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NEED AND IMPORTANCE OF THE STUDY:

The study of Financial analysis helps in decision making for investment and
capital expenditure. Through the financial analysis, the organisation can identify
opportunities to improve performance at the department, unit or organisatioonal
level and it is needed to know the short term as well as long term liquidity position
of the organisation and with such study the management is able to decide the course
of action to be adopted in future.
The process of identifying the financial strengths and weakness of the firm
by properly establishing relationship between the items of the balance sheet and
profit & loss account. Financial analysis undertaken by the management of the firm,
or by the parties outside the firm, viz., owners, creditors, investors & others.
The Financial Statements of M/s. Nagarjuna Auto Agency, Warangal are
mirrors reflect the financial position and operating strength or weakness of the firm.
The statements are useful to management, investors, creditors, bankers, workers, and
government and public at large.

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THEORTICAL FRAMEWORK
Accounting process involves recording, classifying and summarizing business
transactions. The day-to-day transactions of business are recorded in different subsidiary
books. These transactions are posted into various ledger accounts and the balance is taken
out at the end of a financial period. The aim of maintaining various rerecords is to be
determining profitability of the enterprise from its operation and also to find out financial
position.
Financial Statement is the out come of summarizing process of accounting.
Financial Statements essentially are reports presented annually.
DEFINITION:

According to John N. Myer, The Financial Statements provide summary of he


accounts of a business enterprise, the Balance Sheet reflecting the Assets, Liability
and Capital as on certain period.

Smith and Ashburn define, Financial Statement as the end product of Financial
Accounting in a set of Financial Statement, prepared by the accountant of a business
enterprise that purpose to reveal the financial position of the enterprise, the results
of its recent activities, and an analysis of what has been done by earnings.

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Analysis of Financial Statement:


Analysis is the process of critically examining in detail accounting information
given in the financial management for the purpose of analysis, individual items are studied,
their interrelation ship with other related figures established, the data is some times
rearranged to have suitable understanding of the information with the help of different
techniques or tool for the purpose. Analyzing Financial Statements is a process of
evaluating relationship between component parts of Financial Management to obtain a
better understanding of firms position and performance.

Interrelation of Financial Statement:


Interpretation is a process of drawing references and stating what the figure in the
Financial Statements really mean. Interpretation is dependent on interpreter himself.
Interpreter must have experience, understanding and intelligence to draw correct
conclusions from the analyzed data.

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NATURE OF FINANCIAL STATEMENTS ANALYSIS


The Financial Statements are prepared on the basis of recorded facts. The recorded
facts are those, which can be expressed, in monitory teams. The statements are prepared for
a particular period, generally one year. The transactions are recoded in the chronological
order, as and when the events happen. The Accounting periods and Financial Statements
prepared from these records are based on historical costs. The Financial Statements by
nature are summaries of the items recorded in the business and these statements are
prepared periodically, generally for the accounting period.
According to John N. Myer, The financial Statements are composed of data which
are results of combinations of:
1. Recorded facts concerning the business transaction.
2. Conventions adopted to facilitate the accounting technique.
3. Postulates, or assumptions made to and
4. Personal Judgment used in the application of the conventions and postulates.

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OBJECTIVES OF ANALYSIS
Following are the objectives of the Financial Statement Analysis:
1. To know and judge the financial position and effective utilize of funds of an
organization.
2. To judge the earnings performance of the company and the facility with which dividends
can be paid from out of earned profit.
3. In the case of Institutional investors such as LIC, UTI etc, the analysis is carried over a
long period with a view to identifying companies having growth potential and a sound
financial base.
4. To judge the ability of the company to pay the principle and interest, arrangement for
amortization of debt and the security available for the loans extended.
5. To judge the solvency of the undertaking.
6. To present the summary of findings and suggest suitable recommendations with regard
to a home.

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IMPORTANCE OF FINANCIAL STATEMENT ANALYSIS


The Financial Statements are the mirrors which reflects
Financial position and operating strength or weakness of the concern. These
statements are useful to Management, Investors, Creditors, Bankers, Workers, and
Government and public at large.
The utility of financial statements to different parties is discussed in the detail as
follows.
The Financial Statements are useful for assessing of different costs centers. The
management is able to exercise the cost control through these statements. The
efficient and inefficient sports are brought to the notice of the management. The
management is able to decide the course of action to be adopted in the future.
The trade creditors are to be paid in short period. This liability is met out of Current
Assets. The creditors will be interested in current solvency of the concern. The
calculation of current ratio and liquid ratio will enable the creditors to assess the
current financial position of the concern to their debts.
The banker is interested to see that the amount is secure and the customer is also
able to pay the interest regularly. The banker will analyze the balance sheet to
determine financial strength of the concern and the profit and loss account will also
be studied to find out the earnings position. The statements also help the banker to
determine the amount of securities it will ask from customers as a cover for the loan.
The Financial Statements are used to assess tax liability of the business enterprise.
The Government studies the economic situation of the country from these
statements. The statements enable the Government to find out whether the business
is following various rules and regulations or not. These statements also become base
for framing and amending Laws for the regulation of the business.

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These associations provide service and protection to the members. They may
analyze the Financial Statements for the purpose of providing facilities to these
members. They may develop standard ratios and design uniform system of accounts.
The Stock Exchange deals in purchase and sale of securities of different companies.
The Financial Statements enable the stockbrokers to judge the financial position of
different concerns. The fixation of the prices for securities, etc., is also based on
these statements.

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LIMITATION OF FINANCIAL STATEMENT


ANALYSIS

Though the Financial Statements are relevant and useful for the concern, still they
do not present a final picture of the concern. The utility of these statements are depending
upon a number of factors. The analysis and interpretation of these statements suffer from the
following limitations.

These statements do not give a final picture of the concern. The data given in
these statements is only approximate.
The Financial Statements are expressed in monitory values. So they appear to
give final accurate position.
The Financial Statements are prepared on the basis of historical costs or
original costs. These statements are not prepared keeping in view the present
economic conditions
The Precision of Financial Statement data is not possible because the
statements deal with matters, which cannot be precisely stated.

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SCOPE OF THE STUDY


The present study reveals the financial performance of M/s. Nagarjuna Auto Agency,
Warangal covering purely the financial data supplied in the companys Financial Statements
through Common size Statement, Comparative statements and Ratio analysis.

METHODOLOGY
For the study, the data was collected from the primary and secondary sources. It has
been scrutinized, edited and presented in the forms of tables and statements. The analysis of
the data has been made with the help of certain mathematical techniques like percentages,
proportions etc., and ratio analysis to draw conclusions.

DATA COLLECTION
The data for the present study is collected from two sources:
I)

PRIMARY DATA:
The data for the present study is collected through personal discussion held with the

Managing Partner of M/s. Nagarjuna Auto Agency, Warangal.


II)

SECONDARY DATA:
The secondary data for the present study is collected from the annual reports,

manuals, and brouchers of M/s. Nagarjuna Auto Agency, Warangal.

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LIMITATIONS OF THE STUDY


1. The study is confined to the M/s. Nagarjuna Auto Agency, Warangal Dealer and no
comparisons made with the other dealers.
2. Financial management covers the topics like cost of capital, capital budgeting, cash flow
statements, cash and inventory management, etc. The present study deals with the
Financial Analysis of M/s. Nagarjuna Auto Agency, Warangal.
3. Statements like Comparative, Common Size, and Ratio Analysis are compared from the
accounting records. So they posses these limitations and weakness as accounting records
possess.
4. It is not always possible to make estimations on the basis of the past, as it always does
not come true.
However with these limitations the study is not handicapped in any way with
available data. Care is taken to cover all aspects of the required objectives.

