A

Dissertation Report
on
“FINANCIAL ANALYSIS"
SUBMITTED for partial fulfillment of requirement for the
award of degree
OF
“BACHELOR OF BUSINESS ADMINISTRATION”
OF

(SESSION 2017-2020)

SUPERVISION BY SUBMITTED BY
Mr. Arun Kumar Singh Riya Aggarwal

BBA 6TH SEM

SRI DEV SUMAN UTTARAKHAND UNIVERSITY

NEW TEHRI, UTTARAKHAND

1
 DECLARATION

I, Riya Aggarwal, hereby declared that the project report entitled “FINANCIAL
ANALYSIS.” submitted by me to the university in the partial fulfillment of the requirement
for the award of degree of Bachelor of Business Administration under the guidance of “Mr.
Arun Kumar Singh” is my original work & the conclusion drawn therein are based on the
material/data collected by myself.

The report submitted is my own work & hence not from any other source.

I shall be responsible for any unpleasure moment/situation (if any)

DATE:

RIYA AGGARWAL

2
 GUIDE CERTIFICATE
This is to certify that Riya Aggarwal is the bonofied student of BBA have successfully
completed the project work as described by the university in the partial fulfillment of the
Bachelor of Business Administration of the academic year 2019-20.

The project work entitled as “FINANCIAL ANALYSIS”

Mr. Arun Kumar Singh

______________________

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 ACKNOWLEDGEMENT
A successful project is the result of team work & coordination that includes not only the
group of developers who put for the ideas, logics but also those who guide them. So, at the
completion of the project I feel obliged to extent my gratitude towards all those who made
valuable conclusions throughout my research period.

I am thankful for all the knowledge/guidance & support imparted by “Mr. Arun Kumar
Singh” to me who gave me invaluable knowledge in the period.

I would also like to thank all the respondents for giving us their precious time and relevant
information and experience, as and when required without which this project would not have
been possible.

At the end just as significantly, I would like to express my sincere thanks to management
department & all the other members who have provided me excellent knowledge & guidance
throughout my BBA degree.

Thanking you

Riya Aggarwal

Date:

4
 ABSTRACT

The financial statement provides the basic data for financial performance analysis. The
financial statements provide a summarized view of the financial position and operations of a
firm. Financial analysis (also referred to as financial statement analysis or accounting
analysis) refers to an assessment of the viability, stability and profitability of a business. The
analyst first identifies the information relevant to the decision under consideration from the
total information contained in the financial statements. Therefore, much can be learnt about a
firm from a careful examination of its financial statements as invaluable documents and
performance reports.

The analysis of financial statements is an important aid to financial analysis. They

provide information on how the firm has performed in the past and what is its current
financial position. Financial analysis is the process of identifying the financial strengths and
weakness of the firm from the available accounting data and financial statements. The
analysis is done by establishing relationship between the different items of financial
statements.

The focus of financial analysis is on key figures in the financial statements and the
significant relationship that exists between them. The analysis of financial statements is a
process of evaluating relationship between component parts of financial statements to obtain
a better understanding of the firm’s position and performance.

The first task of financial analyst is to select the information relevant to the decision
under consideration from the total information contained in the financial statement. The
second step involved in financial analysis is to arrange the information in a way to highlight
significant relationships. The final step is interpretation and drawing of inferences and
conclusions. In brief, financial analysis is the process of selection, relation, and evaluation.

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 INTRODUCTION

The financial situation of the business subject is considered to be a complex output of their
whole performance. This output is presented through the ratio indicators of activity,
profitability, liquidity, indebtedness and market value. These indicators are based on the
synthetic indicators of financial accounting and they demonstrate the complexity of the
business subject’s performance interpretation.

Financial analysis involves using financial data to assess a company’s performance and make
recommendations about how it can improve going forward.

The process of reviewing and analyzing a company’s financial statements to make better

economic decisions is called analysis of financial statements. In other words, the process of
determining financial strengths and weaknesses of the entity by establishing the strategic
relationship between the items of the balance sheet, profit and loss account, and other financial
statements.

The term ‘analysis’ means the simplification of financial data by methodical classification of
the data given in the financial statements, ‘interpretation’ means, ‘explaining the meaning and
significance of the data so simplified.’ However, both’ analysis and interpretation’ are
interlinked and complementary to each other.

A financial situation analysis is the foundation of the company’s economic performance

analysis and usually proceeds down to primary fields and results as effectivity, efficiency,
production capacity utilisation, supplement management and the like. Financial analysis detects
weaknesses and strengths of the company, is the tool of “health” diagnostics and provides
essential information to business management and to owners

The company’s financial situation is diverse and a multifaceted complex phenomenon;

consequently this diversity is transferred also into the financial analysis process. The user of the
financial analysis results decides which indicator’s to select and the priority of utilisation of
individual parts of the financial analysis according to demand and intention.

Among primary users of the financial analysis we might include various subjects mainly
asowners, managers,employees, lenders (suppliers, banks), debtors etc.

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Significance of Financial Analysis

Finance Manager

Analysis of financial statements helps the finance manager in:

 Assessing the operational efficiency and managerial effectiveness of the company.

 Analyzing the financial strengths and weaknesses and creditworthiness of the

company.

 Analyzing the current position of financial analysis,

 Assessing the types of assets owned by a business enterprise and the liabilities which
are due to the enterprise.

 Providing information about the cash position company is holding and how much debt
the company has in relation to equity.

 Studying the reasonability of stock and debtors held by the company.

Top Management

Financial analysis helps the top management

 To assess whether the resources of the firm are used in the most efficient manner

 Whether the financial condition of the firm is sound

 To determine the success of the company’s operations

 Appraising the individual’s performance

 evaluating the system of internal control

 To investigate the future prospects of the enterprise.

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Trade Payables

Trade payables analyze of financial statements for:

 Appraising the ability of the company to meet its short-term obligations

 Judging the probability of firm’s continued ability to meet all its financial obligations
in the future.

 Firm’s ability to meet claims of creditors over a very short period of time.

 Evaluating the financial position and ability to pay off the concerns.

Lenders

Suppliers of long-term debt are concerned with the firm’s long-term solvency and survival.
They analyze the firm’s financial statements

 To ascertain the profitability of the company over a period of time,

 For determining a company’s ability to generate cash, to pay interest and repay the
principal amount

 To assess the relationship between various sources of funds (i.e. capital structure
relationships)

 To assess financial statements which contain information on past performances and

interpret it as a basis for forecasting future rates of return and for assessing risk.

 For determining credit risk, deciding the terms and conditions of a loan if sanctioned,
interest rate, and maturity date etc.

Investors

Investors, who have invested their money in the firm’s shares, are interested in the firm’s
earnings and future profitability. Financial statement analysis helps them in predicting the
bankruptcy and failure probability of business enterprises.

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Objectives of Financial Analysis
Let us look at some of the main objectives of financial analysis,

1. Reviewing the performance of a company over the past periods: To predict the
future prospects of the company, past performance is analyzed. Past performance is
analyzed by reviewing the trend of past sales, profitability, cash flows, return on
investment, debt-equity structure and operating expenses, etc. 

2. Assessing the current position & operational efficiency: Examining the current
profitability & operational efficiency of the enterprise so that the financial health of the
company can be determined. For long-term decision making, assets & liabilities of the
company are reviewed. Analysis helps in finding out the earning capacity & operating
performance of the company.

3. Predicting growth & profitability prospects: The top management is concerned

with future prospects of the company. Financial analysis helps them in reviewing the
investment alternatives for judging the earning potential of the enterprise. With the help
of financial statement analysis, assessment and prediction of the bankruptcy
and probability of business failure can be done.

4. Loan Decision by Financial Institutions and Banks: Financial analysis helps the
financial institutions, loan agencies & banks to decide whether a loan can be given to the
company or not. It helps them in determining the credit risk, deciding the terms and

conditions of a loan if sanctioned, interest rate, maturity date etc.

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TYPES OF FINANCIAL STATEMENTS:
Financial statements primarily comprise two basic statements:

1. The position statements of the balance sheet.

2. The income statements or the profit and loss account.

Accounting principles specify that a complete set of financial statements must include:

1. A balance sheet

2. An income statement

3. A statement of change in owners accounts.

4. A statement of changes in financial position.

BALANCE SHEET:

The balance sheet is one of the important statements depicting the financial strength of
concern. It shows the properties that are owned on one hand and on the other hand the
sources of the assets owned by the concern and all the liabilities and claims it owes to owners
and outsiders. The balance sheet is prepared on a particular date. The right hand shows
properties and assets and the left hand shows liabilities.

