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FINANCIAL STATEMENT ANALYSIS

INTRODUCTION:

Financial statements are prepared to meet external reporting obligations


and also for decision making purposes. They play a dominant role in setting
the framework of managerial decisions. But the information provided in the
financial statements is not an end in itself as no meaningful conclusions can
be drawn from these statements alone. However, the information provided in
the financial statements is of immense use in making decisions through
analysis and interpretation of financial statements. Financial statement
analysis is the process of identifying financial strengths and weaknesses of
the firm by properly establishing relationship between the items of the
balance sheet and the profit and loss account. There are various methods or
techniques that are used in analyzing financial statements, such as
comparative statements, schedule of changes in working capital, common
size percentages, funds analysis, trend analysis, and ratios analysis.

MEANING:

Financial statements provide an overview of a business or person's financial


condition in both short and long term. All the relevant financial information
of a business enterprise presented in a structured manner and in a form easy
to understand, is called the financial statements. There are four basic
financial statements

1. Balance sheet: also referred to as statement of financial position or


condition, reports on a company's assets, liabilities, and Ownership equity at
a given point in time.

2. Income statement: also referred to as Profit and Loss statement (or a


"P&L"), reports on a company's income, expenses, and profits over a period
of time. Profit & Loss account provide information on the operation of the
enterprise. These include sale and the various expenses incurred during the
processing state.

3. Statement of retained earnings: explains the changes in a company's


retained earnings over the reporting period.

4. Statement of cash flows: reports on a company's cash flow activities,


particularly its operating, investing and financing activities.

For large corporations, these statements are often complex and may include
an extensive set of notes to the financial statements and management
discussion and analysis. The notes typically describe each item on the
balance sheet, income statement and cash flow statement in further detail.
Notes to financial statements are considered an integral part of the financial
statements.

DEFINITION AND CONCEPT OF FINANCIAL STATEMENT


ANALYSIS:

The term financial analysis is also known as analysis and interpretation


of financial statement it refers to the process of determining financial
strength and weakness of the firm by establishing strategic relationship
between the item the balance sheet , profit and loss account and other
operative data.

According to Myers financial statement analysis is largely study of


relationship among the financial factors in a concern has disclosed by single
set of statements and a study of trend of these factors as shown in a service
of statements.

According to Metcalf and Titard it is a process of evaluating the


relationship parts of financial statement for better understanding of firms
position and performance.
PURPOSE OF FINANCIAL STATEMENT ANALYSIS:
The objective of financial statements is to provide information about the
financial position, performance and changes in financial position of an
enterprise that is useful to a wide range of users in making economic
decisions." Financial statements should be understandable, relevant, reliable
and comparable. Reported assets, liabilities and equity are directly related to
an organization's financial position. Reported income and expenses are
directly related to an organization's financial performance.

Financial statements are intended to be understandable by readers who have


"a reasonable knowledge of business and economic activities and accounting
and who are willing to study the information diligently." Financial
statements may be used by users for different purposes:

Owners and managers require financial statements to make important


business decisions that affect its continued operations. Financial analysis is
then performed on these statements to provide management with a more
detailed understanding of the figures. These statements are also used as part
of management's annual report to the stockholders.

Employees also need these reports in making collective bargaining


agreements (CBA) with the management, in the case of labor unions or for
individuals in discussing their compensation, promotion and rankings.

Prospective investors make use of financial statements to assess the viability


of investing in a business. Financial analyses are often used by investors and
are prepared by professionals (financial analysts), thus providing them with
the basis for making investment decisions.

Financial institutions (banks and other lending companies) use them to


decide whether to grant a company with fresh working capital or extend debt
securities (such as a long-term bank loan or debentures) to finance expansion
and other significant expenditures.

Government entities (tax authorities) need financial statements to ascertain


the propriety and accuracy of taxes and other duties declared and paid by a
company.
TYPES OF FINANCIAL STATEMENT ANALYSIS:
Financial statement analysis can be categorized by use of the following
diagram
ON THE BASIS OF CLIENTS REQUIREMENTS:
EXTERNAL ANALYSIS:

This analysis is done by outsiders who do have access to detail internal


accounting records of the firm. These outsiders include investors, potential
investors, creditors, government agency, credit agencies and general public.
For financial analysis these external parties to the firm depend entirely on
the published statements.

INTERNAL ANALYSIS:

The analysis conducted by persons who have access to the internal


accounting records of a business firm is known as internal analysis. Such
analysis can therefore be performed by executives and employees of the
organization as well as government agencies that have statutory power
vested in them. Financial analysis for the managerial purpose is the internal
type of analysis.

ON THE BASIS OF MODUS OPERANDI:


HORIZONTAL ANALYSIS:

Horizontal analysis is a comparison of financial data of a company for


several years. The figures for this type of analysis are presented horizontally
over the number of columns. The figures of various years are compared with
standard or base year. A base year is chosen as beginning point. This type of
analysis is also called as Dynamic Analysis as it is based on the data form
year rather than on data of any one year.

VERTICAL ANALYSIS:

Vertical analysis is a study of relationship of various items in the financial


statements of one accounting period .in this type of analysis the figures
formed in the financial statements of a year are compared with a base
selected from the same year statements. It is known as Statical Analysis or
common size. Financial statements and financial ratios are two tools
employed in vertical analysis. Since vertical analysis considers data for one
time period only.
PROCEDURE OF FINANCIAL STATEMENT ANALYSIS

There are basically three steps involved in the financial statement analysis
they are as follows:

1. SELECTION.
2. CLASSIFICATION.

3. INTERPRETATION.

1. SELECTION:

The first step involves selection of information (data) relevant to the purpose
of financial statements.

2. CLASSIFICATION:

The second step involves the methodical classification of the data according
to their similar heads.

3. INTERPRETATION:

The third and final step involves drawing of inferences and conclusion. The
data is interpreted in a simple and understandable way. The conclusion
drawn from interpretation is presented to the management in the form of
reports.
METHODS OR DEVICES OF FINANCIAL ANALYSIS
The analysis and interpretation of financial statements is used to determine
financial position and results of operation as well. The following methods of
analysis generally used are as follows:

1. Comparative statements.
2. Trend analysis.
3. Common size statements.
4. Funds flow analysis.
5. Cash flow analysis.
6. Ratio analysis.
7. Cost-volume-profit analysis.

COMPARITIVE STATEMENTS

The comparative financial statements are the statements of the financial


position at different periods of time. The elements are shown in a
comparative form so as to give an idea of financial position at two or more
periods. Generally two financial statements (balance sheet and income
statements) are in comparative form for financial analysis.

TREND ANALYSIS

The financial statement can be analyzed by computing the trends of services


of information. This method determines the direction upwards or downwards
and involves the computation of percentage relationship that each statement
bears to the same item in the base year. The information for number years is
taken up.