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CHAPTERISATION PATTERN
Keeping in view the objective of the study the whole project work is organized into
four chapters.

The first chapter is an introductory one, which deals with the theoretical aspects
relating to Financial Statement Analysis. Meaning, nature and objectives of the
Financial Statements. Importance and Limitation of the financial statements. Need
and Importance of the study, Objectives of the study sources of data, Methodology,
Scope and Limitation of the study.

The second chapter presents a brief profile about the Organization i.e., M/s.
Nagarjuna Auto Agency, Warangal.

The third chapter represents the data analysis of Financial Statements of M/s.
Nagarjuna Auto Agency, Warangal containing comparative statement, common size
statement, ratio analysis and their interpretation.

The fourth chapter sums up conclusions and provide suggestions.

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PROFILE OF NAGARJUNA AUTO AGENCY


HISTORY OF THE ORGANIZATION
Nagarjuna Auto Agency, Warangal is one of the authorized dealer of Nagarjuna
Honda M/s. Nagarjuna Auto Agency was established on 10th Aug 2002, in Warangal with
two partners. This concern fully buys the finished goods and sell them. It offers service and
also sells the spare parts of the same company. Its command area is Warangal district.
ORGANIZATIONAL STRUCTURE
Managing Partner

Manager

Chief Accountant Sales Manager

Accountant

Works Manager

Sales Executive

Spares Manager

Supervisor

Office Boys

Skilled Workers

Helpers
Washing boys

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Clerks

12

INVESTMENT OF CAPITAL

Nagarjuna Auto Agency , Warangal was established on 10 th Aug 2002 with capital
investment of Rs. 20 lakhs.
Objectives of the Organisation:
The firm is partnership firm.
1. All the partners want to earn profits.
2. The Organization wants to increase their sales.
The Organization is not a manufacturing concern, so they are trying to satisfy the
customers through their service department.

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CLASSIFICATION OF THE PRODUCT

Total number of Dealers : 1

Dealer Name

NAGARJUNA HONDA

Contact Person

MR.ARUN KUMAR

Mobile

9849177444

Address

NAGARJUNA

AUTO

H.No.

AGENCY
3-16-325,

MULUNG
WARANGAL

306012,

PRADESH

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Phone

0870-2421722 /822

Fax

0871-2421833

Email

nagarjunahonda@hotmail.com

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ANDHRA

HONDA MOTOR & SCOOTER INDIA PVT. LTD.


Honda is the world's largest manufacturer of 2-wheelers. Its symbol, the
Wings, represents the company's unwavering dedication in achieving goals that are unique
and above all, conforming to international norms. These wings are now in India as Honda
Motorcycle & Scooter India Pvt. Ltd. (HMSI), a wholly owned subsidiary of Honda Motor
Company Ltd., Japan. These wings are here to initiate a change and make a difference in the
Indian 2-wheeler industry. Honda's dream for India is to not only manufacture 2-wheelers of
global quality, but also meet and exceed the expectations of Indian customers with
outstanding after sales support.

About Us

Official Name

Honda Motorcycle & Scooter India Pvt. Ltd.

Established

20th Aug, 1999

Place

Manesar, District Gurgaon, Haryana, India

Capital

Rs. 300 Crore

Representative

Mr. Yukihiro Aoshima, President & CEO

Factory Location

Manesar, District Gurgaon, Haryana, India

Production Capacity 7,50,000 units per year

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CAREERS
Unique practices create unique organisations.
Honda was established upon the fundamental belief in the value of each individual.
Based on our philosophy, we respect independent spirit and freedom, equality and mutual
trust of human beings who work for or come in contact with our company. As such our
management policies focus on developing and enhancing the essential characteristics that
every individual possesses - capacity to think, reason, and most importantly - the ability to
dream.
Being the largest producer of 2-wheelers and one of the most admired companies in
the world, definitely thrills us. But what thrills our associates most is the 'Joy of Creating',
one of our missions at Honda, which promotes working for our own happiness.
If you have a passion for 2-wheelers and possess a challenging spirit, your abilities
are more important to us rather than which university you passed from.
Apply to career@hmsi-india.com to be a part of our team. Please attach your resume in
the mail and your subject line should specify what you are applying for and the years of
experience gained. Example: If you are applying for the post of a senior sales executive, and
you

have

years

of

experience,

the

subject

Senior Sales Executive : 5 yrs experience

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line

should

be:

PRODUCTS
HMSI works on a MarketIN concept, which focuses on understanding customer
needs and desire and translating them into product specifications. It is due to this concept
that with in just five years of its launch in India, HMSI has changed the Indian two wheeler
market with its products Honda Activa, Dio, Eterno, Unicorn & Newly launched Shine.
Shine
A masterful blend of form and function, the new Honda Shine brings together the
best of all that is sought in a motorcycle into one awe inspiring piece of automotive
technology.
Equipped with a host of advanced technologies like Multi Mapping CDI, Tumble
Flow Combustion Chamber, Long Intake Pipe and Connecting Tube, CV Carburetor, 2 Way
Air Jacket and Pulse Exhaust System, the newly developed 125 cc 'Optimax' engine delivers
class leading 10.3 BHP which enables Honda Shine to deliver the best balance of pickup and
mileage.

Designed to ensure superior ride quality and ease of handling through


revolutionary Ergo Tec design, which is based on Human engineering Honda Shine will set
new

benchmarks

in

the

Indian

125cc

motorcycle

segment.

Honda Shine completes a 0 60kmph run in just 5.3 secs and returns a class
leading

65kmpl

in

the

process

in

the

Indian

riding

mode.

Honda Shine has been endowed with new modern intelligent style appeal, which
possesses a balance of decent looks with tough & macho appeal and an image of sporty
looks with international taste that lends the HONDA SHINE a Decent and stylish look.

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Unicorn
Powered by a newly developed Honda 4-stroke 150cc engine and incorporating
many cutting-edge technologies developed by Honda's global R&D team, Unicorn sets new
benchmarks for premium motorcycles in India with its swift acceleration, superior mileage,
captivating style, riding comfort and convenience.
Unicorn is engineered and styled for the tastes of the younger generation having
focused vision in lives. With the 4-stroke 150cc engine delivering a whooping 13.3 bhp,
Unicorn is the fastest premium motorcycle in India racing from 0 to 60 kms per hour in a
mere 5 seconds. Unicorn has a distinctive sporty and macho design with a racy front face,
masculine fuel tank with knee grip and a natty rear.

Unicorn offers superior mileage through a combination of the famed 4-stroke Honda
engine, cutting edge technologies like Multi-Mapping CDI, Tumble Flow Combustion
Chamber and Roller Rocker arm, and a classy aerodynamic body. It delivers 60km to a litre.
Unicorn is the first motorcycle in India with the hi-tech mono suspension that
enhances riding comfort and control, and is now available in new Sleek Graphics.

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ETERNO
An entirely new standard in scooters. Tough, sleek and with the best mileage in its
class. Designed especially for the Indian conditions & to suit your everyday needs.
The Eterno is a tough & stylish 4-stroke scooter incorporating the best of Hondas
worldwide technology standards. Right from the engine to the body frame, each part is
designed to be more durable & withstands the rough & tough Indian conditions.

