‘analysis of a financial statement’

INTRODUCTION OF BANK

1.1Origin of Bank

1.2Structure of Banking in

India

1.3Structure of Indian

Banking System

(Diagram)

1.4Bank and Banking

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1. INTRODUCTION OF BANK

Banking system is occupies an important place in a nation’s

economy. In other words the development is an inevitable precondition

for the healthy rapid development of national economic structure.

Banking institutions have contributed much in the development of

developed countries of the world and hence a banking institution is

indispensable in a modern society. It plays a pivotal role in the economic

development of a country.

In a society banking is as important as blood in human body. Banks

contribute a lot in the development of agriculture, trade and industries.

1.1 ORIGIN OF BANK

The evolution of banking can be traced back to ear when the use of

metallic coins as the media of exchange of goods and services began.

The Origin of bank is traced to Latin word ‘bancus’ that means a

bench. European money-lender and moneychangers used to transact their

business at benches or tables. They followed the practice of receiving

gold and other metals as deposits and issuing receipts. The bench or table

used by the trader in money was the symbol of the business of banking.

Some authorities observe that the word bank was originally derived

from the German word bank, which means a joint stock fund. The term

bank or bankers used in almost all the countries of the world to denote a

financial institution dealing in money.

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Organized Unorganized

Licensed CreditorsUnlicensed Indigenous money lenders.

Reserve Bank of India

Commercial Bank

Co-operative Bank

Public Sector:State Bank of IndiaSubsidiaries of State Bank of IndiaNationalized Indian Scheduled commercial Bank

Private Sector:Branches of Banks In corporate outside IndiaOther Indian Scheduled commercial BankNon Scheduled Commercial Bank

State Co-operative Bank at State levelCentral Co-operative Bank at District levelRural primary Co-operative bank of village/Town level

1.2 STRUCTURE OF BANKING IN INDIA

Indian banking system comprises of both organized and

unorganized banks. Unorganized banking includes indigenous bankers

and village moneylenders. Organized banking includes the followed,

Reserve bank of India (central bank )

Commercial banks

Development banks

Exim banks

Co-operative banks

Regional rural banks

Land development banks

National Bank for agriculture and rural development (NABARD)

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STRUCTURE OF INDIAN BANKING SYSTEM

4

1.4 BANK AND BANKING

Banks are institution debts usually referred to as “bank deposits”

are commonly accepted in final statement of other people’s debts.

- R.S.Sayers

Banking means the accepting for the purpose of lending or

investment of deposits of money from the public, repayable on demand or

otherwise, and withdrawable by cheque, draft, order, or otherwise.

After independence the Indian Government also has takes a series

of steps to develop banking sector. Because of considerable efforts of the

Government today we have numbers of bank in India. Banks contribute a

lot in the development of agriculture, trade and industries.

Banking system occupies an important place in a nation’s

economy. A banking institution is indispensable in a modern society. It

plays an important role in the economic development of country and

forms a core of the money market in an advanced country.

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INTRODUCTION OF CO-OP. BANK

2.1Introduction

2.2Function of Co-operative

Bank

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2. INTRODUCTION OF CO-OPERATIVE BANK

2.1 INTRODUCTION

Co-operative banks were first introduced India in 1904 by passing

co-operative credit society act. This firm of organization was intended to

the agriculturists and artisans coming together and educating them in the

case of credit and inculcating the habit of saving co-operation and self-

help.

The distinguishing feature of Co-operative banks is the absence of

profit motive. Co-operative banks are very helpful to meet the

requirements of small farmers, artisans, etc. In India, Co-operative banks

have been pioneers in mobilizing rural deposits. Today however, the Co-

operative banks have putting more weight on their lending activities than

on deposit mobilization.

All the Co-operative credit societies were brought under the

purview of the banking companies’ act 1966. The RBI has been vested

with the power and controls the Co-operative banks. The government of

India has encouraged the Co-operative movement in banking. Therefore,

Co-operative banks are developed from one place establishment to

district level, state level, state level, and also the central level. Co-

operative banks raise their funds through various means. They receive all

kind of deposits and make them available as lend able fund to its

members.

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Co-operative banking has a three-tier structure as under:

Primary credit society

A central Co-operative credit society can be started with ten or

more person, normally belonging to a village. So that the primary credit

society is also known as the village Co-operative society was expected to

attract deposits from among the well-to-do members and non- members

of the village. It should give loan and advances to needy members mainly

out of these deposits.

Central Co-operative bank

The central Co-operative bank is federations of primary credit

society in a specified area, normally a district and is usually located at the

district. The central Co-operative banks have been under taking normal

commercial banking business also such as attracting deposits from the

general public and lending to the needy against proper securities.

State Co-operative bank

State Co-operative bank especially co-ordinates the activities of

district, central Co-operative banks and dive them required guidance.

State Co-operative bank is a chain between co-operative activity and

country’s money market.

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2.2 FUNCTION OF CO-OPERATIVE BANK:

Co-operative Banks are formed on the principle of Co-operative to

Extend Credit facilities to farmers and small scale industrial concerns

and promotes in general the habit of thrift and self help among the low

and middle income groups of the society.

Co-operative has been putting more weight on their lending

activities than on deposit mobilization.

The main function of Co-operative credit society was to provide

cheap credit to the members who are small people with small means

and small needs and finance.

The Co-operative Banks have a three tier set up. The state co-

operative bank, while central district co-operative banks function at

the district level and primary credit societies work of the village level.

Co-operative banks proceed on the principle of co-operation. CO-

operative Banks maintain the cash reserve and liquid assets in relation

to deposit only.

To arrange the programs regarding the Economic welfare of its

members.

This bank supervises the functioning of primary credit society and gives

training, guidance and advice to the employee of credit society only.

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INTRODUCTION OF THEVARACHA

CO-OPERATIVE BANK.

3.1 History & Development

3.2 Board of Director

3.3 Bankers

3.4 Objective of study

3.5 Objective of Bank

3.6 Contribution of the Varachha Co-op. Bank

to the Share Holders.


to the Employee.


to the Customer.

3.9 Financial Performance of the Varachha

Co-op. Bank Ltd.

3.10 Organization structure of Varachha Co-

op. Operative Bank.

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3. INTRODUCTION OF THE VARACHHA CO-OP.

3.1 HISTORY & DEVELOPMENT: -

The Varachha Co-operative Bank was established with license No.

BD Guj. 1153 p Date: 27/1/95. The Register office of the bank is at Affil

Tower, L. H. Road, Surat-6 within the period of 4 month after obtaining

license. The bank was started it’s working on date: 16/10/95. The swami

Sachidanand did the opening of the bank.

The Varachha Co-operative Bank was having 15 directors its initial

stage.

The Varachha Co-operative Bank that is fully computerized and

has made a giant leap in the banking sector just in a short term of a six &

a half year. The Kamrej branch, Kadodara branch, ring road branch and

Kapodara branch are the result of great progress of the Varachha Co-

operative Bank. The varachha Co-operative bank provides speedy and

early service for customer who went to joint in the bank for any reasons.

Bank is given attractive interest on deposit for his customer.

TIME KEEPING SYSTEM:

The Varachha Co-operative Bank has no separate department for

time keeping system headed by manager or officer. The Varachha Co-

operative Bank has identity card system for all those are related with the

bank like managers, offices, clerks and peons all must sign the attendance

register these are send to general manager of the bank.

THE TIME OF WORKING OF THE BANK:

Monday to Friday 10:00 a.m. to 6:00 pm.

Saturday 10:00 a.m. to 3:00 pm.

