FINANCIAL STATEMENT ANALYSIS
INTRODUCTION:
Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements. Financial statement analysis is the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis.
MEANING:
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. There are four basic financial statements 1. Balance sheet: also referred to as statement of financial position or condition, reports on a company's assets, liabilities, and Ownership equity at a given point in time. 2. Income statement: also referred to as Profit and Loss statement (or a "P&L"), reports on a company's income, expenses, and profits over a period
of time. Profit & Loss account provide information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state. 3. Statement of retained earnings: explains the changes in a company's retained earnings over the reporting period. 4. Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities. For large corporations, these statements are often complex and may include an extensive set of notes to the financial statements and management discussion and analysis. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements.
DEFINITION AND CONCEPT OF FINANCIAL STATEMENT ANALYSIS: The term “financial analysis” is also known as analysis and interpretation of financial statement it refers to the process of determining financial strength and weakness of the firm by establishing strategic relationship between the item the balance sheet , profit and loss account and other operative data.
According to Myers “financial statement analysis is largely study of relationship among the financial factors in a concern has disclosed by single set of statements and a study of trend of these factors as shown in a service of statements”.
According to Metcalf and Titard “it is a process of evaluating the relationship parts of financial statement for better understanding of firm’s position and performance.”
PURPOSE OF FINANCIAL STATEMENT ANALYSIS: 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. Reported assets, liabilities and equity are directly related to an organization's financial position. Reported income and expenses are directly related to an organization's financial performance. Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently." Financial statements may be used by users for different purposes: Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's annual report to the stockholders. Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings. Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are often used by investors and are prepared by professionals (financial analysts), thus providing them with the basis for making investment decisions. Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures. Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company.
TYPES OF FINANCIAL STATEMENT ANALYSIS: Financial statement analysis can be categorized by use of the following diagram
ON THE BASIS OF CLIENTS REQUIREMENTS: EXTERNAL ANALYSIS: This analysis is done by outsiders who do have access to detail internal accounting records of the firm. These outsiders include investors, potential investors, creditors, government agency, credit agencies and general public. For financial analysis these external parties to the firm depend entirely on the published statements. INTERNAL ANALYSIS: The analysis conducted by persons who have access to the internal accounting records of a business firm is known as internal analysis. Such analysis can therefore be performed by executives and employees of the organization as well as government agencies that have statutory power vested in them. Financial analysis for the managerial purpose is the internal type of analysis.
ON THE BASIS OF MODUS OPERANDI: HORIZONTAL ANALYSIS: Horizontal analysis is a comparison of financial data of a company for several years. The figures for this type of analysis are presented horizontally over the number of columns. The figures of various years are compared with standard or base year. A base year is chosen as beginning point. This type of analysis is also called as “Dynamic Analysis” as it is based on the data form year rather than on data of any one year. VERTICAL ANALYSIS: Vertical analysis is a study of relationship of various items in the financial statements of one accounting period .in this type of analysis the figures formed in the financial statements of a year are compared with a base selected from the same year statements. It is known as “Statical Analysis” or “common size”. Financial statements and financial ratios are two tools employed in vertical analysis. Since vertical analysis considers data for one time period only.
PROCEDURE OF FINANCIAL STATEMENT ANALYSIS
There are basically three steps involved in the financial statement analysis they are as follows: 1. SELECTION. 2. CLASSIFICATION. 3. INTERPRETATION.
1. SELECTION: The first step involves selection of information (data) relevant to the purpose of financial statements.
2. CLASSIFICATION: The second step involves the methodical classification of the data according to their similar heads.
3. INTERPRETATION: The third and final step involves drawing of inferences and conclusion. The data is interpreted in a simple and understandable way. The conclusion drawn from interpretation is presented to the management in the form of reports.
METHODS OR DEVICES OF FINANCIAL ANALYSIS The analysis and interpretation of financial statements is used to determine financial position and results of operation as well. The following methods of analysis generally used are as follows: 1. 2. 3. 4. 5. 6. 7.
Comparative statements. Trend analysis. Common size statements. Funds flow analysis. Cash flow analysis. Ratio analysis. Cost-volume-profit analysis.
COMPARITIVE STATEMENTS The comparative financial statements are the statements of the financial position at different periods of time. The elements are shown in a comparative form so as to give an idea of financial position at two or more periods. Generally two financial statements (balance sheet and income statements) are in comparative form for financial analysis. TREND ANALYSIS The financial statement can be analyzed by computing the trends of services of information. This method determines the direction upwards or downwards and involves the computation of percentage relationship that each statement bears to the same item in the base year. The information for number years is taken up. COMMON SIZE STATEMENTS A common size statement facilitates comparison of financial statements of not only a single firm over a period, but also comparison of financial statements of different companies for a given firm. Under this method all the items of the statement are presented as percentages or ratios of a particular item. Therefore even if the related absolute figures are in respect of vastly different scale of operations a common base for comparison is created. In case of a common size income statement all items are presented as percentages of net sales. A common size balance sheet shows each item as a
percentage of total assets or total liabilities. A common size statement helps in determining the relative efficiency and soundless of a firm and helps in understanding its financial strategy. FUNDS FLOW ANALYSIS The funds flow statement explains the various sources from which funds are raised and uses to which funds are put. It shows the change in assets and liabilities from the end period of time to the end of another period of time i.e. between the two balance sheet dates an analysis of funds flow statement helps in answering the following questions raised What are funds generated from the operations? How well the fixed assets of organization financed? Weather the liquidity position of the organization increased? RATIO ANALYSIS Ratio analysis is a technique of analysis and interpretation of financial statements. It is a process of establishing and interpreting various ratios for helping in certain decisions. It is only a means of better understanding of financial strengths and weakness of a firm. COST - VOLOUME – PROFIT ANALYSIS Cost-volume-profit analysis popularly known as breakeven analysis. It helps in answering question like How do costs behave in relation to volume? At what sales volume the firm breakeven would be? How sensitive is profit to variation in output? What would be the effect of a project sales volume on profit? How much should the firm produce and sell in order to reach a target profit level?
USERS OF FINANCIAL ANALYSIS
TRADE CREDITORS Trade creditors are interested firm’s ability to meet their claims over very short period of time. Their analysis will therefore be evaluation of the firm’s liquidity position.
PROVIDERS OF LONG TERM DEBIT On the other hand suppliers are concerned with firm’s long term solvency and survival. They analyze firm’s profitability over time, its ability to generate cash to be able to pay interest and repay principal and relationship between various sources.
INVESTORS Investors are those persons who invested their money in the firm’s earnings. They restore confidence in that firm’s that show steady growth in earnings. As such they concentrate on analysis of the firm’s present and future profitability.
MANAGEMENT Management of the firm would be interested in every financial aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are use most effectively and efficiently and that the firm’s financial condition is sound.
