created and uploaded by Faroqui, A.

1. PROFITABILITY AND LIQUIDITY
ANALYSIS PROJECT
BY MOHAMMED ANAS FAROQUI

2. WHAT ARE FINANCIAL STATEMENTS?
• Financial Statement Analysis, or
FSA, is the process of reviewing and
analysing a company's financial
statements to make better economic
decisions. It is created to study the
financial health and overall
performance of the company.
• The analysis helps to determine the
profitability, solvency, liquidity and
stability of the company.
• The statements included in the
analysis are income statement,
balance sheet, cash flow statement
and statement of changes in equity.
• FSA compares the company's
performance over a period of time
with itself (intracompany basis),
between other companies
(intercompany basis), from the same
industry or another and against that
industry's averages.

3. IMPORTANCE OF FSA
• Financial analysis is important to evaluate the financial performance of
the company and to determine the financial position of the company in
the market, helps make predictions of the company's future performance
as well as shows the operating efficiency of the firm.
• The analytical tools and techniques provide useful information to
promote more informed decision making and in turn, more profits,
growth and resources.
• In short, it provides helpful information about the organisation’s past
performance, its present condition and its future performance.
• Additionally, it helps assess the company's earnings in terms of power,
persistence, quality, growth and its solvency.
• It also helps to eliminate any discrepancies and to minimise any
chances of fraud.

4. TOOLS FOR FINANCIAL STATEMENT ANALYSIS
•Comparative Statement
•Common Size Statement
•Trend Analysis
•Ratio Analysis
•Funds Flow Statement
•Cash Flow Statement

5. ACCOUNTING RATIOS
1. LIQUIDITY RATIO:- Refers to the company’s ability
to meet short-term liabilities.
2. SOLVENCY RATIO:- Refers to the company’s ability
to meet long-term liabilities.
3. TURNOVER RATIO:- Refers to the company's
efficiency in utilising resources.
4. PROFITABILITY RATIOS:- Refers to the efficiency
and success of the company.

6. INTERNAL AND EXTERNAL USERS OF FSA
The Different users that might be interested in the financial statements
of a company are:
• The Management
• The Employees
• Creditors & Lenders
• Investors
• Shareholders
• Labour Unions
• Government Agencies

7. LIMITATIONS OF FINANCIAL ANALYSIS:
• The accuracy of the financial statements depends entirely on the
individual preparing it.
• It only considers the monetary aspects of the company's performance and
position, ignoring non-monetary aspects.
• If one company's accounting period ends on 31st December and the
other’s on 31st march, the financial statements of the companies cannot
be compared.
• A good financial statement does not translate to a good financial future for
the company. There are other factors that can cause a company to
collapse.
• It ignores price level changes and is influenced by personal judgements.
• It is an interim report which does not consider cost price level changes
and is based on accounting concepts, therefore it does not show the exact
position of the company.

9. STATEMENT OF PROFIT & LOSS
& BALANCE SHEET
OF

10. ABOUT
ASIAN PAINTS PVT LTD
Asian paints is a multinational public limited company, started in 1942
under the name Asian Oil And Paints Company, by four friends -
Champaklal Choksey, Chimanlal Choksi, Suryakant Dani and Arvind
Vakil - in a friend’s garage,.
headquartered in Mumbai Maharashtra, The company manufactures,
sells and distributes paints, coatings, etc.
Within its first 3 years, the turnover had reached 3.5 lacs and in 1967
Asian paints became the 10 largest paint company in the world.
Asian paints falls under the paint and chemical industry. Products
manufactured by the company are basic and industrial chemicals and
decorative paints, which are sold worldwide.
In 2002, it became the market leader of Indian decorative paints and
with a turnover of Rs 158.5 billion, Asian Paints now operates in 19
countries around the world, has 26 manufacturing facilities and
serves customers in over 65 Nations, with the aim of becoming one of
the top 5 decorative coating companies in the world.

