Financial Statement Analysis

This report analyzes the financial statements of Intellect Soft, a software development company, to understand its capital structure, dividend policy, investment appraisal techniques, and corporate governance system. It also discusses the company's key operating objectives and challenges.

UNDERSTANDING AND ANALYSING
FINANCIAL STATEMENTS

INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Background to the INTELLECT SOFT.............................................................................1
2. Capital structure and dividend policy of the INTELLECT SOFT.....................................3
3. Role of investment appraisal techniques subject to evaluate the management decisions and
corporate objective.................................................................................................................6
4. Effective corporate governance system..............................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
APPENDIX....................................................................................................................................11

INTRODUCTION
Financial statements are considered a document which defines the financial position of
organisation. Understanding of financial statements and information centralised around analysing
the value of organisation (Yazdanmehr and Akbari, 2015). This report is prepared to analyse
background of company with corporate objectives. 'INTELLECT SOFT' a software development
organisation is chosen to demonstrate the financial aspects of financial statements. The capital
structure and dividend policy of the company and the impact on the company's performance over
the past 3 years are concluded in this report. Investment appraisal techniques and the investment
decisions to ensure the organisation's corporate objectives are centralised properly. Dividend
policy and the investment strategies are discussed in terms of analysing the well structured
company to incorporate objectives.
MAIN BODY
1. Background to the INTELLECT SOFT
Intellect soft started its operations form 2007 by inventing applications and software
development. Approx 500 companies and brand organisations like Jaguar, Ernst, young, Nestle
and Eurostar are the business partners of intellect soft. Main vision of the company is to assist
the global leaders and organisation by providing advanced application software. To overcome
the technological challenges of digital modification is the main vision of the organisation.
Organisation believe in create positive impact on particular area for lives and make them
simpler, effective and opening new permissions and horizons.
Organisation mainly offers type of services as
 Blockchain development: it remains related to the security and automation of operations
with Blockchain solutions.
 FINTECH: This remain engaging in meeting the demands of current customers in speed
and security with scalable financial technology.
 Augmented reality solutions services for better cost control and maximising profitability.
 Cloud computing services that remain flexible and connected with the enterprise
environment.
 Artificial intelligence services for custom based solutions as machine and keen learning
which helps in automation process of operations
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 interest of things are also some essential elements covered in this context to release the
data and process for improving the decision making.
Technology excellence
Block chain: This is one of the part of company deals in distributed ledger technologies
(DLT) retains the potential to transform the path accessed in business. This provides consultancy
services in six segments as Blockchain technology consulting, public and private blockchain
development, distributed applications, AML/KYC/GDPR compliance and Distributed e-
commerce solutions. System mainly utilise the full power of DLT to assist the future brighter and
make brighter. It creates multiple system of software solution build on top.
XR: This is lab in which experts and scientist focus on emphasising technology. This
segment was formed to increase productivity in architecture, engineering and structure with
comprehensive AR tools for visual cooperation and quality control. AR tool is an Augmented
Reality tool back introduced in 2015. The technology to the next step in the evaluation of
architecture was formed to engineering and construction. The essential changes are done subject
to develop and structured technology and research to emerge the sections of business. An all-
encompassing experience in technology by intellect Soft AR Lab called KADO construction.
KADO is a technological framework that make structure process with the assistance of Microsoft
Holones. Mixed reality application, industrial AR/VR solutions, 3D modelling and prototyping
and installation and trainings.
UI and UX design Services: There is a particular team of this organisation which
mainly associated with establishing a clear design and process, meeting the targets and
deliverables services subject to determine the small design and studio with in a large software
company and organisation. Small design studio with in a large software company. It will assist
an engaging products easily and quickly.
Enterprise artificial intelligence software: This is one of the main section which
computational capabilities of abased software are analysed to improve and emphasise the line of
business. Artificial intelligence software solutions such as machines and models are considered
in this context. Most of the inventions and artificial intelligence software are used to improve and
emphasise the technology. Physically and mentally all the relevant aspects for assisting the
enterprise are considered in this context. It mainly associated with business operations optimise
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the secure internet tools and solutions. IOT provides the platform with sensors and devise to
monitor. Measurement subject to analyse the major sections.
AL models: A cloud based model machine learning, algorithms, data management and
analysis and visual information processing are the elements considered in Al model.
Key operative objective and problems
Intellect Soft supplies technological and artificial intelligent which are based upon
innovations and development. It is entrain that type of technological changes and alternatives
affect the key goals and objectives of organisation. The corporate objectives also affected by
these technological changes. It is evaluated that the major changes take placed while introducing
new technology and tactics related to automation of functions and operations. These factors are
considered while assessing the risk. Risk management is the part of corporate management
strategies and goals.
