ANALYSIS OF FINANCIAL STATEMENTS BY USING TECHNIQUE

OF RATIO ANALYSIS

Introduction
Adani Group is an Indian multinational headquartered Ahmedabad, Gujarat, India. It was
founded by Gautam Adani in 1988 as a commodity trading business with the flagship
company Adani Enterprises Limited (previously Adani Exports Limited. Gautam Adani is the
chairman. The Group's diverse businesses include energy, resources, logistics,
agribusiness, real estate, financial services, and defense and aerospace. The group has annual
revenue of over $11 billion with operations at 70 locations in 50 countries. The Group is
India's largest port developer and operator with ten ports and terminals including Mundra
Port, its largest. Through a joint venture withWilmar International in Singapore, the Group
co-owns India's largest edible oil brand Fortune.
In April 2014, it added the fourth unit of 660 MW at its Tiroda Thermal Power Station,
making Adani Power India's largest private power producer. In 2015, Adani was ranked
India's most trusted infrastructure brand by The Brand Trust Report 2015. The Group
operates mines in India, Indonesia and Australia and supplies coal to Bangladesh, China, and
countries in Southeast Asia. The Group handled a total cargo of 168 million MT in 2016-17.
The company has contributed to the economy of Bunya, North Kalimantan, Indonesia by
producing 3.9 MMT of coal in 2016-17. The Group has made the largest investment by an
Indian company in Australia at the controversial Carmichael coal mine, Galilee
Basin, Queensland. It is estimated to produce coal at a peak capacity of 60 million metric tons
per annum (MMTPA). the Group is the first in India to build a High-Voltage Direct Current
(HVDC) system. In January, 2018, The Logistics and SEZ arm of the Group Adani Ports &
SEZ Limited added equipment and machinery to render it the biggest dredger fleet in India.

HISTORY
First phase
Adani group commenced as a commodity trading firm in 1988 and diversified into the import
and export of multi-basket commodities. With a capital of 5 lakhs, the company was
established as a partnership firm with the flagship company, Adani Enterprises Limited,
previously Adani Exports Limited. In 1990 the Adani Group developed its own port
in Mundra to provide a base for its trading operations. It began construction at Mundra in
1995. In 1998, it became the top net foreign exchange earner for India Inc. The company
began coal trading in 1999 followed by a joint venture in edible oil refining in 2000 with the
formation of Adani Willmar.
Second phase
The group's second phase started with the creation of large infrastructure assets. The
company established a portfolio of ports, power plants, mines, ships and railway lines inside
and outside India.
Adani handled 4 million Metric Tons (MT) of cargo at Mundra in 2002, becoming the largest
private port in India. Later in 2006, the company became the largest coal importer in India
with 11 million MT of coal handling.] The company expanded its business in 2008
purchasing Bunya Mine in Indonesia which has 180 million MT of coal reserves. In 2009 the
firm began generating 330 MW of thermal power. It also built edible oil refining capacity in
India of 2.2 million MT per annum. Adani Enterprises became the largest trading house in
India importing coal with a market share 60%. It also supplies coal to NTPC Limited, India.
The Adani group became India's largest private coal mining company after Adani Enterprises
won the Orissa mine rights in 2010. Operations at the Port of Dahej commenced in 2011 and
ts capacity subsequently grew to 20 million MT. The company also bought Galilee Basin
mine in Australia with 10.4 billion MT of coal reserves. It also commissioned 60 million MT
of handling capacity for the coal import terminal in Mundra, making it the world's largest. In
addition, in the same year, the Adani group also bought Abbot Point port in Australia with 50
million MT of handling capacity. It commissioned India's largest solar power plant with a
capacity 40 MW. As the firm achieved 3960 MW capacity, it became the largest private
sector thermal power producer in India. In 2012 The company shifted its focus on three
business clusters - resources, logistics and energy.
Adani Power emerged as India's largest private power producer in 2014 Adani Power's total
installed capacity then stood at 9,280 MMT Mundra Port, Adani Ports and SEZ Ltd.
(APSEZ), handled 100 million metric tons in fiscal 2013-14. [citation needed] On 16 May of the
same year, Adani Ports acquired Dhamra Port on East coast of India for Rs 5,500
crore. Dhamra Port was a 50:50 joint venture between Tata Steel and L&T Infrastructure
Development Projects, which has now been acquired by Adani Ports. The port began
operations in May 2011 and handled a total cargo of 14.3 million MT in 2013-14. With the
acquisition of Dhamra Port, the Group is planning to increase its capacity to over 200 million
MT by 2020.
In 2015 the Adani Group's Adani Renewable Energy Park signed a pact with
the Rajasthan Government for a 50:50 joint venture to set up India's largest solar park with a
capacity of 10,000 MW. In November, 2015, the Adani group began construction at the port
in Vizhinjam, Kerala.
Adani Aero Defense signed a pact with Elbit-ISTAR and Alpha Design Technologies to work
in the field of Unmanned Aircraft Systems (UAS) in India in 2016. In April, Adani
Enterprises Limited secured approval from the Government of Gujarat to begin work on
building a solar power equipment plant. In September, Adani Green Energy (Tamil Nadu),
the renewable wing of the Adani Group, began operations
in Kamuthi in Ramanathapuram, Tamil Nadu with a capacity of 648 megawatts (MW) at an
estimated cost of Rs. 4,550 crores. In the same month, the Adani Group inaugurated a 648
MW single-location solar power plant. It was the world's largest solar power plant at the time
in was set up In December, the Adani Group inaugurated a 100 MW solar power plant
in Bhatinda, the largest in Punjab. The plant was built at a cost of Rs. 640 crores.
On 22 December 2017 the Adani Group acquired reliance the power arm of Reliance
Infrastructure for Rs 18,800 crore.

