REPORT ON SUMMER TRAINING A FINANCIAL STATEMENT ANALYSIS AND INTERPRETATION OF B.K. TRADING CO. I HELP'S U HOW TO PREPARE INTERNSHIP TRAINING REPORT ON A FINANCIAL STATEMENT ANALYSIS AND INTERPRETATION

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REPORT ON SUMMER TRAINING
A FINANCIAL STATEMENT ANALYSIS AND
INTERPRETATION OF B.K. TRADING CO.
A SUMMER INTERNSHIP REPORT
Submitted by
Priya
Registration No: 11507814
in partial fulfillment of Summer Internship for the award of the degree of
BACHELOR OF COMMERCE (HONS)
School of Business
LOVELY PROFESSIONAL UNIVERSITY
Phagwara, Punjab
July, 2017

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ACKNOWLEDGEMENT
It is a great opportunity & pleasure for me to express my profound gratitude to wards all
the individuals who directly or indirectly contributed towards completion of this report.
Working on this report was a great fun, excitement, challenges and a new exposure in the
field of financial Statement. I am greatly in debated to under whose guidance and concern I
am able to bring the report into its real shape.
I am thankful to all faculty members of Management Department in providing me useful
guidance for the completion of this report. I convey my gratitude to all those who are directly
or indirectly related in the completion of this project report.
Priya
Reg. No.: 11507814
Course: BCOM (Honours)

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PREFACE
This Project Report has been prepared in partial fulfillment of the requirement for the subject:
the Summer Internship programme on the topic A Financial statement analysis and
interpretation in B.COM (HONS.) 4th Sem. in the academic year 2017–2018.
For preparing the Project Report, I have completed my Internship from NEERAJ DHEERAJ
& ASSOCIATES under the Vibhor Gupta during the suggested duration for the period of 45
days to enhance my knowledge. The blend of learning and knowledge acquired during my
Summer Internship at the company is presented in this Project Report.
The rationale behind doing Summer Internship and preparing the report is to study A
Financial Statement Analysis and Interpretation, what is company, what is Financial
statement, why Analysis of statement is necessary for a company, ratio analysis and how does
it help to get liquidity position liquidity position and how does it helpful of investors for
taking investing decision and use of tally for maintain company accounts.

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EXECUTIVE SUMMARY
Financial statements are formal record of the financial activities of a business, person or other
entity and provide an overview of a business or person’s financial condition in both short and
long term. They give an accurate picture of a company’s condition and operating results in a
condensed form. Financial statements are used as a management tool primarily by company
executive and investor’s in assessing the overall position and operating results of the
company.
Analysis and Interpretation of financial statements help in determining the liquidity position,
long term solvency, financial viability and profitability of a firm. Ratio analysis shows
whether the company is improving or deteriorating in past years. Moreover, comparison of
different aspects of all the firms can be done effectively with this. It helps the clients to
decide in which firm the risk is less or in which one they should invest so that maximum
benefit can be earned.
Industries are capital intensive; hence a lot of money is invested in it. So before investing in
companies one has to carefully study its financial condition and worthiness. An attempt has
been carried out in this project to analyze and interpret the financial statements of a company.
OBJECTIVE:
 To understand, analyze and interpret the basic concepts of financial statements of
different mining companies.
 Interpretation of financial ratios and their significance.
This project mainly focuses in detail the basic types of financial statements of different
companies and calculation of financial ratios.
Preparation of balance sheet, profit & loss statements and estimation of few financial ratios of
selected companies. Profit & Loss Statements of companies. However, only three ratios viz.
current ratio, quick ratio and debt-equity ratio were calculated. An advanced version can be
developed for calculation of profit & loss statements and other financial ratios.
From ratio analysis of Balance Sheet and P & L Statement it was concluded that liquidity
position of the company is good. Current ratio, debt-equity ratio, quick ratio, net profit

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margin, operating profit margin, gross profit margin, return on assets, return on investments
and return on capital employed were found to be unacceptable.
In this project, comparison of different ratios viz. current ratio, debt-equity ratio, net profit
margin and return on investment of all the above e companies has been done for the period
2016-2017.It was observed that current ratio of 1.51:1 was always more than 1 from 2015-
16which indicates that liquidity position of the company was good.
.Findings: Results of data analyzed show that all ratios are below industry averages. In
particular, comparative performance is poor in the areas of profit margins, liquidity, credit
control, and inventory management.
 Assets have decreasing due to investment is decreasing.
 Liquidity Position is good.
 Purchase has Increased by 25.14%
 Sales have Increased by 23.16%
 Gross Profit has Increased by 24.85%
 Net profit has decreased by 36.43%
Conclusion: The report finds the prospects of the company in its current position are not
positive. The major areas of weakness require further investigation and remedial action by
management.
Recommendations: Recommendations discussed include:
 Improving the average collection period for accounts receivable·
 Improving/increasing inventory turnover·
 Reducing prepayments and perhaps increasing inventory levels.
 Increase in purchase and Production activity.
Limitations of the report: three problems involved in such report are:
a) That firms use different accounting principles and methods.
b) That it is often difficult to define what industry and firm is really a part of and
c) That accounting principles varies among countries

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d) CONTENTS
Sl. No. Title Page No.
Chapter -01 INTODUCTION 8
1.1 NEERAJ DHEERAJ & ASSOCIATES 8
1.2 A Financial Statement Analysis and Interpretation 9
1.3 Objectives
Chapter-02 FINANCIAL STATEMENTS
2.1 Balance Sheet
2.1.1 Format of Balance Sheet 10-11
2.1.2 Contents of Balance Sheet 12-14
2.2 Profit and loss statements
2.2.1 Format of Profit and Loss Statement 14-19
2.2.2 Contents of Profit and Loss Statement 19-20
2.3 FINANCIAL RATIOS
2.3.1 Objectives 20-23
2.3.2 Financial Ratios And Their Interpretation 24-31
Chapter-03 FINANCIAL RATIO ANALYSIS
3.1 Ratio Analysis of B.K.TRADING 32
3.1.1 Balance sheet of B.K.TRADING for 2016 32
3.1.2 Balance sheet of B.K.TRADING for 2015 33
3.1.3 Profit & Loss Statement for 2016 34-35
3.1.4 Profit & Loss Statement for 2015 35-36
3.1.5 Ratio Analysis for 2016 37-39
3.1.6 Ratio Analysis for 2015 40-42
3.1.7 Summary for Balance sheet and profit & loss statement 43
Chapter-04 VARIATION OF FINACIAL RATIOS
B.K. TRADING 44-46
Chapter-05 COMPRATIVE STATEMENT

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5.1 IBALANCE SHEET FOR 2016 47-48
LITERATURE REVIEW 49-52
FINDINGS 53
CONCLUSION 54
RECOMMENDATIONS 55-56
LIMITATIONS 57
BIBLIOGRAPHY 58-59

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NEERAJ DHEERAJ & ASSOCIATES
CHAPTER- 01
INTRODUCTION
1.1NEERAJ DHEERAJ & ASSOCIATES: Neeraj dheeraj & Associates was
formed on October 14, 2004 in Panipat by 2 directors CA Neeraj Gupta and CA Dheeraj
Gupta. It is registered under the Act, CA Regulation Act, 1949. The Head Office is in
Panipat, Haryana. They become a CA1999. CA Neeraj Gupta and CA Dheeraj Gupta
open their offices respective names- NEERAJ DHEERAJ & ASSOCIATE in october14,
2004. After that, an agreement was signed between both of them and they Opened Neeraj
dheeraj & Associates on October 14, 2004 under the regulation act,1949.
1.2 A FINANCIAL STATMENTANALYSIS & INTERPRETATION:
Financial statements are records that provide an indication of the organization’s financial
status. It quantitatively describes the financial health of the company. It helps in the
evaluation of company’s prospects and risks for the purpose of making business decisions.
The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an enterprise that is useful to a wide range
of users in making economic decisions. Financial statements should be understandable,
relevant, reliable and comparable. They give an accurate picture of a company’s condition
and operating results in a condensed form. Reported assets, liabilities and equity are directly
related to an organization's financial position whereas reported income and expenses are
directly related to an organization's financial performance. Analysis and interpretation of
financial statements helps in determining the liquidity position, long term solvency, financial
viability, profitability and soundness of a firm. There are four basic types of financial
statements: balance sheet, income statements, cash flow statements, and statements of
retained earnings.
The analysis of financial statement is a process of evaluating the relationship between
component parts of financial statement to obtain a better understanding of firm financial
position. Analysis is a process of critically examining the accounting information given in

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financial statements. For the purpose of analysis, individual items are studied; their
interrelationship with other related figures is established.
Thus analysis of financial statement refer to treatment of information contain in financial
statement in a way so as to afford a full diagnosis of the profitably and financial position of
the firm concern. An attempt has been carried out in this project to analyze and interpret the
financial statements of????
1.3 OBJECTIVE
 To understand, analyze and interpret the basic concepts of financial statements of a
company.
 Interpretation of financial ratios and their significance.
 To know about Liquidity Position.
 To Know about Operating Efficiency.
 To know about Over-All Profitability.
 To Know About Inter- firm Comparison.
This project mainly focuses in detail the basic types of financial statements of B.K.
TRADING and calculation of financial ratios. Ratio analysis of B.K. TRADING was done.

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CHAPTER -02
FINANCIAL STATEMENTS
Financial statements (or financial reports) are formal records of the financial activities of a
business, person, or other entity. Financial statements provide an overview of a business or
person's financial condition in both short and long term. All the relevant financial information
of a business enterprise, presented in a structured manner and in a form easy to understand is
called the financial statements.
The analysis of financial statement is a process of evaluating the relationship between
component parts of financial statement to obtain a better understanding of firm financial
position.
A complete set of financial statement comprises:
1) A statement of financial position as at the end of the period:
2) A statement of comprehensive income for the period;
3) Notes of Account comprising a summary of significant accounting policies and other
explanatory information.
There are four basic financial statements:
1. Balance sheet: It is also referred to as statement of financial position or condition,
reports on a company's assets, liabilities, and ownership equity as of a given point in
time. The Balance Sheet shows the health of a business from day one to the date on
the balance sheet.
2. Income statement: It is also referred to as Profit and Loss statement (or "P&L"),
reports on a company's income, expenses, and profits over a period of time. Profit &
Loss account provide information on the operation of the enterprise. These include
sale and the various expenses incurred during the processing state.
The income statement shows a presentation of the sales, the main expenses and the
resulting net income over the period. Net income is based on accounting principles
which gives guidance/rules on when to recognize revenues and expenses, whereas
cash from operating activities, obviously is cash based.

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3. Statement of Retained Earnings: It explains the changes in a company's retained
earnings over the reporting period. The statement of retained earnings shows the
breakdown of retained earnings. Net income for the year is added to the beginning of
year balance, and dividends are subtracted. This results in the end of year balance for
retained earnings.
4. Cash Flow Statement: It reports on a company's cash flow activities, particularly its
operating, investing and financing activities. The statement of cash flows the ins and
outs of cash during the reporting period. The statement of cash flows takes aspects of
the income statement and balance sheet and kind of crams them together to show cash
sources and uses for the period.
2.1 BALANCE SHEET
In financial accounting, a balance sheet or statement of financial position is a summary of a
person's or organization's balances. A balance sheet is often described as a snapshot of a
company's financial condition. It summarizes a company's assets, liabilities and shareholders'
equity at a specific point in time. These three balance sheet segments give investors an idea
as to what the company owns and owes, as well as the amount invested by the shareholders.
Of the four basic financial statements, the balance sheet is the only statement which applies to
a single point in time.
A company balance sheet has three parts: assets, liabilities and ownership equity. The main
categories of assets are usually listed first and are followed by the liabilities. The difference
between the assets and the liabilities is known as equity or the net assets or the net worth or
capital of the company. It's called a balance sheet because the two sides balance out. A
typical format of the balance sheet has been given in Table 2.1. It works on the following
formula:
Assets = Liabilities + Shareholders' Equity

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2.1.1 FORMAT OF BALANCE SHEET
Table 2.1: Balance Sheet
LIABILITIES
1.Share Capital
Equity Share Capital
2. Reserves & surpluses
Capital Reserve
General Reserve
Security Premium Account
Capital Redemption Reserve
3. Secured Loans
Debentures
Loan from Bank
Long Term Loan
Other Secured Loans
4.Unsecured Loans
Fixed Deposit
Short Term Loans
Other Loans
5.Current Liabilities & Provisions
A) Current Liabilities
Bills Payable
Sundry Creditors
Bank Overdraft
Other Liabilities (if any)
B) Provisions

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Provision for Tax
Proposed Dividend
Other Provision
TOTAL
ASSETS
1.Fixed Assets
Goodwill
Land
Building
Leaseholds
Plant & Machinery
Furniture
Trade marks
Patents
Vehicle
2.Investment
3.Current Assets, Loan and Advances
A) Current Assets
Sundry Debtors
Bills Receivables
Closing Stock
Interest on Investment
Cash at Bank
Cash on Hand
Securities Deposit
Fixed Deposit with Banks
B) Loans and Advances
Prepaid Expenses
Tax Paid in Advance
Advances Paid

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4.Miscellaneous Expenditure
Preliminary Expenses
Revenue Expenditures
Discount Allowed
5. Profit & Loss account
TOTAL
2.1.2 CONTENTS OF BALANCE SHEET
(A) Assets
In business and accounting, assets are economic resources owned by business or company.
Any property or object of value that one possesses, usually considered as applicable to the
payment of one's debts is considered an asset. Simplistically stated, assets are things of value
that can be readily converted into cash.
The balance sheet of a firm records the monetary value of the assets owned by the firm. It is
money and other valuables belonging to an individual or business.
Types of Assets
There is two major type of assets:
· Tangible assets
· Intangible assets
Tangible Assets
Tangible assets are those have a physical substance, such as equipment and real estate.
Intangible Assets

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Intangible assets lack physical substance and usually are very hard to evaluate. Assets which
do not possess any material value.
They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc.
Types of Tangible Assets
1. Fixed Assets.
2. Current Assets.
1. Fixed Assets
This group includes land, buildings, machinery, vehicles, furniture, tools, and
certain wasting resources e.g., timberland and minerals.
It is also referred to as PPE (property, plant, and equipment), these are purchased
for continued and long-term use in earning profit in a business.
2. Current Assets
Current assets are cash and other assets expected to be converted to cash, sold, or
consumed either in a year or in the operating cycle. These assets are continually
turned over in the course of a business during normal business activity. There are 5
major items included into current assets:
 Cash and Cash Equivalents
It is the most liquid asset, which includes currency, deposit accounts, and negotiable
instruments (e.g., money orders, cheque, bank drafts).
 Short-term Investments
It includes securities bought and held for sale in the near future to generate income on
short term price differences (trading securities).
 Receivables
It is usually reported as net of allowance for uncollectable accounts.
 Inventory
The raw materials, work-in-process goods and completely finished goods that are
considered to be the portion of a business's assets that is ready or will be ready for
sale.
 Prepaid Expenses

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These are expenses paid in cash and recorded as assets before they are used or
consumed (a common example is insurance). The phrase net current assets (also
called working capital) are often used and refer to the total of current assets less the
total of current liabilities.
I. Gross Block
Gross block is the sum total of all assets of the company valued at their cost of acquisition.
This is inclusive of the depreciation that is to be charged on each asset. Net block is the gross
block less accumulated depreciation on assets. Net block is actually what the asset are worth
to the company.
II. Capital Work in Progress
Work that has not been completed but has already incurred a capital investment from the
company. This is usually recorded as an asset on the balance sheet. Work in progress
indicates any good that is not considered to be a final product, but must still be accounted for
because funds have been invested toward its production.
III. Investments
 Shares and Securities, such as bonds, common stock, or long-term notes
 Associate Companies
 Fixed deposits with banks/finance companies
 Investments in special funds (e.g., sinking funds or pension funds).
 Investments in fixed assets not used in operations (e.g., land held for sale).
Remark: While fixed deposits with banks are considered as fixed assets, the investments in
associate concerns are treated as non-current assets.
IV. Loans and Advances include
 House building advance
 Car, scooter, computer etc. advance
 Multipurpose advance

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 Transfer travelling allowance advance
 Tour travelling allowance advance
 DRS payment.
V. Reserves
 Subsidy Received From The Govt.
 Development Rebate reserve
 Issue of Shares at Premium
 General Reserves
(B) Liability
A liability is a debt assumed by a business entity as a result of its borrowing activities or
other fiscal obligations (such as funding pension plans for its employees). Liabilities are debts
and obligations of the business they represent creditors claim on business assets.
Types of Liabilities
Current Liabilities
Current liabilities are short-term financial obligations that are paid off within one year or one
current operating cycle. These liabilities are reasonably expected to be liquidated within a
year. It includes:
 Accrued expenses as wages, taxes, and interest payments not yet paid
 Accounts payable
 Short-term notes
 Cash dividends and
 Revenues collected in advance of actual delivery of goods or services.
Long-Term Liabilities
Liabilities that are not paid off within a year, or within a business's operating cycle, are
known as long-term or non-current liabilities. Such liabilities often involve large sums of
money necessary to undertake opening of a business, major expansion of a business, replace

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assets, ormake a purchase of significant assets. These liabilities are reasonably expected not
to be liquidated within a year. It includes:
 Notes payable- debt issued to a single investor.
 Bonds payable – debt issued to general public or group of investors.
 Mortgages payable.
 Capital lease obligations – contract to pay rent for the use of plant, property or
equipments.
 deferred income taxes payable, and
 Pensions and other post-retirement benefits.
Contingent Liabilities
A third kind of liability accrued by companies is known as a contingent liability. The term
refers to instances in which a company reports that there is a possible liability for an event,
transaction, or incident that has already taken place; the company, however, does not yet
know whether a financial drain on its resources will result. It also is often uncertain of the
size of the financial obligation or the exact time that the obligation might have to be paid.
Fixed Liability
The liability which is to be paid of at the time of dissolution of firm is called fixed liability.
Examples are Capital, Reserve and Surplus.
Secured Loans
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as
collateral for the loan, which then becomes a secured debt owed to the creditor who gives the
loan.
Unsecured Loans
An unsecured loan is a loan that is not backed by collateral. It is also known as signature loan
and personal loan. Unsecured loans are based solely upon the borrower's credit rating. An
unsecured loan is considered much cheaper and carries less risk to the borrower. However,
when an unsecured loan is granted, it does not necessarily have to be based on a credit score.

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2.2 PROFIT & LOSS STATEMENT
Income statement, also called profit and loss statement (P&L) and Statement of Operations is
financial statement that summarizes the revenues, costs and expenses incurred during a
specific period of time - usually a fiscal quarter or year. These records provide information
that shows the ability of a company to generate profit by increasing revenue and reducing
costs. The purpose of the income statement is to show managers and investors whether the
company made or lost money during the period being reported. The important thing to
remember about an income statement is that it represents a period of time. This contrasts with
the balance sheet, which represents a single moment in time. A typical format of the Profit &
Loss Statement has been given in Table 2.2.
2.2.1 FORMAT OF PROFIT & LOSS STATEMENT
Table 2.2: Profit & Loss Statement
PARTICULARS Amount PARTICULARS Amount
Gross Profit(Transferred) Gross Profit(Transferred)
Office and Administration
Exp:
Interest received
Salaries Rent received
Rent Discount received
Postage & telegrams Dividend received
Office electric charges Bad debts recovered
Telephone charges Provision for discount on
creditors
Printing and stationary Provision for discount on
creditors
Selling and Distribution
Expenses:
Carriage outward
Advertisement
Salesmen's salaries
Commission

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Insurance
Traveling expense
Bad debts
Packing expense
Financial and Other Expenses:
Depreciation
Repair
Audit fee
Interest paid
Commission paid
Bank charges
Legal charges
Profit before Interest Net loss
Less- Net Interest
Profit before Tax
Less- Tax Payable
Profit after Tax
Less- Dividend
Retained Profit
2.2.2 CONTENTS OF PROFIT & LOSS STATEMENT
a. Revenue - Cash Inflows or other enhancements of assets of an entity during a period
from delivering or producing goods, rendering services, or other activities that
constitute the entity's ongoing major operations.
b. Expenses - Cash outflows or other using-up of assets or incurrence of liabilities
during a period from delivering or producing goods, rendering services, or carrying
out other activities that constitute the entity's ongoing major operations.
c. Turnover

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The main source of income for a company is its turnover, primarily comprised of
sales of its products and services to third-party customers.
d. Sales
Sales are normally accounted for when goods or services are delivered and invoiced,
and accepted by the customer, even if payment is not received until some time later,
even in a subsequent trading period.
e. Cost of Sales (COS)
The sum of direct costs of goods sold plus any manufacturing expenses relating to the sales
(or turnover) is termed cost of sales, or production cost of sales, or cost of goods sold. These
costs include:
 Costs of raw materials stocks
 Costs of inward-bound freight paid by the company
 Packaging costs
 Direct production salaries and wages
 Production expenses, including depreciation of trading-related fixed assets.
(f) Other Operating Expenses
These are not directly related to the production process, but contributing to the activity of the
company, there are further costs that are termed ‘other operating expenses’. These comprises
of costs like:
 Distribution costs and selling costs,
 Administration costs, and
 Research and development costs (unless they relate to specific projects and the costs
may be deferred to future periods).
(g) Other Operating Income
Other operating income includes all other revenues that have not been included in other parts
of the profit and loss account. It does not include sales of goods or services, reported
turnover, or any sort of interest receivable, reported within the net interest category.

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(h) Gross Margin (or Gross Profit)
The difference between turnover, or sales, and COS is gross profit or gross margin. It needs
to be positive and large enough to at least cover all other expenses.
(i) Operating Profit (OP)
The operating profit is the net of all operating revenues and costs, regardless of the financial
structure of the company and whatever exceptional events occurred during the period that
resulted in exceptional costs. The profit earned from a firm's normal core business operations.
It is also known as Earnings before Interest and Tax (EBIT).
Operating Profit = Turnover - COS - other Operating Expenses + Other Operating
Income
(j) Profit before Tax (PBT)
A profitability measure that looks at a company's profits before the company has to pay
corporate income tax. This measure deducts all expenses from revenue including interest
expenses and operating expenses, but it leaves out the payment of tax.
(k) Profit after Tax (PAT)
PAT, or net profit, is the profit on ordinary activities after tax. The final charge that a
company has to suffer, provided it has made sufficient profits, is therefore corporate taxation.
PAT = PBT - Corporation Tax
(l) Retained Profit
The retained profit for the year is what is left on the profit and loss account after deducting
dividends for the year. The balance on the profit and loss account forms part of the capital (or
equity, or shareholders’ funds) of the company.

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2.3 FINANCIAL RATIOS
2.3.1 OBJECTIVES OF CALCULATION OF RATIO ANALYSIS
The importance of ratio analysis lies in the fact that it presents data on a comparative basis
and enables the drawing of inferences regarding the performance of the firm. Ratio analysis
helps in concluding the following aspects:
To know about Liquidity Position:
Ratio analysis helps in determining the liquidity position of the firm. A firm can be said to
have the ability to meet its current obligations when they become due. It is measured with the
help of liquidity ratios.
To Know about Long- Term Solvency:
Ratio analysis helps in assessing the long term financial viability of a firm. Long- term
solvency measured by leverage/capital structure and profitability ratios.
To Know about Operating Efficiency:
Ratio analysis determines the degree of efficiency of management and utilization of assets. It
is measured by the activity ratios.
To know about Over-All Profitability:
The management of the firm is concerned about the overall profitability of the firm which
ensures a reasonable return to its owners and optimum utilization of its assets. This is
possible if an integrated view is taken and all the ratios are considered together.
To Know About Inter- firm Comparison:
Ratio analysis helps in comparing the various aspects of one firm with the other.

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2.3.2 FINANCIAL RATIOS AND THEIR INTERPRETATION
Table 2.3: Different Financial Ratios
Sl.
No.
CATEGORY TYPE OF RATIO ITNERPRETATION
1. Liquidity Ratio
Net Working Capital =
Current assets-current
liabilities
 It measures the
liquidity of a firm.
Current ratio =
Current Assets
Current Liabilities
 It measures the short
term liquidity of a
firm. A firm with a
higher ratio has better
liquidity.
 A ratio of 2:1 is
considered safe.
Acid test or Quick ratio =
Quick assets
Current Liabilities
 It measures the
liquidity position of a
firm.
 A ratio of 1:1 is
considered safe.
2. Turnover Ratio
Inventory Turnover ratio =
Costs of goods sold
Average inventory
 This ratio indicates
how fast inventory is
sold.
 A firm with a higher

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ratio has better
liquidity.
Debtor Turnover ratio =
Net credit sales
Average debtors
 This ratio measures
how fast debts are
collected.
 A high ratio indicates
shorter time lag
between credit sales
and cash collection.
Creditor’s Turnover ratio =
Net credit purchases
Average Creditors

that accounts are to
be settled rapidly
3. Capital
Structure Ratios
Debt-Equity ratio =
Long term debt
Shareholder’s Equity
 This ratio indicates the
relative proportions of
debt and equity in
financing the assets of
a firm.
 A ratio of 1:1 is
considered safe.
Debt to Total capital ratio =
Long term debt
Permanent Capital
Or
Total debt
Permanent capital + Current
liabilities
Or
Total Shareholder’s Equity
Total Assets
 It indicates what
proportion of the
permanent capital of a
firm consists of long-
term debt.
 A ratio 1:2 is
considered safe.
 It measures the share
of the total assets
financed by outside

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funds.
 A low ratio is desirable
for creditors.
 It shows what portion
of the total assets is
financed by the
owners’ capital.
 A firm should neither
have a high ratio nor a
low ratio.
4. Coverage ratios
Interest Coverage =
Earnings before interest and
tax Interest

 A ratio used to
determine how easily a
company can pay on
outstanding debt.
 A ratio of more than
1.5 I satisfactory
Dividend Coverage =
Earnings after tax
Preference Dividend
 It measures the ability
of firm to pay dividend
on preference shares.
 A high ratio is better
for creditors.
Total Coverage ratio =
Earning before interests and
tax
Total Fixed charges
 It shows the overall
ability of the firm to
fulfill the liabilities.
 A high ratio indicates
better ability.
5.
Profitability
ratios
Gross Profit margin =
Gross profit * 100
Sales
 It measures the profit
in relation to sales.
 A firm should neither
have a high ratio nor a

27. [Type text] Page 27
low ratio.
Net Profit margin =
Net Profit after tax before
interest
Sales
Or
Net Profit after Tax and
Interest
Sales
Or
Net profit after Tax and
Interest
Sales
 It measures the net
profit of a firm with
respect to sale.
 A firm should neither
have a high ratio nor a
low ratio.
6. Expenses ratios
Operating ratio =
Cost of Goods sold + other
expenses
 Operating ratio shows
the operational
efficiency of the
business.
 Lower operating ratio
shows higher operating
profit and vice versa .
Sales
Cost of Goods sold ratio =
Cost of Goods sold
Sales
 It measures the cost of
goods sold per sale
Specific Expenses ratio =
Specific Expenses
Sales
 It measures the specific
expenses per sale.

28. [Type text] Page 28
7.
Return on
Investments
Return on Assets (ROA) =
Net Profit after Taxes * 100
Total Assets
Or
(Net Profit after Taxes
+interest) *100
 It measures the
profitability of the total
funds per investment
of a firm.
Total Assets
Or
(Net profit after Taxes +
Interest) * 100
Tangible Assets
Or
(Net Profit after Taxes +
Interest) * 100
Total Assets
Or
(Net Profit after Taxes +
Interest) * 100
Fixed Asset
Return on Capital Employed
(ROCE) =
(Net Profit after Taxes) * 100
total capital employed
Or
(Net Profit after Taxes +
Interest) *100
 It measures
profitability of the firm
with respect to the total
capital employed.
 The higher the ratio,
the more efficient use
of capital employed.
Total Capital Employed
Or
(Net Profit after Taxes +

29. [Type text] Page 29
Interest) * 100
Total Capital Employed -
intangible assets
Return on Total
Shareholders’ Equity =
Net Profit after Taxes * 100
Total shareholders’ equity
 It reveals how
profitably the owner’s
fund has been utilized
by the firm.
Return on Ordinary
shareholders equity =
Net profit after taxes and Pref.
dividend *100
 It determines whether
the firm has earned
satisfactory return for
its equity holders or
not.
Ordinary Shareholders’ Equity
8.
Shareholder’s
ratios
Earnings per Share (EPS) =
Net Profit of Equity holders
 It measures the profit
available to the equity
holders on a per share
basis.Number of Ordinary Shares
Dividend per Share (DPS) =
Net profits after interest and
preference dividend paid to
ordinary shareholders
Number of ordinary shares
outstanding
 It is the net distributed
profit belonging to the
shareholders divided
by the number of
ordinary shares
Dividend Payout ratio (D/P)
=
Total Dividend To Equity
holders
Total net profit of equity
 It shows what
percentage share of the
net profit after taxes
and preference
dividend is paid to the
equity holders.

30. [Type text] Page 30
holders
Or
Dividend per Ordinary
Share Earnings per Share
 A high D/P ratio is
preferred from
investor’s point of
view.
Earnings per Yield =
Earnings per Share
Market Value per Share
 It shows the percentage
of each rupee invested
in the stock that was
earned by the
company.
Dividend Yield =
Dividend per share
Market Value per share
 It shows how much a
company pays out in
dividends each year
relative to its share
price.
Price- Earnings ratio (P/E) =
Market value per Share
Earnings per Share
 It reflects the price
currently paid by the
market for each rupee
of EPS.
 Higher the ratio better
it is for owners
Earning Power =
Net Profit after taxes
Total Assets
 It measures the overall
profitability and
operational efficiency
of a firm
9.
Activity Ratios Inventory turnover =
Sales
Closing Inventory
 It measures how
quickly inventory is
sold.
 A firm should neither
have a high ratio nor a
low ratio.
Raw Material turnover =

31. [Type text] Page 31
Cost of Raw Material used
Average Raw Material
Inventory
Work in Progress turnover =
Cost of Goods manufactured
Average Work in process
inventory
Debtors turnover =
Cost of Goods manufactured
Average Work in Process
Inventory
 It shows how quickly
current assets that are
receivables or debtors
are converted to cash.
 A firm should neither
have a high ratio nor a
low ratio.
10.
Assets
Turnover
Ratios
Total Assets turnover =
Cost of Goods Sold
Total Assets
 It measures the
efficiency of a firm in
managing and utilizing
its assets.
 Higher the ratio, more
efficient is the firm in
utilizing its assets.
Fixed Assets turnover =
Cost of Goods Sold
Fixed Assets
Capital turnover =
Cost of Goods Sold
Capital Employed
Current Assets turnover =
Cost of Goods Sold
Current Assets

32. [Type text] Page 32
CHAPTER- 03
FINANCIAL RATIO ANALYSIS
The ratio analysis of M/S B.K TRADING CO. from 2014-16 has been carried out below.
3.1 RATIO ANALYSIS M/S B.K TRADING CO.
3.1.1 Balance Sheet of M/S B.K TRADING CO.
Table 3.1: Balance Sheet of M/S B.K TRADING CO. AS AT 31.03.2016
LIABILITIES Amount ASSETS Amount
PROP.’S CAPITAL
(AS PER ANNEXURE)
2182155.27 FIXED ASSETS
(AS PER ANNEXURE)
911754.00
SECURES LOANS
(AS PER ANNEXURE)
10361702.66 SECURITY
TELEPHONE
1000.00
UNSECURES LOANS
RISHU
SHILPI
TANU
700000.00 CURRENT ASSETS
CLOSING STOCKS
13130879.00
CURRENT LIABILITIES
SUNDRY CREDITORS
(AS PER ANNEXURE)
23952146.00
SUNDRY DEBTORS
(AS PER ANNEXURE)
PREPAID INSURANCE
(CAR):-8635.00
PREPAID
INSURANCE(STOCK):7315.00
VAT RECEIVABLE:-27434.00
22783556.00
43374.00
EXPENSES PAYABLE
AUDIT FEES
LEGAL FEES
12500.00
12500.00
CASH&BANK BALANCE
OBC C/A :- 313336.93
SBOP S/A:-1524.00
CASH IN HAND :-35840.00
350700.93

33. [Type text] Page 33
TOTAL 37221003.93 TOTAL 37221003.93
3.1.2 Balance Sheet of M/S B.K TRADING CO.
Table 3.2: Balance Sheet of M/S B.K TRADING CO. AS AT 31.03.2015
LIABILITIES Amount ASSETS Amount
PROP.’S CAPITAL
(AS PER ANNEXURE)
2104056.16 FIXED ASSETS
LAND:-194775.00
MOTOR CYCLE:-4882.00
CAR:-566000.00
BUILDING :-251716.00
FURNITURE:- 5761.00
1023134.00
SECURES LOANS
OBC C/C:-2252675.45
HDFC LOAN:-130361.19
VOLKSWAGEN CAR LOAN:-
INDIA BULLS LOAN:-
HDBC LOAN:-
2252675.4
130361.19
438955.05
1968548.05
534792.03
SECURITY
TELEPHONE
1000.00
UNSECURES LOANS
RISHU
SHILPI
TANU
250000.00
250000.00
250000.00
CURRENT ASSETS
CLOSING STOCKS
9543031.00
CURRENT LIABILITIES
SUNDRY CREDITORS
(AS PER ANNEXURE)
19375887.00
SUNDRY DEBTORS
(AS PER ANNEXURE)
PREPAID INSURANCE
(CAR)
PREPAID
INSURANCE(STOCK)
16900278.00
7077.00
254.00
EXPENSES PAYABLE
AUDIT FEES
LEGAL FEES
12500.00
12500.00
CASH&BANK BALANCE
OBC C/A:-
CASH IN HAND :-
10335.93

34. [Type text] Page 34
ELECT. EXPS. 4500.00 49665.00
TOTAL 27534774.93 TOTAL 27534774.93
3.1.3TRADING AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING ON
31.03.2015
Table 3.3: TRADING AND PROFIT & LOSS ACCOUNT
PARTICULARS Amount PARTICULARS Amount
TO OPENING STOCK 8105772.00 BY SALES 62767505.00
TO PURCHASE 62031114.00 BY CLOSING STOCK 9543031.00
TO GROSS PROFIT 2173650.00
72310536.00 72310536.00
TO ACCOUNTANCY
CHARGES
48000.00 TO GROSS PROFIT 2173650.00
TO AUDIT FEES 12500.00
TO CAR RUNNING
&MAIN. CHARGES
52315.00
DEPRECIATION 129352.00
TO DIWALI EXPS. 21260.00
TO ELECTRICITY EXPS. 76887.00
TO ENTERTAINMEN
EXPS.
28210.00
TO INTERST 339898.00
TO INTT. ON HDFC LOAN 59812.00
TO CAR INSIRANCE 32420.00
TO BANK CHARGES 20077.00
TO LEGAL FEE 12500.00
TO M. CYCLE EXPS 36195.00
TO MISC. & GEN. EXPS. 36623.00
TO Printing and stationary 11507.00

35. [Type text] Page 35
TO RENT 84000.00
TO SALARY 660000.00
TO STAFF WELFARE
EXPS.
17250.00
TO TELEPHONE EXPS. 24306.00
TO TRAVELLING
&CONVEYANCE EXPS.
23400.00
TO NET PROFIT 447138.00
2173650.00 2173650.00
3.1.4 RADING AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING ON
31.03.2016
Table 3.4: TRADING AND PROFIT & LOSS ACCOUNT
PARTICULARS Amount PARTICULARS Amount
TO OPENING STOCK 9543031.00 BY SALES 82168222.00
TO PURCHASE 82863475.00 BY CLOSING STOCK 13130879.00
TO GROSS PROFIT 2892595.00
95299101.00 95299101.00
TO ACCOUNTANCY
CHARGES
48000.00 TO GROSS PROFIT 2892595.00
TO AUDIT FEES 12500.00 TO R/OFF 0.19
TO CAR RUNNING
&MAIN. CHARGES
40975.00
DEPRECIATION 111380.00
TO DIWALI EXPS. 23900.00
TO ELECTRICITY EXPS. 64753.00
TO ENTERTAINMEN 20780.00

36. [Type text] Page 36
EXPS.
TO INTERST 1275714.08
TO INSPECTION CHARGE 7743.00
TO STOCK INSURANCE 7456.00
TO CAR INSIRANCE 8365.00
TO BANK CHARGES 38444.00
TO LEGAL FEE 12500.00
TO M. CYCLE EXPS 24040.00
TO MISC. & GEN. EXPS. 30319.00
TO Printing and stationary 12200.00
TO RENT 84000.00
TO SALARY 724000.00
TO STAFF WELFARE
EXPS.
15200.00
TO TELEPHONE EXPS. 20720.00
TO TRAVELLING
&CONVEYANCE EXPS.
25398.00
TO NET PROFIT 284208.11
2892595.19 2892595.19

37. [Type text] Page 37
3.1.5 Ratio analysis for 2016
Table 3.5: Analysis of Financial Ratios for 2016
Sl.
No.
RATIOS PARTICULARS VALUE REMARKS
1.
Working Capital =
Current assets-Current
liabilities
Current Assets =
36309249.93
Current Liabilities =
23977146
12332103.93 Liquidity position
is good.
2.
Current Ratio =
Current Assets
Current Liabilities
Current Assets =
36309249.93
Current Liabilities =
23977146
1.51:1 It is safe.
3.
Acid test or Quick ratio =
Liquid Assets
Liquid Liabilities
liquid Assets =
36273450.93
Current Liabilities =
23977146
1.49:1 It is good.
4.
Debt-Equity Ratio =
Long term debt
Capital A/C+ Net Profit
Long term debt
=11061702.66
Capital A/C
=2182155.27
Net Profit= 284208.11
4.4:1 It is not good
5.
Return On Investment Ratio
=
Net Profit*100
Capital a/c+ Net Profit
Net Profit= 284208.11
Capital
A/C=2182155.27
13.24
It is safe

38. [Type text] Page 38
6.
Gross Profit Ratio =
Gross Profit * 100
Sales
Gross Profit=
2892595.00
Sales=82168222.00
3.52% It is not
satisfactory
7.
Net Profit Ratio =
Net Profit * 100
Sales
Net Profit
=284208.11
Sales=82168222.00
3.45% It is not
satisfactory
8.
Return on working capital =
Net Profit ∗ 100
Working Capital
Net profit=
284208.11
Net Working capital=
12332103.93
2.30 It is not good
9.
Cost of Goods Sold Ratio =
Cost of Goods Sold*100
Sales
Cost of goods sold=
79275627
Sales=
82168222.00
96.47 It is satisfactory
10.
Fixed Assets turnover =
Sales a/c
Fixed Assets
Sales a/c=
82168222.00
Fixed Assets=
911754.00
90.12 It is safe
11.
Working Capital Turnover=
Sales a/c
working Capital
Sales=
82168222.00
Working
Capital=12332103.93
6.66
It is safe
12.
Inventory Turnover=
Sales a/c
Closing stock
Sales=82168222.00
Closing Stock=
13130879.00
6.25
It is not good

39. [Type text] Page 39
 Liquid Assets = Total Current Assets – Inventory – Prepaid Exp.
= 36273450.93
 Liquid Liabilities = Current Liabilities – Bank Overdraft
= 23977146
 Long Term Debt = Secured Loans + Other Long Term liabilities
= 11061702.66
 1Earnings before Interest & Tax (EBIT) OR Operating Profit =
Net Profit + Tax + Interest
=
Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock =
= 9543031+82863475-13130879
= 79275627

40. [Type text] Page 40
3.1.6 Ratio analysis for 2015
Table 3.6: Analysis of Financial Ratios for 2015s
Sl.
No.
RATIOS PARTICULARS VALUE REMARKS
1.
Working Capital =
Current assets-Current liabilities
Current Assets =
26511640.93
Current Liabilities
=19405387
7106253.93 Liquidity position
is good
2.
Current Ratio =
Current Assets
Current Liabilities
Current Assets =
26511640.93
Current Liabilities
=19405387
1.36:1 It is safe
3.
Acid test or Quick ratio =
Liquid Assets
Liquid Liabilities
liquid Assets =
26504309.93
Current Liabilities =
19405387
1.36:1 It is good
4.
Debt-Equity Ratio =
Long term debt
Capital A/C+ Net Profit
Long term debt
= 6025331.77
Capital A/C
=2104056.16
Net Profit=
447138.00
2.36:1 It is safe
5.
Return On Investment =
net Profit*100
Capital a/c + Net Profit
Net Profit=
447138.00
Capital a/c=
2104056.16
21.72%
It is safe

41. [Type text] Page 41
6.
Gross Profit Ratio =
Gross Profit * 100
Sales
Gross Profit=2173650
Sales=62767507.00
3.83% It is not satisfactory
7.
Net Profit Ratio =
Net Profit * 100
Sales
Net Profit=447138.00
Sales= 62767507.00
1.71% It is not satisfactory
8.
Return on working capital =
Net Profit ∗ 100
Working Capital
Net profit=447138.00
Net Working capital=
7106253.93
6.96% It is not good
9.
Cost of Goods Sold Ratio =
Cost of Goods Sold*100
Sales
Cost of goods
sold=6025331.77
Sales=
62767507.00
9.87 It is not satisfactory
10. Fixed Assets turnover =
Sales a/c
Fixed Assets
Sales
a/c=62767507.00
Fixed
Assets=1023134.00
61.34
It is safe
11.
Working Capital Turnover=
Sales a/c
working Capital
Sales=62767507.00
Working
Capital=7106253.93
8.83
It is not safe
12.
Inventory Turnover=
Sales a/c
Closing stock
Sales=62762507.00
Closing
Stock=9543031
6.57
It is not good
 Liquid Assets = Total Current Assets – Inventory – Prepaid Exp.

42. [Type text] Page 42
= 26511640.93-7077.00-254.00
= 26504309.93
 Liquid Liabilities = Current Liabilities – Bank Overdraft
= 19405387.00
 Long Term Debt = Secured Loans + Other Long Term liabilities
= 6025331.77
Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock =
= 8105772+6231114-9543031
= 30593855

43. [Type text] Page 43
3.1.7 Summary for Balance Sheetand Profit & Loss Statement
Table 3.7: Summary of Balance Sheet
PARTICULARS 2015 206 Remarks
Current Assets 26511640.93 36309249.93 Short term liquidity available.
Fixed Assets 1023134.00 911754.00 Fixed Assets have decreased due
to decrease in investment.
Current Liabilities 1023134.00 23977146.00 Substantial increase in liabilities.
Liquidity position is not good.
Long Term Liabilities 5325331.77 11061702.66 Debts have increased because of
more investment
Table 3.8: Summary of Profit & Loss Statement
PARTICULARS 2015 2016 Remarks
Purchase 62031114.00 82863475.00 Purchase has increased by 25.14%
Sale 62767505.00 82168222.00 Sales have increased by 23.61%
Gross Profit 2173650.00 2892595.00 Gross Profit has increased by
24.85%
Net Profit 447138.00 284208.11 Net profit has decreased by
36.43%

44. [Type text] Page 44
CHAPTER -04
VARIATION OF FINANCIAL RATIOS
The variation of different financial ratios from 2014-16 of B.K TRADING has been shown
below:
4.1 B.K. TRADING
PURCHASE
2015
2016

45. [Type text] Page 45
Sales
2015
2016
GROSS PROFIT
2015
2016

46. [Type text] Page 46
NET PROFIT
2015
2016
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1 2
CURRENTRATIO 2016
CURRENT RATIO 2016

47. [Type text] Page 47
CHAPTER-05
COMPRATIVE STATEMENTS
Table: 5.1 COMPARATIVE BALANCE SHEET FOR 2016
Particulars Previous
Year
Current
Year
Absolute
Change
Percentage
change
A.LIABILITIES
1.PROP’S CAPITAL 2104056.16 2182155.27 78099.11 3.71
2. SECURED LOAN 5325331.77 10361702.6
6
5036370.89 94.57%
3. UNSECURED LOANS 700000.00 700000.00 0.00 0%
4. CURRENT LIAB.
SUNDRY CREDITORS
EXPENESE PAYABLE
19375887.0
29500.00
23952146.0
25000.00
4576259.00
(4500.00)
23.61%
15.25%
TOTAL 27534774.9
3
37221003.9
3
B. ASSETS.
1. FIXED ASSETS 1023134.00 911754.00 (111380.00) (10.86%)
2. SECURITY 1000.00 1000.00 0.00 0%

48. [Type text] Page 48
3. CURRENT ASSETS
CLOSING STOCKS
SUNDRY DEBTIORS
CASH AND BANK BAL.
9543031.00
16907609.0
60000.93
13130876.0
22826670.0
350700.93
3587845.00
5919061.00
290700.00
37.59%
35.00%
484.00%
TOTAL 27534774.9
3
37221003.9
3
 Percentage Change = Absolute Change
Figures of the previous year

49. [Type text] Page 49
CHAPTER 6: LITERATURE REVIEW
The review of literature guides the researchers for getting better understanding of
methodology used, limitations of various available estimation procedures and data base and
lucid interpretation and reconciliation of the conflicting results. Besides this, the review of
empirical studies explores the avenues for future and present research efforts related with the
subject matter. In case of conflicting and unexpected results, the researcher can take the
advantage of knowledge of other researchers simply through the medium of their published
works.
A large number of research studies have been carried out on different aspects of the working
of public and private sector by the researchers, economists and academicians in India.
Different authors have analyzed financial performance in different perspective.
Therefore, the present chapter reviews the various approaches to the study on financial
analysis and performance.
USE OF FINANCIAL STATEMENT ANALYSIS
According to Gautam, U. S. (2005) Accountancy Financial Statement is generally explained
as financial information which is the information relating to financial position of any firm in
a capsule form. Financial statement according to J. A Ohison (1999) was defined as a written
report that summarizes the financial status of an organization for a stated period of time. It
includes an income statement and balance sheet or statement of the financial position
describing the flow of resources, profit and loss and the distribution or retention of profit.
According to Pandey, I.M. (2005 Financial management) profitability is the ability of an
entity to earn income. It can be assessed by computing various relevant measures including
the ratio of net sales to assets, the rate earned on total assets etc. According to Meigns et al.
(2001), Financial Statement simply means a declaration of what is believed to be true and
which, communicated in terms of monetary unit. It describes certain attributes of a company
that is considered to fairly represent its financial activities. Meigs and Meigs (2003) stated
that the rate of return on investment (ROI) is a test of management’s efficiency in using
available resources.
II. Objective of a Financial Statement Analysis
According to Meigs and Meigs (2003), the purpose of financial statement analysis is to
provide information about a business unit for decision making purpose and such information
need not to be limited to accounting data. White ratios and other relationships based on past
performance may be helpful in predicting the future earnings performance and financial
health of a company, we must be aware of the inherent limitations of such data. According to
Meigs and Meigs (2003), the key objectives of financial analysis are to determine the
company’s earnings performance and the soundness and liquidity of its financial position. We
are essentially interested in financial analysis as a predictive tool. Accordingly, we want to

50. [Type text] Page 50
examine both quantitative and qualitative data in order to ascertain the quality of earnings and
the quality and protection of assets. In periods of recession when business failures are
common, the balance sheet takes on increase importance because the question of liquidity is
uppermost in the minds of many in the business community.
III. Uses and Users of Financial Statement
According to Akpan (2002), financial statement may be used by users for different
purposes:
a) OWNERS AND MANAGERS,b) EMPLOYERS, c) PROSPECTIVE INVESTORS, d)
FINANCIAL INSTITUTIONS, e) GOVERNMENT ENTITIES, f) VENDORS, g) MEDIA
AND GENERAL PUBLIC.
IV. Classification of Financial Statement
According to Diamond (2006), all watchful business owners have an innate sense of how
well their business is doing. Almost without thinking about it, these business owners can tell
you any time during the month how close they are to butting budgeted figures.
a) Income Statement
According to Patrick, Ralph, Barry & Susan (2002:63-92), income statement provides the
information of the transactions occurred in a certain period of time called accounting period.
sExpenses include purchase, administrative expenses, selling expenses, depreciation,
amortization expenses and income tax paid. Initially gross profit is calculated by subtracting
cost of goods sold from net sales. Cost of goods sold is the expense occurred from the sales
of the goods, Labour cost, raw materials and overhead expenses occurred during the sales
period falls under the cost of goods sold category.
According to Diamond (2006), Operating income is calculated by subtracting the
depreciation and the other selling and administrative expenses. From the operating income,
interest and/or amortization is paid which will result in earning before tax income of the
entity.
Finally, income tax is paid from earning before tax resulting in net profit. Management
decides if they want to pay dividends or not. If they do pay dividends then preferred
dividends are paid first and afterwards common stock holders’ dividends are paid. The
residue income also known as the retained earnings are reinvested in the firm. (Charles and
Patricia, 1983:24-27)
b) Balance Sheet
A firm’s assets, liabilities and equity at a given time period are presented in the balance sheet.
It shows the financial position at a point in time There are two sub accounts in balance sheet.

51. [Type text] Page 51
Assets account is the first one, which includes all the current and fixed assets of the company.
Current assets include cash, market securities, account receivable, inventories, prepaid
expenses etc. Current assets also named as working capital provide short-term benefit for the
entity. The other items which fall under assets are property, plant, equipment, goodwill,
intangibles, long term investments, note receivable and other long term assets. Additionally,
the other sub account includes all the liabilities and equity. Accounts payable, accrued
expenses, notes payable, short term debt are the major components of current liabilities.
While total long term debt, deferred income tax and minority interest added to the current
liabilities sums up the total liabilities. Total liabilities summed up with total equity make total
liabilities & shareholder´s equity, which is always equal to the total assets. (Frank, 1989)
c) Statement of Cash Flow Statement
According to Patrick et al (2002:99), cash flow helps the investors and creditors to access
the ability of the firm to generate positive future cash flow, ability to meet the debt
obligations and to shed light on the cash and non-cash aspect of the investing and financial
transactions. Operating activities includes net income, depreciation, the increase or decrease
in marketable securities, accounts receivable, inventory, prepaid expenses, account payable,
and accrued expenses. The cash involved in purchase or sales of fixed assets falls under
investing activities. Finally sales and retirement of notes, preferred and common stock, other
corporate securities and bonds falls under financial activities in the statement of cash flow
report. (Timothy and Joseph, 2003:76-79)
V. Techniques of Financial Statement Analysis
According to Diamond (2006) the most common of these includes, horizontal, vertical and
ratio analysis. All of these techniques focus on relationships among items in the financial
statement themselves.
VI. Limitations of Financial Statement Analysis
According to Diamond (2006), three problems involved in such analysis are:
i) That firms use different accounting principles and methods.
ii) That it is often difficult to define what industry and firm is really a part .
iii) That accounting principles varies among countries.
VII. The Impact of Inflation of Financial Statement Analysis

52. [Type text] Page 52
During a period of inflation, financial statements which are prepared in terms of historical
costs do not reflect fully the economic resources or the real income of a business
enterprise (Meigs and Meigs 2003).
Therefore, inflation affects financial statement analysis to a greater extent. However,
there is SEC requirement that large corporations disclose in footnotes the replacement
cost of inventories, cost of goods sold, plant and equipment, and depreciation, ibid.
Financial analyst should therefore attempt to evaluate the impact of inflation on the
financial position and results on operations of the company being studies. Moreover,
according to Diamond (2006), analysts would raise such questions as: how much of the
net income can be attributed to the increase in the general price level? Is depreciation
expense understated in terms of current price levels? Are profits exaggerated because the
replacement cost of inventories is higher than the cost of units charged to cost of goods
sold? Will the company be able to keep its “physical capital” intact by paying the higher
prices necessary to replace plant assets as they wear out? Therefore, accounting
information should be modified to cope with the impact of inflation.
Since inflation affects the financial statements, there is need or a remedy to be done; this
will be in the form of modifying the accounting. To Meigs and Meigs (1979:579), two
approaches are generally in use. They are:
a) The adjustment of historical cost financial statements for changes in general purchasing
power;
b) Current value accounting, this approach envisions a series of traditional steps away
from historical cost accounting, the first of which would be limited to requiring footnotes
disclosures of the current values for inventories, cost of goods sold, plant and equipment,
and depreciation. It second step would involve preparing supplementary financial
statements expressed in current values for most items, and a final step would call for a set
of current value financial statements to become the primary financial statement of a
company.

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FINDINGS
This report work has identified how companies use financial statement analysis and
interpretation in making effective management decisions. Overall organizational profitability
and achievement of organizational objectives were discussed. Again the difference between
the returns of a financial statement analysis and interpretation based on management
decisions were also discussed.
 Gross profit and net profits are decreased during the period of 2014-16, which
indicates that firm’s inefficient management in manufacturing and trading
operations
 Liquidity ratio of the firm is better liquidity position in over the two years. It
shows that the firm had sufficient liquid assets.
 The fixed asset turnover ratio of the firm has in 2014-16 the ratio is 61.26 or
91.75 respectively and it Increase.
 cost ratio of the company has Increased during the period of 2014-16
 Current liabilities are Increasing by 52.4%
 Current assets Ratio are Appox. same in two years.
 Net profit also decreased by 33.22%
 Return on Investment has increased.
 Gross Profit Ratio is Appox. Same in two years.
 Debt-equity ratio is Increase by last year.

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CONCLUSION
Analysis and interpretation of financial statements is an important tool in assessing
company’s performance. It reveals the strengths and weaknesses of a firm. It helps the clients
to decide in which firm the risk is less or in which one they should invest so that maximum
benefit can be earned. It is known that investing in any company involves a lot of risk. So
before putting up money in any company one must have thorough knowledge about its past
records and performances. Based on the data available the trend of the company can be
predicted in near future.
This project of financial analysis & interpretation in the production concern is not
merely a work of the project but a brief knowledge and experience of that how to
analyze the financial performance of the firm. The study undertaken has brought in to
the light of the following conclusions. According to this project I came to know that
from the analysis of financial statements it is clear that B.K. TRADING have been
incurring profit during the period of study. So the firm should focus on getting of more
profits in the coming years by taking care internal as well as external factors. And with
regard to resources, the firm is take utilization of the assets properly. And also the firm
has a maintained low inventory.
This project mainly focuses on the basics of different types of financial statements. Balance
Sheet and Profit & Loss statements of B.K. TRADING have been studied.
From ratio analysis of Balance Sheet and P & L Statement of B.K TRADING OF 2014-2016
it was concluded that liquidity position of the company is good. Current ratio, debt-equity
ratio, quick ratio, net profit margin, gross profit margin, return on assets, return on
investments and return on capital employed were found to be unacceptable. The ratios that
are found to be desirable are Current Ratio, Return On investment and Return on working
capital and Debt – Equity Ratio.

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RECOMMENDATION
8.1 Recommendation for Company:
The profit Of the Company is not in a good Position. Profit decrease in 2015-2016
comparison to 2014-15 so for earn more profit company has to Take Alternative Actions
for more profit such As:
 Increasing in Procurement in sugarcane,
 Production, and Control in Expenses Like, Administrative, selling Etc.
 The firms have low current ratio in 2015-16 comparison to 2014-15 so it should
increase its current ratio where it can meet its short term obligation smoothly.
 Liquidity ratio of the firm is less in 2014-15 comparison to 2013-14 liquidity
position in over the years. So I suggested that the firm maintain proper liquid
funds like cash and bank balance
 It should enhance its employee’s efficiency, more training needed to its
employees in order to increase its production capacity and minimize mistakes
while performing the tasks, also more safety precaution need to implement to the
employees who directly working on sugar production process.
 The company high inventory so I suggested that the firm must reduce the stock
by increase sales.
 The firms should have proper check all process of the plant.
Recommendation for the Students:
 Based on the findings of this study as presented, analyzed and interpreted, the
following recommendations were deemed necessary by the Student who prepares
project report:
 Adequate time should always be allowed for collection of financial statement data and
preparation for their analysis.
 Financial statement should be properly interpreted and should be made to reflect
current cost accounting to reduce the negative effects of historical cost principle on
financial statement decisions.

56. [Type text] Page 56
 The effects of inflation on financial statement result should be considered to reduce
the inflation risk.
 The adequacy of financial information need to be emphasized on, as it will provide
enough and necessary details for investment and management decisions.
 A combination of different ratios should be used to analyze a company’s financial
and/or operating performance.
 Finally, the management of the selected company should make proper use of financial
statement analysis in other decision areas of management.

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LIMITATION
LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS AND
INTERPRETATION
1. It is suffering from the limitations of financial statements.
2. There is Absence of standard universally accepted terminology in financial analysis
3. Price level changes is ignored in financial analysis
4. Quantity aspect is ignored in financial analysis
5. Financial analysis provides misleading result in absence of absolute data
6. The qualitative elements like quality management, quality of labor, public relations are
ignored while carrying out the analysis of financial statement only.
7. In many situations, the account has to make choice out of various alternatives available,
e.g. choice in the method of depreciation, choice in the method of inventory valuation etc.
since the subjectivity is inherent in personal judgment, the financial statement are
therefore not free from bias.
8. Financial Statements are essential interim reports.
9. Lack of Exactness in financial Statement analysis and interpret.
10. Lack of comparability in financial statement analysis and interpret.

58. [Type text] Page 58
BIBLIOGRAPHY
1. M.Y. KHAN, P.K.JAIN (1981), Financial Management, and Cost Accounting
(third edition) New Delhi: McGraw – Hill publishing company limited.
2. I.M.PANDEY.Financial Management New Delhi Vikas publishing house private
Ltd –ninth addition 2004
3. New York Times,August 16, 1998 Gretchen Morgenson – Market Watch
MARKET WATCH; A Time To Value Words of Wisdom“ … Security
Analysis by Benjamin Graham and David Dodd, the 1934 bible for value
investors.”
4. Chesnick, David S., and E. Eldon Eversull, Analysis of Income Statements of
Local Farm Supply and Marketing Cooperatives, U.S. Department of
Agriculture, Rural Business-Cooperative Service, RR 134, November 1994.
5. Eversull, E. Eldon, and David S. Chesnick, Analysis of Balance Sheets of Local
Farm Supply and Marketing Cooperatives, U.S. Department of Agriculture,
Rural Business-Cooperative Service, RR 138, January 1.
6. Information from SBA on understanding financial statements. Includes SBA’s
templates. http://www.sba.gov/managing/financing/statement.html
7. The Interpretation of Financial Statements, Benjamin O. Graham, Spencer B.
Meredith.
8. The Analysis and Use of Financial Statements, Gerald I. White, Ashwinpaul C.
Sondhi, Haim D. Fried.
9. Securities and Exchange Commission: sec.gov/edgar.html .
10. Financial and Operating Results of Department and Specialty Stores, published by
the National Retail Merchants Association. This is an annual list of detailed
financial information.
11. bankrate.com provides information on bank lending, current rates and credit
cards.
12. toolkit.cch.com is the Commerce Clearing House, which provides model
spreadsheets, sample business plans, reports, and legal and tax information.
13. Studyfinance.com provides a free, self-paced tutorial on basic financial
statements. It introduces basic financial statements and financial statement
concepts.
14. Financial Statement
15. Financial Management
COMPANY DATA:

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Vouchers of Sale & Purchase of B.K.TRADING
Balance sheet of B.K.TRADING
Profit and loss account of B.K.TRADING
Bank Statement of B.K.TRADING
Other Data of B.K.TRADING