2. Capital structure and dividend policy of the INTELLECT SOFT
Capital structure
The capital structure of organisation include the finance capital which shows the revenue
growth of company. As per annual report 2017 of intellect soft present the revenue growth from
609 Corers to in Financial year 2015 to the 914 cores in financial year 2017 registering a CAGR
of 22.51%. Software license revenue has grown from 85 Crores in financial year 2015 to 156
Crores in financial tear 2017. After incorporating A CAGR of 35.47% and AMC revenues has
been grown from 108 Crores. In financial year 2015 to 170 crores financial year 2017 registering
a CAGR of 24.89%. Annual gross margins sited as 49.3%.
Brand Capital: This is one of the essential aspect in terms of managing the
organisation's value. As per brand capital it is ranked as 2 in digital banking and channels as #1
in retail banking system. IBS intelligence in their annual sales league table 2017. The leadership
in brand is given subject to model the end customers and the analysis of Oxford school of
transaction banking and 8012. leadership brand has been droved by the intellectual operations
and management with in transaction and banking and Fintech design centre.
End customer: It is considered that the second element of was recorded as BELIEF
model for example the end customers of advanced emerging markets and customer base
containing the orders which was recorded in Quarter 4 Financial year 2017. a well organised
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structure of customer base and order form mainly associated with analysing the process of
diversified customers and base of the key products.
Leadership capital: This capital structure ios considered as third element of belief model
determining the leadership comprehensive leadership encompassing, strategic thinking,
innovative products and services manufacturing procedure and institution buildings subject to
services delivers and assumed the engagement (Garrett, 2015). The leadership team mainly assist
the key structure of business to make and implement new tactics for better and fundamental
growth. These leaders refers the organisation like JPMC and the competitors like Misysm,
Fundtech and tenements.
IP Capital: According to annual report of 2017 it is summarised that the financial
technology are considered essential in terms of big opportunities with the predefined format and
structure. Main Criteria of this capital is mainly associated with financial technology products
space globally due to vast opportunities and growth of organisation rather then diverting the
interrelated sections and criteria. As per financial reports the capital work in progress, plants and
equipments considered as 19605.06 for the year 2017, 1780540 for the year 2016, 1346013 for
the year 2015.
Income statement of intellect soft digital company
Year ended
PARTICULARS
March 31,
2017
March 31,
2016
March 31,
2015
INCOME
Income from software product license and related
services 91357.5 81065.55 47514.17
EXPENDITURE
Provision for Debts and Write Off 1233.16 979.62 53187.03
Research & Engineering expenses 7192.08 10629.77 1705.68
Selling and marketing & General and administrative
expenses 39102.94 33050.24 -
Software development expenses 46326 39500.01 -
Total Expenditure 93854.18 84159.64
EBITDA -2496.68 -3094.09 -5672.86
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Depreciation / Amortisation 2413.99 2077.11 1705.68
Finance Charges 1130.24 1192.22 -
Provision for tax including deferred tax - - -260.99
Profit / (Loss) before other income / minority interest -6040.91 -5290.42 -7117.55
Other Income including exceptional items 3235.56 1869.71 -
Minority Interest / Share of profit / (loss ) of Associate
Companies 656.24 93.93 -
Profit / (Loss) before tax -2149.11 -3326.78 -7117.55
As it is seen that there is no any dividend was declared during the financial year due to
losses. Loss for the financial years subsequently 2017, 2016 and 2015 was recorded -2149.11, -
3326.78 and -7117.55. Even after having loss organisation is growing and improving its capital
structure and strong customer base.
Particulars 2017 in Rupees
lakhs
2016 in lakhs 2015 in lakhs
EBIT -2496.67 -3094.09 -7259.93
Net Profit -2238.58 -3251.31 -8412.4
Equity 59834.38 61131.77 61451.45
Debt - 323.78 118.6
Interest Paid 1130.24 119.22 976.63
Dividends Paid - - -
Dividend policy
It is seen that there was no dividend declared due to having losses in last three financial
years. In general meeting, stakeholders' relation was the primary point to undertake and form the
dividend policies accordingly. A separate stakeholders' relationship committee was formed that
contains executives and non-executives directors. It is observed the main reason of not declared
any dividend during the year 2017, 2016 and 2015 was having losses. A board meeting held
subject to creating more values and interest of investors and engaging the stakeholders with the
vision and mission statement. After forming the committee, lots of complaints and issues was
received by executive directors regarding transferring of shares, non- receipts of balance sheer,
and declared dividends and many more issues. Main objective of constituting this committee was
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to develop such a structure of stakeholder and investor base so that they would be able to track
their investment details and get proper information about their earnings.