RATIO ANALYSIS
INTRODUCTION: Ratio analysis is one of the methods of analyzing financial statements. It has been experience that financial statement in their original form is collection of monotonous figures. The statements are detailed and do not present the required information at a glance. Ratio analysis is therefore an attempt to present the information of financial statements in simplified systematized and form. Accountants introduced ratio analysis to meet this end. Ratio analysis measures the profitability efficiency and financial soundness of the business. The relationship between two facts i.e. gross profit and sales or current assets and current liabilities are studied and the result is presented in the form of simple ratios. According to Meyers “Ratio analysis is a study of relationship among the various financial factors in a business”
Objectives of ratio analysis
Measurement of the profitability.
Judging the operational efficiency of management. Assessing the efficiency of the business. Measuring short term and long term financial position of the company. Indicator of true efficiency. Facilitating comparative analysis of the performance. Helpful in budgeting and forecasting. Helpful in simplifying accounting figures.
Limitations of ratio analysis
False results. Limited comparability absence of standard university accepted terminology Price level change affects ratios.
Ignoring qualitative factors. No single standard ratios. In the absence of actual data.
CLASSIFICATION OF RATIOS: Classification of ratios depends upon the objectives for which they are calculated. It may also depend the availability of data. Analysis of financial statement is made with a view to ascertain the efficiency and financial soundness of the company as such ratios can be classified on basis of purpose.
LIQUIDITYOR SHORT TERM SOLVENCY RATIO 1. Current ratio 2. Quick ratio 3. Absolute liquid ratio CAPITAL STRUCTURE RATIO 1. Debt and equity ratio 2. proprietary ratio 3. Capital rearing ratio
4. Fixed assets ratio 5. Interest coverage ratio 6. Dividend coverage ratio 7. Debt service coverage ratio ACTIVITY RATIOS OR TURNOVER RATIOS 1. Inventory turnover ratio or stock turnover ratio 2. Debtors turnover ratios 3. Creditors turnover ratio working capital turnover ratio 4. Fixed assets turnover ratio total turnover ratio
5. Working capital turnover ratio 6. Total assets turnover ratio PROFITABILITY RATIO 1. Gross profit ratio 2. Net profit ratio 3. Operating profit ratio 4. Return on investment or capital employed 5. Return on equity capital 6. Return on net worth 7. Return on assets ratio 8. Earnings per share 9. Profit earning ratio 10. Dividends per share.
GROSS PROFIT RATIO This shows the relationship between the gross profit and sales. Gross profit ratio shows the margin of profit on sales. This indicates how much profit is earned on your products without consideration of selling administration costs. INTERPRETATION Gross profit ratio reveals profit earning capacity of business with reference to its sales. Increase in gross profit will mean reduction in cost of production or direct expenses or reasonable good price and decrease in ratio will indicate increased cost of production or sales at less price. NET PROFIT RATIO Net profit ratio is very useful to the proprietors and prospective investors because it reveals profitability of the concern. Net profit or net income is the gross ratio picked up from the profit and loss account. NET PROFIT ÷ NET SALES INTERPRETATION Net profit ratio shows the operational efficiency of the business. Decrease in the ratio indicates marginal in efficiency and excessive selling and distribution expenses. In the same way increase shows better performance. Increase or decrease in the ratio is determined in comparison to previous year’s performance. OPERATING RATIO Operating ratio indicates the ratio of operational costs to sales. Operating cost consists of cost of goods sold and other operating expenses. Operational efficiency of the business will be more incase of lesser operating ratio and vice versa. (COST OF GOODS SOLD+OPERATING EXPENSES) ÷ NET SALES
INTERPRETATION Operating ratio reveals the cost content and operational expenses absorbed in the sales. In case the operating ratio is higher the business will have to identify the causes for its increase. Higher ratio indicates lower efficiency because a major part which is possible if the operating cost is reduced. EXPENSES RATIO In order to determine and scrutinize the operational efficiency of the business every expenditure has to be matched with sales. In case the expense ratio is increasing profit ratio will decline and it will mean low efficiency. The business should calculate every expense individually so that actual increase or decrease in the ratio of all expenses may be known. This will enable in removing the weak points and reinforcing the points. SELLING,ADMINISTRATION & FINANCIAL EXPENSES ÷ NET SALES NET PROFIT TO NET WORTH RATIO This ratio indicates relationship between net profit and net worth. The term worth here means capital or share holders fund. Here net worth =equity & preference capital + reserves + accumulated profit NET PROFIT AFTER INTEREST BEFORE TAX ÷ NET WORTH INTERPRETATION Return on capital employed ratio measures hoe effectively the capital employed in the business is used the performance of the business. It can be used for comparing the performance of dissimilar business or different departments of the same business. EARNINGS PER SHARE The ratio measures the return per share receivable by equity or ordinary shareholders are virtually the owners of the company. Dividend payable to them is ascertained after deducting operating and non operating expenses and even the interest payable to debenture holders and dividend to preference share holders.
INTERPRETATION This ratio measures the market worth of the share of the company. Higher earnings per share show better future prospects of the company.
PRICE EARNING RATIO This indicates the market value of every rupee earnings of the firm and is compared with industry average. MARKET PRICE PER EQUITY SHARE ÷ EARNINGS PER SHARE INTERPRETATION Higher ratio indicates the share is overvalued and ratio shows the share is undervalued.
PAV OUT RATIO This ratio indicates to what proportion of earnings per share has been used for paying dividend and what has been retained for plugging back. This ratio is very important for share holder’s point of view as it tells him that if a company has used or substantially the whole of its earnings for paying dividend and retained nothing for future growth and expansion purposes then there will be dim enhances of capital appreciation in the price of share of such company.
DIVIDEND PER EQUITY SHARE ÷ EARNINGS PER SHARE
ACTIVITY RATIO (TURNOVER RATIO) TOTAL CAPITAL TURNOVER RATIO This ratio ensures weather the capital employed has been effectively used or not. This is also the test of management efficiency and business performance. NET SALES ÷ CAPITAL EMPLOYED INTERPRETATION Higher total capital turnover ratio is always in interest of the company. WORKING CAPITAL TURNOVER RATIO This ratio measures the relationship between working capital and sales. The ratio shows the number of times the working capital results in sales. Working capital as usual in the excess of current assets over the current liabilities. NET SALES OR COST SALES ÷ WORKING CAPITAL INTERPRETATION The higher is the ratio the lower is the investment in working capital and the greater are the profits. However a very high turnover of working capital is as sign of over trading and may put the concern into financial difficulties. On the other hand low working capital turnover ratio indicates that working capital is not efficiently utilized. Fixed ASSETS TURNOVER RATIO Fixed assets are in the business for producing goods to be sold. The effective utilization of assets will results in increased production and reduced cost. It also ensures weather investment in the assets have judicious or not. NET SALES OR COST OF SALES÷FIXED ASSETS
INTERPRETATION This ratio shows how well the fixed assets are being used in the business. The ratio is important in case of manufacturing concern because sales are produced not only by the use of current assets but also amount invested in the fixed assets. The higher the ratio the better is the performance. On the other hand low ratio indicates that fixed assets are not being efficiently utilized. INVENTORY TURN OVER RATIO This ratio measures how many times the average stock is sold during the year. Promptness of sales indicates better performance of the business. It also shows efficiency of the concern. Immediate sale of goods produced require further production which consequently activates the productive process and is responsible for rapid development of the business. COST OF GOODS SOLD ÷ AVERAGE STOCK INTERPRETATION Higher inventory turnover ratio is always beneficial to the concern. Lower inventory ratio shows that the stock is blocked and not immediately sold. It shows the poor performance of business and inefficiency of the management. DEBTORS TURNOVER RATIO It is also known as receivables turnover ratio. This ratio measures the number of times trade receivables turnover during the year. It establishes relationship between credit sales and average debtors. CREDIT SALES ÷ AVERAGE DEBTORS INTERPRETATION Debtors turnover ratio indicates the efficiency with which debts are collected it will be in the interest of business if the ratio is higher it indicates that debts are collected quickly.
