Project report on Financial Statement Analysis and interpretation of A Company

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Financial statement analysis and Interpretation of a company by using Tally and Excel Also.

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Project report on Financial Statement Analysis and interpretation of A Company

  1. 1. 1 | P a g e PROJECT REPORT SUMMER TRAINING ON A FINANCIAL STATEMENT ANALYSIS AND INTERPRETATION OF C.B ENTERPRISES S.D. GUPTA & COMPANY FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF BACHELOR OF COMMERCE UMDER THE SUPERVISION OF UNDER THE SUPERVISION OF Mrs. Unnati Jadaun CA Shobhit Kumar SUBMITTED BY ………… B.com (2015) Enrolment No. 20130544 INSTITUTE OF BUSINESS MANAGEMENT, MANGALAYATAN UNIVERSITY, 33rd KM STONE, ALIGARH MATHURA HIGHWAY, BESWAN ALIGARH
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  3. 3. 3 | P a g e CERTIFICATE OF THE SUPERVISOR This is to certify that the work entitled A Financial statement analysis & interpretation of C.B. ENTERPRISES is a piece of SIP research work done by Ms. Pinkey Rana under my guidance and supervision for the degree of B.COM (Hons.) from Mangalayatan University Aligarh. I certify that the candidate has put 45 days in industry training at S.D.GUPTA & COMPANY. To the best knowledge and belief the report: (i) Embodies the work of the candidate himself. (ii) Has duly been completed. (iii) Fulfills the requirement of the ordinance relating to the B.COM (Hons.) degree of the University and (iv) Up to the standard both in respect of contents and language for being referred to the examiner. Signature of the Supervisor Date
  4. 4. 4 | P a g e ACKNOWLEDGEMENT "I have taken efforts in this internship. However, it would not have been possible without the kind support and help of many individuals and organizations. I would like to extend my sincere thanks to all of them. I am highly indebted to Mrs. Unnati Jadaun for their guidance and constant supervision as well as for providing necessary information regarding the internship & also for their support in completing the internship. I would like to express my gratitude towards my parents & member of S.D.GUPTA & COMPANY for their kind co-operation and encouragement which help me in completion of this internship. I would like to express my special gratitude and thanks to CA Shobhit Kumar for giving me such attention and time.
  5. 5. 5 | P a g e PREFACE This Project Report has been prepared in partial fulfillment of the requirement for the subject: the Summer Internship programme on the topic A Financial statement analysis and interpretation of C.B ENTERPRISES in B.COM (HONS.) 4th Sem. in the academic year 2014-2015. For preparing the Project Report, I have completed my Internship from S.D.GUPTA & COMPANY under the CA Shobhit Kumar during the suggested duration for the period of 45 days to enhance my knowledge. The blend of learning and knowledge acquired during my Summer Internship atthe company is presented in this Project Report. The rationale behind doingSummer Internship and preparing the project report is to studyA FinancialStatement Analysisand Interpretation, what is company, what isFinancialstatement, whyAnalysis ofstatement is necessary for a company, ratio analysis and how does it help to get liquidity position liquidity position and how does it helpful of Investors for taking investing decision and Use oftally for maintain company account.
  6. 6. 6 | P a g e ABSTRACT 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 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 analyze and interpret the financial statements of a company. OBJACTIVE:  To understand, analyze and interpret the basic concepts of financial statements of different mining companies.  Interpretation of financial ratios and their significance.  Use of Tally 9.0 package for the analysis and interpretation of financial statements of mining companies. This project mainly focuses in detail the basic types of financial statements of different companies and calculation of financial ratios. Ratio analysis of C.B.ENTERPRISES was done. Tally 9.0 was used for preparation of balance sheet, profit & loss statements and estimation of few financial ratios of selected companies. Profit & Loss Statements of companies were not calculated as Tally 9.0 has limitations in processing the data that was available. However, only
  7. 7. 7 | P a g e 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. From ratio analysis of Balance Sheet and P & L Statement of C.B.ENTERPRISES of 2013-15 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. In this project, comparison of different ratios viz. current ratio, debt-equity ratio, net profit margin and return on investment of all the above e companies has been done for the period 2013- 15.It was observed that current ratio of C.B.ENTERPRISES was always more than 1 from 2013- 15which indicates that liquidity position of the company was good. Debt-Equity ratio of C.B.ENTERPRISE increased in 2013-15 which the debts have been cleared. Return on Investment of C.B.ENTERPRISES increased from 44.20% to 48.72% in Two years.
