FINANCIAL STATEMENT ANALYSIS

A Major Project Report

Submitted in partial fulfillment of
The requirements for the
Degree of Master of Business Administration
Under Biju Pattnaik University of technology

By

Satish Kumar Patro

Roll No. # 200710730 Regn. No. # 0706202014

11th july-24th august -2008

Under the guidance of

Mr. Jagannath Mohanty

1
ABSTRACT

This report summarizes the work carried out at Hindustan Aeronautics Limited,
Engine Division, Koraput, which is Orissa’s largest PSU under Ministry of Defense.
In the growing competitive would faster execution, customer satisfaction, timely and
accurate reports have become an inspirable pre-requisite. Keeping track of day-to-day
activities and planning for future activities are the important action of any
organization. The project entitled “Financial Statement Analysis” has been developed
for Hindustan Aeronautics limited using graphs and text for the presentation of its
financial position. The “Financial Statement Analysis” application is inherent and as
financial reports are accounts balance arrayed in effective and meaning order, so that
the facts and concepts the priority may be readily interpreted and used as basic
decision by all people who are interpreted in the affairs of business.

2
ACKNOWLEDGEMENT

The report “FINANCIAL STATEMENT ANALSIS” a study in HINDUSTAN

AERONAUTICS LIMITED it is a pleasant duty on my part to extend my deep of
gratitude to all the persons who helped me directly during my project work.

I express my sincere and heartiest gratitude guide Mr. Jagannath Mohanty faculty
member for their valuable suggestion and guidance, which have given a finite shape
to this report.

It is with a sense of deep gratitude; I wish to thank our director, Prof. Sangram
Mudali for giving me an opportunity to do my project as a part of MBA.

I would like to thank to Mr. S.C.Chand, Manager (Training) for giving me an

opportunity to undertake a project in HAL, Koraput Division.

I would also like to express my sincere gratitude to Mr. U. C. Mohanty, Sr. Manager
(Account), HAL, Koraput Division for his valuable suggestion, advises & guidance in
carrying out this project.

Finally, I thank to one and all that have helped me directly or indirectly for preparing
this project study.

(Satish Kumar Patro)

3
TABLE OF CONTENTS

ABSTRACT...................................................................................................................2
ACKNOWLEDGEMENT.............................................................................................3
TABLE OF CONTENTS...............................................................................................4
1. INTRODUCTION......................................................................................................5
1.1 General overview of Industry.............................Error! Bookmark not defined.
1.2 Purpose of Study..................................................................................................5
1.3 Scope of the Study...............................................................................................6
1.4 Objective of the Study..........................................................................................6
1.5 Area of the Study:................................................................................................6
2. GENERAL PROFILE................................................................................................7
3. METHODOLOGY...................................................................................................18
3.1 Design of Study..................................................................................................18
3.2 Data Collection Source and Methods.................................................................18
3.3 Limitations of Study...........................................................................................19
4. MEANINIG OF FINANCIAL STATEMENTS......................................................20
5. CONCLUSION........................................................Error! Bookmark not defined.
BIBLIOGRAPHY........................................................Error! Bookmark not defined.

4
1. INTRODUCTION
Financial Statements also known, as financial reports are accounts balance arrayed in
effective and meaning order, so that the facts and concepts the priority may be readily
interpreted and used as basic decision by all people who are interpreted in the affairs
of business. The Financial Statements are prepared with a view to depict the financial
position of the concern. A proper analysis and interpretation of these statements
enables a person to judge the profitability and financial strength of the business. The
financial statements are prepared in such a way that these are able to give clearly and
orderly picture of the concern, it is helpful in assessing corporate expenses, judging
credit worthiness, forecasting bond rating, predicting bankrupt and assessing market
risk. The Financial Statements provide a summary of accounts of a business
enterprise. To understand the financial performance and condition of a corporation its
stockholders and application of funds statements. The balance sheet shows the
financial position of the corporation at a given point of time. The profit and loss
account (also reflects as the income statement) reflects the performance of the
corporation over period of one year. The source and uses of statements portray the
flow of fund through the business a given accounting period. The subject of finance
has been traditionally classified in to classes.

1.2 Purpose of Study

Financial statements are prepared as an end result of financial accounting and are the
major sources of financial information of an enterprise. Financial statements as ‘the
end product of financial accounting in a set of financial statements prepared by the
accountant of a business enterprise that purport to reveal the financial position of the
enterprise, the result of its recent activities, and an analysis of what has been done
with earnings. Financial Statements are prepared for the prupose of presenting a
periodical review of report on progress by the management and deal with his status of
investment in the business and the results achieved during the period under review.

5
1.3 Scope of the Study
Keeping the magnitude of the work in mind the scope of the study has been
determined. It covers the outset, a description of the role played by the corporation in
improving financial strength of organization. The study has emphasized financial
statement analysis and its application in different enterprises.

1.4 Objective of the Study

A few studies have already been conduct on various aspects of HAL in the present
study in attempt made to analysis the financial statements. Hence the study sets the
following objectives before it:

To provide reliable financial information about economic resources and

obligation of business enterprise.

To provide reliable information about changes in net resources.

 To provide financial information that assists in estimating the earnings
potential of the enterprise.
To provide other needed information about changes in such economic resources
and obligations.

1.5 Area of the Study:

The total project analysis was carried out in finance department of the Hal (Koraput
division), Sunabeda. Financial analysis is ‘the process of identifying the financial
strengths and weaknesses of the firm by properly establishing relationship between
the items of the balance sheet and the profit and loss account.’ There are various
methods or techniques used in analysing financial statements, such as comparative
statements, trend analysis, common-size statements and ratio analysis.

6
2. COMPANY PROFILE
2.1 Introduction to Industry

Hindustan Aeronautics Limited (HAL) came into existence on 1st October 1964.
The Company was formed by the merger of Hindustan Aircraft Limited with
Aeronautics India Limited and Aircraft Manufacturing Depot, Kanpur.
The Company traces its roots to the pioneering efforts of an industrialist with
extraordinary vision, the late Seth Walchand Hirachand, who set up Hindustan
Aircraft Limited at Bangalore in association with the erstwhile princely State of
Mysore in December 1940. The Government of India became a shareholder in March
1941 and took over the Management in 1942.
Today, HAL has 19 Production Units and 9 Research and Design Centers in 7
locations in India. The Company has an impressive product track record - 12 types of
aircraft manufactured with in-house R & D and 14 types produced under license.
HAL has manufactured over 3550 aircraft, 3600 engines and overhauled over 8150
aircraft and 27300 engines.
HAL has been successful in numerous R & D programs developed for both Defence
and Civil Aviation sectors. HAL has made substantial progress in its current projects:
 Dhruv, which is Advanced Light Helicopter (ALH)
 Tejas - Light Combat Aircraft (LCA)
 Intermediate Jet Trainer (IJT)
 Various military and civil upgrades.
 Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast
Guard in March 2002, in the very first year of its production, a unique
achievement. HAL has played a significant role for India's space programs by
participating in the manufacture of structures for Satellite Launch Vehicles
like
 PSLV (Polar Satellite Launch Vehicle)
 GSLV (Geo-synchronous Satellite Launch Vehicle)
 IRS (Indian Remote Satellite)
 INSAT (Indian National Satellite)