There are multiple key points considered while preparing the policies regarding the rights
to transfer the shares, flow of publishing the financial statements on timely basis (Adams and
Olsen, 2017). A residual report was published to stakeholders and shareholders by considering
all the relevant material information and reason to not to declare dividend for subsequent
financial years. To control and engage the stakeholders with the organisation various rights given
to them like participating in general and stakeholders' meeting, right to vote and electing
members of the board and sharing the results and distribution of residual profit and reserves of
company. It helped the organisation to engage stakeholders with them and maintain strong and
effective stakeholder relationships.
3. Role of investment appraisal techniques subject to evaluate the management decisions and
corporate objective
Capital investment appraisal techniques mainly helps to determine the financial objective
and plans in terms of attaining the management decisions (Hemmi and Ryve, 2015). There are
type investment appraisal techniques are used in terms of dividing the plans and objectives.
Appropriate decision making properties helps in managing the finance decisions and investment
decisions. Management committee and senior authorities are the main parties who analyse the
proposed plans for investing capital and financial Resources.
There is a proper analysis of financial statements of organisation for making investment
plans and taking precious decisions. As per financial statements of organisation it is observed
that equity share capital of organisation was recorded as 5086.69 million, 5038.98 million and
5009.92 million subsequently for 2017, 2016 and 2015. the investment values was 563.92
million, 1550.68 million and 1496.78 million subsequently for 2017, 2016 and 2015.
Cash flow statement of Intellect Design Arena Limited
Cash flow statement 2017 2016 2015
Cash flow form operating activity (A) -6495.25 -10061.23 -4494.77
Cash flow form investing activity (B) -10887.15 3109.25 -16374.76
Cash flow from financing activity (c) 14597.05 1642.69 167.78
Exchange differences on translation of foreign currency
cash and cash equivalents 3.02
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Net increase / (decrease) in cash and cash equivalents
during the year -2785.35 5309.29 -20698.72
Cash and cash equivalents acquired on Demerger
pursuant to Scheme of arrangement 605.04 -47.05 24191.83
Cash and cash equivalents at the beginning of the year 4483.09 9839.05 5
Cash and cash equivalents at the end of the year 2302.78 4483.09 3498.1
Above cash flow statement presents the following information related to flow of cash
invested in major three categories as operating, investing and financing. Cash flow form
investing activity. It is observed that large number of investment were made in fixed assets,
investment and securities. In 2016 the cash flow formation was positive due to positive returns
and the sale of non performing fixed assets.
Type of investment appraisal techniques may be used to evaluate the decisions some of
are discussed below;
Payback period method: This is considered one of the simplest aspect among the four
investment appraisal techniques (Gold and Holodynski, 2015). Payback period technique mainly
helps in determining the amount to be generated for future to accelerate the cash inflows. The
break even and recoup of cash outlay required to initiate the project. As per above analysis of
cash flow position is calculated as follows;
Year Profit/loss
2015 3498.1
2016 4483.09
2017 2302.78
The above example figures presents the cash flows for three financial years. If
organisation wants to invest the amount in future investments then it should be consider the
current cash flow position. Current cash flow position and profitability determines indicates that
organisation should invest 5000 million so that it would be able to generate the recover the cash
upcoming year.
Accounting rate of return: A rate of return is evaluated on investments or return on
capital employed (Fleury, Thompson and Wong C., 2015). This method based upon past profits
and capital expenditure incurred in near future. Main purpose of this appraisal technique is to
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provide an optimum rate of return a which organisation be able to get average rate of return
(Dajani, 2016). These structure and This capital investment technique mainly helps to
communicate the organisational goals and the architecture for calculated as follows;
Year Net cash inflows (in rupees million)
2015 -7117.55
2016 -3326.78
2017 -2149.11
As per current situation of organisation it is seen that there was loss occurred in last three
financial years which is the main reason to opt this capital investing appraisal technique. Loss
become come during gradually year by year which indicates that organisation would be able to
achieve the target profits form the market. Current financial position will show the negative
returns which will impact the current structure of business.
ARR = ( Average annual profits / average capital investment ) * 100
4. Effective corporate governance system
Corporate governance structure is the system made of multiple rules, practices and
process formed to direct and control the directed and controlled (Rispoli and et. al., 2015.). It is
mainly associated with determining the shareholders and management customers and supplies. It
build the ethical standard to make viable the structure of business in terms of determining the
Inellectsoft is formed as follows;
Company's philosophy: Corporate governance structure of organisation mainly focus on
corporate governance with a growth and effective medium. Main goal of this philosophy is to
maximise the profitability and gaining stakeholders interest. A legal and authentic corporate
governance structure build a strength to tackle the challenges related to compliance and financial
management. Moreover these information remain related to build up and efficient strategies and
plans to fulfil the commitment towards the customers and employee.
