Acknowledgement

I have put a lot of effort into my internship. However, it would not have
been possible without the kind support and help of several people and
organizations. I want to say a sincere thank you to each and every one of
them.

I owe a great deal of gratitude to Dr. Pramod Singh for his direction,
regular monitoring, and provision of the knowledge I needed to
successfully complete the internship.

I want to express my gratitude to my parents and the staff of CIO Tyres

PVT Ltd for their wonderful support and encouragement while I
completed my report.

I would like to thank our Principal Fr. E. A. Francis for providing me

with the opportunity to work on this Report and as an Intern.

I want to sincerely thank and appreciate Mr. Akshit Anand for giving me
his time and undivided attention.

1
 Preface
The summer internship programme at CIO Tyres PVT Ltd on the subject
of "Analysis of Financial Statements" was the focus of the project report
that was created in part fulfilment of the requirement for the BBA 4th
Sem. in the academic year 2021–2022.

I finished my internship at CIO Tyres PVT Ltd under Mr. Akshit Anand
throughout the recommended 45-day period in order to advance my
knowledge in preparation for the Project Report. This report serves as a
summary of the information and skills I acquired throughout my
summer internship with the organization.

The objective of the summer internship and the project report is to study
the Analysis of Financial Statements, what a Company is, what a
Financial Statement is, Why Analysis of Financial Statements is
Necessary for a Company, Ratio Analysis and How Does It Help to Get
Liquidity Position, How Does It Help Investors to Take Investment
Decision, and Use of Tally for Maintaining Company Account.

2
 Abstract
Financial statements are official records of the financial operations of a
business, person, or other persons and provide an overview of a
company's or person's financial status in the short and long periods.
They offer a clear, accurate picture of a company's situation and
operational results. The primary consumers of financial statements as a
management tool for assessing the overall position and operating
performance of the firm are corporate executives and investors
determine the liquidity position, long-term solvency, financial viability,
and profitability of a corporation by analyzing and interpreting its
financial statements Ratio analysis identifies if a company's performance
has increased or decreased over time. Additionally, this allows for the
comparison of numerous aspects across all firms. The clients may use it
to help them decide which business has the least danger or where to
invest for the best return.

Industries receive a lot of investment money because they need a lot of

cash. As a result, before making an investment, one should thoroughly
investigate the financial health and trustworthiness of the organisation.
In this project, an effort has been made to examine and comprehend a
company's financial statements.

Objective

• To assess, analyze, and interpret the core concepts in diverse

companies' financial statements.

• Application of financial ratio interpretation

3
• Comparative statements are used in the analysis and interpretation of
financial records from tyres companies.

The project primarily concentrates on and computes financial ratios for

the fundamental types of an organization's financial statements. The
ratio for CIO Tyres PVT Ltd. was looked at.

The balance sheet, income and expense statements, as well as the

computation of a few financial ratios for a few chosen enterprises, were
all produced using comparative statements.

The balance sheet and profit and loss statement of CIO Tyres PVT Ltd.
were subjected to ratio analysis, and the findings show that the company
has a respectable liquidity condition. The following ratios were found to
be unacceptable: the quick ratio, net profit margin, gross profit margin,
return on assets, return on investments, and return on capital employed.

4
 Introduction

Company description:

Name of the Company: Established in 1952, CIO Tyres PVT Ltd is a

non-government organisation. The fact that it is a "company limited by
shares" makes it a private, unlisted firm.

The authorised capital of the company is Rs. 20.0 lakhs, and its paid-up
capital is Rs. 9.9 lakhs, or 49.5% of that amount. The most recent annual
general meeting (AGM)
of CIO Tyres PVT Ltd
took place on September
29, 2017. According to
the Ministry of Corporate
Affairs, the business's
most recent financial
update was on March 31,
2017. (MCA).

Since it has been in existence for 51 years, CIO Tires has mostly engaged
in no business. Muralidharan Kollaikkal, Vilasini Murali, and Vinod
Menon are the board's current directors and members.

5
In all facets of Off the road Earthmover Tyres, it can brag of having more
than 66 years of knowledge and competence, in addition to the many
years of experience of its specialists and support staff. You can
understand why they deal with some of the most famous businesses by
their ability to provide technical guidance on tyres retreading and repair.

Location of the Company: Adityapur Industrial Area

Address- B-16 & 25(P), 6th Phase, Adityapur Industrial Area, P. O.
Gamharia, Jamshedpur, Jharkhand, India – 832108
Type of Organization- Private
Type of industry- Auto Sector
Organizational set-up: -
1. Managing Director- K. Muralidharan
2. Chief Executive Officer- Vinod Menon
Product and service- Earthmover and Commercial range of tyres &
Rethreading of tyres
Annual Turnover-

6
No. of Employees-
Mission- To offer quality retreads at an affordable cost, while leading
the way for socially conscious businesses and in the process supporting
comfortable living for all associated with the company.

Vision- To make Retreading a safe & economic to-go solution for all
fleet owners and mine project engineers and to reduce their tyre
replacement costs thus saving the nation's economy and reducing carbon
footprint

Financial Statement Analysis: Analyzing a company's financial

statements in order to make decisions is known as financial statement
analysis. It is used by external stakeholders to assess an organization's
general health as well as its financial performance and market worth. It
serves as a monitoring tool for handling funds for internal stakeholders.