HAL has formed the following Joint Ventures (JVs):

7
 BAeHAL Software Limited
 Indo-Russian Aviation Limited (IRAL)
 Snecma HAL Aerospace Pvt Ltd
 SAMTEL HAL Display System Limited
 HALBIT Avionics Pvt Ltd
 HAL-Edgewood Technologies Pvt Ltd
 INFOTECH HAL Ltd
 Apart from these seven, other major diversification projects are Industrial Marine
Gas Turbine and Airport Services. Several Co-production and Joint Ventures with
international participation are under consideration.
HAL's supplies / services are mainly to Indian Defence Services, Coast Guards and
Border Security Forces. Transport Aircraft and Helicopters have also been supplied to
Airlines as well as State Governments of India. The Company has also achieved a
foothold in export in more than 30 countries, having demonstrated its quality and
price competitiveness.

2.2 ORIGIN & HISTORY

The origins of the present day Hindustan Aeronautics Limited can be traced to the
erstwhile Hindustan Aeronautics Limited, which was set up in December 1940 by a
far sign industrialist the late Seth Walchand Hirachand in association with the

government of the princely state of Mysore. The company was registered on 23 rd

December 1940 as private limited company by tie registrar of joint stock companies
of Mysore State.

The company commenced its operations with the aim manufacturing the Harlow
Trainer, Curtiss Hawk Fighter the Vul Bomber in collaboration with the Inter
Continental Aircraft Company USA. The first flight handed over to the government of
India in August 1941. Ate seat glider designed by Dr.V Ghatage was also test flown
in August 1941.

Due to the exigencies of the Second World War management of the company was
handed over to USA in September 1942. HAL serves as the principal Overhaul base
for the So East Asia Command of the allied fortress, Liberator and Mitch Bombers,
Dakota and commando transport Aircraft, PHY Catal Amphibious Aircraft and Piston
engines fitted on this Aircraft.

8
After the close of Second World War, the management Hindustan Aircraft limited
reverted to the management of India December 1945 and was placed under the
administrative control of the Ministry of Industry and Supply. Soon after
Independence, the government of India received the policy for manufacture aircraft. A
LIC agreement was entered into in 1947 for the manufacture of archival prentice
trainer Aircraft. Shortly there after October 1948, a project was sanctioned for design
of the HT elementary piston engine trainer aircraft. The fist prenti assemble from kits,

was flown on 30th August 1951 and the HT-2 was aware type certification in January
1953. Dr. V M Ghatage was the chief designer of the HT-2 and the design team
comprised young India engineers, mostly drawn fresh from the colleges.

THE FIFTIES

In March 1950, the government entered into license agreement with De Havilland of
UK for the manufacture of Vampire Fighter Aircraft. In August 1956, a major design
and development programme was launched for HF-24 (Marut) Transonic Jet Fighter
was the Bristol Orpheus engine. Dr. Kurt tank, a renowned German designer
responsible for the Fockewulf-190 fighter of world II fame was appointed as director
of engineering, leading composite design team of German and Indian engineers. The

mass prototype flew on 17th June 1961. In September 1956, the government entered
into license agreements with Follands and Bristol Aero Engine Company of to
undertake manufacture of Gant aircraft and Orpheus engines.

Another major design and development project sanctioned December 1959 was the
HJT-16 (Kiran) basis jet trainer aircraft. The chief designer for the Kiran (as also the
Pushpak &¦ Krishna was Dr. V M Ghatage.

THE SIXTIES

Aeronautics India Limited was set up by the government India on 16th August 1963
to under take manufacture of the MiG FL aircraft, for which the government entered
into collaboration agreement with the government of USSR in August 1962. Factories
were set up at Nasik for manufacture of airframes, at Koraput for manufacture of MIG
engines and Hyderabad for manufacture of the MIG avionics. The first 21Fl aircraft
was produced in July 1966.

9
Aircraft manufacturing depot was established at Kanpur January 1960 as an air force
unit for manufacturing of Haw Siddley HS-748 twin turbo prop transport aircraft
fitted with Rolls Royce Dart engines.

Hindustan Aircraft Limited was dissolved and its assembly merged with those of
Aeronautics India Limited on 1st October 1964 to form Hindustan Aeronautics
Limited. The Rail Co. factory at Bangalore continued to be a part of Hindustan
Aeronautics Limited until January 1965 when it was separated from HAL and merged
with Bharat Earth Movers Limited.

THE SEVENTIES:

On the recommendations of Aeronautics Committee, (1969) separate division for

manufacture of Alouette III (Chetek) lama (Cheetah) helicopter was set up at
Bangalore in July 1969. Also on the recommendations of Aeronautics Committee,
Government decided to set up facilities for manufacturing aircraft instruments and
accessories at Lucknow.

The Avionics Design Bureau was formed in 1971 by merger the special project Te-M
(SPT) established earlier at Bharat Electronics Limited, with the R&A Department of
the Hyderabad Division. A design bureau was set up at Lucknow in 1973, Design and
Development of accessories. A relatively MiG Project for design and development of
Basant Agriculture Aircraft was undertaken between 1970 and 1974. In April 1979,
the Government of India with BAe entered into license agreement for manufacture of
the Jaguar aircraft and with Royce-Turbomeca for manufacture of the Adour engines
fitted the Jaguar aircraft.

THE RECENT YEARS

The year 1980-81 was a bad year for the company as there was unprecedented
prolonged strike of 77 days of the issue of parity with BHEL. Besides the order book
position for division of Bangalore complex and Kanpur division was very
unsatisfactory. In March 1982, an agreement was signed with USSR authorities’
license production of the swing-wing MiG 27M aircraft as a follow on project for the
MiG 21 BIS.In August 1982, Government approved the proposal for setting up an
advanced systems division at Korwa. A major milestone 1983 was the formulation of
a design perspective plan, which envisages design, and development of a portfolio of

10
projects including the basic turbo prop trainer, advanced jet trainer Hindustan
Pressurized Light Transport (30-35 Seats) Light component Aircraft etc. in the period
1984 to 1994.

2.3 HAL PRODUCT

The Engine Division at Koraput, a unit of HAL’s vast network, has the unique
distinction of being one amongst the few Aero Engine manufacturers in the world.The
spectrum of manufacturing facilities extends literally from the production of nuts and
bolts to discs, shafts, blades, forgings and castings - all that are required to make an
Aero Engine right from the Raw materials.This spectrum is further enlarged to
include overhaul of Aero Engines for the MiG family and supply of spares required
during service.

