ANALYSIS OF FINANCIAL STATEMENTS
Analyzing Total Asset of Balance Sheet Vertically analysis basically compares each amount with a base amount selected from the same year. By taking the accounts of balance sheet, total assets are given the value of 100% and all other accounts are evaluated in comparison to total assets. • By taking into consideration the data for the year 2008, it has been observed that fixed assets are 67.933% of the total assets. Fixed assets/total assets=38063299/56030320*100 =67.93 Comparison of 2008 with 2007 Fixed assets in 2007 are 57.02% of the total assets, which shows that out of 100%, fixed assets show an amount of 57.02% .current assets, are showing an amount of 42.973% of the total assets. • By comparing the value of current assets of 2007 with 2008, it has been noticed that the percentage of current asset is greater in 2007 as compared to 2008, which shows that the liquidity of the company was higher in 2007 as compared to 2008. Comparison of 2008 With 2005 When we make a comparison of 2008 with the year 2005, we have noticed that fixed assets are contributing 64,486% to total assets. While comparing it with 2008, it is observed that contribution of fixed assets has increased in 2008; this shows that more fixed asset is being acquired to increase the capacity of firm. • While talking about the current assets, in year 2005 they have 35.514 % of the total assets, but this amount has decreased by moving to the year 2008, it has decreased to an amount 32.067%, it is indicating that the liquidity (the ability to convert into cash has decreased, showing that the company is facing difficulty in meeting its short term needs. This shows a decrease in net working capital and the current ratio.
total liability and owners equity is 6030320 and non current liabilities are 25624764 then non current liabilities are 45. hence indicating that net income is contributing 22. Non current liabilities/total liability and owners equity*100=25624764/6030320*100 =45.693% of total liabilities and owners equity. By moving to owner’s equity it is showing 39.734% of the total liability and owner’s equity. In this data it is being analyzed that CGS has a major contribution in net sales.
Comparison of 2008 With 2005 • By taking net income of the year 2008 which is 22% of net sales.
. it has been seen that CGS has decreased in 2008 as compared to 2007. which shows that the company is increasing its profitability. In income statement net sales is given a value of 100% and the remaining accounts are compared with net sales.573% of total liability and owner’s equity. By taking the information from 2008. Analyzing Net Sales of Income Statement The data in 2008 shows that cost of good sold is 64. it has been observed that the volume of net sales in percentages is increasing from 2005 to 2008. Comparison of 2008 With 2007 • CGS for the year 2007 is 78.108% net sales.Analyzing Total Liabilities and Owners Equity First of all total liabilities and owner equity is given the value of 100% and all the other accounts are evaluated in comparison to that account. By making a comparison with the previous years.734 Similarly by moving to current liabilities it is representing 14.881 % in net sales. which shows that we are bearing less cost for sales which is a positive point for the company. Gross profit is showing a value which is 35. Looking into the cost of goods figure for the year 2008.892% of the net sales.77 % of the net sales.
In the year 2007-2006 there is an increase in percentage.
OWNERS EQUITY • • • The year 2005-2004 is showing a change of 11.
.99%. which is due to the reason that the owner equity is increasing from 2004 to 2005. The year 2007-2006 shows an increase of 50%. In the year 2006-2005 there is a decrease in percentage which indicates that the non current liabilities are decreasing due to the decrease in redeemable capital.HORIZONTAL ANALYSIS
• Horizontal analysis is used to evaluate the trend in the accounts over the year. The year 2006-2005 shows that the percentage is increasing from the past year because of the reason that owner s equity is increasing from 7375566 to 9370097.
GENERAL RESERVES • The company is maintaining the same level of general reserves hence showing no increase or decrease in the value during the period 2004-2008. In the year 2007-2006 there is a large increase in the percentage value which is due to the increase change in owners’ equity.
NON CURRENT LIABILITIES • In the year 2005-2004 there is an increase in percentage this is because increase in non current liabilities.
