INTRODUCTION OF BANK

1.1Origin of Bank
1.2Structure of Banking in
India
1.3Structure of Indian
Banking System
(Diagram)
1.4Bank and Banking

1. INTRODUCTION OF BANK
Banking system is occupies an important place in a nations
economy. In other words the development is an inevitable precondition
for the healthy rapid development of national economic structure.
Banking institutions have contributed much in the development of
developed countries of the world and hence a banking institution is
indispensable in a modern society. It plays a pivotal role in the economic
development of a country.
In a society banking is as important as blood in human body. Banks
contribute a lot in the development of agriculture, trade and industries.

1.1 ORIGIN OF BANK

The evolution of banking can be traced back to ear when the use of
metallic coins as the media of exchange of goods and services began.
The Origin of bank is traced to Latin word bancus that means a
bench. European money-lender and moneychangers used to transact their
business at benches or tables. They followed the practice of receiving
gold and other metals as deposits and issuing receipts. The bench or table
used by the trader in money was the symbol of the business of banking.
Some authorities observe that the word bank was originally derived
from the German word bank, which means a joint stock fund. The term
bank or bankers used in almost all the countries of the world to denote a
financial institution dealing in money.

1.2 STRUCTURE OF BANKING IN INDIA

Indian banking system comprises of both organized and
unorganized banks. Unorganized banking includes indigenous bankers
and village moneylenders. Organized banking includes the followed,
Reserve bank of India (central bank )
Commercial banks
Development banks
Exim banks
Co-operative banks
Regional rural banks

Organized

Unorganized

Land development banks

National Bank for agriculture and rural development (NABARD)

Licensed Creditors
Unlicensed Indigenous
money lenders.

Reserve Bank of
India

Public Sector:
State Bank of
India
Subsidiaries of
State Bank of
India
Nationalized
Indian Scheduled
commercial Bank

Commercial
Bank
Private Sector:
Branches of Banks
In corporate
outside India
Other Indian
Scheduled
commercial Bank
Non Scheduled
Commercial
Bank
3

Co-operative
Bank
State Cooperative Bank
at State level
Central Cooperative Bank
at District level
Rural primary
Co-operative
bank of
village/Town
level

STRUCTURE OF INDIAN BANKING SYSTEM

1.4 BANK AND BANKING

Banks are institution debts usually referred to as bank deposits
are commonly accepted in final statement of other peoples debts.
- R.S.Sayers
Banking means the accepting for the purpose of lending or
investment of deposits of money from the public, repayable on demand or
otherwise, and withdrawable by cheque, draft, order, or otherwise.
After independence the Indian Government also has takes a series
of steps to develop banking sector. Because of considerable efforts of the
Government today we have numbers of bank in India. Banks contribute a
lot in the development of agriculture, trade and industries.
Banking system occupies an important place in a nations
economy. A banking institution is indispensable in a modern society. It
plays an important role in the economic development of country and
forms a core of the money market in an advanced country.

INTRODUCTION OF CO-OP.
BANK

2.1Introduction
2.2Function of Co-operative
Bank

2. INTRODUCTION OF CO-OPERATIVE BANK

2.1 INTRODUCTION
Co-operative banks were first introduced India in 1904 by passing
co-operative credit society act. This firm of organization was intended to
the agriculturists and artisans coming together and educating them in the
case of credit and inculcating the habit of saving co-operation and selfhelp.
The distinguishing feature of Co-operative banks is the absence of
profit motive. Co-operative banks are very helpful to meet the
requirements of small farmers, artisans, etc. In India, Co-operative banks
have been pioneers in mobilizing rural deposits. Today however, the Cooperative banks have putting more weight on their lending activities than
on deposit mobilization.

All the Co-operative credit societies were brought under the

purview of the banking companies act 1966. The RBI has been vested
with the power and controls the Co-operative banks. The government of
India has encouraged the Co-operative movement in banking. Therefore,
Co-operative banks are developed from one place establishment to
district level, state level, state level, and also the central level. Cooperative banks raise their funds through various means. They receive all
kind of deposits and make them available as lend able fund to its
members.

Co-operative banking has a three-tier structure as under:

Primary credit society
A central Co-operative credit society can be started with ten or
more person, normally belonging to a village. So that the primary credit
society is also known as the village Co-operative society was expected to
attract deposits from among the well-to-do members and non- members
of the village. It should give loan and advances to needy members mainly
out of these deposits.
Central Co-operative bank
The central Co-operative bank is federations of primary credit
society in a specified area, normally a district and is usually located at the
district. The central Co-operative banks have been under taking normal

commercial banking business also such as attracting deposits from the

general public and lending to the needy against proper securities.
State Co-operative bank
State Co-operative bank especially co-ordinates the activities of
district, central Co-operative banks and dive them required guidance.
State Co-operative bank is a chain between co-operative activity and
countrys money market.

2.2 FUNCTION OF CO-OPERATIVE BANK:

Co-operative Banks are formed on the principle of Co-operative to

Extend Credit facilities to farmers and small scale industrial concerns
and promotes in general the habit of thrift and self help among the low
and middle income groups of the society.

Co-operative has been putting more weight on their lending

activities than on deposit mobilization.

The main function of Co-operative credit society was to provide

cheap credit to the members who are small people with small means
and small needs and finance.

The Co-operative Banks have a three tier set up. The state cooperative bank, while central district co-operative banks function at
the district level and primary credit societies work of the village level.

Co-operative banks proceed on the principle of co-operation. COoperative Banks maintain the cash reserve and liquid assets in relation
to deposit only.

To arrange the programs regarding the Economic welfare of its

members.

This bank supervises the functioning of primary credit society and

gives training, guidance and advice to the employee of credit society
only.

INTRODUCTION OF THE
VARACHA
CO-OPERATIVE BANK.

10

3.1 History & Development

3.2 Board of Director
3.3 Bankers
3.4 Objective of study
3.5 Objective of Bank
3.6 Contribution of the Varachha Co-op. Bank
to the Share Holders.
3.7 Contribution of the Varachha Co-op. Bank
to the Employee.
3.8 Contribution of the Varachha Co-op. Bank
to the Customer.
3.9 Financial Performance of the Varachha
Co-op. Bank Ltd.
3.10 Organization structure of Varachha Coop. Operative Bank.

3. INTRODUCTION OF THE VARACHHA CO-OP.

3.1 HISTORY & DEVELOPMENT: The Varachha Co-operative Bank was established with license No.
BD Guj. 1153 p Date: 27/1/95. The Register office of the bank is at Affil
Tower, L. H. Road, Surat-6 within the period of 4 month after obtaining
license. The bank was started its working on date: 16/10/95. The swami
Sachidanand did the opening of the bank.

11

The Varachha Co-operative Bank was having 15 directors its initial

stage.
The Varachha Co-operative Bank that is fully computerized and
has made a giant leap in the banking sector just in a short term of a six &
a half year. The Kamrej branch, Kadodara branch, ring road branch and
Kapodara branch are the result of great progress of the Varachha Cooperative Bank. The varachha Co-operative bank provides speedy and
early service for customer who went to joint in the bank for any reasons.
Bank is given attractive interest on deposit for his customer.
TIME KEEPING SYSTEM:
The Varachha Co-operative Bank has no separate department for
time keeping system headed by manager or officer. The Varachha Cooperative Bank has identity card system for all those are related with the
bank like managers, offices, clerks and peons all must sign the attendance
register these are send to general manager of the bank.
THE TIME OF WORKING OF THE BANK:
Monday to Friday

10:00 a.m. to 6:00 pm.

Saturday

10:00 a.m. to 3:00 pm.

