PROJECT REPORT

SUMMER TRAINING
ON
A FINANCIAL STATEMENT ANALYSIS AND INTERPRETATION
OF C.B ENTERPRISES
S.D. GUPTA & COMPANY

FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF

BACHELOR OF COMMERCE
UMDER THE SUPERVISION OF UNDER THE SUPERVISION OF
Mrs. Unnati Jadaun CA Shobhit Kumar

SUBMITTED BY
…………
B.com (2015)
Enrolment No. 20130544

INSTITUTE OF BUSINESS MANAGEMENT,

MANGALAYATAN UNIVERSITY,
33rd KM STONE, ALIGARH MATHURA HIGHWAY,
BESWAN ALIGARH

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 CERTIFICATE OF THE SUPERVISOR
This is to certify that the work entitled A Financial statement analysis & interpretation of C.B.
ENTERPRISES is a piece of SIP research work done by Ms. Pinkey Rana under my guidance and
supervision for the degree of B.COM (Hons.) from Mangalayatan University Aligarh. I certify that
the candidate has put 45 days in industry training at S.D.GUPTA & COMPANY.

To the best knowledge and belief the report:

(i) Embodies the work of the candidate himself.

(ii) Has duly been completed.
(iii) Fulfills the requirement of the ordinance relating to the B.COM (Hons.) degree of the
University and
(iv) Up to the standard both in respect of contents and language for being referred to the
examiner.

Signature of the Supervisor

Date

ACKNOWLEDGEMENT

"I have taken efforts in this internship. However, it would not have been possible without the kind
support and help of many individuals and organizations. I would like to extend my sincere thanks
to all of them.

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I am highly indebted to Mrs. Unnati Jadaun for their guidance and constant supervision as well as
for providing necessary information regarding the internship & also for their support in completing
the internship.

I would like to express my gratitude towards my parents & member of S.D.GUPTA & COMPANY
for their kind co-operation and encouragement which help me in completion of this internship.

I would like to express my special gratitude and thanks to CA Shobhit Kumar for giving me such
attention and time.

PREFACE

This Project Report has been prepared in partial fulfillment of the requirement for the subject: the
Summer Internship programme on the topic A Financial statement analysis and interpretation of
C.B ENTERPRISES in B.COM (HONS.) 4th Sem. in the academic year 2014-2015.

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For preparing the Project Report, I have completed my Internship from S.D.GUPTA &
COMPANY under the CA Shobhit Kumar during the suggested duration for the period of 45 days
to enhance my knowledge. The blend of learning and knowledge acquired during my Summer
Internship at the company is presented in this Project Report.

The rationale behind doing Summer Internship and preparing the project report is to study A
Financial Statement Analysis and Interpretation, what is company, what is Financial statement,
why Analysis of statement is necessary for a company, ratio analysis and how does it help to get
liquidity position liquidity position and how does it helpful of Investors for taking investing
decision and Use of tally for maintain company account.

ABSTRACT

Financial statements are formal record of the financial activities of a business, person or other
entity and provide an overview of a business or person’s financial condition in both short and long
term. They give an accurate picture of a company’s condition and operating results in a condensed
form. Financial statements are used as a management tool primarily by company executive and
investor’s in assessing the overall position and operating results of the company.

Analysis and Interpretation of financial statements help in determining the liquidity position, long
term solvency, financial viability and profitability of a firm. Ratio analysis shows whether the
company is improving or deteriorating in past years. Moreover, comparison of different aspects of

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all the firms can be done effectively with this. It helps the clients to decide in which firm the risk
is less or in which one they should invest so that maximum benefit can be earned.

Industries are capital intensive; hence a lot of money is invested in it. So before investing in
companies one has to carefully study its financial condition and worthiness. An attempt has been
carried out in this project to analyze and interpret the financial statements of a company.

OBJACTIVE:

• To understand, analyze and interpret the basic concepts of financial statements of different
mining companies.
• Interpretation of financial ratios and their significance.
• Use of Tally 9.0 package for the analysis and interpretation of financial statements of
mining companies.

This project mainly focuses in detail the basic types of financial statements of different companies
and calculation of financial ratios. Ratio analysis of C.B.ENTERPRISES was done.

Tally 9.0 was used for preparation of balance sheet, profit & loss statements and estimation of few
financial ratios of selected companies. Profit & Loss Statements of companies were not calculated
as Tally 9.0 has limitations in processing the data that was available. However, only three ratios
viz. current ratio, quick ratio and debt-equity ratio were calculated. An advanced version can be
developed for calculation of profit & loss statements and other financial ratios.

From ratio analysis of Balance Sheet and P & L Statement of C.B.ENTERPRISES of 2013-15 it

was concluded that liquidity position of the company is good. Current ratio, debt-equity ratio,

quick ratio, net profit margin, operating profit margin, gross profit margin, return on assets, return

on investments and return on capital employed were found to be unacceptable. In this project,

comparison of different ratios viz. current ratio, debt-equity ratio, net profit

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margin and return on investment of all the above e companies has been done for the period
201315.It was observed that current ratio of C.B.ENTERPRISES was always more than 1 from
201315which indicates that liquidity position of the company was good.

Debt-Equity ratio of C.B.ENTERPRISE increased in 2013-15 which the debts have been cleared.
Return on Investment of C.B.ENTERPRISES increased from 44.20% to 48.72% in Two years.

CONTENTS
Sl. No. Title Page No.

Chapter -01 INTODUCTION

1.1 S.D.GUPTA & COMPANY 14

1.2 A Financial Statement Analysis and Interpretation 14
1.3 Objectives 15

Chapter-02 FINANCIAL STATEMENTS 16

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 2.1 Balance Sheet 17
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 2.1.1 Format of Balance Sheet 18
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 2.1.2 Contents of Balance Sheet 20
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 2.2 Profit and loss statements 25
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 2.2.1 Format of Profit and Loss Statement 26
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 2.2.2 Contents of Profit and Loss Statement 27
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 2.3 FINANCIAL RATIOS
2.3.1 Objectives 29
2.3.2 Financial Ratios And Their Interpretation 30

Chapter-03 FINANCIAL RATIO ANALYSIS: CASE STUDY

3.1 Ratio Analysis of C.B ENTERPRISES

3.1.1 Balance sheet of C.B.ENTERPRISES for 2014 39

3.1.2 Balance sheet of C.B.ENTERPRISES for 2015 40
3.1.3 Profit & Loss Statement for 2014 42
3.1.4 Profit & Loss Statement for 2015 44
3.1.5 Ratio Analysis for 2014 46
3.1.6 Ratio Analysis for 2015 50
3.1.7 Summary for Balance sheet and profit & loss statement 53
3.2 RATIO ANALYSIS USING TALLY 9.0 54

3.2.1 Balance Sheet and Ratio Analysis for 2014 55

3.2.2 Balance Sheet and Ratio Analysis for 2015 56

Chapter-04 VARIATION OF FINACIAL RATIOS

S.B ENTERPRISES 57

Chapter-05 COMPRATIVE STATEMENT

5.1 Income Statement 61

5.2 Balance Sheet 62

FINDINGS 63

CONCLUSION 64

RECOMMENDATIONS 66

LIMITATIONS 68

BIBLIOGRAPHY 69

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 LIST OF TABLES
Sl. No. Title Page No.
Table2.1 Balance Sheet Statement 18

