Value of Current Assets: 3797.

24 million rupees
Value of Current Liabilities: 1735.64 million rupees
Working Capital = Current Assets - Current LiabilitieComment upon the
business model of the company. What are the primary (core) and secondary
activities that the firm is engaged into?

Burger King generates revenues from three sources:

1. Revenues from franchises

2. Income from leased or subleased properties
3. Sales at company-operated restaurants.

Franchise revenues include royalties and franchise fees. Royalties are calculated as a
percentage of franchise restaurant revenues, which are driven by same-store sales.Burger
King reported $243 million in revenues from franchises. This total grew 8% year-over-
year from $225.6 million last year. Company-operated restaurant revenue declined to $18
million—down 65% from $53 million last year. This decline was due to a shift in
strategy. Burger King is moving towards a 100% franchise model.(2014 data. Have to
update it by 2021.)

Arpan’s note: Cannot find division of revenue from primary and secondary activities.

2. What do you think of the company’s management of inventories and receivables?

Comment upon the depreciation policy of the company.

CALCULATE RATIOS: Inventory turnover and receivable turnover , days of

inventory and receivable days

(Arpan) Burger King India's inventory has risen from 94.34 million rupees to 100.34
million rupees, with Food beverages and condiments as 79.14 million rupees and paper &
packaging material as 21.20 million rupees. For receivables, the increase was from 32.20
million rupees to 59.83 million rupees. For receivables also, none are due from directors
or other officers of the company either severally or jointly with any other person nor any
trade or other receivable are due from firms or private companies respectively in which
any director is a partner, a director or a member. We believe the company is managing
their inventories and receivables very well, considering they increased both of these
assets during the 2020-21 financial year.
Property, plant, and equipment (PPE) are valued at the cost of purchase, including
incidental costs connected to acquisition and installation, less cumulative depreciation
and accumulated impairment loss, if any, under the depreciation policy. When an item of
PPE is replaced, the balance sheet's carrying amount is de-recognised, and the cost of the
new item of PPE is recognised. Further, in case the replaced part was not being
depreciated separately, the cost of the replacement is used as an indication to determine
the cost of the replaced part at the time it was acquired.

Depreciation on Property, Plant and Equipment Depreciation is provided on a straight

line method on a pro-rata basis from the date of use. The rates of depreciation are based
on technical evaluation of the economic life of assets by the management, which are
given below and are equal to or greater than the corresponding rates prescribed in
Schedule II to the Companies Act, 2013:
3. What do you think of the size of the company’s cash and bank balances and
Investments?

As we look at the cash flow statement of Burger King India Ltd. we can observe that
there is a net inflow of cash flow from all the three activities being operating, investing,
and financing in the current year.
Compared to last year it shows good growth. The net cash flow for the current year is
208.12 million rupees whereas for last year it was (118.01) million rupees. Thus, it shows
a positive growth of 276.36%.
When we look at the bank balance other than cash and cash equivalents, there is a huge
increase. It grew from 239.90 million rupees to 1912.28 million rupees in the current
year.
When we look at the liquidity ratios such as
CASH RATIO: 2160.94/1735.64 = 1.24
CURRENT RATIO: 14282.10/ 1735.64 = 2.19
From these ratios we can analyse that the firm has enough liquidity to meet its short term
obligations. Firm had enough cash balances to do the same as well.

Now as we can see that there is an increase in short term investments of 1057.1 million
rupees. But the firm doesn't have enough cash for the same.
Thus, Burger King India ltd financed the money to invest in short term investments
through the sale of plant and issue of equity shares.

4. Evaluate the performance of the company’s segments (if any).

5. Explain how the information in the chairman’s statement and the directors’
report is useful in understanding the information in the financial statements.
Ans:
The chairman’s statement and the director's report shall be drawn out and shall be
included in the financial statements of the firm. The information provided in the
Statement on Revenue, balance sheet and source, and the application of the Statement
of Fund must be supported and developed in this report.
It includes:
● The nature and all key changes of the company and its subsidiaries.
● Information and quantities of all issued shares.
● Changes to the nature of the company's fixed assets and to the policy on the use
of fixed assets.
● Dividends that have been announced or paid for each share class
● If a third party or a firm in which a director has an interest is responsible for any
business, the nature of the director's involvement must be declared.
So it is useful in understanding the information in the financial statements.