3.2 BOARD OF DIRECTORS:

Name

Post
Est. Chairman
Chairman
V. president
M. Director
Director
Director
Director
Director
Director

Mr. P.B. Dhakecha

Mr. Pravinbhai V. Pansuria
Mr. Bhupendrabhai K. Ribdiya
Mr. Bhavanbhai B. Navapara
Mr. Lavjibhai N. Nakrani
Mr. Dhirubhai M. Ghevariya
Mr. Narendrabhai M. Kakadiya
Mr. Kanjibhai R. Bhalala
Mr. Kanjibhai R. Vadariya

12

Mr. Vallabhbhai P. Savani

Mr. Prabhudas T. Patel
Mr. Jivrajbhai K. Patel
Mr. Kanubhai V. Savliya
Mr. Babubhai V. Mangukiya
Mr. Manjibhai M. Patel

Director
Director
Director
Director
Director
Director

Mr. A. D. Bhalani (Head office)

Mr. B.C. Sorthiya (Head office)
Mr. Mukeshbhai Kanani (Kamrej)
Mr. Kanubhai Dobariya (Ring Road)
Mr. Dipakbhai Dodiya (kadodra)
Mr. Vithalbhai Dhanani (Kapodra)

General Manager
Manager
Manager
Manager
Manager
Manager

3.3 BANKERS:
The Varachha Co-operative bank has some banker as follow:
The Gujarat State Co-op. Bank Ltd. HO.
The Surat District Co-op. Bank HO.
State Bank of India
State Bank of Travankor
State Bank of Sourastra
State Bank of Mysore
Indus Ind Bank
HDFC Bank HO.
ICICI Bank Ltd.

Ahmedabad
Surat
Surat
Surat
Surat
Surat
Surat
Surat
Surat.

3.4 OBJECTIVE OF STUDY:

During the period to survive in the market every organization
should monitor its various dimension of business which includes
personnel management, Human Resource Management, Information
system Management, Financial Management and time management etc.
out of these I am going to discuss the financial aspect of the Bank.

13

In Recent innovation the world is moving very fast, Every

organization has to cope with this changing Environment. SO we able to
identify the organization with respect to balance sheet and profit & loss
A/c mean final information pertaining to organization position and
liquidity.
We knew about the banking system and know how efficient
becomes the key factor of the organization to survive and grow by doing
the financial analysis of the bank. We know the recent innovation in the
changing Environment. This is the one of the effort carried out by me to
monitor the performance of Varachha Co-operative bank Limited.

3.5 OBJECTIVE OF BANK:

To encourage thrift and mutual Co-operating among its members.

To create funds to be lend at moderate of interest to the members of

the bank in accordance with the processor specified in these byelaws

To give possible help and necessary guidance to members of the

bank in the conduct of business.

To do every kind of trust and agency business and particularly do

the work investment funds, sale of properties and of recovery or
acceptance of money.

To accept money document, security calculate article and goods

every description for keeping them in safe custody or for sending
them from one place to other.

14

To act as a balancing center for surplus funds of co-operative

societies.

To organize and develop co-operative societies within the district.

To redeem old debts.

3.6 CONTRIBUTION OF THE VARACHHA CO-OP.

BAKK TO THE SHARE HOLDER:
Accident Insurance Scheme For Its Share Holder:The Varachha co-operative bank is providing Rs.200000/- accident
insurance to its share holder.

Accident Insurance Scheme For Its Account Holder:The Varachha co-operative bank is providing Rs.50000/- accident
insurance to its all types of account holder like saving account, current
account etc.

Medical Relief Scheme: The Varachha Co-operative Bank is providing medical relief to its
shareholder Rs.2500/- of medical relief providing by the bank.

Assistance To Nominee Of Share Holder:In case of death of shareholder the Varachha Co-operative Bank is
providing Rs.5000/- to nominee of shareholder.
15

 Scholarship Facility:The Varachha Co-operative Bank is providing scholarship to the

children of shareholder after 12th standard in his poor position.

Prize Distribution:
The Varachha Co-operative Bank give prize to the children of share
holder who get the maximum marks which are fixed by The Varachha
CO-operative Bank for obtaining the prize. The Varachha

co-operative

bank gives prize to the top ranker of S.S.C. and H.S.C. examination who
live in Surat city.

Dividend:The Varachha co-operative bank is providing dividend to its

member or shareholder. The bank gives maximum 15% dividend to its
shareholder. Bank cannot give more than 15% interest on share capital.

3.7 CONTRIBUTION OF THE VARACHHA CO-OP.

BANK TO THE EMPLOYEE:The Varachha co-operative bank is provide different types of
services to its employee like,

Insurance Benefit:The Varachha co-operative bank is providing life insurance benefit

to all employee of the bank. It also provides accident insurance to the
employee of the bank.

Benefit on Deposit: -

16

The Varachha co-operative bank is providing high rate of interest

on deposit for its employee.

Medical Assistance: The Varachha co-operative bank is providing high rate of interest
on deposit for its employee.

Benefit On Loan: The Varachha co-operative bank is providing low rate of interest on
any type of loan for its employee.

3.8 CONTRIBUTION OF THE VARACHHA CO-OP BANK

TO THE CUSTOMER:
Attractive Interest on Deposit: The Varachha Co-operative bank is providing attractive interest on
deposit.

G.E.B. Collection: Gujarat electricity bills collection counter are available on the
Kamrej branch, Kapodara branch and Kadodara branch of the Varachha
co-operative bank.

Tele Banking Facility: In the Varachha Co-operative bank the tele banking facility are
available in both language Gujarati as well as in English.

VAT Machine: The VAT machine also available in the Varachha Co-operative
bank. The VAT machine is very useful for the customer. Through the VAT

17

machine customer can know about the condition about his account it self.
The VAT machine is fully automatic. The customer can know about his
banking transaction without use any key or button. The customer can
know about his banking transaction by use of his figure.

Totally Computerized Bank: The Varachha co-operative bank is totally computerized bank. The
work of the entire department is done on the computer. All the
information about the customer and the customers account are present in
the computer. Therefore, the customer gets the condition of his account
whenever he wants.

Safe Custody: The customer gives sealed cover or a box to a banker to keep in a
safe custody. The banker writes a name of owner of a cover or a box and
takes customers signature of receipt on the counterfoil and keeps it with
him. When the customer demands the cover or a box then the customer
has to sigh on the back of receipt and to give to his banker. The bankers
then tally the signature on both the receipt and counterfoil and if he find
both signatures similar then the return the cover or a box.

Safe Deposit Lockers: The Varachha Co-operative bank keeps lockers in their strong room
with small drawer. Every locker has different number and a locker with
two keys. Such lockers are given to customer on rent. The customer has a
key of locker and a master key is with the banker. The customer can keep
or take away his belonging during working hours of the Varachha cooperative bank.

18

3.9 FINANCIAL PERFORMANCE OF THE VARACHHA

CO-OPERATIVE BANK LTD.
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Details
Member
Share Capital
Total Deposit
Total Loan
Profit
Working Capital
Audit Class
Dividend
Deposit Holder
Account Holder

2000
6929
1.82
62.45
39.94
2.09
72.43
A
15%
40,013
4,216

19

2001
6887
2.51
101.03
55.21
3.67
115.83
A
!5%
58,222
5,098

(Rs. In Crores)
2002
2003
7342
8148
3.11
3.44
123.04 129.79
67.32
67.25
4.70
4.73
146.41 159.35
A
A
15%
15%
66,109 75,435
5,727
5,055

20

21

3.10 ORGANIZATION STRUCTURE OF VARACHHA

CO-OPERATIVE BANK:

Chairman
Vice Chairman
Managing Director
Board of Director
General Manager
Branch Manager
Kamrej

Ring Road

Kadodra

Kapodra
Katargam

22

DAY TO DAY OPERATION

4.1 New Account Department

4.2 Draft Department
4.3 Clearing Department
4.4 Token Department
4.5 Transfer Department

23

4. DAY TO DAY OPERATION

4.1 NEW ACCOUNT DEPARTMENT:
New Account is opened as well as old accounts are closed in this
department. Accounts are of three types:
i.

Current Account.

ii.

Saving Account.

iii.

Cash Credit Overdraft Account.