The financial accounts of a corporation keep track of crucial financial

information regarding every facet of its operations. As a result, their

7
performance may be assessed based on their past, present, and future
predictions. Financial statements must to be credible, comparable,
relevant, and clear. They provide a succinct overview of a company's
state and operating performance. When it comes to an organization's
financial situation, reported assets, liabilities, and equity are directly
tied, whereas reported revenue and spending are directly related to that
organization's financial performance. Understanding a company's
financial condition, long-term solvency, financial viability, profitability,
and soundness may be done via the analysis and interpretation of its
financial statements. Financial statements may be divided into four
categories: balance sheet, income statement, cash flow statement, and
profit and loss statement.

In order to comprehend the firm's financial status better, the link

between the financial statement's components is evaluated throughout
the financial statement analysis process. Analyzing involves evaluating
the accounting data presented in financial accounts critically. Individual
items are researched for analytical purposes, which establishes their
relationships with other connected statistics.

Several methods are frequently applied in financial statement analysis.

The three most crucial methods are ratio analysis, vertical analysis, and
horizontal analysis. By comparing the values of line items over two or
more years, a horizontal analysis analyses data in a horizontal direction.
Vertical analysis examines the proportions of the business as well as the
vertical effects that line items have on other business areas. Ratio
analysis creates statistical associations by using significant ratio
measures.

8
Objective:
• To evaluate the company's earning potential or profitability.
• To evaluate management and operational effectiveness.
• To evaluate the firm's long- and short-term solvency situation.

Financial Statements

Financial statements (also known as financial reports) are written

summaries of a company's financial position during a specific time
period that are produced by the management of the firm (quarter, six-
monthly, or yearly). To guarantee that reporting is consistent, these
statements—which include the balance sheet, income statement, cash
flow statement, and statement of shareholders' equity—must be
produced in accordance with predetermined and established accounting
rules. They offer an assessment of the short- and long-term financial
health of a company or individual. The term "financial statements" refers
to all of the pertinent financial data of a corporate firm that is organized
and presented in an understandable style.

The Purpose of financial Statements:

The purpose of financial statements is to give information about an

organization's financial situation, performance, and changes in financial
position that may be used by a variety of users to make financial choices.
Financial statements must to be clear, pertinent, dependable, and
similar. The financial condition of an organization is directly tied to the
reported assets, liabilities, equity, revenue, and costs.

9
Financial statements may be utilized by users for a variety of reasons and
are designed to be intelligible by readers who have "a decent
understanding of business and economic operations and accounting and
who are prepared to study the material attentively."

To make crucial business choices that will influence the company's

ability to continue operating, owners and management need financial
statements. Then, in order to give management a more in-depth
understanding of the numbers, financial analysis is carried out on these
statements. Additionally, these remarks are included in management's
annual report to the stockholders.

In the case of labour unions, or for individuals when talking about their
pay, promotions, and rankings, employees also require these reports in
order to negotiate Collective Bargaining Agreements (CBA) with
management.

Financial statements are used by potential investors to determine

whether investing in a company is a good idea. Financial analyses are
frequently used by investors and are created by experts (financial
analysts), giving them a foundation on which to base their investment
choices.

They are used by financial organizations (banks and other lending firms)
to determine whether to provide a business with new working capital or
extend debt securities (such a long-term bank loan or debentures) to
finance expansion and other big expenditures.

The three financial statements:

1. Balance sheet: A balance sheet is a financial statement that lists

a company's assets, liabilities, and shareholder equity as of a
certain date. For calculating investor return rates and assessing a
10
 company's capital structure, balance sheets serve as the
foundation. A company's balance sheet, or statement of financial
position, gives a quick overview of the assets and liabilities of the
business as well as the amount of shareholder investment.
2. Income statement: An income statement is a financial
statement that lists the revenue and expenses of the firm.
Additionally, it displays a company's profit or loss over a specific
time frame. You may better comprehend your company's financial
situation by comparing the income statement to the balance sheet,
cash flow statement, and cash flow forecast.
An income statement assists business owners in determining if
they can make a profit by raising sales, cutting expenses, or doing
both. Additionally, it demonstrates the success of the plans the
company made at the start of a certain fiscal year. This document
may be used by the business owners to determine whether their
plans were successful. They can identify the finest methods to
increase earnings based on their study.
3. Cash flow statement: The cash flow statement is a type of
financial statement that lists all of the incoming and outgoing cash
and cash equivalents for an organisation. The CFS evaluates a
firm's ability to produce enough cash to cover its debt payments
and support its operational costs. This is how well a corporation
manages its cash position. The CFS is one of the three primary
financial statements that works in conjunction with the income
statement and balance sheet. In this post, we'll outline the CFS's
structure and demonstrate how to apply it to corporate analysis.

