SUMMER INTERNSHIP PROJECT

REPORT
ON

A FINANCIAL STATEMENT ANALYSIS AND INTERPRETATION OF

CERTSTORE SOLUTIONS

Submitted in partial fulfillment of the requirements for the award of B.Com. degree

Submitted by
Akash Kumar Singh
B.Com(hons.)
Batch – (2015 – 18)
Roll No.: 2015008338

Under The Guidance Of

Internal Supervisor K.R. Gola

SCHOOL OF BUSINESS STUDIES

SHARDA UNIVERSITY, GREATER NOIDA-201306

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 Student’s Declaration

I am Akash Kumar Singh the undersigned, student of SHARDA UNIVERSITY, Greater Noida;
declare that this project report titled is “A financial statement analysis and interpretation”
submitted in partial fulfillment of the requirement for the summer internship project during the
Graduate Program in Commerce. I also declare that this is my original work and has not been
previously submitted as part of any other degree, diploma of another B-school or University. The
findings and conclusions of the data in this report are based on my personal study, during the
tenure of my summer internship.

Date: Akash Kumar Singh

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 EXECUTIVE SUMMARY

Subject Matter: This Project report provides an analysis and interpretation of the year 2015-
16 and 2016-17 profitability, liquidity and financial stability of Certstore Solutions.

Methods of Analysis: Methods of analysis include horizontal and vertical analysis 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 increased due to investment is increasing.

 Liquidity Position is good.
 Purchase has increased by 150%
 COGS has increased by 115.5%
 Sales have increased by 192.3%

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.

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  Increase in purchase and Production activity.

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

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

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 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.
I am highly indebted to Mr. K. R. Gola 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 Certstore Solution for
their kind co-operation and encouragement which help me in completion of this internship.
I perceive as this opportunity as a big milestone in my career development. I will strive to use
gained skills and knowledge in the best possible way, and I will continue to work on their
improvement, in order to attain desired career objectives. Hope to continue cooperation with all
of you in the future.

Sincerely,

Akash Kumar Singh

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 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 Certstore Solutions in B.COM (HONS.) 5th Sem. in the academic year 2017-
2018.

For preparing the Project Report, I have completed my Internship from Certstore Solution during
the suggested duration for the period of 7 weeks 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 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.

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 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 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.

Objective:

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

different software companies.
 Interpretation of financial ratios and their significance.
 Use of Tally 9.0 package for the analysis and interpretation of financial statements of
software companies.

This project mainly focuses in detail the basic types of financial statements of different
companies and calculation of financial ratios. Ratio analysis of Certstore Solutions 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

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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 Certstore Solutions of 2015-17 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
margin and return on investment of all the above companies has been done for the period 2015-
17.It was observed that current ratio of Certstore Solution was always more than 1 from 2015-
17which indicates that liquidity position of the company was good.

Debt-Equity ratio of Certstore Solution increased in 2015-17 which the debts have been cleared.
Return on Investment of Certstore Solutions increased from 8.49% to 44.55% in Two years.

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 CONTENTS

Sl. No. Title Page No.

Chapter -01 INTRODUCTION 15-16

1.1 Certstore Solutions 15

1.2 The Focus 15
1.3 A Financial Statement Analysis and Interpretation 15
1.4 Objectives 16
Chapter-02 FINANCIAL STATEMENTS 17-32

2.1 Balance Sheet 18

2.1.1 Format of Balance Sheet 19

2.1.2 Contents of Balance Sheet 21
2.2 Profit and loss statements 26

2.2.1 Format of Profit and Loss Statement 27

2.2.2 Contents of Profit and Loss Statement 28
2.3 FINANCIAL RATIOS 30
2.3.1 Objectives 30
2.3.2 Financial Ratios And Their Interpretation 32
Chapter-03 FINANCIAL RATIO ANALYSIS 41-56

