INTRODUCTION

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 INTRODUCTION

INTRODUCTION OF FINANCIAL MANAGEMENT

Financial Management is a vital activity in any organization. It is the

process of planning, organizing, controlling and monitoring financial
resources with a view to achieve organizational goals and objectives. It is an
ideal practice for controlling the financial activities of an organization such as
procurement of funds, utilization of funds, accounting, payments, risk
assessment and every other thing related to money.

In other terms, Financial Management is the application of general

principles of management to the financial possessions of an enterprise. Proper
management of an organization’s finance provides quality fuel and regular
service to ensure efficient functioning. If finances are not properly dealt with
an organization will face barriers that may have severe repercussions on its
growth and development.

There are several options that one can use for managing their finances, this
could be either managing them on your own, hire a full time employee, hire
a part time accountant or a third party who manages all finance related
activities for you, for example a Chartered Accountant.

Most often organizations have a dedicated department that looks after the
financial matters of the company. A finance manager is designated for
handling finance and managing its resources within an enterprise. All
finance-related decisions are taken at this position. Depending on the
company profile the finance department can have several designations to
cater to the various needs of the company.

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What Is a Profit and Loss Statement (P&L)?

The profit and loss (P&L) statement is a financial statement that summarizes the revenues,
costs, and expenses incurred during a specified period, usually a fiscal quarter or year. The
P&L statement is synonymous with the income statement. These records provide
information about a company's ability or inability to generate profit by increasing revenue,
reducing costs, or both. Some refer to the P&L statement as a statement of profit and
loss, income statement, statement of operations, statement of financial results or income,
earnings statement or expense statement.

The P&L statement is one of three financial statements every public company issues
quarterly and annually, along with the balance sheet and the cash flow statement. It is
often the most popular and common financial statement in a business plan as it quickly
shows how much profit or loss was generated by a business.

The income statement, like the cash flow statement, shows changes in accounts over a set
period. The balance sheet, on the other hand, is a snapshot, showing what the
company owns and owes at a single moment. It is important to compare the income
statement with the cash flow statement since, under the accrual method of accounting, a
company can log revenues and expenses before cash changes hands.

The income statement follows a general form as seen in the example below. It begins with
an entry for revenue, known as the top line, and subtracts the costs of doing business,
including the cost of goods sold, operating expenses, tax expenses, and interest expenses.
The difference, known as the bottom line, is net income, also referred to as profit or
earnings. You can find many templates for creating a personal or business P&L statement
online for free.

It is important to compare income statements from different accounting periods, as the

changes in revenues, operating costs, research and development spending, and net
earnings over time are more meaningful than the numbers themselves. For example, a
company's revenues may grow, but its expenses might grow at a faster rate.

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A profit and loss statement or P&L is an account compiled to show gross and net profit
or loss, during a specific time period. Profit or loss is equal to your income minus your
expenses.

For example—you manufacture widgets and sell them to your customers over the internet.
During the month of June, your income was £10,000. The first expense you need to
subtract is direct expenses. A direct expense is any cost directly related to the production
and sale of your product, such as raw materials, shipping costs and labour for assembling
the widgets.

For this example your direct expenses are £4,000. This gives you a gross profit figure of
£6,000 or 60% gross profit.

Next you need to remove your operating expenses from your business during the month
of June. This can include advertising, accountancy fees, heating, lighting, rent, salaries
(not directly related to sale) and more.

For this example, your operating expenses are £4,500. So if we take the income, remove
the direct costs and operating costs, this gives you a net profit of £1,500. If your figure is a
negative, then you’ve made a loss during this period.

Profit and loss statements show you how much money you’re making or losing in a
specific time period, they allow you to compare past performance, and detect any issues
with sales margins and expenses.

USERS OF FINANCIAL STATEMENT ANALYSIS

There are different users of financial statement analysis. These can be

classified into internal and external users. Internal users refer to the
management of the company who analyzes financial statements in order to
make decisions related to the operations of the company. On the other hand,
external users do not necessarily belong to the company but still hold some
sort of financial interest. These include owners, investors, creditors,
government, employees, customers, and the general public. These users are
elaborated on below:

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1. Management

The managers of the company use their financial statement analysis to make
intelligent decisions about their performance. For instance, they may gauge
cost per distribution channel, or how much cash they have left, from their
accounting reports and make decisions from these analysis results.

2. Owners

Small business owners need financial information from their operations to

determine whether the business is profitable. It helps in making decisions like
whether to continue operating the business, whether to improve business
strategies or whether to give up on the business altogether.

3. Investors

People who have purchased stock or shares in a company need financial

information to analyze the way the company is performing. They use
financial statement analysis to determine what to do with their investments in
the company. So depending on how the company is doing, they will hold
onto their stock, sell it or buy more.

4. Creditors

Creditors are interested in knowing if a company will be able to honour its

payments as they become due. They use cash flow analysis of the company’s
accounting records to measure the company’s liquidity, or its ability to make
short-term payments.

5. Government

Governing and regulating bodies of the state look at financial statement

analysis to determine how the economy is performing in general so they can
plan their financial and industrial policies. Tax authorities also analyze a

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company’s statements to calculate the tax burden that the company has to
pay.

6. Employees

Employees need to know if their employment is secure and if there is a

possibility of a pay raise. They want to be abreast of their company’s
profitability and stability. Employees may also be interested in knowing the
company’s financial position to see whether there may be plans for expansion
and hence, career prospects for them.