The cash flow statement provides a picture of how a business is

operating, where its funds are coming from, and how they are
being used. The CFS, sometimes referred to as the statement of
11
 cash flows, aids the firm's creditors in determining how much cash
is available (also known as liquidity) for the company to pay its
obligations and support its operational expenditures. The CFS is
equally significant to investors since it informs them of a
company's financial stability. As a result, people may make wiser,
more knowledgeable financial selections by using the statement.

Balance Sheet

One of the three basic financial statements, the balance sheet is essential
to accounting and financial modelling. The balance sheet shows the total
assets of the business as well as how those assets are financed—either
through debt or equity. It is also known as a statement of financial
situation or a statement of net worth. The basic equation is the
foundation of the balance sheet:

Assets = Liabilities + Equity.

When conducting fundamental analysis or calculating financial ratios,

balance sheets can be used in conjunction with other crucial financial
statements. The assets on the balance sheet are equal to the total of the
liabilities plus the shareholders' equity. Consequently, the balance sheet
has two sides (or sections). All of a company's assets are listed on the left
side of the balance sheet. The balance sheet lists the company's liabilities
and shareholders' equity on the right side.

Current Assets and Liabilities and Non-current Assets and Liabilities are
the two categories into which the assets and liabilities are divided.
Inventory, cash, and trades payables are included in the current section
before illiquid (or non-current) accounts like plant, property, and
equipment and long-term debt since they are more liquid. A choice about

12
whether or not to invest in a company must be made, and the balance
sheet offers important details regarding the firm's health.

Elements of Balance sheet:

 Assets- An asset is a resource that a company may employ to

make money now or in the future and has some economic worth to
the company.
These assets, which might include cash and structures, are listed
on the balance sheet up to the point at which they are utilized.
When these resources are employed or expended, they are referred
to as expenditures and are moved from the balance sheet to the
income statement.
Types of assets:
There are majorly two types of assets:
- Tangible assets
- Intangible assets

Tangible assets- Those assets that have a physical form and can
be seen and touched.

Intangible assets- Those assets that do not have a physical form

and are usually very hard to evaluate. They have no material value
to the owner.

Types of Tangible assets

- Fixed assets
- Current assets

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Fixed Assets

Assets classified as non-current are those that are difficult to

convert to cash, are not anticipated to be turned into cash within a
year, and/or have a longer lifespan than a year.

Property, Plant, and Equipment (PP&E)- Property, Plant, and

Equipment are the tangible fixed assets of a firm. The line item is
shown as net of cumulative depreciation. Some companies will
divide their PP&E into asset categories, such as land, buildings,
and different kinds of equipment. Every piece of PP&E, excluding
land, is depreciable.

Current Assets

Current assets are quickly convertible into cash since they have
a lifetime of one year or less. These asset classifications include
of inventories, accounts receivable, and cash and cash
equivalents. The most fundamental kind of current asset is cash,
which also includes cheques and unrestricted bank accounts. A
few significant current assets are:
- Cash and cash equivalents- Cash and cash equivalents make up
the first line of the balance sheet and are the most liquid asset.
Assets having short-term maturities of less than three months
or assets that the firm may quickly liquidate, such marketable
securities, are included in this line item as cash equivalents.
Typically, businesses will include the equivalents they use in the
footnotes to the balance sheet.
- Inventory - It is made up of raw materials, items used during
production, and completed products. The business uses this

14
 account to record sales of products, often under "cost of goods
sold" in the income statement.
- Accounts Receivable - A customer's IOU is referred to as an
account receivable. Many companies let clients purchase items
on credit and pay for them later. Accounts receivable is the
customer's acknowledgement that the business owes money for
the products.
- Short-term investments- It consists of securities purchased and
kept with the intention of selling them soon in order to profit
from short-term price fluctuations.
- Prepaid expenses- These are the costs that were paid up front in
cash and listed as assets rather than being used. The term "net
current assets" is frequently used to describe the difference
between the total of current assets and the total of current
liabilities.
 Liability- A liability is a financial commitment made by an
organisation that forces it to forgo future financial gains in favour
of other people, organisations, or corporations. An alternative to
equity as a source of financing for a business is a liability.
Additionally, some liabilities, such as accounts payable or income
taxes payable, are necessary elements of regular business
operations. Liabilities can assist businesses in setting up efficient
operations and accelerating value creation.
On the other side, poor liability management can have negative
effects that are worse than bankruptcy, such as a decline in
financial performance. Additionally, liabilities impact the
company's capital structure and liquidity.
Types of Liability:

15
- Current liabilities- These are short-term debts that will be
repaid during the next year's operational cycle. It is reasonable
to anticipate that these liabilities will be paid off within a year.
- Non-Current- Liabilities that are not paid off within a year, or
within a business’s operating cycle, are known as non-current
liabilities or long-term liabilities. These liabilities sometimes
entail huge quantities of money required to launch a firm, carry
out significant commercial development, or replace assets. It is
logically anticipated that these liabilities won't be paid off
within a year.
- Contingent liability- Liabilities that might arise based on how a
future event turns out are known as contingent liabilities.
Consequently, possible liabilities include contingent liabilities.
For instance, if a firm is sued for $100,000, if the claim is
successful, the company would be liable.
However, no culpability would exist if the action is unsuccessful.
According to accounting rules, a contingent obligation is only
documented if it is probable—defined as having a probability of
greater than 50%—to occur. It is possible to predict the size of
the ensuing liabilities.Fixed liabilities- The liability which is to
be paid of at the time of dissolution of the firm is called fixed
liability.
- Long-term debt- The whole amount of long-term debt is shown
in this account. The debt schedule, which lists all of the
company's existing debt, the interest expense, and the principle
payments for each quarter, is where this account gets its
information.
- Bonds payable- This account contains the amortised value of
any bonds that the business has issued.

