1 | Page Introduction A company’s financial statements provide various financial information that investors and creditors use to evaluate a company’s financial performance. Financial statements are also important to a company’s managers because by publishing financial statements, management can communicate with interested outside parties about its accomplishment running the company. Different financial statements focus on different areas of financial performances. Financial Conditions A company’s financial conditions are of a major concern to investors and creditors. As capital providers, investors and creditors rely on a company’s financial conditions for both the safety and profitability of their investments. More specifically, investors and creditors need to know where their money went and where it is now. The financial statement of balance sheet addresses such issues by providing detailed information about a company’s asset investments. Cash Flows A company’s profits reported in the income statement are accounting income and most likely contain certain non-cash elements, providing no direct information on a company’s cash exchange during the period. Moreover, a company also incurs cash inflows and outflows during a period from other non-operating activities, namely investing and financing. To investors, cash from all sources, not just accounting income from operations, is what pays back their investments. The importance of the cash flow statement is that it shows the exchange of cash between a company and the outside world during a period, and so investors can know if the company has enough cash to pay for expenses and asset purchases. Shareholders’ Equity The statement of shareholders’ equity is especially important to equity investors because it shows the changes in various equity components, including retained earnings, during a period. The amount of shareholders’ equity is a company’s total assets minus its total liabilities, representing the company’s net worth. A steady growth in a company’s shareholders’ equity by way of increasing retained earnings, as opposed to expanding shareholder base, means the accumulation of investment returns for current equity shareholders.
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Introduction
A company’s financial statements provide various financial information that investors and
creditors use to evaluate a company’s financial performance. Financial statements are also
important to a company’s managers because by publishing financial statements, management can
communicate with interested outside parties about its accomplishment running the company.
Different financial statements focus on different areas of financial performances.
Financial Conditions
A company’s financial conditions are of a major concern to investors and creditors. As capital
providers, investors and creditors rely on a company’s financial conditions for both the safety and
profitability of their investments. More specifically, investors and creditors need to know where
their money went and where it is now. The financial statement of balance sheet addresses such
issues by providing detailed information about a company’s asset investments.
Cash Flows
A company’s profits reported in the income statement are accounting income and most likely
contain certain non-cash elements, providing no direct information on a company’s cash exchange
during the period. Moreover, a company also incurs cash inflows and outflows during a period
from other non-operating activities, namely investing and financing. To investors, cash from all
sources, not just accounting income from operations, is what pays back their investments. The
importance of the cash flow statement is that it shows the exchange of cash between a company
and the outside world during a period, and so investors can know if the company has enough cash
to pay for expenses and asset purchases.
Shareholders’ Equity
The statement of shareholders’ equity is especially important to equity investors because it shows
the changes in various equity components, including retained earnings, during a period. The
amount of shareholders’ equity is a company’s total assets minus its total liabilities, representing
the company’s net worth. A steady growth in a company’s shareholders’ equity by way of
increasing retained earnings, as opposed to expanding shareholder base, means the accumulation
of investment returns for current equity shareholders.
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Operating Results
Financial conditions shown in the balance sheet are snapshots of a company’s assets, liabilities
and equity at the end of a financial reporting period; they don’t reveal what happened during the
period from operations that may have caused changes to financial conditions. Therefore, operating
results during the period also concerns investors. The financial statement of income statement
reports operating results such as sales, expenses and profits or losses. Using the income statement,
investors can both evaluate a company’s past income performance and assess the uncertainty of
future cash flows.
The main users (stakeholders) of financial statements are commonly grouped as follows:
Investors
Employees
Lenders
Government
Suppliers
Customers
The public
Many things can impact the calculation of ratios and make comparisons difficult. The limitations
include:
The use of estimates in allocating costs to each period. The ratios will be as accurate as the
estimates.
The cost principle is used to prepare financial statements. Financial data is not adjusted for
price changes or inflation/deflation.
Companies have a choice of accounting methods (for example, inventory LIFO vs FIFO
and depreciation methods). These differences impact ratios and make it difficult to compare
companies using different methods.
Companies may have different fiscal year ends making comparison difficult if the industry
is cyclical.
Diversified companies are difficult to classify for comparison purposes.
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Financial statement analysis does not provide answers to all the users' questions. In fact, it
usually generates more questions!
