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FINANCIAL STATEMENT ANALYSIS 2
FINANCIAL STATEMENT ANALYSIS FINANCIAL STATEMENT: Financial Statement, as normally understood, refer to a set of reports and schedules which an account prepares at the end of a period of time for a business enterprise According to Smith and Ashburne, financial products are the end products of financial accounting, prepared by the accountant, that support to reveal the financial position of the enterprise, the result of its recent activities and an analysis of what has been done with the earnings There are six basic financial statements of special importance They are: The Income Statement (Profit and Loss A/c) The Position Statement (Balance Sheet) The Funds Flow Statement (Sources and Application Statement) The Cash Flow Statement The Statement of Retained Earnings Schedules INCOME STATEMENT: The Income Statement, also called as the Profit & Loss account, is the accounting report which summarizes the revenues, expenses and the difference between them for an accounting period The construction of an Income Statement is accordance with the concepts of Accrual, Accounting period, Matching, Materiality and Realization there is no statutory format in which the Income Statement is to be presented, except for Banking and Insurance companies However Sec 211 of the Companies Act, 1956 prescribes the contents to be disclosed in this statement POSITION STATEMENT: The Position Statement or Balance Sheet shows the financial status of a business at a given point of time All the assets owned by the business and all the liabilities and claims it owes to outsiders and owners are listed The Balance Sheet must always be in balance i.e the total assets should always be equal to total liabilities The Balance Sheet of a joint stock company must be prepared as per Part I of Schedule VI of Co Act Separate statutory formats exist for the preparation of the Balance Sheet of Banking and Insurance Companies FUNDS FLOW STATEMENT: The term 'fund' normally means working capital The funds flow statement reveals the sources from which funds are received and the uses to which these have been put It is a valuable tool to analyze the changes in the financial condition of the business between two periods and helps the management in policy formulation and performance appraisal CASH FLOW STATEMENT: The Cash flow statement is a statement of changes in the financial position of a firm on 'Cash bases It is very much similar to the 'Funds Flow' statement, except that the cash flow statement lays emphasis on cash changes only STATEMENT OF RETAINED EARNINGS: The statement of retained earnings, also known as the Profit and Loss Appropriation Account, is a continuation of the Income Statement It reveals the Profits freely available, after deduction of all expenses, including tax, and how it has been appropriated The balance after all appropriations is shown in the liabilities side of the Balance Sheet Thus, the statement and the Balance Sheet SCHEDULES: Schedules are statements which describe the summarized information presented in the Income Statement and the Balance Sheet in greater detail Schedules are a part of the financial statements, and enable a better understanding of the financial position of a business FINANCIAL STATEMENT ANALYSIS: The significance of financial statement lies not in their preparation but in their analysis and interpretation Analysis and interpretation of financial statements involves a study of relationship among various financial factors and to judge their meaning and significance The financial analyst must understand the plans and policies of management, determine the extent of analysis, reorganize data available as per requirements, establish relationship among financial figures and make interpretations in a simple and unbiased way Types of Analysis: The process of analysis may be classified based on the nature of information used and on the basis of 'methodology' of operations 1) On the basis of Nature of Information used: a) External Analysis: The information used is that which is freely