INCOME STATEMENT OR PROFIT AND LOSS ACCOUNT:

Income statement is prepared to determine the operation position of the concern. It is a

statement of revenues. The income statement may be prepared in the form of manufacturing
account to find out the cost of the production in the form of trading accounts to determine
gross profit or loss, in the form of profit and loss account to determine net profit or net loss.

STATEMENT OF CHANGES IN OWNERS EQUITY:

The term owners equity refers in the claims of the owners of the business against the assets of
the firm. It consist of two elements.

1. Paid up share capital i.e. the initial amount of funds invested by the shareholders.

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 2. Retained earnings/reserves and surplus representing undistributed profits.

The statement of changes in owners equity simply shows the beginning balance of
each owners equity account, the reasons of increases and decreases in each, and its
ending balance. However, in most cases the owners equity account changes
significantly in retain earnings and hence the statement of changes in owners equity
becomes merely a statement of retained earnings.

STATEMENT OF CHANGES IN FINANCIAL POSITION:

The basic financial statement i.e. the balance sheet and profit and loss account and
income statement of a business reveals the net effect of various transactions on the
operational position of the company. But there are many transactions that do not operate
through profit and loss account. Those for a better understanding another statement of
changes in financial position has to be prepared to show the changes in assets and liabilities
from the end of another point of time. The statement of changes in financial position may
take any of the two forms. They are:

 Funds statements

 Cash flow statements

TOOLS OF FINANCIAL ANALYSIS USED IN THE STUDY:

MEANING OF COMPARATIVE STATEMENT:

The comparative financial statements are the statements of the financial

position of different periods; the elements of financial positions are then in a comparative
form to give idea of financial position of two or more periods. The comparative statement
may show:

 Absolute figures

 Changes in absolute figures i.e. increase or decrease in absolute figures.

 Absolute data in terms of percentage.

 Increase or decrease in terms of percentage.

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COMPARATIVE BALACE SHEET:
It is a statement of financial position of a business at a specific movement of time. It
represents all assets owned by the business at a particular movement of time and the claims of
the owners and outsiders against those assets at the time. It is a way they shape the financial
condition of the business at that time.

The important distinction between an income statement and balance sheet is that the income
statement is for a period where as balance sheet is on a particular date.

COMPARATIVE INCOME STATEMENT:

The comparative income statement gives the results of the operation of a business. The
comparative income statement gives an idea of the program of a business over a period of
time. The changes in absolute data in money values and percentages can be determined to
analyze the profitability of the business.

GUIDELINES FOR INTERPRETATION OF INCOME STATEMENT:

The analysis and 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 an increase in profit.
The profitability will improve if increase in sales promotion and the control of
operating expenses.
2. The second step of analysis should be the study of operation profit. The operating
expenses such as office and administrative expenses. Selling and distribution
expenses should be deducted from gross profit to find out operating profit which will
result from the increase in sales position and control of operating expenses.
3. The increase or decrease in net profit give an idea about overall profitability of the
concern, non-operating expenses such as interest paid, loss from sale of assets, writing
off to deferred expenses or deducted from operational profit we get the figure of
operating profit.
4. An opinion should be formed about profitability of the concern and it should be given
at the end. This should be mentioned whether the overall profitability is good or not.

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COMMON SIZE STATEMENTS:
The common size statement, balance sheet and income statement are shown in analytical
percentages. The figures are shown as percentages of total assets, total liabilities and total
sales. The total assets are taken as of and different assets are expressed as a percentage of the
total.

1. Common size balance sheet: A statement in which balance sheet items are expressed
as the ration of each asset to total assets and the ratio of each liability is expressed as a
ratio of total liabilities is called common sized balance sheet.

2. Common size income statement: The items in income statement can be shown as
percentage of sales to show the relation of each item to sales. A significant
relationship can be established between item of income statement and value of the
sales. The increase in sales will certainly increase selling expenses and not
administrative are financial expenses.

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT:

An attempt has been made to analyze and interpret the financial statements of C&S
ELECTRIC for the period of 2018-2019. These statements were prepared on the basis of the
data in the balance sheets and profit and loss accounts of the C&S ELECTRIC for the above
period.

RATIO ANALYSIS:
A ratio is a simple mathematical expression. It is a number expressed in terms of another
number, expressing the quantitative relationship between the two, ratio analysis is the
technique of interpretation of financial statements with the help of various meaningful ratios.
Ratios do not add to any information that is already available, but they show the relationship
between two items in a more meaningful way.

Ratio analysis is a very important tool of financial analysis. It is the process of establishing a
significant relationship between the items of financial statements to provide a meaningful
understanding of the performance and financial position of the firm. They help us to draw
certain conclusions. Comparison with related facts is the basis of ratio analysis. Ratios may
be used for comparison in any of the following ways.

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 1. Comparison of a firm with its own performance in the past.

2. Comparison of one firm with its own performance in the past.

3. Comparison of one firm with another firm in the industry.

4. Comparison of one firm with the industry as a whole.

5. Comparison of an achieved performance with pre-determined standards.

6. Comparison of one department of a concern with other departments.

TYPES OF RATIOS

 Liquidity ratio

 Capital structure/leverage ratio

 Profitability ratio

 Activity ratio.

 LIQUIDITY RATIOS: it measures the short-term solvency of the firm. In a

short period of a firm should be able to meet all its short-term obligation i.e.
current liabilities and provisions. It is current assets that yield funds in the
short period. Current assets are those, which the firm can convert it into cash
within one year or short run. Current assets should not only yield sufficient
funds to meet current liabilities as they fall due but also to enable the firm to
carry on its day-to-day activities.

The following are the important liquidity ratios:

1. Current ratio

2. Acid test/quick ratio.

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 3. Cash ratio

4. Net working capital ratio

1.Current ratio: Current ratio is the ratio of current assets to current liabilities. Current
assets are the assets that are expected to be realized in cash or sold or consumed during the
normal operating cycle of the business or with in one year, which ever is longer, they include
cash in hand and bank, bills receivable, net sundry debtors, stock of raw materials, finished
goods and working in progress, prepaid expenses, outstanding incomes, assured incomes and
short term or temporary investments. Current liabilities are the liabilities that are to be repaid
within a period of one year. They include bills payable, sundry creditors, bank overdrafts,
outstanding expenses, income receivable in advance, proposed dividend, provision for
taxation, unclaimed dividends and short term loans and advanced repayable within one year.

CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITIES

Generally 2 : 1 ratio is considered ideal for the company.

2. ACID TEST/QUICK RATIO: the acid test ratio is the ratio between quick current assets
and current liabilities and calculated by dividing the quick assets by current liabilities. Quick
assets mean those which can be converted into cash immediately by exclusion of inventory
and prepaid expenses from current assets.

Acid test Ratio=Quick assets/Current liabilities.

Generally 1: 1 ratio is considered to be ideal for the company.

3. CASH RATIO: The cash ratio is the ratio of cash and bank balance, it is calculated
dividing cash and bank balance by current liabilities.

CASH RATIO= Cash and Bank balances/Current liabilities.

Generally 1 : 2 ratio is considered to be ideal for a company.

4. NET WORKING CAPITAL RATIO: Working capital ratio refers to comparing current
assets to current liabilities and serve as the liquidity reserve avail. To satisfy contingencies
and uncertainties. It is calculated by dividing net working capital by capital employed.

Net Working Capital Ratio = net working capital/capital employed.

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Generally higher ratio is considered ideal for a company.

 CAPITAL STRUCTURE/LEVERAGE RATIO: These ratios indicate the relative

interests of owners and creditors in a business by showing long term financial
solvency and measure the enterprise’s ability to pay the interest regularly and to repay
the principal on maturity or in pre-determined instalments at due dates.

The significant leverage ratios are:

1. Debt Equity Ratio

2. Proprietary Ratio

3. Capital Gearing Ratio.

4. Fixed assets Ratio

5. Interest coverage Ratio

6. Dividend Coverage Ratio

7. Debt Service coverage Ratio.

1.Debt Equity Ratio: It reflects the relative claim of creditors and shareholders against the
assets of the business. Debt usually refers to long-term liability. Equity includes equity and
preference share capital and reserves.

Debt Equity Ratio=long term liabilities/share holders funds.

Ideal debt equity ratio is 2 : 1

2.Propreitary ratio:It expresses the relationship between the net worth and total assets. A
high proprietary ratio is indicative of strong financial position of business.

Proprietary ratio = Net worth/ Total Assets

Net worth = Equity share capital + fictitious Assets

Total assets= fixed assets + Current Assets

Generally higher the ratio the ideal it is.

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3. Capital Gearing Ratio: A company is said to be highly geared if it has a high capital
gearing ratio and lowly geared if the capital gearing ratio is low. The extent of gearing
determined the future financial structure of the business. A company that is highly geared
will have to raise funds by issuing fresh equity shares, whereas a lowly geared company
would find it attractive to raise funds by way of term loans and debentures.

