Project report on Financial Statement Analysis and interpretation of A Company

PROJECT REPORT

SUMMER TRAINING

ON

A FINANCIAL STATEMENT ANALYSIS AND INTERPRETATION OF C.B ENTERPRISES

S.D. GUPTA & COMPANY

FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF

BACHELOR OF COMMERCEUMDER THE SUPERVISION OF UNDER THE SUPERVISION OF

Mrs. Unnati Jadaun CA Shobhit Kumar

SUBMITTED BY

…………

B.com (2015)

Enrolment No. 20130544

INSTITUTE OF BUSINESS MANAGEMENT,

MANGALAYATAN UNIVERSITY,

33rd KM STONE, ALIGARH MATHURA HIGHWAY,

BESWAN ALIGARH

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CERTIFICATE OF THE SUPERVISOR

This is to certify that the work entitled A Financial statement analysis & interpretation of C.B.

ENTERPRISES is a piece of SIP research work done by Ms. Pinkey Rana under my guidance

and supervision for the degree of B.COM (Hons.) from Mangalayatan University Aligarh. I

certify that the candidate has put 45 days in industry training at S.D.GUPTA & COMPANY.

To the best knowledge and belief the report:

(i) Embodies the work of the candidate himself.

(ii) Has duly been completed.

(iii) Fulfills the requirement of the ordinance relating to the B.COM (Hons.) degree of the

University and

(iv) Up to the standard both in respect of contents and language for being referred to the

examiner.

Signature of the Supervisor

Date

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ACKNOWLEDGEMENT

"I have taken efforts in this internship. However, it would not have been possible without the

kind support and help of many individuals and organizations. I would like to extend my sincere

thanks to all of them.

I am highly indebted to Mrs. Unnati Jadaun for their guidance and constant supervision as well

as for providing necessary information regarding the internship & also for their support in

completing the internship.

I would like to express my gratitude towards my parents & member of S.D.GUPTA &

COMPANY for their kind co-operation and encouragement which help me in completion of this

internship.

I would like to express my special gratitude and thanks to CA Shobhit Kumar for giving me such

attention and time.

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PREFACE

This Project Report has been prepared in partial fulfillment of the requirement for the subject:

the Summer Internship programme on the topic A Financial statement analysis and interpretation

of C.B ENTERPRISES in B.COM (HONS.) 4th Sem. in the academic year 2014-2015.

For preparing the Project Report, I have completed my Internship from S.D.GUPTA &

COMPANY under the CA Shobhit Kumar during the suggested duration for the period of 45

days to enhance my knowledge. The blend of learning and knowledge acquired during my Summer

Internship at the company is presented in this Project Report.

The rationale behind doing Summer Internship and preparing the project report is to study A Financial Statement

Analysis and Interpretation, what is company, what is Financial statement, why Analysis of statement is necessary

for a company, ratio analysis and how does it help to get liquidity position liquidity position and how does it

helpful of Investors for taking investing decision and Use of tally for maintain company account.

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ABSTRACT

Financial statements are formal record of the financial activities of a business, person or other

entity and provide an overview of a business or person’s financial condition in both short and

long term. They give an accurate picture of a company’s condition and operating results in a

condensed form. Financial statements are used as a management tool primarily by company

executive and investor’s in assessing the overall position and operating results of the company.

Analysis and Interpretation of financial statements help in determining the liquidity position,

long term solvency, financial viability and profitability of a firm. Ratio analysis shows whether

the company is improving or deteriorating in past years. Moreover, comparison of different

aspects of all the firms can be done effectively with this. It helps the clients to decide in which

firm the risk is less or in which one they should invest so that maximum benefit can be earned.

Industries are capital intensive; hence a lot of money is invested in it. So before investing in

companies one has to carefully study its financial condition and worthiness. An attempt has been

carried out in this project to analyze and interpret the financial statements of a company.

OBJACTIVE:

To understand, analyze and interpret the basic concepts of financial statements of

different mining companies.

Interpretation of financial ratios and their significance.

Use of Tally 9.0 package for the analysis and interpretation of financial statements of

mining companies.

This project mainly focuses in detail the basic types of financial statements of different

companies and calculation of financial ratios. Ratio analysis of C.B.ENTERPRISES was done.

Tally 9.0 was used for preparation of balance sheet, profit & loss statements and estimation of

few financial ratios of selected companies. Profit & Loss Statements of companies were not

calculated as Tally 9.0 has limitations in processing the data that was available. However, only

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three ratios viz. current ratio, quick ratio and debt-equity ratio were calculated. An advanced

version can be developed for calculation of profit & loss statements and other financial ratios.

From ratio analysis of Balance Sheet and P & L Statement of C.B.ENTERPRISES of 2013-15 it

was concluded that liquidity position of the company is good. Current ratio, debt-equity ratio,

quick ratio, net profit margin, operating profit margin, gross profit margin, return on assets,

return on investments and return on capital employed were found to be unacceptable.

In this project, comparison of different ratios viz. current ratio, debt-equity ratio, net profit

margin and return on investment of all the above e companies has been done for the period 2013-

15.It was observed that current ratio of C.B.ENTERPRISES was always more than 1 from 2013-

15which indicates that liquidity position of the company was good.

Debt-Equity ratio of C.B.ENTERPRISE increased in 2013-15 which the debts have been cleared.

Return on Investment of C.B.ENTERPRISES increased from 44.20% to 48.72% in Two years.

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CONTENTS

Sl. No. Title Page No.

Chapter -01 INTODUCTION

1.1 S.D.GUPTA & COMPANY 14

1.2 A Financial Statement Analysis and Interpretation 14

1.3 Objectives 15

Chapter-02 FINANCIAL STATEMENTS 16

2.1 Balance Sheet 17

2.1.1 Format of Balance Sheet 18

2.1.2 Contents of Balance Sheet 20

2.2 Profit and loss statements 25

2.2.1 Format of Profit and Loss Statement 26

2.2.2 Contents of Profit and Loss Statement 27

2.3 FINANCIAL RATIOS

2.3.1 Objectives 29

2.3.2 Financial Ratios And Their Interpretation 30

Chapter-03 FINANCIAL RATIO ANALYSIS: CASE STUDY

3.1 Ratio Analysis of C.B ENTERPRISES

3.1.1 Balance sheet of C.B.ENTERPRISES for 2014 39

3.1.2 Balance sheet of C.B.ENTERPRISES for 2015 40

3.1.3 Profit & Loss Statement for 2014 42

3.1.4 Profit & Loss Statement for 2015 44

3.1.5 Ratio Analysis for 2014 46

3.1.6 Ratio Analysis for 2015 50

3.1.7 Summary for Balance sheet and profit & loss statement 53

3.2 RATIO ANALYSIS USING TALLY 9.0 54

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3.2.1 Balance Sheet and Ratio Analysis for 2014 55

3.2.2 Balance Sheet and Ratio Analysis for 2015 56

Chapter-04 VARIATION OF FINACIAL RATIOS

S.B ENTERPRISES 57

Chapter-05 COMPRATIVE STATEMENT

5.1 Income Statement 61

5.2 Balance Sheet 62

FINDINGS 63

CONCLUSION 64

RECOMMENDATIONS 66

LIMITATIONS 68

BIBLIOGRAPHY 69

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LIST OF TABLES

Sl. No. Title Page No.

