COMPARATIVE BALANCE SHEET

 Meaning :-
Comparative Balance Sheet is the horizontal analysis of Balance Sheet in
which each items of assets, equity and liabilities is analysed (i.e., showing
increase/decrease in each item) for two or more accounting periods. Such
analysis often gives considerable information which is useful in forming
the opinion regarding progress of the enterprise.

 Advantages of Comparative Balance Sheet : -

I. A Balance Sheet shows the balance of accounts after closing the books at
a certain date, whereas the Comparative Balance Sheet shows not only
the balances of accounts as at different dates but also the extent of their
increases or decreases between these dates.

II. In a Balance Sheet, the emphasis is on status, whereas in the

Comparative Balance Sheet the emphasis is on change.

III. Comparative Balance Sheet is more useful than Balance Sheet as it has
data of two Balance Sheets which may be used in studying the trends in
enterprise.

IV. It shows the effects of business operations on its assets, equity and
liabilities. It is a link between the Balance Sheet and the Statement of
Profit and Loss.
 COMPARATIVE INCOME STATEMENT

 Meaning : -
Statement of Profit and Loss or Income Statement shows the financial
performance, i.e., net profit earned or net loss incurred by the company
during the year. Comparative Statement of Profit and Loss is the
horizontal analysis of Statement of Profit and Loss which shows the
following : -

i. The operating results for the compared accounting periods.

ii. Changes in data in terms of absolute amount.

iii. Percentage from in a period to another.

Comparative Income Statement or Comparative Statement of Profit and Loss

shows the: -

i. Revenues and Expenses in absolute values.

ii. Increase or decrease of revenues and expenses in absolute values.

iii. Percentage changes in revenues and expenses.

  
 Objectives : -

i. To analyse Revenue and Expenses for two or more years.

ii. To analyse increase or decrease in Revenue and Expenses in terms of

money and also the percentage.

iii. To review business operations of the last year and its likely effect on
the current year’s operations.
        
 COMMON-SIZE BALANCE SHEET

 Meaning : -
Common-size Balance Sheet is a statement in which each asset is
expressed as percentage of Total Assets and each liability is expressed as
percentage to Total Equity and Liabilities. Total Assets or Total Equity and
Liabilities are taken as 100 and all the figures are expressed as percentage
of the total.

This statement shows the following: -

i. Assets, Equity and Liabilities as in absolute values.

ii. Assets and Liabilities as percentage of total assets or total

equity and liabilities.

 Objectives : -

i. To analyse the changes in individual items of Balance Sheet.

ii. To observe the trend of different items of assets, equity and liabilities.

iii. To assess the relative financial position on the basis of common-size

Balance Sheets for different firms belonging to the same industry.
 COMMON-SIZE INCOME STATEMENT

 Meaning : -
It is that statement in which amount of Revenue from Operations is taken
as 100 and figures of other items of Statement of Profit and Loss are
expressed as percentage of Revenue from Operations. Common-size
Income Statement or Common-size Statement of Profit and Loss for
different periods helps to reveal the efficiency or inefficiency. If it is
prepared for two firms it shows the relative efficiency of two firms.

 Objectives : -

i. To analyse change in individual items of Statement of Profit and Loss.

ii. To study the trend in different items of Revenues and Expenses.

iii. To assess the efficiency.

 XYZ Ltd.
Balance Sheet
for the year ended 31st March, 2019 and 2018
Particulars Note 31st March ,2019   31st March ,2018
     No (Rs in cr) (Rs in cr)
(A) (B)
I. EQUITY AND LIABILITIES
1) Shareholder’s Funds
a) Equity Share Capital 781.84 773.81
b) Reserves and Surplus 18,882.77 15,981.31
2) Non-Current Liabilities
a) Long-Term Borrowings 92.84 107.40
b) Long-Term Provisions 107.12 93.82
3) Current Liabilities    
a) Short-Term Borrowings 1.77 1.94
b) Trade Payables 1,424.84 1,395.31
c) Other Current Liabilities 3,371.27 3,067.77
d) Short-Term Provisions 4,303.95 4,012.46

Total 28,966.40 25,433.82

II. ASSETS
1. Non-Current Assets
a) Fixed Assets 
i. Tangible Assets            11,252.92 9,529.83
ii. Intangible Assets  123.02 148.68
b) Non-Current Investments 1,953.28 1,563.30
c) Long-term Loans and
Advances 1,193.61 1,146.47
2. Current Assets
a) Current Investments 4,363.31 3,991.32
b) Inventories 5,637.83 5,269.17
c) Trade Receivables 986.02 885.10
d) Cash and Cash Equivalents 2,818.93 2,243.24
e) Short Term Loans and
Advances 500.59 563.45
f)   Other Current Assets 136.89 93.26

Total 28,966.40 25,433.82

 XYZ Ltd.
Comparative Balance Sheet
for the year ended 31st March, 2019 and 2018
Particulars Note 31st March ,  31st March , Absolute Percentage
No. 2019 2018 Change Change
(Rs in cr) (Rs in cr)  (Rs in cr) (in %)
(A) (B) C=A-B D = (C / B *
100)
I. EQUITY AND
LIABILITIES
1) Shareholder’s
Funds
a) Equity Share
Capital 781.84 773.81 8.03 1.04
b) Reserves and
Surplus 18,882.77 15,981.31 2,901.46 18.16
2) Non-Current
Liabilities
a) Long-Term
Borrowings 92.84 107.40 (14.56) (13.56)
b) Long-Term
Provisions 107.12 93.82 13.30 14.18
3) Current
Liabilities     
a) Short-Term
Borrowings 1.77 1.94 (0.17) (8.76)
b) Trade 1,424.84 1,395.31 29.53 2.12
Payables
c) Other Current 3,371.27 3,067.77 303.50 9.89
Liabilities
d) Short-Term 4,303.95 4,012.46 291.49 7.26
Provisions
28,966.40 25,433.82 3,532.58 13.89
Total

