A Training Report

Titled

Financial Statement Analysis

for the training undergone at

Neha Engineering
In Panipat District
for the partial fulfillment of the award of degree of MBA-5 year

Submitted to:
Director , IMS

Submitted by:
Nitika Raghav 8th Semester Class Roll no. 47 University Reg. No. 08-UD-1133 Batch- 2008-13

Institute of Management Studies Kurukshetra University, Kurukshetra

DECLARATION
I hereby declare that I have completed the project entitled Financial Statement Analysis assigned to me by Neha Engineering for the training report to be submitted in the partial fulfillment of MBA-5yr. Degree from Kurukshetra University. Further I declare that this is original work done by me and information provided in the study is authentic to the best of my knowledge belief my training period was from 15 th January, 2012 to 15th February, 2012. This study has not been submitted to any other Institution or University for the award of any other degree or for any purpose.

Dated: -

NITIKA RAGHAV 8TH Semester Class Roll no. 47 University Reg. No. 08-UD-1133

Preface
Someone has rightly said that practical knowledge is far better than classroom teaching. During this project I fully realized this and I came to know about how a retailer chooses among a varied range of products available to him. The subject of my study is Financial Analysis of NEHA ENGINEERING., which has slowly but steadily evolved from a beginner to a corporate giant earning laurels and kudos throughout. The report contains first of all brief introduction about the company. Finally there comes data presentation and analysis in the end of my project report. I also put forward some of my suggestion hoping that they will help NEHA ENGINEERING. Move a step forward to being the very best.

Acknowledgement
A drop of ink makes million think Any research work is never an individual effort. It is contributory effort of many hearts & heads. I take this opportunity to express my appreciation & gratitude to all those, with whom I worked, interacted and whose insides and thoughts help me in furthering my knowledge and completion of my project report. A project of this nature is the product of the ideas and experiences of several persons. So, an undertaking of a work like this is never the outcome of efforts of a single person, rather it bears the imprints of a number of persons who are behind the curtain. First of all, I would like to extend my thanks to MR. Ramcharan Owner., NEHA ENGINEERING who exceeded to my request and allowed me to work on this project. At the earliest, I express my gratitude towards staff members of NEHA ENGINEERING for their help & cooperation. I would also thanks to respected director sir and other faculty members of my institute. Last but not least, I would like highly thanks to my father and all of them who help me directly and indirectly in accomplishment of my training and give highly cooperation in this project.

NITIKA RAGHAV

Content
4

Sr. No. Particulars

1 2 3 4 5 Company Profile Critical review of literature Ratio Analysis Comparative Financial Statement Findings and Analysis BIBLIOGRAPHY

Page No.
6 7 12 32 38 39

Chapter 1
5

Company Profile
NEHA ENGINEERING is well established and fast growing company. We currently deal in number of aforesaid items on the hire as well as sale basis. We are happy to announce that we are offering the same services to other companies like your company. From our office, the heart of low cost and good quality of aforesaid items ready to use. We can supply your company with whatever kind of shuttering you would like. We ensure that the quality you need at the best possible price and our staff of quality controller insures that the products are well made. The success of any construction project depends on how closely you stick to planned time schedules and cost estimate. When you buy scaffolding from NEHA ENGINEERING, you are able to draw on the resources of well-spread service organization and wide manufacturing base. Regardless of the specific type of equipment and site location, we will work with you to ensure your project to run according to plan. The extensive design and manufacturing resources of NEHA ENGINEERING give us the ability to develop or adopt products quickly to suit the constantly changing needs of our customers. If you would like to take the advantage of the services that NEHA ENGINEERING is being offered to your company. Please contact us on our telephone numbers mentioned above. We are authorized vendor of I.O.C.L, Samsung Engg. Ltd., IOTAP, Bridge & Roof Co (I) Ltd, Larsen & Toubro Ltd at NFL, Panipat etc.

Chapter 2
6

Critical Review Of Literature

FINANCIAL STATEMENT ANALYSIS MEANING: Analysis of financial statements is the systematic numerical calculation
of the relationship between one fact with the other to measure the profitability, operational efficiency and the growth potential of the business.

OBJECTIVES OF FINANCI AL STATEMENT ANALYSI S:

1. Measuring financial standards : The business must know its financial soundness which can be measured by calculating different ratios like proprietory and f ixed asset ratio. If it is found adverse, then corrective steps can be taken. 2. Judging solvency : Creditors ar e always interested in knowing the solvency of the business to repay their loans. This can be ascertained by looking into the facts such as: Whether current assets are sufficient to meet current liabilities. Proportion of current assets to liquid assets. Future prospectus of the business. Whether debentures or other loans are secured or not. Managerial efficiency of the firm.