Listed Companies
Adani Enterprises Limited
The company began as Adani Exports Limited in 1988 trading commodities. In March 1993,
the partnership company M/s. Adani Exports was converted into a limited company – Adani
Enterprises Limited. Run by Gautam Adani the company originally exported dyes and
intermediates, plastic products, agricultural products and frozen food to about 28 countries
around the world. Adani Management Consultancy Services was amalgamated with the
company in 1994. With major interests in logistics and energy, the enterprise handles the
mining, trading, gas distribution, solar and agribusiness divisions of the Group. Adani Gas, a
wholly owned subsidiary executes the gas distribution business. Its real estate activities are
managed by Adani Infrastructure & Developers Private Limited.
Adani Ports & SEZ Limited
Adani Ports and Special Economic Zone Limited (APSEZ) is the largest private port
company and special economic zone in India. The company is headed by Karan Adani, CEO
of APSEZ. The company's operations include Port management, logistics and the special
economic zone. The company operates at the following ports: Mundra, Dahej, and Hazira,
Gujarat; Dhamra, Odisha; Kattupalli, Tamil Nadu; and Vizhinjam, Kerala.
In addition, the Adani Group manages terminals at the ports of Mormugao, Ennore,
Vishakhapatnam and Kandla (Tuna Takra). [28] The logistics arm was initially promoted by
the Mundra Port Infrastructure Development Company Limited, an enterprise of the
Government of Gujarat and Adani Port Limited. The company began operations at the
Mundra Port in October 1998. With a Concession Agreement with the Government of
Gujarat and the Gujarat Maritime Board in February, 2001I, the group was granted the right
to operate and develop the Mundra Port situated at the Navinal Island in the Kutch region for
30 years.
Adani Power Limited
Established in August 1996 as Adani Power Limited, the company gained a certificate of
commence business in September of the same year. The company is run by Gautam Adani,
Rajesh S. Adani and Adani Enterprises Limited. The company develops and maintains power
projects in India. The firm has a combined installed capacity of 10,440 MW with four
thermal power projects across India. The company runs the following subsidiaries: Adani
Power Maharashtra Limited, Adani Power Rajasthan Limited, Adani Power Dahej Limited,
Mundra Power SEZ Limited and Adani Power (Overseas) Limited In 2014, Adani Power
overtook Tata Power to become India's largest power producer. The third phase of Adani
Power Ltd.’s (APL) thermal power plant at Mundra in Gujarat is the world's first coal-fired
plant to receive carbon credits from the United Nations Framework Convention on Climate
Change (UNFCCC) Adani Power's Udupi Power Plant has been conferred with the Power
Award by the Government of Karnataka.
Adani Transmission Limited
Integrated in 2013, Adani Transmission Limited handles the commissioning, operations and
maintenance of electric power transmission systems. The holding company holds, operates
and maintains 8511 circuit kilometers of transmission lines that range from 400 to 765
kilovolts. The total transmission capacity of the company is 16,200 megavolt amperes. The
company has the following subsidiaries: Maru Transmission Service Company Limited,
Adani Transmission (India) Limited, Hadoti Power Transmission Service Limited, Raipur-
Rajnandgaon-Warora Transmission Limited, Sipat Transmission Limited, and Chhattisgarh-
WR Transmission Limited.

