Q1. Explain the basic elements of income statement?

Income Statement An income statement, otherwise known as a profit and loss statement, is a summary of a companys profit or loss during any one given period of time, such as a month, three months, or one year. The income statement records all revenues for a business during this given period, as well as the operating expenses for the business. Basic elements of Income Statement 1. Sales The sales figure represents the amount of revenue generated by the business. The amount recorded here is the total sales, less any product returns or sales discounts. 2. Cost of goods sold This number represents the costs directly associated with making or acquiring your products. Costs include materials purchased from outside suppliers used in the manufacture of your product, as well as any internal expenses directly expended in the manufacturing process. 3. Operating expenses These are the daily expenses incurred in the operation of your business. In this sample, they are divided into two categories: selling, and general and administrative expenses. Selling expenses resulting from the company effort to create sales include advertising sales communication sales supplies used and so on. Administrative expense relate to general administration of the companys operation. They include office salaries insurance telephone bad debt expense and other cost difficult allocate. 4. Total expenses This is a tabulation of all expenses incurred in running your business, exclusive of taxes or interest expense on interest income, if any. 5. Net income before taxes This number represents the amount of income earned by a business prior to paying income taxes. This figure is arrived at by subtracting total operating expenses from gross profit. 6. Taxes This is the amount of income taxes you owe to the federal government and, if applicable, state and local government taxes. 7. Net income This is the amount of money the business has earned after paying income taxes.

Q2. Explain the Horizontal and Vertical Analysis? Ans. Horizontal Analysis and Vertical Analysis are two ways to measure a companys financial strength. They can be useful for investors, creditors, management, and executives. Horizontal Analysis A procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time. The analyst will use his or her discretion when choosing a particular timeline; however, the decision is often based on the investing time horizon under consideration. For example, when you hear someone saying that revenues increased by 10% this past quarter, that person is using horizontal analysis. Horizontal analysis can be used on any item in a company's financials (from revenues to earnings per share), and is useful when comparing the performance of various companies. Vertical Analysis A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account. The main advantages of vertical analysis are that the balance sheets of businesses of all sizes can easily be compared. It also makes it easy to see relative annual changes within one business For example, suppose XYZ Corp. has three assets: cash and cash equivalents (worth $3 million), inventory (worth $8 million), and property (worth $9 million). If vertical analysis is used, the asset column will look like: Cash and cash equivalents: 15% Inventory: 40% Property: 45% This method of analysis contrasts with horizontal analysis, which uses one year's worth of entries as a baseline while every other year represents differences in terms of changes to that baseline.

Qus3. Express Ratio Analysis and its types? Ratio Analysis. A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis. There are many ratios that can be calculated from the financial statements pertaining to a company's performance, activity, financing and liquidity. Some common ratios include the priceearnings ratio, debt-equity ratio, earnings per share, asset turnover and working capital. Types of Ratio Analysis 1. Liquidity Ratio of Ratio Analysis: Facilitates to identify whether the company has enough capability to meet short term obligations/requirements. Current and Quick Ratios reveal the comparison between Current Assets and Current Liabilities suggest for necessary decision making. 2. The Profitability Ratios: Like Gross Profit Ratio, Net Profit Ratio and Operating Ratio give a picture of profitability position of the concern. 3. Long term solvency and the leverage ratios: Such as Debt-Equity Ratio and Interest Coverage Ratio convey a firms ability to meet the interest cost repayments schedules of its long-term obligations and show the proportions of debt and equity in financing of the firms. 4. Activity Ratio: Such as Inventory Turnover Ratio, Debtor Turnover Ratio, Working Capital Turnover Ratio measures the efficiency with which the resources of a firm have been employed. 5. The market value ratio: Can only be calculated for publicly traded companies as they relate to stock price. The most commonly used market value ratios are the price/earnings ratio and the market-to-book ratio.

ASSIGNMENT NO: 4th, 5th, 6th NAME:SAFA MASOOD CHEEMA ROLL NO; M-14339 MBA: 4TH SEMESTER SUBJECT: INTERPRETATION OF FINANCIAL STATEMENT SUBMITTED TO: SIR KAMRAN DONA

ASSIGNMENT NO: 4th, 5th, 6th NAME:NAFEESA SHAHID ROLL NO; M-143O7 MBA: 4TH SEMESTER SUBJECT: INTERPRETATION OF FINANCIAL STATEMENT SUBMITTED TO: SIR KAMRAN DONA