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A
Training Report
Titled
Financial Statement Analysis
for the training undergone at
Neha Engineering
In Panipat District
for the partial fulfillment of the award of degree of MBA-5 year
Submitted to: Submitted by:Director ,IMS Nitika Raghav
8th Semester
Class Roll no. 47
University Reg. No. 08-UD-1133
Batch- 2008-13
Institute of Management Studies
Kurukshetra University, Kurukshetra
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DECLARATION
I hereby declare that I have completed the project entitled Financial Statement
Analysis assigned to me by Neha Engineering for thetraining report to be submitted
in the partial fulfillment of MBA-5yr. Degree from Kurukshetra University. Further I
declare that this is original work done by me and information provided in the study is
authentic to the best of my knowledge belief my training period was from 15th January,
2012 to 15th February, 2012.
This study has not been submitted to any other Institution or University for the
award of any other degree or for any purpose.
Dated: - NITIKA RAGHAV
8TH Semester
Class Roll no. 47
University Reg. No. 08-UD-1133
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Preface
Someone has rightly said that practical knowledge is far better than classroom
teaching. During this project I fully realized this and I came to know about how a
retailer chooses among a varied range of products available to him.
The subject of my study is Financial Analysis of NEHA ENGINEERING., which
has slowly but steadily evolved from a beginner to a corporate giant earning
laurels and kudos throughout.
The report contains first of all brief introduction about the company. Finally there
comes data presentation and analysis in the end of my project report. I also put
forward some of my suggestion hoping that they will help NEHA
ENGINEERING. Move a step forward to being the very best.
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Acknowledgement
A drop of ink makes million think
Any research work is never an individual effort. It is contributory effort of many hearts &
heads. I take this opportunity to express my appreciation & gratitude to all those, with whom I
worked, interacted and whose insides and thoughts help me in furthering my knowledge and
completion of my project report.
A project of this nature is the product of the ideas and experiences of several persons. So, an
undertaking of a work like this is never the outcome of efforts of a single person, rather it bears
the imprints of a number of persons who are behind the curtain.
First of all, I would like to extend my thanks to MR. Ramcharan Owner., NEHA
ENGINEERING who exceeded to my request and allowed me to work on this project.
At the earliest, I express my gratitude towards staff members of NEHA ENGINEERING for
their help & cooperation.
I would also thanks to respected director sir and other faculty members of my institute.
Last but not least, I would like highly thanks to my father and all of them who help me directlyand indirectly in accomplishment of my training and give highly cooperation in this project.
NITIKA RAGHAV
Content
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Sr. No. Particulars Page No.
1 Company Profile 6
2 Critical review of literature 7
3 Ratio Analysis 124 Comparative Financial Statement 32
5 Findings and Analysis 38
BIBLIOGRAPHY 39
Chapter 1
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Company ProfileNEHA ENGINEERING is well established and fast growing company. We currently deal in
number of aforesaid items on the hire as well as sale basis.
We are happy to announce that we are offering the same services to other companies like
your company. From our office, the heart of low cost and good quality of aforesaid items ready
to use. We can supply your company with whatever kind of shuttering you would like. We
ensure that the quality you need at the best possible price and our staff of quality controller
insures that the products are well made.
The success of any construction project depends on how closely you stick to planned time
schedules and cost estimate. When you buy scaffolding from NEHA ENGINEERING, you are
able to draw on the resources of well-spread service organization and wide manufacturing
base.
Regardless of the specific type of equipment and site location, we will work with you to
ensure your project to run according to plan.
The extensive design and manufacturing resources of NEHA ENGINEERING give us
the ability to develop or adopt products quickly to suit the constantly changing needs of our
customers.
If you would like to take the advantage of the services that NEHA ENGINEERING is
being offered to your company. Please contact us on our telephone numbers mentioned above.
We are authorized vendor of I.O.C.L, Samsung Engg. Ltd., IOTAP, Bridge & Roof Co
(I) Ltd, Larsen & Toubro Ltd at NFL, Panipat etc.
Chapter 2
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Critical Review Of Literature
FINANCIAL STATEMENT ANALYSIS
MEANING: Analysis of financial statements is the systematic numerical calculation
of the relationship between one fact with the other to measure the profitability, operational
efficiency and the growth potential of the business.
OBJECTIVES OF FINANCI AL STATEMENT ANALYSI S:1. Measuring financial standards : The business must know its financial soundness which
can be measured by calculating different ratios like proprietory and f ixed asset ratio. If
it is found adverse, then corrective steps can be taken.
