A

STUDY OF
FINANCIAL STATEMENT
A
PROJECT REPORT SUBMITTED TO

SAVITRIBAL PHULE PUNE UNIVERSITY,

FOR THE AWARD OF

BACHELOR IN BUSINESS ADMINISTRATION (BBA)

SUBMITTED BY

Mr. ADITYA WALUNJ

UNDER THE GUIDANCE OF

Prof. PRERNA TULVE

THROUGH

SNBP COLLEGE OF ARTS COMMERCE

SCIENCE ANDMANAGEMENT STUDIES,MORWADI,
PIMPRI

2022-23
 S.E. SOCIETY’S
S.N.B.P COLLEGE OF ARTS COMMERCE
SCIENCE & MANAGEMENT STUDIES
Morwadi, Pimpri, Pune-18
(Affiliated to SPPU and Recognized by Govt. of Maharashtra)
PU/PN/305ACS/2008

CERTIFICATE

This is to certify that Mr. /Miss..................................................................................................................of

the Class………………. Roll No.…………………..has satisfactory completed project of

Semester……………..in the Subject……………………………………….……………………………..

as laid down by the University of Pune for the academic year ....................

Project Guide Program Coordinator

Academic Head Principal

Seal
l

Project Examination
Seat No: Date:

Internal Examiner: External Examiner:

(Sign & Name) (Sign & Name)
 ACKNOWLEDGMENT

Firstly, I would Like to Praise and Thank Almighty to Help

Me Successfully Come till This Point of My Life. May He
Always Keep Showering His Blessings on All of Us.

I Wish to Express My Deep Sense of Gratitude to Prof.

SNEHAL Miss for Her Valuable Advice and Guidance to
Me Throughout My Project.

I Would Like to Place on Record My Sincere Thanks to

Memorandum with Reference to Business
Communication.

I Would Like to Express My Willingness and Gratitude to

SNEHAL Miss for Giving Me an Opportunity to do Project
on Memorandum.

Lastly, But Not the Least Express My Gratitude to My

Beloved Parents and Brothers and I Would Like to Thank
My Friends and All the Other People Who Directly and
Indirectly Help Me During This Project

ADITYA WALUNJ
 DECLERATION:

I, the undersigned Mr. Omkar shete hereby declare that

the Project report entitled "Memorandum, with
reference to Business Communication Written and
Submitted by Me to University of Pune in Partial
fulfilment of The Requirement for Award of Degree of
Bachelor of Business Administration Under the Guidance
of Prof. SNEHAL PHALLE Is my original Work the Empirical
Findings and Suggestion in The Report Are Based on The
Original Information Collected By me

Place: Morwadi Name of the Student: ADITYA WALUNJ

Date: 2 0 /1/23 Sign: ADITYA WALUNJ
Preface
Research in common man's language refers to a
search for knowledge. One can also define
research as a scientific and systematic search for
pertinent information on a specific topic, in fact
research is an art of scientific investigation.

Research is done to gain familiarity with a

phenomenon event/product/service or to
determine the frequency with which something
occurs, with which is associated with something
else or to test a hypothesis of casual relationship
between variables. In short customer perception
research is the objective and formal process
ANALYSIS OF FINANCIAL STATEMENT

lndex

 Meaning of Financial Statement

 Need and Importance of Financial Statement
 Meaning of Analysis of Financial Statement
 Objectives of Analysis Of Financial Statement
 Limitations of Analysis Of Financial Statement
 Steps involved in Analysis of Financial Statement
 Types of Financial Analysis
 Tools and Techniques of Financial Analysis
 Three Components of Financial Analysis Statement
 Bibliography
Meaning Of Financial Statement
Financial statements are a collection of summary-level reports about an organization’s financial results,
financial position, and cash flows. They include the income statement, balance sheet, and statement of
cash flows.