Table2.2 Profit & Loss Statement 26

Table2.3 Different Financial Ratio 30

Table3.1 Balance Sheet of C.B ENTERPRISES,2014 39

Table3.2 Balance Sheet of C.B ENTERPRISES,2015 40

Table3.2 Profit & Loss Statement of C.B ENTERPRISES ,2014 42

Table3.3 Profit & Loss Statement of C.B ENTERPRISES. 2015 44

Table3.4 Analysis of Financial Ratio for 14 46

Table3.5 Analysis of Financial Ratio for 15 50

Table3.7 Summary of Balance Sheet 53

Table3.8 Summary of Profit & Loss Statement 54

Table5.1 Comparative Income Statement 61

Table5.2 Comparative Balance Sheet 62

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 LIST OF FIGURES
Fig.3.1 Balance Sheet,2014 55

Fig.3.2 Ratio Analysis of C.B.ENTERPRISES for 2014 55

Fig.3.3 Balance Sheet,2015 56

Fig.3.4 Ratio Analysis of C.B ENTERPRISES for 2015 56

Fig.4.1 Current Ratio 57

Fig.4.2 Working Capital Ratio 57

Fig.4.3 Quick Ratio 58

Fig.4.4 Debt- equity Ratio 58

Fig.4.5 Inventory Turnover Ratio 58

Fig.4.6 Return On Assets 59

Fig.4.7 Return on Investment 59

Fig.4.8 Gross Profit Ratio 59

Fig.4.9 Net Profit Ratio 60

Fig.4.10 Return On Working Capital 60

Fig.4.11 Operating Cost Ratio 60

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 EXECUTIVE SUMMARY

Subject Matter: This Project report provides an analysis and interpretation of the year 2013-14
and 2014-15 profitability, liquidity and financial stability of C.B.ENTERPRISES.

Methods of Analysis: Methods of analysis include horizontal and vertical analyses as well as
ratios such as Debt, Current and Quick ratios. Other calculations include rates of return on
Shareholders’ Equity and Total Assets and earnings before interest & Tax to name a few. Many
other calculation of can be found in this project.

Findings: Results of data analyzed show that all ratios are below industry averages. In particular,
comparative performance is poor in the areas of profit margins, liquidity, credit control, and
inventory management.

• Assets have decreasing due to investment is decreasing.

• Liquidity Position is good.
• Purchase has decreased by 37.58%
• COGS has decreased by 46.17%
• Sales have decreased by 29.47%
• Gross Profit has decreased by 45.79%
• Net profit has decreased by 33.22%

Conclusion: The report finds the prospects of the company in its current position are not positive.
The major areas of weakness require further investigation and remedial action by management.

Recommendations: Recommendations discussed include:

• Improving the average collection period for accounts receivable·

• Improving/increasing inventory turnover·
• Reducing prepayments and perhaps increasing inventory levels.
• Increase in purchase and Production activity.

Limitations of the report: three problems involved in such report are:

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 a) That firms use different accounting principles and methods.
b) That it is often difficult to define what industry and firm is really a part of and
c) That accounting principles varies among countries

CHAPTER- 01

INTRODUCTION

1.1 S.D.GUPTA & COMPANY: S.D. GUPTA & COMPANY was formed on May 2,

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 2015 in Greater Noida by 2 directors CA Shobhit Kumar and CA Deepali Gupta. It is registered
under the Act, CA Regulation Act. 1949 The Head Office is in GR. Noida and has its branch
in Mumbai also. They become a CA in Jan 19, 2013. CA Shobhit Kumar and CA Deepali
Gupta open their offices respective names- SHOBHIT KUMAR & ASSOCIATE in Jun 7,
2013 and DEEPALI GUPTA & COMPANIES in Jun 25, 2013 under the Act, CA
Regulation Act 1949. After that, an agreement was signed between both of them and they
Opened S.D GUPTA & COMPANY on May2, 2015 under the regulation act,

1.2 A FINANCIAL STAMENT ANALYSIS & INTERPRETATION:

Financial statements are records that provide an indication of the organization’s financial status.
It quantitatively describes the financial health of the company. It helps in the evaluation of
company’s prospects and risks for the purpose of making business decisions. The objective of
financial statements is to provide information about the financial position, performance and
changes in financial position of an enterprise that is useful to a wide range of users in making
economic decisions. Financial statements should be understandable, relevant, reliable and
comparable. They give an accurate picture of a company’s condition and operating results in a
condensed form. Reported assets, liabilities and equity are directly related to an organization's
financial position whereas reported income and expenses are directly related to an organization's
financial performance. Analysis and interpretation of financial statements helps in determining the
liquidity position, long term solvency, financial viability, profitability and soundness of a firm.
There are four basic types of financial statements: balance sheet, income statements, cash flow
statements, and statements of retained earnings.

The analysis of financial statement is a process of evaluating the relationship between component
parts of financial statement to obtain a better understanding of firm financial position. Analysis is
a process of critically examining the accounting information given in financial statements. For the
purpose of analysis, individual items are studied; their interrelationship with other related figures
is established.

Thus analysis of financial statement refer to treatment of information contain in financial statement
in a way so as to afford a full diagnosis of the profitably and financial position of the firm concern.

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An attempt has been carried out in this project to analyze and interpret the financial statements of
C.B ENTERPRISES.

1.3 OBJECTIVE

• To understand, analyze and interpret the basic concepts of financial statements of a

company.
• Interpretation of financial ratios and their significance.
• Use of Tally 9.0 package for the analysis and interpretation of financial statements of C.B
ENTERPRISES.
• To know about Liquidity Position
• To Know about Long- Term Solvency
• To Know about Operating Efficiency
• To know about Over-All Profitability
• To Know About Inter- firm Comparison

This project mainly focuses in detail the basic types of financial statements of C.B ENTERPRISES
and calculation of financial ratios. Ratio analysis of C.B ENTRPRISES was done.

CHAPTER -02 FINANCIAL STATEMENTS

Financial statements (or financial reports) are formal records of the financial activities of a
business, person, or other entity. Financial statements provide an overview of a business or
person's financial condition in both short and long term. All the relevant financial information of
a business enterprise, presented in a structured manner and in a form easy to understand is called
the financial statements.

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The analysis of financial statement is a process of evaluating the relationship between component
parts of financial statement to obtain a better understanding of firm financial position.

A complete set of financial statement comprises:

1) A statement of financial position as at the end of the

period:

2) A statement of comprehensive income for the period; 3)

A statement of changes in equity for the period:

4) A statement of cash flow for the period.

5) Notes of Account comprising a summary of significant accounting policies and other

explanatory information.

There are four basic financial statements:

1. Balance sheet: It is also referred to as statement of financial position or condition, reports

on a company's assets, liabilities, and ownership equity as of a given point in
time. The Balance Sheet shows the health of a business from day one to the date on the
balance sheet.
2. Income statement: It is also referred to as Profit and Loss statement (or "P&L"), reports
on a company's income, expenses, and profits over a period of time. Profit & Loss account
provide information on the operation of the enterprise. These include sale and the various
expenses incurred during the processing state.
The income statement shows a presentation of the sales, the main expenses and the
resulting net income over the period. Net income is based on accounting principles which
gives guidance/rules on when to recognize revenues and expenses, whereas cash from
operating activities, obviously is cash based.
3. Statement of Retained Earnings: It explains the changes in a company's retained earnings
over the reporting period. The statement of retained earnings shows the breakdown of
retained earnings. Net income for the year is added to the beginning of year balance, and
dividends are subtracted. This results in the end of year balance for retained earnings.

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 4. Cash Flow Statement: It reports on a company's cash flow activities, particularly its
operating, investing and financing activities. The statement of cash flows the ins and outs
of cash during the reporting period. The statement of cash flows takes aspects of the income
statement and balance sheet and kind of crams them together to show cash sources and uses
for the period.