3.1 Ratio Analysis of Certstore Solutions 41

3.1.1 Balance sheet of Certstore Solution for 2016 41

3.1.2 Balance sheet of Certstore Solution for 2017 42
3.1.3 Profit & Loss Statement for 2016 44
3.1.4 Profit & Loss Statement for 2017 46
3.1.5 Ratio Analysis for 2016 47
3.1.6 Ratio Analysis for 2017 50
3.1.7 Summary for Balance sheet and profit & loss statement 53

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 3.2 RATIO ANALYSIS USING TALLY 9.0 54

3.2.1 Balance Sheet and Ratio Analysis for 2016 55

3.2.2 Balance Sheet and Ratio Analysis for 2017 56
Chapter-04 VARIATION OF FINACIAL RATIOS 57-61

Certstore Solutions 57
Chapter-05 COMPRATIVE STATEMENT 62-63

5.1 Income Statement 62

5.2 Balance Sheet 63

FINDINGS 64

CONCLUSION 65-66

RECOMMENDATIONS 67-68

LIMITATIONS 69

BIBLIOGRAPHY 70

QUESTIONNAIRE 71-72

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 LIST OF TABLES

Sl. No. Title Page No.

Table2.1 Balance Sheet Statement 19

Table2.2 Profit & Loss Statement 27

Table2.3 Different Financial Ratio 32

Table3.1 Balance Sheet of Certstore Solution,2016 41

Table3.2 Balance Sheet of Certstore Solution,2017 42

Table3.3 Profit & Loss Statement of Certstore Solution, 2016 44

Table3.4 Profit & Loss Statement of Certstore Solution, 2017 46

Table3.5 Analysis of Financial Ratio for 2016 47

Table3.6 Analysis of Financial Ratio for 2017 50

Table3.7 Summary of Balance Sheet 53

Table3.8 Summary of Profit & Loss Statement 54

Table5.1 Comparative Income Statement 62

Table5.2 Comparative Balance Sheet 63

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 LIST OF FIGURES

Fig.3.1 Balance Sheet,2016 55

Fig.3.2 Ratio Analysis of Certstore Solution for 2016 55

Fig.3.3 Balance Sheet,2017 56

Fig.3.4 Ratio Analysis of Certstore Solution for 2017 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 59

Fig.4.6 Return On Assets 59

Fig.4.7 Return on Investment 60

Fig.4.8 Gross Profit Ratio 60

Fig.4.9 Net Profit Ratio 61

Fig.4.10 Return On Working Capital 61

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 CHAPTER- 01

INTRODUCTION

1.1 Certstore Solution Certstore Solution has started its software development wing to fulfill
internal needs of the group company as well with a vision to develop customized software
solutions for the clients as per their needs. Certstore’s primary goal is to build long-term
relationship with its customers by providing them optimal level of services on immediate basis
and to achieve highest level of customer satisfaction through customer centric approach. We aim
to maximize our potentials through combination of enhanced quality of services in given time
frame. Our technology has been upgraded which has helped us and our valuable customers to
migrate to new technology. The focus of the whole team is to provide quality software solutions
to industry, which helps top managers in decision-making. We enter into long-term affiliation
with industry for business specific systems and infrastructure. Our vision is to deliver supreme
values to our clients, with persistent performance to highest standards of quality, & service. We
work on the tuned delivery models, which are a mix of offshore, offsite and on site models best
suiting the customer's needs.

Mainly, Company focus on a creation of Antivirus Software such as: Avast Antivirus,
Ransomware, Norton Antivirus etc.

1.2 A FINANCIAL STATEMENT 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

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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. An attempt has been carried out in this project to analyze and interpret the
financial statements of Certstore Solutions.

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
Certstore Solutions.
 To know about Liquidity Position
 To Know about Long- Term Solvency
 To Know about Operating Efficiency
 To know about Over-All Profitability

This project mainly focuses in detail the basic types of financial statements of Certstore
Solutions and calculation of financial ratios. Ratio analysis of Certstore Solutions was done.