The books in which the financial transactions are recorded are known as financial statements. In simple
terms, the written records of the day-to-day business activities are termed Financial Statements

Financial Statements are considered to be the most important documents in the accounting system. The
Financial Statement of a venture is duly audited either by the government or the certified accountant,
etc.

A company’s financial statements are the basis for determining the total business done in a financial
year, day-to-day transactions, cost of business, profits and returns, tax, and other important information
about its financial position. Moreover, these statements also ensure the correctness and accuracy of the
financial aspect of a venture.

Financial statements (or financial reports) are formal records of the financial activities and position of a
business, person, or other entity.

Historical financial statements Relevant financial information is presented in a structured manner and in
a form which is easy to understand. They typically include four basic financial statements accompanied
by a management discussion and analysis:[1]

Balance sheet or statement of financial position, reports on a company’s assets, liabilities, and owners
equity at a given point in time.

An income statement—or profit and loss report (P&L report), or statement of comprehensive income, or
statement of revenue & expense—reports on a company’s income, expenses, and profits over a stated
period. A profit and loss statement provides information on the operation of the enterprise. These
include sales and the various expenses incurred during the stated period.

A statement of changes in equity or statement of equity, or statement of retained earnings, reports on

the changes in equity of the company over a stated period.

A cash flow statement reports on a company’s cash flow activities, particularly its operating, investing
and financing activities over a stated period.

Financial statements are basically reports that depict financial and accounting information relating to
businesses. A company’s management uses it to communicate with external stakeholders. These include
shareholders, tax authorities, regulatory bodies, investors, creditors, etc.
  These statements basically include the following reports:

Balance sheet

Profit and Loss statement

Statement of cash flow

Income sheet

Needs And Importance Of Financial Statements

Determine the financial position of the business: The most important use of the financial statements is
to provide information about the financial position of the business on a given date. This piece of
information is used by various stakeholders in order to take important decisions regarding the business.

To obtain credit: Financial statements present the picture of the business to the potential lenders and
this information can be used by them to provide additional credit for business expansion or restrict the
credit so as to start recovery.

Helps investors in decision making: Financial statements contain all the essential information required
by the potential investors for determining how much they want to invest in the business. It is also
helpful in decision making regarding the price per share that the investors want to invest. A sound
financial statement is the key to obtaining investments.

Helps in policy making: The financial statements help the government in deciding the taxation and
regulations policies based on the way the company is running its operations. The government bodies can
tax a business based on the level of their income and assets.

Useful for stock traders: Financials statements help stock traders with the knowledge of the situation
the company is in and therefore adjusting their quotes accordingly.
Importance to Management: Increase in size and intricacies of aspects influencing the business
functions requires scientific and strategic access in the management of contemporary trading concerns.
The management team needs up to date, precise and methodical financial data for the intentions.
Financial statements assist the management in comprehending the progress, prospects, and position of
the business counterpart in the industry.

Importance to the Shareholders: Management is detached from control in the case of companies.
Shareholders cannot take part in the day-to-day business pursuits. However, the outcome of these
pursuits should be disclosed to shareholders during the annual general body meeting in the form of
financial statements.

Meaning Of Analysis Of Financial Statement.

Financial statement analysis is an analysis which highlights important relationships in the financial
statements. It focuses on evaluation of past operations as revealed by the analysis of basic statements.

Financial Statement Analysis embraces the methods used in assessing and interpreting the result of past
performance and current financial position as they relate to particular factors of interest in investment
decisions. It is an important means of assessing past performance and in forecasting and planning future
performance.

1. According to Lev. “Financial Statement Analysis is an information processing system designed to

provide data for decision making models, such as the portfolio selection model, bank lending
decision models, and corporate financial management models”.

2. “Financial Statement Analysis, according to Myers “is largely a study of relationship Among the
various financial factors in a business as disclosed by a single set of statements and a study of
the trends of these factors as shown in series of statement”. 3. In the words of W. B. Meig,

3. “Financial statements thus are organised summaries of detailed information and are thus a form
of analysis. The type of statements accountants prepare, the way they arrange items on these
statements and their standards of disclosure are all influenced by a desire to provide
information in a convenient form”.