COMMON SIZE STATEMENTS

A common size statement facilitates comparison of financial statements of


not only a single firm over a period, but also comparison of financial
statements of different companies for a given firm. Under this method all the
items of the statement are presented as percentages or ratios of a particular
item. Therefore even if the related absolute figures are in respect of vastly
different scale of operations a common base for comparison is created.

In case of a common size income statement all items are presented as


percentages of net sales. A common size balance sheet shows each item as a
percentage of total assets or total liabilities. A common size statement helps
in determining the relative efficiency and soundless of a firm and helps in
understanding its financial strategy.

FUNDS FLOW ANALYSIS

The funds flow statement explains the various sources from which funds are
raised and uses to which funds are put. It shows the change in assets and
liabilities from the end period of time to the end of another period of time
i.e. between the two balance sheet dates an analysis of funds flow statement
helps in answering the following questions raised

What are funds generated from the operations?


How well the fixed assets of organization financed?

Weather the liquidity position of the organization increased?

RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial


statements. It is a process of establishing and interpreting various ratios for
helping in certain decisions. It is only a means of better understanding of
financial strengths and weakness of a firm.

COST - VOLOUME PROFIT ANALYSIS

Cost-volume-profit analysis popularly known as breakeven analysis. It helps


in answering question like

How do costs behave in relation to volume?


At what sales volume the firm breakeven would be?

How sensitive is profit to variation in output?

What would be the effect of a project sales volume on profit?

How much should the firm produce and sell in order to reach a target
profit level?
USERS OF FINANCIAL ANALYSIS

TRADE CREDITORS

Trade creditors are interested firms ability to meet their claims over very
short period of time. Their analysis will therefore be evaluation of the firms
liquidity position.

PROVIDERS OF LONG TERM DEBIT

On the other hand suppliers are concerned with firms long term solvency
and survival. They analyze firms profitability over time, its ability to
generate cash to be able to pay interest and repay principal and relationship
between various sources.

INVESTORS

Investors are those persons who invested their money in the firms earnings.

They restore confidence in that firms that show steady growth in earnings.
As such they concentrate on analysis of the firms present and future
profitability.

MANAGEMENT

Management of the firm would be interested in every financial aspect of the


financial analysis. It is their overall responsibility to see that the resources of
the firm are use most effectively and efficiently and that the firms financial
condition is sound.
RATIO ANALYSIS

INTRODUCTION:

Ratio analysis is one of the methods of analyzing financial statements. It has


been experience that financial statement in their original form is collection
of monotonous figures. The statements are detailed and do not present the
required information at a glance. Ratio analysis is therefore an attempt to
present the information of financial statements in simplified systematized
and form. Accountants introduced ratio analysis to meet this end.

Ratio analysis measures the profitability efficiency and financial soundness


of the business. The relationship between two facts i.e. gross profit and sales
or current assets and current liabilities are studied and the result is presented
in the form of simple ratios.

According to Meyers Ratio analysis is a study of relationship among the


various financial factors in a business

Objectives of ratio analysis

Measurement of the profitability.


Judging the operational efficiency of management.

Assessing the efficiency of the business.

Measuring short term and long term financial position of the


company.
Indicator of true efficiency.

Facilitating comparative analysis of the performance.

Helpful in budgeting and forecasting.

Helpful in simplifying accounting figures.

Limitations of ratio analysis

False results.
Limited comparability
absence of standard university accepted terminology
Price level change affects ratios.

Ignoring qualitative factors.


No single standard ratios.
In the absence of actual data.
CLASSIFICATION OF RATIOS:

Classification of ratios depends upon the objectives for which they are
calculated. It may also depend the availability of data. Analysis of financial
statement is made with a view to ascertain the efficiency and financial
soundness of the company as such ratios can be classified on basis of
purpose.

LIQUIDITYOR SHORT TERM SOLVENCY RATIO

1. Current ratio
2. Quick ratio
3. Absolute liquid ratio

CAPITAL STRUCTURE RATIO

1. Debt and equity ratio


2. proprietary ratio
3. Capital rearing ratio
4. Fixed assets ratio
5. Interest coverage ratio
6. Dividend coverage ratio
7. Debt service coverage ratio

ACTIVITY RATIOS OR TURNOVER RATIOS

1. Inventory turnover ratio or stock turnover ratio


2. Debtors turnover ratios
3. Creditors turnover ratio working capital turnover ratio
4. Fixed assets turnover ratio total turnover ratio
5. Working capital turnover ratio
6. Total assets turnover ratio

PROFITABILITY RATIO

1. Gross profit ratio


2. Net profit ratio
3. Operating profit ratio
4. Return on investment or capital employed
5. Return on equity capital
6. Return on net worth
7. Return on assets ratio
8. Earnings per share
9. Profit earning ratio
10. Dividends per share.

GROSS PROFIT RATIO

This shows the relationship between the gross profit and sales. Gross profit
ratio shows the margin of profit on sales. This indicates how much profit is
earned on your products without consideration of selling administration
costs.

INTERPRETATION

Gross profit ratio reveals profit earning capacity of business with reference
to its sales. Increase in gross profit will mean reduction in cost of production
or direct expenses or reasonable good price and decrease in ratio will
indicate increased cost of production or sales at less price.

NET PROFIT RATIO

Net profit ratio is very useful to the proprietors and prospective investors
because it reveals profitability of the concern. Net profit or net income is the
gross ratio picked up from the profit and loss account.

NET PROFIT NET SALES

INTERPRETATION

Net profit ratio shows the operational efficiency of the business. Decrease in
the ratio indicates marginal in efficiency and excessive selling and
distribution expenses. In the same way increase shows better performance.
Increase or decrease in the ratio is determined in comparison to previous
years performance.

OPERATING RATIO

Operating ratio indicates the ratio of operational costs to sales. Operating


cost consists of cost of goods sold and other operating expenses. Operational
efficiency of the business will be more incase of lesser operating ratio and
vice versa.

(COST OF GOODS SOLD+OPERATING EXPENSES) NET SALES

INTERPRETATION

Operating ratio reveals the cost content and operational expenses absorbed
in the sales. In case the operating ratio is higher the business will have to
identify the causes for its increase. Higher ratio indicates lower efficiency
because a major part which is possible if the operating cost is reduced.

EXPENSES RATIO

In order to determine and scrutinize the operational efficiency of the


business every expenditure has to be matched with sales. In case the expense
ratio is increasing profit ratio will decline and it will mean low efficiency.
The business should calculate every expense individually so that actual
increase or decrease in the ratio of all expenses may be known. This will
enable in removing the weak points and reinforcing the points.

SELLING,ADMINISTRATION & FINANCIAL EXPENSES NET SALES

NET PROFIT TO NET WORTH RATIO

This ratio indicates relationship between net profit and net worth. The term
worth here means capital or share holders fund.