2.1 BALANCE SHEET

In financial accounting, a balance sheet or statement of financial position is a summary of a

person's or organization's balances. A balance sheet is often described as a snapshot of a company's
financial condition. It summarizes a company's assets, liabilities and shareholders' equity at a
specific point in time. These three balance sheet segments give investors an idea as to what the
company owns and owes, as well as the amount invested by the shareholders. Of the four basic
financial statements, the balance sheet is the only statement which applies to a single point in time.

A company balance sheet has three parts: assets, liabilities and ownership equity. The main
categories of assets are usually listed first and are followed by the liabilities. The difference
between the assets and the liabilities is known as equity or the net assets or the net worth or capital
of the company. It's called a balance sheet because the two sides balance out. A typical format of
the balance sheet has been given in Table 2.1. It works on the following formula:

Assets = Liabilities + Shareholders' Equity

2.1.1 FORMAT OF BALANCE SHEET

Table 2.1: Balance Sheet of C.B.ENTERPRISES

LIABILITIES
1.Share Capital
Equity Share Capital

2. Reserves & surpluses

Capital Reserve
General Reserve

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 Security Premium Account
Capital Redemption Reserve

3. Secured Loans
Debentures
Loan from Bank
Long Term Loan
Other Secured Loans

4.Unsecured Loans
Fixed Deposit
Short Term Loans

Other Loans

5.Current Liabilities & Provisions

A) Current Liabilities
Bills Payable
Sundry Creditors
Bank Overdraft
Other Liabilities (if any)

B) Provisions
Provision for Tax
Proposed Dividend
Other Provision

TOTAL
ASSETS
1.Fixed Assets

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 Goodwill
Land
Building
Leaseholds
Plant & Machinery
Furniture
Trade marks
Patents
Vehicle

2.Investment
3.Current Assets, Loan and Advances
A) Current Assets
Sundry Debtors
Bills Receivables
Closing Stock
Interest on Investment
Cash at Bank
Cash on Hand
Securities Deposit
Fixed Deposit with Banks

B) Loans and Advances

Prepaid Expenses
Tax Paid in Advance
Advances Paid

4.Miscellaneous Expenditure
Preliminary Expenses
Revenue Expenditures

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 Discount Allowed

5. Profit & Loss account

TOTAL

2.1.2 CONTENTS OF BALANCE SHEET

(A) Assets

In business and accounting, assets are economic resources owned by business or company. Any
property or object of value that one possesses, usually considered as applicable to the payment of
one's debts is considered an asset. Simplistically stated, assets are things of value that can be
readily converted into cash.

The balance sheet of a firm records the monetary value of the assets owned by the firm. It is money
and other valuables belonging to an individual or business.

Types of Assets

There is two major type of assets:

· Tangible assets

· Intangible assets

Tangible Assets

Tangible assets are those have a physical substance, such as equipment and real estate.

Intangible Assets

Intangible assets lack physical substance and usually are very hard to evaluate. Assets which do
not possess any material value.

They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc.

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Types of Tangible Assets

1. Fixed Assets.
2. Current Assets.
1. Fixed Assets
This group includes land, buildings, machinery, vehicles, furniture, tools, and certain
wasting resources e.g., timberland and minerals.
It is also referred to as PPE (property, plant, and equipment), these are purchased for
continued and long-term use in earning profit in a business.

2. Current Assets
Current assets are cash and other assets expected to be converted to cash, sold, or
consumed either in a year or in the operating cycle. These assets are continually turned
over in the course of a business during normal business activity. There are 5 major items
included into current assets:
Cash and Cash Equivalents
It is the most liquid asset, which includes currency, deposit accounts, and negotiable
instruments (e.g., money orders, cheque, bank drafts).
Short-term Investments
It includes securities bought and held for sale in the near future to generate income on short
term price differences (trading securities).
Receivables
It is usually reported as net of allowance for uncollectable accounts.
Inventory
The raw materials, work-in-process goods and completely finished goods that are
considered to be the portion of a business's assets that is ready or will be ready for sale.
Prepaid Expenses
These are expenses paid in cash and recorded as assets before they are used or consumed
(a common example is insurance). The phrase net current assets (also called working
capital) are often used and refer to the total of current assets less the total of current
liabilities.

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I. Gross Block

Gross block is the sum total of all assets of the company valued at their cost of acquisition. This is
inclusive of the depreciation that is to be charged on each asset. Net block is the gross block less
accumulated depreciation on assets. Net block is actually what the asset are worth to the company.

II. Capital Work in Progress

Work that has not been completed but has already incurred a capital investment from the company.
This is usually recorded as an asset on the balance sheet. Work in progress indicates any good that
is not considered to be a final product, but must still be accounted for because funds have been
invested toward its production.

III. Investments

• Shares and Securities, such as bonds, common stock, or long-term notes

• Associate Companies
• Fixed deposits with banks/finance companies
• Investments in special funds (e.g., sinking funds or pension funds).
• Investments in fixed assets not used in operations (e.g., land held for sale).

Remark: While fixed deposits with banks are considered as fixed assets, the investments in
associate concerns are treated as non-current assets.

IV. Loans and Advances include

• House building advance
• Car, scooter, computer etc. advance
• Multipurpose advance
• Transfer travelling allowance advance
• Tour travelling allowance advance
• DRS payment.

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V. Reserves
• Subsidy Received From The Govt.
• Development Rebate reserve
• Issue of Shares at Premium
• General Reserves

(B) Liability

A liability is a debt assumed by a business entity as a result of its borrowing activities or other
fiscal obligations (such as funding pension plans for its employees). Liabilities are debts and
obligations of the business they represent creditors claim on business assets.

Types of Liabilities

Current Liabilities

Current liabilities are short-term financial obligations that are paid off within one year or one
current operating cycle. These liabilities are reasonably expected to be liquidated within a year. It
includes:

• Accrued expenses as wages, taxes, and interest payments not yet paid
• Accounts payable
• Short-term notes
• Cash dividends and
• Revenues collected in advance of actual delivery of goods or services.

Long-Term Liabilities

Liabilities that are not paid off within a year, or within a business's operating cycle, are known as
long-term or non-current liabilities. Such liabilities often involve large sums of money necessary
to undertake opening of a business, major expansion of a business, replace assets, ormake a
purchase of significant assets. These liabilities are reasonably expected not to be liquidated within
a year. It includes:

• Notes payable- debt issued to a single investor.

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 • Bonds payable – debt issued to general public or group of investors.
• Mortgages payable.
• Capital lease obligations – contract to pay rent for the use of plant, property or equipments.
• deferred income taxes payable, and
• Pensions and other post-retirement benefits.
Contingent Liabilities

A third kind of liability accrued by companies is known as a contingent liability. The term refers
to instances in which a company reports that there is a possible liability for an event, transaction,
or incident that has already taken place; the company, however, does not yet know whether a
financial drain on its resources will result. It also is often uncertain of the size of the financial
obligation or the exact time that the obligation might have to be paid.

Fixed Liability
The liability which is to be paid of at the time of dissolution of firm is called fixed liability.
Examples are Capital, Reserve and Surplus. Secured
Loans

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as
collateral for the loan, which then becomes a secured debt owed to the creditor who gives the
loan.

Unsecured Loans

An unsecured loan is a loan that is not backed by collateral. It is also known as signature loan and
personal loan. Unsecured loans are based solely upon the borrower's credit rating. An unsecured
loan is considered much cheaper and carries less risk to the borrower. However, when an unsecured
loan is granted, it does not necessarily have to be based on a credit score.