CREDITORS TURN OVER RATIO The ratio explains the velocity with which creditors are paid and establishes the relationship between creditors and amount paid to them, accounts payble includes creditors and bills payable. CREDIT PURCHASES ÷ AVERAGE CREDITORS
LIQUIDITY RATIOS CURRENT RATIO This ratio indicates ratio between all current assets and all current liabilities another way of expressing liquidity of the firm. Test of liquidity focuses on the relationship between current assets and current liabilities.
CURRENT ASSETS ÷ CURRENT LIABILITES
INTERPRETATION This ratio is rough indication of firm’s ability to service its current obligation. Generally the higher current ratio the greater cushion between the current obligations and firms ability to pay them. The stronger ratio reflects a numerical superiority of current assets liabilities. However the composition and quality of current assets is a critical factor in analysis of an individual firm’s liquidity. One problem with the current ratio is it ignores timing of cash received and paid out ratios are arrayed from the highest positive to the lowest positive.
QUICK RATIOS The ratio between all assets (quickly convertible into cash) and all current liabilities. Specifically excludes inventory cash and equivalent plus trade
receivables divided by total current liabilities. Indicates a firm’s ability to satisfy current liabilities with its most liquid assets. CURRENT ASSET - (stock+ prepaid expenses) ÷ CURRENT LIABILITIES INTERPRETAION This ratio is also known as “ACIT TEST” ratio it is a refinement of current ratio and is more conservative measure of liquidity. The ratio expresses the degree to which a company’s current liabilities are covered by the most liquid current assets. Generally any value for less than 1 to 1 implies a reciprocal dependency on inventory of the business vulnerability to risk. Creditors to determine the ability of the business to repay the loans often use these ratios. ABSOLUTE LIQUID RATIO Absolute liquid ratio is known as cash ratio since cash is the most liquid asset. A financial analyst may examine cash and its equivalent to current liabilities. Trade investments or marketable securities are equivalent of cash. Therefore they may be included in the computation of cash ratio. ABSOLUTE LIQUID ASSETS ÷ CURRENT ASSETS
INTERPRETAION This ratio gains much significance only when it is used in conjunction with the current and liquid ratios. A standard of 0.5: 1 absolute liquidity ratio is considered an acceptable norm. That is, from the point of view of absolute liquidity, fifty cents worth of absolute liquid assets are considered sufficient for one dollar worth of liquid liabilities. However, this ratio is not in much use.
TABILITY (SOLVENCY) RATIO
DEBT EQUTITY RATIO This ratio is calculated to measure proportions of outsiders fund and share holders fund invested in the company. This ratio is determined to ascertain the soundness of long term financial policies of the company and it is also known as external equity ratio. It shows the ratio between capital invested by owners and the funds provided by lenders. DEBT ÷ EQUITY INTERPRETATION Comparison of how much of the business was financed through debt and how much was financed through equity. For this calculation it is common practice to include loans from owners in equity rather than in debt. The ratio the greater is the risk to present or future creditors. FIXED ASSET RATIO The ratio shows the relationship between long term funds i.e. share holder’s funds plus long term loans and fixed assets. It has been an established policy that fixed assets are purchased out of working capital. LONG TERM FUNDS ÷ NET FIXED ASSETS
INTERPRETATION The ratio indicates long term financial soundness of the business. It also indicates weather investments have been properly made or not. The ideal ratio should be more than one in case it is less than one it will mean that the business has been financing the purchase of fixed assets out of working capital which is a wrong policy. RATIO OF CURRENT ASSETS TO FIXED ASSETS
CURRENT ASSETS ÷ FIXED ASSTES INTERPRETATION This ratio will differ from industry and therefore no standard can be laid down. A decrease in the ratio may mean that trading is slack or more mechanization has been put through an increase in the ratio may reveal that inventories and debtors have unduly increased or fixed assets have been intensely used. An increase in the ratio accompanied by increase in profit indicates the business is expanding. PROPERIETARY RATIO A variant of debt equity ratio is proprietary ratio which shows the relationship between shareholders funds and total assets. SHARE HOLDERS FUNDS ÷ TOTAL ASSETS INTERPRETATION This ratio should be 1: 3 i.e. one third of assets minus current liabilities should be acquired by share holders funds and the other tow third of the assets should be financed by outsiders funds it focuses the attention on the general financial strength of the business enterprise.
CAPITAL GEARING RATIO This ratio establishes the relationship between the interest bearing securities and equity shares of the company.
FIXED INTEREST- BEARING SECURITES ÷ EQUITY SHARE HOLDERS
INTERPRETATION Fixed interest bearing securities carry with them the fixed rate of dividend or interest and include preference share capital and debentures. A company is said to be highly geared if the major share of total capital is in the form of fixed interest bearing securities or this ratio must be carefully planned as it effects the company’s capacity to maintain a uniform dividend policy during difficult trading period that may occur . RESERVE TO CAPITAL RATIO This ratio indicates the relationship between reserves and capital more reserves show financial soundness of the firm. It will be able to meet future losses if any out of these reserves. RESERVES ÷ CAPITAL
COMPARITIVE STATEMENT ANALYSIS
Comparative financial analysis refers to comparison financial statements pertaining to two different periods by putting them side and finding out the changes in absolute and relative changes. It enables identification of weak points and applying corrective measures. Practically, two financial statements (balance sheet and income statement) are prepared in comparative form for analysis purposes.
1. Comparative Balance Sheet The comparative balance sheet shows the different assets and liabilities of the firm on different dates to make comparison of balances from one date to another. The comparative balance sheet has two columns for the data of original balance sheets. A third column is used to show change (increase/decrease) in figures. The fourth column may be added for giving percentages of increase or decrease. While interpreting comparative Balance sheet the interpreter is expected to study the following aspects : (i) Current financial position and Liquidity position (ii) Long-term financial position (iii) Profitability of the concern (i) For studying current financial position or liquidity position of a concern one should examine the working capital in both the years. Working capital is the excess of current assets over current liabilities.