Here net worth =equity & preference capital + reserves + accumulated profit

NET PROFIT AFTER INTEREST BEFORE TAX NET WORTH


INTERPRETATION

Return on capital employed ratio measures hoe effectively the capital


employed in the business is used the performance of the business. It can be
used for comparing the performance of dissimilar business or different
departments of the same business.

EARNINGS PER SHARE

The ratio measures the return per share receivable by equity or ordinary
shareholders are virtually the owners of the company. Dividend payable to
them is ascertained after deducting operating and non operating expenses
and even the interest payable to debenture holders and dividend to
preference share holders.

INTERPRETATION

This ratio measures the market worth of the share of the company. Higher
earnings per share show better future prospects of the company.

PRICE EARNING RATIO

This indicates the market value of every rupee earnings of the firm and is
compared with industry average.

MARKET PRICE PER EQUITY SHARE EARNINGS PER SHARE

INTERPRETATION

Higher ratio indicates the share is overvalued and ratio shows the share is
undervalued.

PAV OUT RATIO

This ratio indicates to what proportion of earnings per share has been used
for paying dividend and what has been retained for plugging back. This ratio
is very important for share holders point of view as it tells him that if a
company has used or substantially the whole of its earnings for paying
dividend and retained nothing for future growth and expansion purposes
then there will be dim enhances of capital appreciation in the price of share
of such company.

DIVIDEND PER EQUITY SHARE EARNINGS PER SHARE

ACTIVITY RATIO (TURNOVER RATIO)

TOTAL CAPITAL TURNOVER RATIO

This ratio ensures weather the capital employed has been effectively used or
not. This is also the test of management efficiency and business
performance.

NET SALES CAPITAL EMPLOYED

INTERPRETATION

Higher total capital turnover ratio is always in interest of the company.

WORKING CAPITAL TURNOVER RATIO

This ratio measures the relationship between working capital and sales. The
ratio shows the number of times the working capital results in sales.
Working capital as usual in the excess of current assets over the current
liabilities.

NET SALES OR COST SALES WORKING CAPITAL

INTERPRETATION
The higher is the ratio the lower is the investment in working capital and the
greater are the profits. However a very high turnover of working capital is as
sign of over trading and may put the concern into financial difficulties. On
the other hand low working capital turnover ratio indicates that working
capital is not efficiently utilized.

Fixed ASSETS TURNOVER RATIO

Fixed assets are in the business for producing goods to be sold. The effective
utilization of assets will results in increased production and reduced cost. It
also ensures weather investment in the assets have judicious or not.

NET SALES OR COST OF SALESFIXED ASSETS

INTERPRETATION

This ratio shows how well the fixed assets are being used in the business.
The ratio is important in case of manufacturing concern because sales are
produced not only by the use of current assets but also amount invested in
the fixed assets. The higher the ratio the better is the performance. On the
other hand low ratio indicates that fixed assets are not being efficiently
utilized.

INVENTORY TURN OVER RATIO

This ratio measures how many times the average stock is sold during the
year. Promptness of sales indicates better performance of the business. It
also shows efficiency of the concern. Immediate sale of goods produced
require further production which consequently activates the productive
process and is responsible for rapid development of the business.

COST OF GOODS SOLD AVERAGE STOCK

INTERPRETATION

Higher inventory turnover ratio is always beneficial to the concern. Lower


inventory ratio shows that the stock is blocked and not immediately sold. It
shows the poor performance of business and inefficiency of the
management.

DEBTORS TURNOVER RATIO


It is also known as receivables turnover ratio. This ratio measures the
number of times trade receivables turnover during the year. It establishes
relationship between credit sales and average debtors.

CREDIT SALES AVERAGE DEBTORS

INTERPRETATION

Debtors turnover ratio indicates the efficiency with which debts are collected
it will be in the interest of business if the ratio is higher it indicates that debts
are collected quickly.

CREDITORS TURN OVER RATIO

The ratio explains the velocity with which creditors are paid and establishes
the relationship between creditors and amount paid to them, accounts payble
includes creditors and bills payable.

CREDIT PURCHASES AVERAGE CREDITORS

LIQUIDITY RATIOS

CURRENT RATIO

This ratio indicates ratio between all current assets and all current liabilities
another way of expressing liquidity of the firm. Test of liquidity focuses on
the relationship between current assets and current liabilities.

CURRENT ASSETS CURRENT LIABILITES

INTERPRETATION
This ratio is rough indication of firms ability to service its current
obligation. Generally the higher current ratio the greater cushion between the
current obligations and firms ability to pay them. The stronger ratio reflects
a numerical superiority of current assets liabilities. However the composition
and quality of current assets is a critical factor in analysis of an individual
firms liquidity. One problem with the current ratio is it ignores timing of
cash received and paid out ratios are arrayed from the highest positive to the
lowest positive.

QUICK RATIOS

The ratio between all assets (quickly convertible into cash) and all current
liabilities. Specifically excludes inventory cash and equivalent plus trade
receivables divided by total current liabilities. Indicates a firms ability to
satisfy current liabilities with its most liquid assets.

CURRENT ASSET - (stock+ prepaid expenses) CURRENT LIABILITIES

INTERPRETAION

This ratio is also known as ACIT TEST ratio it is a refinement of current


ratio and is more conservative measure of liquidity. The ratio expresses the
degree to which a companys current liabilities are covered by the most
liquid current assets. Generally any value for less than 1 to 1 implies a
reciprocal dependency on inventory of the business vulnerability to risk.
Creditors to determine the ability of the business to repay the loans often use
these ratios.

ABSOLUTE LIQUID RATIO

Absolute liquid ratio is known as cash ratio since cash is the most liquid
asset. A financial analyst may examine cash and its equivalent to current
liabilities. Trade investments or marketable securities are equivalent of cash.
Therefore they may be included in the computation of cash ratio.

ABSOLUTE LIQUID ASSETS CURRENT ASSETS

INTERPRETAION
This ratio gains much significance only when it is used in conjunction with
the current and liquid ratios. A standard of 0.5: 1 absolute liquidity ratio is
considered an acceptable norm. That is, from the point of view of absolute
liquidity, fifty cents worth of absolute liquid assets are considered sufficient
for one dollar worth of liquid liabilities. However, this ratio is not in much
use.

TABILITY (SOLVENCY) RATIO

DEBT EQUTITY RATIO

This ratio is calculated to measure proportions of outsiders fund and share


holders fund invested in the company. This ratio is determined to ascertain
the soundness of long term financial policies of the company and it is also
known as external equity ratio. It shows the ratio between capital invested
by owners and the funds provided by lenders.

DEBT EQUITY

INTERPRETATION

Comparison of how much of the business was financed through debt and
how much was financed through equity. For this calculation it is common
practice to include loans from owners in equity rather than in debt. The ratio
the greater is the risk to present or future creditors.

