Financial Statement Analysis

Financial statements are prepared for decision making. Financial analysis is the processes identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and profit and loss account. There are various methods or techniques used in analyzing financial statements, such as comparative statements, trend analysis, common size statements, and schedule of changes in working capital.

Financial statement analysis is largely a study of relationship among various financial factors in a business are disclosed by a single set of statements and the trend of these factors are shown in a series of statements.

The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and financial soundness of the firm. Financial statement analysis is an attempt to determine the significance and meaning to the financial statements data so that forecast may be made of the future financial position and performance.

Broadly speaking there are three steps involved in the analysis of financial statements. These are:

o Selection

o Classification

o Interpretation

The first step involves selection of information relevant to the purpose of analysis of financial statements. The second step involved methodical classification of data and the third step includes drawing of interpretations and conclusions.

Data Analysis

Ratio Analysis

Liquidity Ratio: -

Current Ratio: - Current Assets Current Liabilities

Current Ratio

2008 2007 2006 2005 2004

Current Assets

49004 53177 4466045,661 47,143

Current Liabilities

42435 44310 40091 35152 39786

Ratios 1.15 1.20 1.11 1.29 1.18

Interpretation: The current ratio is fluctuating from 2004 to2008 due to decrease in current assets and current liabilities. The company has maintained credibility for all five years. In all the years the current liabilities are easily met with current assets so the business is able to pay current obligations.

Quick Ratio: - Current Assets – Inventory – Prepaid Expenses Current Liabilities

Quick Ratio

2008 2007 2006 2005 2004

Current Assets

49004 53177 44660 45661 47143

Inventory 2701 2664 2810 2841 3316

Prepaid Expenses

4299 3891 2539 2941 2708

Ratio 0.98 1.05 0.98 1.46 1.33

Interpretation: The quick ratio is fluctuating from 1.33, 1.46 to 0.98due to fluctuations in quick assets and current liabilities.

Activity Ratio: -

Inventory turnover ratio: - Net sales / Inventory.

Inventory turnover

ratio

2008 2007 2006 2005 2004

Net sales 103630000 98786000 91424000 91134000 96225000

Inventory 2701000 2664000 2810000 2841000 3316000

Ratio 38.36 37.08 32.53 32.07 29.01

Interpretation: The inventory turnover ratio is increasing from 29.01 to 38.96 so the sales the company increased and the inventory stock level decreased from 3316000 to2701000.

Working capital ratio = Net sales/Avg working capital.

Working capital ratio

2008 2007 2006 2005 2004

Net sales 103630000 98786000 91424000 91134000 96225000

Avg working capital

6569000 8867000 4569000 10509000 7357000

Ratio 15.77 11.14 20.00 8.67 13.07

Working capital = current assets – current liabilities

Interpretation: Working capital ratio had increased from 13.07 to 15.77 from 2004 to 2008, which indicates working capital is utilized in more efficient manner inspi9ne of some fluctuations.

Solvency ratio:-

Debt equity ratio: - Long term debt / Equity

Debt equity ratio

2008 2007 2006 2005 2004

Long term debt

22689000 23039000 13780000 15425000 14828000

Equity 13465000 28470000 28506000 33098000 31688000

Ratio 1.68 0.80 0.48 0.46 0.46

Interpretation: Debt equity ratio is increasing from 0.46 to 1.68 i.e. increase in every year which indicates company is increasing its goodwill every year.

Equity ratio: - Total shareholders equity / Total Assets.

Equity ratio 2008 2007 2006 2005 2004

Total shareholders

equity

13465000 28470000 28506000 33098000 31688000

Total Assets 109524000 120431000 103234000 105748000 111003000

Ratio 0.12 0.23 0.27 0.31 0.28

Interpretation: Equity ratio is total resource of the company is decreasing from 2006 t0 2008 due to decrease in total share holders’ equity from 28,506 to13,465.

Fixed asset turnover ratio: - Net sales / Net fixed Assets.

Fixed asset 2008 2007 2006 2005 2004

turnover ratio

Net sales 103630000 98786000 91424000 91134000 96225000

Net fixed Assets

60520000 67254000 58574000 60087000 63860000

Ratio 1.71 1.46 1.56 1.51 1.50

Interpretation: Fixed asset ratio in 2004 was 1.50 and in 2008 it is 1.71 which indicates the finance to the fixed assets is well in the company.

Profitability Ratio: -

Gross profit ratio: - Gross profit / Net sales.

Gross profit ratio

2008 2007 2006 2005 2004

Gross profit

45661000 41729000 38295000 36532000 35501000

Net sales 103630000 98786000 91424000 91134000 96225000

Ratio 0.44 0.42 0.41 0.40 0.36

Interpretation: The gross profit ratio is increasing from 2004 to 2008, the company earned profits this is because of increased sales and less depreciation.

Net profit Ratio: - Net profit after tax / Net sales.

Net profit Ratio

2008 2007 2006 2005 2004

Net profit after tax

12334000 10418000 9492000 7994000 7497000

Net sales 103630000 98786000 91424000 91134000 96225000

Ratio 0.119 0.105 0.103 0.087 0.077

Interpretation: Net profit ratio is also increasing from 0.077 to 0.119 this is because of less tax provision and increased sales due to quality and close to consumer. The net profit ratio is satisfactory.

Return on Equity capital: - Net profit after tax / Shareholders equity.

Return on Equity capital

2008 2007 2006 2005 2004

Net profit after tax

12334000 10418000 9492000 7994000 7497000

Shareholders equity

13465000 28470000 28506000 33098000 31688000

Ratio 0.91 0.36 0.33 0.24 0.23

Interpretation: Return on equity capital is increasing throughout the five years therefore return on equity capital is satisfactory therefore overall profitability ratio is satisfactory.

EPS: -Net profit after tax / Number of outstanding shares.

EPS 2008 2007 2006 2005 2004

Net profit after tax

12334000 10418000 9492000 7994000 7497000

Number of outstanding

shares

1341000.68 1385000.23 1506000.48 1573000.98 1645000. 59

Ratio 9.19 7.52 6.30 5.08 4.55

Interpretation: EPS of the company is increasing from last 7 years

Finding and conclusion

Findings

a) The sales of the company increasing every year.b) The gross profit of is increasing every year.c) The company has no preference shares.d) Company follows the LEAN method of BPR.e) The internal promotions are more for the higher position.f) IBM has the Environmental responsibility, by seeing the projects

like solar power and six sigma.

Conclusion

The company has undertaken many projects after completing the projects the may be the top 2nd company in the world. The company has the increasing profits which indicate its management.

Suggestions

The company has to make better processers although companies like DELL make processers the dealers has no credibility in them, because they suggest the intel processers are good.

The company may grow if the company merge or acquit the companies like HCL and Infosys as there turnover is huge.