4. The focus of Financial Analysis is on key figures contained in the Financial Statements and the
significant relationship that exists between them.
 5. “Analysis of Financial Statements”, according to Metcalf and Titard. “is a process of evaluating
the relationship between component parts of a Financial Statement to obtain a better
understanding of a firm’s position and performance”

Financial statement analysis can be used by different users and decision makers
to achieve the following objectives:
1. Assessment of Past Performance and Current Position Past performance is often a good
indicator of future performance. Therefore, an investor or creditor is interested in the trend
of past sales, expenses, net income, cash flow and return on investment. These trends offer
a means for judging management’s past performance and are possible indicators of future
performance. Similarly, the analysis of current position indicates where the business stands
today.
. For instance, the current position analysis will show the types of assets owned by a
business enterprise and the different liabilities due against the enterprise. It will tell what
the cash position is, how much debts the company has in relation to equity and how
reasonable the inventories and receivables are.
2. Loan Decision by Financial Institutions and Banks
Financial statement analysis is used by financial institutions, loaning agencies, banks and
others to make sound loan or credit decisions. In this way, they can make proper allocation
of credit among the different borrowers. All lenders are primarily concerned with
repayment of loan and payment of interest on the due dates. This requires comprehensive
investigation and analysis of the financial statements submitted by the borrowers.Financial
statement analysis helps in determining credit risk, deciding terms and conditions of loan if
sanctioned, interest rate, maturity date etc.

3. Prediction of Net Income and Growth Prospects

Financial statement analysis helps in predicting the earning prospects and growth rate in the
earnings which are used by investors while comparing investment alternatives and other users
interested in judging the earning potential of business enterprises. Investors also consider the
risk or uncertainty associated with the expected return. The decision makers are futuristic and
are always concerned with the future financial statements which contain information on past
performances analysed and interpreted as a basis for forecasting future rates of return and for
assessing risk. The prediction of future earnings tends to improve the financial decisions made
by the investors and financial analysis.

3. Prediction of Bankruptcy and Failure

 . Financial statement analysis is a significant tool in predicting the bankruptcy and failure
probability of business enterprises. Financial statement analysis accomplishes this through the
evaluation of solvency position. After being aware about probable failure, managers and
investors both can take preventive measures to avoid or minimise losses. Corporate
managements can effect changes in operating policy, reorganise financial structure or even go
for voluntary liquidation to shorten the length of time losses.
In accounting and finance area, empirical studies conducted have suggested a set of financial
ratios which can give early signal of corporate failure. Such a prediction model based on
financial statement analysis is useful to managers, investors and creditors. Managers may use
the ratios prediction model to assess the solvency position of their firms and thus can take
appropriate corrective action. Investors shareholders can use the model to make the optimum
portfolio selection and to bring changes in the investment strategy in accordance with their
investment goals. Similarly, creditors can apply the prediction model while evaluating the
creditworthiness of business enterprises.

Limitations of Financial Statement Analysis

1. Completely Ignore Current Costs

Financial analysis is always based on financial statements which are generally prepared
on the basis of historical costs. Thus, it may reflect distorted results. Thus, the financial
analysis based on such financial statements would not portray the effects of price level
changes over a period of time.

2. Financial Statements are Essentially Interim Reports

The amount of profit or loss as shown by the profit and loss account or the financial
position as depicted by the Balance Sheet of any unit is always based on certain
accounting concepts and conventions. Therefore, these figures may not reflect the exact
position. Further, the existence of contingent liabilities, deferred revenue expenditure
etc. make them inaccurate.

3. Financial Analysis is Only a Means Not an End

The financial analysis should not be considered as the ultimate objective test but it may
be carried further based on the outcome and revelations about the causes of variations.
It is the part of the larger information processing system. In other words, it is a means to
an end and not the end in itself and therefore, it should be used only as a starting point
and conclusion should be drawn keeping in view the overall picture and the prevailing
economic and political situation.