2. Judging solvency : Creditors ar e always interested in knowing the solvency of
the business to repay their loans. This can be ascertained by looking into the facts such
as:
Whether current assets are sufficient to meet current liabilities.
Proportion of current assets to liquid assets.
Future prospectus of the business.
Whether debentures or other loans are secured or not.
Managerial efficiency of the firm.
3. Measuring profitability: Financial statement shows the gross profit, net profit and other
expenses. The relationship of these items can be established with sales. To ascertain
profitability, gross profit, net profit, expenses and operating ratios may be calculated. In
case of improving or declining profitability ratios, the causes responsible for the
performance can be evaluated.
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4. Judging operational efficiency: It is very significant to know the operational efficiency
of the management. The managerial efficiency of the business can be assessed by
matching the amount of manufacturing, selling, distribution and financial expenses of
the current year with the corresponding expenses of the previous year. This can
also be judged by calculating profitability ratios.
5. Indicating trends of achievements: Financial statements of the previous year can
be compared and the trends regarding various expenses, purchases, sales, gross
profit and net profit can be ascertained. Values of assets and liabilities can be
compared and the futur e prospectus of the business can also be indicated.
6. Assessing the growth potential: The trend and dynamic analysis of the business
provides sufficient information indicating the growth potential of the business. If
the trend predicts gloomy picture, effective measures can be used to correct it. If
cost of production is rising without corresponding increase in the selling price, efforts
should be made to reduce cost of production.
7. Inter-firm and Intra-firm comparison: Analysis of the financial statements can be made
with the previous years performance of the same firm and with the performance of the
other firms in the industry. Intra-firm analysis provides an opportunity of self-appraisal,
whereas, inter-firm analysis presents the operational efficiency of the firm as compared
the other firms. Comparison helps in detecting weaknesses and adopting. corrective
measures.
8. Deciding future line of action: Analysis of financial statements indicates growth
potential of the business. Comparison of actual performance with the standard
performance shows the short comings. The analysis provides sufficient information
regarding the profitability, performance and financial soundness of the business. On the
basis of these information, effective forecasting, budgeting and planning can be made.
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9. Systematic presentation of data: Analysis of financial statements is an effective tool for
simplifying, systematizing, and summarizing the monotonous data. An average person,
who has no knowledge of accounting, can draw conclusions from ratios. The facts can
be made more attractive by graphs and diagrams which can be easily understood.
Types of Financial Analysis.
Financial analysis can be classified into four categories:
According to Modus Operandi
1. Horizontal or dynamic analysis: When financial statements for a certain number
of or different firms are examined analytically, the analysis is called horizontal
or dynamic.
2. Vertical or static analysis: vertical or static analysis is the study of mutual relationship
between differ ent components or their totals of the financial statements for a
definite per iod of time.
According to Materials used
3. Internal Analysis: When analysis of financial statements is made by somebody
internally related to the enterprise such as executives, employees etc. it is saidto be internal analysis.
4. External analysis: An analysis made by a person not internally related to the enterprise
and meant for external users of the financial statements, is called external analysis.such
type of analysis is made by banks, investing agencies, creditors, research scholars and
the government.
Limitations of Financial Analysis.
Despite the significance of analysis and interpretation of financial statements as discussed
above, it has certain limitations which an analyst and the user should kept in mind. These
limitations ar e identified as follows:
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1. Suffers from limitations of financial statements: Financial statements suffer
fromvariety of weaknesses. Assets are disclosed in the balance sheet at historical cost
which is different from current cost. Similarly, financial statements are prepar ed
according to certain conventions at a point of a time, whereas investors are concerned
with the present and futur e of the company. Certain assets and liabilities are not
disclosed. Per sonal judgements also affect the figures of balance sheet. Financial
statements suffer from these weaknesses, hence the analysis based upon these
statements can not be said to be always reliable.
2. Absence of universally accepted standard terminology: Accounting is not an
exact science, so it does not encompass universally accepted terminology. Different
meanings are assigned to a particular term. Depreciation is provided by different
methods and interest is charged at varied rates. In this way, there are sufficient
chances of manipulation. As a result, financial analysis proves to be defective.
3. Ignores qualitative aspects: Financial analysis is the quantitative measurement of
the perfor mance of the fir m. It does not disclose the skill, technical know- how
and the efficiency of its employees and managers. It means that analysis of financial
statementsmeasur es only the one sided per for mance of the business. It also
completely ignores human aspect.