Table2.1 Balance Sheet Statement 18

Table2.2 Profit & Loss Statement 26

Table2.3 Different Financial Ratio 30

Table3.1 Balance Sheet of C.B ENTERPRISES,2014 39

Table3.2 Balance Sheet of C.B ENTERPRISES,2015 40

Table3.2 Profit & Loss Statement of C.B ENTERPRISES ,2014 42

Table3.3 Profit & Loss Statement of C.B ENTERPRISES. 2015 44

Table3.4 Analysis of Financial Ratio for 14 46

Table3.5 Analysis of Financial Ratio for 15 50

Table3.7 Summary of Balance Sheet 53

Table3.8 Summary of Profit & Loss Statement 54

Table5.1 Comparative Income Statement 61

Table5.2 Comparative Balance Sheet 62

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LIST OF FIGURES

Fig.3.1 Balance Sheet,2014 55

Fig.3.2 Ratio Analysis of C.B.ENTERPRISES for 2014 55

Fig.3.3 Balance Sheet,2015 56

Fig.3.4 Ratio Analysis of C.B ENTERPRISES for 2015 56

Fig.4.1 Current Ratio 57

Fig.4.2 Working Capital Ratio 57

Fig.4.3 Quick Ratio 58

Fig.4.4 Debt- equity Ratio 58

Fig.4.5 Inventory Turnover Ratio 58

Fig.4.6 Return On Assets 59

Fig.4.7 Return on Investment 59

Fig.4.8 Gross Profit Ratio 59

Fig.4.9 Net Profit Ratio 60

Fig.4.10 Return On Working Capital 60

Fig.4.11 Operating Cost Ratio 60

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EXECUTIVE SUMMARY

Subject Matter: This Project report provides an analysis and interpretation of the year 2013-14

and 2014-15 profitability, liquidity and financial stability of C.B.ENTERPRISES.

Methods of Analysis: Methods of analysis include horizontal and vertical analyses as well as

ratios such as Debt, Current and Quick ratios. Other calculations include rates of return on

Shareholders’ Equity and Total Assets and earnings before interest & Tax to name a few. Many

other calculation of can be found in this project.

Findings: Results of data analyzed show that all ratios are below industry averages. In particular,

comparative performance is poor in the areas of profit margins, liquidity, credit control, and

inventory management.

Assets have decreasing due to investment is decreasing.

Liquidity Position is good.

Purchase has decreased by 37.58%

COGS has decreased by 46.17%

Sales have decreased by 29.47%

Gross Profit has decreased by 45.79%

Net profit has decreased by 33.22%

Conclusion: The report finds the prospects of the company in its current position are not

positive. The major areas of weakness require further investigation and remedial action by

management.

Recommendations: Recommendations discussed include:

Improving the average collection period for accounts receivable·

Improving/increasing inventory turnover·

Reducing prepayments and perhaps increasing inventory levels.

Increase in purchase and Production activity.

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Limitations of the report: three problems involved in such report are:

a) That firms use different accounting principles and methods.

b) That it is often difficult to define what industry and firm is really a part of and

c) That accounting principles varies among countries

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CHAPTER- 01

INTRODUCTION

1.1S.D.GUPTA & COMPANY: S.D. GUPTA & COMPANY was formed on May 2,

2015 in Greater Noida by 2 directors CA Shobhit Kumar and CA Deepali Gupta. It is

registered under the Act, CA Regulation Act. 1949 The Head Office is in GR. Noida and has

its branch in Mumbai also. They become a CA in Jan 19, 2013. CA Shobhit Kumar and CA

Deepali Gupta open their offices respective names- SHOBHIT KUMAR & ASSOCIATE in

Jun 7, 2013 and DEEPALI GUPTA & COMPANIES in Jun 25, 2013 under the Act, CA

Regulation Act 1949. After that, an agreement was signed between both of them and they

Opened S.D GUPTA & COMPANY on May2, 2015 under the regulation act,

1.2 A FINANCIAL STAMENT ANALYSIS & INTERPRETATION:

Financial statements are records that provide an indication of the organization’s financial status.

It quantitatively describes the financial health of the company. It helps in the evaluation of

company’s prospects and risks for the purpose of making business decisions. The objective of

financial statements is to provide information about the financial position, performance and

changes in financial position of an enterprise that is useful to a wide range of users in making

economic decisions. Financial statements should be understandable, relevant, reliable and

comparable. They give an accurate picture of a company’s condition and operating results in a

condensed form. Reported assets, liabilities and equity are directly related to an organization's

financial position whereas reported income and expenses are directly related to an organization's

financial performance. Analysis and interpretation of financial statements helps in determining

the liquidity position, long term solvency, financial viability, profitability and soundness of a

firm. There are four basic types of financial statements: balance sheet, income statements, cash

flow statements, and statements of retained earnings.

The analysis of financial statement is a process of evaluating the relationship between

component parts of financial statement to obtain a better understanding of firm financial position.

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Analysis is a process of critically examining the accounting information given in financial

statements. For the purpose of analysis, individual items are studied; their interrelationship with

other related figures is established.

Thus analysis of financial statement refer to treatment of information contain in financial

statement in a way so as to afford a full diagnosis of the profitably and financial position of the

firm concern. An attempt has been carried out in this project to analyze and interpret the

financial statements of C.B ENTERPRISES.

1.3 OBJECTIVE

To understand, analyze and interpret the basic concepts of financial statements of a

company.

Interpretation of financial ratios and their significance.

Use of Tally 9.0 package for the analysis and interpretation of financial statements of C.B

ENTERPRISES.

To know about Liquidity Position

To Know about Long- Term Solvency

To Know about Operating Efficiency

To know about Over-All Profitability

To Know About Inter- firm Comparison

This project mainly focuses in detail the basic types of financial statements of C.B

ENTERPRISES and calculation of financial ratios. Ratio analysis of C.B ENTRPRISES was

done.

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CHAPTER -02

FINANCIAL STATEMENTS

Financial statements (or financial reports) are formal records of the financial activities of a

business, person, or other entity. Financial statements provide an overview of a business or

person's financial condition in both short and long term. All the relevant financial information of

a business enterprise, presented in a structured manner and in a form easy to understand is called

the financial statements.

The analysis of financial statement is a process of evaluating the relationship between

component parts of financial statement to obtain a better understanding of firm financial

position.

A complete set of financial statement comprises:

1) A statement of financial position as at the end of the period:

2) A statement of comprehensive income for the period;

3) A statement of changes in equity for the period:

4) A statement of cash flow for the period.

5) Notes of Account comprising a summary of significant accounting policies and other

explanatory information.

There are four basic financial statements:

1. Balance sheet: It is also referred to as statement of financial position or condition,

reports on a company's assets, liabilities, and ownership equity as of a given

point in time. The Balance Sheet shows the health of a business from day one to the date

on the balance sheet.

2. Income statement: It is also referred to as Profit and Loss statement (or "P&L"), reports

on a company's income, expenses, and profits over a period of time. Profit & Loss

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account provide information on the operation of the enterprise. These include sale and the

various expenses incurred during the processing state.

The income statement shows a presentation of the sales, the main expenses and the

resulting net income over the period. Net income is based on accounting principles which

gives guidance/rules on when to recognize revenues and expenses, whereas cash from

operating activities, obviously is cash based.

3. Statement of Retained Earnings: It explains the changes in a company's retained

earnings over the reporting period. The statement of retained earnings shows the

breakdown of retained earnings. Net income for the year is added to the beginning of year

balance, and dividends are subtracted. This results in the end of year balance for retained

earnings.