II. ASSETS
1. Non-Current
Assets
a) Fixed Assets 
11,252.92 9,529.83 1,723.09 18.08
i. Tangible
Assets
123.02 148.68 (25.66) (17.26)
ii. Intangible
Assets 
1,953.28 1,563.30 389.98 24.95
b) Non-Current
Investments
c) Long-term
Loans and 1,193.61 1,146.47 47.14 4.11
Advances
2. Current Assets
 4,363.31 3,991.32 371.99 9.32
5,637.83 5,269.17 368.66 7.00

986.02 885.10 100.92 11.40

2,818.93 2,243.24 575.69 25.66

500.59 563.45 (62.86) (11.16)

a) Current
Investments 136.89 93.26 43.63 46.78
b) Inventories
c) Trade
Receivables 28,966.40 25,433.82 3,532.58 13.89
d) Cash and Cash
Equivalents
e) Short Term
Loans and
Advances
 XYZ Ltd.
Common Size Balance Sheet
for the year ended 31st March , 2019 and 2018
Particulars Note Absolute  Amounts Percentage of Balance
No. Sheet Total
31st March , 31st March , 31st March , 31st March ,
2019 (Rs in cr)    2018 (Rs in cr)    2019 (in %) 2018 (in %)
I. EQUITY AND
LIABILITIES
1) Shareholder’s
Funds
a) Equity Share 781.84 773.81 2.70 3.04
Capital
b) Reserves and 18,882.77 15,981.31 65.18 62.83
Surplus
2) Non-Current
Liabilities
a) Long-Term 92.84 107.40 0.32 0.42
Borrowings
b) Long-Term 107.12 93.82 0.37 0.37
Provisions
3) Current
Liabilities      1.77 1.94 0.01 0.01
a) Short-Term 1,424.84 1,395.31 4.92 5.49
Borrowings
b) Trade Payables 3,371.27 3,067.77 11.64 12.06
c) Other Current
Liabilities 4,303.95 4,012.46 14.86 15.78
d) Short-Term
Provisions
28,966.40 25,433.82 100.00 100.00

Total

II. ASSETS
1. Non-Current Assets 9,529.83 38.86 37.46
11,252.92
a) Fixed Assets  123.02 148.68 0.43 0.58
iii. Tangible Assets
iv. Intangible Assets  1,953.28 1,563.30 6.74 6.15
b) Non-Current
Investments 1,193.61 1,146.47 4.12 4.51
c) Long-term Loans
and Advances 4,363.31 3,991.32 15.06 15.69
2. Current Assets 5,637.83 5,269.17 19.46 20.72
a) Current 986.02 885.10 3.40 3.48
Investments
b) Inventories 2,818.93 2,243.24 9.73 8.82
c) Trade Receivables
d) Cash and Cash 500.59 563.45 1.73 2.22
 136.89 93.26 0.47 0.37

28,966.40 25,433.82 100.00 100.00

Equivalents
e) Short Term Loans and
Advances
f)   Other Current Asset
 XYZ Ltd
Financial Results
for year ended 31st March , 2019 and 2018

Particulars 31st March, 2019 31st March , 2018

(Rs in cr) (Rs in cr)

Gross Sales/Income from

Operations 9,456.54 9,336.57
Less :- Indirect Taxes 2,804.33 2,475.22
Income from Operations
Net Sales/Income from Operations
(Net of Indirect Taxes) 6,652.21 6,861.35
Other Operating Income 60.86 93.29

Total Income from Operations 6,713.07 6,954.64

Expenses :-
a) Cost of Materials Consumed 2,068.27 1,894.19
b) Purchases of Stock-in-Trade 757.91 597.49
c) Changes of Inventories of
Finished Goods , Work-in-
Progress and Stock-in-Trade (249.56) 312.40
d) Employees Benefit Expenses 412.45 332.27
e) Depreciation and Amortisation
Expenses 194.79 188.04
f) Other Expenses 1,355.66 1,554.94

Total Expenses 4,539.52 4,879.33

Profit from Operations before Other
Income and Finance Costs 2,173..55 2,075.31
Other Income 176.76 207.87
Profit from Ordinary Activities
before Finance Costs 2,350.31 2,283.18
Finance Costs (13.76) (14.82)
Profit from Ordinary Activities
before Tax 2,336.55 2,268.36
Provision for Tax (734.41) (654.00)

Net Profit for the year 1,602.14 1,614.36

 XYZ Ltd.
COMPARATIVE INCOME STATEMENT
for the year ended 31st March, 2019 and 2018

Particulars 31st March, 31st March, Absolute Percentage

2019 (Rs in 2018 (Rs in Change Change
cr) cr) (in %) (in %)
Gross
Sales/Income
from Operations 9,456.54 9,336.57 119.97 1.28
Less :- Indirect
Taxes (2,804.33) (2,475.22) 329.11 13.30
Income from
Operations
Net Sales/Income
from Operations
(Net of Indirect
Taxes) 6,652.21 6,861.35 (209.14) (3.05)
Other Operating
Income 60.86 93.29 (32.43) (34.76)

Total Income
from Operations 6,713.07 6,954.64 (241.57) (3.47)

Expenses :-
a) Cost of
Materials
Consumed 2,068.27 1,894.19 174.08 9.19
b) Purchases of
Stock-in-Trade 757.91 597.49 160.42 26.85
c) Changes of
Inventories of
Finished
Goods , Work-
in-Progress
and Stock-in- (249.56) 312.40 (561.96) (179.88)
Trade
d) Employees
Benefit 412.45 332.27 80.18 24.13
Expenses
 194.79 188.04 6.75 3.59

1,355.66 1,554.94 (199.28) (12.82)

4,539.52 4,879.33 (339.81) (6.96)

2,173..55 2,075.31 98.24 4.73

176.76 207.87 (31.11) (14.97)
e) Depreciation
and
Amortisation
2,350.31 2,283.18 67.13 2.94
Expenses
(13.76) (14.82) (1.06) (7.15)
f) Other Expenses

Total Expenses
Profit from 2,336.55 2,268.36 68.19 3.01
Operations before (734.41) (654.00) 80.41 12.30
Other Income and
Finance Costs
Other Income 1,602.14 1,614.36 (12.22) (0.76)
Profit from
For clarity and better understanding the result of the Comparative Statement
is divided into six parts: -
I. Revenue/Income from different sources (Absolute Change)