Daily nearly on an average about 10 to 12 current accounts and 15

to 20 saving account are opened and 1 or 2 are closed everyday the

procedure for opening new accounts in the bank starts with fill up the
form given by bank. The bank has requirements for opening a current
account is two photographs of the account holder and if the account is
opened for company or firm then the photograph of the directors or

24

proprietors or administrator, the sign and account number of the person

who wants to open a new account in the bank and license of the firm. To
open saving account only one photograph of account holder, signature of
account holder in the same bank as well as papers or documents which
give true and pair residential address such as driving license, rationing
card, light or phone bill, school living certificate etc.
The minimum balance for current account is Rs.3000 and the
minimum balance for saving account is Rs.1000. Any account holder,
current or saving, cant close his account before completion of six months
in the bank. Closing of new account is some what difficult task as each
and every aspect of the account is to be noted. The charges Rs.210 are cut
and remaining amount is given back to customer through the issue of
cheque book of the some amount. The cheque book of the close account
is taken back by bank is stored with the account close form. The bank
provides service of cash credit and overdraft against for the current
account holders.
At the bank is fully computerized at on the day, scanning of the
signature of the new account holder is done. This is an important task.
The issue of cheque book and pass book department is informed to make
cheque book and passbook for new accounts which are opened on that
particular day. Thus the bank employees of this department are having
their end of the day with the process of scanning.

Issue of cheque book and pass book:

This is important department of the bank. In this department new
passbook and cheque book are issued. The new account department gives

25

details of new customers and according to that new cheque book and
passbook are issued.
This department consists of only one employee who gives cheque
book and passbook to the customers. Customers who are in need of a
new cheque book have to apply a day before with a counter given in the
old cheque book. For each account holder it is compulsory to allow at
least five cheques to be cleared or presented to bank for issuing a new
cheque book. Daily 70 to 75 new cheque books are issued to the
customers.
As the bank is fully computerized if changes are made by customer
in cheque book, the computer will reject the cheque number because the
while issuing cheque book the number of cheque are recorded in the
computer.

4.2 DRAFT DEPARTMENT:Draft is another department of the bank. As this bank is in no cooperative sector it has limited branches in surat. It does not have any
branch in any other part of the country. So in order to provide draft
service of different cities to its customers it has associated with certain
banks.
If a customer wants a draft for Bombay, a bank must have its
branch which can discount the draft and if the bank do not have a branch
than it has to joint with other bank.
The Varachha Co-operative Bank has following banks who
discount the draft in different cities of the country.
- The Surat District Co-operative Bank

26

Surat

- The Gujarat State Co-operative Bank Ltd.

Ahmedabad

- State Bank of India

Surat

- State Bank of Travankor

Surat

- State Bank of Sourastra

Surat

- Indusind Bank

Ahmedabad

- ICICI Bank

Ahmedabad,
Mumbai
Surat.

4.3 CLEARING DEPARTMENT: The most important department of the bank is clearing department.
This department has maximum number of employees. Nearly about seven
or eight person are continuously working in this department. Clearing per
day is nearly about three or four crores. Clearing house of all banks in
surat is situated at Sate Bank of India, Nanpura, Surat.
Clearing which is collected from the clearing house is known as
outward clearing.
4.4 TOKEN DEPARTMENT:The next department of the bank is the Token department. It is
small but department with only one employee. The working hours of this
department is from 11:00 am to 3:00 pm. Token is issued after various
strict verification of cheque such as signature amount in figure as well as
in words etc. This department is small but full of responsibility. Bank has
a special service for its customers that is up to Rs.10,000 for saving
account holders and no limit for current account holders can be
withdrawn directly from the cash counts without the procedure of Toker.
4.5 TRANSFER DEPARTMENT: -

27

The next department is transfer. There is only one employee in this

department. In this department the cheque of the same bank is transferred
from one account to other account of customers. The entry of other
department such as OBC (counter Bill collection) and IBC (Inter Bill
Collection) etc. is done from this department.

INTRODUCTION OF FINANCIAL
STATEMENT

28

5.1 Introduction
5.2 Statement
5.3 Need or Essential of Good
financial statement.
5.4 Objective of Financial
Statement.
5.5 Nature of Financial
Statement.
5.6 Limitation of Financial
Statement

5. INTRODUCTION OF FINANCIAL
STATEMENT
5.1 INTRODUCTION
Financial statements are prepared for the purpose of presenting a
periodical review or report on the progress by the management and deal
with

29

 The status of investment in the business and

The results achieved during a period under review.
The statement disclosing status of investments is knowing as
Balance sheet and the statement showing the result is known as profit &
loss a/c. A firm communicates financial information to the users through
financial statements and reports. The financial statements contain
summarized information of the firms financial affairs, organized
systematically. They are means to present the firms financial situation to
users.
Definition:
Financial statement is methodical analysis through classification,
comparison and interpretation of data in financial statement to diagnoses
financial soundness (profitability, viability, soundness).
As the statements are used by investors and financial analysts to
examine the firms performance in order to make investment decisions
they should be prepared very carefully and contain as much information
as possible. The financial statement are prepare from the accounting
records maintained by the firm. The focus of financial analysis is on key
figures in the financial statements and the significant relationship that
exits between them. In brief, financial analysis is the process of selection,
relation and evaluation.

5.2 STATEMENT:
1) Profit & Loss Account:

30

The earning capacity and potential of the firm are reflected by the
income statement i.e. p&l a/c. The profit & loss account is the Scoreboard of the firms performance during a particular period of time. The
profit & loss account represents are summary of revenues, expenses and
net income or net loss of a firm for a period of time. It servers as a
measure of firms profitability. Net income which is an indicator of the
firms profitable operation, if the firms operation prove to be
unprofitable total expanses will exceed total revenue and difference is
referred to as net loss. The statement of profit & loss is the classified
record of the gain or losses is the business for a period of time. A
comparison of earnings and expenses, the difference between thee two is
known as net profit or loss.
2) Balance Sheet:
Balance sheet comprises of a list of assets, liabilities and capital at
a given date. It is static in charter because it tells about Financial Position
of a business as on a particular date. At the same time business is
dynamic while balance sheet is static. It records only periodic changes
rather than continuous ones. It represents the assets owned by the
business and the claims of the owners and creditors against the assets in
the form of liabilities as on the date of the statement.
The balance sheet is a statement which reports the value owned by
the enterprise and the claims of the creditors and owners against these
properties.

- Howard.

5.3 NEED OR ESSENTIALS OF GOOD FINANCIAL

STATEMENT:

31

Different parties have interest in the financial statements with

different objectives. It may not be possible to the concerns to construct
the statements to suit every interested person. However, such statements
should have at least the following essentials.
1)

Figures which are incorporated in financial statements should be

readily and easily available from the books of accounts of the
concern. The size of the form of financial statements should not be
abnormally too large.

2)

It must facilitate easy comparison. In addition to the figures of

previous years, it is also essential that uniformity in the form is
maintained from year to year. This is for easy comparison.

3)

The form and contents of the form should be designed in such

away that the attention of readers is automatically drawn and
directed to most significant.

4)

All facts should be presented in such a way that required items and
figures are easily obtained for calculating various accounting ratios,
to be used by the analysts.

5)

The information contained in the financial statements should be

such that a true and correct idea is taken about the financial position
of the concern.

6)

The comparable figures will make the statements more useful. The
results of financial analysis should be in a way that can be compared
to the previous years statements. The comparison of the figures will
enable a proper assessment for the working of the concern.

32

7)

The form should be not be complex in nature. The various terms

used should be in simple and common language. The form should
have suitable column for additions and deductions and it must arrest
and retain the attention of users.

5.4 OBJECTIVES OF FINANCIAL STATEMENT:

Diverse groups of people are keenly interested in the information
found in the firms financial statements. The object of all these analyze is
some sort of evaluation of the firms performance.

