Extracting Data from Annual Report | CASE STUDY: HUL
Summary
TLDRIn this introductory episode of the Financial Statement Analysis series by Financial Shock Classes, host Shalesh explains the importance of understanding financial statements in a real-world context, especially for Indian companies. The series aims to help aspiring analysts by teaching how to extract, interpret, and analyze financial data effectively. With a focus on Indian accounting standards, the training covers key aspects like revenue analysis, operational income, and understanding financial footnotes. The series promises practical, hands-on learning for those looking to build a career in the investment domain.
Takeaways
- 📊 The series is launched to provide practical insights into financial statement analysis for Indian listed companies.
- 📚 Most students or certification candidates have a theoretical understanding of financial statements but struggle with real-world applications.
- 🧐 The first challenge analysts face is learning how to extract the right data from company filings, investor presentations, and other sources.
- 🇮🇳 Another issue is applying global concepts to Indian Accounting Standards and understanding the nuances of Indian annual reports.
- 🔎 Financial statement analysis involves three steps: extracting data, understanding the data, and analyzing it in relation to the business.
- 💼 The focus of the series will be on case studies of Indian listed companies to provide a hands-on training approach.
- 📈 Revenue is a crucial figure for analysts as it reflects a business's ability to generate cash and impacts its valuation.
- 📄 The difference between standalone and consolidated financial statements will be discussed in future episodes, but consolidated statements will be used by default for analysis.
- 📝 Analysts must learn to read and understand footnotes, as they provide essential context for financial figures such as revenue from operations.
- 💡 Understanding how revenue is calculated according to accounting policies is critical, as it reflects the company’s true earning potential.
Q & A
What is the primary goal of the Financial Statement Analysis series launched by Financial Shock Classes?
-The primary goal of the series is to help freshers passionate about building a career in the investment domain to acquire practical skills in financial statement analysis. It focuses on teaching how to extract, understand, and analyze data from financial statements of listed Indian companies.
What are the three key steps in financial statement analysis as mentioned in the video?
-The three key steps are: 1) Extracting data from financial statements, 2) Understanding the extracted data, and 3) Analyzing the data by connecting it to the business.
What are the two types of financial statements typically found in an annual report?
-The two types of financial statements typically found are standalone and consolidated financial statements.
Why do many candidates struggle when transitioning from academic training to real-world financial analysis?
-Candidates often struggle because in academic or certification programs, data is provided for analysis. In the real world, analysts need to source and extract data themselves, which includes finding qualitative and quantitative information from various sources like company filings, investor presentations, and more.
What is the importance of revenue in financial statement analysis?
-Revenue is crucial because it represents the only way a business generates cash to fuel its operations and grow sustainably. Revenue also drives a company's valuation and is a prominent indicator of its growth potential.
How is revenue typically broken down in financial statements?
-Revenue is typically broken down into two parts: revenue from operations (core business activities) and other income (non-operating revenue). These are detailed in footnotes for more clarity.
What is the difference between revenue from operations and other income?
-Revenue from operations refers to income generated from the company's core business activities, such as the sale of products or services. Other income includes non-operating revenue, like interest income or government grants, which are not directly related to the company's core business.
Why are government grants often included in revenue from operations?
-Government grants are included in revenue from operations because they are typically given as incentives for a company's core business activities. Therefore, they are treated as part of the operating revenue.
What are the typical components included under 'other operating revenue'?
-Other operating revenue often includes commission income on consignment sales, government grants, scrap sales, and export incentives. These are related to core business activities but may not involve the direct sale of products or services.
Why is it important to review footnotes in financial statements?
-Footnotes provide critical details about how financial figures are derived. They explain what constitutes specific line items like revenue and provide essential insights into the company's financial practices, which are necessary for thorough financial analysis.
Outlines
📊 Introduction to Financial Statement Analysis
📈 Three Steps to Becoming a Financial Analyst
📄 Case Study: Hindustan Unilever Limited (HUL) Revenue Data
🔍 Understanding Revenue Components and Footnotes
📑 Interpreting Operating vs. Non-Operating Income
✅ Key Considerations for Financial Analysts
Mindmap
Keywords
💡Financial Statement Analysis
💡Revenue
💡Balance Sheet
💡Income Statement
💡Consolidated Financial Statements
💡Standalone Financial Statements
💡Other Income
💡Footnotes
💡Operating Revenue
💡Government Grants
Highlights
Introduction to Financial Statement Analysis series aimed at helping freshers build a career in the investment domain.