FIXED ASSET RATIO

The ratio shows the relationship between long term funds i.e. share holders
funds plus long term loans and fixed assets. It has been an established policy
that fixed assets are purchased out of working capital.
LONG TERM FUNDS NET FIXED ASSETS

INTERPRETATION

The ratio indicates long term financial soundness of the business. It also
indicates weather investments have been properly made or not. The ideal
ratio should be more than one in case it is less than one it will mean that the
business has been financing the purchase of fixed assets out of working
capital which is a wrong policy.

RATIO OF CURRENT ASSETS TO FIXED ASSETS

CURRENT ASSETS FIXED ASSTES

INTERPRETATION

This ratio will differ from industry and therefore no standard can be laid
down. A decrease in the ratio may mean that trading is slack or more
mechanization has been put through an increase in the ratio may reveal that
inventories and debtors have unduly increased or fixed assets have been
intensely used. An increase in the ratio accompanied by increase in profit
indicates the business is expanding.

PROPERIETARY RATIO

A variant of debt equity ratio is proprietary ratio which shows the


relationship between shareholders funds and total assets.

SHARE HOLDERS FUNDS TOTAL ASSETS

INTERPRETATION

This ratio should be 1: 3 i.e. one third of assets minus current liabilities
should be acquired by share holders funds and the other tow third of the
assets should be financed by outsiders funds it focuses the attention on the
general financial strength of the business enterprise.
CAPITAL GEARING RATIO

This ratio establishes the relationship between the interest bearing securities
and equity shares of the company.

FIXED INTEREST- BEARING SECURITES EQUITY SHARE HOLDERS

INTERPRETATION

Fixed interest bearing securities carry with them the fixed rate of dividend or
interest and include preference share capital and debentures. A company is
said to be highly geared if the major share of total capital is in the form of
fixed interest bearing securities or this ratio must be carefully planned as it
effects the companys capacity to maintain a uniform dividend policy during
difficult trading period that may occur .

RESERVE TO CAPITAL RATIO

This ratio indicates the relationship between reserves and capital more
reserves show financial soundness of the firm. It will be able to meet future
losses if any out of these reserves.

RESERVES CAPITAL
COMPARITIVE STATEMENT ANALYSIS

Comparative financial analysis refers to comparison financial statements


pertaining to two different periods by putting them side and finding out the
changes in absolute and relative changes.

It enables identification of weak points and applying corrective

measures. Practically, two financial statements (balance sheet and income

statement) are prepared in comparative form for analysis purposes.

1. Comparative Balance Sheet

The comparative balance sheet shows the different assets and liabilities of

the firm on different dates to make comparison of balances from one

date to another. The comparative balance sheet has two columns for the

data of original balance sheets. A third column is used to show change

(increase/decrease) in figures. The fourth column may be added for giving

percentages of increase or decrease. While interpreting comparative Balance

sheet the interpreter is expected to study the following aspects :


(i) Current financial position and

Liquidity position

(ii) Long-term financial position

(iii) Profitability of the concern

(i) For studying current financial position or liquidity position of a

concern one should examine the working capital in both the years.

Working capital is the excess of current assets over current liabilities.

(ii) For studying the long-term financial position of the concern, one

should examine the changes in fixed assets, long-term liabilities and

capital.

(iii) The next aspect to be studied in a comparative balance sheet is the

profitability of the concern. The study of increase or decrease in profit

will help the interpreter to observe whether the profitability has

improved or not.

After studying various assets and liabilities, an opinion should be

formed about the financial position of the concern.


Comparative Income statement:

The income statement provides the results of the operations of a business.

This statement traditionally is known as trading and profit and loss A/c.

Important components of income statement are net sales, cost of goods sold,

selling expenses, office expenses etc. The figures of the above components

are matched with their corresponding figures of previous years individually

and changes are noted. The comparative income statement gives an idea

of the progress of a business over a period of time. The changes in money

value and percentage can be determined to analyze the profitability of the

business. Like comparative balance sheet, income statement also has four

columns. The first two columns are shown figures of various items for two

years. Third and fourth columns are used to show increase or decrease in

figures in absolute amount and percentages respectively.

The analysis and interpretation of income statement will involve the

Following:

The increase or decrease in sales should be compared with the increase


or decrease in cost of goods sold.

To study the operating profits

The increase or decrease in net profit is calculated that will give an idea

about the overall profitability of the concern.

COMMON SIZE STATEMENTS AND TREND ANALYSIS

The common size statements (Balance Sheet and Income Statement) are
shown in analytical percentages. The figures of these statements are shown
as percentages of total assets, total liabilities and total sales respectively.
Take the example of Balance Sheet. The total assets are taken as 100 and
different assets are expressed as a percentage of the total. Similarly, various
liabilities are taken as a part of total liabilities.
Common size balance sheet
A statement where balance sheet items are expressed in the ratio of each
asset to total assets and the ratio of each liability is expressed in the ratio
of total liabilities is called common size balance sheet.

Trend percentage analysis (TPA)


The trend analysis is a technique of studying several financial statements
over a series of years. In this analysis the trend percentages are calculated
for each item by taking the figure of that item for the base year taken as
100. Generally the first year is taken as a base year. The analyst is able to
see the trend of figures, whether moving upward or downward.
COMMON SIZE INCOME STATEMENT

The items in income statement can be shown as percentages of sales to show


the relations of each item to sales.

INTERPRETATION

1. A change in sales is meaningful only if it is compared with a change


in cost of goods sold.
2. A change in operating expenses might be due to change in scale
operations or on account of change in degree of managerial efficiency.

3. A change in net profit is good indicator of overall profitability of the


organization.

4. A change in retained earnings can be on account of change in


profitability or on account of changer in dividend policy,
capitalization of free reserves or change in amounts transferred to
various funds.

5. A change in liquid assets is a better indicator of the short term


solvency funds

6. A change in working capital is a good indicator of the change in


current financial position or short term solvency of the business.
7. A change in fixed assets must be balanced by a change in long term
funds.

8. The nature of assets which have increased or decreased must be


studied to understand its implication in future.

9. Relative measures provide a sharper picture than absolute measure.

RATIO ANALYSIS OF ECIL


LIQUIDITY RATIOS

CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITES

Year Current assets Current liabilities Current ratio

2004-2005 28443.21 61561.31 0.46

2005-2006 98409.52 80273.70 1.22

2006-2007 130229.01 88292.46 1.46

2007-2008 160681.95 96370.02 1.66

2008-2009 179600.29 119441.66 1.50


Interpretation:

From the above graph and table shows that current ratio of the company is
increasing from 2004-05 to 2007-08 current assets are in an increasing
position at 2008-09 the ratio has decreased. The current ratio shows the
ability to meet the liabilities and to improve the safety of the company the
current ratio is quite good and the company has to take certain steps to
maintain the standards. It is submitted that indirect norms are not considered
due to lack of information. No specific industry standards are available for
such I have taken general standards only. The higher the current ratio the
greater the cushion between the current obligations and the firms ability to
pay them. The stronger ratio reflects a numerical superiority of current assets
and liabilities.

