1.

Introduction
Financial statement analysis analysis the process of reviewing and analyzing a company's
financial statements to make better economic decisions. These statements include the income
statement, balance sheet, statement of cash flows, and a statement of retained earnings. Financial
statement analysis is a method or process involving specific techniques for evaluating risks,
performance, financial health, and future prospects of an organization
The information, that are needed for the preparation of financial statement analysis are ,the
financial statement of the company. Financial statement analysis is defined as the process of
identifying financial strength and weakness of the firm by properly establishing relationship
between items of the balance sheet and profit and loss account. Financial statement analysis is
the process of understanding the risk and profitability of the firm through analysis of reported
financial information, by using different accounting tools and techniques
A variety of stakeholders, such as credit and equity investors, the government, the public, and
decision-makers within the organization use it. These stakeholders have different interests and
apply a variety of different techniques to meet their need
The process of reviewing and evaluating a company's financial statements (such as the balance
sheet or profit and loss statement), thereby gaining an understanding of the financial health of the
company and enabling more effective decision making. Financial statements record financial
data; however, this information must be evaluated through financial statement analysis to
become more useful to investors, shareholders, managers and other interested parties.

1.1Problem statement
Financial statement analysis is an evaluative method of determining the past, current and
projected performance of a company. The study is used to analyze and interpret the financial
performance of FACT Ltd, in order to understand the strength and weakness of the company by
establishing strategic relationship between items of balance sheet ,profit and loss account and
other operative data
A financial statement, which is the center of annual report, is an organized collection of data
prepared according to logical and consistent accounting procedures. Its purpose is to convey an
understanding of financial aspect of the business. The financial statements can get further insight
about the financial strength and weakness of the firm if they properly analyze information
reported in the financial statements. Therefore, the study of financial statement analysis of FACT
Ltd becomes relevant
Financial statement analysis helps in identifying financial strength and weakness of the firm
by establishing relationship between items of the balance sheet and profit and loss account. The study
conducted to obtain better understanding of the companys performance. By applying financial analysis
tools tries to understand how the performance of FACT Ltd can be evaluated. The study aims to analysis
the financial strength and weakness of FACT Ltd

1.2 Objectives
Primary objectives

To analysis financial performance of FACT Ltd

To make comparison of profit of last five years
To evaluate the short term and long term solvency of

Secondary objectives

To know main drawback of FACT Ltd

To suggest measures for improving efficiency of profitability
To know the return on asset

1.3Significance of the study

Financial statement is prepared at a certain point of time according to established convention.

These statements are prepared to suit the requirement of the proprietor. For measuring the
financial soundness, efficiency, profitability and future prospects of the concern, it is necessary
to analyze the financial statement. Following purposes are served by the Financial analysis:

Efficiency Help in Evaluating the operational of the Concern:-

It is necessary to analyze the financial statement for matching the total expenses incurred in
manufacturing, Advertising, selling and distribution of the finished goods and total financial
expanses of the current year comparing with the total expanses of the previous year and evaluate
the managerial efficiency of concern

Help in Evaluating the short and long term financial position

It is necessary to analyze the financial statement for comparing the current assets and current
liabilities to evaluate the short term and long term financial soundness.

Help in calculating the profitability:

It is necessary to analyze the financial statement to know the gross profit and net profit.

Help in indicating the trend of achievements

Analysis of financial statement helps in comparing the financial position of previous year
and also compares various expenses, purchases and sales growth, gross and net profit. Cost of
goods sold, total value of assets and liabilities can be compare easily with the help of Analysis of
financial statement.

Forecasting, budgeting and deciding future line of action

The potential growth of the business can be predicts by the analysis of financial statement
which helps in deciding future line of action. Comparisons of actual performance with target
show all the shortcomings.