7. Customers

Customers need to know about the ability of the company to service its
clients into the future. The need to know about the company’s stability of
operations is heightened if the customer (i.e. a distributor or procurer of
specialized products) is dependent wholly on the company for its supplies.

8. General Public

Anyone in the general public, like students, analysts and researchers, may be
interested in using a company’s financial statement analysis. They may wish
to evaluate the effects of the firm on the environment, or the economy or
even the local community. For instance, if the company is running corporate
social responsibility programs for improving the community, the public may
want to be aware of the future operations of the company.

METHODS OF FINANCIAL STATEMENT ANALYSIS

There are two main methods of analyzing financial statements: horizontal or

trend analysis, and vertical analysis. These are explained below along with
the advantages and disadvantages of each method.

Horizontal Analysis

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Horizontal analysis is the comparison of financial information of a company
with historical financial information of the same company over a number of
reporting periods. It could also be based on the ratios derived from the
financial information over the same time span. The main purpose is to see if
the numbers are high or low in comparison to past records, which may be
used to investigate any causes for concern. For example, certain expenditures
that are high currently, but were well under budget in previous years may
cause the management to investigate the cause for the rise in costs; it may be
due to switching suppliers or using better quality raw material.

This method of analysis is simply grouping together all information, sorting

them by time period: weeks, months or years. The numbers in each period
can also be shown as a percentage of the numbers expressed in the baseline
(earliest/starting) year. The amount given to the baseline year is usually
100%. This analysis is also called dynamic analysis or trend analysis.

Advantages and Disadvantages of Horizontal Analysis

When the analysis is conducted for all financial statements at the same time,
the complete impact of operational activities can be seen on the company’s
financial condition during the period under review. This is a clear advantage
of using horizontal analysis as the company can review its performance in
comparison to the previous periods and gauge how its doing based on past
results.

A disadvantage of horizontal analysis is that the aggregated information

expressed in the financial statements may have changed over time and
therefore will cause variances to creep up when account balances are
compared across periods.

Horizontal analysis can also be used to misrepresent results. It can be

manipulated to show comparisons across periods which would make the

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results appear stellar for the company. For instance, if the profits for this
month are only compared with those of last month, they may appear
outstanding but that may not be the case if compared with the same month
the previous year. Using consistent comparison periods can address this
problem.

Vertical Analysis

Vertical analysis is conducted on financial statements for a single time period

only. Each item in the statement is shown as a base figure of another item in
the statement, for a given time period, usually for year. Typically, this
analysis means that every item on an income and loss statement is expressed
as a percentage of gross sales, while every item on a balance sheet is
expressed as a percentage of total assets held by the firm.

Vertical analysis is also called static analysis because it is carried out for a
single time period.

Advantages and Disadvantages of Vertical Analysis

Vertical analysis only requires financial statements for a single reporting

period. It is useful for inter-firm or inter-departmental comparisons of
performance as one can see relative proportions of account balances, no
matter the size of the business or department.

Because basic vertical analysis is constricted by using a single time period, it

has the disadvantage of losing out on comparison across different time
periods to gauge performance. This can be addressed by using it in
conjunction with timeline analysis, which shows what changes have occurred
in the financial accounts over time, such as a comparative analysis over a
three-year period. For instance, if the cost of sales comes out to be only 30
percent of sales each year in the past, but this year the percentage comes out
to be 45 percent, it would be a cause for concern.

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RATIO ANALYSIS:-

Several ratios calculated from the accounting date, can be grouped into
various classes according to financial activity or function to be evaluated. As
stated earlier, the parties interested in financial analysis are short and short
and long-term creditors, owners and management.

“Short-term creditors” main interest is in liquidity position or the

short-term solvency of the firm. Long term creditors, on the other hand, and
more interested in the long term solvency and profitability of the firm.
Similarly, owners concentrate on the firm’s profitability and financial
conditions. Management is interested on in evaluating every aspect of the
firm’s performance. They have to protect the interests of all parties and see
that the firm grows profitably. In view of the requirements of the various
users of ratio, we may classify them into the following four important
categories.

Types of Ratio:-

 Liquidity ratios
 Leverage ratios
 Activity ratios
 Profitability ratios

Liquidity Ratio:-

The liquidity refers to the maintenance of cash, bank balance and those
assets, which are easily convertible into cash in order to meet the liabilities as
and when arising. So, the ratios study the firm’s short-term solvency and its
ability to pay off the liabilities.

1. Current Ratio:-

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 Current ratio is the ratio of current and current liabilities. Current
assets are assets which can be converted into cash within one year and
include cash in hand and at bank, bills receivable, net sundry debtors,
stock of raw materials, finished goods and work in progress, prepaid
expenses, outstanding and occurred incomes, and short term or
temporary investments. Current liabilities are liabilities, which are to
be repaid within a period of 1 year and include bills payable, sundry
creditors, bank over drafts, and outstanding expenses, Income received
in advanced, proposed dividend, provision for taxation, unclaimed
dividends and short term loans and advances repayable within 1 year

Current assets

Current Ratio = --------------------------

Current liabilities

A current ratio 2:1 is considered as ideal: if a business has an undertaking

with its bankers to meet its working capital requirements short notices, a
current ratio of is adequate.

