INTRODUCTION

INTRODUCTION TO THE TOPIC

Finance is regarded as lifeblood of an enterprise. This is because in the
modern money oriented economy finance is one of the basic foundations of
all kinds of economic activities. It is the master, which provides access to all
sources for being employed in manufacturing activities it has been rightly
said that business needs money to make more money. However, it is also
true that money be gets more money only when it is properly managed
therefore efficient management of-every-business enterprise is closely linked
with efficient management of its finance.
The Financial statement provides provides the basic data for financial
performance analysis. The financial statements provides a summarized view
of the financial position and operations of a firm. Financial analysis refers to
an assessment of the viability, stability and profitability of a business. The
analyst first identifies the information relevant to the decision under
consideration

from

the

total

information

contained

in

the

financial

statements. Therefore, much can be learnt about a firm from a careful

examination of its financial statement as invaluable documents and
performance reports.
The analysis of financial statements is an important aid to financial analysis
they provide information on how the firms has performed in the past and
what is the current financial position. Financial analysis is the process of
identifying the financial strength and weakness of the firm from the available
accounting data and financial statements. The analysis is done by
establishing relationship between the different items of financial statements.
The focus of financial analysis is an key figure i.e the financial statements
and the significant relationship that exists between them the analysis of
financial statements

is a process of evaluating relationship between

component parts of financial statement to obtain a better understanding the

firms position and performance.
The first task of financial analysis is to select the information relevant to the
decision under consideration from the total information contained from the
total information contained in the financial statement the second step
involved in the information in a way to highlight relationships the final step in
interpretation and drawing of influences and conclusions in brief financial
analysis is the process of selection relation and evaluation.
Meaning:
Finance is the application of skills for manipulation use and control of money
business.
Finance means the process of rising, providing a managing of all the money
to be used connection with the business function on activity.
Definition
According to the prather and wert business finance deals primarily with
raising administetration and distributing funds by privately owned business
units operating in non-financial fields of industry.
Scope of Finance:
The question of scope of finance function to be achieving the objective of
wealth maximization. In the following discussion these decision have been
categorized into 2 broad groupings:
01 Long term financial decisions
Investment
Financing decisions
Dividend decisions
02 short term financial decisions
Cash
Investment
Receivable

Inventory.
Long term financial decisions
The long term financial decisions pursuved by the financial manger have
significant long term effects of the value of the firm the results of these
decisions are not confirmed to few months but extent over several years and
these decisions are mostly irreversible.
It is therefore necessary that before committing the scarece resources of the
firm a careful experience is done with regard to the likely costs and benefits
of the various decisions.
INVESTMENT:
It is also known as capital budgeting decisions concerned with the allocation
of given amount of capital to fixed assets of the business. The important
characteristics of fixed assets is that their benefits are realized in the future
generally after one year) thus capital budgeting decisions adds to the total
fixed assets of the concerned by selecting and investing in new investment.
It must be properly understand at the stage
that because the future benefits are not known with certainly, investment
proposals necessarily involve risk. Consequently, they must be evaluated in
relation to their expected income and risk they add to the firm as a whole.
Obviously, the management will select investments adding something to the
value of the firm. The criteria of judging the profitability of projects is the
difference between the cost of the investment proposals and its expected
earnings. The important methods employed to judge the profitability of the
investment proposals and its expected earnings. The important methods
employed to judge the profitability of the investment proposals are:
(a) Payback method;
(b) Average rate of return method,
(c) Internal-rate of return method, and
(d) Net present value method. A careful employment of these methods helps
in determining the contribution of investment projects to owners wealth.

