ANALYSIS OF

FINANCIAL STATEMENT
ANNUAL ACCOUNT
 ANALYSIS OF FINANCIAL STATEMENT

Financial Ratios:
A financial ratio (or accounting ratio) is a relative magnitude of two selected
numerical values taken from financial statements, to evaluate the overall
financial condition of the organization.

Importance:-
• It helps to identify the problem areas. (eg working capital )
• Like industry comparisons.
• Company’s past performance.
• Comparison with the economy. (How company performs in
recession?)
 ANALYSIS OF FINANCIAL STATEMENT

Four types of ratios:

1. Profitability ratio
2. Liquidity ratio
3. Gearing ratio
4. Investment Appraisal ratio
1. GP Ratio 30%
2. COGS 70% (Actual Costing)
3. Operating Expense 25% / 30% / 35%
 ANALYSIS OF FINANCIAL STATEMENT

1. Profitability ratio:-

I. G P Ratio
II. N P Ratio
III. ROCE
IV. Return on Equity
V. Return on Assets
 ANALYSIS OF FINANCIAL STATEMENT

i. Gross Profit Ratio

Sales less cost of sales is called Gross profit.

GP / SALES *100

PARTICULARS 20XI PARTICULARS 20X0

  
13,335/38,188 * 100 34.91% 10,738 / 30,957 * 100 34.68%

Comments:

G P ratio almost matches the 20X0 data. In 20X1 23.35 % of sales increases
and cost of sales also increases with almost the same percentage i.e
22.91%.
 ANALYSIS OF FINANCIAL STATEMENT

ii. Net Profit Ratio

It is known as net profit to sale ratio.

NP (PRO. BEF.TAX) / SALES * 100

PARTICULARS 20X1 PARTICULARS 20X0

  
4,516/38,188 * 100 11.82% 2,925 / 30,957 * 100 9.44%

Comments:

Although G P Ratio remain the same w.r.t year 20X0 but Net Profit Ratio
increases in 20X1. Firstly, Restructuring cost of 489 M incurred in the year
20X0 and secondly as the production increases (sale has increased) per unit
fixed cost also reduces and increases the profit.

EBITDA, EBIT, EBT, NI

 ANALYSIS OF FINANCIAL STATEMENT

Growth Rate:
a. Turn Over:-

(CR.SALE - PRE. SALE) / PR.SALE * 100

PARTICULARS 20X1 PARTICULARS 20X0

38,188 - 30,957 /30957 *100 23.35% 30,957 - 23,332 / 23,332 * 100 32.68%    

Comments:

Sale turn over decreases may be due to market recession.

 ANALYSIS OF FINANCIAL STATEMENT

Growth Rate:
b. Cost of Sale:

CR COGS - PR. COGS / PR. COGS * 100

PARTICULARS 20X1 PARTICULARS 20X0

24,853 - 20,219 / 20,219 * 100 22.91% 20,219 - 14,249 / 14,249 *100 41.89%

Comments:

As the sale decreases that’s why cost of sale also decreases.

 ANALYSIS OF FINANCIAL STATEMENT

iii. R O C E (Return on capital employed)

The Return on Capital Employed ratio (ROCE) tells us how much profit we
earn from the investments the shareholders have made in the company.

PBIT / SC + RESERVE + L .LIABILITY * 100

PARTICULARS 20X1 PARTICULARS 20X0

  
4,943 /4,324 *100 114.30% 3,391 / 2,916 * 100 116.28 %

Comments:

ROCE almost same as operating profit increases with the same ratio as
the Reserves and Long term liability increases.
 ANALYSIS OF FINANCIAL STATEMENT

iv. R O E (Return on share holder equity)

Return on equity reveals how much profit a company earned in comparison
to the total amount of shareholder equity found on the balance sheet.
PROFIT AFTER TAX - P. DIVIDEND/ ORDINARY SHARE CAPITAL +
RESERVES

PARTICULARS 20X1 PARTICULARS 20X0

  
3,056/3,286 * 100 93% 1.984 / 2,211 * 100 89.73%

Comments:

R O E increases with the increase of profit after tax.