available to anybody Published Financial Statements are an example of such information There is no access to internal records of an organization With increasing emphasis on disclosures in recent times, the quality of external analysis is likely to improve in the future b) Internal Analysis: The source of information is Internal Analysis is the internal or unpublished records and books Such analysis is undertaken for use of management or for other internal needs of the organization 2) On the basis of Methodology of Operations: a) Horizontal Analysis: It involves analysis and review of financial statements pertaining to a number of years An attempt id made to identify the periodical trend of various items in the financial statements Percentage increase/decrease is calculated for all such items Alternatively, a base year is fixed and figures pertaining to other years are indexed to that of base period It is also known as 'dynamic' analysis or 'trend' analysis b) Vertical Analysis: Vertical Analysis involves analyzing a single set of financial statement, by expressing various items of the statement as a percentage of a particular item Quantitative relationship is established amongst various items at a particular data It is also known as 'Static' analysis or 'Structural' analysis TYPES OF FINANCIAL STATEMENT: The following methods of analysis are generally used: I Comparative Statements II Common Size Statements III Ration Analysis IV Trend Analyses NEED AND IMPORTANCE OF FINANCIAL STATEMENTS: To determine the legality of dividends As a guide to wise dividend action As a basis for the granting of credit As information for prospective investors in an enterprise As a guide to the value of investment already made As an aid to government supervision As a basis for price or rate regulation As abases for taxation OBJECTIVE&METHODOLOGY The financial analysis provides valuable insight into a firm͛s performance financial statement of an organization has given for a particular period and its financial positions at the end of the period There by themselves will not help people to conclude whether financial performance of the organization is good/bad the statement given only the figure further analysis and interpretations of these figure is better Managers, investors and all employees some from of this analysis at the beginning point for their financial decision making investors use financial analysis in deciding whether or not to end their provides managers with measurement of law the company͛s competitions industry The study is undertaken to present financial performance analyst of S.P.M Ltd OBJECTIVES OF STUDY The present study has the following objectives y To study the present financial position of the concern y To observe the trends in rations y To examine the operational performance of the organization y To analyses the significance of fund flow, cash flow and various financial ratios y To offer some suggestions in the right of analysis made to strengthen the financial position of the organization LIMITATIONS OF THE STUDY y Lack of the awareness a bout the proje t y Customers are procrastinating the things many times y Most of the customers already have LIC policies y Competition from other market players y Some not trust private insurance y Some customers are not ready to give details due to fear of phone call me ssages y Although ICICI PRUDENTIAL has good return linked products, but convincing of customers is difficult because of high premium y Most of the customers already have LIC policies y There ͚re lots of thetas in the mind of customers towards these private companies y Competition from other market players y Time is one of the barriers for generating leads y Customers are busy CHAPTERISATION: The entire study is dividing into four chapters They are It deals with the introduction It deals with Company Profile It deals with theory of financial statement analysis It deals with conclusions and suggestions It deals with bibliography COMPANY PROFILE ABOUT THE ORGANISATION: THE SIRPUR PAPER MILLS LTD., marked the year 1938 for its establishment, in 1942 under