ANALYSIS OF FINANCIAL STATEMENT

Every industry small, medium or large one needs finance to carry on the activities and to achieve its targets
and objectives. Sufficient amount of finance is necessary for the successful working of every industrial unit.
An industry in order to run successfully should have adequate amount of capital or funds. It includes the
capital to be invested in the fixed assets and also the working capital Financial Analysis is process of
identifying the financial strength and weakness of the firm by clearly establishing the relationship between
the item of balance sheet and profit and loss accounts. Financial analysis can be undertaken by the
management of the firm or by the arties outside such as creditors, investors, and others The purpose of
financial analysis is to diagnose the information contained in financial statements to judge the profitability
and financial soundness of the firm. Financial statement analysis is an attempt to determine the significance
and meaning of the financial statement so that forecast may be made of the future coming, ability to pay
interest and debt maturities and profitability of a sound dividend policy,

NEED FOR THE FINANCIAL STATEMENT ANALYSIS:

Use of financial statement can get a better insight out of financial strength and weakness of the firm if the
properly analyze the information reported in this statements. The analysis of financial statements is thus an
important aid to financial analysis. The ratio analysis is widely used in analysis of financial statements,

TECHNIQUES REQUIRED FOR FINANCIAL ANALYSIS:

COMPARATIVE FINANCIAL STATEMENT ANALYSIS:

Comparative financial statements are statements of the financial position of a business so designed as to
provide time respective to the consideration of various elements of financial position embodied in such
statements. Generally, Balance Sheet and Income Statement which alone are prepared in a comparative
form because they are the most important statements of financial position. In these statements figures for
two or more periods are placed side by side to facilitate comparison. These statements render comparison
between two periods of time and exhibit the magnitude and direction of historical changes in the operating
results and financial statements of a business.
COMPARATIVE FINANCIAL STATEMENT of 2017-18

increa /cease (2017 %changes (2017

equity &liability 31-03-2017 31-03-2018 &2016) &2016)

share capital 20,97,450.00 20,97,450.00 0 0%

reserve & surplus -74,86,986.00 -1,08,77,218.00 -3390232 31%

short term
borrowings 9,23,03,262.00 9,43,22,220.00 2018958 2%

trade payable 1,44,48,043.00 1,98,99,101.00 5451058 27%

other current liability 14,39,976.00 12,36,360.00 -203616 -16%

Total 10,28,01,745.00 10,66,77,913.00 3876168 4%

Assets 31-03-2017 31-03-2018

fixed asset 91,30,758.00 79,68,359.00 -1162399 -15%

current investment 17,09,292.00 13,81,748.00 -327544 -24%

deferred tax assets 5,45,494.00 12,11,640.00 666146 0%

Inventories 7,49,91,037.00 7,80,42,399.00 3051362 4%

trade receivable 47,94,201.00 78,29,889.00 3035688 39%

cash &cash
equivalent 65,23,060.00 51,47,871.00 -1375189 -27%

other current assets 51,07,903.00 50,96,007.00 -11896 0%

Total 10,28,01,745.00 10,66,77,913.00 3876168 4%

INTERPRETATION

li is observed from the above table that the share capital of the company during the year 2017-18 has been
remained unchanged and reserve and surplus increased by 31%, trade payable increased by 27% due to
increase in credit purchase and other current asset decreased by 16%. The value of fixed asset decreased by
15% and current investment decreased by24% totally balance sheet value increased by 3876168 that is 4%
COMPARATIVE FINANCIAL STATEMENT of 2016-17

%changes (2017
equity &liability 31-03-2017 31-03-2016 increa /cease (2017 &2016) &2016)

share capital 20,97,450.00 20,97,450.00 - 0%

reserve & surpluse -74,86,986.00 1,85,10,356.00 -2,59,97,342.00 -140%

short term
borrowngs 9,23,03,262.00 8,10,61,780.00 1,12,41,482.00 14%

trade payable 1,44,48,043.00 1,69,40,242.00 -24,92,199.00 -15%

other current liability 14,39,976.00 8,50,201.00 5,89,775.00 69%

Total 10,28,01,745.00 11,94,60,029.00 -1,66,58,284.00 -14%

assets 42,825.00 31-03-2016 365.00 1%

fixed asset 91,30,758.00 2,42,33,665.00 -1,51,02,907.00 -62%

current investment 17,09,292.00 76,432.00 16,32,860.00 2136%

deferred tax assets 5,45,494.00 - 5,45,494.00 0%

inventories 7,49,91,037.00 7,46,38,195.00 3,52,842.00 0%

trade recivable 47,94,201.00 68,92,789.00 -20,98,588.00 -30%

cash &cash
equivilent 65,23,060.00 57,69,328.00 7,53,732.00 13%

other current assets 51,07,903.00 78,49,620.00 -27,41,717.00 -35%

Total 10,28,01,745.00 11,94,60,029.00 -16658284 -14%

INTERPRETATION

li is observed from the above table that the share capital of the company during the year 2016-17 has been
unchanged. The fixed assets also has been increased by 62% per cent. During the year the trade receivable
have been increased by 21.01 percent. investment has been increased by 1632860.