II. Expenses in different uses (Absolute Change)

III. Profit at different stages (Absolute Change)

IV. Revenue/Income from different sources (Percentage Change)

V. Expenses in different uses (Percentage Change)

VI. Profit at different stages (Percentage Change)

 XYZ Ltd.
COMMON-SIZE INCOME STATEMENT
for the year ended 31st March, 2019 and 2018

Particulars Not 31st March , 31st March ,   Percentage of Revenue from

e 2019(Rs in 2018(Rs in                                       Operations           
No. cr) cr) 31stMarch,2019 31stMarch,2018
(in %)    (in %) 
Gross
Sales/Income
from Operations 9,456.54 9,336.57 142.16 136.07
Less :- Indirect
Taxes (2,804.33) (2,475.22) (42.16) (36.07)
Income from
Operations
Net Sales/Income
from Operations
(Net of Indirect
Taxes) 6,652.21 6,861.35 100.00 100.00
Other Operating
Income 60.86 93.29 0.91 1.36

Total Income
from Operations 6,713.07 6,954.64 100.91 101.36
Expenses :-
g) Cost of
Materials
Consumed 2,068.27 1,894.19 31.09
h) Purchases of
Stock-in-Trade 757.91 597.49 11.39
i) Changes of
Inventories of
Finished Goods
, Work-in-
Progress and
Stock-in-Trade (249.56) 312.40 (3.75)
j) Employees
Benefit
Expenses 412.45 332.27 6.20
k) Depreciation
 194.79 188.04 2.93
1,355.66 1,554.94 20.38

4,539.52 4,879.33 68.24

2,173..55 2,075.31 32.67

176.76 207.87 2.66
and
Amortisation
Expenses
l) Other Expenses 2,350.31 2,283.18 35.33
(13.76) (14.82) (0.21)

Total Expenses
Profit from 2,268.36 35.12
2,336.55
Operations before (654.00) (11.04)
(734.41)
Other Income and
Finance Costs
Other Income 1,602.14 1,614.36 24.08 23.53
Profit from Ordinary

For clarity and better understanding the result of the Common-size

Statement is divided into four parts: -
I. Revenue/Income from different sources (31.3.2019)

II. Revenue/Income from different sources (31.3.2018)

III. Expenses in different uses (31.3.2019)

IV. Expenses in different uses (31.3.2018)

V. Profit at different stages (31.3.2019)

VI. Profit at different stages (31.3.2019)

 Graphical Representation
i. Revenue/Income from different sources ( Absolute Change ): -

Absolute Change in Revenue/Income(Rs in cr)

150

100

50

0
Gross Sales Net Sales Other Operating Income Total Income
-50

-100

-150

-200

-250

-300

ii. Expenses in different uses (Absolute Change) : -

Absolute Change in Expenses (Rs in cr)

300

200

100

-100

-200

-300

-400

-500

-600
 iii. Profit at different stages (Absolute Change): -

Absolute Change in Profit (Rs in cr)

120 98.24
80.41
80 67.13 68.19
40
0
-1.06 -12.22
-40 -31.11

iv. Revenue / Income from different sources (Percentage Change) : -

Percentage Change in Revenue / Income (%)

5
1.28
0
Gross Sales Net Sales Other Operating Total Income
-5 -3.05 Income -3.47
-10
-15
-20
-25
-30
-35
-34.76
-40
v. Expenses in different uses (Percentage Change): -

Percentage Change in Expnses (%)

50
26.85 24.13
9.19
-179.88
0

-50

vi. Profit at different stages (Percentage Change) : -

Percentage Change in Profit (%)

15

10

4.73
5 2.94
-14.97 -7.15
0
Profit from Other... Profit from ... Finance C... Profit from ... Tax Exp... Net Profit for
Op... the...
-5

-10

-15

-20
vii. Revenue / Income from different sources (31.3.2019) : -

Percentage of Revenue in Comparison to Net Sales in 2019

(31.3.2019)
200

150 142.16

100 100.91
100

50

0.91
0
Gross Sales Indirect Taxes Net Sales Other Operating Total Income from
Income Operations
-50 -42.16

-100

viii. Revenue / Income from different sources (31.3.2018) : -

Percentage of Revenue in Comparison to Net Sales in 2018

(31.3.2018)
150 136.07

100 101.36
100

50

1.36
0
Gross Sales Indirect Taxes Net Sales Other Operating Total Income from
Income Operations

-50 -36.07
ix. Expenses in different uses (31.3.2019) : -

Percentage of Expenses in Different Uses (31.3.2019) in

Comparison to Net Sales
80
70
60
50
40
30
20
10
0
-10

x. Expenses in different uses (31.3.2018) : -

Percentage of Expenses in Different Uses (31.3.2018) in

Comparison to Net Sales
80
70
60
50
40
30
20
10
0
xi. Profit at different stages (31.3.2019) : -

Percentage of Profit at Different Uses in Comparison to Net

Sales (31.3.2019)
40

30

20

10

0
Profit before Other Income Profit before Finance Costs Profit before Tax Expense Net Profit
other income Finance Costs tax
-10 and Finance
Costs
-20

xii. Profit at different stages (31.3.2018) : -

Percentage of Profit at Different Uses in Comparison to Net

Sales (31.3.2018)
40

30

20

10

0
Profit before Other Income Profit before Finance Costs Profit before Tax Expense Net Profit
other income Finance Costs tax
-10 and Finance
Costs
-20
xiii. Equity ( Shareholder’s Funds ) and Liabilities ( Absolute Change ) : -

Absolute Change in Equity and Liabilities ( Rs in cr )

3500

3000

2500

2000

1500

1000

500

0
Share Reserves Long Term Long Term Short Term Trade Other Short Term
-500 Capital and Surplus Borrowings Provisions Borrowings Payables Current Provisions
Liabilities

xiv. Non-Current Assets and Current Asssets ( Absolute Change ) : -

 Absolute Change in Non-Current Assets and Current Assets ( Rs in
cr )
2000

1500

1000

500

-500
xv. Equity ( Shareholder’s Funds ) and Liabilities ( Percentage Change ) : -

