CHAPTER 1:

INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS

1.1 Background of the topic

Business is mainly concerned with financial activities and every company has its own
financial statements mostly used for decision making process. But the information as is
provided in the statements is not adequately helpful in drawing a conclusion and financial
decision making. It is necessary to predict, evaluate and compare firms earning ability.
Thus, we need an effective analysis and interpretation of financial statements.

The Analysis means establishing a meaningful relationship between various items of the
financial statements i.e., P&L account/income statement and balance sheet. These are the
financial records that are prepared at the end of the year by the company. These are
mainly the indicators of profitability and financial soundness of the business concerns.

The term “Financial analysis” includes both ‘analysis and interpretation’. The term
analysis means simplification of financial data by methodical classification given in the
financial statements. Interpretation means explaining the meaning and significance of the
data. These two are complimentary with each other. Analysis is useless without
interpretation and interpretation without analysis is difficult or impossible.

It is mainly concerned in making better economic decisions to gain income in future. It is

the process that involves specific techniques for understanding risks and evaluating them,
financial health and performance of the organisation.

The active users of financial statement analysis are stakeholders such as credit and equity
investors, the government and the decision makers within the organisation to meet their
needs. For examples, equity investors are keen on long-term earning power of the
organisation and sustainability and growth of dividend payments.

The success of an organization is portrayed through its financial position, represented by

its Financial Statements. Analysis of Financial Statements is the analytical tool normally
used to assess the performance of the company. While it is easy to calculate it partially
explains the appeal widely, their interpretation is problematic, especially when two or
more ratios provide conflicting signals. Interpretation of ratios is highly subjective and
may differ with the level of expertise involved. It can be used for analysing past

Department of BBA January-April 2020 1

performance, extrapolating future prospect of a company and to compare with other
companies operating in a similar industry but one of their limitation is they need to be
analysed along with non-financial data to present more meaningful and effective
assessment.

Every business is done with an specific goals and objectives and businesses have to
periodically check how far they are able to meet the set goals and objectives while there
are various measures to check the progress towards the achievement of goals of the firm.

Definition:

In words of Mayers“Financial statement analysis is largely a study of relationship among

the various financial factors in a business as disclosed by a single set of statements and a
study of the trends of these factors as shown in series of statement”.

Characteristics of financial statements

 Understandability: The information must be understandable to the users of the

financial statements. That it should be clearly presented with additional
information supplied and interpret and assist in clarification

 Relevance: The information provided should be appropriate to the users.

 Reliability: The information must be real and reliable and must be free from
material errors and misleading.

 Comparability: The end user must be able to compare the Financial Information
provided by the company with other financial accounting period which helps in
identifying the trend performances and financial position of the company.

Objectives of Financial analysis:

1.Analyzing Past Performance and Current Position:

Department of BBA January-April 2020 2

By analyzing the past performance, the future performance can also be predicted. The
current financial position of the company is so calculated by analyzing the financial
statements.

2.Prediction of Bankruptcy and Failure:

Financial statement analysis includes analysis of long term and short-term borrowings,
which indicates whether the company has enough funds to repay them, whether it is
eligible to pay back the debts or not. By analyzing debts, future bankruptcy and failure
can be predicted.

3.Loan Decision by Financial Institutions and Banks:

Financial statement analysis can be used by financial institutions and banks, to analyze
their customer's financial position. This helps in finding out their eligibility to repay,
banks can also predict the time it might take for the customer to repay the full
amount. This way, bad debts can be avoided.

4.Assessment of the operational efficiency:

It helps to analyze its operational activities; the operational performance can be compared
with the standards of the company. This helps in analyzing whether the company is on the
right track of achieving their goals. Corrective measures can also be taken if the
performance is not according to its standard

Types of financial statements used:

 Income statement/ P&L account: It is a report revelling the financial performance

of an organisation for an accounting period. It begins with sales and subtracts out
all the expenses during the period to arrive at net profit or poss. It is considered as
an important financial statement as it majorly describes the performance of the
company.

 Balance sheet: It is the financial position of the company as of the report date. Its
information is aggregated on the basis of assets, liabilities and equity.
Department of BBA January-April 2020 3
  Statement of cash flow: It shows the cash inflow and outflow experienced by the
company during the accounting period. Which are broken down into three
activities which are operating activities, investing activities and financing
activities.

 Statement of change in equity: It basically documents all the changes in equity

during the course of the accounting period. This includes issue or purchase od
shares, dividends issue, profit and losses.

1.2. Importance of financial statement analysis

The financial statement analysis is important for different reasons, they are as follows:

 Holding of share: Shareholders are the owners of the company. They may have to
take decisions whether they have to continue with the holdings of the company’s
share or sell them out. The financial statement analysis is important as it provides
meaningful information to the shareholders in taking such decisions.

 Decision and plans: The management of the company is responsible for taking
decisions and formulating plans and polices for the future. They, therefore, always
need to evaluate its performance and effectiveness of their action to realise
company’s goal in the past. For that purpose, financial statement analysis is
important for the company’s management.

 Extension of credit: The creditors are the providers of loan capital to the company.
Therefore, they may have to take decisions as to whether they have to extend their
loans to the company and demand for higher interest rates. The financial statement
analysis provides important information to them for their purpose.

 Investment decisions: The prospective investors are those who have surplus
capital to invest in some profitable opportunities. Therefore, they often have to
decide whether to invest their capital in the company’s share. The financial

Department of BBA January-April 2020 4

 statement analysis is important to them because they can obtain useful information
for their investment decisions making purpose.

Significance of financial analysis:

Finance Manager

Analysis of financial statements helps the finance manager in:

 Assessing the operational efficiency and managerial effectiveness of the company.

 Analyzing the financial strengths and weaknesses and creditworthiness of

the company.

 Analyzing the current position of financial analysis,

 Assessing the types of assets owned by a business enterprise and the liabilities
which are due to the enterprise.

 Providing information about the cash position company is holding and how much
debt the company has in relation to equity.

 Studying the reasonability of stock and debtors held by the company

Top management

Financial analysis helps the top management

 To assess whether the resources of the firm are used in the most efficient manner

 Whether the financial condition of the firm is sound

 To determine the success of the company’s operations

 Appraising the individual’s performance

 evaluating the system of internal control

 To investigate the future prospects of the enterprise.

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Trade payables

Trade payables analyze of financial statements for:

 Appraising the ability of the company to meet its short-term obligations

 Judging the probability of firm’s continued ability to meet all its financial
obligations in the future.

 Firm’s ability to meet claims of creditors over a very short period of time.

 Evaluating the financial position and ability to pay off the concerns.

Lenders

Suppliers of long-term debt are concerned with the firm’s long-term solvency and survival.
They analyze the firm’s financial statements

 To ascertain the profitability of the company over a period of time,

 For determining a company’s ability to generate cash, to pay interest and repay the
principal amount

 To assess the relationship between various sources of funds (i.e. capital structure
relationships)

 To assess financial statements which contain information on past performances and

interpret it as a basis for forecasting future rates of return and for assessing risk.

 For determining credit risk, deciding the terms and conditions of a loan if
sanctioned, interest rate, and maturity date etc.

Investors

Investors, who have invested their money in the firm’s shares, are interested in the firm’s
earnings and future profitability. Financial statement analysis helps them in predicting the
bankruptcy and failure probability of business enterprises. After being aware of the probable
failure, investors can take preventive measures to avoid/minimize losses.

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Labor unions analyze the financial statements

 To assess whether an enterprise can increase their pay.

 To check whether an enterprise can increase productivity or raise the prices of

products/ services to absorb a wage increase.

