A PROJECT REPORT ON ANALYSIS OF FINANCIAL STATEMENTS OF SOUTH INDIA METAL COMPANY, SHORANUR -2 A PROJECT REPORT SUBMITTED TO CALICUT UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION 1 Saja.K.A
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A PROJECT REPORT
ON
ANALYSIS OF FINANCIAL STATEMENTS OF
SOUTH INDIA METAL COMPANY,
SHORANUR -2
A
PROJECT REPORT
SUBMITTED TO CALICUT UNIVERSITY
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD
OF THE DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION
SUBMITTED BY
SAJA.K.A
REGISTER NO:
UNDER THE GUIDANCE OF
RAMSEENA MISS (M.Com)
DEPARTMENT OF COMMERCE& MANAGEMENT STUDIES
ANSAR WOMEN’S COLLEGE,
PERUMPILAVU,THRISSUR,KERALA.
(Affiliated to the University of Calicut) 2008-2009
1 Saja.K.A
ANSAR WOMEN’S COLLEGE PERUMBILAVU, P.O KARIKKAD
Bachelor of Business Administration
CERTIFICATE
This is to certify that this Project Report
entitled at “SIMCO Metal Industry” with reference to overall study
is a bonafide record of placement training done by SAJA.K.A
(REG NO: )under my guidance and supervision and that is has not
previously formed the basis for the award of any degree, diploma,
associate ship, fellow ship to her
Head of the department Internal Guide
MR PRASAD. P MISS RAMSEENA
(Lecturer)
Dept of commerce& managent studies
2 Saja.K.A
DECLARATION
I hereby declare that the project report entitled
at“SIMCO METAL INDUSTRY” has been written and prepared by me
during the year 2008. The project was done under the valuable guidance and
supervision of RAMSEENA MISS (Department of Commerce &
Management Studies) ANSAR WOMEN’S COLLEGE PERUMPILAVU
In partial fulfillment of the requirement of the Degree of Bachelor of
Business Administration of Calicut University. I also declare that this study
is the result of my own effort and has not been submitted to any other
institution for the case of any Degree.
PLACE: PERUMPILAVU SAJA..K .ADATE: FINAL BBA ANSAR WOMEN’S COLLEGE
3 Saja.K.A
ACKNOWLEDGEMENT
I would like to take this opportunity to express my profound thanks to
all people who have helped me with sound advice. I Acknowledge my
sincere thanks to Mr. Parameswaran of SIMCO for their sincere
guidance and help without which this placement would have been
Impossible.
I am deeply indebted to my guide Miss. Roopalakshmi.VC
(Department of Commerce) and Mr. Prasad. P(Head Department),
who has been constantly encouraging me at every stage of the work of this
placement training report. I cordially express my thanks to other staff
members for their whole hearted co operation.
Above all, I wish to express my gratitude to god and my parents under
whose divine guidance; I have able to successfully complete this work.
I myself, however remain solely responsible for the inadequancies and
blemishes that might have crept in to the report
Perumbilavu: Date:
CONTENTS
4 Saja.K.A
CHAPTER PAGE NO:
1. INTRODUCTION…………………………………………….8-11
2. COMPAN PROFILE…………………………………………13-27
3. FINANCIAL STATEMENT ANALYSIS OF SIMCO……..28-40
4. RATIO ANALYSIS OF SIMCO…………………………….41-73
5. SUMMARYOF FINDINGS &SUGGESTIONS…………….74-76
6. CONCLUSION………………………………………………..77
7. BIBLIOGRAPHY…………………………………………….78
8. ANNEXURE………………………………………………….79-85
CHAPTER-1
5 Saja.K.A
INTRODUCTION
Agriculture constitutes backbone of Indian Economy & in spite of
congested industrialization in the last four decades; Agriculture still occupies a place of
significance. Being the largest sector of the economic activity, it is the source of
livelihood for over 70 % of the population in the economy. Agricultures accelerate the
economic development to a very large proportion of population, capital for its own
development and surplus for investment in other productive sectors.