4. Completely Ignores Non-monetary Facts

Financial statements reveal only those facts which can be expressed in terms of money.
For example, the financial statements will depict only the amount paid to workers and
 staff as wages, salaries and other perks. But these will not reveal how loyal they are to
their organisation or how trained and efficient are they in the work assigned to them

Steps Involved in Financial Statement Analysis.

There are three steps involved in financial statement analysis and they are:

 Selection
 Classification
 Interpretation.

The first step involved refers to the selection of information relevant to the purpose of evaluation
from the total of information contained in the financial statements. The second step involved is the
classification or grouping of information in such a manner to focus on the significant relationships.
The final step is the interpretation which includes drawing of inferences and conclusions.

Types of Financial Analysis

The Classification of Financial Analysis Can be made either in the Basis of material used and for the same
or according to modus operation of the analysis.

(A) According to Material Used.

External Analysis
This is effected by those who do not have access to the detailed accounting records of
the concern. This group comprising investors, credit agencies, government and public,
 depends almost entirely or publishes financial statements. With the recent development
in the Government regulations requiring business concern to make available detailed
information to the public through audited accounts, the position of the external analysis
has been considerably improved.

Internal Analysis
This is effected by those who have access to the books of accounts and other
information relating to the business concern. Any financial analysis is conducted with
reference to a part or the whole unit. This type of analysis meant for managerial
purpose, is conducted by executives and employees of the business concerns as well as
governmental agencies which have statutory control and jurisdiction over such
Units.
(B) According to Modus Operandi of Analysis
Horizontal Analysis
When financial statements for a certain number of years are examined and analysed,
the analysis is called a ‘horizontal analysis’. It is also called “Dynamic Analysis”. This is
based on the data or information spread over a period of years rather than on one date
or period of time as a whole.

Vertical Analysis
This refers to analysis of ratios developed for one date for one accounting period. This
is also known as “Static Analysis”. However, vertical analysis does not facilitate a proper
analysis and interpretation of figures in perspective and comparisons over a period of
years. As such this type of analysis is not resorted to financial analysts.

Tools And Techniques of Financial Analysis

Analysis of financial statements is a technical job which can be performed properly only by a
knowledgeable and experienced financial analyst. In order to be successful in his analysis
and interpretation, a financial analyst must possess thorough knowledge of accounting
theory and practice and he must understand various tools and techniques of accounting and
their application in the analysis and interpretation of data. A study of the relationship and
trends is undertaken as part of financial analysis, to evaluate the financial position, the
operational results as well as the financial progress of a business concern. There are certain
analytical methods or devices used for measuring the relationship among the financial
statement item of a single set of statements and changes that have taken place in these
items as disclosed in successive financial statements. Tools which are generally employed to
analyse the financial statements are as follows.
Comparative Statement
Comparative statements or comparative financial statements are statements of financial
position of a business at different periods. These statements help in determining the
profitability of the business by comparing financial data from two or more accounting
periods.

The data from two or more periods are updated side by side, which is why it is also known
as Horizontal Analysis. The advantage of such an analysis is that it helps investors to identify
the trends of business, check a company’s progress and also compare it with that of its
competitors. The financial data will be considered to be comparative only when the same
set of accounting principles are being used for preparing the statements.

Types of Comparative Statements

There are two types of comparative statements which are as follows

1. Comparative income statement

2. Comparative balance sheet.

Common Size Statement

Common size statement is a form of analysis and interpretation of the financial statement. It
is also known as vertical analysis. This method analyses financial statements by taking into
consideration each of the line items as a percentage of the base amount for that particular
accounting period.Common size statements are not any kind of financial ratios but are a
rather easy way to express financial statements, which makes it easier to analyse those
statements.