Financing Decision: Financing decision (also known as Capital Structure

decision) is intimately tied with the investment decision. To undertake
investment decision the firm needs proper finance. The solution to the
question of raising finance is solved by financing decision. These are number
of sources from which funds can be raised..The most important sources of
financing are equity capital and debt capital. firms capital structure would
be optimum. Once the financial manager is able to determine the best
combination of debt and equity, he must raise the appropriate amount
through best available sources.
Dividend Decision: The next crucial financial decision is the dividend
decision. This decision is the basis of dividends payment policy reserves
policy, etc. The dividends are generally paid as some percentage of earnings
on the paid-up capital. However, the policy pursued by management
concerning dividends payment is generally stable in character. Stable
dividends policy implies the payment of same earnings percentage with only
small variations depending upon the pattern of earnings. The stable
dividends policy among other things, increase the market value of the share.
(2) Short-Term Financial Decisions: The job of the financial manager is not
just limited to the long-term financial decisions, but also extends to the
short-term financial decisions aiming at safeguarding the firm against
illiquidity or insolvency. Surveys indicate that the largest portion of a
financial managers time is devoted to the day to day internal operations of
the firm; this may be appropriately subsumed under the heading. Working
Capital

management.

Working

capital

management

requires

the

understanding and proper appreciation of its two concepts-gross and net

working capital. Gross working capital refers to the firms investment in
current assets such as cash, short-term securities, debtors, bills receivable
and inventories. Current assets have the distinctive characteristics of being

convertible into cash within an accounting year. Net working capital refers to
the difference between current assets and current liabilities. Current
liabilities are those claims of outsiders which are expected to mature for
payment within an accounting year and include trade creditors, bills payable,
bank overdraft and outstanding expenses.
Financial management:
Definition:
According to Joseph and massie
Financial management is the operation acting of a business that is
responsible for obtaining and effectively utilizing the necessary for efficient
operation
Meaning of Financial analysis:
One of the important step of accounting is the analysis and interpretation of
the financial statement which results in the presentation of data that helps
various categories of persons in forming opinion about the profitability and
financial position of the business concern.
The most important objective of the analysis and interpretation of financial
statements are to understand the significance and meaning of financial
statement data to know the strength and weakness of a business
understanding so that a forecast may be made of the prospects of that
understanding.
Objectives or uses of financial performance analysis:
Financial analysis is helpful In assessing the financial position and
profitability of a concern the following are the main objective of analysis of
financial statement.
1 to help in accessing developing in the fiuture by making forecasts and
preparing budgets.

2 to judge the operational efficiency as a whole and of its various parts or

departments.
3 to have comparative study in regard to one department with another
department.
4 to judge the short term and long term solvency of the concern for the
benefits of the debentures hiolders and trade creditors.
5 to know the profitability of the concern.
TYPES OF FINANCIAL ANALYSIS

On the Basis of Material Used

External Analysis:
Those persons who are not connected with the enterprise make it. They do
not have access
To the detailed record of the company and have to depend mostly on
published statements. Investors credit agencies government agencies and
research scholars make sure such type of analysis.

Internal Analysis;

The internal analysis is made by those persons who have access to the books
of accounts, they are members of the organization analysis of financial
statement or others financial data for managerial purpose is the internal type
of analysis.

On the Basis of Modus operand:

Horizontal Analysis:
In case of this type analysis financial statement for number of years
reviewed and analyzed the current year figures are compared with the
standard on base year. The analysis statement usually contains figures for
two or more years and the changes are shown regarding each item from the
percentage since the type of analysis is based on the data from year to year
rather than on one data. It is also termed as dynamic analysis.

Vertical Analysis
In case of this type of analysis a study is made of the quantitative
relationship of the various items in the financial statement on a particular
data. Such an analysis is useful in comparing the performance of several
banks in the some group or divisions or departments in the same company. It
is also termed as static analysis.

Techniques of Financial Analysis:

The analysis and interpretation of financial statement is used to determine
the financial position and operations as well a number of techniques are used
to study the relationship between different statements.
The following methods of analysis are used:
1

Comparative Financial Analysis

a) Comparative Income Statement.

b) Comparative Balance Sheet.
2

Common size financial statement.

Fund flow analysis.

Cash Flow analysis.

ratio analysis.