Graduation and certification programs provide theoretical understanding but lack practical training on extracting and analyzing financial data.
Challenges freshers face in real-world analysis include difficulty in sourcing data and understanding how to apply global concepts to Indian accounting standards.
The series focuses on a practical, three-step process: extracting data, understanding it, and analyzing it in connection to the business.
The series will provide live case studies of Indian listed companies to show how to apply financial analysis concepts.
Revenue is emphasized as a key figure in financial statements because it directly drives the earnings and valuation of a company.
Distinction between standalone and consolidated financial statements, with the series focusing on consolidated statements for better overall understanding.
Explanation of how revenue is extracted from financial statements, using Hindustan Unilever Limited as a case study.
Revenue is broken down into revenue from operations and other income, with detailed examples from Hindustan Unilever's annual report.
Importance of understanding the footnotes of financial statements to get a complete picture of the revenue breakdown.
Difference between operating revenue, other operating revenue, and non-operating income like interest income, using clear examples.
Scrap sales and other recurrent activities are classified as operating income because they are linked to the business's core activities.
Revenue recognition under Indian accounting standards involves calculating revenue after deducting trade discounts, volume rebates, and taxes like GST.
Presentation of financial statements may vary by industry, with examples contrasting Hindustan Unilever and ICICI Bank's income statements.
Analysts should not blindly accept how a company classifies its line items but should verify them against the footnotes and accounting policies.
Transcripts
hello everyone
my name is shalesh and welcome to
financial statement analysis series by
financial shock classes
in this pilot episode let me begin with
explaining
why we have launched this series and
then we'll follow up with the training
contact
in your graduation curriculum as well as
let's say professional certification
programs you may have studied or rather
gathered a theoretical understanding of
financial statements what exactly is a
balance sheet income statement clash row
statement and likewise
and the way you are tested in these
graduation or professional certification
programs is they'll give you a lot of
data and you will have to calculate
certain ratios and interpret those
ratios and likewise
now these candidates who clear these
programs or graduation content
face a lot of issues when they hit
reality
or hit the ground when they have to
actually analyze a live listed indian
company
this is on back of multiple reasons
first everything was provided as given
information when you are solving
questions however when you hit the
reality you have to learn the art of
extracting data in the first place now a
lot of people don't even know where to
source the data what kind of qualitative
quantitative data
has to be sourced for a particular
company with sources it needs to be
taken a look at the company filings the
investor presentations conclude
transcripts and likewise other sources
and the second reason why people
struggle is what they would have studied
as majorly from global perspective but
they have never really actually applied
it to an indian accounting standards
perspective
and openly listed indian companies
annual reports during their graduation
or any other training
precisely with that intent to enable a
fresher who is
willing to and very much passionate of
building a career
in investment domain this skill set is
very much needed and with that intent we
have launched this financial statement
analysis series we strongly believe
that financial statement analysis series
is
a three-step process first
analyst needs to learn how to extract
data
second
understand the extracted data first and
then third
use that data and analyze it connecting
it to the business precisely these three
steps will make you a very good decent
analyst at least to begin your career
with in the investment domain
in the series of financial statement
analysis upcoming episodes what we plan
to give out is a live listed indian
company's case study training
perspective like when you learn a
concept learn how to apply it to a
listed indian company
proceed with these three steps
extracting understanding and analyzing
the data
and then connect it to the business
we want to give out a practical training
perspective to each and every candidate
who's listening to this video
based on our experiences after having
worked in the investment domain for over
a decade what we have done is we have
collated this wonderful content from our
own learnings from our own struggles and
we have tried to collate this content
and pin it down for you this video
series will walk you through with
understanding and extracting data of
each and every line item on all the
financial statements which is where you
genuinely understand what financial
statement analysis means all right so
hope that that intent let's get started
with the first pilot episode of our
series hopefully you guys like it by the
way
you can follow us on our instagram
handle you know facebook as well as
youtube to gather more such content as
well as you can refer to our website
financialshowclasses.com on the forum
section you'll find some really decent
written material which i'm referring to
on the screen right now all right so
let's get started with the first line
item which is revenue as you may already
know it by the names of turnover total
sales or as a matter of fact even
sometimes referred to as total income
now
why is it so important that we should
focus on revenue because revenue is only
the single way for a business to
generate cash to fuel its operations or
even
grow
in future at a sustainable rate
a business is usually valued based on
the amount of earning potential it has
now these earnings are directly driven
by revenue so which is why revenue
