FINANCIAL STATEMENT ANALYSIS

Process of the critical examination of the

financial information contained in the
financial statements in order to
understand
and
make
decisions
regarding the operations of the firm.

It is basically a study of the relationship

among various financial facts and
figures as given in a set of financial
statements.

Vertical Format of Balance Sheet

Particulars
Sources of Funds
Owners Fund
Loan Fund
Total
Application of Funds
Fixed Assets
Long term or trade investment
Working Capital
(a) Current assets
Less (b) Current liabilities
Total

Amount (Rs.)

Q) The following Balance Sheet of a concern for the years 2007

Balance Sheet
As on 31st March
Capital and
Liabilities
Equity Share
capital
Reserves and
surplus
Debentures
Long term loans
and
Mortgage
Bills payable
Sundry creditors
Other current
liabilities
Total

2007
Rs.
6,00,000
3,30,000
2,00,000
1,50,000
50,000
1,00,000
5,000
14,35,000

Assets

2007
Rs.

Land and Buildings

Plant and Machinery
Furniture and Fixtures
Other fixed assets
Cash in hand and at
bank
Bills receivables
Sundry debtors
Stock

3,70,000
4,00,00
20,000
25,000
20,000

Total

1,50,000
2,00,000
2,50,000

14,35,000

Vertical Format of Balance Sheet as on 31st March 2007

Particulars
Sources of Funds
Owners Fund
Equity Share capital
Reserves and surplus
Loan Fund
Debentures
Long term loans and Mortgage
Total
Application of Funds
Fixed Assets
Land and Buildings
Plant and Machinery
Furniture and Fixtures
Other fixed assets
Working Capital
(a) Current assets
Cash in hand and at bank
Bills receivables
Sundry debtors
Stock
Total Current assets(a)
Less (b) Current liabilities
Bills payable
Sundry creditors
Other current liabilities
Total Current liabilities(b)
Net working capital (a-b)
Total

Amount (Rs.)

6,00,000
3,30,000

9,30,000
2,00,000
1,50,000
12,80,000

3,70,000
4,00,000
20,000
25,000

8,15,000

20,000
1,50,000
2,00,000
2,50,000
6,20,000
50,000
1,00,000
5,000
1,55,000
4,65,000
12,80,000

Vertical Income Statement

Particulars
Gross Sales
Less: Returns
Net sales
Less: Cost of goods sold
Opening stock
Purchases
Direct expenses
Less: Closing Stock
Cost of goods sold
Gross Profit ( Net sales-cost of goods sold)
Less: Operating expenses
Administrative expenses
Selling and distribution expenses
Finance charges
Operating profit before interest
Less: Interest
Net profit after interest
Add: Net non operating income (non operating
income- non operating expenses)
Net profit before tax
Less: Income tax
Net profit after tax
Less: Proposed dividend
Retained Earning

Amount (Rs.)

Q) The following Income Statement of a concern for

the years 2007
Particulars

2007
Rs.

Net sales

7,85,000

Cost of goods sold

4,50,000

Operating expenses:
General and Administrative expenses

70,000

Selling expenses

80,000

Non-operating expenses:
Interest paid

25,000

Income tax

70,000

Income Statement for the year ended 2007

Particulars

2007
Rs.

Net sales

7,85,000

Less: Cost of goods sold

4,50,000

Gross Profit

3,35,000

Less: Operating expenses:

General
and
expenses

Administrative

Selling expenses

Operating profit before Interest

70,000
80,000

1,50,000

1,85,000

Less: Non-operating expenses:

Interest paid

Net Profit before tax

25,000

1,60,000

Less: Income tax

70,000

Net profit after tax

90,000

FINANCIAL STATEMENT ANALYSIS

OBJECTIVES
Liquidity
Solvency
Profitability
Efficiency
Health & Performance

TECHNIQUES OF FSA

Comparative Statement Analysis

Common Size statement Analysis
Trend Analysis
Ratio Analysis

Comparative Statement
Analysis

In Comparative Financial Statements, two or

more Balance Sheet and/or the Income
Statement of a firm are presented
simultaneously in columnar form.

The financial data for two or more years are

placed and presented in adjacent columns
and thereby the financial data is provided a
times perspective in order to facilitate
periodic comparison.

Comparative Financial Statement

Particulars

Inter Firm Comparisons

Firm 1

Firm 2

Absolute
Difference
(Rs.)

Percentage
Difference
%

1-2 =3

3/1 x 100

Particulars

Inter Period Comparisons

Year 1

Year 2

Absolute
Difference
(Rs.)