Comparative Financial

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.
A) Comparative Income Statements:
The Income statement discloser net profit or net loss or account of operation.
A Comparative income statement will show the obsolute figures two or more
periods. The obsolute changes from one period to another and if desired the
change in terms of percentages.
Since the figures two or more periods are shown side by side with the help of
this we can quickly ascertain whether sales have increased or decreased
whether cost of sales have increased or decreased etc therefore only a
glance of data incorporated in this statement will be helpful in making useful
conclusion.
b) Comparative balance sheet.
Balance sheet of two or more different dates can be for comparing assets
and liabilities and finding out any increase or decrease in those items.
Therefore in a single balance sheet the emphasis is on present position it is
on changes in the comparative balance sheet. This type of balance sheet is
very helpful in studying the trends in a business concern.
2

Common Size Financial Statement:

Common size financial statement are those in which figures reported are
converted into percentage to some common base. When this method is
pursued the income statement exhibits each expenses item or group of
expenses items as a percentage of net sales and net sales are taken at 100
percentage. Similarly each individuals asset and liability classification is
shown as a percentage of total assets and liabilities respectively. Statements
preperated in this way are refereed to as common size statement.
Common size statement prepared for one firm over the years would highlight
the relative change in each group of expenses assets and liabilities these
statement can be equally useful for inter-firm comparisons given the fact
that obsolete figure of two firms of the same industry are not comparable.
3

Trend Percentages:

Trend percentages are very much helpful in making a comparative study of

the financial statement for several years. The way calculating trend
percentages involves the calculation of percentages involves the calculation
of percentage relationship that each items bears to the same item in the
base year. Each item of base year is taken as 100 and on that basis the
percentage for each of the items of each of the years are calculated. These
percentages cab be taken as index number showing the relative changes in
the financial data resulting with the passage of time. This method is very
much useful, analytical device for the management since by substitution of
percentages for large amounts brevity and readability are achieved.
4

Fund Flow Statements:

Fund flow statement is a financial statement which indicated the various

means by which the funds have been obtained during the certain period and
the ways to which these funds have during that period.
In short it is the statement which shows the movements of funds between
two balance sheet dates.

According to Anthony: the fund flow statements describes the sources from
which these funds additional funds were derieved and the uses to which
these funds were put.
The funds flow statement is called by different names. Such as statement of
sources and applications of funds. Statement of changes in working capital
where got and statement and statement of resources provided and applied.
5

Cash Flow Statement:

Cash flow statement shows the movement of cash and their causes during
the period under consideration. It may be prepared annually. Half yearly
monthly weekly or for any another duration.
Cash flow statement is prepared to show the impact of financial policies and
procedures on the cash position of the firm and takes into consideration all
transactions that have a direct impact upon cash.
A cash flow statement concentrates on transactions that have direct impact
on cash. It deals with the inflow and outflow of cash between two balance
sheet dates. In other words a statement of changes in a financial position of
a firm on cash basis is called a cash flow statement.
6

Ratio Analysis:

Ratio analysis is a technique of analysis and interpretation of financial

statement. It is the process of establishing and interpreting various ratios for
helping in making certain decisions it involves four steps. They are as
follows:
1

selection of relevant data from the financial statements depending

2
3

upon the objective of the analysis.

Calculation of appropriate ratios from the above data.
Comparision of the calculated ratios with the ratios of the same firm

others firms.
Interpretation of the ratios.

Process of Financial Analysis:

The analysis of financial statements is a process of evaluating the
relationship between components of financial statements to obtain better

understanding of the firms position and performance the functional analysis

is the process of selection relation and evaluation.
1

the first task of the financial analysis is to select the information

relevant to the decision under consideration from the total

information contained in the financial statement.

The second step is to arrange the information in a highlights

significant relationship.
The final step is interpretation and drawing of influence and
conclusion.