1) Quick Ratio:-

Quick assets

Quick ratio = ------------------------

Quick liabilities

A quick ratio of 1 is considered as ideal. A quick ratio of less than 1 is

indicated of inadequate liquidity of the business. A very high ratio is also not
available as funds can be profitability employed.

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 2) Absolute Liquid Ratio:-
It is ratio of absolute liquid ratio assets to quick liabilities.
However, for calculation purposes, it is taken as ratio of liquid assets
of current liabilities. Trade investment or marketable securities are
equivalent of cash therefore; they may be included in the computation
of absolute liquid ratio.

Current Assets

Absolute quick ratio = --------------------------

Current liabilities

3) Leverage Ratios:-
Leverage ratio indicates the relative interest of owners and
creditors in a business. It shows the proportions of debt and equity in
financing the firm’s assets the long- term solvency of a firm can be
examined by using leverage ratio. The long-term creditors like
debenture holders, financial institutions etc.Are more concerned with
firms long –term financial strength.

There are two aspects of the long-term solvency of a firm

1) Ability to repay the principal when due, and

2) Regular payment of the interest they leverage ratio are calculated to
measure the financial rest and firms abilities of using debt.

1. Total Debt Ratio:-

Total debt will include short and long-term borrowing from
financial institution debentures bonds. Capital employed will include
total debt and net worth.

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 The firm may be interested in knowing the proportion of the
interest bearing debt in the capital structure by calculating total debt
ratio. A highly debt burdened firm difficulty in raising funds from
creditors and owners in future. Creditors treat the owner’s equities as a
margin of safety.

Total Debt

Total Ratio = -------------------------

Capital Employed

2. Debt -Equity Ratio:-

It reflects the relative claims of creditors and shareholders
against the assets of the business. Debt, usually, refers to long-term
liabilities. Equity includes preference share capital and reserves.
The relationship describing the lenders contribution for each
refers of the owner’s contribution is called debt equity ratio.
A high ratio shows a large share of financing by the creditors
relative to the owner’s and therefore, large claim against the assets of
the firm.
A low ratio implies a smaller claim of creditors. The equity
indicates the margin of satisfy to the creditors so, there is no doubt the
Beth high and low debt equity ratios are not desirable. What is needed
is a ratio, which strikes a proper balance between debt and equity.

Total Debt

Debt-Equity = -----------------

Net worth

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 Some financial experts say that debt should indicate current
liabilities also. However, this is not a popular practice. In case of
preference share capital, it is treated as a part of shareholders’
funds, but if the preference shares are redeemable, they are taken as
a part of long-term debt shareholder funds are also known as
proprietor funds and it indicates items equity share capital, reserve,
and surplus. A debt equity ratio of 3:1 is considered ideal.
3. Proprietary Ratio:-
It expresses the relation between net worth and total assets.

Net worth

Property ratio= -----------------

Total assets

Net worth= equity share capital + preference share capital + reserves –

fictitious assets.

Total assets= fixed assets + current assets (excluding fictitious assets)

Reserve earmarked specifically for a particular purpose should not be

included in calculation of net worth. A high proprietor’s ratio is indicative of
strong financial position of the business. The higher the ratio, the better it is.

4. Fixed Assets Ratio:-

Fixed assets

Fixed Assets Ratio = ---------------------

Capital employed

Capital employed – equity share capital + preference share capital +

reserves + long term liabilities – fictitious assets.

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 This ratio indicates the mode of financing the fixed assets. A
financially well- managed company will have its fixed assets financed by
long term funds. Therefore, the fixed assets ratio should never be more than
1.

A ratio of 0.67 is considered ideal.

5. Interest Coverage Ratio:-

This interest coverage ratio is computed by dividing earnings
before interests and taxed by interest charges.

Debt

Interest coverage ratio = ---------------

Interest

This interest coverage ratio shows the number of times the interest
charges are covered by funds that are or demurely available for their
payment. A high ratio is desirable but too high ratio indicates that the firm is
very conservative in using debt and that is not using credit to the debt
advantage of shareholder. A lower ratio indicates excessive use of debt or
inefficiency operations. The firm should make efforts to improve the
operating efficiency or to retire debt to have a comfortable coverage ratio.

1. Activity Ratios:-
Activity assets turnover ratio, measures the efficiency of a firm
in managing and utilizing its assets. The higher the turnover ratio, the
more efficiency the management and utilization of the assets while
low turnover ratio is indicate of under- utilization of available
resources and presence idle capacity. The total assets turnover ratio is
computed by dividing sales by total assets.

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 Sales

Total Assets Turnover Ratio = ------------------

Total Assets

2. Working Capital Turnover Ratios:-

Cost of goods sold

Working Capital Turnover Ratio = -----------------------------

Working capital

Where if cost of goods sold is known. Net sales can be taken in

the numerator.

Working capital = current assets – current liabilities.

A high working capital turnover ratio indicates efficiency utilization of

the firm’s funds. However, it should not result in over trading.

3. Debtors Turnover Ratio :-

Debtor’s turnover ratio expresses the relationship between
debtors and sales. It is calculated.
Net Credit Sales

Debtors Turnover Ratio = ------------------------------

Average Debtors

Net credit sales inspire credit sales after adjusting for sales returns. In
case information of credit sale is not available. “Sales” can be taken in the
numerator. Debtors include bills receivable. Debtors should be taken at gross
value, without adjusting provisions for bad debts. In case, average debtors be

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found; closing balance of debtors should be taken in the denominator. A high
debtor’s turnover ratio or a low debt collection period is indicative of a sound
credit management policy. A debtor’s turnover collection period of 30-36
days is considered ideal.