33

Firstly, the financial statements of business enterprises should

provide information within the limits of financial accounting.
Secondly, financial statements of business enterprise should
provide information that help investors and creditors assess the prospects
of receiving cash from dividends or interest from the proceeds from the
sale, redemption or maturity of securities or loans.
Thirdly, the financial statements of business enterprise should
provide information about the economic resources of an enterprise which
is sources of prospective cash flow to the enterprise its obligations to
transfer economic resources to others which are causes of prospective
cash outflow from the enterprise and its earning.

5.5 NATURE OF FINANCIALSTATEMNTS:

Financial statements are prepared for the purpose of presenting a
periodical review or report on progress by the management and deal with
the status of investment in the business and the result achieved during the
period under review.
According to the American Institute of Certifies Public
Accountants, financial statements reflects a combination of recorder
facts, accounting conventions and personal judgments and the judgment
and conventions applied affect them material.

Recorded Facts:
Record is made only of these facts which can be expressed in
monetary terms. Facts which have not been recorded in the financial
books are not depicted in the financial statements. Thus, the recorded
facts consist of such data as the bank, the amount due from customers, the

34

cost of fixed assets, the amount payable to creditors etc. Certain factors
which may affect the financial position of a business are not shown in the
accounting records. Such items purchase and sale contracts, claim for
refund guarantee, etc.
Accounting Conventions:
Accounting standard laid down by the various accounting bodies.
Managements of concerns are free to choose an accounting policy suited
to their concern. Accounting policies differ with regard to valuation of
inventory, depreciation, research, development etc. Further provision is
made for expected losses but expected profits are ignored.

Postulates:
Rupee values shown in the statement are not precise measurement
of items incorporated in them. Data disclosed by the financial statements
are useful and meaningful only till concern services.

Personal Judgment:
Personal judgment plays a great part while dealing in rate of
depreciation like, method and rate of depreciation, to be adopted,
valuation of inventories provision for bad and doubtful debts.

5.6 LIMITATION OF FINANCIAL STATEMENETS:

Financial statements are based on historical costs and as such the
impact of price level changes is completely ignored. The basic nature of
financial statements is historic. These statements ate neither complete not
35

exact. They reflect only monetary transactions of a business. These

statements furnish only information and that too in the form of figures.
Generally following limitations may be noted:
1)

The financial statements many items are left to the personal

judgment of the accountant. For instance, provision of depreciation
stock valuation depends on the judgment of accountant.

2)

On account of convention of conversion the income statement may

not disclose true income of the business since probable losses are
considered while probable incomes are ignored.

3)

The fixed assets are shown at cost less depreciation on the basic of
going concern concept. But the value placed on the fixed assets
may not be the same which may be realized on their sale.

4)

The data contained in the financial statements are dumb. They do

not speak themselves. It is also worth while to note that human
judgment is always involves in the interpretation of statements. It
rarely happens that the users of financial statements may have the
same opinion and meaning in respect of a particular accounting
figure.

5)

The financial position of a business concern is affected by several

factors economic, social and financial but only financial factors are
being recorded in these financial statements.

6)

Information conveyed by these statements may not be comparable

on account of difference between dated of preparation of these

36

statements. Different methods of accounting followed by different

concerns or difference in the nature of business of concern etc.
7)

Financial statements do not reflect many factors which affect

financial condition and operating results because they can not be
stated in terms of money. Such factors include materials, supplies,
the reputation and prestige of the company with the public.

37

TOOLS OF FINANCIAL STATEMENT

6.1 Comparative Financial

Statement
6.2 Common size statement
6.3 Trend Ratio or Trend Analysis
6.4 Statement of Changes in
Working Capital
6.5 Fund flow analysis
6.6 Cash flow analysis
6.7 Ratio analysis

CH: 6: TOOLS OF FINANCIAL STATEMENT

38

A financial analyst can adopt the following tools for analysis of the
financial statement.
There are also termed as methods of financial analysis.
1. Comparative Financial Statements
2. Common size Statements
3. Trend Ratios or Trend Analysis
4. State of Changes in Working Capital
5. Fund Flow Analysis
6. Cash Flow Analysis
7. Ratio Analysis
The methods are described as follow:

6.1 COMPARATIVE FINANCIAL STATEMENTS

The comparative financial and operating statement is an important
device of horizontal financial analysis. As their very name suggests,
Comparative Financial Statements are statements of the financial position
of a business. So designed as to provide time perspective to the
consideration of various elements of financial position embodied in such
statement.
Generally, Balance sheet and Income statement which alone are
prepared in a comparative form, because they are the most important
statements of financial position. In these statements figures for two or
more periods are placed side by side to facilitate comparison.

Advantage:-

39

 These statements render comparison between two periods of time

and Exhibit the magnitude and direction of historical changes in
the operating results and financial status of business
Financial statements of two or more firms may also be compared
for drawing inferences. This is known as inter firm comparison.
The statement also provides for column to indicate the change from
one year to another in absolute term and also in percentage form.

6.2 COMMON SIZE STATEMENT:Financial statements when read with absolute figures are not easily
under stand able. They are even misleading. Each item of asset is
converted into percentage to Total Assets and each item of capital and
liabilities and capital fund. Thus the whole Balance sheet is converted
into percentage form. Such converted balance sheet is known as common
size Balance sheet.
Common size comparative statements prepared for one firm over
the years would highlight the relative changes in each group of expense,
assets and liabilities. These statements can be equally useful for inter firm
comparison given the fact that absolute figures of two firms of the same
industry are not comparable. When balance sheets of the same concern
for several years or when Balance sheets of two or more than two
concern. For the same year are converted into percentage form and
presented, they are known as comparative common size Balance sheets.
Interpretation: Profit and loss account Figure is assumed to be
equal to 100 and all other Figure or expressed as percentage to sales.
40

Similarly in balance sheet the total of assets and liability is taken as 100
and all the Figures are expressed as percentage of the total. The statement
prepared is called Common size Statement.

6.3 TREND ANALYSIS: The comparative and common size statements suffer from a major
limitation.
i.e. absence of a basic standard to indicate over comes whether the
proportion of an item is normal or abnormal. Trend analysis overcomes
this limitation. This method is also an important and useful technique of
financial statement analysis.
The calculation of trend ratio involves the ascertainment of
arithmetical relationship which each item or several years to the same
item of base year. The one particular year out of many years is taken as
base. The value of one particular item out of several items shown in the
financial statements are converted in to ratio or percentage taking of that
item in base year as equal to 100.

41

6.4

STATEMENT

OF

CHANGES

IN

WORKING

CAPITAL: The working capital does change due to various transactions. The
working capital position at the beginning of a period is changed to a
different position at the end of that period. A statement of working capital
is prepared to depict the changes in working capital. Working capital
assets over current liabilities since several items, i.e., all current assets
and current liabilities are the component of working capital, it is
necessary to measure the increase or decrease there in, by preparing a
statement or schedule of changes in working capital.
The statement shows the changes in individual items of current
assets and current liabilities and their effect of working capital. The total
increase and total decrease in the end is compared and the difference of
total increase and total decrease shows the net increase or net decrease in
the working capital.

6.5 FUND FLOW ANALYSIS: A statement of sources and application of funds is technical
device designed to analyze the changes in the financial condition of a
business enterprise between two dates.
The fund flow statement is a financial statement which reveals the
methods by which the business has been financed and how it has used its
funds between the opening and closing balance sheet date. Thus, fund
flow statement is a report in movement of funds explaining where from
working capital originates and where into the same goes during an
accounting period.

This statement consist of two parts

42

i)

Sources of Funds

ii)

Application of Funds
The difference between the two shows the net change in the

working capital during the period. The fund flow statement is a

supplement to the two principal financial statements.
Fund flow statement is a statement which indicates various means
by which the funds have been obtained during a certain period and the
ways to which these funds have been used during that period. The term
funds used means working capital.
Importance:
It determines the financial consequence of business operations. It
shows how the funds were obtained and used in the past. Financial
manager can take corrective actions.
The management can formulate its financial policies, dividend,
reserve etc. on the basis of the statement.
It points out the sound and weak financial position of the
enterprise.
It enables the banker, creditors or financial institutions in assessing
the degree of risk involved in granting credit to the business.
Limitation:
The statement lacks originally because it is only rearrangement of
data appearing in accounts books.
It indicate only the past position and not future.