Limitations of Financial statement analysis:

Financial statement analysis is very important device but it has certain
limitation which are not to be kept in mind.
Following were the limitation of financial statement analysis.
1

based on post data:

the nature of financial statements is historical past cannot be the index of

future estimation, forecasting budgeting and planning.
2

Financial statements analysis cannot be a substitute for judgement:

Analysis is a tools which can be utilized usefully by an expert mag lead to

enormous conclusion by unskilled analysis. Thus the result analysis cannot
be considered as judgement or conclusion.
3

Reliability of figure:

The accuracy and reliability of analysis depends on reliability of figures

derived from financial statement.
4

different interpretation:

result of the analysis may be interpreted differently by different users.

5

change in accounting methods:

analysis will be effective if the figures taken from financial statements.

Comparable if there are frequent change in accounting policies and method
figures of different periods will be different and comparable.
6

price level change:

the ever rising inflation erodes the value of money in the present day
economic situation which reduces the validity of analysis.
7

Limitations of the tools of analysis:

Different techniques of analysis are used by an analyst these tools are

suitable for different type of analysis. Application of a particular tool or
techniques.
Depends on the skill and expertise of the analyst if an unsuitable technique
is used it give misleading result. It may lead to wrong conclusion and prove
harmful on the business concern.

CHAPTER 2
RESEARCH DESIGN
INTRODUCTION:
A RESEARCH DESIGN is a logical and systematic plan prepared for directing a
research study.it specifies the objectives of the study, and the methodology
and techniques to be adopted for achieving the objectives. It constitutes the
blue print for the collection, measurement and analysis of data. Definition is
the plan, structure and strategy of investigation.
Research simply means a search for facts or answer to a question and
solution to problem.
It is purposive investigation. It is an organized inquiry. It seeks to find
explanations to unexplained phenomenon, to clarify the doubtful proposition
and to correct the misconceived facts.
A research design is the program that guides the investigator in the process
of collecting, analyzing and interpreting observation.it provides a systematic
plan of procedure for the researcher to follow.
Advanced learner dictionary of current English defines research design is a
careful investigation on inquiry especially through search for new facts in any
branch of knowledge.

Title of the study:

A Study on Financial Performance and analysis in Fitwell Tools and fourgins
pvt ltd Tumkur.

Statement of the Problem:

Financial

analysis

being

an

integral

part

of

overall

corporate

management and its own of the powerful tools of financial performance

analysis. The analysis of financial statement of FitWel is done ion order
to know companys financial position.

The sataement for the problem selected for the study is study on
financial performance of the FITWELL automobiles company Tumkur

through various techniques like comparative statement.

Common size statement, ratio analysis and trend analysis. The study is
undertaken to measure the financial performance of the company and
to suggest some remedial measures to overcome of the weakness in
the present financial position and performance of the company.

Objectives of the study:

1

To study the activities of finance department by utilizing the

theoretical knowledge relating to practical situation and to highlight

difference in practice.
To understand profile of the organization and also to have a
practical exposure to the functioning of finance department of the

organization.
To analyse the financial statement of FITWEL tools and forging PVT

Ltd.
To study the procedures followed in accounts department in

particular with regard to the application of theory in practice.

To make a critical review of the effectiveness of decision making.

Need of the study:

Financial analysis is very helpful to management is knowing the financial
strength of the firm to make their best use of the capital mix. The study aims
at analysis of overall financial performance of the company by using various
financial tools. The future plans of the firm should be laid down in view of the
firms financial strength and weakness by properly establishing relationship
between the items of balance sheet and the profit and loss account.
Limitations of the study:
1

the study is restricted only the financial performance of the

company.

The study is limited with the information gathered from the financial
statement of current year only and the discussion with the company

officials.
As the study is related to tumkur branch it may not be useful in

4
5

broad level to make decisions to the other branches.

The study is limited only are some financial data.
Financial statement are compiled on the basis of historical cost.