the management of "M/s Hyderabad Construction Company limited", it commenced production with a capacity of 14.0 M.T per day In 1953 M/s BIRLA BROTHERS were entered with management of company with the change in the management the expansion programmed of the mill started in a big way and by 1955 the production increased from 15 tones/day to 50 tones/day A third paper machine of 50 tones/day to 50 tones/day A third paper machine of 50 tones/day increased to production to 100 tones/day by 1959 paper machine No,4 was installed in the year 1966 with a capacity of 10.0 Mega Tonnes per day, Later a Board machine with a production capacity of 60.0 M.T per day was installed in the year 1974 In 1976 paper machine No.5 was started with production capacity of 10 M.T per day At present the mill produces on an average of 220 Tonnes per day paper and board of paper machines The product is located in SIRPUR K.AGHAZNAGAR District Adilabad of Andhra Pradesh Covering approximately 100 acres or more of area by the plants in the company's land The approximate company's land in 696 acres Present Installed Capacity 83.550 MT/year of Paper & Board & Operating 95% plant utilization level The Company's Turnover is Rs.180Crores To improve the operational efficiency of the plant to conserve the resources and contain & control pollution the Company installed BHEL Recovery Boiler, Two, and FBL Boilers, Full Hedged W.T, Plant and many of the equipments THE PRODUCTION HAS INCREASED IN THE SECOND PHASES: Paper machine no was commissioned in the year 1953 -30 TPD A new paper machine no with the capacity of 60 MT/D was commissioned in the year 1959 Installed another machine no of 10 MT/D production capacities in 1966, A 60 MT/D, production capacity of board machine was started in the year 1974 Another 10 MT/D production capacity paper machine No was commenced in the year 1976 7th machine of 68 MT/D capacities was installed and commenced on 21 March 2002 The installed capacity of the mill today is 83,550 MT, in the financial year 2002-03 the company has achieved its highest annual production of 77,974 MT, The total share capital of SPM Ltd is Rs.8,34,55,980 and its present face value of the share is Rs.10 In the financial year 2000-01 the company has achieved its maximum net profit of Rs.1621 17 lacks 10 COMMON SIZE STATEMENT OF 2008-2009 Particulars 2008 % 2009 % (Amounts in lack's) A NET SALES 23331.99 100.00 24186.10 100.00 B COST OF GOODS SOLD Material Consumed 6517.32 27.93 6690.62 27.66 Direct Labor 4485.22 19.22 4520.16 18.69 Manufacturing Expenses 8452.75 36.23 8660.00 35.81 (Accretion to)/ Depletion of stocks TOTAL COST OF GOODS SOLD (B) C GROSS PROFIT (A-B) 48.46 0.21 44.67 0.18 19503.75 83.59 19915.45 82.34 3828.24 16.41 4270.65 17.66 D OPERATING EXPENSES Administration, selling & Distribution Exp 1812.14 7.77 1943.19 8.03 TOTAL OPERATING EXPENSES (D) 1812.14 7.77 1943.19 8.03 OPREATING PROFIT (C-D) 2016.10 8.64 2327.46 9.62 464,63 1.92 (-) Non Operating Expenses(Including interest) 1359.06 5.82 1259.70 5.21 NET PROFIT BEFORE TAX (NPBT) 6.74 1532.39 6.34 0.68 200.00 0.83 6.06 1332.39 5.51 (+) Non Operating income 916.29 1573.33 159.00 (-) TAX NET PROFIT AFTER TAX (NPAT) 1414.33 58 3.93 INTERPRETATION (2008-2009) In 2009 year, the cost of goods sold increased by 1.25% compared to 2008 It increases the gross profit of the company The gross profit has decreased by 1.25% compared to previous year The Operating expense has decreased by 0.26%,it indicates companies operating efficiency Operating profit has increased by 0.98% compared to previous year It is because of decreasing in cost of goods sold It is a good sign to the company Although the profit before and after tax has decreased by 0.60% and 0.89% It is because increasing in non-operating expenses The overall profitability of the company is satisfactory 59 COMMON SIZE STATEMENT OF 2009-2010 Particulars 2009 % 2010 % (Amounts in lack's) A NET SALES 24186.10 100.00 24307.52 100.00 Material Consumed 6690.62 27.66 7653.11 31.48 Direct Labor 4520.16 18.69 4207.10 17.31 Manufacturing Expenses 8660.00 35.81 9386.45 38.62 44.67 0.18 ,2.25 -0.01 19915.45 82.34 21244.41 87.40 4270.65 17.66 3063.11 12.60 Administration, selling & Distribution Exp 1943.19 8.03 1869.98 7.69 TOTAL OPERATING EXPENSES (D) 1943.19 8.03 1869.98 7.69 OPREATING PROFIT (C-D) 2327.46 9.62 1193.13 4.91 464.63 1.92 1720.78 7.08 (-) Non Operating Expenses(Including interest) 1259.70 5.21 1235.31 5.08 NET PROFIT BEFORE TAX (NPBT) 1532.39 6.34 1678.60 6.91 200.00 0.83 -1583.04 -6.51 1332.39 5.51 3261.64 13.42 B COST OF GOODS SOLD (Accretion to)/ Depletion of stocks TOTAL COST OF GOODS SOLD (B) C GROSS PROFIT (A-B) D OPERATING EXPENSES (+) Non Operating income (-) TAX NET PROFIT AFTER TAX (NPAT) 60 INTERPRETATION (2009s-2010) In 2010 year, the cost of goods sold increased by 5.06% compared to 2009 It decreases the rate of gross profit of the company The gross profit has decreased by 5.06% compared to previous year The Operating expense has decreased by 0.34%, it is good sign Operating profit has decreased by 4.71% compared to previous year It is because of increasing in cost of goods sold It is a bad sign to the company Although the rate profit before and after tax has increased by 0.60% and 791% The main rational for increa sing PAT is tax adjustment which is related to previous year The overall profitability of the company is satisfactory 61 COMMONSIZE BALANCE SHEET OF 2004-2005 Particulars 2004 % 2005 % (Amounts in lack's) A.CURRENT ASSETS Cash & Bank Balance 267.91 0.93 451.88 1.56 Sundray Debtors 2206.59 7.67 3083.18 10.63 Inventories 1792.68 6.23 1816.50 6.26 Loans & Advances 3542.67 12.31 3309.60 11.41 TOTAL CURRENT ASSETS (A) 7809.85 27.15 8661.16 29.85 B FIXED ASSETS 20428.33 71.01 20024.22 69.02 C INVESTMENTS 410.00 1.43 258.76 0.89 D MISC-EXPENSES 120.83 0.42 66.71 0.23 28769.01 100.00 29010.85 100.00 4241.83 14.74 4288.86 101.11 292.70 1.02 388.07 132.58 4534.53 15.76 4676.93 103.14 5990.04 20.82 5548.66 19.13 263.46 0.92 187.77 0.65 Deferred Tax Liabilities 2213.86 7.70 2469.67 8.51 TOTAL LONG TERM LIABILITIES (F) 8467.36 29.43 8206.10 28.29 834.50 2.90 834.56 2.88 Reserve & Surplus 14932.56 51.91 15293.06 52.72 TOTAL SHARE HOLDERS FUND (G) 15767.12 54.81 16127.62 55.59 TOTAL LIABILITIES (E+F+G) 28769.01 100.00 29010.65 100.00 3275.32 11.38 3984.23 13.73 24234.48 84.24 24333.72 83.88 TOTAL ASSETS (A+B+C+D) II L I A B I L I T I E S E CURRENT LIABILITIES Current Liabilities Provisions TOTAL CURRENT LIABILITIES (E) F LONG TERM LIABILITIES Secured Loans Un-Secured Loans G SHARE HOLDERS FUND Share Capital NET WORKING CAPITAL (A-E) TOTAL LONG TERM FUNDS (F+G) 62 INTERPRETATION (2005-2006) There has been a rise of 1.72% in the Current Assets of the company There rise is mainly on account of increase in sundry debtors and loans & advances There has been a decrease of 2.49% in the fixed assets Compared to previous year There has been decrease of 2.26% in the Current Liabilities of the company Compared to the previous year rate There has been decrease of 0.07% in the reserves & surplus of the company There has been increase of 3.98% in the working capital of the company The increase is mainly on account of increase in assets The overall financial position of the company is to be satisfactory 63 INTERPRETATION (2006-2007) There has been decrease of 3.08% in the Current Assets of the company There decrease is mainly on account of decrease in sundray debtors and inventories There has been a decrease of 1.31% in the fixed assets of the company Compared to previous year There has been a rise of 3.23% in the current liabilities of the company compared to previous year There has been a increase of 1.85% in the Current Liabilities of the company Compared to the previous year rate, the increase is mainly account of un secured loans and secured loans There has been decrease of 4.76% in the reserves & surplus of the company Compared to previous year There has been decrease of 6.31% in the working capital of the company Compared to previous year The decrease is mainly on account of decrease in Current Assets 64 INTERPRETATION (2007-2008) There has been decrease of 6.68% in the Current Assets of the company There decrease is