43

 It indicates fund flow in a summary form and it does not show

various changes which take place continuously.
When both the aspects of a transaction are current, they are not
considered.
When both the aspects of a transaction are non-current, even then
they are not including in this statement.
It is not an ideal tool for financial analysis.

6.6 CASH FLOW STATEMENT: A cash flow statement concentrates to transactions that have a
direct impact on cash. It deals with the inflow and outflow of cash
between two balance sheet dates. Cash Flow statement is a statement of
recording systematically all inflow and outflow of cash of the accounting
period. Thus it shows the sources of cash receipts and the purpose for
which payments are made. It is like a receipts and payments account in a
summary form.
Cash flow deals only with cash. It is useful for short term
Financing. It is based on cash basis of accounting and also depicts the
changes in cash position and it is a part of working capital:
Use of Cash flow statement:
Cash flow statement facilitates to prepare sound financial policies.
It also helps to evaluate the current cash position.

44

 It helps in taking loan from banks and other financial institutions.

The repayment capacity of the firm can be understood by going
through the cash flow statement.
It helps the management in taking short term financial decisions.
Limitation:
Cash flow statement only reveals the inflow and outflow of cash.
The cash balance disclosed by this statement may not depict the
true liquid position.
A cash fund statement cannot be equated with the income
statement. An income statement takes into account both cash and
non cash items.
Working capital being a wider concept of funds, a funds flow
statement presents a more complete picture than cash flow
statement.

6.7 RATIO ANALYSIS: A Ratio is only a comparison of the numerator with the
denominator. The term ratio refers to the numerical or quantitative
relationship between two figures, and obtained by dividing the former by
the latter. Ratios are designed to show how one number is related to
another. It is worked out by dividing one number by another.
Ratio analysis is an important and age old technique of financial
analysis. Ratios are relative form of financial data and very useful
technique to cheque upon the efficiency of firm. Some ratios indicate
trend or progress or downfall of the firm.

45

 Limitation:
Ratio analysis a widely used tool of financial analysis, it is because
ratios are simple and easy to understand. But they must be used very
carefully. They suffer from various limitations:
Comparisons are made difficult due to differences in definitions of
carious financial terms lack of standard formula for working out
ratios makes it difficult to compare them.
Ratio analysis is based on financial statement which is themselves
subject to limitation. Thus, ratios calculated on the figures given in
financial statement.
It is very difficult to ascertain the standard ratio in order to make
proper comparison, because it differs from firm to firm.
Due it changes in price level of various years, comparison of ratios
of such years cannot give correct conclusion.
A single ratio would not be able to convey any thing. Ratios can be
useful only when they are computed in a sufficient large number. If
too many ratios are calculated, they are likely to confuse instead of
revealing meaningful conclusions.

46

ANALYSIS AND INTERPRETATION

7.1 Common size Statement

7.2 Comparative Statement
7.3 Trend Analysis

47

7. ANALYSIS AND INTERPRETATION

Financial statement is prepared primarily for decision making. The
statements are not an end in them but are useful in decision making.
Financial analysis is the process of determining the significant operating
and financial characteristics of a firm from accounting data. The Profit &
Loss Account and Balance Sheet is indicator of two significant factors
profitability and financial soundness. Analysis of statement means such a
treatment of the information contained in the two statements as to afford a
full diagnosis of the profitability and financial position of the firm
concerned. Financial statement analysis is largely a study of relationship
among the various financial factors as shown in a series of statement.
Objective of Analysis and Interpretation
To estimate earning capacity of the firm.
To assess the financial position of the firm.
To know the progress of firm.
To have comparative study.
To measure efficiency of operation.

48

7.1 COMMON SIZE STATEMENT

The Varachha Co-Operative Bank Ltd. (2001-2003)
Profit & Loss A/c
() indicate Minus Figure

Particulars
No.
1
2
3
4
5
6
7
8
9
10
11
12

Expenses
Deposit, Interest on borrowing
Salary Allowance, P.F. etc.
Director Fee
Tax, Rent, Insurance
Legal Fee
Postage, Telephone Expenses
Audit Fee
Depreciation Fund
Stationary, Printing, Advertisement
Non Performing Asset
Other Expenses
Net Profit
Total

No.
Income
1 Interest and Discount
2 Commission
3 Other Receipt
Total

49

2003

2002

2001

51.12
4.15
1.70
0.04
0.31
0.09
2.84
0.69
2.61
14.11
22.34
100.00

57.07
3.83
1.81
0.02
0.34
0.04
2.33
0.66
10.02
23.94
100.00

61.13
4.04
1.13
0.04
0.36
0.03
2.55
1.31
4.83
24.65
100.00

96.28
2.74
0.98
100.00

96.76
2.18
1.06
100.00

96.48
2.46
1.06
100.00

Balance Sheet
() indicate Minus Figure

Particular

No.
1
2
3

4
5
6
7
8
9
10

No.
1
2
3
4
5

6
7
8
9
10
11

2003

2002

2001

Liability
Share capital
Reserve fund
Deposit:
- Fixed Deposit
- Saving Deposit
- Current Deposit
Borrowing
Bills Payable
Branch adjustment
Interest Overdue
Interest payable
Other liability
Profit and Loss A/c
Total:

2.15
10.78

2.12
7.11

2.50
5.10

41.20
15.73
13.55
0.28
0.22
0.63
10.62
1.88
2.95
100.00

46.29
15.10
12.09
1.18
0.27
1.15
10.30
1.19
3.20
100.00

53.85
13.68
10.05
0.43
1.09
9.05
1.46
3.15
100

9.08
6.25
33.74

6.26
4.11
36.09

8.66
7.09
29.10

Assets
Cash
Bank
Call & Short time Invt.
Investment
Loans and Advances
- Short term
- Moderate term
- Long term
Interest receivable
Bills Receivable
Branch adjustment
Building premises
Furniture & Fixture
Other Asset
Total:

26.53
15.37
0.12
1.38
0.22
2.02
0.96
4.33
100.00

49

29.68 27.78
16.04 19.38
0.13
0.18
1.20
1.78
0.27
0.43
2.31
2.39
1.27
1.29
2.64
1.92
100.00 100.00

7.2 COMPARATIVE STATEMENT:Profit & Loss Account

() indicate Minus Figure

Particulars

2002

2003

Absolute
2003

%
2003

Expenses
Interest on Borrowing
Salary Allowance
Director Fee
Rent, Tax, Insurance
Legal Fee
Postage, Telephone
Audit Fee
Depreciation Fund
Stationary, Printing
Non Performing Asset
Non-Banking
Expenses
Other Expense
Net Profit
Total

111893442 108268889 (3624553)

7509957
8790948 1280991
3546764
3596769
50005
34650
84531
49881
666025
651445
(14580)
84425
193950
109525
4567387
6018823 1451436
1102094
1461752
359658
2194792
5536118 3341326
-

(3.24)
17.05
1.41
143.95
(2.19)
129.73
31.77
32.63
152.23
-

17443657 29890580 12446925

47001569 47280228
278659
196044763 211774039 15729276

71.35
0.59
8.02

Income
Interest & Discount
Commission
Donation
Other Receipt
Total

189693182 203890471 14197289

4271254
5805746 1534492
2080327
2077822
(2505)
196044763 211714039 15729276

7.48
35.92
(0.12)
8.02

50

Profit & Loss Account

() indicate Minus Figure

Particulars

2001

2002

Absolute
2002

%
2002

Expenses
Interest on Borrowing
Salary Allowance
Director Fee
Rent, Tax, Insurance
Legal Fee
Postage, Telephone
Audit Fee
Depreciation Fund
Stationary, Printing
Non Performing Asset
Non-Banking
Expenses
Other Expense
Net Profit
Total