16
  Shareholder’s Equity- Equity held by shareholders refers to the
sum that a company's founders have contributed to the enterprise.
This covers the funds they have personally invested as well as the
total amount of profits the business has generated and reinvested
since its establishment.

Shareholders' equity may reveal a lot about a company's financial

soundness and owners' perspectives on their enterprise.

"It can demonstrate how much skin the owners have in the game
and whether they are reinvesting in their company."

- Share Capital- Share capital is the amount that shareholders

have contributed to the business. A shareholder's initial
investment in a firm is often cash. As an illustration, an investor
invests $10 million to launch a business. The balance sheet is
balanced by an increase of $10M in Share Capital (an equity
account) and an increase of $10M in Cash (an asset).
- Retained earnings- The total net income that the business
chooses to retain is shown below. A company's net income may
be used to pay dividends each period. Any surplus (or deficit) is
added to (subtracted from) retained profits.

Format of Balance Sheet

Balance Sheet of …………….

Particulars Amount
Liabilities
1. Share capital xxx
Equity share capital xxx

2. Reserves & surpluses xxx

17
 Capital reserve xxx
General reserve xxx
Security premium account xxx
Capital redemption reserve xxx

3. Secured loans xxx

Debentures xxx
Loan from bank xxx
Long term loan xxx
Other secured loans xxx

4. Unsecured loans xxx

Fixed deposit xxx
Short term loans xxx
Other loans xxx

5. Current Liabilities & Provisions xxx

(A) Current Liabilities xxx
Bills payable xxx
Sundry Creditors xxx
Bank overdraft xxx
Other Liabilities xxx

(B) Provisions xxx

Provisions for tax xxx
Proposed dividend xxx
Other Provisions xxx
TOTAL xxx

Assets xxx
1. Fixed Assets xxx
Goodwill xxx
Land xxx
Building xxx
Leaseholds xxx
Plant & Machinery xxx
Furniture xxx
Trade marks xxx
Patents xxx
Vehicle xxx

2. Investment xxx

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3.Current assets, loans and advances xxx
(A) Current Assets xxx
Sundry debtors xxx
Bills receivables xxx
Closing stock xxx
Interest in investment xxx
Cash at bank xxx
Cash in hand xxx
Securities deposit xxx
Fixed deposit with banks xxx

(B) Loans and advances xxx

Prepaid expenses xxx
Tax paid in advance xxx
Advances paid xxx

4. Miscellaneous expenditure xxx

Preliminary expenses xxx
Revenue expenditure xxx
Discount allowed xxx

5. Profit and loss account xxx

TOTAL xxx

Income Statement

A company's financial performance during a certain accounting period is

reported using three primary financial statements: the balance sheet, the
statement of cash flows, and the income statement.

The income statement, which is also called the profit and loss statement
or the statement of revenue and expense, mainly focuses on the
company's revenues and costs during a certain time period.

The income statement plays a significant role in the performance reports

that must be produced to the Securities and Exchange Commission by a

19
corporation (SEC). The income statement reports income through a
specific time period, and its heading indicates the duration, which may
read as "For the (fiscal) year/quarter ended September 30, 2018." In
contrast to a balance sheet, which provides a snapshot of a company's
financials as of a specific date, the income statement reports income
through a specific time period.

Elements of Income Statement

 Revenue- The total amount of money made through sales over a

specific time frame. Revenue is recognised when it is earned; it
cannot be recorded until the product or service is actually provided
by the company.
 Cost of goods sold- These are expenses that are directly related
to the goods or services offered. Direct labour, material, or direct
overhead expenditures are a few examples of such expenses. As a
result, when income rises, so do the costs, which are exactly
proportionate to revenue.
 Gross profit- Examines the profit a business makes after paying
its expenses in full and earning revenue from the sale of its
products or services. You can figure this out by deducting COGS
from revenue.
 Operating cost- Examines the profit a business makes after
deducting its major expenses from the revenue received from the
sale of its products or services. This may be computed by deducting
COGS from revenue.
 Operating profit- The revenue derived from a business's core
operations, as determined by deducting operating expenses from
gross profit.

20
  Equity income- Many businesses have non-controlling stakes,
and as a result, these corporations have partial ownership rights. If
their equity investment generates a profit, they are eligible to
receive it.
 Income tax expense- It is an inevitable expenditure beyond of
the company's control that fluctuates depending on the tax rate but
is always a proportion of pre-tax profit. This results in the
expenditure being mentioned individually on the statement.
 Net income- The net income attributable to the company's
shareholders for a certain time period after all costs have been
taken into account. It shows the profit amount prior to any
dividend distributions.