4. Ignores price level changes: The results disclosed by financial statements may
be misleading, if the pr ice level changes are not taken into consideration. The gross
profit ratio may improve with the increase in price, wher eas actual efficiency may not
improve. If prices of commodities differ, the ratios of two years will not be
meaningful for comparison. Change in price affects cost of production, sales and value
of assets, thereby the compar ability of ratios suffers.
5. It spottes the symptoms but not diagnose: Financial analysis shows the trends of the
affairs of the business. It may spot symptoms of financial weakness and
operational efficiency which can not be accepted. A final decision in this regard will
require further investigation and thorough diagnosis.
TECHNIQUES OF FINANCIAL ANALYSIS
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Chapter 3
Ratio AnalysisLIQUIDITY OR SHORT TERM SOLVENCY RATIOS
These ratios play a key role in the analysis of the short term financial position of a
business. Liquidity refers to a firms ability to meet its current financial obligation as they
arise.
1. Current ratio or working capital ratio
Meaning: Current ratio may be defined as the relationship between current assets and
current liabilities.
Current Assets
Current Ratio = -----------------------
Current Liabilities
For 2010,
Current assets=22,75,088
Current liabilities=8,44,553
22,75,088Current Ratio = --------------=2.69
8,44,553
For 2009,
Current assets= 23,46,876
Current Liabilities=7,62,599
23,46,876
Current Ratio = --------------=3.07
7,62,599
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For 2008,
Current assets = 25,72,977
Current liabilities = 8,52,410
25,72,977Current Ratio = --------------=3.01
8,52,410
Interpretation: Current r atio of a firm measures its short term solvency and reflects its
ability to meet short term obligation when they are due. The higher the current ratio, the
larger the amount of rupees available per rupee of current liabilities, the more the firms
ability to meet current obligations and the greater the safety of funds to short term
creditors. A current ratio of 2:1 is considered satisfactory.
ACTIVITY OR EFFICIENCY RATIOThe funds of creditors and owners are invested in various assets to generate sales and profit.
The better the management of these assets, the larger the amount of sales. Activity ratio enable
the firm to know how efficiently these assets are employed by it. Therefore, an activity ratio
may be defined as a test of relationship between sales or cost of goods sold and various assets
of the firm.
1. Total assets turnover ratio
Meaning: This ratio expresses the relationship between cost of goods sold / net sales and
total assets / investments of a firm. It is also called Total investment turnoverratio.
Net Sales
Total Assets Turnover Ratio = ----------------Total Assets
For 2010,
Net sales = 30,45,853
Total assets = 72,82,237
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30,45,853
Total Assets Turnover Ratio = ---------------- =0.41 times
72,82,237
For 2009,
Net sales = 35,79,889
Total assets = 58,21,598
35,79,889
Total Assets Turnover Ratio = ----------------=0.61 times
58,21,598
For 2008,
Net sales = 31,57,881
Total assets = 57,13,679
31,57,881
Total Assets Turnover Ratio = ----------------=0.55 times
57,13,679
Interpretation: This ratio indicates the number of times the assets are turned over in ayear
in relation to sales. A higher total assets turnover ratio is the indicator of effective
utilization of investment in assets, whereas lower assets turnover ratio indicates that
assets are not properly utilized in comparison to sales. Thus, there is an over investmentin
assets. Extremely high ratio means over-trading in the business.
2. Fixed assets turnover ratio
Meaning: This ratio expresses the relationship between fixed assets (less depreciation) and net
sales or cost of goods sold.
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Cost of Sales (or Net Sales)
Fixed Assets Turnover Ratio = --------------------------------------
Fixed Assets (less Depreciation)
For 2010,Net sales = 30,45,853
Fixed assets = 3,88,132
30,45,853
Fixed Assets Turnover Ratio = -----------------7.84 times
3,88,132
For 2009,
Net sales = 35,79,889
Fixed assets = 3,13,037
35,79,889
Fixed Assets Turnover Ratio = -----------------= 11.43 times
3,13,037
For 2008,
Net sales = 31,57,881
Fixed assets = 2,89,758
31,57,881
Fixed Assets Turnover Ratio = -----------------= 10.89 times
2,89,758
Interpretation: This ratio measures the efficiency and profit earning capacity of the fir m. The
higher the ratio, the greater is the intensive utilization of fixed assets. Lower ratio means under
utilization of fixed assets and excessive investment in these assets. Asvolume of sales
depend on variety of factors such as price, quality of goods,salesmanship, marketing
etc. It is argued that no direct relationship can be establishedbetween sales and fixed assets.
Accordingly, it is not recommended for general use.
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3. Current assets turnover ratio
Meaning: This ratio expresses relationship between current assets and net sales or cost of
cost sold.