ETERNO is a new Indian standard scooter that defies conventional ideas about a
full size scooter in India. To those who have resigned to the fact that present full size
scooters do not satisfy their basic needs of riding comfort, loading capacity & better fuel
efficiency, ETERNO is a big surprise as it has got:
Reliable, newly designed 4-stroke 150cc engine
Best fuel efficiency in its class (60 kmpl)
Ample, practical loading capacity
Riding comfort even during multiple ride
Masculine, tough & sleek styling
So shed your worries about the full size scooter as "Geared Surprise from Honda is
here." So, go ahead & enjoy the ride.

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DIO
One look at DIO will tell you its more an accessory than a mere convenience. As
Indias first motorscooter, it blends the looks of a motorcycle with the comfort of a scooter.
The body-mounted headlamp and sleek indicators leap right off the front. Ample legroom
gives you an elegant poise. The body tapers into the tail light and yet continues to draw
attention. Of course, the DIO qualifies us to have the last word on style. If there ever existed
an attention magnet, the DIO is it.

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Honda Activa
Honda Activa is the first scooter model of HMSI for the Indian market. It has been
designed in a manner that suits the daily requirement of the entire family and has been
designed for everyone.

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Dealer : Warangal

MODEL

Ex-Showroom

On-Road

Activa

38,157

42,726

Dio

36,624

41,028

Eterno

35,407

39,680

Shine Kick-Disc

42,513

47,552

Shine Kick-Drum

40,619

45,453

Shine Self-Disc

45,513

50,876

Shine Self-Drum

43,619

48,777

Unicorn Kickstart

51,170

57,143

Unicorn Selfstart

54,143

60,437

(To find the prices for ETERNO, DIO and Honda Activa in other cities, close
this pop-up window and click on the relevant cities on the map)

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PRESS RELEASES
2
0
0
2

2
0
0
4

HONDA ENTERS INDIAN MOTORCYCLE MARKET


1. New Delhi, Wednesday, September 08, 2004
Unveils Unicorn, first Honda motorcycle for India
DIO Press Release
2. Mumbai, Friday, May 09, 2003
HONDA ANNOUNCES ETERNO PRICES
ETERNO A NEW STANDARD IN FULL-SIZE SCOOTERS UNVEILED BY HONDA
3. New Delhi, Wednesday, April 09, 2003
150cc 4-stroke geared scooter that gives the best mileage in its class and the most value for
money
DIO Press Release
4. New Delhi, Monday, August 26, 2002
HONDA ANNOUNCES DIO PRICES
DIO Press Release
5. Bangalore, Tuesday, July 23, 2002
DIO - INDIAS FIRST MOTOSCOOTER UNVEILED

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FINANCE STATEMENT TECHNIQUE


AN OVERVIEW
Financial Analysis is the basic method of appraising firms overall study. As part of
scientific investigation of the firm, it attempts to secure through a systematic study of some
significant clues about its financial condition and prospects. Its major thrust is future and
current facts with a view to projecting future functioning and viability of a concern.
DEFINATION AND SCOPE
Financial Analysis may be defined as the examination and comparison of financial
data of the business with a view to assessing its overall health. It is the process of inductive
reasoning for the purpose of formulating probability beliefs about a particular firm an
information processing system designed to supply firm related data for decision- making.
Kennedy McMuller make the statement, they hold that the analysis and the
interpretation of financial statement are an attempt to determine the significance of financial
statement data so that forecast may be made of the prospect for future earning, ability to pay
interest and debt maturates (Current and Long-term), ad profitability of a sound dividend
policy.
In a slight different connotation, the broad purpose of Financial Analysis could be
said to measurement of solvency and performance in the sense of profitability, stability and
similar items. At its best, Financial Analysis seeks to delineate areas of strength and
weakness reflected in accounting data and information from other sources.

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Type of Financial Analysis:


Financial Analysis can be divided in to two following heads. They are as follows:
1.

On the basis material used


Under this head there are 2 types:
(i)

Internal Analysis

(ii)

External Analysis

Internal Analysis:
Persons who have access to the internal accounting records of the business firm do
this analysis:
External Analysis:
Outsiders who do not have access to the detailed information of accounting and
records of the business firm do this. The outsider includes investors, creditors, Government
agencies etc.
On the basis of modus operandi
Under this head there are 2 types:
(i)

Horizontal Analysis

(ii)

Vertical Analysis

Horizontal Analysis:
It refers to the comparison of financial data of company for several years.
Vertical Analysis:
It refers to the study relationship of the various items in financial statement of one
accounting period.

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PROCEDURE OF FINANCIAL STATEMENT ANALYSIS


Broadly speaking, there are 3 steps in financial analysis.
(1)

Selection

(2)

Classification

(3)

Interpretation

The first step involves selection information (date) relevant to the purpose of
analysis of financial statement. The second step involved is the methodical classification of
data and the third step includes drawing of inferences and conclusions.

METHODS / DEVICES OF FINANCIAL ANALYSIS


The analysis of interpretation of financial statement is used to determine the
financial position and results of operation as well.
The numbers of methods or devices used to study are as follows:

1.

Comparative Statements

2.

Common Size statements

3.

Ratio Analysis

4.

Cash-flow Analysis

5.

Fund-flow Analysis

6.

Trend Analysis

7.

Cost-volume Profit Analysis

As the project work deals with the study of the following methods, these methods /
devices of financial analysis are discussed as under:

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1.

Comparative Balance Sheet Statement:


The Comparative Balance Sheet analysis is the study of the trends of same items,

groups of items and computed items in to two or more balance sheets of the same business
on different date. The change in the periodic balance sheet items reflects the conduct of
business.
Interpretations of Comparative Balance Sheet:
While interpreting Comparative Balance sheet, the interpreter is expected to study
the following aspects:

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1.

Current Financial and Liquidity Position

2.

Long-term Financial Position and

3.

Profitability of the concern.

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2.

Comparative Income statement:


The income statement gives the results of the operations of the business. The

comparative income statement gives an idea of the progress of a business over a period of
time. The changes in the absolute data in money values and percentages can be determined
to analyze the profitability of the business. The income has four columns. First two
columns give figures of various items for two years. Third and Fourth columns are used to
show increase or decrease in figures in absolute amounts and percentages respectively.
The analysis of interpretation of income statement will involve the following steps.
1.

The increase or decrease in sales should be compared with the increase or


decrease in cost of goods sold. An increase in sales will not always mean in
increase in profit. The profitability will improve if increase in sales is more than
the increase in cost of goods sold. The amount of gross profit should be studied
in the first step.

2.

The second step of analysis should be study of operational profits.

The

operating expenses such office, selling and distribution expenses should be


deducted from gross profit to find out operating profits. An increase in operating
profit will result from the increase in sales position and control of operating
expenses. A decrease in operating profit may be due to an increase in operating
expenses or decrease in sales. The changes in individual expenses should also
be studied. Some expenses may increases due to the expansion of business
activities while others may go up due to managerial inefficiency.
3.

The increase or decrease in net profit will give an idea about the overall
profitability of the concern. Non-operating expenses like interest paid loss from
the sale of assets, writing off deferred revenue expenditure, payment of tax etc.,
decrease the figure of operating profit. While all non-operating expenses are
deducted from operational profit, we get a figure of net profit. Some nonoperating incomes may also be there which will increase net profit. An increase
in net profit will give us an idea about the progress of the concern.