4. Debt Collection Period:-

The debt collection period measures the quality of debtors since
it indicates the speed of the collection. The shortest the average
collection period implies the prompt payment by debtors.

. No. of days or year

Debt collection period = ------------------------------

Debt collection period

An excessively long collection period implies a very liberal and

inefficient credit and collection performance. This certain delays the
collection delays the collection of each and I mpairs the firm’s liquidity.
The average no. of days for which debtors remain outstanding is called
debt collection period or average collection period.

5. Creditors Turnover Ratio:-

Creditor’s turnover ratio expresses the relationship between
creditor’s and purchases.
Net credit purchase

Creditors turnover ratio = -----------------------------

Average creditors

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 Net credit purchase implies credit purchase after adjusting for
purchases returns. In case information on credit purchase is not available
purchase may be taken in the numerator.

Creditors include bills payable. In case avenue creditors can’t be found,

closing balance of creditors should be taken in the denominator.

The creditor’s turnover ratio is 12 or more. However, very less

creditors turnover ratio, or a high debt payment period, may indicate the
firm’s inability in meeting its obligation in time.

6. Fixed Assets Turnover Ratio:-

It is defined as fixed assets imply net fixed assets i.e. after
depreciation. A high fixed assets turnover ratio indicates better
utilization of the firm’s fixed assets. A ratio around 5 is considered
ideal.

Net sales

Fixed assets turnover ratio = -------------------

Fixed assets

7. Inventory Turnover Ratio:-

Stock turnover ratio indicates the number of times the stock has
turned over into sales in the year. It is calculated.

Cost of goods sold

Inventory turnover ratio = -----------------------------

Average inventory

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Cost of goods sold = sales gross profit

Average stock = (opening stock and closing stock 1\2)

In case, information regarding cost goods sold is not known. Sales may
be taken in the numerator. Similarly, if average stock can’t be calculated,
closing stock should be taken in the denominator.

A stock turnover ratio of ‘8’ is considered ideal. A high stock turnover

ratio indicates that the stocks are fast moving and get converted into sales
quickly. However, it may also be on account of holding low amount of stocks
and replenishing stocks in larger number of installments.

8. Profitability Ratio:-
It measures the overall performance and effective of the firm.
Poor operational performance may indicate poor sales and hence poor
profits. A lower profitability may arise due to the lack of control over
the expenses. Bankers, financial institutions and other creditors look at
the profitability’s. ratio as an indicator whether or not the firm earns
substantially more than it pays interest for the use of borrowed funds
and weather the ultimate repayment of their debt appear reasonably
certain owner are interest to know the profitability as it indicates the
return which they can get on this instruments.
Profitability ratio’s measure the profitability of a concern
generally. They are calculated either in relation to sales or in relation
to investment.

1) Net Profit Ratio:-

It indicates the result of the overall operation of the firm.

The higher the ratio, per profitable is the business. The net profit ratio
is reassured by dividing net profit ratio indicates management efficiency in

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manufacturing administration and selling the products. This ratio is the
overall firm’s ability to turn each rupee of sale into net profit. If the profit
margin is inadequate, the firm fails to achieve satisfactory return on share
holder’s funds

Profit after tax

Net profit ratio = ----------------------

Net sales

A firm with high net profit margin can make better use of favorable
conditions. Such as rising selling prices, falling cost of products or increasing
demand for the product. Such a firm will be able to accelerate its profits at a
faster rate than a firm with a low net profit margin. This ratio also indicates
the firm capacity to withstand adverse economic conditions.

2) Return On Net Worth Ratio:-

It indicates the return, which the shareholders are earning on their

resources invested in the business.

Profit after tax

Return on net worth ratio = ---------------------

Net worth

Net worth = shareholders funds = equity share capital + preference share

capital + Reserves – fictitious assets.

The higher the ratio, the better it is for the shareholders. However, inter
firm comparisons should be made to ascertain if the returns from the
company are adequate. A trend analysis of the ratio over the past few years

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much is done to find out the growth or deterioration in the profitability of the
business.

Return On Assets Ratio :-

Profit after tax

Return on assets ratio = -----------------------

Total assets

Total assets do not include fictitious assets. The higher the ratio, the
better it is.

1) Earnings Per Share Ratio:-

Earnings per share are the net profit after tax and preferences dividend,
which is earned on the capital representative of one equity share. It calculated
as:-

Profit after tax available to equity holders

Earnings per share ratio = -----------------------------------------------------------

-

Number of ordinary shar

Advantage of Ratios:-

 Useful of evaluation performance in terms of profitability and financial

stability.

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 Useful for intra & inter firm comparison.

 Useful forecasting and budgeting.

 It is just in tabular form over a period of years indicated the trend of

business.

 Smile to understand rather than the reading but the figures of financial
statement.

 Key tool in the hand of modern financial management.

 Enable outside parties to assess the strength and weakness of the firm.

 Ratio analysis is very useful for ranking management decisions and also
highlights the performance in the area of profitability financial stability
and operational efficiency.

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COMPANY PROFILE

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 COMPANY PROFILE

Ujjivan Small Finance Bank Limited is a bank licensed under Section

22 (1) of the Banking Regulation Act, 1949 to carry out small finance
bank business in India. The holding company is Ujjivan Financial Services
Limited. The bank commenced operations on 1 February 2017. Ujjivan Small
Finance Bank received Scheduled Bank status from the Reserve Bank of
India in August 2017.