1.3. Theoretical implementation of financial statement analysis:

Financial statement gives complete information about assets, liabilities, equity, reserves,
expenses and profit and loss of an enterprise. They are not readily understandable to
interested parties like creditors, shareholders, investors etc. Thus, various techniques are
employed for analysing and interpreting the financial statements. Techniques of analysis
of financial statements are mainly classifies into three categories:

a) Cross- sectional analysis: It is also known as inter firm comparison this analysis
helps in analysing financial characteristics of an enterprise with financial
characteristics of another similar enterprise in that accounting period. For
example, if company A has earned 15% profit on capital invested. This does not
say whether it is adequate or not. If we analyse further and find that a similar
company has earned 16% during the same period, then only we can make c
conclusion that company B is better. Thus, it turns into a meaningful analysis.

b) Time series analysis: It is also called as intra- firm comparison. According to this
method, the relationship between different items of financial statements is
established, comparisons are made and results obtained. The basis of comparison
may be, comparison of the financial statements of different years of the same
business unit.

c) Cross- sectional come time series analysis: This analysis is intended to compare
the financial characteristics of two or more enterprises for a defined accounting
period. It is possible to extend such a comparison over the year. This approach is
most effective in analysing of financial statements.

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The analysis and interpretation of financial statements is used to determine the financial
position. A number od tools or methods or devices are used to study the relationship
between financial statements. However, the following are the important tools which are
commonly used for analysing and interpreting financial statements.

 Comparative statements
 Common size statements
 Trend analysis
 Ratio analysis

i. Comparative statements: It’s the statement showing the profitability and financial
position ofa firm for a various period of time in a comparative form to give an
idea about the performance and position of two or more year of accounting period.
It applies to two important financial statements i.e., income statements and
balance sheet prepared in a comparative form.

ii. Common size statement: These are those statements in which the data or figures
reported in the financial statement are converted into percentage with common
base amount. In common size income statement net sales are taken as 100% and in
common size balance sheet the total of assets or the total of liabilities and capital
are taken as 100% and remaining are expressed as a percentage of this total.

iii. Trend analysis: this analysis majorly determines the direction upward or
downward and involves computing of percentages relationship that each statement
item bear to the same item from the base year. The formula use for the calculation
is
Trend Percentage = Present value / Base year value *100

iv. Ratio analysis: financial statement aims at providing financial information about
business enterprise to meet the needs of the decision makers. A ratio is an
expression of the quantitative relationship between two numbers, it’s a simple
arithmetical expression of the relationship of one number to another.

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Financial ratio analysis:

Financial ratio analysis is one of the techniques that can be used by business for
evaluating their progress towards achievement of goals and even the success rate of the
achievement as ratios provide relationship between two variables which help to analyse
how one variable have an impact on the other variable.

Ratio analysis is a popular method used by various stakeholders associated with the
firm to evaluate the performance of the firm like creditors, employees, government,
investors etc to evaluate the financial health and how far company is able to perform
bettercompared to other firms in the industry.

Financial ratio analysis summarizes the financial information available in financial

statements of the firm and gives complete information about company’s financial health
at one glance users of ratios can rely on company data and calculate the ratios

Types of ratio

1. Liquidity ratio: these ratios are the ratios which measures the short-term solvency
or financial position of the firm.

 Current ratio: Current ratio is a liquidity ratio that helps in understanding and
measuring company’s short-term obligations. It helps to analyze how to maximize
the current assets to satisfy its current debt and other payables. It compares all of a
company’s current assets to its current liabilities.

Current ratio = current assets /current liabilities

 Quick ratio: Quick ratio also known as acid test ratio is a type of liquidity ratio. It
measures the ability of the company to use its near cash or quick assets to retire its
current liabilities immediately. Basically, it’s the ratio between quickly available
or liquid assets and current liabilities.

Quick ratio = liquid assets/quick liabilities.

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  Net working capital ratio: a net working capital is the difference between the
company’s current assets and current liabilities. Its widely used for short term
solvency.
Net working capital ratio = current assets – current liabilities.

2. Solvency ratio: they are calculated to determine the ability og the business to
service its debts in the long run.

 Debt equity ratio: The debt to equity ratio is calculated by dividing a company’s
long-term debt by its shareholder equity. The ratio is used to evaluate a company’s
financial leverage.

Debt equity ratio = long term debt/ equity.

 Proprietary ratio: The proprietary ratio is the proportion of shareholders’ equity to

total assets and provides estimate of amount of capitalization currently used for
business support. If the ratio is high it means company has enough equity to
support the business functions.

Proprietary ratio = shareholder funds/capital employed.

 Debt ratio: Debt ratio is a financial ratio that indicates the percentage of a
company’s assets that are provided via debt. It is the ratio of total debt and total
assets.

Debt ratio = long term debt/capital employed

3. Turnover ratio: it measures the level of activities, the performance or the operating
efficiency of an enterprise. They indicate the speed at which assets are converted
into sales.

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  Fixed asset turnover ratio is the ratio of sales to the value of fixed assets. It
indicates how well the business is using its fixed assets to generate sales.

Fixed asset turnover ratio= net revenue from operations/net fixed assets.

 Working capital turnover ratio: It is the ratio that measures how efficiently a
company is using its working capital to support a given level of sales. it shows the
relationship between the funds used to finance a company’s operations and the
revenue a company generates as a result.

Working capital turnover ratio= net revenue from operations/working capital

 Inventory turnover ratio: it shows how many times the inventory or stock has
turned over during the accounting period.

Inventory turnover ratio = cost of goods sold/ average inventory.

 Debtor turnover ratio: it shows the number of times the debts are collected in a
year.

Debtor turnover ratio = net credit sales/ average debtors.

 Creditors turnover ratio = it indicated the speed at which the creditors are turned
over in relation to credit purchase.

Creditor turnover ratio = net credit sales/ average creditors.

4. Profitability ratios: It measures the profitability of the firm as it is summarized in

income statement. It is calculated to analyze the earning capacity of the business
which is the outcome of utilization of resources employed in the business.

Department of BBA January-April 2020 11

  Gross profit ratio: Gross profit ratio is a profitability ratio that shows the
relationship between gross profit and total net sales revenue. It is a popular tool to
evaluate the operational performance of the business.

Gross profit ratio = gross profit/net sales*100

 Net profit ratio: Net profit ratio is a profitability ratio which is expressed as a
percentage hence it is multiplied by 100.net sales include both cash an credit sales,
on he other hand, net profit is the net operating profit i.e., the net profit before
interest and taxes.

Net profit ratio = net profit/net sales*100

 Price per earnings ratio: It is the ratio of a company’s share price to the company’s
earnings per share. The ratio is used for valuing companies and to find out
whether they are overvalued or undervalued.

Price/earnings ratio = market price of a share/earnings per share

 Return on investment ratio: It measures return on capital employed in the

business.it reveals the efficiency of the business in utilisation of funds entrusted to
it by shareholders, debentures and long term loans.it helps in assessing whether
the firm is earning a higher return on capital employed as compared to the interest
rate paid.

Return on investment = profit before interest and tax/capital employed*100

 Return on shareholders fund ratio: It is calculated by dividing a company’s

earnings after taxes by total shareholders’ equity and multiplying it by 100. the
higher the percentage, the more money is being returned to investors. This ratio
helps business owners to determine a company’s financial health.

Return on shareholder funds ratio: profit after tax/shareholder funds*100

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1.4. Recent trends in financial statement analysis:

The new ratios presented here are proposed as drafts per the industry process for public
input. Proposed revisions are intended to address current industry evolution, address the
gaps of the 2005 Framework and anticipate advances in microfinance in the coming
years.

1. Capital adequacy ratio: Institutional solvency

Capital adequacy ratio (CAR) = total capital risk/ weighted assets

Capital Adequacy ratio measures an institution’s solvency. The indicator provides

information about ability to meet long term expenses and obligations as well as
absorb unanticipated future commitments. It provides better information than the
existing R8: liquid ratio. CAR measures an institutions resiliency against both
expected and unexpected losses which may result from endogenous and
exogenous causes.

2. Foreign currency risk ratio: Susceptibility to Shocks for Foreign Exchange

Foreign Currency Risk Ratio = (total foreign currency A Assets – total foreign
currency A liabilities)/ total equity

The foreign currency risk ratio measures the relationship between an MFI’s net
foreign currency assets and its equity for each foreign currency on the balance
sheet. By documenting foreign exchange exposure, an MFI more transparently
reveals its risk to such shocks.

