CHAPTER-I

INTRODUCTION - THEORETICAL FRAMEWORK

INTRODUCTION
The term ‘financial performance analysis also known as analysis and interpretation of
financial statements’ , refers to the process of determining financial strength and weaknesses
of the firm by establishing strategic relationship between the items of the balance sheet ,
profit and loss account and other operative data.
“Financial performance analysis 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.

MEANING AND DEFINITION

Financial performance is a subjective measure of how well a firm can use assets from its
primary mode of business and generate revenues. The term is also used as a general measure
of a firm's overall financial health over a given period.
Analysts and investors use financial performance to compare similar firms across the same
industry or to compare industries or sectors in aggregate.

NATURE AND SCOPE OF THE STUDY

The purpose of financial analysis is to diagnose the information contained in financial
statements so as to judge the profitability and financial soundness of the firm. Just like a doctor
examines his patient by recording his body temperature, blood pressure etc. Before making his
conclusion regarding the illness and before giving his treatment. A financial analyst analyses the
financial statements with various tools of analysis before commenting upon the financial health or
weaknesses of an enterprise.
Financial performance refers to the act of performing financial activity. In broader sense,
financial performance refers to the degree to which financial objectives being or has been
accomplished. It is the process of measuring the results of a firm's policies and operations in
monetary terms. It is used to measure firm's overall financial health over a given period of time and
can also be used to compare similar firms across the same industry or to compare industries or
sectors in aggregation.
IMPORTANCE
The term ‘financial statements’ generally refers to two basic statements:
The balance sheet and the income statement.
The balance sheet shows the financial position (condition) of the firm at a given point of time. It
provides a snapshot and may be regarded as a static picture.
“Balance sheet is a summary of a firm’s financial position on a given date that Shows
total assets = total liabilities + owner’s equity.”
The income statement (referred to in India as the profit and loss statement) reflects the performance
of the firm over a period of time.
“Income statement is a summary of a firm’s revenues and expenses over a specified period, ending
with net income or loss for the period.”

OBJECTIVES OF THE STUDY

Interest of various related groups is affected by the financial performance of a firm. Therefore, these
groups analyze the financial performance of the firm. The type of analysis varies according to the
specific interest of the party involved.
Trade creditors: interested in the liquidity of the firm (appraisal of firm’s liquidity)
Bond holders: interested in the cash-flow ability of the firm (appraisal of firm’s capital structure,
the major sources and uses of funds, profitability over time, and projection of future profitability).
Investors: interested in present and expected future earnings as well as stability of these earnings
(appraisal of firm’s profitability and financial condition).
Management: interested in internal control, better financial condition and better performance
(appraisal of firm’s present financial condition, evaluation of opportunities in relation to this current
position, return on investment provided by various assets of the company, etc)

TYPES AND PROCESS OF THE STUDY

Financial Performance in broader sense refers to the degree to which financial objectives being or has
been accomplished and is an important aspect of finance risk management. It is the process of
measuring the results of a firm's policies and operations in monetary terms. It is used to measure
firm's overall financial health over a given period of time and can also be used to compare similar
firms across the same industry or to compare industries or sectors in aggregation.

Financial performance analysis includes analysis and interpretation of financial statements in such a
way that it undertakes a full diagnosis of the profitability and financial soundness of the business. The
financial analyst program provides vital methodologies of financial analysis.
ADVANTAGES/DISADVANTAGES
In the private sector as profitability and maximising return and value to shareholders or owners
is a primary goal therefore financial results are a key indicator of performance measurement.
This focus on the bottom-line does not measure the drivers of the financial results and does not
therefore tell the whole story. Financial results do not measure how well the organisation is
meeting the needs of other stakeholder for example customers, employees, local communities
and pressure groups. Traditional financial performance measures have an internal focus with an
emphasis on budget achievement from a short-term perspective. They may not be directly
related to the organisation’s strategy and do not indicate how performance may be improved.
Key factors that drive successful performance in the current environment include quality of
service, customer satisfaction, reliability, faster delivery and value for money. The financial
results based on accounting measures focus on short-term performance and may result in
myopia. Another dis-advantage in the over-reliance on financial performance measures is the
possible manipulation of results to achieve financial targets. Furthermore are retrospectively
obtained and tend to be focussed internally.
 CHAPTER-II
THE PRESENT STUDY AND METHODOLOGY INCLUDES