QUICK RATIO = QUICK ASSETS CURRENT LIABILITIES

Quick assets = current assets stock - prepaid

Year Quick assets Current liabilities Quick ratio

2004-2005 29192.93 61561.31 0.47

2005-2006 26622.90 80273.70 0.33

2006-2007 123373.15 88292.46 1.39

2007-2008 153797.82 96370.02 1.59


2008-2009 166919.31 119441.66 1.39

Interpretation:

The ratio is in satisfactory level by increasing ratios from past years. The
ratio is compared to 2. In 2008-09 it has decreased this indicates that
increase in liabilities. The any value of less than 1:1 implies a reciprocal
dependency on inventory or other current assets to liquidate short term debt
indicator of the business vulnerability to risk. It is submitted that company is
a public enterprise indirect specific norms are not considered due to lack of
information by maintaining standards of the company the liquidity position
can be improved.

ABSOLUTE LIQUIDITY RATIO:

ABSOLUTE LIQUID ASSETS CURRENT ASSETS

Year Absolute liquid asset Current liabilities Absolute quick ratio

2004-2005 80807.85 61561.31 1.31

2005-2006 98574.26 80273.70 1.22

2006-2007 24666.91 88292.46 0.27


2007-2008 26958.87 96370.02 0.27

2008-2009 23483.09 119441.66 0.19

Interpretation:

The above chart and table shows past five absolute quick ratios. The ratio is
not satisfactory the highest position is at 2004-05 after that it started
decreasing; the ratios are all below 1. The current assets are decreasing and
the liabilities are increasing this shows that the company is not able to
maintain the cash ratio .It is submitted that indirect norms are not considered
due to lack of information. No specific industry standards are available for
such I have taken general standards only.

DEBT EQUITY RATIO:

LONG TERM LIABILITITES SHARE HOLDERS FUND

Year Long term liabilities Share holders fund Debt equity ratio
2004-2005 266.30 32182.98 0.82

2005-2006 0 36345.74 0

2006-2007 0 46407.72 0

2007-2008 11329.83 5999.66 0.20

2008-2009 202050.32 56795.90 0.35

Interpretation:

The debt equity ratio is calculated to make comparison between the equity
capital invested and financed through debt. In 2004-05 it is in the highest
position after that it started decreasing in 2005-06 and 2006-07 there is no
long term credit and in 2007 and in 2008 it was increasing the company has
to maintain the ratio to avoid the risk. By maintaining the eps can be
improved. It is submitted that indirect norms are not considered due to lack
of information .No specific industry standards are available for such I have
taken general standards only.

PROPRIETARY RATIO = NET TOTAL ASSETS

Net worth Total assets Proprietary ratio


Year
32449.28 94521.67 34.32
2004-2005
36345.74 113725.89 31.95
2005-2006
46407.72 137927.17 33.60
2006-2007
55999.66 168665.64 33.20
2007-2008
56795.90 189252.26 30.00
2008-2009

Interpretation:

The proprietary ratio shows the financial strength of the company the higher
the ratio shows better the position of the company. The ratios are fluctuating
the highest ratio is in 2004-05 and after that the company started decreasing.
The financial position of the company is not satisfactory. The firm has to
take certain steps to increase the capital by which the eps can be improved
and the companys financial position can be improved. It is submitted that
indirect norms are not considered due to lack of information. No specific
industry standards are available for such I have taken general standards only.

FIXED ASSETS RATIO = FIXED ASSETS CAPITAL EMPLOYED


Fixed assets Capital employed Fixed assets ratio
Year
7255.76 0.22
2004-2005 32182.98
7634.31 36345.74 0.21
2005-2006
7698.16 46407.72 0.19
2006-2007
7819.05 73693.63 0.10
2007-2008
9487.35 82087.95 0.11
2008-2009

Interpretation:

The above chart shows past five yeas fixed asset ratio. The ratio is not
satisfactory in 2004-05 is the highest after that it started decreasing. The
fixed asset ratio shows more efficient management in utilization of fixed
assets. The ratio should never be more than 1. A ratio of 0.67 is considered
as ideal .the company has never met the ideal position. It is submitted that
indirect norms are not considered due to lack of information. No specific
industry standards are available for such I have taken general standards only.
Company has to maintain the standards and improve the long term
investments.
INTEREST COVERAGE RATIO = PBIT FIXED INTEREST

PBIT Fixed interest Interest coverage ratio


Year
6074.20 379.35 16.01
2004-2005
5382.81 179.54 29.98
2005-2006
19498.48 283.89 68.6
2006-2007
22086.56 1883.03 11.72
2007-2008
4021.23 2156.51 1.86
2008-2009

Interpretation:

The interest coverage ratio shows how many times the profit covers the
interest. It is healthy to have profit more than interest payable. The net
income should be more than the fixed interest element by six to seven times
thus making a safe margin. The above chart and table shows companys
position is not satisfactory. The highest ratio is in 2006-07 after it started
huge decrease in 2008-09 it has decreased about 90% of growth rate. The
company is maintaining the huge loans and due to that profit has decreased.
Company has to reduce the borrowings of loans by which the profit can
increase and it has to maintain standards of the company. It is submitted that
indirect norms are not considered due to lack of information. No specific
industry standards are available for such I have taken general standards only.
TURN OVER RATIOS:

INVENTORY TURMOVER RATIO:

COST OF GOODS SOLD AVERAGE STOCK

Cost of goods sold Average stock Inventory turnover ratio


Year
42370.56 5926.18 7.14
2004-2005
38916.93 1632.37 23.84
2005-2006
47446.78 1747.47 27.15
2006-2007
43153.11 1916.73 22.51
2007-2008
60417.13 2736.26 22.08
2008-2009

Interpretation:

The stock turnover ratio indicates how fast stocks are moving and converted
into sales quickly. The past years ratios of the company is not satisfactory it
is in decreasing position the highest position is in 2006-07. The company has
to maintain the (jit) just in time it has to reduce the lead time in production
of goods and maintain the standards of the company which may improve the
sales of the company. However too high and too low ratio call may also
affect the company. It is submitted that indirect norms are not considered
due to lack of information.No specific industry standards are available for
such I have taken general standards only.

WORKING CAPITAL TURNOVER RATIO =

COST OF GOODS SOLD WORKING CAPITAL

Cost of goods sold Working capital Working capital turnover ratio


Year
42370.56 25704.60 1.64
2004-2005
38916.93 25817.88 1.50
2005-2006
47446.78 41936.55 1.13
2006-2007
43153.11 64311.93 0.67
2007-2008
60417.13 60158.63 1.00
2008-2009

Interpretation:

The higher the working capital ratio increases the efficient utilization of
funds. The past years of the company are not satisfactory the ratios are in
decreasing position highest are in 2004-05. This shows that the company is
having excess current liabilities. The company has to maintain certain
standards to reduce the current liabilities by maintaining the efficient bank
balance. This can improve the funds utilization of the company. It is
submitted that indirect norms are not considered due to lack of information.
No specific industry standards are available for such I have taken general
standards only.