(ii) For studying the long-term financial position of the concern, one should examine the changes in fixed assets, long-term liabilities and capital. (iii) The next aspect to be studied in a comparative balance sheet is the profitability of the concern. The study of increase or decrease in profit will help the interpreter to observe whether the profitability has improved or not. After studying various assets and liabilities, an opinion should be formed about the financial position of the concern.
Comparative Income statement: The income statement provides the results of the operations of a business.
This statement traditionally is known as trading and profit and loss A/c. Important components of income statement are net sales, cost of goods sold, selling expenses, office expenses etc. The figures of the above components are matched with their corresponding figures of previous years individually and changes are noted. The comparative income statement gives an idea of the progress of a business over a period of time. The changes in money value and percentage can be determined to analyze the profitability of the business. Like comparative balance sheet, income statement also has four columns. The first two columns are shown figures of various items for two years. Third and fourth columns are used to show increase or decrease in figures in absolute amount and percentages respectively. The analysis and interpretation of income statement will involve the Following: – The increase or decrease in sales should be compared with the increase or decrease in cost of goods sold. – To study the operating profits – The increase or decrease in net profit is calculated that will give an idea about the overall profitability of the concern.
COMMON SIZE STATEMENTS AND TREND ANALYSIS The common size statements (Balance Sheet and Income Statement) are shown in analytical percentages. The figures of these statements are shown
as percentages of total assets, total liabilities and total sales respectively. Take the example of Balance Sheet. The total assets are taken as 100 and different assets are expressed as a percentage of the total. Similarly, various liabilities are taken as a part of total liabilities.
Common size balance sheet A statement where balance sheet items are expressed in the ratio of each asset to total assets and the ratio of each liability is expressed in the ratio of total liabilities is called common size balance sheet.
Trend percentage analysis (TPA) The trend analysis is a technique of studying several financial statements over a series of years. In this analysis the trend percentages are calculated for each item by taking the figure of that item for the base year taken as 100. Generally the first year is taken as a base year. The analyst is able to see the trend of figures, whether moving upward or downward.
COMMON SIZE INCOME STATEMENT The items in income statement can be shown as percentages of sales to show the relations of each item to sales.
INTERPRETATION
1. A change in sales is meaningful only if it is compared with a change in cost of goods sold. 2. A change in operating expenses might be due to change in scale
operations or on account of change in degree of managerial efficiency. 3. A change in net profit is good indicator of overall profitability of the
organization. 4. A change in retained earnings can be on account of change in
profitability or on account of changer in dividend policy, capitalization of free reserves or change in amounts transferred to various funds. 5. A change in liquid assets is a better indicator of the short term
solvency funds 6. A change in working capital is a good indicator of the change in
current financial position or short term solvency of the business. 7. A change in fixed assets must be balanced by a change in long term
funds. 8. The nature of assets which have increased or decreased must be
studied to understand its implication in future. 9. Relative measures provide a sharper picture than absolute measure.
RATIO ANALYSIS OF ECIL
LIQUIDITY RATIOS CURRENT RATIO = CURRENT ASSETS ÷ CURRENT LIABILITES Year
Current assets
Current liabilities
Current ratio
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
28443.21 98409.52 130229.01 160681.95 179600.29
61561.31 80273.70 88292.46 96370.02 119441.66
0.46 1.22 1.46 1.66 1.50
1 .8 1 .6 1 .4 1 .2 1 0 .8 0 .6 0 .4 0 .2 0 2 0 0 4 -2 0 0 5
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
Interpretation: From the above graph and table shows that current ratio of the company is increasing from 2004-05 to 2007-08 current assets are in an increasing position at 2008-09 the ratio has decreased. The current ratio shows the ability to meet the liabilities and to improve the safety of the company the current ratio is quite good and the company has to take certain steps to maintain the standards. It is submitted that indirect norms are not considered due to lack of information. No specific industry standards are available for such I have taken general standards only. The higher the current ratio the greater the cushion between the current obligations and the firms ability to pay them. The stronger ratio reflects a numerical superiority of current assets and liabilities.
QUICK RATIO = QUICK ASSETS ÷ CURRENT LIABILITIES Quick assets = current assets – stock - prepaid Year 2004-2005 2005-2006
Quick assets 29192.93 26622.90
Current liabilities 61561.31 80273.70
Quick ratio 0.47 0.33
2 0 0 8 -2 0 0 9
2006-2007 2007-2008 2008-2009
123373.15 153797.82 166919.31
88292.46 96370.02 119441.66
1.39 1.59 1.39
1 .8 1 .6 1 .4 1 .2 1 0 .8 0 .6 0 .4 0 .2 0 2 0 0 4 -2 0 0 5
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
Interpretation: The ratio is in satisfactory level by increasing ratios from past years. The ratio is compared to 2. In 2008-09 it has decreased this indicates that increase in liabilities. The any value of less than 1:1 implies a reciprocal dependency on inventory or other current assets to liquidate short term debt indicator of the business vulnerability to risk. It is submitted that company is a public enterprise indirect specific norms are not considered due to lack of information by maintaining standards of the company the liquidity position can be improved.
ABSOLUTE LIQUIDITY RATIO: ABSOLUTE LIQUID ASSETS ÷ CURRENT ASSETS Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Absolute liquid asset Current liabilities Absolute quick ratio 80807.85 61561.31 1.31 98574.26 80273.70 1.22 24666.91 88292.46 0.27 26958.87 96370.02 0.27 23483.09 119441.66 0.19
2 0 0 8 -2 0 0 9
1 .4 1 .2 1 0 .8 0 .6 0 .4 0 .2 0 2 0 0 4 -2 0 0 5
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
Interpretation: The above chart and table shows past five absolute quick ratios. The ratio is not satisfactory the highest position is at 2004-05 after that it started decreasing; the ratios are all below 1. The current assets are decreasing and the liabilities are increasing this shows that the company is not able to maintain the cash ratio .It is submitted that indirect norms are not considered due to lack of information. No specific industry standards are available for such I have taken general standards only.
DEBT EQUITY RATIO: LONG TERM LIABILITITES ÷SHARE HOLDERS FUND Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Long term liabilities 266.30 0 0 11329.83 202050.32
Share holders fund 32182.98 36345.74 46407.72 5999.66 56795.90
Debt equity ratio 0.82 0 0 0.20 0.35
2 0 0 8 -2 0 0 9
0 .9 0 .8 0 .7 0 .6 0 .5 0 .4 0 .3 0 .2 0 .1 0 2 0 0 4 -2 0 0 5
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
Interpretation: The debt equity ratio is calculated to make comparison between the equity capital invested and financed through debt. In 2004-05 it is in the highest position after that it started decreasing in 2005-06 and 2006-07 there is no long term credit and in 2007 and in 2008 it was increasing the company has to maintain the ratio to avoid the risk. By maintaining the eps can be improved. It is submitted that indirect norms are not considered due to lack of information .No specific industry standards are available for such I have taken general standards only.