Percentage Change in Equity and Liabilities ( % )

25

20

15

10

0
Share Reserves Long Term Long Term Short Term Trade Other Short Term
-5 Capital and Surplus Borrowings Provisions Borrowings Payables Current Provisions
Liabilities
-10

-15

-20

xvi. Non-Current Assets and Current Asssets ( Absolute Change ) : -

Percentage Change in Non-Current Assets and Current Assets ( % )
60
50
40
30
20
10
0
-10
-20
-30
xvii. Equity ( Shareholder’s Funds ) and Liabilities ( 31.3.2019 ) : -

Percentage of Equity and Liabilities in Comparison to Total Assets /

Equity and Liabilities ( % )
70

60

50

40

30

20

10

0
Share Reserves Long Term Long Term Short Term Trade Other Short Term
Capital and Surplus Borrowings Provisions Borrowings Payables Current Provisions
Liabilities

xviii. Equity ( Shareholder’s Funds ) and Liabilities ( 31.3.2018 ) : -

Percentage of Equity and Liabilities in Comparison to Total Assets /
Equity and Liabilities ( % )
70

60

50

40

30

20

10

0
Share Reserves Long Term Long Term Short Term Trade Other Short Term
Capital and Surplus Borrowings Provisions Borrowings Payables Current Provisions
Liabilities
xix. Non-Current Assets and Current Asssets ( 31.3.2019 ) : -

Percentage of Non-Current Assets and Current Assets in Comparison

to Total Assets / Equity and Liabilities ( % )
40
35
30
25
20
15
10
5
0

xx. Non-Current Assets and Current Asssets ( 31.3.2018 ) : -

Percentage of Non-Current Assets and Current Assets in Comparison
to Total Assets / Equity and Liabilities ( % )
40
35
30
25
20
15
10
5
0
 CONCLUSION

From the analysis of the Comparative Balance Sheet it is observed that the
overall financialposition of the company is good and there is substantial
increase in Shareholders' Funds i.e., by 19.20% which is a good sign. We can
also observe that there is an increase in CurrentAssets and Current Liabilities;
it is due to the increase in the business. However, the increase
in Cash and Bank Balance is too high. It suggests that the company is not
able to handleits Cash and Bank balance in an effective manner. It could be
utilised in short-terminvestments to generate extra revenue for the company.

Common-size Statement of the company shows that the Reserves and Surplus
constitutethe major part of the Total of Equity and Liabilities. It indicates the
profit of the firm isutilised for the growth of the company. Therefore, the
internal or market value of theshare of the company will be more than that
of the face value.

The company has shown decrease in net sale and total net profit. It means
the companyhas not performed well in comparison to the previous
quarter.One the reasons ofdecrease in net sales is increase in indirect taxes.
Even though there is a slight increase inGross sale by 1.28% , the increase in
indirect taxes is by 13.30%. It shows that the companycould not pass on the
increased indirect taxes to customers by increasing the sale price.

However from the analysis of the Common-size Income Statement of the

financial results oftwo years 31st March , 2019 and 31st March, 2018 , it is
clear that that even though thereis percentage decrease in Income from
Operations the net profit has increased in percentageof net sales. It is due to
the decrease in total expenses that is a good sign.
 RATIO ANALYSIS
 MEANING : -
‘ Ratio ’ is an arithmetical expression of relationship between two related or
inter-dependent items. In the words of R.N. Anthony , “ A ratio is simply one
number expressed in terms of another. It is found by dividing one number by
the other”. Ratios calculated on the basis of accounting data are called
Accounting Ratios. In other words , it is an arithmetical expression of
relationship between two accounting variables.

Ratios assume significance if these variables have cause and effect

relationship. For example , profit earned to capital employed is significantly
related but turnover is not related to investment in shares. In brief ,
accounting ratios show relationship which is used to make assessment of
financial position and performance of an enterprise.

Ratio Analysis is a tool or technique of financial analysis. It helps to present

accounting information in a simplified, systematised and summaried manner.
With the help of ratio analysis solvency, operating efficiency and profitability
of the Enterprises can be measured.

According to J. Betty , “The term accounting ratio is used to describe

significant relationships which exist between figures shown in a Balance
Sheet , in a Statement of Profit and Loss , in a budgetary control system or in
any part of the accounting organisation.”
  O B J E C T I V E S: -
1. Measure of Profitability :-

Profit is the ultimate aim of every organization. So if I say that ABC firm
earned a profit of 5 lakhs last year, how will you determine if that is a good
or bad figure? Context is required to measure profitability, which is provided
by ratio analysis. Gross Profit Ratios, Net Profit Ratio, Expense ratio etc
provide a measure of the profitability of a firm.

2. Evaluation of Operational Efficiency :-

Certain ratios highlight the degree of efficiency of a company in the

management of its assets and other resources. It is important that assets and
financial resources be allocated and used efficiently to avoid unnecessary
expenses. Turnover Ratios and Efficiency Ratios will point out any
mismanagement of assets.

3. Ensure Suitable Liquidity :-

Every firm has to ensure that some of its assets are liquid, in case it requires
cash immediately. So the liquidity of a firm is measured by ratios such as
Current ratio and Quick Ratio. These help a firm maintain the required level
of short-term solvency.

4. Overall Financial Strength :-

There are some ratios that help determine the firm’s long-term solvency.
They help determine if there is a strain on the assets of a firm or if the firm is
over-leveraged. The management will need to quickly rectify the situation to
avoid liquidation in the future.

5. Comparison :-

The organizations’ ratios must be compared to the industry standards to get

a better understanding of its financial health and fiscal position. The
management can take corrective action if the standards of the market are
not met by the company. The ratios can also be compared to the previous
years’ ratio’s to see the progress of the company. This is known as trend
analysis.
  ADVANTAGES
When employed correctly, ratio analysis throws light on many problems of
the firm and also highlights some positives. Ratios are essentially whistle-
blowers , they draw the management’s attention towards issues needing
attention.