1.4Methodology
In this study secondary data was gathered from different sources, such as annual report of
FACT Ltd and its website (www.fact.co.in).Apart from that books on financial management
written by various authors were also referred .The study comprises a number of evaluation
mechanism and tools which link together to form a conclusion . In this study financial tools like
ratio analysis, comparative statement

, common size statement analysis, trend analysis and

statistical tools like tables and graphs are used for data analysis and to drive in a conclusion. The
overall intention is to know the financial position of the company in last five years. The period of
study arranged between 23rd February 2015 to march 23rd 2015.

1.5 Chapter scheme

The project report has been:

The first chapter, which is the introduction, problem statement, objectives, significance

of the study, methodology and limitation of the study.

The second chapter is review of literature
The third chapter is industry profile and organization
The forth chapter deals with data analysis and interpretation

Chapter five includes findings, recommendations and conclusions

1.6 Limitation of the study

The study is based mainly on data collected through secondary sources provided by the

company .Hence there are chance of errors

Financial analysis provides misleading result in absence of absolute data
Price level changes is ignored in financial analysis
The present study will be based on annual report of the FACT Ltd . Hence it may be
considered only as a postmortem analysis of financial statement

2. Review of literature
2.1 Introduction
A literature review is a text of a scholarly paper, which includes the current knowledge
including substantive findings, as well as theoretical and methodological contributions to a

particular topic. Literature reviews use secondary sources, and do not report new or original
experimental work.

2.2 Financial statement

A financial statement (or financial report) is a formal record of the financial activities of a
business, person, or other entity. Relevant financial information is presented in a structured
manner and in a form easy to understand. The process of reviewing and evaluating a company's
financial statements (such as the balance sheet or profit and loss statement), thereby gaining an
understanding of the financial health of the company and enabling more effective decision
making. Financial statements record financial data; however, this information must be evaluated
through financial statement analysis to become more useful to investors, shareholders, managers
and other interested parties.
Financial statement include the following

Profit and loss account

An income statement or profit and loss account (also referred to as a profit and loss
statement(P&L), revenue

statement, statement

of

financial

performance, earnings

statement, operating statement, or statement of operations is one of the financial statements of a

company and shows the companys revenues and expenses during a particular period.

It

indicates how the revenues (money received from the sale of products and services before
expenses are taken out, also known as the top line) are transformed into the net income It
displays the revenues recognized for a specific period, and the cost and expenses charged against
these

revenues,

including write-offs (e.g., depreciation and amortization of

various assets)

and taxes. The purpose of the income statement is to show managers and investors whether the
company made or lost money during the period being reported

Balance sheet
Statement of the assets, liabilities, and capital of a business or other organization at a particular
point in time, detailing the balance of income and expenditure over the preceding period
A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a
specific point in time.

Statement of retained earnings

The statement explains the changes in a company's retained earnings over the reporting period.
They break down changes in the owners' interest in the organization, and in the application of
retained profit or surplus from one accounting period to the next. Line items typically include
profits or losses from operations, dividends paid, issue or redemption of stock, and any other
items charged or credited to retained earnings

Funds flow statement

A Funds flow statement is prepared to show changes in the assets, liabilities and equity
between two balance sheet dates, it is also called statement of sources and uses of funds. The
advantages of such a financial statement are many fold.
A fund flow statement, better known as a cash flow statement, is an important document in the
accounting world. A fund flow statement shows a company's inflows and outflows of funds. It is

used to show investors, stakeholders or owners where the company's money came from and
where it went.
A fund flow statement is an important tool used in evaluating a company's performance. A fund
flow statement is a statement that shows all money coming in to a company and all money
leaving a company during an accounting period. Investors when considering investing in a
company use this statement. The fund flow statement shows problems a company has if the cash
flow is negative

Cash Flow Statement

A Cash Flow Statement is a statement showing changes in cash position of the firm from
one period to another. It explains the inflows (receipts) and outflows (disbursements) of cash
over a period of time. The inflows of cash may occur from sale of goods, sale of assets, receipts
from debtors, interest, dividend, rent, issue of new shares and debentures, rising of loans, shortterm borrowing, etc. The cash outflows may occur on account of purchase of goods, purchase of
assets, payment of loans loss on operations, payment of tax and dividend, etc.
A cash flow statement is different from a cash budget. A cash flow statement shows the cash
inflows and outflows which have already taken place during a past time period. On the other
hand a cash budget shows cash inflows and outflows which are expected to take place during a
future time period.