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 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.

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.

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 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.
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

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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 Certstore Solutions

LIABILITIES
1.Share Capital
Equity Share Capital

2. Reserves & surpluses

Capital Reserve
General Reserve
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

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 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
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

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 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
Discount Allowed

5. Profit & Loss account(Loss)

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

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  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.

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

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 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.

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).

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  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
 Tour travelling allowance advance

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

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  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.

 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

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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

A n 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
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.

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2.2.1 FORMAT OF PROFIT & LOSS STATEMENT

Table 2.2: Profit & Loss Statement of Certstore Solutions

PARTICULARS Amount PARTICULARS Amount

Gross Profit(Transferred) Gross Loss(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
Bad debts
Packing expense
Financial and Other Expenses:
Depreciation
Repair
Audit fee
Interest paid
Commission paid
Bank charges
Legal charges

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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.
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

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  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).

(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).

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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

(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.
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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.

To Know About Inter- firm Comparison:

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

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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
Acid test or Quick ratio = liquidity position of a
Quick assets firm.
Current Liabilities  A ratio of 1:1 is
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.
Debtor Turnover ratio =  This ratio measures
Net credit sales how fast debts are
Average debtors collected.

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

Debt-Equity ratio =  This ratio indicates the

Long term debt relative proportions of
3. Capital
Shareholder’s Equity debt and equity in
Structure Ratios
financing the assets of
a firm.
 A ratio of 1:1 is
considered safe.

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

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Interest Coverage =
Earnings before interest and tax
4. Coverage ratios
Interest
Dividend Coverage =
Earnings after tax
Preference Dividend
Total Coverage ratio =
Earning before interests and tax
Total Fixed charges
Profitability Gross Profit margin =
5.
ratios Gross profit * 100
Sales
34 | P a g e
 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.

 A ratio used to
determine how easily a
company can pay on
outstanding debt.
 A ratio of more than 1.5
I satisfactory
 It measures the ability
of firm to pay dividend
on preference shares.
 A high ratio is better
for creditors.
 It shows the overall
ability of the firm to
fulfill the liabilities.
 A high ratio indicates
better ability.
 It measures the profit in
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
Net Profit after Tax and Interest low ratio.
Sales
Or
Net profit after Tax and Interest
Sales
 Operating ratio shows
Operating ratio = the operational
6. Expenses ratios Cost of Goods sold + other efficiency of the
expenses 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

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

(Net Profit after Taxes +interest)

*100
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  The higher the ratio, the
total capital employed more efficient use of
Or capital employed.
(Net Profit after Taxes + Interest)
*100

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 Total Capital Employed
Or
(Net Profit after Taxes + Interest)
* 100
Total Capital Employed -
intangible assets
 It reveals how
Return on Total Shareholders’ profitably the owner’s
Equity = fund has been utilized
Net Profit after Taxes * 100 by the firm.
Total shareholders’ equity
 It determines whether
Return on Ordinary the firm has earned
shareholders equity = satisfactory return for
Net profit after taxes and Pref. its equity holders or
dividend *100 not.
Ordinary Shareholders’ Equity

 It measures the profit

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

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

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

37 | P a g e
  It shows what
Dividend Payout ratio (D/P) = percentage share of the
Total Dividend To Equity holders net profit after taxes
Total net profit of equity holders and preference dividend
Or is paid to the equity
Dividend per Ordinary holders.
Share Earnings per Share  A high D/P ratio is
preferred from
investor’s point of
view.