NEED OF THE STUDY:

 The financial performance policy of a firm determines what proportion of earnings is
paid to shareholders by the way of financial decisions and what proportion is
ploughed back in the firm for reinvestment purposes.
 If a firm‘s capital budgeting decision is independent of its financial
performance of its financial performance policy, a higher financial performance
payment will entail a greater dependence on external financing.
 On the other hand, if a firm’ s capital budgeting decision is dependent on its
financial performance decision, a higher payment will cause shrinkage of its capital
budget and vice versa.
 In such a case the financial performance policy has a bearing on the capital
budgeting decision.

OBJECTIVES OF THE STUDY:

1. To understand the financial statements of ICICI BANK LTD
2. To study the change in assets and liabilities of the company.
3. To study the liquidity position of the firm.
4. To study the financial health of the company using ratio analysis.
5. To study the profitability of the company.

SCOPE OF THE STUDY

1. A well diversified portfolio reduces unsystematic risk by large way.
2. Investor prefers among securities which yield higher return for the same risk or lower
risk for the same return
3. Investment decisions are based on investment objectives and constraints.
4. Higher the time period of investment lesser is the uncertainties of investment.

RESEARCH DESIGNS
 There are generally three categories of research based on the type of information required,
they are
1. Exploratory research
2. Descriptive research
3. Casual research
The research category used in this project in descriptive research, which is focused on the
accurate description of the variable in the problem model. Consumer profile studies, market
potential studies, product usage studies, Attitude surveys, sales analysis, media research and
prove survey s are the,
Examples of this research. Any source of information can be used in this study although most
studies of this nature rely heavily on secondary data sources and survey research.

DATA COLLECTION METHODS

Data we collected based on two sources:

Primary Data
The Primary Data Are Those Information’s, which are Collected afresh and for the First
Time, And Thus Happen to Be Original in Character.

Secondary Data:
The secondary data are those which have already been collected by some other agency and
which have already been processed. The sources of secondary data are annual reports, browsing
internet, through magazines.
1. It includes data gathered from the annual reports of (ICICI BANK LTD).
2. Articles are collected from official website of (ICICI BANK LTD).

DATA ANALYSIS METHODS TOOLS

MS-excel and SPSS are used to analyze the data.

LIMITATIONS OF THE STUDY:

Each Project Gives Rise to Its Own Unique Risks And Hence Possess Its Own Unique Challenges.
1. Only Interim Reports:
Only interim statements don’t give a final picture of the concern. The data given in these
statements is only approximate. The actual position can only be determined when the business is
sold or liquidated.
2. Don’t Give Extra Position:
The Financial Statements Are Expressed In Monetary Values, So They Appear To Give Final
And Accurate Position. The Values Of Fixed Assets In The Balance Sheet Neither Represent The
Value For Which Fixed Assets Can Be Sold Nor The Amount Which Will Be Required To Replace
These Assets.
3. Historical Costs:
The Financial Statements Are Prepared On The Basis Of Historical Costs Or Original Costs.
The Value of Assets Decreases with the Passage of Time Current Price Changes Are Not Taken Into
Account. The Statements Are Not Prepared Keeping In View The Present Economic Conditions. The
Balance Sheet Loses The Significance Of Being An Index Of Current Economic Realities.
4. Act of non monitory factors Ignored:
There are certain factors which have a bearing on the financial position and operating results
of the business but they don’t become a part of the statementbecause they can’t be measured in
monetary terms. Such factors may include in the reputation of the management.