessary, creditors can attach the personal assets of the owners.

Basis of balance-sheet: Assets = Liability + Equity

BALANCE-SHEET STRUCTURE

The following Balance sheet structure is just an example. It does not show all possible kind
of assets, equity and liabilities, but it shows the most usual ones. It could be a consolidated
balance sheet. Monetary values are not shown and summary (total) rows are missing as well.

Assets

Current Assets

Cash and cash equivalents

Inventories

Account receivable

Investment held for trading

Other current assets

Non-Current Assets

Property, plant and equipment

Goodwill

Other intangible fixed assets

Investment in associates
Deferred tax assets

Miscellaneous Expenditure

Equity And Liabilities

Capital & Reserve

Share capital reserve

Revaluation reserve

Translation reserve

Retained earnings

Minority interest

Non-Current Liabilities

Bank loan

Issued debt securities

Deferred tax liability

Current Liabilities

Accounts payable

Current income tax liability

Short-term part of bank loans

Short-term provisions

Other current liabilities

EQUITY VALUATION:

The real value to a purchaser of the business or a shareholder may be different from the net
assets shown by the balance sheet. This is because factors that affect the value of a business
may not be recorded yet. For example, a purchaser will be interested in the future earnings of
the business, whether assets such as property have been revalued recently, and whether there
are potential liabilities in the future such as law suits. The value of the assets in the balance
has also been based on the assumption that the business is a going concern, otherwise the
break-up value of the assets may be far less than the value in the balance sheet.
PREPAIRING A BALANCE-SHEET

Title and Heading: In practice, the most widely used title is Balance Sheet; however
Statement of Financial Position is also acceptable. Naturally, when the presentation includes
more than one time period the title "Balance Sheets" should be used.

Heading: In addition to the statement title, the heading of your balance sheet should include
the legal name of your company and the date or dates that your statement is presented. For
example, a comparative presentation might be headed:

XYZ CORPORATION

BALANCE SHEETS

December 31, 2006

Format: There are two basic ways that balance sheets can be arranged. InAccount Form,
your assets are listed on the left-hand side and total to equal the sum of liabilities and
stockholders equity on the right-hand side. Another format is Report Form, a running format
in which your assets are listed at the top of the page and followed by liabilities and
stockholders equity. Sometimes total liabilities are deducted from total assets to equal stock
holders equity.

Captions: Captions are headings within your statement that designate major groups of
accounts to be total or sub total. Your balance sheet should include three primary captions:
Assets, Liabilities and Stockholders Equity .In the report form of presentation, the placement
of your primary captions would be as follows: 2006 ASSETS, LIABILITIES
ANDSTOCKHOLDER’S EQUITY.

Except in certain specialized industries your balance sheet should include the following
secondary captions:

CURRENT ASSETS

CURRENT LIABILITIES

Order of Presentation of Captions: First, start with items held primarily for conversion into
cash and rank them in the order of their expected conversion. Then, follow with items held
primarily for use in operations but that could be converted into cash, and rank them in the
order of liquidity. Finally, finish with items whose costs you will defer to future periods or
that you cannot convert into cash. Following these guidelines, your major assets should
normally be presented in the following order:

• Cash

• Short-term marketable securities

• Trade notes and accounts receivable

• Inventories

• Long-term investments

• Property and equipment

• Intangible assets

• Deferred charges

Liabilities are ordinarily presented in the order of maturity as follows:

• Demand notes

• Trade accounts payable

• Accrued expenses

• Long-term debt

• Other long-term liabilities Components of stockholders equity are usually presented the
following order:

• Preferred stock

• Common stock

• Additional paid-in capital

• Retained earnings

• Accumulated other comprehensive income

• Treasury stock

3.11 STUDY OF CASH FLOW STATEMENT

MEANING: Cash flow statement or statement of cash flows is a financial statement that
shows a company incoming and outgoing money (sources and uses of cash) during a time
period (often monthly or quarterly). The statement shows how changes in balance sheet and
income accounts affected cash and cash equivalents, and breaks the analysis down according
to operating, investing, and financing activities. As an analytical tool the statement of cash
flows is useful in determining the short-term viability of a company, particularly its ability to
pay bills.

PURPOSE: The cash flow statement reflects a firms liquidity or solvency. The main purpose
to make cash flow statement are as follows:
1. provide information on a firms liquidity and solvency and its ability to change cash flows
in future circumstances

2. provide additional information for evaluating changes in assets, liabilities and equity

3. improve the comparability of different firms operating performance by eliminating the

effects of different accounting methods

4. indicate the amount, timing and probability of future cash flows

ACTIVITIES INVOLVED IN CASH FLOW: The cash flow statement ispartitioned into
cash flow resulting from operating activities, cash flow resulting from investing activities,
and cash flow resulting from financing activities.

Operating activities: Operating activities include the production, sales and delivery of the
companys product as well as collecting payment from its customers. This could include
purchasing raw materials, building inventory, advertising.

Investing activities: Investing activities focus on the purchase of the long-term assets a
company needs in order to make and sell its products, and the selling of any long-term assets.