Ujjivan Financial Services Limited started operations as a NBFC in

2005. On 7 October 2015, Ujjivan received an in-principle approval from the
Reserve Bank of India to set up a small finance bank. At the time, the
company already serviced over 2.6 million customers from 464 branches in
24 states. The small finance bank status provided the opportunity to expand
Ujjivan's range of loan products, and also to accept deposits rather than
relying on other financial institutions to provide funds for the loans. Ujjivan
received the final license from the Reserve Bank of India on 11 November
2016 to set up a small finance bank. By February 2018, Ujjivan was present
across 24 states and union territories, 209 districts in India, catering to over
3.7 million customers. In October 2019, Ujjivan Small Finance Bank
received approval from the Securities and Exchange Board of India to raise
1,200 crores (US$184 million) in an initial public offering (IPO). The IPO
was 166 times oversubscribed by the final day of bidding, 4 December 2019.

Ujjivan SFB provides a range of products and services such as savings

account, current account, fixed deposits (FD), recurring deposits (RD), Micro

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Loans, Home Loans & Small Business Loans. The bank also offers internet
banking, phone banking and mobile banking facilities to customers. Ujjivan
SFB ATM is biometric enabled, thereby enabling customers to withdraw
money through biometric authentication. Customers can open their bank
account in 5–7 minutes on a hand-held device
through Aadhaar enabled KYC. The bank has introduced Senior Citizen
Product and Tax Saver Fixed Deposit.

Ujjivan Small Finance Bank Limited is a mass market focused bank in

India, catering to financially unserved and underserved segments and
committed to building financial inclusion in the country. Our Promoter,
Ujjivan Financial Services Limited (UFSL) commenced operations as an
NBFC in 2005 with the mission to provide a full range of financial services
to the ‘economically active poor’ who were not adequately served by
financial institutions. On 7, October, 2015, UFSL received RBI In-Principle
Approval to set up a Small Finance Bank(SFB), following which it
incorporated Ujjivan Small Finance Bank Limited as a wholly-owned
subsidiary. UFSL, subsequent to obtaining RBI Final Approval on November
11, 2016 to establish and carry on business as an SFB, transferred its business
undertaking comprising of its lending and financing business to our Bank,
which commenced its operations from 1, February, 2017. We are a
‘scheduled bank’ included in the Second Schedule to the Reserve Bank of
India Act, 1934.

Ujjivan Small Finance Bank has a diversified portfolio with branches

spread across 24 states and union and a customer base of 4.9 million as of
September 30, 2019. Apart from the network of branches, ATMs and
Automated Cash Recyclers, we have a phone banking unit that services
customers in nine languages, a mobile banking application that is accessible
in five languages as well as internet banking facility for individual and

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corporate customers. Our focus is to use technology as an enabler for our
customers that allows us to customize and deliver products and services to
suit their needs.

Value And Culture

Our qualitative factors and strengths are as follows:

 Customer's choice institution

 Integrity in all dealings

 Provide responsible finance

 Fair with suppliers and service partners

 Compliance with laws, regulations and code of conduct
 Best place to work

 Professionalism and Teamwork

 Respected in the community

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Samit Ghosh

Samit Ghosh is the founder of Ujjivan Financial Services Limited, and served as
its Managing Director and Chief Executive Officer until 31 January 2017, when he
accepted an equivalent role with subsidiary Ujjivan Small Finance Bank.
Samit Ghosh has a banking career spanning over 30 years in India, South Asia and
the Middle East. He started his career with Citibank in 1975 and grew consistently
working in various roles and ending up as a corporate banker. In 1980, Ghosh moved to
the Arab Bank in Bahrain as the Vice President for Investment and Corporate Banking.
After serving in the Middle East, he returned to India in 1985 to rejoin Citibank to pioneer
the consumer banking business in India, targeting the middle class. In 1993, Ghosh moved
to Standard Chartered Bank in Dubai as the Regional Head of Personal Banking for South
Asia and Middle East. His final stint before starting Ujjivan was with Bank of Muscat at
the CEO to set up the bank in India.

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OBJECTIVES OF THE STUDY

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 OBJECTIVES OF THE STUDY

 To know the profitability of Ujjivan Small Finance Bank.

 To know about tax expenses of Ujjivan Small Finance Bank.
 To know the financial position of Ujjivan Small Finance Bank.
 To study the growth profile of the Ujjivan Small Finance Bank of
during the 2017-2018 and 2018-2019 year.
 To appraise financial soundness of the Ujjivan Small Finance Bank.

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HYPOTHESIS

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 HYPOTHESIS

Null Hypothesis H 0 = the financial statement analysis do not impact on the

profitability.

Alternative Hypothesis H 1 = The financial statement analysis has an impact

on the profitability.

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SCOPE OF STUDY

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 SCOPE OF STUDY

The study is entirely based on the balance sheet and the other financial
statements provided by the company.

The study is limited to the stated tools of financial analysis only.

The time period of the study is Two years only.

The study also intends to use modern tools and techniques of ratio analysis.

The study basically emphasizes on theoretical data analysis and its

application to practical data.