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3.2 BOARD OF DIRECTORS:

Name Post

Mr. P.B. Dhakecha Est. Chairman

Mr. Pravinbhai V. Pansuria Chairman

Mr. Bhupendrabhai K. Ribdiya V. president

Mr. Bhavanbhai B. Navapara M. Director

Mr. Lavjibhai N. Nakrani Director

Mr. Dhirubhai M. Ghevariya Director

Mr. Narendrabhai M. Kakadiya Director

Mr. Kanjibhai R. Bhalala Director

Mr. Kanjibhai R. Vadariya Director

Mr. Vallabhbhai P. Savani Director

Mr. Prabhudas T. Patel Director

Mr. Jivrajbhai K. Patel Director

Mr. Kanubhai V. Savliya Director

Mr. Babubhai V. Mangukiya Director

Mr. Manjibhai M. Patel Director

Mr. A. D. Bhalani (Head office) General Manager

Mr. B.C. Sorthiya (Head office) Manager

Mr. Mukeshbhai Kanani (Kamrej) Manager

Mr. Kanubhai Dobariya (Ring Road) Manager

Mr. Dipakbhai Dodiya (kadodra) Manager

Mr. Vithalbhai Dhanani (Kapodra) Manager

3.3 BANKERS:

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The Varachha Co-operative bank has some banker as follow:

The Gujarat State Co-op. Bank Ltd. HO. Ahmedabad

The Surat District Co-op. Bank HO. Surat

State Bank of India Surat

State Bank of Travankor Surat

State Bank of Sourastra Surat

State Bank of Mysore Surat

Indus Ind Bank Surat

HDFC Bank HO. Surat

ICICI Bank Ltd. Surat.

3.4 OBJECTIVE OF STUDY:

During the period to survive in the market every organization

should monitor its various dimension of business which includes

personnel management, Human Resource Management, Information

system Management, Financial Management and time management etc.

out of these I am going to discuss the financial aspect of the Bank.

In Recent innovation the world is moving very fast, Every

organization has to cope with this changing Environment. SO we able to

identify the organization with respect to balance sheet and profit & loss

A/c mean final information pertaining to organization position and

liquidity.

We knew about the banking system and know how efficient

becomes the key factor of the organization to survive and grow by doing

the financial analysis of the bank. We know the recent innovation in the

changing Environment. This is the one of the effort carried out by me to

monitor the performance of Varachha Co-operative bank Limited.

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3.5 OBJECTIVE OF BANK:

To encourage thrift and mutual Co-operating among its members.

To create funds to be lend at moderate of interest to the members

of the bank in accordance with the processor specified in these

byelaws

To give possible help and necessary guidance to members of the

bank in the conduct of business.

To do every kind of trust and agency business and particularly do

the work investment funds, sale of properties and of recovery or

acceptance of money.

To accept money document, security calculate article and goods

every description for keeping them in safe custody or for sending

them from one place to other.

To act as a balancing center for surplus funds of co-operative

societies.

To organize and develop co-operative societies within the district.

To redeem old debts.

3.6 CONTRIBUTION OF THE VARACHHA CO-OP.

BAKK TO THE SHARE HOLDER:

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Accident Insurance Scheme For Its Share Holder:-

The Varachha co-operative bank is providing Rs.200000/- accident

insurance to its share holder.

Accident Insurance Scheme For Its Account Holder:-

The Varachha co-operative bank is providing Rs.50000/- accident

insurance to its all types of account holder like saving account, current

account etc.

Medical Relief Scheme: -

The Varachha Co-operative Bank is providing medical relief to its

shareholder Rs.2500/- of medical relief providing by the bank.

Assistance To Nominee Of Share Holder:-

In case of death of shareholder the Varachha Co-operative Bank is

providing Rs.5000/- to nominee of shareholder.

Scholarship Facility:-

The Varachha Co-operative Bank is providing scholarship to the

children of shareholder after 12th standard in his poor position.

Prize Distribution:

The Varachha Co-operative Bank give prize to the children of

share holder who get the maximum marks which are fixed by The

Varachha CO-operative Bank for obtaining the prize. The Varachha

co-operative bank gives prize to the top ranker of S.S.C. and H.S.C.

examination who live in Surat city.

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Dividend:-

The Varachha co-operative bank is providing dividend to its

member or shareholder. The bank gives maximum 15% dividend to its

shareholder. Bank cannot give more than 15% interest on share capital.

3.7 CONTRIBUTION OF THE VARACHHA CO-OP.

BANK TO THE EMPLOYEE:-

The Varachha co-operative bank is provide different types of

services to its employee like,

Insurance Benefit:-

The Varachha co-operative bank is providing life insurance benefit

to all employee of the bank. It also provides accident insurance to the

employee of the bank.

Benefit on Deposit: -

The Varachha co-operative bank is providing high rate of interest

on deposit for its employee.

Medical Assistance: -

The Varachha co-operative bank is providing high rate of interest

on deposit for its employee.

Benefit On Loan: -

The Varachha co-operative bank is providing low rate of interest on

any type of loan for its employee.

3.8 CONTRIBUTION OF THE VARACHHA CO-OP

BANK TO THE CUSTOMER:

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Attractive Interest on Deposit: -

The Varachha Co-operative bank is providing attractive interest on

deposit.

G.E.B. Collection: -

Gujarat electricity bills collection counter are available on the

Kamrej branch, Kapodara branch and Kadodara branch of the Varachha

co-operative bank.

Tele Banking Facility: -

In the Varachha Co-operative bank the tele banking facility are

available in both language Gujarati as well as in English.

VAT Machine: -

The VAT machine also available in the Varachha Co-operative

bank. The VAT machine is very useful for the customer. Through the

VAT machine customer can know about the condition about his account

it self. The VAT machine is fully automatic. The customer can know

about his banking transaction without use any key or button. The

customer can know about his banking transaction by use of his figure.

Totally Computerized Bank: -

The Varachha co-operative bank is totally computerized bank. The

work of the entire department is done on the computer. All the

information about the customer and the customer’s account are present in

the computer. Therefore, the customer gets the condition of his account

whenever he wants.

Safe Custody: -

The customer gives sealed cover or a box to a banker to keep in a

safe custody. The banker writes a name of owner of a cover or a box and

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takes customer’s signature of receipt on the counterfoil and keeps it with

him. When the customer demands the cover or a box then the customer

has to sigh on the back of receipt and to give to his banker. The bankers

then tally the signature on both the receipt and counterfoil and if he find

both signatures similar then the return the cover or a box.

Safe Deposit Lockers: -

The Varachha Co-operative bank keeps lockers in their strong

room with small drawer. Every locker has different number and a locker

with two keys. Such lockers are given to customer on rent. The customer

has a key of locker and a master key is with the banker. The customer can

keep or take away his belonging during working hours of the Varachha

co-operative bank.

3.9 FINANCIAL PERFORMANCE OF THE VARACHHA

CO-OPERATIVE BANK LTD.

(Rs. In Crores)

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No. Details 2000 2001 2002 2003

1. Member 6929 6887 7342 8148

2. Share Capital 1.82 2.51 3.11 3.44

3. Total Deposit 62.45 101.03 123.04 129.79

4. Total Loan 39.94 55.21 67.32 67.25

5. Profit 2.09 3.67 4.70 4.73

6. Working Capital 72.43 115.83 146.41 159.35

7. Audit Class A A A A

8. Dividend 15% !5% 15% 15%

9. Deposit Holder 40,013 58,222 66,109 75,435

10. Account Holder 4,216 5,098 5,727 5,055

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3.10 ORGANIZATION STRUCTURE OF VARACHHA

CO-OPERATIVE BANK:

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Chairman

Managing Director

Vice Chairman

Kadodra

Katargam

Kamrej

DAY TO DAY OPERATION

21

Board of Director

General Manager

Branch Manager

Ring Road

Kapodra

4.1 New Account Department

4.2 Draft Department

4.3 Clearing Department

4.4 Token Department

4.5 Transfer Department

4. DAY TO DAY OPERATION

4.1 NEW ACCOUNT DEPARTMENT:

New Account is opened as well as old accounts are closed in this

department. Accounts are of three types:

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i. Current Account.

ii. Saving Account.

iii. Cash Credit Overdraft Account.