4. Cash Flow Statement: It reports on a company's cash flow activities, particularly its

operating, investing and financing activities. The statement of cash flows the ins and outs

of cash during the reporting period. The statement of cash flows takes aspects of the

income statement and balance sheet and kind of crams them together to show cash

sources and uses for the period.

2.1 BALANCE SHEET

In financial accounting, a balance sheet or statement of financial position is a summary of a

person's or organization's balances. A balance sheet is often described as a snapshot of a

company's financial condition. It summarizes a company's assets, liabilities and shareholders'

equity at a specific point in time. These three balance sheet segments give investors an idea as to

what the company owns and owes, as well as the amount invested by the shareholders. Of the

four basic financial statements, the balance sheet is the only statement which applies to a single

point in time.

A company balance sheet has three parts: assets, liabilities and ownership equity. The main

categories of assets are usually listed first and are followed by the liabilities. The difference

between the assets and the liabilities is known as equity or the net assets or the net worth or

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capital of the company. It's called a balance sheet because the two sides balance out. A typical

format of the balance sheet has been given in Table 2.1. It works on the following formula:

Assets = Liabilities + Shareholders' Equity

2.1.1 FORMAT OF BALANCE SHEET

Table 2.1: Balance Sheet of C.B.ENTERPRISES

LIABILITIES1.Share Capital

Equity Share Capital

2. Reserves & surpluses

Capital Reserve

General Reserve

Security Premium Account

Capital Redemption Reserve

3. Secured Loans

Debentures

Loan from Bank

Long Term Loan

Other Secured Loans

4.Unsecured Loans

Fixed Deposit

Short Term Loans

Other Loans

5.Current Liabilities & Provisions

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A) Current Liabilities

Bills Payable

Sundry Creditors

Bank Overdraft

Other Liabilities (if any)

B) Provisions

Provision for Tax

Proposed Dividend

Other Provision

TOTAL

ASSETS1.Fixed Assets

Goodwill

Land

Building

Leaseholds

Plant & Machinery

Furniture

Trade marks

Patents

Vehicle

2.Investment

3.Current Assets, Loan and Advances

A) Current Assets

Sundry Debtors

Bills Receivables

Closing Stock

Interest on Investment

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Cash at Bank

Cash on Hand

Securities Deposit

Fixed Deposit with Banks

B) Loans and Advances

Prepaid Expenses

Tax Paid in Advance

Advances Paid

4.Miscellaneous Expenditure

Preliminary Expenses

Revenue Expenditures

Discount Allowed

5. Profit & Loss account

TOTAL

2.1.2 CONTENTS OF BALANCE SHEET

(A) Assets

In business and accounting, assets are economic resources owned by business or company. Any

property or object of value that one possesses, usually considered as applicable to the payment of

one's debts is considered an asset. Simplistically stated, assets are things of value that can be

readily converted into cash.

The balance sheet of a firm records the monetary value of the assets owned by the firm. It is

money and other valuables belonging to an individual or business.

Types of Assets

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There is two major type of assets:

· Tangible assets

· Intangible assets

Tangible Assets

Tangible assets are those have a physical substance, such as equipment and real estate.

Intangible Assets

Intangible assets lack physical substance and usually are very hard to evaluate. Assets which do

not possess any material value.

They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc.

Types of Tangible Assets

1. Fixed Assets.

2. Current Assets.

1. Fixed Assets

This group includes land, buildings, machinery, vehicles, furniture, tools, and certain

wasting resources e.g., timberland and minerals.

It is also referred to as PPE (property, plant, and equipment), these are purchased for

continued and long-term use in earning profit in a business.

2. Current Assets

Current assets are cash and other assets expected to be converted to cash, sold, or

consumed either in a year or in the operating cycle. These assets are continually turned

over in the course of a business during normal business activity. There are 5 major

items included into current assets:

Cash and Cash Equivalents

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It is the most liquid asset, which includes currency, deposit accounts, and negotiable

instruments (e.g., money orders, cheque, bank drafts).

Short-term Investments

It includes securities bought and held for sale in the near future to generate income on

short term price differences (trading securities).

Receivables

It is usually reported as net of allowance for uncollectable accounts.

Inventory

The raw materials, work-in-process goods and completely finished goods that are

considered to be the portion of a business's assets that is ready or will be ready for sale.

Prepaid Expenses

These are expenses paid in cash and recorded as assets before they are used or consumed

(a common example is insurance). The phrase net current assets (also called working

capital) are often used and refer to the total of current assets less the total of current

liabilities.

I. Gross Block

Gross block is the sum total of all assets of the company valued at their cost of acquisition. This

is inclusive of the depreciation that is to be charged on each asset. Net block is the gross block

less accumulated depreciation on assets. Net block is actually what the asset are worth to the

company.

II. Capital Work in Progress

Work that has not been completed but has already incurred a capital investment from the

company. This is usually recorded as an asset on the balance sheet. Work in progress indicates

any good that is not considered to be a final product, but must still be accounted for because

funds have been invested toward its production.

III. Investments

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Shares and Securities, such as bonds, common stock, or long-term notes

Associate Companies

Fixed deposits with banks/finance companies

Investments in special funds (e.g., sinking funds or pension funds).

Investments in fixed assets not used in operations (e.g., land held for sale).

Remark: While fixed deposits with banks are considered as fixed assets, the investments in

associate concerns are treated as non-current assets.

IV. Loans and Advances include

House building advance

Car, scooter, computer etc. advance

Multipurpose advance

Transfer travelling allowance advance

Tour travelling allowance advance

DRS payment.

V. Reserves

Subsidy Received From The Govt.

Development Rebate reserve

Issue of Shares at Premium

General Reserves

(B) Liability

A liability is a debt assumed by a business entity as a result of its borrowing activities or other

fiscal obligations (such as funding pension plans for its employees). Liabilities are debts and

obligations of the business they represent creditors claim on business assets.

Types of Liabilities

Current Liabilities

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Current liabilities are short-term financial obligations that are paid off within one year or one

current operating cycle. These liabilities are reasonably expected to be liquidated within a year. It

includes:

Accrued expenses as wages, taxes, and interest payments not yet paid

Accounts payable

Short-term notes

Cash dividends and

Revenues collected in advance of actual delivery of goods or services.

Long-Term Liabilities

Liabilities that are not paid off within a year, or within a business's operating cycle, are known as

long-term or non-current liabilities. Such liabilities often involve large sums of money necessary

to undertake opening of a business, major expansion of a business, replace assets, ormake a

purchase of significant assets. These liabilities are reasonably expected not to be liquidated

within a year. It includes:

Notes payable- debt issued to a single investor.

Bonds payable – debt issued to general public or group of investors.

Mortgages payable.

Capital lease obligations – contract to pay rent for the use of plant, property or

equipments.

deferred income taxes payable, and

Pensions and other post-retirement benefits.

Contingent Liabilities

A third kind of liability accrued by companies is known as a contingent liability. The term refers

to instances in which a company reports that there is a possible liability for an event, transaction,

or incident that has already taken place; the company, however, does not yet know whether a

financial drain on its resources will result. It also is often uncertain of the size of the financial

obligation or the exact time that the obligation might have to be paid.

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Fixed Liability

The liability which is to be paid of at the time of dissolution of firm is called fixed liability.

Examples are Capital, Reserve and Surplus.

Secured Loans

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as

collateral for the loan, which then becomes a secured debt owed to the creditor who gives the

loan.

Unsecured Loans

An unsecured loan is a loan that is not backed by collateral. It is also known as signature loan

and personal loan. Unsecured loans are based solely upon the borrower's credit rating. An

unsecured loan is considered much cheaper and carries less risk to the borrower. However, when

an unsecured loan is granted, it does not necessarily have to be based on a credit score.