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RESEARCH METHODOLOGY

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 RESEARCH METHODOLOGY

Generally research is considered as an endeavour to arrive at the answer to

intellectual and practical problem through the application of scientific
methods to the knowledge universe. It is movement from known to unknown.
Research is essentially a logical and an organized enquiry seeking facts
through objective verifiable methods in order to discover the relation among
them and to refer from the board principles or laws. It is really a method of
critical thinking.

Research may be defined as a systematic and objective analysis and recording

of controlled observations that may lead to the development of generalization
of principles or theories resulting in predicting and possibly ultimate control
of events.

Methodology is often used in a narrow sense to refer to methods, technology

or tools employed for the collection data as well as it’s processing. This is
also used sometimes to designate data collection to arrive at the conclusion.
Infects, it describes that what should have been done. It provides answers to
some of the major questions while search like what must be done, how it will
be employed, how sources of data will be analysed to arrive at the
conclusion. For systematic research scientific approach is necessary. It is
therefore essential to follow systematic methodology to arrive at a proper
conclusion.

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  The procedures involved in the concept of research methodology are:-

1) Selection of subject.

2) Selection of project title.

3) Selection of time period.

4) Collection of data.

5) Reliability of data.

6) Analysis of data.

7) Reporting.

 METHODOLOGY OF ANALYSIS:-

Data which has been collected through various sources has to proceed and
analysed the accepted relevant scientific method are used for analysed
processing is done by different graphs, which clearly show the finding and
half us to understand thing is more better way different table and comparative
chart also used for analysed and the most important ways was case study and
illustration.

1. ANALYSIS: The data collected has to process and analysis is done in

accordance with the acceptable relevant scientific method processing of
the data covers editing loading classification.

2. EDITING: Editing is a routine task it is process of examining collected

data especially in survey to detest and animate error editing endures
completeness accuracy and uniformity.

35
3. CODING: It is process of assign numerical or other symbol to symbol to
answer so that response can be part in a limited number of categories.

4. CLASSIFICATION: The large volume of data collected for a search

study has to be reduced in homogenous gropes for getting a meaningful
relationship. This is known as classification of data. It condense data in
such way that similarities and dissimilarities can easily be apprehended,
so as to facilities comparison. Classification of data collected can be
categorized as by geographical grouping chronological grouping
qualitative and quantitative groupings.

5. TABULATION: It is a process of summarizing row data and displaying

the same in concept from for further analysis. The tabulation can be
simplified in rows and columns; it conserves space and minimizes
exploratory and descriptive statements. Tabulation facilities the process
of comparison. It assists in various statistical computations. It simplifies
complex data, and gives identify to data and reveals pattern.

6. GRAPHIC PRESENTATION: Graphic presentation of statistical data

gives a pictorial effect. It enables one to present data in simple, clear and
effective manner. It shows what is happening and what is likely to take
place just as quickly as the age is capable of working. A graph is a visual
form of presentation. It provides an attractive and impressive view. It
also provides easy comparison of two or more phenomena.

36
 DATA COLLECTION

Collection of data refers to purposive gathering of information relevant to the

subject matter under study and the methods used depend mainly on the
nature, purpose and scope of the enquiry to be undertaken, as well as on the
availability of resources and time.

The data collection can be grouped under two types:-

 Primary data

 Secondary data

 PRIMARY DATA:- Primary data are those which are collected for
the first time. They are original in character. They are collected by the
researcher for the first time for her own use.

The source of primary data includes:

1. Direct personal investigation

2. Interview

1. DIRECT PERSONAL INVESTIGATION- This implies the

situation where the researcher goes into the field of study in person
for the collection of required data. Also, the investigation of this
nature is normally confined to a single locality and the information
gathered is capital in nature.

37
 2. INTERVIEW METHOD- Every interview has got its own
balance of revaluation and has withheld information, an interview
can be effective informal verbal and non-verbal conversation
initiated for the specific purpose focus on a certain planned
contained areas.

 SECONDARY DATA- Secondary data are those which have already

been collected by others. When it is not possible to collect data in
primary form, the researcher may take the help of secondary data.
They are thus which have already been collected for serving the
objectives other then what the researcher might have in his mind.

The sources of secondary data includes:-

1) Books

2) Websites

3) Journals

1. BOOKS:

A book is a collection of paper or other material with text, pictures, or

both written on them, bound together along one edge, usually with
covers. In library and information science, a book is calling a
monograph to distinguish it from serial periodicals such as magazines
journals or newspapers.

2. WEBSITE:

A website may be the work of an individual, a business or other

organization and is typically dedicated to some particular topic or

38
purpose. Any website can content s hyperlink to any other website, so
the distinction between individual sites, as perceived by the user, may
sometimes to blur.

3. JOURNALS:

A journal may publication issued at stated intervals, such as magazines

or the record of the transactions of a society, are often called journals.
In academic use, a journals refers to a serious, scholarly publication,
most often peer-reviewed. The purpose of a journal is to provide a
place for the introduction a scrutiny of new research and often a forum
for the critique of existing research.

39
DATA ANALYSIS & INTERPRETATION

40
 DATA ANALYSIS & INTERPRETATION

 CURRENT RATIO :-
Current assets

Current Ratio = --------------------------

Current liabilities

Year 2017-18 2018-19

Values of 1.96 2.48

Current
Ratio

CURRENT RATIO
3

2.48
2.5

1.96
2

1.5
CURRENT RATIO

0.5

0
2017-18 2018-19

 The value of current ratio in December 2017 is 1.99 and it continued to be

near to 2:1in next financial years sharing a constant figure throughout the
period.