It is well known that agricultural production is the combined effect of a
variety of implements, fertilizers, irrigation, farm machinery, high yielding varieties of
seeds, etc….All these inputs in one way or another contribute to increasing in
productivity of agriculture & form under one. But these inputs become more effective
and their potential is better utilized if appropriate energy and power sources are made
available to the farmer.
The manufacturing of these agricultural implements & plays a dominant
role in small scale industrial sector of Kerala economy. This industry generally is
included in the agro based category units of small scale units. There are nearly
100small scale agricultural implements tools manufacturing units in KERALA. The main
location of these units is at SHORANUR at PALAKKAD District, {70% are at
SHORANUR itself}. The remaining units are spread over various parts of the state
especially in rural areas.
Total investments of these 100 units in plant and machinery are more than
Rs6Crores .The industry provides employment to nearly 300 people in this sector. The
ANNUAL turn over of these units is more than Rs20Crores and the main item of
manufacturing include Spade, Pick-axe, Hammer, Sickles etc…
It should be noted that various processes of manufacturing, raw materials,
machinery & equipments, investment, labour etc are required for small units. The
industry has been included in small scale units because it requires less investment when
compared to other large scale industries and also less technological background for
6 Saja.K.A
manufacturing process. The system of marketing agricultural implements is through
agents appointed at various parts of the country on commission basis. The products are
sold both inside & outside KERALA.
It may be stated that though these implements and machinery have been
developed mainly for usage in farms. The demand for hand tools and simple implements
continues due to small holding by the marginal farmer.
THE SOUTH INDIA METAL COMPANY
SOUTH INDIA METAL COMPANY is one of the reputed
Companies in KERALA which involved in the manufacturing of Agricultural
Implements, Garden Implements, Estate tools & Hand Tools. It has a very good
popularity in South India Markets.The South India Metal Company was established in
1936. The South India Metal Company is pioneers in he manufacturing field of
Agricultural and Horticultural implements, Garden tools, Estate tools and Hand tools.
The products of South India Metal Company have good market in South India. The
products of South India Metal Company have good market in South India. The company
has received various awards including first prize in the World Agricultural Fare at New
Delhi in 1961 for “Secatures” and second prize is the National Quality Award for
Agricultural Implements In 1986.
OBJECTIVES OF THE STUDY
Working capital management is a significant aspect of financial
Management. It is important that investment in current assets and the level of current
liabilities will have to be geared quickly to change in sales. It is also important that
apportion of working capital requirement is brought from Long term sources such as
equity or long term loans .In adequate working capital is a crisis and it may arise due to
poor working capital and financial management .
Every organization has adequate working capital for its efficient
functioning. As South India Metal Company, Shornur is a reputed institution it should
7 Saja.K.A
have sufficient working capital for its uninterrupted growth. The growth can be ensured
by a systematic and continuous analysis of fixed assets, current assets, fixed and current
liabilities, sales liquidity etc. An analysis of financial statements of South India Metal
Company will help to identify the weak points and convert it to strong points by taking
some remedial measures. The present study is an attempt in this direction.
THE MAIN OBJECTIVES OF THE STUDY ARE
1. To analyses the profitability of the business
2. To analyses the asset management of the firm.
3 To analyses the short term and long term financial position of the firm.
4. To make recommendation based on the analysis of financial statements.
PERIOD OF THE STUDY
The analyses of financial statement of South Indian Metal Company
have been made for a period of 5 years ranging from 2003-2008.
METHODOLOGY
The performance evaluation of an enterprise may be conducted by making
a comparative study of its own records and an attractive approach would here to analyses
the firm’s objectives and performance against absolute standard of efficiency. The study
was conducted on the basis of financial data from published records and other books with
both primary and secondary data. The data have been collected from partnership deed of
SIMCO, published financial statements of last 6 years, personal interview with office
staff and other relevant books and accounts of the firm.
8 Saja.K.A
TOOLS USED FOR ANALYSIS
The study makes use of techniques like
1. Comparative Balance Sheet & Income Statements
2. Common Size Balance Sheet & Income Statements
3. Profitability Ratio.
4. Liquidity Ratio
5. Activity Ratio etc
Simple Mathematical Tools like
1. Averages
2. Percentages
Accounting Tools like
1. Ratios
2. Trend Analysis
& Statistical Tools were made also used for this analysis.