12. ASIAN PAINTS LTD.
FINANCIAL OVERVIEW

13. CALCULATING ACCOUNTING RATIOS
1. LIQUIDITY RATIOS
These ratios indicate the company’s cash level, liquidity position and the capacity to meet its
short-term liabilities
Current Ratio = Current Assets / Current Liabilities
Quick Ratio = (Cash & Cash Equivalents + Accounts Receivables) /
Current Liabilities
Cash Ratio = Cash & Cash Equivalents / Current Liabilities
2. SOLVENCY RATIOS
These ratios indicate whether the company has the capability to meet its long-term
obligations by comparing its debt level with its assets and equity etc.
Debt-To-Equity Ratio = Total Debt / Total Equity
Debt Ratio = Total Debt / Total Assets
Interest Coverage Ratio = EBITDA / Interest Expense

14. 3. PROFITABILITY RATIOS
These ratios demonstrate a company’s efficiency to use its assets to generate profits.
Gross Margin = (Sales – COGS) / Sales
Operating Profit Margin = EBIT / Sales
Net Margin = Net Income / Sales
Return on Total Asset (ROA) = EBIT / Total Assets
Return on Total Equity (ROE) = Net Income / Total Equity
4. TURNOVER RATIOS
These ratios indicate how efficiently a company is able to utilize its available assets or convert its
inventories to cash
Receivables Turnover Ratio = Sales / Accounts Receivable
Inventory Turnover Ratio = COGS / Inventories
Payable Turnover Ratio = COGS / Accounts Payable
Asset Turnover Ratio = Sales / Total Assets
Net Fixed Asset Turnover Ratio = Sales / Net Fixed Assets
Equity Turnover Ratio = Sales / Total Equity

19. COMMENTS:
P&L STATEMENT:
• Operating income during the year increased by 7.2% .
• The company's operating profit increased by 16.8%.
• Operating profit margins decreased by 22.4% in 2021 compared to
20.5% in 2020.
• Depreciation charges increased by 1.4% .
• Finance costs decreased by 10.5% .
• Other income decreased by 0.4%.
• Net profit for the year grew by 16.7%.
• Net profit margins grew from 13.2% in 2020 to 14.4% in 2021.

20. •BALANCE SHEET:
• The company's current liabilities is Rs 59 billion in 2021
compared to Rs 44 billion in 2020, witnessing an increase of
35.3%.
• Long-term debt is at Rs 145 million, compared to Rs 186
million in 2020, decreasing by 22.0%.
• Current assets increased by 59% at Rs 120 billion.
• fixed assets decreased by 3% at Rs 83 billion in 2021.
• Overall, total assets and liabilities are Rs 204 billion in 2021
against Rs 161 billion in 2020, showing a growth of 26%..

21. CASH FLOW STATEMENT ANALYSIS:
• During 2021 it is rs 37 billion, showing 21.2% improvement.
• Investing activities are rs -5 billion in 2021, improving by
5.1%.
• Cash flow from financial activities in 2021 is rs -7 billion,
improving by 77%.
• Net cash flow for the company is rs 25 billion in 2021,
compared to rs -4 billion net cash flows in during 2020.

22. SOLVENCY RATIOS:
• Current Ratio: The company's current ratio (measures the company's
ability to pay short-term and long-term obligations) improved at 2.0x in
2021 compared to 2020’s 1.7x.
• Interest Coverage Ratio: The company's interest coverage ratio
(company’s ability to pay interest expense on outstanding debts)
improved, at 47.7x in 2021, from 36.0x in 2020. A higher ratio is
preferable.
• Profitability Ratios:
• Return on Equity (ROE): The ROE (ability to generate profits from
shareholders capital) decreased at 24.8% in 2021, from 26.9% during
2020.
• Return on Capital Employed (ROCE): The ROCE for the company, (ability to
generate profits from total capital) declined at 34.1% in 2021, from 36.3%
during 2020.
• Return on Assets (ROA): The ROA of the company (measures how
efficiently the company uses assets to generate profit) declined at 16.1%
in 2021, from 17.5% in 2020.

23. REFERENCES:
• TS Grewal Double Entry Book Keeping Class 12 Text Book
• https://www.educba.com/ratio-analysis-formula/
• https://www.asianpaints.com/content/dam/annual-report-2021/pdf/Financial-
Statements.pdf
• https://www.business-standard.com/company/asian-paints-34/financials-ratios
• https://www.yourarticlelibrary.com/accounting/financial-
statements/limitations/5-major-limitations-of-financial-statements-
accounting/66765
• https://www.moneycontrol.com/financials/asianpaints/consolidated-
ratiosVI/AP31#AP31
• https://byjus.com/commerce/5-limitations-of-financial-analysis/