2.2 PROFIT & LOSS STATEMENT

Income statement, also called profit and loss statement (P&L) and Statement of Operations is

financial statement that summarizes the revenues, costs and expenses incurred during a specific

period of time - usually a fiscal quarter or year. These records provide information that shows the

ability of a company to generate profit by increasing revenue and reducing costs. The purpose of

the income statement is to show managers and investors whether the company made or lost

money during the period being reported. The important thing to remember about an income

statement is that it represents a period of time. This contrasts with the balance sheet, which

represents a single moment in time. A typical format of the Profit & Loss Statement has been

given in Table 2.2.

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2.2.1 FORMAT OF PROFIT & LOSS STATEMENT

Table 2.2: Profit & Loss Statement of C.B.ENTERPRISES

PARTICULARS Amount PARTICULARS Amount

Gross Profit(Transferred) Gross Profit(Transferred)

Office and Administration Exp: Interest received

Salaries Rent received

Rent Discount received

Postage & telegrams Dividend received

Office electric charges Bad debts recovered

Telephone charges Provision for discount on creditors

Printing and stationary Provision for discount on creditors

Selling and Distribution

Expenses:

Carriage outward

Advertisement

Salesmen's salaries

Commission

Insurance

Traveling expense

Bad debts

Packing expense

Financial and Other Expenses:

Depreciation

Repair

Audit fee

Interest paid

Commission paid

Bank charges

Legal charges

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Profit before Interest Net loss

Less- Net Interest

Profit before Tax

Less- Tax Payable

Profit after Tax

Less- Dividend

Retained Profit

2.2.2 CONTENTS OF PROFIT & LOSS STATEMENT

a. Revenue - Cash Inflows or other enhancements of assets of an entity during a period

from delivering or producing goods, rendering services, or other activities that constitute

the entity's ongoing major operations.

b. Expenses - Cash outflows or other using-up of assets or incurrence of liabilities during a

period from delivering or producing goods, rendering services, or carrying out other

activities that constitute the entity's ongoing major operations.

c. Turnover

The main source of income for a company is its turnover, primarily comprised of sales of

its products and services to third-party customers.

d. Sales

Sales are normally accounted for when goods or services are delivered and invoiced, and

accepted by the customer, even if payment is not received until some time later, even in a

subsequent trading period.

e. Cost of Sales (COS)

The sum of direct costs of goods sold plus any manufacturing expenses relating to the sales (or

turnover) is termed cost of sales, or production cost of sales, or cost of goods sold. These costs

include:

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Costs of raw materials stocks

Costs of inward-bound freight paid by the company

Packaging costs

Direct production salaries and wages

Production expenses, including depreciation of trading-related fixed assets.

(f) Other Operating Expenses

These are not directly related to the production process, but contributing to the activity of the

company, there are further costs that are termed ‘other operating expenses’. These comprises of

costs like:

Distribution costs and selling costs,

Administration costs, and

Research and development costs (unless they relate to specific projects and the costs may

be deferred to future periods).

(g) Other Operating Income

Other operating income includes all other revenues that have not been included in other parts of

the profit and loss account. It does not include sales of goods or services, reported turnover, or

any sort of interest receivable, reported within the net interest category.

(h) Gross Margin (or Gross Profit)

The difference between turnover, or sales, and COS is gross profit or gross margin. It needs to be

positive and large enough to at least cover all other expenses.

(i) Operating Profit (OP)

The operating profit is the net of all operating revenues and costs, regardless of the financial

structure of the company and whatever exceptional events occurred during the period that

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resulted in exceptional costs. The profit earned from a firm's normal core business operations. It

is also known as Earnings before Interest and Tax (EBIT).

Operating Profit = Turnover - COS - other Operating Expenses + Other Operating Income

(j) Profit before Tax (PBT)

A profitability measure that looks at a company's profits before the company has to pay

corporate income tax. This measure deducts all expenses from revenue including interest

expenses and operating expenses, but it leaves out the payment of tax.

(k) Profit after Tax (PAT)

PAT, or net profit, is the profit on ordinary activities after tax. The final charge that a company

has to suffer, provided it has made sufficient profits, is therefore corporate taxation.

PAT = PBT - Corporation Tax

(l) Retained Profit

The retained profit for the year is what is left on the profit and loss account after deducting

dividends for the year. The balance on the profit and loss account forms part of the capital (or

equity, or shareholders’ funds) of the company.

2.3 FINANCIAL RATIOS

2.3.1 OBJECTIVES OF CALCULATION OF RATIO ANALYSIS

The importance of ratio analysis lies in the fact that it presents data on a comparative basis and

enables the drawing of inferences regarding the performance of the firm. Ratio analysis helps in

concluding the following aspects:

To know about Liquidity Position:

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Ratio analysis helps in determining the liquidity position of the firm. A firm can be said to have

the ability to meet its current obligations when they become due. It is measured with the help of

liquidity ratios.

To Know about Long- Term Solvency:

Ratio analysis helps in assessing the long term financial viability of a firm. Long- term solvency

measured by leverage/capital structure and profitability ratios.

To Know about Operating Efficiency:

Ratio analysis determines the degree of efficiency of management and utilization of assets. It is

measured by the activity ratios.

To know about Over-All Profitability:

The management of the firm is concerned about the overall profitability of the firm which

ensures a reasonable return to its owners and optimum utilization of its assets. This is possible if

an integrated view is taken and all the ratios are considered together.

To Know About Inter- firm Comparison:

Ratio analysis helps in comparing the various aspects of one firm with the other.

2.3.2 FINANCIAL RATIOS AND THEIR INTERPRETATION

Table 2.3: Different Financial Ratios

Sl. No. CATEGORY TYPE OF RATIO ITNERPRETATION

1. Liquidity Ratio

Net Working Capital =

Current assets-current liabilities

It measures the

liquidity of a firm.

Current ratio =

It measures the short

term liquidity of a firm.

30 | P a g e

Current Assets

Current Liabilities

A firm with a higher

ratio has better

liquidity.

A ratio of 2:1 is

considered safe.

Acid test or Quick ratio =

Quick assets

Current Liabilities

It measures the

liquidity position of a

firm.

A ratio of 1:1 is

considered safe.

2. Turnover RatioInventory Turnover ratio =

Costs of goods sold

Average inventory

This ratio indicates how

fast inventory is sold.

A firm with a higher

ratio has better

liquidity.

Debtor Turnover ratio =

Net credit sales

Average debtors

This ratio measures

how fast debts are

collected.

A high ratio indicates

shorter time lag

between credit sales

and cash collection.

Creditor’s Turnover ratio =

Net credit purchases

Average Creditors

A high ratio shows

that accounts are to

be settled rapidly

Debt-Equity ratio = This ratio indicates the

relative proportions of

31 | P a g e

3.Capital

Structure Ratios

Long term debt

Shareholder’s Equity

debt and equity in

financing the assets of

a firm.

A ratio of 1:1 is

considered safe.

Debt to Total capital ratio =

Long term debt

Permanent Capital

Or

Total debt

Permanent capital + Current

liabilities

Or

Total Shareholder ’ s Equity

Total Assets

It indicates what

proportion of the

permanent capital of a

firm consists of long-

term debt.

A ratio 1:2 is

considered safe.

It measures the share of

the total assets financed

by outside funds.

A low ratio is desirable

for creditors.

It shows what portion

of the total assets is

financed by the owners’

capital.