6. Does the company provide information that would enable investors and analysts
to understand its long term direction?

7. How is the corporate governance report useful? What additional information

would be useful?
Ans:
Corporate governance reports provide stakeholders with the mechanisms that ensure
firms are dedicated to excellent corporate governance and are in compliance with all
applicable laws and regulations.
A corporate governance report is also called the annual corporate report. It includes the
following:
1. Governance Procedures and Compliance Disclosure Statements
A statement of disclosure of the company's governance procedures and compliance
should be included in the corporate report. The division of powers between the board
chair and the CEO is typically detailed in disclosure statements.
2. Board Structure
Best practices for good corporate governance indicate that boards seek a diverse range of
board members in terms of competencies, age, gender, profession, independence, and
diversity. There should also be a balance of executive and independent directors, with
independent directors making up the majority.
Addition documents useful along with corporate governance report would be:
8. What additional disclosures would you recommend to the company’s
management? What are the pros and cons of providing these disclosures?

9. How much cash did the company generate from or use in operating, investing and
financing activities?

(Arpan) The indirect method is used to report cash flows, in which profit/loss before tax
is adjusted for the impacts of non-cash transactions as well as any deferrals or accruals of
past or future cash receipts or payments. The cash flows from the Company's ordinary
revenue-generating, financing, and investment activities are separated.

Cash flow from operating activities was 287.41 million rupees, with Operating profit
before working capital changes as (43.27) million rupees in loss, Cash generated from
operations as 291.74 million rupees and Direct Taxes Paid(net of refund) as (4.53)
million rupees as outflow of cash.

Cash flow from Investing activities came up to be (3039.37) as cash outflow and Cash
flow from Financing activities came up to be 2,960.28 million rupees. Net change in cash
and cash equivalents was found by adding these three cash flows, which came up to be
208.12 million rupees. Adding the initial cash and cash equivalent at the beginning of the
year of 40.54 million rupees, we get the cash and cash equivalents as 248.66 million
rupees.

10. Verify that the sum of net cash from or used in operating, investing and
financing activities equal the change in cash and cash equivalents over the reporting
period.
Operating - There is a positive balance from operating activities . Cash Inflow from
operating activities is 287.21 million rupees.
Investing - There is a negative balance from investing activities. Cash Outflow from
investing activities is (3039.37).
Financing - There is a positive balance from financing activities. Cash Inflow from
financing activities is 2960.28 million rupees.
Net Cash Flow - The net cash flow is calculating by adding the cash flow from these
three activities:
Net cash flow = Cash flow from operating activities + Cash flow from investing activities
+ Cash flow from financing activities
Net cash flow = 287.21 + (3039.37) + 2960.28
= 208.12
Now when we add the cash balance in the beginning of the year in this amount we get
208.12 + 40.54 = 248.66
Which is equal to the cash balance at the end of the year.
Hence the sum of net cash from or used in operating, investing and financing activities
equal the change in cash and cash equivalents for the year ended March 31 2021

11. Depreciation is not a source of cash, but it is added to net profit. Why?
The process of attributing the cost of a fixed item to expense over time is known as
depreciation. The entry is a debit to the depreciation expense account and a credit to the
accumulated depreciation account when this charge is made. Depreciation is classified as
a noncash item because it does not affect the cash balance. Depreciation is not a source of
funds in this context.
Depreciation is not a source of funds as it doesn’t provide cash to the business. Based on
this concept, it can be said that by increasing the depreciation expenses, more cash and
funds would be generated. So, as a non-cash expense, depreciation acts as a means of
conserving the outflow of cash from the business, by reducing the payments for income
tax and dividends.

According to the American Institute of CPAs, the relationship between depreciation and
cash of cash flow statement is explained as -
“The expression cash flow, or any other similar term, in the literature of investments and
security analysis is usually the equivalent of ‘funds provided by operation’ in the typical
funds statement...”