Cost of Sales (or Net Sales)
Current Assets Turnover Ratio = ------------------------------------
Current Assets
For 2010,
Net sales = 30,45,853
Current assets = 22,75,088
30,45,853
Current Assets Turnover Ratio = ----------------------=1.33 times
22,75,088
For 2009,
Net sales = 35,79,889
Current assets = 23,46,876
35,79,889
Current Assets Turnover Ratio = ----------------------=1.525 times
23,46,876
For 2008,
Net sales = 31,57,881
Current assets = 25,72,977
31,57,881
Current Assets Turnover Ratio = ----------------------=1.22 times
25,72,977
Interpretation: This ratio reflects the efficiency and capacity of working capital. It is a very
useful technique for non-manufacturing units requiring lesser working capital. On the basis of
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this ratio, efficiency or inefficiency of current assets and over or under investment in the
firm is examined.
4. Working capital turnover ratio
Meaning: This ratio establishes the relationship between net working capital and net
sales or cost of goods sold.
Sales
Working Capital Turnover Ratio = ------------------------------
Net Working Capital
For 2010,
Net sales = 30,45,853
Net working capital = 14,30,535
30,45,853
Working Capital Turnover Ratio = ---------------------=2.13 times14,30,535
For 2009,
Net sales = 35,79,889Net working capital = 15,84,277
35,79,889
Working Capital Turnover Ratio = ---------------------=2.26 times 15,84,277
For 2008,
Net sales = 31,57,881
Net working capital = 17,20,567
31,57,881
Working Capital Turnover Ratio = ---------------------= 1.83 times
17,20,567
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Interpretation: This ratio is used to assess the efficiency with which the working capital is
being used in the business. A high working capital ratio indicates efficient management of
working capital or over-trading i.e. low investment in working capital and more profits. On the
contrary, a low working capital turnover ratio implies under trading i.e. funds are not being
utilised efficiently. Higher sales in comparison to working capital means over-trading and
lower sales in comparison to working capital means under-trading.
5. Capital turnover ratio
Meaning: This ratio establishes the relationship between net sales or cost of goods sold and
capital employed.
Sales
Capital Turnover Ratio = ----------------------------------------------------
Capital Employed
(i.e. shareholders fund + Long term liabilities)
For 2010,
Net sales = 30,45,853
Capital employed = 24,15,707
30,45,853
Capital Turnover Ratio = ------------------------ =1.26: 1
24,15,707
For 2009,
Net sales = 35,79,889
Capital employed = 26,11,106
35,79,889
Capital Turnover Ratio = ------------------------ =1.37: 1
26,11,106
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For 2008,
Net sales = 31,57,881
Capital employed = 23,07,403
31,57,881
Capital Turnover Ratio = ------------------------ =1.36: 1
23,07,403
Interpretation: The efficiency and effectiveness of the operations are judged bycomparing
the sales or cost of sales with amount of capital employed in the business and not with assets
held in the business. Therefore, this ratio is a better measurement ofefficient use of capital
employed. Efficient use of capital symbolizes profit earningcapacity and managerial efficiency
of the firm.
PROFITABILITY RATIOS
Profitability ratios based on sales
1. Gross Profit Ratio
Meaning: This ratio expresses the relationship of gross profit on sales to net sales in terms of
percentage. Expressed as a formula, the gross profit ratio is:
Gross Profit
Gross Profit Ratio = ------------------- X 100
Net Sales
For 2010,
Gross profit = 27,49,121
Net Sales = 30,45,853
27,49,121
Gross Profit Ratio = ------------------- X 100 =90.25%
30,45,853
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For 2009,
Gross profit = 32,17,259
Net Sales = 35,79,889
32,17,259
Gross Profit Ratio = ------------------- X 100 =89.87%
35,79,889
For 2008,
Gross Profit = 28,03,187
Net Sales = 31,57,881
28,03,187
Gross Profit Ratio = ------------------- X 100 =88.76%
31,57,881
Interpretation: In the above calculation, the gross profit ratio is increasing from year to year.
In the year 2009, there is a change ( increase) in gross profit ratio of about 1.11 % from
88.76 % to 89.87 %. In the year 2010, there is a change (increase) in gross profit ratio
of about .38 % from 89.87 % to 90.25 %. In the year 2010, the decrease in gross profit ratio as
compare to the year 2008 is due to the declining in profit in comparison to Sales or due to
increasing in cost.
2. Operating Ratio
Meaning: This ratio expresses the relationship between operating cost and net sales. Operating
cost means cost of goods sold plus operating expenses.
