Analysis of Financial Statements

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\trowd\trautofit1\intbl{\ul0\nosupersub\cf7\f8\fs32 Analysis of Financial

Statements}\cell{\ul0\nosupersub\cf8\f9\fs48 4}\cell
{\trowd\trautofit1\intbl
\cltxlrtb\clftsWidth1\cellx4320
\row}
}\par\pard\par\pard \ul0\nosupersub\cf2\f3\fs21 ou have learnt about the

financial statements \ul0\nosupersub\cf1\f2\fs60 Y \ul0\nosupersub\cf2\f3\fs21
(Income Statement and Balance Sheet) of \par\pard\par\pard\ql companies. Basically,
these are summarised financial reports which provide the operating results
and financial position of companies, and the detailed \par information
contained therein is useful for assessing the operational efficiency and
financial soundness of a company. This requires proper analysis and
interpretation of such information for which a number of techniques (tools) have
been developed by financial experts. In this chapter we will have an
overview of these techniques. \par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21
4.1 Meaning of Analysis of Financial Statements \par\pard\par\pard\ql
\ul0\nosupersub\cf4\f5\fs20 L\ul0\nosupersub\cf5\f6\fs18
EARNING\ul0\nosupersub\cf4\f5\fs20 O\ul0\nosupersub\cf5\f6\fs18 BJECTIVES
\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 The process of critical
evaluation of the financial \par\pard\ul0\nosupersub\cf6\f7\fs18 After
studying this chapter, you will be able to : \u8226? explain the nature and \par
significance of financial \ul0\nosupersub\cf2\f3\fs21 information
contained in the financial statements in order to understand and make
decisions regarding the operations of the firm is called \u8216?Financial
\par\pard\par\pard\ql Statement Analysis\u8217?. It is basically a study of
\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 analysis;
\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 relationship among various
financial facts and \par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 \u8226?
identify the objectives of \par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21
figures as given in a set of financial statements, and
\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 financial analysis;
\par\pard\u8226? describe the various tools \par of financial analysis;
\u8226? state the limitations of \ul0\nosupersub\cf2\f3\fs21 the interpretation
thereof to gain an insight into the profitability and operational efficiency
of the firm to assess its financial health and future prospects.
\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 financial analysis;
\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 The term \u8216?financial
analysis\u8217? includes both \par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18
\u8226? prepare comparative and \par\pard\par\pard\ql
\ul0\nosupersub\cf2\f3\fs21 \u8216?analysis and interpretation\u8217?. The term
analysis \par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 commonsize statements
\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 means simplification of
financial data by methodical \par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18
and interpret the data \par\pard\par\pard{
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 given therein;

and}\cell{\ul0\nosupersub\cf2\f3\fs21 classification given in the financial
statements.}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 \u8226? calculate the

trend}\cell{\ul0\nosupersub\cf2\f3\fs21 Interpretation means explaining the meaning
and}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 percentages and interpret

\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 significance of the data.
These two are \par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 them.
\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 complimentary to each other.
Analysis is useless \par\pard\par\pard{

\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 without interpretation, and
interpretation without analysis is difficult or even impossible.
\par\pard\par\pard\ql \ul0\nosupersub\cf9\f10\fs18 Box \par\pard\par\pard\ql
\ul0\nosupersub\cf6\f7\fs18 Financial statement analysis is very aptly defined by
Bernstein as, \u8220?a judgemental process which aims to estimate current and past
financial positions and the results of the operation of an enterprise, with primary
objective of determining the best possible estimates and predictions about the
future conditions.\u8221? It essentially involves regrouping and analysis of
information provided by financial statements to establish relationships and throw
light on the points of strengths and weaknesses of a business enterprise, which can
be useful in decision-making involving comparison with other firms (cross sectional
analysis) and with firms\u8217? own performance, over a time period (time series
analysis). \par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 4.2 Significance of
Financial Analysis \par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 Financial
analysis is the process of identifying the financial strengths and weaknesses of
the firm by properly establishing relationships between the various items
of the balance sheet and the profit and loss account. Financial analysis can be
undertaken by management of the firm, or by parties outside the firm, viz. owners,
trade creditors, lenders, investors, labour unions, analysts and others. The
nature of analysis will differ depending on the purpose of the analyst.
A technique frequently used by an analyst need not necessarily serve the
purpose of other analysts because of the difference in the interests of the
analysts. Financial analysis is useful and significant to different users
in the following \par ways: \par\pard\par\pard\qj (a) Finance manager:
Financial analysis focusses on the facts and \par relationships related to
managerial performance, corporate efficiency, financial strengths and
weaknesses and creditworthiness of the company. A finance manager must be
well-equipped with the different tools of analysis to make rational
decisions for the firm. The tools for analysis help in studying
accounting data so as to determine the continuity of the operating
policies, investment value of the business, credit ratings and testing the
efficiency of operations. The techniques are equally important in the area
of financial control, enabling the finance manager to make constant reviews of
the actual financial operations of the firm to analyse the causes of major
deviations, which may help in corrective action wherever indicated.
\par\pard\par\pard\qr (b) Top management: The importance of financial analysis is
not limited to the finance manager alone. Its scope of importance is quite broad
which includes top management in general and the other functional managers.
\par\pard\par\pard{
\trowd\trautofit1\intbl{\ul0\nosupersub\cf10\f11\fs18
202}\cell{\ul0\nosupersub\cf10\f11\fs18 Accountancy : Company Accounts and Analysis
of Financial Statements}\cell
\row}
}\par\pard\par\pard \ul0\nosupersub\cf2\f3\fs21 Management of the firm

would be interested in every aspect of the financial analysis. It is
their overall responsibility to see that the resources of the firm are
used most efficiently, and that the firm\u8217?s financial condition is
sound. Financial analysis helps the management in measuring the success or
otherwise of the company\u8217?s operations, appraising the individual\u8217?s
performance and evaluating the system of internal control. \par (c)
Trade creditors:\ul0\nosupersub\cf11\f12\fs21 \ul0\nosupersub\cf2\f3\fs21 A trade
creditor, through an analysis of financial \par statements, appraises not
only the urgent ability of the company to meet its obligations,
but also judges the probability of its continued ability to meet all its
financial obligations in future. Trade creditors are particularly interested in
the firm\u8217?s ability to meet their claims over a very short period of time.
Their analysis will, therefore, confine to the evaluation of the
firm\u8217?s liquidity position. \par\pard\par\pard(d) Lenders: Suppliers of
long-term debt are concerned with the firm\u8217?s long\par term
solvency and survival. They analyse the firm\u8217?s profitability
overtime, its ability to generate cash to be able to pay interest and repay the
principal and the relationship between various sources of funds (capital
structure relationships). Long-term tenders do analyse the historical financial
statements. But they place more emphasis on the firm\u8217?s projected
financial statements to make analysis about its future solvency and
profitability. (e) Investors: Investors, who have invested their money in
the firm\u8217?s shares, \par are interested about the firm\u8217?s earnings.
As such, they concentrate on the analysis of the firm\u8217?s present and
future profitability. They are also interested in the firm\u8217?s capital
structure to ascertain its influences on firm\u8217?s earning and risk. They
also evaluate the efficiency of the management and determine whether a change is
needed or not. However, in some large companies, the shareholders\u8217?
interest is limited to decide whether to buy, sell or hold the
shares. \par\pard\par\pard ( f) Labour unions: Labour unions analyse
the financial statements to assess \par whether it can presently afford
a wage increase and whether it can absorb a wage increase through
increased productivity or by raising the prices. \par (g) Others: The
economists, researchers, etc. analyse the financial statements \par to
study the present business and economic conditions. The government agencies need
it for price regulations, taxation and other similar purposes.
\par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 4.3 Objectives of Financial
Analysis \par\pard\par\pard\qj \ul0\nosupersub\cf2\f3\fs21 Analysis of
financial statements reveals important facts concerning managerial \par
performance and the efficiency of the firm. Broadly speaking,
the objectives of the analysis are to apprehend the information
contained in financial statements \par\pard\par\pard{

\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 with a view to know the

weaknesses and strengths of the firm and to make a forecast about the future
prospects of the firm thereby, enabling the analysts to \par take
decisions regarding the operation of, and further investment in,
the firm. To be more specific, the analysis is undertaken to
serve the following purposes \par (objectives): \par\pard\par\pard\qj \u8226?
to assess the current profitability and operational efficiency of the
firm \par as a whole as well as its different departments so as to judge the
financial health of the firm. \par\pard\par\pard\ql \u8226? to ascertain the
relative importance of different components of the \par financial position of
the firm. \par\pard\par\pard\ql \u8226? to identify the reasons for change
in the profitability/financial position \par of the firm. \par\pard\par\pard
\u8226? to judge the ability of the firm to repay its debt and assessing the
short-term as well as the long-term liquidity position of the firm. \par
Through the analysis of financial statements of various firms, an
economist can \par judge the extent of concentration of economic power
and pitfalls in the financial policies pursued. The analysis also provides the
basis for many governmental actions relating to licensing, controls, fixing of
prices, ceiling on profits, dividend freeze, tax subsidy and other concessions
to the corporate sector. It also helps the management in self-appraisal
and the shareholders (owners) and others to judge the performance of the
management. \par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 4.4 Tools of
Financial Analysis \par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 The most
commonly used techniques of financial analysis are as follows:
\par\pard\par\pard\ul0\nosupersub\cf12\f13\fs21 1. Comparative Statements: These
are the statements showing the \par profitability and financial position of a firm
for different periods of time in a comparative form to give an idea about
the position of two or more periods. It usually applies to the two important
financial statements, namely, Balance Sheet and Income Statement prepared in a
comparative form. The financial data will be comparative only when same
accounting principles are used in preparing these statements. If this is
not the case, the deviation in the use of accounting principles should be
mentioned as a footnote. Comparative figures indicate the trend and direction
of financial position and operating results. This analysis is also known
as \u8216?horizontal analysis\u8217?. 2. Common Size Statements: These are the
statements which indicate the \par relationship of different items of a
financial statement with some common item by expressing each item as a
percentage of the common item. The percentage thus calculated can be easily
compared with the results corresponding percentages of the previous year
or of some other firms, as \par\pard\par\pard{
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf12\f13\fs21 the numbers are brought to

common base. Such statements also allow an analyst to compare the operating and
financing characteristics of two companies of different sizes in the same industry.
Thus, common-size statements are useful, both, in intra-firm comparisons
over different years and also in making inter-firm comparisons for the
same year or for several \par years. This analysis is also known as
\u8216?Vertical analysis\u8217?. \par\pard\par\pard3. Trend Analysis: It is
a technique of studying the operational results and \par financial
position over a series of years. Using the previous years\u8217? data of
a business enterprise, trend analysis can be done to observe the
percentage changes over time in the selected data. The trend percentage is the
percentage relationship, which each item of different years bear to the same item
in the base year. Trend analysis is important because, with its
long run view, it may point to basic changes in the nature of the
business. By looking at a trend in a particular ratio, one may find
whether the ratio is falling, rising or remaining relatively constant.
From this observation, a problem is detected or the sign of good management is
found. 4. Ratio Analysis: It describes the significant relationship which exists
\par between various items of a balance sheet and a profit and
loss account of a firm. As a technique of financial analysis,
accounting ratios measure the comparative significance of the individual
items of the income and position statements. It is possible to assess the
profitability, solvency and efficiency of an enterprise through the technique
of ratio analysis. \par\pard\par\pard\ql 5. Cash Flow Analysis: It refers to the
analysis of actual movement of cash \par into and out of an organisation.
The flow of cash into the business is called as cash inflow or positive
cash flow and the flow of cash out of the firm is called as cash
outflow or a negative cash flow. The difference between the inflow and
outflow of cash is the net cash flow. Cash flow statement is prepared to project
the manner in which the cash has been received and has been utilised during an
accounting year as it shows the sources of cash receipts and also the purposes for
which payments are made. Thus, it summarises the causes for the changes in cash
position of a business enterprise between dates of two balance
sheets. \par\pard\par\pard\qj \ul0\nosupersub\cf2\f3\fs21 In this chapter,
we shall have a brief idea about the first three techniques, viz.
comparative statements common size statements and trend analysis. The ratio
analysis and cash flow analysis is covered in detail in chapters 5 and 6
respectively. \par\pard\par\pard{

\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf13\f14\fs18 Test your Understanding - I

\par\pard\par\pard\qc \ul0\nosupersub\cf6\f7\fs18 Fill in the blanks with
appropriate word(s), 1. Analysis simply means\u8212?\u8212?\u8212?\u8212?\u8212?
data. 2. Interpretation means \u8212?\u8212?\u8212?\u8212?\u8212?data.
\par\pard\par\pard3. Comparative analysis is also known as
\u8212?\u8212?\u8212?\u8212?\u8212?\u8212?\u8212?\u8212? analysis. 4. Common size
analysis is also known as \u8212?\u8212?\u8212?\u8212?\u8212?\u8212?\u8212?\u8212?
analysis. 5. The analysis of actual movement of money inflow and outflow in an
\par organisation is called\u8212?\u8212?\u8212?\u8212?\u8212?\u8212?\u8212?
analysis. \par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 4.5 Comparative
Statements \par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 As stated earlier,
these statements refer to the Profit and Loss Account and Balance Sheet prepared
by providing columns for the figures for both the current year as well
as for the previous year and for the changes during the year, both in
absolute and relative terms. As a result, it is possible to find out
not only the \par balances of account as on different dates and
summaries of different operational activities of different periods, but
also the extent of their increase or decrease between these dates. The
figures in the comparative statements can be used for identifying the direction
of changes and also the trends in different indicators of performance of
an organisation. \par\pard\par\pard\qj The following steps may be followed to
prepare the comparative statements: Step 1 : List out absolute figures in
rupees relating to two points of time (as \par shown in columns 2
and 3 of Figure 4.1.). \par\pard\par\pard\ql Step 2 : Find out change in
absolute figures by subtracting the first year (Col.2) \par from the
second year (Col.3) and indicate the change as increase (+) or
decrease (-) and put it in column 4. \par\pard\par\pard\ql Step
3 : Preferably, also calculate the percentage change as follows
and put it in Column 5. \par\pard\par\pard{
\trowd\trautofit1\intbl{\ul0\nosupersub\cf2\f3\fs21 Second year absolute figure