drives valuations and hence it's really
important
for every analyst to understand
revenue now often a lot of
uh you know a prominent indicator of a
growing business which is taken one of
the prominent indicators which is taken
is revenue growth rate when you take a
look at a growing business you often
take a look at
what kind of auto add water rate revenue
is growing so before we get to the final
outcomes let's first understand remember
the three steps of financial statement
analysis the first step is extracting
the data so let me first explain how do
you extract revenue data from financial
statements now when it comes to uh
you know financial statements let me
just quickly take one simple case study
at point here and walk you through now
you know the case study which i have
taken is hindustan unilever limited i'm
sure all of you may have heard of it
business now you can extract revenue
data from set of financial statements
now in you know annual reports you will
find generally two kinds of two sets of
financial statements
one would be standalone and second would
be consolidated now as you can see let
me just quickly you know browse you
through so that you get a fair
understanding this is annual report 2021
by the way of hindustan union level
limited on page number 65 you will see
uh standalone financial statements of
hindustani universe limited this is
standalone balance sheet
as you can see assets liabilities and
equities followed by standalone bnl
statement which is statement of profit
and loss or also known as statement of
operations or income statement
followed by statement of changes of
equity as well as a cash flow statement
now similar
set of financial figures
are available for consolidated as well
which is there on page number 104 now
you may wonder what exactly is the
difference between standalone and
consolidated something which we will be
covering in the next video series but
for now
let's take by default all the figures
from consolidated
both financial statements of standalone
consolidated are used for analysis
perspective but like i said hold on to
that for now because we will be first
understanding what's the difference
between both of them
afterwards but for now as a default
let's just refer to only consolidated
because when you take a look at the
consolidated statements you will you
will be able to extract revenue figures
from income statement when you take a
look at income statement let me zoom in
a bit so that viewers of this video can
benefit and can actually read the
content on the screen as you can see the
income statement is usually
presented in this fashion starting with
revenue now when you see this this would
be the revenue figures the numbers are
obviously in pros as mentioned here you
will see the latest year here and the
comparable year here
when you take a look at this you will
see it to be of two parts one is revenue
from operations and second one is other
revenue now you may wonder what the
company means by revenue from operations
and what exactly falls under revenue
from operations uh that would be in note
24 this is the most important part of
financial statement analysis had there
been no nodes
financial statement analysis wouldn't
have been possible so which is where
it's really important for analysts to
learn how to read these footnotes now
these are often known as notes or
footnotes for any annual
you know or rather quarterly financial
statements now when it comes to
these footnotes they are usually
provided in india on annual basis you
for you to understand what falls under
revenue from operations you need to take
a look at footnote number 24 and 25. for
your reference so that you know the
reconciliation of figures makes sense
i'm just going to write it down here 47
0 to 8 is revenue from operations so i'm
just going to write it as rob and then
there is other income of
nearly 410 crores so yeah pardon me for
the handwriting and trying to do
a decent job at it all right now you
know we need to open these footnotes now
where are these footnotes available if
you scroll down below the financial
statements the footnotes data is useful
and for that we need to take a look at
the footnote numbers which are mentioned
here so note number 24 and 25 are
actually available on page number 121
of hindustan universe limited i've taken
down those numbers so that you know i
use your time on this
video very efficiently by the way you
can apply these things on your own as
well now let me just quickly scroll down
yeah you can see note number 24 here
revenue from operation now remember the
number which we sourced from income
statement was 47028 and you can see this
total to be matching to that number
and these are sub items rolling up to
that four seven zero to eight crore
figures now let's understand what these
items are sorry
uh yeah let's understand what these
items are one by one sale of products
sale of services as you can see in this
annually limited
is selling products and how much revenue
it's generating from them and services
then there's something which is known as
other operating revenue with the
condition supply now you can see this
conditions apply to be mentioned here
um you know
we'll take a look at that as well but
other operating revenue falls around you
know three buckets now
these natures are income from services
rendered makes sense uh what exactly is
operating revenue one might wonder
operating revenue is basically revenue
generated from core business activities
like industrial unlimited as into
manufacturing of a lot of products and
selling it out there under different
brands now that is their core operating
figure when you take a look at uh other
operating revenues you will also find
commission income on consignment sales
moreover you will find government grants
scrap sales and export now you may
wonder
why
government grant is actually operating
revenue shouldn't it be a non-operating
thing because government grant is
something which is given off by
government sometimes maybe one off or as
a matter of fact on a recurring activity
as well if you're generating it it's not
something which business is actually
doing an activity however the reason why