  8. 8. 8 | P a g e CONTENTS Sl. No. Title Page No. Chapter -01 INTODUCTION 1.1 S.D.GUPTA & COMPANY 14 1.2 A Financial Statement Analysis and Interpretation 14 1.3 Objectives 15 Chapter-02 FINANCIAL STATEMENTS 16 2.1 Balance Sheet 17 2.1.1 Format of Balance Sheet 18 2.1.2 Contents of Balance Sheet 20 2.2 Profit and loss statements 25 2.2.1 Format of Profit and Loss Statement 26 2.2.2 Contents of Profit and Loss Statement 27 2.3 FINANCIAL RATIOS 2.3.1 Objectives 29 2.3.2 Financial Ratios And Their Interpretation 30 Chapter-03 FINANCIAL RATIO ANALYSIS: CASE STUDY 3.1 Ratio Analysis of C.B ENTERPRISES 3.1.1 Balance sheet of C.B.ENTERPRISES for 2014 39 3.1.2 Balance sheet of C.B.ENTERPRISES for 2015 40 3.1.3 Profit & Loss Statement for 2014 42 3.1.4 Profit & Loss Statement for 2015 44 3.1.5 Ratio Analysis for 2014 46 3.1.6 Ratio Analysis for 2015 50 3.1.7 Summary for Balance sheet and profit & loss statement 53 3.2 RATIO ANALYSIS USING TALLY 9.0 54
  9. 9. 9 | P a g e 3.2.1 Balance Sheet and Ratio Analysis for 2014 55 3.2.2 Balance Sheet and Ratio Analysis for 2015 56 Chapter-04 VARIATION OF FINACIAL RATIOS S.B ENTERPRISES 57 Chapter-05 COMPRATIVE STATEMENT 5.1 Income Statement 61 5.2 Balance Sheet 62 FINDINGS 63 CONCLUSION 64 RECOMMENDATIONS 66 LIMITATIONS 68 BIBLIOGRAPHY 69
  10. 10. 10 | P a g e LIST OF TABLES Sl. No. Title Page No. Table2.1 Balance Sheet Statement 18 Table2.2 Profit & Loss Statement 26 Table2.3 Different Financial Ratio 30 Table3.1 Balance Sheet of C.B ENTERPRISES,2014 39 Table3.2 Balance Sheet of C.B ENTERPRISES,2015 40 Table3.2 Profit & Loss Statement of C.B ENTERPRISES ,2014 42 Table3.3 Profit & Loss Statement of C.B ENTERPRISES. 2015 44 Table3.4 Analysis of Financial Ratio for 14 46 Table3.5 Analysis of Financial Ratio for 15 50 Table3.7 Summary of Balance Sheet 53 Table3.8 Summary of Profit & Loss Statement 54 Table5.1 Comparative Income Statement 61 Table5.2 Comparative Balance Sheet 62
  11. 11. 11 | P a g e LIST OF FIGURES Fig.3.1 Balance Sheet,2014 55 Fig.3.2 Ratio Analysis of C.B.ENTERPRISES for 2014 55 Fig.3.3 Balance Sheet,2015 56 Fig.3.4 Ratio Analysis of C.B ENTERPRISES for 2015 56 Fig.4.1 Current Ratio 57 Fig.4.2 Working Capital Ratio 57 Fig.4.3 Quick Ratio 58 Fig.4.4 Debt- equity Ratio 58 Fig.4.5 Inventory Turnover Ratio 58 Fig.4.6 Return On Assets 59 Fig.4.7 Return on Investment 59 Fig.4.8 Gross Profit Ratio 59 Fig.4.9 Net Profit Ratio 60 Fig.4.10 Return On Working Capital 60 Fig.4.11 Operating CostRatio 60
  12. 12. 12 | P a g e EXECUTIVE SUMMARY Subject Matter: This Project report provides an analysis and interpretation of the year 2013-14 and 2014-15 profitability, liquidity and financial stability of C.B.ENTERPRISES. Methods of Analysis: Methods of analysis include horizontal and vertical analyses as well as ratios such as Debt, Current and Quick ratios. Other calculations include rates of return on Shareholders’ Equity and Total Assets and earnings before interest & Tax to name a few. Many other calculation of can be found in this project. Findings: Results of data analyzed show that all ratios are below industry averages. In particular, comparative performance is poor in the areas of profit margins, liquidity, credit control, and inventory management.  Assets have decreasing due to investment is decreasing.  Liquidity Position is good.  Purchase has decreased by 37.58%  COGS has decreased by 46.17%  Sales have decreased by 29.47%  Gross Profit has decreased by 45.79%  Net profit has decreased by 33.22% Conclusion: The report finds the prospects of the company in its current position are not positive. The major areas of weakness require further investigation and remedial action by management. Recommendations: Recommendations discussed include:  Improving the average collection period for accounts receivable·  Improving/increasing inventory turnover·
  13. 13. 13 | P a g e  Reducing prepayments and perhaps increasing inventory levels.  Increase in purchase and Production activity. Limitations of the report: three problems involved in such report are: a) That firms use different accounting principles and methods. b) That it is often difficult to define what industry and firm is really a part of and c) That accounting principles varies among countries
  14. 14. 14 | P a g e CHAPTER- 01 INTRODUCTION 1.1S.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, 1.2 A FINANCIAL STAMENT ANALYSIS & INTERPRETATION: Financial statements are records that provide an indication of the organization’s financial status. It quantitatively describes the financial health of the company. It helps in the evaluation of company’s prospects and risks for the purpose of making business decisions. 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. They give an accurate picture of a company’s condition and operating results in a condensed form. Reported assets, liabilities and equity are directly related to an organization's financial position whereas reported income and expenses are directly related to an organization's financial performance. Analysis and interpretation of financial statements helps in determining the liquidity position, long term solvency, financial viability, profitability and soundness of a firm. There are four basic types of financial statements: balance sheet, income statements, cash flow statements, and statements of retained earnings.