4.

An opinion should be formed about the profitability of the concern and it should
be given at the end. It should be mentioned whether the overall profitability is
good or not.

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TABLE 3.1
COMPARATIVE BALANCE SHEET OF M/S NAGARJUNA AUTO AGENCY
FOR THE YEAR ENDED 31st MARCH 2006, 2007

COMPONENTS

Year ending march


2006

Inc / Dec
Amount

2007

Inc / Dec
Percentage

ASSETS
Current Assets
Cash in hand & at Bank

1698300

232692

-1465608

-86.30

Sale Tax Deposit

6,000

6,000

0.00

Rent in Advance

300,000

300,000

0.00

Closing Stock

1151722

3280049

2128327

184.80

514163

976,388

462225

89.90

3670185

4795129

1124944

30.65

Equipments & working tools

190,372

220,384

30012

15.76

Furnitures & Fixtures

964,595

1,073,454

108859

11.29

Fixed Deposits

341219

494664

153445

44.97

Total Fixed Assets(B)

1,496,186

1,788,502

292316

19.54

TOTAL ASSETS (A+B)

5,166,371

6,583,631

1417260

27.43

Sundry Creditors

117743

73097

-44646

-37.92

Provision for Tax

332587

265046

-67541

-20.31

Andhra Bank

2,959,891

2959891

ICICI Bank

1,395,230

1395230

450330

4693264

4242934

942.18

M. Nagendram

607350

607350

0.00

M. Vijaya Laxmi

340000

118000

-222000

-65.29

T. Ramakrishna

400000

-400000

-100.00

M. Arun Kumar

1003253

103253

-90000

-89.71

Total long term liability( D)

2350603

828603

-1522000

-64.75

Capital

2365440

1061764

-1303675

-55.11

5166373

6583631

1417258

27.43

Sundry Debtors
Total Current Assets(A)
Fixed Assets

Liabilities
Current Liabilities

Total Current Liability( C )


Long Term Liabilities

(E)

TOTAL LIABILITIES C+D+E

Source: Annual report of the firm.

C onfident ial

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29

INTERPRETATION:
1.

Comparative balance sheet reveals that during the year 2006 07 there
has been arise of 30.65% in the current assets.

2.

This is inspite of a fall in cash and bank balance.

3.

There was significant increase in closing stock.

4.

The profitability of this balance sheet not be impressive, a judged by


decreased in capital -55.11%

C onfident ial

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30

TABLE 3.2
COMPARATIVE BALANCE SHEET OF M/S NAGARJUNA AUTO AGENCY
FOR THE YEAR ENDED 31st MARCH 2007, 2008

COMPONENTS

Year ending march


2007

Inc / Dec
Amount

2008

Inc / Dec
Percentage

ASSETS
Current Assets
Cash in hand & at Bank

232692

463976

231284

99.39

Sale Tax Deposit

6,000

6000

0.00

Rent in Advance

300,000

300000

0.00

Closing Stock

3280049

3102913

-177136

-5.40

Sundry Debtors

976,388

1371376

394988

40.45

Total Current Assets(A)

4795129

5244265

449136

9.37

220,384

274935

54551

24.75

1,073,454

1113930

40476

3.77

494664

558613

63949

12.93

Total Fixed Assets(B)

1,788,502

1947478

158976

8.89

TOTAL ASSETS (A+B)

6,583,631

7191743

608112

9.24

Sundry Creditors

73097

160791

87694

119.97

Provision for Tax

265046

293143

28097

10.60

Andhra Bank

2,959,891

2316208

-643683

-21.75

ICICI Bank

1,395,230

3269445

1874215

134.23

4693264

6039587

1346323

28.69

M. Nagendram

607350

255360

-35990

-57.96

M. Vijaya Laxmi

118000

18000

-100000

-84.75

T. Ramakrishna

M. Arun Kumar

103253

-103253

-100.00

Total long term liability( D)

828603

273360

-555243

-67.01

1061764

878796

-182968

-17.23

6583631

7191743

608112

9.24

Fixed Assets
Equipments & working tools
Furnitures & Fixtures
Fixed Deposits

Liabilities
Current Liabilities

Total Current Liability( C )


Long Term Liabilities

Capital

(E)

TOTAL LIABILITIES C+D+E

Source: Annual report of the firm.

C onfident ial

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31

INTERPRETATION:
1.

Comparative balance sheet reveals that during the year 2007 08 there
has increase in fixed assets at Rs.1,58,976 i.e. 8.89%.

2.

There has decrease in long term liability and there is a scope for
liquidity.

C onfident ial

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32

TABLE 3.3
COMPARATIVE BALANCE SHEET OF M/S NAGARJUNA AUTO AGENCY
FOR THE YEAR ENDED 31st MARCH 2008, 2009

COMPONENTS

Year ending march


2008

Inc / Dec
Amount

2009

Inc / Dec
Percentage

ASSETS
Current Assets
Cash in hand & at Bank

463976

434144

-29832

-6.87

Sale Tax Deposit

6000

6000

Rent in Advance

300000

30000

Closing Stock

3102913

1816749

-1286164

-70.79

Sundry Debtors

1371376

2684435

-1313059

48.91

Total Current Assets(A)

5244265

5241328

-2937

-0.05

274935

311171

36236

13.17

1113930

1142289

28359

2.54

558613

1012110

453497

44.80

Total Fixed Assets(B)

1947478

2465570

518092

26.60

TOTAL ASSETS (A+B)

7191743

7706898

515155

7.16

Sundry Creditors

160791

183793

23002

142.30

Provision for Tax

293143

419431

126288

43.08

Andhra Bank

2316208

2476180

159972

6.90

ICICI Bank - I

3269445

2600651

-668794

20.45

ICICI Bank - II

487771

487771

6039587

6167826

128239

2.12

M. Nagendram

255360

255360

M. Vijaya Laxmi

18000

18000

100.00

Total long term liability( D)

273360

255360

18000

6.58

Capital

878796

1283713

404917

46.07

7191743

7706899

515156

7.16

Fixed Assets
Equipments & working tools
Furnitures & Fixtures
Fixed Deposits

Liabilities
Current Liabilities

Total Current Liability( C )


Long Term Liabilities

(E)

TOTAL LIABILITIES C+D+E

Source: Annual report of the firm.

C onfident ial

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33

INTERPRETATION:
1.

Comparative balance sheet reveals that during the year 2008 09 the
current assets decrease by 0.05% and there was decrease in cash in
hand and bank and closing stock.

C onfident ial

2.

The long term liabilities are increased there is a no scope for liquidity.