91042852 111893442 20850590

5914459
7509957 1595498
1677238
3546764 1869526
58050
34650
(23400)
559554
666025
106471
41115
84425
43310
3791403
4567387
775984
1952370
1162094 (790276)
4873700
2194792 (2678908)
-

22.90
26.97
111.46
(40.31)
19.02
105.33
20.46
(40.47)
(54.96)
-

2323892 17443657 15119765

36709773 47001569 10291796
148944409 196044763 47100354

650.52
28.03
31.62

Income
Interest & Discount
Commission
Donation
Other Receipt
Total

143706779 189693182 45986403

3656668
4271254
614586
1580962
2080327
499365
148944409 196047763 47100354

32.00
16.80
31.58
31.62

51

Profit & Loss Account

() indicate Minus Figure

Particulars
Expenses
Interest on Borrowing
Salary Allowance
Director Fee
Rent, Tax, Insurance
Legal Fee
Postage, Telephone
Audit Fee
Depreciation Fund
Stationary, Printing
Non Performing Asset
Non-Banking
Expenses
Other Expense
Net Profit
Total
Income
Interest & Discount
Commission
Donation
Other Receipt
Total

2000

2001

48149681
3466527
957336
3000
318166
36854
1549280
764726
-

Absolute
2001

%
2001

91042852 42893171
5914459 2447932
1677238
719902
58050
55050
559554
241388
41115
4261
3791403 2242123
1952370 1187644
-

89.08
70.61
75.19
183.5
75.86
11.56
144.72
155.30
-

7344759
7197592 (147167)
20956851 36709773 15752922
83547184 148944409 65397225

(2.00)
75.16
78.27

78793849 143706779 64912930

3591005
3656668
65663
1162330
1580962
418632
83547184 148944409 65397225

82.38
1.82
36.01
78.27

52

Particulars
Liability
Equity
Reserves
Subsidiary Fund
Deposit:
-Fixed Deposit
-Saving Deposit
-Current Deposit
Call & Short Time
Deposit
Borrowing
Bills Payable
Branch Adjustment
Interest Overdue
Interest Payable
Other Liability
Profit
Total
Asset
Cash
Bank
Call & Short Time
Investment
Investment
Subsidiary
Investment Fund
Loan & Advance
-Short Term
-Moderate Term
-Long Term
Interest Receivable
Bills Receivable
Branch Adjustment
Building
Furniture
Other Assets
Total

Balance Sheet

() indicate Minus Figure

2002

Absolute
2003

%
2003

31060400
34402600
104411716 1726655919
-

3342200
68244203
-

10.76
65.36
-

679807291
221739278
177498738
-

(2046027)
29998087
39348881
-

(3.01)
13.52
22.17
-

2003

659343264
251737365
216847619
-

17355772
4455342 (12900430) (74.33)
3979987
3500507
(476480) (12.04)
16825205
10115703 (6709502) (39.87)
151404137 170012452 18608315 12.29
17438243
30137518 12699275 72.82
47001569
47280228
278659
0.59
1468522340 1600488516 131966176
8.98
91865667
60395420
-

145366688
100068900
-

53501021
39673480
-

58.23
65.68
-

530055100
-

540055100
-

10000000
-

1.88
-

435799975 424613712 (11186263) (2.56)

235499752 246013956 10514204
4.46
1866669
1935631
68962
3.69
17586799
22042523
4455724 25.33
3979987
3500507
(479480) (12.04)
33982280
32328089 (1654791) (4.86)
18696536
15303200 (3393336) (18.14)
38793552
69260210 30466658 78.53
1468522340 1600488516 131966176
8.98

53

Balance Sheet
Particulars
Liability
Equity
Reserves
Subsidiary Fund
Deposit:
-Fixed Deposit
-Saving Deposit
-Current Deposit
Call & Short Time
Deposit
Borrowing
Bills Payable
Branch Adjustment
Interest Overdue
Interest Payable
Other Liability
Profit
Total
Asset
Cash
Bank
Call & Short Time
Investment
Investment
Subsidiary
Investment Fund
Loan & Advance
-Short Term
-Moderate Term
-Long Term
Interest Receivable
Bills Receivable
Branch Adjustment
Building
Furniture
Other Assets
Total

2001

2002

() indicate Minus Figure

Absolute
2002

%
2002

25050000
59506159
-

31060400
104411716
-

6010400
44905557
-

23.99
75.46
-

628059765
159518565
117193537
-

679807291
221739278
177498738
-

51747526
62220713
60305201
-

8.23
39.0
51.45
-

17355772 17355772
5060596
3979987 (1080609) (21.35)
12762863
16825205
4062342 31.82
105537341 151404137 45866796 43.46
16985291
17438243
452952
2.67
36709773
47001569 10291796 28.03
1166383894 1468522340 302138446 25.90
101022945
82752538
-

91865667 (9157278) (9.06)

60395420 (22357118) (27.01)
-

339447100
-

530055100 190608000
-

56.15
-

324052618 435799975 111747357 34.48

225997182 235499752
9502570
4.20
2056307
1866669
(189638) (9.22)
20780224
17586799 (3193425) (15.36)
5060596
3979987 (1080609) (21.35)
27845962
33982280
6136318 22.03
15027239
18696536
3669297 24.41
22341179
38793552 16452373 73.64
1166383894 1468522340 302138446 25.90

54

Particulars
Liability
Equity
Reserves
Subsidiary Fund
Deposit:
- Fixed Deposit
-Saving Deposit
-Current Deposit
Call & Short Time
Deposit
Borrowing
Bills Payable
Branch Adjustment
Interest Overdue
Interest Payable
Other Liability
Profit
Total
Asset
Cash
Bank
Call & Short Time
Investment
Investment
Subsidiary
Investment Fund
Loan & Advance
-Short Term
-Moderate Term
-Long Term
Interest Receivable
Bills Receivable
Branch Adjustment
Building
Furniture
Other Assets
Total

Balance Sheet

() indicate Minus Figure

2000

Absolute
2001

%
2001

6885500
23498697
-

37.90
65.26
-

628059765 254426158
159518565 57078872
117193537 25508074
-

55.71
55.71
27.82
-

2001

18164500
36007457
-

25050000
59506159
-

373633607
102439693
91685493
-

1245254
5660596
3815342 306.39
12762863 12762863
56654544 105537341 48882797 86.28
23542113
16985291 (16556822) (27.85)
20956851
36709773 15752922 75.16
724329515 1166383894 442054379 61.02
52808866
112195130
-

101022945 48124079 91.29

82752538 (29442592) (26.20)
-

109889100
-

339447100 229558000
-

208.8
-

211032289 324052618 113020329 53.55

188335625 225997182 37661557 19.99
-2056307
6959937
20780224 13820297 198.56
1245254
5060596
3815342 306.39
3246527
3246527
13083710
27845962 14762252 112.82
7826643
15027239
7200596 42.00
18206431
22341179
4134748 22.71
724329515 1166383894 442054379 61.02
55

7.3

TREND ANALYSIS:Profit & Loss Account

() indicate Minus Figure

Particulars
Expenses
Interest on Borrowing
Salary Allowance
Director Fee
Rent, Tax, Insurance
Legal Fee
Postage, Telephone
Audit Fee
Depreciation Fund
Stationary, Printing
Non Performing Asset
Non-Banking Expenses
Other Expense
Net Profit