Common size statements are always expressed in the form of percentages. Therefore, such
statements are also called 100 per cent statements or component percentage statements as
all the individual items are taken as a percentage of 100.

Ratio Analysis
Ratio analysis is referred to as the study or analysis of the line items present in the financial
statements of the company. It can be used to check various factors of a business such as
profitability, liquidity, solvency and efficiency of the company or the business.Ratio analysis
is mainly performed by external analysts as financial statements are the primary source of
information for external analysts.

The analysts very much rely on the current and past financial statements in order to obtain
important data for analysing financial performance of the company. The data or information
thus obtained during the analysis is helpful in determining whether the financial position of
a company is improving or deteriorating.

Cash Flow Statement

The Meaning of Cash Flow Statement or statement of cash flows can be defined as ‘cash
flow statements exhibit the flow of incoming and outgoing cash. This statement assesses the
ability of the enterprise to generate cash and to utilize the cash. This statement is one of the
tools for assessing the liquidity and solvency of the enterprise’. A cash flow statement is a
financial statement that presents total data. Including cash inflows a business gains from its
continuing progress and external financing sources, as well as all cash outflows that pay for
trading activities and finances during a delivered time. other words, a cash flow statement is
a financial statement that estimates the cash produced or used by a firm in a presented
time.
As mentioned initially, the cash flow statement furnishes data about the shift in the position
of Cash Equivalents and Cash of a firm, over an accounting period. The pursuits according to
this change are incorporated into investing, financing and operating.

Fund Flow Statement

Fund flow refers to the inflow and outflow of funds or assets for a company and is often
measured on a monthly or quarterly basis. A fund flow statement reveals the reasons for
these changes or anomalies in the financial position of a company between two balance
sheets. These statements portray the flow of funds – or the sources and applications of
funds over a particular period.

Be prepared for upcoming challenges and learn how to manage your changing payments
business today with our guide. Fund flow statements are used to show movement and
activity related to both long-term and short-term funds by revealing:

Trend Analysis
Trend analysis is a technique used in technical analysis that attempts to predict future stock
price movements based on recently observed trend data. Trend analysis uses historical data,
such as price movements and trade volume, to forecast the long-term direction of market
sentiment.

Trend analysis is the widespread practice of collecting information and attempting to spot a
pattern. In some fields of study, the term has more formally defined meanings,Although
trend analysis is often used to predict future events, it could be used to estimate uncertain
events in the past, such as how many ancient kings probably ruled between two dates,
based on data such as the average years which other known kings reigned.

Three Essential Components of a Financial Analysis

A financial analysis helps business owners determine their company’s performance,
sustainability, and growth by reviewing various financial statements like their income
statement, balance sheet, and cash flow statement.

Here’s a deep dive on what you need to know about each of these statements, along with
specific ratios and calculations to help you conduct a financial analysis:

The framework of a financial analysis

1. Income statement
An income statement reports the company’s financial performance over a given period of
time and showcases a business’s profitability. It can be used to predict future performance
and assess the capability of future cash flow. You might also hear people refer to this as the
profit and loss statement (P&L), statement of operations, or statement of earnings.

The “top line” of the income statement displays the business revenue in a given period of
time. Cost of goods sold (COGS) and other operating expenses are deducted from revenue.
The net income, or “bottom line,” is the remainder after all revenues and expenses have
been accounted for.

2. Balance Sheet

A balance sheet reports the company’s assets, liabilities, and shareholder equity at a specific
point in time. In every balance sheet, assets must equal the total of your liabilities and
equity, meaning the dollar amount must zero out.

Assets = (Liabilities + Equity)

3. Cash Flow Statement

A cash flow statement reports the amount of cash generated during a given period of time.
It’s intended to provide information on a business’s current liquidity and solvency as well as
its ability to change cash flows in the future.

Bibliography
www.investopedia.com

www.byjus.com

www.corporatefinanceinstitute.com

www.Wikipedia.com