often government grants or export
incentives or even sales tax incentives
are classified as operating revenue is
because
government is incentivizing these
businesses because of their operations
what kind of domain they are operating
in is precisely why they are receiving
those subsidies so any kind of grants or
incentives or subsidies provided by
government to the businesses are mainly
because of their core business
operations hence that is actually
included in revenue from operations now
precisely what you see here is a total
of 470 to 8. now you may wonder
how did this number come
how is it that we got this figure 470 0
to it now to understand how a revenue is
computed
you can take a look at the accounting
policies of
financial statements remember accounting
policies are present just below the
financial statement so when we saw the
consolidated figures on page number 104
let me just quickly walk you through
on page number
104 when we saw the consolidated figures
when you scroll down let me zoom out a
bit so that scrolling is easier when you
scroll down just below the financial
statements you will see accounting
policies now these are basically
accounting policies explaining what they
have done and why they have done and how
is it that they have calculated each and
every so what particular line item on
financial statement represents and how
is it calculated is present here in
accounting policies section now when you
refer to page number let's say 71 which
is again similar accounting policies
which are present for standalone you
will see revenue recognition paragraph
which is same for standalone and
consolidated in this case of windows 10
unity level limited which is why i went
to standalone now when you see
you will see a paragraph here let me
actually zoom in a bit so that it's
you know
readable for users when you see this you
will see revenue is actually calculated
based on contracted price after
deduction of any trade discounts volume
rebates any taxes or duties collected on
behalf of government such as gst
let me explain the statement believe me
this is genuinely very important
revenue figures so imagine like that
let's say if hul is selling a soap at
100 rupees mrp and i don't know maybe
there is let's say uh five percent gst
applicable to that um you know
in this mrp of 100 rupees they have
collected a five rupees gst which by the
way is not their revenue because they
have to
they are basically a collection agent on
behalf of government that's the beauty
of indirect taxes so you know different
companies are collecting taxes on behalf
of government and then eventually filing
it to the government paying it back to
the government so when hul is actually
charging you hundred they may be getting
hundred rupees cash but out of that
hundred they have to pay five rupees to
the government assuming let's say five
rupees was the gst so 100 is revenue mrp
this is basically the contracted price
five rupees would be gst and let's say
if there is a customer who comes you
know on a regular basis and maybe you
would want to you know offer a lucrative
price and he or she asks for a discount
that would be the great discount volume
rebates are basically if you know often
people tend to buy in huge volumes and
to incentivize them to keep on a
recurring basis buying from the company
the company may choose to offer certain
discounts that would be volume discounts
or volume rebates so let's say if there
was a two rupees volume rebate so
technically speaking the revenue which
is reported
on the income statement the 4702 wait
figure which we saw
is corresponding to this 93 figure so
this is what is reported on
income statement as a revenue under new
accounting standards now
you need to verify how a business is
computing revenue by taking a look at
the accounting policies this revenue
recognition will study more on what this
is in the upcoming series but for now
you only need to refer to this paragraph
to understand how a revenue is actually
calculated now let me move back to the
you know the footnote of revenues on
page number 121. there's one more thing
which i want to talk about now when we
refer to the revenue from operations the
rop figure which was 470 to 8 precisely
the same breakup is available just below
that footnote now this is a mandatory
footnote under new accounting standards
for each and every business to provide
the aggregation or the breakup or
reconciliation of contracted price with
the reported revenue so let's say this
was precisely the mrp figures and the
deducted amount would be either gst
collected on behalf of government
and
either trade discounts or volume
discounts etc and then comes your sale
of products so what you see here for six
three two one now you may wonder why is
it not matching with force and zero to
it let me explain remember this 463 to 1
is for goods and services it's not other
operating revenue which you see here so
if you add these two together you will
get this number
and these would be the other operating
figures which are added so for every
analyst to understand how do you
calculate total revenue from operations
a total revenue from operations is
actually calculated as you know uh
operating revenue
which is
sale of products and services
plus other operating revenue which would
be this section so please understand in
terms of revenue figures it can be
broken down into three aspects one is
operating revenue second is other
operating revenue and then would be
other income
so remember the difference is these two
are operating in nature the other income
is non-operating in nature now you may
ask this question or you may actually
face this query what exactly is other
operating income and what you know what
was the figure now let me just quickly
you know toggle back to the income
statement which we saw and we will take
a look at the other income figure i had
written it down but because i had to
clear the screen let me just quickly
toggle it back so 105 page number was
income statement so you see this other
income footnote of 25
which is of 410 figures foreign let's
just quickly browse back to that
footnote 25 once again present on page
number 121.
