financial analysis of spic

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Text of financial analysis of spic

CHAPTER I

1.1. INTRODUCTION OF THE STUDY

FINANCIAL STATEMENT A financial statement is an organized collection of data according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position at a moment of time as in the case of a balance sheet, or may reveal a series of activities over a given period of time, as in the case of an income statement. Thus, the term financial statement generally refers to the basis statements;i) The income statementii) The balance sheet iii) A statement of retained earningsiv) A statement of charge in financial position in addition to the above two statement.

FINANCIAL ANALYSIS Financial analysis is performed by professionals who prepare reports using ratios that make use of information taken fromfinancial statementsand other reports. These reports are usually presented to top management as one of their bases in making business decisions. Financial analysts can also use percentage analysis which involves reducing a series of figures as a percentage of some base amount.For example, a group of items can be expressed as a percentage of net income. When proportionate changes in the same figure over a given time period expressed as a percentage is known as horizontal analysis.Vertical or common-size analysis, reduces all items on a statement to a common size as a percentage of some base value which assists in comparability with other companies of different sizes. As a result, all Income Statement items are divided by Sales, and all Balance Sheet items are divided by Total Assets. Another method is comparative analysis. This provides a better way to determine trends. Comparative analysis presents the same information for two or more time periods and is presented side-by-side to allow for easy analysis.MEANING OF FINANCIAL ANALYSIS It is the process of identifying the financial strength and weakness of a firm from the available accounting data and financial statement. The analysis is done by properly establishing the relationship between the items of balance sheet and profit and loss account the first task of financial analyst is to determine the information relevant to the decision under consideration from the total information contained in the financial statement..

IMPORTANCE OF FINANCIAL STATEMENT ANALYSIS1) RECORDING PAST DATA: All financial statements are essentially historically historical documents. They tell what has happened during a particular period of time. However most users of financial statements are concerned about what will happen in the future. Stockholders are concerned with future earnings and dividends. Creditors are concerned with the company's future ability to repay its debts. Managers are concerned with the company's ability to finance future expansion. Despite the fact that financial statements are historical documents, they can still provide valuable information bearing on all of these concerns.2) CAREFUL SELECTION: Financial statement analysis involves careful selection of data from financial statements for the primary purpose of forecasting the financial health of the company. This is accomplished by examining trends in key financial data, comparing financial data across companies, and analyzing key financial ratios.3) CONCERNED WITH RATIOS: Managers are also widely concerned with the financial ratios. First the ratios provide indicators of how well the company and its business units are performing. Some of these ratios would ordinarily be used in a balanced scorecard approach. The specific ratios selected depend on the company's strategy. 4) VALUABLE IN USE: Comparison of one company with another can provide valuable clues about the financial health of an organization. Unfortunately, differences in accounting methods between companies sometime makes it difficult to compare the companies' financial data.. Some times enough data are presented in foot notes to the financial statements to restate data to a comparable basis.. 5) HELPS TO RAISE QUESTIONS:. They raise may questions, but they rarely answer any question by themselves. In addition to ratios, other sources of data should be analyzed in order to make judgments about the future of an organization. They analyst should look at industry trends, technological changes, changes in consumer tastes, changes in broad economic factors, and changes with in the firm .APPLICABILITY OF FINANCIAL ANALYSIS:I . TO MANAGEMENT1) HELPFUL TO FRAME STRATEGY: Financial Analysis helps to analyze the problem and to frame the certain strategies in order to solve them. Most of the organizations are following the financial strategy but it will differ according to its nature .its aim to reduce the problem not to eliminate the problem fully.

2) REDUCES THE PERFORMANCE GAP: In every organization the performance gap for instance if in one year performance will be high and in another year the performance will be low. By following the proper financial strategy the position can e analyzed easily.3) IMPROVE THE PERFORMANCE: Financial Analysis helps to improve the performance and to make the performance further more better .Financial analysis helps to fill the gap & to act as a preventive force for the problem. Financial analysis predict the expenses and incomes of the organization.

4) FACILITATE THE PLANNING: Financial Analysis helps to plan for the future and make the company in to the action according to the action. In Financial Analysis various tools can be used such as Ratio analysis, comparative income statement and balance sheet etc.

5) PREDICT THE EXPENSES AND INCOME : Financial Analysis helps to predict the expenses and income and plan according to that. Financial Analysis makes the management to reduce the expenses and to earn the income .According to the management take the few steps to increase the performance.6) SOLVE THE PROBLEM: Financial Analysis help to predict the problem on the side of management and investors and helps to reduce the problem .Based on the problem certain strategies are introduced .Not only the management but also for the customers and investors problem will not be increased .

II. TO SHARE HOLDERS :1) CLEAR IDEA ABOUT THE COMPANY: Financial Analysis gives the clear cut idea about the company by specifying assets and liabilities of the concern. Financial Analysis makes the investors to think about their future and plan according to that. Some times it act as a preventive force .2) HELPS TO TAKE DECISION: By seeing the company balance sheet the general public can take decision based on the balance sheet .Some times it enables the shareholders to create the willing ness among themselves .3) HELPS TO EARN MORE RETURNS: Financial Analysis enables the public to earn more returns .For instance when the public investing profit making company they will get additional dividends. More and more the company gets the profit the share holder will get the additional dividends based on that.4) ENABLES BETTER UNDERSTANDING: Financial Analysis enables the public for better understanding of the expenses and income of the concern . By this public can get the clear outline about the company and take the decision according to that.

5) FIT A PROPER SOLUTION: Financial Analysis fit a proper solution to the problem of the investors. For instance if the investors need to earn more returns means they can buy the shares of the profit making company and more returns.

This studying contain following analysis:1) comparative analysis statement2) Net Working Capital 3) Ratio analysis4) Trend analysis.5) Cash Flow Statement.6) Common Size Statement

1) Comparative financial statement: Comparative financial statement is those statements which have been designed in a way so as to provide time perspective to the consideration of various elements of financial position embodied in such statements. In these statements, figures for two or more periods are placed side by side to facilitate comparison. But the income statement and balance sheet can be prepared in the form of comparative financial statementi) Comparative income statement: The income statement discloses net profit or net loss on account of operations. A comparative income statement will show the absolute figures for two or more periods. The absolute change from one period to another and if desired. The change in terms of percentages. Since, the figures for two or more periods are shown side by side; the reader can quickly ascertain whether sales have increased or decreased, whether cost of sales has increased or decreased etc.

ii) Comparative balance sheet: Comparative balance sheet as on two or more different dates can be used for comparing assets and liabilities and finding out any increase or decrease in those items. Thus, while in a single balance sheet the emphasis is on present position, it is on change in the comparative balance sheet. Such a balance sheet is very useful in studying the trends in an enterprise.

2) Net Working Capital Analysis: Normally working capital refers to difference between current assets and current liabilities of the business concern. Current Assets are cash , bank , debtors ,bills receivable, stock, prepaid expenses, advances, and short term investments. Current Liabilities are sundry creditors ,bills payable, bank overdrafts , outstanding expenses, provisions, proposed dividends.