2.2 PROFIT & LOSS STATEMENT

Income statement, also called profit and loss statement (P&L) and Statement of Operations is
financial statement that summarizes the revenues, costs and expenses incurred during a specific
period of time - usually a fiscal quarter or year. These records provide information that shows the

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ability of a company to generate profit by increasing revenue and reducing costs. The purpose of
the income statement is to show managers and investors whether the company made or lost money
during the period being reported. The important thing to remember about an income statement is
that it represents a period of time. This contrasts with the balance sheet, which represents a single
moment in time. A typical format of the Profit & Loss Statement has been given in Table 2.2.

2.2.1 FORMAT OF PROFIT & LOSS STATEMENT

Table 2.2: Profit & Loss Statement of C.B.ENTERPRISES

PARTICULARS Amount PARTICULARS Amount
Gross Profit(Transferred) Gross Profit(Transferred)
Office and Administration Exp: Interest received
Salaries Rent received
Rent Discount received
Postage & telegrams Dividend received
Office electric charges Bad debts recovered
Telephone charges Provision for discount on creditors
Printing and stationary Provision for discount on creditors
Selling and Distribution
Expenses:

Carriage outward
Advertisement
Salesmen's salaries
Commission
Insurance
Traveling expense

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Bad debts
Packing expense
Financial and Other Expenses:
Depreciation
Repair
Audit fee
Interest paid
Commission paid
Bank charges
Legal charges
Profit before Interest Net loss
Less- Net Interest

Profit before Tax

Less- Tax Payable
Profit after Tax
Less- Dividend
Retained Profit

2.2.2 CONTENTS OF PROFIT & LOSS STATEMENT

a. Revenue - Cash Inflows or other enhancements of assets of an entity during a period from
delivering or producing goods, rendering services, or other activities that constitute the
entity's ongoing major operations.
b. Expenses - Cash outflows or other using-up of assets or incurrence of liabilities during a
period from delivering or producing goods, rendering services, or carrying out other
activities that constitute the entity's ongoing major operations.

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 c. Turnover
The main source of income for a company is its turnover, primarily comprised of sales of
its products and services to third-party customers.
d. Sales

Sales are normally accounted for when goods or services are delivered and invoiced, and
accepted by the customer, even if payment is not received until some time later, even in a
subsequent trading period.
e. Cost of Sales (COS)

The sum of direct costs of goods sold plus any manufacturing expenses relating to the sales (or
turnover) is termed cost of sales, or production cost of sales, or cost of goods sold. These costs
include:

• Costs of raw materials stocks

• Costs of inward-bound freight paid by the company
• Packaging costs
• Direct production salaries and wages
• Production expenses, including depreciation of trading-related fixed assets.

(f) Other Operating Expenses

These are not directly related to the production process, but contributing to the activity of the
company, there are further costs that are termed ‘other operating expenses’. These comprises of
costs like:

• Distribution costs and selling costs,

• Administration costs, and
• Research and development costs (unless they relate to specific projects and the costs may
be deferred to future periods).

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(g) Other Operating Income

Other operating income includes all other revenues that have not been included in other parts of
the profit and loss account. It does not include sales of goods or services, reported turnover, or any
sort of interest receivable, reported within the net interest category.

(h) Gross Margin (or Gross Profit)

The difference between turnover, or sales, and COS is gross profit or gross margin. It needs to be
positive and large enough to at least cover all other expenses.

(i) Operating Profit (OP)

The operating profit is the net of all operating revenues and costs, regardless of the financial
structure of the company and whatever exceptional events occurred during the period that resulted
in exceptional costs. The profit earned from a firm's normal core business operations. It is also
known as Earnings before Interest and Tax (EBIT).

Operating Profit = Turnover - COS - other Operating Expenses + Other Operating Income

(j) Profit before Tax (PBT)

A profitability measure that looks at a company's profits before the company has to pay corporate
income tax. This measure deducts all expenses from revenue including interest expenses and
operating expenses, but it leaves out the payment of tax.

(k) Profit after Tax (PAT)

PAT, or net profit, is the profit on ordinary activities after tax. The final charge that a company
has to suffer, provided it has made sufficient profits, is therefore corporate taxation.

PAT = PBT - Corporation Tax

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(l) Retained Profit

The retained profit for the year is what is left on the profit and loss account after deducting
dividends for the year. The balance on the profit and loss account forms part of the capital (or
equity, or shareholders’ funds) of the company.

2.3 FINANCIAL RATIOS

2.3.1 OBJECTIVES OF CALCULATION OF RATIO ANALYSIS

The importance of ratio analysis lies in the fact that it presents data on a comparative basis and
enables the drawing of inferences regarding the performance of the firm. Ratio analysis helps in
concluding the following aspects:

To know about Liquidity Position:

Ratio analysis helps in determining the liquidity position of the firm. A firm can be said to have
the ability to meet its current obligations when they become due. It is measured with the help of
liquidity ratios.

To Know about Long- Term Solvency:

Ratio analysis helps in assessing the long term financial viability of a firm. Long- term solvency
measured by leverage/capital structure and profitability ratios.

To Know about Operating Efficiency:

Ratio analysis determines the degree of efficiency of management and utilization of assets. It is
measured by the activity ratios.

To know about Over-All Profitability:

The management of the firm is concerned about the overall profitability of the firm which ensures
a reasonable return to its owners and optimum utilization of its assets. This is possible if an
integrated view is taken and all the ratios are considered together.

35 | P a g e
To Know About Inter- firm Comparison:

Ratio analysis helps in comparing the various aspects of one firm with the other.

2.3.2 FINANCIAL RATIOS AND THEIR INTERPRETATION

Table 2.3: Different Financial Ratios
Sl. No. CATEGORY TYPE OF RATIO ITNERPRETATION
Net Working Capital = It measures the liquidity of
a firm.
1. Liquidity Ratio Current assets-current liabilities

• It measures the short

Current ratio = term liquidity of a firm.
Current Assets A firm with a higher
Current Liabilities ratio has better liquidity.
• A ratio of 2:1 is
considered safe.

• It measures the liquidity

Acid test or Quick ratio = position of a firm.
Quick assets • A ratio of 1:1 is
Current Liabilities considered safe.

• This ratio indicates how

Inventory Turnover ratio = fast inventory is sold.
2. Turnover Ratio
Costs of goods sold • A firm with a higher
Average inventory ratio has better liquidity.

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 • This ratio measures how
Debtor Turnover ratio = fast debts are collected.
Net credit sales • A high ratio indicates
Average debtors shorter time lag

between credit
sales and cash
collection.
Creditor’s Turnover ratio = Net A high ratio shows
credit purchases that accounts are to be
settled rapidly
Average Creditors

Debt-Equity ratio = This ratio indicates the

Long term debt relative proportions of
3. Capital debt and equity in
Structure Ratios Shareholder’s Equity financing the assets of a
firm.

A ratio of
1:1 is
considered safe.

37 | P a g e
 It indicates what
Debt to Total capital ratio = proportion of the
Long term debt permanent capital of a
Permanent Capital firm consists of
Or longterm debt.
Total debt A ratio 1:2 is
Permanent capital + considered safe.
Current liabilities
Or It measures the share of
Total Shareholder’s Equity the total assets financed
by outside funds.
Total Assets
A low ratio is desirable
for creditors.

It shows what portion of

the total assets is

financed by the owners’

capital.

A firm should neither

have a high ratio nor a
low ratio.

