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ASSIGNMENT ON
INTRODUCTION
Analysis of financial statements is a systematic process of the critical examination of the financial information contained in the financial statements in order to understand and make decisions regarding the operation of the firm. A study of relation among various financial facts and figures. This process of division, establishing relationship & interpretation thereof to understand the working or financial position of business is known as Financial Statement Analysis.
USES
On the basis of financial analysis we can take variety of decisions in various areas:
SECURITY ANALYSIS CREDIT ANALYSIS DEBT ANALYSIS DIVIDEND DECISION GENERAL BUSINESS
PROCESS
The main functions which are used in the process of analysis and interpretation are:
TECHNIQUES
A financial analyst can adopt the following tools and techniques for analysis of financial statement:
1- COMPARATIVE FINANCIAL STATEMENT 2- COMMON-SIZE FINANCIAL STATEMENT COMMON3- TREND PERCENTAGES 4- RATIO ANALYSIS 5- FUNDS FLOW STATEMENT 6- CASH FLOW STATEMENT
Under this technique we prepare two statements---1. COMPARATIVE BALANCE SHEETS 2. COMPARATIVE INCOME STATEMENT
particulars
SOURCES OF FUNDS Share capital: Equity preference reserves & surplus Share holders funds LOAN FUNDS secured loan Unsecured loans Total funds provided APPLICATION OF FUNDS
COMPARATIVE BALANCE SHEET c 2008 2009 Rs. Rs. AS ON 31. MARCH 2008 & 2009
absolute changes
Percentage changes
Fixed assets Investment Net current assets: current assets, loans & advances less: current liabilities and provisions Miscellaneous expenditures
TOTAL
Example: From the following Balance sheets of Exe. Ltd. on 31.march.2008 & 2009, prepare a Comparative Balance sheet--liabilities 2008 Rs.
600000 300000 300000 600000 300000
2009 Rs.
900000 600000 300000 600000 600000
assets
2008 Rs.
1200000 300000 600000
2009 Rs.
1500000 300000 1200000
Equity share capital Pref. share capital Reserves & surplus 8% debentures Current liabilities
total
2100000
3000000
2100000
3000000
SOURCES OF FUNDS Share capital: Equity preference reserves & surplus Share holders funds LOAN FUNDS secured loan 8% debentures Total funds provided
300000 300000
50 100
600000 50
600000 AS ON 31. MARCH 2008 600000 & 2009 1800000 2400000 600000 33.33
APPLICATION OF FUNDS Fixed assets Investment Net current assets: current assets less: current liabilities
1200000 300000
1500000 300000
300000 25
300000
600000
300000 100
total
1800000
2400000
600000
33.33
(increase or decrease)
Net sales Less: cost of goods sold Gross profit Less: operating exp. (office, administration, selling and distribution) Net operating profit Add: other income Less: non operating exp. Profit before interest & tax Less :interest paid Profit before tax Less: income tax paid Profit after tax
Example: from the following information, prepare comparative income statements of Exe Ltd.
2008 Rs. 3000000 2400000 150000 60000 60000 50% 2009 Rs. 3300000 2520000 180000 60000 60000 50%
sales Cost of goods sold office administration, selling & distribution exp. other incomes interest paid tax rate
EXE. LTD. COMPARATIVE INCOME STATEMENT for the year ended 31.march.2008 & 2009
Particulars
2008
2009
absolute charges
(increase or decrease)
Net sales Less: cost of goods sold Gross profit Less: operating exp. (office, administration, selling and distribution) Net operating profit Add: other income 30000000 24000000 600000 3300000 2520000 780000 300000 120000 180000
30000 150000 ..
20 33.33 .
Profit before interest & tax Less :interest paid Profit before tax Less: income tax paid Profit after tax
29.4
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