now when you open this 121 you will see
on the right hand side let me just
scroll right you will see note number 25
other income and this other income just
observe the nature of line items
so interest income
why is interest income considered other
income now a lot of businesses may have
excess cash at their hands and they may
be parking their money with liquid
mutual funds or some other schemes or
investment opportunities where they feel
however since it's not really a banking
firm or nbfc operating in a banking
sector you know the income which they
are generating is technically a
non-cooperating income hence it's often
clubbed under other income which is
termed as other non-operating income as
well so as you can see bank deposits
current investments and others are
basically these are interest income
which the business may have generated
more or there could also be dividend
income because let's say if you have
invested in shares of other companies
and you actually receive dividends that
is also non-operating in nature unless
you are let's say a holding company like
berkshire hathaway then perhaps
investing makes sense that would be your
core operations but in case of hul this
becomes a non-core operating activity
hence dividend income is a non-core
operating or a non-operating income
moreover there are other non-operating
incomes as well here which is fair value
gain on investments now you may not
understand this as of now but we will be
covering this line item in our next
video series so stay tuned for that or
you will also see sale of investments
remember these are investments and not
you know technically speaking scrap
sales so which is why you know
investments are considered non-operating
in nature now let me just quickly cover
why scrap sales are actually considered
operating in nature a business often
tends to recycle their assets you know a
new asset is coming and every time you
sell the old assets it's part of the
core operations only because you tend to
recycle your assets for the operating
activities which is why scrap sales are
often considered operating income now
you may think this is is this usually
the presentation for all
businesses you know is this how actually
all businesses
see the presentation to be so let me
just quickly browse back to 105 which
was income statement so this was a
presentation for most of the businesses
however the presentation can vary across
business to business so let's say if i
open icici annual report income
statement which you have in front of
your screen by the way you will see
the presentation of income statement has
changed so depending on industry to
industry the presentation may change so
interest income as you can see this is a
banking industry so
your precise core activities are lending
so the interest which you generate are
operating income
in nature so which is why interest
earned is basically revenue from
operations so what you see here is you
know connecting how business
works and the figures are accordingly
tied back to them so this is precisely
in terms of understanding how the
presentation of income statement is done
there are a couple more points here let
me just quickly sum it up now in terms
of um you know non-operating items often
you may see sorry in terms of
non-operating item you may often see uh
line items like uh
you know
interest income dividend income
something which we have seen in terms of
operating income sorry you may see a
line item called claims received now
often businesses tend to ensure their
ongoing operations so if something goes
wrong they may receive that claim back
which is why it's actually known as
operating income because it's an ongoing
activity for the business as part of the
core operations um
in terms of uh financial statements
please be very careful in what line
items you see in operating income and
non-operating income so the presentation
which you see here an analyst should go
and verify in footnotes
whether those line items are generally
operational in nature and not precisely
brings us to the point should we
consider
what line items the business has
mentioned to be directly operating in
nature no and why is that we'll take a
couple of case studies in the next video
so stay tuned if you like this video
please do subscribe moreover comment in
case if you have any questions you can
also visit the written content on our
forum in case if you're a avid reader
you will really enjoy it with the
screenshots which we have placed
precisely the same content which i
walked you through in this video for
people who also like more educative
content you can follow us on instagram
you will find more details reels and
entertaining content there around
current awareness valuation series
business analysis series also on youtube
thank you so much for your time i hope
you guys like this video do let us know
in case if you have any questions
bye
Ver Más Videos Relacionados
11 Financial Analyst Interview Questions - Concepts to Practical Implications | Conceptual Interview
Fundamental Analysis Lecture 1 P1 by CA Rachana Phadke Ranade
FA 49 - Financial Statement Analysis
Basics of Fundamental Analysis for Stock Market Beginners
The ACCOUNTING BASICS for BEGINNERS
Part 1: Financial Statements Analysis (Intro, Horizontal Analysis and Vertical Analysis)
5.0 / 5 (0 votes)