Methodology:
Methodology of the research is descriptive method of study descriptive
research is study of existing facts trto come to a conclusion. It is a fact
finding investigation with adequate interpretation. It is a simple type of
research it has a focus on particular aspect or dimension.
Primary Data
Primary data are orginal sources from which the research directly collects
data that have hot been previously collected. It means the sources of
origin from where the data generate primary data after use converted to
secondary data.
Secondary data:
The secondary data are those data which collected from one source
secondary sources i.e the sources of reservation or storage. These data
are collected and sorted after being collected and used for some purpose
by some agency
The secondary data is collected from various sources like:
Journals
Magazines.
Business papers.
Internet.
Company Website.
Tools for data analysis:

The primary tool of data collection is past records and financial

statemnets of recent six years, the various other tools used in this are the
following:
1
2
3
4

comparative statement.
Common size statement.
Trend analysis.
Ratio analysis.

Sampling design:
The objectives of these course is to pay attended to the most important
dimensions of research methodology. It will enable the researcher to develop
The most appropriate methodology for the research studies the mission of
the designers and helps improve the quality of research by the existing
researcher.
Sampling design:
Sampling is means of selecting a subset of units from a target population for
the purpose of collecting information.
This information is used to draw influence about the population as a whole.
Sampling Size:
3-4 years financial statement study only.
Sampling unit:
A study on financial analysis in FITWEL tools and forgings tumkur.
This study is conducted only in FITWEL tools and forgings tumkur, the
sampling units consist of one company.

REVIEW OF LITERATURE:
JOHN MYER:
A renowned authority on financial statements analysis has refereed that that
in the initial years of 20th century, the bankers and securities exchange
authorities were extensively relying on the financial statements of the
companies for analysis, monitoring and control of the activities and
performance of businesses. The history, principles and financial statement
analysis has been referred by another authority
Kennedy and MCMULLEN
ent. The aim of financial management has been linked with (1) the field of
basic economics, and especially micro economics (use of scarce resource).
(2) by examining the many and diverse activities and decisions which occupy
financial managers.
EF DONALDSON:
referred to the importance of business and financial reporting. He highlighted
that the economy depends on the business organizations for goods and
services. United States believes in corporate world. The financial activities of
business enterprises of production and sale is of utmost importance. In his
well known publication (Corporate Finance, 1957) he has referred to all
important aspects of business finance like organization structure, securities,
production,

capitalization,

working

capital,

administration

of

income,

expansion and combinations (mergers), reorganization and readjustments.

ROBERT ANTHONY:
Professor of Accounting and Financial Control at Harvard University has
written many authoritative books on accounting and financial management.
He defines Accounting as a means of collecting, summarizing, analyzing and
reporting in monetary terms, information about the business. This simple
definition highlights the importance of accounting and financial information
in the business enterprise.
Another definition by a well known author can also be referred
Accounting is score keeping, attention directing and problem solving.6 This
authority states that accounting system provides information for three broad
objectives.
(1) Internal reporting to managers for use in planning and control of current
operations.
(2) Internal reporting to managers for use in strategic planning, and
(3) external reporting to owners, government and other outsiders. As a score
keeping activity, all relevant data are generated by the system which
becomes a guide for attention directing and problem solving in different
areas like inventory, production, sales etc. The authors have referred to
important aspects accounting principles, importance of Annual Reports,
measurement of income, marginal costing and efficiency.

Chapter 1: Introduction
This chapter includes the general information of the financial and analysis
and the theoretical background of the study.
Chapter 2: Research Design
This chapter includes the research design of the study, title of the study,
statement of the problem, objectives and needs of the study limitations of
the study sources of data collection and methodology tools for data analysis.
Review of literature sampling design, sampling size, sampling unit chapter
scheme
Chapter 3 : company profile
This chapter on a brief profile of organization its structure and its history.
Chapter 4:Analysis and interpretation of data
tn this chapter the analysis and interpretation of data, the financial data
converted from the company processed and analyzed.
Chapter 5: summary findings, suggestions and conclusion
This chapter gives the executive summary of findings recommendations and
suggessions. This chapter provide the summary of findings and conclusion
drawn the analysis and suggestions for solving problems.

Bibliography
Annexure.