Financial Statement Analysis

Financial statements are prepared for decision making. Financial analysis is the
processes identifying the financial strengths and weaknesses of the firm by
properly establishing relationship between the items of the balance sheet and profit
and loss account. There are various methods or techniques used in analyzing
financial statements, such as comparative statements, trend analysis, common size
statements, and schedule of changes in working capital.

Financial statement analysis is largely a study of relationship among various

financial factors in a business are disclosed by a single set of statements and the
trend of these factors are shown in a series of statements.

The purpose of financial analysis is to diagnose the information contained in

financial statements so as to judge the profitability and financial soundness of the
firm. Financial statement analysis is an attempt to determine the significance and
meaning to the financial statements data so that forecast may be made of the future
financial position and performance.

Broadly speaking there are three steps involved in the analysis of financial
statements. These are:

o Selection

o Classification

o Interpretation

The first step involves selection of information relevant to the purpose of analysis
of financial statements. The second step involved methodical classification of data
and the third step includes drawing of interpretations and conclusions.
 Data Analysis

Ratio Analysis
Liquidity Ratio: -
Current Ratio: - Current Assets
Current Liabilities

Current 2008 2007 2006 2005 2004

Ratio

Current 49004 53177 44660 45,66 47,14

Assets 1 3

Current 42435 44310 40091 3515 39786

Liabilitie 2
s
Ratios 1.15 1.20 1.11 1.29 1.18
Interpretation: The current ratio is fluctuating from
2004 to2008 due to decrease in current assets and
current liabilities. The company has maintained credibility
for all five years. In all the years the current liabilities are
easily met with current assets so the business is able to
pay current obligations.

Quick Ratio: - Current Assets – Inventory – Prepaid

Expenses Current
Liabilities

Quick 2008 2007 2006 2005 2004

Ratio
Current 49004 53177 44660 45661 47143
Assets
Inventor 2701 2664 2810 2841 3316
y
Prepaid 4299 3891 2539 2941 2708
Expens
es
 Ratio 0.98 1.05 0.98 1.46 1.33

Interpretation: The quick ratio is fluctuating from 1.33,

1.46 to 0.98due to fluctuations in quick assets and
current liabilities.

Activity Ratio: -

Inventory turnover ratio: - Net sales / Inventory.

Invento 2008 2007 2006 2005 2004

ry
turnove
r ratio
Net sales 10363000 98786000 91424000 911340 962250
0 00 00
Inventor 2701000 2664000 2810000 284100 331600
y 0 0
Ratio 38.36 37.08 32.53 32.07 29.01
Interpretation: The inventory turnover ratio is
increasing from 29.01 to 38.96 so the sales the company
increased and the inventory stock level decreased from
3316000 to2701000.

Working capital ratio = Net sales/Avg working capital.

Working 2008 2007 2006 2005 2004

capital
ratio
Net sales 10363000 9878600 9142400 911340 962250
0 0 0 00 00
Avg 6569000 8867000 4569000 105090 735700
working 00 0
capital
Ratio 15.77 11.14 20.00 8.67 13.07

Working capital = current assets – current liabilities

Interpretation: Working capital ratio had increased from
13.07 to 15.77 from 2004 to 2008, which indicates
working capital is utilized in more efficient manner
inspi9ne of some fluctuations.

Solvency ratio:-

Debt equity ratio: - Long term debt / Equity

Debt 2008 2007 2006 2005 2004

equity
ratio
Long 22689000 23039000 13780000 154250 148280
term 00 00
debt
Equity 13465000 28470000 28506000 330980 316880
00 00
Ratio 1.68 0.80 0.48 0.46 0.46
 Interpretation: Debt equity ratio is increasing from
0.46 to 1.68 i.e. increase in every year which indicates
company is increasing its goodwill every year.

Equity ratio: - Total shareholders equity / Total Assets.

Equity 2008 2007 2006 2005 2004

ratio

Total 1346500 2847000 2850600 3309800 3168800

sharehold 0 0 0 0 0
ers equity
Total 1095240 1204310 1032340 1057480 1110030
Assets 00 00 00 00 00

Ratio 0.12 0.23 0.27 0.31 0.28

Interpretation: Equity ratio is total resource of the company
is decreasing from 2006 t0 2008 due to decrease in total share
holders’ equity from 28,506 to13,465.

Fixed asset turnover ratio: - Net sales / Net fixed Assets.

Fixed 2008 2007 2006 2005 2004

asset
turnove
r ratio
Net 10363000 98786000 91424000 911340 962250
sales 0 00 00
Net fixed 60520000 67254000 58574000 600870 638600
Assets 00 00
Ratio 1.71 1.46 1.56 1.51 1.50
Interpretation: Fixed asset ratio in 2004 was 1.50 and in
2008 it is 1.71 which indicates the finance to the fixed assets is
well in the company.

Profitability Ratio: -

Gross profit ratio: - Gross profit / Net sales.

Gross 2008 2007 2006 2005 2004

profit
ratio
Gross 4566100 4172900 3829500 3653200 3550100
profit 0 0 0 0 0
 Net 1036300 9878600 9142400 9113400 9622500
sales 00 0 0 0 0
Ratio 0.44 0.42 0.41 0.40 0.36

Interpretation: The gross profit ratio is increasing from

2004 to 2008, the company earned profits this is because
of increased sales and less depreciation.

Net profit Ratio: - Net profit after tax / Net sales.

Net 2008 2007 2006 2005 2004

profit
Ratio
Net 1233400 1041800 9492000 7994000 7497000
profit 0 0
after
tax
 Net 1036300 9878600 9142400 9113400 9622500
sales 00 0 0 0 0
Ratio 0.119 0.105 0.103 0.087 0.077

Interpretation: Net profit ratio is also increasing from

0.077 to 0.119 this is because of less tax provision and
increased sales due to quality and close to consumer. The
net profit ratio is satisfactory.

Return on Equity capital: - Net profit after tax /

Shareholders equity.

Return 2008 2007 2006 2005 2004

on Equity
capital
 Net profit 1233400 1041800 9492000 7994000 7497000
after tax 0 0

Sharehold 1346500 2847000 2850600 3309800 3168800

ers equity 0 0 0 0 0

Ratio 0.91 0.36 0.33 0.24 0.23

Interpretation: Return on equity capital is increasing

throughout the five years therefore return on equity
capital is satisfactory therefore overall profitability ratio is
satisfactory.

EPS: -Net profit after tax / Number of outstanding shares.

 EPS 2008 2007 2006 2005 2004

Net profit 12334000 10418000 9492000 7994000 7497000

after tax

Number of 1341000. 1385000. 1506000. 1573000. 1645000.

outstandi 68 23 48 98 59
ng shares
Ratio 9.19 7.52 6.30 5.08 4.55

Interpretation: EPS of the company is increasing from

last 7 years
 Finding and conclusion
Findings
a) The sales of the company increasing every year.
b)The gross profit of is increasing every year.
c) The company has no preference shares.
d)Company follows the LEAN method of BPR.
e) The internal promotions are more for the higher
position.
f) IBM has the Environmental responsibility, by seeing
the projects like solar power and six sigma.

Conclusion
The company has undertaken many projects after
completing the projects the may be the top 2nd company
in the world. The company has the increasing profits
which indicate its management.
Suggestions
The company has to make better processers although
companies like DELL make processers the dealers has no
credibility in them, because they suggest the intel
processers are good.
The company may grow if the company merge or acquit
the companies like HCL and Infosys as there turnover is
huge.