Interest Coverage = A ratio used to

Earnings before interest and tax determine how easily a
4. Coverage ratios company can pay on
outstanding debt.
Interest

A ratio of more than 1.5

I satisfactory

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 It measures the ability
of firm to pay dividend
Dividend Coverage =
on preference shares. A
Earnings after tax high ratio is better for
Preference Dividend creditors.

It shows the overall

Total Coverage ratio = ability of the firm to
Earning before interests and tax fulfill the liabilities.
Total Fixed charges A high ratio indicates
better ability.

Profitability Gross Profit margin =

5. ratios It measures the profit in
Gross profit * 100
Sales relation to sales.
A firm should neither
have a high ratio nor a
low ratio.
It measures the net

Net Profit margin = profit of a firm with

Net Profit after tax before interest respect to sale.
Sales A firm should neither
Or have a high ratio nor a
low ratio.
Net Profit after Tax and Interest
Sales
Or
Net profit after Tax and Interest
Sales

39 | P a g e
 Operating ratio shows
6. Operating ratio = the operational
Expenses ratios Cost of Goods sold + other efficiency of
expenses the business.
sales Lower operating ratio
shows higher operating
profit and vice versa .

It measures the cost of

Cost of Goods sold ratio = goods sold per sale

Cost of Goods sold

Sales
It measures the specific
Specific Expenses ratio = expenses per sale.

Specific Expenses
Sales
It measures
Return on Return on Assets (ROA) = the profitability
7. of the total funds per
Investments Net Profit after Taxes * 100 investment of a firm.
Total Assets
Or

(Net Profit after Taxes +interest)

*100

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 Total Assets
Or
(Net profit after Taxes + Interest)
* 100
Tangible Assets
Or
(Net Profit after Taxes + Interest)
* 100
Total Assets
Or
(Net Profit after Taxes + Interest)
* 100
Fixed Asset

It measures profitability
Return on Capital Employed of the firm with respect
(ROCE) = to the total capital
employed.
(Net Profit after Taxes) * 100 total The higher the ratio, the
capital employed more efficient use of
capital employed.
Or
(Net Profit after Taxes + Interest)
*100
Total Capital Employed

Or
(Net Profit after Taxes + Interest)
* 100
Total Capital Employed -
intangible assets

41 | P a g e

Return on Total Shareholders’
Equity =
Net Profit after Taxes * 100
Total shareholders’ equity
Return on Ordinary
shareholders equity =
Net profit after taxes and Pref.
dividend *100
Ordinary Shareholders’ Equity
It reveals how
profitably the owner’s
fund has been utilized
by the firm.
It determines whether
the firm has earned
satisfactory return for
its equity holders or not.

It measures the profit

available to the equity
Shareholder’s Earnings per Share (EPS) =
8. holders on a per share
ratios
basis.
Net Profit of Equity holders

Number of Ordinary Shares

Dividend per Share (DPS) = It is the net distributed

Net profits after interest and profit belonging to the
shareholders divided by
preference dividend paid to the number of ordinary
ordinary shareholders shares
Number of ordinary shares
outstanding

It shows what

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 Dividend Payout ratio (D/P) =
Total Dividend To Equity holders
Total net profit of equity holders
Or
Dividend per Ordinary
Share Earnings per Share
Earnings per Yield =
Earnings per Share
Market Value per Share
Dividend Yield =
Dividend per share
Market Value per share
Price- Earnings ratio (P/E) =
Market value per Share
Earnings per Share
Earning Power =
Net Profit after taxes
Total Assets
43 | P a g e
percentage share of the
net profit after taxes and
preference dividend is
paid to the equity
holders.
A high D/P ratio is
preferred from
investor’s point of
view.
It shows the percentage
of each rupee invested
in the stock that was
earned by the company.
It shows how much a
company pays out in
dividends each year
relative to its share
price.
It reflects the price
currently paid by the
market for each rupee of
EPS.
Higher the ratio better it
is for owners
It measures the overall
profitability and
operational
efficiency of a
firm
 It measures how

9. Activity Ratios Inventory turnover = quickly inventory

Sales is sold.
Closing Inventory 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

It shows how quickly

Debtors turnover = current assets that are
Cost of Goods manufactured receivables or debtors
Average Work in Process are converted to cash.
Inventory A firm should neither
have a high ratio nor a
low ratio.

It measures
Assets Total Assets turnover = the efficiency of
10.
Turnover Cost of Goods Sold a firm in managing and
Ratios Total Assets utilizing its assets.
Higher the ratio, more

44 | P a g e
 Fixed Assets turnover = efficient is the firm in
Cost of Goods Sold utilizing its assets.

Fixed Assets

Capital turnover =
Cost of Goods Sold
Capital Employed

Current Assets turnover =

Cost of Goods Sold
Current Assets

CHAPTER- 03

FINANCIAL RATIO ANALYSIS

The ratio analysis of C.B ENTERPRISES from 2012-14 has been carried out below.

3.1 RATIO ANALYSIS

3.1.1 Balance Sheet of C.B ENTERPRISES for 2014

Table 3.1: Balance Sheet of C.B.ENTERPRISES as at 31st Mar -2014

Total
Amount Amount
PARTICULARS

Source of Funds:
Capital Account 634,506.05
Sunil's Capital 875860.05

Less- Credit card HDFC 50,489.00

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 Donation 2,502.00

Drawings 109053

LIC 54,860.00

School fees 24,450.00

Loans (Liability) 1851845.9
Bank od A/C 859142.95
Secured Loans 992702.95

Unsecured Loans
Current Liabilities 1,638,085.9
Provision 44,553.00
Sundry Creditors 1570805
Unregistered Tax Payable 65,940.00
less- Duties & Taxes 43,212.15

Profit & Loss A/C 0

Opening balance Current Period 502558.24
less- Transferred 502558.24

Total 4,124,437.8

Application of Funds:

Fixed Assets 1579196.65

Car 593850
Mobile 59,773.74
Motor Bike 31,181.65
Plant & Machinery 687189.75
Tata Ace 207201.51
Current Assets 2545241.15
Closing Stock 1035485
Loans & Advances (Assets) 53,073.00
Sundry Debtors 1425712.6
Cash in Hand 24869.00
Bank Accounts 6101.48

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Total 4124437.8

3.1.2 Balance Sheet of C.B. ENTERPRISES for 2015

Table 3.2: Balance Sheet of C.B.ENTERPRISE as at 31st Mar -2015

Total
Amount
PARTICULARS Amount
Source of Funds:
Capital Account 353,181.05
Sunil's Capital 595406.05
Less- Credit card HDFC 12,500.00
Star Health Insurance 9,343.00
Drawings 181362
School fees 39,020.00

Loans (Liability) 1908532.9

Bank od A/C 920609.95
Secured Loans 837922.95
Unsecured Loans 150000

Current Liabilities 2,493,868.57

Provision 76,703.00
Sundry Creditors 2385328.5
Unregistered Tax Payable 65,940.00
less- Duties & Taxes 34,102.93

Profit & Loss A/C 3355599.45

Opening balance Current Period 3355599.45

Total 50,91,181.97

Application of Funds:
Fixed Assets 1,352,287.87
Car 504772.5
Mobile 53,842.29

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 Motor Bike 26,504.40
Plant & Machinery 584111.4
LCD Monitor 6936
Tata Ace 176121.28

Current Assets 3738894.1

Closing Stock 1235091
Loans & Advances (Assets) 35,642.00
Sundry Debtors 917360.62
Cash in Hand 1544699.00
Bank Accounts 6101.48