LIMITATONS OF THE STUDY
The Sample Size is very small. Only 5 data were analyzed. So there is a possibility of
occurrence of some sampling errors. If the sample were large and representative, the
observation would have become more credible.
It considers only monetary factors, non monetary factors are not considered.
It is applicable only in the case of South Indian Metal Company, Shornur, not a study
SOUTH INDIA METAL COMPANY located in SHORANUR is a
partnership firm established and registered in the year 1947. The founder of this firm is
PMC.DIVAKARAN NAMBOOTHIRIPAADU. The partners of the firm are
PURAYANNUR DIVAKARAN and PURAYANNUR VALSALA. The partners of the
firm are PURAYANNUR DIVAKARAN and PURAYANNUR VALSALA. The
managing partner of the firm is P.DIVAKARAN .The firm is running with 20 office staff
and 52 laborers.
HISTORY OF THE FIRM
SIMCO is a well known firm, manufacturing agricultural
implements and garden tools. South India Metal Company was established in 1936 as a
private company. Later partnership firm known as Purayannur Industries purchased the
company from the ABDUL SAMAD in the year 1947 and registered under the Indian
Partnership Act in 1956. The firm improved its working with the help of technical advice
of Sri C.K MENON and Sri K.K RAJA.
11 Saja.K.A
STRUCTURE OF THE FIRM
Accounting to the partnership deed the firm consists of two partners.
PURAYANNUR DIVAKARAN and PURAYANNR VALSALA
The capital of the firm Rs 4, 00, 00 and contributed as under
PURAYANNUR DIVAKARAN -1, 60,000 /-
PURAYANNUR VALSALA-2, 0,000/-
The profit and loss of the firm after adjusting their interest salary and bonus to the
partners if any is divided among the two partners in the ratio of 40 % and 60%
respectively.
The managing partner of the firm is responsible for the overall and effective management
of the staff and whole establishment of SIMCO.
WORKING CAPITAL of SIMCO
The company invites deposits in the form of unsecured loans from
the partners for its day to day activities. It also invites deposits from outsides. These
deposits are used for meeting the company’s working capital requirements. It has also the
banking facilities such as overdrafts.
LOCATION OF THE FIRM
SIMCO is situated at Kulappully, 3 kilometers from Shornur Town.
There is about 8 acres of land for the company. The office, factory building, canteen,
workers, rest room, watch man sitting room, workers and staff quarters are well
constructed. As it is situated in the heart of Kulappully , all facilities such as road, rail
electricity, banking, communication etc are readily available there. Besides these
facilities the place is famous for small scale industries, especially Metal
Industries .Because of this the parcel booking office of almost all transport companies
have been opened here like T.V.S .Pattel Road ways, ABT ETC……
LAY OUT
12 Saja.K.A
The layout of the firm comprises factory buildings, office, canteen and rest room
for employees, security office and employers quarters well designed to accommodate
with in the available area even providing space for future expansion.
QUALITY CONTROL
SIMCO ranked first in its quality of products targeted towards user satisfaction.
The firm has received various awards including a first prize in the WORLD
AGRICUTURAL FAIR at NEW DELHI in 1961 for SECATURES and second prize in
the NATIONAL QUALITY AWARD FOR AGRICULTURAL IMPLEMENTS in 1986
PRODUCTS OF SOUTH INDIA METAL COMPANY
1. AGRICULTURAL IMPLEMENTS
MAMATTY
PICK-AXE
GRUBBLING MATTOCK
2. HORTICULTURAL IMPLEMENTS
KODAALI FORK
DIGGING FORK
MAMMATTY FORK
DIGGING FORK
3. GARDEN TOOLS
GARDEN SHARES
TRENCHING HOE
HAND FORK etc….