Board of Director: The board of the company retain the high personal and professional
ethics, guidance related to integrity, responsibilities and the committed to represent the long term
and short term interest of the stakeholders. Board has introduced the principles of corporate
governance and it helps to determine the practicality and provides opportunities for policies and
the guidelines to set up adequate review and procedures.
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Composition of the Board of directors: This contain the ethical and effective structure
with optimum combination of the executive and non executive directors. The board mainly helps
to determine the adjacent policies and relevant structure of diversified fields and the
professionally (Rispoli, and et.al., 2015). A particular management committee helps to determine
the knowledge and exercise the issues related to management. Day to day capital transactions
and affairs are considered at top of the list to undertake and supervise the board. Dependency and
interdependency remain at high altitude while creating ethical compliance structure of business.
Audit committee: Reliable appearance and relevancy contains is key aspect to
considered in corporate governance structure of organisation and in ethical structure (Scott and
Alter, 2017). The board of committee was incorporated in 2014 and then reconstituted in 2017.
there was lots of alterations were made in order to maintain transparency and relevancy with in
corporate structure of organisation. Highly qualified and professional executive and non
executives and independent directors are considered in this structure.
Effectiveness of corporate governance structure
After constituting the corporate governance structure organisation be able to determine
the practicability and relevancy between the main aspect considered in designing the
development of organisation (Cook and Burdelski, 2017). A relevant information and details are
coordinated after creating the ethical standards with in Intellectsoft. Corporate governance
CONCLUSION
From the above report, it is clear to conclude that financial statements and the concepts of
corporate finance are useful in management decision. These concepts are used to solve problem
of the organisation and make decision about a relevant backgrounds. The table report shows the
capital structure and its various calculation based upon company's performance over the past
three years. Various dividend policy like regular dividend policy, stable dividend policy which
were used by company are discussed in the report. Management of company uses various
investment appraisal tools like payback period, accounting rate of return(ARR), Net present
value method and internal rate of return(IRR) to make investment decision more effective which
help in achieving its goals. The effectiveness of corporate/financial governance system have
been analyse and discussed in the above report.
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REFERENCES
Books and Journals:
Yazdanmehr, E. and Akbari, R., 2015. An Expert EFL Teacher's Class Management. Iranian
Journal of Language Teaching Research. 3(2). pp.1-13.
Garrett, T. F., 2015. Misconceptions and goals of classroom management. The Education Digest.
80(5). p.45.
Hemmi, K. and Ryve, A., 2015. The culture of the mathematics classroom during the first school
years in Finland and Sweden. In Mathematics and Transition to School (pp. 185-198).
Springer, Singapore.
Gold, B. and Holodynski, M., 2015. Development and construct validation of a situational
judgment test of strategic knowledge of classroom management in elementary
schools. Educational Assessment. 20(3). pp.226-248.
Dajani, M., 2016. Using Thinking Routines as a Pedagogy for Teaching English as a Second
Language in Palestine. Journal of Educational Research and Practice. 6(1). pp.1-18.
Rispoli, M. and et. al., 2015. Evaluating the accuracy of results for teacher implemented trial-
based functional analyses. Behavior modification. 39(5). pp.627-653.
Rispoli, M. and et.al., 2015. Training head start teachers to conduct trial-based functional
analysis of challenging behavior. Journal of Positive Behavior Interventions. 17(4).
pp.235-244.
Scott, T. M. and Alter, P. J., 2017. Examining the case for functional behavior assessment as an
evidence-based practice for students with emotional and behavioral disorders in general
education classrooms. Preventing School Failure: Alternative Education for Children
and Youth. 61(1). pp.80-93.
Cook, H. M. and Burdelski, M., 2017. Language socialization in Japanese. Language
Socializatio. pp.1-13.
Fleury, V. P., Thompson, J. L. and Wong, C., 2015. Learning how to be a student: an overview
of instructional practices targeting school readiness skills for preschoolers with autism
spectrum disorder. Behavior modification. 39(1). pp.69-97.
Adams, C. and Olsen, J., 2017. Principal support for student psychological needs: A social-
psychological pathway to a healthy learning environment. Journal of Educational
Administration. 55(5). pp.510-525.
Online
Financial statements of Intellectsoft, 2017. [online]. Available
through:<https://www.intellectdesign.com/investor/reports/2017-Annual-Report.pdf>.
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APPENDIX
Balance sheet of Intellect soft
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