Total 5091181.97

3.1.3 Profit &loss

Table 3.3: Profit & Loss Statement as per the year Ending of
st
31 Mar, 2014
Particulars Amount Amount

Trading Account:
Sales Account 5104025.95

Sales Ag. E Form 450887

Sales Ag. H Form 420469.5

Sales central Tax 5% 1701502

Sales Tax Invoice 5% 2531167.45

Direct Incomes 1566780

Work Contract Received 1566780

6670805.95
Cost of Sales 4358261.6
Opening Stock 343079

Add: Purchase Accounts 4068867.2

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 Less: Closing Stock 1035485

3376461.2

Direct Expenses 981800.4

Cartage Inward 342534

Job Work Paid 302586.4

336680
Power& Fuel Exp.

Gross Profit 2312544.35

Income Statement:
Indirect Incomes 644.32
Cartage Outward
Interest
644.32
2313188.67
Indirect Exp. 1810630.43
Accounting Charges
15000
Advertising Exp. 16120
Audit Fees 10000
Bank Charges 12556.54
Business Promotion Exp. 15840
Commission Exp. 9680
Convince Exp. 71842
Depreciation 239417.59
Factory Rent 275000
Festival Exp. 77425
Interest on Tata Ace Loan 42290.94
Interest On C.C limit 85655.96
Interest On Term Loan 44465.7
Insurance 14832

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 Legal & Professional Charges 23000
Postage& Currier Exp. 1872
Printing & Stationary Exp. 12134
Repair & Maintenance Of Building 54670
Repair & Maintenance Exp. 43700.29
Salaries 412633
Short & Excess 0.66
Staff Welfare 56450
Telephone Exp. 41488.75
Traveling Exp. 65670

Vehicle Running & Maintenance 168886

Nett Profit: 502558.24

3.1.4 Profit & Loss Statement for 2015

Table 3.4: Profit & Loss Statement as per the year
st
Ending of 31 Mar, 2015
Particulars Amount Amount

Trading Account:
Sales Account 3599918
Sales Ag. D Form 139550
Sales Ag. E Form 667113
Sales Tax Invoice 5% 2793255

Direct Incomes
3599918
Cost of Sales 2346186.55
Opening Stock 1035485
Add: Purchase Accounts 2539552.55
Less: Closing Stock 1235091
2339946.55
Direct Expenses 6240

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 Cartage Inward 2210
Job Work Paid 4030

Gross Profit 1253731.45

Income Statement:
Indirect Incomes
1253731.45
Indirect Exp. 918132.03
Accounting Charges 13750

Advertising Exp. 9752

Audit Fees 12500
Bank Charges 10752
Business Promotion Exp. 7524
Cartage Outward (-)2187.75
Commission Exp. 6582
Company Insurance 14621
Convince Exp. 9850
Depreciation 238638.78
Donation (Charity) 1401
Factory Rent 120000
Festival Exp. 12580

Interest on Tata Ace Loan 20992

Interest Aon VAT 154
Interest On C.C limit 115379
Legal & Professional Charges 9852
Office Exp. 1880
Printing & Stationary Exp. 9782
Salaries 245864
Short & Excess (-)5
Staff Welfare 2356
Telephone Exp. 15710

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 Toll Tax (Octory) 180
Vehicle Running & Maintenance 40145
Weighting & Measurement 80

Nett Profit: 335599.42

3.1.5 Ratio analysis for 2014

Table 3.5: Analysis of Financial Ratios for 2014

Sl. RATIOS PARTICULARS VALUE REMARKS
No.
1. Current Assets = 907155.25 Liquidity position
Working Capital = 2545241.15 is good.

Current assets-Current liabilities Current Liabilities =

1638085.90
2. Current Assets = 1.55:1 It is safe.
Current Ratio = Current 2545241.15
Assets Current Liabilities =
Current Liabilities 1638085.90
3. liquid Assets = 0.92:1 It is not good.
Acid test or Quick ratio = 1509756.15
Liquid Assets Current Liabilities =
Liquid Liabilities 1638085.90
4. Long term debt 1.63:1 It is safe
Debt-Equity Ratio = =1851845.90
Long term debt Capital A/C =
Capital A/C+ Net Profit 634506.05
Net Profit= 502558.24

It is good

52 | P a g e
5. 44.20%
Return On Investment Ratio = Net Profit
502558.24
Net Profit*100 Capital A/C
Capital a/c+ Net Profit 634506.05

6. Gross Profit= 45.31% It is not satisfactory

Gross Profit Ratio = 2312544.35
Gross Profit * 100 Sales=
Sales 5104025.95
7. Net Profit 9.84% It is not satisfactory
Net Profit Ratio = = 502558.24
Net Profit * 100 Sales=
Sales 5104025.95
8. Net Income 20.21% It is not good
Return on Assets Ratio = 502528.24
Net Income*100 Fix. Assets=
Fix. Assets+Net WorkingCapital 1579196.65
Net Working Capital=
907155.25

9. Net profit= 55.40% It is good

Return on working capital = 502558.24
Net Profit 100 Net Working capital=
Working Capital 907155.25
10. Cost of goods sold= 85.38 It is not satisfactory
Cost of Goods Sold Ratio = 4358261.6
Cost of Goods Sold*100 Sales=
Sales 5104025.95

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11. COGS= 120.86 It is so high
Operating Cost Ratio = 4358261.6
COGS+ Operating Exp.*100 Operating Exp.=
Net Sales 1810630.43
Sales=
5104025.95
12. Sales a/c= It is not safe
Fixed Assets turnover = 5104025.95
3.23
Sales a/c Fixed Assets=
Fixed Assets 1579196.65
13. Sales= It is safe
Working Capital Turnover= 5104025.95 5.63
Sales a/c working Working Capital=
Capital 907155.25
14. Sales= It is not good
Inventory Turnover= 5104025.95 4.93
Sales a/c Closing Stock=
Closing stock 1035485

• Liquid Assets = Total Current Assets – Inventory – Prepaid Exp.

= 2545241.15- 1035485

=1509756.15

• Liquid Liabilities = Current Liabilities – Bank Overdraft

= 1638085.90

Long Term Debt = Secured Loans + Other Long Term liabilities

= 992702.95

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 • Shareholder Funds = Equity Share+ Pre. Share+ Profit+ General
Reserve

= 875860.05+ 502558.24

= 1318418.29
• Earnings before Interest & Tax (EBIT) OR Operating Profit =

Net Profit + Tax + Interest

= 502558.24+ 644.32

= 503202.56

• Operating Expenses = Financial Exp. + Administration Exp.+ Financial Exp.+ Sales

Operating & Distribution Exp.

= 981800.40

• Operating Cost= COGS – OPERATING EXP.