Capital Gearing Ratio = funds bearing fixed interest and fixed dividend/equity
.share holder’s funds

Funds bearing fixed interest and capital=Debentures + term loans +preference .

. share capital.

Equity share holder funds=Equity share capital +reserves-fictitious funds.

4.Fixed Assets Ratio: This ratio indicates the mode of financial the fixed assets. It is
calculated as

Fixed assets Ratio= Fixed assets/capital employed

Capital employed= equity share capital + preference share capital +reserves + long term
Liabilities – Fictitious Assets.

Generally a ratio of 0.67 : 1 is considered ideal for a company.

5.Interest Coverage Ratio: This ratio is called as “debt service ratio”. This ratio indicates
whether a business is earning sufficient profits to pay the interest charges. It is calculated as

Interest coverage ratio=PBIT/Fixed interest charges

PBIT=Profit before interest and taxes=PAT + Interest + Tax

Generally a ratio of around 6 is normally considered as ideal for a company.

6.Dividend coverage ratio: It indicates the ability of a business to pay and maintain the fixed
preference dividend to preference shareholders.

Dividend coverage ratio=PAT/Fixed preference dividend.

PAT= Profit After Taxes

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7.Debt service coverage Ratio: It indicates whether the business is earning sufficient profits
to pay not only the interest charges, but also the instalments due to the principal amount. It is
calculated as

Debt service Coverage Ratio =(PBIT/Interest + Periodic Loan Installation)/(1- Rate of

income Tax)

Generally greater the ratio, the better is the servicing ability of company.

 PROFITABILITY RATIO: Profitability ratios measure the profitability of a

company. Generally they are calculated either in relation to sales or in relation to
investments. The various profitability ratios are discussed under the following heads.

(A) GENERAL PROFITABILITY RATIO’S:

1.Gross Profit Ratio:Gross profit is one of the most commonly used ratios. It reveals the
result of trading operations of the business. In other words, it indicates to us the profitability
of the business. It is calculated as

Gross Profit Ratio=(Gross Profit/Net sales)*100

Gross Profit=net sales-cost of goods sold.

Net Sales=Total Sales- Sales Returns

Cost of Goods Sold=Opening Stock + Purchases + Manufacturing expenses-closing Stock.

Generally the higher the ratio, the better will be the performance of the company.

2.NET PROFIT RATIO: It indicates the results of overall operations of the firm. While the
gross profit ratio indicates the extent of profitability of core operations. Net profit ratio tells
us about overall profitability. It is called as

Net Profit Ratio=(Net Profit after Tax/Net Sales)*100

Generally higher the ratio, the more profitable to the company.

3.OPERATING RATIO: It expresses the relationship between expenses incurred for

running the business, and the resultant net sales. It is calculated as

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Operating Ratio=cost of goods sold + Office and Administrative expenses + selling and
distribution Expenses.

Generally lower the ratio, the better it is to the company.

4.OPERATING PROFIT RATIO: It establishes the relationship between operating profit

and sales. It is calculated as

Operating Profit Ratio=(Operating Profit/Net Sales)*100

Generally higher the ratio, the better it is to the company.

5.EXPENSES RATIO: Expenses ratios are the ratios that supplement the information given
by the operating ratio. Each of the expense rations highlights the relationship given by the
particular expense and net sales. For example, factory expenses ratio is of factory expenses to
net sales any expenditure can be shown as a ratio to sales. All such ratios fall under the broad
head of expenses ratios.

(B) OVERALL PROFITABILITY RATIOS:

1.RETURN ON CAPITAL EMPLOYED RATIO(ROCE) OR RETURN ON

INVESTMENT RATIO(ROD):
This ratio reveals the earning capacity of the capital employed in the business. In other
words, capital employed is permanent capital invested in the business. It is also called capital
and hence, the ratio is also known as return on invested capital

ROCE= (Profit before interest and taxes/capital employed) *100

2.RETURN ON NET WORTH(RONW): It indicates the return, which the shareholders are
earning on their resources invested in the business. It is calculated as

RONW=(Profit after Tax/Net Worth)*100

Generally higher the ratio, the better it is to the shareholders.

3.RETURN ON EQUITY CAPITAL:It expresses the return earned by the owners of the
business, after adjusting for debt and preference capital. It is calculated as

RETURN ON EQUITY= PAT- Preference dividend/equity shareholders funds.

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Generally higher the ratio, the better it is to the company.

4.RETURN ON ASSETS RATIO(ROA): Return on assets reflects the return earned by the
firm for the company for the shareholders of the business on the investment of all the
financial resources committed to the business. It is calculated as

ROA=PAT/TOTAL SALES

Generally higher the ratio, the better it is to the shareholders.

5.EARNINGS PER SHARE(EPS): It is the earning accruing to the equity shareholders on

every share held by them. It is calculated as

EPS= PAT-Preference dividend/number of equity shares.

Generally the ratio, the better is the performance of the company.

6.Dividends per share (DPS): It is the amount of dividend payable to the holder of one
equity share. It is calculated as

DPS=Dividend on equity share capital/number of equity shares

Generally from investors point of view, the higher the ratio, the happier the investor.

7.DIVIDEND PAY OUT RATIO: It is the ratio of dividend per share to earning per share.
It is calculated as

Dividend Pay Out Ratio=DPS/EPS

8.PRICE EARNING RATIO(P/E Ratio): It expresses the relationship between market

price of one share of a company and earnings per share of that company.

P/E Ratio=Market Price of Equity share/EPS

There is no ideal P/E ratio.

9.DIVIDEND YIELD RATIO: It expresses the relationship between dividend earned per
share and the market price per share. In other words, it expresses the return on investment by
purchasing a share in the stock market , without accounting for any capital appreciation. It is
calculated as

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DIVIDEND YIELD RATIO- Dividend per share/Market price of share.

10.BOK VALUE: It is the fraction of the net worth of the business as depicted in the balance
sheet, which is attributable to one equity share of the business . it is calculated as
BOOK VALUE=Equity share holders funds/number of equity shares.
Generally higher the book value of the share, the more strong the business is assumed to be.

 ACTIVITY RATIO: Activity ratios measures the efficiency or effectiveness with

which a firm managers its resources or assets. They calculate the speed with which
various assets, in which funds are blocked up, get converted into sales. The significant
activity or turnover ratios are

1.INVENTORY TURN OVER RATIO OR STOCK TURN OVER RATIO: Stock

turnover ratio indicates the number of items the stock has turned over into sales in a year. It
indicates to us the extent of stock required to be held in order to achieve a desired level of
sales.

Inventory Turn Over Ratio = Cost of Goods Sold/Average Stock

Cost of Goods Sold=Sales-Gross Profit.
Average Stock=(Opening Stock + Closing Stock)/2
Generally 8 is considered ideal ratio of the company.

2.DEBTORS TURN OVER RATIO: Debtors Turn Over Ratio expresses the relationship
between debtors and net credit sales. It is calculated as
Debtors Turn Over ratio= Net Credit Sales/Average Debtors.
Generally the ratio between 10-12 an ideal value for the company.

3.CREDITORS TURN OVER RATIO:Creditors turn over ratio expresses the relationship
between creditors and net credit purchases. It is calculated as
Creditors Turn Over Ratio= Net Credit Purchases/Average Creditors.
Generally the ratio 12 is an ideal for the company.

4.WORKING CAPITAL TURN OVER RATIO: This ratio is defined as Working Capital
Turn Over Ratio= Cost of Goods Sold/Working Capital
Working Capital=Current Assets- Current Liabilities.
Generally higher ratio indicates efficient utilization of firm’s funds.

5.Fixed Assets Turn Over Ratio: It is Defined as ratio of Net Sales to the Fixed Assets.

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Generally the ratio of around 5 is considered ideal for the company.

LITERATURE REVIEW
Literature Review was done by referring previous studies, articles and books to know
the areas of study and analyze the gap or study not done so far. There are various studies
were conducted relating to operational performance of the company from which most
relevant literatures were reviewed.

Salmi, T. and T. Martikainen (1994), in his "A review of the theoretical and empirical basis
of financial ratio analysis", has suggested that A systematic framework of financial statement
analysis along with the observed separate research trends might be useful for furthering the
development of research. If the research results in financial ratio analysis are to be useful for
the decision makers, the results must be theoretically consistent and empirically
generalizable.

Greninger et al.(1996), identified and refined financial ratios using a Delphi study in the
areas of liquidity, savings, asset allocation, inflation protection, tax burden, housing expenses
and, insolvency. Based on the Delphi findings, they proposed a profile of financial well-
being for the typical family and individual.

Kennedy and Muller (1999), has explained that “The analysis and interpretation of financial
statements are an attempt to determine the significance and meaning of financial statements
data so that the forecast may be made of the prospects for future earnings, ability to pay
interest and debt maturines (both current and long term) and profitability and sound dividend
policy.”