Earnings per Yield =  It shows the percentage

Earnings per Share of each rupee invested
Market Value per Share in the stock that was
earned by the company.
 It shows how much a
Dividend Yield = company pays out in
Dividend per share dividends each year
Market Value per share relative to its share
price.
 It reflects the price
Price- Earnings ratio (P/E) = currently paid by the
Market value per Share market for each rupee
Earnings per Share of EPS.
 Higher the ratio better it
is for owners
 It measures the overall
Earning Power = profitability and
Net Profit after taxes operational efficiency
Total Assets of a firm

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  It measures how
Activity Ratios Inventory turnover = quickly inventory is
9.
Sales 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 the
Assets Total Assets turnover = efficiency of a firm in
10.
Turnover Cost of Goods Sold managing and utilizing
Ratios Total Assets its assets.
Fixed Assets turnover =  Higher the ratio, more
Cost of Goods Sold efficient is the firm in
Fixed Assets

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 utilizing its assets.
Capital turnover =
Cost of Goods Sold
Capital Employed

Current Assets turnover =

Cost of Goods Sold
Current Assets

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 CHAPTER- 03

FINANCIAL RATIO ANALYSIS

The ratio analysis of Certstore Solutions from 2015-17 has been carried out below.

3.1 RATIO ANALYSIS

3.1.1 Balance Sheet of Certstore Solutions for 2016

Table 3.1: Balance Sheet of Certstore Solutions as at 31st Mar -2016

Total
PARTICULARS Amount Amount

Source of Funds:
Capital Account 5,39,000
Pradeep's Capital 7,80,413
Less- Credit card HDFC 50,500
Donation 2,500
Drawings 1,09,053
LIC 54,860
School fees 24,500
Loans (Liability) 18,05,000
Bank od A/C 8,05,000
Secured Loans 10,00,000

Unsecured Loans
Current Liabilities 2,17,731
Provision 44,500
Sundry Creditors 1,50,503
Unregistered Tax Payable 65,940
less- Duties & Taxes 43,212

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 Profit & Loss A/C 50,000
Total 26,11,731
Application of Funds:
Fixed Assets: 20,00,000

Car 6,00,000
Mobile 60,000
Motor Bike 40,000
Plant & Machinery 10,00,000
Tata Ace 3,00,000
Current Assets 6,11,731
Closing Stock 50,000
Loans & Advances (Assets) 1,00,000
Sundry Debtors 1,50,000
Cash in Hand 1,67,731
Bank Accounts 1,44,000
Total 26,11,731

3.1.2 Balance Sheet of Certstore Solutions for 2017

Table 3.2: Balance Sheet of Certstore Solutions as at 31st Mar -2017

Total
PARTICULARS Amount Amount
Source of Funds:
Capital Account 4,97,300
Pradeep's Capital 7,39,000
Less- Credit card HDFC 12,500
Star Health Insurance 10,000
Drawings 1,80,000
School fees 39,200
Loans (Liability) 19,55,000
Bank od A/C 8,05,000

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 Secured Loans 10,00,000
Unsecured Loans 1,50,000
Current Liabilities 2,17,731
Provision 44,500
Sundry Creditors 1,05,503
Unregistered Tax Payable 65,940
less- Duties & Taxes 43,212
Profit & Loss A/C 4,49,500
Opening balance Current Period 50,000
Profit 3,99,500
Total 31,19,531
Application of Funds:
Fixed Assets 20,15,000
Car 5,95,000
Mobile 57,000
Motor Bike 37,000
Plant & Machinery 9,90,000
LCD Monitor 40,000
Tata Ace 2,96,000
Current Assets 11,04,531
Closing Stock 1,00,000
Loans & Advances (Assets) 1,00,000
Sundry Debtors 1,50,000
Cash in Hand 3,18,031
Bank Accounts 4,36,500
Total 31,19,531

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3.1.3 Profit &loss

Table 3.3: Profit & Loss Statement as per the year

Ending of 31st Mar, 2016
Particulars Amount Amount
Trading Account:
Sales Account 5,20,000
Sales 4,69,300
Sales central Tax 5% 26,000
Sales Tax Invoice 5% 24,700
Direct Incomes 30,000
Work Contract Received 30,000
5,50,000
Cost of Sales 4,50,000
Opening Stock Nil
Add: Purchase Accounts 4,50,000
Less: Closing Stock 50,000
4,00,000
Direct Expenses 50,000
Cartage Inward 20,000
Job Work Paid 20,000
Power& Fuel Exp. 10,000
Gross Profit 1,00,000
Income Statement:
Indirect Incomes 70,000
Commission 50,000
Interest 20,000
1,70,000
Indirect Exp. 1,20,000

