A

PROJECT REPORT
ON

“FINANCIAL STATEMENTS ANALYSIS”

AT
SREENIVAS MECHANICAL WORKS
A Project report submitted to the JNTU Hyderabad
In Partial fulfillment of the requirements for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
Submitted by
MULLA SRIYANKA
H. T. No. 19C11E0028
Under the guidance of
Mrs. N. ANITHA
Asst.Professor

DEPARTMENT OF MANAGEMENT STUDIES

ANURAG ENGINEERING COLLEGE

(AN AUTONOMOUS INSTITUTION)
(Accredited by NBA Delhi&Affiliated to JNTU, Hyderabad&Approved by AICTE)
ANANTHAGIRI (V&M), SURYAPET (DT), T.S, INDIA -508206
Ph: 08683-272555,27245,27245

1
 www.anurag.ac.in
2019-2021

ANURAG ENGINEERING COLLEGE

(An Autonomous Institutions)
(Affiliated to JNTU, Hyderabad& Approved by AICTE)
ANANTHAGIRI (M), SURYAPET (DT), T.S, INDIA -508206
www.anurag.ac.in

CERTIFICATE

This is to certify that the seminar work entitled A PROJECT REPORT ON “FINANCIAL
STATEMENTS ANALYSIS” AT SREENIVAS MECHANICAL WORKS a bonafide
work done MULLA SRIYANKA, H.T.NO.19C11E0028 in partial fulfilment of the award of
Master of Business Administration from JNTU, Hyderabad during the year 2019-2021. This
work has not been submitted to any other university of institution or organization for the award
of any degree of diploma.

HEAD OF THE DEPARTMENT PRINCIPAL

INTERNAL EXAMINER EXTERNAL EXAMINER

2
 DECLARATION

I MULLA SRIYANKA bearing HALL TICKET No: 19C11E0028 IN ANURAG

ENGINEERING COLLEGE here by declared that the project report entitled “FINANCIAL
STATEMENTS ANALYSIS” carried out at SREENIVAS MECHANICAL WORKS. Is
my original work written and submitted by me in partial fulfilment of Master of Business
Administration of JNTUH. I also declare that this project has not been submitted earlier in any
other university or institution.

DATE: Mulla Sriyanka

PLACE: Kodad 19C11E0028

3
 ACKNOWLEDGEMENT

I take the opportunity to remember and acknowledge the cooperation and support by
several special individual out of which this report has evolved.

I express my great pleasure to have an opportunity to take up this project under the
inspiring guidance of Mr. T. SURESH CHANDRA General manager whose support
decision and encouragement have immensely helped me in successful completion of the
project.

I wish to express my profound thanks to Dr. M. V. SIVA PRASAD the principal of the
ANURAG ENGINEERING COLLEGE for their constant help and support.

I wish to express my profound thanks to Mr. CH. RAMESH Head Of The Department
and whole of MBA department of business management for their constant help and
support.

I express my sincere thanks to my supervisor Mrs. N. ANITHA Asst Prof for giving
me moral support, kind attention and valuable guidance to me throughout this project
work.

I also convey my thanks to my parents, family members, friends and well-wishers who
have constantly supported me. I consider it my privilege to express my gratitude and
respect to all those who guided in the completion of the project.

19C11E0028

MULLA SRIYANKA
4
 TABLE OF CONTENTS

Chapter No Particulars Page No

INTRODUCTION
OBJECTIVES OF THE STUDY
METHODOLOGY OF THE
STUDY
SCOPE OF THE STUDY
NATURE OF THE STUDY
1.
LIMITATIONS OF THE
6-14
STUDY

INDUSTRY PROFILE &

2. COMPANY PROFILE 15-37

THEORITICAL FRAMEWORK
3. 38-62
DATA ANALYSISAND
4. INTERPRETATION 63-72
FINDINGS,
5. SUGGESTIONS AND 73-75
CONCLUSION

6. BIBLOGRAPHY
76

5
 CHAPTER-I
INTRODUCTION

6
Introduction
Need of the study
Objectives of the study
Scope of the study
Methodology of the study
Limitations of the study

7
 INTRODUCTION
Financial statement analysis is the process of analysing a company's financial statements for
decision-making purposes. External stakeholders use it to understand the overall health of an
organization as well as to evaluate financial performance and business value. Internal
constituents use it as a monitoring tool for managing the finances.

Analyzing Financial Statements

The financial statements of a company record important financial data on every aspect of a
business’s activities. As such they can be evaluated on the basis of past, current, and
projected performance.

In general, financial statements are centered around generally accepted accounting principles
(GAAP) in the U.S. These principles require a company to create and maintain three main
financial statements: the balance sheet, the income statement, and the cash flow statement.
Public companies have stricter standards for financial statement reporting. Public companies
must follow GAAP standards which requires accrual accounting.1 Private companies have
greater flexibility in their financial statement preparation and also have the option to use
either accrual or cash accounting.2

Several techniques are commonly used as part of financial statement analysis. Three of the
most important techniques include horizontal analysis, vertical analysis, and ratio analysis.
Horizontal analysis compares data horizontally, by analyzing values of line items across two
or more years. Vertical analysis looks at the vertical affects line items have on other parts of
the business and also the business’s proportions. Ratio analysis uses important ratio metrics
to calculate statistical relationships.
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Financial Statements
As mentioned, there are three main financial statements that every company creates and
monitors: the balance sheet, income statement, and cash flow statement. Companies use these
financial statements to manage the operations of their business and also to provide reporting
transparency to their stakeholders. All three statements are interconnected and create different
views of a company’s activities and performance.

Balance Sheet

The balance sheet is a report of a company's financial worth in terms of book value. It is
broken into three parts to include a company’s assets, liabilities, and shareholders' equity.
Short-term assets such as cash and accounts receivable can tell a lot about a company’s
operational efficiency. Liabilities include its expense arrangements and the debt capital it is
paying off. Shareholder’s equity includes details on equity capital investments and retained
earnings from periodic net income. The balance sheet must balance with assets minus
liabilities equaling shareholder’s equity. The resulting shareholder’s equity is considered a
company’s book value. This value is an important performance metric that increases or
decreases with the financial activities of a company.

Income Statement

The income statement breaks down the revenue a company earns against the expenses
involved in its business to provide a bottom line, net income profit or loss. The income
statement is broken into three parts which help to analyze business efficiency at three
different points. It begins with revenue and the direct costs associated with revenue to
identify gross profit. It then moves to operating profit which subtracts indirect expenses such
as marketing costs, general costs, and depreciation. Finally it ends with net profit which
deducts interest and taxes.

Basic analysis of the income statement usually involves the calculation of gross profit
margin, operating profit margin, and net profit margin which each divide profit by revenue.
9
Profit margin helps to show where company costs are low or high at different points of the
operations.

Cash Flow Statement

The cash flow statement provides an overview of the company's cash flows from operating
activities, investing activities, and financing activities. Net income is carried over to the cash
flow statement where it is included as the top line item for operating activities. Like its title,
investing activities include cash flows involved with firmwide investments. The financing
activities section includes cash flow from both debt and equity financing. The bottom line
shows how much cash a company has available.

OBJECTIVES OF THE STUDY

The primary objective of financial statement analysis is to understand
and diagnose the information contained in financial statement with a view to
judge the profitability and financial soundness of the firm, and to make forecast
about future prospects of the firm.

The financial statements are to provide information about the financial position,
performance and changes in financial position of an enterprise that is useful to a
wide range of users in making economic decisions. “Financial statements should
be understandable, relevant, reliable and comparable.

• To Interpret the profitability and efficiency of various business activities

with the help of profit and loss account;
• To measure managerial effiency of the firm;
• To ascertain earning capacity in future period;
• To measure short - term and long - term solvency of the business;
• To determine future postional of the concern;
• To measure utilization of various assets during the period.

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 SCOPE OF THE STUDY

The purpose of financial statement analysis is to evaluate the past, current, and
future performance and financial position of the company for the purpose of
making investment, credit, and other economic decisions.

According to Framework for the Preparations and presentation of financial

statements the role of financial reporting by companies is to provide information
about their performance, financial position, and changes in financial position that
is useful to a wide range of users in making economic decisions.

The purpose of financial statement analysis is to evaluate the past, current, and
future performance and financial position of the company for the purpose of
making investment, credit, and other economic decisions.

financial statement are the end results of an accounting. The income statement
and statement of cash flows portray different aspects of a company’s
performance over a period of time.
The Balance sheet Portrays the company’s financial position at a given point in
time. Owner’s equity provides information about the changes in a company’s
financial position. Owner’s equity is part of the balance sheet.

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 NEED OF THE STUDY

Financial statement analysis is used to identify the trends and relationships

between financial statement items. Both internal management and external users
(such as analysts, creditors, and investors) of the financial statements need to
evaluate a company's profitability, liquidity, and solvency. The most common
methods used for financial statement analysis are trend analysis, common‐size
statements, and ratio analysis. These methods include calculations and
comparisons of the results to historical company data, competitors, or industry
averages to determine the relative strength and performance of the company being
analysed.

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 METHODOLOGY OF THE STUDY
Research is the systematic investigation of facts that seeks to establish relationship between
two types

Primary data

1. officers of account sections.

2. executives and staff of financial and accounts department.

3. Meeting with concerned people.

4. Personal observation.

Secondary data

5. Annual reports of Kapil Chit Funds financial management text books.

6. printed material.

7. journals and magazines.

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 LIMITATIONS OF THE STUDY
1. The analysis made on the basis of secondary data.

2. The availability of data is only pertaining to five years.

3. Due to shortage of time it is not possible to cover all the factors and details regarding the
subject of study

4. The study is based on financial statements. It is a quantitative analysis does not reflect
qualitative aspect of the company

5. The latest financial data could not be reported as the company’s website have not been
updated.

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 CHAPTER-II

INDUSTRY PROFILE

AND

COMPANY PROFILE

15
 INDUSTRY PROFILE
AUTOMOBILE INDUSTRY IN INDIA

Introduction
In 2020, India was the fifth-largest auto market, with ~3.49 million units combined sold
in the passenger and commercial vehicles categories. It was the seventh largest manufacturer
of commercial vehicles in 2019.
The two wheelers segment dominate the market in terms of volume owing to a growing middle
class and a young population. Moreover, the growing interest of the companies in exploring
the rural markets further aided the growth of the sector.
India is also a prominent auto exporter and has strong export growth expectations for the near
future. In addition, several initiatives by the Government of India and major automobile players
in the Indian market is expected to make India a leader in the two-wheeler and four-wheeler
market in the world by 2020.

Indian Tractor Industry

The Tractor industry has always been a barometer for the state of rural economy in India.
Indian tractor industry is relatively young but now has become the largest market
worldwide (excluding sub 20 hp belt driven tractors used in China), accounting one third
of the global production. The other major tractor markets in the world are China and US.

Up to 1960, the demand of the tractor was met entirely through imports. Indigenous
manufacture of tractors began in 1961. India continued to import tractors to bridge the total
needs up to the late 1970 and had reached just about 50,000 units in the early 1980’s, but
today the size Indian Tractor market has grown to over 600,000 units. The Indian Tractor
Industry has come a long way since then. Volume growth in the past 4 decades show a
CAGR of 7.5%, despite seasonal vagaries, plummeting and boosting, tractor demand and
consequentially the Industry volumes.