Jae K.Shim & Joel G.Siegel (1999), had explained that the financial statement of an
enterprise present the raw data of its assets, liabilities and equities in the balance sheet and its
revenue and expenses in the income statement. Without subjecting these to data analysis,
many fallacious conclusions might be drawn concerning the financial condition of the
enterprise. Financial statement analysis is undertaken by creditors, investors and other
financial statement users in order to determine the credit worthiness and earning potential of
an entity.

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Elizabeth Duncan and Elliott (2004), had stated that the paper in the title of efficiency,
customer service and financing performance among Australian financial institutions showed
that all financial performance measures as interest margin, return on assets, and capital
adequacy are positively correlated with customer service quality scores.

Jonas Elmerraji (2005), tries to say that ratios can be an invaluable tool for making an
investment decision. Even so, many new investors would rather leave their decisions to fate
than try to deal with the intimidation of financial ratios. The truth is that ratios aren't that
intimidating, even if you don't have a degree in business or finance. Using ratios to make
informed decisions about an investment makes a lot of sense, once you know how use them.

Chidambaram Rameshkumar & Dr. N. Anbumani (2006), he argue that Ratio Analysis
enables the business owner/manager to spot trends in a business and to compare its
performance and condition with the average performance of similar businesses in
the same industry. To do this compare your ratios with the average of businesses similar
to yours and compare your own ratios for several successive years, watching especially for
any unfavorable trends that may be starting. Ratio analysis may provide the all-important
early warning indications that allow you to solve your business problems before your
business is destroyed by them.

Peeler J. Patsula (2006), he define that a sound business analysis tells others a lot about
good sense and understanding of the difficulties that a company will face. We have to make
sure that people know exactly how we arrived to the final financial positions. We have to
show the calculation but we have to avoid anything that is too mathematical. A business
performance analysis indicates the further growth and the expansion. It gives a physiological
advantage to the employees and also a planning advantage.

John J.Wild, K.R.Subramanyam & Robert F.Halsey (2006), have said that the financial
statement analysis is the application of analytical tools and techniques to general-purpose
financial statements and related data to derive estimates and INTERPRETATION useful in

23
business analysis. Financial statement analysis reduces reliance on hunches, guesses, and
intuition for business decisions. It decreases the uncertainty of business analysis.

I.M.Pandey (2007), had stated that the financial statements contain information about the
financial consequences and sources and uses of financial resources, one should be able to say
whether the financial condition of a firm is good or bad; whether it is improving or
deteriorating. One can relate the financial variables given in financial statements in a
meaningful way which will suggest the actions which one may have to initiate to improve the
firm’s financial condition.

Carlos Correia (2007), had explained that any analysis of the firm, whether by management,
investors, or other interested parties, must include an examination of the company’s financial
data. The most obvious and readily available source of this information is the firm’s annual
report. The financial statements shall, in conformity with generally accepted accounting
practice, fairly present the state of the affairs of the company and the results of operations for
the financial year.

Susan Ward (2008), emphasis that financial analysis using ratios between key values help
investors cope with the massive amount of numbers in company financial statements. For
example, they can compute the percentage of net profit a company is generating on the funds
it has deployed. All other things remaining the same, a company that earns a higher
percentage of profit compared to other companies is a better investment option.

T.S.Reddy and Y. Hari Prasad Reddy (2018), have stated that “The statement disclosing
status of investments is known as balance sheet and the statement showing the result is
known as profit and loss account”

M Y Khan & P K Jain (2011), have explained that the Financial statements provide a
summarized view of the financial position and operations of a firm. Therefore, much can be
learnt about a firm from a careful examination of its financial statements as invaluable
documents / performance reports. The analysis of financial statements is, thus, an important
aid to financial analysis.

24
Rachchh Minaxi A (2011), have suggested that the financial statement analysis involves
analyzing the financial statements to extract information that can facilitate decision making.
It is the process of evaluating the relationship between component parts of the financial
statements to obtain a better understanding of an entity’s position and performance.

RESEARCH METHODOLOGY

Research can be defined as “A Scientific and Systemic Search for pertinent

information on a specific topic”. Therefore, research could be understood as an organized
activity with specific objectives on a problem or issues supported by compilation of related
data and facts, involving application of relevant tools of analysis and deriving logically on
originality.

RESEARCH DESIGN

Research Design is the arrangement of condition for collection and analysis of

data in manner that aims to combine relevance to the research purpose with the economy in
procedure. Research Design is important primarily because of the increased complexity in the
market as well as marketing approaches available to the researchers. A research design
specifies the methods and procedures for conducting a particular study.

TYPE OF RESEARCH

ANALYTICAL RESEARCH

In this type of research has to use facts or information already available, and analyze
these to make a critical evaluation of the material. The researcher depends on existing data
for his research work. The analysis revolves round the material collected or available.

SOURCE OF DATA

 SECONDARY DATA

Secondary Data refers to the information or facts already collected such data are collected
with the objectives of understanding the past status of any variable or the data collected and

25
reported by some source is accessed and used for the objective of a study. Normally in
research, the scholars collect published data, journals, annual reports and websites.

TOOLS USED FOR ANALYSIS

(1) Ratio Analysis

(2) Comparative Statement Analysis

(3) Common-size Statement Analysis

(4) Cash Flow Statement Analysis

(5) Regression Analysis

RATIO ANALYSIS

A ratio is the process of determining and presenting the relationship of items and groups of
items in the financial statements. The ratios can be classified into the following types:

PROFITABILITY RATIO

Profitability Ratio measured as a ability to make maximum profit from optimum utilization of
resources by a business concern is termed as profitability.

o GROSS PROFIT RATIO

This ratio is also known as Gross Margin or Trading Margin Ratio. Gross Profit Ratio
includes the difference between sales and direct costs.

Gross Profit Ratio = ( Gross Profit / Net Sales ) * 100

o NET PROFIT RATIO

26
It measures of management efficiency in operating the business successfully from the
owner’s point of view. Higher the ratio better is the operational efficiency of business
concern.

Net Profit Ratio = ( Net Profit After Tax / Net Sales ) * 100

o RETURN ON EQUITY OR RETURN ON NET WORTH

This ratio signifies the return on equity shareholders funds. The profit considered for
computing the ratio is taken after payment of preference dividend.

Return on Equity = ( Net Profit After Interest And Tax / Shareholder’s funds ) *
100

ACTIVITY RATIO OR TURNOVER RATIOS:

Activity ratios highlight the operational efficiency of the business concern. The term
operational efficiency refers to effective, profitable and rational use of resources available to
the concern.

o WORKING CAPITAL TURNOVER RATIO

Working capital ratio measures the effective utilization of working capital. It also measures
the smooth running of business. The ratio establishes relationship between cost of sales and
working capital.

Working Capital Turnover Ratio = ( Sales / Net Working Capital )

o CAPITAL TURNOVER RATIO

Managerial efficiency is also calculated by establishing the relationship between cost of sales
or sales with the amount of capital invested in the business.

Capital Turnover Ratio = (Sales / Capital Employed)

27
o FIXED ASSET TURNOVER RATIO
This ratio determines efficiency of utilization of fixed assets and profitability of a business
concern.

Fixed Asset Turnover Ratio = (Sales / Net Fixed asset)

SOLVENCY OR FINANCIAL RATIOS

Solvency or Financial Ratios include all ratios which express financial position of the
concern. The term financial position generally refers to short-tem and long-term solvency of
the business concern, including safety of different interested parties.

o CURRENT RATIO

In order to measure the short-term liquidity or solvency of a concern, comparison of current

assets and current liabilities is inevitable. Current ratio indicates the ability of a concern to
meet its current obligations as and when they are due for payment.

Current Ratio = ( Current asset / Current liabilities )

o DEBT EQUITY RATIO

The debt equity ratio is determined to ascertain the soundness of the long term financial
policies of the company and also to measures the relatives’ proposition of outsider’s funds
and shareholders funds investments in the company.

Debt-Equity Ratio = ( Total Long-term Debt / Shareholder’s Funds )

o DEBT TO TOTAL FUNDS RATIO

This ratio gives same indication as the debt equity ratio as this is a variation of debt equity
ratio. This ratio is the relationship between long term debts and total long term funds.

Debt to Total Funds Ratio = ( Long-term Debt / Total Funds)

28
o EQUITY TO TOTAL FUNDS

Equity to total funds explains the relationship between equity and total funds.

Equity to Total Funds = ( Equity / Total Funds)

COMPARATIVE STATEMENT ANALYSIS

Comparative balance sheet as on two or more different dates can be used for
comparing assets and liabilities and findings out any increase or decrease in the items. Thus
while in single balance sheet the emphasis is on present position, it is on change in the
comparative balance sheet.