=4358261.6 – 981800.40
= 3376461.2
Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock =

343079+ 4068867.2+ 981800.4- 1035485 = 4358261.6

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 3.1.6 Ratio analysis for 2015 Table 3.6:
Analysis of Financial Ratios for 2015s
Sl. RATIOS PARTICULARS VALUE REMARKS
No.
1. Current Assets = 1245025.53 Liquidity position
Working Capital = 3738894.1 is good

Current assets-Current liabilities Current Liabilities =

2493868.57
2. Current Assets = 1.50:1 It is safe
Current Ratio = 3738894.1
Current Assets Current Liabilities =
Current Liabilities 2493868.57
3. liquid Assets = 1.00:1 It is good
Acid test or Quick ratio = 2503803.1
Liquid Assets Current Liabilities =
Liquid Liabilities 2493868.57
Long term debt 2.77:1 It is safe
Debt-Equity Ratio = = 1908532.90
4.
Long term debt Capital A/C =
Capital A/C+ Net Profit 353181.05
Net Profit=
335599.45

It is good
Return On Investment = Net Profit=
net Profit*100 335599.45
5. 48.72%
Capital a/c + Net Profit Capital a/c=
353181.05

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6. Gross Profit= 34.83% It is not satisfactory
Gross Profit Ratio = 1253731.45
Gross Profit * 100 Sales=
Sales 3599918
7. Net Profit 9.32% It is not satisfactory
Net Profit Ratio = = 335599.42
Net Profit * 100 Sales=
Sales 3599918
8. Net Income= It is not good
Return on Assets = 335599.45
12.92%
Net Income*100 Fix. Assets=
Fix. Assets Net + Working 1352287.87
Capital Working Capital=
1245025.53
9. Net profit= 26.96% It is not good
Return on working capital = 335599.45
Net Profit 100 Net Working capital=
Working Capital 1245025.53
10. Cost of goods sold= 65.17 It is not satisfactory
Cost of Goods Sold Ratio = 2346186.55
Cost of Goods Sold*100 Sales=
Sales 3599918
COGS= 90.67% It is so high
Operating Cost Ratio = 2346186.55
11.
COGS + Operating Exp.*100 Operating Exp.=
Net Sales 918132.03
Sales=
3599918

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12. Fixed Assets turnover = Sales a/c= It is not safe
Sales a/c 3599918
2.66
Fixed Assets Fixed Assets=
1352287.87

13. Sales= It is safe

Working Capital Turnover= 3599918 2.89

Sales a/c working Working Capital=

Capital 1245025.53
14. Sales= It is not good
Inventory Turnover= 3599918 2.91
Sales a/c Closing Stock=
Closing stock 1235091

• Liquid Assets = Total Current Assets – Inventory – Prepaid Exp.

= 3738894.1- 1235091

= 2503803.1

• Liquid Liabilities = Current Liabilities – Bank Overdraft

= 2493868.57

Long Term Debt = Secured Loans + Other Long Term liabilities

= 837922.95

• Shareholder Funds = Equity Share+ Pre. Share+ Profit+ General

Reserve

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 = 595406.05+ 3355599.45

= 629005.5
• Earnings before Interest & Tax (EBIT) OR Operating Profit =

Net Profit + Tax + Interest

= 3355599.45

Operating Expenses = Financial Exp. + Administration Exp.+ Financial Exp.+ Sales

Operating & Distribution Exp.
= 918132.03
Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock =
= 1035485+ 2539552.55+ 6240- 1235091
= 2346186.55

3.1.7 Summary for Balance Sheet and Profit & Loss Statement

Table 3.7: Summary of Balance Sheet

PARTICULARS 2014 2015 Remarks

Current Assets 2545241.15 3738894.10 Short term liquidity available is very

less.

Fixed Assets 1579196.65 1352287.87 Fixed Assets have decreased due to

decrease in investment.

Current Liabilities 1638085.85 2493868.57 Substantial increase in liabilities.

Liquidity position is not good.

Long Term Liabilities 992702.95 837922.95 Debts have decreased because of less
investment

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Table 3.8: Summary of Profit & Loss Statement
PARTICULARS 2014 2015 Remarks

Purchase 4068867.20 2539552.55 Purchase has decreased by 37.58%

Cost of Goods Sold 4358261.60 2346186.55 COGS has decreased by 46.17%

Sale 5104025.9 3599918 Sales have decreased by 29.47%

Gross Profit 2312544.35 1253731.45 Gross Profit has decreased by 45.79%

Net Profit 502558.24 335599.45 Net profit has decreased by 33.22%

3.2 RATIO ANALYSIS USING TALLY 9.0

Tally 9.0 manufactured by Tally Solutions FZ LLC, Dubai, and Tally India Private Limited. It
facilitates smooth and error free Excise Accounting for manufacturers and dealers engaged in
manufacturing or trading of excisable goods. It is mainly used for the calculation of excise duties,
taxes and other transactions. In this project Tally 9.0 is used to compute the balance sheet and the
financial ratios of companies that can be obtained from it. However Tally 9.0 has certain
limitations. It has been used to calculate only current ratio, quick ratio and debt – equity ratio. In
future the version can be modified to calculate other ratios.

Preparation of balance sheet and ratio analysis of C.B ENTERPRISES from 2013-15 using Tally

9.0 has been carried out below:

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3.2.1 C.B. ENTERPRISES
3.2.1 Balance Sheet and Ratio Analysis For 2014

Fig. 3.1: Preparation of Balance Sheet of C.B.ENTERPRISES

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 Fig. 3.2: Ratio Analysis of C.B.ENTERPRISES
3.2.2 Balance Sheet and Ratio Analysis For 2015

Fig.3.3: Preparation of Balance Sheet of C.B.ENTERPRISES OF 2015

Fig. 3.4: Ratio Analysis of C.B.ENTERPRISES OF 2015

62 | P a g e
 CHAPTER -04
VARIATION OF FINANCIAL RATIOS

The variation of different financial ratios from 2013-15 of C.B.ENTERPRISES has been shown
below:

4.1 C.B.ENTERPRISES

Current Ratio
1.56
1.55
1.54
1.53
1.52
1.51
1.5
1.49
1.48
1.47
1 2
Series1 1.55 1.5

Fig.4.1: Current Ratio

Working Capital
1400000
1200000
1000000
800000
600000
400000
200000
0
1 2
Series1 907155.25 1245025.53

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 Fig.4.2: Working Capital

Quick Ratio
1.02
1
0.98
0.96
0.94
0.92
0.9
0.88
1 2
Series1 0.92 1

Fig.4.3: Quick Ratio

Debt - Equity Ratio

3
2.5
2
1.5
1
0.5
0
1 2
Series1 1.63 2.77

Fig.4.4: Debt-Equity Ratio

Inventory Turnover Ratio

6
5
4
3
2
1
0
1 2
Series1 4.93 2.91

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 Fig.4.5: Inventory Turnover Ratio

Return on Assets
25.00%
20.00%
15.00%
10.00%
5.00 %
0.00 %
1 2
Series1 20.21% 12.92%

Fig.4.6: Return on Assets

Return on Investment
50.00%
49.00%
48.00%
47.00%
46.00%
45.00%
44.00%
43.00%
42.00%
41.00%
1 2
Series1 44.20% 48.72%

Fig.4.7: Return on Investment

Gross Profit Ratio

50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00 %
0.00 %
1 2
Series1 45.31% 34.83%

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 Fig.4.8: Gross Profit Ratio

Net Profit Ratio

10.00%
9.80 %
9.60 %
9.40 %
9.20 %

9.00 %
1 2
Series1 9.84 % 9.32%

Fig.4.9: Net Profit Ratio

Return on Working Capital

60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00 %
1 2
Series1 55.40% 26.96%

Fig.4.10: Return on Working Capital

Operating Cost Ratio

140.00%
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00 %
1 2
Series1 120.86% 90.67%

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 Fig.4.11: Operating Cost Ratio
CHAPTER-05