3. Yield on liquidity and investments: Efficiency in Managing Cash and Investments

Yield on liquidity and investments = financial revenue from investments/ average

cash + average trade investments +average other investments

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 Yield on liquidity and investment ratio indicates the level of returns an institution
is generating from its cash holdings and investments averaged over a given period.
It provides a meaningful measure of efficiency in managing cash flows and
investments.

4. Effective operating expense of savings: Cost of Running Savings Program

Effective Operating Expense of Savings = direct and indirect operating expenses

allocated to savings/ average savings balance

The effective operating expense of savings ratio tells am MFI how expensive it is
to run its savings program in terms of all non- interest expenditures, including
administrative fees and personnel wages. This ratio indicates if an MFI accrues
gains or losses from deposit mobilization for costs incurred administrating
savings.

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CHAPTER 2

REVIEW OF LITREATURE

Meaning:

A literature review is simply a summary of what existing scholarship knows about a

particular topic. It is always based on secondary sources that is, what other people have
already written on the subject; it is not concerned about discovering new knowledge or
information.

A literature review has four main objectives

 It surveys the literature in the chosen area of study

 It synthesizes the information in that literature into a summary

 It critically analyses the information gathered by identifying gaps in current

knowledge; by showing limitations of theories and points of view; and by
formulating areas for furtherresearch and reviewing areas of controversy

 It presents the literature in an organized way.

Importance of review of literature

a) Improves the research methodology

b) Focuses on research problem

c) Cater to knowledge base for research area

d) Contextualizing research findings

Department of BBA January-April 2020 15

 e) Ensure novelty in work

REVIEW OF LITREATURE:

1.Van Dinh, Doan;Guangming Gong. 2019

Management and applied economics review, Vol. 39, p38-48

Investors FSA to help the managers, investors and someone else understand about
reasonable economic information in financial statements.

In this article the authors talk about how a financial statement analysis can help the people
such as managers and investors to understand the company’s economic status and its
financial ability. This is mainly done to have a proper portfolio management that helps
investors to get higher returns.

2.Ioannis, rigas, George, theodossiou, Nikolaos, rigas, christos, karelakis.2019

International journal of business and economic science applied research, Vol. 12

Analysis and critical investigation of the financial statements of food sector companies in
Thessaly region (Greece).

In this article the authors mainly concentrate on food sectors of particular region called
Thessaly in Greece. Since Greece attracts a lot of tourist people the food sector has a
major impact on the revenue to the government. The authors concentrated on having a
detail analysis on the financial statements which also includes critical investigations in
order to understand the company’s profit so as to understand their contribution towards
the government inform of tax.

3.Fischer, mary. 2019

Journal of accounting and finance, Vol. 19

Governmental financial statement notes disclosures and analysis of Texas public two-year
colleges’ reporting

The authors talk about the local colleges and schools under government. They concentrate on
studying about a public two-year colleges’ in Texas. Here they have made analysis on the

Department of BBA January-April 2020 16

financial statements and FS notes disclosures to understand the financial performance of the
public colleges and understand their revenues in comparison to private ones .

4.Honaker.kim, Thomas, paula.B.2019

CPA journal, Vol. 89

An analysis of the initial financial statement impact of the tax cuts and jobs act.

Here the authors mainly concentrate on doing analysis of the impacts on initial financial
statements due to the tax cuts and job act. It mainly concentrates on FS impacts on tax
cutssuch as lower tax rate and tax assets. Having lower tax rate has a direct impact the
profits after tax in the p/l account of the financial statements.

5. Laitinen, Erkki k. 2018

International journal of management and enterprise development. Vol 17, issue 1

Entry based financial statement analysis for small firms

Here the authors talk about the basic or entry based financial statements for small firms.
Opportunity to control in the real time on how FSA are formed up from successive
bookkeeping. Small firms are the new source of economic to the country since it is small
and basic organisation, they concentrate on bookkeeping for understanding their finances.
So, having the basic analysis of financial statements can help the small firms to perform
better.

6.Krueger, Thomas M. 2018

Journal of accounting and finance. Vol 18, issue 5

Gonzalez energy partners: A hypothetical teaching case study of FSA and firm valuation

Case studies are the new trends which helps in analysing the firm’s financial capacity. It
is possible through having proper analysis of financial statements through case study. The
authors concentrate on Gonzalez energy partners hypothetical teaching caste study of

Department of BBA January-April 2020 17

FSA and firm valuation. It helps in understanding the company’s worth or financial status
through this hypothetical case study.

7. Eng, li li, tian, Xi, Robert Yu.2018

Review of pacific basin financial markets and policies, Vol. 21

Financial statement analysis: evidence from Chinese firms

The authors mainly talk about the fundamental analysis based on accounting numbers in
Financial statements. To prove this aspect the writers have taken few evidences such as
financial statements, their economic status, the firm’s value of few Chinese firms to
support the study.

8.Ahmed, anwer, safdar, Irfan. 2018

Accounting and finance. Vol. 58

Dissecting stock price momentum using financial statement analysis

Here the authors talk about the price momentum that is happening in the company by
using financial statement analysis. That is, it mainly concentrates on explaining about
how past price performance predicts future price performance of the company. The
authors uses the financialstatements to analyse the past performance and the corrective
measures to be taken to have a better future performance.

9.Mohanram, partha, saiy, vyas,dushyanthkumar. 2018

Review of accounting studies, Vol. 23.

Fundamental analysis of banks: the use of financial statement information to screen

winners from losers.

It is the study of Efficiency of Financial Analysis approach to screen US based stocks.

The authors study on having the fundamental analysis of banks having the US stocks with
the use of their financial statement’s information. This helps in understanding the stock
price in the market and understanding whether the company has reasonable growth in its

Department of BBA January-April 2020 18

economy so to differentiate between the winner i.e. the high returns company to losers i.e.
the companies which has very less returns and can cause loss to the investors or stock
holders.

10.Kulchev, krasimir. 2017

Business management/ bizness upravlenie. Vol 89, issue 1

The interpretation of financial statements in terms of contemporary financial analysis

This study is mainly about extensive use of indicators whose calculation is based on data.
Here the authors about the contemporary financial analysis which is mainly concerned on
the data available in the company such as financial statements. There is a use of lot of
indicators in analysing or calculating the data. This helps in analysing the company’s
financial position in the market and helps the business to grow better.

11.Drake, Michael.S, quinn, philip.j. 2017

Business source premiere, Vol. 31.

Who uses financial statements? A demographic analysis of financial statement.

Here the authors talk about the importance of the financial statement analysis on the
demographic aspects such as population, people, income and as such. Analysing how
these effects the profits of the business and its financial activity. They mainly talk about
the people who benefit through this study such as investors, shareholders etc.

12. Wu, TsingZai. C, hsies,wan ting. 2017

Applied economics letters, Vol. 24

Value relevance of financial statements in convergence with IFRS: analysis in the

abnormal pricing error method.

Here the authors basically study the usage of econometrically distinct method to test value
relevance of Financial statements. With the help of analysing financial statements they
study on the concept of abnormal pricing errors.

Department of BBA January-April 2020 19

13.Grimm, Stephanie dehning, blazovich,Janell.l.2016

Journal of accounting education, Vol. 35.

Developing student competencies: an integrated approach to a financial statement

analysis project

Here the authors try to create a basic yet strategic report on financial statement analysis
for the student competencies. It is basically an integrated approach of analysing all the
financial statements. It concentrates on Instructional resource for an integrated FSA
project. Quantitative analysis is the aim method of analysing.

14.Aggarwal, Navdeep, Gupta, Mohit. 2016

Journal of applied finance, volume 22.

Returns from financial statement analysis among low book-to-market stocks: evidence
from India

In this study the authors mainly concentrate in analysing the financial statements in the
investors point of view. They mainly concentrated on the firm’s in India. It is basically
employed by investors to design portfolio that could help them to earn excess returns.

