Financial Performance of Ram Haldi Pvt. Ltd.

Name : Dsouza Winston Wilfred

USN: 4NM18MBA28

1. The table below presents the Chart of Accounts:

Table 1: Chart of Accounts
Name of the Account Code
Assets
Current Assets
Accounts Receivable
Cash at Bank 101
Rent deposit 102
Stationary 103
Inventory on hand 104
Non-Current Assets
Computer & Printer 105
Delivery Van 106
Liabilities
Current Liability
Accounts payable 200
Non-current liability
Loans from Canara Bank 201
Tax payable 202
Equity
Common stock 301
Retained earnings 302
Income
Interest received 401
Inventory – sales 402
Sales 403
Expenses
Fuel Expenses 501
Inventory – cost 502

2. Comment on the Financial Performance of Ram Haldi Pvt. Ltd.

Ram Haldi Pvt. Ltd. have generated a net profit of ₹37,885. The company had assets
worth ₹898,143.76 as on 1st January 2017. The company had earned revenue of ₹263,175
and incurred a total expense of ₹224,590 during the period. The liabilities of the
company amounted ₹359,558.76 which included a loan taken from Canara bank worth
₹100,000. The computation and interpretation of some important and relevant ratios are
as below.
Quick Ratio Quick Assets/Current 286133.76/ 259558.76 1.10:1
Liabilities
Current ratio Current 311143.76/259558.76 1.19:1
 Financial Performance of Ram Haldi Pvt. Ltd.
Name : Dsouza Winston Wilfred

USN: 4NM18MBA28

Assets/Current
Liabilities

The quick ratio represents the liquidity position of the company. The company’s liquid
ratio is 1.1 indicating for every rupee of liability, ₹1.1 is available for the payments. A
higher quick ratio would indicate excess of current assets which is not good for the
company as current assets do not generate revenue but fixed assets generate it. The
current ratio is adequate from business point of view. Since the business is just started,
this ratio is proper.

Debt Equity Ratio Long term debt/ 100000/500000 0.2

Equity

The debt equity ratio of the company is very low at 0.2. The debt of the company can be
easily repaid in case of default. However, if the company wants to expand rapidly, it can
opt for more debt provided the cost of debt is not very high and does not impact the
earnings of the company. Higher the debt, high is the risk and lenders will increase their
interest rates because they have to bear higher risk. Some amount of debt is beneficial for
the company as this will help in getting tax reductions.

Gross Profit Margin ((Sales-Cost of (41085/263175)*100

Ratio Goods 15%
Sold)/Sales)*100
Net Profit Margin (Net Profit/Sales or (37885/263175)*100
Ratio Revenue)*100 14%
Return on Equity (Net Income/ (37885/268942.5)*100
(ROE) Average 14.08%
Shareholders
Equity)*100

The company had a good profit margin at 15%. The return on equity is at 14.08%. This
indicates that the company has performed well and achieved 14.08% returns. ROE
indicates the annualised return that the owners are earning for their equity.

Receivables Annual Credit 263175/138166.88

Turnover Ratio Sales/Average 1.90
Account Receivables
Receivables 365/ Receivables 365/1.90
Turnover in days Turnover Ratio 192 days
Payable Turnover Cost of Goods 222090/129360
Ratio Sold/Average 1.71
Accounts payable
 Financial Performance of Ram Haldi Pvt. Ltd.
Name : Dsouza Winston Wilfred

USN: 4NM18MBA28

Payable Turnover in 365/Payable 365/1.71

days Turnover Ratio 213 days
Inventory Turnover Cost of Goods 222090/12155
Ratio Sold/Average 18.27
Inventory
Fixed Asset Turnover Net Sales/ Average 263175/293500
Fixed Asset 0.89

These ratios help in analysing the inventory position of the company. Ram haldi sells
their inventory about 18 times on an average. The company earns 0.89 for every rupee of
fixed assets. The company make payments of about 2 times in the year. The company
takes about 213 days to pay the amount to its suppliers which is beneficial for the
company. However, the company takes about 192 days to receive the amount which is
harmful for the business. Thus, the company should reduce its credit period and also
make cash sales as much as possible.

3. Are there any reasons to worry? Explain.

While analysing the financial statements of the company and relevant ratios, it is clear
that the company has earned 14.08% return on equity which is a sound return. The major
reason to worry is there is no cash sales in the company which is not a good sign. Any
company should have certain amount of cash sales. While analysing the cash flow
statement, it is clear that there are no cash inflows from operating activities. This is
because there are no cash inflows from the sale.