GROSS PROFIT RATIO = GROSS PROFIT NET SALES

Gross profit Net sales Gross profit ratio


Year
2696.35 66325.41 4.06
2004-2005
17513.51 56875.41 30.79
2005-2006
35897.60 86341.88 41.5
2006-2007
42634.92 80557.65 52.92
2007-2008
59788.51 88788.71 67.3
2008-2009

Interpretation:

The gross profit shows the efficient utilization of resources and earning
capacity of the business with reference to sales. Increase in gross profit will
mean reduction in cost of production this leads to reasonable good price of
product. Decrease in the ratio will mean the increase in cost of production.
The above graph shows the gross profit ratios are quite satisfactory all the
ratios are in increasing position. The company has to maintain the same
standards in increasing position. It is submitted that indirect norms are not
considered due to lack of information. No specific industry standards are
available for such I have taken general standards only.

NET PROFIT RATIO = NET PROFIT AFTER TAX NET SALES

Net profit after tax Net sales Net profit ratio


Year
3712.80 66325.41 5.59
2004-2005
4226.65 56875.41 7.43
2005-2006
12837.04 86341.88 14.86
2006-2007
13414.66 80557.65 16.66
2007-2008
1348.37 88788.71 1.51
2008-2009

Interpretation:
The net profit shows the operational efficiency of the business. The past
years of the company is in increasing position but in 2008-09 there is a huge
decrease of nearly 9%growth. It is caused due to increase in administration
and remuneration of the employees. The company has to reduce all the
expenses stated which may improve the net profit of the company. And
maintain the standards of the company. It is submitted that indirect norms
are not considered due to lack of information. No specific industry standards
are available for such I have taken general standards only.

OPERATING PROFIT RATIO =OPERATING PROFIT NET SALES

Year Operating profit Net sales Operating profit ratio


6927.01 66325.41 10.44
2004-2005
6222.80 56875.41 10.94
2005-2006
20701.77 86341.88 23.97
2006-2007
23405.38 80557.65 29.05
2007-2008
5036.72 88788.71 5.67
2008-2009

Interpretation:
The operating profits reveal that the cost content and operational expenses
absorbed in the sales. The higher the operating profits the higher operating
management. The past years operating ratio is quite good but in 2008-09 the
ratio has decreased. It is due to the increase in operational expenses i.e.
increasing salaries of employees, administration and other expense by which
the profit can be improved. The operational expenses affects the company a
lot so company has to take certain steps to improve it. It is submitted that
indirect norms are not considered due to lack of information. No specific
industry standards are available for such I have taken general standards only.

Introduction to comparative statements of Ecil


COMPARITIVE BALANCE SHEET OF ECIL

PARTICULARS 2004-05 2005-06 Absolute Change in%


change
Share holders fund
capital 14588.12 15488.12 900 6.16
share money pending 0.00 0.00 0 0
allotment
reserves and surplus 17594.86 20857.62 3262.76 18.54
Deferred tax(net liabilities) 266.30 0.00 -266.30 -100
Total 32449.28 36345.74 3896.46 12.00
APPLICATION OF
FUNDS
Fixed assets
gross block 19180.13 19761.36 581.23 3.03
less : depreciation 11972.17 12818.64 846.47 7.07
net block 7207.96 6942.72 -265.24 -3.55
fixed assets in transit & work 47.80 691.59 643.79 1346
in progress
Investments 164.64 164.64 0 0
Deferred tax(net assets) 0.00 574.12 574.12 0
current assets, loans &
advances
current assets
inventories 6622.64 7681.96 1059.32 15.99
sundry debtors 58072.98 79468.68 21395.7 36.84
cash& bank balances 22570.29 18940.94 -3629.35 -16.08
Loans & advances 11749.57 13655.98 1906.41 16.22
5)Less: current liabilities &
provisions
current liabilities 61561.31 80273.70 18712.39 30.39
provisions 12454.11 11504.19 -949.92 -7.62
Miscellaneous expenditure 28.82 3.00 -25.82 -89.59
to the extend not written off
or adjusted.
Total 32449.28 36345.74 3896.46 12.00
COMPARATIVE BALANCE SHEET OF ECIL

PARTICULRS 2006-07 2007-08 Absolute Change in%


change
Sources of funds
Share holders fund
capital 15488.12 16337.12 849 5.48
share money pending allotment 849.01 0.00 0 0
reserves and surplus 30070.6 39662.54 9591.94 31.89
deferred tax(net liabilities) 0.00 0.00 0 0
secured loans 0.00 11329.83 0 0
unsecured loans 0.00 6364.14 0 0
Total 46407.72 73693.63 27285.9 58.79
APPLICATION OF FUNDS
Fixed assets
gross block 19858.25 20361.05 202.8 2.53
less : depreciation 12376.50 13129.11 752.61 6.08
fixed assets in transit & work in 216.41 587.11 370.7 171.29
progress
Investments 164.64 164.4 0 0
Deferred tax(net assets) 1338.11 2388.44 1050.33 78.49
current assets, loans & advances
current assets
inventories 6855.84 6884.13 28.29 2.53
sundry debtors 98870.90 12703.59 28132.69 28.45
cash& bank balances 24502.27 26794.23 2291.96 9.35
Loans & advances 14506.7 24617.17 10110.47 69.69

Less: current liabilities &


provisions
current liabilities 88292.46 96370.02 8077.56 9.14
provisions 19236.44 25607.60 6371.16 3312
Miscellaneous expenditure to the 0.00 0.00 0 0
extend not written off or
adjusted.
Total 46407.72 73693.63 27285.91 58.79
COMPARITIVE BALANCE SHEET OF ECIL

PRATICULARS 2007-08 2008-09 ABSOLUT CHANGE IN%


E CHANGE
Share holders fund
capital 16337.12 16337.12 0 0
share money pending 0.00 0 0 0
allotment
reserves and surplus 39662.54 40458.78 796.24 2.00
secured loans 11329.83 20250.32 8920.49 78.73
un secured loans 6364.14 5041.73 -1322.41 -20.77
Total 73693.63 82087.95 8394.33 11.39
APPLICATION OF
FUNDS
Fixed assets
gross block 20361.05 23170.15 2809.1 13.79
less : depreciation 13129.11 14076.72 947.61 73.21
fixed assets in transit & 587.11 393.92 -139.19 -32.90
work in progress
Investments 164.64 164.64 0 0
Deferred tax(net assets) 2388.44 3938.44 1550 64.89
current assets, loans &
advances
current assets
inventories 6884.13 12680.98 5796.85 84.20
sundry debtors 12703.59 143600.86 16597.27 13.06
cash& bank balances 26794.23 23318.45 -3475.78 -12.97

Loans & advances 24617.17 34668.41 10051.24 40.80


Less: current liabilities &
provisions
current liabilities 96370.02 119441.66 23071.64 23.94
provisions 25607.60 26329.52 721.92 2.81
Miscellaneous expenditure 0.00 0.00
to the extend not written
off or adjusted.
Total 73693.63 82087.95 8394.33 11.39

ANALYSIS OF BALANCE SHEET

INTERPRETATION

TOTAL FIXED ASSETS

The total fixed assets have been increasing gradually with 2.53% in 2006-07
to2007-08 and in 2007-08 and 2008-09 13.79% in increasing stage. The over
all of past years percentage shows that the total assets has increased about
85% taking base year as 2006-07 from 19858.25 to 23710.15 lakhs. The
increase in fixed assets shows that company is making huge investment for
the future projects.

TOTAL CURRENT ASSETS

The past percentages of current assets are moving upwards and downwards
gradually. In 2006-07 to 2007-08 the inventory is increasing about 0.41% in
2007-08 to 2008-09 is 84.20% this shows that company is maintaining huge
stock in the company. This increases the cost and there may decrease in the
gestation period.

The debtors of the company are in decreasing stage. In 2006-07 to 2007-08


the percentage is 28.49% and in 2007-08 to 2008-09 the percentage is
13.06% this shows that company is able to receive the cash from debtors.

The cash and bank balances of the company have increased about 9.35% in
2006-07 to 2007-08 and there is deficit balance in 2007-08 to 2008-09
about-12.97%. This shows that the company is not able to maintain average
cash balance. While the sundry debtors are in decreasing stage the expenses
on the capital assets have been increasing. The company has to maintain the
average cash balance for benefits.

TOTAL CURRENT LIABILITIES

The percentages of current liabilities are in increasing position. In 2006-07


to 2007-08 the increase is 9.14% in 2007-08 to 2008-09 is 23.94%. this
shows that the company is not able to meet liabilities, the increase in
liabilities which affects a lot to the company by increase in interest and we
cannot get the loans there may be decrease in the production which may
incur losses. The increase in liabilities due to increase in the expenses of the
company and properly not maintaining cash and bank balances, increase in
the salaries and other administration expenses of the company. It is
submitted that indirect norms are not considered due to lack of information.
No specific industry standards are available for such I have taken general
standards only.
COMPARITIVE INCOME STATEMENT OF ECIL

PARTICULARS 2004-2005 2005-2006 ABSOLUTE CHANGE


CHANGE IN %
INCOME
Sales 66325.40 56875.41 9449.99 14.24
Services 10348.65 12862.27 2513.62 24.28
Lease rentals 392.71 291.35 -101.36 -25.81
Turnover(gross) 77066.76 70029.03 -7037.33 -9.13
Less: exercise duty 2927.59 2574.84 -352.75 -12.08
Service tax 433.98 773.30 339.32 78.18
Sales tax 1475.45 1492.98 17.53 1.18
Turnover(net) 72229.74 65187.91 -7041.83 -9.74
Other income 1898.11 2924.94 1026.83 54.09
74127.85 68112.85 -6015 -8.11
Accretion+decretion-wip -1120.95 159.73 1280.68 -114.24
Less: price variation adjustment 226.03 226.20 0.17 0.07
TOTAL INCOME 72780.87 68046.38 -4734.49 -6.50
EXPENDITURE
Materials consumed 12370.56 38916.93 26546.37 214.59
Employee remuneration 17213.01 17524.01 311 1.80
Manufacturing, administration& other 5495.63 4749.56 -746.07 -13.57
Selling expenses 1835.14 2290.42 455.28 24.80
Research and development 3094.99 2715.04 -379.95 -12.27
70009.33 66195.96 -3813.37 -5.44
Less: transfer to projects &other A/cs 4155.47 4372.38 216.91 5.21
TOTAL EXPENDITURE 65853.86 61823.58 -4030.28 -6.12
PROFIT BEFORE INTEREST 6927.01 6222.80 -704.21 -10.16
Interest 379.35 179.54 -199.81 -52.67
depreciation 852.81 839.99 -12.82 -1.50
PROFIT FOR THE YEAR 5694.84 5203.27 -491.57 -8.63
Less: last year adjustments -624.22 1.15 625.37 -100
PROFIT BEFORE TAX 5070.63 5204.42 133.79 2.63
Less: provision for tax 1654.00 1749.00 95 5.74
for earlier year 73.77 -22.56 -51.21 -69.41
Deferred tax asset (+) deferred tax 73.77 840.42 470.48 637.76
liability (-)
Less: fringe tax benefit 0.00 91.75 91.75 0
PROFIT AFTER TAX 3712.80 4226.65 513.85 13.83
COMPARITIVE INCOME STATEMENT OF ECIL

PARTICULARS 2006-2007 2007-2008 ABSOLUTE CHANGE


CHANGE IN %
INCOME
Sales 86341.88 80557.65 -5784.23 -6.69
Services 13891.96 19336.57 5444.61 39.19
Lease rentals 356.31 270.68 -85.63 -24.03
Turnover(gross) 100590.15 100164.9 -425.26 -0.4
Less: exercise duty 4889.16 2348.94 -2534.22 -51.89
Service tax 1124.97 1358.63 233.66 20.77
Sales tax 2791.41 2270.94 -520.47 18.64
Turnover(net) 91790.61 94186.39 2395.78 2.61
Other income 3355.19 4595.43 1240.24 36.96
Accretion+decretion-wip -596.77 -611.9 15.17 2.42
TOTAL INCOME 94849.03 98169.83 3620.8 3.82
EXPENDITURE
Materials consumed 47446.78 43153.11 -4293.67 -9.04
Employee remuneration 19295.07 24236.31 4941.24 25.6
Manufacturing, administration& other 5619.48 5562.72 -56.76 -1.01
Selling expenses 3619.12 3247.42 -371.7 10.27
Research and development 3199.57 2139.69 -1059.88 33.12
Less: transfer to projects &other A/cs 5332.76 3330.09 -1757.96 -32
TOTAL EXPENDITURE 73847 74764.45 919.19 1.24
PROFIT BEFORE INTEREST 20701.77 23405.38 2703.61 13.05
Interest 283.89 1883.03 1599.14 53.32
depreciation 1203.29 1318.82 115.53 9.6
PROFIT FOR THE YEAR 19214.59 2023.53 998.94 5.13
Less: last year adjustments 39.38 -68.13 107.51 273
PROFIT BEFORE TAX 19253.97 20135.4 881.43 4.57
Less: provision for tax 7295.01 7695.01 339.03 5.46
for earlier year -209.79 -29.93 179.86 -85.73
Deferred tax asset (+) deferred tax 736.99 1050.33 286.34 37.47
liability (-)
Less: fringe tax benefit 95.71 106.01 10.29 10.75
PROFIT AFTER TAX 12837.04 13414.66 577.62 4.49
COMPARITIVE INCOME STATEMENT OF ECIL

PARTICULARS 2007-2008 2008-2009 ABSOLUT CHANGE


E CHANGE IN%
INCOME
Sales 80557.65 88788.71 8231.06 10.21
Services 19336.57 17073.96 -2262.61 -11.7
Lease rentals 270.68 215.41 -55.27 20.4
Turnover(gross) 100164.9 106078.08 5913.18 5.9
Less: exercise duty 2348.94 3363.21 1014.27 43.17
Service tax 1358.63 155.73 197.1 14.5
Sales tax 2270.94 3696.03 1425.09 62.75
Turnover(net) 94186.39 97463.11 3276.72 3.47
Other income 4595.43 5926.43 1331 28.96
Accretion+decretion-wip -611.9 1898.57 2510.47 410.22
TOTAL INCOME 98169.83 105288.11 7118.28 7.25
EXPENDITURE
Materials consumed 43153.11 60417.13 17264.02 40
Employee remuneration 24236.31 31815.38 7579.07 31.27
Manufacturing,administration& other 5562.72 6649.14 1086.42 19.53
Selling expenses 3247.42 2188.19 -1059.23 -32.6
Research and development 2139.69 2423.31 283.62 13.25
Less: transfer to projects &other A/cs 3330.09 3241.76 88.33 2.65
TOTAL EXPENDITURE 74764.45 103493.15 28728.73 38.42
PROFIT BEFORE INTEREST 23405.38 5036.72 -18368.66 -78.4
Interest 1883.03 2156.51 273.48 14.52
depreciation 1318.82 1015.49 303.33 23
PROFIT FOR THE YEAR 2023.53 1864.72 -18338.81 90.77
Less: last year adjustments -68.13 24.99 93.12 136.6
PROFIT BEFORE TAX 20135.4 1889.71 -18425.69 91.5
Less: provision for tax 7695.01 1800.01 -5895 -76.6
for earlier year -29.93 184.34 154.41 515.9
Deferred tax asset (+) deferred tax 1050.33 1550.01 499.69 47.57
liability (-)
Less: fringe tax benefit 106.01 107.01 1 0
PROFIT AFTER TAX 13414.66 1348.37 -12066.29 -89.94
ANALYSIS OF INCOME STATEMENT FOR THE YEARS

2006-2007, 2007-2008 AND 2008-2009.

INTERPRETATION:

INCOMES:

The incomes of the past years are quite satisfactory it is gradually


increasing. In comparison of 2006-2007 to 2007-2008 the increase in
percentage is about 3.82%.

In 2007- 2008 to 2008-2009 increase in percentage about 7.25%.The


increase income shows a good view but when compared to individual
transactions the income position is not so good.
The sales for the year have increased about 10.21% 2007-08 in but in
2008-09 it has decreased about 6.69%. The company has to take
certain steps to improve the sales or else the company may incur
losses in future.
This service has decreased about 11.70% in2007-08 and in 2008-09 it
has increased about 39.19%. The company has to maintain same
standards in maintaining the services which improves the company
position.
The income from the lease rental is gradually decreasing from the past
years about -20.4%, -24.03% in 2007-08 and 2008-09.
The company is spending a huge amount on exercise duty, service tax
and sales tax.

EXPENDITURE:

The companys expenditure is in decreasing stage which shows that


company is showing an interest in reducing the unnecessary costs. But when
compared through individual performance is not satisfactory.

The material consumption has decreased about -9.04% in 2007-08 and


in 2008-09 increased about 40.00%. With increase in the material
consumption there will be increase in the production that leads to
huge sales and increase the profits of the company.
Employee remuneration and benefits of the company is been
increasing gradually in 2007-08 about 25.60% and in 2008-09 it has
risen upto 31.27%. it is said that in 2008-09 the central government of
India has risen. Even though in past year it has increased about
25.60%.The Company should take certain steps to control the
expenses. The gradually increase in salaries it may affect the company
profit it has to maintain certain standards.
The manufacturing and administration expenses of the company are
quite satisfactory in 2007-08 about -1.01, but it is cause due to
decrease in material consumption. In 2008-09 the expenses has raised
about 19.53% the increase may be caused due to increase in wages.
But it also includes other expense that has been increased. The
company has to take certain steps to reduce expenses. This reduces the
cost of production and increases the profits.
The selling, research and development percentages are quite
satisfactory they are in decreasing stage. The selling activity is
important in sales it includes a huge costs. The company should try to
reduce the unnecessary expenses. The research and development leads
to innovation of the product of the company. In 2007-08 it has
increased up to 13.25%.

PROFIT FOR THE YEAR:

When compared to the profits after tax of the company it is in


increasing stage from2006-07 but in 2008-09 it has decreased a lot.
Comparison of profits from 2006-07 to2007-08 the increasing
percentage is 4.49% and in 2007-08 to 2008-09 the percentage has
decreased about -89.94%. the increasing in same way the expenses are
also increasing. The management has to take certain steps to control
huge expenses and maintain certain standards to control it.

However the company is public enterprise it is submitted that indirect


specific norms are not considered due to lack of information.

CONCLUSIONS AND SUGGESTIONS

Liquidity analysis:

The liquidity position of the company was not satisfactory as it was


disclosed by current ratio, quick ratio and absolute liquid ratio. Deapite these
are less than prescribed standards. However taking the product into
consideration the liquidity position of the company can be considered as
satisfactory.
Leverage analysis:

The leverage or the capital structure position of the organization is not so


satisfactory there is a low percentage than prescribed standard levels and
ratios show they are fluctuating in proprietary fixed assets, interest coverage
ratios. In spite of all these companys leverage position can be improved and
considered as satisfactory.

Turnover analysis:

The performance of the inventory ratio, net profit ratio, operating profit ratio
and working capital ratio is very bad and not satisfactory in this year. While
other ratios are fluctuating and quite satisfactory. The efforts can be made by
the company to improve the performance.

SUGGESTIONS

The liquidity position of the company can be improved by investing


low stocks or finished goods. The debts should be recovered in time.
There is also large sum given in terms of loans and advances which
will again decrease the cash and bank balances which is required by
the company to pay off debts. Future there is a large amount of debt to
be paid to creditors, which is not safe to the liquid position of the
company.
Due to liabilities of the working capital of the company is affecting a
lot. This may affect day to day activities of the company and the
company may require paying of additional interest on these debts.
The sales of the company are increasing in the same way the expenses
are also increasing. The expenses can be reduced by not investing in
unnecessary things.
The net profit of the company has been decreased this year when
compared to past years. Due to increase in administration expenses
and other expenses the company should take necessary steps to
improve in certain places.
The overall position of the company is satisfactory because it deals
with the Government Electronic and Defense products but it needs to
check out where it is lagging behind and improve it.
However the company is public enterprise it is submitted that indirect
specific norms are not considered due to lack of information.
If all the employees of the company can work efficiently and
affectively in the company it can reach to great heights in our country.

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