PROPRIETARY RATIO = NET ÷ TOTAL ASSETS Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Net worth 32449.28 36345.74 46407.72 55999.66 56795.90
Total assets 94521.67 113725.89 137927.17 168665.64 189252.26
Proprietary ratio 34.32 31.95 33.60 33.20 30.00
2 0 0 8 -2 0 0 9
3 5 3 4 3 3 3 2 3 1 3 0 2 9 2 8 2 7 2 0 0 4 -2 0 0 5
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
Interpretation: The proprietary ratio shows the financial strength of the company the higher the ratio shows better the position of the company. The ratios are fluctuating the highest ratio is in 2004-05 and after that the company started decreasing. The financial position of the company is not satisfactory. The firm has to take certain steps to increase the capital by which the eps can be improved and the company’s financial position can be improved. It is submitted that indirect norms are not considered due to lack of information. No specific industry standards are available for such I have taken general standards only.
FIXED ASSETS RATIO = FIXED ASSETS ÷ CAPITAL EMPLOYED Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Fixed assets 7255.76 7634.31 7698.16 7819.05 9487.35
Capital employed 32182.98 36345.74 46407.72 73693.63 82087.95
Fixed assets ratio 0.22 0.21 0.19 0.10 0.11
2 0 0 8 -2 0 0 9
0 .2 5
0 .2
0 .1 5
0 .1
0 .0 5
0
Interpretation: The above chart shows past five yeas fixed asset ratio. The ratio is not satisfactory in 2004-05 is the highest after that it started decreasing. The fixed asset ratio shows more efficient management in utilization of fixed assets. The ratio should never be more than 1. A ratio of 0.67 is considered as ideal .the company has never met the ideal position. It is submitted that indirect norms are not considered due to lack of information. No specific industry standards are available for such I have taken general standards only. Company has to maintain the standards and improve the long term investments.
INTEREST COVERAGE RATIO = PBIT ÷ FIXED INTEREST Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
PBIT 6074.20 5382.81 19498.48 22086.56 4021.23
Fixed interest 379.35 179.54 283.89 1883.03 2156.51
Interest coverage ratio 16.01 29.98 68.6 11.72 1.86
8 0 7 0 6 0 5 0 4 0 3 0 2 0 1 0 0 2 0 0 4 -2 0 0 5
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
2 0 0 8 -2 0 0 9
Interpretation: The interest coverage ratio shows how many times the profit covers the interest. It is healthy to have profit more than interest payable. The net income should be more than the fixed interest element by six to seven times thus making a safe margin. The above chart and table shows company’s position is not satisfactory. The highest ratio is in 2006-07 after it started huge decrease in 2008-09 it has decreased about 90% of growth rate. The company is maintaining the huge loans and due to that profit has decreased. Company has to reduce the borrowings of loans by which the profit can increase and it has to maintain standards of the company. It is submitted that indirect norms are not considered due to lack of information. No specific industry standards are available for such I have taken general standards only.
TURN OVER RATIOS: INVENTORY TURMOVER RATIO: COST OF GOODS SOLD ÷ AVERAGE STOCK Year 2004-2005 2005-2006 2006-2007
Cost of goods sold 42370.56 38916.93 47446.78
Average stock 5926.18 1632.37 1747.47
Inventory turnover ratio 7.14 23.84 27.15
2007-2008 2008-2009
43153.11 60417.13
1916.73 2736.26
22.51 22.08
3 0
2 5
2 0
1 5
1 0 5
0 2 0 0 4 -2 0 0 5
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
2 0 0 8 -2 0 0 9
Interpretation: The stock turnover ratio indicates how fast stocks are moving and converted into sales quickly. The past years ratios of the company is not satisfactory it is in decreasing position the highest position is in 2006-07. The company has to maintain the (jit) just in time it has to reduce the lead time in production of goods and maintain the standards of the company which may improve the sales of the company. However too high and too low ratio call may also affect the company. It is submitted that indirect norms are not considered due to lack of information.No specific industry standards are available for such I have taken general standards only.
WORKING CAPITAL TURNOVER RATIO = COST OF GOODS SOLD ÷ WORKING CAPITAL Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Cost of goods sold 42370.56 38916.93 47446.78 43153.11 60417.13
Working capital 25704.60 25817.88 41936.55 64311.93 60158.63
Working capital turnover ratio 1.64 1.50 1.13 0.67 1.00
1 .8 1 .6 1 .4 1 .2 1 0 .8 0 .6 0 .4 0 .2 0 2 0 0 4 -2 0 0 5
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
2 0 0 8 -2 0 0 9
Interpretation: The higher the working capital ratio increases the efficient utilization of funds. The past years of the company are not satisfactory the ratios are in decreasing position highest are in 2004-05. This shows that the company is having excess current liabilities. The company has to maintain certain standards to reduce the current liabilities by maintaining the efficient bank balance. This can improve the funds utilization of the company. It is submitted that indirect norms are not considered due to lack of information. No specific industry standards are available for such I have taken general standards only.
GROSS PROFIT RATIO = GROSS PROFIT ÷ NET SALES Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Gross profit 2696.35 17513.51 35897.60 42634.92 59788.51
Net sales 66325.41 56875.41 86341.88 80557.65 88788.71
Gross profit ratio 4.06 30.79 41.5 52.92 67.3
8 0 7 0 6 0 5 0 4 0 3 0 2 0 1 0 0 2 0 0 4 -2 0 0 5
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
Interpretation: The gross profit shows the efficient utilization of resources and earning capacity of the business with reference to sales. Increase in gross profit will mean reduction in cost of production this leads to reasonable good price of product. Decrease in the ratio will mean the increase in cost of production. The above graph shows the gross profit ratios are quite satisfactory all the ratios are in increasing position. The company has to maintain the same standards in increasing position. It is submitted that indirect norms are not considered due to lack of information. No specific industry standards are available for such I have taken general standards only.
NET PROFIT RATIO = NET PROFIT AFTER TAX ÷ NET SALES Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Net profit after tax 3712.80 4226.65 12837.04 13414.66 1348.37
Net sales 66325.41 56875.41 86341.88 80557.65 88788.71
Net profit ratio 5.59 7.43 14.86 16.66 1.51
2 0 0 8 -2 0 0 9
1 8 1 6 1 4 1 2 1 0 8 6 4 2 0 2 0 0 4 -2 0 0 5
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
2 0 0 8 -2 0 0 9
Interpretation: The net profit shows the operational efficiency of the business. The past years of the company is in increasing position but in 2008-09 there is a huge decrease of nearly 9%growth. It is caused due to increase in administration and remuneration of the employees. The company has to reduce all the expenses stated which may improve the net profit of the company. And maintain the standards of the company. It is submitted that indirect norms are not considered due to lack of information. No specific industry standards are available for such I have taken general standards only.
