Project

Financial Statement Analysis
INTRODUCTION
Finance is that business activity which is concerned with the organization and conversation of capital funds in meeting financial needs and overall objectives of a business enterprise.-Wheeler
Financial management is that managerial activity which is concerned with the planning and controlling of a firm financial reserve. Financial management as an academic discipline has undergone fundamental charges as regards its scope and coverage. In the early years of its evolution it was treated synonymously with the raising of funds. In the current literature pertaining to this growing academic discipline, a broader scope so as to include in addition to procurement of funds efficient use of resources in universally recognized.
The objective of financial analysis is the pinpointing of strength and weakness of a business undertaking by regrouping and analyzing of figures obtained from financial statement and balance sheet by the tools and techniques of management accounting. Financial analysis is the final step of accounting that result in the presentation of final and the exact data that helps the business managers, creditors and investors.
Based on this reasoning, this project is an attempt to analyze the financial performance of SHYLENDRA ELECTRONICS
In the financial analysis a ratio is used as an index for evaluating the financial position and performance of the firm. The absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the performance and the financial position of a firm.
Hoysala College of Management
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STATEMENT OF THE PROBLEM

A financial statement contains sales, revenue, tax, expenses, etc, on one side and the other side shows the liabilities and assets position of the year. There are various reasons, which contribute to profits such as operational costs, marketing efficiencies, reduced induced interests and many more. The essence of the financial soundness of a company lies in balancing its goals, commercial strategy and resultant financial needs. The company should have financial capability and flexibility to pursue its commercial strategy. Ratio analysis is a very useful analytical technique to raise pertinent questions on a number of managerial issues. It provides bases or clues to investigate such issues in detail. While assessing the financial health of a company, ratio analysis answers to questions relating to the company profitability, asset utilization, and liquidity and financial capabilities of the company.
The statement of the problem can be generalized here as:

Analysis of the relationship between liabilities and assets. Analysis of the liquidity and profitability of the current assets and current liabilities. Detection of the reasons for the variability of profits. Analysis of various components of working capital such as cash, marketable securities, inventories and receivables. To find out the business fluctuations, technical developments etc., on financial performance. The study takes into consideration the external analyst point of view and with the help of the past and latest financial statements, financial position will tried to be analyzed impartially. Analysis of the long-term financial position of the firm over a period of time.
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OBJECTIVES OF THE STUDY

The various objectives of the ratio analysis are:
To show the firms relative strength and weakness. To determine the financial condition and financial performance of the firm. To involve comparison for a useful interpretation of the financial statement. To find out the solution to the unfavorable financial conditions and financial performance. To analyze the profitability position of the firm. Based on information furnished in the financial statement, analyzing and interpreting the strengths and weakness of the firm through analytical tools like Ratio Analysis, comparative balance sheet income statement etc.,
NEED OF THE STUDY

Any company would like to know its position against its competitors. The ultimate performance indicator of any company is the financial parameters because invariably all costs efficiencies; activities and solvency position of the company will be reflected in the financial mirror
The following facts are stated as the need for the study:
To understand the volume of the profit and its reasonableness. To understand the movement of profit over a period of time. To know the reason for the variation in the profit. To know the present position of the company.
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SCOPE OF THE STUDY

Ratio analysis is perhaps the first financial tool developed to analyze and interpret the financial statement and is still used widely for this purpose. Financial performance analysis is a well researched area and innumerable studies have proved the utility and usefulness of this analytical technique. This research seeks to investigate and constructively contribute to help: The company in finding out the gray areas for improvement in performance. To understand the companys, its own position over time. The managers to understand their contribution to the company. The present and potential investors, outside parties such as the creditors, debtors, government and many more to get an idea of the overall performance of the company.
LIMITATIONS OF THE STUDY:

Though sincere attempt has been made during this study, it has limitation which cannot be avoided like, 1) This study is based on financial statements, which are only interim reports so the profit shown by profit and loss Account and financial position is depicted by the balance sheet is not exact. 2) This study is based on accounting concepts and conventions, for this reason the financial position as disclosed by the statement may not be comparative 3) All statements are prepared by financial accountant with analysis done and conclusion reached is influenced by personnel judgment 4) Financial statements disclose only monetary facts and they ignore nonmonetary facts. 5) It does not look into the areas such as working capital management, marketing performance, stocks market performance etc. 6) Elaborate investigation regarding the profitability, income and expenses could not be taken, as this area is very sensitive and confidential Hoysala College of Management Page 4
RESERCH METHODOLOGY OF STUDY

RESEARCH DESIGN:
Research design simply means a search for facts answer to question and solutions to problems. It is a prospective investigation research is a systematic and logical study of an issue on problems through scientific method research is a systematic and objective analysis and recording of controlled observation that may lead to development of generation, principles, resulting in predication and possible ultimately control of events. A Research design is the arrangement of condition for the collection and analysis of data in a manner that aims to combine relevance to research purpose with economy in procedure. There is various research design, but deceptive and analytical research design in most suitable for this study
This research is descriptive in nature and involves the following steps To understand theory behind financial performance analysis through various textbooks have been referred. Information is downloaded from various webssites to understand industrial background. The study period has been decided which is 3 years Annual reports and other published data have been collected from the company Identification of financial ratios, literally to reflect the liquidity, solvency and efficiency and profitability of the firm. In this case it has been decided to be LIQUIDITY RATIOS LONG TERM SOLVENCY RATIOS PROFITABILITY RATIOS TURNOVER RATIOS ACTIVITY RATIOS
Calculation of the above ratios over the study period and tabulation Finally forwarding certain recommendations and conclusion to the company. Hoysala College of Management Page 5
METHODOLOGICAL ASSUMPTION:
1) Definition used is universal. 2) Ultimate performance evaluations are financial performance. 3) Selected study period is sufficient. 4) Selected financial ratios reflect financial performance.
SOURCES OF DATA
Data is defined as group of non-random symbols in the form of text, image, or voice representing qualities, actions as objects. Data is processed into a form that is meaningful to the recipient and is of real and perceived value in the current or prospective actions or decisions of the recipient.
Data are mainly classified into two groups: Primary data