15. Blab, Daniel, stojanovic-blab.2016

Journal for public and non-profit service, Vol. 39.

Financial statement discussion and analysis vs management commentary.

The authors talk about international comparability for entities for public/private firms.
They analyse financial statements of both public and private firms and understands the
financial difference and difference in the profitability for public and non-profit service
firms.

16. Entwistle, Gary. 2015

Accounting education. Vol 24, issue 6

Reflections on teaching financial statement analysis

Department of BBA January-April 2020 20
Here the authors mainly talk about the result that are got due to the analysis of financial
statements. They mainly concentrate on aspects such as Reconstruction of financial
accounting, relevant and recognition of the firm with the helps of company’s financial
statements.

17. Dr. Nabil M.Al-Nasserv. 2014

Busness resource premeire, Vol. 18

A case study on the Jordanian industrial companies

This study aims to point out the impact of financial analysis in maximising the firm’s
value. It studies that financial analysis has a significant positive effect on helping
managers in taking effective decisions that can increase the profitability of the
company .

18. Konchitchki, yaniv, patatoukas, panos. 2014

Accounting review-business source premiere. Volume 89.

Taking the pulse of real economy using financial statement analysis: implications for
macro forecasting and stock evaluation

This study mainly takes into accounts and details of the company which is available
through financial statement analysis. This data is taken to understand on what should be
implemented for micro forecasting and stock evaluation.FSA of firm profitability drives
applied at aggregate levels of yield.

19.Gwilliam, David, Jackson, Richard HG.2008

Accounting forum. Volume 32

Fair value in finance reporting: problems and pitfalls in practice: a case study analysis of
the use of fair valuation

Department of BBA January-April 2020 21

The authors mainly concentrate on market accounting in finance reporting by means of
case study. Financial statement analysis helps in understanding the problems and pitfalls
for a firm in the market out there for proper economic growth.

20.Kryzanowski,Lawrence,galler,Michael. winter95

Journal of accounting, auditing and finance. Volume 10

Analysis of small business financial statements using neural nets

The authors talks about use of artificial neural networks in accounting and finance. They
mention how small business can benefit if they have proper analysis and interpretation by
using neural nets to increase the financial performance of the company.

Department of BBA January-April 2020 22

CHAPTER 3

INDUSTRY PROFILE

The Battery Industry in India, which is worth Rs. 1,600 cr, has a market size of 2000
million units. The industry is dominated by dry carbon cell batteries and the demand to a
large extent is from the rural areas. The Industry Focus highlights the classification of the
battery market and the product portfolios of the domestic players in India. It also throws
light on the recent developments like cheaper Chinese products being available and the
market for rechargeable batteries growing at a rapid pace, which have affected the
industry players. The demand for batteries, which has been fuelled by increase in the
usage of small pocket radios and high-powered cameras, has improved dramatically. The
shift, in the nature of demand (from D size batteries to pencil size batteries) has also
brought in a drastic change in the demand pattern.

A battery is a rechargeable energy storage device that consists of positive and

negative electrodes called cathode and anode, respectively. Electrolytes are placed in
between cathode and anode to allow ions to move from the anode (negative terminal of
battery) to the cathode (positive terminal of battery) to perform work. There are different
types of batteries available in the market depending upon the application. Lead-
acid batteries are the most widely used battery in the market, including valve-regulated
lead-acid (VRLA), absorbed glass material (AGM), and gel batteries.
TechNavio's analysts forecast the Battery market in India to grow at a CAGR of 16.5
percent over the period 2014-2019.

Eveready Industries leads the Indian dry carbon cell market with over 40% market share.
Though Eveready is a strong national player, Nippo has a prominent presence in the
southern region. Novino, on the other hand, has a strong presence in certain pockets in the
northern region, while BPL, a new entrant, has also managed to garner sizeable market
share.The alkaline battery market only accounts for 5% of the total market. This is
because the alkaline battery costs twice as much as a traditional zinc carbon battery. The
higher pricing is due to the relatively higher cost of production. Contrary to the global
trend, the higher price of alkaline battery has dampened the market's growth in India.
Alkaline batteries in developed countries account for more than 70% of the battery
market. The alkaline segment in India is dominated by the global brands: Duracell and
Energizer.

Department of BBA January-April 2020 23

The market for battery in India is expected to grow at a CAGR of 8.31% during the
forecast period of 2019 – 2024. The country is planning to diversify its energy sources, in
addition to its target of providing 24x7 electricity supply to every citizen, by making large
increments in renewable energy generation capacities. This is estimated to be a significant
driver for the battery market. Growth in EV adoption is likely to hamper sales of
conventional internal combustion engines (ICE) vehicles, which is expected to hinder the
growth of the market studied.

• The major fraction of the battery market is occupied by the automotive industry.
The Automotive (excluding electric vehicles) batteries are mostly SLI batteries,
which can also be used for applications like in-vehicle entertainment systems,
power steering, power locking, power window systems, etc.

• Over the past few years, India witnessed a tremendous growth in per capita
income. This, in turn, improved the level of disposable income. As a result, there
has been a sharp increase in the sales of automobiles, particularly of the two- and
four-wheeler varieties. This surged the demand for SLI batteries.

• According to the Society of Indian Automobiles Manufacturers (SIMA), in India,

the total automotive sales witnessed a growth of over 20%, between 2011 and
2018.

• The automotive sector contributed about 60% to the total turnover of the Indian
lead-acid battery market in 2018. The improving automobile sales aided the
growth of SLI lead-acid batteries. Two-wheeler vehicles are the primary users of
SLI batteries.

• Therefore the growth in the Indian automotive industry is expected to have a

direct impact on the growth of lead-acid battery market in the country and thereby
driving the market studied over the forecast period.

The battery market is expected to grow exponentially in the next five years in India and
its recycling offers a $1000 million opportunity by 2030, JMK Research has estimated.
However, recycling would gather momentum only when the Indian government brings in
a well-defined regulatory and policy framework said the research firm. Initiatives by the
centre that will accelerate the growth of lithium-ion battery market in India include
National Electric Mobility Mission Plan 2020.

Department of BBA January-April 2020 24

As per JMK Research estimates, the battery market in India is expected to increase from
2.9 GWh in 2018 to about 132 GWh by 2030 (CAGR of 35.5%). The increasing volume
of lithium-ion batteries would, in turn, lead to a growing capacity of 'spent' batteries in the
ecosystem which if left untreated would lead to health and environmental hazards.
Precious metals comprising these batteries would be lost forever. Therefore, managing
this lithium-ion battery waste through recycle ..

In the year 2030, the recycling market is estimated to be around 22 - 23 GWh, which is a
$1,000 million opportunities. Indian companies like Tata ChemicalsNSE 2.51 %, Raasi
Solar and MahindraNSE -0.81 % Electric have already started looking at this lucrative
opportunity and have either already established or announced plans to set up recycling
operations.

Although there is awareness around the recyclability and reusability of batteries, this
market would gather momentum only when the Indian government brings in a well-
defined regulatory and policy framework. To date, India does not have any specific
regulations or guidelines around the effective disposal and recycling of lithium-ion
batteries. Even India’s e-waste guidelines have no mention of lithium-ion batteries. Clear
guidelines have to be laid out for collection, storage, transportation.

R&D work is carried out on various facets of lead-acid battery technology, which include
development of new products for applications such as Automotive, Motorbike, VRLA,
Telecom, UPS, Railways, Defence, etc. primarily to make the product range
internationally competitive. In addition, the R&D is engaged in projects embracing
process technology aimed at - improving the product quality & consistency, production
efficiency and material utilization. Furthermore, R&D programme includes improvement
and indigenisation of materials such as metals, alloys, plastics, etc. R&D emphasis is on
studying and improving the environmental aspects associate with the manufacturing
process.