COMPRATIVE STATEMENTS

Table: 5.1 COMPARATIVE INCOME STATEMENT

Particulars Previous Current Absolute Percentage
Year Year Change change

Sales 5104025.95 3599918 -1504107.95 -29.47%

Less- Cost of Goods Sold 4358261.6 2346186.55 -2012075.05 -46.17%

Operating Profit 745764.35 1253731.45 507967.1 68.11%

Add- Other Income 1566780 - -1566780 -100%

Gross Profit 2312544.35 1253731.45 -1058812.9 -45.79%

Less-Operating Exp. 1810630.43 918132.03 -63667.97 -3.52%

Earnings Before Interest & Tax 501913.92 335599.45 -167603.11 -33.39%

Add- Interest 644.32 0 -644.32 -100%

Profit 502558.24 335599.45 -166958.79 -33.22%

Percentage Change = Absolute Change

Figures of the previous year

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Table: 5.2 Comparative Balance Sheet of C.B. ENTERPRISES
Pervious Current Absolute Percentage

Particulars Year Year Change Change

Car 593850 504772.5 (89077.5) 15%

53842.29 (5931.45) 9.92%

Mobile 59773.74

26504.40 (4677.25) 15%

Motor Bike 31181.65

584111.4 (103078.35) 14.99%

Plant & Machinery 687189.75

6936 - -
LCD Monitor -

176121.28 (148919.77) 71.87%

Tata Ace 207201.51

1235091 199606 19.28%

Closing Stock 1035485

35642 (17431) 34.81%

Loans & Advances (Assets) 53073

917360.62 (508351.98) 35.66%

Sundry Debtors 1425712.6

1544699 1519830 61.11%

Cash in Hand 24869.00

6101.48 - -
Bank Accounts 6101.48

Total 5091181.97 966744.12 23.43%

4124437.85

Capital Account 634506.05 353,181.05 281325 44.33%

Loans (Liability) 1851845.9 1908532.9 (56687) 3.06

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Current Liabilities 1,638,085.9 2,493,868.57 855782.67 52.24%

Total 4124437.85 5091181.97 966744.12 23.43%

FINDINGS
This report work has identified how companies use financial statement analysis and interpretation
in making effective management decisions. Overall organizational profitability and achievement
of organizational objectives were discussed. Again the difference between the returns of a financial
statement analysis and interpretation based on management decisions were also discussed.

• Gross profit and net profits are decreased during the period of 2013-15, which indicates
that firm’s inefficient management in manufacturing and trading operations
• Liquidity ratio of the firm is better liquidity position in over the two years. It shows that
the firm had sufficient liquid assets.
• The fixed asset turnover ratio of the firm has in 2013-15 the ratio is 3.23 or 2.26
respectively and it decrease.
• cost ratio of the company has decreased during the period of 2013-15
• Current liabilities are Increasing by 52.4%
• Current assets Ratio are decreased in two years.
• Net profit also decreased by 33.22% Return on Investment has increased.
• Gross Profit has decreased by 45.79%

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 CONCLUSION

Analysis and interpretation of financial statements is an important tool in assessing company’s

performance. It reveals the strengths and weaknesses of a firm. It helps the clients to decide in
which firm the risk is less or in which one they should invest so that maximum benefit can be
earned. It is known that investing in any company involves a lot of risk. So before putting up
money in any company one must have thorough knowledge about its past records and
performances. Based on the data available the trend of the company can be predicted in near future.

This project of financial analysis & interpretation in the production concern is not merely a work
of the project but a brief knowledge and experience of that how to analyze the financial
performance of the firm. The study undertaken has brought in to the light of the following
conclusions. According to this project I came to know that from the analysis of financial statements
it is clear that C.B.ENTERPRISES have been incurring profit during the period of study. So the
firm should focus on getting of more profits in the coming years by taking care internal as well as
external factors. And with regard to resources, the firm is take utilization of the assets properly.
And also the firm has a maintained low inventory.

This project mainly focuses on the basics of different types of financial statements. Balance Sheet
and Profit & Loss statements of C.B.ENTERPRISES have been studied.

From ratio analysis of Balance Sheet and P & L Statement of C.B.ENTERPRISES of 2013-15 it
was concluded that liquidity position of the company is good. Current ratio, debt-equity ratio,
quick ratio, net profit margin, operating profit margin, gross profit margin, return on assets, return
on investments and return on capital employed were found to be unacceptable. The ratios that are
found to be desirable are Current Ratio, Return On investment and Return on working capital and
Debt – Equity Ratio.

Tally 9.0 is used for analyzing the balance sheet and profit & loss statements of a company and
calculating the financial ratios. In this project Tally 9.0 is used to prepare the balance sheet and
calculate the financial ratios of different companies. Profit & Loss Statements of companies were

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not calculated as Tally 9.0 has limitations in processing the data that was available. However, only
three ratios viz. current ratio, quick ratio and debt-equity ratio were calculated. An advanced
version can be developed for calculation of profit & loss statements and other financial ratios.

RECOMMENDATION
8.1 Recommendation for Company:

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The profit Of the Company is not in a good Position. Profit decrease in 2014-15 comparison to
2013-14 so for earn more profit company has to Take Alternative Actions for more profit such As:

• Increasing in Procurement in sugarcane,

• Production, and Control in Expenses Like, Administrative, selling Etc.
• The firms have low current ratio in 2014-15 comparison to 2013-14 so it should increase
its current ratio where it can meet its short term obligation smoothly.
• Liquidity ratio of the firm is less in 2014-15 comparison to 2013-14 liquidity position in
over the years. So I suggested that the firm maintain proper liquid funds like cash and bank
balance

• It should enhance its employee’s efficiency, more training needed to its employees in order
to increase its production capacity and minimize mistakes while performing the tasks, also
more safety precaution need to implement to the employees who directly working on sugar
production process.
• The company high inventory so I suggested that the firm must reduce the stock by increase
sales.
• The firms should have proper check all process of the plant.

Recommendation for the Students:

• Based on the findings of this study as presented, analyzed and interpreted, the following
recommendations were deemed necessary by the Student who prepares project report:
• Adequate time should always be allowed for collection of financial statement data and
preparation for their analysis.

• Financial statement should be properly interpreted and should be made to reflect current
cost accounting to reduce the negative effects of historical cost principle on financial
statement decisions.
• The effects of inflation on financial statement result should be considered to reduce the
inflation risk.
• The adequacy of financial information need to be emphasized on, as it will provide enough
and necessary details for investment and management decisions.

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 • A combination of different ratios should be used to analyze a company’s financial and/or
operating performance.
• Finally, the management of the selected company should make proper use of financial
statement analysis in other decision areas of management.

LIMITATION
LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS AND INTERPRETATION

1. It is suffering from the limitations of financial statements.

2. There is Absence of standard universally accepted terminology in financial analysis

3. Price level changes is ignored in financial analysis

4. Quantity aspect is ignored in financial analysis

5. Financial analysis provides misleading result in absence of absolute data

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6. The qualitative elements like quality management, quality of labor, public relations are ignored

while carrying out the analysis of financial statement only.

7. In many situations, the account has to make choice out of various alternatives available, e.g.

choice in the method of depreciation, choice in the method of inventory valuation etc. since

the subjectivity is inherent in personal judgment, the financial statement are therefore not free

from bias.

8. Financial Statements are essential interim reports.

9. Lack of Exactness in financial Statement analysis and interpret.

10. Lack of comparability in financial statement analysis and interpret.

BIBLIOGRAPHY

BOOKS:

1. M.Y. KHAN, P.K.JAIN (1981), Financial Management, and Cost Accounting (third

edition) New Delhi: McGraw – Hill publishing company limited.

2. I.M.PANDEY.Financial Management New Delhi Vikas publishing house private Ltd –

ninth addition 2004

3. Financial Statement

4. Financial Management

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COMPANY DATA:

Vouchers of Sale & Purchase

Bank Statement

Other Data of C.B.ENTERPRISES

WEBSITES

www.google.com

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