Professional Documents
Culture Documents
BY
PROF. SUKU THOMAS SAMUEL
DEPARTMENT OF MANAGEMENT
FINANCIAL STATEMENT
Financial statements are written records that convey the business
activities and the financial performance of a company.
Financial
Analysis
Modus
Entities Time Source
operandi
Cross Time
Long term Short term Horizontal Vertical Internal External
sectional series
FINANCIAL STATEMENT ANALYSIS - CLASSIFICATION
Based on Entities
Based on Time
2. Vertical analysis
• Study of 2 or more financial items in the same statement
• Example: CL & CA in balance sheet
FINANCIAL STATEMENT ANALYSIS - CLASSIFICATION
Based on Source
Based on the source of information of analysis:
1. Internal analysis
• Analysis is done within the organization.
• Has access to extensive sources of information.
• Detail in nature.
2. External analysis
• Analysis is done by external agencies or consultancies.
• Has access to limited information
• Brief in nature.
SOME COMMON TECHNIQUES
FINANCIAL STATEMENT ANALYSIS
SOME COMMON TECHNIQUES
Some of the common techniques used for Financial Statement Analysis:
1. Comparative statement
i. Comparative Balance Sheet
ii. Comparative Income Statement
2. Common size statement
i. Common size Balance Sheet
ii. Common size Income Statement
3. Trend analysis
FINANCIAL STATEMENT ANALYSIS
COMPARATIVE STATEMENT
COMPARATIVE STATEMENT
Comparative Statement are prepared to compare the financial aspects at
different time periods.
It is used for time series analysis.
It is horizontal analysis showing financial position & profitability at
different periods of time.
i. Comparative Balance Sheet
ii. Comparative Income Statement
FINANCIAL STATEMENT ANALYSIS
COMPARATIVE BALANCE STATEMENT
COMPARATIVE BALANCE SHEET
Comparative Balance Sheet:
• Balance sheet of different time periods are taken.
• Helps to understand the changes in the assets and liabilities of the firm.
• Easy to prepare.
• Analysis and interpretation is simple.
COMPARATIVE BALANCE SHEET - FORMAT
Absolute change Percentage Change
PARTICULAR Year 1 Year 2 Absolute
(Year change
2 – Year 1) *100
PARTICULAR Year 1 Year 2 (Year 2 – Year 1)
ASSETS
Asset 1
ASSETS X Y Y–X * 100
Asset 2
Asset 1 X Y Y–X
TOTAL ASSETS
Asset 2
LIABILITIES
TOTAL ASSETS
Liability 1
LIABILITIES
Liability 2
Liability
TOTAL1
LIABILITIES
Liability 2
TOTAL
LIABILITIES
COMPARATIVE BALANCE SHEET - QUESTION
The Balance Sheet of ABC Ltd is given as under. Prepare comparative balance sheet and
comment.
Particulars 31-03-2019 31-03-2020
Equity Share Capital 5,00,000 10,00,000
Preference Share Capital 1,00,000 2,00,000
General Reserves 1,00,000 2,50,000
Accounts Payables 1,00,000 2,00,000
Outstanding Expenses 50,000 50,000
Profit & Loss 2,00,000 3,00,000
TOTAL 10,50,000 20,00,000
Fixed Asset 4,00,000 10,00,000
Investments 3,00,000 1,00,000
Accounts Receivables 2,00,000 4,00,000
Inventories 1,00,000 4,00,000
Cash 50,000 1,00,000
TOTAL 10,50,000 20,00,000
COMPARATIVE INCOME SHEET
Income statement is a combination of trading account and P/L account.
Shows the profit or loss position.
ABC XYZ
PARTICULAR
Amount % Amount %
ASSETS
Asset 1 X * 100 Y * 100
Asset 2
TOTAL ASSETS 2,000 100 5,000 100
LIABILITIES
Liability 1
Liability 2
TOTAL
LIABILITIES
COMMON SIZE BALANCE SHEET - QUESTION
Following are the Balance Sheets of ABC & XYZ Ltd, prepare the common size balance sheet:
Liabilities 2019 2020 Assets 2019 2020
Equity Share Capital 4,00,000 6,00,000Land and Buildings 2,70,000 1,70,000
Reserves and Surplus 3,12,000 3,54,000Plant and Machinery 3,10,000 7,86,000
Debentures 50,000 1,00,000Furniture and Fixture 9,000 18,000
Long-Term mortgage loans 1,50,000 2,55,000Other Fixed Assets 20,000 30,000
Accounts Payable 2,55,000 1,17,000Long-term Loans 46,000 59,000
Other Current Liabilities 7,000 10,000Cash in hand & at bank 1,18,000 10,000
Accounts Receivable 2,09,000 1,90,000
Inventory 1,60,000 1,30,000
Prepaid Expenses 3,000 3,000
Other Current Assets 29,000 40,000
TOTAL 11,74,000 14,36,000 TOTAL 11,74,000 14,36,000
COMMON SIZE INCOME STATEMENT
– Financial statement that expresses all items as a percentage of total
revenues.
– Helps in the comparison of the financial expenses of against the
revenue of the company.
– Evaluation of efficiency for similar companies.
COMMON SIZE INCOME STATEMENT - FORMAT
Year 1 Year 2
PARTICULAR
Amount % Amount %
SALES x y
Less: Cost of goods sold a (a/x)*100 b (b/y)*100
GROSS PROFIT
Less: Operating expenses
Add: Other incomes
NET PROFIT BEFORE TAX
Less: Tax
NET PROFIT AFTER TAX
COMMON SIZE INCOME STATEMENT- QUESTION
Following are the Income Statements of XYZ & ABC Ltd, prepare the comparative
income statement.
Particulars XYZ ABC
Sales 1500 1700
Miscellaneous Income 320 615
Total Income 1820 2315
Expenses
Cost of sale 1325 1510
Office Expenses 120 125
Selling expenses 130 145
Interest 125 130
Total Expenses 1700 1910
Net Profit 120 405
TREND ANALYSIS
Trend analysis is also called as Trend percentage.
– Helps in evaluating the trend during the period of study.
– Increase is referred to as positive trend, decrease is referred to as
negative trend.
– First year of the data series is called as base year.
– Help in inter firm comparison.
– Simple and easy to calculate.
TREND ANALYSIS - FORMAT