Financial performance Analysis is a method of reviewing and analyzing a company’s

accounting reports (financial statements) in order to gauge its past, present or projected future
performance. This process of reviewing the financial performance allows for better economic
decision making.

A company’s financial performance, therefore is normally judged by a series of

ratios or figures, however there are following three ratio parameters which can be
used to evaluate financial performance, they are:

a) Ratio analysis

b) Trend analysis

The parameters are discussed in detailed along with various other ratios. However,
it is to be noted that fundamentally, the balance sheet indicates the financial position
of the company as on that point of time. However, profit and loss account is a
statement, which is prepared for a particular financial year.
There has been a considerable debate about the ultimate objective of firm
performance, whether it is profit maximization or wealth maximization. It is
observed that while considering the firm performance, the profit and wealth
maximization are linked and are effected by one-another.

Published financial performance are the only source of information about the activities and
affairs of a business entity available to the public, shareholders, investors and creditors, and the
governments. These various groups are interested in the progress, position and prospects of
such entity in various ways. But these statements howsoever, correctly and objectively
prepared, by themselves do not reveal the significance, meaning and relationship of the
information contained therein. For this purpose, financial statements have to be carefully
studied, dispassionately analyzed and intelligently interpreted. This enables a forecasting of the
prospects for future earnings, ability to pay interest, debt maturities both current as well as
long-term, and probability of sound financial and dividend policies. According to Myers,
“financial statement analysis is largely a study of relationship among the various financial
factors in business as disclosed by a single set of statements and a study of the trend of these
factors as shown in a series of statements”

Thus, analysis of financial performance refers to the treatment of information contained in the
financial performance in a way so as to afford a full diagnosis of the profitability and financial
position of the firm concerned.

The process of analyzing financial statements involves the rearranging, comparing and
measuring the significance of financial and operating data. Such a step helps to reveal the
relative significance and effect of items of the data in relation to the time period and/or between
two organizations.

Interpretation, which follows analysis of financial statements, is an attempt to reach to logical

conclusion regarding the position and progress of the business on the basis of analysis. Thus,
analysis and interpretation of financial statements are regarded as complimentary to each other.

Non-Banking Financial Companies (NBFCs) are the companies involved in financing activities
such as giving loans, charging interest and lending etc. So far classification of NBFC is
concerned; with effect from December 6, 2006 the above NBFCs, registered with RBI have
been classified as Asset Finance Company (AFC), Investment Company (IC), and Loan
Company (LC). The scope of the study encompasses with two categories of NBFCs namely
AFCs and ICs. The principal objective of the study is to make a comparative analysis of the
financial performance of selected investment and assets finance companies. To compare the
selected performance indicators (ROA, ROCE, ROE, DE RATIO, NPR and CR) separately
between selected ICs (company-wise) and AFCs (company-wise) and to compare selected
performance indicators jointly between selected ICs (company-wise) and AFCs (company-
wise) for each individual year, Kruskal-Wallis test have been employed. The study concluded
that there is no difference between the financial performances of each category of NBFCs apart
from their nature of activities under their respective categories.