OPERATING PROFIT RATIO =OPERATING PROFIT ÷NET SALES Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Operating profit 6927.01 6222.80 20701.77 23405.38 5036.72
Net sales 66325.41 56875.41 86341.88 80557.65 88788.71
Operating profit ratio 10.44 10.94 23.97 29.05 5.67
3 5 3 0 2 5 2 0 1 5 1 0 5 0 2 0 0 4 -2 0 0 5
Interpretation:
2 0 0 5 -2 0 0 6
2 0 0 6 -2 0 0 7
2 0 0 7 -2 0 0 8
The operating profits reveal that the cost content and operational expenses absorbed in the sales. The higher the operating profits the higher operating management. The past years operating ratio is quite good but in 2008-09 the ratio has decreased. It is due to the increase in operational expenses i.e. increasing salaries of employees, administration and other expense by which the profit can be improved. The operational expenses affects the company a lot so company has to take certain steps to improve it. It is submitted that indirect norms are not considered due to lack of information. No specific industry standards are available for such I have taken general standards only.
2 0 0 8 -2 0 0 9
Introduction to comparative statements of Ecil
COMPARITIVE BALANCE SHEET OF ECIL PARTICULARS Share holders fund capital share money pending allotment reserves and surplus Deferred tax(net liabilities)
2004-05
2005-06
Absolute change
Change in%
14588.12 0.00
15488.12 0.00
900 0
6.16 0
17594.86 266.30
20857.62 0.00
3262.76 -266.30
18.54 -100
Total APPLICATION OF FUNDS Fixed assets gross block less : depreciation net block fixed assets in transit & work in progress Investments Deferred tax(net assets) current assets, loans
32449.28
36345.74
3896.46
12.00
19180.13 11972.17 7207.96 47.80
19761.36 12818.64 6942.72 691.59
581.23 846.47 -265.24 643.79
3.03 7.07 -3.55 1346
164.64 0.00
164.64 574.12
0 574.12
0 0
6622.64 58072.98 22570.29 11749.57
7681.96 79468.68 18940.94 13655.98
1059.32 21395.7 -3629.35 1906.41
15.99 36.84 -16.08 16.22
61561.31 12454.11 28.82
80273.70 11504.19 3.00
18712.39 -949.92 -25.82
30.39 -7.62 -89.59
32449.28
36345.74
3896.46
12.00
&
advances current assets inventories sundry debtors cash& bank balances Loans & advances 5)Less: current liabilities & provisions current liabilities provisions Miscellaneous expenditure to the extend not written off or adjusted. Total
-200 Miscellaneous
current
Loans &
sundry
current assets
Deferred
fixed assets in
less :
Fixed assets
Total
reserves and
capital
1600
1400
1200
1000
800
600
400
200
0
COMPARATIVE BALANCE SHEET OF ECIL PARTICULRS
2006-07
2007-08
Absolute change
Change in%
Sources of funds Share holders fund capital
15488.12
16337.12
849
5.48
849.01 30070.6
0.00 39662.54
0 9591.94
0 31.89
deferred tax(net liabilities)
0.00
0.00
0
0
secured loans
0.00
11329.83
0
0
unsecured loans
0.00
6364.14
0
0
46407.72
73693.63
27285.9
58.79
gross block
19858.25
20361.05
202.8
2.53
less : depreciation
12376.50
13129.11
752.61
6.08
216.41
587.11
370.7
171.29
164.64
164.4
0
0
1338.11
2388.44
1050.33
78.49
6855.84
6884.13
28.29
2.53
sundry debtors
98870.90
12703.59
28132.69
28.45
cash& bank balances
24502.27
26794.23
2291.96
9.35
share money pending allotment reserves and surplus
Total APPLICATION OF FUNDS Fixed assets
fixed assets in transit & work in progress Investments Deferred tax(net assets) current assets, loans & advances current assets inventories
Loans & advances
14506.7
24617.17
10110.47
69.69
provisions current liabilities
88292.46
96370.02
8077.56
9.14
provisions
19236.44
25607.60
6371.16
3312
0.00
0.00
0
0
46407.72
73693.63
27285.91
58.79
Less:
current
Miscellaneous
liabilities
&
expenditure
to
the extend not written off or adjusted. Total
3500 3000 2500 2000 1500 1000 500
Miscellaneous
current
cash& bank
inventories
current
Investments
less :
Fixed assets
Total
secured loans
reserves and
capital
0
COMPARITIVE BALANCE SHEET OF ECIL PRATICULARS
2007-08
Share holders fund capital share money pending allotment reserves and surplus secured loans un secured loans Total APPLICATION FUNDS Fixed assets gross block less : depreciation fixed assets in transit & work in progress Investments Deferred tax(net assets)
2008-09
ABSOLUT E CHANGE
CHANGE IN%
16337.12 0.00
16337.12 0
0 0
0 0
39662.54 11329.83 6364.14 73693.63
40458.78 20250.32 5041.73 82087.95
796.24 8920.49 -1322.41 8394.33
2.00 78.73 -20.77 11.39
20361.05 13129.11 587.11
23170.15 14076.72 393.92
2809.1 947.61 -139.19
13.79 73.21 -32.90
164.64 2388.44
164.64 3938.44
0 1550
0 64.89
OF
current assets, loans & advances current assets inventories sundry debtors cash& bank balances
6884.13 12703.59 26794.23
12680.98 143600.86 23318.45
5796.85 16597.27 -3475.78
84.20 13.06 -12.97
Loans & advances
24617.17
34668.41
10051.24
40.80
provisions current liabilities
96370.02
119441.66
23071.64
23.94
provisions Miscellaneous expenditure
25607.60 0.00
26329.52 0.00
721.92
2.81
73693.63
82087.95
8394.33
11.39
Less: current liabilities &
to the extend not written off or adjusted. Total 100 80 60 40 20 0 1 -20 -40
2 3
4 5
6 7
8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
ANALYSIS OF BALANCE SHEET INTERPRETATION TOTAL FIXED ASSETS The total fixed assets have been increasing gradually with 2.53% in 2006-07 to2007-08 and in 2007-08 and 2008-09 13.79% in increasing stage. The over all of past years percentage shows that the total assets has increased about 85% taking base year as 2006-07 from 19858.25 to 23710.15 lakhs. The increase in fixed assets shows that company is making huge investment for the future projects. TOTAL CURRENT ASSETS The past percentages of current assets are moving upwards and downwards gradually. In 2006-07 to 2007-08 the inventory is increasing about 0.41% in 2007-08 to 2008-09 is 84.20% this shows that company is maintaining huge stock in the company. This increases the cost and there may decrease in the gestation period. The debtors of the company are in decreasing stage. In 2006-07 to 2007-08 the percentage is 28.49% and in 2007-08 to 2008-09 the percentage is 13.06% this shows that company is able to receive the cash from debtors. The cash and bank balances of the company have increased about 9.35% in 2006-07 to 2007-08 and there is deficit balance in 2007-08 to 2008-09 about-12.97%. This shows that the company is not able to maintain average cash balance. While the sundry debtors are in decreasing stage the expenses on the capital assets have been increasing. The company has to maintain the average cash balance for benefits. TOTAL CURRENT LIABILITIES
The percentages of current liabilities are in increasing position. In 2006-07 to 2007-08 the increase is 9.14% in 2007-08 to 2008-09 is 23.94%. this shows that the company is not able to meet liabilities, the increase in liabilities which affects a lot to the company by increase in interest and we cannot get the loans there may be decrease in the production which may incur losses. The increase in liabilities due to increase in the expenses of the company and properly not maintaining cash and bank balances, increase in the salaries and other administration expenses of the company. It is submitted that indirect norms are not considered due to lack of information. No specific industry standards are available for such I have taken general standards only.