A firm should neither

have a high ratio nor a

low ratio.

4. Coverage ratios

Interest Coverage =

Earnings before interest and tax

Interest

A ratio used to

determine how easily a

company can pay on

32 | P a g e

outstanding debt.

A ratio of more than 1.5

I satisfactory

Dividend Coverage =

Earnings after tax

Preference Dividend

It measures the ability

of firm to pay dividend

on preference shares.

A high ratio is better

for creditors.

Total Coverage ratio =

Earning before interests and tax

Total Fixed charges

It shows the overall

ability of the firm to

fulfill the liabilities.

A high ratio indicates

better ability.

5.Profitability

ratios

Gross Profit margin =

Gross profit * 100

Sales

It measures the profit in

relation to sales.



low ratio.

Net Profit margin =

Net Profit after tax before interest

Sales

Or

Net Profit after Tax and Interest

Sales

Or

Net profit after Tax and Interest

Sales

It measures the net

profit of a firm with

respect to sale.



low ratio.

Operating ratio =

Operating ratio shows

the operational

33 | P a g e

6.Expenses ratios Cost of Goods sold + other

expenses

efficiency of the

business.

Lower operating ratio

shows higher operating

profit and vice versa .

sales

Cost of Goods sold ratio =

Cost of Goods sold

Sales

It measures the cost of

goods sold per sale

Specific Expenses ratio =

Specific Expenses

Sales

It measures the specific

expenses per sale.

7.Return on

Investments

Return on Assets (ROA) =

Net Profit after Taxes * 100

Total Assets

Or

(Net Profit after Taxes +interest)

*100

It measures the

profitability of the total

funds per investment of

a firm.

Total Assets

Or

(Net profit after Taxes + Interest)

* 100

Tangible Assets

Or

(Net Profit after Taxes + Interest)

* 100

34 | P a g e

Total Assets

Or


* 100

Fixed Asset

Return on Capital Employed

(ROCE) =

(Net Profit after Taxes) * 100

total capital employed

Or


*100

It measures profitability

of the firm with respect

to the total capital

employed.

The higher the ratio, the

more efficient use of

capital employed.

Total Capital Employed

Or


* 100

Total Capital Employed -

intangible assets

Return on Total Shareholders’

Equity =

Net Profit after Taxes * 100

Total shareholders’ equity

It reveals how

profitably the owner’s

fund has been utilized

by the firm.

Return on Ordinary

shareholders equity =

Net profit after taxes and Pref.

dividend *100

It determines whether

the firm has earned

satisfactory return for

its equity holders or

not.

35 | P a g e

Ordinary Shareholders’ Equity

8.Shareholder’s

ratios

Earnings per Share (EPS) =

Net Profit of Equity holders

It measures the profit

available to the equity

holders on a per share

basis.Number of Ordinary Shares

Dividend per Share (DPS) =

Net profits after interest and

preference dividend paid to

ordinary shareholders

Number of ordinary shares

outstanding

It is the net distributed

profit belonging to the

shareholders divided by

the number of ordinary

shares

Dividend Payout ratio (D/P) =

Total Dividend To Equity holders

Total net profit of equity holders

Or

Dividend per Ordinary

Share Earnings per Share

It shows what

percentage share of the

net profit after taxes

and preference dividend

is paid to the equity

holders.

A high D/P ratio is

preferred from

investor’s point of

view.

Earnings per Yield =

Earnings per Share

Market Value per Share

It shows the percentage

of each rupee invested

in the stock that was

earned by the company.

It shows how much a

company pays out in

36 | P a g e

Dividend Yield =

Dividend per share

Market Value per share

dividends each year

relative to its share

price.

Price- Earnings ratio (P/E) =

Market value per Share

Earnings per Share

It reflects the price

currently paid by the

market for each rupee

of EPS.

Higher the ratio better it

is for owners

Earning Power =

Net Profit after taxes

Total Assets

It measures the overall

profitability and

operational efficiency

of a firm

9.Activity Ratios Inventory turnover =

Sales

Closing Inventory

It measures how

quickly inventory is

sold.



low ratio.

Raw Material turnover =

Cost of Raw Material used

Average Raw Material Inventory

Work in Progress turnover =

Cost of Goods manufactured

Average Work in process

inventory

Debtors turnover =

It shows how quickly

current assets that are

37 | P a g e

Cost of Goods manufactured

Average Work in Process

Inventory

receivables or debtors

are converted to cash.



low ratio.

10.Assets

Turnover

Ratios

Total Assets turnover =

Cost of Goods Sold

Total Assets

It measures the

efficiency of a firm in

managing and utilizing

its assets.

Higher the ratio, more

efficient is the firm in

utilizing its assets.

Fixed Assets turnover =

Cost of Goods Sold

Fixed Assets

Capital turnover =

Cost of Goods Sold

Capital Employed

Current Assets turnover =

Cost of Goods Sold

Current Assets

CHAPTER- 03

FINANCIAL RATIO ANALYSIS

The ratio analysis of C.B ENTERPRISES from 2012-14 has been carried out below.

3.1 RATIO ANALYSIS

38 | P a g e

3.1.1 Balance Sheet of C.B ENTERPRISES for 2014

Table 3.1: Balance Sheet of C.B.ENTERPRISES as at 31st Mar -2014

39 | P a g e

40 | P a g e

PARTICULARS Amount

Total

Amount

Source of Funds:

Capital Account 634,506.05

Sunil's Capital 875860.05

Less- Credit card HDFC 50,489.00

Donation 2,502.00

Drawings 109053

LIC 54,860.00

School fees 24,450.00

Loans (Liability) 1851845.9

Bank od A/C 859142.95

Secured Loans 992702.95

Unsecured Loans

Current Liabilities 1,638,085.9

Provision 44,553.00

Sundry Creditors 1570805

Unregistered Tax Payable 65,940.00

less- Duties & Taxes 43,212.15

Profit & Loss A/C 0

Opening balance Current Period 502558.24

less- Transferred 502558.24

Total 4,124,437.8

Application of Funds:

Fixed Assets 1579196.65Car 593850Mobile 59,773.74

Motor Bike 31,181.65Plant & Machinery 687189.75Tata Ace 207201.51Current Assets 2545241.15Closing Stock 1035485Loans & Advances (Assets) 53,073.00Sundry Debtors 1425712.6Cash in Hand 24869.00Bank Accounts 6101.48Total 4124437.8

3.1.2 Balance Sheet of C.B. ENTERPRISES for 2015

Table 3.2: Balance Sheet of C.B.ENTERPRISE as at 31st Mar -2015

PARTICULARS Amount

Total

Amount

Source of Funds:

Capital Account 353,181.05

Sunil's Capital 595406.05

Less- Credit card HDFC 12,500.00

Star Health Insurance 9,343.00

Drawings 181362

School fees 39,020.00

Loans (Liability) 1908532.9

Bank od A/C 920609.95

Secured Loans 837922.95

Unsecured Loans 150000

Current Liabilities 2,493,868.57

Provision 76,703.00

Sundry Creditors 2385328.5

Unregistered Tax Payable 65,940.00

less- Duties & Taxes 34,102.93

Profit & Loss A/C 3355599.45

Opening balance Current Period 3355599.45

Total 50,91,181.97

Application of Funds:

Fixed Assets 1,352,287.87

Car 504772.5

Mobile 53,842.29

26,504.40

Motor Bike

Plant & Machinery 584111.4

LCD Monitor 6936

41 | P a g e

Tata Ace 176121.28

Current Assets 3738894.1

Closing Stock 1235091

Loans & Advances (Assets) 35,642.00

Sundry Debtors 917360.62

Cash in Hand 1544699.00

Bank Accounts 6101.48

Total 5091181.97

3.1.3 Profit &loss

Table 3.3: Profit & Loss Statement as per the year

Ending of 31st Mar, 2014

Particulars Amount Amount

Trading Account:

Sales Account 5104025.95

Sales Ag. E Form 450887

Sales Ag. H Form 420469.5

Sales central Tax 5% 1701502

Sales Tax Invoice 5% 2531167.45

Direct Incomes 1566780

Work Contract Received 1566780

6670805.95

Cost of Sales 4358261.6

Opening Stock 343079

Add: Purchase Accounts 4068867.2

Less: Closing Stock 1035485

3376461.2

Direct Expenses 981800.4

Cartage Inward 342534

Job Work Paid

Power& Fuel Exp.