Expressed as a formula:Operating Costs
Operating ratio: -------------------------X100
Net Sales
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For 2010,
Operating cost = Cost of goods sold + Operating expenses = 2, 96,732 + 19,58,608
= 22, 55,340
Net Sales= 30,45,853
22,55,340
Operating ratio: -------------------------X100=74.05%
30,45,853
For 2009,
Operating cost = Cost of goods sold + Operating expenses= 3, 62,630 + 21,88,988= 25, 51,618
Net Sale = 35,79,889
25,51,618
Operating ratio: -------------------------X100=71.28%
35,79,889
For 2008,Operating Cost = Cost of goods sold + Operating expenses
= 3,54,694 + 19,45,602
= 23, 00,296
Net sales= 31,57,881
23,00,296
Operating ratio: -------------------------X100= 72.84 %
31,57,881
Interpretation: Operating ratio shows the percentage of net sales that is absorbed by cost of
goods sold and operating expenses. Hence, the lower the operating ratio, the higher the
operating profit to recover non-operating expenses such as interest, dividend etc and vice-
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versa. In the year 2009 the operating ratio is low as compare to the year 2010 & 2008 that is
why operating profit in the year 2009 is more as compare to the year 2010 & 2008. So we have
to decrease the operating ratio to increase the operating profit by decreasing the cost of goods
sold as well as operating expenses and increase in sales.
3. Operating Profit Ratio
Meaning: This ratio is also called Operating profit margin. It establishes the relationship
between operating profit and net sales. It is also defined as the ratio of profit before
depreciation, interest and tax. It is calculated as follows:
Operating profit
Operating Profit Ratio = -----------------------x 100
Net Sales
For 2010,
Operating profit = 7,90,513
Net sales = 30,45,853
7,90,513
Operating Profit Ratio = ----------------- x 100 =25.95%
30,45,853
For 2009,
Operating profit = 10,28,271
Net sales = 35,79,889
10,28,271
Operating Profit Ratio = ----------------- x 100= 28.72 %
35,79,889
For 2008,
Operating profit = 8,57,585
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Net sales = 31,57,881
8,57,585
Operating Profit Ratio = ----------------- x 100=27.16%
31,57,881
Interpretation: This ratio indicates the net profitability of the main business i.e.operating
efficiency of a firm. The higher the operating profit ratio, the better would be the operational
efficiency of the firm. A higher operating profit ratio means that a firm hasbeen able not only
to increase its sales but also been able to cut down its operatingexpenses. In the year 2009
operating profit is highest in comparison to the year 2010 and 2008 and it is due to the low
operating expenses as well as low cost of goods sold. So theoperating efficiency of the firm in
the year 2009 is good as compare to that of 2010 &2008.
4. Expenses Ratio
Meaning: Expenses ratio shows the relationship of different expenses to net sales.
a) Research & Development Expenses Ratio
Research & Development Expenses
=-----------------------------------------------X 100
Net Sales
For 2010,
Research & Development expenses = 565,141
Net sales = 30,45,853
5,65,141R & D Expenses Ratio=------------------X 100=18.55%
30,45,853
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For 2009,
Research & Development expenses = 6,62,057
Net sales = 35,79,889
6,62,057
R & D Expenses Ratio=------------------X 100=18.49%
35,79,889
For 2008,
Research & Development expenses = 6,13,242
Net Sales = 31,57,881
6,13,242
R & D Expenses Ratio=------------------X 100=19.41%
31,57,881
Interpretation: Research & development expenses ratio should be low. Low R&Dexpenses
ratio leads to an increase in operating profit ratio. In the year 2009 theResearch &
Development expenses ratio is low as compare to the year 2010 & 2008. Due to the low
Research and development expenses in the year 2009, theoperating profit ratio is high in the
same year.
b) Selling, general & administrative exp ratio
Selling, general & admin exp
= -------------------------------------------X100
Net sales
For 2010,
Selling, general & admin expenses = 12,80,652
Net Sales = 30,45,853
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12,80,652
Selling, general & admin expenses ratio =------------------------- x 100=42.05%
30,45,853
For 2009,
Selling, general & admin expenses = 1,426,632
Net sales = 3,579,889
14,26,632
Selling, general & admin expenses ratio = ----------------x 100= 39.85 %
35,79,889
For 2008,
Selling, general & admin expenses = 1,259,370
Net sales = 3,157,881
12,59,370
Selling, general & admin expenses ratio =----------------- x 100= 39.88 %
31,57,881
Interpretation: Selling, general & administrative expenses ratio should be low. LowSelling, general & administrative expenses ratio leads to an increase in operatingprofit
ratio. In the year 2008 the Selling, general & administrative expenses ratio islow as
compare to the year 2009 & 2007. Due to the low Selling, general &administrative
expenses in the year 2008, the operating profit ratio is high in the sameyear.