Format for Income Statement

Profit and Loss statement as per the year

Ending of ………………….

Particulars Amount Particulars Amount

Gross loss(transferred) xxx Gross xxx
profit(transferred)
Interest received xxx
Office and Rent received xxx
administration
Expenses:
Salaries xxx Discount received xxx
Rent xxx Dividend received xxx
Postage & telegram xxx Bad debts recovered xxx
Office electric charges xxx Provision for discount xxx
on creditors
Telephone charges xxx xxx
Printing and stationary xxx

Selling and
distribution expenses:
Carriage outward xxx
21
Advertisement xxx
Salesmen’s salaries xxx
Commission xxx
Insurance xxx
Travelling expense xxx
Bad debts xxx
Packing expenses xxx

Financial and other

expenses:
Depreciation xxx
Repair xxx
Audit fee xxx
Interest paid xxx
Commission paid xxx
Bank charges xxx
Legal charges xxx
Profit before Interest xxx Net Loss
(Less) Net Interest (xxx)
Profit before tax xxx
(Less) Tax payable xxx
Profit after tax xxx
(Less) Dividend xxx
Retained Profit xxx

Cash flow statement

Monitoring an organization's cash flow with the use of a cash flow

statement is an essential part of managing finances. Along with the
income statement and the balance sheet, this report is one of the three
important ones that determine how well a firm is doing. To facilitate
short-term planning, it is typically beneficial to make a cash forecast.

The cash flow statement lets you keep track of incoming and departing
cash by displaying the source of that money. An organization's
operational, investment, and financial operations all generate cash flow.
The statement also provides information on investments, business-

22
related costs, and cash withdrawals at a certain moment in time. The
knowledge you obtain from the cash flow statement helps managers
make wise decisions for managing business operations.

Businesses often strive for a healthy cash flow because without it, they
risk having to borrow money to keep the firm afloat.

Why Cash flow statement is important?

A company has to have enough cash on hand at all times to be successful.

This makes it possible for it to pay back bank debts, purchase
commodities, or make successful investments. If a company doesn't have
enough cash on hand to fulfil its debts, it is declared bankrupt. The
following are some advantages of a cash flow statement:

Gives details about spending- The major payments that the business
makes to its debtors are easily understood from a cash flow statement. It
also lists cash-only transactions that are not represented in the other
financial accounts and are recorded in the cash register. These include
investing in capital equipment, giving clients credit, and buying
inventory-related things.

Helps maintain optimum cash balance- The ideal level of cash on

hand is maintained with the use of a cash flow statement. It's critical for
the business to assess if there is a shortage or surplus of cash, or whether
too much of its cash is sitting around. If there is extra money sitting
around, the company can buy merchandise or invest it in stock. The
corporation might search for venues where they can borrow money to
keep the business running if there is a cash crisis.

Helps you focus on generating cash- As a source of funding, profit

is essential to a company's expansion. There are, however, several other
ways to make money. As an illustration, a business is truly making
23
money when it can purchase equipment for less. It makes money every
time its clients pay their receivables more quickly than normal.

Useful for short-term planning- An essential instrument for

managing cash flow is a cash flow statement. A successful company must
always have enough cash on hand to cover immediate responsibilities
like impending payments. To make critical judgments, a financial
manager might examine the incoming and exiting funds from previous
transactions. A few circumstances where decisions must be made based
on cash flow include anticipating a financial shortfall to pay off debts or
setting up a foundation to apply for bank credit.

Elements of Cash flow statement:

 Operating activities- The cash effects, or the inflows and

outflows of transactions and other events that are used to calculate
net income, are often included in operating operations. Items that
show on the income statement and are impacted by cash inflows
from operational activities include: 
(1) cash revenues from sales of products or services
(2) Amounts paid as interest on loans

(3) Dividends earned from stock securities investments

(4) Money derived from the exchange of securities

(5) Other cash receipts, such as sums obtained to settle litigation,

proceeds from certain insurance settlements, and cash returns
from suppliers, which do not come from transactions classified as
investing or financing operations.

24
 Cash outflows for operating activities include payments made for
the following items that appear on the income statement:
(1) to purchase inventory
(2) to other suppliers and employees for other goods or services
(3) to lenders and other creditors for interest
(4) to buy trading securities
(5) all other cash payments that do not result from transactions
classified as investing or financing activities, such as taxes and
settlement payments for legal actions
(6) cash contributions to charitable organizations.
 Investing activities- Transactions involving the purchase or sale
of noncurrent assets are frequently included in investing
operations. The following cash inflows are considered to be part of
investment activities:
(1) the sale of real estate, machinery, and equipment
(2) the sale of securities that are on the market for sale or that have
been held to maturity
(3) the repayment of long-term loans to third parties.
The following expenses are included in cash outflows for
investment activities:
(1) the cost of purchasing real estate, machinery, and equipment
(2) the cost of purchasing securities held until maturity
(3) the cost of making long-term loans to others.
 Financing activities- The impact of transactions and other
events involving owners and creditors on the cash flow, or the
inflows and outflows, are often included in financing activities. The
cash that comes in through financing operations includes the
money that is borrowed for short- or long-term periods of time as
well as the money that is issued as capital stock, bonds, mortgages,

25
 and notes. Paying cash dividends or making other distributions to
owners, such as paying cash to buy treasury shares, are examples
of cash outflows for financing operations. Another example is
repaying loans. Since interest expense is reported on the income
statement and is consequently a part of operating activities,
interest payment is not included in this calculation. Financing
activities do not include cash settlements for accounts payable,
wages due, or income taxes due. The section on operating activities
contains these payments.