  15. 15. 15 | P a g e The analysis of financial statement is a process of evaluating the relationship between component parts of financial statement to obtain a better understanding of firm financial position. Analysis is a process of critically examining the accounting information given in financial statements. For the purpose of analysis, individual items are studied; their interrelationship with other related figures is established. Thus analysis of financial statement refer to treatment of information contain in financial statement in a way so as to afford a full diagnosis of the profitably and financial position of the firm concern. An attempt has been carried out in this project to analyze and interpret the financial statements of C.B ENTERPRISES. 1.3 OBJECTIVE  To understand, analyze and interpret the basic concepts of financial statements of a company.  Interpretation of financial ratios and their significance.  Use of Tally 9.0 package for the analysis and interpretation of financial statements of C.B ENTERPRISES.  To know about Liquidity Position  To Know about Long- Term Solvency  To Know about Operating Efficiency  To know about Over-All Profitability  To Know About Inter- firm Comparison This project mainly focuses in detail the basic types of financial statements of C.B ENTERPRISES and calculation of financial ratios. Ratio analysis of C.B ENTRPRISES was done.
  16. 16. 16 | P a g e CHAPTER -02 FINANCIAL STATEMENTS Financial statements (or financial reports) are formal records of the financial activities of a business, person, or other entity. 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. The analysis of financial statement is a process of evaluating the relationship between component parts of financial statement to obtain a better understanding of firm financial position. A complete set of financial statement comprises: 1) A statement of financial position as at the end of the period: 2) A statement of comprehensive income for the period; 3) A statement of changes in equity for the period: 4) A statement of cash flow for the period. 5) Notes of Account comprising a summary of significant accounting policies and other explanatory information. There are four basic financial statements: 1. Balance sheet: It is also referred to as statement of financial position or condition, reports on a company's assets, liabilities, and ownership equity as of a given
  17. 17. 17 | P a g e point in time. The Balance Sheet shows the health of a business from day one to the date on the balance sheet. 2. Income statement: It is also referred to as Profit and Loss statement (or "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. The income statement shows a presentation of the sales, the main expenses and the resulting net income over the period. Net income is based on accounting principles which gives guidance/rules on when to recognize revenues and expenses, whereas cash from operating activities, obviously is cash based. 3. Statement of Retained Earnings: It explains the changes in a company's retained earnings over the reporting period. The statement of retained earnings shows the breakdown of retained earnings. Net income for the year is added to the beginning of year balance, and dividends are subtracted. This results in the end of year balance for retained earnings. 4. Cash Flow Statement: It reports on a company's cash flow activities, particularly its operating, investing and financing activities. The statement of cash flows the ins and outs of cash during the reporting period. The statement of cash flows takes aspects of the income statement and balance sheet and kind of crams them together to show cash sources and uses for the period. 2.1 BALANCE SHEET In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances. A balance sheet is often described as a snapshot of a company's financial condition. It summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time.
  18. 18. 18 | P a g e A company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company. It's called a balance sheet because the two sides balance out. A typical format of the balance sheet has been given in Table 2.1. It works on the following formula: Assets = Liabilities + Shareholders' Equity 2.1.1 FORMAT OF BALANCE SHEET Table 2.1: Balance Sheet of C.B.ENTERPRISES LIABILITIES 1.Share Capital Equity Share Capital 2. Reserves & surpluses Capital Reserve General Reserve Security Premium Account Capital Redemption Reserve 3. Secured Loans Debentures Loan from Bank Long Term Loan Other Secured Loans 4.Unsecured Loans Fixed Deposit Short Term Loans
  19. 19. 19 | P a g e Other Loans 5.Current Liabilities & Provisions A) Current Liabilities Bills Payable Sundry Creditors Bank Overdraft Other Liabilities (if any) B) Provisions Provision for Tax Proposed Dividend Other Provision TOTAL ASSETS 1.Fixed Assets Goodwill Land Building Leaseholds Plant & Machinery Furniture Trade marks Patents Vehicle 2.Investment 3.Current Assets, Loan and Advances A) Current Assets Sundry Debtors
  20. 20. 20 | P a g e Bills Receivables Closing Stock Interest on Investment Cash at Bank Cash on Hand Securities Deposit Fixed Deposit with Banks B) Loans and Advances Prepaid Expenses Tax Paid in Advance Advances Paid 4.Miscellaneous Expenditure Preliminary Expenses Revenue Expenditures Discount Allowed 5. Profit & Loss account TOTAL 2.1.2 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.
  21. 21. 21 | P a g e 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 There is two major type of assets: · Tangible assets · 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
  22. 22. 22 | P a g e 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 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 progress indicates
  23. 23. 23 | P a g e any good that is not considered to be a final product, but must still be accounted for because funds have been invested toward its production. III. Investments  Shares and Securities, such as bonds, common stock, or long-term notes  Associate Companies  Fixed deposits with banks/finance companies  Investments in special funds (e.g., sinking funds or pension funds).  Investments in fixed assets not used in operations (e.g., land held for sale). 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  House building advance  Car, scooter, computer etc. advance  Multipurpose advance  Transfer travelling allowance advance  Tour travelling allowance advance  DRS payment. V. Reserves  Subsidy Received From The Govt.  Development Rebate reserve  Issue of Shares at Premium  General Reserves (B) Liability
  24. 24. 24 | P a g e 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 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:  Accrued expenses as wages, taxes, and interest payments not yet paid  Accounts payable  Short-term notes  Cash dividends and  Revenues collected in advance of actual delivery of goods or services. 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 opening of a business, major expansion of a business, replace assets, ormake a purchase of significant assets. These liabilities are reasonably expected not to be liquidated within a year. It includes:  Notes payable- debt issued to a single investor.  Bonds payable – debt issued to general public or group of investors.  Mortgages payable.  Capital lease obligations – contract to pay rent for the use of plant, property or equipments.  deferred income taxes payable, and  Pensions and other post-retirement benefits.
