The document analyzes the financial statements of an organization for the years 2006 and 2007. It provides vertical analysis of the balance sheet and income statement to examine changes in percentages of items from the previous year. It also performs ratio analysis to assess the organization's liquidity, solvency, asset management and profitability. Key ratios like current ratio, debt ratio and return on assets are calculated and interpreted to evaluate the organization's financial position.

1. FINANCIAL ANALYSIS
The financial statement of any organization shows the results of its operation and its position in
business. It is a process which involves reclassification and summarization of information
through the establishment of ratios and trends. The overall objective of financial statement
analysis is the examination of a firm’s financial position.
Vertical Analysis
In vertical analysis of balance sheet the percentage of each item of statement is calculated to total
and then the change in the percentages is checked with in years. In vertical analysis of profit and
loss account /income statement percentage of each item of statement is calculated by dividing it
on net sales.
Horizontal Analysis
Through this analysis we can check that what changes are occurred in the items of balance sheet
and profit and loss account. Last year become base for next year. And change can be easily
analyzed.
Vertical Analysis of Balance Sheet
PARTICULARS 2007 Percentage 2006 Percentage
Assets
Current assets
Cash and cash 2074000 24.3% 2090000 23.69%
equivalents
Short term 570000 6.67% 952000 10.79%
investment
Net receivables 156000 1.83% _ _
Inventory 1796000 21.0% 1696000 19.2%
Other current 433000 5.07% 501000 5.68%
assets
Total current 5029000 58.86% 5239000 59.4%
assets

2. Long term _ _ _ _
investments
Property ,plant 3197000 37.4% 3246000 36.8%
and equipment
Goodwill _ _ _ _
Intangible assets _ _ _ _
Accumulated _ _ _ _
amortization
Other assets 131000 1.5% 336000 3.8%
Deferred long 187000 2.19% _ _
term assets
charges
Total assets 8544000 8821000
Liabilities
Current liabilities
Accounts payable 1947000 22.79% 1942000 22.01%
Short/current long 325000 3.8% _ _
term debt
Other current _ _ _ _
liabilities
Total current 2272000 26.6% 1942000 22.01%
liabilities
Long term debt 188000 2.2% 513000 5.8%
Other liabilities 910000 10.65% 941000 10.67%
Deferred long _ _ _ _
term liability
charges
Minority interest _ _ _ _
Negative _ _ _ _
goodwill

3. Total liabilities 3370000 39.4% 3396000 38.5%
Stockholder’s
equity
Misc stocks, _ _ _ _
options, warrants
Redeemable _ _ _ _
preferred stock
Preferred stock _ _ _ _
Common stock 55000 .64% 54000 .61%
Retained earnings 8646000 101.2% 8133000 92.2%
Treasury stock (6235000) (72.97) (5210000) (59.1%)
Capital surplus 2631000 30.79% 2402000 27.2%
Other SE 77000 0.90% 46000 0.52%
Total SE 5174000 60.56% 5425000 61.5%
Total liabilities 8544000 8821000
and SE
Vertical Analysis of Profit And Loss Account
PARTICULARS 2007 Percentage 2006 Percentage
Net sales 15943000 100% 16023000 100%
CGS and 10294000 64.57% 10154000 63.4%
occupancy

4. expense
Gross profit 5649000 35.43% 5869000 36.6%
Operating 4475000 28.1% 4124000 25.74%
expenses
Loss on early _ _ _ _
retirement of debt
Interest expense 41000 0.26% 45000 0.28%
Interest income 131000 0.82% 93000 0.58%
Earning before 1264000 7.93% 1793000 11.2%
income taxes
Current income 450000 2.82% 657000 4.1%
taxes federal
Current income 64000 0.40% 63000 0.39%
taxes state
Current income 50000 0.31% 45000 0.28%
taxes foreign
Total current 564000 3.54% 765000 4.7%
income taxes
Deferred income (77000) (0.48%) (44000) (0.27%)
taxes (benefit)
federal
Deferred income (8000) (.05%) 4000 .025
taxes (benefit)
state
Deferred income 7000 .04% (45000) (0.28%)
taxes (benefit)
foreign
Total deferred (78000) (0.49%) (85000) (0.53%)
income taxes
Income taxes 486000 3.05% 680000 4.24%
Net earnings 778000 4.89% 1113000 6.95%
(loss)