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 Accounting Charges 7,500
Advertising Exp. 7,500
Audit Fees 5,000
Bank Charges 4,000
Business Promotion Exp. 10,000
Commission Exp. 8,000
Convince Exp. 8,000
Depreciation 20,000
Factory Rent 5,000
Interest on Tata Ace Loan 2,000
Interest On C.C limit 5,000
Interest On Term Loan 2,000
Insurance 1,000
Legal & Professional Charges 5,000
Postage& Currier Exp. 1,000
Repair & Maintenance Of Building 5,000
Salaries 10,000
Staff Welfare 4,000
Telephone Exp. 3,000
Vehicle Running & Maintenance 7,000
Net Profit: 50,000

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3.1.4 Profit & Loss Statement for 2017
Table 3.4: Profit & Loss Statement as per the year
Ending of 31st Mar, 2017
Particulars Amount Amount
Trading Account:
Sales Account 15,20,000
Sales 14,44,000
Sales Tax Invoice 5% 76,000
Cost of Sales 9,70,000
Opening Stock 50,000
Add: Purchase Accounts 10,00,000
Less: Closing Stock 1,00,000
9,50,000
Direct Expenses 20,000
Cartage Inward 5,000
Job Work Paid 15,000
Gross Profit 5,50,000
Income Statement:
Indirect Exp. 1,50,500
Accounting Charges 10,000
Advertising Exp. 5,000
Audit Fees 15,000
Bank Charges 5,000
Business Promotion Exp. 5,000
Commission Exp. 4,000
Company Insurance 5,000
Convince Exp. 4,000
Depreciation 25,000
Donation (Charity) 1,500

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 Factory Rent 20,000
Interest on Tata Ace Loan 1,500
Interest On C.C limit 2,500
Legal & Professional Charges 5,000
Printing & Stationary Exp. 3,000
Salaries 20,000
Staff Welfare 3,000
Telephone Exp. 2,000
Vehicle Running & Maintenance 9,000
Weighting & Measurement 5,000
Net Profit: 3,99,500

3.1.5 Ratio analysis for 2016

Table 3.5: Analysis of Financial Ratios for 2016

Sl. RATIOS PARTICULARS VALUE

No.
1. Current Assets = 3,94,000
Working Capital = 6,11,731
Current assets-Current liabilities Current Liabilities =
2,17,731
2. Current Assets = 2.81:1
Current Ratio = 6,11,731
Current Assets Current Liabilities =
Current Liabilities 2,17,731
3. liquid Assets = 2.58:1
Acid test or Quick ratio = 5,61,731
Liquid Assets Current Liabilities =
Liquid Liabilities 2,17,731

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4.
Debt-Equity Ratio = Long term debt
Long term debt =18,05,000
3.06:1
Capital A/C+ Net Profit Capital A/C =
5,39,000
Net Profit= 50,000

5.
Return On Investment Ratio = Net Profit= 50,000
8.49%
Net Profit*100 Capital A/C=
Capital a/c+ Net Profit 5,39,000+50,000
6. Gross Profit Ratio = Gross Profit= 19.23%
Gross Profit * 100 1,00,000
Sales Sales= 5,20,000

7. Net Profit = 50,000 9.62%

Net Profit Ratio = Sales= 5,20,000
Net Profit * 100
Sales
8. Net Income= 50,000 1.91%
Return on Assets Ratio = Total Assets
Net Income*100 =26,11,731
Total Assets
9. Net profit= 12.69%
Return on working capital = 50,000
Net Profit ∗ 100 Net Working capital=
Working Capital 3,94,000
10. 86.53
Cost of Goods Sold Ratio = Cost of goods sold=
Cost of Goods Sold*100 4,50,000