3. Measuring profitability: Financial statement shows the gross profit, net profit and other expenses. The relationship of these items can be established with sales. To ascertain profitability, gross profit, net profit, expenses and operating ratios may be calculated. In case of improving or declining profitability ratios, the causes responsible for the performance can be evaluated.

4. Judging operational efficiency: It is very significant to know the operational efficiency of the management. The managerial efficiency of the business can be assessed by matching the amount of manufacturing, selling, distribution and financial expenses of the current year with the corresponding expenses of the previous year. This can also be judged by calculating profitability ratios. 5. Indicating trends of achievements: Financial statements of the previous year can be compared and the trends regarding various expenses, purchases, sales, gross profit and net profit can be ascertained. Values of assets and liabilities can be compared and the futur e prospectus of the business can also be indicated. 6. Assessing the growth potential: The trend and dynamic analysis of the business provides sufficient information indicating the growth potential of the business. If the trend predicts gloomy picture, effective measures can be used to correct it. If cost of production is rising without corresponding increase in the selling price, efforts should be made to reduce cost of production. 7. Inter-firm and Intra-firm comparison: Analysis of the financial statements can be made with the previous years performance of the same firm and with the performance of the other firms in the industry. Intra-firm analysis provides an opportunity of self-appraisal, whereas, inter-firm analysis presents the operational efficiency of the firm as compared the other firms. Comparison helps in detecting weaknesses and adopting. corrective measures. 8. Deciding future line of action: Analysis of financial statements indicates growth potential of the business. Comparison of actual performance with the standard performance shows the short comings. The analysis provides sufficient information regarding the profitability, performance and financial soundness of the business. On the basis of these information, effective forecasting, budgeting and planning can be made.

9. Systematic presentation of data: Analysis of financial statements is an effective tool for simplifying, systematizing, and summarizing the monotonous data. An average person, who has no knowledge of accounting, can draw conclusions from ratios. The facts can be made more attractive by graphs and diagrams which can be easily understood.

Types of Financial Analysis.

Financial analysis can be classified into four categories: According to Modus Operandi 1. Horizontal or dynamic analysis: When financial statements for a certain number of or different firms are examined analytically, the analysis is called horizontal or dynamic. 2. Vertical or static analysis: vertical or static analysis is the study of mutual relationship between differ ent components or their totals of the financial statements for a definite per iod of time. According to Materials used 3. Internal Analysis: When analysis of financial statements is made by somebody internally related to the enterprise such as executives, employees etc. it is said to be internal analysis. 4. External analysis: An analysis made by a person not internally related to the enterprise and meant for external users of the financial statements, is called external analysis.such type of analysis is made by banks, investing agencies, creditors, research scholars and the government.

Limitations of Financial Analysis.

Despite the significance of analysis and interpretation of financial statements as discussed above, it has certain limitations which an analyst and the user should kept in mind. These limitations ar e identified as follows:

1. Suffers from limitations of financial statements: Financial statements suffer fromvariety of weaknesses. Assets are disclosed in the balance sheet at historical cost which is different from current cost. Similarly, financial statements are prepar ed according to certain conventions at a point of a time, whereas investors are concerned with the present and futur e of the company. Certain assets and liabilities are not disclosed. Per sonal judgements also affect the figures of balance sheet. Financial statements suffer from these weaknesses, hence the analysis based upon these statements can not be said to be always reliable. 2. Absence of universally accepted standard terminology: Accounting is not an exact science, so it does not encompass universally accepted terminology. Different meanings are assigned to a particular term. Depreciation is provided by different methods and interest is charged at varied rates. In this way, there are sufficient chances of manipulation. As a result, financial analysis proves to be defective. 3. Ignores qualitative aspects: Financial analysis is the quantitative measurement of the perfor mance of the fir m. It does not disclose the skill, technical know- how and the efficiency of its employees and managers. It means that analysis of financial statementsmeasur es only the one sided per for mance of the business. It also completely ignores human aspect. 4. Ignores price level changes: The results disclosed by financial statements may be misleading, if the pr ice level changes are not taken into consideration. The gross profit ratio may improve with the increase in price, wher eas actual efficiency may not improve. If prices of commodities differ, the ratios of two years will not be meaningful for comparison. Change in price affects cost of production, sales and value of assets, thereby the compar ability of ratios suffers. 5. It spottes the symptoms but not diagnose: Financial analysis shows the trends of the affairs of the business. It may spot symptoms of financial weakness and operational efficiency which can not be accepted. A final decision in this regard will require further investigation and thorough diagnosis.