Tractors Market Overview

16
Indian tractor industry has seen a positive growth trend during FY2016-17. While domestic
volumes increased by 18.2% between April 2016 to March 2017, exports remained almost
flat.

Normal monsoon has been a key driver of growth. It fuelled production and boosted
farmers’ income, which eventually aided the growth in tractor demand. All key states such
as Maharashtra, Madhya Pradesh, Bihar, Karnataka, Gujarat, Andhra Pradesh and Uttar
Pradesh showed positive growth.

The southern region outpaced all other regions on a consistent basis over the past three
years, with growth being led by a robust demand in Andhra Pradesh, Tamil Nadu and
Telangana. Government support programs and improved rural sentiments helped maintain
the growth trajectory in these states.

The eastern region continues to report strong volume growth in the current fiscal, albeit on
a low base, benefitting from various government initiatives to boost farm mechanization.

There has been a recovery in demand in the central and western regions led by improved
farm sentiments on account of estimates of improved crop production and resulting farm
income.

The northern region continues to lag the pan India growth. Uttar Pradesh, the largest tractor
market in the region, has recorded healthy growth. Other key markets of Rajasthan and
Punjab continue to struggle, as a result of weak haulage and replacement demand
respectively.

Tractors in India is a major industry and significant contributor to its agriculture output gains.

In 1947, as India gained independence from the British Empire, the level of agriculture
mechanization was low. The socialist oriented five-year plans of the 1950s and 1960s
aggressively promoted rural mechanization via joint ventures and tie-ups between local
industrialists and international tractor manufacturers. Despite these efforts, the first three
decades after independence local production of 4-wheel tractors grew slowly. By the late 1980s

17
tractor production was nearly 140,000 units per year, and a prevalence rate of less than 2 per
1,000 farmers.

After economic reforms of 1991, the pace of change increased and by late 1990s with
production approached 270,000 per year. In early 2000s, India overtook the United States as
the world's largest producer of four-wheel tractors. FAO estimated, in 1999, that of total
agricultural area in India, less than 50% is under mechanized land preparation, indicating large
opportunities still exist for agricultural mechanization.

In 2013, India produced 619,000 tractors accounting for 29% of world's output, as the world's
largest producer and market for tractors.[1][2] India currently has 16 domestic and 4
multinational corporations manufacturing tractors.

The year 2020-21 has been an astonishing year for the tractor industry as the overall tractor
sales went up from 7,85,059 to 9,88,043 this year including an incline in domestic sales by
26.9% and in exports by 16.4% when compared with the year 2019-20. This incredible growth
resulted in total domestic sales of 8,99,480 and export of 88,563 tractors as well as it also
brought an overall increment of 25.9% during 2020-21 when contrasted with 2019-20.

Facing market saturation in the traditional markets of the north west (Punjab, Haryana, Western
Uttar Pradesh) tractors sales began a slow and slight decline. By 2002 sales went below
200,000. Manufacturers expanded into eastern and southern India markets in an attempt to
reverse the decline, and began exploring the potential for overseas markets.

In 2013, India produced 619,000 tractors accounting for 29% of world's output. It is the world's
largest producer and market for tractors.[1][2] India currently has 16 domestic and 4
multinational corporations manufacturing tractors. In 2014 Zetor come back in India and linked
with the local tractor manufacture companies to supply 40 to 75 hp tractors on zetor brand
name to other countries.

Market Size
Domestic automobiles production increased at 2.36% CAGR between FY16-20 with
26.36 million vehicles being manufactured in the country in FY20. Overall, domestic
18
automobiles sales increased at 1.29% CAGR between FY16-FY20 with 21.55 million vehicles
being sold in FY20.
Two wheelers and passenger vehicles dominate the domestic Indian auto market.
Passenger car sales are dominated by small and mid-sized cars. Two wheelers and passenger
cars accounted for 80.8% and 12.9% market share, respectively, accounting for a combined
sale of over 20.1 million vehicles in FY20. Two-wheeler sales stood at 1,195,445 units in
March 2021, compared with 1,846,613 units in March 2020, recording a decline of 35.26 %.
Passenger vehicle (PV) sales stood at 279,745 units in March 2021, compared with 2,17,879
units in March 2020, registering a growth of 28.39%.
As per Federation of Automobile Dealers Associations (FADA), PV sales in December
2020 stood at 271,249 units, compared with 218,775 units in December 2019, registering a
23.99% growth.
Overall, automobile export reached 4.77 million vehicles in FY20, growing at a CAGR
of 6.94% during FY16-FY20. Two wheelers made up 73.9% of the vehicles exported, followed
by passenger vehicles at 14.2%, three wheelers at 10.5% and commercial vehicles at 1.3%.
EV sales, excluding E-rickshaws, in India witnessed a growth of 20% and reached 1.56
lakh units in FY20 driven by two wheelers. According to NITI Aayog and Rocky Mountain
Institute (RMI) India's EV finance industry is likely to reach Rs. 3.7 lakh crore (US$ 50 billion)
in 2030. A report by India Energy Storage Alliance estimated that EV market in India is likely
to increase at a CAGR of 36% until 2026. In addition, projection for EV battery market is
forecast to expand at a CAGR of 30% during the same period.

• Premium motorbike sales in India recorded seven-fold jump in domestic sales, reaching
13,982 units during April-September 2019. The luxury car market is expected to
register sales of 28,000-33,000 units in 2021, up from 20,000-21,000 units sold in 2020.
The entry of new manufacturers and new launches is likely to propel this market in
2021.

Investments
In order to keep up with the growing demand, several auto makers have started
investing heavily in various segments of the industry during the last few months. The industry

19
has attracted Foreign Direct Investment (FDI) worth US$ 25.40 billion between April 2000
and December 2020, according to the data released by Department for Promotion of Industry
and Internal Trade (DPIIT).
Some of the recent/planned investments and developments in the automobile sector in India
are as follows:

• In 2019-20, the total passenger vehicles sales reached ~2.8 million, while ~2.7 million
units were sold in FY21.
• In February 2021, the Delhi government started the process to set up 100 vehicle battery
charging points across the state to push adoption of electric vehicles.
• In January 2021, Fiat Chrysler Automobiles (FCA) announced an investment of US$
250 million to expand its local product line-up in India.
• A cumulative investment of ~Rs. 12.5 trillion (US$180 billion) in vehicle production
and charging infrastructure would be required until 2030 to meet India’s electric vehicle
(EV) ambitions.
• In January 2021, Lamborghini announced it is aiming to achieve sales in India higher
than the 2019-levels, after recovering from pandemic-induced disruptions.
• In January 2021, Tesla, the electric car maker, set up a R&D centre in Bengaluru and
registered its subsidiary as Tesla India Motors and Energy Private Limited.
• In November 2020, Mercedes Benz partnered with the State Bank of India to provide
attractive interest rates, while expanding customer base by reaching out to potential
HNI customers of the bank.
• Hyundai Motor India invested ~Rs. 3,500 crore (US$ 500 million) in FY20, with an
eye to gain the market share. This investment is a part of Rs. 7,000 crore (US$ 993
million) commitment made by the company to the Tamil Nadu government in 2019.
• In October 2020, Kinetic Green, an electric vehicles manufacturer, announced plan to
set up a manufacturing facility for electric golf carts besides a battery swapping unit in
Andhra Pradesh. The two projects involving setting up a manufacturing facility for
electric golf carts and a battery swapping unit will entail an investment of Rs. 1,750
crore (US$ 236.27 million).

20
 • In October 2020, Japan Bank for International Cooperation (JBIC) agreed to provide
US$ 1 billion (Rs. 7,400 crore) to SBI (State Bank of India) for funding the
manufacturing and sales business of suppliers and dealers of Japanese automobile
manufacturers and providing auto loans for the purchase of Japanese automobiles in
India.
• In October 2020, MG Motors announced its interest in investing Rs. 1,000 crore (US$
135.3 million) to launch new models and expand operations in spite of the anti-China
sentiments.
• In October 2020, Ultraviolette Automotive, a manufacturer of electric motorcycle in
India, raised a disclosed amount in a series B investment from GoFrugal Technologies,
a software company.
• In September 2020, Toyota Kirloskar Motors announced investments of more than Rs
2,000 crore (US$ 272.81 million) in India directed towards electric components and
technology for domestic customers and exports.
• During early September 2020, Mahindra & Mahindra singed a MoU with Israel-based
REE Automotive to collaborate and develop commercial electric vehicles.
• In April 2020, TVS Motor Company bought UK’s iconic sporting motorcycle brand,
Norton, for a sum of about Rs. 153 crore (US$ 21.89 million), making its entry into the
top end (above 850cc) segment of the superbike market.
• In March 2020, Lithium Urban Technologies partnered with renewable energy
solutions provider, Fourth Partner Energy, to build charging infrastructure across the
country.
• In January 2020, Tata AutoComp Systems, the auto-components arm of Tata Group
entered a joint venture with Beijing-based Prestolite Electric to enter the electric vehicle
(EV) components market.

Government Initiatives
The Government of India encourages foreign investment in the automobile sector and
has allowed 100% foreign direct investment (FDI) under the automatic route.
Some of the recent initiatives taken by the Government of India are -

21
 • In Union Budget 2021-22, the government introduced the voluntary vehicle scrappage
policy, which is likely to boost demand for new vehicles after removing old unfit
vehicles currently plying on the Indian roads.
• In February 2021, the Delhi government started the process to set up 100 vehicle battery
charging points across the state to push adoption of electric vehicles.
• The Union Cabinet outlaid Rs. 57,042 crore (US$ 7.81 billion) for automobiles & auto
components sector in production-linked incentive (PLI) scheme under the Department
of Heavy Industries.
• The Government aims to develop India as a global manufacturing centre and a Research
and Development (R&D) hub.
• Under NATRiP, the Government of India is planning to set up R&D centres at a total
cost of US$ 388.5 million to enable the industry to be on par with global standards.
• The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the
country for introduction of EVs in their public transport systems under the FAME
(Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India)
scheme. The Government will also set up incubation centre for start-ups working in the
EVs space.
• In February 2019, the Government of India approved FAME-II scheme with a fund
requirement of Rs. 10,000 crore (US$ 1.39 billion) for FY20-22.

Achievements
Following are the achievements of the Indian automotive sector:

• In H12019, automobile manufacturers invested US$ 501 million in India’s auto-tech

start-ups according to Venture intelligence.
• Investment flow into EV start-ups in 2019 (till end of November) increased nearly
170% to reach US$ 397 million.
• On 29th July 2019, Inter-ministerial panel sanctioned 5,645 electric buses for 65 cities.
• NATRiP’s proposal for “Grant-In-Aid for test facility infrastructure for EV
performance Certification from NATRIP Implementation Society” under the FAME

22
 Scheme was approved by Project Implementation and Sanctioning Committee (PISC)
on 3rd January 2019.
• Under NATRiP, following testing and research centres have been established in the
country since 2015.
o International Centre for Automotive Technology (ICAT), Manesar
o National Institute for Automotive Inspection, Maintenance & Training
(NIAIMT), Silchar
o National Automotive Testing Tracks (NATRAX), Indore
o Automotive Research Association of India (ARAI), Pune
o Global Automotive Research Centre (GARC), Chennai
• SAMARTH Udyog - Industry 4.0 centres: ‘Demo cum experience’ centres are being
set up in the country for promoting smart and advanced manufacturing helping SMEs
to implement Industry 4.0 (automation and data exchange in manufacturing
technology).