Let us take a look at some advantages of ratio analysis : -

1. Ratio analysis will help validate or disprove the financing, investment and
operating decisions of the firm. They summarize the financial statement
into comparative figures, thus helping the management to compare and
evaluate the financial position of the firm and the results of their
decisions.

2. It simplifies complex accounting statements and financial data into simple

ratios of operating efficiency, financial efficiency, solvency, long-term
positions etc.

3. Ratio analysis help identify problem areas and bring the attention of the
management to such areas. Some of the information is lost in the complex
accounting statements, and ratios will help pinpoint such problems.

4. It also allows the company to conduct comparisons with other firms,

industry standards, intra-firm comparisons etc. This will help the
organization better understand its fiscal position in the economy.
  LIMITATIONS:-

While ratios are very important tools of financial analysis , they have some
limitations, such as : -

1. The firm can make some year-end changes to their financial

statements, to improve their ratios. Then the ratios end up being
nothing but window dressing.

2. Ratios ignore the price level changes due to inflation. Many ratios are
calculated using historical costs, and they overlook the changes in price
level between the periods. This does not reflect the correct financial
situation.

3. Accounting ratios completely ignore the qualitative aspects of the firm.

They only take into consideration the monetary aspects (quantitative)

4. There are no standard definitions of the ratios. So firms may be using

different formulas for the ratios. One such example is Current Ratio,
where some firms take into consideration all current liabilities but
others ignore bank overdrafts from current liabilities while calculating
current ratio

5. Accounting Ratios do not resolve any financial problems of the

company. They are a means to the end, not the actual solution.
  CLASSIFICATION

There are different types of ratios analysis that have been calculated by
every company to evaluate business performance. Simply we can divide it as
below:-

1. Profitability Ratios:-
This type of ratio analysis suggests the Returns that are generated from the
Business with the capital Invested.

 Gross Profit Ratio :-

It represents the operating profit of the company after adjusting the cost of
the goods that are been sold. Higher the gross profit ratio, lower the cost of
goods sold and greater satisfaction for the management.

 Formula Gross Profit/Revenue from Operations* 100

 Net Profit Ratio :-

It represents the overall profitability of the company after deducting all the
cash & non- cash expenses. Higher the net profit ratio, higher the net worth
and stronger the balance sheet.

 Formula Net Profit/ Revenue from Operations *100

 Operating Profit Ratio :-

It represents the soundness of the company and the ability to pay off its debt
obligations.

 Formula  Net Operating Profit / Revenue from Operations*100

2. Solvency Ratio : -
These ratio analysis types suggest whether the company is solvent & is able
to pay off the debts of the lenders or not.

 Debt to Equity Ratio :-

This ratio represents the leverage of the company. A low d/e ratio means
that the company has a lesser amount of debt on its books and is more
equity diluted. Generally , a 2:1 is an ideal Debt to Equity Ratio to be
maintained by any company.

 Formula  Long Term Debt/ Shareholders Fund

 Interest Coverage Ratio :-

It represents how many times the company’s profits are capable of covering
it’s interestexpense. It also signifies the solvency of the company in the near
future since higher the ratio more is the comfort to the shareholders &
lenders regarding servicing of the debt obligations and smooth functioning
of the business operations of the company.

 Formula Net Profit before Interest and Tax / Interest on long-term

borrowings
3. Liquidity Ratios:-
These ratios represent whether the company has enough liquidity to meet its
short term obligations or not. Higher liquidity ratios morecash-rich is the
company.

 Current Ratio:-

It represents the liquidity of the company in order to meet its Higher the
current ratio, stronger is the obligations in the next 12 months.

Higher the current ratio, stronger is the company to pay its current liabilities.
However, a very high current ratio signifies that a lot of money is been stuck
in receivables that might not realize in the future.

 Formula Current Assets/Current Liabilities = ...... : 1

 Quick Ratio :-

It represents how cash rich is the company to pay off its immediate liabilities
in the short term.

 Formula  Quick or Liquid Assets / Current Liabilities = ...... : 1

4. Turnover Ratios :-
Theses ratios signifies how efficiently the assets and liabilities of the
company are been used to generate revenue.

 Fixed Assets Turnover Ratio :-

It represents the efficiency of the company to generate revenue from its

assets. In simple terms, it is a return on the investment in fixed assets.

 Formula Net Sales / Average Fixed Assets

 Inventory Turnover Ratio :-

It represents how fast the company is able to convert its inventory into sales.
It is calculated in days signifying the time required to sell the stock on an
average. Average inventory is been considered in this formula since the
inventory of the company keeps on fluctuating throughout the year.

 Formula = Cost of Goods Sold/Average Inventories

 Receivable Turnover Ratio :-

It reflects the efficiency of the company to collect its receivables. It signifies

how many times the receivables are been converted to cash. A higher
receivable turnover the ratio also indicates that the company is collecting
money in cash.

 Formula = Net Credit Sales/Average Receivables

5. Earning Ratios :-
This ratio analysis type speaks about the returns that the company generates
for its shareholders or investors.

 Profit Earning Ratio :-

It represents the earnings multiple of the company, the market value of the
shares based on the Profit Earning Multiple.

 Formula  Market Price Per Share/Earnings Per Share

 Earnings Per Share :-

Earnings Per Share represents the monetary value of the earnings of each
shareholder. It is one of the major components looked at by the analyst while
investing in equity markets.

 Formula (Net Income – Preferred Dividends ) / Weighted Average of

Shares Outstanding

 Return on Net Worth :-

It represents how much profit the company generated with the invested
capital from equity & preference shareholders both.

 Formula Net Profit/Equity Shareholder Funds.