  25. 25. 25 | P a g e 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 of 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. 2.2 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, which
  26. 26. 26 | P a g e represents a single moment in time. A typical format of the Profit & Loss Statement has been given in Table 2.2. 2.2.1 FORMAT OF PROFIT & LOSS STATEMENT Table 2.2: Profit & Loss Statement of C.B.ENTERPRISES PARTICULARS Amount PARTICULARS Amount Gross Profit(Transferred) Gross Profit(Transferred) Office and Administration Exp: Interest received Salaries Rent received Rent Discount received Postage & telegrams Dividend received Office electric charges Bad debts recovered Telephone charges Provision for discount on creditors Printing and stationary Provision for discount on creditors Selling and Distribution Expenses: Carriage outward Advertisement Salesmen's salaries Commission Insurance Traveling expense Bad debts Packing expense
  27. 27. 27 | P a g e Financial and Other Expenses: Depreciation Repair Audit fee Interest paid Commission paid Bank charges Legal charges Profit before Interest Net loss Less- Net Interest Profit before Tax Less- Tax Payable Profit after Tax Less- Dividend Retained Profit 2.2.2 CONTENTS OF PROFIT & LOSS STATEMENT 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
  28. 28. 28 | P a g e 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 some time 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:  Costs of raw materials stocks  Costs of inward-bound freight paid by the company  Packaging costs  Direct production salaries and wages  Production expenses, including depreciation of trading-related fixed assets. (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’. These comprises of costs like:  Distribution costs and selling costs,  Administration costs, and  Research and development costs (unless they relate to specific projects and the costs may be deferred to future periods). (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.
  29. 29. 29 | P a g e (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 (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.
  30. 30. 30 | P a g e 2.3 FINANCIAL RATIOS 2.3.1 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: 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. 2.3.2 FINANCIAL RATIOS AND THEIR INTERPRETATION
  31. 31. 31 | P a g e Table 2.3: Different FinancialRatios Sl. No. CATEGORY TYPE OF RATIO ITNERPRETATION 1. Liquidity Ratio Net Working Capital = Current assets-current liabilities  It measures the liquidity of a firm. Current ratio = Current Assets Current Liabilities  It measures the short term liquidity of a firm. A firm with a higher ratio has better liquidity.  A ratio of 2:1 is considered safe. Acid test or Quick ratio = Quick assets Current Liabilities  It measures the liquidity position of a firm.  A ratio of 1:1 is considered safe. 2. Turnover Ratio Inventory Turnover ratio = Costs of goods sold Average inventory  This ratio indicates how fast inventory is sold.  A firm with a higher ratio has better liquidity. Debtor Turnover ratio = Net credit sales Average debtors  This ratio measures how fast debts are collected.  A high ratio indicates shorter time lag
  32. 32. 32 | P a g e between credit sales and cash collection. Creditor’s Turnover ratio = Net credit purchases Average Creditors  A high ratio shows that accounts are to be settled rapidly 3. Capital Structure Ratios Debt-Equity ratio = Long term debt Shareholder’s Equity  This ratio indicates the relative proportions of debt and equity in financing the assets of a firm.  A ratio of 1:1 is considered safe. Debt to Total capital ratio = Long term debt Permanent Capital Or Total debt Permanent capital + Current liabilities Or Total Shareholder’s Equity Total Assets  It indicates what proportion of the permanent capital of a firm consists of long- term debt.  A ratio 1:2 is considered safe.  It measures the share of the total assets financed by outside funds.  A low ratio is desirable for creditors.  It shows what portion of the total assets is
  33. 33. 33 | P a g e financed by the owners’ capital.  A firm should neither have a high ratio nor a low ratio. 4. Coverage ratios Interest Coverage = Earnings before interest and tax Interest   A ratio used to determine how easily a company can pay on outstanding debt.  A ratio of more than 1.5 I satisfactory Dividend Coverage = Earnings after tax Preference Dividend  It measures the ability of firm to pay dividend on preference shares.  A high ratio is better for creditors. Total Coverage ratio = Earning before interests and tax Total Fixed charges  It shows the overall ability of the firm to fulfill the liabilities.  A high ratio indicates better ability. 5. Profitability ratios Gross Profit margin = Gross profit * 100 Sales  It measures the profit in relation to sales.  A firm should neither have a high ratio nor a low ratio.  It measures the net
  34. 34. 34 | P a g e Net Profit margin = Net Profit after tax before interest Sales Or Net Profit after Tax and Interest Sales Or Net profit after Tax and Interest Sales profit of a firm with respect to sale.  A firm should neither have a high ratio nor a low ratio. 6. Expenses ratios Operating ratio = Cost of Goods sold + other expenses  Operating ratio shows the operational efficiency of the business.  Lower operating ratio shows higher operating profit and vice versa . sales Cost of Goods sold ratio = Cost of Goods sold Sales  It measures the cost of goods sold per sale Specific Expenses ratio = Specific Expenses Sales  It measures the specific expenses per sale. 7. Return on Investments Return on Assets (ROA) = Net Profit after Taxes * 100 Total Assets Or (Net Profit after Taxes +interest)  It measures the profitability of the total funds per investment of a firm.