 ANALYSIS OF FINANCIAL STATEMENT

2. Liquidity Ratio:-

i. Current Ratio
ii. Quick Ratio
iii. Stock Turn Over in days
iv. Debtor Turn Over in days
v. Creditor Turn Over in days
vi. Operating Cycle
 ANALYSIS OF FINANCIAL STATEMENT

Liquidity ratio:-
Liquidity Ratio shows the company's ability to pay off its short-terms debts
obligations.

i. Current ratio:-
The current ratio is used to evaluate the liquidity, or ability to meet short
term debts. A C R of 2:1 is considered satisfactorily.

Current Asset / Current Liability

PARTICULARS 20X1 PARTICULARS 20X0

  
5,912 / 7,102 0.83 : 1 5,989 / 8,470 0.70: 1

Comments:

Current Ratio improves with the decrease of Current Liability. Short term
borrowing reduces from 3,232 m to 1,037 M.
 ANALYSIS OF FINANCIAL STATEMENT

ii. Quick ratio:-

The quick ratio is also used to evaluate liquidity. A quick ratio of 1:1 is
considered satisfactory.

CA - PREPAY - CL. INVENTORY / CL

PARTICULARS 20X1 PARTICULARS 20X0

  
5,912-3,649-666 / 7,102 0.22 : 1 5,989 - 4,252 - 385 / 8,470 0.15 : 1

Comments:

A little bit improvement because decrease in Current Liability.

 ANALYSIS OF FINANCIAL STATEMENT

iii. Stock Turn Over ratio:-

The inventory turnover ratio measures, in how many days a company
used its inventory during the year.

CLOSING STOCK / COGS * 365

PARTICULARS 20X1 PARTICULARS 20X0

3.649/24.853 * 365 54 DAYS 4,252 / 20,219 * 365 77 DAYS

Comments:

There is a real improvement in efficient usage of stock.

 ANALYSIS OF FINANCIAL STATEMENT

iv. Debtor Turn Over ratio:-

This is the ratio which shows in how many days accounts receivable
amount is collected during the year.

CL. DEBTOR / NET SALE * 365

PARTICULARS 20X1 PARTICULARS 20X0

506 / 38,188 * 365 5 DAYS 229 / 30,957 * 365 3 DAYS

Comments:

Slight increases in debtor turn over.

 ANALYSIS OF FINANCIAL STATEMENT

v. Creditor Turn Over ratio:-

This is the ratio which shows in how many days accounts payable amount
is paid during the year.

CL .CREDITOR / NET CR PURCHASE * 365

PARTICULARS 20X1 PARTICULARS 20X0

867 / 24,853 * 365 13 DAYS 702 / 20,219 * 365 12 DAYS

Comments:

No change in creditor turns over.

 ANALYSIS OF FINANCIAL STATEMENT

vi. OPERATING CYCLE:-

The operating cycle reveals how long cash is tied up in receivables and
inventory.

STOCK T. O. DAYS + DEBTOR T.O DAYS - CREDITOR T.O DAYS

PARTICULARS 20X1 PARTICULARS 20X0

54+5-13 46 DAYS 77+3-13 67 DAYS

Comments:

Operating cycles improves because of efficient utilization of stock.

 ANALYSIS OF FINANCIAL STATEMENT

3. Investment Appraisal:-
i. Earning Per Share Ratio.
ii. Price Earning Ratio.
iii. Earning Yield.
iv. Dividend Per Share
v. Dividend Yield.
 ANALYSIS OF FINANCIAL STATEMENT

i. Earning Per Share:-

The portion of a company's profit allocated to each outstanding share.
PROFIT AFTER TAX - PRE DIVIDEND / # OF ORDINARY SHARES

PARTICULARS 20X1 PARTICULARS 20X0

  
3,056 / 13,294 230 RS. 1,984 / 13,294 ……. RS.