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34

TABLE 3.4
COMPARATIVE BALANCE SHEET OF M/S NAGARJUNA AUTO AGENCY
FOR THE YEAR ENDED 31st MARCH 2009, 2010

COMPONENTS

Year ending march


2009

2010

Inc / Dec
Amount

Inc / Dec
Percentage

ASSETS
Current Assets
Cash in hand & at Bank

434144

1984541

1550397

357.11

Sale Tax Deposit

6000

6000

Rent in Advance

30000

30000

Closing Stock

1816749

2762078

945329

52.03

Sundry Debtors

2684435

4462354

1777919

66.23

Total Current Assets(A)

5241328

9514973

4273645

81.53

311171

207785

-103386

-33.22

Furnitures & Fixtures

1142289

665083

-477206

-41.77

Fixed Deposits

1012110

617340

-394770

-39.00

Total Fixed Assets(B)

2465570

1490208

-975362

39.66

TOTAL ASSETS (A+B)

7706898

11005181

3298283

42.80

Sundry Creditors

183793

258523

74730

40.66

Provision for Tax

419431

1213235

793804

189.25

Andhra Bank

2476180

1867515

-608665

-24.58

ICICI Bank - I

2600651

3664086

1063435

40.89

ICICI Bank - II

487771

188562

99209

61.34

257204

257204

6167826

7449125

1281299

20.77

M. Nagendram

255360

1255360

1000000

391.60

Total long term liability( D)

255360

1255360

1000000

391.60

1283713

2300696

1016983

79.22

7706899

11005181

3298282

42.80

Fixed Assets
Equipments & working tools

Liabilities
Current Liabilities

Centurion Bank
Total Current Liability( C )
Long Term Liabilities

Capital

(E)

TOTAL LIABILITIES C+D+E

Source: Annual report of the firm.

C onfident ial

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35

INTERPRETATION:
1.

Comparative balance sheet reveals that during the year 2009 10


current assets and fixed assets were increased by 81.53% and 39.56%
respectively.

2.

The long term liabilities were increased by 39.66% there is no scope


for liquidity.

C onfident ial

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36

TABLE 3.5
COMPARATIVE INCOME STATEMENT OF M/S NAGARJUNA AUTO AGENCY
FOR THE YEAR ENDED 31st MARCH 2006, 2007
Year ending march

COMPONENTS

Inc / Dec
Amount

Inc / Dec
Percentage

2006

2007

Net Sales

9,612,947.00

21,717,975.00

12105028

125.92

Less: Cost of Goods Sold

9,107,572.00

20,523,606.00

11416034

125.35

Gross Profit (A)

505,375.00

1,194,369.00

688994

136.33

Less:Operating Expenses

466,378.00

1,204,584.00

738206

158.28

Total Operating Exp. ( B )

466,378.00

1,204,584.00

738206

158.28

OPERATING PROFIT A-B

38,997.00

-10,215.00

-28782

-73.80

Add: Non Operating Income

47,666.00

346,474.00

298808

626.88

TOTAL INCOME

86,663.00

336,259.00

249596

288.01

Interest

39,753.00

223,203.00

183450

461.47

Profit Before Tax

46,910.00

113,056.00

66146

141.01

1,000.00

5,003.00

4003

400.30

45,910.00

108,053.00

62143

135.36

Less: Non Operating Exp.

Less Tax
PROFIT AFTER TAX

Source: Annual report of the firm.

INTERPRETATION:

C onfident ial

1.

Sales increased by 125.92% in the year 2007.

2.

Cost of goods sold increased by 125.35% in the year 2007

3.

The gross profit also increased by 136.33%.

4.

Net profit after tax increased by 135.36%.

5.

Overall the firm income statement is satisfactory.

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Financial Statement Analysis of M/s Nagarjuna Auto Agency, Wgl

37

TABLE 3.6
COMPARATIVE INCOME STATEMENT OF M/S NAGARJUNA AUTO AGENCY
FOR THE YEAR ENDED 31st MARCH 2007, 2008
Year ending march

COMPONENTS

Inc / Dec
Amount

Inc / Dec
Percentage

2007

2008

Net Sales

21,717,975.00

25,385,115.00

3667140

16.89

Less: Cost of Goods Sold

20,523,606.00

23,984,804.00

3461196

16.86

Gross Profit (A)

1,194,369.00

1,400,311.00

305942

17.24

Less:Operating Expenses

1,204,584.00

1,391,717.00

187133

15.53

Total Operating Exp. ( B )

1,204,584.00

1,391,717.00

187133

15.53

OPERATING PROFIT A-B

-10,215.00

8,594.00

-18809

-184.13

Add: Non Operating Income

346,474.00

596,608.00

250134

72.19

TOTAL INCOME

336,259.00

605,202.00

268943

79.98

Interest

223,203.00

540,418.00

317215

142.12

Profit Before Tax

113,056.00

64,784.00

-48272

-42.40

5,003.00

0.00

-5003

-100.00

108,053.00

64,784.00

-43269

-40.04

Less: Non Operating Exp.

Less Tax
PROFIT AFTER TAX

Source: Annual report of the firm.

INTERPRETATION:
1.

Net sales, cost of goods sold was increased in the year 2008 for
16.89% and 16.86% respectively.

C onfident ial

2.

In the year 2008 operating expenses were increased.

3.

In the year 2008 operating profit decreased by 184.13%.

4.

Profit after tax were decreased by 40.04% in year 2008.

5.

Overall the firm income statement is not satisfactory in the year 2008.

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38

TABLE 3.7
COMPARATIVE INCOME STATEMENT OF M/S NAGARJUNA AUTO AGENCY
FOR THE YEAR ENDED 31st MARCH 2008, 2009
Year ending march

COMPONENTS

2008

Inc / Dec
Amount

2009

Inc / Dec
Percentage

Net Sales

25,385,115.00

27901872

2516757

9.91

Less: Cost of Goods Sold

23,984,804.00

26120428

2135624

8.90

Gross Profit (A)

1,400,311.00

1781444

381133

27.21

Less: Operating Expenses

1,391,717.00

1672739

281022

20.19

Total Operating Exp. ( B )

1,391,717.00

1672739

281022

20.19

OPERATING PROFIT A-B

8,594.00

108705

100111

1.16

Add: Non Operating Income

596,608.00

669362

72754

12.19

TOTAL INCOME

605,202.00

778067

172865

0.28

540,418.00

619927

79509

14.71

64,784.00

158140

93356

144.10

0.00

2500

2500

100

64,784.00

155640

90856

140.24

Less: Non Operating Exp.


Interest
Profit Before Tax
Less Tax
PROFIT AFTER TAX

Source: Annual report of the firm.

INTERPRETATION:
1.

There is an increase in net sales and cost of goods sold in the year 2009
for 9.91 % and 8.90% respectively.

C onfident ial

2.

Operating profit increased in the year 2009 for 1.16%.

3.

Net profit after tax was increased in the year 2009.

4.

The overall income statement is satisfactory.

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39

TABLE 3.8
COMPARATIVE INCOME STATEMENT OF M/S NAGARJUNA AUTO AGENCY
FOR THE YEAR ENDED 31st MARCH 2009, 2010
Year ending march

COMPONENTS

Inc / Dec
Amount

Inc / Dec
Percentage

2009

2010

Net Sales

27901872

53272984

25371112

90.93

Less: Cost of Goods Sold

26120428

49659038

23538610

90.11

Gross Profit (A)

1781444

3613946

1832502

102.87

Less:Operating Expenses

1672739

3321142

1648403

98.54

Total Operating Exp. ( B )

1672739

3321142

1648403

98.54

OPERATING PROFIT A-B

108705

292804

184099

169.35

Add: Non Operating Income

669362

1025960

356598

53.27

TOTAL INCOME

778067

1318764

540697

69.49

Interest

619927

662639

42712

6.89

Profit Before Tax

158140

656125

497985

314.90

2500

2500

100.00

155640

656125

500485

321.56

Less: Non Operating Exp.

Less Tax
PROFIT AFTER TAX

Source: Annual report of the firm.