According to the statement, The most common way to obtain funds is to earn money. (In
some circumstances, such as the amortisation of deferred income, a revenue item does
not provide funds, and adjustments are made for such items.) Depreciation and other
related expenses, unlike out-of-pocket expenses like labour and supplies, do not represent
cash outlays. As a result, the balance of available cash will usually be more than the
amount of net revenue. "A company's net income does not reflect the complete amount of
spending power generated by revenue-generating operations in a given time, after all
current and short-term operating obligations have been met."

The addition of depreciation (or other similar factors) to net income is simply a shortcut
for calculating the amount of dollars derived from operations. This adjustment explains
some of the events that have occurred, such as how a company was able to update its
factory or pay off a loan without borrowing further funds or issuing additional stock.

12. Does the amount of interest income equal interest received? Why or why not?

From the cash flow of operations, we find that Interest Income on fixed deposits was
39.79 million, Notional interest on interest free security deposit was 18.36 million and
from the Cash flow of Investments, we find that Interest received on Fixed deposit was
24.84 million. On the other hand, cash flow from financing directs us to the payment of
interest/processing fees on term loan, which was 134.26 million.

The Income comes out to be 82.99 million whereas the payment for interest was around
134.26 million. So the payment of interest is 51.27 million and interest received would be
zero because payment of interest is more than interest income.

13. Does the amount of dividend income equal dividend received? Why or why not?
During FY 2020-21, the Company reported total income of 5,229.32 Million, a decrease
of 38.25% from FY 2019-20 mainly on account of lesser sales from food and beverage
due to impact of COVID-19. The total expenditure excluding exceptional items was
`6,891.33 Million, a decrease of 25.02% from FY 2019-20. The Company’s gross margin
improved by 42 basis points during FY 2020-21 at 64.68% as compared to 64.26% in FY
2019-20. Since the Company did not make any profit during the year, no dividends were
recommended. The Company repaid the entire borrowings during FY 2020-21. So since
there was no dividend income, there was no dividend received. So the amount of
dividend income is equal to the dividend received.

14. Does the amount of interest expense equal interest paid? Why or why not?
Interest expense - The cost of borrowed funds is the interest expense. It is derived via
lending agreements such as lines of credit, loans, and bonds, and is recorded as a non-
operating expense on the income statement. The amount of interest paid is usually stated
as a percentage of the amount of principal owed.

Interest paid - Interest payable is the amount of interest paid to lenders and lease
providers on a company's debt and capital leases as of the balance sheet date.

The amount of interest expense and interest paid is not equal because there are a few
distinctions between these two. First, interest expense is an expense item that appears on
the income statement, whereas interest payable appears on the balance sheet as a liability
account. Second, interest expense is recorded as a negative, but interest payable is
recorded as a credit in the accounting records. Third, interest expense may or may not
have been paid to the lender, whereas interest payable is the amount owed to the lender
that has not yet been paid. Finally, interest expenditure is determined based on the
amount of debt outstanding over the reporting period, whereas interest payable is
computed based on the amount of interest that has not yet been paid, regardless of the
reporting period.

15. Try to reconcile the change in working capital items with the information on
these items in the balance sheet.

Working capital: Working capital, also known as net working capital (NWC), is
the difference between a company’s current assets and its current liabilities.
Working capital is a measure of a company's liquidity, operational efficiency, and
short-term financial health. If a company has substantial positive working capital,
then it should have the potential to invest and grow.
s
= 3797.24 - 1735.64
= 2061.6 million rupees

Working Capital of previous year = 799.22 - 1574.02

= (774.8)
% change in working capital = 2061.6 - (774.8) / (774.8)
= 366%

16. What do you learn from the difference between profit and cash flow from
operating activities?

Following are the differences between profit and cash flow from operating activities
- Profit is calculated by subtracting COGS, indirect expenses, and taxes from
Revenue generation for a financial year, whereas cash flow from operating
activities is calculated from the cash generated from operations of the business or
revenues earned less operating expenses.
- Many investors prefer cash flow from operating activities over profit as an
indicator of business’s health.
- While profit is really important for the company, investors and various parties, it
doesn’t necessarily provide every detail related to business. Some minute details
might not be covered inside profit. So, cash flow is a better criterion for a
company's financial health.

Sources -
Q11
Q14
Q16