  35. 35. 35 | P a g e *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) = (Net Profit after Taxes) * 100 total capital employed Or (Net Profit after Taxes + Interest) *100  It measures profitability of the firm with respect to the total capital employed.  The higher the ratio, the more efficient use of capital employed. Total Capital Employed
  36. 36. 36 | P a g e Or (Net Profit after Taxes + Interest) * 100 Total Capital Employed - intangible assets Return on Total Shareholders’ Equity = Net Profit after Taxes * 100 Total shareholders’ equity  It reveals how profitably the owner’s fund has been utilized by the firm. Return on Ordinary shareholders equity = Net profit after taxes and Pref. dividend *100  It determines whether the firm has earned satisfactory return for its equity holders or not. Ordinary Shareholders’ Equity 8. Shareholder’s ratios Earnings per Share (EPS) = Net Profit of Equity holders  It measures the profit available to the equity holders on a per share basis. Number of Ordinary Shares Dividend per Share (DPS) = Net profits after interest and preference dividend paid to ordinary shareholders Number of ordinary shares outstanding  It is the net distributed profit belonging to the shareholders divided by the number of ordinary shares  It shows what
  37. 37. 37 | P a g e Dividend Payout ratio (D/P) = Total Dividend To Equity holders Total net profit of equity holders Or Dividend per Ordinary Share Earnings per Share percentage share of the net profit after taxes and preference dividend is paid to the equity holders.  A high D/P ratio is preferred from investor’s point of view. Earnings per Yield = Earnings per Share Market Value per Share  It shows the percentage of each rupee invested in the stock that was earned by the company. Dividend Yield = Dividend per share Market Value per share  It shows how much a company pays out in dividends each year relative to its share price. Price- Earnings ratio (P/E) = Market value per Share Earnings per Share  It reflects the price currently paid by the market for each rupee of EPS.  Higher the ratio better it is for owners Earning Power = Net Profit after taxes Total Assets  It measures the overall profitability and operational efficiency of a firm  It measures how
  38. 38. 38 | P a g e 9. Activity Ratios Inventory turnover = Sales Closing Inventory quickly inventory is sold.  A firm should neither have a high ratio nor a low ratio. 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 = Cost of Goods manufactured Average Work in Process Inventory  It shows how quickly current assets that are receivables or debtors are converted to cash.  A firm should neither have a high ratio nor a low ratio. 10. Assets Turnover Ratios Total Assets turnover = Cost of Goods Sold Total Assets  It measures the efficiency of a firm in managing and utilizing its assets.  Higher the ratio, more efficient is the firm in utilizing its assets. Fixed Assets turnover = Cost of Goods Sold Fixed Assets
  39. 39. 39 | P a g e Capital turnover = Cost of Goods Sold Capital Employed Current Assets turnover = Cost of Goods Sold Current Assets CHAPTER- 03 FINANCIAL RATIO ANALYSIS The ratio analysis of C.B ENTERPRISES from 2012-14 has been carried out below. 3.1 RATIO ANALYSIS 3.1.1 Balance Sheet of C.B ENTERPRISES for 2014 Table 3.1: Balance Sheet of C.B.ENTERPRISES as at 31st Mar -2014 PARTICULARS Amount Total Amount Source of Funds: Capital Account 634,506.05 Sunil's Capital 875860.05 Less- Credit card HDFC 50,489.00 Donation 2,502.00 Drawings 109053 LIC 54,860.00
  40. 40. 40 | P a g e 3.1.2 Balance Sheet of C.B. ENTERPRISES for 2015 Table 3.2: Balance Sheet of C.B.ENTERPRISE as at 31st Mar -2015 School fees 24,450.00 Loans (Liability) 1851845.9 Bank od A/C 859142.95 Secured Loans 992702.95 Unsecured Loans Current Liabilities 1,638,085.9 Provision 44,553.00 Sundry Creditors 1570805 Unregistered Tax Payable 65,940.00 less- Duties & Taxes 43,212.15 Profit & Loss A/C 0 Opening balance Current Period 502558.24 less- Transferred 502558.24 Total 4,124,437.8 Application of Funds: Fixed Assets 1579196.65 Car 593850 Mobile 59,773.74 Motor Bike 31,181.65 Plant & Machinery 687189.75 Tata Ace 207201.51 Current Assets 2545241.15 Closing Stock 1035485 Loans & Advances (Assets) 53,073.00 Sundry Debtors 1425712.6 Cash in Hand 24869.00 Bank Accounts 6101.48 Total 4124437.8