INTERPRETATION:
1.

There is an increase in net sales and cost of goods sold in the year 2009 and
2010 for 90.93% and 90.11% respectively.

2.

It may conclude that the total income increased in 2008 09 & 2009 10 due
to the greater.

3.

Non-operating expenses were increased.

C onfident ial

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Financial Statement Analysis of M/s Nagarjuna Auto Agency, Wgl

40

TABLE 3.9

COMMON SIZE BALANCE SHEET OF M/S NAGARJUNA AUTO AGENCY


FOR THE YEAR ENDED 31st MARCH 2006, 2007, 2008, 2009 AND 2010
COMPONENTS

2006

ASSETS

Rs

2007

Inc/Dec %

Rs

2008

Inc/Dec %

Rs

2009

Inc/Dec %

Rs

2010

Inc/Dec
%

Rs

Inc/Dec
%

Current Assets
Cash in hand & at Bank

1698300

32.87

232692

3.53

463976

6.45

434144

5.63

1984541

18.03

Sale Tax Deposit

6,000

0.11

6,000

0.09

6,000

0.08

6000

0.08

6000

0.05

Rent in Advance

300,000

5.81

300,000

4.55

300,000

4.17

300000

3.89

300000

2.73

Closing Stock

1151722

22.29

3280049

49.82

3102913

43.14

1816749

23.57

2762078

25.10

514163

9.95

976,388

14.83

1371376

19.07

2684435

34.83

4462354

40.55

3670185

71.03

4795129

72.83

5244265

72.92

5241328

68.00

9514973

86.45

Equipments & working tools

190,372

3.68

220,384

3.34

274,935

3.82

311171

4.03

207785

1.89

Furnitures & Fixtures

964,595

18.67

1,073,454

16.30

1,113,930

15.49

1142289

14.82

665083

6.04

Fixed Deposits

341219

6.60

494664

7.51

558613

7.77

1012110

13.13

617340

5.61

Total Fixed Assets(B)

1,496,186

28.96

1,788,502

27.16

1,947,478

27.07

246570

31.99

1317276

11.97

TOTAL ASSETS (A+B)

5,166,371

100.00

6,583,631

100.00

7,191,743

100.00

7706898

100.00

1105181

100.00

Sundry Debtors
Total Current Assets(A)
Fixed Assets

Source: Annual report of the firm.


TABLE 3.10

C onfident ial

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41

COMMON SIZE BALANCE SHEET OF M/S NAGARJUNA AUTO AGENCY


FOR THE YEAR ENDED 31st MARCH 2006, 2007, 2008, 2009 AND 2010
2006

COMPONENTS

LIABILITIES

Rs

2007

Inc/Dec %

Rs

2008

Inc/Dec %

Rs

2009

Inc/Dec %

2010

Inc/Dec
%

Rs

Inc/Dec
%

Rs

Current Liabilities
Sundry Creditors

117743

2.28

73097

1.11

160791

2.23

183793

2.38

258523

2.35

Provision for Tax

332587

6.44

265046

4.02

293143

4.07

419439

5.44

1213235

11.02

Andhra Bank

0.00 2,959,891

44.96 2,316,208

32.21 2472180

32.12

1867515

16.97

ICICI Bank I

0.00 1,395,230

21.19 3,269,445

45.46 2600651

33.74

3664086

33.29

ICICI Bank II

0.00

487771

6.32

188562

1.71

Centurion Bank

257204

2.33

450330

8.72

4693264

71.29

6039587

83.98 6167826

80.02

7449125

67.69

M. Nagendram

607350

11.75

607350

9.22

255360

3.55

255360

3.31

1255360

11.41

M. Vijaya Laxmi

340000

6.58

118000

1.79

18000

0.25

T. Ramakrishna

400000

7.74

0.00

0.00

0.00

0.00

M. Arun Kumar

1003253

19.42

103253

1.57

0.00

0.00

0.00

Total long term liability( D)

2350603

45.50

828603

12.58

273360

3.80

255360

3.31

1255360

11.41

Capital

2365440

45.78

1061764

16.12

878796

12.21 1283713

16.66

2300696

20.91

5166373

100.00

6583631

100.00

7191743

100.00 7706899

100.00

11005181

100.00

Total Current Liability( C )


Long Term Liability

TOTAL LIABILITIES C+D+E

Source: Annual report of the firm.

C onfident ial

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42

INTERPRETATION:
1.

By studying the common size balance sheet we can observe that there
was an increase in current assets for 71.03% to 72.92% in the year
2005 06 and 2007 08.

2.

We can observe that there was an decrease in current asset in 2008 09


for 68.00% again increase for 86.45% in the year 2009 10.

3.

It reveals that the fixed assets were decrease from 28.96% to 11.97%
from the year 2006 to 2010 respectively.

4.

Current liabilities of the firm increased by 8.7% to 83.97% from the


year 2005 to 2008 respectively, then in 2008 to 2010 current liabilities
of the firm decreased by 80.02% to 67.69% respectively.

5.

Similarly the long-term liabilities was decrease from 45.50% to 3.31%


from the year 2005 06 to 2008 09 respectively and increased in
2010 for 11.40%.

C onfident ial

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43

TABLE 3.11

COMMON SIZE INCOME STATEMENT OF M/S NAGARJUNA ATUO AGENCY


FOR THE YEAR ENDED 31st MARCH 2006, 2007, 2008, 2009 AND 2010
2006
COMPONENTS

2007

2008

2009

2010

Rs

Inc/
Dec %

Rs

Inc/
Dec %

Rs

Inc/
Dec %

Rs

Inc/
Dec %

Rs

Inc/
Dec %

Net Sales

9,612,947.00

100.00

21,717,975.00

100.00

25,385,115.00

100.00

27901872

100.00

53272984

100.00

Less: Cost of Goods Sold

9,107,572.00

94.74

20,523,606.00

94.50

23,984,804.00

94.48

26120428

93.61

49659038

93.21

Gross Profit (A)

505,375.00

5.26

1,194,369.00

5.50

1,400,311.00

5.52

1781444

6.38

3613946

6.78

Less:Operating Expenses

466,378.00

4.85

1,204,584.00

55.55

1,391,717.00

5.48

1672739

5.99

3321147

6.23

Total Operating Exp. ( B )

466,378.00

4.85

1,204,584.00

5.55

1,391,717.00

5.48

1672739

5.99

3321147

6.23

OPERATING PROFIT A-B

38,997.00

0.40

-10,215.00

-0.09

8,594.00

0.03

108705

0.39

292804

0.55

Non Operating Income

47,666.00

0.50

346,474.00

1.60

596,608.00

2.35

669362

2.39

1025960

1.92

TOTAL INCOME

86,663.00

0.90

336,259.00

1.55

605,202.00

2.38

778067

2.79

1318764

2.47

Interest

39,753.00

0.41

223,203.00

1.03

540,418.00

2.13

619927

2.22

662639

1.24

Profit Before Tax

46,910.00

0.49

113,056.00

0.52

64,784.00

0.25

158140

0.57

656125

1.23

1,000.00

0.01

5,003.00

0.02

0.00

0.00

2500

8.00

45,910.00

0.48

108,053.00

0.50

64,784.00

0.25

155640

0.56

656125

1.23

Less: Non Operating Exp.

Tax
PROFIT AFTER TAX

Source: Annual report of the firm.