Road Ahead
The automobile industry is supported by various factors such as availability of skilled
labour at low cost, robust R&D centres, and low-cost steel production. The industry also
provides great opportunities for investment and direct and indirect employment to skilled and
unskilled labour.
Indian automotive industry (including component manufacturing) is expected to reach
Rs. 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026.
The Indian auto industry is expected to record strong growth in 2021-22, post recovering from
effects of COVID-19 pandemic. Electric vehicles, especially two-wheelers, are likely to
witness positive sales in 2021-22.
A study by CEEW Centre for Energy Finance recognised US$ 206 billion opportunity
for electric vehicles in India by 2030.

Reports

23
 The automobile industry in India is the world’s fifth largest. India was the world's fifth
largest manufacturer of cars and seventh largest manufacturer of commercial vehicles in 2019.
Indian automotive industry (including component manufacturing) is expected to reach Rs.
16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026. The industry attracted Foreign Direct
Investment (FDI) worth US$ 25.40 billion between April 2000 and December 2020 accounting
for ~5% of the total FDI during the period according to the data released by Department for
Promotion of Industry and Internal Trade (DPIIT).
Domestic automobile production increased at 2.36% CAGR between FY16-FY20 with
26.36 million vehicles being manufactured in the country in FY20. Overall, domestic
automobiles sales increased at 1.29% CAGR between FY16-FY20 with 21.55 million vehicles
being sold in FY20.
Two wheelers and passenger vehicles dominate the domestic Indian auto market.
Passenger car sales are dominated by small and mid-sized cars. Two wheelers and passenger
cars accounted for 80.8% and 12.9% market share, respectively, accounting for a combined
sale of over 20.1 million vehicles in FY20. Two wheeler sales stood at 1,426,865 units in
February 2021, compared with 1,294,787 units in February 2020, recording a rise of 10.20%.
Passenger vehicle (PV) sales stood at 281,380 units in February 2021, compared with 238,622
units in February 2020, registering a growth of 17.92%. As per Federation of Automobile
Dealers Associations (FADA), PV sales in December 2020 stood at 271,249 units, compared
with 218,775 units in December 2019, registering a 23.99% growth.
Overall, automobile export reached 4.77 million vehicles in FY20, growing at a CAGR
of 6.94% during FY16-FY20. Two wheelers made up 73.9% of the vehicles exported, followed
by passenger vehicles at 14.2%, three wheelers at 10.5% and commercial vehicles at 1.3%.
The electric vehicle (EV) market is estimated to be a Rs. 50,000 crore (US$ 7.09 billion)
opportunity in India by 2025. Several technology and automotive companies have expressed
interest and/or made investments into the India EV space. Auto companies such as Hyundai,
MG Motors, Mercedes, and Tata Motors, have launched EVs in the market. A recent study
conducted by Castrol found out, most of Indian consumers would consider buying an electric
vehicle by the year 2022. The study also highlighted for an average Indian consumer, price
point of Rs. 23 lakh (or US$ 31,000), a charge time of 35 minutes and a range of 401 kilometers
from a single charge will be the 'tipping points' to get mainstream EV adoption. A cumulative
24
investment of ~Rs. 12.5 trillion (US$180 billion) in vehicle production and charging
infrastructure would be required until 2030 to meet India’s electric vehicle (EV) ambitions.
A report by India Energy Storage Alliance estimated that EV market in India is likely
to increase at a CAGR of 36% until 2026. In addition, projection for EV battery market is
forecast to expand at a CAGR of 30% during the same period.
The Government aims to develop India as a global manufacturing and research and
development (R&D) hub. It has set up National Automotive Testing and R&D Infrastructure
Project (NATRiP) centres as well as National Automotive Board to act as facilitator between
the Government and the industry. Under (NATRiP), five testing and research centres have been
established in the country since 2015. NATRiP’s proposal for “Grant-In-Aid for test facility
infrastructure for Electric Vehicle (EV) performance Certification from NATRIP
Implementation Society” under FAME (Faster Adoption and Manufacturing of (Hybrid) and
Electric Vehicles in India) scheme was approved by Project Implementation and Sanctioning
Committee (PISC) on January 03, 2019. In Union Budget 2021-22, the government introduced
the voluntary vehicle scrappage policy, which is likely to boost demand for new vehicles after
removing old unfit vehicles currently plying on the Indian roads.
The Indian Government has also set up an ambitious target of having only EVs being
sold in the country. The Ministry of Heavy Industries, Government of India, has shortlisted 11
cities in the country for introduction of EVs in their public transport system under the FAME
scheme. The first phase of the scheme was extended to March 2019 while in February 2019,
the Government approved FAME-II scheme with a fund requirement of Rs. 10,000 crore (US$
1.39 billion) for FY20-22. Under Union Budget 2019-20, Government announced to provide
additional income tax deduction of Rs. 1.5 lakh (US$ 2,146) on the interest paid on the loans
taken to purchase EVs.
EV sales, excluding e-rickshaws, in India witnessed a growth of 20% and reached 1.56
lakh units in FY20 driven by two wheelers. According to NITI Aayog and Rocky Mountain
Institute (RMI) India's EV finance industry is likely to reach Rs. 3.7 lakh crore (US$ 50 billion)
in 2030.
The Government of India expects automobile sector to attract US$ 8-10 billion in local
and foreign investment by 2023.

25
 COMPANY PROFILE
MAHINDRA TRACTORS Franchised by SREENIVASA MECHANICAL WORKS

INTRODUCTION

Mahindra Tractors is an international farm equipment manufacturer of Mahindra &

Mahindra. In 2010, Mahindra became the world's highest-selling tractor brand by volume.
Mahindra's largest consumer base is in India, China, North America, and a growing market in
Australia. The company is the largest manufacturer in India and has the capacity to build
150,000 tractors a year.

M&M produced its first tractor in 1963, the Mahindra B-275 by forming a joint venture with
International Harvester to manufacture tractors carrying the Mahindra nameplate for the Indian
market. Mahindra Tractors sold about 85,000 units annually making it one of the largest tractor
producers in the world. To expand into the growing tractor market in China, Mahindra acquired
majority stake in Jiangling.

To raise awareness about Mahindra in the US, Mahindra USA announced its new sponsorship
in the NASCAR Nationwide Series with R3 Motorsports, which is participating with a #23
Mahindra Tractors Chevrolet. The car was driven by Robert Richardson Jr. With this
sponsorship, Mahindra was the first Indian company to sponsor a car in NASCAR. In 2008,
Mahindra was a sponsor of the MacDonald Motorsports team which ran the #81 car in the
NASCAR Nationwide Series.

Mahindra operations

Mahindra Tractors operates in ten countries and has a fairly large customer base in the
United States, Australia, Chile, Serbia, Indian Subcontinent, Iran, Syria and a major part
of the African continent among many more. Mahindra operates in China, North America
and Australia through its subsidiaries, Jiangling, Mahindra USA and Mahindra Australia.
It also operates in some Indian states through its subsidiaries Mahindra Gujarat and
Swaraj.

26
Mahindra Tractors is number one in sales in India - the largest tractor market in the world - and
it has been the market leader since 1983. Its sales are predominantly in the states
of Gujarat, Haryana, Punjab, Maharashtra and the Southern States. Its sales in Gujarat are
under the label Mahindra Gujarat and its sales in Punjab are under the label Swaraj. In 1999,
Mahindra purchased 100% of Gujarat Tractors from the Government of Gujarat. and Mahindra
purchased a 64.6% stake in Swaraj in 2004.

Mahindra Tractors started manufacturing 15HP tractor under the brand name Yuvraj in Rajkot
in 2011. The plant in Rajkot is set up jointly by Deepak Diesel Pvt Ltd and Mahindra &
Mahindra. The plant has a maximum capacity of 30000 tractors per annum.

Mahindra USA

In 1994, the company entered the American market as Mahindra USA; it has a sales and service
network throughout the country. Mahindra USA, a subsidiary of Mahindra Tractors, is
responsible for sales in North America. Mahindra has five assembly plants in the US—one at
its North American headquarters in Houston, Texas, another in Marysville, California and one
in Chattanooga, Tennessee. In August 2012, Mahindra USA opened its fourth assembly and
distribution center in Bloomsburg, Pennsylvania. In 2014, Mahindra USA opened its fifth
assembly and distribution center in Lyons, Kansas.

In addition to building their own tractors, Mahindra also sources tractors from other
manufacturers. For the USA market, Mahindra has purchased their core products from Tong
Yang Moolsan, one of the top tractor manufacturers in South Korea, to cover selected product
ranges.

Mahindra Australia

Based in Brisbane, Mahindra Australia is a branch of Mahindra & Mahindra Ltd. In 2005,
the company entered the Australian market with the launch of its assembly & customer
support centre in Acacia Ridge, QLD. Currently, the company's products are sold and
serviced by 40 dealers throughout Australia. Mahindra Australia is also responsible for

27
sales in New Zealand and the rest of Australasia. The Company's products are distributed
in Fiji by Carpenters Motors. In Western Australia and South Australia, Mahindra
tractors are distributed by McIntosh Distribution.

History of Mahindra Tractors

For over 3 decades, Mahindra has been India’s undisputed No. 1 tractor brand and the world’s
largest tractor manufacturer by volumes. Part of the $19.4 billion Mahindra Group, Mahindra
Tractors is an integral part of the Farm Division which is the flagship unit of Mahindra’s Farm
Equipment Sector (FES).

With a presence in over 40 countries Mahindra has leveraged on its quality, as the only tractor
brand in the world, to win both the Deming Award and the Japanese Quality Medal. Mahindra
has the most comprehensive range of tractors from and is synonymous with India’s tractor
industry. In March 2019, Mahindra became the first Indian tractor brand to roll out 3 million
tractors.

Having worked with generations of farmers, Mahindra tractors are known for their exceptional
built and performance on rugged and unforgiving terrains today. No wonder Mahindra Tractors
are called ‘Tough Hardum’ – ready to take on any challenge. Mahindra will continue to take a
series of initiatives to further build on its strong partnerships with the farmer, with the toughest,
most dependable tractors on Earth!

Farm equipment

Mahindra began manufacturing tractors for the Indian market during the early '60s. It is the top
tractor company in the world (by volume) with annual sales totaling more than 200,000
tractors. Since its inception, the company has sold over 2.1 million tractors. Mahindra &
Mahindra's farm equipment division (Mahindra Tractors) has over 1,000 dealers servicing
approx. 1.45 million customers.