TECHNIQUES OF FINANCIAL ANALYSIS

10

The financial statements, balance sheet and profit & loss account, reclassified and arranged logically for the purpose of analysis and establishing the relationship amongst the various items are studied horizontally and vertically. The various analytical methods or devices used to study this horizontal or vertical relationship are known as techniques of financial analysis. A number of such techniques are used by the financial analyst, but the most popular among these are as follows: Ratio analysis Comparative financial statements Common-size financial statements Funds flow analysis

11

Chapter 3 Ratio Analysis

LIQUIDITY OR SHORT TERM SOLVENCY RATIOS
These ratios play a key role in the analysis of the short term financial position of a business. Liquidity refers to a firms ability to meet its current financial obligation as they arise. 1. Current ratio or working capital ratio Meaning: Current ratio may be defined as the relationship between current assets and current liabilities. Current Assets

Current Ratio = ----------------------Current Liabilities For 2010,

Current assets=22,75,088 Current liabilities=8,44,553 22,75,088 Current Ratio = --------------=2.69

8,44,553 For 2009,

Current assets= 23,46,876 Current Liabilities=7,62,599 23,46,876 Current Ratio = --------------=3.07

7,62,599

12

For 2008,
Current assets = 25,72,977 Current liabilities = 8,52,410 25,72,977 Current Ratio = --------------=3.01

8,52,410
Interpretation: Current r atio of a firm measures its short term solvency and reflects its ability to meet short term obligation when they are due. The higher the current ratio, the larger the amount of rupees available per rupee of current liabilities, the more the firms ability to meet current obligations and the greater the safety of funds to short term creditors. A current ratio of 2:1 is considered satisfactory.

ACTIVITY OR EFFICIENCY RATIO

The funds of creditors and owners are invested in various assets to generate sales and profit. The better the management of these assets, the larger the amount of sales. Activity ratio enable the firm to know how efficiently these assets are employed by it. Therefore, an activity ratio may be defined as a test of relationship between sales or cost of goods sold and various assets of the firm.

1. Total assets turnover ratio

Meaning: This ratio expresses the relationship between cost of goods sold / net sales and total assets / investments of a firm. It is also called Total investment turnover ratio. Net Sales

Total Assets Turnover Ratio = ---------------Total Assets For 2010,

Net sales = 30,45,853 Total assets = 72,82,237 13

30,45,853 Total Assets Turnover Ratio = ---------------- =0.41 times 72,82,237

For 2009,
Net sales = 35,79,889 Total assets = 58,21,598 35,79,889 Total Assets Turnover Ratio = ----------------=0.61 times 58,21,598

For 2008,
Net sales = 31,57,881 Total assets = 57,13,679 31,57,881 Total Assets Turnover Ratio = ----------------=0.55 times 57,13,679 Interpretation: This ratio indicates the number of times the assets are turned over in a year in relation to sales. A higher total assets turnover ratio is the indicator of effective utilization of investment in assets, whereas lower assets turnover ratio indicates that assets are not properly utilized in comparison to sales. Thus, there is an over investment in assets. Extremely high ratio means over-trading in the business.

2. Fixed assets turnover ratio

Meaning: This ratio expresses the relationship between fixed assets (less depreciation) and net sales or cost of goods sold.

14

Cost of Sales (or Net Sales)

Fixed Assets Turnover Ratio = -------------------------------------Fixed Assets (less Depreciation) For 2010,
Net sales = 30,45,853 Fixed assets = 3,88,132 30,45,853 Fixed Assets Turnover Ratio = -----------------7.84 times 3,88,132

For 2009,
Net sales = 35,79,889 Fixed assets = 3,13,037 35,79,889 Fixed Assets Turnover Ratio = -----------------= 11.43 times 3,13,037

For 2008,
Net sales = 31,57,881 Fixed assets = 2,89,758 31,57,881 Fixed Assets Turnover Ratio = -----------------= 10.89 times 2,89,758 Interpretation: This ratio measures the efficiency and profit earning capacity of the fir m. The higher the ratio, the greater is the intensive utilization of fixed assets. Lower ratio means under utilization of fixed assets and excessive investment in these assets. As volume of sales depend on variety of factors such as price, quality of goods, salesmanship, marketing etc. It is argued that no direct relationship can be established between sales and fixed assets. Accordingly, it is not recommended for general use.