2001

Income
Interest & Discount
Commission
Donation
Other Receipt

56

2002

2003

100
100
100
100
100
100
100
100
100
100
100
100
100

122.90
126.97
211.46
56.69
119.02
205.33
120.46
59.23
45.04
750.52
128.03

118.92
148.63
214.45
145.62
116.42
471.73
158.75
74.87
113.50
1286.22
128.79

100
100
100
100

132.00
116.80
131.58

141.89
158.77
131.42

Balance Sheet
() indicate Minus Figure

Particulars
Liability
Equity
Reserves
Subsidiary Fund
Deposit:
- Fixed Deposit
-Saving Deposit
-Current Deposit
Call & Short Time Deposit
Borrowing
Bills Payable
Branch Adjustment
Interest Overdue
Interest Payable
Other Liability
Profit

2001

Asset
Cash
Bank
Call & Short Time Investment
Investment
Subsidiary Investment Fund
Loan & Advance
-Short Term
-Moderate Term
-Long Term
Interest Receivable
Bills Receivable
Branch Adjustment
Building
Furniture
Other Assets

57

2002

2003

100
100
100

123.94
175.46
-

137.33
290.14
-

100
100
100
100
100
100
100
100
100
100
100

108.23
139.0
151.45
78.65
131.82
143.46
102.67
128.03

104.98
157.81
185.03
69.17
79.25
161.09
177.43
128.79

100
100
100
100
100

90.94
72.99
156.15
-

143.89
120.92
159.09
-

100
100
100
100
100
100
100
100
100

134.48
104.20
90.78
84.64
78.65
122.03
124.41
173.64

131.03
108.85
94.13
106.07
69.17
116.09
101.83
310.01

RATIO ANALYSIS

8.1 Current Ratio

8.2 Cash Position Ratio
8.3 Proprietary Ratio
8.4 Debt Equity Ratio
8.5 Solvency Ratio
8.6 Net Profit Ratio
8.7 Return of Equity Holder
8.8 Capital Turnover Ratio
8.9 Creditors Turnover Ratio
8.10Credit Deposit Ratio

58

RATIO ANALYSIS
A Ratio is only a comparison of the numerator with the
denominator. The term ratio refers to the numerical or quantitative
relationship between two figures. A ratio is the relationship between two
figures, and obtained by dividing the former by the latter. Ratios are
designed to show how one number is related to another. It is worked out
by dividing one number by another.
Ratio analysis is an important and age old technique of financial
analysis. Some ratios indicate the trend or progress or downfall of the
firm.
8.1

CURRENT RATIO:

Meaning:

Current ratio is the most common ratio for measuring

liquidity. Being related to working capital analysis it is also called the

working capital ratio. Current ratio expresses relationship between
current assets and current liabilities.
Purpose:

The current ratio of a firm measures in short

term solvency. i.e. its ability to meet short term obligation. As a measure
of short term current financial liquidity.
It is calculated by dividing current asset by current liabilities.
Current Ratio

Current Assets
Current Liabilities

59

Particulars
Current Asset
Cash
Bank
Advance
Other Asset
Bills Receivable
Interest
Total

2002

Current Liability
Bills Payable
Interest Payable
Saving Deposit
Current Deposit
Interest Overdue
Other Liability
Total
Current Asset Ratio :
=

2003

91865667
60395420
435799975
38793552
3979987
17586799
648421400

145366688
100068900
424613712
69260210
3500507
22042523
764852540

3979987
151404137
221739278
177498738
16825205
17438243
588885588

3500507
170012452
251737365
216847619
10115703
30137518
682351164

648421400
588885588
1.10 : 1

60

764852540
682351164
1.12 : 1

Interpretation:
An ideal current ratio is 2:1. The ratio 2:1 is considered as a safe
margin of solvency due to the fact that if the current assets are reduced to
half i.e. 1 instead of 2 then the creditors will be able to get their payments
in full.
Here, it shows that the bank has been always between 1:10:11:12:1 which is quite satisfactory but can be improved by better turnover
and profit and also by decreasing liabilities.

61

8.2

Cash Position Ratio:

Meaning:

It is a variation of quick ratio. When liquidity is

highly restricted in terms of cash and cash equivalent, this ratio should be
relationship between cash and near cash items on the one hand.
Purpose:

The purpose of computing the ratio to measure more

rigorous of a firms liquidity position.

Cash Position Ratio

Particulars
Cash
Marketable Securities
Total
Current Liabilities
Cash Position Ratio:
=

Cash + Marketable Securities

Current Liabilities
2002
91865667
60395420
152261087

2003
145366689
100068900
245435589

588885588

682351167

152261087
588885588
0.26:1

62

245435589
682351167
0.36:1

Interpretation:
In cash position ratio 0.75:1 ratio is recommended to ensure
liquidity. This test is more rigorous measure of a firms liquidity position.
If the ratio 1:1 then the firm has enough cash on hand to meet all current
liabilities.
In this ratio 1:1 is satisfactory result. In 2002 to 2003 in all years
ratio is lower then 0.75:1.
In this ratio 2002 to 2003 cash is increase in 2003 and market
securities also increase.

63

8.3

PROPRIETARY RATIO:

Meaning:

This relates the shareholders fund to total assets. It is a

variant of the debt equity ratio. This ratio shows the long term or future
solvency of the business. It is calculated by dividing shareholders funds
by the total asset.
Purpose:

The purpose of proprietary ratio is indicate available

to creditors and general financial strength of the firm.

Proprietary Ratio

Shareholders Fund
Total Asset

Particulars
Shareholders Fund
Capital
Reserve
Subsidiary Fund
P&L Account
Total

2002
31060400
104411716
47001569
182473686

34402600
172655919
47280228
254338747

Total Asset

1468522340

1600448521

Proprietary Ratio:

2003

182473686
1468522340

254338747
1600448521

0.12:1

64

0.16:1

Interpretation:
This ratio shows the general strength of the company. It is very
important to creditors as it helps them to find out the proportion of
shareholders funds in the total assets used in the business. In this ratio is
always down from the good position and low ratio indicate greater risk to
creditors. A ratio below 50% may be alarming for the creditors and
heavily lose for company and its account is liquidation.

8.4

DEBT EQUITY RATIO:

Meaning:

The financing of total asset of a business

concern is done by owners equity as well as outside debts. This ratio

65

indicates the relative proportions of debt and equity in financing the asset
of a firm.
It is also known as external internal equity ratio. Debt equity ratio
is determined to ascertain soundness of the long term financial policies of
a firm.
Debt Equity Ratio
Particulars
Long Term Debt
Fixed Deposit
Other Borrowing
Total

Long Term Debt

Shareholders Fund
2002

Shareholders Fund
Debt Equity Ratio:

2003

659343264
4455342
663798606

679807291
17355772
697163063

254338747

182473686

663798606
254338747
=
3.82

66

697163063
182473686
=
2.61

Interpretation:
In this ratio, it is decrease from 2002 to 2003. It means that the
ratio is low debt equity ratio implies a greater than creditors from the
point of view of creditors, it represent a satisfactory capital structure of
the bank. Since a high proportion of equity provides a larger margin of
safety for them.
It indicates the margin of safety to long term creditors. A high ratio
shows the claim of creditors is greater than those of owners.

8.5

SOLVENCY RATIO:

Meaning:

It is also known as debt ratio. It is difference of

100 and proprietary ratio. This ratio is found out between total asset and
external liabilities of the company.
Purpose:

This generally refers to the capacity or ability of the

business to meet its short term and long term obligations. If a company in
a position to pay its long term liabilities easily it is said to possess long
term solvency.
Solvency Ratio

=
=

Outside Liabilities
Total Asset
Total Liability Shareholder Fund
Total Assets

67

Particulars
Outside Liability
Total Liabilities
Shareholders Fund
Total
Total Asset
Solvency Ratio:

2002

2003
146852234
182473686
1286048654

1600488521
254338747
1346149774

1468522340

1600448521

1286048654
1468522340
=
0.86:1

Interpretation:

68

1346149774
1600448521
=
0.84:1

In this ratio total assets are for more than external liabilities the
company is treated solvent. In solvency ratio in 2002, 0.86% decrease in
2003 0.84:1 it means that outside liability is always less than total assets.