In addition, the Adani Group has companies in a range of businesses including: Adani
Enterprises Limited (resources); Adani Ports and Adani Logistics (logistics); Adani
Enterprises, Adani Power, Adani Green Energy, Adani Transmission, Adani Gas, Adani
Solar and AIMSL (energy); Adani Wilmar, Adani Agri Logistics, Adani Agrifresh
(agriculture); Adani Realty (real estate); and Adani Capital (financial services).

Financial statements (or financial reports) are formal records of the financial activities and
position of a business, person, or other entity.
Relevant financial information is presented in a structured manner and in a form, which is
easy to understand. They typically include four basic financial statements accompanied by
a management discussion and analysis:

1. A balance sheet or statement of financial position, reports on a

company's assets, liabilities, and owners’ equity at a given point in time.
2. An income statement—or profit and loss report (P&L report), or statement of
comprehensive income, or statement of revenue & expense—reports on a
company's income, expenses, and profits over a stated period of time. A profit and
loss statement provide information on the operation of the enterprise. These include
sales and the various expenses incurred during the stated period.
3. A statement of changes in equity or equity statement, or statement of retained
earnings, reports on the changes in equity of the company over a stated period of
time.
4. A cash flow statement reports on a company's cash flow activities, particularly its
operating, investing and financing activities over a stated period of time.
Financial statement analysis (or financial analysis) is the process of reviewing and
analyzing a company's financial statements to make better economic decisions. These
statements include the income statement, balance sheet, statement of cash flows, and
a statement of changes in equity. Financial statement analysis is a method or process
involving specific techniques for evaluating risks, performance, financial health, and future
prospects of an organization.
It is used by a variety of stakeholders, such as credit and equity investors, the government,
the public, and decision-makers within the organization. These stakeholders have different
interests and apply a variety of different techniques to meet their needs. For example, equity
investors are interested in the long-term earnings power of the organization and perhaps the
sustainability and growth of dividend payments. Creditors want to ensure the interest and
principal is paid on the organization’s debt securities (e.g., bonds) when due.
Common methods of financial statement analysis include fundamental analysis, DuPont
analysis, horizontal and vertical analysis and the use of financial ratios. Historical
information combined with a series of assumptions and adjustments to the financial
information may be used to project future performance. The Chartered Financial
Analyst designation is available for professional financial analysts.

Financial ratios are very powerful tools to perform some quick analysis of financial
statements. There are four main categories of ratios: liquidity ratios, profitability ratios,
activity ratios and leverage ratios. These are typically analyzed over time and across
competitors in an industry.