Mahindra tractors are available in 40 countries, including India, the United States, China,
Australia, New Zealand, Africa (Nigeria, Mali, Chad, Gambia, Angola, Sudan, Ghana, and
28
Morocco), Latin America (Chile, Argentina, Brazil, Venezuela, Central America, and the
Caribbean), South Asia (Sri Lanka, Bangladesh, and Nepal), the Middle East (Iran and Syria)
and Eastern Europe (Serbia, Turkey, and Macedonia). Mahindra Tractors manufactures its
products at four plants in India, two in Mainland China, three in the United States, and one in
Australia. It has three major subsidiaries: Mahindra USA, Mahindra (China) Tractor Company,
and Mahindra Yueda (Yancheng) Tractor Company (a joint venture with the Jiangsu Yueda
Group).

Mahindra Arjun 605 DI tractor with trailer

In 2003, the Farm Equipment Sector of Mahindra & Mahindra won the Deming Application
Prize. In 2007 it received the Japan Quality Medal for implementing Total Quality
Management in its entire business operations. The company has garnered the highest customer
satisfaction index (CSI) in the industry at 88 percent. It earned a 2008 Golden Peacock Award
in the Innovative Product/Services category for its in-house development of a load car. In its
2009 survey of Asia's 200 most admired and innovative companies, the Wall Street Journal
named Mahindra & Mahindra one of the 10 most innovative Indian companies.

In addition to tractors, Mahindra sells other farm equipment. It has expanded its product-line
to include farm mechanisation products via Mahindra AppliTrac.

In 2017, Mahindra & Mahindra Ltd's Farm Equipment Sector (FES) launched 'JIVO' a small
tractor platform in the sub 25HP category.

In 2020, the company launched the Sarpanch Plus range. This ranges between 30bhp and
50bhp, and has undergone a subtle improvement as compared to the Sarpanch 575 tractor which
was launched earlier. In 2020, Mahindra also launched new equipment for potato planting.
29
Planting Master Potato + is designed in collaboration with Dewulf. On 2nd October 2020,
Mahindra rolled out Krish-e centers under its new ‘Farming as a Service’ business. This
business vertical provides progressive, affordable and accessible tech-driven services to
farmers.

Products of Mahindra Tractors

We have a wide range of tractor implements and self-propelled farm machinery for
operations from land preparation to post harvesting, to suit a wide range of crops and
farm sizes. Our products are designed to deliver ultimate operational ease and excellence
to the farmer.

Mahindra Jivo

Presenting the wide Mahindra JIVO range of compact tractors which are suitable all
agricultural operation. From 14.9 kW (20 HP) to 26.84 kW (36 HP), these tractors are
powered by fuel efficient Mahindra DI engine and are equipped with latest features
including 4 wheel drive to help you complete all tasks at ease. These tractors can be used
for all types of crops including row crops like cotton & sugarcane, vineyards and
orchards. Their highly efficient transmission ensures that you get more PTO power
delivering superior performance in rotary implements.

Mahindra Jivo Tractor Range

Mahindra Jivo 225 DI Advance

The new 2WD tractor from Mahindra, is designed specifically for your needs. Its
advanced ploughing, pulling and haulage features, aided by its multi-functional
implements give it an edge over every other tractor. The only 14.9 kW (20 HP) 2WD
tractor with DI engine, Mahindra JIVO gives you unmatched performance, power &
mileage letting you accomplish much more at much less cost. So, go ahead, the power to
shape your future is now in your hands.

30
Mahindra Jivo 225 DI 4WD Advance

The new 4WD tractor from Mahindra, is designed specifically for your needs. Its
advanced ploughing, pulling and haulage features, aided by its multi-functional
implements give it an edge over every other tractor. The only 14.9 kW (20 HP) 4WD
tractor with DI engine, Mahindra JIVO gives you unmatched performance, power &
mileage letting you accomplish much more at much less cost. So, go ahead, the power to
shape your future is now in your hands.

Mahindra Jivo 245 DI 4WD

Mahindra JIVO brings unmatched power with its highest torque of 86 Nm to carry out all
operations with ease, and the highest PTO to efficiently drive all implements.

It brings superb performance with a strong metal body for everyday rugged use, a high lift
capacity of 750 kg for lifting heavy loads easily, 4-wheel drive for better traction, and the
capacity to pull variety of implements.

Mahindra JIVO also means greater profits because of its low maintenance, best in class
mileage, and easy spare part availability with low cost of parts. Get the new Mahindra JIVO to
experience power, performance and profit like never before.

Mahindra Jivo 245 DI VINEYARD

Mahindra JIVO brings unmatched power with the highest torque of 86Nm to carry out
all operations with ease. It also offers the highest PTO HP to efficiently drive all
implements. The tractor now comes with a height adjustable seat allowing you to operate
with a lowered seat. This ensures that low hanging fruits and vines do not collide with
the driver's head. The reduced NVH makes for a comfortable and stress-free experience.
To navigate the narrowest lanes of the vineyard we shortened the bonnet by 60mm, the
steering column by 90mm and the fender height is shortened by 90mm. The new
Mahindra JIVO has a high lifting capacity of 750kg and is equipped with 4 wheel-drive
for added traction.
With lowered maintenance costs, best-in-class mileage and easy availability of spare

31
parts, your profits will only multiply. Get the new Mahindra JIVO 245 4WD to
experience power, performance, and profits like never before.

MAHINDRA JIVO 305DI 4WD, THE PERFECT ALL-ROUNDER

The new Jivo 305DI 4WD is an all-rounder tractor from Mahindra. It is best suited for
vineyards, orchards and interculture. It gives you the freedom to power multiple
applications. The only 18.2 kW (24.5 HP) 4WD tractor with DI engine, Mahindra JIVO
305DI gives you unmatched performance, power & mileage that lets you accomplish
much more at a much lesser cost. Along with a sturdy and compact design, it maneuvers
smoothly in vineyards and orchards. So why wait, the power to do everything is now in
your hands.

Mahindra Jivo 365 DI 4WD

Robust and Powerful, the new MAHINDRA JIVO 365 DI 4WD is a Lightweight tractor
designed especially for application in Paddy fields. JIVO 365's advanced DI engine gives
unmatched Power and best-in-class Mileage. It is the first tractor in India equipped with
the revolutionary Position-Auto Control (PAC) technology that makes it an absolute
Master of Puddling. The ADDC Hydraulics enabled with PAC technology help you to
work effortlessly without constantly adjusting the PC lever, thereby delivering superior
performance. This lightweight 4WD Puddling Master, when used with Mahindra's 1.6 m
Gyrovator gives uniformly levelled field and hence better quality of puddling without
getting stuck in wet conditions. Get the new MAHINDRA JIVO 365 DI 4WD to
experience Power, Performance and Profit like never before.

Mahindra XP PLUS

Presenting the new extremely Tough MAHINDRA XP PLUS Mahindra Tractors, an

international company that has manufactured more than 30 lakh tractors for more than
30 years, this time offers a Tough MAHINDRA XP PLUS. The MAHINDRA XP PLUS
tractors are extremely powerful with the lowest fuel consumption in their category. Due
to its powerful ELS DI engine, high max torque and excellent backup torque, it gives

32
unmatched performance with all farming equipment. With the first time in the industry
6-year warranty the MAHINDRA XP PLUS is truly tough.

Mahindra SP PLUS

Presenting the new extremely Tough MAHINDRA SP PLUS Mahindra Tractors, an

international company that has manufactured more than 30 lakh tractors for more than
30 years, this time offers a Tough MAHINDRA SP PLUS. The MAHINDRA SP PLUS
tractors are extremely powerful with the lowest fuel consumption in their category. Due
to its powerful ELS DI engine, high max torque and excellent backup torque, it gives
unmatched performance with all farming equipment. With the first time in the industry
6-year warranty the MAHINDRA SP PLUS is truly tough.

Mahindra YUVO

The new age MAHINDRA YUVO opens doors to new possibilities in farming. Its
advanced technology comprising of a powerful engine, transmission with all new
features and advanced hydraulics ensures that it always does more, faster and better.
MAHINDRA YUVO is packed with many best-in-class features like more back-up
torque, 12F + 3R gears, highest lift capacity, adjustable deluxe seat, powerful wrap-
around clear lens headlamps etc. which stands it apart from the rest. It can perform more
than 30 different applications, ensuring that whatever be the need there is a YUVO for
it.

Mahindra NOVO

ARJUN NOVO is a technologically advanced tractor which will change the way you
farm. Its powerful engine can take on toughest agricultural tasks. Arjun NOVO is built
handle 40 farming applications which include puddling, harvesting, reaping and haulage
amongst others. High lift capacity, advanced synchromesh 15F + 3R transmission and
longest service interval of 400 hours make the tractor more special. ARJUN NOVO
delivers uniform and consistent power with minimum RPM drop in all application and
soil conditions. It’s high lift capacity hydraulic system, makes it suitable for numerous
farming and haulage operations. An ergonomically designed operator station, low

33
maintenance and best in class fuel efficiency in the category are some of the key
highlights of this technologically advanced tractor.

After Sales Service

Mahindra’s wide network of channel partners for implements and self-propelled farm
machinery ensure easy availability of spares and on-time service during the agricultural
season through a well-trained, thoroughly equipped, and responsive service team.

Channel Partners

We sell and provide after sales service for tractor implements and self-propelled farm
machinery through a country-wide network of channel partners. Contact us for
information on our dealer network.

Finance

We have tie-ups with several leading financiers for up to 80% standalone financing of
tractor implements and self-propelled farm machinery. For more information, reach out
to your nearest Mahindra tractor dealer or contact us.

VISION

To Be an Engineering Company of International Repute, providing best of products

@ services with contemporary technologies to suit customer needs

MISSION

To focus on our customers market challenges and needs by providing excellent products
in order to consistently create maximum value for our customers

Mahindra Group Chairman’s message to employees on 2 October 2020, as part of the

75th anniversary celebration

Little did we dream when we were planning our 75th birthday celebrations, that we would be
celebrating it in the midst of a global pandemic. Little did we imagine that we would be
celebrating in our homes instead of our locations. Little did we know that we would be six
34
months into a lockdown that would turn our lives upside down. But it is when things are darkest
that we most need to celebrate, to remind ourselves that no matter how deep the gloom, we
CAN and we WILL create our own light. So good morning to you all. Here’s to Founders’ Day
2020 and 75 great years; here’s to over two hundred thousand wonderful colleagues; and here’s
to celebration.

I am truly delighted that I am getting a chance today to virtually visit your homes, to greet you
and your families, and to thank you and to those who have gone before you, for bringing us to
this wonderful milestone.

It all started on 2nd October 1945, with these two men and their dreams. They were both
successful businessmen. And they were also idealists. With India on the verge of independence,
they saw themselves as businessmen who had the opportunity to contribute to the founding of
a new nation. So they founded M&M. And they were not shy about articulating their dreams
for their company. This is the first advertisement published by Mahindra and Mahommad in
November 1945, one month after the company was born. It gives us a clear insight into the
minds of our founders and their vision for the company. They express a desire to “put on record
that Mahindra and Mahommad, though a business firm, is imbued with a national purpose and
a new outlook”. They describe the company they want to create. It’s an organisation where
there will always be the “encouragement of individual initiative”. It is a workplace based on
the belief that the “labourer is worthy of his/her hire” where “…the dignity of human toil”…
is valued where “…neither colour, creed nor caste should stand in the way of harmonious
working”. And finally, they publicly commit to the people of India that the company they have
just founded “holds out the promise of a better land for you to live in, and a healthier and
happier life for you to enjoy.” These are all quotes from that original advertisement. One of our
programmes for this year is the spirit of service. Well, it was born as far back as 1945.