Percentage
Difference %

1-2 =3

3/1 x 100

Q) The following Balance Sheet of a concern for the years 2007 and
2008. Prepare a comparative balance sheet and study the financial
position.
Balance Sheet
As on 31st March
Capital and
Liabilities
Equity Share
capital
Reserves and
surplus
Debentures
Long term loans
and
Mortgage
Bills payable
Sundry creditors
Other current
liabilities
Total

2007
Rs.

2008
Rs.

6,00,000

8,00,000

3,30,000

2,22,000

2,00,000
1,50,000

3,00,000
2,00,000

50,000
1,00,000
5,000

45,000
1,20,000
10,000

14,35,000

16,97,000

Assets

2007
Rs.

Land and Buildings

Plant and Machinery
Furniture and Fixtures
Other fixed assets
Cash in hand and at
bank
Bills receivables
Sundry debtors
Stock
Prepaid expenses

3,70,000
4,00,00
20,000
25,000
20,000

2,70,000
6,00,000
25,000
30,000
80,000

1,50,000
2,00,000
2,50,000
-

90,000
2,50,000
3,50,000
2,000

Total

14,35,000

2008
Rs.

16,97,000

Q) The following Income Statement of a concern for the

years 2007 and 2008. Prepare a comparative Income
Statement and study the profitability position.
Particulars

2007
Rs.

2008
Rs.

Net sales

7,85,000

9,00,000

Cost of goods sold

4,50,000

5,00,000

General and Administrative expenses

70,000

72,000

Selling expenses

80,000

90,000

Interest paid

25,000

30,000

Income tax

70,000

80,000

Operating expenses:

Non-operating expenses:

Common Size
Statement
The Common Size Statement represents the
relationship of different items of a financial
statement with some Common item by
expressing each item as a percentage of the
Common item.

In Common Size Balance Sheet, each item

of the Balance Sheet is stated as a percentage
of the total of the Balance Sheet.

In Common Size Income Statement, each

item is stated as percentage of the Net Sales.

Q) The following Balance Sheet of a concern for the years 2007 and
2008. Prepare a Common size balance sheet and study the financial
position.
Balance Sheet
As on 31st March
Capital and
Liabilities
Equity Share
capital
Reserves and
surplus
Debentures
Long term loans
and
Mortgage
Bills payable
Sundry creditors
Other current
liabilities
Total

2007
Rs.

2008
Rs.

6,00,000

8,00,000

3,30,000

2,22,000

2,00,000
1,50,000

3,00,000
2,00,000

50,000
1,00,000
5,000

45,000
1,20,000
10,000

14,35,000

16,97,000

Assets

2007
Rs.

Land and Buildings

Plant and Machinery
Furniture and Fixtures
Other fixed assets
Cash in hand and at
bank
Bills receivables
Sundry debtors
Stock
Prepaid expenses

3,70,000
4,00,000
20,000
25,000
20,000

2,70,000
6,00,000
25,000
30,000
80,000

1,50,000
2,00,000
2,50,000
-

90,000
2,50,000
3,50,000
2,000

Total

14,35,000

2008
Rs.

16,97,000

Q) The following Income Statement of a concern for the years

2007 and 2008. Prepare a common size Income Statement and
study the profitability position.
Particulars

2007
Rs.

2008
Rs.

Net sales

7,85,000

9,00,000

Cost of goods sold

4,50,000

5,00,000

General and Administrative expenses

70,000

72,000

Selling expenses

80,000

90,000

Interest paid

25,000

30,000

Income tax

70,000

80,000

Operating expenses:

Non-operating expenses:

Trend Analysis
Trend analysis treats the first year
as the base year and compares the
figures of all the other years
against it.

The position as on 31st December 2010, 2011 and 2012

of AB Co. Is given below. You need to work out the trend
percentage and give the interpretation on the same.

Summarized Income Statement

Particulars

2010

2011

2012

sales
Less: cost of goods
sold

3000000 3600000 4000000

Gross profit

1000000 1200000 1200000

2000000 2400000 2800000

expenses

700000

800000

800000

Net profit

300000

400000

400000

Trend Analysis of Income Statement

Particulars
sales
Less: cost of
goods sold
Gross profit
expenses
Net profit

2010
30000
00
20000
00
10000
00
70000
0
30000
0

2011
36000
00
24000
00
12000
00
80000
0
40000
0

2012 2010 (%) 2011(%) 2012(%)

40000
00
100
120.00
133.33
28000
00
100
120.00
140.00
12000
00
100
120.00
120.00
80000
0
100
114.29
114.29
40000
0
100
133.33
133.33

140
120
100
80

sales
Gross profit
Net profit

60
40
20
0
2010 (%)

2011(%)

2012(%)