AL-31FPEngine

AL-31FP is a high temperature turbojet by-pass engine of modular design. A specific

feature of AL-31FP is an axi-symmetric vectoring nozzle with a thrust vector angle of
±15° in the vertical plane providing super maneuverability of the aircraft. The
vectoring nozzle control is integrated with the engine control system. AL-31FP
engaines ensure stable operation in all available evolutions of the aircraft in super
maneuverability modes. AL-31FP engines power advanced multi-purpose Su-30
MKI fighters of the 4+ generations.

R25Engine

This is a Twin Spool, Axial Flow, Turbojet Engine fitted with after burner and a
variable area Jet nozzle. It powers the MiG-21 BiS multi-role Fighter Aircraft. The
Engine has provision for an emergency After-burner thrust boost, which can be
selected below 4.5 KM altitude.

R-29BEngine

This Engine is a Twin spool, axial flow Turbojet Engine incorporating After-burner
system and variable area Jet nozzle of convergent-divergent type. The Engine is
equipped with automatic Fuel regulation system, Turbo-starter, Anti-surge system,
Temperature controller, Constant speed drive for AC Generator and Two speed drive

11
for Hydraulic Pump. R-29B Engine powers MiG-27 M, a Multi-role Ground attack /
Air combat Aircraft.

Precision Components

The Division also produces precision components like: total gamut of Blades ranging
from Compressor Rotors and Stators to Turbine Blades and Nozzle Guide Vanes,
intricate Cored Magnesium Alloy Gear Casings, Compressor and Turbine Discs and
Shafts, JIS class-l/DlN 5 Spur, Helical Gears and DIN 6 straight and Hypoid / Spiral
Bevel Gears ranging from module 1 to 6.

12
INDEGENIOUS NAMES OF HAL PRODUCTS

SLNO. AIRCRAFT ENGINE INDIGENOUS NAME

1. MIG-2FL R11-F2S BADAL

2. MIG-ZIM/MF R11-2S/F2SK TRISUL

3. MIG-ZIBIS R-25 VIKRAM

4. MIG-23MF R-29 RAKSHAK

5. MIG-23BN R-29B VIJAY

6. MIG-25 R-29B GARUD

7. MIG-27M R-29B BAHADUR

8. MIG-29 RD-33 VAJ

9. GNAT ORPHUS-701 AJEET

10. HF-24 ORPHUS-703 MARUT

11. HJT-16 VIPER-II KIRAN

12. JAGUR ADOUR MK-803 SHAMSHOR

13. MIRAGE-2000 M-53 VAJRA

14. HS-748(AURO) DART-531 CHITRA

15. ALLOUTEE ARTOUSE-IIIB CHEETAH

(HELICOPTER)

16. AN-32 ———- SUTLUJ

17. MI-8 ———- PRATAP

18. MI ———- AKBAR

19. HPT-32 PISTON ENGINE ———-

13
2.4 PRODUCT LINE OF HAL (KORAPUT DIVISION)
SL.NO ENGINE AIRCRAFT INDIGENIOUS NAME
01. R-11-F2 MIG-21FL BADAL
02. R-11F2S/F2SK MIG-21M/MF TRISHUL
03. R-25 MIG221BIS VIKRAM
04. RD-33 MIG29 VAJ

Since the early 1970’s, the Division has been overhauling Aero Engines to make
fighter Aircraft flight-worthy again for the Indian Air Force.

The Division follows the ‘Flow Line Group Technology’ with the Engine parts being
dismantled, viewed and loaded to different work centre. Regular follow-up through
PC ensures timely completion of sub-assemblies.

The stripped components are subject to detail micrometric and Non Destructive
Testing (NDT) checks. Skilled workmen undertake repair and refurbishing of worn-
out parts and sub-assemblies.

Repairs and Refurbishing Processes include welding, hard alloy coatings, vibro-
tumbling, micro-shot penning, ultrasonic strain hardening, nickel alloy powder
coating and a large number of protective coatings. Assemblies and sub-assemblies
undergo rigorous functional tests on various Hydraulic, Fuel and Electrical Rigs.

Quality control checks are carried out using various NDT methods, like X-ray,
Magna-flux, Dye-penetrate check and ultrasonic inspection besides other
conventional techniques. Overhaul of accessories is carried out in environmentally
controlled rooms. All the accessories after overhaul are subjected to stringent tests on
test rigs.

Every manufactured / overhauled Engine undergoes rigorous tests on Engine test beds
that simulate all flight conditions.

The preliminary and final acceptance test, hot test, endurance test and gas dynamic
stability tests are conducted through computerized controls.

Electronically assisted throttle, digital and analog read-outs help get real-time
simultaneous data and engine parameters during R-29B and RD-33 Engine testing.

14
2.5 HAL HAS FOUR MAIN COMPLEXES IN INDIA.
1. Bangalore complex.
2. MiG complex.
3. Accessories complex.
4. Design complex.
1. BANGALORE COMPLEX
(A) Aircraft Division Manufacturing Jaguar Aircrafts
(B) Engine Division Manufacturing Jaguar Engines
(C) Helicopter Division ManufacturingHelicopters
(D) Forge and Foundry Division Manufacturing high precision
Casting & Forging
(E) Overhaul Division Overhaul of Jaguar and other engines
(F) Space Division Manufacturing of launching of
Pads and Common satellites

(G) Servicing Division for common services to all Divisions

2. MiG COMPLEX

(A) Nasik Division Manufacturing and overhaul of Air Frames.

(B) Koraput Division Manufacturing and Overhaul of MIG Engines
3.ACCESSORIES COMPLEX
(A) Hyderabad Division Manufacturing of electronics and
Navigational Equipments
(B) Kanpur Division Manufacturing of passenger
Aircraft & Gliders.
(C) Lucknow Division - Manufacturing of hydraulic pumps, fuel
Pumps and stator generator.
(D) Korwa Division Manufacturing of advanced navigational
Equipment
4.DESIGN COMPLEX
(A) Bangalore Division - Modification of any component or unit of An
engine.

15
2.6 OBJECTIVES OF HAL:
1. To serve as an instrument of the national policy to achieve self-reliance in
the design, development and production aircraft and aeronautical equipment
to meet the counter changing and growing needs, with special emphasis on
millet requirement.
2. In fulfillment of these objectives, the company shall regard its fundamentally
responsible for design and development, rely however, upon such relevant
facilities as are available in to national institutions, but always holding itself
basic a responsible for the growth and furtherance of the counter aeronautics
capability.
3. To so conduct its business economically and efficiently it can contribute its
due share to the national effort achieving a self-reliant and self-generating
economy.
4. Towards this end, to develop and maintain an organization which will
readily respond to and adopt the changing matrix of soc techno-economic
relationship and where in a climate of grow professional competence, self-
discipline, mutual understand deep commitment and a sense of belonging
will be fostered each employee will be encouraged to grow in accordance
with potential for the furtherance of the organization.

2.7 VALUES OF HAL:

CUSTOMER SATISFACTION
We are dedicated to building a relationship with our customers where we become
partners in fulfilling their mission. We strive to understand our customers ‘ needs and
to deliver products and services that fulfill and exceed all their requirements.

COMMITMENT TO TOTAL QUALITY

We are committed to continuous improvement of all our activities. We will supply
products and services that conform to highest standards of design, manufacture,
reliability, maintainability and fitness for use as desired by our customers.

COST AND TIME CONSCIOUSNESS

16
We believe that our success depends on our ability to continually reduce the cost and
shorten the delivery period of our products and services. We will achieve this by
eliminating waste in all activities and continuously improving all processes in every
area of our work.

INNOVATION AND CREATIVITY

We believe in striving for improvement in every activity involved in our business by
pursuing and encouraging risk-taking, experimentation and learning at all levels
within the company with a view to achieving excellence and competitiveness.

TRUST AND TEAM SPIRIT:

We believe in achieving harmony in work life through mutual trust, transparency, co-
operation, and a sense of belonging. We will strive for building empowered teams to
work towards achieving organizational goals.

RESPECT FOR THE INDIVIDUAL

We value our people. We will treat each other with dignity and respect and strive for
individual growth and realization of everyone’s full potential.

INTEGRITY
We believe in a commitment to be honest, trustworthy, and fair in all our dealings.
We commit to be loyal and devoted to our organization. We will practice self-
discipline and own responsibility for our actions. We will comply with all
requirements so as to ensure that our organization is always worthy of trust.

17
3. METHODOLOGY
3.1 Design of Study

The present study is based on primary and secondary data:

 Primary data: The source of primary data was collected through the
discussion with the concerned executives of the organization.
 Secondary data: The secondary sources of the data include official records,
various publications of the organization and annual reports and audited
financial statements.

3.2 Data Collection Source and Methods

1. Annual report of HAL
2. Balance Sheet
3. Profit & Loss accounts
4. Operating Manual

The analysis & interpretation of financial statements is used to determine the

Financial Position & results of operations.

The following methods:

1. Comparative Financial & Operating Statements.

2. Common size Statements.
3. Trend analysis
4. Ratio analysis

3.3 Field Work Details

ACCESSORIE MIG BANGALORE

S COMPLEX COMPLEX COMPLEX
LUCKNOW DIVISION NASIK DIVISION ENGINE DIVISION
KORWA DIVISION KORAPUT AEROSPACE DIVISION
DIVISION
HYDERABAD DIVISION -------------------------- AIRCRAFT DIVISION
----------
KANPUR DIVISION -------------------------- HELICOPTER
---------- DIVISION

18
------------------------------------ -------------------------- FOUNDRY DIVISION
----------
------------------------------------ -------------------------- OVERHAUL DIVISION
----------
------------------------------------ -------------------------- INDUSTRIAL &GAS
---------- TURBINE DIVISION
Locations of the Hal division spread over locations.

3.4 Limitations of Study

1. This study is confined to H.A.L Engine Division Koraput only, which is one
of the several divisions of H.A.L spread through out INDIA.

2. Most of the information collected is from secondary sources.

3. It is only a study of interim reports

4. Financial analysis is based upon only monetary information and non-

monetary factors are ignored.

5. It does not consider changes in price levels.

6. As the financial statements are prepared on the basis of a going concern, it

does not give exact position.

19
4. FINDINGS AND INTERPRETATION

MEANINIG OF FINANCIAL STATEMENTS:

4.1 INTRODUCTION:

Financial statements are prepared primarily for decision-making. They play a

dominant role in setting the framework of managerial decision. But the information
provided in the financial statements is not an end in itself as no meaningful
conclusions can be drawn from these statements alone. However, the information
provided in the financial statements is of immense use in making decisions through
analysis and interpretation of financial statements. Financial analysis is ‘the process of
identifying the financial strengths and weaknesses of the firm by properly establishing
relationship between the items of the balance sheet and the profit and loss account.
There are various methods or techniques used in analyzing financial statements, such
as comparative statements, trend analysis, common-size statements, schedule of
changes in working capital, funds flow and cash flow analysis, cost-volume-profit
analysis and ratio analysis.

Thus the term “Financial Statement” generally refers to the two statements:

1. The position statement or the balance sheet;

2. The income statement or the profit and loss account

CONCEPT OF FINANCIAL ANALYSIS:

The term ‘financial analysis’ also known as analysis and interpretation of financial
statements’, refers to the process of determining financial strengths and weaknesses of
the firm by establishing strategic relationship between the items of the balance sheet,
profit and loss and other operative data. “Analyzing financial statements,” according
to Metcalf and Titard, “is a process of evaluating the relationship between component
parts of a financial statement to obtain a better understanding of a firm’s position and
Performance.’ In the words of Myers, “Financial statement Analysis is largely a study
of relationship among the various financial factors in a business as disclosed by a

20
single set of statements, and a study of the trend of these factors as shown in series
statements.”
The purpose of financial analysis is to diagnose the information contained in
financial statements so as to judge the profitability and financial soundness of the
firm. Just like a doctor examines his patient by recording his body temperature, blood
pressure, etc. before making his conclusion regarding the illness and before giving his
treatment, a financial analyst analyses the financial statements with various tools of
analysis before commenting analyst analyses the financial health or weaknesses of an
enterprise. The analysis and interpretation of financial statements is essential to bring
out the mystery behind the figures in financial statements. Financial statements
analysis is an attempt to determine the significance and meaning of the financial
statement data so that forecast may be of the future earnings, ability to pay interest
and debt maturities (both current and long-term) and profitability of a sound dividend
policy.

OBJECTIVES OF FINANCIAL STATEMENTS:

Financial statements are the sources of information on the basis of which

conclusions are drawn about the profitability and financial position of the concern.
They are the major means employed by firms to present their statements is to assist in
decision-making. The Accounting Principles Board of America (APB) states the
following objectives of financial statements:

i. To provide reliable information about economic resources and obligations of

a business firm.

ii. To provide other needed information about changes in such economic

resources and obligations.

iii. To provide reliable information about changes in net resources (resources

less obligations) arising out of business activities.

iv. To provide financial information that arises in estimating the earning

potentials of business.

v. To disclose, to the extent possible, other information related to the financial

statements that is relevant to the needs of the users of these statements.

21
USE AND IMPORTANCE OF FINANCIAL STATEMENTS:

The financial statements are mirror, which reflect the financial position and
operating strength or weakness of the concern. These statements ate useful to
management, investor, creditors, bankers, workers, and government and public at
large. George O may point out the following the major uses of financial statement:
i. As a report stewardship.
ii. As a basis for fiscal policy.
iii. To determine the legality of dividend.
iv. As guide to advice dividend action.
v. As a basis for granting of credit.
vi. As informative for prospective investor in an enterprise.
vii. As an aid to government supervision.
viii. As a guide to the value of investment already made.
ix. As a basis for price or rate regulation.
x. As a basis for taxation.

Types of financial analysis:

TYPES OF FINANCIAL ANALYSIS

On the basis of material used On the basis of modus operandi

External Analysis Internal Analysis Horizontal Analysis Vertical Analysis

We can classify financial analysis as:

i. On the basis of material used.
ii. On the basis modus operandi.

These are discussed as follows:

i. On the basis of material used: According to material used, financial analysis
can be of two types:

22
 a. External Analysis: This analysis is done by outsiders who do not have access
to the detailed internal accounting records of business firm. These outsiders
include investor, potential creditor, government agencies and the general
public.
b. Internal Analysis: The analysis conducted by persons who access to the
internal accounting records of a business firm. Such analysis can, therefore
be performed by executive and employees of the organization as well as
government agencies which have statutory powers vested in them.
ii. On the basis of modus operandi: According to the method of operation
followed in the analysis, financial analysis can also be for two types:
a. Horizontal Analysis: Horizontal analysis refers to the comparison of
financial data of the company for several years. The figures for this type of
analysis are presented horizontally over a number of columns. The figures
of various years are with standard or base year. A base year is a year chosen
as beginning pint. This type of analysis is also called “Dynamic Analysis”
as it is based on the data from year to year rather than on the data of any
one-year.
b. Vertical Analysis: Vertical analysis refers to the study of relationship of the
various items in the financial statement of one accounting period. In this
type of analysis the figures from financial statement of a year are compared
with a base selected from the same year selected from the same year’s
statement. It is also known as “Static Analysis”. Common-size financial
statements and financial ratios are the two tools employed in vertical
analysis. It may be used along with horizontal analysis to make it more
effective and meaningful.

PROCEDURE OF FIANANCIAL STATEMENT ANALYSIS:

There are three steps involved in the analysis of financial statements. These
are selection, classification and interpretation. The first step involves selection of
information (data) relevant to the purpose of analysis of financial statements. The
second step involved is the methodic cal classification of the data and the third step
includes drawing of inferences and conclusions.

23
 The following procedure is adopted for the analysis and interpretation of
financial statements:
i. The analyst should acquaint himself with the principles and postulates of
accounting. He should know the plans and policies of the management so
that he may be able to find out whether these plans are properly executed or
not.
ii. The extent of analysis should be determined so that the sphere of work may
be decided. If the aim is to find out the earning capacity of the enterprise
then analysis of income statement will be undertaken. On the other hand, if
financial position is to be studies then balance sheet analysis will be
necessary.
iii. The financial data given in the statements should be re-organized and re-
arranged. It will involve the grouping of similar data under same heads,
braking down of individual components of statements according to nature.
The data is reduced to a standard.
iv. A relationship is established among financial statements with the help of
tools and techniques of analysis such as ratios, trends, common size, funds
flow etc.
v. The information is interpreted in a simple and understandable way. The
significance and utility of financial data is explained for helping decision
taking.
vi. The conclusions drawn from interpretation are presented to the management
in the form of reports.

METHODS OR DEVICES OF FINANCIAL ANALYSIS:

The analysis and interpretation of financial statements is used to determine the
financial position and results of operations as well. A number of methods or devices
are used to study the relationship between different statements. An effort is made to
use those devices, which clearly analyze the position of the enterprise.
The following methods of analysis are generally used:
i. Comparative Statements.
ii. Trend Analysis.
iii. Common-size Statements.

24
 iv. Ratio Analysis.

LIMITATIONS OF FINANCIAL STATEMENT:

Through financial statements are relevant and useful for the concern, still
they do not present a final picture of the concern. The utility of the statement is
dependent upon a number of factors. The analysis and interpretation of these
statements should be done very carefully otherwise misleading conclusion may be
drawn. The financial statement suffers from, the following limitations:
i. It is a study of interim report.
ii. Financial analysis based upon only monetary information and non-monetary
factor are ignores.
iii. It does not consider changes in price level.
iv. It fails to answer how much fund has been generated from operation.
v. It fails to answer does the firm process adequate working capital.
vi. It fails to answer has the liquidity position of the firm is improved.
vii.It fails to answer why the firm not paid dividend in spit of adequate profit.

A. COMPARATIVE STATEMENT:
The comparative financial statements are statement of the financial position at
different periods; of time. Generally, two financial statements (Balance sheet and
Income statement) are prepared in comparative form for financial analysis purposes.
The comparative statement may show:
i. Absolute figures.
ii. Changes in absolute figures i.e., Increase or Decrease in absolute figures.
iii. Absolute data in terms of percentages.
iv. Increase or Decrease in terms of percentage.

COMPARATIVE BALANCE SHEET:

The comparative balance sheet analysis is the study of the trend of the same items,
group of items and computed items in two or more balance sheet of the same business
enterprise on different dates. The changes in periodic balance sheet items reflect the
conduct of a business. The comparative balance sheet has two columns for the data of

25
original balance sheets. A third column is used to show increases figures. The fourth
column may be added for giving percentages of increases or decreases.

B. TREND ANALYSIS:
The financial statements may be analyzed by computing trends of series of
information. This method determines the direction upwards or downwards and
involves the computation of percentage relationship that each statement item bears to
the same item in the base year. The information for a number of years is taken up and
one year, generally the first year, is taken as the base year. The figures of the base
year are taken as 100 and trend ratios for the other years are calculated on the base
year.

C. COMMON-SIZE STATEMENT:
The common-size statements, balance sheet and income statement are shown in
analytical percentages. The figures are shown as percentages of total assets, total
liabilities and total sales. The total assets are taken as 100 and different assets are
expressed as a percentage of the total. Similarly, various liabilities are taken as a part
of total liabilities. These statements are also known as “Component Percentage” or
100percent statements because every individual item is stated as a percentage of the
total 100.

COMMON-SIZE BALANCE SHEET:

A statement in which balance sheet items are expressed as a ratio of each asset to total
assets and the ratio of each liability is expressed as a ratio of total liabilities is called
“Common-size balance Sheet”. The common-size balance sheet can be used to
compare companies of different size. The comparison of figures in different periods
is not useful because total figures may be affected by a number of factors. It is not
possible to establish standard norms for various assets. The trends of figures from
year to year may not be studied and even they may not give proper results.

COMMON-SIZE INCOME STATEMENT:

The items in income statement can be shown as percentages of sales to show the
relation of each item to sales. A significant relationship can be established between
items of income statement and volume of sales. The increase in sales will certainly

26
increase selling expenses and not administrative or financial expenses. In case the
volume of sales increases to a considerable extent, administrative and financial
expenses may go up. In case the sales are declining, the selling expenses should be
reduced at once. So, a relationship is established between sales and other items in
income statement and this relationship is helpful in evaluating operational activities of
the enterprise.

D. RATIO ANALYSIS
The ratio analysis is the most important method or device of financial statement
analysis. It is the process of establishing and interpreting various ratios. It is with the
help of ratio that financial statements can be analyzed more clearly and decisions
made from such analyzed. It gives a quantitative relationship between figures and
group of figures.

MEANING
 A ratio is a simple arithmetical expression of the relationship of one number to
another.
 It is an expression of the quantitative relationship between two numbers.

NATURE
 Selection of relevant data from the financial statement.
 Calculation of appropriate ratio from the above data.
 Comparison of past and present ratio.
 Interpretation of the ratios.
 Single absolute ratio
 Group of ratio
 Historical comparison
 Projected ratio
 Inter firm comparison.

27
GUIDELINES FOR USE OF RATIO
 Accuracy of financial statements.
 Objective or purpose of analysis.
 Selection of ratio.
 Use of standards
 Calidre of the analyst.
 Ratio provides only a base.

USE AND SIGNIFICANCE OF RATIO ANALYSIS

A ratio is very much useful for financial statement analysis. The use of ratio is not
only for financial managers, but there are different parties interested in the ratio
analysus for knowing the financial position of a firm for different purposes. The
suppliers of goods or creditor, banks, financial institution, investors, shareholders and
management all make use of ratio analysis as a tool in evaluating the financial
position and performance of a firm for granting credit, providing loan or making
investment in the firm.

It requires for
 Managers
 Decision making
 Financial forecasting and planning
 Communication
 Coordinating
 Control
 Shareholders
 Employees
 Government
 Tax audit requirement

28
CLASSIFICATIOM OF RATIO ANALYSIS
The use of ratio analysis is not confined to the financial managers only. There are
other parties, which are interested in these ratios for different other purposes.
Different ratios are calculated for different purposes depending on their needs.
Various accounting ratios can be classified as follows:
Ratios

(A) (B) (C)

Traditional Functional Significance

Classification Classification Ratio

Traditional Classification / Statement Ratio can be classified as follows:

Traditional Classification

(A) (B) (C)

Balance Sheet Profit & Loss Mixed

Ratios Ratios Ratios

 Classification is based on the statement from which ratios are calculated:

 Balance sheet Ratio

 Profit & Loss Account Ratio
 Balance sheet and Profit & Loss Account Ratio

29
Balance Sheet Ratio
This ratio is based on balance sheet figures. The ratio deals with the relation sheep
between two Balance sheet items, these ratios are:
 Current Ratio/ Working Capital Ratio
 Liquid Ratio/ Quick Acid Ratio/ Acid Ratio
 Proprietary Ratio
 Asset – Proprietorship Ratio

Profit & Loss Account Ratio

This ratio is based on Profit & Loss Account Ratio. This ratio can also be termed
Income/ Revenue Statement Ratio. This ratio deals with the relationship between two
Profit & Loss Account items. The examples of these ratios are: -
 Gross Profit Ratio
 Operating Ratio
 Expenses Ratio
 Net Profit Ratio
 Stock Turnover/ Inventory Turnover Ratio

Balance sheet and Profit & Loss Account Ratio

This ratio is based on both the statement that is Balance sheet and Profit & Loss
Account. The examples of mixed ratios are:

 Return on Total Resources

 Return on Own Funds

 Turnover of Fixed Assets

 Turnover of Debtors

 Earnings Per Share

30
 Ratio may be classified from the part of users. Thus we can have Ratio Analysis
from:

 Share Holder point of view

 Short – term creditors point of view

 Long – term creditors point of view

Functional Ratios can be classified as

1) Liquidity Ratio:

 Current Ratio

 Liquid/Quick Ratio

 Absolute Liquid Ratio

2) Leverage Ratio:

 Equity Ratio

 Debt Ratio

 Debt Equity Ratio

 Net worth Ratio

3) Activity Ratio:

 Inventory Turnover Ratio

 Debtors Turnover Ratio

 Creditors Turnover Ratio

 Fixed Assets Turnover Ratio

 Total Assets Turnover Ratio

31
  Working Capital Turnover Ratio

 Stock Turnover Ratio

 Capital Turnover Ratio

4) Profitability Ratio:

 Gross Profit Ratio

 Operating Profit Ratio

 Operating Ratio

 Net Profit Ratio

 Expense Ratio

32
4.1 Comparative Statement

Table 4.1 Comparative Balance Sheet of 2006-2007 & 2007-08 (In Lakhs)

Increase
Change in
Particulars 2006-2007 2007-2008 /Decrease %
ASSETS        
Current Assets:        
Sundry debtors 5028 5506 477 9.48
Inventory 94149 95196 1047 1.11
Loan and advances 33798 51243 17445 51.62
Cash and bank balance 14 20 6 42.86

Total current assets: 132990 151965 18975 14.27

Fixed Assets:  
Gross block 429400 46430 3490 8.13
Less: depreciation 17447 19817 2369 13.58
Net block 25492 26613 1121 4.40

Capital work-in-progress 9902 9322 -580 -5.85

Total fixed assets 35395 35935 540 1.52
Special tools and equipments 93138 110775 17637 18.94
Investment 0 0 0 0.00
Misc. Expenses 29470 30095 625 2.12
Total assets: 290991 328771 37779 12.98
   
LIABILITIES  
Current liabilities 313018 386997 74065 23.67
Provisions 7906 17759 9852 124.60
Total of Current Liabilities 320925 404756 83917 26.16
Share holders funds  
Head office control account -38598 -89084 -50485 130.79
Reserve and surplus 8180 12630 4450 54.40
Secured loans 571 469 -103 -18.01
Un-secured loans 0 0 0 0
Deferred liability 1 1 0 0
Total of Share Holders
Funds -29845 -75985 -46138 154.58
Total liabilities: 290991 328771 37779 12.98

1
INTERPRETATION: (i) The comparative balance sheet of the company reveals that
during 2008 there has been increase in fixed assets of Rs540(in lakhs)i.e., 1.52% (ii)
current Assets have increased by 18975(in lakhs) i.e., 14.27%, cash has increase by
6(in lakhs) i.e., by 42.86%. There has been increase in inventories amount Rs.1047
(in lakhs) i.e., 1.11% (iii) Reserve and Surplus have increase by Rs.4450 (in lakhs)
i.e., 54.40% which shows the company has not utilized R&S for the payment of
dividend

Table 4.2 Comparative Balance Sheet of 2005-2006 & 2006-2007 (In Lakhs)
Increase Change in
Particulars 2005-2006 2006-2007 /Decrease %
ASSETS        
Current Assets:        
Sundry debtors 6569 5028 -1541 -23.45
Inventory 46492 94149 47656 102.50
Loan and advances 39221 33798 -5423 -13.82
Cash and bank balance 3412 14 -3397 -99.58
Total current assets: 95695 132990 37295 38.97
Fixed Assets:    
Gross block 24334 429400 405066 1664.58
Less: depreciation 15348 17447 2099 13.68
Net block 8985 25492 16506 183.69
Capital work-in-progress 19990 9902 -10088 -50.47
Total fixed assets 28976 35394 6417 22.14
Special tools and equipments 64167 93138 28970 467.40
Investment 0 0 0 0.00
Misc. Expenses 292041 28964 -263077 -90.08
Total assets: 226815 202991 -23824 -10.50
     
LIABILITIES    
Current liabilities 268219 313018 44799 16.70
Provisions 2928 7906 4978 170.02
Total of Current Liabilities 271147 320925 49778 18.36
Share holders funds    
Head office control account -51098 -38598 12500 -24.46
Reserve and surplus 6764 8180 1416 20.93
Secured loans 0 571 571 0.00
Un-secured loans 0 0 0 0.00
Deferred liability 2 1 -123365 -44.88
Total of Share Holders
Funds -44331 -29845 20709 -46.71
Total liabilities: 226815 292991 -23824 -10.50

INTERPRETATION: (i) The comparative balance sheet of the company reveals that
during 2007 there has been increase in fixed assets of Rs. 641777859i.e., 22.14% (ii)
2
current Assets have increased by 3729515864 i.e., 38.97%, cash has decrease by
339795900 i.e., by99.58%. There has been increase in inventories amount
Rs.4765673020 i.e., 102.5% (iii) Reserve and Surplus have increase by Rs.141622810
i.e., 20.93% which shows the company has not utilized R&S for the payment of
dividend.
Table 4.3 Comparative Balance Sheet of 2004-2005 &2005-2006 (In Lakhs)
Increase Change in
Particulars 2004-2005 2005-2006 /Decrease %
ASSETS        
Current Assets:        
Sundry debtors 9454 6569 -2885 -30.52
Inventory 24066 46492 22425 93.18
Loan and advances 39050 39221 171 0.43
Cash and bank balance 4 3412 3407 85175
Total current assets: 72576 95695 23118 31.85
Fixed Assets:    
Gross block 19166 24334 5167 26.96
Less: depreciation 14393 15348 954 6.63
Net block 4772 8985 4213 88.27
Capital work-in-progress 11641 19990 8348 71.71
Total fixed assets 16414 28976 12562 76.52
Special tools and
equipments 23530 64167 40636 -172.69
Investment 0 0 0 0.00
Misc. Expenses 29870 292041 262171 877.70
Total assets: 142392 226815 84422 59.29
     
LIABILITIES    
Current liabilities 192519 268219 75699 39.32
Provisions 428 2928 2500 583.96
Total of Current
Liabilities 192947 271147 78199 40.53
Share holders funds    
Head office control
account -56705 -51098 5606 -9.89
Reserve and surplus 5864 6764 899 15.33
Secured loans 280 0 -280 -100.00
Un-secured loans 0 0 0 0.00
Deferred liability 5 274903 -266770 -49.25
Total of Share Holders
Funds -50554 -44331 6222 -12.31
Total liabilities: 142392 226815 84422 59.29

INTERPRETATION: (i) The comparative balance sheet of the company reveals that
during 2006 there has been increase in fixed assets of Rs1256200726i.e., 76.52% (ii)
current Assets have increased by 2311853774 i.e., 31.85%, cash has increase by
340774642 i.e., by74466.40%. There has been increase in inventories amount
3
Rs.2242565376 i.e., 93.18% (iii) Reserve and Surplus have increase by Rs.89936735
i.e., 15.33%which shows the company has not utilized R&S for the payment of
dividends.
Table 4.4 Comparative Balance Sheet of 2003-2004 & 2004-2005(In Lakhs)
Increase
Particulars 2003-2004 2004-2005 /Decrease Change in %
ASSETS        
Current Assets:        
Sundry debtors 11290 9454 -1835 -16.26
Inventory 8450 24066 15616 184.81
Loan and advances 41478 390501 -2428 -5.85
Cash and bank balance 5 4 -1 -20
Total current assets: 61224 72576 11352 18.54
Fixed Assets:     0 0.00
Gross block 18865 19166 301 1.60
Less: depreciation 13880 14393 513 3.70
Net block 4984 4772 -211 -4.25
Capital work-in-progress 3875 11641 7766 200.40
Total fixed assets 8860 16414 7554 85.24
Special tools and equipments 5422 23530 18108 333.91
Investment 0 0 0 0.00
Misc. Expenses 29956 29870 -86 -0.29
Total assets: 105464 142392 36928 35.02
      0 0.00
LIABILITIES     0 0.00
Current liabilities 120168 192519 72350 60.21
Provisions 428 428 0 0.00
Total of Current Liabilities 120596 192947 72350 59.99
Share holders funds     0 0.00
Head office control account -21234 -56705 -54581 2570.49
Reserve and surplus 5113 5864 751 14.70
Secured loans 973 280 -693 -71.24
Un-secured loans 0 0 0 0.00
Deferred liability 14 5 -9 -63.54
Total of Share Holders Funds -15132 -50554 -54533 -1370.85
Total liabilities: 105464 142392 36928 35.02

INTERPRETATION: (i) The comparative balance sheet of the company reveals that
during 2005 there has been increase in fixed assets of Rs. 755463417i.e., 85.24% (ii)
current Assets have increased by1135202851 i.e., 18.54%, cash has decrease by
88621 i.e., by 16.22%. There has been increase in inventories amount

4
Rs.1561666152 i.e., 184.81% (iii) Reserve and Surplus have increase by Rs.75181852
i.e., 14.70% which shows the company has not utilized R&S for the payment of
dividends.

5
4.2 Comparative Income Statement

The comparative income statement gives an idea of the progress of a business over a
period of time. The changes in absolute data in money values and percentages can be
determined to analyze the profitability of the business. Income statement also has four
columns. First two columns give figures of various items for two years. Third and
fourth columns are used to show increase or decrease in figures in absolute amounts
and percentages respectively.
Table 4.5 Comparative Income Statement of 2006-2007 & 2007-08 (In Lakhs)
Increase Change
PARTICULARS 2006-2007 2007-2008 /Decrease in %
INCOME        
Sales 86715 140439 53723 61.95
Transfer to interdivisional units 192 313 121 63.02
Change in work-in-progress 20020 -9121 -29142 -145.56
Other income 1071 2407 1316 120.62
Charges received on interdivisional
transfer 19 31 12 63.16
Transfer from R&D reserves 0 0 0 0
TOTAL 108018 134069 26030 24.09
   
EXPENDITURE:  
Consumption of Raw material
components 79574 64227 -15347 -19.29
Direct expenses 6132 6990 858 13.99
Salaries and wages 9779 13248 3404 34.58
other expenses 10839 12342 1565 14.52
Charges paid on interdivisional transfer 13 2 -11 -84.62
Interest 6 4 -3 -42.86
Depreciation 2107 2370 263 12.48
Provisions 5122 11460 6337 123.70
Inter services 947 1117 171 18.08
Transfer to IDT -10904 16110 27015 -247.73
TOTAL 103618 127870 24252 23.41
Less; expenses related to capital account
and others 3758 6430 2670 71.01
NET EXPENDITURE: 99859 121440 21582 21.61
Provision for tax 0 0 0 0
   
Profit for the year (Net) 8180 12629 4449 54.37

Interpretation: The comparative Income Statement of HAL revels that as compared

to the year 2007 in the year 2008 sales has been increased by53723 (in lakhs)
i.e.,61.95%. Net Profit has also increased by 21582(in lakhs) i.e., 21.61.

6
 Table 4.6 Comparative Income Statement of 2005-2006 & 2006-2007 (In Lakhs)

Increase Change
PARTICULARS 2005-2006 2006-2007 /Decrease in %
INCOME        
Sales 57590 86715 29124 50.57
Transfer to interdivisional units 231 192 -39 -17.07
Change in work-in-progress 16058 20020 3962 24.68
Other income 1124 1071 -52 -4.68
Charges received on interdivisional
transfer 23 19 -4 -17.50
Transfer from R&D reserves 0 0 0 0.00
TOTAL 750270 108018 32991 43.97
         
EXPENDITURE:        
Consumption of Raw material
components 44404 79574 35170 79.20
Direct expenses 2693 6132 3438 127.67
Salaries and wages 8338 9779 1441 17.29
other expenses 79851 10839 2853 35.74
Charges paid on interdivisional transfer 2 13 10 449.89
Interest 17 6 -10 -61.40
Depreciation 967 2107 1139 117.79
Provisions 2702 5122 2419 89.53
Inter services 546 947 401 73.46
Transfer to IDT 1901 -10904 -12806 -673.49
TOTAL 69559 103618 34058 48.96
Less; expenses related to capital account
and others 1295 3758 2463 190.12
NET EXPENDITURE: 68263 99859 31595 46.29
Provision for tax 0 0 0 0.00
         
Profit for the year (Net) 6764  8180 1397 20.66

Interpretation: The comparative Income Statement of HAL revels that as

comparared to the year 2006 in the year 2007 sales has been increased by 2912498454
i.e., 50.57%. Net Profit has also increased by139741810 i.e., 20.66%.

7
 Table 4.7 Comparative Income Statement of 2003-2004 & 2004-2005 (In Lakhs)

Increase Change
PARTICULARS 2003-2004 2004-2005 /Decrease in %
INCOME        
Sales 40318 40306 -11 -0.03
Transfer to interdivisional units 85 96 11 13.04
Change in work-in-progress 2246 3574 1328 59.14
Other income 550 756 206 37.43
Charges received on interdivisional transfer 8 9 1 13.04
Transfer from R&D reserves 0 0 0 0.00
TOTAL 43209 44743 1534 3.55
         
EXPENDITURE:        
Consumption of Raw material components 17178 27248 10007 58.62
Direct expenses 2217 1835 -381 -17.21
Salaries and wages 7554 8139 585 7.75
Other expenses 17019 8291 -8728 -51.28
Charges paid on interdivisional transfer 9 1 -8 -85.53
Interest 540 524 -15 -2.83
Depreciation 503 591 87 17.33
Provisions 123 59 -63 -51.98
Inter Services 475 474 -1 -0.23
Transfer to IDT -70 -7353 -7283 10323.50
TOTAL 45550 39812 -5738 -12.60
Less; expenses related to capital account and
others 7454 93 -7361 -98.75
NET EXPENDITURE: 38096 38879 783 2.06
Provision for tax 0 0 0 0.00
Profit for the year (Net) 5113 5864 751 14.70
Interpretation: The comparative Income Statement of HAL revels that as compared to the year
2004 in the year 2005 sales has been decreased by1194911 i.e.,0.03%. Net Profit has also
increased by 75181852 i.e., 14.7%.

8
4.3 Trend Analysis

Table 4.8 Trend Analysis for Sales

YEARS SALES
Amount Trend percentage
2003-04 40318 100.00%
2004-05 40306 99.90%
2005-06 57590 142.83%
2006-07 86716 215.00%
2007- 140439 348.30%
08

160000
140000
120000
100000
80000
PERCENTAGE
60000
40000
20000
0
2003-04 2004-05 2005-06 2006-07 2007-08

Interpretation: Sales decreases 0.10% in 2004-05, it increases 42.93% in 2005-06,

72.17% in 2006-07,133.30% in 2007-08.
Trend Analysis for Profit (Lakhs)
Table 4.9 Trend Analysis for Profit
YEARS PROFIT
Amount Trend percentage
2003-04 5113 100.00%
2004-05 5864 114.30%
2005-06 6760 131.70%
2006-07 8180 159.45%
2007-08 12630 246.20%

9
 150000

100000

profit
50000

0
2003-04 2004-05 2005-06 2006-07 2007-08

Interpretation: Profit increases 14.30% in 2004-05, 17.40% in 2005-06, 27.75% in

2006-07 and 86.75% in 2007-08. It has continuously an increasing trend.

Trend Analysis for Fixed Assets (Lakhs)

Table 4.10 Trend Analysis for Fixed Assets
YEARS FIXED ASSETS
Amount Trend percentage
2003-04 8860 100.00%
2004-05 16413 185.24
2005-06 28976 327.04
2006-07 35395 399.49
2007-08 35395 405.58

150000

100000

profit
50000

0
2003-04 2004-05 2005-06 2006-07 2007-08

Interpretation: Fixed assets increase by85.24 % in 2004-05,141.8% in 2005-

06,72.45 % in 2006-07 and 5.51% in 2007-08.

10
Trend Analysis for Current Liabilities (Lakhs)
Table 4.11 Trend Analysis for Current Liabilities
YEARS CURRENT LIABILITES
Amount Trend percentage
2003-04 120596 100.00%
2004-05 192947 159.99%
2005-06 262373 217.56%
2006-07 320838 266.04%
2007-08 404755 335.62%

150000

100000

profit
50000

0
2003-04 2004-05 2005-06 2006-07 2007-08

Interpretation: Current liabilities increase by 59.99% in 2004-05, 57.57% in 2005-

06, 48.48% in 2006-07, and 69.58% in 2007-08.
Trend Analysis for Current Assets (Lakhs)
Table 4.12 Trend Analysis for Current Assets
YEARS CURRENT ASSETS
Amount Trend percentage
2003-04 61223 100.00%
2004-05 72576 118.54
2005-06 95694 156.30
2006-07 132989 217.21
2007-08 151965 248.21

150000

100000

profit
50000

0
2003-04 2004-05 2005-06 2006-07 2007-08

11
Interpretation: Current assets increase by 18.54% in 2004-05, 37.76% in 2005-06,
60.91% in 2006-07 and 31% in 2007-08.

12