When we look back on this unique advertisement 75 years later, it is incredible how our Core
values of good corporate citizenship, professionalism and the dignity of the individual reflect
the thoughts of our Founders. And how our core purpose of Rise and the spirit of service it
embodies, reflects their dreams for a better land and a happier life. Their ideals have permeated
our DNA. They have talked about India, but I am sure that they would be delighted to see that

35
today we are taking those ideals across the world to every global member of the Mahindra
family and every community that we serve.

Awards owned by Mahindra

01
3rd Amongst Top 100 Emerging Market MNCs for Business Transparency

02
'Best Companies to work for' by Business Today

03
'Manufacturing Innovator of the year' at TIME India Awards 2017 (for M&M)

04
Golden Peacock Award 2016 (for Mahindra Pride School)

05
Best Innovative CSR Project by India CSR Awards 2016 (for Mahindra Finance)

06
Global Sustainability Award, Platinum rating at World Renewable Energy Congress 2016 (for
AD Nashik Plant)

07
Gold Award in 'Solar O&M contractor of the year-utility scale' category, by RE Assets 2017
Solar Awards (for Mahindra Susten)

36
08
100 Best Companies for Women in India, by Working Mother and Avtar 2016 (for Mahindra
Lifespaces)

09
Technology Innovation of the year award (for Mahindra Blazo Truck)

10
Electric Mobility Solution Award of the year, NDTV Car and Bike Awards 2017 (for e2oPlus)

11
Dr Pawan Goenka awarded the highly acclaimed FISITA Medal 2016 (becomes the first Indian
to receive this award)

37
 CHAPTER-III
THEORITICAL FRAME WORK

38
METHODOLOGY OF THE STUDY

COLLECTION OF THE DATA:

The information related to this project collected from secondary data sources.

1) Primary data

2) Secondary data

PRIMARY DATA:

Primary data is the information collected directly with any references. In this study it
as mainly through interviews with concerned officers and staff either individually or
collectively. The primary data has been obtained through the interactions with staff members
of the company.

SECONDARY DATA:

It was collected from already published books . Secondary data helps researcher to
save time. While primary researchers takes a considerable amount of time in the form of
collecting and analyzing the data. Secondary data offers readymade solutions.

The secondary data has been obtained through:

1. Annual Reports and Internal Records of the company.

2. Journals and text books related to financial management.

REVIEW OF LITERATURE:

Financial performance analysis is the process of identifying the financial strengths and
weaknesses of the firm by properly establishing the relationship between the items of balance
sheet and profit and loss account. It also helps in short-term and long-term forecasting and
growth can be identified with the help of financial performance analysis.

39
 Financial accounting is the process of systematic recording of the business transactions
in the various books of accounts maintained by the organization with the ultimate intention of
preparing the financial statement there from. These financial statements are basically in two
forms. One, profitability statement which indicates the result of operations carried out by the
organization during a given period of time and second balance sheet which indicates the state
of affairs of the organization at any given point of time in terms of its assets and liabilities.

Main purpose of financial accounting is to ascertain profit or loss and to indicate

financial position of an enterprise. Two fundamental statements of financial accounting are
income and expenditure statement and balance sheet is prepared on a particular date to
determine the financial position of the firm.

Financial accounting summaries transactions taking place during a period with the
objective of preparing the financial statement.

FINANCIAL STATEMENT ANALYSIS

What is a financial statement?

The term financial statement refers to statement of Changes in financial position, Statement
of Retained Earnings, Balance Sheet, Profit and Loss Account, etc. But, generally, the
financial statements include only two statements; they are profit and Loss Account and
Balance Sheet. It is observed that the mere presentation of these statements does not serve the
purpose of anybody in anyway. The importance of these statements lies in their analysis and
interpretation. In the beginning, analysis was done only for extending credit, but now
it is being used as most important function of Management Accountant for providing
various useful information to many persons.

Some of the schedules are prepared and submitted along with the financial statements for
meaningful presentation. Such schedules are schedule of fixed assets, schedule of debtors,
schedule of creditors, schedule of investments and the like.

40
Nature of Financial Statements

Generally, financial statements are prepared in order to disclose the financial position of
business concerns at a point of time and also operating results during the period under review.
The interested parties of the financial statements are thinking that the values shown in the
financial statements to be real and absolute. But, this is not correct understanding. The values
shown in the financial statements never convey the current or economic values. The data
shown in the financial statements are greatly affected by the following facts.

1. Recorded Facts: All the business transactions which are having financial character alone
recorded in the books of accounts (Journals, Ledger and other Subsidiary Books). Such
recorded information are used for preparing financial statements. After some gradual passage
of time, these recorded information become historical in nature. Besides, the financial
statements are showing results of the various transactions which are taken place at various
dates.
There is no place for their current value in the financial statements which is neither justified
nor logical. For example: If a plant and machinery is purchased in 2005 and another plant and
machinery is purchased in 2010, then the total amount paid at both dates shall be shown under
“Plant and Machinery Account” in the books. The purchasing power of money in 2005 is not
the same in 2010. Hence, the recording the value of plant and machinery in the books of
account is not valid and correct. Besides, the assets are shown in the Balance Sheet either on
Straight Line Method or Written Down Value Method. Market value or replacement cost is
not shown in the financial statement.

2. Accounting Conventions: There are four types of accounting conventions. They are
convention of conservatism, convention of full disclosure, convention of consistency and
convention of materiality. These are used for valuation of raw materials, stock offinished
goods, debtors and the like. Many companies does not follow same pattern of conventions
throughout its life. Hence, the financial statements fail to satisfy the essential elements of
comparison.

3. Postulates: There are some postulates and assumptions just like accounting concepts and
conventions. Such postulates and assumptions are used for preparing. financial statements. In

41
other words, the conventions used in financial statements are based on certain postulates. It
is assumed that the purchasing power of money is constant for all the period. Hence, the
management accountants are recording all the business transactions in rupee value on
different dates without making any distinction between the rupee value of two dates.
4. Personal Judgement: Personal judgement plays a vital role in the preparation of financial
records and financial statements. The management accountants may use their judgement in
choosing the method of valuation of closing inventory, in calculating the provision for bad
debts and in choosing the method of charging the depreciation of fixed assets. Likewise, the
application of various accounting concepts and conventions depends upon the personal
judgement of the management accountant. Therefore, different meaning and results can be
obtained from the financial statements of the same company. Based on the different results,
different recommendations may be provided for the growth and development of a business
concern.

Features of Financial Statements

The important features of financial statements are as follows.

1. Financial Statements are prepared at the end of the accounting period.

2. Financial Statements disclose both facts and opinions.
3. Financial statements are prepared on the going concern value.
4. Financial statements are recorded facts of financial transactions based on historical
cost.
5. Financial statements are greatly affected by personal judgement of the accountants.

Objectives of Financial Statements

The different types of people are using the financial statements. They need different types of
information. Hence, the main objective of financial statements is fulfilling the needs of such
people. Even though, some other objectives are briefly explained below.

42
 1. To provide an accurate and reliable financial information about the resources and
usage in a business unit within the stipulated time.

2. To provide overall changes made in the financial information relating to resources and
usage for a particular period.

3. To provide accurate and reliable financial information relating to net changes made
between resources and usage for a particular period arising out of business activities.

4. To provide financial information which are helping the top management for estimating
earning potential of business.

Meaning of Analysis

Analysis means the process of splitting or broken up of the contents of financial statements
into many parts for getting meaningful information at the maximum.

Meaning of Interpretation

Interpretation means explaining the meaning and significance of the rearranged and/or
modified data of the financial statements.

Procedure for Analysis and Interpretation

To make an effective analysis and interpretation of financial statements, the following

groundwork are required to be completed.

1. The objectives of financial statement analysis is the basis for the selection of
techniques of analysis. Hence, the organization should decide the purpose of financial
statement analysis.
2. The extent of interpretation is also decided to select right type of techniques of
financial statement analysis.

3. The financial statements are prepared on certain assumptions, principles and practices
which are ascertained to understand their significance.
4. Additional information required for the work of interpretation should be collected
43
 properly.
5. The collected data should be presented in a logical sequence by rearrangement of data.
6. Data should be analyzed for preparing comparative statement, common size
statement, trend percentage, calculation of ratios and the like.

7. General market conditions and economic conditions are taken into consideration for
analyzing and interpreting the collected facts.

8. Interpreted data and information should be presented in a suitable report form.

Objectives of Analysis and Interpretation

Many interested parties of financial statements are analyzed and interpreted according to their
varied objectives. In spite of the variations in the objectives of analysis and interpretation by
various classes of people, there are some common objectives of interpretation which are
presented below.

1. To examine the earning capacity and efficiency of various business activities with
the help of income statements.To measure the managerial efficiency under various
business situations.
2. To estimate the performance evaluation of different departments over a period of
time.
3. To measure short term and long term solvency position of the business
organization with the help of Balance Sheet.
4. To examine the source of finance and way of utilizing the available finance.
5. To determine earning capacity and future prospects of the business concern.
6. To identify the way of utilizing fixed assets and the role of fixed assets on
maintaining the earning capacity of the business concern.
7. To investigate the future potential of the business concern.
8. To compare operational efficiency of similar concerns engaged in the same industry.
9. To identify the growth trend of the business organization.

44
Importance of Analysis and Interpretation

All the quantitative information i.e. financial accounting information are intelligibly analyzed
and interpreted so that significant facts and relationship concerning various aspects of
financial life of a business concern is known to everybody. In this way, various factors have
increased the importance of the analysis and interpretation of financial statements.

1. Wrong and defective decisions are taken by the top management in the absence of
analysis and interpretation.
2. Sometimes, hasty and intuitive decisions are also taken by the various responsible
executives.
3. Everybody has limited experience in business activities. Hence, one can easily
understand the complexities of business activities through analysis and interpretation.
4. If any decision is taken on the basis of intuition or conclusion derived, there is no
meaning in decision and nobody understands the decision. In other words, if the
decisions are based on scientific analysis and interpretation, everybody understands the
decision very easily.
Analysis and interpretation are necessary to verify and examine the correctness and accuracy
of the decisions already taken on the basis of intuition

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.

“Analyzing financial statements,” according to Metcalf and Titard, “is a process of evaluating
the relationship between component parts of a financial statement to obtain a better
understanding of a firm’s position and performance.”

45
In the words of Myers, “Financial statement analysis is largely a study of relationship among
the various financial factors in a business as disclosed by a single set-of statements and a
study of the trend of these factors as shown in a series of statements.”