Secondary data
Primary data: The data are originally collected by an investigator or agency for
the first time for an statistical investigation and used by them in the statistical analysis and termed as primary data this datas are collected directly from the source for first time
Secondary data: Any data have been gathered earlier for some other purpose is
secondary data in the hands of an individual who is using them. In the hands of an individual who is using them. In contrast, the data that are collected first hand by someone specifically for the purpose of facilitating the study are known as primary data. Thus, primary data collected by one person may become the secondary data for another.
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Financial Statement Analysis Both primary and secondary data have been collected for the study purpose primary interviewing certain executives who were chosen on the basis of their indepth knowledge and work experience in the company. The interview was informal in nature in order to gain more information as much as possible.
Most of the data collected is of secondary in nature and it includes, Annual reports of the company. Journals - Business world, Business line, India today. Internet and daily newspaper. Other books and accounts maintained by the company.
FIELD WORK:
Fieldwork is done for the collection of data. For the purpose of collecting primary data, fieldwork involved here is visiting the offices of SHYLENDRA ELECTRONICS for interview chosen executive of the company. Also for the purpose of collecting secondary data like annual reports visiting the offices of the firm was mainly the fieldwork. Secondary data was also topped from web site.
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COMPANY PROFILE
Mr. S.P. Srinath and Mr. S. Srikanth was established the Shylendra Electronics in 1995. Shylendra Electronics is a Testing and Measuring equipment of Authorized Distributers & Represent of Megger ltd, Aplob ltd, Automatic Electric ltd, Nagman Instrument India ltd and Kyoritsu & Emerson. Serving power industry (Generation, Transmission and Distribution) through complete range of testing and measuring instrument. Electronic, Electrical, Mechanical Lab and Field grade instruments. Equipment for application in Defense Establishments. Partner of MEGGER LTD a pioneer in electrical test instruments. Experience of more than a decade in T&M instruments. Application based product support for various Industries and Projects. Conducting study of existing capital equipment and suggesting
changes/replacements
ELECTRONIC INSTRUMENTS
Multimeters Oscilloscopes Micro ohm meters
Power Analysers Clamp on Meters Earth Leakage Testers Multi Function Tester Power Supplies RF power meter On line UPS. Thermometer Infrared Process Calibrators Hoysala College of Management Page 8
UPS SYSTEM-3KVA with ACDB
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ELECTRICAL INSTRUMENTS BDV test kit HV Line detection device Relay Test Equipment Cable fault locator Energy meters Insulation Tester Primary and Secondary Injection Test Kit Transformer Turns Ratio Meter Tan Delta test set Micro ohm meter 1-600A Motor and Generation test set, synchronizing facility CB test kit and Analyser
MG SYNCHRONISATION TEST SET
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MECHANICAL INSTRUMENTS Vibration meters Cable crimping-precision grade Profile projector Hardness testers
VALUE ADDED SERVICES

The Shylendra Electronics give the value added services are Specialization in setting up Laboratories / Workshop and Repair Centers. Demonstration, Installation and Commissioning Technical support viz application guides and newsletters Repair / Servicing of instruments and Calibration Laying of power cables, communication cables, cable trays, conduits, earth pits. T&M instruments Consultation, Supply, Service, Documentation and Commissioning.
CUSTOMERS
The customers of Shylendra Electronics are: 1. BHEL-ISG-Bangalore 2. BHEL-EMRP-Mumbai 3. BHEL-EPD-Bangalore 4. KPCL-BTPS-Bellary 5. KPCL-RTPS-Raichur 6. KPTCL 7. Indian Navy-Seabird (Mecon-Consultants) 8. NTPC-Koldam 9. Nuclear Power Corporation of India ltd- Kudankulam Hoysala College of Management Page 11
Financial Statement Analysis 10. ABB ltd, Bangalore 11. Tehri Hydro electric Project 12. NAL, Bangalore 13. BEL-Bangalore 14. ABB, Baroda 15. SIEMENS GURGAON 16. KPTCL, Bangalore 17. HAL ltd 18. ABB / Salem Steel 19. CQAL, Bangalore 20. Cooper Bussmann India 21. Siemens 22. Matwane pvt. ltd 23. MRPL-Mangalore 24. G.E India pvt. Ltd
COMPANY ADDRESS:
SHYLENDRA ELECTRONICS #52, 9th Main Road, 3rd Block Jayanagar Bangalore 560 011
PH: 91-80-41210997 / 26633195 Fax: 91-80-22442963 E-Mail: info@shylemdraelectronics.com www.shylendraelectronics.com
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DETAILS OF RECENT ORDER
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ACCOMPLISHMENTS
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THEORETICAL BACKGROUND OF STUDY

INTRODUCTION:
Financial statements are primarily prepared for decision-making. They play a dominant role in setting the framework of managerial decisions. The published financial statements of business may be of considerable interest to present are potential shareholders, managers, lenders, financial institutions, government researchers, trade organizations and many others.
MEANING OF FINANCIAL STATEMENT ANALYSIS

Definition: - Financial analysis is the process of Identifying the financial strengths and weakness of firm by properly establishing relationship between the items of the balance sheet and profit and loss account. The purpose of financial analysis is to diagnose the information contained in the financial statements so as to judge the profitability and financial soundness of the firm. A financial analyst, analyses the financial statements with various tolls of analysis before commenting upon the financial position of the enterprises.
Tools of financial statement analysis:

1. Comparative statements 2. Common size statements 3. Trend Analysis 4. Funds flow analysis 5. Cash flow analysis 6. Ratio analysis 7. Cost-volume-profit analysis
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1. Comparative Statements:
The comparative balance sheet analysis is the study of trend of the same items, group of items and computed items in two or more balance sheet of the same business enterprise on different dates. The changes in periodic balance sheet items at the beginning and at the end of a period can be observed, which reflect a conduct of a business.
2. Common size statements:

Common size financial statement facilitates both type of analysis, horizontal as well as vertical analysis, it not only compares across years but also each individual item of a group of assets and liabilities is related to the total of the group in respect of every year. It means individual current asset is shown as a percentage of total current assets main advantage of common size statements is that a comparison of the performance and financial condition in respect of different units of the some industry can also be done.
3. Trend Analysis:
The easiest way to evaluate the performance of a firm is to compare its present ratio with the past ratios. When financial ratios over a period of time are compared it is known as time series or trend analysis, it gives on indication of a direction of change and reflects whether financial performance has improved as has deteriorated as has remained constant overtime.
4. Funds flow analysis:

Fund flow statement is a method by which we study changes in the financial position of a business enterprise b/w beginning and ending financial statements dates. It is a statement showing sources and application of trends for a period of time, it is a complimentary statement to the income statement. Funds flow statement considers both capital and revenue items.
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5. Cash flow statement:

It is a statement of changes in the financial position of firm on cash basis and hence it is called cash flow statement. It summarizes the causes for changes in the cash position of business enterprises between dates of two balance sheets. Cash flow statement is a statement which describes the inflow and out flow of cash and cash equivalents.
6. Cost-Volume-Profit Analysis:
It is a technique for studying the relationship between cost, volume and profit. Profits of an undertaking depend upon a large number of factors. But the most important of these factors are the cost of manufacture, volume of sales and the selling prices of products. It is the ascertainment of marginal costs and its effect on the profit of changes in volume or type of output by differentiating between fixed cost and variable costs. It is a technique, which is concerned with the changes in cost and profits resulting from changes in the volume of profit.
7. Ratio Analysis:
Ratio analysis is a technique of analysis and interpretations of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. Ratio analysis is a widely used tool of financial analysis; it is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weakness of firm as well as its historical performance and current financial position can be determined.
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CLASSIFICATION OF RATIOS
1. LIQUIDITY RATIOS
Current ratio
Quick ratio
2. TURNOVER RATIOS
Working capital turnover ratio Inventory turnover ratio Debtor turnover ratio Creditor turnover ratio Fixed asset turnover ratio
3. LONG TERM SOLVENCY RATIOS

Proprietary ratio Solvency ratio
4. PROFITABILITY RATIO
Gross profit ratio Net profit ratio Return on asset
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LIQUIDITY RATIOS
The term liquidity refers to firms ability to meet its current liabilities when they become due; liquidity ratios are used to measure the liquidity position or shortterm financial position of a firm. The bankers and creditors for materials are interested in the liquidity position. The ratios, which reflect the short-term solvency of a business unit, are current ratio, quick ratio, working capital ratio turnover ratio, stock turnover ratio, and debtors turnover ratio. There are four types of comparison 1) Trend ratios 2) Comparison of items within a single year financial statement of a firm. 3) Inter-firm comparison
4) Comparison with standard plans.
Trend Ratios:
This involves a comparison of the ratios of a firm overtime. In other words, present ratios are compared with past ratios for the same firm. Trend ratios indicate the direction of change in the performance that is improvement, deterioration or constancy over the years.
Inter firm comparison:

This involves comparison of the ratios of a firm with those of others in the same line of business as for the industry as whole. Inter firm comparison reflects the performance of a firm in relation to its competitors. A good company is that which has good profitability as well as sound financial positions; either one are the other being alone good does not make a company sound. Ratios as tool for establishing true profitability and financial position of a company can they are be classified as below.
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1. CURRENT RATIO:
Current ratio is defined as the ratio of current assets to current liabilities; it shows the relationship between total current assets and total current liabilities. It is a measure of firms short-term solvency. Current ratio is also called working capital ratio. It is calculated as follows:
The conventional rule a current ratio of 2:1 are more considered satisfactory. This rule is based on the logic that in a worse situation even if the value of the current assets becomes half the firm will be able to meet its obligation. This ratio represents margin of safety.
2. QUICK RATIO:
Liquid ratio is the ratio of liquid assets to current liabilities. It expresses the relationship between quick assets and current liabilities it is also called acid test ratio. It is computed as follows:
Liquid or quick assets include cash, bank balance debtors, and bills receivables and short term marketable securities in other wards they are current assets minus stocks & prepaid expresses. Stock cannot be included in quick assets because it is not easily and readily convertible into cash. Quick ratio is considered to be superior to current ratio in testing the liquidity position of a firm. It is an improvement of current ratio because in the calculation of quick ratio, the weakness of current ratio is overcome. When used in conjunction with current ratio, the liquid ratio gives a better picture of the firms liquidity a quick ratio of 1:1 is considered ideal.
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TURNOVER RATIOS
Turnover ratios are used to indicate the efficiency with which assets and resources of the firm are being utilized. These ratios are known as turnover ratios because they indicate the speed with which assets are being converted or turned over into sales. These ratios, thus, express the relationship between sales and various assets. A higher turnover ratio generally indicates better use of capital resources which in turn has a favorable effect on the profitability of the firm.
1. Working capital turnover ratio:

This ratio is computed to test the efficiency with which the networking capital is utilized. In other words, this ratio indicates whether working capital is effectively used in making sales. It is calculated as follows:
A low working capital turnover ratio may be reflecting an inadequacy of working capital and lower turnover of inventories and receivables. A high ratio may be the result of high turnover of inventories or receivables.
2. Inventory Turnover Ratio:

Inventory turnover ratio also known as stocks turnover ratio establishes the relationship between cost of goods sold and average inventory besides it helps in determining the liquidity of a business concern, this ratio indicates how many times during the period the firm has turned its inventory. In other words, it shows the rate at which inventories are converted into sales and then into cash It is computed as follows.
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Cost of goods sold = Sales Gross profit
This ratio is usually expressed in times. This ratio as may also be expressed in period
This ratio indicates the efficiency of the firm in selling its products
Inventory turnover ratio is a measure of liquidity of inventory. This ratio indicates the speed with which the inventory sold. A high turnover ratio indicates that inventory is sold fast. On the other hand, a low turnover ratio reflects over investment in inventories, accumulation of huge sock etc. This ratio is also an index of profitability. It should be remembered that, for a meaning full analysis, this ratio should be compared with similar ratios in previous year and with ratios of similar firm.
3. Debtors Turnover Ratio:

Debtor turnover ratio is also called receivable turnover ratio relates net credit sales to sundry debtors. This ratio indicates the rate at which cash is generated by turnover of debtors. It measures how fast debts are collected. It is calculated as follows: Hoysala College of Management Page 27
Net credit sales mean (Sales- returns). The term debtors for this ratio is the amount the debtors plus bills receivables at the end of accounting period. Sometimes the ratio is computed by taking the average of opening and closing debtors. It should be remembered that provision for bad and doubtful debts should not be deducted from debtors. When the credit sales are not given, the total sales may be used. The debtors turnover ratio may also be expressed in days. Then it is called average collection period or debtors velocity.
The debtor turnover ratio indicates the quality of debtors by measuring the rapidity as slowness in collection process. A shorter collection period (on higher turnover ratio) indicates prompt payment of debtor while a longer period (lower turnover ratio) indicates the in efficiency of credit collection.
4. Creditors turnover ratio:

Creditors turnover ratios are the ratio between net credit purchases and the amount of sundry creditors. It implies that credit period enjoyed by the firm in paying creditors. It is computed by using the following formula.
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Financial Statement Analysis Net credit purchases mean credit purchase minus purchase returns. The term creditor for this ratio is amount of the creditors plus bills payable at the end of accounting period. Sometimes the ratio is computed by taking average of opening and closing creditors. The creditor turnover ratio may also be expressed in days. Then it is known as creditor payment period or creditors velocity.
Significance of creditors turnover ratio:

The ratio reflects whether terms of credit allowed by suppliers are liberal as stringent. A high creditors turnover ratio (short period) shows that creditors are being paid promptly; while a low turnover ratio (longer period) reflects liberal credit terms granted by suppliers.
5. Fixed Assets Turnover ratio:

Fixed assets turnover ratio shows the relationship between sales and fixed assets. It shows whether fixed assets are fully utilized. To be clearer, this ratio measures the efficiency with which a firm is utilizing its fixed assets in generating sales. It is computed as follows:
The term fixed assets for this ratio is the depreciated value of fixed assets i.e, the amount of depreciation is deducted from the value of fixed assets.
Significance of fixed asset turnover ratio

This ratio measures the efficiency in the utilization of fixed assets. A high ratio reflects overtrading; on the other hand, a lower ratio indicates idle capacity and excessive investment in fixed assets. Generally idle or a standard ratio is five times.
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LONG-TERM SOLVENCY RATIOS

As already observed, the short-term creditors like banks and suppliers of raw materials, are interested in the short-term solvency of a firm. For the analysis of shortterm solvency or current financial position, liquidity ratios are used. The shareholders, debenture holders and other long-term creditors like financial institutions are more interested in long-term financial position or long term solvency of a firm. Leverage or Long-term solvency ratios are used for such an analysis. These ratios are also used to analyses the capital structure of a company. That is why these ratios are also called as capital structure ratios. The term solvency generally refers to the firms ability to pay the interest regularly and repay the principal amount of debt on due date. There are two aspects of long-term solvency of a firm. Ability to repay the principal amount of loan or due date. Regular payment of interest. Accordingly, there are two types of leverage ratios. The first type of leverage ratios is based on the relationship between owned capital and borrowed capital. These ratios are calculated from the balance sheet items. The second types of leverage ratios are coverage ratios they are computed from profit and loss account.
1. Proprietary ratio:
This ratio establishes the relationship between shareholders funds and the total assets. It indicates the proportion of total assets financed by shareholders. It is usually computed as percentage. It is computed as follows:
Owners funds, preference share capital and all reserves and surplus. Total assets include all assets including good will some others exclude goodwill from total assets.
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Financial Statement Analysis Interpretation: It reflects the general financial strength of the company. It enables creditors to find out the proportion of shareholders funds in total assets, higher the ratio, as share of shareholders in total capital of the company, better is the long-term solvency position of the company.
2. Solvency ratio:
This ratio expresses the relationship between total assets and total liabilities. It is pure ratio. It is calculated to measure the solvency of the firm.
Interpretation: Generally there is no standard set. But the lower the ratio of total liabilities to total as sets, more satisfactory and stable is the long-term solvency position of the firm.
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PROFITABILITY RATIOS:
The ultimate aim of any business enterprise is to earn maximum profit. A firm should earn profits to survive and grow over a long period of time. To the management, profit is the measure of efficiency and control. To the owners, it is a measure worth of their investment. To the creditors, it is the margin of safety. The management of the Company is very much interested in the profitability of the Company Besides management, creditors and owners also are interested in the profitability of the Company Creditors want to get interest and repayment of principal regularly owners want to get a reasonable return on their investment.
The profitability of firm can be easily measured by its profitability ratios; Profitability ratios measure the ability of a firm to earn on adequate return on sales, total assets and invested capital. Profitability ratios are calculated either in relation to sales or in relation to investment.
1. Gross profit ratio:

Gross profit ratios measure the relationship of Gross Profit and Sales. The gross profit ratio indicates the extent to which selling prices of goods per unit may decline without resulting in losses on operations of a firm. It reflects the efficiency with which a firm produces its products.
Interpretation: As the grass profit is found by deducting cost of goods sold from net sales, higher the grass profit ratio, better the results. A low gross profit ratio indicates high cost of goods sold due to unfavorable purchasing policies, upper sales, lower selling prices excessive competition etc.
Gross Profit ratio indicates the margin of profit on sale. It is useful to ascertain whether the average percentage of mark-up on the goods sold is maintained. There is Hoysala College of Management Page 32
Financial Statement Analysis no ideal Gross profit ratio for evaluation. However, the Gross profit ratio should be sufficient to cover all operating expenses, fixed interest charges, dividends and appropriation of reserves.
2. Net profit ratio:

Net profit ratio is the ratio of net profit to sales. It is known as profit margin. It is usually expressed as percentage. It is calculated as
Here Net profit is the balance of profit and loss account after adjusting interest and taxes and all non-operating expenses and non-operating incomes. Net profit ratio indicates managements efficiency in manufacturing administering and selling products. This is a measure of overall profitability. It indicates what portion of sales is left to the owners after all expenses have been met. This ratio also indicates the firms capacity to adverse economic conditions.
Interpretation: A high net profit ratio would indicate higher overall efficiency of the business, better utilization of limited resources and reasonable returns to owners. A low net profit ratio would mean low efficiency and inadequate returns to owners.
3. Return on Assets:
Return means net profit after tax, total resources or total of all revisable assets, including intangible assets. This ratio measures the productivity of total resources or assets of a concern it indicates the profitability of the business.
Interpretation: As such, there cannot be any norms for this ratio. It depends on the industry in which the firm is operating.
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DEFINITION OF CONCEPTS
1) Financial analysis: - The use of financial data to evaluate the financial portion of a firm. 2) Balance sheet: - Statement showing assets and liability of the business as on a particular date and time 3) Income statement: - A summary of a firms revenues and expenses over a specified period ending with net income and loss for the period 4) Financial ratio: - An index that relates two accounting members and is obtained by dividing one number by the others 5) Liquidity: - Ability to meet short term obligation when they become due 6) Profit: - Measure of efficiency and control 7) Profitability: - The ability to earn an adequate return on sales, total assets and invested capital 8) Current asset: - Assets convertible in to cash during current year 9) Current liability: - Liabilities payable during the current year 10) Debt: - Barrowed capital 11) Equity: -capital assured by firm 12) Debenture: - Barrowed capital 13) Returns: - Revenue - all costs 14) Taxes: - To be paid/payable to government as a penalty for having made money 15) Fixed assets: - Long term assets Cost. Could be recovered over time in terms of depredation 16) Long term liabilities: - Those liabilities payable in a period more than one year 17) Industry: - A collection of firms in same line of industry 18) Provision: - fixed interest on borrowed capitals 19) Turn over: - Conversion of ratio of assets in to sales 20) Debtor: - A person who has to give money to company 21) Creditor: - A person who has to get money from company 22) Prepaid expenses: - Part of current assets Ex- advance paid Market price of equity: - price of equity in Secondary market applicable to debentures too Hoysala College of Management Page 34
INFORMATION FOR CALCULATION OF RATIOS
ITEMS
Current Assets Current Liabilities Quick Assets Quick Liabilities Net Sales Net Working Capital Net Purchase Sundry Debtors Cost of Goods Sold Average Inventory Sundry Creditors Fixed Assets Owners Fund Total Assets Total Liabilities Gross Profit Net Profit
2008
5656519 3411838 5369449 2109682 13480939 2244681 8608703 4493595 9893976 340952 1967269 492732 1257395 6149251 4093842 3586963 398671
2009
7201919 4706622 6196919 4312038 14064508 2495297 11280539 4957257 10542609 636035 4259798 908111 1561153 8110030 5523733 3521899 303757
2010
3972387 2840599 3071565 2860490 15711111 1131788 12215964 2784556 12320142 952911 2696026 789082 1561153 4761469 3466102 3390969 369085
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ANALYSIS AND INTERPRETATION

I. LIQUIDITY RATIOS 1. Current Ratios:
Current ratio is the ratio which expresses the relationship between current assets and current liabilities
Years Current assets Current liabilities Current ratio
2008 5656519 3411838 1.66
2009 7201919 4706622 1.53
2010 3972387 2840599 1.40
Interpretation:
The actual current ratio has to be compared with the standard current ratio of 2:1. The company current ratio is 1.66:1 in the year 2008 that has been decreased to 1.53 in the year 2009 and it is again decreased to 1.40 in the year 2010. The companies need to maintain more current assets in order to meet its short-term obligations. We can conclude that the ratio is favorable as the current assets is more than the current liabilities
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CHART SHOWING CURRENT RATIO
1.7 1.66 1.65
1.6
1.55 1.53
CURRENT RATIOS
1.5
1.45
1.4 1.4
1.35
1.3
1.25 2008 2009 YEARS 2010
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2. Quick Ratio:
This ratio expresses the relationship between quick asset and quick liabilities. It reveals the firm ability to meet current liabilities through Quick assets.
Years Quick assets Quick liabilities Quick ratio
2008 5369449 2109682 2.55
2009 6196919 4312038 1.44
2010 3071565 2860490 1.07
Interpretation:
The actual quick ratio has to be compared with the standard quick ratio of 1:1. The company quick ratio is 2.55:1 in the year 2008 that has been decreased to 1.44 and 1.07 in the year 2009 and 2010 respectively. The quick ratio is more than the standard. The company has maintained favorable quick assets in every year.
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CHART SHOWING QUICK RATIO

3
2.55 2.5
QUICK RATIO
1.5
1.44
1.07 1
0.5
0 2008 2009 YEARS 2010
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II.
TURNOVER RATIOS 1. Working Capital Turnover Ratio:

This ratio is computed to test efficiency with which the net working capital is utilized by business concern.
Years Sales Net working capital Working capital turnover ratio Interpretation:
2008 13480939 2244681 6.01
2009 14064508 2495297 5.64
2010 15711111 1131788 13.88
There is no standard working capital turnover ratio. The working capital turnover ratio in the year 2008 is 6.01 and it was decreased to 5.64 in the year 2009 and it was increased to 13.88 in the year 2010. It shows the company has maintained satisfactory working capital turnover ratio, it is very high in the year 2010 that is 13.88.
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CHART SHOWING WORKING CAPITAL TURNOVER RATIO

16
14
13.88
12
WORKING CAPITAL TURNOVER RATIO
10
6.01 6 5.64
0 2008 2009 YEARS 2010
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2. Inventory Turnover Ratio:

This ratio establishes relationship between cost of goods sold and average inventory.
Years Cost of goods sold Average inventory Inventory turnover ratio Interpretation:
2008 9893976 340952 29.02
2009 10542609 636035 16.58
2010 12320142 952911 12.93
Usually a high inventory turnover indicates efficient management of inventory because more frequently the stock is sold. Here the company has maintained a high inventory turnover. In the year 2008 company inventory ratio is 29.02 and it has been decreased to 16.58 and 12.93 in the year 2009 and 2010 respectively. It shows that company has managed inventory not efficiently.
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CHART SHOWING INVENTORY TURNOVER RATIO

35
30
29.02
25
INVENTORY TURNOVER RATIO
20
16.58 15 12.93
10
0 2008 2009 YEARS 2010
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3. Debtor Turnover Ratio:

This ratio indicates the rate at which cash is generated by turnover of debtors
Years Net credit sales Sundry debtors Debtors turnover ratio
2008 13480939 4493595 3.00
2009 14064508 4957257 2.84
2010 15711111 2784556 5.64
Interpretation:
This ratio indicates the liquidity position of inventory. Higher the ratio better is the efficiency of management of debtors. Debtor turnover ratio in the year 2008 is 3.00:1 and it decreased to 2.84 in the year 2009 and it increased to 5.64 in the year 2010. Very high debtor turnover ratio is not good. It shows very high credit sales. Here company has not maintained satisfactory debtor turnover ratio.
Page 44
CHART SHOWING DEBTORS TURNOVER RATIO

6 5.64
4 DEBTORS TURNOVER RATIO
3 3 2.84
0 2008 2009 YEARS 2010
Page 45
Financial Statement Analysis 4. Creditor turnover ratio: This is the ratio between net credit purchases and sundry creditors. It implies that credit period enjoyed by the firm in paying creditors.
Years Net credit purchases Sundry creditors Creditor turnover ratio Interpretation:
2008 8608703 1967269 4.38
2009 11280539 4259798 2.65
2010 12215964 2696026 4.53
A high creditors turnover ratio shows that creditors are being paid promptly; usually there is no fixed norm for this ratio. The company credit turnover ratio is 4.38 in the year 2008 and it has been decreased in 2009 it is 2.65 and it is increased to 4.53 in 2010. Here company has maintained a very high credit turnover ratio and it shows that company is prompt and quick in paying creditor but it enjoyed very low credit period.
Page 46
CHART SHOWING CREDITORS TURNOVER RATIO

5
4.53 4.5 4.38
3.5
CREDITORS TURNOVER RATIO
3 2.65 2.5
1.5
0.5
0 2008 2009 YEARS 2010
Page 47
5. Fixed asset turnover ratio:

Fixed asset turnover ratio shows the relationship between sales and fixed assets. It shows whether the fixed assets are fully utilized or not.
Years Sales Fixed asset Fixed asset turnover ratio Interpretation:
2008 13480939 492732 27.36
2009 14064508 908111 15.49
2010 15711111 789082 19.91
A high fixed asset turnover ratio reflects over trading. On other hand, a lower ratio indicates the idle capacity and excessive investment in fixed assets. The fixed asset turnover ratio is 27.36 in the year 2008. It decreased to 15.49 in the year 2009, in the year 2010 it increased to 19.91. Here ratio shows that a company has maintained a standard fixed asset turnover ratio in all 3 years.
Page 48
CHART SHOWING FIXED ASSETS TURNOVER RATIO

30 27.36
25
20 FIXED ASSET TURNOVER RATIO
19.91
15.49 15
10
0 2008 2009 YEAR 2010
Page 49
III.
LONG TERM SOLVENCY RATIOS 1. Proprietary ratio:

This ratio establishes the relationship between owners funds and total assets. It indicates proportion of total assets financed by owners. It is usually computed in percentage.
Years Owners fund Total assets Proprietary ratio
2008 1257395 6149251 20.00
2009 1561153 8110030 19.25
2010 1561153 4761469 32.79
Interpretation:
It reflects the general financial strength of the company, higher the ratio better is the position of company. The proprietary ratio is 20% in the year 2008; in 2009 it decreased to 19.25 and in the year 2010 that is raised to 32.79. From above information we can interpret that company financial position strong in 2010 and its low in 2008 and 2009.
Page 50
CHART SHOWING PROPRITARY RATIO
35% 32.79%
30%
25%
PROPRIETARY RATIO
20% 20% 19.25%
15%
10%
5%
0% 2008 2009 YEARS 2010
Page 51
2. Solvency ratio:
This ratio expresses the relationship between total assets and total liabilities. This ratio is calculated to measure the solvency of the firm.
Years Total liabilities Total assets Solvency ratio
2008 4093842 6149251 0.67
2009 5523733 8110030 0.68
2010 3466102 4761469 0.73
Interpretation:
Generally there is no standard set for this ratio here the long term solvency position is better because the ratio between total liabilities and total assets is very low and stable. Company solvency ratio is 0.67:1 in the year 2008 and it increased to 0.68:1 in the year 2009 and it also increased to 0.73 in the year 2010. From above ratios we can conclude that ratio between total liabilities and total assets are very low so company solvency position is satisfactory.
Page 52
CHART SHOWING SOLVENCY RATIO
0.74
0.73 0.73
0.72
0.71
0.7 SOLVENCY RATIO
0.69
0.68 0.68
0.67 0.67
0.66
0.65
0.64 2008 2009 YEAR 2010
Page 53
IV.
PROFITABILITY RATIO 1. Gross profit ratio:

Gross profit ratio measures the relationship of gross profit and sales. It reflects the efficiency with which a firm produces its products
Years Gross profit Net sales Gross profit ratio
2008 3586963 13480939 26.61
2009 3521899 14064508 25.04
2010 3390969 15711111 21.58
Interpretation:
If the gross profit ratio is high it is an indication of good results. If the gross profit is too low it is an indication of poor results. Company gross profit in the year 2008 is 26.61 it decreased to 25.04 and 21.58 in the year 2009 and 2010 respectively. The gross profit ratio is very high in the year 2008. Here results are satisfactory.
Page 54
CHART SHOWING GROSS PROFIT RATIO
30.00%
26.61% 25.04% 25.00%
21.58%
20.00%
GROSS PROFIT RATIO
15.00%
10.00%
5.00%
0.00% 2008 2009 YEARS 2010
Page 55
2. Net profit ratio:

Net profit ratio is the ratio of net profit or net sales. It indicates managements efficiency in manufacturing, administrating and selling products.
Years Net profit Net sales Net profit ratio
2008 398671 13480939 2.96
2009 303757 14064508 2.16
2010 369085 15711111 2.35
Interpretation:
A high net profit ratio indicates that the profitability of the concern is good. On the other hand a low net profit ratio indicates that the profitability of the concern is poor. Companies net profit ratio is 2.96 in the year 2008 and it decreased to 2.16 in the year 2009 and the year 2010 it increased to 2.35. It shows that company overall efficiency would decrease and increase. The company overall efficiency would satisfactory.
Page 56
CHART SHOWING NET PROFIT RATIO