Format of Cash flow statement

Cash flow statement as on year ending …………

Particulars Amoun Amoun

t t
Cash flow from Operating activities: xxx
Cash receipts from customers xxx
Cash paid to suppliers and employees xxx
Cash generated from operations xxx
Income tax xxx
Cash flow from miscellaneous items xxx
Net cash from Operating activities(A) xxx xxx

Cash flow from Investing activities: xxx

Purchase of fixed assets xxx
Proceeds from sales of equipment’s xxx
Interest received xxx
Dividend paid xxx
Net cash from Investing activities(B) xxx xxx

Cash flow from Financing activities: xxx

Issue of share capital xxx
Long-term borrowings xxx
Repayment of loan xxx
Redemption of share xxx

26
Interest paid xxx
Dividend paid xxx
Net cash from Financing activities© xxx xxx

Net increase /decrease in cash and cash xxx

equivalents(A+B+C)
Cash and cash equivalents at the beginning of the xxx
period
Cash and cash equivalents at the end of the xxx
period

Financial Ratios

Ratio analysis is a mathematical technique for analysing a company's

financial documents, such as the balance sheet and income statement, to
gather knowledge about its liquidity, operational effectiveness, and
profitability. Fundamental equity research is built on ratio analysis.

While ratios can provide helpful information about a firm, they should
be used in conjunction with other measures to provide a more complete
view of that company's financial situation.

Objective of Ratio analysis

By carefully examining both historical and current financial records,

investors and analysts use ratio analysis to assess a company's financial
health. Comparative data may show how a business is doing through
time and be used to predict how it will likely do in the future. This
information may be used to assess how a firm compares to others in its
industry and to benchmark its financial performance against industry
averages.

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The financial statements of a firm provide all the information needed to
compute the ratios, making it simple for investors to apply this method.

Ratios serve as benchmarks for businesses. They assess the stocks of a

certain sector. They also compare a company's present performance to
its past results. Understanding the factors that affect ratios is often
significant since management has the freedom to occasionally change its
approach to improve the stock and business ratios. In most cases, ratios
are employed in conjunction with other ratios rather than alone. You'll
have a thorough understanding of the organisation from several
perspectives and be better able to identify possible red flags if you have a
solid understanding of the ratios in each of the four previously stated
areas.

Financial Ratios Interpretation

S. No. Category Ratio’s Interpretation

Mechanism
1. Liquidity Current ratio = The current ratio
Ratios Current assets / measures a
Current liabilities company’s ability to
pay off short-term
liabilities with
current assets

Acid-test ratio = The acid-test ratio

Current assets – measures a
Inventories / Current company’s ability to
liabilities pay off short-term
liabilities with quick
assets

Cash ratio = The cash ratio

Cash and Cash measures a
equivalents / Current company’s ability to
Liabilities pay off short-term
liabilities with cash
and cash equivalents

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 Operating cash flow The operating cash
ratio = flow ratio is a
Operating cash measure of the
flow / Current number of times a
liabilities company can pay off
current liabilities
with the cash
generated in a given
period

2. Leverage Debt to equity ratio = The debt-to-equity

Financial Total liabilities / ratio calculates the
Ratios Shareholder’s equity weight of total debt
and financial
liabilities against
shareholders’ equity
Debt ratio = Total The debt ratio
liabilities / Total measures the relative
assets amount of a
company’s assets that
are provided from
debt

Interest coverage The interest coverage

ratio = Operating ratio shows how
income / Interest easily a company can
expenses pay its interest
expenses

Debt service The debt service

coverage ratio = coverage ratio reveals
Operating income / how easily a
Total debt service company can pay its
debt obligations

3. Efficiency Asset turnover ratio The asset turnover

Ratio = Net sales / Average ratio measures a
total assets company’s ability to
generate sales from
assets

Inventory turnover The inventory

ratio = turnover ratio

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 Cost of goods sold / measures how many
Average inventory times a company’s
inventory is sold and
replaced over a given
period

Receivables turnover The accounts

ratio = receivable turnover
Net credit sales / ratio measures how
Average accounts many times a
receivable company can turn
receivables into cash
over a given period

Days sales in The days sales in

inventory ratio = inventory ratio
365 days / Inventory measures the average
turnover ratio number of days that
a company holds on
to inventory before
selling it to
customers

4. Profitability Gross margin ratio = The gross margin

Ratio Gross profit / Net ratio compares the
sales gross profit of a
company to its net
sales to show how
much profit a
company makes after
paying its cost of
goods sold:

Operating margin The operating

ratio = Operating margin ratio
income / Net sales compares the
operating income of a
company to its net
sales to determine
operating efficiency