Daily nearly on an average about 10 to 12 current accounts and 15

to 20 saving account are opened and 1 or 2 are closed everyday the

procedure for opening new accounts in the bank starts with fill up the

form given by bank. The bank has requirements for opening a current

account is two photographs of the account holder and if the account is

opened for company or firm then the photograph of the directors or

proprietors or administrator, the sign and account number of the person

who wants to open a new account in the bank and license of the firm. To

open saving account only one photograph of account holder, signature of

account holder in the same bank as well as papers or documents which

give true and pair residential address such as driving license, rationing

card, light or phone bill, school living certificate etc.

The minimum balance for current account is Rs.3000 and the

minimum balance for saving account is Rs.1000. Any account holder,

current or saving, can’t close his account before completion of six months

in the bank. Closing of new account is some what difficult task as each

and every aspect of the account is to be noted. The charges Rs.210 are cut

and remaining amount is given back to customer through the issue of

cheque book of the some amount. The cheque book of the close account

is taken back by bank is stored with the account close form. The bank

provides service of cash credit and overdraft against for the current

account holders.

At the bank is fully computerized at on the day, scanning of the

signature of the new account holder is done. This is an important task.

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The issue of cheque book and pass book department is informed to make

cheque book and passbook for new accounts which are opened on that

particular day. Thus the bank employees of this department are having

their end of the day with the process of scanning.

Issue of cheque book and pass book:

This is important department of the bank. In this department new

passbook and cheque book are issued. The new account department gives

details of new customers and according to that new cheque book and

passbook are issued.

This department consists of only one employee who gives cheque

book and passbook to the customers. Customers who are in need of a

new cheque book have to apply a day before with a counter given in the

old cheque book. For each account holder it is compulsory to allow at

least five cheques to be cleared or presented to bank for issuing a new

cheque book. Daily 70 to 75 new cheque books are issued to the

customers.

As the bank is fully computerized if changes are made by customer

in cheque book, the computer will reject the cheque number because the

while issuing cheque book the number of cheque are recorded in the

computer.

4.2 DRAFT DEPARTMENT:-

Draft is another department of the bank. As this bank is in no co-

operative sector it has limited branches in surat. It does not have any

branch in any other part of the country. So in order to provide draft

service of different cities to its customers it has associated with certain

banks.

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If a customer wants a draft for Bombay, a bank must have its

branch which can discount the draft and if the bank do not have a branch

than it has to joint with other bank.

The Varachha Co-operative Bank has following banks who

discount the draft in different cities of the country.

- The Surat District Co-operative Bank Surat

- The Gujarat State Co-operative Bank Ltd. Ahmedabad

- State Bank of India Surat

- State Bank of Travankor Surat

- State Bank of Sourastra Surat

- Indusind Bank Ahmedabad

- ICICI Bank Ahmedabad,

Mumbai

Surat.

4.3 CLEARING DEPARTMENT: -

The most important department of the bank is clearing department.

This department has maximum number of employees. Nearly about seven

or eight person are continuously working in this department. Clearing per

day is nearly about three or four crores. Clearing house of all banks in

surat is situated at Sate Bank of India, Nanpura, Surat.

Clearing which is collected from the clearing house is known as

outward clearing.

4.4 TOKEN DEPARTMENT:-

The next department of the bank is the Token department. It is

small but department with only one employee. The working hours of this

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department is from 11:00 am to 3:00 pm. Token is issued after various

strict verification of cheque such as signature amount in figure as well as

in words etc. This department is small but full of responsibility. Bank has

a special service for its customers that is up to Rs.10,000 for saving

account holders and no limit for current account holders can be

withdrawn directly from the cash counts without the procedure of Toker.

4.5 TRANSFER DEPARTMENT: -

The next department is transfer. There is only one employee in this

department. In this department the cheque of the same bank is transferred

from one account to other account of customers. The entry of other

department such as OBC (counter Bill collection) and IBC (Inter Bill

Collection) etc. is done from this department.

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INTRODUCTION OF FINANCIAL STATEMENT

5.1 Introduction

5.2 Statement

5.3 Need or Essential of Good

financial statement.

5.4 Objective of Financial

Statement.

5.5 Nature of Financial

Statement.

5.6 Limitation of Financial

Statement

5. INTRODUCTION OF FINANCIAL STATEMENT

5.1 INTRODUCTION

27

Financial statements are prepared for the purpose of presenting a

periodical review or report on the progress by the management and deal

with

The status of investment in the business and

The results achieved during a period under review.

The statement disclosing status of investments is knowing as

Balance sheet and the statement showing the result is known as profit &

loss a/c. A firm communicates financial information to the users through

financial statements and reports. The financial statements contain

summarized information of the firm’s financial affairs, organized

systematically. They are means to present the firm’s financial situation to

users.

Definition:

Financial statement is methodical analysis through classification,

comparison and interpretation of data in financial statement to diagnoses

financial soundness (profitability, viability, soundness).

As the statements are used by investors and financial analysts to

examine the firm’s performance in order to make investment decisions

they should be prepared very carefully and contain as much information

as possible. The financial statement are prepare from the accounting

records maintained by the firm. The focus of financial analysis is on key

figures in the financial statements and the significant relationship that

exits between them. In brief, financial analysis is the process of selection,

relation and evaluation.

5.2 STATEMENT:

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1) Profit & Loss Account:

The earning capacity and potential of the firm are reflected by the

income statement i.e. p&l a/c. The profit & loss account is the ‘Score-

board’ of the firm’s performance during a particular period of time. The

profit & loss account represents are summary of revenues, expenses and

net income or net loss of a firm for a period of time. It servers as a

measure of firm’s profitability. Net income which is an indicator of the

firm’s profitable operation, if the firm’s operation prove to be

unprofitable total expanses will exceed total revenue and difference is

referred to as net loss. The statement of profit & loss is the classified

record of the gain or losses is the business for a period of time. A

comparison of earnings and expenses, the difference between thee two is

known as net profit or loss.

2) Balance Sheet:

Balance sheet comprises of a list of assets, liabilities and capital at

a given date. It is static in charter because it tells about Financial Position

of a business as on a particular date. At the same time business is

dynamic while balance sheet is static. It records only periodic changes

rather than continuous ones. It represents the assets owned by the

business and the claims of the owners and creditors against the assets in

the form of liabilities as on the date of the statement.

The balance sheet is a statement which reports the value owned by

the enterprise and the claims of the creditors and owners against these

properties. - Howard.

5.3 NEED OR ESSENTIALS OF GOOD FINANCIAL

STATEMENT:

29

Different parties have interest in the financial statements with

different objectives. It may not be possible to the concerns to construct

the statements to suit every interested person. However, such statements

should have at least the following essentials.

1) Figures which are incorporated in financial statements should be

readily and easily available from the books of accounts of the

concern. The size of the form of financial statements should not be

abnormally too large.

2) It must facilitate easy comparison. In addition to the figures of

previous years, it is also essential that uniformity in the form is

maintained from year to year. This is for easy comparison.

3) The form and contents of the form should be designed in such

away that the attention of readers is automatically drawn and

directed to most significant.

4) All facts should be presented in such a way that required items and

figures are easily obtained for calculating various accounting ratios,

to be used by the analysts.

5) The information contained in the financial statements should be

such that a true and correct idea is taken about the financial position

of the concern.

6) The comparable figures will make the statements more useful. The

results of financial analysis should be in a way that can be compared

to the previous year’s statements. The comparison of the figures will

enable a proper assessment for the working of the concern.