  41. 41. 41 | P a g e PARTICULARS Amount Total Amount Source of Funds: Capital Account 353,181.05 Sunil's Capital 595406.05 Less- Credit card HDFC 12,500.00 Star Health Insurance 9,343.00 Drawings 181362 School fees 39,020.00 Loans (Liability) 1908532.9 Bank od A/C 920609.95 Secured Loans 837922.95 Unsecured Loans 150000 Current Liabilities 2,493,868.57 Provision 76,703.00 Sundry Creditors 2385328.5 Unregistered Tax Payable 65,940.00 less- Duties & Taxes 34,102.93 Profit & Loss A/C 3355599.45 Opening balance Current Period 3355599.45 Total 50,91,181.97 Application of Funds: Fixed Assets 1,352,287.87 Car 504772.5 Mobile 53,842.29 26,504.40Motor Bike Plant & Machinery 584111.4 LCD Monitor 6936 Tata Ace 176121.28 Current Assets 3738894.1
  42. 42. 42 | P a g e Closing Stock 1235091 Loans & Advances (Assets) 35,642.00 Sundry Debtors 917360.62 Cash in Hand 1544699.00 Bank Accounts 6101.48 Total 5091181.97 3.1.3 Profit &loss Table 3.3: Profit & Loss Statement as per the year Ending of 31st Mar, 2014 Particulars Amount Amount Trading Account: Sales Account 5104025.95 Sales Ag. E Form 450887 Sales Ag. H Form 420469.5 Sales central Tax 5% 1701502 Sales Tax Invoice 5% 2531167.45 Direct Incomes 1566780 Work Contract Received 1566780 6670805.95 Cost of Sales 4358261.6 Opening Stock 343079 Add: Purchase Accounts 4068867.2 Less: Closing Stock 1035485 3376461.2 Direct Expenses 981800.4 Cartage Inward 342534 Job Work Paid Power& Fuel Exp. 302586.4 336680 Gross Profit 2312544.35
  43. 43. 43 | P a g e Income Statement: Indirect Incomes 644.32 Cartage Outward Interest 644.32 2313188.67 Indirect Exp. 1810630.43 Accounting Charges 15000 Advertising Exp. 16120 Audit Fees 10000 Bank Charges 12556.54 Business Promotion Exp. 15840 Commission Exp. 9680 Convince Exp. 71842 Depreciation 239417.59 Factory Rent 275000 Festival Exp. 77425 Interest on Tata Ace Loan 42290.94 Interest On C.C limit 85655.96 Interest On Term Loan 44465.7 Insurance 14832 Legal & Professional Charges 23000 Postage& Currier Exp. 1872 Printing & Stationary Exp. 12134 Repair & Maintenance Of Building 54670 Repair & Maintenance Exp. 43700.29 Salaries 412633 Short & Excess 0.66 Staff Welfare 56450 Telephone Exp. 41488.75 Traveling Exp. 65670
  44. 44. 44 | P a g e Vehicle Running & Maintenance 168886 Nett Profit: 502558.24 3.1.4 Profit & Loss Statement for 2015 Table 3.4: Profit & Loss Statement as per the year Ending of 31st Mar, 2015 Particulars Amount Amount Trading Account: Sales Account 3599918 Sales Ag. D Form 139550 Sales Ag. E Form 667113 Sales Tax Invoice 5% 2793255 Direct Incomes 3599918 Cost of Sales 2346186.55 Opening Stock 1035485 Add: Purchase Accounts 2539552.55 Less: Closing Stock 1235091 2339946.55 Direct Expenses 6240 Cartage Inward 2210 Job Work Paid 4030 Gross Profit 1253731.45 Income Statement: Indirect Incomes 1253731.45 Indirect Exp. 918132.03 Accounting Charges 13750
  45. 45. 45 | P a g e Advertising Exp. 9752 Audit Fees 12500 Bank Charges 10752 Business Promotion Exp. 7524 Cartage Outward (-)2187.75 Commission Exp. 6582 Company Insurance 14621 Convince Exp. 9850 Depreciation 238638.78 Donation (Charity) 1401 Factory Rent 120000 Festival Exp. 12580 Interest on Tata Ace Loan Interest Aon VAT 20992 154 Interest On C.C limit 115379 Legal & Professional Charges 9852 Office Exp. 1880 Printing & Stationary Exp. 9782 Salaries 245864 Short & Excess (-)5 Staff Welfare 2356 Telephone Exp. 15710 Toll Tax (Octory) 180 Vehicle Running & Maintenance 40145 Weighting & Measurement 80 Nett Profit: 335599.42
  46. 46. 46 | P a g e 3.1.5 Ratio analysis for 2014 Table 3.5: Analysis of Financial Ratios for 2014 Sl. No. RATIOS PARTICULARS VALUE REMARKS 1. Working Capital = Current assets-Current liabilities Current Assets = 2545241.15 Current Liabilities = 1638085.90 907155.25 Liquidity position is good. 2. Current Ratio = Current Assets Current Liabilities Current Assets = 2545241.15 Current Liabilities = 1638085.90 1.55:1 It is safe. 3. Acid test or Quick ratio = Liquid Assets Liquid Liabilities liquid Assets = 1509756.15 Current Liabilities = 1638085.90 0.92:1 It is not good. 4. Debt-Equity Ratio = Long term debt Capital A/C+ Net Profit Long term debt =1851845.90 Capital A/C = 634506.05 Net Profit= 502558.24 1.63:1 It is safe 5. Return On Investment Ratio = Net Profit*100 Capital a/c+ Net Profit Net Profit 502558.24 Capital A/C 634506.05 44.20% It is good
