NISM Series XV : Research Analyst Certification Exam Notes
Page 43 Of 62
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Application of Funds: This is the right side of the Balance Sheet, where details of assets are given. A company can have fixed long term assets like plant and machinery or short term assets like investments in liquid funds or inventory.
Fixed Assets: These are assets which a company builds to produce goods and services. A manufacturing plant would need heavy machines, a software company would need computers, a real estate company would need land, etc. these are all assets from which the company would generate revenues
Current Assets: Current Assets are those which can be converted into cash within a year. Inventory, trade receivables, investments, short term loans and advances and cash are all examples of current assets. Current assets analysis is important to understand the working capital situation of the company. A large level of inventory or trade receivables may mean capital tied up and the company may be paying a high cost for debt
Operating cash flows - Cash flows from business operations (P/L items). Incoming cash is positive and outgoing cash is negative. The net profit of a company can be converted into the operating cash flow number by adding back non-cash expenditures such as depreciation and amortization and changes in account receivables and payables.
Investing cash flows - Cash flows on account of assets (B/S items). Buying assets is negative cash flow and selling assets is positive cash flow.
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