SHARE CAPITAL • • • By taking the year 2006-2005 there seems no change in the value because the share capital is not showing any increase or decrease in its amount. which indicates that the share capital is increasing as compared to the previous year. hence indicating that there is no increase or decrease in share capital. The year 2008-2007 is showing no change indicating that the share capital is not increasing or decreasing. As in the year 2005-2004 there is no change. this is due to the reason that non current liabilities are increasing due to the increase in redeemable capital.
In the year 2006-2005 the percentage is showing an increase. no doubt it is not negative. this is due to the reason that net income and taxation has increased as compared to the previous year.CURRENT LIABILITIES • By analyzing the trend in current liabilities we have seen that the percentage is decreasing as the current liabilities are decreasing in 2005 as compared to the previous period. In the year 2007-2006 there is an increase in percentage. but the volume of sales and cost of goods sold are decreasing as compared to the previous period.
NET INCOME • In the year 2005-2004 there is an increase in percentage.hence during the year 2006-2005 there is a decrease in percentage this is because of the reason that the taxation has decreased. hence the gross profit would also increase. this is because of the reason that the net income is increasing in the year 2005. this is due to the reason that the current liabilities are increasing due to the increase in short term borrowings. But in the year 20062005 it is showing a decrease in value.
GROSS PROFIT • The percentage of gross profit is increasing during the year 2005-2004 due to the increase in net sales. In the year 2007-2006 the percentage is increasing as the trade and other payables are increasing due to which the current liability is also increasing.
by looking into the year 2008 the trend value has increased due to increase in short term borrowing and taxation. In the year 2007 the trend value is showing a tremendous increase because of the increase in non current liabilities. as long term investments and most importantly plant and equipment is increasing. hence increasing the owners equity.
CURRENT LIABILITIES • The value of trend in the year 2005 is decreasing as compared to the year 2004. because trade and other payables have increased due to which current liability has also increased.in this case the company is maintaining a constant amount of reserves and the unappropriaed profit is increasing along the previous years.
NON CURRENT LIABILITIES • When we look into the values in trend we have seen that the value in the year 2005 in trend is increasing this is due to the increase in the non current liabilities in the year 2005. In the year we have seen a greater change in the trend due to the large increase in fixed assets as plant property has increased remarkably.
. similarly in the year 2006 trend value is also increasing due to the increase in the fixed assets . In the year 2008 trend value is showing increase due to the increase in non current liabilities. thus showing that fixed assets are also increasing due to the increase in long term investments as compared to the previous year.
NON CURRENT ASSETS • The trend value is showing an increase in the year 2005.TREND ANALYSIS
SHARE CAPITAL AND RESERVES • When we look into the trend values as comparison to the base year they are increasing .in the year 2007 trend value is showing a tremendous increase due to the increase in fixed assets. in the year 2007 trend value is showing a larger increase . because the current liabilities is also decreasing in 2005.trend value in the year 2006 is increasing due to the increase in current liabilities as the value of taxation has increased.by further looking the trend value has decreased due to the decrease in non current liabilities because the redeemable capital has decreased.
The year 2006 also shows an increase in the trend value due to the increase in the current assets because receivables and trade debt is increasing.
. In 2008 the trend value is decreasing showing a decreasing trend in the sales volume during 2008.
GROSS PROFIT • Trend value in 2005 is increasing as compared to 2004 because the gross profit is showing an increase due to the increase in sales in the year 2005.CURRENT ASSETS • The trend value has increased in the year 2005 due to the increase in the current assets as the receivables are increasing during 2005 as compared to the previous period.
NET SALES • The trend value is showing an increase in the value in 2005 as compared to the value in 2004. this is because sales are increasing in the year 2005 as compared to 2004.
NET INCOME • By comparing the trend values in different years it has been seen that the trend value is increasing from 2004 to 2008 because net income is also increasing along the successive years. because the sales level has gone up. Similarly the trend value in the years 2007 and 2008 is also showing substantial increase as current assets are increasing because the cash at bank and other receivables are increasing.in the year 2006 trend value is increasing because sales are increasing due to which the gross profit is also increasing.the trend value in the year 2006 is decreasing hence showing that the sales volume is decreasing in the year 2006. in the year 2007 trend value is showing increase as the sales are increasing due to which the gross profit is also increasing. in this case we have observed that sales are decreasing as compared to the previous year but at the same time cost of goods are decreasing hence gross profit is increased in this way. in the year 2008 trend value is showing an increase in the value .by looking into the values of 2007 in trend they are increasing as compared to 2006.