15

3. Current assets turnover ratio

Meaning: This ratio expresses relationship between current assets and net sales or cost of cost sold. Cost of Sales (or Net Sales)

Current Assets Turnover Ratio = -----------------------------------Current Assets For 2010,

Net sales = 30,45,853 Current assets = 22,75,088 30,45,853 Current Assets Turnover Ratio = ----------------------=1.33 times 22,75,088

For 2009,
Net sales = 35,79,889 Current assets = 23,46,876 35,79,889 Current Assets Turnover Ratio = ----------------------=1.525 times 23,46,876

For 2008,
Net sales = 31,57,881 Current assets = 25,72,977 31,57,881 Current Assets Turnover Ratio = ----------------------=1.22 times 25,72,977 Interpretation: This ratio reflects the efficiency and capacity of working capital. It is a very useful technique for non-manufacturing units requiring lesser working capital. On the basis of

16

this ratio, efficiency or inefficiency of current assets and over or under investment in the firm is examined.

4. Working capital turnover ratio

Meaning: This ratio establishes the relationship between net working capital and net sales or cost of goods sold. Sales

Working Capital Turnover Ratio = -----------------------------Net Working Capital For 2010,

Net sales = 30,45,853 Net working capital = 14,30,535 30,45,853 Working Capital Turnover Ratio = ---------------------=2.13 times 14,30,535

For 2009,
Net sales = 35,79,889 Net working capital = 15,84,277 35,79,889 Working Capital Turnover Ratio = ---------------------=2.26 times 15,84,277

For 2008,
Net sales = 31,57,881 Net working capital = 17,20,567 31,57,881 Working Capital Turnover Ratio = ---------------------= 1.83 times 17,20,567

17

Interpretation: This ratio is used to assess the efficiency with which the working capital is being used in the business. A high working capital ratio indicates efficient management of working capital or over-trading i.e. low investment in working capital and more profits. On the contrary, a low working capital turnover ratio implies under trading i.e. funds are not being utilised efficiently. Higher sales in comparison to working capital means over-trading and lower sales in comparison to working capital means under-trading.

5. Capital turnover ratio

Meaning: This ratio establishes the relationship between net sales or cost of goods sold and capital employed. Sales

Capital Turnover Ratio = ---------------------------------------------------Capital Employed (i.e. shareholders fund + Long term liabilities) For 2010,
Net sales = 30,45,853 Capital employed = 24,15,707 30,45,853 Capital Turnover Ratio = ------------------------ =1.26: 1 24,15,707

For 2009,
Net sales = 35,79,889 Capital employed = 26,11,106 35,79,889 Capital Turnover Ratio = ------------------------ =1.37: 1 26,11,106

18

For 2008,
Net sales = 31,57,881 Capital employed = 23,07,403 31,57,881 Capital Turnover Ratio = ------------------------ =1.36: 1 23,07,403 Interpretation: The efficiency and effectiveness of the operations are judged by comparing the sales or cost of sales with amount of capital employed in the business and not with assets held in the business. Therefore, this ratio is a better measurement of efficient use of capital employed. Efficient use of capital symbolizes profit earning capacity and managerial efficiency of the firm.

PROFITABILITY RATIOS
Profitability ratios based on sales 1. Gross Profit Ratio
Meaning: This ratio expresses the relationship of gross profit on sales to net sales in terms of percentage. Expressed as a formula, the gross profit ratio is: Gross Profit

Gross Profit Ratio = ------------------- X 100 Net Sales For 2010,

Gross profit = 27,49,121 Net Sales = 30,45,853 27,49,121 Gross Profit Ratio = ------------------- X 100 =90.25% 30,45,853

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For 2009,
Gross profit = 32,17,259 Net Sales = 35,79,889 32,17,259 Gross Profit Ratio = ------------------- X 100 =89.87% 35,79,889

For 2008,
Gross Profit = 28,03,187 Net Sales = 31,57,881 28,03,187 Gross Profit Ratio = ------------------- X 100 =88.76% 31,57,881 Interpretation: In the above calculation, the gross profit ratio is increasing from year to year. In the year 2009, there is a change ( increase) in gross profit ratio of about 1.11 % from 88.76 % to 89.87 %. In the year 2010, there is a change (increase) in gross profit ratio of about .38 % from 89.87 % to 90.25 %. In the year 2010, the decrease in gross profit ratio as compare to the year 2008 is due to the declining in profit in comparison to Sales or due to increasing in cost.