mainly on account of decrease in sundray debtors and inventories There has been a increase of 8.73% in the fixed assets of the company Compared to previous year There has been a decrease of 0.97% in the current liabilities of the company compared to previous year There has been a increase of 4.68% in the long term liability of the company compared to previous year The increase is mainly on account of increase in secured loans / There has been decrease of 3.84% in the reserves & surplus of the company Compared to previous year There has been decrease of 5.71% in the working capital of the company Compared to previous year The decrease is mainly on account of decrease in Current Assets 65 COMMONSIZE BALANCE SHEET OF 2008-2009 Particulars 2008 % 2009 % (Amounts in lack's) I ASSETS A.CURRENT ASSETS Cash & Bank Balance 631.08 1.43 1701.37 2.86 Sundray Debtors 2429.95 5.52 1612.94 2.72 Inventories 2547.78 5.79 2882.49 4.85 Loans & Advances 3991.68 9.07 4421.98 7.44 TOTAL CURRENT ASSETS (A) 9600.49 21.81 10618.78 17.87 B FIXED ASSETS 32556.98 73.95 48298.52 81.30 C INVESTMENTS 1729.39 3.93 336.67 0.57 140.40 0.32 153.31 0.26 44027.26 100.00 59407.28 100.00 6720.29 15.26 7582.47 12.76 376.45 0.86 1198.41 2.02 7096.74 16.12 8780.88 14.78 12262.40 27.85 22157.65 37.30 Un-Secured Loans 1697.13 3.85 2561.99 4.31 Deferred Tax Liabilities 2478.09 5.63 2143.19 3.61 16437.62 37.34 26862.83 45.22 1101.38 2.50 1500.55 2.53 Reserve & Surplus 19391.52 44.04 22263.02 37.48 TOTAL SHARE HOLDERS FUND (G) 20492.90 46.55 23763.57 40.00 TOTAL LIABILITIES (E+F+G) 44027.26 100.00 59407.28 100.00 2503.75 5.69 1837.90 3.09 36930.52 83.88 50626.40 85.22 D MISC-EXPENSES TOTAL ASSETS (A+B+C+D) II LIABILITIES E CURRENT LIABILITIES Current Liabilities Provisions TOTAL CURRENT LIABILITIES (E) F LONG TERM LIABILITIES Secured Loans TOTAL LONG TERM LIABILITIES (F) G SHARE HOLDERS FUND Share Capital NET WORKING CAPITAL (A-E) TOTAL LONG TERM FUNDS (F+G) 66 COMMONSIZE BALANCE SHEET OF 2009-2010 Particulars 2009 % 2010 % (Amounts in Lakhs) I ASSETS A.CURRENT ASSETS Cash & Bank Balance 1701.37 2.86 651.11 1.02 Sundray Debtors 1612.94 2.72 2341.52 3.66 Inventories 2882.49 4.85 2327.13 3.64 Loans & Advances 4421.98 7.44 3545.19 5.55 TOTAL CURRENT ASSETS (A) 10618.78 17.87 8864.95 13.87 B FIXED ASSETS 48298.52 81.30 54492.95 85.28 C INVESTMENTS 336.67 0.57 410.00 0.64 D MISC-EXPENSES 153.31 0.26 127.52 0.20 59407.28 100.00 63895.42 100.00 Current Liabilities 7582.47 12.76 8349.95 13.07 Provisions 1198.41 2.02 1192.08 1.87 TOTAL CURRENT LIABILITIES (E) 8780.88 14.78 9542.03 14.93 22157.65 37.30 22894.97 35.83 Un-Secured Loans 2561.99 4.31 4403.49 6.89 Deferred Tax Liabilities 2143.19 3.61 915.18 1.43 26862.83 45.22 28213.64 44.16 1500.55 2.53 1501.14 2.35 Reserve & Surplus 22263.02 37.48 24638.61 38.56 TOTAL SHARE HOLDERS FUND (G) 23763.57 40.00 26139.75 40.91 TOTAL LIABILITIES (E+F+G) 59407.28 100.00 63895.42 100.00 1837.90 3.09 -677.08 -1.06 50626.40 85.22 54353.39 85.07 TOTAL ASSETS (A+B+C+D) II LIABILITIES E CURRENT LIABILITIES F LONG TERM LIABILITIES Secured Loans TOTAL LONG TERM LIABILITIES (F) G SHARE HOLDERS FUND Share Capital NET WORKING CAPITAL (A-E) TOTAL LONG TERM FUNDS (F+G) 67 INTERPRETATION (2009-2010) There has been decrease of 4.00% in the Current Assets of the company There decrease is mainly on account of decrease in cash & bank , loans & advances and inventories There has been an increase of 3.98% in the fixed assets of the company Compared to previous year There has been a increase of 0.15% in the current liabilities of the company compared to previous year / There has been a decrease of 1.06% in the long term liability of the company compared to previous year The increase is mainly on account of decreased in secured loans There has been increase of 1.09% in the reserves & surplus of the company Compared to previous year / There has been decrease of 4.15% in the working capital of the company Compared to previous year The decrease is mainly on account of decrease in Current Assets 68 CONCLUSIONS & SUGGESTIONS SALES: Every business organization's income source is sales Increase in