Users of Financial Statement Analysis

There are a number of users of financial statement analysis. They are:

▪ Creditors: Anyone who has lent funds to a company is interested in its ability to pay
back the debt, and so will focus on various cash flow measures.
▪ Investors: Both current and prospective investors examine financial statements to learn
about a company's ability to continue issuing dividends, or to generate cash flow, or to
continue growing at its historical rate
▪ Management: The company controller prepares an ongoing analysis of the company's
financial results, particularly in relation to a number of operational metrics that are not
seen by outside entities (such as the cost per delivery, cost per distribution channel, profit
by product, and so forth).
▪ Regulatory authorities: If a company is publicly held, its financial statements are
examined by the Securities and Exchange board to see if its statements conform to the
various accounting standards.
▪ Others:

▪ Bankers and financial institutions

▪ Employees.
▪ Government.
▪ Trade associations.
▪ Economists and researchers.
▪ Taxation authorities

46
Methods of Financial Statement Analysis:
There are two key methods for analyzing financial statements.

The first method is the use of horizontal and vertical analysis. Horizontal analysis is the
comparison of financial information over a series of reporting periods, while vertical analysis
is the proportional analysis of a financial statement, where each line item on a financial
statement is listed as a percentage of another item. Typically, this means that every line item
on an income statement is stated as a percentage of gross sales, while every line item on a
balance sheet is stated as a percentage of total assets. Thus, horizontal analysis is the review
of the results of multiple time periods; while vertical analysis is the review of the proportion
of accounts to each other within a single period.

The second method for analyzing financial statements is the use of many kinds of ratios.
You use ratios to calculate the relative size of one number in relation to another. After you
calculate a ratio, you can then compare it to the same ratio calculated for a prior period, or
that is based on an industry average, to see if the company is performing in accordance with
expectations. There are several general categories of ratios, each designed to examine a
different aspect of a company's performance. The general groups of ratios are:
▪ Liquidity ratios. This is the most fundamentally important set of ratios,
because they measure the ability of a company to remain in business.
▪ Cash coverage ratio. Shows the amount of cash available to pay interest.
▪ Current ratio. Measures the amount of liquidity available to pay for current
liabilities.
▪ Quick ratio. The same as the current ratio, but does not include inventory.
▪ Liquidity index. Measures the amount of time required to convert assets into cash.
▪ Activity ratios. These ratios are a strong indicator of the quality of management,
since they reveal how well management is utilizing company resources.
▪ Accounts payable turnover ratio. Measures the speed with which a company
pays its suppliers.
▪ Accounts receivable turnover ratio. Measures a company's ability to collect
accounts receivable.
47
▪ Fixed asset turnover ratio. Measures a company's ability to generate sales from
a certain base of fixed assets.
▪ Inventory turnover ratio. Measures the amount of inventory needed to support
a given level of sales.
▪ Sales to working capital ratio. Shows the amount of working capital required
to support a given amount of sales.
▪ Working capital turnover ratio. Measures a company's ability to generate sales
from a certain base of working capital.
▪ Leverage ratios. These ratios reveal the extent to which a company is relying
upon debt to fund its operations, and its ability to pay back the debt.
▪ Debt to equity ratio. Shows the extent to which management is willing to fund
operations with debt, rather than equity.
▪ Debt service coverage ratio. Reveals the ability of a company to pay its debt
obligations.
▪ Fixed charge coverage. Shows the ability of a company to pay for its fixed costs.
2. Profitability ratios. These ratios measure how well a company performs in
generating a profit..

▪ Breakeven point. Reveals the sales level at which a company breaks even.
▪ Contribution margin ratio. Shows the profits left after variable costs are
subtracted from sales.
▪ Gross profit ratio. Shows revenues minus the cost of goods sold, as a proportion
of sales.

▪ Margin of safety. Calculates the amount by which sales must drop before a
company reaches its breakeven point.
▪ Net profit ratio. Calculates the amount of profit after taxes and all expenses have
been deducted from net sales.
▪ Return on equity. Shows company profit as a percentage of equity.
▪ Return on net assets. Shows company profits as a percentage of fixed assets and
working capital.
▪ Return on operating assets. Shows company profit as percentage of assets
48
 utilized.

Problems with Financial Statement Analysis

While financial statement analysis is an excellent tool, there are several issues to be aware of
that can interfere with your interpretation of the analysis results. These issues are:

▪ Comparability between periods. The company preparing the financial statements may
have changed the accounts in which it stores financial information, so that results may
differ from period to period. For example, an expense may appear in the cost of goods
sold in one period, and in administrative expenses in another period.
▪ Comparability between companies. An analyst frequently compares the financial
ratios of different companies in order to see how they match up against each other.
However, each company may aggregate financial information differently, so that the
results of their ratios are not really comparable. This can lead an analyst to draw incorrect
conclusions about the results of a company in comparison to its competitors.
Operational information. Financial analysis only reviews a company's financial
information, not its operational information, so you cannot see a variety of key indicators of
future performance, such as the size of the order backlog, or changes in warranty claims.
Thus, financial analysis only presents part of the total picture.
Techniques to use to analyse your financial statements:
Trend Analysis

Trend analysis is also called time-series analysis. Trend analysis helps a firm's financial
manager determine how the firm is likely to perform over time. Trend analysis is based on
historical data from the firm's financial statements and forecasted data from the firm's pro
forma, or forward- looking, financial statements.

One popular way of doing trend analysis is by using financial ratio analysis. If you
calculate financial ratios for a business firm, you have to calculate at least two years of ratios
in order for them to mean anything. Ratios are meaningless unless you have something to

49
compare them to, in this case other years of data. Trend analysis is even more powerful if you
have and use several years of financial ratios.

Common size financial statement analysis: Common size financial statement analysis is
analyzing the balance sheet and income statement using percentages. All income statement line
items are stated as a percentage of sales. All balance sheet line items are stated as a percentage
of total assets. For example, on the income statement, every line item is divided by sales and
on the balance sheet, every line item is divided by total assets. This type of analysis enables
the financial manager to view the income statement and balance sheet in a percentage format
which is easy to interpret.

Percentage Change Financial Statement Analysis: Percentage change financial statement

analysis gets a little more complicated. When you use this form of analysis, you calculate
growth rates for all income statement items and balance sheet accounts relative to a base year.
This is a very powerful form of financial statement analysis. You can actually see how different
income statement items and balance sheet accounts grew or declined relative to grows or
declines in sales and total assets.

Benchmarking: Benchmarking is also called industry analysis. It involves comparing a

company to other companies in the same industry in order to see how one company is doing
financially compared to the industry. This type of analysis is very helpful to the financial
manager as it helps to see if any financial adjustments need to be made.

Financial ratio analysis: are usually used for benchmarking analysis. Financial ratios for other
companies can be obtained from a number of sources. Here is an excellent source of industry
average ratios. In order to do benchmarking, you compare the ratios for one company to the
ratios for other companies in the same industry. You have to be sure that the industry average
ratios are calculated in the same way the ratios for your company are calculated when you do
benchmarking.

Using these four financial statement analysis techniques help a financial manager know where
a business firm is financially both internally and as compared to other firms in the industry.

50
Together, they are powerful analysis tools that will help every business firm stay solvent and
profitable.

Objectives of Financial Statement Analysis:

The major objectives of financial statement analysis are to provide decision makers
information about a business enterprise for use in decision-making. Users of financial
statement information are the decision-makers concerned with evaluating the economic
situation of the firm and predicting its future course.

Financial statement analysis can be used by the different users and decision makers to
achieve the following objectives:
1. Assessment of Past Performance and Current Position:

Past performance is often a good indicator of future performance. Therefore, an investor or

creditor is interested in the trend of past sales, expenses, net income, cash flow and return on
investment. These trends offer a means for judging management’s past performance and are
possible indicators of future performance.

Similarly, the analysis of current position indicates where the business stands today. For
instance, the current position analysis will show the types of assets owned by a business
enterprise and the different liabilities due against the enterprise. It will tell what the cash
position is, how much debt the company has in relation to equity and how reasonable the
inventories and receivables are.

2. Prediction of Net Income and Growth Prospects:

The financial statement analysis helps in predicting the earning prospects and growth rates in
the earnings which are used by investors while comparing investment alternatives and other
users interested in judging the earning potential of business enterprises. Investors also
consider the risk or uncertainty associated with the expected return.

51
The decision makers are futuristic and are always concerned with the future. Financial
statements which contain information on past performances are analyzed and interpreted as a
basis for forecasting future rates of return and for assessing risk.

3. Prediction of Bankruptcy and Failure:

Financial statement analysis is a significant tool in predicting the bankruptcy and failure
probability of business enterprises. After being aware about probable failure, both managers
and investors can take preventive measures to avoid/minimise losses.

Corporate managements can effect changes in operating policy, reorganize financial structure
or even go for voluntary liquidation to shorten the length of time losses.

In accounting and finance area, empirical studies conducted have suggested a set of financial
ratios which can give early signal of corporate failure. Such a prediction model based on
financial statement analysis is useful to managers, investors and creditors. Managers may use
the ratios prediction model to assess the solvency position of their firms and thus can take
appropriate corrective actions.

Investors and shareholders can use the model to make the optimum portfolio selection and to
bring changes in the investment strategy in accordance with their investment goals. Similarly,
creditors can apply the prediction model while evaluating the creditworthiness of business
enterprises.

4. Loan Decision by Financial Institutions and Banks:

Financial statement analysis is used by financial institutions, loaning agencies, banks and
others to make sound loan or credit decision. In this way, they can make proper allocation of

52
credit among the different borrowers. Financial statement analysis helps in determining credit
risk, deciding terms and conditions of loan if sanctioned, interest rate, maturity date etc.

However, objectives of financial statements analysis may be stated to bring out the
significance of such analysis:
(i) To assess the earning capacity or profitability of the firm.
(ii) To assess the operational efficiency and managerial effectiveness.
(iii) To assess the short term as well as long term solvency position of the firm.
(iv) To identify the reasons for change in profitability and financial position of the firm.
(v) To make inter-firm comparison.
(vi) To make forecasts about future prospects of the firm.

IMPORTANCE OF ANALYSIS OF FINANCIAL STATEMENT

Financial statement is prepared at a certain point of time according to established convention.

These statements are prepared to suit the requirement of the proprietor. For measuring the
financial soundness, efficiency, profitability and future prospects of the concern, it is
necessary to analyze the financial statement. Following purposes are served by the Financial
analysis: -

Help in Evaluating the operational efficiency of the Concern:- It is necessary to analyze

the financial statement for matching the total expenses incurred in manufacturing,
Advertising, selling and distribution of the finished goods and total financial expanses of the
current year comparing with the total expanses of the previous year and evaluate the
managerial efficiency of concern.

Help in Evaluating the short and long term financial position:- It is necessary to analyze
the financial statement for comparing the current assets and current liabilities to evaluate the
short term and long term financial soundness.

53
Help in calculating the profitability:- It is necessary to analyze the financial statement to
know the gross profit and net profit.

Help in indicating the trend of achievements:- Analysis of financial statement helps in

comparing the Financial position of previous year and also compare various expenses,
purchases and sales growth, gross and net profit. Cost of goods sold, total value of assets and
liabilities can be compare easily with the help of Analysis of financial statement.

Forecasting, budgeting and deciding future line of action:-The potential growth of the
business can be predicts by the analysis of financial statement which helps in deciding future
line of action. Comparisons of actual performance with target show all the shortcomings.