(Col.3)}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf2\f3\fs21 � 100 -100,}\cell

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf2\f3\fs21 First year absolute figure

(Col.2)}\cell
\row}
}\par\pard\par\pard{
\trowd\trautofit1\intbl
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Particulars}\cell{\ul0\nosupersub\cf6\f7\fs18
First Year}\cell{\ul0\nosupersub\cf6\f7\fs18 Second
Year}\cell{\ul0\nosupersub\cf6\f7\fs18 Absolute}\cell{\ul0\nosupersub\cf6\f7\fs18
Percentage}\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Increase (+)
or}\cell{\ul0\nosupersub\cf6\f7\fs18 Increase (+)}\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Decrease (-)}\cell{\ul0\nosupersub\cf6\f7\fs18
or Decrease (-)}\cell
\row}
Column}\cell{\ul0\nosupersub\cf6\f7\fs18 1}\cell{\ul0\nosupersub\cf6\f7\fs18
2}\cell{\ul0\nosupersub\cf6\f7\fs18 3}\cell{\ul0\nosupersub\cf6\f7\fs18
4}\cell{\ul0\nosupersub\cf6\f7\fs18 5}\cell
\row}
{}\cell
{}\cell{\ul0\nosupersub\cf9\f10\fs18 Rs.}\cell{\ul0\nosupersub\cf9\f10\fs18
Rs.}\cell{\ul0\nosupersub\cf9\f10\fs18 Rs.}\cell{\ul0\nosupersub\cf9\f10\fs18
%.}\cell
\row}
}\par\pard\par\pard\ql Fig. 4.1 \par\pard\par\pard{
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Illustration 1

\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 Convert the following Income
Statement into a comparative income statement of BCR Co. Ltd and interpret
the changes in 2005 in the light of the conditions in 2004.
\par\pard\par\pard{
Particulars}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
{}\cell{\ul0\nosupersub\cf6\f7\fs18 (Rs.)}\cell{\ul0\nosupersub\cf6\f7\fs18
(Rs.)}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Gross
Sales}\cell{\ul0\nosupersub\cf6\f7\fs18 30,600}\cell{\ul0\nosupersub\cf6\f7\fs18
36,720}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Sales

Return}\cell{\ul0\nosupersub\cf6\f7\fs18 600}\cell{\ul0\nosupersub\cf6\f7\fs18
700}\cell
\row}
{}\cell{\ul0\nosupersub\cf6\f7\fs18 \u8212? \u8212? \u8212?
\u8212?}\cell{\ul0\nosupersub\cf6\f7\fs18 \u8212? \u8212? \u8212? \u8212?}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Net
36,020}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Cost of Goods

Sold}\cell{\ul0\nosupersub\cf6\f7\fs18 18,200}\cell{\ul0\nosupersub\cf6\f7\fs18
20,250}\cell
\row}
\row}
Profit}\cell{\ul0\nosupersub\cf9\f10\fs18 11,800}\cell{\ul0\nosupersub\cf9\f10\fs18
15,770}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Operating Expenses

-}\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Administration
Expenses}\cell{\ul0\nosupersub\cf6\f7\fs18 3,000}\cell{\ul0\nosupersub\cf6\f7\fs18
3,400}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Selling
6,600}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Total Operating

Expenses}\cell{\ul0\nosupersub\cf9\f10\fs18
9,000}\cell{\ul0\nosupersub\cf9\f10\fs18 10,000}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Profit form

Operations}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Add:
\ul0\nosupersub\cf6\f7\fs18 Non-Operating Income}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
\row}
{}\cell{\ul0\nosupersub\cf9\f10\fs18 3,100}\cell{\ul0\nosupersub\cf6\f7\fs18
6,170}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Less:
\ul0\nosupersub\cf6\f7\fs18 Non-Operating
Expenses}\cell{\ul0\nosupersub\cf6\f7\fs18 400}\cell{\ul0\nosupersub\cf6\f7\fs18
600}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Net Profit before
Tax}\cell{\ul0\nosupersub\cf6\f7\fs18 2,700}\cell{\ul0\nosupersub\cf6\f7\fs18
5,570}\cell
\row}
\ul0\nosupersub\cf6\f7\fs18 Tax @ 50%}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Net Profit after

2,785}\cell
\row}
\row}

Statements}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf10\f11\fs18 207}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf3\f4\fs21 Solution}\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell{\ul0\nosupersub\cf2\f3\fs21 Comparative Income Statement for the year ended
March 31, 2004 and 2005.}\cell
\cell
\cell
\row}
Absolute}\cell{\ul0\nosupersub\cf6\f7\fs18 Percentage}\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Increase (+)
or}\cell{\ul0\nosupersub\cf6\f7\fs18 Increase (+)}\cell
\row}
{}\cell
{}\cell
or Decrease (-)}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Column
3}\cell{\ul0\nosupersub\cf6\f7\fs18 4}\cell{\ul0\nosupersub\cf6\f7\fs18 5}\cell
\row}
Rs.}\cell{\ul0\nosupersub\cf6\f7\fs18 Rs.}\cell{\ul0\nosupersub\cf6\f7\fs18
%.}\cell
\row}
36,720}\cell{\ul0\nosupersub\cf9\f10\fs18 +6,120}\cell{\ul0\nosupersub\cf9\f10\fs18
+20.00}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Sales

Return}\cell{\ul0\nosupersub\cf6\f7\fs18 600}\cell{\ul0\nosupersub\cf6\f7\fs18
700}\cell{\ul0\nosupersub\cf6\f7\fs18 +100}\cell{\ul0\nosupersub\cf6\f7\fs18
+16.67}\cell
\row}
+20.07}\cell
\row}

+11.26}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Gross Profit

(A)}\cell{\ul0\nosupersub\cf9\f10\fs18 11,800}\cell{\ul0\nosupersub\cf9\f10\fs18
+33.64}\cell
\row}

(B)}\cell
\cell
\cell
\cell
\cell
\row}
3,400}\cell{\ul0\nosupersub\cf6\f7\fs18 +400}\cell{\ul0\nosupersub\cf6\f7\fs18
+13.33}\cell
\row}
+10.00}\cell
\row}
+11.11}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Operating Profit (A-

B)}\cell{\ul0\nosupersub\cf9\f10\fs18 2,800}\cell{\ul0\nosupersub\cf9\f10\fs18
+106.07}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Add: Non-operating

Income}\cell{\ul0\nosupersub\cf6\f7\fs18 300}\cell{\ul0\nosupersub\cf6\f7\fs18
+33.33}\cell
\row}
6,170}\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Non-operating

+50.00}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Net Profit before

+106.30}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Tax @

50%}\cell{\ul0\nosupersub\cf6\f7\fs18 1,350}\cell{\ul0\nosupersub\cf6\f7\fs18
+106.30}\cell
\row}

+106.30}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf10\f11\fs18 Interpretation

\par\pard\par\pard\qj \ul0\nosupersub\cf6\f7\fs18 1. The company has made efforts
to reduce the cost which is evident from the fact \par that the cost of goods
sold has not increased in the same ratio as the amount sales. \par\pard\par\pard\ql
2. The gross profit has increased in 2005 as compared to 2004 considerably,
33.64% \par with an increase 20% in sales; \par\pard\par\pard\ql 3. The company
has also concentrated on reducing the operating cost; hence, the \par percentage
of operating profit has also considerably increased, i.e. 106.07%.
\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 Thus, the overall performance
of the company has immensely improved in the year 2005. \par\pard\par\pard{
\row}

\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 From the following Income
Statement of Madhu Co.Ltd., prepare Comparative Income Statement for the year ended
March 31, 2005 and 2006 and interpret the same. \par\pard\par\pard{
\row}
(Rs.)}\cell
\row}
Sales}\cell{\ul0\nosupersub\cf6\f7\fs18 4,00,000}\cell{\ul0\nosupersub\cf6\f7\fs18
6,50,000}\cell
\row}
Purchases}\cell{\ul0\nosupersub\cf6\f7\fs18
2,00,000}\cell{\ul0\nosupersub\cf6\f7\fs18 2,50,000}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Opening
Stock}\cell{\ul0\nosupersub\cf6\f7\fs18 20,600}\cell{\ul0\nosupersub\cf6\f7\fs18
32,675}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Closing
20,000}\cell
\row}
Salaries}\cell{\ul0\nosupersub\cf6\f7\fs18 16,010}\cell{\ul0\nosupersub\cf6\f7\fs18
18,000}\cell
\row}
Rent}\cell{\ul0\nosupersub\cf6\f7\fs18 5,100}\cell{\ul0\nosupersub\cf6\f7\fs18
6,000}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Postage and

Stationery}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
Advertising}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Commission on
3,500}\cell
\row}
Depreciation}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Loss on Sale of

Asset}\cell{\ul0\nosupersub\cf6\f7\fs18 4,000}\cell{\ul0\nosupersub\cf6\f7\fs18
2,000}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Profit on Sale of

Investment}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
\cell
\cell
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf2\f3\fs21 Comparative Income Statement of Madhu Co. Ltd
for the year ended March 31,}\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf2\f3\fs21 2005 and 2006}\cell

\cell
\cell
\cell
\cell
\row}
Absolute}\cell{\ul0\nosupersub\cf6\f7\fs18 Percentage}\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Increase
(+)/}\cell{\ul0\nosupersub\cf6\f7\fs18 Increase (+)}\cell
\row}
{}\cell
{}\cell
/Decrease (-)}\cell
\row}
Rs.}\cell{\ul0\nosupersub\cf6\f7\fs18 Rs.}\cell
\cell
\row}
6,50,000}\cell{\ul0\nosupersub\cf6\f7\fs18
+2,50,000}\cell{\ul0\nosupersub\cf6\f7\fs18 +62.50}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Cost of Goods Sold:}\cell

\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Opening
+58.62}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Add:
Purchases}\cell{\ul0\nosupersub\cf6\f7\fs18
+50,000}\cell{\ul0\nosupersub\cf6\f7\fs18 +25.00}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Closing

20,000}\cell{\ul0\nosupersub\cf6\f7\fs18
(-)12,675}\cell{\ul0\nosupersub\cf6\f7\fs18 (-)38.79}\cell
\row}
{}\cell{\ul0\nosupersub\cf6\f7\fs18 1,87,925}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}

(A)}\cell{\ul0\nosupersub\cf9\f10\fs18 2,12,075}\cell{\ul0\nosupersub\cf9\f10\fs18
\row}

(B)}\cell{\ul0\nosupersub\cf6\f7\fs18 16,010}\cell{\ul0\nosupersub\cf6\f7\fs18
+12.43}\cell
\row}
Salaries}\cell{\ul0\nosupersub\cf6\f7\fs18 5,100}\cell{\ul0\nosupersub\cf6\f7\fs18
+17.65}\cell
\row}
Rent}\cell{\ul0\nosupersub\cf6\f7\fs18 3,200}\cell{\ul0\nosupersub\cf6\f7\fs18
+28.13}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Postage and

Stationery}\cell{\ul0\nosupersub\cf6\f7\fs18
2,600}\cell{\ul0\nosupersub\cf6\f7\fs18 4,600}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Advertising}\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Commission on
+10.76}\cell
\row}

Statements}\cell
{}\cell
\cell
\row}
+300}\cell{\ul0\nosupersub\cf6\f7\fs18 +150.00}\cell
\row}
+21.24}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Operating Profit}\cell

\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 (A-
B)}\cell{\ul0\nosupersub\cf9\f10\fs18 1,81,805}\cell{\ul0\nosupersub\cf9\f10\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Add: Non-operating Income}\cell

\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Profit on Sale of

\row}
3,55,125}\cell
\cell
\cell
\row}

Expenses}\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Loss on Sale of

Assets}\cell{\ul0\nosupersub\cf6\f7\fs18 4,000}\cell{\ul0\nosupersub\cf6\f7\fs18
2,000}\cell{\ul0\nosupersub\cf9\f10\fs18 (\ul0\nosupersub\cf6\f7\fs18
-)2,000}\cell{\ul0\nosupersub\cf6\f7\fs18 (-)50.00}\cell
\row}
Profit}\cell{\ul0\nosupersub\cf9\f10\fs18
3,53,125}\cell{\ul0\nosupersub\cf9\f10\fs18 +
1,72,320}\cell{\ul0\nosupersub\cf9\f10\fs18 +95.31}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf10\f11\fs18 Interpretation