30

7) The form should be not be complex in nature. The various terms

used should be in simple and common language. The form should

have suitable column for additions and deductions and it must arrest

and retain the attention of users.

5.4 OBJECTIVES OF FINANCIAL STATEMENT:

Diverse groups of people are keenly interested in the information

found in the firm’s financial statements. The object of all these analyze is

some sort of evaluation of the firm’s performance.

31

Firstly, the financial statements of business enterprises should

provide information within the limits of financial accounting.

Secondly, financial statements of business enterprise should

provide information that help investors and creditors assess the prospects

of receiving cash from dividends or interest from the proceeds from the

sale, redemption or maturity of securities or loans.

Thirdly, the financial statements of business enterprise should

provide information about the economic resources of an enterprise which

is sources of prospective cash flow to the enterprise its obligations to

transfer economic resources to others which are causes of prospective

cash outflow from the enterprise and its earning.

5.5 NATURE OF FINANCIALSTATEMNTS:

Financial statements are prepared for the purpose of presenting a

periodical review or report on progress by the management and deal with

the status of investment in the business and the result achieved during the

period under review.

According to the American Institute of Certifies Public

Accountants, financial statements reflects “a combination of recorder

facts, accounting conventions and personal judgments and the judgment

and conventions applied affect them material.”

Recorded Facts:

Record is made only of these facts which can be expressed in

monetary terms. Facts which have not been recorded in the financial

books are not depicted in the financial statements. Thus, the recorded

facts consist of such data as the bank, the amount due from customers, the

32

cost of fixed assets, the amount payable to creditors etc. Certain factors

which may affect the financial position of a business are not shown in the

accounting records. Such items purchase and sale contracts, claim for

refund guarantee, etc.

Accounting Conventions:

Accounting standard laid down by the various accounting bodies.

Managements of concerns are free to choose an accounting policy suited

to their concern. Accounting policies differ with regard to valuation of

inventory, depreciation, research, development etc. Further provision is

made for expected losses but expected profits are ignored.

Postulates:

Rupee values shown in the statement are not precise measurement

of items incorporated in them. Data disclosed by the financial statements

are useful and meaningful only till concern services.

Personal Judgment:

Personal judgment plays a great part while dealing in rate of

depreciation like, method and rate of depreciation, to be adopted,

valuation of inventories provision for bad and doubtful debts.

5.6 LIMITATION OF FINANCIAL STATEMENETS:

Financial statements are based on historical costs and as such the

impact of price level changes is completely ignored. The basic nature of

financial statements is historic. These statements ate neither complete not

33

exact. They reflect only monetary transactions of a business. These

statements furnish only information and that too in the form of figures.

Generally following limitations may be noted:

1) The financial statements many items are left to the personal

judgment of the accountant. For instance, provision of depreciation

stock valuation depends on the judgment of accountant.

2) On account of convention of conversion the income statement may

not disclose true income of the business since probable losses are

considered while probable incomes are ignored.

3) The fixed assets are shown at cost less depreciation on the basic of

‘going concern concept’. But the value placed on the fixed assets

may not be the same which may be realized on their sale.

4) The data contained in the financial statements are dumb. They do

not speak themselves. It is also worth while to note that human

judgment is always involves in the interpretation of statements. It

rarely happens that the users of financial statements may have the

same opinion and meaning in respect of a particular accounting

figure.

5) The financial position of a business concern is affected by several

factors economic, social and financial but only financial factors are

being recorded in these financial statements.

6) Information conveyed by these statements may not be comparable

on account of difference between dated of preparation of these

34

statements. Different methods of accounting followed by different

concerns or difference in the nature of business of concern etc.

7) Financial statements do not reflect many factors which affect

financial condition and operating results because they can not be

stated in terms of money. Such factors include materials, supplies,

the reputation and prestige of the company with the public.

35

TOOLS OF FINANCIAL STATEMENT

6.1 Comparative Financial

Statement

6.2 Common size statement

6.3 Trend Ratio or Trend

Analysis

6.4 Statement of Changes in

Working Capital

6.5 Fund flow analysis

6.6 Cash flow analysis

6.7 Ratio analysis

36

CH: 6: TOOLS OF FINANCIAL STATEMENT

A financial analyst can adopt the following tools for analysis of the


There are also termed as methods of financial analysis.

1. Comparative Financial Statements

2. Common size Statements

3. Trend Ratios or Trend Analysis

4. State of Changes in Working Capital

5. Fund Flow Analysis

6. Cash Flow Analysis

7. Ratio Analysis

The methods are described as follow:

6.1 COMPARATIVE FINANCIAL STATEMENTS

The comparative financial and operating statement is an important

device of horizontal financial analysis. As their very name suggests,

Comparative Financial Statements are statements of the financial position

of a business. So designed as to provide time perspective to the

consideration of various elements of financial position embodied in such

statement.

Generally, Balance sheet and Income statement which alone are

prepared in a comparative form, because they are the most important

statements of financial position. In these statements figures for two or

more periods are placed side by side to facilitate comparison.

Advantage:-

37

These statements render comparison between two periods of time

and Exhibit the magnitude and direction of historical changes in

the operating results and financial status of business

Financial statements of two or more firms may also be compared

for drawing inferences. This is known as inter firm comparison.

The statement also provides for column to indicate the change from

one year to another in absolute term and also in percentage form.

6.2 COMMON SIZE STATEMENT:-

Financial statements when read with absolute figures are not easily

under stand able. They are even misleading. Each item of asset is

converted into percentage to Total Assets and each item of capital and

liabilities and capital fund. Thus the whole Balance sheet is converted

into percentage form. Such converted balance sheet is known as common

size Balance sheet.

Common size comparative statements prepared for one firm over

the years would highlight the relative changes in each group of expense,

assets and liabilities. These statements can be equally useful for inter firm

comparison given the fact that absolute figures of two firms of the same

industry are not comparable. When balance sheets of the same concern

for several years or when Balance sheets of two or more than two

concern. For the same year are converted into percentage form and

presented, they are known as comparative common size Balance sheets.

Interpretation: Profit and loss account Figure is assumed to be

equal to 100 and all other Figure or expressed as percentage to sales.

38

Similarly in balance sheet the total of assets and liability is taken as 100

and all the Figures are expressed as percentage of the total. The statement

prepared is called “Common size Statement”.

6.3 TREND ANALYSIS: -

The comparative and common size statements suffer from a major

limitation.

i.e. absence of a basic standard to indicate over comes whether the

proportion of an item is normal or abnormal. Trend analysis overcomes

this limitation. This method is also an important and useful technique of

financial statement analysis.

The calculation of trend ratio involves the ascertainment of

arithmetical relationship which each item or several years to the same

item of base year. The one particular year out of many years is taken as

base. The value of one particular item out of several items shown in the

financial statements are converted in to ratio or percentage taking of that

item in base year as equal to 100.

39

6.4 STATEMENT OF CHANGES IN WORKING

CAPITAL: -

The working capital does change due to various transactions. The

working capital position at the beginning of a period is changed to a

different position at the end of that period. A statement of working capital

is prepared to depict the changes in working capital. Working capital

assets over current liabilities since several items, i.e., all current assets

and current liabilities are the component of working capital, it is

necessary to measure the increase or decrease there in, by preparing a

statement or schedule of changes in working capital.

The statement shows the changes in individual items of current

assets and current liabilities and their effect of working capital. The total

increase and total decrease in the end is compared and the difference of

total increase and total decrease shows the net increase or net decrease in

the working capital.

6.5 FUND FLOW ANALYSIS: -

“A statement of sources and application of funds is technical

device designed to analyze the changes in the financial condition of a

business enterprise between two dates.”