Ratio analysis

Ratios are measurement of business results. It is a simple expression of one figure in with another figure
studied over several accounting years or periods; ratios indicate the trend of firm's financial planning and
growth. Accounting ratios or ratio analysis is an important technique of analysis of financial statements. It is
the most widely used technique of financial analysis. Alexander Wall first made the presentation of an
elaborate system of ratio analysis in 1919. Ratio simply refers to one number expressed in terms of another
number. An analysis of financial statement with the help of ratios is termed as ratio analysis.

Current ratio

Current ratio is the most common ratio for measuring liquidity. It is calculated by diving current asset by
current liabilities. It expresses the relationship between current asset and current liabilities. Its standard
ratio is 2:1.

Current ratio= current asset/current liability

Current assets are those, the amount of which can be realized within a period of time. That is, the current
asset of the firm represents those assets which can be converted into cash within a period not exceeding
one year. Some of the current assets are cash, debtors, bills receivable, prepaid expenses, stock, etc.

Current liabilities are those amount which are payable with in a period of time. Some of the current
liabilities are creditors, bills payable, bank overdraft & outstanding expenses.

year 2018 2017 2016

total current
liability 11,54,57,681 10,81,91,281 9,88,52,223

total current asset 9,74,97,914 9,31,25,493 9,51,49,932

current ratio 0.8444 : 1 0.8607 : 1 0.9625 : 1
INTERPRETATION

Current ratio indicates proportion of current assets to current liabilities. In the above table we can see that
the proportion of asset is lesser than the proportion of current liability. In this table we can see that the gap
between the current asset and current liability is increasing and current asset are decreasing comparing to
current liability from the year 2016 to2018 and it is not a good sign for business.

Quick ratio

The quick ratio is an indicator of a company’s short-term liquidity position and measures a company’s ability
to meet its short-term obligations with its most liquid assets.

Since it indicates the company’s ability to instantly use its near-cash assets (that is, assets that can be
converted quickly to cash) to pay down its current liabilities, it is also called the acid test ratio. An acid test
is a quick test designed to produce instant results—hence, the name.

Quick ratio=quick asset/current asset

year 2018 2017 2016

total current asset 9,74,97,914 9,31,25,493 9,51,49,932

inventory 7,80,42,399 7,49,91,037 7,46,38,195

quick asset 1,94,55,515 1,81,34,456 2,05,11,737

total current
liability 11,54,57,681 10,81,91,281 9,88,52,223
 quick ratio 0.1685 : 1 0.1676 : 1 0.2075 : 1

INTERPRETATION

Current ratio indicates proportion of quick assets to current liabilities. In the above table we can see that
the proportion of quick asset is lesser than the proportion of current liability. In this table we can see that
the gap between the quick asset and current liability is increasing and quick asset are decreasing comparing
to current liability from the year 2016 to2018 and it is not a good sign for business if it continues then the
company may face liquidity crisis.

The proprietary ratio

The proprietary ratio (also known as the equity ratio) is the proportion of shareholders' equity to total
assets, and as such provides a rough estimate of the amount of capitalization currently used to
support a business. If the ratio is high, this indicates that a company has a sufficient amount
of equity to support the functions of the business, and probably has room in its financial structure to
take on additional debt, if necessary. Conversely, a low ratio indicates that a business may be making
use of too much debt or trade payables, rather than equity, to support operations (which may place
the company at risk of bankruptcy).

Thus, the equity ratio is a general indicator of financial stability. It should be used in conjunction with
the net profit ratio and an examination of the statement of cash flows to gain a better overview of the
financial circumstances of a business. These additional measures reveal the ability of a business to
earn a profit and generate cash flows, respectively.
To calculate the proprietary ratio, divide total shareholders' equity by total assets. The results will be
more representative of the company's true situation if you exclude goodwill and intangible assets.
from the denominator. The more restrictive version of the formula is:

Proprietary ratio = Shareholder funds / Total tangible assets

year 2018 2017 2016

shareholders fund -8779768 -5389536 20607806
total asset 106677913 102801745 119467597
proprietary ratio -0.082 -0.052 0.172

interpretation

from the above table and diagram we can see that in the year 2018 & 2017 proprietary ratio is negative
which says that the proportion of current asset is less than total assets which states that the shareholders
withdrawing (overdraft) money from the business.