\par\pard\par\pard\qj \ul0\nosupersub\cf6\f7\fs18 1. The comparative balance
sheet of the company reveals that there has been an \par increase in sales by
Rs.2,50,000, i.e. 62.5% whereas cost of goods sold has increased only by Rs.74,750,
i.e. 39.78%. This reveals that the company has made efforts to reduce the cost of
goods sold thereby the gross profit of the company has increased by Rs.1,75,250,
i.e. 82.64%. \par\pard\par\pard2. The expenses of the company have increased by
Rs.6,430, i.e. 21.24% only, and \par the operating profit has increased by
Rs.1,68,820, i.e. 92.86%. 3. The net profit of the company has increased by
95.31%, 4. The overall performance of the company is good.
\par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Illustration 3
\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 The following are the Balance
Sheets of J. Ltd. for the year ended March 31, 2005 and 2006. \par\pard\par\pard\ql
Prepare a Comparative Balance Sheet and comment on the financial position of
the business firm. \par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 Rs.(\u8216?
000) \par\pard\par\pard{
Liabilities}\cell{\ul0\nosupersub\cf6\f7\fs18
Assets}\cell{\ul0\nosupersub\cf6\f7\fs18 2005}\cell{\ul0\nosupersub\cf6\f7\fs18
2006}\cell
\row}
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Rs.}\cell{\ul0\nosupersub\cf6\f7\fs18 Rs.}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Rs.}\cell{\ul0\nosupersub\cf6\f7\fs18 Rs.}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Equity Share

Capital}\cell{\ul0\nosupersub\cf6\f7\fs18 600}\cell{\ul0\nosupersub\cf6\f7\fs18
800}\cell{\ul0\nosupersub\cf6\f7\fs18 Land and
Building}\cell{\ul0\nosupersub\cf6\f7\fs18 370}\cell{\ul0\nosupersub\cf6\f7\fs18
270}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Reserves and

Surplus}\cell{\ul0\nosupersub\cf6\f7\fs18 330}\cell{\ul0\nosupersub\cf6\f7\fs18
222}\cell{\ul0\nosupersub\cf6\f7\fs18 Plant and
Machinery}\cell{\ul0\nosupersub\cf6\f7\fs18 400}\cell{\ul0\nosupersub\cf6\f7\fs18
600}\cell
\row}
Debentures}\cell{\ul0\nosupersub\cf6\f7\fs18 200}\cell{\ul0\nosupersub\cf6\f7\fs18
300}\cell{\ul0\nosupersub\cf6\f7\fs18 Furniture and
Fixtures}\cell{\ul0\nosupersub\cf6\f7\fs18 20}\cell{\ul0\nosupersub\cf6\f7\fs18
25}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Long-term
Loans}\cell{\ul0\nosupersub\cf6\f7\fs18 150}\cell{\ul0\nosupersub\cf6\f7\fs18
200}\cell{\ul0\nosupersub\cf6\f7\fs18 Other Fixed
30}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Bills
Payable}\cell{\ul0\nosupersub\cf6\f7\fs18 50}\cell{\ul0\nosupersub\cf6\f7\fs18
45}\cell{\ul0\nosupersub\cf6\f7\fs18 Cash in Hand and at
Bank}\cell{\ul0\nosupersub\cf6\f7\fs18 20}\cell{\ul0\nosupersub\cf6\f7\fs18
80}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Sundry
Creditors}\cell{\ul0\nosupersub\cf6\f7\fs18 100}\cell{\ul0\nosupersub\cf6\f7\fs18
120}\cell{\ul0\nosupersub\cf6\f7\fs18 Bills
Receivable}\cell{\ul0\nosupersub\cf6\f7\fs18 150}\cell{\ul0\nosupersub\cf6\f7\fs18
90}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Other Current

Liabilities}\cell{\ul0\nosupersub\cf6\f7\fs18 5}\cell{\ul0\nosupersub\cf6\f7\fs18
10}\cell{\ul0\nosupersub\cf6\f7\fs18 Sundry
Debtors}\cell{\ul0\nosupersub\cf6\f7\fs18 200}\cell{\ul0\nosupersub\cf6\f7\fs18
250}\cell
\row}
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Stock}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 250}\cell{\ul0\nosupersub\cf6\f7\fs18 350}\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Pre-paid
Expenses}\cell{\ul0\nosupersub\cf6\f7\fs18 -}\cell{\ul0\nosupersub\cf6\f7\fs18
2}\cell
\row}
1,697}\cell
1,697}\cell
\row}
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Solution

\par\pard\par\pard\ql \ul0\nosupersub\cf11\f12\fs21 Comparative Balance Sheets of J
Ltd. \par as on March 31, 2005 and 2006. \par\pard\par\pard\ql
\ul0\nosupersub\cf6\f7\fs18 (Rs.\u8217?000) \par\pard\par\pard{
Absolute}\cell{\ul0\nosupersub\cf6\f7\fs18 Change (%)}\cell
\row}
(Rs.)}\cell{\ul0\nosupersub\cf6\f7\fs18 Increase
(+)/}\cell{\ul0\nosupersub\cf6\f7\fs18 Increase (+)}\cell
\row}
{}\cell
{}\cell
/Decrease (-)}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Assets:}\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Current Assets}\cell

\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Cash and

80}\cell{\ul0\nosupersub\cf6\f7\fs18 60}\cell{\ul0\nosupersub\cf6\f7\fs18 300}\cell
\row}
90}\cell{\ul0\nosupersub\cf6\f7\fs18 (-)60}\cell{\ul0\nosupersub\cf6\f7\fs18
(-)40}\cell
\row}
+25}\cell
\row}
Stock}\cell{\ul0\nosupersub\cf6\f7\fs18 250}\cell{\ul0\nosupersub\cf6\f7\fs18
+40}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Prepaid
Expenses}\cell{\ul0\nosupersub\cf6\f7\fs18 -}\cell{\ul0\nosupersub\cf6\f7\fs18
2}\cell{\ul0\nosupersub\cf6\f7\fs18 +2}\cell{\ul0\nosupersub\cf6\f7\fs18 +200}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Total Current

+24.52}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Fixed Assets}\cell

\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Land and

Building}\cell{\ul0\nosupersub\cf6\f7\fs18 370}\cell{\ul0\nosupersub\cf6\f7\fs18
(-)27.03}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Plant and

+50}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Furniture and

+25}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Other Fixed

+20}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Total Fixed

+13.5}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Total
+18.26}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Liabilities:}\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Current Liabilities}\cell

\cell
\cell
\cell
\cell
\row}
(-)10}\cell
\row}
+20}\cell
\row}

+100}\cell
\row}

\row}
+50}\cell
\row}
+33.33}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Total External

\row}

+33.33}\cell
\row}

(-)32.73}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Shareholders
Fund}\cell{\ul0\nosupersub\cf6\f7\fs18 930}\cell{\ul0\nosupersub\cf6\f7\fs18
1022}\cell{\ul0\nosupersub\cf6\f7\fs18 92}\cell{\ul0\nosupersub\cf6\f7\fs18 +
0.98}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Total Liabilities and

Capital}\cell{\ul0\nosupersub\cf9\f10\fs18 1,435}\cell{\ul0\nosupersub\cf9\f10\fs18
1,697}\cell{\ul0\nosupersub\cf9\f10\fs18 262}\cell{\ul0\nosupersub\cf9\f10\fs18
18.26}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf10\f11\fs18 Note : For the purpose of

analysis, the balance sheet may be presented vertically with major \par heads
of assets and liabilities. \par\pard\par\pard{

\row}
}\par\pard\par\pard\ql Interpretation \par\pard\par\pard\qj

\ul0\nosupersub\cf6\f7\fs18 1. The comparative balance sheet of the company
reveals that during the year \par 2006, there has been an increase in fixed
assets by Rs.1,10,000, i.e. 13.5% while long-term liabilities have relatively
increased by Rs.1,50,000 and equity share capital has increased by Rs.2 lakhs. This
fact depicts that the policy of the company is to purchase fixed assets from long-
term source of finance, thereby not affecting the working capital.
\par\pard\par\pard\qj 2. The current assets have increased by Rs.1,52,000, i.e.
24.52%. The current \par liabilities have increased only by Rs.20,000, i.e.
12.9%. This shows an improvement in the liquid position of the Company.
\par\pard\par\pard\ql 3. Shareholder\u8217?s funds (share capital plus reserves)
have shown an increase of Rs. \par 92,000. \par\pard\par\pard\ql 4. The overall
financial position of the company is satisfactory. \par\pard\par\pard\ql
\ul0\nosupersub\cf15\f16\fs19 Exhibit - 1 \par\pard\par\pard\ql
\ul0\nosupersub\cf9\f10\fs18 Sterlite Optical Technologies Ltd. \par Financial
Overview 2001-2005 \par\pard\par\pard{
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 US$ in
million}\cell{\ul0\nosupersub\cf16\f17\fs18 2005-
06}\cell{\ul0\nosupersub\cf16\f17\fs18 2004-05}\cell{\ul0\nosupersub\cf16\f17\fs18
2003-04}\cell{\ul0\nosupersub\cf16\f17\fs18 2002-
03}\cell{\ul0\nosupersub\cf16\f17\fs18 2001-02}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Revenues
(Gross)}\cell{\ul0\nosupersub\cf16\f17\fs18
140.90}\cell{\ul0\nosupersub\cf16\f17\fs18
82.46}\cell{\ul0\nosupersub\cf16\f17\fs18 22.49}\cell{\ul0\nosupersub\cf16\f17\fs18
27.27}\cell{\ul0\nosupersub\cf16\f17\fs18 146.72}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Revenues
(Net)}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Earning before Interest

Tax}\cell
\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 and
4.24}\cell{\ul0\nosupersub\cf16\f17\fs18 (6.93)}\cell{\ul0\nosupersub\cf16\f17\fs18
34.60}\cell
\row}
Interest}\cell{\ul0\nosupersub\cf16\f17\fs18
3.13}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Profit before Depreciation

and Tax}\cell{\ul0\nosupersub\cf16\f17\fs18
(12.07)}\cell{\ul0\nosupersub\cf16\f17\fs18 31.47}\cell
\row}
4.49}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Profit before

Tax}\cell{\ul0\nosupersub\cf16\f17\fs18 8.64}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
Tax}\cell{\ul0\nosupersub\cf16\f17\fs18 (0.59)}\cell{\ul0\nosupersub\cf16\f17\fs18
-}\cell{\ul0\nosupersub\cf16\f17\fs18 5.98}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Profit after

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Earning per

Share}\cell{\ul0\nosupersub\cf16\f17\fs18 0.16}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Capital
Employed}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf17\f18\fs18 Rs. in million}\cell

\cell
\cell
\cell
\cell
\cell
\row}
Turnover}\cell{\ul0\nosupersub\cf16\f17\fs18
6,239.33}\cell{\ul0\nosupersub\cf16\f17\fs18
1,319.84}\cell{\ul0\nosupersub\cf16\f17\fs18 6,997.78}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 %
Growth}\cell{\ul0\nosupersub\cf16\f17\fs18
(21.74)}\cell{\ul0\nosupersub\cf16\f17\fs18
(81.14)}\cell{\ul0\nosupersub\cf16\f17\fs18 -}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Turnover
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 %
Growth}\cell{\ul0\nosupersub\cf16\f17\fs18
(80.49)}\cell{\ul0\nosupersub\cf16\f17\fs18 -}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 % to Net
sales}\cell{\ul0\nosupersub\cf16\f17\fs18 15.22}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Profit before Depreciation

and Tax}\cell{\ul0\nosupersub\cf16\f17\fs18
(584.25)}\cell{\ul0\nosupersub\cf16\f17\fs18 1,500.78}\cell
\row}
Sales}\cell{\ul0\nosupersub\cf16\f17\fs18 12.27}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\row}

\row}
\row}
Tax}\cell{\ul0\nosupersub\cf16\f17\fs18 (26.10)}\cell{\ul0\nosupersub\cf16\f17\fs18
(26.58)}\cell{\ul0\nosupersub\cf16\f17\fs18 -}\cell{\ul0\nosupersub\cf16\f17\fs18
284.98}\cell
\row}

\row}
\row}
Employed}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Return on Capital Employed

%}\cell{\ul0\nosupersub\cf16\f17\fs18 9.53}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Interest Coverage

ratio}\cell{\ul0\nosupersub\cf16\f17\fs18 5.16}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Working Capital

Ratio}\cell{\ul0\nosupersub\cf16\f17\fs18 2.91}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Debt Equity

Ratio}\cell{\ul0\nosupersub\cf16\f17\fs18 0.72}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Earning per

Share}\cell{\ul0\nosupersub\cf16\f17\fs18 7.27}\cell{\ul0\nosupersub\cf16\f17\fs18
1.83}\cell{\ul0\nosupersub\cf16\f17\fs18 -3.38}\cell{\ul0\nosupersub\cf16\f17\fs18
-15.38}\cell{\ul0\nosupersub\cf16\f17\fs18 17.86}\cell
\row}
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf13\f14\fs18 Do it Yourself

\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 From the following balance sheet
and income statement of Day Dreaming Co.Ltd., for the year ending 2002 and 2003,
prepare the comparative statements. \par\pard\par\pard\ql
\ul0\nosupersub\cf9\f10\fs18 Income Statement \par\pard\par\pard\ql
\ul0\nosupersub\cf6\f7\fs18 (Rs. in Lakhs) \par\pard\par\pard{
\row}
Sales}\cell{\ul0\nosupersub\cf6\f7\fs18 900}\cell{\ul0\nosupersub\cf6\f7\fs18
1,050}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Cost of Goods

Sold}\cell{\ul0\nosupersub\cf6\f7\fs18 650}\cell{\ul0\nosupersub\cf6\f7\fs18
850}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Administrative
40}\cell
\row}
20}\cell
\row}
Profit}\cell{\ul0\nosupersub\cf6\f7\fs18 190}\cell{\ul0\nosupersub\cf6\f7\fs18
140}\cell
\row}
{}\cell{\ul0\nosupersub\cf9\f10\fs18 Balance Sheet}\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf9\f10\fs18 2005}\cell{\ul0\nosupersub\cf9\f10\fs18
2006}\cell
\row}

600}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 6% Preference Share

500}\cell
\row}
Reserves}\cell{\ul0\nosupersub\cf6\f7\fs18 400}\cell{\ul0\nosupersub\cf6\f7\fs18
445}\cell
\row}
Debenture}\cell{\ul0\nosupersub\cf6\f7\fs18 300}\cell{\ul0\nosupersub\cf6\f7\fs18
350}\cell
\row}
275}\cell
\row}
200}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Tax
payable}\cell{\ul0\nosupersub\cf6\f7\fs18 150}\cell{\ul0\nosupersub\cf6\f7\fs18
200}\cell
\row}
\row}
Land}\cell{\ul0\nosupersub\cf6\f7\fs18 300}\cell{\ul0\nosupersub\cf6\f7\fs18
300}\cell
\row}
Buildings}\cell{\ul0\nosupersub\cf6\f7\fs18 500}\cell{\ul0\nosupersub\cf6\f7\fs18
470}\cell
\row}
Plant}\cell{\ul0\nosupersub\cf6\f7\fs18 400}\cell{\ul0\nosupersub\cf6\f7\fs18
470}\cell
\row}
Furniture}\cell{\ul0\nosupersub\cf6\f7\fs18 300}\cell{\ul0\nosupersub\cf6\f7\fs18
340}\cell
\row}
500}\cell
\row}
Cash}\cell{\ul0\nosupersub\cf6\f7\fs18 450}\cell{\ul0\nosupersub\cf6\f7\fs18
490}\cell
\row}
2,570}\cell
\row}
4.6}\cell{\ul0\nosupersub\cf3\f4\fs21 Common Size Statement}\cell
{}\cell
\row}
}\par\pard\par\pard\qj \ul0\nosupersub\cf2\f3\fs21 Common Size Statement, also

known as component percentage statement, is a financial tool for studying the
key changes and trends in the financial position \par and operational
result of a company. Here, each item in the statement is
stated as a percentage of the aggregate, of which that item is a part. For example,
a common size balance sheet shows the percentage of each asset to the
total assets, and that of each liability to the total liabilities.
Similarly, in the common size income statement, the items of
expenditure are shown as a percentage of the net sales. If such
a statement is prepared for successive periods, it shows the changes
\par\pard\par\pard{

\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 of the respective percentages

over time. [See the Five year Review of Asian paints (India) Ltd. Exhibit
2]. \par\pard\par\pard\qj Common size analysis is of immense use for comparing
enterprises which differ substantially in size as it provides an insight into the
structure of financial \par statements. Inter-firm comparison or comparison of
the company\u8217?s position with the related industry as a whole is possible with
the help of common size statement analysis. \par\pard\par\pard\ql The
following procedure may be adopted for preparing the common size statements.
\par\pard\par\pard\ql 1. List out absolute figures in rupees at two
points of time, say year 1, \par and year 2 (Column 2 & 4 of Exhibit
2) \par\pard\par\pard\qj 2. Choose a common base (as 100). For example, Sales
revenue total \par may be taken as base (100) in case of income statement, and
total assets or total liabilities (100) in case of balance sheet.
\par\pard\par\pard\ql 3. For all items of Col. 2 and 4 work out the percentage of
that total. \par Column 3 and 5 portray these percentages in Figures 4.2.
\par\pard\par\pard\ql \ul0\nosupersub\cf11\f12\fs21 Common Size Statement
\par\pard\par\pard{
{}\cell{\ul0\nosupersub\cf11\f12\fs21
Particulars}\cell{\ul0\nosupersub\cf11\f12\fs21 Year
one}\cell{\ul0\nosupersub\cf11\f12\fs21
Percentage}\cell{\ul0\nosupersub\cf11\f12\fs21 Year
two}\cell{\ul0\nosupersub\cf11\f12\fs21 Percentage}\cell
\row}
Column}\cell{\ul0\nosupersub\cf11\f12\fs21 1}\cell{\ul0\nosupersub\cf11\f12\fs21
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf9\f10\fs18 Figure 4.2

\par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Illustration 4
\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 Convert the following Balance
Sheet into Common Size Balance Sheets and interpret the results there of.
\par\pard\par\pard\ql \ul0\nosupersub\cf11\f12\fs21 Balance Sheet as on March 31,
2004 and 2005 \par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 (Rs. in lakhs)
\par\pard\par\pard{
2005}\cell
\row}
(Rs.)}\cell
(Rs.)}\cell
\row}

1,200}\cell{\ul0\nosupersub\cf6\f7\fs18 Debtors}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
Reserve}\cell{\ul0\nosupersub\cf6\f7\fs18 90}\cell{\ul0\nosupersub\cf6\f7\fs18
185}\cell{\ul0\nosupersub\cf6\f7\fs18 Cash}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 General
450}\cell{\ul0\nosupersub\cf6\f7\fs18 Stock}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Sinking
100}\cell{\ul0\nosupersub\cf6\f7\fs18 Investment}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
650}\cell{\ul0\nosupersub\cf6\f7\fs18 Building Less
800}\cell{\ul0\nosupersub\cf6\f7\fs18 1,400}\cell
\row}
150}\cell{\ul0\nosupersub\cf6\f7\fs18 Land}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
Others}\cell{\ul0\nosupersub\cf6\f7\fs18 15}\cell{\ul0\nosupersub\cf6\f7\fs18
20}\cell{\ul0\nosupersub\cf6\f7\fs18 Furniture &
Fittings}\cell{\ul0\nosupersub\cf6\f7\fs18 77}\cell{\ul0\nosupersub\cf6\f7\fs18
105}\cell
\row}
2,755}\cell
2,755}\cell
\row}
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Solution

\par\pard\par\pard\ql \ul0\nosupersub\cf11\f12\fs21 Common Size Balance Sheets
\par\pard\par\pard\ql at the end of the year ended March 31, 2004 and 2005
\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 (Rs. in lakhs)
\par\pard\par\pard{
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Particulars}\cell
2005}\cell
\cell
\row}
%}\cell{\ul0\nosupersub\cf18\f19\fs19 Rs.}\cell{\ul0\nosupersub\cf18\f19\fs19
%}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Share Capital}\cell

\cell
\cell
\cell
\cell
\row}

Capital}\cell{\ul0\nosupersub\cf18\f19\fs19
1,000}\cell{\ul0\nosupersub\cf18\f19\fs19 42.64}\cell{\ul0\nosupersub\cf18\f19\fs19
1,200}\cell{\ul0\nosupersub\cf18\f19\fs19 43.56}\cell
\row}
3.84}\cell{\ul0\nosupersub\cf18\f19\fs19 185}\cell{\ul0\nosupersub\cf18\f19\fs19
6.72}\cell
\row}
16.33}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Sinking
3.63}\cell
\row}
71.64}\cell{\ul0\nosupersub\cf15\f16\fs19 1,935}\cell{\ul0\nosupersub\cf15\f16\fs19
70.24}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Shareholder\u8217?s
Fund}\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Long-term Debt (Net

worth)}\cell
\cell
\cell
\cell
\cell
\row}
Debentures}\cell{\ul0\nosupersub\cf15\f16\fs19
450}\cell{\ul0\nosupersub\cf15\f16\fs19 19.19}\cell{\ul0\nosupersub\cf15\f16\fs19
650}\cell{\ul0\nosupersub\cf15\f16\fs19 23.59}\cell
\row}

\cell
\cell
\cell
\cell
\row}
Creditors}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Other
\row}
6.17}\cell
\row}
\row}
\cell
\cell
\cell
\cell
\row}
Buildings}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
12.52}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Furniture and

Fittings}\cell{\ul0\nosupersub\cf18\f19\fs19 77}\cell{\ul0\nosupersub\cf18\f19\fs19
3.81}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Total Fixed

Assets}\cell{\ul0\nosupersub\cf15\f16\fs19
\row}

\cell
\cell
\cell
\cell
\row}
14.16}\cell
\row}
0.05}\cell
\row}
9.07}\cell
\row}
23.78}\cell
\row}
Investments}\cell{\ul0\nosupersub\cf15\f16\fs19
\row}
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf10\f11\fs18 Interpretation :

\par\pard\par\pard\qj \ul0\nosupersub\cf6\f7\fs18 1. In 2005, both current assets
and current liabilities decreased as compared to \par 2004, but the decrease in
current assets is more than the decrease in the current liabilities. As a result,
the firm may face liquidity problem. \par\pard\par\pard\qj 2. In 2005 both fixed
assets and the long-term liabilities increased, but the increase \par in the fixed
assets is more than the increase in long-term liabilities. The firm sold some
investments to acquire fixed assets and used short-term funds to purchase fixed
assets. \par\pard\par\pard\ql 3. The firm has undertaken expansion programme
reflected in addition to land and \par buildings. \par\pard\par\pard\ql The
overall financial position of the firm is satisfactory. It should improve
its liquidity. \par\pard\par\pard{

\row}

\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 From the following financial
statements, prepare Common Size Statements for the year ended March 31, 2004 and
2005. \par\pard\par\pard\ql \ul0\nosupersub\cf11\f12\fs21 Income Statement
\par\pard\par\pard{
\row}
Sales}\cell{\ul0\nosupersub\cf18\f19\fs19
5,00,000}\cell{\ul0\nosupersub\cf18\f19\fs19 49,500}\cell
\row}

Sold}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Operating
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Income from

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Income
40,000}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf3\f4\fs21 Balance Sheets as on March 31,

2004 and 2005}\cell
\cell
\cell
\row}
March}\cell{\ul0\nosupersub\cf18\f19\fs19 March}\cell
\row}
{}\cell{\ul0\nosupersub\cf18\f19\fs19 31, 2004}\cell{\ul0\nosupersub\cf18\f19\fs19
31, 2005}\cell
\row}
(Rs.)}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Liabilities}\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Share
\row}
Reserves}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Profit and

Loss}\cell{\ul0\nosupersub\cf18\f19\fs19 15,555}\cell{\ul0\nosupersub\cf18\f19\fs19
14,292}\cell
\row}
Loan}\cell{\ul0\nosupersub\cf18\f19\fs19 18,965}\cell{\ul0\nosupersub\cf18\f19\fs19
19,262}\cell
\row}
\row}
Payable}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Outstanding
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Assets}\cell
\cell
\cell
\row}

Building}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}

Machinery}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
Furniture}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
8,192}\cell
\row}
Debtors}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
Receivable}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
Cash}\cell{\ul0\nosupersub\cf18\f19\fs19 -}\cell{\ul0\nosupersub\cf18\f19\fs19
20,000}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Pre-paid
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf10\f11\fs18 216}\cell
{}\cell{\ul0\nosupersub\cf10\f11\fs18 Accountancy : Company Accounts and Analysis
\cell
\cell
\row}
\cell
\cell
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf11\f12\fs21 Common Size Income Statement for the year
ended}\cell
\cell
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf11\f12\fs21 March 31, 2004 and 2005}\cell
\cell
\cell
\cell
\row}
2005}\cell
\cell
\row}
%}\cell
\row}
100}\cell{\ul0\nosupersub\cf18\f19\fs19
4,95,000}\cell{\ul0\nosupersub\cf18\f19\fs19 100}\cell
\row}

3,60,000}\cell{\ul0\nosupersub\cf18\f19\fs19 72.72}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Less: Operating

\row}
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Add: Income from

\row}

Tax}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Less: Income

8.08}\cell
\row}

15}\cell{\ul0\nosupersub\cf18\f19\fs19 1,40,000}\cell{\ul0\nosupersub\cf18\f19\fs19
28.28}\cell
\row}
{}\cell{\ul0\nosupersub\cf11\f12\fs21 Common Size Balance Sheet}\cell
\cell
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf11\f12\fs21 as on March 31, 2004 and 2005}\cell
\cell
\cell
\cell
\row}
2005}\cell
\cell
\row}
%}\cell
\row}
\cell
\cell
\cell
\cell
\row}
\row}
Reserves}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Profit and Loss

Account}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
Loan}\cell{\ul0\nosupersub\cf18\f19\fs19 18,965}\cell{\ul0\nosupersub\cf18\f19\fs19
4.98}\cell
\row}
\row}
Payable}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
\row}
\row}
\row}
\cell
\cell
\cell
\cell
\row}
Building}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}

Machinery}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
Furnitures}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
2.12}\cell
\row}
\row}
\row}
Cash}\cell{\ul0\nosupersub\cf18\f19\fs19 -}\cell
5.17}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Pre-paid
\row}
\row}

\row}
}\par\pard\par\pard\ql Interpretation :
\par\pard\par\pard\ul0\nosupersub\cf6\f7\fs18 1. On comparison of the percentage
of the cost of goods sold, it is observed that \par the company has tried to
reduce its cost to improve its profit margin. 2. The profitability of the company
has improved as compared to the previous year \par as the profit after tax
percentage has gone up by 13.28%. \par\pard\par\pard\ql 3. The company has issued
share capital in order to finance the purchase of fixed \par assets like
furniture and land and buildings. \par\pard\par\pard\ql 4. The company has
improved its liquidity position as reflected in the increase of \par its current
assets. \par\pard\par\pard\ql Thus, there is an improvement in the working of the
company. \par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Illustration 6
\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 Prepare Common Size Statement
from the following income statement of Karan Ltd. for the year ended March 31,
2006. \par\pard\par\pard\ql \ul0\nosupersub\cf15\f16\fs19 INCOME STALEMENT
\par\pard\par\pard\ql \ul0\nosupersub\cf18\f19\fs19 Particulars
\par\pard\par\pard\ql (Rs.\u8217?000) \par\pard\par\pard\ql
\ul0\nosupersub\cf15\f16\fs19 Income \par\pard\par\pard{
Sales}\cell{\ul0\nosupersub\cf18\f19\fs19 2,538}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Miscellaneous
Income}\cell{\ul0\nosupersub\cf18\f19\fs19 26}\cell
\row}
Income}\cell{\ul0\nosupersub\cf18\f19\fs19 2,564}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Expenses}\cell
\cell
\row}

Sold}\cell{\ul0\nosupersub\cf18\f19\fs19 1,422}\cell
\row}
Expenses}\cell{\ul0\nosupersub\cf18\f19\fs19 184}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Other Non-Operating

\row}
Expenses}\cell{\ul0\nosupersub\cf15\f16\fs19 2,366}\cell
\row}
Tax}\cell{\ul0\nosupersub\cf18\f19\fs19 68}\cell
\row}
\cell
\row}
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf11\f12\fs21 Common Size Income Statement of Karan
Ltd.}\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf11\f12\fs21 for the year ended March 31, 2006}\cell
\cell
\row}
Particulars}\cell{\ul0\nosupersub\cf15\f16\fs19 (Rs.\u8217?
000)}\cell{\ul0\nosupersub\cf15\f16\fs19 %}\cell
\row}
100}\cell
\row}

56.03}\cell
\row}

(A)}\cell{\ul0\nosupersub\cf15\f16\fs19 1,116}\cell{\ul0\nosupersub\cf15\f16\fs19
43.97}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Operating Expenses}\cell

\cell
\cell
\row}
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Total Expenses

(B)}\cell{\ul0\nosupersub\cf15\f16\fs19 904}\cell{\ul0\nosupersub\cf15\f16\fs19
35.62}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Operating Profit}\cell

\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 (A-
B)}\cell{\ul0\nosupersub\cf15\f16\fs19 212}\cell{\ul0\nosupersub\cf15\f16\fs19
8.35}\cell
\row}
Add:\ul0\nosupersub\cf15\f16\fs19 \ul0\nosupersub\cf18\f19\fs19 Miscellaneous
1.02}\cell
\row}
9.38}\cell
\row}

1.58}\cell
\row}

Tax}\cell{\ul0\nosupersub\cf15\f16\fs19 198}\cell{\ul0\nosupersub\cf15\f16\fs19
7.8}\cell
\row}
2.68}\cell
\row}

5.12}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf10\f11\fs18 Interpretation :

\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 The company\u8217?s
profitability as a percentage of sales is rather low. This is primarily on account
of higher operating expenses. Hence, the company has to find ways and means to
reduce cost of goods sold and operating expenses. \par\pard\par\pard\ql
\ul0\nosupersub\cf11\f12\fs21 Exhibit - 2 \par\pard\par\pard\ql
\ul0\nosupersub\cf3\f4\fs21 Asian Paints (India) Ltd. \par\pard\par\pard{
\trowd\trautofit1\intbl{\ul0\nosupersub\cf19\f20\fs18 Results for the Accounting

Year}\cell{\ul0\nosupersub\cf19\f20\fs18 2004-
2005}\cell{\ul0\nosupersub\cf19\f20\fs18 2003-
2002}\cell{\ul0\nosupersub\cf19\f20\fs18 2000-2001}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Revenue Account -}\cell

\cell
\cell
\cell
\cell
\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Net Sales and Operating

Income}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Growth Rates

(%)}\cell{\ul0\nosupersub\cf20\f21\fs18 14.43}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Materials
Consumed}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\row}
Overheads}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Interest
Charges}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Profit Before Tax

and}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
}\par\pard\par\pard\ql Extraordinary item \par\pard\par\pard{

\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Extraordinary
Items}\cell{\ul0\nosupersub\cf20\f21\fs18 42.3}\cell{\ul0\nosupersub\cf20\f21\fs18
68.1}\cell{\ul0\nosupersub\cf20\f21\fs18 -}\cell{\ul0\nosupersub\cf20\f21\fs18
-}\cell{\ul0\nosupersub\cf20\f21\fs18 -}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Profit Before Tax and

after}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Extraordinary item}\cell

\cell
\cell
\cell
\cell
\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Profit After

Tax}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Prior period
items}\cell{\ul0\nosupersub\cf20\f21\fs18 (3.3)}\cell{\ul0\nosupersub\cf20\f21\fs18
(10.2)}\cell{\ul0\nosupersub\cf20\f21\fs18 (8.1)}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Profit After Tax and

prior}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 period items}\cell

\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Return on overage net

worth}\cell{\ul0\nosupersub\cf20\f21\fs18 31.43}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 (RONW) (%)*}\cell

\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Capital Account}\cell

\cell
\cell
\cell
\cell
\cell
\row}
\row}

Surplus}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Deferred Tax Liability

611.08}\cell{\ul0\nosupersub\cf20\f21\fs18 -}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Loan
Funds}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Fixed
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Net Current

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Debt-Equity
Ratio}\cell{\ul0\nosupersub\cf20\f21\fs18
0.15:1}\cell{\ul0\nosupersub\cf20\f21\fs18
0.27:1}\cell{\ul0\nosupersub\cf20\f21\fs18 0.55:1}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Per Share Data}\cell

\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Earnings Per Share

(Rs.)}\cell{\ul0\nosupersub\cf20\f21\fs18 18.5}\cell{\ul0\nosupersub\cf20\f21\fs18
#16.1}\cell{\ul0\nosupersub\cf20\f21\fs18 #14.8}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Dividend
(%)}\cell{\ul0\nosupersub\cf20\f21\fs18 95.0}\cell{\ul0\nosupersub\cf20\f21\fs18
$85.0}\cell{\ul0\nosupersub\cf20\f21\fs18 110.0}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Book Value

(Rs.)}\cell{\ul0\nosupersub\cf20\f21\fs18 59.7}\cell{\ul0\nosupersub\cf20\f21\fs18
$55.4}\cell{\ul0\nosupersub\cf20\f21\fs18 74.3}\cell{\ul0\nosupersub\cf20\f21\fs18
\row}
}\par\pard\par\pard\ql Other Information \par\pard\par\pard{
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 Number of
Employees}\cell{\ul0\nosupersub\cf20\f21\fs18
3,197}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 \u8226?}\cell
{}\cell{\ul0\nosupersub\cf20\f21\fs18 RONW is calculated after provision for
impairment on fixed assets in 2004-2005}\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf20\f21\fs18 #}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf20\f21\fs18 EPS is calculated after adjusting for Bonus
issue and the reduction of capital on account of merger of}\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf20\f21\fs18 Pentasia Investments Ltd. in accordance with
Accounting Standard (AS 20) - Earnings per share}\cell
\cell
\cell
\cell
\row}
$}\cell{\ul0\nosupersub\cf20\f21\fs18 On increased Capital}\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf21\f22\fs18 Do it Yourself}\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf16\f17\fs18 The following are the Balance Sheets of
Harsha Ltd. as on March 31, 2006 and March}\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 31, 2007}\cell

\cell
\cell
\cell
\cell
\cell
\cell
\row}
2006}\cell{\ul0\nosupersub\cf16\f17\fs18 Assets}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
{}\cell
(Rs.)}\cell
(Rs.)}\cell
\row}
{}\cell{\ul0\nosupersub\cf16\f17\fs18 Equity
1,65,000}\cell{\ul0\nosupersub\cf16\f17\fs18 Fixed
\row}
{}\cell{\ul0\nosupersub\cf16\f17\fs18 Preference
Stock}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Reserves}\cell
\row}
{}\cell{\ul0\nosupersub\cf16\f17\fs18 Profit and Loss
Account}\cell{\ul0\nosupersub\cf16\f17\fs18
10,000}\cell{\ul0\nosupersub\cf16\f17\fs18 Bills
\row}
{}\cell{\ul0\nosupersub\cf16\f17\fs18 Bank
Overdraft}\cell{\ul0\nosupersub\cf16\f17\fs18
25,000}\cell{\ul0\nosupersub\cf16\f17\fs18 Prepaid
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Creditors}\cell
25,000}\cell{\ul0\nosupersub\cf16\f17\fs18 Cash at
Bank}\cell{\ul0\nosupersub\cf16\f17\fs18 20,000}\cell{\ul0\nosupersub\cf16\f17\fs18
26,500}\cell
\row}
{}\cell{\ul0\nosupersub\cf16\f17\fs18 Provision for
Taxation}\cell{\ul0\nosupersub\cf16\f17\fs18
12,500}\cell{\ul0\nosupersub\cf16\f17\fs18 Cash in
hand}\cell{\ul0\nosupersub\cf16\f17\fs18 5,000}\cell{\ul0\nosupersub\cf16\f17\fs18
15,000}\cell
\row}
{}\cell{\ul0\nosupersub\cf16\f17\fs18 Proposed
Dividend}\cell{\ul0\nosupersub\cf16\f17\fs18
\cell
\cell
\cell
\row}
{}\cell
3,40,000}\cell
3,40,000}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 Prepare Common Size Balance

Sheet and interpret the same. \par\pard\par\pard{
\row}
{}\cell{\ul0\nosupersub\cf13\f14\fs18 Test your Understanding - II}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf13\f14\fs18 Choose the right

answer :}\cell
{}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 1. The financial statements of a

business enterprise include: \par (a) Balance sheet \par\pard\par\pard\ql (b)
Profit and loss account \par (c) Cash flow statement (d) All the above
\par\pard\par\pard\ql 2. The most commonly used tools for financial analysis
are: \par (a) Horizontal analysis \par\pard\par\pard\ql (b) Vertical
analysis \par (c) Ratio analysis (d) All the above \par\pard\par\pard\ql 3.
An Annual Report is issued by a company to its: \par (a) Directors
\par\pard\par\pard\ql (b) Auditors \par (c) Shareholders (d) Management
\par\pard\par\pard\ql 4. Balance Sheet provides information about financial
position of the enterprise: \par (a) At a point in time \par\pard\par\pard\ql
(b) Over a period of time \par (c) For a period of time (d) None of the
above \par\pard\par\pard\ql 5. Comparative statement are also known as: \par (a)
Dynamic analysis \par\pard\par\pard\ql (b) Horizontal analysis \par (c)
Vertical analysis (d) External analysis \par\pard\par\pard{
4.7}\cell{\ul0\nosupersub\cf3\f4\fs21 Trend Analysis}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 The financial statements may be

analysed by computing trends of series of information. Trend analysis determines
the direction upwards or downwards and involves the computation of the
percentage relationship that each item bears to the same item in the
base year. In case of comparative statement, an item is compared
with itself in the previous year to know whether it has increased or decreased or
remained constant. Common size is observed to know whether the proportion of an
item (say cost of goods sold) is increasing or decreasing in the \par
common base (say sales). But in case of trend analysis, we learn about the
behaviour of the same item over a given period, say, during the last 5 years. Take
for example, administrative expenses, whether they are exhibiting increasing
tendency or decreasing tendency or remaining constant over the period \par
of comparison, generally trend analysis is done for a reasonably long period.
Many companies present their financial data for a period of 5 or 10 years in
various forms in their annual reports. \par\pard\par\pard{

Statements}\cell
\row}
4.7.1}\cell{\ul0\nosupersub\cf11\f12\fs21 Procedure for Calculating Trend
Percentage}\cell
{}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 One year is taken as the

base year. Generally, the first year is taken as the base \par year.
The figure of base year is taken as 100. The trend percentages are
calculated in relation to this base year. If a figure in other year is less than
the figure in base year, the trend percentage will be less than 100
and it will be more than 100 if figure is more than the base year
figure. Each year\u8217?s figure is divided by the base year figure.
\par\pard\par\pard\ql Present year value \par\pard\par\pard{
\trowd\trautofit1\intbl{\ul0\nosupersub\cf2\f3\fs21 Trend Percentage

\ul0\nosupersub\cf6\f7\fs18 =\ul0\nosupersub\cf2\f3\fs21
\ul0\nosupersub\cf14\f15\fs18
____________________________________}\cell{\ul0\nosupersub\cf2\f3\fs21 100}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf2\f3\fs21 Base year value}\cell