Some of the major development work done at the R&D Centre and viewed at a glance is
as follows:

 Automotive & tractor batteries as per Indian standards to suit tropical conditions
 Japanese range of automotive and motorbike batteries
 DIN range of automotive batteries suited to vehicles of European origin

Department of BBA January-April 2020 25

 Development of submarine batteries
 Development of special type of poly-ethylene separators for varying applications
 Valve Regulated Lead Acid (VRLA) batteries for telecommunication & railway
applications
 Motive Power Batteries for fork-lift trucks & golf carts
 High energy density battery for electric vehicles
 Plant batteries for power stations
 Furthermore, long-life, maintenance-free batteries for cars have also been
developed which are presently being marketed under the brand name Exide Eternity
 Also, a new heavy duty, MHD range of batteries have been developed and
introduced for the entire commercial range of vehicles. Batteries were also developed
for CNG/LPG powered three-wheelers and golf carts
 A range of batteries for industrial application including new batteries for telecom,
solar, traction and small VRLA for UPS system was also developed

TechNavio's report, the Battery Market in India 2015-2019, has been prepared based on
an in-depth market analysis with inputs from industry experts. It covers the landscape of
the Battery market in India and its growth prospects in the coming years. The report
includes a discussion of the key vendors operating in this market.

Department of BBA January-April 2020 26

COMPANY PROFILE

Background and inception of the company:

PRIMETECH ACCUMULATORS PVT LTD was established in the year 1997 by a

technical people having sound experience in the field of power storage devices. They
have qualified young dedicated and highly motivated team to serve the customers. The
manufacturing, marketing and servicing set up has the necessary infrastructure for
providing a quality product and service. The top management is dedicated to their
responsibilities and organization has shown a steady growth in terms of its annual
turnover since the day of its inception. The products are tested and certified from a highly
reputed test centre like CPRI, CECRI, ETDC and NABL accredited laboratories. PAPL
has a decent manufacturing facility which boasts of highest quality measures at each level
of manufacturing. Having completed more than 16 years the organization has laid a
strong foundation by creating quality environment, manpower, infrastructure and
ambition to grow in the field of storage devices in the year to come.

Primetech Accumulators has around 120+ employees and around 1000+ clients and
associated with 4 other business partners. It has an annual turnover around 85 crores.

Prime make Tubular Plate range of Batteries are designed and manufactured for better
performance and long service life even under rigorous usage conditions.

Product and service profile:

Solar batteries: A device that reserves energy for later consumption that is charged by a
connected solar system. The stored electricity is consumed after sundown, during energy
demand peaks or during power outage.

UPS Batteries: A device that provides battery backup when the electrical power fails or
drops to an unacceptable voltage level. Small UPS systems provide power for a few
minutes; enough power down the computer in a orderly manner, while larger systems
have enough battery for several hours.

Traction Batteries: An electric- vehicle battery is a battery used to power the electric
motors of a battery electric vehicle or hybrid electric vehicle. These batteries are usually

Department of BBA January-April 2020 27

rechargeable batteries and are typically lithium- ion batteries. These batteries are
specifically designed for a high ampere – hour capacity.

Automotive Batteries: It is a rechargeable battery that supplies electric current to a motor

vehicle. Its main purose is to feed the starter, whch starts the engine. Once the engine is
running, power for the car’s electrical systems is still supplied by the battery with the
alternator charging as demands increase or decrease.

Tubular Batteries: it is the type of lead acid battery in which the positive
electrode is not a grind, but a comb like lead skeleton that holds the positive
material with the help of tubular bags. Positive material shedding is the primary
reason for failure od lead bateries. Typical life ranges from 4-8 years.

Specialpluritubularpositive plates: For long service under deep cycle usage.

Low antimony: Designed with low antimony content minimize water loss and thereby
reduce the topping requirement.

Special microporoussecretor: To permit free exchange of ions and prevent short

circuit risk

Battery shell: A high impact, versatile, leak proof and durable hard rubber/
polypropylene container.

Vent plugs: Specially designed vent plugs and cell covers to prevent leakage of acid,
fumes and gases, thus providing the connectors and terminals from corrosion and
providing safety.

Specially mixed corrosion free alloy for spines & grids.

Tubular gauntlets of high brushing strength with high performance for positive plates.

VISION AND MISSION OF PRIMETECH ACCUMULATORS

LEADERSHIP

 They have a clear vision of where they are going.

 They focus on goals to achieve leadership objectives and strategies.

Department of BBA January-April 2020 28

INTEGRITY

 They conduct the business fairly, with honesty and transparency.

 They operate within letter and spirit of the law.

 They uphold the values and principles of the organization in every action and
decision.

PEOPLE DEVELOPMENT AND INVOLVEMENT

 They identify and provide the competencies needed to implement the strategies
and plans.
 They support development so that people can use their full potential and adapt to
the changes.

 They encourage and provide opportunities for involvement in improvement

activities while building a culture of trust, openness and empowerment.

 They provide a good work environment and treat each other with respect &
dignity.

 They encourage team work so that individuals work as a team and support each
other.

AGILITY

 Speed, Responsiveness and being Proactive is achieved through Collaboration and

Empowering Employees.

PASSION FOR INNOVATION AND TECHNOLOGY

 We advance through creativity and efficient processes to implement new ideas.

Department of BBA January-April 2020 29

  We encourage development and execution of innovation strategies to be
competitive.

 We encourage and disseminate the creation and development of new innovative

products, technologies and ideas for development of new markets.

CHANNEL PARTNER RELATIONSHIP

 They work cohesively with the channel partners around, building strong
relationships based on tolerance, understanding and mutual cooperation.

 They constantly drive initiatives to develop and sustain the channel partners with a
view to improvise the business.

STRIVING FOR EXCELLENCE

 They constantly learn, capture and share knowledge in order to maximize learning
across the organization.

 They have an openness to accept and use new ideas to seek opportunities for
continuous improvement and innovation that add value.

 They continually strive to achieve the highest possible standards in daily work and
in the quality of the products and services they provide.

CUSTOMER ORIENTATION

 They intimately understand the customers (both external and internal).

 They understand that customer loyalty, retention and market share gain is
maximized through a clear focus on the needs and expectations of both existing
and potential customers.

Department of BBA January-April 2020 30

  Keeping in mind the competitive advantage, they anticipate and gather customers’
needs and expectations and act in order to meet / exceed them through product and
service quality.

 They build and maintain effective and proactive relationships with customers.

MANAGEMENT BY PROCESSES AND FACTS

 They strive to have an effective management system based upon and designed to
deliver, the needs and expectations of all stakeholders.

 Policies, strategies, objectives and plans are enabled and assured through a clear
set of integrated processes. These processes are established, managed and
improved continuously.

 Decisions are based on factually reliable information rather than on heresay and
hunches.

RESPONSIBLE CORPORATE CITIZENSHIP

 They strive to adopt a highly ethical approach by being transparent and

accountable to their stakeholders.

 They actively promote social responsibility and ecological sustainability.

 They meet and exceed the expectations and regulations of the local and global
community through open and inclusive stakeholder engagements.

 They are aware of the organization’s impact on both the current and future
community and take care to minimize any adverse impacts.

Department of BBA January-April 2020 31

CLIENTS ASSOCIATED WITH PRIMETECH

1.Zener systems ltd

2.Power one

3.Techser power

4.Elites engineering ltd

5.Aps industries

6.Uniter engineering

7.Grants infotech

8.Zenster power

9.U customer

10.Universal engineering

11.Powertech systems (etc)

SWOT Analysis:

STRENGTH:

1.Synergies with existing infrastructure

2.Scalable infrastructure investments

3.Effeciency of electricity supply chain

4.Home charging

5.Flexiblity of renewable electricity integration

WEAKNESS

1.Restricted only for house and office purpose

2.No inherent seasonal electricity storage

3.Time consuming for charging

Department of BBA January-April 2020 32

OPPORTUNITIES

1.Advancement in infrastructure setup

2.New business models

3.Electricity as established energy carrier

4.Synergies with renewable electricity development

THREATS

1.Change of fuelling process

2.Uncertain consumer behaviour

3.Uncertain impacts on distribution grids

4Safety margins due to high current

COMPETITORS

1.Festo Power Industries

2.Akshaya Power Tech

3.D Force Energy

4.Deskon Battery Power

5.Suntrac Energy Systems Pvt.Ltd

6.Aster

7.Luminous batteries

8.Excide

9.Amaron (etc)

Department of BBA January-April 2020 33

CHAPTER 4

RESEARCH DESIGN

4.1. Statement of problem:

Analysis and interpretation of financial statement is a regular exercise to review the

performance of the company. It was proposed to conduct a review to study the short-term
prospects as well as the long-term trends and to arrive at the conclusion on the
performance of the company. Performance review resulting in taking corrective actions
optimises the performance in the subsequent period.