Meaning of Common-Size Statement:

The common-size statements, balance sheet and income statement are shown in analytical
percentages. The figures are shown as percentages of total assets, total liabilities and total
sales. The total assets are taken as 100 and different assets are expressed as a percentage of
the total. Similarly, various liabilities are taken as a part of total liabilities.

These statements are also known as component percentage or 100 per cent statements because
every individual item is stated as a percentage of the total 100. The short-comings in
comparative statements and trend percentages where changes in items could not be compared
with the totals have been covered up. The analyst is able to assess the figures in relation to total
values.

The common-size statements may be prepared in the following way:

(1) The totals of assets or liabilities are taken as 100.

(2) The individual assets are expressed as a percentage of total assets, i.e., 100 and
different liabilities are calculated in relation to total liabilities. For example, if total assets
are Rs 5 lakhs and inventory value is Rs 50,000, then it will be 10% of total assets
(50,000×100/5,00,000)
54
Types of Common-Size Statements:
(i) Common-Size Balance Sheet:

A statement in which balance sheet items are expressed as the ratio of each asset to total assets
and the ratio of each liability is expressed as a ratio of total liabilities is called common-size
balance sheet.

The common-size balance sheet can be used to compare companies of differing size. The
comparison of figures in different periods is not useful because total figures may be affected
by a number of factors. It is not possible to establish standard norms for various assets. The
trends of figures from year to year may not be studied and even they may not give proper
results.

(1) Both the companies are suffering from inadequacy of working capital. The
percentage of current liabilities is more than the percentage of current assets in both the
companies. The first company is suffering more from working capital position than the
second company because current liabilities are more than current assets by 3.44% and
this percentage is 1.86% in the case of second company.

(2) A close look at the balance sheets shows that investments in fixed assets have been
financed from working capital in both the companies. In S & Co. fixed assets account
for 94.52% of total assets while long- term funds account for 91.08% of total funds. In
K& Co. fixed assets account for 89.48% whereas long term funds account for 87.62% of
total funds Instead of using long- term funds for working capital purposes the companies
have used working capital for purchasing fixed assets.

(3) Both the companies face working capital problem and immediate steps should be
taken to issue more capital or raise long-term loans to raise working capital position.

55
 (ii) Common Size Income Statement:

The items in income statement can be shown as percentages of sales to show the relation of
each item to sales. A significant relationship can be established between items of income
statement and volume of sales. The increase in sales will certainly increase selling expenses
and not administrative or financial expenses.

In case the volume of sales increases to a considerable extent, administrative and financial
expenses may go up. In case the sales are declining, the selling expenses should be reduced at
once. So, a relationship is established between sales and other items in income statement and
this relationship is helpful in evaluating operational activities of the enterprise.

Trend analysis : involves the collection of information from multiple time periods and
plotting the information on a horizontal line for further review. The intent of this analysis is
to spot actionable patterns in the presented information.

In business, trend analysis is typically used in two ways, which are as follows:

▪ Revenue and cost analysis. Revenue and cost information from a company's income
statements can be arranged on a trend line for multiple reporting periods and examined
for trends and inconsistencies. For example, a sudden spike in expense in one period
followed by a sharp decline in the next period can indicate that an expense was booked
twice in the first month. Thus, trend analysis is quite useful for examining preliminary
financial statements for inaccuracies, to see if adjustments should be made before the
statements are released for general use.
▪ Investment analysis. An investor can create a trend line of historical share prices, and
use this information to predict future changes in the price of a stock. The trend line can
be associated with other information for which a cause-and-effect relationship may exist,
to see if the causal relationship can be used as a predictor of future stock prices. Trend
analysis can also be used for the entire stock market, to detect signs of a impending

56
 change from a bull to a bear market, or the reverse.

When used internally (the revenue and cost analysis function), trend analysis is one of the
most useful management tools available. The following are examples of this type of usage:

▪ Examine revenue patterns to see if sales are declining for certain products, customers,
or sales regions.
▪ Examine expense report claims for evidence of fraudulent claims.
▪ Examine expense line items to see if there are any unusual expenditures in a reporting
period that require additional investigation.
▪ Extend revenue and expense line items into the future for budgeting purposes, to
estimate future results.

When trend analysis is being used to predict the future, keep in mind that the factors formerly
impacting a data point may no longer be doing so to the same extent. This means that an
extrapolation of a historical time series will not necessarily yield a valid prediction of the future.

Thus, a considerable amount of additional research should accompany trend analysis when
using it to make predictions.

Comparative Statements:

Meaning of Comparative Statements :

The comparative financial statements are statements of the financial position at different
periods; of time. The elements of financial position are shown in a comparative form so as to
give an idea of financial position at two or more periods. Any statement prepared in a
comparative form will be covered in comparative statements.

57
From practical point of view, generally, two financial statements (balance sheet and income
statement) are prepared in comparative form for financial analysis purposes. Not only the
comparison of the figures of two periods but also be relationship between balance sheet and
income statement enables an in depth study of financial position and operative results.

The comparative statement may show:

(i) Absolute figures (rupee amounts).
(ii) Changes in absolute figures i.e., increase or decrease in absolute figures.
(iii) Absolute data in terms of percentages.
(iv) Increase or decrease in terms of percentages.

The analyst is able to draw useful conclusions when figures are given in a comparative
position. The figures of sales for a quarter, half -year or one year may tell only the present
position of sales efforts. When sales figures of previous periods are given along with the
figures of current periods then the analyst will be able to study the trends of sales over
different periods of time. Similarly, comparative figures will indicate the trend and direction
of financial position and operating results.

The financial data will be comparative only when same accounting principles are used in
preparing these statements. In case of any deviation in the use of accounting principles this
fact must be mentioned at the foot of financial statements and the analyst should be careful in
using these statements.

Types of Comparative
Statements: The two
comparative statements are
▪ Balance sheet, and
▪ Income statement.

58
 (i) Comparative Balance Sheet:

The comparative balance sheet analysis is the study of the trend of the same items, group of
items and computed items in two or more balance sheets of the same business enterprise on
different dates.’ The changes in periodic balance sheet items reflect the conduct of a business.

The changes can be observed by comparison of the balance sheet at the beginning and at the
end of a period and these changes can help in forming an opinion about the progress of an
enterprise. The comparative balance sheet has two columns for the data of original balance
sheets. A third column is used to show increases in figures. The fourth column may be added
for giving percentages of increases or decreases.

Guidelines for Interpretation of Comparative Balance Sheet:

While interpreting Comparative Balance Sheet the interpreter is expected to study
the following aspects:

(1) Current financial position and liquidity position.

(2) Long -term financial position.
(3) Profitability of the concern.

(1) For studying current financial position or short -term financial position of a concern,
one should see the working capital in both the years. The excess of current assets over
current liabilities will give the figures of working capital. The increase in working capital
will mean improvement in the current financial position of the business.

An increase in current assets is accompanied by the increase in current liabilities of the same
amount will not show any improvement in the short-term financial position. A student should
study the increase or decrease in current assets and current liabilities and this will enable him
to analyze the current financial position.

59
The second aspect which should be studied in current financial position is the liquidity
position of the concern. If liquid assets like cash in hand, cash at bank, bills receivables,
debtors, etc. show an increase in the second year over the first year, this will improve the
liquidity position of the concern.

The increase in inventory can be on account of accumulation of stocks for want of customers,
decrease in demand or inadequate sales promotion efforts. An increase in inventory may
increase working capital of the business but it will not be good for the business.

The long -term financial position of the concern can be analyzed by studying the changes in
fixed assets, long-term liabilities and capital .The proper financial policy of concern will
be to finance fixed assets by the issue of either long-term securities such as debentures, bonds,
loans from financial institutions or issue of fresh share capital.

An increase in fixed assets should be compared to the increase in long-term loans and capital.
If the increase in fixed assets is more than the increase in long term securities then part of
fixed assets has been financed from the working capital. On the other hand, if the increase in
long-term securities is more than the increase in fixed assets then fixed assets have not only
been financed from long-term sources but part of working capital has also been financed from
long-term sources. A wise policy will be to finance fixed assets by raising long-term funds.

The nature of assets which have increased or decreased should also be studied to form an
opinion about the future production possibilities. The increase in plant and machinery will
increase production capacity of the concern. On the liabilities side, the increase in loaned
funds will mean an increase in interest liability whereas an increase in share capital will not
increase any liability for paying interest. An opinion about the long-term financial position
should be formed after taking into consideration above-mentioned aspects.

60
(1) The next aspect to be studied in a comparative balance sheet question is the profitability
of the concern. The study of increase or decrease in retained earnings, various resources
and surpluses, etc. will enable the interpreter to see whether the profitability has
improved or not. An increase in the balance of Profit and Loss Account and other
resources created from profits will mean an increase in profitability to the concern. The
decrease in such accounts may mean issue of dividend, issue of bonus shares or
deterioration in profitability of the concern.

After studying various assets and liabilities an opinion should be formed about the financial
position of the concern. One cannot say if short-term financial position is good then long-
term financial position will also be good or vice-versa. A concluding word about the overall
financial position must be given at the end.

(i) Comparative Income Statement:

The Income statement gives the results of the operations of a business. The comparative
income statement gives an idea of the progress of a business over a period of time. The
changes in absolute data in money values and percentages can be determined to analyze the
profitability of the business. Like comparative balance sheet, income statement also has four
columns. First two columns give figures of various items for two years. Third and fourth
columns are used to show increase or decrease in figures in absolute amounts and percentages
respectively.

Guidelines for Interpretation of Income Statements:

The analysis and interpretation of income statement will involve the following steps:

The increase or decrease in sales should be compared with the increase or decrease in cost of
goods sold. An increase in sales will not always mean an increase in profit. The profitability
will improve if increase in sales is more than the increase in cost of goods sold. The amount
of gross profit should be studied in the first step.

61
1. The second step of analysis should be the study of operational profits. The operating
expenses such as office and administrative expenses, selling and distribution expenses
should be deducted from gross profit to find out operating profits.

2. An increase in operating profit will result from the increase in sales position and
control of operating expenses. A decrease in operating profit may be due to an increase
in operating expenses or decrease in sales. The change in individual expenses should
also be studied. Some expenses may increase due to the expansion of business
activities while others may go up due to managerial inefficiency.

3. The increase or decrease in net profit will give an idea about the overall profitability
of the concern. Non-operating expenses such as interest paid, losses from sale of
assets, writing off of deferred expenses, payment of tax, etc. decrease the figure of
operating profit. When all non- operating expenses are deducted from operational
profit, we get a figure of net profit. Some non- operating incomes may also be there
which will increase net profit. An increase in net profit will gave us an idea about the
progress of the concern.

4. An opinion should be formed about profitability of the concern and it should be given
at the end. It should be mentioned whether the overall profitability is good or not.

62
 CHAPTER -IV

DATA ANALYSIS &

INTERPRETATION

63
CONSOLIDATED PROFIT AND LOSS ACCOUNT OF MAHINDRA AND
MAHINDRA LIMITED FROM THE PERIOD 2017 TO 2021.

PROFIT & LOSS MAR 21 MAR 20 MAR 19 MAR 18 MAR 17

ACCOUNT OF MAHINDRA
AND MAHINDRA (in Rs.
Cr.)