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INTERPRETATION:
1.

There was a simultaneous increase in the Sales from the year 2005-06
to 2009-10.

2.

The cost of goods sold is a percentage of sales has been decrease from
94.74% to 94.50% in the year 2005-06 and 2006-07 respectively,
from 94.50% to 94.48% in the year 2006-07 and 2007-08 respectively,
from 94.48% to 93.21% in the year 2007-08 to 2009-10 respectively.

3.

The total operating expenses were 4.85% in the year 2005-06 and
decrease in operating expenses for 5.55% to 6.23% from 2006-07 to
2009-10.

4.

The Gross Profit has been Increased from 5.26% to 6.78% from the
year 2005-06 to 2009-10.

5.

The Net Profit was decreased by 0.25% in the year 2008 and
increased in 2009 and 2010 for 0.56% and 1.23% respectively.

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MEANING OF RATIOS ANALYSIS:

Ratio is an expression of the quantitative relationship that exists between the


two numbers. In simple language ratio is one number expressed in terms of another
and can be worked out by dividing one number by the other. It shows the relationship
between two figures.
Ratio analysis is a widely used tool of financial analysis. It is defined as the
systematic use of ratios to interpret the financial statements so that the strengths
weakness of firm as well as its historical performance and current condition can be
determined.
The relationship between two or more accounting figures/groups is called
financial ratios. A financial ratio helps to summarize a large mass of financial data
into a concise form and to make meaningful interpretation and conclusion about the
performance of the firm.
A ratio may be expressed either in proportion or as rate or as percentage. A
ratio may take the form of proportion. Here the figures of the two items used for
computing the ratio or expressed in common denominator. Example are current
ratio=5:3 acid test ratio 1.3:1 etc.,

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NATURE:
The ratio analysis of financial statements stands for the process of
arrangements of data computation of ratios interpretation of the ratios as computed
and projections through ratios. However ratio analysis is not an end itself. It is only a
means of better understanding of financial statements and weakness of a firm
collection of more ratios does not serve and purpose, unless several appropriate ratios
are analyzed and interpreted.
The following are the four steps involved in ratio analysis.
1. Selection of relevant data from the financial statement depending upon
objective of the analysis.
2. Calculation of appropriate ratios from above data
3. Comparison of calculated ratios with the ratio of the same firm in the or
the ratios developed from projected financial statements the ratios of the
some other firms or the comparison with the ratios of the industry to which
the firm belongs.
4. Interpretation of ratio

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MANAGERIAL USE OF RATIO ANALYSIS:

Ratio analyses helps in decision making from the information


provided in these financial statements.

Ratios enable the financial analyst to summarize and simplify the


voluminous financial data.

The trend ratios enable the analyst to find out whether the firm has
been improving its performance or not over the year.

Ratios are helpful in identifying the problem areas of firm and this
will make the management to take necessary corrective measures to
improve the results in future.

Ration analysis helps to formulate policies for future including the


capital expense decisions.

Ratio analysis is important tools for both minimizing costs and


maximizing revenues profits.

ADVANTAGES OF RATIO ANALYSES:

1. Useful in financial position analysis


2. Useful in simplifying accounting figures
3. Useful in assessing the operational efficiency
4. Useful in forecasting purposes
5. Useful in locating weak spots of business
6. Useful in comparison of performance

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CURRENT RATIO:
Meaning:
This ratio establishes the relationship between current assets and Current
Liabilities
Objective:
The objective of computing this ratio is to measure the ability of the firm to
meet its short term obligations and to reflect the short term financial strength of a firm

Components:

Current assets: this means the assets, which are held


for their conversion into cash within a year.

Current liabilities: this means the liabilities which are


expected to be matured within a year

Computation:
This ratio is computed by dividing the current assets by current
liability. Generally 2:1 is considered ideal for a concern.
Formula:
Current assets
Current ratio =

----------------------Current liabilities

Significance:
It indicates the amount of current assets available for each current liability.
Higher the ratio, greater the margin of safety for creditors and vice versa.
However too high or too low ratio calls for further investigation since the too
high ratio may indicate the presence of idle funds and too low ratio may
indicate the over trading or under capitalization. Traditionally a current ratio
may indicate the over trading or under capitalization. Traditionally a current
ratio of 2:1 is considered to be a satisfactory ratio.

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TABLE 3.12

Current Ratio

Years
Current Assets
Current Liabilities
Current Ratio

2005-06

2006-07

2007-08

2008-09

2009-10

3670185

4795129

5244265

5241328

9514973

450330

4693264

6039587

6167826

7449125

8.15

1.02

0.87

0.85

1.28

Source: Annual report of the firm.

INTERPRETATION:
The above table indicates that the Current Ratio of the host organization. It is
very much higher than the ideal ratio i.e., 2:1inthe year 2005-06 and was little lower
than the ideal ratio i.e., 1.02% in 2004-05 and 0.87in 2007-08.
In the year 2009-10 the ratio is increased, than the ideal ratio for 1.28%.

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NET PROFIT RATIO:


Meaning:
This ratio measures the relationship between net profit and net sales
Objective:
The main objective of computing this ratio is to determine the overall profitability
due to various factors such as operational efficiency, trading on equity etc.
Components:

Net profit

Net sales

Computation:
This ratio is computed by dividing the nit profit by net sales. It is expressed as
percentage.
Formula:
Net profit
Net profit Ratio =

-----------------

100

Net sales
The figure of net profit may be taken either before tax or after tax.
Significance:
This ratio indicates on an average net margin earned on sale of 100%
higher the ratio greater is the capacity of the firm to withstand adverse
economic condition and vice versa.

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TABLE 3.13

NET PROFIT RATIO:

Years

2005-06

2006-07

2007-08

2008-09

2009-10

Net Profit

45,910

108,053

64,784

155640

656125

Net sales

9,612,947

21,717,975

25,385,115

27901872

53272984

Net Profit Ratio

0.48

0.50

0.26

0.56

1.23

Source: Annual report of the firm.

INTERPRETATION :
From the above table it is clear that the ratio of the net profit in the year 200506 was 0.48% and increased by 0.50% in the year 2006-07 and decreased again by
0.26% in the year 2007-08.
In the year 2008-09 increased by 0.56% and in the year 2009-10 increased by
1.23%.

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Gross Profit Ratio:


Gross Profit Ratio is one of the most commonly used ratios. It reveals
the results of trading operations of the business. In other words it indicates to us the
profitability of the core activity of the business. The business men can continue with
this business as long as he is happy with this difference , as he knows that the core
activity is profitable. Even he is finally suffered a loss it is due to factors that are not
inherent in the business and could be over come either through cost reduction increase
in volume or any other appropriate business strategy.
Gross Profit Ratio captures this differential.
Formula:
Gross Profit
Gross Profit Ratio =

---------------- * 100
Net Sales

Components:

Gross profit

Net Sales -Cost of Goods Sold

Net Sales

Total Sales - Sales Returns

Cost of Good sold

(Opening Stock + Purchases+

Manufacturing
Expenses) Closing Stock
Computation:
This ratio is computed by dividing the gross profit by Net Sales. It is
expressed as percentage
Significance:
The higher the ratio the better will be the performance of the business.
However Gross Profit Ratio of the current year must be compared with that of
the previous years to know the change in performance.