Return on assets The return on assets

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 ratio = Net income / ratio measures how
Total assets efficiently a company
is using its assets to
generate profit

Return on equity The return on equity

ratio = Net income / ratio measures how
Shareholder’s equity efficiently a company
is using its equity to
generate profit

5. Market Value Book value per share The book value per
Ratios ratio = share ratio calculates
(Shareholder’s equity the per-share value of
– Preferred equity) / a company based on
Total common shares the equity available
outstanding to shareholders

Dividend yield ratio The dividend yield

= Dividend per share ratio measures the
/ Share price amount of dividends
attributed to
shareholders relative
to the market value
per share

Earnings per share The earnings per

ratio = Net share ratio measures
earnings / Total the amount of net
shares outstanding income earned for
each share
outstanding

Price-earnings ratio The price-earnings

= Share price / ratio compares a
Earnings per share company’s share
price to its earnings
per share

6. Expenses Operating ratio = Operating ratios

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 ratios Cost of goods sold + shows the
other expenses operational efficiency
of the business.
Lower operating ratio
shows higher
operating profit and
vice versa
Cost of goods sold = It measures the cost
Cost of goods sold / of goods sold per sale
sales

Specific expenses It measures the

ratio = Specific specific expenses per
expenses / sales sale
7. Return Return on assets = It measures the
Investment (Net profit after taxes profitability of the
/ Total assets) * 100 total funds per
OR investment of a firm
(Net profit after tax +
Interest) * 100

Return on Capital It measures

Employed = profitability of the
(Net profit after tax / firm with respect to
total Capital the total capital
Employed) * 100 employed. The
higher the ratio, the
more efficient use of
capital employed

Return on Total It reveals how

Shareholders’ Equity profitably the
= (Net profit after tax owner’s fund has
/ Total shareholders’ been utilized by the
equity) * 100 firm

Return on ordinary It determined

shareholders equity whether the firm has
= Net profit after earned satisfactory
taxes and preference return for its equity
dividend * 100 holders or not

8. Shareholder’s Earnings per share It measures the profit

Ratios (EPS) = Net profit of available to the

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equity holders / equity holders on a
Number of ordinary per share basis
shares

Dividend per share It’s the net

(DPS) = Net profit distributed profit
after interest paid to belonging to the
ordinary shareholders divided
shareholders/ by the number of
Number of ordinary ordinary shares
shares outstanding

Dividend payout It shows what

ratio (D/P) = Total percentage share of
dividend to equity the net profit after
holders / Total net tax and preference
profit of equity dividend is paid to
holders the equity holders. A
high D/P ratio is
preferred from
investor’s point of
view

Earnings per yield = It show the

Dividend per share / percentage of each
Market value per rupee invested in the
share stock that was earned
by the company

Dividend yield = It shows how much a

Dividend per share / company pays out in
Market value per dividends each year
share relative to its share
price

Price-Earning ratio It reflects the price

(P/E) = Market value currently paid by the
per share / Earnings market for each
per share rupee of EPS. Higher
the ratio better it is
for the owner

Earning power = Net IT measures the

profit after tax / overall profitability

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 Total assets and operational
efficiency of a firm

9. Activity ratios Inventory turnover = It measures how

Sales / Closing quickly inventory is
inventory sold. A firm should
neither have a high
ratio nor a low ratio

Raw material
Turnover = Cost of
raw Material used /
Average Raw
material inventory

Work in progress
turnover = Cost of
goods
manufactured /
Average work in
process inventory

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 Chapter Data Analysis and
Interpretation

Ratio Analysis

1. Current Ratio

35
 Particulars 2019 2020 2021
Current Assets 41509372 46417991.5 49196337
Current Liabilities 34970331 37369999.9 39740502
Current Ratio ( Current 1.1869883 1.24211912 1.2379395
Asset/ Current
Liabilities)

Table

Chart Title
1.25

1.24

1.23

1.22

1.21

1.2

1.19

1.18

1.17

1.16

1.15
1 2 3
F
ig

2. Debt to Equity ratio

36
 Particular 2019 2020 2021
s
Total 4334377 45278806. 4795855
Liability 4 4 8
Shareholder 1557694 17083136. 18094231
's Equity 0 5
Debt to 2.782560 2.6504972 2.650488
equity ratio 3 5 9
(Total
Liability/
Shareholder
's Equity)

Chart Title
2.8

2.75

2.7

2.65

2.6

2.55
1 2 3

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 3. Inventory Turnover ratio

Particulars 2019 2020 2021

Cost of Goods Sold 42092804 41435989.2 41026124

Average Inventory 11061680 11061680.2 11061680

Inventory turnover ratio 3.8052812 3.74590372 3.708851

(Cost of goods sold/
Average Inventory)

Chart Title
3.82

3.8

3.78

3.76

3.74

3.72

3.7

3.68

3.66
1 2 3

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 4. Operating margin ratio

Particulars 2019 2020 2021

Operating Income 66426314 67207693.2 68610250

Net Sales 67167968 67774517.2 69211750

Operating margin ratio 0.9889582 0.99163662 0.9913093

(Operating Income/
Net Sales)