The fund flow statement is a financial statement which reveals the

methods by which the business has been financed and how it has used its

funds between the opening and closing balance sheet date. Thus, fund

flow statement is a report in movement of funds explaining where from

working capital originates and where into the same goes during an

accounting period.

This statement consist of two parts

40

i) Sources of Funds

ii) Application of Funds

The difference between the two shows the net change in the

working capital during the period. The fund flow statement is a

supplement to the two principal financial statements.

Fund flow statement is a statement which indicates various means

by which the funds have been obtained during a certain period and the

ways to which these funds have been used during that period. The term

funds used means working capital.

Importance:

It determines the financial consequence of business operations. It

shows how the funds were obtained and used in the past. Financial

manager can take corrective actions.

The management can formulate its financial policies, dividend,

reserve etc. on the basis of the statement.

It points out the sound and weak financial position of the

enterprise.

It enables the banker, creditors or financial institutions in assessing

the degree of risk involved in granting credit to the business.

Limitation:

The statement lacks originally because it is only rearrangement of

data appearing in accounts books.

It indicate only the past position and not future.

41

It indicates fund flow in a summary form and it does not show

various changes which take place continuously.

When both the aspects of a transaction are current, they are not

considered.

When both the aspects of a transaction are non-current, even then

they are not including in this statement.

It is not an ideal tool for financial analysis.

6.6 CASH FLOW STATEMENT: -

A cash flow statement concentrates to transactions that have a

direct impact on cash. It deals with the inflow and outflow of cash

between two balance sheet dates. Cash Flow statement is a statement of

recording systematically all inflow and outflow of cash of the accounting

period. Thus it shows the sources of cash receipts and the purpose for

which payments are made. It is like a receipts and payments account in a

summary form.

Cash flow deals only with cash. It is useful for short term

Financing. It is based on cash basis of accounting and also depicts the

changes in cash position and it is a part of working capital:

Use of Cash flow statement:

Cash flow statement facilitates to prepare sound financial policies.

It also helps to evaluate the current cash position.

It helps in taking loan from banks and other financial institutions.

The repayment capacity of the firm can be understood by going

through the cash flow statement.

42

It helps the management in taking short term financial decisions.

Limitation:

Cash flow statement only reveals the inflow and outflow of cash.

The cash balance disclosed by this statement may not depict the

true liquid position.

A cash fund statement cannot be equated with the income

statement. An income statement takes into account both cash and

non cash items.

Working capital being a wider concept of funds, a funds flow

statement presents a more complete picture than cash flow

statement.

6.7 RATIO ANALYSIS: -

A Ratio is only a comparison of the numerator with the

denominator. The term ratio refers to the numerical or quantitative

relationship between two figures, and obtained by dividing the former by

the latter. Ratios are designed to show how one number is related to

another. It is worked out by dividing one number by another.

Ratio analysis is an important and age old technique of financial

analysis. Ratios are relative form of financial data and very useful

technique to cheque upon the efficiency of firm. Some ratios indicate

trend or progress or downfall of the firm.

Limitation:

Ratio analysis a widely used tool of financial analysis, it is because

ratios are simple and easy to understand. But they must be used very

carefully. They suffer from various limitations:

43

Comparisons are made difficult due to differences in definitions of

carious financial terms lack of standard formula for working out

ratios makes it difficult to compare them.

Ratio analysis is based on financial statement which is themselves

subject to limitation. Thus, ratios calculated on the figures given in


It is very difficult to ascertain the standard ratio in order to make

proper comparison, because it differs from firm to firm.

Due it changes in price level of various years, comparison of ratios

of such years cannot give correct conclusion.

A single ratio would not be able to convey any thing. Ratios can be

useful only when they are computed in a sufficient large number. If

too many ratios are calculated, they are likely to confuse instead of

revealing meaningful conclusions.

44

ANALYSIS AND INTERPRETATION

7.1 Common size Statement

7.2 Comparative Statement

7.3 Trend Analysis

7. ANALYSIS AND INTERPRETATION

Financial statement is prepared primarily for decision making. The

statements are not an end in them but are useful in decision making.

Financial analysis is the process of determining the significant operating

45

and financial characteristics of a firm from accounting data. The Profit &

Loss Account and Balance Sheet is indicator of two significant factors

profitability and financial soundness. Analysis of statement means such a

treatment of the information contained in the two statements as to afford a

full diagnosis of the profitability and financial position of the firm

concerned. Financial statement analysis is largely a study of relationship

among the various financial factors as shown in a series of statement.

Objective of Analysis and Interpretation

To estimate earning capacity of the firm.

To assess the financial position of the firm.

To know the progress of firm.

To have comparative study.

To measure efficiency of operation.

7.1 COMMON SIZE STATEMENT

The Varachha Co-Operative Bank Ltd. (2001-2003)

Profit & Loss A/c

() indicate Minus Figure

Particulars 2003 2002 2001

46

No. Expenses

1 Deposit, Interest on borrowing 51.12 57.07 61.13

2 Salary Allowance, P.F. etc. 4.15 3.83 4.04

3 Director Fee - - -

4 Tax, Rent, Insurance 1.70 1.81 1.13

5 Legal Fee 0.04 0.02 0.04

6 Postage, Telephone Expenses 0.31 0.34 0.36

7 Audit Fee 0.09 0.04 0.03

8 Depreciation Fund 2.84 2.33 2.55

9 Stationary, Printing, Advertisement 0.69 0.66 1.31

10 Non Performing Asset 2.61 - -

11 Other Expenses 14.11 10.02 4.83

12 Net Profit 22.34 23.94 24.65

Total 100.00 100.00 100.00

No. Income

1 Interest and Discount 96.28 96.76 96.48

2 Commission 2.74 2.18 2.46

3 Other Receipt 0.98 1.06 1.06

Total 100.00 100.00 100.00

47

Balance Sheet

() indicate Minus Figure

Particular 2003 2002 2001

No. Liability1 Share capital 2.15 2.12 2.502 Reserve fund 10.78 7.11 5.103 Deposit:

- Fixed Deposit 41.20 46.29 53.85 - Saving Deposit 15.73 15.10 13.68 - Current Deposit 13.55 12.09 10.05

4 Borrowing 0.28 1.18 -5 Bills Payable 0.22 0.27 0.436 Branch adjustment - - -7 Interest Overdue 0.63 1.15 1.098 Interest payable 10.62 10.30 9.059 Other liability 1.88 1.19 1.4610 Profit and Loss A/c 2.95 3.20 3.15

Total: 100.00 100.00 100

No. Assets1 Cash 9.08 6.26 8.662 Bank 6.25 4.11 7.093 Call & Short time Invt. - - -4 Investment 33.74 36.09 29.105 Loans and Advances

- Short term 26.53 29.68 27.78- Moderate term 15.37 16.04 19.38- Long term 0.12 0.13 0.18

6 Interest receivable 1.38 1.20 1.787 Bills Receivable 0.22 0.27 0.438 Branch adjustment - - -9 Building premises 2.02 2.31 2.3910 Furniture & Fixture 0.96 1.27 1.2911 Other Asset 4.33 2.64 1.92

Total: 100.00 100.00 100.00

49

7.2 COMPARATIVE STATEMENT:-

Profit & Loss Account() indicate Minus Figure

Particulars 2002 2003 Absolute %2003 2003

ExpensesInterest on Borrowing 111893442 108268889 (3624553) (3.24)Salary Allowance 7509957 8790948 1280991 17.05Director Fee - - - -Rent, Tax, Insurance 3546764 3596769 50005 1.41Legal Fee 34650 84531 49881 143.95Postage, Telephone 666025 651445 (14580) (2.19)Audit Fee 84425 193950 109525 129.73Depreciation Fund 4567387 6018823 1451436 31.77Stationary, Printing 1102094 1461752 359658 32.63Non Performing Asset 2194792 5536118 3341326 152.23Non-Banking Expenses