Comments:

Big improvement in EPS because of increase in profit and non

occurrences of restructuring cost.
 ANALYSIS OF FINANCIAL STATEMENT

ii. Price Earning Share:-

A ratio of a company's current share price compared to its per-share earnings. It
shows the potential in multiple.

M P SHARE / E P S

PARTICULARS 20X1 PARTICULARS 20X0

  
2,300 / 230 10 TIMES 1,808 / 149 12 TIMES

Comments:

Firstly because of an increase in EPS and secondly Market Price of the share
not increases too much may be because of recent recession or economy
slum.
A higher P/E ratio shows that investors are willing to pay a higher share
price today because of growth expectations in the future. ...
The high multiple indicates that investors expect higher growth from the
company compared to the overall market.
 ANALYSIS OF FINANCIAL STATEMENT

iii. Earning Yield:-

A ratio of a company's which shows that how much return is earned against
Market Price.

E P S / M P SHARE * 100

PARTICULARS 20X1 PARTICULARS 20X0

  
230/2,300 * 100 10% 149 / 1,808 * 100 8.20%

Comments:
Increase because of increase in E P S.
Earnings Yield helps the investor understand how much he will be earning for each dollar
invested in the company and is therefore calculated as Earnings per share are divided by the
stock price per share. This ratio helps an investor to make the comparison between two or more
companies or between investment in shares versus the investment in risk-free security i.e. the
company which has a higher yield will be a better performer as it provides higher earning for
each dollar invested.
 ANALYSIS OF FINANCIAL STATEMENT

iv. Dividend Per Share:-

The portion of a company's dividend allocated to each outstanding share.

TOTAL ORD DIVIDEND / # OF ORD SHARES

PARTICULARS 20X1 PARTICULARS 20X0

  
3,044 / 13,294 229 RS 1,635 / 13,294 123 RS

Comments:

Increase in after tax profit increases the dividend which in turn also
increases the DPS.
The term dividends per share (DPS) refers to the total dividend a company pays out
over a 12-month period, divided by the total number of outstanding shares. A company
uses this calculation to share profits with its shareholders. A range of 35% to 55% is
considered healthy and appropriate from a dividend investor's point of view
 ANALYSIS OF FINANCIAL STATEMENT

vi. Dividend Yield:-

The dividend yield ratio allows investors to compare the latest dividend
they received with the current market value of the share .

D P S / M P SHARE * 100

PARTICULARS 20X1 PARTICULARS 20X0

  
229 / 2,300 * 100 10% 123 / 1,808 *100 7%

Comments:

Increases because increase in D P S.

 ANALYSIS OF FINANCIAL STATEMENT

4. Gearing Ratio:-

i. Equity Gearing Ratio.

ii. Total Gearing Ratio.
iii. Interest Cover.
 ANALYSIS OF FINANCIAL STATEMENT

i. Equity Gearing ratio:-

It is the comparison of debt with the equity. If it exceed 100% limit than it
will be alarming.

DEBT / EQUITY * 100

PARTICULARS 20X1 PARTICULARS 20X0

  
5+57 / 664+13+2622 *100 1.88% 5+57 / 664+13+1547 *100 3.60%

Comments:

The ratio further improves because of increase in reserves.

 ANALYSIS OF FINANCIAL STATEMENT

ii. Total Gearing ratio:-

It is the comarison of debt with the Debt plus equity. If it exceeds 50% limit
than it will be alarming .

DEBT / EQUITY + DEBT

PARTICULARS 20X1 PARTICULARS 20X0

  
62 / 3,299 + 62 * 100 1.84% 82 / 2,224 + 82 * 100 3.54%

Comments:

The ratio further improves because of increase in reserves.

 ANALYSIS OF FINANCIAL STATEMENT

i. Interest Cover:-
The interest cover ratio tells us how easily a business can pay its interest
from its profit.

P B I T / INTEREST EXPENSE

PARTICULARS 20X1 PARTICULARS 20X0

  
4,516 / 229 20 TIMES 2,925 / 139 + 19 18 TIMES

Comments:

Interest cover increases because of increase in profit.

The End