• Liquidity ratios are used to determine how quickly a company can turn its assets into cash
if it experiences financial difficulties or bankruptcy. It essentially is a measure of a
company's ability to remain in business. A few common liquidity ratios are the current
ratio and the liquidity index. The current ratio is current assets/current liabilities and
measures how much liquidity is available to pay for liabilities. The liquidity index shows
how quickly a company can turn assets into cash and is calculated by: (Trade receivables
x Days to liquidate) + (Inventory x Days to liquidate)/Trade Receivables + Inventory.
• Profitability ratios are ratios that demonstrate how profitable a company is. A few
popular profitability ratios are the breakeven point and gross profit ratio. The breakeven
point calculates how much cash a company must generate to break even with their startup
costs. The gross profit ratio is equal to gross profit/revenue. This ratio shows a quick
snapshot of expected revenue.
• Activity ratios are meant to show how well management is managing the company's
resources. Two common activity ratios are accounts payable turnover and accounts
receivable turnover. These ratios demonstrate how long it takes for a company to pay off
 its accounts payable and how long it takes for a company to receive payments,
respectively.
• Leverage ratios depict how much a company relies upon its debt to fund operations. A
very common leverage ratio used for financial statement analysis is the debt-to-equity
ratio. This ratio shows the extent to which management is willing to use debt in order to
fund operations. This ratio is calculated as: (Long-term debt + Short-term debt + Leases)/
Equity.
DuPont analysis uses several financial ratios that multiplied together equal return on equity, a
measure of how much income the firm earns divided by the amount of funds invested
(equity).
A Dividend discount model (DDM) may also be used to value a company's stock price based
on the theory that its stock is worth the sum of all of its future dividend payments, discounted
back to their present value. [8] In other words, it is used to value stocks based on the net
present value of the future dividends.
Financial statement analyses are typically performed in spreadsheet software and summarized
in a variety of formats

Features of Financial Statements:

1. The Financial Statements should be relevant for the purpose for which they are prepared.

Unnecessary and confusing disclosures should be avoided and all those that are relevant and

material should be reported to the public.

2. They should convey full and accurate information about the performance, position,

progress and prospects of an enterprise. It is also important that those who prepare and

present the financial statements should not allow their personal prejudices to distort the facts.

3. They should be easily comparable with previous statements or with those of similar

concerns or industry. Comparability increases the utility of financial statements.

4. They should be prepared in a classified form so that a better and meaningful analysis could

be made.

5. The financial statements should be prepared and presented at the right time. Undue delay
in their preparation would reduce the significance and utility of these statements.
6. The financial statements must have general acceptability and understanding. This can be

achieved only by applying certain “generally accepted accounting principles” in their

preparation.

7. The financial statements should not be affected by inconsistencies arising out of personal

judgment and procedural choices exercised by the accountant.

8. Financial Statements should comply with the legal requirements if any, as regards form,

contents, and disclosures and methods. In India, companies are required to present their

financial statements according to the Companies Act, 1956.

Importance of Financial Statements:

The importance of financial statements lies in their utility to satisfy the varied interest of

different categories of parties such as management, creditors, public, etc.

1. Importance to Management:

Increase in size and complexities of factors affecting the business operations necessitate a

scientific and analytical approach in the management of modern business enterprises.

The management team requires up to date, accurate and systematic financial information for
the purposes. Financial statements help the management to understand the position, progress

and prospects of business vis-a-vis the industry.

By providing the management with the causes of business results, they enable them to

formulate appropriate policies and courses of action for the future. The management

communicates only through these financial statements, their performance to various parties

and justify their activities and thereby their existence.

A comparative analysis of financial statements reveals the trend in the progress and position

of enterprise and enables the management to make suitable changes in the policies to avert

unfavorable situations.
2. Importance to the Shareholders:

Management is separated from ownership in the case of companies. Shareholders cannot,

directly, take part in the day-to-day activities of business. However, the results of these

activities should be reported to shareholders at the annual general body meeting in the form

of financial statements.

These statements enable the shareholders to know about the efficiency and effectiveness of

the management and also the earning capacity and financial strength of the company.

