CHAPTER-1

INTRODUCTION

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1.1 Purpose of the study

The rationale behind doing summer internship and preparing the project report is to study a financial
report analysis and interpretation, what is company, what is financial statement, why statement of
analysis is mandatory for a company, ratio analysis and how does it help to get liquidity position and
how does it helpful for investors to take investing decision and use of tally for company’s account.

Financial statements are the formal record of the financial activities of a business, person or other entity
and provide an overview of business or person’s financial condition in both short and long term. They
give an accurate picture of a company’s condition and operating results in a condensed form. Financial
statements are used as a management tool primarily by company executive and investor’s in assessing
the overall position and operating results of the company.

Analysis and Interpretation of financial statements help in determining the liquidity position, long term
solvency, financial viability and profitability of a firm. Ratio analysis shows whether the company is
improving or deteriorating in past years. Moreover, comparison of different aspects of all the firms can
be done effectively with this. It helps the clients to decide in which firm the risk is less or in which one
they should invest so that maximum benefit can be earned.

Industries are capital intensive; hence a lot of money is invested in it. So before investing in companies
one has to carefully study its financial condition and worthiness. An attempt has been carried out in this
project to analyse and interpret the financial statements of a company.

1.2 Research objective of the study

Objectives are the ends that states specifically how goal be achieved. Every study must have an objective
for which all the efforts have been done. Without objective no research can be conducted and no result
can be obtained. On the basis of objective all the research process is followed. Objectives are the main
aspect of every study. The objective of the study gives direction to go through the research problem. It
guides the researcher and keeps him on track.

1) To understand, analyse and interpret the basic concepts of financial statements of a company. 2) To
Interpreted financial ratios and their significance.

3) To know

a) Liquidity Position and Long- Term Solvency

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 b) Operating Efficiency and Over-All Profitability

d) About Inter- Firm Comparison

This project mainly focuses in detail the basic types of financial statements of S.D. GUPTA &
COMPANY and calculation of financial ratios. Ratio analysis of S.D. GUPTA & COMPANY was done.

1.2.1 IMPORTANCE OF THE STUDY

By “FINANCIAL PERFORMANCE ANALYSIS OF S.D. GUPTA & COMPANY.” we would be able

to get a fair picture of the financial position of S.D. GUPTA & COMPANY.

a. Protecting the property of the business.

b. Compliances with legal requirement

1.3 Research methodology of the study

The procedure adopted for conducting the research requires a lot of attention as it has direct bearing on
accuracy, reliability and adequacy of results obtained. It is due to this reason that research methodology,
which we used at the time of conducting the research, needs to be elaborated upon. It may be understood
as a science of studying how research is done scientifically. So, the research methodology not only talks
about the research methods but also considers the logic behind the method used in the context of the
research study. Research Methodology is a way to systematically study and solve the research problems.
If a researcher wants to claim his study as a good study, he must clearly state the methodology adapted
in conducting the research the research so that it may be judged by the reader whether the methodology
of work done is sound or not.

a. Ratio analysis
b. Analysis of financial statements.

1.3.1 Research design

Financial statements are formal record of the financial activities of a business, person or other entity and
provide an overview of a business or person’s financial condition in both short and long term. They give
an accurate picture of a company’s condition and operating results in a condensed form. Financial

3
statements are used as a management tool primarily by company executive and investor’s in assessing
the overall position and operating results of the company.

Analysis and Interpretation of financial statements help in determining the liquidity position, long term
solvency, financial viability and profitability of a firm. Ratio analysis shows whether the company is
improving or deteriorating in past years. Moreover, comparison of different aspects of all the firms can
be done effectively with this. It helps the clients to decide in which firm the risk is less or in which one
they should invest so that maximum benefit can be earned.

Industries are capital intensive; hence a lot of money is invested in it. So before investing in companies
one has to carefully study its financial condition and worthiness. An attempt has been carried out in this
project to analyse and interpret the financial statements of a company.

1.3.2 Data collection

The process of data collection begins after a research problem has been defined and research design has
been chalked out. There are two types of data –

PRIMARY DATA -

It is first hand data, which is collected by researcher itself. Primary data is collected by various
approaches so as to get a precise, accurate, realistic and relevant data. The main tool in gathering primary
data was investigation and observation. It was achieved by a direct approach and observation from the
officials of the company.

SECONDARY DATA –

It is the data which is already collected by someone else. Researcher has to analyse the data and interprets
the results. It has always been important for the completion of any report. It provides reliable, suitable,
adequate and specific knowledge.

1.3.3 TYPE OF DATA USED IN THE STUDY

The required data for the study is basically secondary in nature and the data are collected from

The audited reports of the company.

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CA firm means a firm which provides Services like Auditing, Accounting, Business Advisory, Tax
Consulting, Management consulting, Corporate advisory etc. ... CA firm is an organization of a
single CA or in partnership. It can be started by a qualified chartered accountant only. A CA firm is an
organization that provides services such as Auditing, Accounting, Tax Consulting, Transaction
Advisory etc.

The functioning of a CA firm is complex. CA firms can be opened only by a qualified and certified
chartered accountant alone or in partnership. The main function is to provide an accurate report. For its
clients. CA firms work similarly to other firms except the work is more crucial and requires utmost
reliability and trustworthiness.

SERVICES

A. Accounting and Auditing

From the Big Four (Deloitte, PricewaterhouseCoopers, KPMG and Ernst & Young) down to small-
business accounting firms, the main services offered include accounting and auditing. This means the
company will produce financial records, track your revenues and expenses, and provide consulting on
your business's overall financial health. The firm can help you with long-range planning, such as
buying property or upgrading your infrastructure. It can also help you determine how to break even and
what your cash-flow needs are. These services help you plan your next moves, figure out whether you
are making a profit and make decisions about your company's growth.

Many businesses require a periodic audit of their finances. This might be a requirement of your
investors or written into the bylaws of your incorporation. Accounting firms conduct audits by
examining not only financial records, but also the processes and controls in place to ensure records are
being properly kept, policies are being adhered to, and your financial practices help support your
business goals and are the most efficient way to do so. The goal of an audit is to form an opinion on
whether your financial statements are presented fairly and accurately, and in accordance with generally
accepted accounting practices.

B. Tax Filing and Planning

A popular specialty area, many accounting firms offer a range of tax services. The firm's accountants
can help you figure out a new tax code to help ensure your financial reporting practices are in
compliance with current IRS regulations, determine your company's tax liability, and make sure you

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meet filing requirements and deadlines. The firm will prepare your federal, state and local tax returns,
and can also help you figure out how to reduce the taxes you must pay, making year-round tax
accounting services convenient.

C. Management Consulting
Many accounting firms offer business advisory services. It makes sense, considering they know your
business environment, your tax situation and your financial standing. They use this knowledge to help
you with your business plan, evaluate your current operations, identify new opportunities, alert you to
changes in the business or regulatory environment, and offer practical advice to help your business be
more efficient and successful. Accountants can help you figure out your insurance needs, how to grow
smarter, how to time your moves wisely and how to make better financial decisions.

D. Specialty Services
The offerings will vary by the firm, but if you're shopping for an accounting firm, consider choosing
from among those who offer specialized services. These can include business valuation, which helps
determine what your business is worth should you be considering a merger, acquisition or sale. A
growing number of accounting firms offer information system services, which examine the integrity
and security of your computer systems and the practices your company uses to process and protect
information. If your business might be the subject of a legal dispute or you suspect something has gone
wrong in your financial arena, consider a firm offering fraud and forensic accounting services, who
investigate complicated financial documents to uncover any illegal or fraudulent activity.

CONTENTS OF BALANCE SHEET

(A) Assets

In business and accounting, assets are economic resources owned by business or company. Any property
or object of value that one possesses, usually considered as applicable to the payment of one's debts is
considered an asset. Simplistically stated, assets are things of value that can be readily converted into
cash.

The balance sheet of a firm records the monetary value of the assets owned by the firm. It is money and
other valuables belonging to an individual or business.

Types of Assets

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There is two major type of assets:

a. Tangible assets
b. Intangible assets

Tangible Assets

Tangible assets are those have a physical substance, such as equipment and real estate.

Intangible Assets

Intangible assets lack physical substance and usually are very hard to evaluate. Assets which do not
possess any material value. They include patents, copyrights, franchises, goodwill, trademarks, trade
names, etc

Types of Tangible Assets

1. Fixed Assets.

2. Current Assets.

1. Fixed Assets

This group includes land, buildings, machinery, vehicles, furniture, tools, and certain wasting resources
e.g., timberland and minerals. It is also referred to as PPE (property, plant, and equipment), these are
purchased for continued and long-term use in earning profit in a business.

2. Current Assets
Current assets are cash and other assets expected to be converted to cash, sold, or consumed
either in a year or in the operating cycle. These assets are continually turned over in the course of a
business during normal business activity. There are 5 major items included into current assets.

Cash and Cash Equivalents

It is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g.,
money orders, cheque, bank drafts).

Short-term Investments

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It includes securities bought and held for sale in the near future to generate income on short term price
differences (trading securities).

Receivables

It is usually reported as net of allowance for uncollectable accounts.

Inventory

The raw materials, work-in-process goods and completely finished goods that are considered to be the
portion of a business's assets that is ready or will be ready for sale.

Prepaid Expenses

These are expenses paid in cash and recorded as assets before they are used or consumed (a common
example is insurance). The phrase net current assets (also called working capital) are often used and refer
to the total of current assets less the total of current liabilities.

I. Gross Block

Gross block is the sum total of all assets of the company valued at their cost of acquisition. This is
inclusive of the depreciation that is to be charged on each asset. Net block is the gross block less
accumulated depreciation on assets. Net block is actually what the asset are worth to the company.

II. Capital Work in Progress

Work that has not been completed but has already incurred a capital investment from the company. This
is usually recorded as an asset on the balance sheet. Work in prog0ress indicates any good that is not
consider to be a final product, but must still be accounted for because funds have been invested toward
its production.

III. Investments

a. Shares and Securities, such as bonds, common stock, or long-term notes Associate Companies
b. Fixed deposits with banks/finance companies
c. Investments in special funds (e.g., sinking funds or pension funds).
d. Investments in fixed assets not used in operations (e.g., land held)

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Remark: While fixed deposits with banks are considered as fixed assets, the investments in associate
concerns are treated as non-current assets.

IV. Loans and Advances include

a. Subsidy Received from The Govt.

b. Development Rebate reserve
c. Issue of Shares at Premium

V. Reserves

a. General Reserves

B) Liability

A liability is a debt assumed by a business entity as a result of its borrowing activities or other fiscal
obligations (such as funding pension plans for its employees). Liabilities are debts and obligations of the
business they represent creditors claim on business assets.

Types of Liabilities

A. Current liabilities

Current liabilities are short-term financial obligations that are paid off within one year or one current
operating cycle. These liabilities are reasonably expected to be liquidated within a year. It includes:

1. Accrued expenses as wages, taxes, and interest payments not yet paid Accounts payable
2. Short-term notes
3. Cash dividends

B. Long-Term Liabilities

Liabilities that are not paid off within a year, or within a business's operating cycle, are known as long-
term or non-current liabilities. Such liabilities often involve large sums of money necessary to undertake

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opening of a business, major expansion of a business, replace assets, or make a purchase of significant
assets. These liabilities are reasonably expected not to be liquidated within a year. It includes:

1. Notes payable- debt issued to a single investor.

2. Mortgages payable

Contingent Liabilities

A third kind of liability accrued by companies is known as a contingent liability. The term refers to
instances in which a company reports that there is a possible liability for an event, transaction, or incident
that has already taken place; the company, however, does not yet know whether a financial drain on its
resources will result. It also is often uncertain of the size of the financial obligation or the exact time that
the obligation might have to be paid.

Fixed Liability

The liability which is to be paid off at the time of dissolution of firm is called fixed liability. Examples
are Capital, Reserve and Surplus.

Secured Loans

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral
for the loan, which then becomes a secured debt owed to the creditor who gives the loan.

Unsecured Loans

An unsecured loan is a loan that is not backed by collateral. It is also known as signature loan and personal
loan. Unsecured loans are based solely upon the borrower's credit rating. An unsecured loan is considered
much cheaper and carries less risk to the borrower. However, when an unsecured loan is granted, it does
not necessarily have to be based on a credit score.

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 CHAPTER-2

COMPANY PROFILE

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S.D. GUPTA & COMPANY: S.D. GUPTA & COMPANY was formed on May 2,2015 in Greater
Noida by 2 directors CA Shobhit Kumar and CA Deepali Gupta. It is registered under the Act, CA
Regulation Act. 1949 The Head Office is in GR. Noida and has its branch in Mumbai also. They become
a CA in Jan 19, 2013. CA Shobhit Kumar and CA

Deepali Gupta open their offices respective names- SHOBHIT KUMAR & ASSOCIATE in Jun 7, 2013
and DEEPALI GUPTA & COMPANIES in Jun 25, 2013 under the Act, CA Regulation Act 1949. After
that, an agreement was signed between both of them and they Opened S.D GUPTA & COMPANY on
May2, 2015 under the regulation act,

SERVICES OFFERED

a. Financial Reporting & Accounting

a. Accounting & Book Keeping Services
b. ESI & PF Consultants
c. Chartered Accountant (CA)
b. Hospitals
c. Ca, Cs & Cost Accounting Services
d. Company Secretaries Service
e. Taxation

GST Return

PROFIT & LOSS STATEMENT

Income statement, also called profit and loss statement (P&L) and Statement of Operations is financial
statement that summarizes the revenues, costs and expenses incurred during a specific period of time -
usually a fiscal quarter or year. These records provide information that shows the ability of a company
to generate profit by increasing revenue and reducing costs. The purpose of the income statement is to
show managers and investors whether the company made or lost money during the period being reported.

The important thing to remember about an income statement is that it represents a period of time. This
contrasts with the balance sheet. represents a single moment in time.

CONTENTS OF PROFIT & LOSS STATEMENT

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a. Revenue - Cash Inflows or other enhancements of assets of an entity during a period from delivering
or producing goods, rendering services, or other activities that constitute the entity's ongoing major
operations.

b. Expenses - Cash outflows or other using-up of assets or incurrence of liabilities during a period from
delivering or producing goods, rendering services, or carrying out other activities that constitute the
entity's ongoing major operations.

c. Turnover- The main source of income for a company is its turnover, primarily comprised of sales of
its products and services to third-party customers.

d. Sales- Sales are normally accounted for when goods or services are delivered and invoiced, and
accepted by the customer, even if payment is not received until sometime later, even in a subsequent
trading period

e. Cost of Sales (COS)- The sum of direct costs of goods sold plus any manufacturing expenses relating
to the sales (or turnover) is termed cost of sales, or production cost of sales, or cost of goods sold. These
costs include:

(f) Other Operating Expenses- These are not directly related to the production process, but contributing
to the activity of the company, there are further costs that are termed ‘other operating expenses.

(g) Other Operating Income- Other operating income includes all other revenues that have not been
included in other parts of the profit and loss account. It does not include sales of goods or services,
reported turnover, or any sort of interest receivable, reported within the net interest category.

(h) Gross Margin (or Gross Profit)- The difference between turnover, or sales, and COS is gross profit
or gross margin. It needs to be positive and large enough to at least cover all other expenses.

(i) Operating Profit (OP)

The operating profit is the net of all operating revenues and costs, regardless of the financial structure of
the company and whatever exceptional events occurred during the period that resulted in exceptional
costs. The profit earned from a firm's normal core business operations. It is also known as Earnings
before Interest and Tax (EBIT).

Operating Profit = Turnover - COS - other Operating Expenses + Other Operating Income

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(j) Profit before Tax (PBT) - A profitability measure that looks at a company's profits before the
company has to pay corporate income tax. This measure deducts all expenses from revenue including
interest expenses and operating expenses, but it leaves out the payment of tax

(k) Profit after Tax (PAT)- PAT, or net profit, is the profit on ordinary activities after tax. The final
charge that a company has to suffer, provided it has made sufficient profits, is therefore corporate
taxation.

PAT = PBT - Corporation Tax

(l) Retained Profit - The retained profit for the year is what is left on the profit and loss account after
deducting dividends for the year. The balance on the profit and loss account forms part of the capital (or
equity, or shareholders’ funds) of the company.

FINANCIAL RATIOS AND THEIR INTERPRETATION

OBJECTIVES OF CALCULATION OF RATIO ANALYSIS

The importance of ratio analysis lies in the fact that it presents data on a comparative basis and enables
the drawing of inferences regarding the performance of the firm. Ratio analysis helps in concluding the
following aspects:

To know about Liquidity Position:

Ratio analysis helps in determining the liquidity position of the firm. A firm can be said to have the
ability to meet its current obligations when they become due. It is measured with the help of liquidity
ratios.

To Know about Long- Term Solvency:

Ratio analysis helps in assessing the long-term financial viability of a firm. Long- term solvency
measured by leverage/capital structure and profitability ratios.

To Know about Operating Efficiency:

Ratio analysis determines the degree of efficiency of management and utilization of assets. It is measured
by the activity ratios.

To know about Over-All Profitability:

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The management of the firm is concerned about the overall profitability of the firm which ensures a
reasonable return to its owners and optimum utilization of its assets. This is possible if an integrated view
is taken and all the ratios are considered together.

To Know About Inter- Firm Comparison:

Ratio analysis helps in comparing the various aspects of one firm with the other.

Table 2.3: Different Financial Ratios

Sl. No. CATEGORY TYPE OF RATIO ITNERPRETATION

Net Working Capital = It measures the
liquidity of a firm.
1. Liquidity Ratio Current assets-current liabilities

It measures the short-

Current ratio term liquidity of a firm. A
= Current firm with a higher ratio
Assets has better liquidity.
Current
Liabilities A ratio of 2:1 is
considered safe.

It measures the
Acid test or Quick ratio liquidity position of a firm.
= Quick assets
A ratio of 1:1 is
Current Liabilities considered safe.

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 This ratio indicates how fast
Inventory Turnover ratio inventory is sold. A firm
2. Turnover Ratio = Costs of goods sold with a higher ratio
Average inventory has better liquidity.

This ratio measures

Debtor Turnover ratio how fast debts are
= Net credit sales collected.
Average debtors A high ratio indicates
shorter time la
g

between credit sales and cash

collection.
Creditor’s Turnover ratio = Net A high ratio shows
credit purchases
that accounts are to
Average Creditors
be settled rapidly
3. Capital Debt-Equity ratio = Long term debt This ratio indicates the relative
Shareholder’s Equity proportions of debt and equity in
Structure Ratios
financing the assets of a firm.

A ratio of 1:1 is considered safe.

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 Debt to Total capital ratio = Long It indicates what proportion of the
term debt permanent capital of a firm
consists of long- term debt.
Permanent Capital Or
A ratio 1:2 is considered safe.
Total debt
It measures the share of the total
Permanent capital + Current
assets financed by outside funds.
liabilities
A low ratio is desirable for
Or creditors.

Total Shareholder’s Equity Total It shows what portion of the total

Assets assets is

financed by the owners’ capital.

A firm should neither have a high

ratio nor a low ratio.

4. Coverage ratios Interest Coverage = A ratio used to determine how

easily a company can pay on
Earnings before interest and tax
outstanding debt. A ratio of more
Interest than 1.5 I satisfactory

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 Dividend Coverage = It measures the ability of firm to
pay dividend on preference
Earnings after tax Preference
shares. A high ratio is better for
Dividend
creditors.

Total Coverage ratio = Earning It shows the overall ability of the

before interests and tax Total Fixed firm to fulfil the liabilities.
charges
A high ratio indicates better
ability.

5. Profitability ratios Gross Profit margin = It measures the profit in relation

to sales.
Gross profit * 100 Sales
A firm should neither have a high
ratio nor a low ratio.

Net Profit margin = profit of a firm with respect to

sale.
Net Profit after tax before interest
Sales A firm should neither have a high
ratio nor a low ratio.
Or

Net Profit after Tax and Interest

Sales

Or

Net profit after Tax and Interest

Sales

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6. Expenses ratios Operating ratio = Operating ratio shows the
operational efficiency of the
Cost of Goods sold + expenses
other business.

Lower operating ratio shows

sales
higher operating profit and vice
versa.

Cost of Goods sold ratio = Cost of It measures the cost of goods sold
Goods sold per sale

Sales

Specific Expenses ratio = Specific It measures the specific expenses

Expenses per sale.

Sales

7. Return Return on Assets (ROA) = Net It measures the profitability of the

on Profit after Taxes * 100 Total total funds per investment of a
Investments
Assets firm.

Or

(Net Profit after Taxes +interest)

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*100
Total Assets

Or

(Net profit after Taxes + Interest) * 100

Tangible Assets Or

(Net Profit after Taxes + Interest) * 100

Total Assets

Or

(Net Profit after Taxes + Interest) * 100

Fixed Asset

Return on Capital Employed (ROCE) = It measures profitability of

the firm with respect to the
(Net Profit after Taxes) * 100
total capital employed.
total capital employed Or
The higher the ratio, the
(Net Profit after Taxes + Interest) *100 more efficient use of
capital employed.

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 Or

(Net Profit after Taxes + Interest) *

100
Total Capital Employed -

Return on Total Shareholders’ It reveals how profitably the

Equity = owner’s fund has been utilized by
the firm.
Net Profit after Taxes * 100 Total
shareholders’ equity

Return on Ordinary shareholders It determines whether the firm has

equity = earned satisfactory return for its
equity holders or not.
Net profit after taxes and Pref.
dividend *100

Ordinary Shareholders’ Equity

8. Shareholder’s Earnings per Share (EPS) = It measures the profit available to

ratios the equity holders on a per share
Net Profit of Equity holders
basis.

Number of Ordinary Shares

Dividend per Share (DPS) = Net It is the net distributed profit

profits after interest and preference belonging to the shareholders
dividend paid to ordinary divided by the number of ordinary
shareholders shares

Number of ordinary shares

outstanding

It shows what

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 Earnings per Yield = Earnings per It shows the percentage of each
Share Market Value per Share rupee invested in the stock that
was earned by the company.

Dividend Yield = Dividend per It shows how much a company

share Market Value per share pays out in dividends each year
relative to its share price.

Price- Earnings ratio (P/E) = Market It reflects the price currently paid
value per Share Earnings per Share by the market for each rupee of
EPS.

Higher the ratio better it is for

owners

Earning Power = Net Profit after It measures the overall

taxes Total Assets profitability and operational
efficiency of a firm

9. Activity Ratios Inventory turnover = Sales quickly inventory is sold.

Closing Inventory A firm should neither have a high

ratio nor a low ratio.

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 Raw Material turnover =

Cost of Raw Material used Average

Raw Material Inventory

Work in Progress turnover = Cost of

Goods manufactured Average Work
in process inventory

Debtors turnover = It shows how quickly current

assets that are receivables or
Cost of Goods manufactured
debtors are converted to cash. A
Average Work in Process Inventory
firm should neither have a high
ratio nor a low ratio.

10. Assets Total Assets turnover = Cost of It measures the efficiency of a

Goods Sold Total Assets firm in managing and utilizing its
Turnover
assets.
Ratios
Higher the ratio, more efficient is
Fixed Assets turnover = Cost of
the firm in utilizing its assets.
Goods Sold Fixed Assets

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 CHAPTER-3

FINDINGS AND ANALYSIS

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 FINANCIAL RATIO ANALYSIS

The ratio analysis of S.D. GUPTA & COMPANY from 2015-17 has been carried out below.

3.1 RATIO ANALYSIS

3.1.1 Balance Sheet of S.D. GUPTA & COMPANY for 2016

Table 3.1: Balance Sheet of S.D. GUPTA & COMPANY as at 31st Mar -2016

PARTICULARS Amount Total

Amount
Source of Funds:

Capital Account 875860.05 634,506.05

50,489.00
Sunil's Capital
2,502.00 109053
Less- Credit card HDFC Donation Drawings 54,860.00

LIC

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School fees 24,450.00
Loans (Liability) 859142.95 1851845.9

Bank od A/C Secured Loans 992702.95

Unsecured Loans

Current Liabilities 44,553.00 1,638,085.9

1570805
Provision
65,940.00
Sundry Creditors Unregistered Tax Payable 43,212.15
less- Duties & Taxes

Profit & Loss A/C 502558.24 0

Opening balance Current Period less- 502558.24

Transferred
Total 4,124,437.8
Application of Funds:

Fixed Assets 593850 1579196.65

59,773.74
Car Mobile Motor Bike
31,181.65
Plant & Machinery Tata Ace 687189.75
207201.51

Current Assets 1035485 2545241.15

53,073.00
Closing Stock
1425712.6
Loans & Advances (Assets) 24869.00

Sundry Debtors Cash in Hand Bank Accounts 6101.48

Total 4124437.8

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3.1.2 Balance Sheet of S.D. GUPTA & COMPANY for 2017

Table 3.2: Balance Sheet of S.D. GUPTA & COMPANY on 31-03-2017

PARTICULARS Amount Total

Amount
Source of Funds:

Capital Account 595406.05 353,181.05

12,500.00
Sunil's Capital
9,343.00 181362
Less- Credit card HDFC Star Health Insurance 39,020.00
Drawings

School fees
Loans (Liability) 920609.95 1908532.9

Bank od A/C Secured Loans Unsecured Loans 837922.95

150000

Current Liabilities 76,703.00 2,493,868.57

2385328.5
Provision
65,940.00
Sundry Creditors Unregistered Tax Payable 34,102.93
less- Duties & Taxes

Profit & Loss A/C 3355599.45 3355599.45

Opening balance Current Period

Total 50,91,181.97

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Application of Funds:

Fixed Assets 504772.5 1,352,287.87

53,842.29
Car Mobile Motor Bike
26,504.40
Plant & Machinery LCD Monitor Tata Ace 584111.4 6936
176121.28

Current Assets 3738894.1

Closing Stock 1235091
35,642.00
Loans & Advances (Assets) Sundry Debtors
917360.62
Cash in Hand 1544699.00

Bank Accounts 6101.48

Total 5091181.97

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Table 3.5: Analysis of Financial Ratios for 2016

Sl. RATIOS PARTICULARS VALUE REMARKS

No.
1. Working Capital = Current Assets- 2545241.15 907155.25 Liquidity position is
Current liabilities good.
Current Assets =

1638085.90

2. Current Assets 2545241.15

Current Liabilities = 1.55:1 It is safe.

Current Ratio = Current Assets =

Current Liabilities 1638085.90

3. Liquid Assets liquid Assets =

Current Liabilities = 0.92:1 It is not good.
1509756.15
Acid test or Quick ratio =
Current Liabilities =
Liquid Liabilities

4. Debt-Equity Ratio = 1638085.90

Long term debt 1.63:1 It is safe
=1851845.90
Long term debt Capital A/C+ Net
Profit Capital A/C = 634506.05
Net Profit= 502558.24

5. Return On Investment Ratio = Net Profit 44.20% It is good

Net Profit*100 Capital a/c+ Net 502558.24

Profit
Capital A/C

634506.05

29
6. Gross Profit Ratio = Gross Profit= 45.31% It is not satisfactory

Gross Profit * 100 Sales 2312544.35

Sales=

7. Net Profit Ratio = Net Profit = 502558.24 9.84%

5104025.95 It is not satisfactory
Sales= 5104025.95
Net Profit * 100 Sales

8. Return on Assets Ratio = Net Net Income 502528.24 20.21% It is not good
Income*100
Fix. Assets= 1579196.65
Fix. Assets+Net WorkingCapital Net Working Capital=
907155.25

9. Return on working capital = Net Net profit= 502558.24 55.40% It is good

Profit ∗ 100 Net Working capital=
907155.25
Working Capital

10. Cost of Goods Sold Ratio = Cost of Cost of goods sold= 85.38 It is not satisfactory
Goods Sold*100 Sales 4358261.6

Sales= 5104025.95

11. Operating Cost Ratio = COGS+ COGS= 4358261.6 120.86 It is so high

Operating Exp.*100 Net Sales Operating Exp.=
1810630.43 Sales=
5104025.95

30
12. Fixed Assets turnover = Sales a/c Sales a/c= 5104025.95 3.23 It is not safe
Fixed Assets=
Fixed Assets
1579196.65

13. Working Capital Turnover= Sales= 5104025.95 5.63 It is safe

Working Capital=
Sales a/c working Capital
907155.25

14. Inventory Turnover= Sales= 5104025.95 4.93 It is not good

Closing Stock= 1035485
Sales a/c Closing stock

Liquid Assets = Total Current Assets – Inventory – Prepaid Exp

= 2545241.15- 1035485 = 1509756.15

Liquid Liabilities = Current Liabilities – Bank Overdraft

= 1638085.90

Long Term Debt = Secured Loans + Other Long-Term liabilities

= 992702.95

Shareholder Funds = Equity Share+ Pre. Share+ Profit+ General Reserve

= 875860.05+ 502558.24

= 1318418.29

Earnings before Interest & Tax (EBIT) OR Operating Profit = Net Profit + Tax + Interest

=502558.24+ 644.32

= 503202.56

31
Operating Expenses = Financial Exp. + Administration Exp.+ Financial Exp.+ Sales Operating &
Distribution Exp.

= 981800.40

Operating Cost= COGS – OPERATING EXP.

=4358261.6 – 981800.40 = 3376461.2

Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock

= 343079+ 4068867.2+ 981800.4- 1035485 = 4358261.6

32
3.1.6 Ratio analysis for 2017

Table 3.6: Analysis of Financial Ratios for 2017

Sl. RATIOS PARTICULARS VALUE REMARKS

No.
1. Working Capital = Current Assets = 1245025.53 Liquidity is good

Current assets-Current liabilities 3738894.1

=
Current Liabilities

2. Current Ratio = Current Assets Current Assets

2493868.57 = 1.50:1 It is safe
Current Liabilities
3738894.1
=
Current Liabilities

3. Acid test or Quick ratio = Liquid liquid Assets 2503803.1

2493868.57 = 1.00:1 It is good
Assets Current Liabilities
2493868.57 =
Liquid Liabilities

4. Debt-Equity Ratio = Long term Long term debt = 2.77:1 It is safe

debt 1908532.90 Capital A/C
= 353181.05 Net Profit=
Capital A/C+ Net Profit
335599.45

5. Return On Investment = net Net Profit= 335599.45 48.72% It is good

Profit*100
Capital a/c= 353181.05
Capital a/c + Net Profit

33
6. Gross Profit Ratio = Gross Profit= 34.83% It is not satisfactory
1253731.45 Sales=
Gross Profit * 100 Sales
3599918

7. Net Profit Ratio = Net Profit = 335599.42 9.32% It is not satisfactory

Sales= 3599918
Net Profit * 100 Sales

8. Return on Assets = Net Net Income= 335599.45 12.92% It is not good

Income*100 Fix. Assets Net +
Fix. Assets= 1352287.87
Capital
Working Capital=
Working
1245025.53

9. Return on working capital = Net Net profit= 335599.45 26.96% It is not good
Profit ∗ 100
Net Working capital=
Working Capital 1245025.53

10. Cost of Goods Sold Ratio = Cost of goods sold= 65.17 It is not satisfactory
2346186.55 Sales=
Cost of Goods Sold*100 Sales
3599918

11. Operating Cost Ratio = COGS= 2346186.55 90.67% It is so high

Operating Exp.=
COGS + Operating Exp.*100 Net
918132.03 Sales=
Sales
3599918

34
12. Fixed Assets turnover = Sales a/c Sales a/c= 3599918 Fixed 2.66 It is not safe
Assets=
Fixed Assets

1352287.87

13. Working Capital Turnover= Sales= 2.89 It is safe

Sales a/c 3599918 Working

Capital= 1245025.53
working Capital

14. Inventory Turnover= Sales= 3599918 Closing 2.91 It is not good

Stock= 1235091
Sales a/c

Closing stock

Liquid Assets = Total Current Assets – Inventory – Prepaid Exp

= 3738894.1- 1235091

= 2503803.1

Liquid Liabilities = Current Liabilities – Bank Overdraft

= 2493868.57

Long Term Debt = Secured Loans + Other Long-Term liabilities

= 837922.95

Shareholder Funds = Equity Share+ Pre. Share+ Profit+ General Reserve

= 595406.05+ 3355599.45 = 629005.5

Earnings before Interest & Tax (EBIT) OR Operating Profit=

35
Net Profit + Tax + Interest

= 3355599.45

Operating Expenses = Financial Exp. + Administration Exp.+ Financial Exp.+ Sales Operating &
Distribution Exp.

= 918132.03

Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock =

= 1035485+ 2539552.55+ 6240- 1235091 = 2346186.55

3.1.7 Summary for Balance Sheet and Profit & Loss Statement

Table 3.7: Summary of Balance Sheet

PARTICULARS 2016 2017 Remarks

Current Assets 2545241.15 3738894.10 Short term liquidity available is very

less.
Fixed Assets 1579196.65 1352287.87 Fixed Assets have decreased due to
decrease in investment.

Current Liabilities 1638085.85 2493868.57 Substantial increase in liabilities.

Liquidity position is not good.
Long Term Liabilities 992702.95 837922.95 Debts have decreased because of less
investment

36
Table 3.8: Summary of Profit & Loss Statement

PARTICULARS 2014 2015 Remarks

Purchase 4068867.20 2539552.55 Purchase has decreased by 37.58%

Cost of Goods Sold 4358261.60 2346186.55 COGS has decreased by 46.17%

Sale 5104025.9 3599918 Sales have decreased by 29.47%

Gross Profit 2312544.35 1253731.45 Gross Profit has decreased by

45.79%

Net Profit 502558.24 335599.45 Net profit has decreased by 33.22%

37
 VARIATION OF FINANCIAL RATIOS

The variation of different financial ratios from 2015-17 of S.D. GUPTA & COMPANY has been shown
below:

4.1 S.D. GUPTA & COMPANY

Current Ratio

1.55
1.54
1.53
1.52
1.51
1.5
1.49
1.48
1.47
1 2
Series1 1.55 1.5

Fig.4.1: Current Ratio

1400000 Working Capital

1200000
1000000
800000
600000
400000
200000
0
1 2
Series1 907155.25 1245025.53

Fig.4.2: Working Capital

38
 Quick Ratio

1.02
1
0.98
0.96
0.94
0.92
0.9
0.88
1 2
Series1 0.92 1

Fig.4.3: Quick Ratio

3 Debt - Equity Ratio

2.5
2
1.5
1
0.5
0
1 2
Series1 1.63 2.77
Fig.4.4: Debt-Equity Ratio

Inventory Turnover Ratio

4
3
2
1 1 2
Series10 4.93 2.91

Fig.4.5: Inventory Turnover Ratio (39)

 Return on Assets
20.00%
25.00%
15.00%
10.00%
5.00%
0.00%
1 2
Series1 20.21% 12.92%

Fig.4.6: Return on Assets

49.00%
48.00% Return on Investment
47.00%
46.00%
45.00%
44.00%
43.00%
42.00%
41.00%
1 2
Series1 44.20% 48.72%

Fig.4.7: Return on Investment

45.00% Gross Profit Ratio

40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
1 2
Series1 45.31% 34.83%

Fig.4.8: Gross Profit Ratio (40)

 Net Profit Ratio
9.80%
9.60%
9.40%
9.20%
9.00%
1 2
Series1 9.84% 9.32%
Fig.4.9: Net Profit Ratio

Return on Working Capital

50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
1 2
Series1 55.40% 26.96%

Fig.4.10: Return on Working Capital

Operating Cost Ratio

120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
1 2
Series1 120.86% 90.67%
Fig.4.11: Operating Cost Ratio

41
 COMPRATIVE STATEMENTS

Table: 5.1 COMPARATIVE INCOME STATEMENT

Particulars Previous Current Absolute Percentage

change
Year Year Change
Sales 5104025.95 3599918 -1504107.95 -29.47%

Less- Cost of Goods Sold 4358261.6 2346186.55 -2012075.05 -46.17%

Operating Profit 745764.35 1253731.45 507967.1 68.11%

Add- Other Income 1566780 - -1566780 -100%

Gross Profit 2312544.35 1253731.45 -1058812.9 -45.79%

Less-Operating Exp. 1810630.43 918132.03 -63667.97 -3.52%

Earnings Before Interest & Tax 501913.92 335599.45 -167603.11 -33.39%

Add- Interest 644.32 0 -644.32 -100%

Profit 502558.24 335599.45 -166958.79 -33.22%

42
Table: 5.2 Comparative Balance Sheet of S.D. GUPTA & COMPANY

Particulars Pervious Current Absolute Percentage

Year Year Change Change

Car 593850 504772.5 (89077.5) 15%

Mobile 59773.74 53842.29 (5931.45) 9.92%

Motor Bike 31181.65 26504.40 (4677.25) 15%

Plant & Machinery 687189.75 584111.4 (103078.35) 14.99%

LCD Monitor - 6936 - -

Tata Ace 207201.51 176121.28 (148919.77) 71.87%

Closing Stock 1035485 1235091 199606 19.28%

Loans & Advances (Assets) 53073 35642 (17431) 34.81%

Sundry Debtors 1425712.6 917360.62 (508351.98) 35.66%

Cash in Hand 24869.00 1544699 1519830 61.11%

Bank Accounts 6101.48 6101.48 - -

Total 4124437.85 5091181.97 966744.12 23.43%

Capital Account 634506.05 353,181.05 281325 44.33%

Loans (Liability) 1851845.9 1908532.9 (56687) 3.06

Current Liabilities 1,638,085.9 2,493,868.57 855782.67 52.24%

Total 4124437.85 5091181.97 966744.12 23.43%

43
 FINDINGS

This report work has identified how companies use financial statement analysis and interpretation in
making effective management decisions. Overall organizational profitability and achievement of
organizational objectives were discussed. Again, the difference between the returns of a financial
statement analysis and interpretation based on management decisions were also discussed.