COMPARITIVE INCOME STATEMENT OF ECIL PARTICULARS INCOME Sales Services Lease rentals Turnover(gross) Less: exercise duty Service tax Sales tax Turnover(net) Other income Accretion+decretion-wip Less: price variation adjustment TOTAL INCOME EXPENDITURE Materials consumed Employee remuneration Manufacturing, administration& other Selling expenses Research and development Less: transfer to projects &other A/c’s TOTAL EXPENDITURE PROFIT BEFORE INTEREST Interest depreciation PROFIT FOR THE YEAR
2004-2005
2005-2006
ABSOLUTE CHANGE
CHANGE IN %
66325.40 10348.65 392.71 77066.76 2927.59 433.98 1475.45 72229.74 1898.11 74127.85 -1120.95 226.03 72780.87
56875.41 12862.27 291.35 70029.03 2574.84 773.30 1492.98 65187.91 2924.94 68112.85 159.73 226.20 68046.38
9449.99 2513.62 -101.36 -7037.33 -352.75 339.32 17.53 -7041.83 1026.83 -6015 1280.68 0.17 -4734.49
14.24 24.28 -25.81 -9.13 -12.08 78.18 1.18 -9.74 54.09 -8.11 -114.24 0.07 -6.50
12370.56 17213.01 5495.63 1835.14 3094.99 70009.33 4155.47 65853.86 6927.01 379.35 852.81 5694.84
38916.93 17524.01 4749.56 2290.42 2715.04 66195.96 4372.38 61823.58 6222.80 179.54 839.99 5203.27
26546.37 311 -746.07 455.28 -379.95 -3813.37 216.91 -4030.28 -704.21 -199.81 -12.82 -491.57
214.59 1.80 -13.57 24.80 -12.27 -5.44 5.21 -6.12 -10.16 -52.67 -1.50 -8.63
Less: last year adjustments -624.22 PROFIT BEFORE TAX 5070.63 Less: provision for tax 1654.00 for earlier year 73.77 Deferred tax asset (+) deferred tax 73.77 liability (-) Less: fringe tax benefit 0.00 PROFIT AFTER TAX 3712.80
1.15 5204.42 1749.00 -22.56 840.42
625.37 133.79 95 -51.21 470.48
-100 2.63 5.74 -69.41 637.76
91.75 4226.65
91.75 513.85
0 13.83
90000 80000 70000 60000 50000 40000 30000 20000 10000 0
IN C
OM E Tu S e r v rn ov ices er (g Se ross rvi ) Le ce T ss u :p rn tax ov ric er e (n va et) ria tio n a Em EX djus PE tm plo ND ent ye e IT re mu URE Se n llin era g e tio xp n TO en TA se LE s XP EN PR DI TU OF RE IT Int P R FO er OF R T es H IT t E BE Y FO E A R for RE Le T ss : fr earl AX ier i ng y et ax e ar be ne fit
-10000 -20000
COMPARITIVE INCOME STATEMENT OF ECIL PARTICULARS INCOME Sales Services Lease rentals
2006-2007 86341.88 13891.96 356.31
2007-2008 ABSOLUTE CHANGE 80557.65 19336.57 270.68
-5784.23 5444.61 -85.63
CHANGE IN % -6.69 39.19 -24.03
Turnover(gross) Less: exercise duty Service tax Sales tax Turnover(net) Other income Accretion+decretion-wip TOTAL INCOME EXPENDITURE Materials consumed Employee remuneration Manufacturing, administration& other Selling expenses Research and development Less: transfer to projects &other A/c’s TOTAL EXPENDITURE PROFIT BEFORE INTEREST Interest depreciation PROFIT FOR THE YEAR Less: last year adjustments PROFIT BEFORE TAX Less: provision for tax for earlier year Deferred tax asset (+) deferred tax liability (-) Less: fringe tax benefit PROFIT AFTER TAX
100590.15 4889.16 1124.97 2791.41 91790.61 3355.19 -596.77 94849.03
100164.9 2348.94 1358.63 2270.94 94186.39 4595.43 -611.9 98169.83
-425.26 -2534.22 233.66 -520.47 2395.78 1240.24 15.17 3620.8
-0.4 -51.89 20.77 18.64 2.61 36.96 2.42 3.82
47446.78 19295.07 5619.48 3619.12 3199.57 5332.76 73847 20701.77 283.89 1203.29 19214.59 39.38 19253.97 7295.01 -209.79 736.99
43153.11 24236.31 5562.72 3247.42 2139.69 3330.09 74764.45 23405.38 1883.03 1318.82 2023.53 -68.13 20135.4 7695.01 -29.93 1050.33
-4293.67 4941.24 -56.76 -371.7 -1059.88 -1757.96 919.19 2703.61 1599.14 115.53 998.94 107.51 881.43 339.03 179.86 286.34
-9.04 25.6 -1.01 10.27 33.12 -32 1.24 13.05 53.32 9.6 5.13 273 4.57 5.46 -85.73 37.47
95.71 12837.04
106.01 13414.66
10.29 577.62
10.75 4.49
1 2 00 0 0 1 0 00 0 0 80 0 0 0 60 0 0 0 40 0 0 0 20 0 0 0
PARTICULARS
2007-2008
2008-2009 ABSOLUT CHANGE E CHANGE IN%
INCOME Sales
80557.65
88788.71
8231.06
10.21
Services
19336.57
17073.96
-2262.61
-11.7
270.68
215.41
-55.27
20.4
100164.9 106078.08
5913.18
5.9
1014.27
43.17
Lease rentals Turnover(gross) Less: exercise duty
2348.94
3363.21
PROFIT AFTER
Deferred tax asset
Less: provision for
COMPARITIVE INCOME STATEMENT OF ECIL
Less: last year
depreciation
PROFIT BEFORE
Less: transfer to
Selling expenses
Employee
EXPENDITURE
Accretion+decreti
Turnover(net)
Service tax
Turnover(gross)
-20 0 0 0
Services
INCOME
0
Service tax
1358.63
155.73
197.1
14.5
Sales tax
2270.94
3696.03
1425.09
62.75
Turnover(net)
94186.39
97463.11
3276.72
3.47
Other income
4595.43
5926.43
1331
28.96
-611.9
1898.57
2510.47
410.22
98169.83 105288.11
7118.28
7.25
Accretion+decretion-wip TOTAL INCOME EXPENDITURE Materials consumed
43153.11
60417.13
17264.02
40
Employee remuneration
24236.31
31815.38
7579.07
31.27
Manufacturing,administration& other Selling expenses
5562.72 3247.42
6649.14 2188.19
1086.42 -1059.23
19.53 -32.6
Research and development
2139.69
2423.31
283.62
13.25
Less: transfer to projects &other A/c’s TOTAL EXPENDITURE
3330.09
3241.76
88.33
2.65
74764.45 103493.15
28728.73
38.42
PROFIT BEFORE INTEREST
23405.38
5036.72
-18368.66
-78.4
Interest
1883.03
2156.51
273.48
14.52
depreciation
1318.82
1015.49
303.33
23
PROFIT FOR THE YEAR Less: last year adjustments PROFIT BEFORE TAX Less: provision for tax for earlier year Deferred tax asset (+) deferred tax liability (-) Less: fringe tax benefit PROFIT AFTER TAX
2023.53 -68.13 20135.4 7695.01 -29.93 1050.33
1864.72 24.99 1889.71 1800.01 184.34 1550.01
-18338.81 93.12 -18425.69 -5895 154.41 499.69
90.77 136.6 91.5 -76.6 515.9 47.57
106.01 13414.66
107.01 1348.37
1 -12066.29
0 -89.94
120000 100000 80000 60000 40000 20000
INTERPRETATION: INCOMES: The incomes of the past years are quite satisfactory it is gradually increasing. In comparison of 2006-2007 to 2007-2008 the increase in percentage is about 3.82%. In 2007- 2008 to 2008-2009 increase in percentage about 7.25%.The increase income shows a good view but when compared to individual transactions the income position is not so good. • The sales for the year have increased about 10.21% 2007-08 in but in 2008-09 it has decreased about 6.69%. The company has to take certain steps to improve the sales or else the company may incur losses in future. •