8.6

NET PROFIT RATIO:

Meaning:

It is also called net profit to sales ratio. The profit

margin is indicative of managements ability to operate the business with

sufficient success not only to recover from revenue of the period, the
expense of operating the business and the cost of borrowed fund.
Net Profit Ratio
Particulars
Net Sales
Interest Receivable
Commission
Total

Net Profit X
Net Sales
2002

2003

189693181
4271254
193964436

203890470
5805746
209696217

47001564

47280228

Net Profit
Net Profit Ratio:

100

193964436
47001564
69

209696217
47280228

24.23%

22.55%

Interpretation:
In the net profit ratio, higher ratio of net operating profit to sales
better is the operational efficiency of the concern. It is very useful to
proprietary. It is an index of efficiency and profitability when used with
net profit ratio and operating ratio.
In this ratio, in 2002, 24.23% and 2003 decrease in 2003, 22.55%.
It is more useful for the further condition of the firm.

70

8.7

RETURN ON EQUITY HOLDER FUND:

Meaning:

This ratio measures a relationship between net profit

after interest and tax and shareholders fund. This ratio establishes the
profitability from the shareholders point of view.
Purpose:

The purpose of company this ratio finds out how

efficiency the funds supplies by the equity shareholders has been used.
Return of Equity Holder

Net Profit
X
Shareholders Fund

Particulars
Net Profit
Shareholders Fund

2002

Return of Equity Holder:

47001569
182473686
=
25.76%

100

2003
47001569
182473686

71

47280228
254338747
47280228
254338747
=
18.59%

Interpretation:
The term net profit as used here means net income after payment of
interest and tax including net non operating income. It is the final income
that is available for distribution as dividend to shareholders.
The 2003 is decrease and in 2002 i.e. 25.76%.

72

8.8

CAPITAL TURNOVER RATIO:

This ratio established a relationship between net sales and capital

employed. The purpose of computing this ratio is to determine the

operational efficiency of the business with the capital employed is
utilized.
Ratio

Net Profit
Capital Employed

Particular
Net Sales
Capital Employed
Equity
Reserves
Total
Return on Asset =

2002

2003
196044762

211774038

31060400
104411716
135472116

34402600
172655919
207058519

196044762
135472116
= 1.45%

73

211774038
207058519
= 1.02%

Interpretation:
In this ratio no sale that is income (interest + commission).
Income is increase in two years but capital employed is also increase in
last two year. Capital employed is increase in one and half time income.
The ratio ration of 2002 is high but low in 2003 that means expense is
very high and income is less and it becomes lower the ratio profit for the
firm.

74

8.9

CREDITORS TURNOVER RATIO:

This is also know as accounts payable or creditors velocity. This

ratio establish a relationship between net credit purchase and average

trade creditors.
The purpose of computing this ratio is to determine the efficiency
of firm with the creditor is managed.
Ratio

Creditors + Interest payable + bills payable

Interest Paid

Particular
Creditors
Fixed Deposit
Saving Deposit
Current Deposit
Bills payable
Interest Payable
Total
Interest Paid

2002

2003

Creditors Turnover
Ratio =

1234429431
111893442
= 11.03 Times

679807291
221739278
177498738
3979987
151404137
1234429431
111893442

75

659343264
251737365
216847619
3500508
170012452
1301441209
108268889
1301441209
108268889
= 12.02 Times

Interpretation:
In this ratio creditors are decrease in all year. In year 2002 11.03
times and increase in year 2003 is 12.02 times. It will be good for the
bank. A higher ratio shows that the creditors are not paid in time.

76

8.10 CREDIT DEPOSIT RATIO :

The purpose of credit Deposit Ratio that to find the current Position
of Bank. Total Deposit (T.D + Interest Payable)
Credit Deposit Ratio = Total Advances X 100
Total Deposits

Total Advances
Total Deposits
Ratio
Chart:-

2002
673166396
1230449444
54.71%

77

2003
672563299
1297940701
51.82%

Interpretation:
Generally this ratio should be maintained at 50% to 60%. And 75%
is boarder line that is at should not exceed 75%. In the past 2 years, ratio
is between in 50% to 60% that means perfectly use of loan able fund.

FINDINGS & SUGGESTIONS

78

 Findings
Suggestions

FINDINGS

The Varachha Co-operative bank have good image in the cooperatice society because the Varachha Co-operative Bank
provides speedy, effective and good interest rate on deposit.

79

 Bank has continuously got the audit class A in every year.

The varchha co-operative Bank get award in district co-operative
society for providing good service to their customer in 2000
2001.
The profit of the bank is at increasing rate. By honoring the
social welfare concept the bank is providing to the society
welfare at a large scale.
The bank has good market potential so that it can enhance or
expand its business in future.
Net profit of bank is in 2002, 4.70 crores and in increasing
manner in 2003 i.e. 4.73 crores.
Share capital is in 2002, 3.11 crores and in 2003 3.44 crores.
Working capital in 2002, 146.41 crores and in 2003 159.35
crores.
Cash position ratio is 0.75% satisfactory result and which is in
2002, 0.26:1 and in 2003, 0.36 : 1 and that is more rigorous
measure of firms liquidity position.

SUGGESTIONS

The Varachha Co-operative Bank is required to increase its

network.
80

 The Varachha Co-operative Bank is required to open his

branches out of city.
Bank is needed to provide ATM facility for his account holder,
so the account holder can easily receive money from his account.

bibliography
81


BIBLIOGRAPHY
Management Accounting
o RSN Pillai & Bhagavati
(S. Chand)
Banking & Insurance
o N. D. Gami

82

o Sunil H. Rajani
(New Popular Prakashan )
Annual Report of the Bank

ANNEXURE

83

Profit & Loss Account

Particular
Expense
Interest on deposit and
borrowing
Salaries allowance & Provident
Fund

2001

2002

2003

91042852

111893442

108268889

5914459

7509957

8790948

84

Director Fees
Rent, Tax, Insurance,
Electricity
Law Fees
Postage, Telegram, Telephone
Exp.
Audit Fee
Depreciation Fund
Stationary, Printing
Non Banking Expense
Other Expense
Profit
Total
Income
Interest & Discount
Commission Exchange
Donation
Non Banking Income
Other Income
Total

1677238

3546764

3596769

58050
559554

34650
666025

84531
651445

41115
3791403
1952370
7197592
36709773
148944409

84425
4567387
1102094
19638450
47001569
196044763

193950
6048823
1461752
5536118
29890582
47280228
211774037

143706779
3656668
1580962
48944409

189693182
4271254
2080327
196044763

203890471
5805746
2077822
211774037

Balance Sheet
Particular
Liability
Share capital
Reserve fund
Subsidiary Fund
Deposit:

2001
25050000
59506159
-

85

2002
31060400
104411716
-

2003
34402600
172655919
-

- Fixed Deposit
- Saving Deposit
- Current Deposit
Call & Short Time Deposit
Borrowing
Bills Payable
Interest Overdue
Interest payable
Other liability
Profit and Loss A/c
Total

628059765
159518565
117193537
5060596
12762863
105337341
16985291
36709773
1166383894

Assets
Cash
101022945
Bank
82752538
Call & Short time Investment
Investment
339447100
Subsidiary Fund Invest
Loans and Advances
- Short term
324052618
- Moderate term
225997182
- Long term
2056307
Interest receivable
20780224
Bills Receivable
5060596
Branch adjustment
Building premises
27845962
Furniture & Fixture
15027239
Other Asset
22341179
Total
1166383894

86

679807291 659343264
221739278 251737365
177498738 216847619
5000000
4455342
3979987
3500507
16825205
10115703
151404137 170012452
17438243
30137518
47001569
47280228
1468522340 1600488516
91865667
60395420
530055100
-

145366688
100068900
540055100
-

435799975 424613712
235499752 246013956
1866669
1935631
17586799
22042523
3979987
3500507
33988220
32328089
18696536
15303200
38793552
69260210
1468522340 1600488516