2. Operating Ratio
Meaning: This ratio expresses the relationship between operating cost and net sales. Operating cost means cost of goods sold plus operating expenses. Expressed as a formula: Operating Costs

Operating ratio: -------------------------X100 Net Sales

20

For 2010,
Operating cost = Cost of goods sold + Operating expenses = 2, 96,732 + 19,58,608 = 22, 55,340 Net Sales= 30,45,853 22,55,340

Operating ratio: -------------------------X100=74.05% 30,45,853 For 2009,

Operating cost = Cost of goods sold + Operating expenses= 3, 62,630 + 21,88,988 = 25, 51,618 Net Sale = 35,79,889 25,51,618

Operating ratio: -------------------------X100=71.28% 35,79,889 For 2008,

Operating Cost = Cost of goods sold + Operating expenses = 3,54,694 + 19,45,602 = 23, 00,296 Net sales= 31,57,881 23,00,296

Operating ratio: -------------------------X100= 72.84 % 31,57,881

Interpretation: Operating ratio shows the percentage of net sales that is absorbed by cost of goods sold and operating expenses. Hence, the lower the operating ratio, the higher the operating profit to recover non-operating expenses such as interest, dividend etc and vice-

21

versa. In the year 2009 the operating ratio is low as compare to the year 2010 & 2008 that is why operating profit in the year 2009 is more as compare to the year 2010 & 2008. So we have to decrease the operating ratio to increase the operating profit by decreasing the cost of goods sold as well as operating expenses and increase in sales.

3. Operating Profit Ratio

Meaning: This ratio is also called Operating profit margin. It establishes the relationship between operating profit and net sales. It is also defined as the ratio of profit before depreciation, interest and tax. It is calculated as follows: Operating profit

Operating Profit Ratio = -----------------------x 100

Net Sales

For 2010,
Operating profit = 7,90,513 Net sales = 30,45,853 7,90,513

Operating Profit Ratio = ----------------- x 100 =25.95%

30,45,853

For 2009,
Operating profit = 10,28,271 Net sales = 35,79,889 10,28,271

Operating Profit Ratio = ----------------- x 100= 28.72 %

35,79,889

For 2008,
Operating profit = 8,57,585 22

Net sales

= 31,57,881 8,57,585

Operating Profit Ratio = ----------------- x 100=27.16%

31,57,881 Interpretation: This ratio indicates the net profitability of the main business i.e. operating efficiency of a firm. The higher the operating profit ratio, the better would be the operational efficiency of the firm. A higher operating profit ratio means that a firm has been able not only to increase its sales but also been able to cut down its operating expenses. In the year 2009 operating profit is highest in comparison to the year 2010 and 2008 and it is due to the low operating expenses as well as low cost of goods sold. So the operating efficiency of the firm in the year 2009 is good as compare to that of 2010 & 2008.

4. Expenses Ratio
Meaning: Expenses ratio shows the relationship of different expenses to net sales. a) Research & Development Expenses Ratio Research & Development Expenses =-----------------------------------------------X 100 Net Sales

For 2010,
Research & Development expenses = 565,141 Net sales = 30,45,853 5,65,141 R & D Expenses Ratio=------------------X 100=18.55% 30,45,853

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For 2009,
Research & Development expenses = 6,62,057 Net sales = 35,79,889 6,62,057 R & D Expenses Ratio=------------------X 100=18.49% 35,79,889

For 2008,
Research & Development expenses = 6,13,242 Net Sales = 31,57,881 6,13,242 R & D Expenses Ratio=------------------X 100=19.41% 31,57,881 Interpretation: Research & development expenses ratio should be low. Low R&D expenses ratio leads to an increase in operating profit ratio. In the year 2009 the Research & Development expenses ratio is low as compare to the year 2010 & 2008. Due to the low Research and development expenses in the year 2009, the operating profit ratio is high in the same year. b) Selling, general & administrative exp ratio

Selling, general & admin exp = -------------------------------------------X100 Net sales

For 2010,
Selling, general & admin expenses = 12,80,652 Net Sales = 30,45,853

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12,80,652 Selling, general & admin expenses ratio =------------------------- x 100=42.05% 30,45,853

For 2009,
Selling, general & admin expenses = 1,426,632 Net sales = 3,579,889 14,26,632 Selling, general & admin expenses ratio = ----------------x 100= 39.85 % 35,79,889 For 2008, Selling, general & admin expenses = 1,259,370 Net sales = 3,157,881 12,59,370 Selling, general & admin expenses ratio =----------------- x 100= 39.88 % 31,57,881 Interpretation: Selling, general & administrative expenses ratio should be low. Low Selling, general & administrative expenses ratio leads to an increase in operating profit ratio. In the year 2008 the Selling, general & administrative expenses ratio is low as compare to the year 2009 & 2007. Due to the low Selling, general & administrative expenses in the year 2008, the operating profit ratio is high in the same year.

c) Non-Recurring Expenses Ratio

Non-recurring expenses = --------------------------------x 100 Net Sales

For 2010,
Non-recurr ing expenses = 41,260 25

Net sales

= 30,45,853 41,260

Non-recurr ing expenses ratio =--------------- x 100=1.35% 30,45,853

For 2009,
Non-recurr ing expenses = 32,053 Net sales = 3,579,889 32,053 Non-recurr ing expenses ratio =------------- x 100= .89 % 3,579,889 For 2008, Non-recurr ing expenses = 555 Net sales = 3,157,881 555 Non-recurr ing expenses ratio = ----------------- x 100= .017 % 3,157,881 Interpretation: The above calculation shows that there is an increase in Non-recurring expenses from year to year. An increase in this non-recurring expenses leads to decline in operating profit ratio as operating profit declines. There is a continuing rise in the nonrecurring expense from year 2008 to year 2010. This expense needs to be control to increase the operating profit that further leads to increase in net profit of the company.

d) Other Expenses Ratio

Other expenses = -------------------------x 100 Net sales

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For 2010,
Other expenses = 71,555 Net sales = 30,45,853 71,555 Other expenses ratio =-------------x 100=2.34% 30,45,853

For 2009,
Other expenses = 68,246 Net sales = 35,79,889 68,246 Other expenses ratio = -------------x 100=1.90% 35,79,889

For 2008,
Other expenses = 72,435 Net sales = 3,157,881 72,435 Other expenses ratio = -----------------x 100= 2.29 % 31,57,881 Interpretation: As the above calculation says that the other expenses ratio is lowest in the year 2009, which results in high operating profit ratio in the same year. There is a change (decline) of about 0.39 % in other expenses ratio from year 2008 to year 2009. In the year 2010, there is a change (increase) of about 0.44 % as compare to the year 2009. These entire expenses ratio should be low, which further leads to increase in operating profit ratio of a firm.

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5. Net Profit Ratio:

Meaning: This ratio measures the relationship between net profit and sales of a firm. Net profit is the excess of revenue over expenses during a particular accounting period. The formula used is as follows: Net Profit Net Profit Ratio = ------------------x 100 Net Sales

For 2010,
Net profit (before tax) =8,01,520 Net sales = 30,45,853 8,01,520 Net Profit Ratio = -------------x 100 30,45,853 = 26.31 % Net profit ( after tax) = 4,86,508 Net sales = 30,45,853 4,86,508 Net Profit Ratio = ------------x 100 30,45,853 = 15.97 %

For 2009,
Net profit (before tax) = 10,78,508 Net sales = 35,79,889 10,78,508 Net Profit Ratio = ---------------x 100 35,79,889 = 30.12 % = 24.35 % Net profit (after tax) = 8,71,814 Net sales = 35,79,889 8,71,814 Net Profit Ratio = --------------x 100 35,79,889

For 2008,
Net profit (before tax) = 9,47,190 Net sales = 31,57,881 9,47,190 Net Profit Ratio = ------------x 100 31,57,881 Net profit (after tax) = 7,23,807 Net sales = 31,57,881 7,23,807 Net Profit Ratio =-----------x 100 31,57,881

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= 29.99 %

= 22.92 %

Interpretation: In the above calculation the net profit ratio (before tax) is highest in the year2009 as compare to that of the year 2010 & 2008. It shows that in the year 2009 owner got adequate returns. A high net profit ratio is preferable as it is the indication of overall profitability and efficiency of the business. In the year 2010 net profit ratio (before tax) is 26.31 %, which is very low as compare to previous year. In the above calculation the net profit ratio (after tax) is highest in the year 2009 as compare to that of the year 2010 & 2008. It shows that in the year 2008 owner got adequate returns. A high net profit ratio is preferable as it is the indication of overall profitability and efficiency of the business. In the year 2010 net profit ratio (after tax) is 12.68 %, which is very low as compare to previous year.

Profitability Ratios based on capital /investments: 6. Return on Capital Employed

Meaning: This ratio expresses the relationship between profits and capital employed and is calculated in percentage by dividing the net profit by capital employed. The formula used is as follows: Net Profit (before interest and tax) Return on Capital employed = ---------------------------------------------x 100 Net Capital employed Net Capital employed = FA(less depreciation) + current assets current liabilities.

For 2010,
Net Profit (before interest and tax) = 8,04,927 Net Capital employed = 2,415,707 8,04,927 Return on capital employed = ---------------x 100= 33.32% 24,15,707 29

For 2009,
Net Profit (before interest and tax) = 10,88,527 Net capital employed = 26,11,106 10,88,527 Return on capital employed = ------------------------x 100= 41.68 % 26,11,106

For 2008,
Net Profit (before interest and tax) = 9,47,443 Net capital employed = 23,07,403 9,47,443 Return on capital employed =------------------x 100= 41.06 % 2,307,403 Interpretation: The return on capital employed provides a test of profitability related to the long term funds. The higher the ratio, the more effective and efficient would be the utilization of capital and vice-versa. In the year 2009 the return on capital employed is high as compare to the year 2010 & 2008. This shows the effective utilization of capital in the year 2008 as compare to that of the year 2010 & 2008 .

7. Return on Total Assets

Meaning: Profitability can also be measured by establishing relationship between net profits and total assets. This ratio is computed by dividing the net profits after tax by total funds invested or total assets. Net Profit after tax + Interest Return on total assets = --------------------------------------x 100 Total Tangible assets

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For 2010,
Net profit after tax + interest = 4, 89,915 Total tangible assets = 32,60,260 4,89,915 Return on Total assets = --------------------------x 100=15.02% 32,60,260

For 2009,
Net Profit after tax + interest = 8, 81,833 Total tangible assets = 33,81,265 8, 81,833 Return on Total assets = -----------------------x 100= 26.07 % 33,81,265

For 2008,
Net Profit after tax + interest = 7, 24,060 Total tangible assets = 31,62,958 7, 24,060 Return on Total assets = ---------------------------x 100= 22.89 % 31,62,958 Interpretation: High return on total assets is considered as the satisfactory ratio. In the year 2009 the return on total assets is high as compare to that of the year 2010 and 2008.There is a change (increase) of about 3.2 % from year 2008 to the year 2009. There is a change (decrease) of about 11.05 % from the year 2009 to the year 2010. The basic objective of this ratio is to measure the effectiveness of the use of these funds. The result of the year 2009 shows that the funds invested in total assets are not properly utilized.

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Chapter 4 Comparative Financial Statement

COMPARATIVE FINANCIAL STATEMENTS
Comparative financial statements are those statements which summarise and present related accounting data for a number of years incorporating therein the changes (absolute or relative or both) in individual items.

Comparative balance sheet As on 30 Dec 2010

Particulars
ASSETS Cash & Cash Equivalent Short Term Investment Net Receivables Other Current Assets Long term investments Property, plant & equipment Goodwill Intangible assets TOTAL

2010

2009

Amount Change

% Change

8,19,487 8,86,450 4,88,296 80,885 2,07,239 3,88,132 34,94,589 5,27,388 68,93,466

9,04,986 7,25,989 5,77,947 1,37,954 2,83,828 3,13,037 21,34,730 3,05,603 53,83,984

(85,499) 1,60,461 (89657) (57,099) (76,589) 75,095 13,59,859 2,21,785 15,09,482

9.44% 22.10% 15.51% 41.38% 26.98% 23.98% 63.70% 72.57 % 28.03%

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LIABILITIES Accounts payable Other current liabilities Long-term debt Other Liabilities Deferred long term liabilities TOTAL

5,25,184 3,19,369 10,00,000 2,57,913 2,89,203 23,91,669

5,18,635 2,43,964 3,50,000 1,49,961 1,48,684 14,11,244

6,549 75,495 6,50,000 1,07,952 1,40,519 9,80,425

1.26 % 30.94 % 185.71 % 71.98 % 94.50 % 69.47 %

Comparative Income Statement As on 30 Dec, 2010

Particulars Increase or Decrease 33

Total Revenue Less :Cost of revenue Gross profit Less :Operating expenses Resear ch development Selling, gen, adminis Non recurring Others Operating income or loss Add: other income Income before interest &tax Less: interest Income before tax 34.95 Less: income tax Net income or income after tax

2010 30,45,853 2,96,732 27,49,121

2009 35,79,889 3,62,630 32,17,259

(change) Amount % (5,34,036) 14.91 (65,898) 18.17 (4,68,138) 14.55

5,65,141 12,80,652 41,260 71,555 7,90,513 14,414 8,04,927 3,407 8,01,520 3,15,012 4,86,508

6,62,057 14,26,632 32,053 68,246 10,28,271 60,256 10,88,527 10,019 10,78,508 2,06,694 8,71,814

(96,916) (1,45,980) 9,207 3,309 (2,37,758) (45,842) (2,83,600) (6,612) (2,76,988) 1,08,313 (3,85,306)

14.63 10.23 28.72 4.84 23.12 76.07 26.05 65.99 25.68 52.40 44.19

COMMON-SIZE FINANCIAL STATEMENTS

Financial statements that depicts financial data in the shape of vertical percentages are known as common size statements. In such statements, all figures are converted into a common unit by expressing them as a percentage of a key figure in the statement. The total of financial statement is reduced to 100 and each item is shown as a component to the whole.

Common-size balance sheet As at 30 Dec 2009

Particulars ASSETS Cash & Cash Equivalent Amount 8,19,487 Percent 11.88

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Short Term Investment Net Receivables Other Current Assets Long term investments Property, plant & equipment Goodwill Intangible assets TOTAL

8,86,450 4,88,296 80,885 2,07,239 3,88,132 34,94,589 5,27,388 68,93,466

12.85 7.52 1.17 3 5.63 50.30 7.65 100

LIABILITIES Accounts payable Other current liabilities Long-term debt Other Liabilities Deferred long term liabilities TOTAL 5,25,184 3,19,369 10,00,000 2,57,913 2,89,203 23,91,669 21.95 13.35 41.81 10.79 12.10 100

Common-size Income statement As on 30 Dec 2010

Total Revenue Less :Cost of revenue Gross profit Less :Operating expenses Resear ch development Selling, gen, adminis Non recurring Others Operating income or loss Add: other income Income before interest 2010 30,45,853 2,96,732 27,49,121 5,65,141 12,80,652 41,260 71,555 7,90,513 14,414 8,04,927

Percent 100 9.74 90.25 18.55 42.04 1.35 2.34 25.95 0.47 26.42

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&tax Less: interest Income before tax 34.95 Less: income tax Net income or income after tax

3,407 8,01,520 3,15,012 4,86,508

0.11 26.31 10.34 15.97

Statement of changes in working capital

Particulars
CURRENT ASSETS Cash & Cash Equivalent Short Term Investment Net Receivables Other Current Assets Long term investments Total CURRENT LIABILITIES Accounts payable Other current liabilities Total Net working capital Net increase in working capital

2010

2009

Effect on working capital Increase or Decrease

85,499 1,60,461 89,651 57,099 1,60,461 1,60,461 2,32,249 2,32,249

8,19,487 8,86,450 4,88,296 80,885 2,07,239 22,75,088

9,04,986 7,25,989 5,77,947 1,37,954 2,83,828 23,46,876

5,25,184 3,19,369 8,44,553 14,30,535 1,53,742 15,84,277

5,18,635 2,43,964 7,62,599 15,84,277 15,84,277

6,549 1,60,461 1,53,742 3,14,203 81,954 3,14,203 3,14,203

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Chapter 5 Findings and Analysis

1. Current ratio for the year 2010 is 2.69: 1, which is considered satisfactory as compare to that of previous year ratio. 2. Total assets turnover r atio for the 2010 is .41 times which is not satisfactory as compare to that of 2009 i.e. .61 times. 3. Fixed assets turnover ratio is 7.84 times which is low as compare to that of 2009 i.e. 11.43 times and hence not satisfactory. 4. Current assets turnover ratio for the 2010 is 1.33 times which is better as compare to that of 2009 i.e. 1.30 times. 5. Working capital turnover ratio for the 2010 is 2.13 times which is high as compare to that of 2009 i.e. 1.81 times. 6. Capital turnover ratio for the 2010 is 1.26 times which is low as compare to that of 2009 i.e. 1.37 times. 7. Gross profit ratio is increasing from 89.87 % in the 2009 to 90.25 % in the 2010.

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8. Operating ratio is increasing from 71.28 % in the 2009 to 74.05 % in the 2010. 9. Non-recurring expenses ratio is increasing from 0.89 % in the2009 to 1.35 % in the 2010. 10. Other expenses ratio is increasing from 1.90% in 2009 to 2.34 % in 2010. 11. Net profit ratio (before tax) is declining from 30.12 % in 2009 to 26.31% in 2010.

Bibliography:1. Financial statement of company 2. http://www.managementparadise.fin.co.in 3. http://wikipedia.com

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