sales indicates that the organization expands its business The sales of this organization increases year by year It is upright sign to the organization The advice to the management in the field of sales is it should concentrate on customer satisfaction as it is performing effectively from the past COST OF GOODS SOLD: Cost of goods sold plays a pivotal role in the organization Lower the cost of goods sold, higher the Gross profit It includes Material, labor, and manufacturing expenses The cost o goods sold increase in sales The cost of goods sold increases year by year in high rate, compared to increase in sales It decreases the Gross Profit In the year 2002 & 2007 the cost of gods sold decreases, compared to increase in sales The management should control it OPERATING EXPENSES: Operating Expenses Are Also Plays an Important Role in Resulting Operating Income It Includes Administration, Selling And Distribution Expenses The companies operating expenses decreases year by year In the year 2003 and 2007 it increases Even though with an increase in rate of sales, the rates of operating expenses are decreasing, it is awesome The management should concentrate continuously on operating expenses as past 69 LIQUIDITY: Liquidity measures the short term solvency of the firm It includes current ration and quick ratio A current ration of organization should pose 2:1, but in case of this organization it not posses The management has to increase Current Assets or has to decrease current liabilities or both A quick ratio should pose ratio of But it never posses if we observe since year For this also the management should decrease the current liabilities or should increase current assets or both CAPITAL: The capital is the amount which is useful to conduct business activities The effective utilization of capital is must in every organization Utilization of capital is dominant decision played by a financial analyst Debt and equity are things involved in the capital The rate should be 2:1 of Debt and Equity respectively But the organization never posses such rate The management should concentrate on that It can be control by management WORKING CAPITAL: Working capital is the amount, which is useful to the organization to conduct day to day business activities It can be calculated by deducting of current liabilities from current assets The management should maintain more current assets than the current liabilities The current assets should be more two times than the current liabilities It is not in many years 70 FIXED ASSETS UTILIZATION: Every organization has to use fixed assets effectively to produce the products A high rate fixed assets turnover is said to be best utilization It can be calculated by dividing the fixed assets to sales y The management is not utilizing fixed assets compared to sales It should pose a ratio of But the organization never posses They should think about it INVENTORY TURNOVER: y A ratio is considered as ideal At first in 2004 it is 5.90 and from 2005 to 2008 it is excellent From the 2009 onwards it is decreasing The management should increase the stock turnover as previous of the year 2009 71 BIBLIOGRAPHY S.NO TOPIC SOURCE AUTHOR I Introduction To Hand Book For Pulp & Paper G.A.Smook Paper Industry In India S.P.Ahuja & Paper II Paper Industry In India III Company profile IV Financial Y.A.Rao www.sirpurpaper.com Financial Management Statement Analysis RP Trivadi I.M.Pandv M.K.Khan & P.KJain 72 ... 33 02. 44 22 87 .29 3 524 .24 9793.78 20 637.76 576.19 14 .27 31 022 .00 881.93 22 86.55 26 82. 88 4183.13 10034.49 22 9 72. 08 20 06.51 20 9.37 3 522 2.45 20 2. 12 -1015.89 395.59 658.89 24 0.71 23 34. 32 1430. 32 195.10... ASSETS 22 9 72. 08 325 56.98 9584.90 41. 72 C INVESTMENTS 20 06.51 1 729 .39 -27 7. 12 -13.81 20 9.37 140.40 -68.97 - 32. 94 3 522 2.45 44 027 .26 8804.81 25 .00 5356.95 6 720 .29 1363.34 25 .45 6 62. 03 376.45 -28 5.58... FIXED ASSETS 20 024 .22 20 637.76 613.54 3.06 C INVESTMENTS 25 8.76 576.19 317.43 122 .67 66.71 14 .27 - 52. 44 -78.61 29 010.85 31 022 .00 20 11.15 6.93 428 8.86 3683.08 -605.78 -14. 12 388.07 616 .2 228 .13 58.79