4.2. Nature of study:

 The financial statements are prepared on the basis of recorded facts.

 The recorded facts are these that can be expressed in monetary terms.
 The accounting records and financial statements are from those records that are
based on historical costs.

4.3. Need of the study

 The study helps in analyzing and interpreting the monetary terms of the company.

 It helps in understanding the concepts such as assets, liabilities, cash flows,

working capitals etc.

 The analysis of such terms helps in determining the profitability or calculating the
value of the company. This also helps in taking better decisions for future
investments.

 This type of study is not done in the company before, by doing this study, we can
improve the performance.

Department of BBA January-April 2020 34

4.4. Scope of the study:

 The study is an effort to know that it a study on the interpretation of financial

statements in terms of contemporary financial analysis of information and factors
influencing decision.

 Financial statement analysis helps in understanding companies performance every

year.

 The study determines the factors that impacts the profits of the company.

 It provides necessary information that helps in decision making.

 It can be achieved by analyzing balance sheets, income statements / p&l accounts

of the company.

 Recommendation on where the company is not performing well and where it

should focus on.

4.5. objectives of the study

 A study on financial statement analysis of the company.

 To assess the efficiency of the company.

 To asses short term as well as long term solvency position.

 To derive findings and suggestions to take better future decisions.

4.6. Limitations of the study:

 Financial analysis is based upon only monetary information and non-monetary

factors are ignored.

 Changes in accounting procedure by a firm may often make financial analysis

misleading.

 The study has taken into account only three years.

 Time constrain

Department of BBA January-April 2020 35

  The study is based on secondary data i.e., the annual reports of the company , so
limitations may occur.

4.7. Research methodology:

This study evaluates the financial performance of Primetech accumulators pvt. Ltd. With
the help of most appropriate tool of financial analysis like ratio analysis. Suggestions are
then made to improve the financial performance of the firm.

 Sampling method:

Research design: Analytical

Analytical research is a specific type of research that involves critical thinking skills and
the valuation of facts and information relative to the research being conducted. A variety
of people including students, doctors and psychologists use analytical research during
studies to find the most relevant information.

Research type: Empirical research and descriptive research

Empirical research: It is the research using empirical evidence. It is also a way of gaining
knowledge by means of direct and indirect observation or experience. Empirical
evidences can be analysed quantitatively or qualitatively.

Descriptive research: it is used to describe characteristics of a phenomenon being studied.

It does not answer questions about how/ why/ when the characteristics occurred. This
study is to compare, interpret and analyse previous years financial data.

 Domain: finance

 Sampling size: 3 years(2016-2019)

 Sampling unit: financial statements( balance sheet and P&L accounts.)

Balance sheet: It is the financial position of the company as of the report date. Its
information is aggregated on the basis of assets, liabilities and equity.

Department of BBA January-April 2020 36

 P&L accounts: It is a report revelling the financial performance of an organisation
for an accounting period. It begins with sales and subtracts out all the expenses
during the period to arrive at net profit or poss. It is considered as an important
financial statement as it majorly describes the performance of the company.

 Method of Data collection: Secondary data ie, annual reports of Primetech

accumulators private limited.

 Instrument for data collection: Personal interaction with the manger of the
company and analysing balance sheet and income statements of the company.

 Data analysis tools: Ratio analysis.

CHAPTER SCHEME:

1. Introduction

2. literature Review

3. company Profile

4. Research Design

 Statement of problem
 Nature of study
 Need of study
 Scope of study
 Objectives of study
 Limitations of study
 Research Methodology

5. Data analysis and interpretation

6. Findings

7. Suggestions

8. conclusion

Department of BBA January-April 2020 37

  Bibliography
 Annexure
 Balance sheet and P&L accounts

Department of BBA January-April 2020 38

CHAPTER 5:

DATA ANALYSIS AND INTERPRETATION

Data analysis: it is the process of inspecting, cleansing, transforming and modeling data
with goal of discovering useful information, informing conclusion and supporting
decision- making.

Interpretation: interpretation is the act of explaining, reframing, or otherwise showing you

own understanding of something.

Analysis and interpretation of financial statements are an attempt to determine the

significance and meaning of the financial statement data so that a forecast may be made
of the prospects for future earnings, ability to pay interest, debt maturities, both current as
well as long term and profitability of sound dividend policy.

The main function of financial analysis is the pinpointing of the strength and weakness of
a business undertaking by regrouping and analysis of figures contained in financial
statements, by making comparisons of various components and by examining their
contents.

The data is collected through the financial statements of the company. The data is
analyzed and interpreted. The data’s interpretation is drawn with the help of paragraphs.

Currently the analysis is done for the three years of the company.

Department of BBA January-April 2020 39

 Current ratio

 Current ratio is a liquidity ratio that helps in understanding and measuring

company’s short-term obligations. It helps to analyze how to maximize the current
assets to satisfy its current debt and other payables. It compares all of a company’s
current assets to its current liabilities.

 Current ratio = current assets /current liabilities

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

2016-2017 2,43,16,922 2,98,97,667 0.81
2017-2018 3,42,49,338 3,64,93,506 0.94
2018-2019 5,80,17,923 5,40,10,922 1.07

ANALYSIS:

The above table shows the current ratio for the period of three years.

In the year 2017, 2018, 2019 are 0.81, 0.94, 1.07.

70,000,000

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0
2016-2017 2017-2018 2018-2019

current assets Column1

Department of BBA January-April 2020 40

 Chart Title
1.2

0.8

0.6

0.4

0.2

0
2016-2017 2017-2018 2018-2019

Column1

INTERPRETATION:

The current ratio is been increased over the years. It is the desirable situation to be in. The
working capital of the year 2017 and 2018 was negative and it effects the current ratio. If
the ratio is above 1.0 then the company can pay off short term obligations easily. From
the above analysis in the year 2019 the current ratio was 1.10 with which the short-term
obligations can be met peacefully.

Department of BBA January-April 2020 41

 Quick ratio

 Quick ratio also known as acid test ratio is a type of liquidity ratio. It measures the
ability of the company to use its near cash or quick assets to retire its current
liabilities immediately. Basically, it’s the ratio between quickly available or liquid
assets and current liabilities.

 Quick ratio = liquid assets/quick liabilities.

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

2016-2017 2,13,04,048 2,98,97,667 0.71
2017-2018 3,23,94,838 3,64,93,506 0.89
2018-2019 5,37,96,532 5,40,10,922 0.99

ANALYSIS:

The above table shows the quick ratio for the period of three years.

In the year 2017, 2018, 2019 are 0.71, 0.89, 0.99

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0
2016-2017 2017-2018 2018-2019

liquid assets Column1

Department of BBA January-April 2020 42

 quick ratio
1.2

0.8

0.6

0.4

0.2

0
2016-2017 2017-2018 2018-2019

quick ratio

INTERPRETATION:

If the quick ratio is above 1 that means the company has enough quick assets to
pay for its current liabilities. But according to the above analysis of three years the
quick ratio is less than 1 for all the three years i.e, 2017- 0.71, 2018- 0.89 and
2019 – 0.99. The quick ratio is increased gradually through the years, in 2019 the
company had enough cash and cash equivalents to pay of the liabilities.