c) Non-Recurring Expenses Ratio
Non-recurring expenses
= --------------------------------x 100
Net Sales
For 2010,
Non-recurr ing expenses = 41,260
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Net sales = 30,45,853
41,260
Non-recurr ing expenses ratio =--------------- x 100=1.35%
30,45,853
For 2009,
Non-recurr ing expenses = 32,053
Net sales = 3,579,889
32,053
Non-recurr ing expenses ratio =------------- x 100= .89 %
3,579,889
For 2008,
Non-recurr ing expenses = 555
Net sales = 3,157,881
555
Non-recurr ing expenses ratio = ----------------- x 100= .017 %
3,157,881
Interpretation: The above calculation shows that there is an increase in Non-recurring
expenses from year to year. An increase in this non-recurring expenses leads to decline in
operating profit ratio as operating profit declines. There is a continuing rise in the non-
recurring expense from year 2008 to year 2010. This expense needs to be control to
increase the operating profit that further leads to increase in net profit of the company.
d) Other Expenses Ratio
Other expenses
= -------------------------x 100
Net sales
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For 2010,
Other expenses = 71,555
Net sales = 30,45,853
71,555
Other expenses ratio =-------------x 100=2.34%
30,45,853
For 2009,
Other expenses = 68,246
Net sales = 35,79,889
68,246
Other expenses ratio = -------------x 100=1.90%
35,79,889
For 2008,
Other expenses = 72,435
Net sales = 3,157,881
72,435
Other expenses ratio = -----------------x 100= 2.29 %
31,57,881
Interpretation: As the above calculation says that the other expenses ratio is lowestin the
year 2009, which results in high operating profit ratio in the same year. There is a change
(decline) of about 0.39 % in other expenses ratio from year 2008 to year2009. In the
year 2010, there is a change (increase) of about 0.44 % as compare to theyear 2009. These
entire expenses ratio should be low, which further leads to increasein operating profit ratioof a firm.
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5. Net Profit Ratio:
Meaning: This ratio measures the relationship between net profit and sales of a firm. Net
profit is the excess of revenue over expenses during a particular accounting period. The
formula used is as follows:
Net Profit
Net Profit Ratio = ------------------x 100
Net Sales
For 2010,
Net profit (before tax) =8,01,520 Net profit ( after tax) = 4,86,508
Net sales = 30,45,853 Net sales = 30,45,853
8,01,520 4,86,508
Net Profit Ratio = -------------x 100 Net Profit Ratio = ------------x 100
30,45,853 30,45,853
= 26.31 % = 15.97 %
For 2009,
Net profit (before tax) = 10,78,508 Net profit (after tax) = 8,71,814
Net sales = 35,79,889 Net sales = 35,79,889
10,78,508 8,71,814
Net Profit Ratio = ---------------x 100 Net Profit Ratio = --------------x 100
35,79,889 35,79,889
= 30.12 % = 24.35 %
For 2008,
Net profit (before tax) = 9,47,190 Net profit (after tax) = 7,23,807
Net sales = 31,57,881 Net sales = 31,57,881
9,47,190 7,23,807
Net Profit Ratio = ------------x 100 Net Profit Ratio =-----------x 100
31,57,881 31,57,881
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= 29.99 % = 22.92 %
Interpretation: In the above calculation the net profit ratio (before tax) is highest in the
year2009 as compare to that of the year 2010 & 2008. It shows that in the year 2009 owner
gotadequate returns. A high net profit ratio is preferable as it is the indication of overall
profitabilityand efficiency of the business. In the year 2010 net profit ratio (before tax) is
26.31 %, which isvery low as compare to previous year.In the above calculation the net
profit ratio (after tax) is highest in the year 2009 as compare to that of the year 2010 &
2008. It shows that in the year 2008 owner got adequate returns. A high net profit ratio is
preferable as it is the indication of overall profitability and efficiency of the business. In the
year 2010 net profit ratio (after tax) is 12.68 %, which is very low as compare to previous
year.
Profitability Ratios based on capital /investments:
6. Return on Capital Employed
Meaning: This ratio expresses the relationship between profits and capital employed and is
calculated in percentage by dividing the net profit by capital employed. The formula used is
as follows:
Net Profit (before interest and tax)
Return on Capital employed = ---------------------------------------------x 100
Net Capital employed
Net Capital employed = FA(less depreciation) + current assets current liabilities.