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 Sales Sales=
5,20,000

11. Sales a/c=

Fixed Assets turnover = 5,20,000
0.26
Sales a/c Fixed Assets=
Fixed Assets 20,00,000
12. Working Capital Turnover= Sales=
Sales a/c 5,20,000 1.32
working Capital Working Capital=
3,94,000
Inventory Turnover= Sales= 5,20,000 10.40
13. Sales a/c Closing Stock=
Closing stock 50,000

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

= 6,11,731 – 50,000

=5,61,731

 Long Term Debt = Secured Loans + Other Long Term liabilities

= 18,05,000

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

= 5,39,000+50,000

= 5,89,000

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  Earnings before Interest & Tax (EBIT) = Net Profit + Tax + Interest

= 50,000+20,000

= 70,000

 Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock
=0+ 4,50,000+ 50,000- 50,000
= 4,50,000

3.1.6 Ratio analysis for 2017

Table 3.6: Analysis of Financial Ratios for 2017

Sl. RATIOS PARTICULARS VALUE

No.
1. Current Assets = 8,86,800
Working Capital = 11,04,531
Current assets-Current liabilities Current Liabilities =
2,17,731
2. Current Assets = 5.07:1
Current Ratio = 11,04,531
Current Assets Current Liabilities=
Current Liabilities 2,17,731
3. Liquid Assets = 4.61:1
Acid test or Quick ratio = 10,04,531
Liquid Assets Current Liabilities =
Liquid Liabilities 2,17,731
4. Long term debt 2.18:1
Debt-Equity Ratio = = 19,55,000

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 Long term debt Capital A/C =
Capital A/C+ Net Profit 4,97,300
Net Profit=
3,99,500

5. 44.55%
Return On Investment = Net Profit=
Net Profit*100 3,99,500
Capital a/c + Net Profit Capital a/c=
8,96,800
6. Gross Profit= 36.18%
Gross Profit Ratio = 5,50,000
Gross Profit * 100 Sales=
Sales 15,20,000
7. Net Profit= 26.28%
Net Profit Ratio = 3,99,500
Net Profit * 100 Sales=
Sales 15,20,000
8. Net Income= 12.80%
Return on Assets = 3,99,500
Net Income*100 Total Assets=
Total assets 31,19,531

9. Net profit= 45.05%

Return on working capital = 3,99,500
Net Profit ∗ 100 Net Working capital=
Working Capital 8,86,800
10. Cost of goods sold= 63.81
Cost of Goods Sold Ratio = 9,70,000
Cost of Goods Sold*100 Sales=
Sales 15,20,000

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11. Sales a/c= 0.75
Fixed Assets turnover = 15,20,000
Sales a/c Fixed Assets=
Fixed Assets 20,15,000
12. Sales= 1.71
Working Capital Turnover= 15,20,000
Sales a/c Working Capital=
working Capital 8,86,800
13. 15.20
Inventory Turnover= Sales=
Sales a/c 15,20,000
Closing stock Closing Stock=
1,00,000

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

= 11,04,531 – 1,00,000

= 10,04,531

 Long Term Debt = Secured Loans + Other Long Term liabilities

= 19,55,000

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

= 4,97,300+ 3,99,500

= 8,96,800

 Earnings before Interest & Tax (EBIT) =Net Profit + Tax + Interest

= 3,99,500

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  Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock =
= 50,000+ 10,00,000+ 20,000- 1,00,000
= 9,70,000

3.1.7 Summary for Balance Sheet and Profit & Loss Statement
Table 3.7: Summary of Balance Sheet

PARTICULARS 2016 2017 Remarks

Current Assets 6,11,731 11,04,531 Short term liquidity available.

Fixed Assets 20,00,000 20,15,000 Fixed Assets have increased due to

increase in investment.