EQUITY MULTIPLIER RATIO

Department of BBA January-April 2020 43
  It is the financial leverage ratio that measures the amount of a firm’s assets that
are financed by its shareholders by comparing total assets with total shareholder
equity.

 It’s the percentage of assets that are financed by shareholders.

Equity multiplier ratio = total assets/total shareholder equity

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

2016-2017 5,30,04,137 1,63,59,365 3.24
2017-2018 6,37,35,511 2,14,69,816 2.97
2018-2019 9,14,86,142 3,04,62,462 3.00

Analysis:

The above table shows the equity multiplier ratio for the period of three years. In
the year 2017, 2018, 2019 are 3.24, 2.97 and 3.00

100,000,000
90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
2016-2017 2017-2018 2018-2019

total assets Column1

Department of BBA January-April 2020 44

 EQUITY MULTILPIER RATIO
3.3
3.25
3.2
3.15
3.1
3.05
3
2.95
2.9
2.85
2.8
2016-2017 2017-2018 2018-2019

INTERPRETATON:

Investors look for the company with low equity multiplier because it indicates the
company is using more equity and less debt to finance the company. In the above
analysis, in the year 2018 the ratio was less compared to the other two years. This
means the financial risk of increasing debt was least in 2018.

Department of BBA January-April 2020 45

 PROPRIETARY RATIO

 The proprietary ratio is the proportion of shareholders’ equity to total assets and
provides estimate of amount of capitalization currently used for business support.
If the ratio is high it means company has enough equity to support the business
functions.

 Proprietary ratio = shareholder funds/capital employed.

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

2016-2017 1,63,59,365 1,67,11,514 0.978
2017-2018 2,14,69,816 2,19,09,155 0.979
2018-2019 3,04,62,462 3,09,65,881 0.983

Department of BBA January-April 2020 46

 ANALYSIS:

The above table shows the Proprietary ratio for the period of three years. In the
year 2017, 2018, 2019 are 0.978, 0.979 and 0.98

35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0
2016-2017 2017-2018 2018-2019

shareholder funds capital employed

Proprietary ratio
0.98
0.98
0.98
0.98
0.98
0.98
0.98
0.98
0.98
0.98
2016-2017 2017-2018 2018-2019

Proprietary ratio

Department of BBA January-April 2020 47

 INTERPRETATION:

A high proprietary ratio indicates a strong financial position of the

company and greater security for creditors. In the year 2017 the company was highly
depending on the debt for its operations. Later it started increasing in 2018 and 2019. in
2019 it has the highest proprietary ratio of 0.983 indicating a strong position in that year.

Department of BBA January-April 2020 48

 GROSS PROFIT RATIO

 Gross profit ratio is a profitability ratio that shows the relationship between gross
profit and total net sales revenue. It is a popular tool to evaluate the operational
performance of the business.

 Gross profit ratio = gross profit/net sales*100

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

2016-2017 7,64,57,324 9,95,60,645 76.79
2017-2018 14,75,56,115 18,08,17,477 81.60
2018-2019 18,41,99,105 22,75,65,039 80.94

ANALYSIS:

The above table shows the Gross profit ratio for the period of three years.

In the year 2017, 2018, 2019 are 76.79, 81.60 and 80.94.

250,000,000

200,000,000

150,000,000

100,000,000

50,000,000

0
2016-2017 2017-2018 2018-2019

gross profit net sales

Department of BBA January-April 2020 49

 Series 1
82
81
80
79
78
77
76
75
74
2016-2017 2017-2018 2018-2019

Series 1

INTERPRETATION:

The higher the gross margin the better. The company has reasonable gross
profit to cover all the expenses and provide for profit. In the year 2018 it has highest gross
profit ratio of 81.60%.

Department of BBA January-April 2020 50

 NET PROFIT RATIO

 Net profit ratio is a profitability ratio which is expressed as a percentage hence it

is multiplied by 100.net sales include both cash an credit sales, on he other hand,
net profit is the net operating profit i.e., the net profit before interest and taxes.

 Net profit ratio = net profit/net sales*100

YEAR NET PROFIT NET SALES NET RATIO*100

PROFIT
RATIO

2016-2017 15,77,420 9,95,60,645 0.015 1.58%

2017-2018 51,10,450 18,08,17,477 0.028 2.82%
2018-2019 89,92,647 22,75,65,039 0.039 3.95%

ANALYSIS:

The above table shows the Net profit ratio for the period of three years. In the year 2017,
2018, 2019 are 0.015, 0.028 and 0.039.

Department of BBA January-April 2020 51

 250,000,000

200,000,000

150,000,000

100,000,000

50,000,000

0
2016-2017 2017-2018 2018-2019

NET RPOFIT NET SALES

NET PROFIT RATIO

0.05
0.04
0.04
0.03
0.03
0.02
0.02
0.01
0.01
0
2016-2017 2017-2018 2018-2019

NET PROFIT RATIO

INTERPRETATION:

The above analysis shows that the company is having increase in net sales
while compared to 2017 and 2018.It shows the efficiency of the company’s net profit. Its
has the highest profitability in the year 2019.

Department of BBA January-April 2020 52

 RETURN ON INVESTMENT RATIO

 It measures return on capital employed in the business.it reveals the efficiency of

the business in utilisation of funds entrusted to it by shareholders, debentures and
long term loans.it helps in assessing whether the firm is earning a higher return on
capital employed as compared to the interest rate paid.

 Return on investment = profit before interest and tax/capital employed*100

YEAR PROFIT BEFORE CAPITAL RETUEN ON RATIO*100

INTEEST AND EMPLOYED INVESTMENT
TAX RATIO

2016-2017 24,18,123 1,67,11,514 0.14 14.46%

2017-2018 68,53,507 2,19,09,155 0.31 31.28%
2018-2019 1,27,42,796 3,09,65,881 0.41 41.15%

ANALYSIS:

The above table shows the Return on investment ratio for the period of three years. In the
year 2017, 2018, 2019 are 0.14, 0.31 and 0.41. Since this ratio is calculated in percentage
it is multiplied with 100 i.e., 14.46%, 31.28% and 41.15%.

Department of BBA January-April 2020 53

 35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0
2016-2017 2017-2018 2018-2019

profit before tax capital employed

ROI RATIO
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2016-2017 2017-2018 2018-2019

ROI RATIO

INTERPRETATION:

The return on investment is increasing through the years. It shows that the profitability
measure that evaluates the performance or potential return on investment. It has the
highest return in the year 2019 with the ratio of 41.15

Department of BBA January-April 2020 54

 RETURN ON SHAREHOLDER FUNDS RATIO.

 It is calculated by dividing a company’s earnings after taxes by total shareholders’

equity and multiplying it by 100. the higher the percentage, the more money is
being returned to investors. This ratio helps business owners to determine a
company’s financial health.

 Return on shareholder funds ratio: profit after tax/shareholder funds*100

YEAR PROFIT SHAREHOLDER RETURN ON RATIO*100

AFTER TAX FUNDS SHARE HOLDER
FUNDS RATIO

2016-2017 15,77,420 1,63,59,365 0.096 9.64%

2017-2018 51,10,450 2,14,69,816 0.238 23.80%
2018-2019 89,92,647 3,04,62,462 0.295 29.52%

ANALYSIS:

The above table shows the Return on investment ratio for the period of three years. In the
year 2017, 2018, 2019 are 0.096, 0.238 and 0.295. Since this ratio is calculated in
percentage it is multiplied with 100 i.e., 9.64%, 23.80% and 29.52%

Department of BBA January-April 2020 55

 35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0
2016-2017 2017-2018 2018-2019

profit after tax shareholder funds

RETURN ON SHAREHOLDER FUNDS

35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2016-2017 2017-2018 2018-2019

RETURN ON SHAREHOLDER FUNDS

INTERPRETATION:

The higher the percentage, the more money is being returned to the investors.
In the year 2019, the maximum returns happened. It increased gradually. It had a good
financial health in the year 2019.