302586.4

336680

42 | P a g e

Gross Profit 2312544.35

Income Statement:

Indirect Incomes 644.32

Cartage Outward

Interest 644.32

2313188.67

Indirect Exp. 1810630.43

Accounting Charges 15000

Advertising Exp. 16120

Audit Fees 10000

Bank Charges 12556.54

Business Promotion Exp. 15840

Commission Exp. 9680

Convince Exp. 71842

Depreciation 239417.59

Factory Rent 275000

Festival Exp. 77425

Interest on Tata Ace Loan 42290.94

Interest On C.C limit 85655.96

Interest On Term Loan 44465.7

Insurance 14832

Legal & Professional Charges 23000

Postage& Currier Exp. 1872

Printing & Stationary Exp. 12134

Repair & Maintenance Of Building 54670

Repair & Maintenance Exp. 43700.29

Salaries 412633

Short & Excess 0.66

Staff Welfare 56450

Telephone Exp. 41488.75

Traveling Exp. 65670

43 | P a g e

Vehicle Running & Maintenance 168886

Nett Profit: 502558.24

3.1.4 Profit & Loss Statement for 2015

Table 3.4: Profit & Loss Statement as per the year

Ending of 31st Mar, 2015

Particulars Amount Amount

Trading Account:

Sales Account 3599918

Sales Ag. D Form 139550

Sales Ag. E Form 667113

Sales Tax Invoice 5% 2793255

Direct Incomes

3599918

Cost of Sales 2346186.55

Opening Stock 1035485

Add: Purchase Accounts 2539552.55

Less: Closing Stock 1235091

2339946.55

Direct Expenses 6240

Cartage Inward 2210

Job Work Paid 4030

Gross Profit 1253731.45

Income Statement:

Indirect Incomes

1253731.45

Indirect Exp. 918132.03

Accounting Charges 13750

44 | P a g e

Advertising Exp. 9752

Audit Fees 12500

Bank Charges 10752

Business Promotion Exp. 7524

Cartage Outward (-)2187.75

Commission Exp. 6582

Company Insurance 14621

Convince Exp. 9850

Depreciation 238638.78

Donation (Charity) 1401

Factory Rent 120000

Festival Exp. 12580

Interest on Tata Ace Loan

Interest Aon VAT

20992

154

Interest On C.C limit 115379

Legal & Professional Charges 9852

Office Exp. 1880

Printing & Stationary Exp. 9782

Salaries 245864

Short & Excess (-)5

Staff Welfare 2356

Telephone Exp. 15710

Toll Tax (Octory) 180

Vehicle Running & Maintenance 40145

Weighting & Measurement 80

Nett Profit: 335599.42

45 | P a g e

3.1.5 Ratio analysis for 2014

Table 3.5: Analysis of Financial Ratios for 2014

Sl.

No.

RATIOS PARTICULARS VALUE REMARKS

1.

Working Capital =

Current assets-Current liabilities

Current Assets =

2545241.15

Current Liabilities =

1638085.90

907155.25 Liquidity position

is good.

2.

Current Ratio =

Current Assets

Current Liabilities

Current Assets =

2545241.15


1638085.90

1.55:1 It is safe.

3.


Liquid Assets

Liquid Liabilities

liquid Assets =

1509756.15


1638085.90

0.92:1 It is not good.

4.

Debt-Equity Ratio =

Long term debt

Capital A/C+ Net Profit

Long term debt

=1851845.90

Capital A/C =

634506.05

Net Profit= 502558.24

1.63:1 It is safe

5. Return On Investment Ratio =

Net Profit*100

Capital a/c+ Net Profit

Net Profit

502558.24

Capital A/C

634506.05

44.20%

It is good

6.

Gross Profit Ratio =

Gross Profit=

2312544.35

45.31% It is not satisfactory

46 | P a g e

Gross Profit * 100

Sales

Sales=

5104025.95

7.

Net Profit Ratio =

Net Profit * 100

Sales

Net Profit

= 502558.24

Sales=

5104025.95


8.

Return on Assets Ratio =

Net Income*100

Fix. Assets+Net WorkingCapital

Net Income

502528.24

Fix. Assets=

1579196.65

Net Working Capital=

907155.25

20.21% It is not good

9.

Return on working capital =

Net Profit 100∗Working Capital

Net profit=

502558.24

Net Working capital=

907155.25

55.40% It is good

10.

Cost of Goods Sold Ratio =

Cost of Goods Sold*100

Sales

Cost of goods sold=

4358261.6

Sales=

5104025.95

85.38 It is not satisfactory

11.

Operating Cost Ratio =

COGS+ Operating Exp.*100

Net Sales

COGS=

4358261.6

Operating Exp.=

1810630.43

Sales=

5104025.95

120.86 It is so high

12.

Fixed Assets turnover =

Sales a/c

Fixed Assets

Sales a/c=

5104025.95

Fixed Assets=

1579196.65

3.23

It is not safe

47 | P a g e

13.

Working Capital Turnover=

Sales a/c

working Capital

Sales=

5104025.95

Working Capital=

907155.25

5.63

It is safe

14.

Inventory Turnover=

Sales a/c

Closing stock

Sales=

5104025.95

Closing Stock=

1035485

4.93

It is not good

Liquid Assets = Total Current Assets – Inventory – Prepaid Exp.

= 2545241.15- 1035485

=1509756.15

Liquid Liabilities = Current Liabilities – Bank Overdraft

= 1638085.90

Long Term Debt = Secured Loans + Other Long Term liabilities

= 992702.95

Shareholder Funds = Equity Share+ Pre. Share+ Profit+ General Reserve

= 875860.05+ 502558.24

= 1318418.29

Earnings before Interest & Tax (EBIT) OR Operating Profit =

Net Profit + Tax + Interest

48 | P a g e

= 502558.24+ 644.32

= 503202.56

Operating Expenses = Financial Exp. + Administration Exp.+ Financial Exp.+ Sales

Operating & Distribution Exp.

= 981800.40

Operating Cost= COGS – OPERATING EXP.

=4358261.6 – 981800.40

= 3376461.2

Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock =

343079+ 4068867.2+ 981800.4- 1035485 = 4358261.6

3.1.6 Ratio analysis for 2015

Table 3.6: Analysis of Financial Ratios for 2015s

49 | P a g e

Sl.

No.

RATIOS PARTICULARS VALUE REMARKS

1.

Working Capital =

Current assets-Current liabilities

Current Assets =

3738894.1


2493868.57

1245025.53 Liquidity position

is good

2.

Current Ratio =

Current Assets

Current Liabilities

Current Assets =

3738894.1


2493868.57

1.50:1 It is safe

3.


