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Financial Statement analysis is the art of transforming the data from financial statements into
information that is useful for informed decision making. The analysis is used to determine the
firms financial position so as to identify its current strength and weakness. To take the
rational decisions in keeping with the objective of the firm, the financial statement is too
much significant for the managements. Financial statement analysis is not only important for
the firms managements, but also for the firms investors and creditors internally, financial
managers use the information provides by financial analysis to help make financing and
investing decisions to maximize the firms value. Externally, stockholders and creditors use
financial statement analysis to evaluate the attractiveness of the firm as an investment by
examining its ability to meet its current and expected future financial obligations. Financial
analysis involves the use of various financial statements. These statements do the several
things which are as follows-
Balance Sheet
Balance sheet is that statement which represents the summary of a firms financial position on
a given data that shows the total assets, liabilities and owners equity or stockholders equity
of a financial year.
Income Statement
Income Statement is that statement which represents the summary of a firms revenues and
expenses over a specified period for the purpose of determining the net income or loss for the
period. For determining the net income or loss Renata Limited represents revenues and
expenses to their income statement for the period.
The statement of cash flows reports the cash receipts, cash payments, and net change in cash
resulting from operating, investing, and financing activities during the year. For determining
the total cash inflow and outflow of a financial year, Renata Limited prepares the cash flow
statement.
Stockholders Equity
This statement represents the companys total common stock plus additional paid-in capital
and retained earnings. It also shows the changes in equity during the period. To identify these
things Renata Limited prepares the Stockholders Equity.
Balance Sheet
Property& Assets
The Company has the following Property & Assets: Property, plant and equipment, capital
work-in-progress, investment in subsidiaries, other investment, trade and other receivables,
advances, deposits and prepayments, cash and cash equivalents, and other assets.
Through this table, we see that the Total Assets TK 5,296,370 in 2014 is higher than then
the year (2015).
Through this table, we see that the total liabilities TK 144,935,67 in 2014 is higher than then
the year 2015.
Interest Income
1. Non-tax holiday .
2. Tax holiday.
In non-tax holiday unit they produce and sale the different products which are-
Pharmaceutical products, Animal health products, Animal nutritional products and ORS. In
tax holiday unit they produce the potent product facility.
Operating expense
Renata Limited has done expenses in different sources. The sources are as follows:
Cost of goods sold, administrative, selling and distribution expenses, Salary and allowances,
managing directors salary & allowances, rent, rates and taxes, insurances, electricity, legal
expenses, postage, stamp, telecommunication, audit fees, printing , stationery &
advertisement , repairs, maintenances & depreciations, and other expenses.
Owners equity summarizes the changes in owners equity for a specific period of time. It
discloses the sources of the changes in the various permanent shareholders equity
accounts that occurred during the period. The statement of shareholders equity only
shows the net effects on retained earnings.
Working Capital
Working capital is the excess of current assets over the current liabilities. It is calculated
by deducting current liabilities from current assets.
Working capital = Current assets - Current liabilities
F INDINGS
From the analysis of the financial statement of Renata Ltd. we have found
the followings:
The company has applied for tax holiday on unit-4 (potent product
facility) for a period of 4 years from September 2006 to August 2010;
the approval is yet to be received.
Provisions are made where an obligation exists for future liabilities in
respect of the past event and where the amount of the obligations can
be reliably measure.
Renata Ltd. has liquidity ability 1.49 times to pay the short term debt
for 1, which is higher than the probable ideal ratio 1.2 times. They have a
little amounted of idle money which they opportunity to invest.
Our evaluations of the acid test ratio suggest that Renatas liquidity
position currently is poor. Renatas acid test ratio seems inadequate.
Our valuation of the debt to total assets suggests that Renatas debt to
total assets currently is lower than the industry average. So they have the
opportunity to expand their business by increasing their debt.
Our evaluations of the debt to total equity ratio suggest that Renatas
debt to total equity currently is higher than the previous year. So they
should maintain this permanence.
Our consideration of the net price earning ratio that Renatas price of
each share of common stock to earning per share is lower than the
industry average. So the company needs to increase its price earning ratio
with the industry average.
Appendix
Working capital = Current assets - Current liabilities
Dividend Yield Ratio = Dividend per Share Market price per share