12 mths 12 mths 12 mths 12 mths 12 mths

INCOME

REVENUE FROM 45,040.98 44,897.93 52,960.80 48,871.76 46,709.17

OPERATIONS [GROSS]

Less: Excise/Sevice 0.00 0.00 0.00 759.44 3,330.24

Tax/Other Levies

REVENUE FROM 45,040.98 44,897.93 52,960.80 48,112.32 43,378.93

OPERATIONS [NET]

TOTAL OPERATING 45,040.98 45,487.78 53,614.00 48,685.55 44,053.50

REVENUES

Other Income 1,221.31 1,667.81 1,688.97 1,036.36 1,345.46

TOTAL REVENUE 46,262.29 47,155.59 55,302.97 49,721.91 45,398.96

EXPENSES

Cost Of Materials Consumed 25,035.89 22,873.74 27,095.07 23,265.31 21,129.65

Operating And Direct 0.00 0.00 0.00 0.00 0.00

Expenses

64
Changes In Inventories Of -240.00 409.49 -950.19 194.87 57.87
FG,WIP And Stock-In Trade

Employee Benefit Expenses 2,858.80 2,880.08 2,980.22 2,840.89 2,714.43

Finance Costs 370.88 113.23 113.39 112.20 159.59

Depreciation And 2,232.99 2,222.63 1,860.40 1,479.42 1,526.38

Amortisation Expenses

Other Expenses 4,083.26 5,384.59 5,867.23 5,614.45 4,880.33

TOTAL EXPENSES 41,158.94 42,025.58 48,948.23 44,053.15 41,224.81

PROFIT/LOSS BEFORE 5,103.35 5,130.01 6,354.74 5,668.76 4,174.15

EXCEPTIONAL,
EXTRAORDINARY ITEMS
AND TAX

Exceptional Items -3,663.27 -2,013.98 -29.73 433.61 548.46

PROFIT/LOSS BEFORE 1,440.08 3,116.03 6,325.01 6,102.37 4,722.61

TAX

TAX EXPENSES-
CONTINUED OPERATIONS

Current Tax 1,191.62 996.98 1,179.12 1,211.23 973.67

Less: MAT Credit 0.00 0.00 0.00 0.00 0.00

Entitlement

Deferred Tax 0.00 788.50 349.85 535.13 105.55

65
Tax For Earlier Years 0.00 0.00 0.00 0.00 0.00

TOTAL TAX EXPENSES 1,191.62 1,785.48 1,528.97 1,746.36 1,079.22

PROFIT/LOSS AFTER TAX 248.46 1,330.55 4,796.04 4,356.01 3,643.39

AND BEFORE
EXTRAORDINARY ITEMS

PROFIT/LOSS FROM 248.46 1,330.55 4,796.04 4,356.01 3,643.39

CONTINUING
OPERATIONS

PROFIT/LOSS FOR THE 248.46 1,330.55 4,796.04 4,356.01 3,643.39

PERIOD

OTHER ADDITIONAL
INFORMATION

EARNINGS PER SHARE

Basic EPS (Rs.) 2.25 11.16 40.29 36.64 30.69

Diluted EPS (Rs.) 2.24 11.12 40.13 36.47 30.54

VALUE OF IMPORTED
AND INDIGENIOUS RAW
MATERIALS STORES,
SPARES AND LOOSE
TOOLS

Imported Raw Materials 0.00 0.00 0.00 0.00 0.00

Indigenous Raw Materials 0.00 0.00 0.00 0.00 0.00

66
 STORES, SPARES AND
LOOSE TOOLS

Imported Stores And Spares 0.00 0.00 0.00 0.00 0.00

Indigenous Stores And 0.00 0.00 0.00 0.00 0.00

Spares

DIVIDEND AND DIVIDEND

PERCENTAGE

Equity Share Dividend 0.00 1,187.33 932.00 925.25 841.12

Tax On Dividend 0.00 0.00 79.92 0.00 0.00

Equity Dividend Rate (%) 175.00 47.00 170.00 150.00 260.00

Intrepretation

From the Profit & Loss account we can observe that the company has increased its revenue
from 45,398.96 crores in 2017 to 46,262.29 crores in 2021. This helps us to understand that the
company is increasing its revenue which means that the company is increasing its market share
and selling more products. This is a good sign for the company to sustain in the market.

67
CONSOLIDATED BALANCE SHEET OF MAHINDRA AND MAHINDRA LIMITED
FROM THE PERIOD 2017 TO 2021.

BALANCE SHEET OF MAR 21 MAR 20 MAR 19 MAR 18 MAR 17

MAHINDRA AND
MAHINDRA (in Rs. Cr.)

12 mths 12 mths 12 mths 12 mths 12 mths

EQUITIES AND
LIABILITIES

SHAREHOLDER'S FUNDS

Equity Share Capital 597.39 596.52 595.80 594.97 296.81

TOTAL SHARE CAPITAL 597.39 596.52 595.80 594.97 296.81

Reserves and Surplus 33,904.53 33,871.32 33,613.43 29,699.07 26,488.56

TOTAL RESERVES AND 33,904.53 33,871.32 33,613.43 29,699.07 26,488.56

SURPLUS

TOTAL SHAREHOLDERS 34,501.92 34,467.84 34,209.23 30,294.04 26,785.37

FUNDS

NON-CURRENT
LIABILITIES

Long Term Borrowings 7,070.03 2,032.03 2,031.78 2,195.90 2,233.99

Deferred Tax Liabilities [Net] 1,343.15 1,408.17 634.13 277.24 0.00

Other Long Term Liabilities 585.11 698.22 604.92 464.55 490.21

68
Long Term Provisions 955.42 922.98 882.93 861.81 824.45

TOTAL NON-CURRENT 9,953.71 5,061.40 4,153.76 3,799.50 3,548.65

LIABILITIES

CURRENT LIABILITIES

Short Term Borrowings 24.74 900.00 448.54 668.47 538.88

Trade Payables 9,988.16 6,785.83 9,678.15 8,603.40 6,881.08

Other Current Liabilities 4,633.79 2,691.43 3,518.71 3,383.95 1,648.61

Short Term Provisions 486.48 595.56 688.67 667.39 565.48

TOTAL CURRENT 15,133.17 10,972.82 14,334.07 13,323.21 9,634.05

LIABILITIES

TOTAL CAPITAL AND 59,588.80 50,502.06 52,697.06 47,416.75 39,968.32

LIABILITIES

ASSETS

NON-CURRENT ASSETS

Tangible Assets 15,011.51 7,980.76 7,614.71 6,507.95 6,536.72

Intangible Assets 0.00 2,413.83 2,467.04 1,351.46 1,234.32

Capital Work-In-Progress 0.00 1,196.68 706.77 1,079.72 409.78

Other Assets 0.00 0.00 0.00 0.00 0.00

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FIXED ASSETS 15,011.51 14,404.05 12,501.54 10,988.12 9,811.44

Non-Current Investments 19,576.60 17,748.48 19,032.07 16,645.48 14,301.70

Deferred Tax Assets [Net] 0.00 0.00 0.00 0.00 254.84

Long Term Loans And 1,652.72 138.86 37.55 43.01 34.12

Advances

Other Non-Current Assets 3,035.67 3,069.18 3,054.84 3,265.67 2,958.22

TOTAL NON-CURRENT 39,276.50 35,360.57 34,626.00 30,942.28 27,360.32

ASSETS

CURRENT ASSETS

Current Investments 4,488.47 2,189.65 2,983.96 3,937.49 3,606.70

Inventories 3,955.47 3,400.91 3,839.27 2,701.69 2,758.01

Trade Receivables 2,342.85 2,998.98 3,946.30 3,172.98 2,938.84

Cash And Cash Equivalents 6,255.42 4,236.51 3,731.66 2,893.73 1,687.48

Short Term Loans And 756.94 512.02 673.40 975.16 506.51

Advances

OtherCurrentAssets 2,513.15 1,803.42 2,896.47 2,793.42 1,110.46

TOTAL CURRENT ASSETS 20,312.30 15,141.49 18,071.06 16,474.47 12,608.00

TOTAL ASSETS 59,588.80 50,502.06 52,697.06 47,416.75 39,968.32

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OTHER ADDITIONAL
INFORMATION

CONTINGENT LIABILITIES,
COMMITMENTS

Contingent Liabilities 0.00 5,233.59 5,622.13 4,124.73 5,268.73

CIF VALUE OF IMPORTS

Raw Materials 0.00 0.00 0.00 0.00 0.00

Stores, Spares And Loose 0.00 0.00 0.00 0.00 0.00

Tools

Trade/Other Goods 0.00 0.00 0.00 0.00 0.00

Capital Goods 0.00 0.00 0.00 0.00 0.00

EXPENDITURE IN
FOREIGN EXCHANGE

Expenditure In Foreign 0.00 1,096.90 1,005.75 823.62 794.20

Currency

REMITTANCES IN
FOREIGN CURRENCIES
FOR DIVIDENDS

Dividend Remittance In -- -- -- -- --
Foreign Currency

EARNINGS IN FOREIGN
EXCHANGE

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 FOB Value Of Goods -- -- -- -- --

Other Earnings -- 2,237.45 3,063.06 2,504.98 2,455.87

BONUS DETAILS

Bonus Equity Share Capital -- 481.41 481.41 481.41 170.61

NON-CURRENT
INVESTMENTS

Non-Current Investments -- 23,044.04 42,340.50 40,819.79 29,769.04

Quoted Market Value

Non-Current Investments -- 16,635.21 14,591.94 12,034.50 10,977.76

Unquoted Book Value

CURRENT INVESTMENTS

Current Investments Quoted -- 1,718.34 2,194.69 2,802.26 2,297.92

Market Value

Current Investments -- 471.31 789.27 1,135.23 1,308.78

Unquoted Book Value

Intrepretation

From the balance sheet we can observe that a raise in the equity share capital from 296.81
crores in 2017 to 597.39 in 2021. Total assets of the company has increased from 39,968.32
crores in 2017 to 59,588.80 crores in 2021. This will help us to understand that the company is
growing and has be increasing its activities into various other forms known as diversification
of business which helps in maintain the safeguard of the invested capital.

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 FINDINGS

• To study of the comparative statement good and profitability

position in Mahindra Tractors.
• The company does not have any pending litigations which
would impact its financial position
• The company have long term contracts
• There were no amounts which were required to be transferred
to the investor education protection fund by the company
• The company has not granted any loans to companies

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 SUGGESTIONS

1. All levels of the company are increasing year by year it’s a

better indication for the organization.
2. Proper control over various expenses may increase the profit
generation of a company.
3. Company debtors’ position is very favourable so try to maintain
this position in future.

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 CONCLUSION

➢ Customers are well aware about the brand.

➢ Most of the market distributors are of Mahindra only.
➢ Introduction of new attractive incentive schemes can bring new
dealers and retailers for Mahindra Tractors.

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 BIBLIOGRAPHY

Following sources have been sought for the preparation of this

report:

➢ www.mahindratractors.com
➢ www.mahindragroup.com
➢ www.comparative.com.
➢ www.bloomberg.com
➢ www.investopedia.com
➢ www.wikipedia.com
➢ www.moneycontrol.com

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