Chart Title
0.992

0.9915

0.991

0.9905

0.99

0.9895

0.989

0.9885

0.988

0.9875
1 2 3

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 5. Return on Capital employed

Particulars 2019 2020 2021

Net Profit after Tax 1429231 1506196.57 1640611.4

Total Capital 990000 990000 990000

Return on capital 144.36676 152.141068 165.71832

employed [(Net Profit
after Tax/ Total
Capital)*100]

Chart Title
170

165

160

155

150

145

140

135

130
1 2 3

6. Return on Asset ratio

40
Particulars 2019 2020 2021

Net Income 67167968 67774517.2 69211750

Total Asset 58920714 62361942.5 66052789

Return on Asset Ratio 1.1399721 1.08679291 1.0478248

(Net Income/ Total
Assets)

Chart Title
1.16

1.14

1.12

1.1

1.08

1.06

1.04

1.02

1
1 2 3

Comparative Statement Analysis

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Comparative Balance sheet for the year ended March 31th 2019 and
2020

Particulars 2019 2020 Absolut Percent

e age
change change
Net Sales 66,426,3 67,207,6 781,37
14.00 93.16 9.16 1.18
Less: Cost of goods sold 42,092,8 41,435,9 (656,81
04.00 89.16 4.84) (1.56)
Gross profit 24,333,5 25,771,7 1,438,1
10.00 04.00 94.00 5.91
Less: Selling, general 23006811. 2374909 742,2
and administrative 64 7.44 85.80 3.23
expenses
Net Operating profit 1,326,6 2,022,6 695,9
98.36 06.56 08.20 52.45
Add: Other income 741,65 566,8 (174,82 (
3.60 24.00 9.60) 23.57)
Earnings before taxes 2,068,3 2,589,4 521,0
51.96 30.56 78.60 25.19
Less: Taxes 63 1,08 444,11
9,121 3,234 2.99 69.49
Net profit for the year 1,429,2 1,506,1 76,9
30.96 96.57 65.61 5.39

Comparative Balance sheet for the year ended March 31th 2020 and
2021

Net Sales 67,207,6 68,610,2 1,402,55 2.09

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 93.16 50.00 6.84
Less: Cost of goods sold 41,435,9 41,026,12 (409,8 -0.99
89.16 4.00 65.16)
Gross profit 25,771,70 27,584,12 1,812,42 7.03
4.00 6.00 2.00
Less: Selling, general and 23,749,0 25,165,11 1,416,01 5.96
administrative expenses 97.44 4.58 7.14
Net Operating profit 2,022,6 2,419,01 396,4 19.60
06.56 1.43 04.86
Add: Other income 566,8 601,50 34,67 6.12
24.00 0.00 6.00
Earnings before taxes 2,589,4 3,020,51 431,08 16.65
30.56 1.43 0.86
Less: Taxes 1,083,2 1,379,90 296,6 27.39
33.99 0.03 66.04
Net profit for the year 1,506,19 1,640,61 134,41 8.92
6.57 1.40 4.82

Interpretation

 Increasing Current Ratio- The current ratio is first increasing

and then stabilizes during the third, this is a good sign as the
ability of the company to payoff its obligations increases as it has a
larger proportion of short-term asset value relative to the value of
its short-term liabilities.
 Decreasing Debt-equity ratio- A higher debt-ratio indicates
that the company is getting more of its financing by borrowing

43
 money, which subjects the company to potential risk if potential
risk if level is too high. Though the ratio is a bit higher than
optimum value but is increasing at a considerable rate.
 Decreasing Inventory turnover ratio- Inventory turnover
ratio is the number of times a company has sold and replenished
its inventory over a specific amount of time. The ratio can be used
to calculate the number of days it will take to sell the inventory in
hand.
 Uptrend operating margin ratio- When operating margin is
high, it means that the amount of operating generated on each unit
of investment of revenue is high. This is a good indicator that the
business has a high quality of earnings. The trend shows a rise in
the operating margin in the second year but a slight fall in the third
year.
 Increasing Return on capital employed- The calculation of
ROCE tells you that the amount of profit the company is
generating per unit of the capital employed. The more profit the
company can generate, the better. Thus, a higher ROCE indicates
stronger profitability across company comparisons. The up-
trending ROCE is a fairly positive measure for the company.
 Downtrend Return on asset ratio- A declining ROA shows
that the company has over-invested in assets that have failed to
generate revenue growth. This would in turn indicate that the
company is in difficulty. ROA can also be utilized to establish
comparable comparisons between companies in the same industry
or sector.
The down trend indeed represents fall but considering the factor
that the company’s profit is increasing with the assets value there
is growth in the company.

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The comparative statement analysis shows us that the sales and the
profit is 1.18% in the fiscal year 2019-20 which is a good sign for the
company as there is growth in the revenue. The sales for the fiscal year
2020-21 rise by 2.09% which shows rapid growth in the performance of
the company and is considerably profitable.
The net profit after the taxes in the two years rise at an increasing rate,
for the year 2019-20 being 5.39% and for the year 202-21 being 8.92%.
this shows how stabilized the performance of the company is, managing
all its expenses and the other factors.

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