In fact an employee
working in a bank, an entrepreneur who is willing to extend bank finance and
many others who are dealing with financial statements should be in a position
to know in detail about the various banking terms which are in use. The
following are some financial terms which are used during the course of analysis
of financial statements pertaining to any borrower while lending bank finance:
01.
Cost
of production: This refers to consumption of raw
materials (including stores) and spares, power and fuel, direct labor, repairs
and maintenance, other manufacturing expenses plus opening balance of stock in
process minus closing balance of stock in process.
02.
Cost
of sales: Cost of production as mentioned above plus opening
stock of finished goods less closing stock of finished goods.
03.
Operating
profit: Net sales less cost of sales minus interest and
selling, general and administrative expenses.
04.
Net
profit before tax: Operating profit plus other income minus
other expenses.
05.
Net
profit after tax: Net profit before tax plus or minus deferred tax plus current tax.
06.
Retained
profit: Net profit minus dividend paid/declared.
07.
Net
sales: Gross sales minus excise duty and returns.
08.
Total
current assets: Inventory, receivables (including bills
discounted) and all other current assets which are cashable in next 12 months
plus prepaid expenses.
09.
Total
current liabilities: All liabilities which are payable in the
next 12 months including term loan installments payable in next twelve months,
if any.
10.
Net
working capital: Total current assets less total current
liabilities.
11.
Working
capital gap: Total current assets less current
liabilities other than bank borrowings.
12.
Total
outside liabilities: Total liabilities as per balance sheet
less net worth.
13.
Net
worth: Capital Plus reserves plus surplus.
14.
Tangible
net worth: Net worth less accumulated losses and intangible
assets.
15.
Current
ratio: Current assets/current liabilities.
16.
Current
assets: Cash balance + bank balance + sundry debtors+
inventory + advance payment made to suppliers + advance paid for miscellaneous
purposes
17.
Current
liabilities: Bank overdraft + Sundry creditors +
Provisions for income tax + provisions for any other expenses + advance
payments received from the customers
18.
Quick
ratio: Current assets less inventory/current liabilities
less bank overdraft
19.
Debt
equity ratio: Long term debt/tangible net worth
20.
Debt
service coverage ratio: (Profit after tax + depreciation + interest
on term loan)/(interest on term loan + installments on term loans)
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