financial statement's analysis


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financial statement's analysis

  2. 2. INTRODUCTION Industry profile Worldwide, the auto parts manufacturing industry generates about $1 trillion in annual revenue. Economic expansion in emerging markets is expected to drive healthy growth in the auto manufacturing sector over the next several years, which should bolster demand for auto parts .Companies in this industry manufacture automobile parts, including transmission and power train components, engines and engine parts, body parts and trim, electronics, braking systems, and steering and suspension components. Demand for auto parts is driven by new car sales, which are strongly affected by interest rates, and by the replacement market. Company profitability depends partly on the difficulty of manufacturing products and partly on demand volume, since many costs are fixed. Small companies can compete successfully by focusing on a small number of products or some highly technical ones. Over the years, Indian Auto Spare Parts sector has witnessed a slow yet steady growth.
  3. 3. Company profile Our Chairman, Mr. J. L. Mehta, founded the Century Group in 1999. He began with a small team and the vision of becoming a leading player in the automotive components industry. His pioneering efforts have culminated into the Century Group becoming a diversified, customer oriented, multi- product and multi-location organization. Today, it has an annual turnover of Rs.9.3 million and employs around 1500 people in 5 manufacturing facilities spread across India. The Key Mantras that have propelled the Century Group growth story are: 1. Relentless pursuit for excellence 2. Benchmarking ourselves against the best 3. Focus on developing world-class facilities 4. Emphasis on providing innovative design solutions 5. Continuous thrust on product improvement 6. Constant up gradation of skill sets in the workforce
  4. 4. BUSINESS AREAS AUTOMOTIVE ENGINEERING MAIN PRODUCTS 1. Main Stand 2. Side Stand 3. Wiper 4. Engine Guard CDN-3, P-17, P-10 5. Sheet Metal Products 6. Centre Tube 7. Upper tube 8. Down tube
  5. 5. FINANCIAL STATEMENT’S ANALYSIS Financial Statement : It refers to such statements which contain financial information about an enterprise. These statements are a collection of data presented on the basis of logical and consistent accounting principles. The term financial statement includes at least two statements which the accountants prepare at the end of an accounting period. Two statements are: 1. The Balance Sheet or a statement of financial position 2. The Profit and Loss or the Income Statements. Analysis of Financial Statements : Financial Statements present a mass of complex data in absolute monetary terms and reveal little about the liquidity, solvency and profitability of the business. In term Financial Analysis, the data given in Financial Statements is classified in to simple groups and a comparison of various groups is made with one another to pin-point the strong points and weaknesses of a business.
  6. 6. PURPOSE OF FINANCIAL STATEMENT’S ANALYSIS 1. To know the earning capacity or profitability. 2. To know the solvency. 3. To know the financial strength. 4. To make comparative study with other firms. 5. To know the capability of payment of interest and dividend. 6. To identify the trend of the business. 7. To know the efficiency of the management. 8. To provide useful information to the management
  7. 7. SIGNIFICANCE OF ANALYSIS OF FINANCIAL STATEMENTS Various parties are interest in the financial statement of a business due to various reasons. By analyzing the financial statements is party can ascertain whether is interest is safe or not. For Instant, a shareholder would be interested in the profitability whereas, a short term creditor would be concerned about the liquidity, i.e., the firm’s ability to pay its current liability in time. Hence, the significance of the financial statement analysis may be studied from the point of view of various parties as follows:- 1. For management. 2. For investors. 3. For creditors. 4. For government. 5. For financial institutions. 6. For employees. 7. For taxation authority. 8. For researchers.
  8. 8. JOB PROFILE Job title : Trainee at Century Auto Tech Pvt. Ltd. Job duties and responsibilites 1. Prepare, examine, and analyze accounting records, financial statements, and other financial reports to assess accuracy, completeness, and conformance to reporting and procedural standards. 2. Establish tables of accounts, and assign entries to proper accounts.
  9. 9. RESEARCH METHODOLOGY Research methodology is a way to systematically solve the problem. It may be understood has a science of studying how research is done scientifically. In it we study the various steps that all generally adopted by a researcher in studying his research problem along with the logic behind them. The scope of research methodology is wider than that of research method. Meaning of research : Research is defined as “a scientific & systematic search for specific information on a specific topic”. Research is an art of scientific investigation. Research is a systemized effort to gain new knowledge. The search for knowledge through objective and systematic method of finding solution to a problem is a research. Scope of Study: 1. To analyze the financial statement of the company so that strategies can be made accordingly. 2. To help in understanding the past performance & financial health of the company. 3. To calculate various ratios so that key factors can be determined. 4. To provide the management important solutions for the problem relating to use of fund.