Schedule

A schedule or a timetable, as a basic time-management tool, consists of a list of times at which

possible tasks, events, or actions are intended to take place, or of a sequence of events in the
chronological order in which such things are intended to take place. The process of creating a
schedule - deciding how to order these tasks and how to commit resources between the varieties
of possible tasks - is called scheduling, and a person responsible for making a particular schedule
may be called a scheduler. Making and following schedules is an ancient human activity.
Some scenarios associate "this kind of planning" with learning "life skills". Schedules are
necessary, or at least useful, in situations where individuals need to know what time they must be
at a specific location to receive a specific service, and where people need to accomplish a set of
goals within a set time.

2.3 Tools used for analysis

Tools used for financial analysis

Ratio analysis

Comparative statement

Common size statement

Trend analysis

Ratio analysis
Financial ratios are mathematical comparisons of financial statement accounts or categories.
These relationships between the financial statement accounts help investors, creditors, and
internal company management understand how well a business is performing and areas of
needing improvement.
Financial ratios are the most common and widespread tools used to analyze a business' financial
standing. Ratios are easy to understand and simple to compute. They can also be used to compare
different companies in different industries. Since a ratio is simply a mathematically comparison
based on proportions, big and small companies can be use ratios to compare their financial
information. In a sense, financial ratios don't take into consideration the size of a company or the
industry. Ratios are just a raw computation of financial position and performance.

Ratios allow us to compare companies across industries, big and small, to identify their strengths
and weaknesses. Financial ratios are often divided up into six main categories.

Liquidity Ratios

Solvency Ratios

Efficiency Ratios

Profitability Ratios

Market Prospect Ratios

Financial Leverage Ratios

Coverage Ratios

Comparative financial statement

A statement which compares financial data from different periods of time. The comparative
statement lines up a section of the income statement, balance sheet or cash flow statement with
its corresponding section from a previous period. It can also be used to compare financial data
from different companies over time, thus revealing the trend in the financials.
Analysts like comparative statements because they show the effect business decisions have on a
company's bottom line. Analysts can identify trends and evaluate the performance of managers,
new lines of business and new products on one statement instead of having to flip through
individual financial statements from different periods of time. When comparing different
companies, a comparative statement can show how businesses react to market conditions
affecting an entire industry.

 Common size financial statement

A companys financial statement that display all items as percentages of a common base figure.
This type of financial statement allows for easy analysis between companies or between times of
a company. The values on the common size statement are expressed as percentages of a
statement component such as revenue. While most firms do not report their statements in
common size, it is beneficial to compute if you want to analyze two or more companies of
differing size against each other.
Formatting financial statements in this way reduces the bias that can occur when analyzing
companies of differing sizes. It also allows for the analysis of a company over various periods,
revealing, for example, what percentage of sales is cost of goods sold and how that value has
changed over time. Common size balance sheet expresses each item on the balance sheet as a
percentage of total assets A common size income statement expresses each income statement
category as a percentage of total sales revenues.

Trend analysis
Trend analysis is the process of comparing business data over time to identify any consistent
results or trends. You can then develop a strategy to respond to these trends in line with your
business goals. An aspect of technical analysis that tries to predict the future movement of a
stock based on past data. Trend analysis is based on the idea that what has happened in the past
gives traders an idea of what will happen in the future.
There are three main types of trends: short-, intermediate- and long-term. Trend analysis tries
to predict a trend like a bull market run and ride that trend until data suggests a trend reversal

(e.g. bull to bear market). Trend analysis is helpful because moving with trends, and not against
them, will lead to profit for an investor. Trend Analysis is the practice of collecting information
and attempting to spot a pattern, or trend, in the information. In some fields of study, the term
"trend analysis" has more formally defined meaning.