13 Saja.K.A
4. ESTATE TOOLS
RUBBER TAPPING KNIFE
PRUNNING SAW
PRUNNING KNIFE
5. HAND TOOLS
TM CUTTER
ALAVANGOES
FELLING KNIFE
HAMMERS
AXE
SICKLE
COMPANY HAVE A MONOPOLY ON THE PRODUCTION OF
DIGGING FORK
PICK AXE
Pick-axe is an inevitable implements used by farmers and workers.These are used for
digging purposes.Two edges of pick-axe are sharpened one edge is pointed and the other
iand the other is flattered.So the operations become easier.
SPADE
Spade is an essential tool for several kinds of agricultural operations.It is mainly used for
turning up the soil or digging of the ground.It can be used both in light and hard soil.
HAMMER
Hammer is an indispresable tool for mining and quarry works. It is used for splitting
stones or rocks and is also used in the preparation of metal for load and building
constructions.The purpose for which it is being used the hammer is generally included in
the category of agricultural implements.
14 Saja.K.A
ORGANISATION CHART
Purayanur Industries
Managing Partner
Technical Manager Office Manager
Raw material Production and Finished Goods Accounting and Purchase and Maintenance and sales Finance Stores department Department Department Department
Foreman Charge man Sales Manager Account Clerk
Sales Clerk
Wage Clerk Raw material
Workers Store Keeper Dispatch clerk
Watchman Computer
Operator
15 Saja.K.A
VARIOUS DEPARTMENTS
1) RAW MATERIALS PURCHASE AND STORES
DEPARTMENT
The working of the company starts from the Raw material purchase and stores de
partment. The raw material store keeper is the head of this department. There is one
assistant store keeper to help the raw material store keeper. The main functions of thsi
depatment
are (1) Purchasing of raw material (2) Storing of raw material (3) Issuing of raw material.
1)PURCHASING OF RAW MATERIAL
Purchase of raw material is the important function of the raw material
purchase and stores department.It includes the following steps
a) RECEIVING PURCHASE REQUISITION
Purchase requisition is a form used as a formal request to the purchasing
department to purchase materials.It gives the specification and quality materials to be
bought ,works order number and sanctions reference appilicable and data line for the
receipt of the materials.
When the stock of materials come to the re-ordering level ,the store
keeper prepare a purchase requisition.After receiving the purchase requisition,the
purchase manager will inform the same to several manager and then inform to
managing partner.Managing partner give consent to the purchase of such raw
material.After selecting the supplier the purchase manager will send purchase order to
those suppliers who supply the good quality material.
b) ISSUING OF PURCHASE ORDERS
16 Saja.K.A
A purchase order is an order to the supplier for specificed material it is the
evidence of the contract between the buyer and the supplier that binds both buyer and
supplier to the terms under which the order is placed. Purchase order will contain name
and address of both the parties,name of goods,quantity of goods etc…..After obtaining
the order the supplier will inform the date of dispatch,quantity,price &mode of delivery
of materials.The supplier send their goods to the consignee through TVS,KT etc… stated
in the indent.After receiving the materials storekeeper will check the quantity ,quality and
condition and will issue “ Goods received note” to facilitate the procurement department
to release the invoice for payment.
2.STORING OF MATERIAL
After receving the material ,store keeper place the material in proper
place and maintain a stores ledger containing three main column
a) Reciept column
b) Issue column
c) Balance column
On the basis of stores receipt note ,the store keeper accounts the receipt in the receipt
column of the stores ledger.It contain the quantity , rate and value of the material.
3.ISSUE OF RAW MATERIAL
Issue of raw material is done through the raw material indent. It is prepared
by the respective section chargeman showing the job order number, name of the
material,number or quantity etc…When the goods are issued, the storekeeper records it in
the issue column of the store ledger and balance is shown in the balance column.The
company adopt FIFO method for issuing the material .
PRODUCTION DEPARTMENT
Production is a process of converting rawmaterial into semi finished
goods or finished products.The working of the production department consist of the
following process:
17 Saja.K.A
1.RAIL CUTTING
The first step in production process is to cut the rail into comfortable
size.Mainlythe rail is divided into 3 parts head,centre and flange or bottom.Head is used
for making hammers, centre for making mammatties etc…The products which need high
carbon content are made by billets.