41
 QUICK RATIO:-

Quick assets
Quick ratio = ------------------------
Quick liabilities

YEAR 2017-18 2018-19

VALUES 0.597 1.0013

OF
QUICK
RATIO

QUICK RATIO
1.2

1
1

0.8

0.59
0.6
QUICK RATIO

0.4

0.2

0
2017-18 2018-19

 The values of quick ratio is steady and less than 1 in initial four years and
in 2018-2019 it reached to 1.

42
 DEBT/EQUITY RATIO :

Total Debt
Debt-Equity = -----------------

Net worth

YEAR 2017-18 2018-19

VALUES OF 0.095 0.086

DEBT/EQUITY
RATIO

DEBT/EQUITY RATIO
0.096 0.095

0.094

0.092

0.09

0.088
DEBT/EQUITY RATIO
0.086
0.086

0.084

0.082

0.08
2017-18 2018-19

The values of debt/equity ratio are consistently very low (less than 1%)
throughout five years.

43
 INTEREST COVERAGE RATIO :

Debt
Interest coverage ratio = ---------------
Interest

YEAR 2017-18 2018-19

VALUES OF 187.744 174.494

INVESTMENT
COVERAGE
RATIO

INTEREST COVERAGE RATIO

190
187.744

185

180

INTEREST COVERAGE RATIO

174.494
175

170

165
2017-18 2018-19

Since the amount of debt is negligible so obviously the interest coverage

ratio is going to be decreases.

44
 RETURN ON CAPITAL EMPLOYED /INVESTMENT:

RETURN ON CAPITAL EMPLOYED = Net operating Profit

------------------------------------
Total Asset – Current Liability

YEAR 2017-18 2018-19

VALUES OF RETURN ON 29.50% 23.340%

CAPITAL
EMPLOYED/INVESTMENT

RETURN ON CAPITAL
EMPLOYED/INVESTMENT
35.00%
29.50%
30.00%

25.00% 23.34%

20.00%
RETURN ON CAPITAL
15.00% EMPLOYED/INVESTMENT

10.00%

5.00%

0.00%
2017-18 2018-19

The value of return on employed is approx 52% in December 2015 but

there after it is constantly near about 30% in next 3 years. However in
2018-2019 it has further declined to 23%.

45
 RETURN ON EQUITY:

Return on equity = Net Income

-----------------------------
Share Holder Equity
YEAR 2017-18 2018-19

VALUES 22.61% 18.49%

OF
RETURN
ON
EQUITY

RETURN ON EQUITY
25.00%
22.61%

20.00% 18.49%

15.00%

RETURN ON EQUITY
10.00%

5.00%

0.00%
2017-18 2018-19

Likewise return on capital employee, the values of return on equity are also
showing similar trends. The value of return on equity is highest in 2015 but
thereafter it is gradually decreasing and reduced to 18.5% in 2018-2019

46
PRICE EARNINGS RATIO :

Price earning ratio = Market value per share

-----------------------------------
Earning per share

YEAR 2017-18 2018-19

VALUES 14.986 29.791

OF PRICE
EARNING
RATIO

PRICE EARNINGS RATIO

35
29.791
30

25

20
14.986 PRICE EARNINGS RATIO
15

10

0
2017-18 2018-19

The values of profit earnings ratio are continuously increasing. The value
is 7.54 times in December 2017 is increased significantly to almost 3
times in 2018-2019.

“The profitability of the company shows that the company has a

scope to grow” is accepted.

47
 NET PROFIT RATIO:

Profit after tax

Net profit ratio = ----------------------
Net sales

YEAR 2017-18 2018-19

NET 23.04% 17.81%

PROFIT

25.00%
23.04%

20.00%
17.81%

15.00%

RETURN ON EQUITY
10.00%

5.00%

0.00%
2017-18 2018-19

From the above graph The Net Profit are showing similar trends. The Net
Profit is highest in 2017 is increasing in 24.14, 2018 in decrease the value
of Net profit is 23.04 and 17.81 is also decreasing in 2019.

48
CONCLUSIONS

49
 CONCLUSIONS

 Ujjivan Small Finance Bank has able to maintain good solvency

position throughout 5 years.
 Due to less dependency on debt capital Ujjivan Small Finance Bank
carries low financial risk/low financial leverage. It also gives an
opportunity to Ujjivan Small Finance Bank to raise debt capital in case
there is any requirement in future.
 Ujjivan Small Finance Bank can be considered as good investment
option for the perspective investors and could attract marketability
among the investors.
 Looking at the latest value of price earnings ratio, it can be said that the
investor may have to wait for a longer period in order to recover the
investment value.
 Based on price to book value it may be concluded that the investors
have good national profits due to good market price at which they can
sell their shares and realize actual profits.
 The overall financial condition of Ujjivan Small Finance Bank on the
basis of short term solvency profitability and its market potential is
satisfactory. The company is recommendable for investment by
prospective investors.
 Hence the hypothesis “The profitability of the company shows that
the company has a scope to grow” is accepted.