Current Liabilities 2,17,731 2,17,731 Stabality in liabilities. Liquidity

position is good.
Long Term Liabilities 18,05,000 19,55,000 Debts have increased because of
more investment

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Table 3.8: Summary of Profit & Loss Statement

PARTICULARS 2016 2017 Remarks

Purchase 4,00,000 10,00,000 Purchase has increased by 150%.

Cost of Goods Sold 4,50,000 9,70,000 COGS has increased by 115.5%

Sale 5,20,000 15,20,000 Sales have increased by 192.3%

Gross Profit 1,00,000 5,50,000 Gross Profit has increased by 450%

Net Profit 50,000 3,99,500 Net profit has increased by 699%

3.2 RATIO ANALYSIS USING TALLY 9.0

Tally 9.0 manufactured by Tally Solution India Private Limited, a Bangalore- based company in
India. 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, debt –
equity ratio, Indian VAT, TDS, Service Tax and GST. In future the version can be modified to
calculate other ratios.

Preparation of balance sheet and ratio analysis of Certstore Solutions from 2015-17 using Tally
9.0 has been carried out below:

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3.2.1 Balance Sheet and Ratio Analysis For 2016

Fig. 3.1: Preparation of Balance Sheet of Certstore Solutions

Fig. 3.2: Ratio Analysis of Certstore Solutions

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3.2.2 Balance Sheet and Ratio Analysis For 2017

Fig.3.3: Preparation of Balance Sheet of Certstore Solutions

Fig. 3.4: Ratio Analysis of Certstotre Solutions

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 CHAPTER -04
VARIATION OF FINANCIAL RATIOS
The variation of different financial ratios from 2015-17 of Certstore Solutions has been shown
below:

4.1 Certstore Solutions

Current Ratio
6

0
1 2
Series 1 2.81 5.07

Fig.4.1: Current Ratio

Working Capital
1000000
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
1 2
Series 1 3,94,000 8,86,800

Fig.4.2: Working Capital

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 Quick Ratio
5
4
3
2
1
0
1 2
Series 1 2.58 4.61

Fig.4.3: Quick Ratio

Debt-Equity Ratio
3.5
3
2.5
2
1.5
1
0.5
0
1 2
Series 1 3.06 2.18

Fig.4.4: Debt-Equity Ratio

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 Inventory Turnover Ratio
16
14
12
10
8
6
4
2
0
1 2
Series 1 10.40 15.20

Fig.4.5: Inventory Turnover Ratio

Return on Assets
14
12
10
8
6
4
2
0
1 2
Series 1 1.91% 12.40%

Fig.4.6: Return on Assets

59 | P a g e
 Return on Investment
50
45
40
35
30
25
20
15
10
5
0
1 2
Series 1 8.49 % 44.55%

Fig.4.7: Return on Investment

Gross Profit Ratio

40
35
30
25
20
15
10
5
0
1 2
Series 1 19.23% 36.18%

Fig.4.8: Gross Profit Ratio

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 Net Profit Ratio
30

25

20

15

10

0
1 2

Series 1 9.62% 26.18%

Fig.4.9: Net Profit Ratio

Return on Working Capital

50
45
40
35
30
25
20
15
10
5
0
1 2
Series 1 12.69% 45.05%

Fig.4.10: Return on Working Capital

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 CHAPTER-05

COMPRATIVE STATEMENTS

Table: 5.1 COMPARATIVE INCOME STATEMENT

Particulars Previous Current Absolute Percentage

Year Year Change change
Sales 5,20,000 15,20,000 10,00,000 192%

Less- Cost of Goods Sold 4,50,000 9,70,000 5,20,000 115.6%

Gross Profit 1,00,000 5,50,000 4,50,000 450%

Less-Operating Exp. 70,000 1,50,500 80,500 115%

Earnings Before Interest & Tax 30,000 3,99,500 3,69,500 1231%

Add- Interest 20,000 0 -20,000 -100%

Profit 50,000 3,99,500 3,49,500 699%

 Percentage Change = Absolute Change

Figures of the previous year

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Table: 5.2 Comparative Balance Sheet of Certstore Solution