COMMON SIZE STATEMENT ANALYSIS

Common size statements indicate the relationship of various items with some
common items. In the income statements, the sales figure is taken as basis and all other
figures are expressed as percentage of sales. Similarly, in the balance sheet the total assets
and liabilities is taken as base and all other figures are expressed as percentage of this total.

CASH FLOW STATEMENT

Cash flow includes cash inflows and out flows - cash receipts and cash payments
during a period. A cash flow statement is a statement which portrays the changes in the
position between two accounting period. Cash flow analysis can reveal the causes for even
highly profitable firms experiencing acute cash shortages.

REGRESSION ANALYSIS

A fundamental and versatile research technique that seeks to explain an outcome

variable in terms of multiple predictor variables. This analysis reveals the nature and strength
of the relationship between each predictor variable and the outcome, independent of the
influence from all other predictors.

Regression Equation Y on X is given as:

29
 Y = a + bX
Equations to find constants ‘a’ and ‘b’ are given as:
∑Y = Na + b∑X
∑XY = a∑X + b

DATA ANALYSIS AND INTERPRETATION

RATIO ANALYSIS

4.1 PROFITABILITY RATIOS

4.1.1 Gross Profit Ratio:

This ratio is also known as Gross Margin or Trading Margin Ratio. Gross Profit Ratio
includes the difference between sales and direct costs.

Gross Profit
Gross Profit Ratio = X100
Net Sales

Table No 4.1.1 GROSS PROFIT RATIO

Years Gross Profit Net sales Ratio

(Rs.) (Rs.) (In %)
2016-2017 30289.71 90176.44 33.58
2017-2018 21971.03 108277.62 20.29
2018-2019 32347.63 118189.37 27.37

Chart No 4.1.1 GROSS PROFIT RATIO

R A T IO (IN P E R C E N T A G E )

40
30
20
10
0
2007-2008 2008-2009 2009-2010
2016-2017 2017-2018 2018-2019

30
INTERPRETATION:

The Gross Profit for the financial year 2016-2017 was recorded as per the ratio is
33.58%, where as the years between 2017-2018 went through a change in the ratio of 20.29%
and the companies profit went upward in 2018-2019 with the ratio of 27.37%. Thus, it is
showing the steady growth in the company profile.

4.1.1.2 NET PROFIT RATIO

It measures of management efficiency in operating the business successfully from

the owner’s point of view. It indicates the return on shareholder’s investment. Higher the
ratio better is the operational efficiency of business concern.

Net Profit after Tax

Net Profit Ratio = X 100
Net Sales

Table No 4.1.2 NET PROFIT RATIO

Years Net Profit Net sales Ratio

(Rs.) (Rs.) (In %)
2016-2017 21254.24 90176.44 23.56
2017-2018 15073.14 108277.62 13.92
2018-2019 22674.86 118189.37 19.18

Chart No 4.1.2 NET PROFIT RATIO

RATIO (IN PERCENTAGE)

25
20
15
10
5
0
2016-2017 2017-2018 2018-2019

INTERPRETATION:

31
 The Net Profit Ratio depicts that the company had a good profit in 2016-2017 where it
had a good yield profit. Comparing to the year 2017-2018 is 13.92%, the sales of the
company have a steady attitude and increase upwards to 19.18%. This indicates that there is
an improvement in the operational efficient of the business and it leads to the increase in the
profitability of the firm.

1.1.1.3 RETURN ON EQUITY OR RETURN ON NET WORTH

This ratio signifies the return on equity shareholders funds. The profit considered for
computing the ratio is taken after payment of preference dividend.

Net profit after interest and tax

Return on Equity = X 100
Shareholder fund

Table No 4.1.3 RETURN ON EQUITY

Years Net profit after Shareholder Ratio

interest and tax Fund (Rs.) (In %)
(Rs.)
2016-2017 21254.24 231280.81 9.18
2017-2018 15073.14 268538.97 5.61
2018-2019 22674.86 333318.07 6.80

Chart No 4.1.3 RETURN ON EQUITY

RATIO (IN PERCENTAGE)

10
8
6
4
2
0
2016-2017 2017-2018 2018-2019

INTERPRETATION:

32
 Return on shareholder fund determines the profitability from the shareholders point of
view. From the above, it shows that in the year 2017-2018, the company shows 5.61% of
ratio and it has risen to 6.80%. This is a clear indication of overall operation is efficient.

4.1.2 TURNOVER RATIO

4.1.2.1 WORKING CAPITAL TURNOVER RATIO

Working capital ratio measures the effective utilization of working capital. It also
measures the smooth running of business. The ratio establishes relationship between cost of
sales and working capital.
Sales
Working Capital Turnover Ratio =
Net Working Capital

Table No 4.1.4 WORKING CAPITAL TURNOVER RATIO

Years Sales Net Working Ratio

(Rs.) Capital (In Times)
(Rs.)
2016-2017 90176.44 645733.44 0.13
2017-2018 108277.62 666319.18 0.16
2018-2019 118189.37 898497.54 0.13

Chart No 4.1.4 WORKING CAPITAL TURNOVER RATIO

RATIO (IN TIMES)

0.2
0.15
0.1
0.05
0
2016-2017 2017-2018 2018-2019

33
INTERPRETATION:

A higher ratio is the indication of lower investment of working capital and more
profit. In 2016-2017, the sales of the company are low at 0.13 times but in the year 2017-
2018, it gone upward of sales to 0.16 times.

4.1.2.2 CAPITAL TURNOVER RATIO

Managerial efficiency is also calculated by establishing the relationship between

cost of sales or sales with the amount of capital invested in the business.

Sales
Capital Turnover Ratio =
Capital Employed

Table No 4.1.5 CAPITAL TURNOVER RATIO

Years Net Sales Capital Employed Ratio

(Rs.) (Rs.) (In Times)
2016-2017 90176.44 536009.27 0.16
2017-2018 108277.62 533288.26 0.20
2018-2019 118189.37 720052.92 0.17

Chart No 4.1.5 CAPITAL TURNOVER RATIO

0.25
RATIO (IN TIMES)

0.2
0.15
0.1
0.05
0
2016-2017 2017-2018 2018-2019

INTERPRETATION:
In the year 2016-2017, the sales’ comparing to 2017-2018 it is increased to 0.20 times
and it shows that efficient methods are adopted to use the capital employed. In 2018-2019,

34
which compares to the year 2016-2017 it indicates higher ratio of 0.17 times. The capital of
the company has utilized efficiently comparing to 2016-2017.

4.1.2.3 FIXED ASSET TURNOVER RATIO

This ratio determines efficiency of utilization of fixed assets and profitability of a

business concern.
Sales
Fixed Asset Turnover Ratio =
Net Fixed asset

Table No 4.1.6 FIXED ASSET TURNOVER RATIO

Years Sales Fixed Asset Ratio

(Rs.) (Rs.) (In Times)

2016-2017 90176.44 17264.30 5.22

2017-2018 108277.62 20241.05 5.35
2018-2019 118189.37 23237.80 5.09

Chart No 4.1.6 FIXED ASSET TURNOVER RATIO

5.4
RATIO (IN TIMES)

5.3
5.2
5.1
5
4.9
2016-2017 2017-2018 2018-2019

INTERPRETATION:

Higher the ratio is more than the efficiency in utilization of Fixed Assets. Lower ratio
indicates the under utilization of fixed assets. From the above table it indicates in the year

35
2017-2018, the sales have been increased comparing to the next year 2018-2019. And it’s
gradually declining over the next year 2018-2019 for 5.09 times.

4.1.3 SOLVENCY OR FINANCIAL RATIOS:

4.1.3.1 CURRENT RATIO

In order to measure the short-term liquidity or solvency of a concern, comparison
of current assets and current liabilities is inevitable. Current ratio indicates the ability of a
concern to meet its current obligations as and when they are due for payment.

Current asset
Current Ratio =
Current liabilities

Table No 4.1.7 CURRENT RATIO

Years Current Asset Current Liabilities Ratio
(Rs.) (Rs.) (In Times)
2016-2017 56187.53 53034.57 1.06
2017-2018 68876.04 50360.94 1.36
2018-2019 166489.36 55084.13 3.02

Chart No 4.1.7 CURRENT RATIO

3.5
RATIO (IN TIMES)

3
2.5
2
1.5
1
0.5
0
2016-2017 2017-2018 2018-2019

INTERPRETATION:

36
 A high current ratio is an assurance that the firm will have adequate funds to
pays current liabilities and other payment. During the year 2018-2019, the current ratio is
3.02 times and it is more when compared with previous year 2017-2018 is 1.36 times.