{}\cell
\row}
}\par\pard\par\pard\qj The accounting procedures and conventions used for

collecting data and preparation of financial statements should be similar;
otherwise the figures will \par not be comparable. \par\pard\par\pard\ql
\ul0\nosupersub\cf3\f4\fs21 Illustration 7 \par\pard\par\pard\ql
\ul0\nosupersub\cf2\f3\fs21 Calculate the trend percentages from the
following figures of sales, stock and profit of X Ltd., taking
2001 as the base year and interpret them. \par\pard\par\pard\ql (Rs.
in lakhs) \par\pard\par\pard{
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Year}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Sales}\cell{\ul0\nosupersub\cf6\f7\fs18
Stock}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Profit}\cell
\cell
\row}
{}\cell
(Rs.)}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 before tax}\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 (Rs.)}\cell
\cell
\row}
709}\cell
\cell
\row}
781}\cell
\cell
\row}
816}\cell
\cell
\row}
944}\cell
\cell
\row}
1,154}\cell
\cell
\row}
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf11\f12\fs21 Trend Percentages (base year 2001 =
100)}\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf2\f3\fs21 (Rs. in lakhs)}\cell
\cell
\row}
Year}\cell{\ul0\nosupersub\cf6\f7\fs18 Sales}\cell{\ul0\nosupersub\cf6\f7\fs18
Trend %}\cell{\ul0\nosupersub\cf6\f7\fs18 Stock}\cell{\ul0\nosupersub\cf6\f7\fs18
Trend %}\cell{\ul0\nosupersub\cf6\f7\fs18 Profit}\cell{\ul0\nosupersub\cf6\f7\fs18
Trend %}\cell
\row}
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Rs.}\cell
\cell
\row}
100}\cell
\row}
136}\cell
\row}
143}\cell
\row}
164}\cell
\row}
195}\cell
\row}
\row}
}\par\pard\par\pard\ql Interpretation : \par\pard\par\pard\qj

\ul0\nosupersub\cf6\f7\fs18 1. The sales have continuously increased in all the
years up to 2005, though in \par different proportions. The percentage in 2005
is 200 as compared to 100 in 2001. The increase in sales is quite satisfactory.
\par\pard\par\pard\ql 2. The figures of stock have also increased over a period
of five years. The increase \par in stock is more in 2004 and 2005 as compared
to earlier years. \par\pard\par\pard\qj 3. Profit has substantially increased.
The profits have increased in greater \par proportion than sales which implies
that the company has been able to reduce their cost of goods sold and control the
operating expenses. \par\pard\par\pard\ql \ul0\nosupersub\cf13\f14\fs18 Do it
Yourself \par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 The following data is
available from the P&L A/c of Deepak Ltd. \par\pard\par\pard{
Particulars}\cell{\ul0\nosupersub\cf6\f7\fs18 2003
(Rs.)}\cell{\ul0\nosupersub\cf6\f7\fs18 2004
(Rs.)}\cell{\ul0\nosupersub\cf6\f7\fs18 2005
(Rs.)}\cell{\ul0\nosupersub\cf6\f7\fs18 2006 (Rs.)}\cell
\row}
\row}
Wages}\cell{\ul0\nosupersub\cf6\f7\fs18 1,07,500}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
27,750}\cell
\row}
Profit}\cell{\ul0\nosupersub\cf6\f7\fs18 90,000}\cell{\ul0\nosupersub\cf6\f7\fs18
80,000}\cell
\row}
}\par\pard\par\pard\ql You are required to show Trend Percentages of different

items. \par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Illustration 8
\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 From the following data
relating to the assets side of Balance Sheet of ABC Ltd., for the period
ended March 31, 2003 to March 31, 2006, calculate trend percentages.
\par\pard\par\pard\ql (Rs. in Lakhs) \par\pard\par\pard{
\row}
140}\cell
\row}
400}\cell
\row}
500}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Other current

assets}\cell{\ul0\nosupersub\cf6\f7\fs18 50}\cell{\ul0\nosupersub\cf6\f7\fs18
150}\cell
\row}
500}\cell
\row}
1500}\cell
\row}
1500}\cell
\row}

Statements}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\row}
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf11\f12\fs21 Trend Percentages}\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf2\f3\fs21 (Rs. in lakhs)}\cell
\row}
Trend}\cell{\ul0\nosupersub\cf6\f7\fs18 2004}\cell{\ul0\nosupersub\cf6\f7\fs18
Trend}\cell
\row}
{}\cell{\ul0\nosupersub\cf6\f7\fs18 %}\cell
{}\cell
\row}

\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
140}\cell
\row}
200}\cell
\row}
166.67}\cell
\row}

300}\cell
\row}
183.08}\cell
\row}

\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
125}\cell
\row}
100}\cell{\ul0\nosupersub\cf6\f7\fs18 1,000}\cell{\ul0\nosupersub\cf6\f7\fs18
187.5}\cell
\row}
150}\cell
\row}
159.00}\cell
\row}
164.56}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf10\f11\fs18 Interpretation:

\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 1. The assets have exhibited a
continuous increasing trend over the period. 2. The current assets increased much
faster than the fixed assets. 3. Sundry debtors and other current assets and
buildings have shown higher growth. \par\pard\par\pard\ql
\ul0\nosupersub\cf3\f4\fs21 Illustration 9 \par\pard\par\pard\ql
\ul0\nosupersub\cf2\f3\fs21 From the following data relating to the
liabilities side of balance sheet of X Ltd., for the period March 31, 2003
to 2006, calculate the trend percentages taking 2003 as the base year.
\par\pard\par\pard\ql \ul0\nosupersub\cf18\f19\fs19 (Rs. in lakhs)
\par\pard\par\pard{
\row}

\row}
1,500}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 12%
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Bank
Overdraft}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
140}\cell
\row}
\row}
\row}
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\row}
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf11\f12\fs21 Trend Percentages}\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf2\f3\fs21 (Rs. in Lakhs)}\cell
\cell
\row}
2003}\cell{\ul0\nosupersub\cf6\f7\fs18 Trend}\cell{\ul0\nosupersub\cf6\f7\fs18
2006}\cell{\ul0\nosupersub\cf6\f7\fs18 Trend}\cell
\row}
{}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Shareholder Funds}\cell

\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}

150}\cell
\row}
187.5}\cell
\row}
166.67}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Long-term Debts}\cell

\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
125}\cell
\row}
125}\cell
\row}

\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
Overdraft}\cell{\ul0\nosupersub\cf6\f7\fs18 300}\cell{\ul0\nosupersub\cf6\f7\fs18
166.67}\cell
\row}
140}\cell
\row}
200}\cell
\row}
300}\cell
\row}
185.33}\cell
\row}
(Liabilities)}\cell{\ul0\nosupersub\cf9\f10\fs18
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf10\f11\fs18 Interpretation:

\par\pard\par\pard\qj \ul0\nosupersub\cf6\f7\fs18 1. Shareholders\u8217? funds
have increased over the period because of retention of profits \par in the
business in the form of reserves, and the share capital has also increased, may be
due to issue of fresh shares or bonus shares. \par\pard\par\pard\ql 2. The
increase in current liabilities is more than that of long term debt. This may \par
be due to expansion of business and/or availability of greater credit
activities. \par\pard\par\pard{

\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Exhibit - 3

\par\pard\par\pard\qc UNICHEM LABORATORIES LTD. Five - year Financial Highlights
Profit and Loss Account \par\pard\par\pard{
\trowd\trautofit1\intbl{\ul0\nosupersub\cf17\f18\fs18 For the year ended March

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Sales and income from

operations}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Material
consumption}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Purchase of
goods}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Increase/(Decrease) in
stocks}\cell
\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 of semi-finished and finished

goods}\cell{\ul0\nosupersub\cf16\f17\fs18
(37.57)}\cell{\ul0\nosupersub\cf16\f17\fs18 (27.27)}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Research & Development

100.63}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Stores and

spares}\cell{\ul0\nosupersub\cf16\f17\fs18 8.54}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Power and

fuel}\cell{\ul0\nosupersub\cf16\f17\fs18 63.58}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Staff
costs}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
Excise}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
expenses}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
expenses}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
cost}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf17\f18\fs18 Profit Before Depreciation

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf17\f18\fs18 and Tax (PBIDT)}\cell

\cell
\cell
\cell
\cell
\cell
\row}
22.74}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf17\f18\fs18 P B D
T}\cell{\ul0\nosupersub\cf17\f18\fs18 435.51}\cell{\ul0\nosupersub\cf17\f18\fs18
\row}
114.20}\cell
\row}

tax}\cell{\ul0\nosupersub\cf17\f18\fs18 369.97}\cell{\ul0\nosupersub\cf17\f18\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Extra ordinary & prior period

items}\cell{\ul0\nosupersub\cf16\f17\fs18 0.55}\cell{\ul0\nosupersub\cf16\f17\fs18
(0.27)}\cell{\ul0\nosupersub\cf16\f17\fs18 1.85}\cell{\ul0\nosupersub\cf16\f17\fs18
0.12}\cell{\ul0\nosupersub\cf16\f17\fs18 (133.48)}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Current
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Fringe benefit

tax}\cell{\ul0\nosupersub\cf16\f17\fs18 -}\cell{\ul0\nosupersub\cf16\f17\fs18
-}\cell{\ul0\nosupersub\cf16\f17\fs18 -}\cell{\ul0\nosupersub\cf16\f17\fs18
-}\cell{\ul0\nosupersub\cf16\f17\fs18 19.00}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Profit after current

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf17\f18\fs18 Deferred
\row}

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Export at FOB

value}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Equity
dividend}\cell{\ul0\nosupersub\cf16\f17\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 Expenditure on}\cell

\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 R & D -
capital}\cell{\ul0\nosupersub\cf16\f17\fs18
22.62}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf16\f17\fs18 -
Recurring}\cell{\ul0\nosupersub\cf16\f17\fs18
100.63}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf17\f18\fs18 Total R & D

expenditure}\cell{\ul0\nosupersub\cf17\f18\fs18
\row}
\cell
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf3\f4\fs21 UNICHEM LABORATORIES LTD.}\cell
\cell
\cell
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf3\f4\fs21 Balance Sheet}\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf21\f22\fs18 As on March
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf22\f23\fs18 Sources of funds}\cell

\cell
\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf22\f23\fs18 Equity share

capital}\cell{\ul0\nosupersub\cf22\f23\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf22\f23\fs18 Reserves &

surplus}\cell{\ul0\nosupersub\cf22\f23\fs18
\row}
worth}\cell{\ul0\nosupersub\cf21\f22\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf22\f23\fs18 Secured
Loans}\cell{\ul0\nosupersub\cf22\f23\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf22\f23\fs18 Unsecured
\row}
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf21\f22\fs18 Application of funds}\cell

\cell
\cell
\cell
\cell
\cell
\row}
block}\cell{\ul0\nosupersub\cf22\f23\fs18
\row}
\row}
block}\cell{\ul0\nosupersub\cf22\f23\fs18
\row}
WIP}\cell{\ul0\nosupersub\cf22\f23\fs18 85.62}\cell{\ul0\nosupersub\cf22\f23\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf21\f22\fs18 NB +
CWIP}\cell{\ul0\nosupersub\cf21\f22\fs18 996.78}\cell{\ul0\nosupersub\cf21\f22\fs18
\row}
\row}

\cell
\cell
\cell
\cell
\cell
\row}
Inventories}\cell{\ul0\nosupersub\cf22\f23\fs18
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf22\f23\fs18 Cash and bank

balance}\cell{\ul0\nosupersub\cf22\f23\fs18
436.15}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf22\f23\fs18 Loans &

advances}\cell{\ul0\nosupersub\cf22\f23\fs18
\row}

\row}

\cell
\cell
\cell
\cell
\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf22\f23\fs18 Other current

liabilities}\cell{\ul0\nosupersub\cf22\f23\fs18
72.86}\cell
\row}
Provisions}\cell{\ul0\nosupersub\cf22\f23\fs18
\row}

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf22\f23\fs18 Deferred tax

liability}\cell{\ul0\nosupersub\cf22\f23\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf21\f22\fs18 Net Current

457.83}\cell{\ul0\nosupersub\cf21\f22\fs18 1,133.03}\cell
\row}
\row}

Statements}\cell
\row}
{}\cell{\ul0\nosupersub\cf23\f24\fs18 PROFIT BEFORE TAX
&}\cell{\ul0\nosupersub\cf23\f24\fs18 NET WORTH &}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf23\f24\fs18 GROSS SALES & NET SALES}\cell

\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf23\f24\fs18 PROFIT AFTER
TAX}\cell{\ul0\nosupersub\cf23\f24\fs18 SHARE CAPITAL}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf23\f24\fs18 Rs. in
Millions}\cell{\ul0\nosupersub\cf23\f24\fs18 Rs. in
Millions}\cell{\ul0\nosupersub\cf23\f24\fs18 Rs. in Millions}\cell
\row}
Sales}\cell{\ul0\nosupersub\cf23\f24\fs18 Profit Before Tax Before
EOI}\cell{\ul0\nosupersub\cf23\f24\fs18 Net Worth}\cell
\row}
Sales}\cell{\ul0\nosupersub\cf23\f24\fs18 Profit After
Tax}\cell{\ul0\nosupersub\cf23\f24\fs18 Share Capital}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf23\f24\fs18 RETURN ON CAPITAL

EMPLOYED}\cell{\ul0\nosupersub\cf23\f24\fs18 REVENUE TO}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf23\f24\fs18 & RETURN ON NET

WORTH}\cell{\ul0\nosupersub\cf23\f24\fs18 EXCHEQUER}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf23\f24\fs18 In
%}\cell{\ul0\nosupersub\cf23\f24\fs18 Rs. in Millions}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf23\f24\fs18 Return on Capital

Employed}\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf23\f24\fs18 Return on Net Worth}\cell

{}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf23\f24\fs18 DISTRIBUTION OF INCOME}\cell

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf23\f24\fs18 In %}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf28\f29\fs18 3.5 \par\pard\par\pard\ql

\ul0\nosupersub\cf24\f25\fs18 MATERIAL COST \par\pard\par\pard\ql
\ul0\nosupersub\cf25\f26\fs18 5.3 \par\pard\par\pard{
EMPLOYEE REMUNERATION}\cell
\row}
{}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf24\f25\fs18 OTHER EMPENSES

\par\pard\par\pard\ql INTEREST \par\pard\par\pard\ql \ul0\nosupersub\cf25\f26\fs18
56.5 \par\pard\par\pard\ql \ul0\nosupersub\cf24\f25\fs18 DEPRECIATION
\par\pard\par\pard\ql \ul0\nosupersub\cf25\f26\fs18 21.0 \par\pard\par\pard\ql
\ul0\nosupersub\cf24\f25\fs18 EXTRAORDINARY ITEM \par\pard\par\pard{
6.0}\cell{\ul0\nosupersub\cf24\f25\fs18 CORP. TAX & DEF. TAX}\cell
\row}
}\par\pard\par\pard\ql DIVIDEND & DIV. TAX RETAINED EARNINGS \par\pard\par\pard{
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf37\f38\fs18 Gross Sales (Rs. in

crores)}\cell{\ul0\nosupersub\cf37\f38\fs18 Operating Profit (Rs. in crores)}\cell
{}\cell{\ul0\nosupersub\cf37\f38\fs18 Profit after tax (Rs. in crores)}\cell
\cell
\row}
\cell
\row}
\cell
\cell
\cell
\cell
\row}
\cell
\cell
\cell
\cell
\row}
{}\cell
3500}\cell{\ul0\nosupersub\cf29\f30\fs18 3474 3506}\cell
\row}
5932}\cell
{}\cell
{}\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\row}
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf30\f31\fs18 Operating Profit = Sales of

Products & Services - Excise Duty - (Mfg & Other Expenses - Expenditure transferred
to Capital and Other Accounts) \par\pard\par\pard{
{}\cell{\ul0\nosupersub\cf37\f38\fs18 Net Debts/Equity}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf37\f38\fs18 Earnings per Share (Rs. per Share)}\cell
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf37\f38\fs18 Return on Invested Capital (%)}\cell
\cell
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf34\f35\fs18 Equity}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf34\f35\fs18 Net Debts}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf34\f35\fs18 Net Debts Equity}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf29\f30\fs18 40%}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf36\f37\fs18 38.95%}\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf29\f30\fs18 3.0}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf29\f30\fs18 62.77}\cell{\ul0\nosupersub\cf29\f30\fs18
63.35}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
\cell
\cell
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\row}
{}\cell
{}\cell
\cell
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\cell
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\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
2.5}\cell
\cell
\cell
\cell
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\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
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\row}
{}\cell
{}\cell
{}\cell
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\row}
\cell
\cell
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\row}
\cell
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\row}
{}\cell
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\row}
{}\cell
{}\cell
{}\cell
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\row}
{}\cell
\cell
\cell
\cell
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\row}
{}\cell
{}\cell
{}\cell
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{}\cell
{}\cell
{}\cell
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\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
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{}\cell
{}\cell
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\cell
\row}
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
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\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\row}
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\row}
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
10}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
0}\cell
{}\cell
{}\cell
{}\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\row}
06}\cell
03}\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf39\f40\fs18 Net Debts = Secured Loans + Unsecured Loans
+}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf35\f36\fs18 * Post Tax}\cell
{}\cell
{}\cell
{}\cell
{}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf39\f40\fs18 Deferred Tax Liability +

Provision for Employee Separation Compensation + Long Term Guarantees (-) Current
Investments (-) Cash and Bank Balances Equity = Share Capital + Reserves and
Surplus Miscellaneous Expenditure (to the extent not w/o or adjusted)
\par\pard\par\pard{

\row}
Turnover\ul0\nosupersub\cf41\f42\fs18 (Rs. mn)}\cell{\ul0\nosupersub\cf44\f45\fs18
PAT\ul0\nosupersub\cf41\f42\fs18 (Rs. mn)}\cell
\row}
\row}
\row}
\row}
\row}
\row}
\row}
\row}
}\par\pard\par\pard\ql 82 52 \par\pard\par\pard{
worth\ul0\nosupersub\cf41\f42\fs18 (Rs. mn)}\cell{\ul0\nosupersub\cf45\f46\fs18
Gross block\ul0\nosupersub\cf41\f42\fs18 (Rs. mn)}\cell
\row}
\row}
{}\cell
\row}
\row}
\row}
\row}
407}\cell
\row}
{}\cell
\row}
EPS\ul0\nosupersub\cf41\f42\fs18 (Rs.)}\cell{\ul0\nosupersub\cf46\f47\fs18 Market
capitalisation\ul0\nosupersub\cf41\f42\fs18 (Rs. mn)}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf42\f43\fs18 21.16}\cell
{}\cell
\row}
{}\cell
\row}
{}\cell
\cell
\cell
\row}
{}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf42\f43\fs18 4.70}\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
303}\cell
\row}
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf13\f14\fs18 Test your Understanding -

III \par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 State whether each of the
following is True or False : \par\pard\par\pard(a) The financial statements of a
business enterprise include funds flow statement. (b) Comparative statements are
the form of horizontal analysis. \par (c) Common size statements and
financial ratios are the two tools employed in vertical analysis.
\par\pard\par\pard\ql (d) Ratio analysis establishes relationship between two
financial statements. \par (e) Ratio analysis is a tool for analysing the
financial statements of any enterprise. ( f) Financial analysis is used only by
the creditors. \par\pard\par\pard\ql (g) Profit and loss account shows the
operating performance of an enterprise for a \par period of time.
\par\pard\par\pard\ql (h) Financial analysis helps an analyst to arrive at a
decision. \par ( i) Cash Flow Statement is a tool of financial statement
analysis. \par\pard ( common base.\par\par \ul0\nosupersub\cf3\f4\fs21 4.8
\ul0\nosupersub\cf6\f7\fs18 j) In a Common size statement each item is expressed
as a percentage of some \par \ul0\nosupersub\cf3\f4\fs21 Limitations of Financial
Analysis \par\pard\par\pard \ul0\nosupersub\cf2\f3\fs21 Though financial analysis
is quite helpful in determining financial strengths and weaknesses of a
firm, it is based on the information available in financial
statements. As such, the financial analysis also suffers from various
limitations \par of financial statements. Hence, the analyst must be conscious of
the impact of price level changes, window dressing of financial statements, changes
in accounting policies of a firm, accounting concepts and conventions, personal
judgement, etc. Some other limitations of financial analysis are: \par
1. Financial analysis does not consider price level changes.
\par\pard\par\pard\ql 2. Financial analysis may be misleading without the
knowledge of the \par changes in accounting procedure followed by a firm.
\par\pard\par\pard\ql 3. Financial analysis is just a study of interim
reports. \par\pard\par\pard\ql 4. Monetary information alone is
considered in financial analysis while \par non-monetary aspects are
ignored. \par\pard\par\pard\ql 5. The financial statements are prepared on
the basis of on-going concept, \par as such, it does not reflect the
current position. \par\pard\ul0\nosupersub\cf10\f11\fs18 Analysis of Financial
Statements \par \ul0\nosupersub\cf11\f12\fs21 Terms Introduced in the
Chapter\par\par \ul0\nosupersub\cf18\f19\fs19 1. Financial Analysis\par\par 3.
Comparative Statements 5. Ratio Analysis 7. Intra Firm Comparison 9.
Horizontal Analysis \ul0\nosupersub\cf10\f11\fs18 231\par\par
\ul0\nosupersub\cf18\f19\fs19 2. Common Size Statements 4. Trend Analysis 6.
Cash Flow Analysis 8. Inter Firm Comparison \par 10. Vertical Analysis
\par\pard\par\pard\ql \ul0\nosupersub\cf11\f12\fs21 S u m m a r y
\par\pard\par\pard\ql \ul0\nosupersub\cf18\f19\fs19 Major Parts of an Annual Report
\par\pard\par\pard\ql An annual report contains basic financial statements, viz.
Balance Sheet, Profit and Loss Account and Cash Flow Statement. It also carries
management\u8217?s discussion of corporate performance of the year under review and
peeps into the future prospects. \par\pard\par\pard\ql Tools of Financial
Analysis \par\pard\par\pard\ql Commonly used tools of financial analysis are:
Comparative statements, Common size statement, trend analysis, ratio analysis,
funds flow analysis and cash flow analysis. \par\pard\par\pard\ql Comparative
Statement \par\pard\par\pard\ql Comparative statement captures changes in all items
of financial statements in absolute and percentage terms over a period of time for
a firm or between two firms. \par\pard\par\pard\ql Common Size Statement
\par\pard\par\pard\ql Common size statements expresses all items of a financial
statements as a percentage of some common base such as sales for profit and loss
account and total assets for balance sheet. \par\pard\par\pard\ql Ratio Analysis
\par\pard\par\pard\ql Ratio analysis is a tool of financial analysis which involves
the methods of calculating and interpreting financial ratios in order to assess the
strengths and weaknesses in the performance of a business enterprise.
\par\pard\par\pard{
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf11\f12\fs21 Question for Practice

\par\pard\par\pard{
A.}\cell{\ul0\nosupersub\cf15\f16\fs19 Short Answer Questions}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf18\f19\fs19 1. List the techniques of

Financial Statement Analysis. 2. Distinguish between Vertical and Horizontal
Analysis of financial data. 3. Explain the meaning of Analysis and
Interpretation. 4. Bring out the importance of Financial Analysis? 5. What are
Comparative Financial Statements. 6. What do you mean by Common Size
Statements? \par\pard\par\pard{
B.}\cell{\ul0\nosupersub\cf15\f16\fs19 Long Answer Questions}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf18\f19\fs19 1. Describe the different

techniques of financial analysis and explain the \par limitations of financial
analysis. \par\pard\par\pard\ql 2. Explain the usefulness of trend percentages in
interpretation of financial \par performance of a company. \par\pard\par\pard3.
What is the importance of comparative statements? Illustrate your \par answer with
particular reference to comparative income statement. 4. What do you understand
by analysis and interpretation of financial \par statements? Discuss their
importance. \par\pard\par\pard\ql 5. Explain how common size statements are
prepared giving an example. \par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21
Numerical Questions \par\pard\par\pard\ql \ul0\nosupersub\cf18\f19\fs19 1. From
the following information of Narsimham Company Ltd., prepare a \par Comparative
Income Statement for the years 2004-2005 \par\pard\par\pard{
2005}\cell
\row}
(Rs.)}\cell{\ul0\nosupersub\cf18\f19\fs19 (Rs.)}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Less :
Returns}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
\row}

\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Other Expenses}\cell

\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Selling & distribution

\row}
\row}
\row}
69,300}\cell{\ul0\nosupersub\cf18\f19\fs19 1,48,500}\cell
\row}
\row}
1,56,550}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Non Operating

\row}
68,750}\cell{\ul0\nosupersub\cf15\f16\fs19 1,54,610}\cell
\row}

Statements}\cell
{}\cell
{}\cell
{}\cell
\row}
{}\cell
{}\cell{\ul0\nosupersub\cf18\f19\fs19 2. The following are the Balance Sheets of
Mohan Ltd., at the end of 2004}\cell
\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 and 2005.}\cell

\cell
\cell
\cell
\cell
\cell
\row}
{}\cell
{}\cell
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf18\f19\fs19 Rs.\u8217?000}\cell
\row}
2005}\cell
\row}

600}\cell{\ul0\nosupersub\cf6\f7\fs18 Land &
buildings}\cell{\ul0\nosupersub\cf6\f7\fs18 270}\cell{\ul0\nosupersub\cf6\f7\fs18
170}\cell
\row}

354}\cell{\ul0\nosupersub\cf6\f7\fs18 Plant &
786}\cell
\row}
18}\cell
\row}
255}\cell{\ul0\nosupersub\cf6\f7\fs18 Other Fixed
30}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Accounts
117}\cell{\ul0\nosupersub\cf6\f7\fs18 Loans and
Advances}\cell{\ul0\nosupersub\cf6\f7\fs18 46}\cell{\ul0\nosupersub\cf6\f7\fs18
59}\cell
\row}

10}\cell{\ul0\nosupersub\cf6\f7\fs18 Cash and
10}\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Account
190}\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Inventory}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Prepaid
3}\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Other current
40}\cell
\row}
1,436}\cell
1,436}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf18\f19\fs19 Prepare a Comparative Balance

Sheet and study the financial position of the company. \par\pard\par\pard\qj 3.
The following are the balance sheets of Devi Co. Ltd at the end of 2002 \par and
2003. Prepare a Comparative Balance Sheet and study the financial position of the
concern. \par\pard\par\pard{
2003}\cell
\row}
(Rs.)}\cell
(Rs.)}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Equity
1,85,000}\cell{\ul0\nosupersub\cf6\f7\fs18 Fixed
Assets}\cell{\ul0\nosupersub\cf6\f7\fs18 1,40,000}\cell{\ul0\nosupersub\cf6\f7\fs18
1,95,000}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Preference
95,000}\cell{\ul0\nosupersub\cf6\f7\fs18 Stock}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
Reserves}\cell{\ul0\nosupersub\cf6\f7\fs18 30,000}\cell{\ul0\nosupersub\cf6\f7\fs18
35,000}\cell{\ul0\nosupersub\cf6\f7\fs18 Debtors}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
P&L}\cell{\ul0\nosupersub\cf6\f7\fs18 17,500}\cell{\ul0\nosupersub\cf6\f7\fs18
20,000}\cell{\ul0\nosupersub\cf6\f7\fs18 Bills
Receivables}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
overdraft}\cell{\ul0\nosupersub\cf6\f7\fs18
Prepaid Expenses}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
Cash at bank}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Provision for