 XYZ Ltd.
Statement of Profit and Loss
for the year ended 31st March , 2019 and 2018

Particulars Note 31st March , 2019 31st March , 2018

No. (Rs in cr) (Rs in cr)
1. Revenue from operations
a) Net sales 6993.97 6178.43
b) Other Operating Income 132.23 109.59
2. Other Income 21.71 35.62

3. Total 7147.91 6323.64

4. Expenditure :-
a) Cost of Materials Consumed 5132.28 1,894.19
b) Purchases of Stock-in-Trade 143.91 597.49
c) Changes in Inventories of
Finished Goods, Work in
Process and Stock-in-Trade 312.40
(15.14)
d) Employees Benefit Expenses 332.27
370.11
e) Depreciation and
Amortisation Expenses 188.04
117.53
f) Finance Cost 1,554.94
57.09
g) Other Expenses 1025.67

Total 6831.45 6075.55

Profit before tax ( 3 - 4 ) 316.46 248.09

Less :- Tax 67.39 53.51

Net Profit after Tax ( 5 - 6) 249.07 194.58

 XYZ Ltd.
Balance Sheet
for the year ended 31st March 2019 and 2018

Particulars Note 31st March ,2019   31st March ,2018

     No (Rs in cr) (Rs in cr)
(A) (B)
I. EQUITY AND LIABILITIES
1) Shareholder’s Funds
a) Equity Share Capital 47.51 47.51
b) Reserves and Surplus 1219.34 1047.56
2) Non-Current Liabilities
a) Long-Term Borrowings 479.93 554.34
b) Long-Term Provisions 48.54 42.63
3) Current Liabilities    
a) Short-Term Borrowings 235.53 79.09
b) Trade Payables 737.70 669.11
c) Other Current Liabilities 314.22 367.92
d) Short-Term Provisions 57.73 49.35

Total 3140.50 2857.51

II. ASSETS
1. Non-Current Assets
a) Fixed Assets  1078.08 994.98
b) Non-Current Investments 930.92 649.38
c) Long-term Loans and
Advances 53.20 95.75
2. Current Assets
a) Current Investments ---- 11.75
b) Inventories 584.56 527.92
c) Trade Receivables 234.07 270.62
d) Cash and Cash Equivalents 13.03 6.01
e) Short Term Loans and
Advances 146.89 206.28
f)   Other Current Assets 99.75 94.82

Total 3140.50 2857.51

 Additional Information: -

1. Opening Trade Receivables for 2018 is Rs 220.79 crores.

2. Opening Trade Payables for 2018 is Rs 451.13 crores.

3. Credit Sale for 2019 is Rs 351.87 crores and for 2015 is Rs 344.34 crores.

4. Credit Purchase for 2019 is Rs 2063.22 crores and for 2018 is Rs 1876.31
crores.

5. Short-term Borrowings is Bank Overdraft.

 NOTES TO ACCOUNTS

Particulars 31st March , 2019 31st March , 2018

(Rs in cr) (Rs in cr)

1. Revenue from Operations

a) Sale of Products 7571.50 6702.18
b) Sale of Services 8.60 9.30
c) Other Operating Revenues 132.23 109.59

Less : - Excise Duty and Service tax 586.13 533.05

Total 7126.20 6288.02

2. Other Income
a) Interest Income 16.35 23.31
b) Dividend
1) From Subsidiaries 2.22 2.59
2) From Others 0.20 0.16
c) Net Gain on Sale of
Investments ( net loss of Rs
3.34 crores ) ----- 8.26
d) Gain on sale of fixed assets 1.97 0.25
e) Other non operating Income 0.97 1.05

Total 21.71 35.62

3. Cost of Materials Consumed

Opening Inventory of Raw
Materials 184.69 98.97
Components 5153.36 4736.37
Add: Purchase

Total 5338.05 4835.34

Less :- Closing Inventory of Raw

Materials 205.77 184.69
Components
Consumption of Raw Materials
Components
 5132.28 4650.65
4. Purchase of stock-in-trade
Spare Parts 105.77 78.50
Engine oil 38.14 28.64

Total 143.91 107.14

5. Changes in Inventories of
Finished Goods, Workin-Process
and Stock-in-Trade
Opening Inventory
Work-in-Process 46.90 27.05
Stock-in-Trade(Spare Parts) 29.51 16.79
Finished Goods 147.34 63.03

(A) 250.75 106.87

Closing Inventory 55.63 46.90

Work-in-Process 27.86 29.51
Stock-in-Trade(Spare Parts 182.40 174.34
Finished Goods

(B) 265.75 250.75

(A–B) (15.14) (143.88)

6. Other Expenses
Loss on Sale of Investments 0.09 ----
Loss on Sale of Fixed Assets 1.46 14.15
Advertisement Expenses 352.91 310.96
Advertisement and General 327.25 320.18
Expenses 22.60 22.60
Rates and Taxes 196.25 187.35
Travelling Expenses 125.11 100.10
Miscellaneous Expenses

1025.67 955.34
 Particulars 31st March , 2019 31st March , 2018
Current Ratio = Current Assets = Rs 1078.30 = Rs 1117.4
Current Liabilities Rs1345.18 Rs 1165.47

= 0.80 = 0.96

1. Current Ratio : -

2. Quick Ratio : -

Particulars 31st March , 2019 31st March , 2018

Quick Ratio = Quick Assets = Rs 493.74 = Rs 589.48
Current Liabilities Rs1345.18 Rs 1165.47

= 0.37 = 0.51

3. Debt to Equity Ratio : -

Particulars 31st March , 2019 31st March , 2018

Debt to Equity Ratio = Debt / Long-Term Debt = Rs 528.47 = Rs 596.67
Shareholder’s Funds Rs1266.85 Rs 1095.07

= 0.42 = 0.55

4. Debt to Total Assets Ratio : -

Particulars 31st March , 2019 31st March , 2018

Debt to Total Assets Ratio = Debt = Rs 528.47 = Rs 596.67
Total Assets Rs3140.50 Rs 2857.51

= 0.17 : 1 = 0.21 : 1
 5. Proprietary Ratio : -
Particulars 31st March , 2019 31st March , 2018
Proprietary Ratio = Proprietor’s Funds* = Rs 1266.85 = Rs 1095.07
Total Assets Rs 3140.50 Rs 2857.51
*Proprietor’s Funds = Share Capital + Reserves
and Surplus = 0.40 = 0.38

6. Interest Coverage Ratio : -

Particulars 31st March , 2019 31st March , 2018
Interest Coverage Ratio = Profit before Interest = Rs 373.55 = Rs 320.42
and Taxes Rs 57.09 Rs 72.33
Interest
= 6.54 = 4.43

7. Trade Recievables Turnover Ratio : -

Particulars 31st March , 2019 31st March , 2018
Trade Recievables Turnover Ratio = Credit = Rs 351.87 = Rs 344.34
Revenue from Operations Rs252.35 Rs 245.71
Average Trade
Recievables* = 1.39 = 1.40

*Average Trade Recievables

= Opening + Closing Trade Recievables
2
 8. Trade Payables Turnover Ratio : -
Particulars 31st March , 2019 31st March , 2018
Trade Payables Turnover Ratio = Net Credit = Rs 2063.22 = Rs 1876.31
Purchase Rs703.41 Rs 560.12
Average Trade Payables*
= 2.93 = 3.35
*Average Trade Payables
= Opening + Closing Trade Payables
2

9. Working Capital Turnover Ratio : -

Particulars 31st March , 2019 31st March , 2018
Working Capital Turnover Ratio = Cost of Goods = Rs 5261.05 = Rs 4613.91
Sold* Rs -266.88 Rs -48.07
Working Capital
= -19.71 = -95.98
*Cost of Goods Sold
= Cost of Materials Consumed + Purchases of
Stock-in-Trade + Changes in Inventories of
Finished Goods , Work-in-Process and Stock-in-
Trade
 10. Inventory Turnover Ratio : -
Particulars 31st March , 2019 31st March , 2018
Inventory Turnover Ratio = Cost of Goods Solds = Rs 5261.05 = Rs 4613.91
Average Inventory Rs453.55 Rs 320.64

= 11.60 = 14.39

11. Gross Profit Ratio : -

Particulars 31st March , 2019 31st March , 2018
Gross Profit Ratio = Gross Profit X 100 = Rs 1865.15X 100 = Rs 1674.11 X 100
Revenue from Operations Rs 7126.2 Rs 6288.02
Gross Profit = Revenue from Operations – Cost of
Revenue from Operations / Cost of Goods Sold = 26.17% = 26.62%

12. Net Profit Ratio : -

Particulars 31st March , 2019 31st March , 2018
Net Profit Ratio = Net Profit after tax X 100 = Rs 249.07X 100 = Rs 194.58 X 100
Revenue from Operations Rs 7126.2 Rs 6288.02

= 3.50% = 3.09%

13. Operating Ratio : -

Particulars 31st March , 2019 31st March , 2018
Operating Ratio = Operating Cost X 100 = Rs 6772.81X 100 = Rs 5989.07 X 100
Revenue from Operations Rs 7126.20 Rs 6288.02

= 95.04% = 95.25%
 14. Operating Profit Ratio : -
Particulars 31st March , 2019 31st March , 2018
Operating Profit Ratio = Operating Profit X 100 = Rs 353.39X 100 = Rs 298.95 X 100
Revenue from Operations Rs 7126.20 Rs 6288.02

= 4.96% = 4.75%

15. Earning Per Share : -

Particulars 31st March , 2019 31st March , 2018
Earning Per Share = Profit after tax – Preference = Rs 249.07 = Rs 194.58
Dividend Rs 47.51 Rs 47.51
Number of Equity Shares
= Rs 5.24 = Rs 4.10
 WORKING NOTES
Particulars 31st March , 2019 31st March , 2018
(Rs in crores ) (Rs in crores )
Current Assets 1078.30 1117.40

Less : - Inventories 584.56 527.92

Quick Assets 493.74 589.48

1. Quick Assets : -

2. Long – Term Debt : -

Particulars 31st March , 2019 31st March , 2018
(Rs in crores ) (Rs in crores )
Long – Term Borrowings 479.93 554.34

Long – Term Provisions 48.54 42.63

Long – Term Debt 528.47 596.97

Particulars 31st March , 2019 31st March , 2018

(Rs in crores ) (Rs in crores )
Non – Current Assets 2062.20 1740.11
Add: - Current Assets 1078.30 1117.40

Total 3140.50 2857.51

Less : - Current Liabilities 1345.18 1165.47

Capital Employed 1795.32 1692.04
3. Capital Employed: -
Particulars 31st March , 2019 31st March , 2018
(Rs in crores ) (Rs in crores )
Share Capital 47.51 47.51

Reserves and Surplus 1219.34 1047.56

Shareholder’s Funds 1266.85 1095.07

4. Shareholder’sFund:-

5. Calculation of Gross Profit:-

Particulars 31st March , 2019 31st March , 2018
(Rs in crores ) (Rs in crores )
Net Sales 7126.20 47.51
Less :-
a) Cost of Materials Consumed 5132.28 1047.56
b) Purchases of Stock-in-Trade 143.91
c) Changes in Inventories of Finished Goods , Work-
in-Process and Stock-in-Trade (15.14)
Gross Profit 1865.15 1674.11

Particulars 31st March , 2019 31st March , 2018

( Rs in crores ) ( Rs in crores )
Net Sales 7126.20 6288.02

Less : -Gross Profit 1865.15 1674.11

Cost of Goods Sold 5261.05 4613.91

6. Cost of Goods Sold : -
 7. Working Capital : -
Particulars 31st March , 2019 31st March , 2018
(Rs in crores ) (Rs in crores )
Current Assets 1078.30 1117.40

Less :- Current Liabilities 1345.18 1165.47

Net Working Capital (266.88) (48.07)

8. Average Inventory : -
Particulars 31st March , 2019 31st March , 2018
( Rs in crores ) ( Rs in crores )
Opening Inventory of Raw Materials and
Components. 184.69 98.97
Opening Finished Goods , Work-in-Process and
Stock-in-Trade. 250.75 106.87

(A) 435.44 205.84

Closing Inventory of Raw Materials and

Components. 205.77 184.69
Closing Finished Goods , Work-in-Process and Stock-
in-Trade. 265.89 250.75

(B) 471.66 435.44

Average Inventory ( A + B ) / 2 453.55 320.64

9. Net Profit is taken as Net Profit after Tax : -

 10. Operating Profit: -
Particulars 31st March , 2019 31st March , 2018
( Rs in crores ) ( Rs in crores )
Net Profit before tax 316.46 248.09

Add :- Non-Operating Expenses :-

Finance Cost 57.09 72.33
Loss on Sale of Investment 0.09 ----
Loss on Sale of Assets 1.46 14.15

Less :- Non-Operating Profit (21.71) (35.62)

Operating Profit 353.39 298.95

11. Operating Cost: -

Particulars 31st March , 2019 31st March , 2018
( Rs in crores ) ( Rs in crores )
Total Expenditure 6774.36 6003.22

Less :- Non-Operating Cost :-

Loss on Sale of Investment (0.09) ----
Loss on Sale of Assets (1.46) (14.15)

Operating Cost 6772.81 5989.07

 Summary of Ratios of the Two Years
Sl.No Ratios 31st March 2019 31st March 2018

1. Current Ratio 0.80 0.96

2. Quick Ratio 0.37 0.51

3. Debt to Equity Ratio 0.42 0.55

4. Debt to Total Assets Ratio 0.17 0.21

5. Proprietary Ratio 0.40 0.38

6. Interest Coverage Ratio 6.54 4.43

7. Trade Recievables Turnover 1.39 1.40

Ratio
8. 2.93 3.35
Trade PayablesTurnover Ratio
9. (19.71) (95.98)
Working Capital Turnover Ratio
10. 11.60 14.39
Inventory Turnover Ratio
11. 26.17% 26.62%
Gross Profit Ratio
12. 3.50% 3.09%
Net Profit Ratio
13. 95.04% 95.25%
Operating Ratio
14. 4.96% 4.75%
Operating Profit Ratio
15. Rs 5.24 Rs 4.10
Earning Per Share
 Graphical Representation of 2 Years Ratios

Quick Ratio
Current Ratio
0.6
1.2

0.51

0.4
0.8

0.3
0.6

0.2
0.4

0.1
0.2

00
31.3.2019
31.3.2019 Category 2
31.3.2018
 Debt to TotaltoAssets
Debt EquityRatio
Ratio
0.25
0.6

0.5
0.2

0.4
0.15
0.3
0.1
0.2

0.05
0.1

00
31.3.2019
31.3.2019 31.3.2018 31.3.2018
 Proprietary
Interest CoverageRatio
Ratio
0.41
7
0.4
6
0.4
5
0.39
4
0.39

30.38

20.38

10.37
31.3.2019 31.3.2018
0
31.3.2019 31.3.2018
 Trade
TradeRecievables TurnoverRatio
Payables Turnover Ratio
1.4
3.4
1.4
3.3
1.4
3.2
1.4

1.39
3.1
1.39
3
1.39

1.39
2.9
1.39
2.8
1.38
31.3.2019 31.3.2018
2.7
31.3.2019 31.3.2018
 Working
Inventory
Capital
Turnover
Turnover
Ratio
Ratio
16 0
31.3.2019 31.3.2018
14
-20
12

10-40

8
-60
6
-80
4

2
-100

0
-120 31.3.2019 31.3.2018
 Net Profit
Gross Ratio
Profit Ratio
3.60%
26.70%

3.50%
26.60%

3.40%
26.50%

3.30%
26.40%

3.20%
26.30%

3.10%
26.20%
3.00%
26.10%
2.90%
26.00%
2.80%
25.90%
31.3.2019
31.3.2019 31.3.2018
31.3.2018
 Operating
Operating RatioRatio
Profit
5.00%
95.30%

4.95%
95.25%

95.20%
4.90%

95.15%
4.85%
95.10%
4.80%
95.05%
4.75%
95.00%
4.70%
94.95%
4.65%
94.90%
4.60% 31.3.2019 31.3.2018
31.3.2019 31.3.2018
 Earning Per Share ( Rs )
6

0
31.3.2019 31.3.2018
 CONCLUSION
Financial ratio analysis is only possible when a company constructs its
financial statements in a consistent manner, so that the underlying general
ledger accounts are always aggregated into the same line items in the
financial statements. Otherwise, the provided information will vary from one
period to the next, rendering long-term trend analysis useless.

Study of Liquidity Ratio suggests that company is pursuing aggressive short-

term financialmanagement. The Current Ratio as well as the Quick Ratio is
less than one. It suggests thatthere is no contribution of long-term finance in
financing working capital. However it mightlead to short-term financial
crises. The company should maintain at least 2 : 1 for Current
Ratio and 1:1 for Quick Ratio to avoid future short-term financial crises.

There is decrease in Debt to Equity Ratio and Debt to Total Assets Ratio and
Increase inProprietary Ratio and Interest Coverage Ratio. It is due to the
payment of the long-termdebt and increase in Proprietors' Funds.

Decrease in Trade Receivables Turnover Ratio suggests that the company's

efficiency tocollect the debt has decreased. Decrease in Trade Payables
Turnover Ratio shows that thecredit period granted to the company by the
suppliers has increased or there is delay inthe payments to them.

There is decrease in negative Working Capital Ratio, i.e., increase in Working

Capital Ratio,it suggests the better use of working capital. However,
decrease in Inventory TurnoverRatio depicts inefficient Inventory
Management.

Analysis of profitability ratios suggests that there is a decrease in Gross Profit

Ratio andincrease in Net Profit Ratio. It means profit margin has decreased in
sale. It might be dueto competition in the market with the companies in the
same business or due to aggressiveselling resulting in decreased margins.
However, increase in Net Profit Ratio suggests that
the operating expenses have reduced. We can see this reduction through
Operating Ratioand increment in Operating Profit Ratio. Increase in Net
Profit Ratio with the same equityresults in the increase in Earning Per Share.
 BIBLIOGRAPHY

Now , I would like to refer to all the books and resources available from
which I have gained information and completed my project :-

 T.S.Grewal’s Management Accounting – (Section-B) ISC XII by

S.Chand

 Google India

 Wikipedia