- - - -

Other Expense 17443657 29890580 12446925 71.35Net Profit 47001569 47280228 278659 0.59Total 196044763 211774039 15729276 8.02

IncomeInterest & Discount 189693182 203890471 14197289 7.48Commission 4271254 5805746 1534492 35.92Donation - - - -Other Receipt 2080327 2077822 (2505) (0.12)Total 196044763 211714039 15729276 8.02

50



ExpensesInterest on Borrowing 91042852 111893442 20850590 22.90Salary Allowance 5914459 7509957 1595498 26.97Director Fee - - - -Rent, Tax, Insurance 1677238 3546764 1869526 111.46Legal Fee 58050 34650 (23400) (40.31)Postage, Telephone 559554 666025 106471 19.02Audit Fee 41115 84425 43310 105.33Depreciation Fund 3791403 4567387 775984 20.46Stationary, Printing 1952370 1162094 (790276) (40.47)Non Performing Asset 4873700 2194792 (2678908) (54.96)Non-Banking Expenses

- - - -

Other Expense 2323892 17443657 15119765 650.52Net Profit 36709773 47001569 10291796 28.03Total 148944409 196044763 47100354 31.62

IncomeInterest & Discount 143706779 189693182 45986403 32.00Commission 3656668 4271254 614586 16.80Donation - - - -Other Receipt 1580962 2080327 499365 31.58Total 148944409 196047763 47100354 31.62

51



ExpensesInterest on Borrowing 48149681 91042852 42893171 89.08Salary Allowance 3466527 5914459 2447932 70.61Director Fee - - -Rent, Tax, Insurance 957336 1677238 719902 75.19Legal Fee 3000 58050 55050 183.5Postage, Telephone 318166 559554 241388 75.86Audit Fee 36854 41115 4261 11.56Depreciation Fund 1549280 3791403 2242123 144.72Stationary, Printing 764726 1952370 1187644 155.30Non Performing Asset - - - -Non-Banking Expenses

- - - -

Other Expense 7344759 7197592 (147167) (2.00)Net Profit 20956851 36709773 15752922 75.16Total 83547184 148944409 65397225 78.27

IncomeInterest & Discount 78793849 143706779 64912930 82.38Commission 3591005 3656668 65663 1.82Donation - - - -Other Receipt 1162330 1580962 418632 36.01Total 83547184 148944409 65397225 78.27

52

Balance Sheet () indicate Minus Figure


LiabilityEquity 31060400 34402600 3342200 10.76Reserves 104411716 1726655919 68244203 65.36Subsidiary Fund - - - -Deposit:-Fixed Deposit 679807291 659343264 (2046027) (3.01)-Saving Deposit 221739278 251737365 29998087 13.52-Current Deposit 177498738 216847619 39348881 22.17Call & Short Time Deposit

- - - -

Borrowing 17355772 4455342 (12900430) (74.33)Bills Payable 3979987 3500507 (476480) (12.04)Branch Adjustment - - - -Interest Overdue 16825205 10115703 (6709502) (39.87)Interest Payable 151404137 170012452 18608315 12.29Other Liability 17438243 30137518 12699275 72.82Profit 47001569 47280228 278659 0.59Total 1468522340 1600488516 131966176 8.98

AssetCash 91865667 145366688 53501021 58.23Bank 60395420 100068900 39673480 65.68Call & Short Time Investment

- - - -

Investment 530055100 540055100 10000000 1.88Subsidiary Investment Fund

- - - -

Loan & Advance -Short Term 435799975 424613712 (11186263) (2.56) -Moderate Term 235499752 246013956 10514204 4.46 -Long Term 1866669 1935631 68962 3.69Interest Receivable 17586799 22042523 4455724 25.33Bills Receivable 3979987 3500507 (479480) (12.04)Branch Adjustment - - - -Building 33982280 32328089 (1654791) (4.86)Furniture 18696536 15303200 (3393336) (18.14)Other Assets 38793552 69260210 30466658 78.53Total 1468522340 1600488516 131966176 8.98

53



LiabilityEquity 25050000 31060400 6010400 23.99Reserves 59506159 104411716 44905557 75.46Subsidiary Fund - - - -Deposit:-Fixed Deposit 628059765 679807291 51747526 8.23-Saving Deposit 159518565 221739278 62220713 39.0-Current Deposit 117193537 177498738 60305201 51.45Call & Short Time Deposit

- - - -

Borrowing - 17355772 17355772 -Bills Payable 5060596 3979987 (1080609) (21.35)Branch Adjustment - - - -Interest Overdue 12762863 16825205 4062342 31.82Interest Payable 105537341 151404137 45866796 43.46Other Liability 16985291 17438243 452952 2.67Profit 36709773 47001569 10291796 28.03Total 1166383894 1468522340 302138446 25.90

AssetCash 101022945 91865667 (9157278) (9.06)Bank 82752538 60395420 (22357118) (27.01)Call & Short Time Investment

- - - -


- - - -

Loan & Advance -Short Term 324052618 435799975 111747357 34.48 -Moderate Term 225997182 235499752 9502570 4.20 -Long Term 2056307 1866669 (189638) (9.22)Interest Receivable 20780224 17586799 (3193425) (15.36)Bills Receivable 5060596 3979987 (1080609) (21.35)Branch Adjustment - - - -Building 27845962 33982280 6136318 22.03Furniture 15027239 18696536 3669297 24.41Other Assets 22341179 38793552 16452373 73.64Total 1166383894 1468522340 302138446 25.90

54



LiabilityEquity 18164500 25050000 6885500 37.90Reserves 36007457 59506159 23498697 65.26Subsidiary Fund - - - -Deposit:- Fixed Deposit 373633607 628059765 254426158 55.71-Saving Deposit 102439693 159518565 57078872 55.71-Current Deposit 91685493 117193537 25508074 27.82Call & Short Time Deposit

- - - -

Borrowing - - - -Bills Payable 1245254 5660596 3815342 306.39Branch Adjustment - - - -Interest Overdue - 12762863 12762863 -Interest Payable 56654544 105537341 48882797 86.28Other Liability 23542113 16985291 (16556822) (27.85)Profit 20956851 36709773 15752922 75.16Total 724329515 1166383894 442054379 61.02

AssetCash 52808866 101022945 48124079 91.29Bank 112195130 82752538 (29442592) (26.20)Call & Short Time Investment

- - - -


- - - -

Loan & Advance -Short Term 211032289 324052618 113020329 53.55 -Moderate Term 188335625 225997182 37661557 19.99 -Long Term - -2056307 - -Interest Receivable 6959937 20780224 13820297 198.56Bills Receivable 1245254 5060596 3815342 306.39Branch Adjustment 3246527 - 3246527 -Building 13083710 27845962 14762252 112.82Furniture 7826643 15027239 7200596 42.00Other Assets 18206431 22341179 4134748 22.71Total 724329515 1166383894 442054379 61.02

55

7.3 TREND ANALYSIS:-


Particulars 2001 2002 2003ExpensesInterest on Borrowing 100 122.90 118.92Salary Allowance 100 126.97 148.63Director Fee 100 - -Rent, Tax, Insurance 100 211.46 214.45Legal Fee 100 56.69 145.62Postage, Telephone 100 119.02 116.42Audit Fee 100 205.33 471.73Depreciation Fund 100 120.46 158.75Stationary, Printing 100 59.23 74.87Non Performing Asset 100 45.04 113.50Non-Banking Expenses 100 - -Other Expense 100 750.52 1286.22Net Profit 100 128.03 128.79

IncomeInterest & Discount 100 132.00 141.89Commission 100 116.80 158.77Donation 100 - -Other Receipt 100 131.58 131.42