3.50%
3.00%
2.96%
2.50% 2.35% 2.16% 2.00%
NET PROFIT RATIO
1.50%
1.00%
0.50%
0.00% 2008 2009 YEARS 2010
Page 57
3. Return on asset ratio:

Here return means net profit after tax on returns or all receivables for what the amount invested on total asset returns for amount invested on all realizable assets.
Years Net profit Total assets Return on assets ratio Interpretation:
2008 398671 6149251 6.48
2009 303757 8110030 3.75
2010 369085 4761469 7.75
As such there is no standard norm for this ratio. It mostly depends upon nature of industry. Return on assets is 6.48% in the year 2008 and it decreased to 3.75 in the year 2009 and it increased to 7.75 in the year 2010. Companies return on assets is satisfactory.
Page 58
CHART SHOWING RETURN ON ASSETS RATIO

9.00%
8.00%
7.75%
7.00% 6.48%
6.00%
RETURN ON ASSETS
5.00%
4.00%
3.75%
3.00%
2.00%
1.00%
0.00% 2008 2009 YEARS 2010
Page 59
TREND ANALYSIS
YEAR Sales Stock Cost of Goods Sold Gross Profit Net Profit
2008
13480939 267070 9893976 3586963 398671
2009
14064508 1005000 10542609 3521899 303757
2010
15711111 900822 12320142 3390969 369085
TREND PERCENTAGES (BASE YEAR 2008) SALES YEAR 2008 2009 2010 AMOUNT 13480939 14064508 15711111 TREND PERCENTAGE 100 104.33 111.71
Page 60
STOCK YEARS 2008 2009 2010 AMOUNT 267070 1005000 900822 TREND PERCENTAGES 100 376.31 337.30
COST OF GOODS SOLD YEARS 2008 2009 2010 AMOUNT 9893976 10542609 12320142 TREND PERCENTAGES 100 106.56 124.52
GROSS PROFIT YEARS 2008 2009 2010 AMOUNT 3586963 3521899 3390969 TREND PERCENTAGES 100 98.91 94.54
Page 61
NET PROFIT YEARS 2008 2009 2010 AMOUNT 398671 303757 369085 TREND PERCENTAGES 100 76.19 92.58
Page 62
FINDINGS
The Current ratio & Quick ratio is decreasing every year. The sales of the company is increasing every year, it is healthy development. Company debtor turnover ratio is very high it is not good for a company. High debtor turnover shows high credit sales. Company creditor turnover ratio is high this shows company paid his creditors very quickly. Gross profit ratio is decreased every year it is unhealthy to the company Net profit ratio is decreased in 2009, but it increase in 2010. Increasing the net profit is healthy development to the company. Return on asset is decreased in 2009, but it increase in 2010 it is healthy development to the company. Working capital turnover ratio is increased in 2010. Inventory ratio is decreasing every year, it is not good for the company
SUGGESTIONS
Company must take necessary steps to collect the debtors. The company has to take necessary steps to maintain the increase profitability. The company has necessary to maintain the high current assets and quick assets The company has maintain its increasing the sales The company has to take necessary steps to increase inventories.
Page 63
CONCLUSIONS
The analysis of the ratio is proving that company financial position is good but in some areas company is to improve those positions. The company current assets & quick assets are decreasing. Company has to take necessary steps to maintain the current assets & quick assets. The sales of the company is increasing every year, it is healthy development, company has maintain his increasing the sales Inventory ratio is decreasing every year; it is not good for the company. The company takes necessary steps to increase the inventories. The company debtor turnover ratio is high, it shows high credit sales. Company has to collect the debtor amount. Company creditor turnover ratio is high, it shows company paid his creditors very quickly so company cannot enjoy a long term credit period. Profitability of company is increase in 2010 it is very good to the company. Finally the company sales is increasing & profit is also increase it shows company is good position, it helps develop to the company.
Page 64
ANNEXURE
Balance sheet as on 31.03.2008 Liabilities Capital Account: S.P.Srinath S.Srikanth Secured Loans: Bank overdraft Bill discounting IOB car loan City bank loan amount amount
Assets amount amount
Fixed Assets: 704949 Fixed assets 552447 1257395 Depreciation Investments 1302156 3235396 Current assets: 433316 Closing stock 248688 5219556 Sundry debtors Fixed deposit : IOB Telephone deposit Loans and 1967269 advances Bills margin 16854 money 142413 2126536 Cash in hand TDS 110662 8714149
576042 83310
492732 15000
267070 4493595 283659 3000 875388 2244833 466 38406 8206417
Current Liabilities: Sundry creditors Audit fees payable Other provisions Income tax payable
8714149
Page 65
Balance sheet as on 31/3/2009 Liabilities Capital Account: S.P.Srinath S.Srikanth Secured Loans: Bank overdraft Bill discounting City bank loan Pushpak loancar amount amount
Fixed Assets: 856828 Bajaj motorcycle 704325 1561153 Computer Furniture Lenovo laptop 394584 Printers 1555887 Scorpio car 163872 653239 2767582 Investments: Fixed deposit : IOB investment in RMF 25000 4259798 16854 110662 Current assets: FBT refund due
28262 3053 6962 24499 4482 840853
908111
39551 15000 54551
Current Liabilities: Provisions Sundry creditors Audit fees payable Income tax payable Sales tax payable HSBC Loan
9707 1005000 1238211 4957257 1451 632578 11801 3000 7859005 8821667
Closing stock Loans and 53378 advances 27240 4492932 Sundry debtors Cash in hand Bills margin money TDS Telephone deposit 8821667
Page 66
Balance sheet as on 31/3/2010 Liabilities Capital Account: S.P.Srinath S.Srikanth Secured Loans: Bank overdraft Unsecured loans Pushpak loancar Current Liabilities: Provisions Sundry creditors collected amount amount
Fixed Assets: 856828 Bajaj motorcycle 704325 1561153 Computer Furniture Lenovo laptop -19891 Printers 53063 Scorpio car 579464 612636 Investments: RD Account at IOB 164464 2696026 Current assets: -7023 2853466 Stock-in-hand Loans and advances Sundry debtors Cash in hand EMD Fixed depositsPBG Retention money Telephone deposit 5027255
24024 1221 6266 13999 3810 739763
789082
100000
900822 92662 911252 3864 190483 162786 1873304 3000 4138173 5027255
Page 67
Trading & Profit and Loss account for the year ended 31/3/2008 Particulars Opening stock Purchase Direct Expenses Gross Profit amount amount particulars Sales &service 414834 charges 8608703 1137509 Closing stock 3586963 13748009 Audit fees Bank charges Bonus Conveyance Courier Depreciation Advertisement Electricity charges Freight outwards Fringe benefit tax Insurance Office maintenance Repair & maintenance Partners remuneration Printing & Stationery Rates &Taxes
Rebates & Discounts 16854
amount amount 13480939 267070
13748009 Gross Profit b/d Indirect incomes 3586963 36839
303291 6800 568133