Department of BBA January-April 2020 56

 PRICE/EARNING RATIO

 It is the ratio of a company’s share price to the company’s earnings per share. The
ratio is used for valuing companies and to find out whether they are overvalued or
undervalued.

 Price/earnings ratio = market price of a share/earnings per share

YEAR MARKET PRICE OF EARNING PER SHARE PRICE/EARNING

A SHARE RATIO

2016-2017 70 45.07 1.55

2017-2018 78 146.01 0.53
2018-2019 85 256.93 0.33

ANALYSIS:

The above table shows the Price/earnings ratio for the period of three years. In the year
2017, 2018, 2019 are 1.55, 0.53 and 0.33.

300

250

200

150

100

50

0
2016-2017 2017-2018 2018-2019

market price of a share earning per share

Department of BBA January-April 2020 57

 Series 1
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2016-2017 2017-2018 2018-2019

Series 1

INTERPRETATION:

P/E ratio is a part of research process for selecting stocks because it analyses whether we
are paying a fair price. High ratio indicates positive future performance.

Department of BBA January-April 2020 58

 WORKING CAPITAL TURNOVER RATIO

 It is the ratio that measures how efficiently a company is using its working capital
to support a given level of sales. it shows the relationship between the funds used
to finance a company’s operations and the revenue a company generates as a
result.

 Working capital turnover ratio= net revenue from operations/working capital.

YEAR NET REVENUE WORKING CAPITAL WORKING CAPITAL

FROM OPERATIONS TURNOVER RATIO

2016-2017 9,95,60,645 -55,80,745 -17.84

2017-2018 18,08,17,477 -22,44,168 -80.57
2018-2019 22,75,65,039 40,07,001 56.79

ANALYSIS

The above table shows the Working capital turnover ratio for the period of three years. In
the year 2017, 2018, 2019 are -17.84, -80.47 and 56.79.

Department of BBA January-April 2020 59

 250,000,000

200,000,000

150,000,000

100,000,000

50,000,000

0
2016-2017 2017-2018 2018-2019

-50,000,000

net revenue from operations working capital

WORKING CAPITAL TURNOVER RATIO

80
60
40
20
0
2016-2017 2017-2018 2018-2019
-20
-40
-60
-80
-100

WORKING CAPITAL TURNOVER RATIO

INTERPRETATION:

It shows how well the company is using its working capital to support a given number of
sales. In the year 2019 it has a ratio of 56.79 indicating efficient utilisation of short-term
assets and liabilities.

Department of BBA January-April 2020 60

 DEBT EQUITY RATIO

 The debt to equity ratio is calculated by dividing a company’s long-term debt by

its shareholder equity. The ratio is used to evaluate a company’s financial
leverage.

 Debt equity ratio = long term debt/ equity.

YEAR LONG TERM DEBT EQUITY DEBT EQUITY

RATIO

2016-2017 3,52,149 1,63,59,365 0.020

2017-2018 4,39,339 2,14,69,816 0.021
2018-2019 5,03,419 3,04,62,462 0.016

ANALYSIS

The above table shows the Debt equity ratio for the period of three years. In the year
2017, 2018, 2019 are 0.021, 0.020 and 0.016

Department of BBA January-April 2020 61

 35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0
2016-2017 2017-2018 2-18-2019

long term debt equity

DEBT EQUITY RATIO

0.03

0.02

0.02

0.01

0.01

0
2016-2017 2017-2018 2018-2019

DEBT EQUITY RATIO

INTERPRETATION:

Higher ratio indicates that more creditor financing is used than investor financing. More
debt usage was in the year 2017 according to the above analysis.

In the year 2019 the debt risk is reduced by suing shareholder investments.

Department of BBA January-April 2020 62

 DEBT RATIO

 Debt ratio is a financial ratio that indicates the percentage of a company’s assets
that are provided via debt. It is the ratio of total debt and total assets.

 Debt ratio = long term debt/capital employed

YEAR LONG TERM DEBT CAPITAL EMPLOYED DEBT RATIO

2016-2017 3,52,149 1,67,11,514 0.021

2017-2018 4,39,339 2,19,09,155 0.020
2018-2019 5,03,419 3,09,65,881 0.016

ANALYSIS

The above table shows the Debt ratio for the period of three years. In the year 2017, 2018,
2019 are 0.021, 0.020 and 0.016

35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0
2016-2017 2017-2018 2-18-2019

long term debt equity

Department of BBA January-April 2020 63

 DEBT
RATIO
0.03

0.02

0.02

0.01

0.01

0
2016-2017 2017-2018 2018-2019

DEBT EQUITY RATIO

INTERPRETATION:

Ratio below 1 translates to the fact that a greater proportion of company’s assets is
funded by equity. From the above analysis it is clear that the ratio of debts was higher
than total assts and the company’s assets are financed by debts.

Department of BBA January-April 2020 64

 FIXED ASSET TURNOVER RATIO

 Fixed asset turnover ratio is the ratio of sales to the value of fixed assets. It
indicates how well the business is using its fixed assets to generate sales.

 Fixed asset turnover ratio= net revenue from operations/net fixed assets.

YEAR NET REVENUE NET FIXED ASSETS FIXED ASSET

FROM OPERATION TURNOVER RATIO

2016-2017 9,95,60,645 2,83,35,036 3.51

2017-2018 18,08,17,477 2,90,46,836 3.47
2018-2019 22,75,65,039 3,29,64,800 6.90

ANALYSIS

The above table shows the Fixed asset turnover ratio for the period of three years. In the
year 2017, 2018, 2019 are 3.51, 3.47 and 6.90

250,000,000

200,000,000

150,000,000

100,000,000

50,000,000

0
2016-2017 2017-2018 2018-2019

net revenue from operation net fixed assets

Department of BBA January-April 2020 65

 fixed asset turnover ratio
8
7
6
5
4
3
2
1
0
2016-2017 2017-2018 2018-2019

fixed asset turnover ratio

INTERPRETATION:

A high ratio indicates that a company spent less money in fixed assets for each of sales
revenue. From the above analysis we can interpret that the company has invested less
amount on fixed assets.

Department of BBA January-April 2020 66

CHAPTER 6

FINDINGS

 The company is getting stable with current assets along with years. At present it
has enough assts to pay off short term obligations.

 The company has more current liabilities than quick assets. There is shortage of
liquid assets.

 Company doesn’t have stable financial leverage as it doesn’t have very less ratio
which means it is using less equity and more debts.

 The company is highly depending on debts for its operation.

 The company has stable gross profit as per the analysis.

 The company has reasonable increasing net profits with growing years.

 The company has considerable increase in the return on investments which is a

positive sign to the company.

 The company is having positive returns of shareholders’ funds thus benefiting the
shareholder.

 The working capital turnover ratio was negative for first two years since it has a
less working capital.

 The company is using the shareholder funds for operations than debts reducing the
debt financing risk.

 The increasing of company’s assets via debt is been decreased gradually thus
reducing the risk of creditor financing.

 Company is spending less amount on fixed assets.

Department of BBA January-April 2020 67

CHAPTER 7

SUGGESTIONS:

 Primetech accumulators pvt. ltd. should increase its current assets so that they can
meet is short term obligations and have funds in case of emergencies.
 The company should also concentrate on increasing its quick assets or liquid
assets.

 The company should not depend on the creditor’s financings for its operations. It
should increase its equity financing for better operations.

 The company should maintain standard ratio’s, if they don’t, they might face
difficulty in paying back their current liabilities.

Department of BBA January-April 2020 68

CHAPTER 8

CONCLUSION

The analysis of financial statements in Primetech accumulators pvt. Ltd. was to analyse
company’s health and stability providing an understanding of how the company conduct
its business. The financial statements is analysed by using the tool of annual report from
2016-2017 to 2018-2019. This study helped me understanding efficient utilisation of
investments, loans and advances. The profitability of the company appears impressive and
there is increase in reserves and surplus.

Overall, financial position of the company appears to be more than satisfactory

Department of BBA January-April 2020 69

BIBLIOGRAPHY

Department of BBA January-April 2020 70