56

Balance Sheet() indicate Minus Figure

Particulars 2001 2002 2003LiabilityEquity 100 123.94 137.33Reserves 100 175.46 290.14Subsidiary Fund 100 - -Deposit:

- Fixed Deposit 100 108.23 104.98-Saving Deposit 100 139.0 157.81-Current Deposit 100 151.45 185.03

Call & Short Time Deposit 100 - -Borrowing 100 - -Bills Payable 100 78.65 69.17Branch Adjustment 100 - -Interest Overdue 100 131.82 79.25Interest Payable 100 143.46 161.09Other Liability 100 102.67 177.43Profit 100 128.03 128.79

AssetCash 100 90.94 143.89Bank 100 72.99 120.92Call & Short Time Investment 100 - -Investment 100 156.15 159.09Subsidiary Investment Fund 100 - -Loan & Advance -Short Term 100 134.48 131.03 -Moderate Term 100 104.20 108.85 -Long Term 100 90.78 94.13Interest Receivable 100 84.64 106.07Bills Receivable 100 78.65 69.17Branch Adjustment 100 - -Building 100 122.03 116.09Furniture 100 124.41 101.83Other Assets 100 173.64 310.01

57

RATIO ANALYSIS

8.1 Current Ratio

8.2 Cash Position Ratio

8.3 Proprietary Ratio

8.4 Debt Equity Ratio

8.5 Solvency Ratio

8.6 Net Profit Ratio

8.7 Return of Equity Holder

8.8 Capital Turnover Ratio

8.9 Creditors Turnover Ratio

8.10Credit Deposit Ratio

58

RATIO ANALYSIS

A Ratio is only a comparison of the numerator with the

denominator. The term ratio refers to the numerical or quantitative

relationship between two figures. A ratio is the relationship between two

figures, and obtained by dividing the former by the latter. Ratios are

designed to show how one number is related to another. It is worked out

by dividing one number by another.

Ratio analysis is an important and age old technique of financial

analysis. Some ratios indicate the trend or progress or downfall of the

firm.

8.1 CURRENT RATIO:

Meaning: Current ratio is the most common ratio for measuring

liquidity. Being related to working capital analysis it is also called the

working capital ratio. Current ratio expresses relationship between

current assets and current liabilities.

Purpose: The current ratio of a firm measures in short term

solvency. i.e. its ability to meet short term obligation. As a measure of

short term current financial liquidity.

It is calculated by dividing current asset by current liabilities.

Current Ratio = Current Assets Current Liabilities

59

Particulars 2002 2003Current AssetCash 91865667 145366688Bank 60395420 100068900Advance 435799975 424613712Other Asset 38793552 69260210Bills Receivable 3979987 3500507Interest 17586799 22042523Total 648421400 764852540

Current LiabilityBills Payable 3979987 3500507Interest Payable 151404137 170012452Saving Deposit 221739278 251737365Current Deposit 177498738 216847619Interest Overdue 16825205 10115703Other Liability 17438243 30137518Total 588885588 682351164

Current Asset Ratio : 648421400588885588

764852540682351164

= 1.10 : 1 = 1.12 : 1

60

Interpretation:

An ideal current ratio is 2:1. The ratio 2:1 is considered as a safe

margin of solvency due to the fact that if the current assets are reduced to

half i.e. 1 instead of 2 then the creditors will be able to get their payments

in full.

Here, it shows that the bank has been always between 1:10:1-

1:12:1 which is quite satisfactory but can be improved by better turnover

and profit and also by decreasing liabilities.

61

8.2 Cash Position Ratio:

Meaning: It is a variation of quick ratio. When liquidity is

highly restricted in terms of cash and cash equivalent, this ratio should be

relationship between cash and near cash items on the one hand.

Purpose: The purpose of computing the ratio to measure more

rigorous of a firm’s liquidity position.

Cash Position Ratio = Cash + Marketable Securities Current Liabilities

Particulars 2002 2003Cash 91865667 145366689Marketable Securities 60395420 100068900Total 152261087 245435589

Current Liabilities 588885588 682351167

Cash Position Ratio: 152261087588885588

245435589682351167

= 0.26:1 = 0.36:1

62

Interpretation:

In cash position ratio 0.75:1 ratio is recommended to ensure

liquidity. This test is more rigorous measure of a firm’s liquidity position.

If the ratio 1:1 then the firm has enough cash on hand to meet all current

liabilities.

In this ratio 1:1 is satisfactory result. In 2002 to 2003 in all years

ratio is lower then 0.75:1.

In this ratio 2002 to 2003 cash is increase in 2003 and market

securities also increase.

63

8.3 PROPRIETARY RATIO:

Meaning: This relates the shareholders fund to total assets. It is a

variant of the debt equity ratio. This ratio shows the long term or future

solvency of the business. It is calculated by dividing shareholders funds

by the total asset.

Purpose: The purpose of proprietary ratio is indicate available

to creditors and general financial strength of the firm.

Proprietary Ratio = Shareholders Fund Total Asset

Particulars 2002 2003Shareholders FundCapital 31060400 34402600Reserve 104411716 172655919Subsidiary Fund - -P&L Account 47001569 47280228Total 182473686 254338747

Total Asset 1468522340 1600448521

Proprietary Ratio: 1824736861468522340

= 0.12:1

2543387471600448521

= 0.16:1

64

Interpretation:

This ratio shows the general strength of the company. It is very

important to creditors as it helps them to find out the proportion of

shareholders funds in the total assets used in the business. In this ratio is

always down from the good position and low ratio indicate greater risk to

creditors. A ratio below 50% may be alarming for the creditors and

heavily lose for company and its account is liquidation.

8.4 DEBT EQUITY RATIO:

65

Meaning: The financing of total asset of a business

concern is done by owner’s equity as well as outside debts. This ratio

indicates the relative proportions of debt and equity in financing the asset

of a firm.

It is also known as external internal equity ratio. Debt equity ratio

is determined to ascertain soundness of the long term financial policies of

a firm.

Debt Equity Ratio = Long Term Debt Shareholders Fund

Particulars 2002 2003Long Term DebtFixed Deposit 659343264 679807291Other Borrowing 4455342 17355772Total 663798606 697163063

Shareholders Fund 254338747 182473686

Debt Equity Ratio: 663798606254338747

697163063182473686

= 3.82 = 2.61

66

Interpretation:

In this ratio, it is decrease from 2002 to 2003. It means that the

ratio is low debt equity ratio implies a greater than creditors from the

point of view of creditors, it represent a satisfactory capital structure of

the bank. Since a high proportion of equity provides a larger margin of

safety for them.

It indicates the margin of safety to long term creditors. A high ratio

shows the claim of creditors is greater than those of owners.

8.5 SOLVENCY RATIO:

Meaning: It is also known as debt ratio. It is difference of

100 and proprietary ratio. This ratio is found out between total asset and

external liabilities of the company.

Purpose: This generally refers to the capacity or ability of the

business to meet its short term and long term obligations. If a company in

a position to pay its long term liabilities easily it is said to possess long

term solvency.

Solvency Ratio = Outside Liabilities Total Asset

= Total Liability – Shareholder FundTotal Assets

67

Particulars 2002 2003Outside LiabilityTotal Liabilities 146852234 1600488521Shareholders Fund 182473686 254338747Total 1286048654 1346149774

Total Asset 1468522340 1600448521

Solvency Ratio: 12860486541468522340

13461497741600448521

= 0.86:1 = 0.84:1

Interpretation:

68

In this ratio total assets are for more than external liabilities the

company is treated solvent. In solvency ratio in 2002, 0.86% decrease in

2003 0.84:1 it means that outside liability is always less than total assets.