Liquid Assets

Liquid Liabilities

liquid Assets =

2503803.1


2493868.57

1.00:1 It is good

4.Debt-Equity Ratio =

Long term debt

Capital A/C+ Net Profit

Long term debt

= 1908532.90

Capital A/C =

353181.05

Net Profit=

335599.45

2.77:1 It is safe

5.

Return On Investment =

net Profit*100

Capital a/c + Net Profit

Net Profit=

335599.45

Capital a/c=

353181.05

48.72%

It is good

6.

Gross Profit Ratio =

Gross Profit * 100

Sales

Gross Profit=

1253731.45

Sales=

3599918


50 | P a g e

7.

Net Profit Ratio =

Net Profit * 100

Sales

Net Profit

= 335599.42

Sales=

3599918


8.

Return on Assets =

Net Income*100

Fix. Assets Net + Working

Capital

Net Income=

335599.45

Fix. Assets=

1352287.87

Working Capital=

1245025.53

12.92%

It is not good

9.

Return on working capital =

Net Profit 100∗ Working Capital

Net profit=

335599.45

Net Working capital=

1245025.53

26.96% It is not good

10.

Cost of Goods Sold Ratio =

Cost of Goods Sold*100

Sales

Cost of goods sold=

2346186.55

Sales=

3599918

65.17 It is not satisfactory

11.Operating Cost Ratio =

COGS + Operating Exp.*100

Net Sales

COGS=

2346186.55

Operating Exp.=

918132.03

Sales=

3599918

90.67% It is so high

12. Fixed Assets turnover =

Sales a/c

Fixed Assets

Sales a/c=

3599918

Fixed Assets=

1352287.87

2.66

It is not safe

13.

Working Capital Turnover=

Sales a/c

Sales=

3599918

Working Capital=

2.89

It is safe

51 | P a g e

working Capital 1245025.53

14.

Inventory Turnover=

Sales a/c

Closing stock

Sales=

3599918

Closing Stock=

1235091

2.91

It is not good

Liquid Assets = Total Current Assets – Inventory – Prepaid Exp.

= 3738894.1- 1235091

= 2503803.1

Liquid Liabilities = Current Liabilities – Bank Overdraft

= 2493868.57

Long Term Debt = Secured Loans + Other Long Term liabilities

= 837922.95

Shareholder Funds = Equity Share+ Pre. Share+ Profit+ General Reserve

= 595406.05+ 3355599.45

= 629005.5

Earnings before Interest & Tax (EBIT) OR Operating Profit =

Net Profit + Tax + Interest

= 3355599.45

Operating Expenses = Financial Exp. + Administration Exp.+ Financial Exp.+ Sales

52 | P a g e

Operating & Distribution Exp.

= 918132.03

Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock =

= 1035485+ 2539552.55+ 6240- 1235091

= 2346186.55

3.1.7 Summary for Balance Sheet and Profit & Loss Statement

Table 3.7: Summary of Balance Sheet

PARTICULARS 2014 2015 Remarks

Current Assets 2545241.15 3738894.10 Short term liquidity available is very

less.

Fixed Assets 1579196.65 1352287.87 Fixed Assets have decreased due to

decrease in investment.

Current Liabilities 1638085.85 2493868.57 Substantial increase in liabilities.

Liquidity position is not good.

Long Term Liabilities 992702.95 837922.95 Debts have decreased because of less

investment

Table 3.8: Summary of Profit & Loss Statement

PARTICULARS 2014 2015 Remarks

53 | P a g e

Purchase 4068867.20 2539552.55 Purchase has decreased by 37.58%

Cost of Goods Sold 4358261.60 2346186.55 COGS has decreased by 46.17%

Sale 5104025.9 3599918 Sales have decreased by 29.47%

Gross Profit 2312544.35 1253731.45 Gross Profit has decreased by 45.79%

Net Profit 502558.24 335599.45 Net profit has decreased by 33.22%

3.2 RATIO ANALYSIS USING TALLY 9.0

Tally 9.0 manufactured by Tally Solutions FZ LLC, Dubai, and Tally India Private Limited. It

facilitates smooth and error free Excise Accounting for manufacturers and dealers engaged in

manufacturing or trading of excisable goods. It is mainly used for the calculation of excise

duties, taxes and other transactions. In this project Tally 9.0 is used to compute the balance sheet

and the financial ratios of companies that can be obtained from it. However Tally 9.0 has certain

limitations. It has been used to calculate only current ratio, quick ratio and debt – equity ratio. In

future the version can be modified to calculate other ratios.

Preparation of balance sheet and ratio analysis of C.B ENTERPRISES from 2013-15 using

Tally 9.0 has been carried out below:

3.2.1 C.B. ENTERPRISES

3.2.1 Balance Sheet and Ratio Analysis For 2014

54 | P a g e

Fig. 3.1: Preparation of Balance Sheet of C.B.ENTERPRISES

Fig. 3.2: Ratio Analysis of C.B.ENTERPRISES3.2.2 Balance Sheet and Ratio Analysis For 2015

55 | P a g e

Fig.3.3: Preparation of Balance Sheet of C.B.ENTERPRISES OF 2015

Fig. 3.4: Ratio Analysis of C.B.ENTERPRISES OF 2015

56 | P a g e

CHAPTER -04

VARIATION OF FINANCIAL RATIOS

The variation of different financial ratios from 2013-15 of C.B.ENTERPRISES has been shown below:

4.1 C.B.ENTERPRISES

Fig.4.1: Current Ratio

Fig.4.2: Working Capital

57 | P a g e

1 20

200000

400000

600000

800000

1000000

1200000

1400000

Working Capital

1 21.47

1.48

1.49

1.5

1.51

1.52

1.53

1.54

1.55

1.56

Current Ratio

Fig.4.3: Quick Ratio

1 20

0.5

1

1.5

2

2.5

3

Debt - Equity Ratio

Fig.4.4: Debt-Equity Ratio

Fig.4.5: Inventory Turnover Ratio

58 | P a g e

1 20

1

2

3

4

5

6

Inventory Turnover Ratio

1 20.88

0.9

0.92

0.94

0.96

0.98

1

1.02

Quick Ratio

1 20.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Return on Assets

Fig.4.6: Return on Assets

1 241.00%42.00%43.00%44.00%45.00%46.00%47.00%48.00%49.00%50.00%

Return on Investment

Fig.4.7: Return on Investment

1 20.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%45.00%50.00%

Gross Profit Ratio

Fig.4.8: Gross Profit Ratio

59 | P a g e

Fig.4.9: Net Profit Ratio

Fig.4.10: Return on Working Capital

Fig.4.11: Operating Cost Ratio

60 | P a g e

1 20.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

Operating Cost Ratio

1 20.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Return on Working Capital

1 29.00%9.10%9.20%9.30%9.40%9.50%9.60%9.70%9.80%9.90%

Net Profit Ratio

CHAPTER-05

COMPRATIVE STATEMENTS

Table: 5.1 COMPARATIVE INCOME STATEMENT

Particulars Previous

Year

Current

Year

Absolute

Change

Percentage

changeSales

Less- Cost of Goods Sold

5104025.95

4358261.6

3599918

2346186.55

-1504107.95

-2012075.05

-29.47%

-46.17%

Operating Profit

Add- Other Income

745764.35

1566780

1253731.45

-

507967.1

-1566780

68.11%

-100%

Gross Profit

Less-Operating Exp.