PROFIT AFTER
Deferred tax asset
Less: provision for
2006-2007, 2007-2008 AND 2008-2009.
Less: last year
ANALYSIS OF INCOME STATEMENT FOR THE YEARS
depreciation
PROFIT BEFORE
Less: transfer to
Selling expenses
Employee
EXPENDITURE
Accretion+decreti
Turnover(net)
Service tax
Turnover(gross)
-40000
Services
-20000
INCOME
0
This service has decreased about 11.70% in2007-08 and in 2008-09 it has increased about 39.19%. The company has to maintain same standards in maintaining the services which improves the company position. • The income from the lease rental is gradually decreasing from the past years about -20.4%, -24.03% in 2007-08 and 2008-09. • The company is spending a huge amount on exercise duty, service tax and sales tax. •
EXPENDITURE: The company’s expenditure is in decreasing stage which shows that company is showing an interest in reducing the unnecessary costs. But when compared through individual performance is not satisfactory. The material consumption has decreased about -9.04% in 2007-08 and in 2008-09 increased about 40.00%. With increase in the material consumption there will be increase in the production that leads to huge sales and increase the profits of the company. • Employee remuneration and benefits of the company is been increasing gradually in 2007-08 about 25.60% and in 2008-09 it has risen upto 31.27%. it is said that in 2008-09 the central government of India has risen. Even though in past year it has increased about 25.60%.The Company should take certain steps to control the expenses. The gradually increase in salaries it may affect the company profit it has to maintain certain standards. • The manufacturing and administration expenses of the company are quite satisfactory in 2007-08 about -1.01, but it is cause due to decrease in material consumption. In 2008-09 the expenses has raised about 19.53% the increase may be caused due to increase in wages. But it also includes other expense that has been increased. The company has to take certain steps to reduce expenses. This reduces the cost of production and increases the profits. • The selling, research and development percentages are quite satisfactory they are in decreasing stage. The selling activity is important in sales it includes a huge costs. The company should try to reduce the unnecessary expenses. The research and development leads to innovation of the product of the company. In 2007-08 it has increased up to 13.25%. •
PROFIT FOR THE YEAR: When compared to the profits after tax of the company it is in increasing stage from2006-07 but in 2008-09 it has decreased a lot. Comparison of profits from 2006-07 to2007-08 the increasing percentage is 4.49% and in 2007-08 to 2008-09 the percentage has decreased about -89.94%. the increasing in same way the expenses are also increasing. The management has to take certain steps to control huge expenses and maintain certain standards to control it. However the company is public enterprise it is submitted that indirect specific norms are not considered due to lack of information.
CONCLUSIONS AND SUGGESTIONS
Liquidity analysis: The liquidity position of the company was not satisfactory as it was disclosed by current ratio, quick ratio and absolute liquid ratio. Deapite these are less than prescribed standards. However taking the product into consideration the liquidity position of the company can be considered as satisfactory.
Leverage analysis:
The leverage or the capital structure position of the organization is not so satisfactory there is a low percentage than prescribed standard levels and ratios show they are fluctuating in proprietary fixed assets, interest coverage ratios. In spite of all these company’s leverage position can be improved and considered as satisfactory.
Turnover analysis: The performance of the inventory ratio, net profit ratio, operating profit ratio and working capital ratio is very bad and not satisfactory in this year. While other ratios are fluctuating and quite satisfactory. The efforts can be made by the company to improve the performance.
SUGGESTIONS The liquidity position of the company can be improved by investing low stocks or finished goods. The debts should be recovered in time. There is also large sum given in terms of loans and advances which
will again decrease the cash and bank balances which is required by the company to pay off debts. Future there is a large amount of debt to be paid to creditors, which is not safe to the liquid position of the company.
Due to liabilities of the working capital of the company is affecting a
lot. This may affect day to day activities of the company and the company may require paying of additional interest on these debts. The sales of the company are increasing in the same way the expenses are also increasing. The expenses can be reduced by not investing in unnecessary things. The net profit of the company has been decreased this year when compared to past years. Due to increase in administration expenses and other expenses the company should take necessary steps to improve in certain places. The overall position of the company is satisfactory because it deals with the Government Electronic and Defense products but it needs to check out where it is lagging behind and improve it. However the company is public enterprise it is submitted that indirect specific norms are not considered due to lack of information. If all the employees of the company can work efficiently and affectively in the company it can reach to great heights in our country.