4.1.3.2 DEBT EQUITY RATIO

The debt equity ratio is determined to ascertain the soundness of the long term
financial policies of the company and also to measures the relatives’ proposition of outsider’s
funds and shareholders funds investments in the company.

Total Long-term debt

Debt Equity Ratio =
Shareholders Funds

Table No 4.1.8 DEBT EQUITY RATIO

Years Long term debts Shareholders funds Ratio
(Rs.) (Rs.) (In Times)

2016-2017 431716.93 104292.34 4.13

2017-2018 418021.26 115267 3.62
2018-2019 588417.27 131635.65 4.47

Chart No 4.1.8 DEBT EQUITY RATIO

5
RATIO (IN TIMES)

4
3
2
1
0
2016-2017 2017-2018 2018-2019

INTERPRETATION:

37
 From the above table, during the year 2016-2017 the debt equity ratio is 4.13 times and
it is decreased to 3.62 times then it shows the uptrend from the year 2018-2019 as 4.47 times.
Suggest that the debt from the company has increased over the years with increase in
shareholder funds as well.

4.1.3.3 DEBT TO TOTAL FUNDS RATIO

This ratio gives same indication as the debt equity ratio as this is a variation of
debt equity ratio. This ratio is also known as solvency ratio. This ratio is the relationship
between long term debts and total long term funds.

Long Term Debts

Debt to Total Funds Ratio =
Total Funds

Table No 4.1.9 DEBT TO TOTAL FUNDS RATIO

Years Long Term Debts Total Funds Ratio

(Rs.) (Rs.) (In Times)
2016-2017 431716.93 712389.16 0.60
2017-2018 418021.26 742843.84 0.56
2018-2019 588417.27 981013.79 0.59

Chart No 4.1.9 DEBT TO TOTAL FUNDS RATIO

RATIO (IN TIMES)

0.62
0.6
0.58
0.56
0.54
0.52
2016-2017 2017-2018 2018-2019

INTERPRETATION:

38
 During the year 2016-2017, the debt to total funds ratio is 0.60 times and it was
decreased. And in 2018-2019 again it had an increase in the company’s sales comparing to
previous year 2017-2018 is 0.56 times to 0.59 times in 2018-2019.

4.1.3.4 EQUITY TO TOTAL FUNDS

Equity to total funds explains the relationship between equity and total funds.

Equity
Equity to Total Funds =
Total Funds

Table No 4.1.10 EQUITY TO TOTAL FUNDS

Years Equity Total Funds Ratio

(In Rs.) (In Rs.) (In Times)
2016-2017 104292.34 712389.16 0.14
2017-2018 115267.00 742843.84 0.15
2018-2019 131635.65 981013.79 0.13

Chart No 4.1.10 EQUITY TO TOTAL FUNDS

RATIO (IN TIMES)

0.16
0.15
0.15
0.14
0.14
0.13
0.13
0.12
2016-2017 2017-2018 2018-2019

INTERPRETATION:

In the year 2016-2017, the total funds was Rs.712389.16 (in lakhs) and it shows
upward trend of Rs.981013.79 (in lakhs) and during the year 2018-2019 comparing to the
year 2017-2018 is Rs.742843.84 (in lakhs).

39
 Particulars 2018 2019 Amount Increase / Percentage
(Rs.) (Rs.) Decrease during Increase / Decrease
2018-2019 (Rs.) during
2018-2019 (In %)
Income from Operation 108277.62 118189.37 +9911.75 +9.15
Less: Financial Expense 64544.09 63379.55 (1164.54) (1.80)

Gross Profit (A) 43733.53 54809.82 +11076.29 +25.33

Other Income:
Profit on Sale of Shares - 2538.90 - -
Other Income 3199.28 4142.57 +943.29 +29.48

Total (B) 3199.28 6681.47 +3482.19 +108.84

Total Income 46932.81 61491.29 14558.48 +134.17

(A+B) = C

Expense:
Operating Expense:

Administration Expense 7160.91 6042.27 (1118.64) (15.62)

Establishment Expense 9407.97 10011.23 +603.26 +6.41
Provision 4616.80 8608.59 +3991.79 +86.46
Depreciation 3776.10 4481.57 +705.47 +18.68

Total Operating
Expense (D) 24961.78 29143.66 +4181.88 +16.75

Operating Profit
(C-D) 21971.03 32347.63 +10376.6 +47.23

Non-Operating Expense:

Taxation 6897.89 9672.77 +2774.88 +40.23

Total Non-Operating Expense (F)

6897.89 9672.77 +2774.88 +40.23
Net Profit (E-F)
15073.14 22674.86 +7601.72 +50.43

5.2.1 COMPARATIVE INCOME STATEMENT OF SUNDARAM FINANCE

LIMITED FOR THE YEAR ENDED 31.03.2019

40
INTERPRETATION:

The comparative income statement shows income from operation amount increase
during the year 2018-2019 was Rs.9911.75 and increase in percentage of 9.15.

For the year 2018-2019, the total income indicates Rs.14558.48 and percentage
increase during the year 2018-2019 was 134.17.

The operating profit has been increased is Rs.32347.63 in the year 2019 which is
comparing to the previous year was Rs.21971.03 and the percentage shows increase by 47.23.

The Net profit amount increases during 2018-2019 is Rs. 7601.72 and shows
percentage increase by 50.43.

41
 5.2.2 COMPARATIVE BALANCE SHEET OF SUNDARAM FINANCE LIMITED
FOR THE YEAR ENDED 31.03.2019
Amount Increase / Percentage
2018 2019 Decrease during Increase /
Particulars
(Rs.) (Rs.) 2018-2019 Decrease during
(Rs.) 2018-2019 (In %)
Assets:

Current Assets 68876.04 166489.36 +97613.32 +141.72

Loans & Advance 653955.77 799363.96 +145408.19 +21.98
Deferred Tax Asset 5691.36 6124.40 +433.04 +7.61
Investment 51188.87 53744.80 +2555.93 +4.99
Fixed Asset 20241.05 23237.80 +2996.75 +14.80

Total Asset 799953.09 1048960.32 +249007.23 +31.13

Liabilities and
Capital:

Current Liability 58478.77 67946.53 +9467.76 +16.19

Unsecured Loan 208479.20 260960.87 +52481.67 +24.17
Secured Loan 417728.12 588417.27 +170689.15 +40.86

Total Liabilities 684686.09 917324.67 +232638.58 +33.98

(A)

Capital and
Reserve:

Share Capital 5554.19 5554.19 - -

Reserve & Stock
Options 109711.81 126080.46 +16368.65 +14.92

Total
Shareholders 115267.00 131635.65 16368.65 +14.20
Funds (B)

Total Liabilities 799953.09 1048960.32 249007.23 +31.13

and Capital (A+B) ========== ========== ============= =============

42
INTERPRETATION:

In the year 2018-2019, the investment it shows the uptrend for the year 2019 as
Rs.53744.80 and it has increased by 4.99%.

Fixed assets has been increased was Rs.23237.80 in the year 2019 which is comparing
to the previous year and the percentage shows increase by 14.80.

During the year 2018, the shareholders fund amount to Rs.115267.00 it has been
increased to the amount of Rs. 131635.65 and percentage increased was 14.20.

Secured loans shows uptrend by Rs.588417.27 over the previous year of Rs.417728.12
and increase in percentage of 33.98.

43
5.3.1 COMMON SIZE INCOME STATEMENT OF SUNDARAM FINANCE LIMITE
2018 2019
Particulars
Amount Percentage Amount Percentage
(Rs.) (%) (Rs.) (%)

Income from Operation 90176.44 100 108277.62 100

Less: Financial Expense 49699.52 55.1 64544.09 59.6

Gross Profit (A) 40476.92 44.88 43733.53 40.39

Other Income:
- - - -
Profit on Sale of Shares 2.95
Other Income 3199.28 3.54 3199.28

Total (B) 3199.28 3.54 3199.28 2.95

Total Income 43676.20 48.43 46932.81 43.34

(A+B) = C

Expense:
Operating Expense:
7198.81 7160.91 6.61
Administration Expense 7.98
8821.90 9407.97 8.68
Establishment Expense 9.78
3308.02 4616.80 4.26
Provision 3.66
3012.19 3776.10 3.48
Depreciation 3.34

Total Operating 22340.92 24.77 24961.78 23.05

Expense (D)

Operating Profit
21335.28 23.65 21971.03 20.29
(C-D) = E

Non-Operating Expense:

Taxation 9035.47 10.01 6897.89 6.37

Total Non-Operating
9035.47 10.01 6897.89
Expense (F) 6.37
12299.81 13.63 15073.14 13.92
Net Profit (E-F)

44
INTERPRETATION:

The operating profit of the Sundaram Finance Limited has been increased during the
year 2017-2018, the operating profit shows Rs.21335.28 in 2018 and Rs.21971.03 in the
financial year 2018.