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TABLE 3.14

GROSS PROFIT RATIO:

Years

2005-06

2006-07

2007-08

2008-09

2009-10

Gross Profit

505,375

1,194,369

1,400,311

1781444

3613946

Net Sales

9,612,947

21,717,975

25,385,115

27901872

53272984

Gross Profit Ratio

5.26

5.50

5.52

6.38

6.78

Source: Annual report of the firm.

INTERPRETATION:
The above table reveals that the gross profit if the organization is lower than in
the year 2005-06 when compared to next four years.
However it is above 5% in the year 2005-06 and 2007-08 policies and above
6% in the 2008-09 and 2009-10, low cost of goods take good position in excessive
competitive market. The highest rate of gross profit ratio is 6.78% in the 2009-10.

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TREND ANALYSIS OF NAGARJUNA AUTO AGENCY


Trend Analysis:
What is trend Analysis?
The financial statements may be analyzed by computing trends of series of
information.

This method determines the direction upwards or downwards and

involves the computation of the percentage relationship that each statement item bears
to the same item in base year. The information for a number of years is taken up and
one year, generally the first year, is taken as a base year. The figures of the base year
are taken as 100 and trend ratios for other years are calculated on the basis of base
year. The analyst is able to see the trend of figures, whether upward or downward.
For example, if sales figures for the year 1985 to 1990 are to be studied, then sales of
1985 will be taken as 100 and the percentage of sales for all other years will be
calculated in relation to the base year, i.e., 1985. Suppose the following trends are
determined.
1985

100

1986

120

1987

110

1988

125

1989

135

1990

140

The trends of sales show that sales have been more in all the years since 1985.
The sales have shown an upward trend except in 1987 when sales were less than the
previous year i.e., 1986. A minute study of trends shows that rate of increase in sales
is less in the years 1989 and 1990. The increase in sales is 15% in 1988 as compared
to 1987 and increase is 10% in 1989 compared to 1988 and 5% in 1990 as compared
to 1989. Though the sales are more as compared to the base year but still the rate of
increase has not been constant and requires a study by comparing these trends to other
items like cost of production etc.

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Produce for calculating trends:


1.

One year is taken as a base year. Generally the first or the last is taken as
base year.

2.

The figures of base year are taken as 100.

3.

Trend percentages are calculated in relation to base year. If a figure in


other year is less than the figure in base year the trend percentage will be
less than 100 and it will be more than 100 if figure is more than base year
figure. Each years figure is divided by the base years figure.
The interpretation of trend analysis involves a cautious study. The mere

increase or decrease in trend percentage may give misleading results if studied in


isolation. An increase of 20% in current assets may be treated favourable. If this
increase in current assets is accompanied by an equivalent increase in current
liabilities then this increase will be unsatisfactory. The increase in sales may not
increase profits if the cost of production has also gone up.
The base period should be carefully selected. The base period should be a
normal period. The price level changes in subsequent years may reduce the utility of
trend ratios. If the figure of the base period is very small, then the ratios calculated on
this basis may not give a true idea about the financial data.

The accounting

procedures and conventions used for collecting data and preparation of financial
statements should be similar, otherwise the figures will not be comparable.

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TABLE 3.15

TREND ANALYSIS
Net Sales:
Years
2005-06
2006-07
2007-08
2008-09
2009-10

Sales
9612947
21717975
25385115
27901872
53272984

Percentage
100.00
225.92
264.07
290.25
554.18

Source: Annual report of the firm.

INTERPRETATION:
The above table shows the changes in the sales during the period of five years.
The net sales increased from 225.92% to 554.18 % in the year from 2006-07 to 200910 when compared to base year 2005-06.

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TABLE 3.16

Gross Profit:
Years
2005-06
2006-07
2007-08
2008-09
2009-10

Gross Profit
505378
1194369
1400311
1781444
3613946

Percentage
100.00
236.33
277.08
352.50
715.10

Source: Annual report of the firm.

INTERPRETATION :
From the above table it can be concluded that the gross profit increased from
the first to last year.
The Gross Profit was increased from 236.33% to 715.10% from the year 200607 to 2009-10 when compare to the base year 2005-06.

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TABLE 3.17

Profit After Tax:


Years
2005-06
2006-07
2007-08
2008-09
2009-10

Net Profit
45910
108053
64784
155640
656125

Percentage
100.00
235.35
141.11
339.01
1429.15

Source: Annual report of the firm.

INTERPRETATION :
The above table indicates that the net profits are increase in the period of four
years has been increased comparing to the base year.
The Net Profit in the year 2006-07 was increased by 235.35% comparing to
the base year.
However the Net Profit was decrease in the year 2007-08 comparing to the
previous year i.e.,41.11%.
In 2008-09 and 2009-10 the net profit increased by 339.01% and 1429.15%
respectively.

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TABLE 3.18

Operating Expenses:
Years
2005-06
2006-07
2007-08
2008-09
2009-10

Operating Expenses
466378
1204584
1391717
1672739
3321147

Percentage
100.00
258.28
298.40
358.67
712.11

Source: Annual report of the firm.

INTERPRETATION :
The above table reveals that the operating expenses increased in the review
period of the five years.
The operating expenses were increased by 258.28% in the year 2006-07 and
by 298.40% in the year 2007-08 compared to the base year 2005-06.
In the year 2008-09 and 2009-10 operating expenses increased by 358.67%
and 712.11% respectively.
The firm has to take the controlling steps to minimize the operating expenses
so as to increase the profit of the firm.

CONCLSIONS:
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1. The Net Sales of the firm were increases by 9.91% and 90.93% in the year
2008-09 and 2008-09 respectively.
2. The Gross Profit of the firm has been increased by 27.21% i.e. Rs.3,81,133 in
the year 2008-09 and 102.87% i.e. Rs.18,32,502 in the year 2009-10.

3. The Net Profit of the firm has been increased by 140.24% i.e. Rs.90,856 in the
year 2008-09 and 321.56% i.e. Rs.5,00,485 in the year 2009-10 respectively.
4.

The Current Assets were decreased by 0. 05% i.e. Rs.2,937 in the year 200809 and increased by 81.53% i.e. Rs.42,73,645 in the year 2009-10 respectively

5. The Fixed Assets of the firm increased by 26.60% i.e. Rs.5,18,012 in the year
2008-09 and in the year 2009-10 decreased by 39.66% i.e. Rs.9,75,362.
6. The Current Liabilities of the firm were increased by 2.12% i.e. Rs.1,28,239 in
the year 2008-09 and in the year 2009-10 increased by 20.77% i.e.
Rs.12,81,299.
7. The Capital of the firm has been increased by 46.07% and 79.22% in the year
2009-10 respectively.
8. The firm is maintaining good balance between Current Asset and Current
Liabilities, this can be noticed from Current Ratio.

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Suggestions:
1.

The firm has to increase its sales and turnover.

2.

The firm has to control its non-operating expenses and as a result there was an
increase in its earnings before interest and tax.

3.

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The company has to decrease its operating expenses.

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BIBLIOGRAPHY
Book
1)

Author

Management Accounting

Publisher

Dr. S.N. Maheshwari

Sultan Chand & Sons,


2001

2)

Financial Management

Prasanna chandra

TATA
MC.GRAWHILL, 1988

3)

4)

Advanced Management

Shashi K. Gupta

Accounting

& R.K. Sharma

Financial Management

I.M. Pandey

Kalyani Publishers,2004

Vikas Publishing
House, 2005.

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