For 2010,Net Profit (before interest and tax) = 8,04,927
Net Capital employed = 2,415,707
8,04,927
Return on capital employed = ---------------x 100= 33.32%
24,15,707
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For 2009,
Net Profit (before interest and tax) = 10,88,527
Net capital employed = 26,11,10610,88,527
Return on capital employed = ------------------------x 100= 41.68 %
26,11,106
For 2008,
Net Profit (before interest and tax) = 9,47,443
Net capital employed = 23,07,403
9,47,443
Return on capital employed =------------------x 100= 41.06 %
2,307,403
Interpretation: The return on capital employed provides a test of profitability related to
the long term funds. The higher the ratio, the more effective and efficient would be the
utilization of capital and vice-versa. In the year 2009 the return on capital employed ishigh
as compare to the year 2010 & 2008. This shows the effective utilization of capitalin the
year 2008 as compare to that of the year 2010 & 2008
.
7. Return on Total Assets
Meaning: Profitability can also be measured by establishing relationship between net
profits and total assets. This ratio is computed by dividing the net profits after tax by total
funds invested or total assets.
Net Profit after tax + Interest
Return on total assets = --------------------------------------x 100
Total Tangible assets
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For 2010,
Net profit after tax + interest = 4, 89,915
Total tangible assets = 32,60,260
4,89,915
Return on Total assets = --------------------------x 100=15.02%
32,60,260
For 2009,
Net Profit after tax + interest = 8, 81,833
Total tangible assets = 33,81,265
8, 81,833
Return on Total assets = -----------------------x 100= 26.07 %
33,81,265
For 2008,
Net Profit after tax + interest = 7, 24,060
Total tangible assets = 31,62,958
7, 24,060
Return on Total assets = ---------------------------x 100= 22.89 %
31,62,958
Interpretation: High return on total assets is considered as the satisfactory ratio. In the
year 2009 the return on total assets is high as compare to that of the year 2010 and
2008.There is a change (increase) of about 3.2 % from year 2008 to the year 2009. Thereis
a change (decrease) of about 11.05 % from the year 2009 to the year 2010. The basic
objective of this ratio is to measure the effectiveness of the use of these funds. The resultofthe year 2009 shows that the funds invested in total assets are not properly utilized.
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Chapter 4
Comparative Financial
Statement
COMPARATIVE FINANCIAL STATEMENTS
Comparative financial statements are those statements which summarise and present
related accounting data for a number of years incorporating therein the changes (absolute
or relative or both) in individual items.
Comparative balance sheet
As on 30 Dec 2010
Particulars 2010 2009 Amount
Change
% Change
ASSETS
Cash & Cash Equivalent 8,19,487 9,04,986 (85,499) 9.44%
Short Term Investment 8,86,450 7,25,989 1,60,461 22.10%
Net Receivables 4,88,296 5,77,947 (89657) 15.51%
Other Current Assets 80,885 1,37,954 (57,099) 41.38%
Long term investments 2,07,239 2,83,828 (76,589) 26.98%
Property, plant & equipment 3,88,132 3,13,037 75,095 23.98%
Goodwill 34,94,589 21,34,730 13,59,859 63.70%
Intangible assets 5,27,388 3,05,603 2,21,785 72.57 %
TOTAL 68,93,466 53,83,984 15,09,482 28.03%
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LIABILITIES
Accounts payable 5,25,184 5,18,635 6,549 1.26 %
Other current liabilities 3,19,369 2,43,964 75,495 30.94 %
Long-term debt 10,00,000 3,50,000 6,50,000 185.71 %
Other Liabilities 2,57,913 1,49,961 1,07,952 71.98 %Deferred long term liabilities 2,89,203 1,48,684 1,40,519 94.50 %
TOTAL 23,91,669 14,11,244 9,80,425 69.47 %
Comparative Income Statement
As on 30 Dec, 2010
Particulars Increase or Decrease
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(change)
2010 2009 Amount %
Total Revenue 30,45,853 35,79,889 (5,34,036) 14.91
Less :Cost of revenue 2,96,732 3,62,630 (65,898) 18.17
Gross profit 27,49,121 32,17,259 (4,68,138) 14.55
Less :Operating
expenses
Resear ch development 5,65,141 6,62,057 (96,916) 14.63
Selling, gen, adminis 12,80,652 14,26,632 (1,45,980) 10.23
Non recurring 41,260 32,053 9,207 28.72
Others 71,555 68,246 3,309 4.84
Operating income or
loss
7,90,513 10,28,271 (2,37,758) 23.12
Add: other income 14,414 60,256 (45,842) 76.07
Income before interest&tax
8,04,927 10,88,527 (2,83,600) 26.05
Less: interest 3,407 10,019 (6,612) 65.99
Income before tax34.95
8,01,520 10,78,508 (2,76,988) 25.68
Less: income tax 3,15,012 2,06,694 1,08,313 52.40
Net income or income
after tax
4,86,508 8,71,814 (3,85,306) 44.19
COMMON-SIZE FINANCIAL STATEMENTSFinancial statements that depicts financial data in the shape of vertical percentages are known
as common size statements. In such statements, all figures are converted into a common
unit by expressing them as a percentage of a key figure in the statement. The total of financial
statement is reduced to 100 and each item is shown as a component to the whole.