Pervious Current Absolute Percentage

Particulars Year Year Change Change
Car 6,00,000 5,95,000 (5,000) 0.83%

Mobile 60,000 57,000 (3,000) 5%

Motor Bike 40,000 37,000 (3,000) 7.5%

Plant & Machinery 10,00,000 9,90,000 (10,000) 1%

LCD Monitor - 40,000 - -

Tata Ace 3,00,000 2,96,000 (4,000) 1.33%

Closing Stock 50,000 1,00,000 50,000 100%

Loans & Advances (Assets) 1,00,000 1,00,000 - -

Sundry Debtors 1,50,000 150,000 - -

Cash in Hand 1,67,731 3,18,031 1,50,300 89.60%

Bank Accounts 1,44,000 4,36,500 2,92,500 203.12%

Total 26,11,731 31,19,531 5,07,800 19.44%

Capital Account 5,39,000 4,97,300 (41,700) 7.73%

Loans (Liability) 18,05,000 19,55,000 1,50,000 8.31%

Current Liabilities 2,17,731 2,17,731 - -

Net Profit 50,000 3,99,500 3,49,500 699%

Total 26,11,731 31,19,531 5,07,800 19.44%

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 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 increasing during the period of 2015-17, which indicates
that firm’s efficient 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 2015-17 the ratio is 0.26 or 0.75
respectively and it increase.
 Current liabilities are same.
 Current assets Ratio are increasing in two years.
 Net profit also increased by 699%
 Gross Profit has increased by 450%

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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 Certstore Solution 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 Certstore Solution have been studied.

From ratio analysis of Balance Sheet and P & L Statement of Certstore Solution of 2015-17 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.

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 RECOMMENDATION
8.1 Recommendation for Company:

The profit Of the Company is in a good Position. Profit increase in 2016-17 comparison to 2015-
16 so for earn more profit company has to Take Alternative Actions for more profit such As:

 Increasing in new technology,

 Production, and Control in Expenses Like, Administrative, selling Etc.
 The firms have high current ratio in 2016-17 comparison to 2015-16 so it should maintain
its current ratio where it can meet its short term obligation smoothly.
 Liquidity ratio of the firm is high in 2016-17 comparison to 2015-16 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.
 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.

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  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.
 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.

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 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

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.

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 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

COMPANY DATA:

Vouchers of Sale & Purchase

Bank Statement

Other Data of Certstore Solution

WEBSITES
www.google.com

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 QUESTIONNAIRE

1. Name of outlet

2. What is the type of outlet ?

a. Software Company
b. Manufacturing Company
c. Selling Company

3. What type of product you sale Certstore Solution.

a. Virus Detection Software
b. Any Software
c. Both

4. Which type of software the consumer prefers most ?

a. Any virus detection software
b. Avast
c. Windows Defender
d. Norton Antivirus
e. McAfee VirusScan

5. Business Risk affects the organization developing or procuring the software.

a. Yes
b. No

6. Earlier a defect is to found the cheaper it is to fix it.

Is this above statement correct?
a. Yes
b. No

7. The relationship between two financial variables can be expressed in:

a) Pure ratio
b) Percentage
c) Rate or time
d) Either of the above

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 8. Liquidity ratios are expressed in
a) Pure ratio form
b) Percentage
c) Rate or time
d) None of the above
9. Liquidity ratios are expressed in
a) Pure ratio form
b) Percentage
c) Rate or time
d) None of the above

10. Gross Profit ratio should be adequate to cover

a) Selling expenses
b) Administrative expenses
c) Dividends
d) All of the above

11. How much you satisfied with the Certstore product?

a. Fully satisfied
b. Partially satisfied
c. Not at all

12. Would you like to deal with company in future?

a. Yes
b. NO

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