Gross profit and net profits are decreased during the period of 2013-15, which indicates that
firm’s inefficient management in manufacturing and trading operations

Liquidity ratio of the firm is better liquidity position in over the two years. It shows that the
firm had sufficient liquid assets.

The fixed asset turnover ratio of the firm has in 2013-15 the ratio is 3.23 or 2.26 respectively
and it decrease.

cost ratio of the company has decreased during the period of 2013-15

Current liabilities are Increasing by 52.4%

Current assets Ratio are decreased in two years.

Net profit also decreased by 33.22%

Return on Investment has increased.

Gross Profit has decreased by 45.79%

44
 CHAPTER-4

SUGGESTIONS
 RECOMMENDATION

4.1 Recommendation for Company:

The profit Of the Company is not in a good Position. Profit decrease in 2014-15 comparison to 2013-14
so for earn more profit company has to Take Alternative Actions for more profit such as:

Increasing in Procurement in sugarcane,

Production, and Control in Expenses Like, Administrative, selling Etc.

The firms have low current ratio in 2014-15 comparison to 2013-14 so it should increase its
current ratio where it can meet its short-term obligation smoothly.

Liquidity ratio of the firm is less in 2014-15 comparison to 2013-14 liquidity position in
bank balance
over the years. So I suggested that the firm maintain proper liquid funds like cash and
It should enhance its employee’s efficiency, more training needed to its employees in order
to increase its production capacity and minimize mistakes while performing the tasks, also
more safety precaution need to implement to the employees who directly
working on sugar production process.
The company high inventory so I suggested that the firm must reduce the stock by
increase sales.
The firms should have proper check all process of the plant.

Recommendation for the Students:

Based on the findings of this study as presented, analysed and interpreted, the following
recommendations were deemed necessary by the Student who prepares project report:
Adequate time should always be allowed for collection of financial statement data and
preparation for their analysis.
Financial statement should be properly interpreted and should be made to reflect current cost accounting
to reduce the negative effects of historical cost principle on financial statement decisions. The effects of
inflation on financial statement result should be considered to reduce the inflation risk. The adequacy of
financial information needs to be emphasized on, as it will provide enough and necessary details for
investment and management decisions. A combination of different ratios should be used to analyse a
company’s financial and/or operating performance. Finally, the management of the selected company
should make proper use of financial statement analysis in other decision areas of management.

47
 CHAPTER-5

CONCLUSION AND LIMITATION

 CONCLUSION

Analysis and interpretation of financial statements is an important tool in assessing company’s

performance. It reveals the strengths and weaknesses of a firm. It helps the clients to decide in which
firm the risk is less or in which one they should invest so that maximum benefit can be earned. It is
known that investing in any company involves a lot of risk. So before putting up money in any company
one must have thorough knowledge about its past records and performances. Based on the data available
the trend of the company can be predicted in near future.

This project of financial analysis & interpretation in the production concern is not merely a work of the
project but a brief knowledge and experience of that how to analyse the financial performance of the
firm. The study undertaken has brought in to the light of the following conclusions. According to this
project I came to know that from the analysis of financial statements it is clear that S.D. GUPTA
&COMPANY have been incurring profit during the period of study. So, the firm should focus on getting
of more profits in the coming years by taking care internal as well as external factors. And with regard
to resources, the firm is taking utilization of the assets properly. And also, the firm has a maintained low
inventory.

This project mainly focuses on the basics of different types of financial statements. Balance Sheet and
Profit & Loss statements of S.D. GUPTA &COMPANY have been studied.

From ratio analysis of Balance Sheet and P & L Statement of S.D. GUPTA &COMPANY of 2015-17 it
was concluded that liquidity position of the company is good. Current ratio, debt-equity ratio, quick ratio,
net profit margin, operating profit margin, gross profit margin, return on assets, return on investments
and return on capital employed were found to be unacceptable. The ratios that are found to be desirable
are Current Ratio, Return On investment and Return on working capital and Debt – Equity Ratio.

Only three ratios viz. current ratio, quick ratio and debt-equity ratio were calculated. An advanced version
can be developed for calculation of profit & loss statements and other financial ratios

49
 LIMITATION

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS AND INTERPRETATION

1. It is suffering from the limitations of financial statements.

2. There is Absence of standard universally accepted terminology in financial analysis

3. Price level changes is ignored in financial analysis

4. Quantity aspect is ignored in financial analysis

5. Financial analysis provides misleading result in absence of absolute data

6. The qualitative elements like quality management, quality of labour, public relations are

ignored while carrying out the analysis of financial statement only.

7. In many situations, the account has to make choice out of various alternatives available, e.g.

choice in the method of depreciation, choice in the method of inventory valuation etc. since

the subjectivity is inherent in personal judgment, the financial statement are therefore not free

from bias.

8. Financial Statements are essential interim reports.

9. Lack of Exactness in financial Statement analysis and interpret.

10. Lack of comparability in financial statement analysis and interpret

50
 BIBLIOGRAPHY

BOOKS:

1. M.Y. KHAN, P.K. JAIN (1981), Financial Management, and Cost Accounting (third

edition) New Delhi: McGraw – Hill publishing company limited.

2. I.M. PANDEY. Financial Management New Delhi Vikas publishing house private Ltd –

ninth addition 2004

3. Financial Statement

4. Financial Management

COMPANY DATA:

Vouchers of Sale & Purchase

Bank Statement

Other Data of S.D. GUPTA & COMPANY

WEBSITES

www.google.com

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