  10. 10. 5. To accelerates the specialization of financial management. 6. To highlight inter- relationship which exists b/w various segments of the business, expressed by accounting statements. DATA COLLECTION Secondary data : The secondary data are those, which have already been collected by someone else and which have already been passed through the statistical processes. When the researcher utilizes secondary data then he has to look into various sources from where he can obtain them. Sources of Secondary Data: 1. Company website 2. Book – Analysis of financial statements 3. Annual reports
  11. 11. ACCOUNTING RATIO Meaning of ratio : A ratio simply one number expressed in terms of another. It is found by dividing one number into the other. Objective of ratio : 1. To locate the weak spots of business which need more attention. 2. To provide deeper analysis of the liquidity, solvency, activity and profitability of the business. 3. To provide information for making cross-sectional analysis. 4. To provide information useful for making estimates and preparing the plans for the future. 5. To provide information for making time series analysis. Classification of ratios : 1. Liquidity ratios 2. Solvency ratios 3. Activity or turnover ratios 4. Profitability ratios
  12. 12. LIQUIDITY RATIOS 1. Current Ratio = Current Assets / Current Liabilities 2012-13 = 6.16 crore / 9.67 crore = 0.63:1 2011-12 = 9.46 crore / 12.71 crore = 0.74:1 Comments:  Two year data are given 2011-12 to 2012-13, standard ratio of the current ratio is 2:1 and we compared to standard to actual ratio.  In 2012-13 is current ratio is 0.63:1 is less than to standard ratio which shows here unsatisfactory of short term liquidity solvency, it also shows that shortage of stock, cash and less credit sale.  In 2012-13 the current ratio is less as compare to 2011-12, it shows the company is not growing well.  It also indicates that the company has lack of liquidity and shortage of working capital.
  13. 13. 2. Liquid Ratio = Liquid Assets Current Liabilities 2012-13 = (6.16 crore- 1.33crore)/ 9.67 crore =0.49:1 2011-12 = (9.46 crore-1.34 crore) / 12.71 crore = 0.63:1 Comments :  Two year data are given 2011-12 to 2012-13, standard ratio of the liquid ratio is 1:1 and we compared to standard to actual ratio.  In 2012-13 the liquid ratio is 0.49: 1 is less than to standard ratio, which shows here unsatisfactory of day to day liquidity solvency, it also shows that very shortage of cash balances and over investment.  In 2012-13 the liquid ratio is going down compare to 2011-12. It means the liquidity of the company is very low.  It shows the day to day liquidity of the company is not good.
  14. 14. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 2011-12 2012-13 current ratio liquid ratio Relationship between current ratio and liquid ratio
  15. 15. SOLVENCY RATIO 1. Debt-Equity Ratio = Debt / Equity 2012-13 = 4.48 crore / 0.19 crore = 23.57:1 2011-12 = 5.63 crore / 0.19 crore = 29.63:1 0 1 2 3 4 5 6 2011-12 2012-13 DEBT EQUITY
  16. 16. Comments:  Two year data are given 2011-12 to 2012-13, standard ratio of the debt-equity ratio is 2:1 and we compared to standard to actual ratio.  In 2012-13 debt-equity ratio of the company is 23.57:1. This is much higher than standard ratio. It shows a rather risky financial position from the long term point of view as it indicates that more and more funds invested in the business are provided by long term lenders.  In 2011-12 debt-equity ratio of the company is 29.63:1. This is higher than standard ratio. It shows that the company is not in the position to pay the long term debts.  A high debt-equity ratio is a danger signal for long term lenders. 2. Proprietary Ratio = Net Worth/ Total Assets 2012-13 =0.19 crore / 13.87 crore = 0.013:1 2011-12 = 0.19 crore / 16.69 crore =0.011:1
  17. 17. 0 5 10 15 20 2011-12 2012-13 net worth total assets Comments: • Two years data given here 2011-12 to 2012-13. This ratio helps in determining the shareholder’s share in total assets of the company. • In 2012-13, the proprietary ratio is 0.013 or 1.3%. Means that 1.3% of the total assets are purchased from shareholder’s fund or Net worth. It shows that the long term financial position of the company is very weak. • In 2011-12, the proprietary ratio is 0.011 or 1.1%. It means that 1.1% of the total assets are purchased from shareholder’s fund or Net worth. It means it is a threat for the long term loan providers. • The overall result that the company is decreasing its assets.
  18. 18. 3. Total assets to debt ratio = Total Assets/ Debt 2012-13 = 13.87 crore/ 4.48 crore = 3.09:1 2011-12 = 16.69 crore/ 5.63 crore = 2.96:1 0 2 4 6 8 10 12 14 16 18 2011-12 2012-13 total assets debt
  19. 19. Comments:  Two years data given here 2011-12 to 2012-13. This ratio expresses the relationship between total assets and long term loans.  In 2012-13, the total asset to debt ratio is 3.09:1. The higher ratio indicates the use of lower debts in financing the assets which means higher security to lenders.  In 2011-12, the total asset to debt ratio is 2.96:1. It shows the extent to which long term loans are covered by assets which indicates the margin of safety available to providers of long term loans.