Financing activities: Financing activities include the inflow of cash from investors such as
banks and shareholders, as well as the outflow of cash to shareholders as dividends as the
company generates income. Other activities which impact the long-term liabilities and equity
of the company are also listed in the financing activities section of the cash flow statement.
Analysis of cash flow statement is necessary for every organisation to depict its cash inflow
and outflow.

3.12 FINANCIAL STATEMENT ANALYSIS

MEANING:

Financial statement analysis is the process of examining relationships among financial

statement elements and making comparisons with relevant information. It is a valuable tool
used by investors and creditors, financial analysts, and others in their decision-making
processes related to stocks, bonds, and other financial instruments. With a great
understanding of the balance sheet & p & l account and how it is constructed, we can look at
some techniques to analyze the information contained within the balance sheet &p & l
account.

PURPOSE:

The main purpose of analyzing the financial statement are the following:-

 To assess past performance and current financial position.

 To make predictions about the future performance of a company.

TOOLS FOR ANALYSING

1. PERCENTAGE CALCULATION

There are two popular methods by which we can analyze the financial statement by
calculating percentage as taking a common base.

Horizontal Analysis

When an analyst compares financial information for two or more years for a single company,
the process is referred to as horizontal analysis, since the analyst is reading across the page to
compare any single line item, such as sales revenues. In addition to comparing dollar
amounts, the analyst computes percentage changes from year to year for all financial
statement balances, such as cash and inventory. Alternatively, in comparing financial
statements for a number of years, the analyst may prefer to use a variation of horizontal
analysis called trend analysis. Trend analysis involves calculating each years financial
statement balances as percentages of the first year, also known as the base year. When
expressed as percentages, the base year figures are always 100 percent, and percentage
changes from the base year can be determined.

If we want to calculate % change in sales then we apply the following formula:

Percentage=change in sales /Base Year Sales*100

Vertical Analysis

When using vertical analysis, the analyst calculates each item on a single financial statement
as a percentage of a total. The term vertical analysis applies because each years figures are
listed vertically on a financial statement. The total used by the analyst on the income
statement is net sales revenue, while on the balance sheet it is total assets. This approach to
financial statement analysis, also known as component percentages, produces common-size
financial statements. Common-size balance sheets and income statements can be more easily
compared, whether across the years for a single company or across different companies.

If we want to calculate % change of current assets then we apply the following formula:

Percentage: current assets/total assets*100

2. RATIO ANALYSIS Financial ratio analysis uses formulas to gain insight into the
company and its operations. For the balance sheet, using financial ratios (like the debt-to-
equity ratio) can show you a better idea of the company’s financial condition along with its
operational efficiency. It is important to note that some ratios will need information from
more than one financial statement, such as from the balance sheet and the income statement.
Ratio analysis facilitates inter-firm and intra- firm comparison.

Ratios are often classified using the following terms:

LIQUIDITY RATIO
 Liquidity ratios are measures of the short-term ability of the company to pay its debts when
they come due and to meet unexpected needs for cash.

• Current Ratio: The current ratio is a rough indication of a firm ability to service its current
obligations. Generally, the higher the current ratio, the greater the cushion between current
obligations and a firm ability to pay them. The stronger ratio reflects a numerical superiority
of current assets over current liabilities Current ratio is calculated as follows:

Current ratio= Current Assets/Current Liabilities

• Quick Ratio: It is also known as the “acid test” ratio, this is a refinement of the current
ratio and is a more conservative measure of liquidity. The quick ratio expresses the degree to
which a company’s current liabilities are recovered by the most liquid current assets. quick
ratio is calculated as follows:

Quick ratio= (cash + marketable securities + Receivables)/current liabilities

SOLVENCY RATIO

Solvency ratios indicate the ability of the company to meet its long-term obligations on a
continuing basis and thus to survive over a long period of time.

• Debt/Worth Ratio: This ratio expresses the relationship between capital contributed by
creditors and that contributed by owners. It expresses the degree of protection provided by
the owners for the creditors. The higher the ratio, the greater the risk being assumed by
creditors. The lower the ratio, the greater the long-term financial safety. A firm with a low
debt/worth ratio usually has a greater flexibility to borrow in the future. A more highly
leveraged company has a more limited debt capacity .Debt/worth ratio=Total Liabilities /
Tangible Net Worth

PROFITABILITY RATIO

Profitability ratios are gauges of the company operating success for a given period of time.

• Return On Assets: Return on assets is a measure of how effectively the firm’s assets are
being used to generate profit.

It is calculated as follows:

Return On Assets= Net Income/Total Assets

• Return On Equity:

Return on equity is the bottom line measure for the shareholders, measuring for the profits
earned for each rupee invested in business. It is calculated as follows:

Return on Equity= Net income/shareholder’s equity

Fixed/Worth Ratio: This ratio measures the extent to which owner’s equity (capital) has
been invested in plant and equipment (fixed assets).A lower ratio indicates a proportionately
smaller investment in fixed assets in relation to net worth and a better cushion for creditors in
case of liquidation. Similarly, a higher ratio would indicate the opposite situation. The
presence of substantial leased fixed assets (not shown on the balance-sheet ) may deceptively
lower this ratio.

Fixed Worth Ratio=Net Fixed Assets/ Tangible Net Worth