2312544.35

1810630.43

1253731.45

918132.03

-1058812.9

-63667.97

-45.79%

-3.52%

Earnings Before Interest & Tax

Add- Interest

501913.92

644.32

335599.45

0

-167603.11

-644.32

-33.39%

-100%

Profit 502558.24 335599.45 -166958.79 -33.22%

Percentage Change = Absolute Change

Figures of the previous year

61 | P a g e

Table: 5.2 Comparative Balance Sheet of C.B. ENTERPRISES

Particulars

Pervious

Year

Current

Year

Absolute

Change

Percentage

Change

Car 593850 504772.5 (89077.5) 15%

Mobile 59773.74 53842.29 (5931.45) 9.92%

Motor Bike 31181.65 26504.40 (4677.25) 15%

Plant & Machinery 687189.75 584111.4 (103078.35) 14.99%

LCD Monitor - 6936 - -

Tata Ace 207201.51 176121.28 (148919.77) 71.87%

Closing Stock 1035485 1235091 199606 19.28%

Loans & Advances (Assets) 53073 35642 (17431) 34.81%

Sundry Debtors 1425712.6 917360.62 (508351.98) 35.66%

Cash in Hand 24869.00 1544699 1519830 61.11%

Bank Accounts 6101.48 6101.48 - -

Total 412443

7.85

5091181.97 966744.12 23.43%

Capital Account 634506.05 353,181.05 281325 44.33%

Loans (Liability) 1851845.9 1908532.9 (56687) 3.06

Current Liabilities 1,638,085.9 2,493,868.57 855782.67 52.24%

Total 4124437.85 5091181.97 966744.12 23.43%

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FINDINGS

This report work has identified how companies use financial statement analysis and

interpretation in making effective management decisions. Overall organizational profitability and

achievement of organizational objectives were discussed. Again the difference between the

returns of a financial statement analysis and interpretation based on management decisions were

also discussed.

Gross profit and net profits are decreased during the period of 2013-15, which indicates

that firm’s inefficient management in manufacturing and trading operations

Liquidity ratio of the firm is better liquidity position in over the two years. It shows that

the firm had sufficient liquid assets.

The fixed asset turnover ratio of the firm has in 2013-15 the ratio is 3.23 or 2.26

respectively and it decrease.

cost ratio of the company has decreased during the period of 2013-15

Current liabilities are Increasing by 52.4%

Current assets Ratio are decreased in two years.

Net profit also decreased by 33.22%

Return on Investment has increased.

Gross Profit has decreased by 45.79%

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CONCLUSION

Analysis and interpretation of financial statements is an important tool in assessing company’s

performance. It reveals the strengths and weaknesses of a firm. It helps the clients to decide in

which firm the risk is less or in which one they should invest so that maximum benefit can be

earned. It is known that investing in any company involves a lot of risk. So before putting up

money in any company one must have thorough knowledge about its past records and

performances. Based on the data available the trend of the company can be predicted in near

future.

This project of financial analysis & interpretation in the production concern is not merely a work

of the project but a brief knowledge and experience of that how to analyze the financial

performance of the firm. The study undertaken has brought in to the light of the following

conclusions. According to this project I came to know that from the analysis of financial

statements it is clear that C.B.ENTERPRISES have been incurring profit during the period of

study. So the firm should focus on getting of more profits in the coming years by taking care

internal as well as external factors. And with regard to resources, the firm is take utilization of

the assets properly. And also the firm has a maintained low inventory.

This project mainly focuses on the basics of different types of financial statements. Balance

Sheet and Profit & Loss statements of C.B.ENTERPRISES have been studied.

From ratio analysis of Balance Sheet and P & L Statement of C.B.ENTERPRISES of 2013-15 it

was concluded that liquidity position of the company is good. Current ratio, debt-equity ratio,

quick ratio, net profit margin, operating profit margin, gross profit margin, return on assets,

return on investments and return on capital employed were found to be unacceptable. The ratios

that are found to be desirable are Current Ratio, Return On investment and Return on working

capital and Debt – Equity Ratio.

Tally 9.0 is used for analyzing the balance sheet and profit & loss statements of a company and

calculating the financial ratios. In this project Tally 9.0 is used to prepare the balance sheet and

calculate the financial ratios of different companies. Profit & Loss Statements of companies were

not calculated as Tally 9.0 has limitations in processing the data that was available. However,

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only three ratios viz. current ratio, quick ratio and debt-equity ratio were calculated. An

advanced version can be developed for calculation of profit & loss statements and other financial

ratios.

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RECOMMENDATION

8.1 Recommendation for Company:

The profit Of the Company is not in a good Position. Profit decrease in 2014-15 comparison to

2013-14 so for earn more profit company has to Take Alternative Actions for more profit such

As:

Increasing in Procurement in sugarcane,

Production, and Control in Expenses Like, Administrative, selling Etc.

The firms have low current ratio in 2014-15 comparison to 2013-14 so it should increase

its current ratio where it can meet its short term obligation smoothly.

Liquidity ratio of the firm is less in 2014-15 comparison to 2013-14 liquidity position in

over the years. So I suggested that the firm maintain proper liquid funds like cash and

bank balance

It should enhance its employee’s efficiency, more training needed to its employees in

order to increase its production capacity and minimize mistakes while performing the

tasks, also more safety precaution need to implement to the employees who directly

working on sugar production process.

The company high inventory so I suggested that the firm must reduce the stock by

increase sales.

The firms should have proper check all process of the plant.

Recommendation for the Students:

Based on the findings of this study as presented, analyzed and interpreted, the following

recommendations were deemed necessary by the Student who prepares project report:

Adequate time should always be allowed for collection of financial statement data and

preparation for their analysis.

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Financial statement should be properly interpreted and should be made to reflect current

cost accounting to reduce the negative effects of historical cost principle on financial

statement decisions.

The effects of inflation on financial statement result should be considered to reduce the

inflation risk.

The adequacy of financial information need to be emphasized on, as it will provide

enough and necessary details for investment and management decisions.

A combination of different ratios should be used to analyze a company’s financial and/or

operating performance.

Finally, the management of the selected company should make proper use of financial

statement analysis in other decision areas of management.

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LIMITATION

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS AND INTERPRETATION

1. It is suffering from the limitations of financial statements.

2. There is Absence of standard universally accepted terminology in financial analysis

3. Price level changes is ignored in financial analysis

4. Quantity aspect is ignored in financial analysis

5. Financial analysis provides misleading result in absence of absolute data

6. The qualitative elements like quality management, quality of labor, public relations are

ignored while carrying out the analysis of financial statement only.

7. In many situations, the account has to make choice out of various alternatives available, e.g.

choice in the method of depreciation, choice in the method of inventory valuation etc. since

the subjectivity is inherent in personal judgment, the financial statement are therefore not free

from bias.

8. Financial Statements are essential interim reports.

9. Lack of Exactness in financial Statement analysis and interpret.

10. Lack of comparability in financial statement analysis and interpret.

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BIBLIOGRAPHY

BOOKS:

1. M.Y. KHAN, P.K.JAIN (1981), Financial Management, and Cost Accounting (third

edition) New Delhi: McGraw – Hill publishing company limited.

2. I.M.PANDEY.Financial Management New Delhi Vikas publishing house private Ltd –

ninth addition 2004

3. Financial Statement

4. Financial Management

COMPANY DATA:

Vouchers of Sale & Purchase

Bank Statement

Other Data of C.B.ENTERPRISES

WEBSITES

www.google.com

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http://www.google.com/

Data & Analytics

Project report on Financial Statement Analysis and interpretation of A Company