ACCOUNTING FOR MANAGERS

ASSIGNMENT ON

FINANCIAL STATEMENT ANALYSIS

SUBMITTED BY: PIYUSH BHARDWAJ MBA (SEM-1) ROLL NO. 13

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:

 REARRANGEMENT OF FINANCIAL STATEMENTS  COMPARISON  ANALYSIS  INTERPRETATION

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

COMPARATIVE FINANCIAL STATEMENT

Comparative financial statement is a tool of financial analysis that describes changes in each item of the financial statement in both absolute amount and percentage term taking the item in preceding accounting period as base. OBJECTIVES 1. Information about the nature of changes influencing financial position and performance of an enterprise. 2. Point out the weakness and soundness about liquidity, profitability and solvency of an enterprise. 3. Forecasting and Planning.

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

fixed assets investments current assets

total

2100000

3000000

2100000

3000000

COMPARATIVE BALANCE SHEET as on 31.march.2008 & 2009

particulars 2008 Rs. 2009 Rs. absolute changes Percenta ge changes

SOURCES OF FUNDS Share capital: Equity preference reserves & surplus Share holders funds LOAN FUNDS secured loan 8% debentures Total funds provided

600000 300000 300000 1200000

900000 600000 300000 1800000

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

COMPARATIVE INCOME STATEMENT

for the year ended 31st march,2008 & 2009
Particulars 2008 2009
absolute charges Percentage charges (increase or decrease)

(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

Percentage charges (increase or decrease)

10 5 30

150000 450000 60000

180000 600000 60000

30000 150000 ..

20 33.33 .

Profit before interest & tax Less :interest paid Profit before tax Less: income tax paid Profit after tax

510000 60000 450000 225000 225000

660000 60000 600000 300000 300000

150000 .. 150000 75000 75000

29.4

33.33 33.33 33.33

Thank you