If the company continues to have credit sales, there won’t be sufficient cash balance to
purchase fixed assets or fulfil short term obligations of the company.

However, the company has invested in purchase of fixed assets which will benefit the
company in the long run.

4. What is your learning experience?

The introduction of manager was very helpful to us in addition to how we prepared

accounts in the notebooks. This is a very user friendly and simple software for effective
and efficient financial analysis. Creating of accounts, creating business, passing journal
entries is easy in this software.

The use of software at the beginning of the class was quite difficult to understand.
Thanks to our professor who had guided us in using this software effectively. This
software gave a feel like working for a real company in the corporate world. There are a
variety of functions available in the software. A small petty shop owner or a trader can
 Financial Performance of Ram Haldi Pvt. Ltd.
Name : Dsouza Winston Wilfred

USN: 4NM18MBA28

easily make use of this software for analysing his business. Any number of company
profiles can be created in this software which is the benefit of this software.

What we studied theoretically in the books was easily applied using this software. One
major benefit from this software was once we pass the journal entries, all the ledger
accounts, trial balance and the financial statements were made automatically by the
software. This helped us make our work less and analyse the statements efficiently.
Accounting using ERP is helpful for the management students and it will also help in
developing computer skills.

However, there are certain limitations in this software. There is no cash flow statement
which is a major part for analysis of any company. It is difficult to identify errors and
checking those errors is quite difficult. There is no option for editing multiple journal
entries in case of errors. One has to open each journal entry individually and make
changes there itself. This make the process quite tedious and tiresome. Because of
software limitations, in case of dividends, they have to be recorded under expenses
which is not true as it is recorded in statement of retained earnings. Much of
convenience and user friendly interface cannot be expected as this software is of free of
cost. There are no how-to videos regarding the usage of this software in case of certain
doubts. Thus a student who is not well aware regarding the usage of this software will be
confused. Though the software is user friendly, a total beginner cannot know how to use
the software.

To conclude, using such tools in the education will help the students on how to prepare
financial statements and analyse them, reduce their time on just preparing statements and
they can concentrate more on the analysis and judge the company. Also, the students
should be provided with some other free software’s available in the internet and keep
trying those as it will benefit them. Accounting using ERP combined with Bloomberg is
an effective method of learning.

Annexure 1: Statement of Profit and Loss of the Ram Haldi Pvt. Ltd. for the period
ended 18th January 2018

Income Amount in Rupees

Inventory - sales 263,175
Total income 263,175
Less: Expenses
Fuel expenses 2500
Inventory-cost 222,090
 Financial Performance of Ram Haldi Pvt. Ltd.
Name : Dsouza Winston Wilfred

USN: 4NM18MBA28

Total expenses 224,590

Net profit 38,585

Annexure 2: Balance Sheet of Ram Haldi Pvt. Ltd. as on 18th January 2018

Assets
Current Assets
Cash 9,800.00
Stationaries 700.00
Accounts Receivable 276,333.76
Cash at Bank -
Inventory on Hand 24,310.00
Total Current assets 311143.76
Non-Current Assets
Rent deposit 50,000.00
Computer and Printer 37,000.00
Delivery Van 500,000.00
Total Non-Current Assets 587,000.00
TOTAL ASSETS 898,143.76
Less: Liabilities
Current Liability
Accounts Payable 258,720.00
Tax payable 838.76
Non-Current Liabilities
Loans from Canara Bank 100,000.00
Total Liabilities 359,558.76
Equity
Common stock 500,000.00
Retained earnings 38,585.00
Total Equity 538,585.00
TOTAL LIABILITIES AND EQUITY 898,143.76
 Financial Performance of Ram Haldi Pvt. Ltd.
Name : Dsouza Winston Wilfred

USN: 4NM18MBA28

Annexure 3: Cash Flow Statement (Direct Method) of Ram Haldi Pvt. Ltd. for the
period ended 18th January 2018
Cash flows from operating activities
Cash paid for rent deposit (50,000)
Cash paid for purchasing stationaries (700)
Cash paid for fuel expenses (2500)
Net cash used for operating activities (53,200)
Cash flows from investing activities
Cash paid for purchase of computer (30,000)
Cash paid for purchase of printer (7,000)
Cash paid for purchase of delivery van (500,000)
Net cash used for investing activities (5,37,000)
Cash flows from financing activities
Cash received from issuing stock 500,000
Cash received from borrowing loan 100,000
Net cash from financing activities 600,000
Net increase in cash 9,800
Cash balance at beginning period 0
Cash balance at end of the period 9,800