  47. 47. 47 | P a g e 6. Gross Profit Ratio = Gross Profit * 100 Sales Gross Profit= 2312544.35 Sales= 5104025.95 45.31% It is not satisfactory 7. Net Profit Ratio = Net Profit * 100 Sales Net Profit = 502558.24 Sales= 5104025.95 9.84% It is not satisfactory 8. Return on Assets Ratio = Net Income*100 Fix. Assets+Net WorkingCapital Net Income 502528.24 Fix. Assets= 1579196.65 Net Working Capital= 907155.25 20.21% It is not good 9. Return on working capital = Net Profit ∗ 100 Working Capital Net profit= 502558.24 Net Working capital= 907155.25 55.40% It is good 10. Cost of Goods Sold Ratio = Cost of Goods Sold*100 Sales Cost of goods sold= 4358261.6 Sales= 5104025.95 85.38 It is not satisfactory 11. Operating Cost Ratio = COGS+ Operating Exp.*100 Net Sales COGS= 4358261.6 Operating Exp.= 1810630.43 Sales= 5104025.95 120.86 It is so high
  48. 48. 48 | P a g e  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 12. Fixed Assets turnover = Sales a/c Fixed Assets Sales a/c= 5104025.95 Fixed Assets= 1579196.65 3.23 It is not safe 13. Working Capital Turnover= Sales a/c working Capital Sales= 5104025.95 Working Capital= 907155.25 5.63 It is safe 14. Inventory Turnover= Sales a/c Closing stock Sales= 5104025.95 Closing Stock= 1035485 4.93 It is not good
  49. 49. 49 | P a g e  Earnings before Interest & Tax (EBIT) OR Operating Profit = Net Profit + Tax + Interest = 502558.24+ 644.32 = 503202.56  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
  50. 50. 50 | P a g e 3.1.6 Ratio analysis for 2015 Table 3.6: Analysis of Financial Ratios for 2015s Sl. No. RATIOS PARTICULARS VALUE REMARKS 1. Working Capital = Current assets-Current liabilities Current Assets = 3738894.1 Current Liabilities = 2493868.57 1245025.53 Liquidity position is good 2. Current Ratio = Current Assets Current Liabilities Current Assets = 3738894.1 Current Liabilities = 2493868.57 1.50:1 It is safe 3. Acid test or Quick ratio = Liquid Assets Liquid Liabilities liquid Assets = 2503803.1 Current Liabilities = 2493868.57 1.00:1 It is good 4. Debt-Equity Ratio = Long term debt Capital A/C+ Net Profit Long term debt = 1908532.90 Capital A/C = 353181.05 Net Profit= 335599.45 2.77:1 It is safe 5. Return On Investment = net Profit*100 Capital a/c + Net Profit Net Profit= 335599.45 Capital a/c= 353181.05 48.72% It is good
  51. 51. 51 | P a g e 6. Gross Profit Ratio = Gross Profit * 100 Sales Gross Profit= 1253731.45 Sales= 3599918 34.83% It is not satisfactory 7. Net Profit Ratio = Net Profit * 100 Sales Net Profit = 335599.42 Sales= 3599918 9.32% It is not satisfactory 8. Return on Assets = Net Income*100 Fix. Assets Net + Working Capital Net Income= 335599.45 Fix. Assets= 1352287.87 Working Capital= 1245025.53 12.92% It is not good 9. Return on working capital = Net Profit ∗ 100 Working Capital Net profit= 335599.45 Net Working capital= 1245025.53 26.96% It is not good 10. Cost of Goods Sold Ratio = Cost of Goods Sold*100 Sales Cost of goods sold= 2346186.55 Sales= 3599918 65.17 It is not satisfactory 11. Operating Cost Ratio = COGS + Operating Exp.*100 Net Sales COGS= 2346186.55 Operating Exp.= 918132.03 Sales= 3599918 90.67% It is so high 12. Fixed Assets turnover = Sales a/c Fixed Assets Sales a/c= 3599918 Fixed Assets= 2.66 It is not safe
  52. 52. 52 | P a g e 1352287.87 13. Working Capital Turnover= Sales a/c working Capital Sales= 3599918 Working Capital= 1245025.53 2.89 It is safe 14. Inventory Turnover= Sales a/c Closing stock Sales= 3599918 Closing Stock= 1235091 2.91 It is not good  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
  53. 53. 53 | P a g e  Earnings before Interest & Tax (EBIT) OR Operating Profit = 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 Sheetand Profit & Loss Statement Table 3.7: Summary of Balance Sheet PARTICULARS 2014 2015 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
  54. 54. 54 | P a g e Table 3.8: Summary of Profit & Loss Statement PARTICULARS 2014 2015 Remarks Purchase 4068867.20 2539552.55 Purchase has decreased by 37.58% Costof 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% 3.2 RATIO ANALYSIS USING TALLY 9.0 Tally 9.0 manufactured by Tally Solutions FZ LLC, Dubai, and Tally India Private Limited. It facilitates smooth and error free Excise Accounting for manufacturers and dealers engaged in manufacturing or trading of excisable goods. It is mainly used for the calculation of excise duties, taxes and other transactions. In this project Tally 9.0 is used to compute the balance sheet and the financial ratios of companies that can be obtained from it. However Tally 9.0 has certain limitations. It has been used to calculate only current ratio, quick ratio and debt – equity ratio. In future the version can be modified to calculate other ratios. Preparation of balance sheet and ratio analysis of C.B ENTERPRISES from 2013-15 using Tally 9.0 has been carried out below:
