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Interpretation Notes

The document discusses the interpretation of financial data related to the disposal of subsidiaries, highlighting the impact of intra-group sales and revenue changes on faithful representation. It emphasizes the need to analyze various factors such as selling prices, inventory days, and return on capital employed (ROCE) when assessing financial performance. Additionally, it notes the importance of considering non-controlling interests and market rates in acquisition decisions and investment strategies.

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seethus2005
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24 views2 pages

Interpretation Notes

The document discusses the interpretation of financial data related to the disposal of subsidiaries, highlighting the impact of intra-group sales and revenue changes on faithful representation. It emphasizes the need to analyze various factors such as selling prices, inventory days, and return on capital employed (ROCE) when assessing financial performance. Additionally, it notes the importance of considering non-controlling interests and market rates in acquisition decisions and investment strategies.

Uploaded by

seethus2005
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Interpretation

Disposal of subsidiary:
If there is IGS, see how much of the subsidiary’s revenue constitutes this intra
group sale. If it’s marginally high, mention that it is possible that the parent has
deliberately purchased goods at a higher margin to increase the individual
revenue of it’s subsidiary. This inturn effects the characteristic of Faithful
representation of the ind st of the subs.
If there is intra rent, and its lower than the market rate, mention.
If there is a change in revenue, check the % change. This might be due to
change in selling price or no of goods sold. Now check the % change in cost of
sales. If it is lower than that of % change in revenue, this is due to selling price
change.
If inventory days is high and both rev and cos is lower, it is due to decreasing
demand
Even after selling price is lower, inv days is high, then it shows inv might have to
be sold at a lower price than cost (nrv). Inv days will be high, but cl inv reduces,
so profit reduces, pft margins reduce.
ROCE change is due to change in op pft margin and ATR.
Consolidation – intra group sales, subs to parent, parent buying at high margins
to inflate the selling price.
Use words like ‘needs to be interpreted further’
In qstns of acquisition, mention that the subs co has been changed to Fv model
whereas parent might still be using cost model (if there’s no revaluation
surplus)
If its acquisition, always mention NCI as a reason for inc in equity. If there is
share exchange, mention it too.
If there is increase in PPE, increased depreciation.
Terms like ‘offset’
Geographical expansion, new customers. New customers, receivables
If revenue is dramatically high, reduced SP marketing strategy , increasing
revenue.
Low retained earnings, high dividend payment.
If assets are almost depreciated, might need replacement.
Investment decision depends upon attitude to risk and how well the
investment fits in the operating and managing activities.
Acquisition decision, assets converted to FV . Impacts goodwill.
If there is loan agreement b/w subs and parent, “loan should be investigated
further as to if these are the market rates.”
No longer dividend.
“Lucrative options”
When adjustments are considered, a very different picture emerges.

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