5. RATIO ANALYSIS
Ratio analysis includes method of interpreting financial ratios to access the performance of any
organization. The basic input to ratio analysis is profit and loss account and balance sheet. Ratio
analysis of any organization is in interest of its creditors, employees, shareholders and of its
management as well. Both existing and prospective customer are interested in the ratio analysis
of organization
Ratio analysis is a valuable aid to management in the discharge of its basic functions such as
planning, forecasting, control etc. these ratios describe the relationship with the functioning of
the business and helpful for controlling cost of goods manufactured. The great advantage of ratio
analysis is that it reduces raw data of widely varying magnitude to a common comparative basis.
Thus, ratio analysis is the most meaningful to compare financial information regarding a giving
company.
Liquidity Ratios
Current Ratio
Formula:
Current ratio= Current assets
Current liabilities
Year 2006 Year 2007
Current assets 5029000
Current liabilities 2272000
Current ratio 2.21 times

6. Interpretation
Quick Ratio
Formula:
Current ratio= Current assets-inventory
Current liabilities
Year 2006 Year 2007
current assets-inventory 3233000
Current liabilities 2272000
Current ratio 1.4 times
Interpretation
Solvency ratios
Debt Ratio
Formula:
Debt Ratio=Total liabilities
Total assets

7. Year 2006 Year 2007
3370000
Total liabilities
Total assets 8544000
Debt ratio 0.39 times
Interpretation
Long term Debt Ratio
Formula:
Debt Ratio=Total liabilities
Total assets
Year 2006 Year 2007
188000
LTD
LTD+TE 5362000
Debt ratio 0.035 times

8. Interpretation
Time interest earned ratio
Formula
Time interest earned ratio=Earning before interest and taxes
Interest
Year 2006 Year 2007
1174000
Earning before interest
and taxes
Interest 41000
Time interest earned 28.63 times
ratio
Interpretation

9. Asset management/turnover ratios
Total asset turnover
Formula:
Total asset turnover= Sales
Total Assets
Year 2006 Year 2007
15943000
Sales
Total assets 8544000
1.86 times
Total asset turnover
Interpretation
Inventory turnover
Formula:
Total asset turnover= CGS
Inventory

10. Year 2006 Year 2007
10294000
CGS
Inventory 1796000
5.73 times
Inventory turnover
Interpretation
Profit ratios
PROFIT MARGIN
Formula:
Profit margin= Net Income
sales
Year 2006 Year 2007
Net Income
778000
Sales 15943000
Profit margin 4.88%
Interpretation

11. Return on assets
Formula:
Return on assets= Net Income
Total assets
Year 2006 Year 2007
Net Income
778000
Total assets 8544000
ROA 9.1%
Interpretation
Return on equity
Formula
Return on common equity= Net Income
Total Equity
Year 2006 Year 2007
Net Income
778000
TOTAL Equity 5174000
ROE 15.04%

12. Interpretation
Earning per share
Formula
Earning per share= Earning available for common stock holder
No. of shares of common stock outstanding
Year 2006 Year 2007
Earning available for 778000
common stock holder
No. of shares of common 813870
stock outstanding
EPS 0.95$
Interpretation
Projected income statement of 2008

13. PARTICULARS 2008
Net sales 15863285
CGS and occupancy expense 10073185
Gross profit 5790100
Operating expenses 4855874
Loss on early retirement of debt _
Interest expense 37355
Interest income 184527
Earning before income taxes 891120
Current income taxes federal 308250
Current income taxes state 64102
Current income taxes foreign 55555
Total current income taxes 415668
Deferred income taxes (benefit) 19250
federal
Deferred income taxes (benefit) state -
Deferred income taxes (benefit) 1092
foreign
Total deferred income taxes (71604)
Income taxes 374790
Net earnings (loss) 1350607

14. Projected balance sheet of 2008
PARTICULARS 2008
Assets
Current assets
Cash and cash equivalents 2058122
Short term investment 341282
Net receivables 159000
Inventory 1901896
Other current assets 374229
Total current assets 4834529
Long term investments _
Property ,plant and equipment 3148739
Goodwill _
Intangible assets _
Accumulated amortization _
Other assets 51074
Deferred long term assets charges 189500
Total assets 8223842

15. Liabilities
Current liabilities
Accounts payable 1995675
Short/current long term debt 327000
Other current liabilities _
Total current liabilities 2658076
Long term debt 68897
Other liabilities 880021
Deferred long term liability charges _
Minority interest _
Negative goodwill _
Total liabilities 14342984
Stockholder’s equity
Misc stocks, options, warrants _
Redeemable preferred stock _
Preferred stock _
Common stock 560186
Retained earnings 9191358
Treasury stock (5008345)
Capital surplus 2471731
Other SE 128891

16. Total SE 7753922
Total liabilities and SE 8223842