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2.Financial Statements (Ratio Analysis of Apex Adelchi Footwear Limited)
2.1 Liquidity Ratios: A class of financial metrics that is used to determine a company's ability to
pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger
the margin of safety that the company possesses to cover short-term debts.
2.1.1 Current Ratio: The current ratio is a financial ratio that shows the proportion of
current assets to current liabilities. The current ratio is used as an indicator of a company's
liquidity.
Current Ratio = Current Assets / Current Liabilities
The following table shows the current ratio of Apex Adelchi Footwear Limited:
Table 1: Current Ratio of Apex Adelchi Footwear Limited
Figure 1: Current Ratio of Apex Adelchi Footwear Limited (2010-2014)
Analysis: Hear the graph represent that EPS of this corporation decreased from 2010 to 2014. Which is not
good sign for this corporation? For improve the position, the management of this corporation need to take steep to improved corporation share price in the capital market.
2.5.1: Price / Earnings (PE) Ratio:
Table 13: PE ratio of Apex Adelchi Footwear Limited
Year 2010 2011 2012 2013 2014
PE Ratio 20.27 12.74 10.04 17.45 24.57
Analysis: As we know that the higher PE ratio, create batter position for the corporation & hear
the graph represents that PE ratio was the lowest (10.04 times) in 2012 & highest (24.57 times) in
2014. Over the period in 2011, 2012 the PE ratio was decrease & in 2013, 2014 the PE ratio was
increase. which is a good sign for the corporation.
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2.5.2: Market / Book value Ratio:
Table 14: Market / Book ratio of Apex Adelchi Footwear Limited
Year 2010 2011 2012 2013 2014
MVPS 0.0999162 295.568 231.0204 411.9945 443.4885
BVPS 645.397952 180 203.2709001 222 234
Market/Book
value
0.00016 1.63979 1.13651 1.85700 1.89208
Analysis: Hear the graph represent that the market / book value ratio increase from 2010 to 2014
which is good sign for the corporation & for more batter the management of this corporation need
to take steep to improved corporation share price in the capital market.
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CONCLUSION
This project of Ratio analysis 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
we came to know that from the analysis of financial statements it is clear that Apex Adelchi
Footwear Ltd. Have been incurring loss during the period of study. So the firm should focus on
getting of profits in the coming years by taking care internal as well as external factors.
The company’s overall position is not at a very good position. The company achieves not sufficient
profit in past 5 years. The long term solvency position of the company is very good. The company
maintains low liquidity to achieve the high profitability. The company distributes dividends every
year to its shareholders. The profit of the company decreased in the last year due to maintaining
the comparatively high liquidity. The networking capital of the company is maximum in the last
year shows the maximum liquidity. Without P/E ratio and M/B ratio all others ratios indicate
dissatisfaction.
Financial analysis is helpful in assessing the financial position and profitability of a concern. This
is done through comparison by ratios for the same concern over a period of years; or for one
concern against another; or for one concern against the industry as a whole; or for one concern
against the predetermined standards; or for one department of a concern against other departments
of the same concern. Accounting ratios calculated for a number of years show the trend of the
change of position. The trend is upward or downward or static. The ascertainment of trend helps
us in making estimates for the future. Thus we can say that there is lots of application of financial
analysis in the modern days of business. To assess any business condition financial analysis gives
a clear financial picture of any business organization. This helps to evaluate the trend and condition
of organization. From small to big business organization financial analysis helps a great deal in
decision-making process. As it helps to give idea about the financial condition, thus it helps in
future financial projection and decision making process of any business house. Eventually one can
assess how important is financial analysis in the modern days of business. It gives the exact picture
of the financial condition and helps future projection of any organization. Apex Footwear Ltd is
leading edge footwear company in Bangladesh. It is gradually expanding its asset base and able to
proper utilize assets. No business stays at the top if it doesn’t maintain its performance. Thus it is
very important to fulfill the demand of the consumers through competitive advantage.
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References & Bibliography
Reference Book –
Essential of Managerial Finance – Besley & Brigham
Annual Report of Apex Adelchi Footwear Ltd, 2010 – 2014
All Mathematical Calculation is done by MS Excel 2016
For Line chart presentation we use MS Excel 2016 , Office 365 &
http://www.onlinecharttool.com/
Share’s information collected from : http://www.dsebd.org/
We also Collected information form: http://www.apexfootwearltd.com/apex_footwear/
Other’s Information - http://www.myaccountingcourse.com/financial-ratios/