50
FINDINGS & SUGGESTION

51
 FINDINGS

 The current ratio of Ujjivan Small Finance Bank is consistently

maintained between 2 to 2.5. The close observation of balance sheet
reveals the steady the steady growth in current assets and as well as
current liabilities.
 As far as quick ratio is concerned Ujjivan Small Finance Bank has
quick ratio less than 1 up to financial year 2017-2018. This indicates
the company has more proportion of inventory in its total current
assets.
 Ujjivan Small Finance Bank has not employed borrowings in the
business significantly resulting in low debt equity ratio. The company
has resorted to use of owner’s capital mostly.
 The values of return on capital employee indicate a very good return
on investment. The reason for return on capital employee is
considerable amount of operating profit is over the past 2 years.
 The values of price earnings ratio indicating under capitalization in the
financial year 2017-18 but by the time of 2018-2019 the values of price
earnings ratio is indicating over capitalization. The price earnings
ratios were considerably good between the years 2017-2018.

SUGGESTION

o Company should try to improve its profitability.

o Company should try to improve its return on capital.
o Company should try to improve its return on equity.

52
BIBLOGRAPHY

53
 BIBLOGRAPHY

Books:

1: Financial Management, Sixth Edition By M.Y. Khan And P.K. Jain,

McGraw Hills Publication.

2: Financial Management, Ninth Edition I M Pandey, Vikas Publication

Websites:

1:www.cleverism.com

2: www.pakkaccountants.com

3. www.readyratios.com

4; www.smallbusiness.chron.com

5: www.investopedia.com

54
ANNEXURE

55
 ANNEXURE

Ujjivan Financial Services Previous Years »

Standalone Balance
------------------- in Rs. Cr. -------------------
Sheet

Mar '19 Mar '18 Mar '17

12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 121.17 120.86 119.38

Equity Share Capital 121.17 120.86 119.38

Share Application Money 32.57 19.39 0.53

Reserves 1,634.03 1,625.46 1,635.85

Networth 1,787.77 1,765.71 1,755.76

Secured Loans 0.00 0.00 0.00

Unsecured Loans 0.00 0.00 0.00

Total Debt 0.00 0.00 0.00

Total Liabilities 1,787.77 1,765.71 1,755.76

Mar '19 Mar '18 Mar '17

12 mths 12 mths 12 mths

Application Of Funds

Gross Block 0.08 0.04 0.00

Less: Accum. Depreciation 0.03 0.01 0.00

Net Block 0.05 0.03 0.00

56
Investments 1,666.18 1,651.08 1,640.04

Sundry Debtors 0.00 0.00 0.00

Cash and Bank Balance 122.25 114.92 127.07

Total Current Assets 122.25 114.92 127.07

Loans and Advances 0.73 1.65 0.30

Total CA, Loans &

122.98 116.57 127.37
Advances

Current Liabilities 1.35 1.87 4.96

Provisions 0.10 0.10 6.70

Total CL & Provisions 1.45 1.97 11.66

Net Current Assets 121.53 114.60 115.71

Total Assets 1,787.76 1,765.71 1,755.75

Contingent Liabilities 0.00 0.00 0.00

Book Value (Rs) 144.86 144.49 147.03

57
Ujjivan Financial Services Previous Years »

Standalone Profit &

------------------- in Rs. Cr. -------------------
Loss account

Mar
Mar 18 Mar 17
19

INCOME

Revenue From Operations

22.00 0.00 0.00
[Gross]

Revenue From Operations

22.00 0.00 0.00
[Net]

Total Operating Revenues 22.00 0.00 0.00

Other Income 8.62 7.74 23.71

Total Revenue 30.62 7.74 23.71

EXPENSES

Employee Benefit Expenses 1.63 0.93 1.40

Finance Costs 0.00 0.01 0.00

Provsions and Contingencies 0.00 0.00 0.00

Depreciation And
0.02 0.01 0.00
Amortisation Expenses

Other Expenses 5.08 3.21 0.15

Total Expenses 6.73 4.16 1.54

Mar
Mar 18 Mar 17
19

12
12 mths 12 mths
mths

58
Profit/Loss Before
Exceptional, Extra 23.89 3.58 22.16
Ordinary Items And Tax

Profit/Loss Before Tax 23.89 3.58 22.16

Tax Expenses-Continued
Operations

Current Tax 2.31 2.56 7.66

Deferred Tax 0.00 0.01 -0.04

Tax For Earlier Years 0.00 0.00 0.00

Total Tax Expenses 2.31 2.57 7.62

Profit/Loss After Tax And

Before ExtraOrdinary 21.58 1.00 14.54
Items

Profit/Loss From
21.58 1.00 14.54
Continuing Operations

Profit Loss From

0.00 0.00 298.69
Discontinuing Operations

Total Tax Expenses

0.00 0.00 105.59
Discontinuing Operations

Net Profit Loss From

0.00 0.00 193.10
Discontinuing Operations

Profit/Loss For The Period 21.58 1.00 207.64

Mar
Mar 18 Mar 17
19

12
12 mths 12 mths
mths

59
OTHER ADDITIONAL
INFORMATION

EARNINGS PER SHARE

Basic EPS (Rs.) 1.78 0.08 17.75

Diluted EPS (Rs.) 1.78 0.08 17.10

VALUE OF IMPORTED AND

INDIGENIOUS RAW
MATERIALS

STORES, SPARES AND

LOOSE TOOLS

DIVIDEND AND DIVIDEND

PERCENTAGE

Equity Share Dividend 16.35 9.57 0.00

Tax On Dividend 1.19 1.95 0.00

Equity Dividend Rate (%) 13.00 5.00 8.00

60