Taxation}\cell{\ul0\nosupersub\cf6\f7\fs18 15,000}\cell{\ul0\nosupersub\cf6\f7\fs18
22,500}\cell{\ul0\nosupersub\cf6\f7\fs18 Cash in
hand}\cell{\ul0\nosupersub\cf6\f7\fs18 5,000}\cell{\ul0\nosupersub\cf6\f7\fs18
29,000}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Proposed
Dividend}\cell{\ul0\nosupersub\cf6\f7\fs18 8,500}\cell{\ul0\nosupersub\cf6\f7\fs18
20,050}\cell
\cell
\cell
\cell
\row}
4,58,000}\cell
4,58,000}\cell
\row}
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 4. Convert the following

income statement into Common Size Statement}\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 and interpret the changes in

2005 in the light of the conditions in 2004.}\cell
\cell
\cell
\row}
2005}\cell
\row}
(Rs.)}\cell
\row}
\row}
Returns}\cell{\ul0\nosupersub\cf18\f19\fs19 600}\cell{\ul0\nosupersub\cf18\f19\fs19
700}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Less : Cost of Goods

20,250}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Less : Operating
Expenses}\cell
\cell
\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Sales
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Income from

Operations}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Add : Non-operating

400}\cell
\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Less : Non-operating

\row}
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 5. Following are the

balance sheets of Reddy Ltd. as on 31 March 2003 and}\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 2004.}\cell
{}\cell
{}\cell
\row}
2005}\cell
\row}
3,600}\cell{\ul0\nosupersub\cf6\f7\fs18 Land &
buildings}\cell{\ul0\nosupersub\cf6\f7\fs18 1,620}\cell{\ul0\nosupersub\cf6\f7\fs18
1,040}\cell
\row}

Surplus}\cell{\ul0\nosupersub\cf6\f7\fs18 1,872}\cell{\ul0\nosupersub\cf6\f7\fs18
2,124}\cell{\ul0\nosupersub\cf6\f7\fs18 Plant &
Machinery}\cell{\ul0\nosupersub\cf6\f7\fs18 1,860}\cell{\ul0\nosupersub\cf6\f7\fs18
4,716}\cell
\row}
108}\cell
\row}
Debt}\cell{\ul0\nosupersub\cf6\f7\fs18 900}\cell{\ul0\nosupersub\cf6\f7\fs18
1,530}\cell{\ul0\nosupersub\cf6\f7\fs18 Other Fixed
180}\cell
\row}
Payable}\cell{\ul0\nosupersub\cf6\f7\fs18 1,530}\cell{\ul0\nosupersub\cf6\f7\fs18
702}\cell{\ul0\nosupersub\cf6\f7\fs18 Long-terms
354}\cell
\row}

60}\cell{\ul0\nosupersub\cf6\f7\fs18 Cash & Bank
Balances}\cell{\ul0\nosupersub\cf6\f7\fs18 708}\cell{\ul0\nosupersub\cf6\f7\fs18
60}\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Bill
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Stock}\cell{\ul0\nosupersub\cf6\f7\fs18
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Prepaid
18}\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf6\f7\fs18 Other Current
240}\cell
\row}
8,616}\cell
8,616}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf18\f19\fs19 Analyse the financial

position of the company with the help of the Common Size Balance Sheet.
\par\pard\par\pard{

\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf18\f19\fs19 6. The accompanying balance

sheet and profit and loss account related to \par SUMO Logistics Pvt. Ltd.
convert these into Common Size Statements. \par\pard\par\pard\ql Previous Year =
2005 Current Year= 2006 \par\pard\par\pard\ql Rs.\u8217?000 \par\pard\par\pard{
{}\cell{\ul0\nosupersub\cf18\f19\fs19 Previous}\cell{\ul0\nosupersub\cf18\f19\fs19
Current}\cell
\row}
{}\cell{\ul0\nosupersub\cf18\f19\fs19 Year}\cell{\ul0\nosupersub\cf18\f19\fs19
Year}\cell
\row}
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Equity Share Capital (of Rs.

10 each)}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
182}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Long Term

loans}\cell{\ul0\nosupersub\cf18\f19\fs19 182}\cell{\ul0\nosupersub\cf18\f19\fs19
169.5}\cell
\row}
\row}
expenses}\cell{\ul0\nosupersub\cf18\f19\fs19 6}\cell{\ul0\nosupersub\cf18\f19\fs19
-}\cell
\row}

liabilities}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
\row}
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Plant assets net of

accumulated less depreciation}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
78}\cell
\row}
65}\cell
\row}
Inventories}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
650}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf15\f16\fs19 Income Statement for the year

ended}\cell
\cell
\cell
\row}
{}\cell
{}\cell{\ul0\nosupersub\cf18\f19\fs19 Rs.\u8217?000}\cell
\row}
{}\cell{\ul0\nosupersub\cf18\f19\fs19 Previous}\cell{\ul0\nosupersub\cf18\f19\fs19
Current}\cell
\row}
{}\cell{\ul0\nosupersub\cf18\f19\fs19 Year}\cell{\ul0\nosupersub\cf18\f19\fs19
Year}\cell
\row}
Sales}\cell{\ul0\nosupersub\cf18\f19\fs19 370}\cell{\ul0\nosupersub\cf18\f19\fs19
480}\cell
\row}
Returns}\cell{\ul0\nosupersub\cf18\f19\fs19 20}\cell{\ul0\nosupersub\cf18\f19\fs19
30}\cell
\row}
sales}\cell{\ul0\nosupersub\cf18\f19\fs19 350}\cell{\ul0\nosupersub\cf18\f19\fs19
450}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Less : Cost of goods

sold}\cell{\ul0\nosupersub\cf18\f19\fs19 190}\cell{\ul0\nosupersub\cf18\f19\fs19
215}\cell
\row}
Profit}\cell{\ul0\nosupersub\cf18\f19\fs19 160}\cell{\ul0\nosupersub\cf18\f19\fs19
235}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Less : Selling general

and}\cell
\cell
\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 administration
72}\cell
\row}
profit}\cell{\ul0\nosupersub\cf18\f19\fs19 110}\cell{\ul0\nosupersub\cf18\f19\fs19
163}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Less : Interest

17}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Earnings before

tax}\cell{\ul0\nosupersub\cf18\f19\fs19 90}\cell{\ul0\nosupersub\cf18\f19\fs19
146}\cell
\row}
Taxes}\cell{\ul0\nosupersub\cf18\f19\fs19 45}\cell{\ul0\nosupersub\cf18\f19\fs19
73}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Earnings After

73}\cell
\row}
{}\cell
\cell
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf18\f19\fs19 7. From the following particulars extracted
from P&L A/c of Prashanth Ltd.,}\cell
\cell
\row}
{}\cell
{}\cell{\ul0\nosupersub\cf18\f19\fs19 you are required to calculate trend
percentages}\cell
\cell
\cell
\row}
Year}\cell{\ul0\nosupersub\cf18\f19\fs19 Sales}\cell{\ul0\nosupersub\cf18\f19\fs19
Wages}\cell{\ul0\nosupersub\cf18\f19\fs19 Bad
debts}\cell{\ul0\nosupersub\cf18\f19\fs19 Profit after tax}\cell
\row}
(Rs.)}\cell{\ul0\nosupersub\cf18\f19\fs19 (Rs.)}\cell{\ul0\nosupersub\cf18\f19\fs19
(Rs.)}\cell
\row}
\row}
\row}
\row}
\row}
{}\cell
{}\cell
{}\cell{\ul0\nosupersub\cf18\f19\fs19 8. Calculate trend percentages from the
following figures of ABC Ltd., taking}\cell
\cell
\row}
{}\cell{\ul0\nosupersub\cf18\f19\fs19 2000 as base and interpret them.}\cell
\cell
\cell
\cell
\row}
Year}\cell{\ul0\nosupersub\cf18\f19\fs19 Sales}\cell
{}\cell{\ul0\nosupersub\cf18\f19\fs19 Stock}\cell{\ul0\nosupersub\cf18\f19\fs19
Profit before tax}\cell
\row}
300}\cell
\row}
450}\cell
\row}
480}\cell
\row}
530}\cell
\row}
660}\cell
\row}
700}\cell
\row}
}\par\pard\par\pard\qj 9. From the following data relating to the liabilities

side of balance sheet of \par Madhuri Ltd., as on 31st March 2006, you are required
to calculate trend percentages taking 2002 as the base year. \par\pard\par\pard\ql
(Rs. in Lakhs) \par\pard\par\pard{
2006}\cell
\row}
capital}\cell{\ul0\nosupersub\cf18\f19\fs19 100}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}

\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 12%
400}\cell
\row}
overdraft}\cell{\ul0\nosupersub\cf18\f19\fs19
20}\cell
\row}
\trowd\trautofit1\intbl{\ul0\nosupersub\cf18\f19\fs19 Profit & Loss

A/c}\cell{\ul0\nosupersub\cf18\f19\fs19 20}\cell{\ul0\nosupersub\cf18\f19\fs19
\row}
75}\cell
\row}
}\par\pard\par\pard\ql \ul0\nosupersub\cf11\f12\fs21 Answers to Test your

Understanding \par\pard\ul0\nosupersub\cf47\f48\fs19 Test your Understanding - I
\par \ul0\nosupersub\cf48\f49\fs19 1. Simplification 4. vertical\par\par
\ul0\nosupersub\cf47\f48\fs19 Test your Understanding - II\par\par
\ul0\nosupersub\cf48\f49\fs19 1 (d)\par\par 2 (d) \ul0\nosupersub\cf47\f48\fs19
Test your Understanding - III\par\par \ul0\nosupersub\cf48\f49\fs19 (a)
True\par\par (b) True (g) True (h) True 2. explaining 3. the impact of horizontal
5. cash flow.\par\par 3 (c)\par\par 4 (a) 5 (b) (c) True (d) True (e) True (f)
False (i) True (j) True \par\pard}

Analysis of Financial Statements

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Analysis of Financial Statements

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{\rtf1{\fonttbl

{\f2 Courier New;}

\trowd\trautofit1\intbl{\ul0\nosupersub\cf7\f8\fs32 Analysis of Financial

}\par\pard\par\pard \ul0\nosupersub\cf2\f3\fs21 ou have learnt about the

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 given therein;

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 \u8226? calculate the

}\par\pard\par\pard\ql \ul0\nosupersub\cf6\f7\fs18 percentages and interpret

\trowd\trautofit1\intbl{\ul0\nosupersub\cf10\f11\fs18 Analysis of Financial

}\par\pard\par\pard \ul0\nosupersub\cf2\f3\fs21 Management of the firm

\trowd\trautofit1\intbl{\ul0\nosupersub\cf10\f11\fs18 Analysis of Financial

}\par\pard\par\pard\ql \ul0\nosupersub\cf2\f3\fs21 with a view to know the

}\par\pard\par\pard\ql \ul0\nosupersub\cf12\f13\fs21 the numbers are brought to

\trowd\trautofit1\intbl{\ul0\nosupersub\cf10\f11\fs18 Analysis of Financial

}\par\pard\par\pard\ql \ul0\nosupersub\cf13\f14\fs18 Test your Understanding - I

\trowd\trautofit1\intbl{\ul0\nosupersub\cf2\f3\fs21 Second year absolute figure

\trowd\trautofit1\intbl{\ul0\nosupersub\cf2\f3\fs21 � 100 -100,}\cell

\trowd\trautofit1\intbl{\ul0\nosupersub\cf2\f3\fs21 First year absolute figure

}\par\pard\par\pard\ql Fig. 4.1 \par\pard\par\pard{

}\par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Illustration 1

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Sales

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Cost of Goods

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Operating Expenses

\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Total Operating

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Profit form

\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Net Profit after

\trowd\trautofit1\intbl{\ul0\nosupersub\cf10\f11\fs18 Analysis of Financial

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Sales

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Cost of Goods

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Gross Profit

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Operating Expenses

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Operating Profit (A-

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Add: Non-operating

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Non-operating

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Net Profit before

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Tax @

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Net Profit after

}\par\pard\par\pard\ql \ul0\nosupersub\cf10\f11\fs18 Interpretation

}\par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Illustration 2

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Postage and

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Loss on Sale of

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Profit on Sale of

\trowd\trautofit1\intbl{\ul0\nosupersub\cf2\f3\fs21 2005 and 2006}\cell

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Cost of Goods Sold:}\cell

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Closing

\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Gross Profit

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Operating Expenses

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Postage and

\trowd\trautofit1\intbl{\ul0\nosupersub\cf10\f11\fs18 Analysis of Financial

\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Operating Profit}\cell

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Add: Non-operating Income}\cell

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Profit on Sale of

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Less: Non-operating

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Loss on Sale of

}\par\pard\par\pard\ql \ul0\nosupersub\cf10\f11\fs18 Interpretation

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Equity Share

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Reserves and

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Other Current

}\par\pard\par\pard\ql \ul0\nosupersub\cf3\f4\fs21 Solution

\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Current Assets}\cell

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Cash and

\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Total Current

\trowd\trautofit1\intbl{\ul0\nosupersub\cf9\f10\fs18 Fixed Assets}\cell

\trowd\trautofit1\intbl{\ul0\nosupersub\cf6\f7\fs18 Land and