ADVERTISEMENTS:

By analyzing the financial statements, the prospective shareholders could ascertain the profit

earning capacity, present position and future prospects of the company and decide about

making their investments in this company.

Published financial statements are the main source of information for the prospective

investors.

3. Importance to Lenders/Creditors:

The financial statements serve as a useful guide for the present and future suppliers and

probable lenders of a company.

It is through a critical examination of the financial statements that these groups can come to

know about the liquidity, profitability and long-term solvency position of a company. This

would help them to decide about their future course of action.

4. Importance to Labor:

Workers are entitled to bonus depending upon the size of profit as disclosed by audited profit

and loss account. Thus, P & L a/c becomes greatly important to the workers. In wages

negotiations also, the size of profits and profitability achieved are greatly relevant.
5. Importance to the Public:

Business is a social entity. Various groups of society, though directly not connected with

business, are interested in knowing the position, progress and prospects of a business

enterprise.

They are financial analysts, lawyers, trade associations, trade unions, financial press, research

scholars and teachers, etc. It is only through these published financial statements these people

can analyze, judge and comment upon business enterprise.

6. Importance to National Economy:

The rise and growth of corporate sector, to a great extent, influence the economic progress of

a country. Unscrupulous and fraudulent corporate managements shatter the confidence of the

general public in joint stock companies, which is essential for economic progress and retard

the economic growth of the country.

Financial Statements come to the rescue of general public by providing information by which

they can examine and assess the real worth of the company and avoid being cheated by

unscrupulous persons.

The law endeavors to raise the level of business morality by compelling the companies to

prepare financial statements in a clear and systematic form and disclose material information.

This has increased the confidence of the public in companies. Financial statements are also
essential for the various regulatory bodies such as tax authorities, Registrar of companies, etc.

They can judge whether the regulations are being strictly followed and also whether the

regulations are producing the desired effect or not, by evaluating the financial statements.

Limitations of Financial Statements:

Most of the limitations are mainly due to the cumulative effect of recorded facts, accounting

conventions and personal judgment on financial statements. Unless they are prepared
specially, they fail to reflect the current economic picture of business. As such, financial

statements have a number of limitations.

The important limitations are as follows:

1. Information is Incomplete and Inexact:

The financial statements are interim reports usually prepared for an accounting period.

Hence, the financial information as revealed by them is neither complete nor exact.

The true financial position or ultimate gain or loss, can be known only when the business is

closed down.
2. Qualitative Information is Ignored:

Financial statements depict only those items of quantitative information that are expressed in

monetary terms.

But, a number of qualitative factors, such as the reputation and prestige of the management

with the public, cordial industrial relations and efficiency of workers, customer satisfaction,

competitive strength, etc., which cannot be expressed in monetary terms, are not depicted by

the financial statements.

However, these factors are essential for understanding the real financial condition and the

operating results of the business.

3. Financial Statements Mainly Show Historical Information:

As the financial statements are compiled on the basis of historical costs, they fail to take into

account such factors as the decrease in money value or increase in the price level changes.

Since these statements deal with past data only, they are of little value in decision-making.

4. Financial Statements are Based on Accounting Concepts and Conventions.

Accounting concepts and conventions used the preparation of financial statements make them

unrealistic.
For example, the income statement prepared on the basis of the convention of conservatism

fails to disclose the true income, for it includes probable losses and ignores probable income.

Similarly, the value of fixed asset is shown in the balance sheet on the ‘going concern

concept’. This means that the value of the asset rarely represents the amount of cash, which

would be realized on liquidation.

5. Personal Judgment Influence Financial Statements:

Many items in the financial statements are left to the personal judgment of the accountant.

For example, the method of inventory valuation, the method of depreciation the treatment of

deferred revenue expenditure, etc., depend on the personal judgment of the accountant.

If it goes wrong, the real picture may be distorted. However, such indiscreet personal

judgments are controlled to a certain extent by the convention of conservatism.