  55. 55. 55 | P a g e 3.2.1 C.B. ENTERPRISES 3.2.1 Balance Sheet and Ratio Analysis For 2014 Fig. 3.1: Preparation of Balance Sheet of C.B.ENTERPRISES Fig. 3.2: Ratio Analysis of C.B.ENTERPRISES
  56. 56. 56 | P a g e 3.2.2 Balance Sheet and Ratio Analysis For 2015 Fig.3.3: Preparation of Balance Sheet of C.B.ENTERPRISES OF 2015 Fig. 3.4: Ratio Analysis of C.B.ENTERPRISES OF 2015
  57. 57. 57 | P a g e CHAPTER -04 VARIATION OF FINANCIAL RATIOS The variation of different financial ratios from 2013-15 of C.B.ENTERPRISES has been shown below: 4.1 C.B.ENTERPRISES Fig.4.1: Current Ratio Fig.4.2: Working Capital 1 2 Series1 907155.25 1245025.53 0 200000 400000 600000 800000 1000000 1200000 1400000 Working Capital 1 2 Series1 1.55 1.5 1.47 1.48 1.49 1.5 1.51 1.52 1.53 1.54 1.55 1.56 Current Ratio
  58. 58. 58 | P a g e Fig.4.3: Quick Ratio Fig.4.4: Debt-Equity Ratio Fig.4.5: Inventory Turnover Ratio 1 2 Series1 1.63 2.77 0 0.5 1 1.5 2 2.5 3 Debt - Equity Ratio 1 2 Series1 0.92 1 0.88 0.9 0.92 0.94 0.96 0.98 1 1.02 Quick Ratio 1 2 Series1 4.93 2.91 0 1 2 3 4 5 6 Inventory Turnover Ratio
  59. 59. 59 | P a g e Fig.4.6: Return on Assets Fig.4.7: Return on Investment Fig.4.8: Gross Profit Ratio 1 2 Series1 20.21% 12.92% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% Return on Assets 1 2 Series1 44.20% 48.72% 41.00% 42.00% 43.00% 44.00% 45.00% 46.00% 47.00% 48.00% 49.00% 50.00% Return on Investment 1 2 Series1 45.31% 34.83% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00% Gross Profit Ratio
  60. 60. 60 | P a g e Fig.4.9: Net Profit Ratio Fig.4.10: Return on Working Capital Fig.4.11: Operating Cost Ratio 1 2 Series1 55.40% 26.96% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% Return on Working Capital 1 2 Series1 120.86% 90.67% 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00% 140.00% Operating Cost Ratio 1 2 Series1 9.84% 9.32% 9.00% 9.20% 9.40% 9.60% 9.80% 10.00% Net Profit Ratio
  61. 61. 61 | P a g e CHAPTER-05 COMPRATIVE STATEMENTS Table: 5.1 COMPARATIVE INCOME STATEMENT Particulars Previous Year Current Year Absolute Change Percentage change Sales Less- Cost of Goods Sold 5104025.95 4358261.6 3599918 2346186.55 -1504107.95 -2012075.05 -29.47% -46.17% Operating Profit Add- Other Income 745764.35 1566780 1253731.45 - 507967.1 -1566780 68.11% -100% Gross Profit Less-Operating Exp. 2312544.35 1810630.43 1253731.45 918132.03 -1058812.9 -63667.97 -45.79% -3.52% Earnings Before Interest & Tax Add- Interest 501913.92 644.32 335599.45 0 -167603.11 -644.32 -33.39% -100% Profit 502558.24 335599.45 -166958.79 -33.22%  Percentage Change = Absolute Change Figures of the previous year
  62. 62. 62 | P a g e Table: 5.2 Comparative Balance SheetofC.B. ENTERPRISES Particulars Pervious Year Current Year Absolute Change Percentage 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%
  63. 63. 63 | P a g e 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%
  64. 64. 64 | P a g e 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 analyze 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 C.B.ENTERPRISES 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 take 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 C.B.ENTERPRISES have been studied. From ratio analysis of Balance Sheet and P & L Statement of C.B.ENTERPRISES of 2013-15 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. Tally 9.0 is used for analyzing the balance sheet and profit & loss statements of a company and calculating the financial ratios. In this project Tally 9.0 is used to prepare the balance sheet and calculate the financial ratios of different companies. Profit & Loss Statements of companies were not calculated as Tally 9.0 has limitations in processing the data that was available. However,
  65. 65. 65 | P a g e 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.
  66. 66. 66 | P a g e RECOMMENDATION 8.1 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 over the years. So I suggested that the firm maintain proper liquid funds like cash and bank balance  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, analyzed 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.
  67. 67. 67 | P a g e  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 need 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 analyze 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.
  68. 68. 68 | P a g e 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 labor, 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.
  69. 69. 69 | P a g e 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 C.B.ENTERPRISES WEBSITES www.google.com

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