For the year 2008, the establishment expense shows Rs.8821.90 and it has been
increased to Rs.9408.97 during the year 2018.

In 2008, provision is 3.66% and it indicates increase during the year 2018 was 4.26%.

The operating expenses incurred to the Sundaram Finance Limited during the
financial year 2008 which shows Rs.22340.92 and it has risen to Rs.24961.78 during the
financial year 2018.

The net profit percentage recorded as 13.63 in 2018 where as in the year 2018 the
companies profit went upward with the percentage of 13.92.

45
 5.3.2 COMMON SIZE BALANCE SHEET OF SUNDARAM FINANCE LIMITED
FOR THE YEAR ENDED 31.03.2018
2017 2018
Particulars
Amount Percentage Amount Percentage
(Rs.) (%) (Rs.) (%)
Assets:

Current Assets 56187.53 7.24 68876.04 8.61

Loans & Advance 652655.00 84.10 653955.77 81.74
Deferred Tax Asset 4263.67 0.54 5691.36 0.71
Investment 45645.50 5.88 51188.87 6.39
Fixed Asset 17264.30 2.22 20241.05 2.53

Total Asset 776016.00 100 799953.09 100

=========== =============

Liabilities and
Capital:

Current Liability 63626.84 8.19 58478.77 7.31

Unsecured Loan 176379.89 22.72 208479.20 26.06
Secured Loan 431716.93 55.63 417728.12 52.21

Total Liability (A) 671723.66 86.56 684686.09 85.59

Capital and Reserve:

Share Capital 2777.60 0.35 5554.19 0.69

Reserve & Stock
Options 101514.74 13.08 109711.81 13.71

Total Shareholders 104292.34 13.43 115267.00 14.40

Funds (B)

Total Liabilities and

776016.00 100 799953.09 100
Capital (A+B)
========== =========== ============ =============

INTERPRETATION:
46
 The current assets have increased during the financial year 2018 is 8.61% which is
comparing to 2008 was 7.24% of the Sundaram Finance Limited.

There was an increase in fixed assets of Rs.20241.05 comparing to the year 2018.
Higher the ratio is more than the efficiency in utilization of fixed assets.

The current liabilities have been decreased to 7.31% of the total liabilities of the
Sundaram finance Limited during the year 2018. The current liability was 8.91% of the total
liabilities during the year 2008.

Reserves and stock options has been increased was in the year 2018 which is
Rs.109711.81 comparing to the previous year and the percentage shows increase by 13.71%.

During the year 2017-2018, the shareholders fund amount to Rs.104292.34, it has been
increased to the amount of Rs.115267 and the percentage increased was 14.40% in 2018.

47
1.4 CASH FLOW STATEMENT OF SUNDARAM FINANCE LIMITED FOR THE
YEAR ENDED 31.3.2019

Particulars 2018-2019
(In Rs.)
(A)CASH FLOW FROM OPERATING ACTIVITIES
Net Profit
226,74.86
Add: Lease Equalization Account
(91.85)
Provision for Taxation (Including Wealth Tax)
96,72.77
Add: Financial Expenses 322,55.78
633,79.55 956,35.33
Depreciation
45,80.23
Provision against Investments
1,44.64
Provision against Non - Performing assets
4,79.98
General Provisions on Standard Assets
31,61.69
Employee Stock Option Compensation Expenses
23.28
(Profit) loss on sale of assets
34.21
(Profit) loss on sale of Investments
(53,36.95)
Interest / Dividend Income
(22,00.38)
Effect of Foreign Exchange rates on Cash and Cash Equivalents,
0.18
net
OPERATING PROFIT BEFORE WORKING CAPITAL
CHANGES 965,22.21
Increase in Net Stock on hire 67,08.38
Decrease in Leased assets - net of sales (60,87.57)
Increase in Trade Bills purchased 15,44.60
Decrease in Net Investment in Lease (32.25)
Decrease in Loans and Advances (1465,04.17)
Increase in Other Receivables 13.29
Decrease in Bank Deposits (net) (1079,89.81)
Decrease in SLR Investments - net of sales (22,40.77)
Increase in Current Liabilities 32,87.01
Cash generated from Operations
Financial Expenses (619,43.37)
Direct Taxes Paid (709,48.53)
(90,04.16)
NET CASH FROM OPERATING ACTIVITIES (A) (2257,27.61)
B) CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Fixed Assets (15,38.40)
Sale of Fixed Assets 96.09
Purchase of Investments (12677,85.28)
Purchase of Investments in Subsidiaries/Joint Venture (18,33.50)
Sale of Investments 12746,00.34
Interest Received 2.75
Dividend Received 21,97.65
NET CASH FROM INVESTING ACTIVITIES (B) 57,39.65

C) CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from Issue of Debentures 3475,74.18

48
 Debentures Redeemed (2686,00.00)
Increase (Decrease) in Long Term Borrowings 869,13.98
Increase (Decrease) in Fixed Deposits 154,84.84
Increase (Decrease) in Short Term Loans and Advances 417,96.83
Dividend paid (including Corporate Dividend Tax) (53,51.34)
NET CASH FROM FINANCING ACTIVITIES (C) 2178,19.49

D) Effect of Foreign Exchange rates on Cash and Cash (0.18)

Equivalents, net (D)

NET INCREASE IN CASH AND CASH EQUIVALENTS (A)+ (21,68.65)

(B)+(C)+(D)

CASH AND CASH EQUIVALENTS AT THE BEGINNING 48,39.35

OF THE YEAR

CASH AND CASH EQUIVALENTS AT THE END OF THE 26,70.70

YEAR

COMPONENTS OF CASH AND CASH EQUIVALENTS

AT THE END OF THE YEAR
13,50.13
Current Account with Banks
13,20.57
Cash, Stamps and Stamp Papers on Hand
26,70.70

INTERPRETATION:

In the year 2018-2019, the operating profit before working capital changes show
the profit amount of Rs.96522.

The employee stock option compensation expenses of the Sundaram finance

Limited has shown 31,61.69 (Rs. in lakhs) during the year 2018-2019.

While the Net Cash from investing activities depicts Rs.5739.65 in the year 2018-2019.

There was a increase in net stock on hire during the financial year 2018-2019 of
67,08.38 (Rs. in lakhs).

The financial year 2018-2019 depicts the Net cash from financing activities amount
of Rs.217819.49 shows upward profit in the company.

Cash and cash equivalents at the end of the year were Rs.4839.35 it shows that the
company position in the year 2018-2019
5.5 REGRESSION ANALYSIS FOR SALES

49
 Sales
Year X Rs XY X2
( in Lakhs )
Y
2008 ─1 90176.44 ─ 90176.44 1
2018 0 108277.62 0 0
2019 1 118189.37 118189.37 1
Total ∑x = 0 ∑y= 316643.43 ∑x y= 28012.93 ∑ X2 =2

∑Y=Na+b∑X

∑ XY = a ∑ X + b ∑ X2

Y=a+bX

3 a + 0 b = 316643.43 --------------- ( 1 )

0 a + 2 b = 28012.93 --------------- ( 2 )

Solving ( 1 ) and ( 2 ) We get,

a = 105547.81

b = 14006.46

When X = 2, Y2011 = 105547.81 + 14006.46( 2 )

Y2011 = Rs. 133560.73 ( in Lakhs )

When X = 3, Y2012 = 105547.81 + 14006.46( 3 )

Y2012 = Rs. 147567.19 ( in Lakhs)

INTERPRETATION: The net sales during the year 2008 were 90176.44 (Rs. in Lakhs)
which has been increased to 108277.62 (Rs. in Lakhs) during 2018 which also raised to
118189.37 (Rs. in Lakhs) during 2019.
The projection is made for the fore coming years 2011 and 2012 where the net sales
would be 133560.73 (Rs. in Lakhs) during the year 2011 and the net sales during the financial
year 2012 will be 147567.19 (Rs. in Lakhs).

FINDINGS

50
 Th The Gross Profit Ratio shows that increasing in sales has maintained the
companies profit level. In the year 2017-2018, the percentage shows 20.29 it has been
increased during the year 2018-2019 to 27.37.

 The net profit ratio has been increased to 19.18 during the financial year 2018 – 2019
to 13.92 during 2017 – 2018 which indicates that there is an improvement in the
operational efficient of the business and it leads to the increase in the profitability of
the firm.

 It has found that the return on equity during the year 2017-2018, the company shows
5.61% of ratio and it has risen to 6.80%. This is a clear indication of overall operation
is efficient.

 The Working capital in the year 2017-2018, the sales of the company is low at
Rs.666319.18 and it is increased to Rs.898497.54 in 2018-2019. It measures the
effective utilization of working capital.

