Analyzing Audit Reports of 2018-2019

The Independent Auditors’ Report dated 23rd August, 2019 on the financial statements of the Company for the
year ended on 31st March, 2019 contains Disclaimer of Opinion issued by auditor Deloitte Haskins & Sells LLP
for Vadilal Industries Limited.
The auditor of Vadilal Industries Limited has issued disclaimer of opinion in their audit report to the financial
statements for the year ended March 31, 2019. As per the audit report of VIL, the promoter directors of
the company have made various allegations and counter allegations on each other primarily relating to
the operations and management of the company on a wide range of matters including potential personal
expenses claimed as official expenses, funds management, dissemination of price sensitive information,
demand for re-examination of books of account of past periods, legitimacy of salaries paid to relatives
of the promoter directors, payments made to a vendor without services being received and
independence of Independent Directors, amongst others. Thus, auditor issues disclaimer audit report as the
auditor are unable to collect sufficient evidence to verify transactions. And also unable to gather enough
appropriate audit evidence after rendering unable to gather enough appropriate audit evidence. So, auditor does
not express an opinion on the financial statements in the Disclaimer of Opinion.
However, on July 22, 2019, the promoter directors have jointly communicated to the board about
withdrawal of all the allegations made on each other except for the allegation with respect to claiming of
personal expenses as business expenses of Rs.23.00 lakh by Rajesh Gandhi during FY15-FY19 and
Rs.25.33 lakhs by Devanshu Gandhi during FY18-FY19. And also unable to state whether the remuneration
of `355.96 lakhs paid by the Company to its promoter directors during the year has any consequential effect
thereof on these standalone financial statements. While the management has voluntary decided to initiate
an inquiry in the matter. Thus, the Board has appointed an independent law firm to conduct an enquiry into
matters stated in the audit report.
In addition, we can state that they were unable to state proper books of account as required by law have been
kept by the Company so far as they were unable to comment on whether personal expenses have been charged
to revenue account. This will unable to discover whether the mentioned standalone financial statements comply
with the Ind AS specified under Section 133 of the Act as required by Section 143of the Act. Auditor’s Report
in accordance with the requirements of section 197 they are unable to state whether the remuneration paid by
theVadilal to its directors during the year is in accordance with the provisions of section 197 of the Act.Thus,
the allegation stated have a negative impact on the Vadilal’s financial performance.
Annexure A is a separate Report for the adequacy of the internal financial controls over financial reporting of
Vadilal and the operating effectiveness over the report they have expresses an adverse opinion because of
inadequate entity level controls with regards to assessment and closure of the various financial, operational and
governance related matters emanating out of the numerous allegations made by promoter directors and two
erstwhile independent directors against each other and their consequential impact.
Annexure B is a statement on the matters specified which is subjected to the possible effects of the matters
described in the Basis for Disclaimer of Opinion section as auditor are unable to state whether the Company has
disclosed the impact of pending litigations on its financial position in its standalone financial statements and
also if they are following applicable law or accounting principles made by company.
However, all the amount are transferred on time expect for Rs 0.15lakh which is held in pending resolution of a
legal dispute.
Overall, after analysis the Standalone audit report we got to know the reason behind auditor giving a disclaimer
of opinion as there is no enough evidence to prove the findings of the auditor. Thus, on this basis auditor issue
the disclaimer of opinion for Vadilal Industries Limited for the year of 2018-2019.
 Analyzing financial performance of a business 2018-2019
Ratios Formula Calculation Results
(in Lacs)
Profit Margin (Net (3,148.38/50,705.76)*100 6.21%
Income/Revenue)*100
Return on equity (Net (3148.38/20,317.62)*100 5.5%
Income/Stockholders
equity)*100

Return on Assets (Net Income/Total (3148.38/46,581.53)*100 6.76%

Assets)*100

Average daily credit (Credit Sales/365) (50,705.76/365) 138.92

sales

Average Collection (Account (3,339.26/138.92) 24.4 days

Period Receivable/Average
daily credit sales)
Inventory Turnover (Revenue/Inventory) (50,705.76/11,831.30) 4.29 times

Total Asset Turnover (Revenue/Total asset) (50,705.76/46,581.53) 1.09 times

Current Ratio (Current Asset/Current (17,079.07/17,379.75) 0.98 times

Liabilities)
Quick Ratio (Current Asset- (17,079.07-11,831.30)/ 0.30 times
Inventory)/Current 17,379.75
Liabilities
Debt to total assets (Total Debt/Total (12,307.31/46,581.53) 0.26 times
Assets)

Profit Margin
The Profit Margin of 2018-2019 represents 6.21 percentage of sales has turned into profits. It indicates 6.21% of
profit Vadilal has generated for each dollar of sale. Normally, Higher the percentage indicates better the profit
margin means company is efficiently control its costs.
Return on equity
The return on equity ratio of 2018-2019 which indicates 6.76% each dollar of common stockholders' equity
generates. Normally, less than 10% of ROE is consider to be poor which means Vadilal is not effectively using
equity financing to fund operations and grow the company.
Return on Assets
The return on assets ratio of 2018-2019 means every dollar that Vadilal's invested in assets generated 5.5% of
net income. ROAs over 5% are generally considered good so Vadilal is efficiency in managing their assets in
order to generate their earnings.
Average Collection Period
The average collection period of 2018-2019 is 24.4 days means it will take 24.4 days to purchaser pays for that
sale. Generally, most businesses require invoices to be paid in about 30 days, as Vadilal takes 24.4 days
indicates they are efficient and effective in collecting payments.
Inventory Turnover
The inventory turnover of 2018-2019 is 4.29 times means Vadilal sold and replaced inventory 4.29 times during
a given period. Generally, FMCG sector, optimal inventory turnover is usually 8 or above. Thus, Vadilal’s
inventory turnover indicates weak sales and possibly excess inventory which might increase warehouse
expense.
Total Asset Turnover
The total asset turnover measuring 1.09 times Vadilal turns its fixed assets or current assets into sales. For
FMCG sector, the average ratio is between 4 and 8 for most of the companies. But for Vadilal is lower ratio
which indicates that company is not using its assets efficiently and may have internal problems.
Current Ratio
The current ratio compares all of a company’s current assets to its current liabilities. The current ratio of Vadilal
is 0.98 times which means the ratio is near to standard position (2:1). Thus, it indicates Vadilal current ratio is
capable in paying its obligations because it has a larger proportion of short-term asset value relative to the value
of its short-term liabilities.
Quick Ratio
The quick ratio measures a company's capacity to pay its current liabilities without needing to sell its inventory
or obtain additional financing. The quick ratio of Vadilal is 0.30 times which is lower than the standard position
(1:1) means Vadilal’s liquidity and financial health is not good and more likely to struggle with paying debts.
Debt to total assets
The Debt to total asset for Vadilal is 0.26 times which indicates the ratio below 1 means that a greater portion of
a company's assets is funded by equity. A low ratio also designates that Vadilal may be putting itself at safe
from taking any loans for paying of its debt.