Net working capital
Net Working Capital 2. this shows that it has a lower capacity to meet its short term needs as compared to 2007.801.56 3.622
Net working capital is equal to current assets less current liabilities.20
This measure is used to know that how a company meet its current liabilities out of current assets.50 3.00 2005 2006 2007 2008 current ratio quick ratio
In order to test the liquidity current and quick ratio has been calculated which show that company had been experiencing excessive liquidity levels. Current liabilities are paid out from the current assets.RATIO ANALYSIS
Ratio is basically a comparison between related variables.524 9.50 2. in this data the net working capital for the year 2007 is greater than 2008 .042.132.50 0.00 2.211. Current assets are expected to convert into cash easily within one year.50 1.11 2.461 2. The basic objective of ratios is to create more useful information.00 1.031 11.It means that the liquidity of the company has decreased in 2008. • Liquidity ratio Liquidity is a company’s ability to meet its short term requirements.00 0. Current ratio and quick ratio
Current Ratio 1.79 1.
3. by passing through different
. The company should have to reevaluate its credit policy. it has increased from 2005 in the year 2006 . which is showing that a company has an ability to meet its short term obligations. may be due to the decrease in short term investments. then it has also shown an increasing amount in 2007. Accounts Receivables Ratios It gives number of times accounts receivables is collected during the year.00 5.
• Activity ratio
Activity is basically related with how a company is operating cash (buying and selling).this is showing that company has enough most liquid Current assets to meet its current liabilities.00 0. Average collection period The Collection Period is the number of days it takes to collect on receivables.00 20.00 35.85
Account receivable turnover 40.years it has been noticed that in the year 2007 current assets are 3 times the current liabilities.00 15.82 13.43 0.68
According to the table quick ratio is showing change within a given year.29 30. Quick ratio This ratio relates most liquid current assets to current liabilities
quick ratio 0.17 22.00 2005 2006 2007 2008 Account receivable turnover
Account receivable Ratio show a significant decrease from 2005 -2008.
account receivable turnover 34. which shows that company is having problem in collecting from customers.19 2.00 30.00 25.97 1.this ratio determines that how quickly various accounts are converted into cash or sales.00 10. But looking into the year 2008 quick ratio has decreased.
00 2.00 0.00 20.00 0.00
26. Inventory turnover It tells us liquidity of the inventory.36 1.57 9.00 25.00 2005 2006 2007 2008 Average collection period
Average collection Period is increasing from 2005.average collection period
10.00 12. This increase in Average collection Period shows that there exists a danger that customer balances may become uncollectible.00 5.2008 which shows that number of days for a sale to be converted in to cash is increasing.00 10.00 4.36
Inventory turnover 14.00 6.10
Average collection period 30.
. the decrease in inventory turnover indicated the stocking of goods however the inventory turnover is increasing in the year 2005 hence indicating that the inventory is efficiently being converted into sales.00 2005 2006 2007 2008 Inventory turnover
According to the given figure the inventory turnover is decreasing as we are moving from 2005 to 2008 .00 15.00 10.
inventory turnover 11.00 8.
00 200. 1 3 4 hence this is an unfavorable trend.
operating cycle 42.00 0.00 250.51
Average age of inventory 300.00 200.00 150.51 268.2008 Total asset turnover Total Asset Turnover shows the efficient use of assets to generate revenues. perhaps indicating to develop a new product.2006.19 51.00 150.
average age of inventory 31.51 294.Average age of inventory Age of inventory tells us the holding period of inventory.
0. However average age of inventory is increasing in the case of 2007 and 2008.2007. Operating cycle Operating cycle of a business is the number of days it takes to convert inventory and receivables into cash.00 50.55 39.00 days operating cycle
In this graph the number of days to 2 convert inventory and receivables into cash increases.00 2005 2006 2007 2008 Average age of inventory
According to the graph average age of inventory for the year 2005 and 2006 is giving a good sign for the company.87
operating cycle 350.00
.00 300.83 268.2005.00 100.92 284.00 100.00 250.00 50.