 The capital turnover of capital employed in the financial year 2017-2018 it shows
Rs.533288.26 and during the year 2018-2019 it is increased to Rs.720052.92. It has
effective utilization of capital employed under the current year.

 Fixed asset turnover shows increase in sales of Rs.118189.37 comparing to the

previous year of Rs. 108277.62 and the firm should maintain this increasing trend in
future also.

 During the year 2018-2019, the current ratio is 3.02% and it is more when compared
with previous year 2017-2018 is 1.36 %. So the short term liquidity of a concern,
comparison of current assets and current liabilities is inevitable.

 The debt equity ratio has shows 3.62% in 2017-2018 and it has been raised to 4.47%
during 2018-2019 which indicates that the company has increased over the years with
increase in shareholder funds as well.

51
1 It is found that the shareholders funds had increased by Rs.16368.65 over the
percentage of 14.20 in comparative income statement analysis. It determines the
profitability from the shareholders point of view.

2 The financial year 2018-2019 depicts the Net Cash from financing activities
amount of Rs.217819.49 shows upward profit in the company.

CONCLUSION

52
 In the study of Financial Performance of Sundaram Finance Limited it is clear that
the company’s financial performance is satisfactory. The company has stable growth and it
shows a greater efficiency in all the areas it works.

If the company utilizes its working capital then the company can go heights which it
wanted to achieve. The comparative income statement shows increase in the current year of
net profit and it depict the companies current profit position. To improve the efficiency the
company will strive for better performance and increase the market share the company.

The suggestions provided through the study will help the company to improve the
operational performance efficiently. The suggestions provided through the study will help the
company to improve the operational performance efficiently.

SUGGESTIONS & RECOMMENDATIONS

53
 SUGGESTION:
The current ratio is improving rapidly so the company wants to keep an eye on the
current assets flow. The company has been suggested to reduce the expenditure as it increases
every year. Decrease in expenses will increase the profitability.

By over viewing the working capital turnover ratio it is clear that the company
wants to utilize its working capital efficiently that is the excess current assets should be
adjusted according to current scenario. Though the net profit shows it is increased but we
found that the net profit ratio has been decreased. So the company should consider increasing
the sales in turn to increase the actual profit.

The debt equity ratio of the company is also increasing. The company should
focus on the debt and long term funds which are utilized in the company. The excess cash
flow should or can be utilized in any new ventures if the company wishes to do.

RECOMMENDATION:
 It is recommended that the company should try to reduce its expenditure as it is
increasing every year.

 The company should prevent its excess cash flow.

 The company should increase its sales as to increase in its profit.

 The company should utilize its working capital efficiently.

54
 REFERENCES

REFERENCES

 Carlos Correia, David Flynn, Enrico Uliana & Michael Wormald, “Financial
Management”, 6th Edition, 5.1 -5.34.

 Chidambaram Rameshkumar, Anbumani N, “An overview on financial statements

and ratio analysis”,2006, Vol.1, p. 30

 George Foster, “Financial Statement Analysis”, 2nd Edition, 57 – 94.

 Greninger et al.(1996), Fundamentals of Financial Management, 5th Edition, 4.1-

4.18.

 Jae K.Shim, Joel G.Siegel, Schaum’s Outline of Theory and Problems of Financial
Accounting, 1999, 279-298.

 John J.Wild, K.R.Subramanyam & Robert F.Halsey (2006), Financial Statement

Analysis, 9th Edition, 2-90.

 Jonas Elmerraji, “Analyze Investments Quickly with ratios”, 2005, 33-36

 Kennedy and Muller, “Analysis of Financial Statements”,1999, 1.3 – 1.34

 Khan M Y & Jain P K, “Financial Management”, 4th Edition , 2006, 6.1 - 6.81

Websites:

 www.google.com

 www.sundaramfinance.in

 http://scholar.google.com

 www.managementparadise.com

55
 ANNEXURE

FINANCIAL QUESTIONNAIRE
CHECK THE BOX NEXT TO THE DOCUMENTS YOU ARE SENDING TO NED:

COPY OF YOUR ORGANIZATION'S MOST RECENT AUDIT

IF NO AUDIT IS AVAILABLE, SUBMIT THE "BALANCE SHEET" AND "REVENUE AND

EXPENSE STATEMENT" FOR THE MOST RECENT FISCAL YEAR

IF YOU PLAN TO PROVIDE NED FUNDS TO ANOTHER ORGANIZATION (SUBRECIPIENT) AS

PART OF THIS PROJECT:

COPY OF YOUR ORGANIZATION’S SUBGRANT AGREEMENT (IF YOU HAVE ONE)

COPY OF YOUR ORGANIZATION’S PROCEDURES TO MONITOR SUBRECIPIENTS

SUBRECIPIENT QUESTIONNAIRE COMPLETED BY ANY SUBRECIPIENT EXPECTED TO RECEIVE

$10,000 OR MORE FROM YOUR NED GRANT

Important:THE FINANCIAL QUESTIONNAIRE MUST BE CERTIFIED

AND DATED BY AN AUTHORIZED PERSON WHO HAS EITHER
COMPLETED OR REVIEWED THE QUESTIONNAIRE.

By checking this box, I agree that I have read and understood the directions and completed all of
the applicable information on this form. I certify that all of the information on this form is
accurate and complete to the best of my knowledge.
NAME:

TITLE:

ORGANIZATION:

DATE:

56
 INTERNAL CONTROLS

1. LIST ALL INDIVIDUALS WHO ARE RESPONSIBLE FOR ACCOUNTING,

INCLUDING BUDGETING AND BANKING.

Name Position Title Staff, Consultant, or Volunteer?

2. IDENTIFY THE INDIVIDUAL(S) RESPONSIBLE FOR THE FOLLOWING TASKS:

Task Name Position Title

Managing cash

Maintaining bank accounts

Approving expenses

Keeping all invoices and

expense documentation

Signing checks

Maintaining accounting records

Reconciling bank statements to

the accounting records

Preparing financial reports

3. ARE ANY MEMBERS OF THE STAFF OR BOARD RELATED? Yes No

If yes, identify and state relationship (spouse, child, parent, sibling, cousin, etc.)

57
 Name Name of relative Relationship

4. ARE TIMESHEETS, A RECORD OF WORKING HOURS OF FULL-TIME AND PART-

TIME EMPLOYEES, MAINTAINED FOR EACH PAID EMPLOYEE?

Yes No

5. DO YOU ISSUE AN EMPLOYMENT LETTER OR CONTRACT WHICH INCLUDES

THE EMPLOYEE’S SALARY?

Yes No

6. DO YOU HAVE A WRITTEN PROCUREMENT POLICY? Yes

No

7. DO YOU KEEP INVENTORY RECORDS FOR EQUIPMENT? Yes

No

8. IS YOUR ORGANIZATION FAMILIAR WITH OMB CIRCULAR A-122?

Yes No

THE ACCOUNTING SYSTEM

9. DOES YOUR ORGANIZATION HAVE WRITTEN ACCOUNTING POLICIES AND

PROCEDURES? Yes:No:

10. COMPLETE THE FOLLOWING INFORMATION CONCERNING THE PERSON WHO

WILL MAINTAIN YOUR ACCOUNTING
RECORDS:

a. HOW MANY YEARS OF EXPERIENCE DOES THIS PERSON HAVE?

b. HOW MANY YEARS HAS THIS PERSON BEEN WITH YOUR

ORGANIZATION?

c. DOES THIS PERSON KNOW HOW TO USE EXCEL? Yes No

d. DOES THIS PERSON KNOW HOW TO USE A COMPUTERIZED ACCOUNTING SYSTEM? Yes No

e. DOES THIS PERSON HAVE A DEGREE IN ACCOUNTING OR FINANCE? Yes No

f. CAN THIS PERSON COMMUNICATE IN ENGLISH? Yes No (State preferred languages

below)

58
11. BRIEFLY DESCRIBE YOUR ORGANIZATION'S ACCOUNTING SYSTEM
INCLUDING: A) ANY MANUAL LEDGERS USED TO RECORD
TRANSACTIONS (GENERAL LEDGER, CASH DISBURSEMENTS LEDGER, ETC.); B)
ANY COMPUTERIZED ACCOUNTING SYSTEM USED (PLEASE INDICATE
THE NAME OF THE ACCOUNTING PROGRAM); AND C) HOW
TRANSACTIONS ARE SUMMARIZED IN YOUR FINANCIAL REPORTS.

12. DOES YOUR ACCOUNTING SYSTEM HAVE THE CAPACITY TO SEPARATE ALL
RECEIPTS AND PAYMENTS FOR A NED GRANT FROM THE
RECEIPTS AND PAYMENTS FOR ACTIVITIES FUNDED BY NON-NED SOURCES?

Yes No

59