8.6 NET PROFIT RATIO:

Meaning: It is also called net profit to sales ratio. The profit

margin is indicative of management’s ability to operate the business with

sufficient success not only to recover from revenue of the period, the

expense of operating the business and the cost of borrowed fund.

Net Profit Ratio = Net Profit X 100Net Sales

Particulars 2002 2003Net SalesInterest Receivable 189693181 203890470Commission 4271254 5805746Total 193964436 209696217

Net Profit 47001564 47280228

Net Profit Ratio: 193964436 209696217 47280228

69

47001564

= 24.23% = 22.55%

Interpretation:

In the net profit ratio, higher ratio of net operating profit to sales

better is the operational efficiency of the concern. It is very useful to

proprietary. It is an index of efficiency and profitability when used with

net profit ratio and operating ratio.

In this ratio, in 2002, 24.23% and 2003 decrease in 2003, 22.55%.

It is more useful for the further condition of the firm.

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8.7 RETURN ON EQUITY HOLDER FUND:

Meaning: This ratio measures a relationship between net profit

after interest and tax and shareholders fund. This ratio establishes the

profitability from the shareholders point of view.

Purpose: The purpose of company this ratio finds out how

efficiency the funds supplies by the equity shareholders has been used.

Return of Equity Holder = Net Profit X 100Shareholders Fund

Particulars 2002 2003Net Profit 47001569 47280228Shareholders Fund 182473686 254338747

Return of Equity Holder: 47001569182473686

47280228254338747

= 25.76% = 18.59%

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Interpretation:

The term net profit as used here means net income after payment of

interest and tax including net non operating income. It is the final income

that is available for distribution as dividend to shareholders.

The 2003 is decrease and in 2002 i.e. 25.76%.

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8.8 CAPITAL TURNOVER RATIO:

This ratio established a relationship between net sales and capital

employed. The purpose of computing this ratio is to determine the

operational efficiency of the business with the capital employed is

utilized.

Ratio = Net Profit Capital Employed

Particular 2002 2003

Net Sales 196044762 211774038Capital EmployedEquity 31060400 34402600Reserves 104411716 172655919Total 135472116 207058519

Return on Asset =

196044762 135472116

211774038207058519

= 1.45% = 1.02%

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Interpretation:

In this ratio no sale that is income (interest + commission).

Income is increase in two years but capital employed is also increase in

last two year. Capital employed is increase in one and half time income.

The ratio ration of 2002 is high but low in 2003 that means expense is

very high and income is less and it becomes lower the ratio profit for the

firm.

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8.9 CREDITORS TURNOVER RATIO:

This is also know as accounts payable or creditors velocity. This

ratio establish a relationship between net credit purchase and average

trade creditors.

The purpose of computing this ratio is to determine the efficiency

of firm with the creditor is managed.

Ratio = Creditors + Interest payable + bills payable Interest Paid

Particular 2002 2003

CreditorsFixed Deposit 679807291 659343264Saving Deposit 221739278 251737365Current Deposit 177498738 216847619

Bills payable 3979987 3500508Interest Payable 151404137 170012452Total 1234429431 1301441209Interest Paid 111893442 108268889

Creditors Turnover 1234429431

1301441209

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Ratio = 111893442 108268889= 11.03 Times = 12.02 Times

Interpretation:

In this ratio creditors are decrease in all year. In year 2002 11.03

times and increase in year 2003 is 12.02 times. It will be good for the

bank. A higher ratio shows that the creditors are not paid in time.

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8.10 CREDIT DEPOSIT RATIO :

The purpose of credit Deposit Ratio that to find the current Position

of Bank. Total Deposit (T.D + Interest Payable)

Credit Deposit Ratio = Total Advances X 100Total Deposits

2002 2003Total Advances 673166396 672563299Total Deposits 1230449444 1297940701 Ratio 54.71% 51.82%

Chart:-

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Interpretation:

Generally this ratio should be maintained at 50% to 60%. And 75%

is boarder line that is at should not exceed 75%. In the past 2 years, ratio

is between in 50% to 60% that means perfectly use of loan able fund.

FINDINGS & SUGGESTIONS

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Findings

Suggestions

FINDINGS

The Varachha Co-operative bank have good image in the co-

operatice society because the Varachha Co-operative Bank

provides speedy, effective and good interest rate on deposit.

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Bank has continuously got the audit class ‘A’ in every year.

The varchha co-operative Bank get award in district co-operative

society for providing good service to their customer in 2000 –

2001.

The profit of the bank is at increasing rate. By honoring the

social welfare concept the bank is providing to the society

welfare at a large scale.

The bank has good market potential so that it can enhance or

expand its business in future.

Net profit of bank is in 2002, 4.70 crores and in increasing

manner in 2003 i.e. 4.73 crores.

Share capital is in 2002, 3.11 crores and in 2003 3.44 crores.

Working capital in 2002, 146.41 crores and in 2003 159.35

crores.

Cash position ratio is 0.75% satisfactory result and which is in

2002, 0.26:1 and in 2003, 0.36 : 1 and that is more rigorous

measure of firms liquidity position.

SUGGESTIONS

The Varachha Co-operative Bank is required to increase its

network.

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The Varachha Co-operative Bank is required to open his

branches out of city.

Bank is needed to provide ATM facility for his account holder,

so the account holder can easily receive money from his account.

bibliography

81

BIBLIOGRAPHY

Management Accountingo RSN Pillai & Bhagavati (S. Chand)

Banking & Insuranceo N. D. Gamio Sunil H. Rajani(New Popular Prakashan )

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Annual Report of the Bank

ANNEXURE

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Profit & Loss Account

Particular 2001 2002 2003ExpenseInterest on deposit and borrowing

91042852 111893442 108268889

Salaries allowance & Provident 5914459 7509957 8790948

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FundDirector Fees - - - Rent, Tax, Insurance, Electricity

1677238 3546764 3596769

Law Fees 58050 34650 84531Postage, Telegram, Telephone Exp.

559554 666025 651445

Audit Fee 41115 84425 193950Depreciation Fund 3791403 4567387 6048823Stationary, Printing 1952370 1102094 1461752Non Banking Expense - - 5536118Other Expense 7197592 19638450 29890582Profit 36709773 47001569 47280228Total 148944409 196044763 211774037

IncomeInterest & Discount 143706779 189693182 203890471Commission Exchange 3656668 4271254 5805746Donation - - -Non Banking Income - - -Other Income 1580962 2080327 2077822Total 48944409 196044763 211774037

Balance Sheet

Particular 2001 2002 2003LiabilityShare capital 25050000 31060400 34402600Reserve fund 59506159 104411716 172655919Subsidiary Fund - - -

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Deposit:- Fixed Deposit 628059765 679807291 659343264

- Saving Deposit 159518565 221739278 251737365 - Current Deposit 117193537 177498738 216847619Call & Short Time Deposit - - -Borrowing - 5000000 4455342Bills Payable 5060596 3979987 3500507Interest Overdue 12762863 16825205 10115703Interest payable 105337341 151404137 170012452Other liability 16985291 17438243 30137518Profit and Loss A/c 36709773 47001569 47280228Total 1166383894 1468522340 1600488516

AssetsCash 101022945 91865667 145366688Bank 82752538 60395420 100068900Call & Short time Investment - - -Investment 339447100 530055100 540055100Subsidiary Fund Invest - - -Loans and Advances - Short term 324052618 435799975 424613712

- Moderate term 225997182 235499752 246013956- Long term 2056307 1866669 1935631

Interest receivable 20780224 17586799 22042523Bills Receivable 5060596 3979987 3500507Branch adjustment - - -Building premises 27845962 33988220 32328089Furniture & Fixture 15027239 18696536 15303200Other Asset 22341179 38793552 69260210Total 1166383894 1468522340 1600488516

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‘analysis of a financial statement’

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