Total asset turnover 1.20 0.total asset turnover
0. showing that the company’s Total assets are not efficiently utilized to generate revenue.48 0.40 0.20 1.40 0.91 0.10 0.41 0. Debt Ratio It indicates the company’s long term debt. Debt ratio
Debt/Equity Ratio It determines that how well creditors are protected in case of Insolvency.paying ability
debt ratio 0.34
1.80 0.46 1.00 0.00 Debt ratio is decreasing in 2006 which determines that creditors are protected in case of 2005 2006 2007 insolvency.50 0.59 0.30 0. This increase is due to decrease in Total Assets of the company.70 0. Debt Ratio is increasing in 2008 which shows slightly2008 degree of Debt to higher Total Assets.60 0.60
Debt ratio 0.00 2005 2006 2007 2008
Total asset turnover
Total assets turnover are declining over different years as we move from 2005 to 2008.
• Leverage ratio
It’s the ability of a company to meet its short term and long term obligations.
debt/equity ratio 0.52
.60 1.40 1.71 1.20 0.86
In 2008 Times Interest earned decreases which indicate that fewer earnings are 4.00
• Profitability Ratios 2006 2005
Gross profit margin units % 2005 21.00 8.20 1.11
.00 2005 2006 2007 2008 Debt/equity ratio
Debt/Equity Ratio shows decrease in 2005 and again decrease in 2006 which is positive sign which shows Creditors are protected in case of Insolvency.Debt/equity ratio 1.40 0.58 2006 24.00
Profitability Ratios shows company’s ability to earn profit and Return on Investments. This increase is due to Decrease in Stock holder’s equity over the previous year 2007. There is increase is Debt/Equity ratio in 2008.00 available to meet interest charges.60 0.40 1.
times interest earned 12.20 0.92 5. Times Interest Earned It tells us the number of times before-tax earning cover interest expense. 2.60 1.07 2007 21.50 10.00 12.00 Times interest earned
Time 6.80 0.22 2008 35.55
Times interest earned 14.00 10.00 interest earned is increasing in 2005 this shows that there is a safety margin for the company.00 0.
Profit Margin: It is a measure of net income dollars generated by each dollar of sales. Return on Equity It measures return of common and preferred shareholders.44
16.00 20.93 14. Gross Profit Margin of the Company is increasing in 2008 because Company’s Gross profit and sales are increasing in this year.19
7. which means that resources are efficiently used to generate cash.10
40. Gross Profit Margin decreases in 2007 because Goss Profit of the Company decreases in 2007.00 2005 2006 2007 2008 Return on asset Profit margin Return on comman equity Gross profit margin
Gross Profit Margin The Gross Profit Margin reveals the %of each dollar left over after the business has paid for its goods.00 10. Return on Total Assets Return on Asset measures the firm’s ability to its assets to create profits by comparing profits with the assets that generate the profits.
• Market value
.65 13.47 27.00 35. Return on equity increases in 2008 because of increase in Net Income.88 15.61 20.Return on Assets Profit Margin Return on Common Equity
% % %
16.13 22.69 31.00 30.99 12.00 15. Return on total assets increases from 2005 due to the increase in net income.Net Profit Margin is increasing in 2008 because net income is increasing and financial cost is decreasing.00 5. It shows that return earned by owners is increased. In 2008 there is decrease in Return on total assets because Net Income is decreasing and total assets are increasing.00 25.
Dividend Payout This ratio measures the portion of current earning per common share being paid out in dividends.
180.00 140.This ratio is used to find a relationship between the firm’s stock prices to its earnings per share.00 120.00 60. Price/ Earning Ratio It tells us the relationship between the market price of a share of common stock and stock’s current earning per share. Earning per Share: The amount of income earned on a share of common stock during an accounting period. Book Value per share It is the net assets available to common stockholder’s divided by share outstanding.00 20.00 100.00 160.00 0.00 2005 2006 2007 2008 BOOK VALUE D PAYOUT PER EPS
. where net assets are stock holder’s equity minus preferred stocks.00 80.00 40.