WINDOW DRESSING

What is WINDOW DRESSING

 Financial statements reflect revenues, expenses , assets,
liabilities and owner's funds.
 Corporate management have some discretion in influencing
the occurrence, measurement and reporting of these items
 They may use this latitude to manipulate the reported profits
so as give a rosy picture.
 In short, WD is a financial statement manipulation or window
dressing where frauds are camouflaged by overstating the
income or understating the expenses or understating
liabilities and overstating assets.
 EBDIT
 It is the abbreviation for Earning Before
Depreciation Interest Tax.
 It is type of window dressing .
 It indicates profit of company before
depreciation including tax .
 EBDIT = SALES – COST OF SALES – ALL
OPERATIONAL EXPENSES.
 EBIT
 It is the abbreviation Earning Before Interest and
Tax .
 It is the earning left for the share holder before
making the payment of interest and taxes .
 Interest is a fixed obligation and taxes are on the
profit after paying the interest.
 EBIT=EBDIT-DEPRECEATION .
 EBT
 It is the abbreviation of Earning Before Tax.
 EBT= EBIT- INTEREST
 EAT
 It is abbreviation of Earning After Tax

 EAT=EBT-TAXES
 EPS
 It stands for earning per share.
 EPS = EAT / number of shares
 DPS
 It stands for dividends per share.

 DPS = dividends paid/ no of shares

 Trading & profit & loss a/c of Nandini co. ltd as on 31-03-2008

Particular Amt Particular Amt

To opening stock 200,000.00 By sales (net) 800,000.00

To purchase (net) 500,000.00 By closing stock 500,000.00

To direct exp 100,000.00

To gross profit c/d 500,000.00

1,300,000.00 1,300,000.00

To operational exp 100,000.00 By gross profit b/d 500,000.00

To dep 80,000.00

To int on loan @ 10% 50,000.00

To net profit 270,000.00

500,000.00 500,000.00
 BALANCE SHEET OF COMPANY
LIABILITIES AMOUNT ASSETS AMOUNT
Share capital fixed asset 1200000
10000 equity share of 100 each
fully paid 100000

Reserves and surplus

general reserve 200000
share premising 200000Investments
200000Investments 200000

secured loans current assets( loans and advance) 800000

10% debitors 500000

current liabilities and provisions

creditors 300000

2200000 2200000
 EBDIT
Sales 800,000
(-) cost of sales 300,000
gross profit 500,000
(-) operational exp 100,000
EBDIT 400,000
(-) depreciation 80,000
EBIT 320,000
(-) interest 50,000
EBT 270,000
(-) tax 81,000
EAT 189,000
 EPS = EAT
no, of shares
189,000
10,000
= 18.90

DPA dividend paid

no, of shares
1,32,300
10,000
= 13.32
NOTE - assume 30% is retained as general reserve.
Thank you…