  20. 20. ACTIVITY RATIOS 1. Debtors Turnover Ratio = Net Credit Sales/Average Receivables 2012-13 = 35.20 crore/ 4.5 crore = 7.82 times 2011-12 = 45.27 crore/ 6.52 crore = 6.94 times Comments: 1. Two years data given here 2011-12 to 2012-13. This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. A lower debtor turnover will indicates the inefficient credit sales policy of the management. 2. In 2012-13, the debtor’s turnover ratio is 7.82 times. It indicates that the debts are collected fastly less credit is given to debtors and less chances of Bed- debts. 3. In2011-12, the debtor’s turnover ratio is 6.94 times. In 2012-13 the debtor’s turnover ratio is going up as compare to previous year. It indicates that the company is growing
  21. 21. 2. Creditors Turnover Ratio = Credit Purchase/ Average Payable 2012-13 = 27.30 crore/ 6.21 crore = 4.39 times 2011-12 = 36.88 crore/ 8.81 crore = 4.18 times Comments:  Two years data given here 2011-12 to 2012-13. This ratio indicates the relationship between credit purchase and average credit during the year. It also shows that the speed with which the amount is being paid to creditors. The higher, the ratio, the better it is, since it will indicates that the creditors are being paid more quickly which increase the credit worthiness of the firm.  In2012-13, the creditor’s turnover ratio is 4.39 times. This ratio shows that creditors are being paid more quickly. It shows that the financial position of the company is good.  In 2012-13, the creditor’s turnover ratio is going up as compare to previous year. It indicates the creditor’s are being paid more quickly which increases credit worthiness.
  22. 22. PROFITABILITY RATIOS 1. Earnings per Share = Net profit after tax/ Number of Shares 2012-13 = 13743831/ 200000 Shares = 68.71 per share 2011-2012 = 83,90,195/ 200000 Shares = 41.95 per shares 0 10 20 30 40 50 60 70 80 2011-12 2012-13 NPA NO. of shares
  23. 23. Comments:  Two years data given here 2011-12 to 2012-13. This ratio measures the profit available to the Shareholder on a per share basis. This ratio is helpful in the determination of the market price of the company.  In 2011-12, here is EPS (Earning per Share) is Rs41.95. per Share. It shows that the company is good condition.  In 2012-13, here is EPS is Rs68.71 per share. This ratio also helpful in estimating the capacity of the company to declare dividends on equity shares.
  24. 24. 2. Gross Profit Ratio = Gross Profit x100 Net Sales 2012-13 = 2.46 crore x 100 35.20 crore = 7 % 2011-12 = 2.68 crore x 100 45.37crore = 5.92% Comments:  Two year data are given 2011-12 to 2012-13.This ratio measures of profit available on sale. The higher the gross profit ratio, the better it is NO ideal standard is fixed but the gross profit ratio should be adequate enough not only to cover the operating expenses but also to provide depreciation, interest on loan, dividend and creation of reserves.  In 2011-12 the gross profit ratio is less than 2012-13. It has many reason include that:  Price of material purchased, freight, wages and other direct charges may have gone up but the selling price may not have gone up in proportion to in the increasing cost.
  25. 25. 3. Net Profit Ratio = Net Profit x 100 Net Sales 2012-13 = 0.88 crore x 100 35.20 crore = 2.5 % 2011-12 = 0.90 crore x 100 45.27 crore = 2% Comments:  Two years data given here 2011-12 to 2012-13. This ratio helps in determining the overall profitability of the business operations  In 2011-12, the net profit ratio is 2%. It shows that company is able to pay the indirect expenses.  It is also shows that the net worth of the company is growing up comparison to last year.
  26. 26. FINDINGS AND LIMITATION Findings : • As this is the first research work undertaken by me, this research work has been particularly helpful for me in the manner that this exercise made me feel the practical aspects of organizational research instead of just providing a theoretical exposure to the concepts. • This study also helps me to know the work culture of the company as to how the employees work and behave in an organization. Limitations : • Due to hierarchy in the organization the exposure was limited. • The difficulty arises in the collection of data from the documents available in the company as they are prepared with a different format than as we use theoretically.
  27. 27. CONCLUSION AND RECOMMENDATION Conclusion : Overall capital management is important aspect of financial management. The study of Balance sheet of Century Auto Tech Pvt. Ltd. has revealed that the current ratio is in an decreasing trend. The study has been conducted on ‘Analysis of financial statement through ratio analysis’ which will help the company to manage its resources efficiently and effectively. Over all the company has not good liquidity position and sufficient funds to repayment of liabilities. Company has accepted conservative financial policy and thus maintaining more current assets balance. Recommendation to company : 1. Company should raise funds through short term sources for short term requirement of funds, which comparatively economical as compare to long term funds. Short term loans are perfect solution for short termed cash urgencies. 2. Company should change its sales policy so that stock can be easily converted in to sales. 3. To maintain its financial position company should properly utilized its fixed assets.