Common-size balance sheet
As at 30 Dec 2009Particulars Amount Percent
ASSETS
Cash & Cash Equivalent 8,19,487 11.88
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Short Term Investment 8,86,450 12.85
Net Receivables 4,88,296 7.52
Other Current Assets 80,885 1.17
Long term investments 2,07,239 3
Property, plant & equipment 3,88,132 5.63
Goodwill 34,94,589 50.30
Intangible assets 5,27,388 7.65
TOTAL 68,93,466 100
LIABILITIES
Accounts payable 5,25,184 21.95
Other current liabilities 3,19,369 13.35Long-term debt 10,00,000 41.81
Other Liabilities 2,57,913 10.79
Deferred long term liabilities 2,89,203 12.10
TOTAL 23,91,669 100
Common-size Income statement
As on 30 Dec 20102010 Percent
Total Revenue 30,45,853 100Less :Cost of revenue 2,96,732 9.74Gross profit 27,49,121 90.25Less :Operating expenses
Resear ch development 5,65,141 18.55Selling, gen, adminis 12,80,652
42.04Non recurring 41,260 1.35Others 71,555 2.34Operating income or loss 7,90,513 25.95
Add: other income 14,414 0.47Income before interest 8,04,927 26.42
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&tax
Less: interest 3,407 0.11Income before tax34.95
8,01,520 26.31
Less: income tax 3,15,012 10.34
Net income or income
after tax
4,86,508 15.97
Statement of changes in working capital
Particulars 2010 2009 Effect on workingcapital
Increase or DecreaseCURRENT ASSETS
Cash & Cash Equivalent 8,19,487 9,04,986 85,499
Short Term Investment 8,86,450 7,25,989 1,60,461
Net Receivables 4,88,296 5,77,947 89,651
Other Current Assets 80,885 1,37,954 57,099
Long term investments 2,07,239 2,83,828 1,60,461 2,32,249
Total 22,75,088 23,46,876 1,60,461 2,32,249
CURRENT
LIABILITIES
Accounts payable 5,25,184 5,18,635 6,549
Other current liabilities 3,19,369 2,43,964
Total 8,44,553 7,62,599 81,954
Net working capital 14,30,535 15,84,277 1,60,461 3,14,203
Net increase in working
capital
1,53,742 1,53,742
15,84,277 15,84,277 3,14,203 3,14,203
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Chapter 5
Findings and Analysis
1. Current ratio for the year 2010 is 2.69: 1, which is considered satisfactory as
compare to that of previous year ratio.
2. Total assets turnover r atio for the 2010 is .41 times which is not satisfactory
as compare to that of 2009 i.e. .61 times.
3. Fixed assets turnover ratio is 7.84 times which is low as compare to that of 2009
i.e. 11.43 times and hence not satisfactory.
4. Current assets turnover ratio for the 2010 is 1.33 times which is better as compare
to that of 2009 i.e. 1.30 times.
5. Working capital turnover ratio for the 2010 is 2.13 times which is high as compare
to that of 2009 i.e. 1.81 times.
6. Capital turnover ratio for the 2010 is 1.26 times which is low as compare to that of
2009 i.e. 1.37 times.
7. Gross profit ratio is increasing from 89.87 % in the 2009 to 90.25 % in the
2010.
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8. Operating ratio is increasing from 71.28 % in the 2009 to 74.05 % in the 2010.
9. Non-recurring expenses ratio is increasing from 0.89 % in the2009 to 1.35 % in
the 2010.
10. Other expenses ratio is increasing from 1.90% in 2009 to 2.34 % in 2010.
11. Net profit ratio (before tax) is declining from 30.12 % in 2009 to 26.31% in 2010.
Bibliography:-
1. Financial statement of company
2. http://www.managementparadise.fin.co.in
3. http://wikipedia.com