18637 83310
13354 12661 153134 52082 40505 11201 23474 388000

44770
Rent Salary Staff welfare Telephone charges Net Profit
110280 203449 48300 997264 17576 112056
3225131 398671 3623802 3623802
Page 68
Financial Statement Analysis Trading & Profit and Loss account for the year ended 31/3/2009
Particulars Opening stock Purchase Service charges Gross Profit amount amount particulars Sales &service 267070 charges amount amount 14064508 1005000
11173603 106936 11280539 Closing stock 3521899 15069508
15069508 Gross Profit b/d Indirect incomes 3521899 32472
Partners salary Telephone charges Advertisement Audit fees Bank charges Consultancy Charges Courier Demurage charges paid Depreciation FBT Fright charges IEE Specification Import Handling charges Inland charges Intrest on car loan Intrest paid to Bank Liquidated Damages Local conveyance loss on sale of Baleno car Office Maintenance Miscellaneous & Insurance premium expenses power charges Presentation-Motwane Printing & stationery PT Renewal for 2008-09 Rebates &Discounts Rent Mobile bill Salary & Wages
528000 117990 9051 16854 89390 2000 27956 6500 122722 27449 2941 5292 222178 208155 35479 299293 242197 58644 55928 5357 41452 15268 19696 74401 2000 117618 53100 1200 783041
Page 69

Service tax collected Staff Welfare Tata Aig Insurance Baleno car Tender fees Net Profit 2761 13811 12306 30584
3250614 303757 3554371 3554371
Trading & Profit and Loss account for the year ended 31/3/2010
Particulars Opening stock Purchase Service charges Gross Profit amount amount particulars 1005000 Sales account amount amount 15711111 900822
11872210 343754 12215964 Closing stock 3390969 16611933
16611933 Gross Profit b/d Indirect incomes Dealer Discount received ORC from Motwane service bill raised 3390969
Advertisement Audit fees Bank charges Courier Customs duty Depreciation Diff in s.tax 2007-08 Import Handling charges Incentives Income tax Inland charges Insuarance premium paid Insuarance premium Scorpio Intrest paid to Bank Inward Frieght, tempo, coolie Liquidated Damages Local conveyance
6020 17000 77138 32387 672069 119030 19874 180832 79725 174148 447601 31935 12416 293751 694 37684 34102
835656 6860 555245
1397761
Page 70

Miscellaneous expenses Office Maintenance 1098 19184 804000 14605 15901 59518 2000 63053 159187 3273 69000 99780 590055 25292 800 94598 132802 19092 10000
Partners remuneration
Packing material power charges Printing &stationery PT Renewal for 09-10
Rates &Taxes
Rebates &Discounts Reliance data card Rent
Repair & maintenance

Salary & Wages Staff Welfare Subscription for Ele Projects
Telephone charges
Tempo & coolie Tender fees Training & seminars Net Profit
4419645 369085 4788730 4788730
Page 71
BIBLIOGRAPHY
STANDARD TEXT BOOKS:
a. Management accounting by R.K. Sharma b. Management accounting by I.M. Pandey c. Financial Management by M.Y. Khan
WEBSITES:
a. www.shylendraelectronics.com b. www.google.com
COMPANY PUBLISHED INFORMATION: Annual report 2008, 2009, 2010
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Financial Statement Analysis

Hoysala College of Management

Financial Statement Analysis

STATEMENT OF THE PROBLEM

The statement of the problem can be generalized here as:

Hoysala College of Management

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OBJECTIVES OF THE STUDY

NEED OF THE STUDY

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SCOPE OF THE STUDY

LIMITATIONS OF THE STUDY:

Financial Statement Analysis

RESERCH METHODOLOGY OF STUDY

Financial Statement Analysis

Data are mainly classified into two groups: Primary data

Hoysala College of Management

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Multimeters Oscilloscopes Micro ohm meters

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UPS SYSTEM-3KVA with ACDB

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MG SYNCHRONISATION TEST SET

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VALUE ADDED SERVICES

PH: 91-80-41210997 / 26633195 Fax: 91-80-22442963 E-Mail: info@shylemdraelectronics.com www.shylendraelectronics.com

Hoysala College of Management

Financial Statement Analysis

DETAILS OF RECENT ORDER

Hoysala College of Management

Financial Statement Analysis

Hoysala College of Management

Financial Statement Analysis

Hoysala College of Management

Financial Statement Analysis

Hoysala College of Management

Financial Statement Analysis

Hoysala College of Management

Financial Statement Analysis

Hoysala College of Management

Financial Statement Analysis

Hoysala College of Management

Financial Statement Analysis

THEORETICAL BACKGROUND OF STUDY

MEANING OF FINANCIAL STATEMENT ANALYSIS

Tools of financial statement analysis:

Hoysala College of Management

Financial Statement Analysis

2. Common size statements:

4. Funds flow analysis:

Hoysala College of Management

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5. Cash flow statement:

Hoysala College of Management

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3. LONG TERM SOLVENCY RATIOS

Hoysala College of Management

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4) Comparison with standard plans.

Inter firm comparison: