PROJECT REPORT

ON

“TO STUDY THE PROFITABILITY ANALYSIS THROUGH ERP SYSTEM OF

INFOTECHNOGEN PVT. LTD.”

Submitted in partial fulfillment of the requirements for the award of

the degree of
Bachelor of Business Administration

Multani Mal Modi Collage

(PATIALA)

SUBMITTED TO- SUBMITTED BY-

NIRAJ SIR PARVEEN BHARDWAJ

CLASS B.B.A 6 th Sem

Uni. Roll No. 788736

[Type text] Page 1

 DECLARATION
I Pankaj jindal hereby declare that report entitled “profitability analysis ” at INFOTECHNOGEN
PVT. LTD.submitted in partial fulfillment of the requirement for the degree of BBA. It is my original
work and that it has not been submitted elsewhere for the award of any other degree.

PARVEEN BHARDWAJ

[Type text] Page 2

 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 overal 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 PRODUCT Usefully study its financial condition and worthiness. An
attempt has been PRODUCT queried 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
[Type text] Page 3
position of the company is good. Current ratio, debt-equity ratio, quick ratio, net profit

[Type text] Page 4

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
2020-2021.It was observed that current ratio of 1.51:1 was always more than 1 from 2019-
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.

[Type text] Page 5

 d) CONTENTS

Sl. No. Title Page No.

Chapter -01 INTODUCTION 8

1.1 Infotechnogen Pvt. Ltd. 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 kartar Product for 2021 32

3.1.2 Balance sheet of kartar Product for 2020 33
3.1.3 Profit & Loss Statement for 2021 34-35
3.1.4 Profit & Loss Statement for 2020 35-36
3.1.5 Ratio Analysis for 2021 37-39
3.1.6 Ratio Analysis for 2020 40-42
3.1.7 Summary for Balance sheet and profit & loss statement 43
Chapter-04 VARIATION OF FINACIAL RATIOS

Chapter-05 COMPRATIVE STATEMENT

[Type text] Page 6

 5.1 IBALANCE SHEET FOR 2021 47-48

LITERATURE REVIEW 49-52

FINDINGS 53

CONCLUSION 54

RECOMMENDATIONS 55-56

LIMITATIONS 57

BIBLIOGRAPHY 58-59

[Type text] Page 7

 CHAPTER- 01

INTRODUCTION

COMPANY PROFILE

INFOTECHNOGEN PVT. LTD.

Info Technogen Pvt. Ltd. Is the trusted as one of the leading IT service providers in India. Our technical
expertise remains our dominant strength that helps us to offer an innovative mix of excellent experience to
our valuable client. ITG term dedicated to offering best IT service with technical support, creative thinking
and latest technology by responding quickly to client requirement.
ITG has an expertise in web application development, custom software development, mobile applications,
search Engine optimization, web designing development and HR outsourcing. We lay emphasis on
business solution that accomplish business goals effectively. ITG established in 2014 is a service company
having its corporate office in Chandigarh and various innovative services successfully in the fields of IT to
INDIA, AUSTRALIA, USA, UK AND MALAYSIA.
Since 2014, our company is on the path of delivering all kinds of tailor-made IT solutions. We take up
every client as a challenge and produce measurable result. ITG knows very well how technology can bring
you the value. We bring ideas to life through creative approach with quality that focuses on client success.
We have an isolated division of ITG as ITG professional training. The motto is to provide best industrial
training according to the corporate environment. We provide job oriented training to the students along
with placement assistance to each is the student who is a trainee member of ITGPT. We also provide a PPP
(Placement Preparation program) based on the criteria of different client companies. Every week we are
Conduction mock interviews for students so that they can prepare their self for real time during their
industrial training.
Infotechnogen Private Limited is a Private incorporated on 23 November 2016. It is classified as Non-govt
Company and is registered at Registrar of Companies, Chandigarh. Its authorized share capital is Rs.
100,000 and its paid up capital is Rs. 100,000.It is involved in Business activities
Infotechnogen Private Limited's Annual General Meeting (AGM) was last held on 30 September 2017 and
as per records from Ministry of Corporate Affairs (MCA), its balance sheet was last filed on 31 March
2017. Directors of Infotechnogen Private Limited are Arvinder Kaur and Jagmeet Singh.
Our vision
[Type text] Page 8
The vision of the ITG program is to provide students with knowledge and experience that adds value
to computer education and information technologies through research, product development, and
application of current tools to solving educational problems

Our Mission

To develop and maintain long and trustful relationships with our clients through our commitment to
providing them with the highest quality, innovative IT solutions and services, thus empowering people,
communities, and helping organizations increase efficiency, productivity, and profitability.

Our Values

We value our  People

We promote Innovation
We are motivated by Challenge
We aim to provide solutions with highest Quality
We strive to achieve highest  Customer Satisfaction
We maintain business and personal Integrity
We are committed to Corporate Social Responsibility

Our People

ITG operates with over 200 highly qualified and innovative professionals, armed with problem solving
abilities and analytical thinking, working in a friendly yet committed environment. Our people are excited
by technology, its applications, and the benefits it can bring to organizations.

[Type text] Page 9

Professional training is an ongoing activity at ITG so that our professional staff can stay abreast with the
technological advancement, new tools and methods that assist them in developing reliable, scalable, and
robust solutions. Each member of our team believes in continuous development and improvement, and is
dedicated and committed to serve our corporate mission and value.

Company Name INFOTECHNOGEN PRIVATE LIMITED

Company Status Active

RoC RoC- Chandigarh

Registration Number 41286

Company Category Company limited by shares

Company Sub Category Non-govt company

Class of Company private

Date of Incorporation 23 November 2016

Age of Company 1 year, 7months, 4days

Activity business activities

List of service offerings

 Customer experience management:
We help clients create and enhance customer lifetime value, higher share of wallet and bring
about a cointinued set of positive experiences.
 Multi- channel commerce:
We create next generation commerce system for better multi-channel customer experiences
trough personalization, advanced selling and engagement techniques.
 Customer relationship management:
We translate client strategies into operational processes and it system optimize business
performance to to deliver sales process excellence.
 Digital marketing:
We help clients improve the marketing operations performance by developing systems and
processes that result in better customer acquisition and conversion.
[Type text] Page 10
 Agile enterprise:
We help clients change their culture, development capabilties and planning approaches to
improve performance and become more nimble.
 New business models:
We help clients develop, test and scale new capabilties to deliver new revenue streams to defend
themselves against disruptions.

[Type text] Page 11

 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.

[Type text] Page 12

 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

[Type text] Page 13

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

[Type text] Page 14

 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

[Type text] Page 15

 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

[Type text] Page 16

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

[Type text] Page 17

 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
 PRODUCT, scooter, computer etc. advance
 Multipurpose advance

[Type text] Page 18

  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

[Type text] Page 19

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 PRODUCT 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 PRODUCTries less risk to the borrower.
However, when an unsecured loan is granted, it does not necessarily have to be based on a
credit score.

[Type text] Page 20

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 Interest received
Exp:
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:
PRODUCT riage outward
Advertisement
Salesmen's salaries
Commission

[Type text] Page 21

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
PRODUCT trying out other activities that constitute the entity's ongoing major
operations.
c. Turnover

[Type text] Page 22

 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.

[Type text] Page 23

(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.

[Type text] Page 24

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.

[Type text] Page 25

2.3.2 FINANCIAL RATIOS AND THEIR INTERPRETATION

Table 2.3: Different Financial Ratios

2.3.3

Sl. CATEGORY TYPE OF RATIO ITNERPRETATION

No.
Net Working Capital =  It measures the
liquidity of a firm.
1. Liquidity Ratio Current assets-current
liabilities
 It measures the short
Current ratio = term liquidity of a
Current Assets firm. A firm with a
Current Liabilities higher ratio has better
liquidity.
 A ratio of 2:1 is
considered safe.

 It measures the
Acid test or Quick ratio liquidity position of a
= Quick assets firm.
Current Liabilities  A ratio of 1:1 is
considered safe.

 This ratio indicates

Inventory Turnover ratio = how fast inventory is
2. Turnover Ratio
Costs of goods sold sold.
Average inventory  A firm with a higher

[Type text] Page 26

 ratio has better
liquidity.
 This ratio measures
Debtor Turnover ratio = how fast debts are
Net credit sales collected.
Average debtors  A high ratio indicates
shorter time lag
between credit sales
and cash collection.
Creditor’s Turnover ratio = 
Net credit purchases that accounts are to
Average Creditors be settled rapidly

Debt-Equity ratio =  This ratio indicates the

Long term debt relative proportions of
3. Capital
Shareholder’s Equity debt and equity in
Structure Ratios
financing the assets of
a firm.
 A ratio of 1:1 is
considered safe.

 It indicates what
Debt to Total capital ratio proportion of the
= Long term debt permanent capital of a
Permanent Capital firm consists of long-
Or term debt.
Total debt  A ratio 1:2 is
Permanent capital + Current considered safe.
liabilities
Or  It measures the share
Total Shareholder’s Equity of the total assets
Total Assets financed by outside

[Type text] Page 27

 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.


Interest Coverage =  A ratio used to

Earnings before interest and determine how easily a
4. Coverage ratios
tax Interest company can pay on
outstanding debt.
 A ratio of more than
1.5 I satisfactory
 It measures the ability
Dividend Coverage = of firm to pay dividend
Earnings after tax on preference shares.
Preference Dividend  A high ratio is better
for creditors.
 It shows the overall
Total Coverage ratio = ability of the firm to
Earning before interests and fulfill the liabilities.
tax  A high ratio indicates
Total Fixed charges better ability.

Profitability Gross Profit margin =  It measures the profit

5.
ratios Gross profit * 100 in relation to sales.
Sales  A firm should neither
have a high ratio nor a

[Type text] Page 28

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

[Type text] Page 29

  It measures the
Return on Return on Assets (ROA) = profitability of the total
7.
Investments Net Profit after Taxes * 100 funds per investment
Total Assets of a firm.
Or
(Net Profit after Taxes
+interest) *100
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

 It measures
Return on Capital Employed profitability of the firm
(ROCE) = with respect to the total
capital employed.
(Net Profit after Taxes) *  The higher the ratio,
100 total capital employed the more efficient use
Or of capital employed.
(Net Profit after Taxes +
Interest) *100
Total Capital Employed
Or
(Net Profit after Taxes +

[Type text] Page 30

 Interest) * 100
Total Capital Employed -
intangible assets
 It reveals how
Return on Total profitably the owner’s
Shareholders’ Equity = fund has been utilized
Net Profit after Taxes * by the firm.
100 Total shareholders’
equity
 It determines whether
Return on Ordinary the firm has earned
shareholders equity = satisfactory return for
Net profit after taxes and Pref. its equity holders or
dividend *100 not.
Ordinary Shareholders’ Equity

 It measures the profit

Shareholder’s Earnings per Share (EPS) available to the equity
8.
ratios = Net Profit of Equity holders holders on a per share
Number of Ordinary Shares basis.

Dividend per Share (DPS) =  It is the net distributed

Net profits after interest and profit belonging to the
preference dividend paid to shareholders divided
ordinary shareholders by the number of
Number of ordinary shares ordinary shares
outstanding

 It shows what
Dividend Payout ratio (D/P) percentage share of the
= net profit after taxes
Total Dividend To and preference
Equity holders dividend is paid to the
Total net profit of equity equity holders.
[Type text] Page 31
[Type text] Page 32
 holders  A high D/P ratio is
Or preferred from
Dividend per Ordinary investor’s point of
Share Earnings per Share view.

Earnings per Yield =  It shows the percentage

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

Raw Material turnover =

[Type text] Page 33

 Cost of Raw Material used
Average Raw Material
Inventory

Work in Progress turnover =

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

Capital turnover =
Cost of Goods Sold
Capital Employed

Current Assets turnover

= Cost of Goods Sold
Current Assets

[Type text] Page 34

 CHAPTER- 03

FINANCIAL RATIO ANALYSIS

The ratio analysis of INFOTECHNOGEN PVT. LTD. from 2019-21 has been PRODUCT cried
out below.

3.1 RATIO ANALYSIS INFOTECHNOGEN PVT. LTD.

3.1.1 Balance Sheet of INFOTECHNOGEN PVT. LTD.

Table 3.1: Balance Sheet of INFOTECHNOGEN PVT. LTD.AS AT 31.03.2021

LIABILITIES Amount ASSETS Amount

PROP.’S CAPITAL 2182155.27 FIXED ASSETS 911754.00
(AS PER ANNEXURE) (AS PER ANNEXURE)
SECURES AMOUNT 10361702.66 SECURITY 1000.00
(AS PER ANNEXURE) TELEPHONE
UNSECURES AMOUNT 700000.00 CURRENT ASSETS
RISHU CLOSING STOCKS
13130879.00
SHILPI
TANU
CURRENT LIABILITIES SUNDRY DEBTORS 22783556.00
SUNDRY CREDITORS 23952146.00 (AS PER ANNEXURE)
(AS PER ANNEXURE) PREPAID INSURANCE
(PRODUCT):-8635.00 43374.00
PREPAID
INSURANCE(STOCK):7315.00
VAT RECEIVABLE:-27434.00

EXPENSES PAYABLE CASH&BANK BALANCE

AUDIT FEES 12500.00 OBC C/A :- 313336.93
350700.93
LEGAL FEES 12500.00 SBOP S/A:-1524.00
CASH IN HAND :-35840.00

[Type text] Page 35

TOTAL 37221003.93 TOTAL 37221003.93

3.1.2 Balance Sheet of INFOTECHNOGEN PVT. LTD.

Table 3.2: Balance Sheet of INFOTECHNOGEN PVT. LTD. AS AT 31.03.2020

LIABILITIES Amount ASSETS Amount

PROP.’S CAPITAL 2104056.16 FIXED ASSETS 1023134.00
(AS PER ANNEXURE)

PRODUCT:- 1023134.00

SECURES LOANS SECURITY 1000.00

OBC C/C:-2252675.45 2252675.4 TELEPHONE
HDFC LOAN:-130361.19 130361.19
VOLKSWAGEN PRODUCT 438955.05
LOAN:-
INDIA BULLS LOAN:- 1968548.05
HDBC LOAN:- 534792.03
UNSECURES AMOUNT CURRENT ASSETS
RISHU 250000.00 CLOSING STOCKS
9543031.00
SHILPI 250000.00
TANU 250000.00
CURRENT LIABILITIES SUNDRY DEBTORS 16900278.00
SUNDRY CREDITORS 19375887.00 (AS PER ANNEXURE)
7077.00
(AS PER ANNEXURE) PREPAID INSURANCE
(PRODUCT)
PREPAID
INSURANCE(STOCK) 254.00

EXPENSES PAYABLE CASH&BANK BALANCE

AUDIT FEES 12500.00 OBC C/A:-
10335.93
LEGAL FEES 12500.00 CASH IN HAND :-

[Type text] Page 36

[Type text] Page 37
 ELECT. EXPS. 4500.00 49665.00

TOTAL 27534774.93 TOTAL 27534774.93

3.1.3 TRADING AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING ON
31.03.2020

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 48000.00 TO GROSS PROFIT 2173650.00

CHARGES
TO AUDIT FEES 12500.00
TO PRODUCT 52315.00
RUNNING &MAIN.
CHARGES
DEPRECIATION 129352.00
TO DIWALI EXPS. 21260.00
TO ELECTRICITY EXPS. 76887.00
TO ENTERTAINMEN 28210.00
EXPS.
TO INTERST 339898.00
TO INTT. ON HDFC LOAN 59812.00
TO PRODUCT 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

[Type text] Page 38

TO RENT 84000.00
TO SALARY 660000.00
TO STAFF WELFARE 17250.00
EXPS.
TO TELEPHONE EXPS. 24306.00
TO TRAVELLING 23400.00
&CONVEYANCE EXPS.
TO NET PROFIT 447138.00
2173650.00 2173650.00

3.1.4 RADING AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING
ON 31.03.2021

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 48000.00 TO GROSS PROFIT 2892595.00

CHARGES
TO AUDIT FEES 12500.00 TO R/OFF 0.19
TO PRODUCT RUNNING 40975.00
&MAIN. CHARGES
DEPRECIATION 111380.00
TO DIWALI EXPS. 23900.00
TO ELECTRICITY EXPS. 64753.00
TO ENTERTAINMEN 20780.00

[Type text] Page 39

EXPS.
TO INTERST 1275714.08
TO INSPECTION CHARGE 7743.00
TO STOCK INSURANCE 7456.00
TO PRODUCT 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 15200.00
EXPS.
TO TELEPHONE EXPS. 20720.00
TO TRAVELLING 25398.00
&CONVEYANCE EXPS.
TO NET PROFIT 284208.11
2892595.19 2892595.19

[Type text] Page 40

 3.1.5 Ratio analysis for 2021

Table 3.5: Analysis of Financial Ratios for 2021

Sl. RATIOS PARTICULARS VALUE REMARKS

No.
1. Current Assets = 12332103.93 Liquidity position
Working Capital = 36309249.93 is good.
Current assets-Current Current Liabilities =
liabilities 23977146
2. Current Assets = 1.51:1 It is safe.
Current Ratio = 36309249.93
Current Assets Current Liabilities =
Current 23977146
Liabilities
3. liquid Assets = 1.49:1 It is good.
Acid test or Quick ratio 36273450.93
= Liquid Assets Current Liabilities =
Liquid Liabilities 23977146
4. Long term debt 4.4:1 It is not good
Debt-Equity Ratio = =11061702.66
Long term debt Capital A/C
Capital A/C+ Net =2182155.27
Profit Net Profit= 284208.11

It is safe

5. 13.24
Return On Investment Ratio Net Profit= 284208.11
= Capital
A/C=2182155.27
Net Profit*100
Capital a/c+ Net Profit

[Type text] Page 41

6. Gross Profit= 3.52% It is not
Gross Profit Ratio = 2892595.00 satisfactory
Gross Profit * 100 Sales=82168222.00
Sales
7. Net Profit 3.45% It is not
Net Profit Ratio = =284208.11 satisfactory
Net Profit * 100 Sales=82168222.00
Sales
8. Net profit= 2.30 It is not good
Return on working capital 284208.11
= Net Profit ∗ 100 Net Working capital=
Working Capital 12332103.93
9. Cost of goods sold= 96.47 It is satisfactory
Cost of Goods Sold Ratio = 79275627
Cost of Goods Sold*100 Sales=
Sales 82168222.00

10. Sales a/c= 90.12 It is safe

Fixed Assets turnover = 82168222.00
Sales a/c Fixed Assets=
Fixed Assets 911754.00
11. Sales= It is safe
Working Capital Turnover= 82168222.00 6.66
Sales a/c Working
working Capital Capital=12332103.9
3
12. Sales=82168222.00 It is not good
Inventory Turnover= Closing Stock= 6.25
Sales a/c 13130879.00
Closing stock

[Type text] Page 42

  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 liabilitie s

= 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

[Type text] Page 43

 3.1.6 Ratio analysis for 2020

Table 3.6: Analysis of Financial Ratios for 2020

Sl. RATIOS PARTICULARS VALUE REMARKS

No.
1. Current Assets = 7106253.93 Liquidity position
Working Capital = 26511640.93 is good
Current assets-Current liabilities Current Liabilities
=19405387
2. Current Assets = 1.36:1 It is safe
Current Ratio = 26511640.93
Current Assets Current Liabilities
Current Liabilities =19405387
3. liquid Assets = 1.36:1 It is good
Acid test or Quick ratio 26504309.93
= Liquid Assets Current Liabilities =
Liquid Liabilities 19405387
Long term debt 2.36:1 It is safe
Debt-Equity Ratio = = 6025331.77
4.
Long term debt Capital A/C
Capital A/C+ Net =2104056.16
Profit Net Profit=
447138.00

It is safe
Return On Investment = Net Profit=
net Profit*100 447138.00
5. 21.72%
Capital a/c + Net Profit Capital a/c=
2104056.16

[Type text] Page 44

6. Gross Profit=2173650 3.83% It is not satisfactory
Gross Profit Ratio Sales=62767507.00
= Gross Profit * 100
Sales
7. Net Profit=447138.00 1.71% It is not satisfactory
Net Profit Ratio =
Net Profit * 100 Sales= 62767507.00
Sales
8. Net profit=447138.00 6.96% It is not good
Return on working capital Net Working capital=
= Net Profit ∗ 100 7106253.93
Working Capital
9. Cost of goods 9.87 It is not satisfactory
Cost of Goods Sold Ratio = sold=6025331.77
Cost of Goods Sold*100 Sales=
Sales 62767507.00
10. Fixed Assets turnover = Sales It is safe
Sales a/c a/c=62767507.00
61.34
Fixed Assets Fixed
Assets=1023134.00

11. Sales=62767507.00 It is not safe

Working Capital Turnover= Working 8.83
Sales a/c Capital=7106253.93
working Capital
12. Sales=62762507.00 It is not good
Inventory Turnover= 6.57
Sales a/c Closing
Closing stock Stock=9543031

 Liquid Assets = Total Current Assets – Inventory – Prepaid Exp.

[Type text] Page 45
 = 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
3.1.7 Summary for Balance Sheet and 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

[Type text] Page 46
PARTICULARS 2015 2021 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%

[Type text] Page 47

 CHAPTER -04
VARIATION OF FINANCIAL RATIOS

The variation of different financial ratios from 2019-2021 of INFOTECHNOGEN PVT. LTD.
has been shown below:

INFOTECHNOGEN PVT. LTD.

PURCHASE

2019
2020

[Type text] Page 48

 Sales

2019
2020

GROSS PROFIT

2015
2016

[Type text] Page 49

 NET PROFIT

2019
2021

CURRENT RATIO
1.6 2016
1.4

1.2

0.8
CURRENT RATIO 2021
0.6

0.4

0.2

0
1 2

[Type text] Page 50

 CHAPTER-05

COMPRATIVE STATEMENTS

Table: 5.1 COMPARATIVE BALANCE SHEET FOR 2020

Particulars Previous Current Absolute Percentage

Year Year Change change
A.LIABILITIES

1.PROP’S CAPITAL 2104056.16 2182155.27 78099.11 3.71

2. SECURED LOAN 5325331.77 10361702.6 5036370.89 94.57%

6

3. UNSECURED LOANS 700000.00 700000.00 0.00 0%

4. CURRENT LIAB.

SUNDRY CREDITORS 19375887.0 23952146.0 4576259.00 23.61%

EXPENESE PAYABLE 29500.00 25000.00 (4500.00) 15.25%

TOTAL 27534774.9 37221003.9
3 3
B. ASSETS.

1. FIXED ASSETS 1023134.00 911754.00 (111380.00) (10.86%)

2. SECURITY 1000.00 1000.00 0.00 0%

[Type text] Page 51

 3. CURRENT ASSETS 9543031.00 13130876.0 3587845.00 37.59%
CLOSING STOCKS
16907609.0 22826670.0 5919061.00 35.00%
SUNDRY DEBTIORS
CASH AND BANK BAL.
60000.93 350700.93 290700.00 484.00%

TOTAL 27534774.9 37221003.9

3 3

 Percentage Change = Absolute Change

Figures of the previous year

[Type text] Page 52

 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 PRODUCTried 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

[Type text] Page 53

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.
[Type text] Page 54
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

[Type text] Page 55

 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? Wil 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.

[Type text] Page 56

 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 2019-2021, 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 2019-2021 the ratio is 61.26 or
91.75 respectively and it Increase.
 cost ratio of the company has Increased during the period of 2019-2021
 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.

[Type text] Page 57

 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 PRODUCTe 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 INFOTECHNOGEN PVT. LTD. have been studied.

From ratio analysis of Balance Sheet and P & L Statement of INFOTECHNOGEN PVT.
LTD.OF 2019 -2021 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.

[Type text] Page 58

 RECOMMENDATION

8.1 Recommendation for Company:

The profit Of the Company is not in a good Position. Profit decrease in 2020-2021
comparison to 2019-20 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 2019-20 comparison to 2019-2020 so it should
increase its current ratio where it can meet its short term obligation smoothly.
 Liquidity ratio of the firm is less in 2019-20 comparison to 2018-19 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.

[Type text] Page 59

  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.

[Type text] Page 60

 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 PRODUCT Erying 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.

[Type text] Page 61

 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 PRODUCTds.
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:

[Type text] Page 62

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

[Type text] Page 63