2.POWER FORGING
After Rail cutting it is then passed to the power forging section.A far heating the
rail upto red form furnure,it is passed to power hammers.The power hammers will give
Rough shape to the product.From here semi finished goods are passed to Hand forging
section.
3.HAND FORGING
Finishing work is manually done at hand forging section.Only that raw material
which is having rough shape is passed to hand forging section.
4.TEMPRATURE 0R HEAT PROCESSING
Tools are tempered on hardened under this process. Firstly the tools are heated
then suddenly cooling. This is another area of expert work because the qualities of the
tool or implements are very much depending on this process. Similarly sharper tools are
tempered in quenching oil and other tools are tempered is know.
5.GRINDING OR POLISHING
Under this process tools are grinded or polished. This process makes the tools are
very attractive. For this grinding wheels and polishing belts are used.
6.CUTLERY AND CARPENTARY
Next process is cutting and carpentry certain tools require handles. These handles
are fitted under this process. For handled, in this company ‘avail’ plants are used because
of the special quality in nature.
7.PAINTING AND PACKING
Some tools are painted in the red colour, some others in light rose and others in
varnish. Some special tools are electroplated. This process makes tools are very
attractive and prevent stain.
18 Saja.K.A
The painted or varnished tools are packed in convenient Quantities and then
transferred to finished goods stall. The process Of Production is given in diagram. The
diagram showing the Company process of section of production.
MAINTENANCE DEPARTMENT
Maintenance section is a part of production department. It helps to
make the production smoothly affinity. It consists of on maintenance engineer and his
workers. The workers include sharps, mechanist, man and fitters.Maintenance of a
machine means effort dissected towards maintaining the machine in a good condition.
Maintenance reduces break downs and helps in achieving targeted production. The
maintenance is done with out affecting production. The main duties of the department are
repair and maintenance of equipments of the factory.
The main functions of their department are:
1) To provide spare part to the machine.
2) To repair machine
3) To maintain the machine properly
4) To provide directions and instruction regarding options of machines.
The maintenance section is not a suppurate department. But it is a part of production
department. This helps to repair the machines and prevent the stoppage of production or
to avoid the interception in the flow of production process.
MARKETING DEPARTMENT
Marketing is a comprehensive term and includes all resources and set of
activities necessary to direct and facilitate the flow of goods and services from the point
of production to the consumption through the process of distribution.Marketing is the
process of all activities including for the exchange of goods and services from the point
of production to the point of consumption.
The marketing area of SIMCO product is the whole over South India. The
products are marketing directly by the firm. Sales manager is in charge of marketing
department. He is to make sales and keep all records and account in connection with
19 Saja.K.A
sales. Sales department divides the selling price of the products, profit on product and
production on the basis of demand.
The method is that the company has a sales representative to collect orders
from the dealer/retailers. The sale representatives will inform the orders and the
company directly will send the product to the dealer/retailers.
SALES DEPARTMENT
The sales manager with the help of sales clerk undertakes the sales activities.
Orders are received by the firm through agents on securing orders the sales clerk makes
arrangements for the delivery of goods. He records the products delivered, its quality,
price quantity etc in a book known as order book.For order worth Rs 3500 /- or more at a
times 15% discount will allowed for all items. It charges central sales tax and maximum
credit period is one and half month.It also provides credit sales on limited rates.
HUMAN RESOURCE DEPARTMENT
Main purpose of human resource department is to establish and maintain
sound personnel relation at all levels of organization and effective use of personnel by
ensuring good condition of employment.Human resource department is under the charge
of a human resource manager.
Functions of personnel management
1. Incentivating developing and maintaining motivation for work.
2. Wage & salary administrating and wage & salary surveys.
3. To provide benefits and service of insurance, health, hospitalization, medical care etc.
Types of workers
There are three types of workers in the company
1. Piece rate workers on the production department.
2. Administrative staff.
3. Security staff
20 Saja.K.A
SIMCO consists of 100 workers.Among them 49 are permenant workers.It also has 17
office staff and 4 security staff.
The major functions of this department are:
RECRUITMENT AND SELECTION
Like any other company ,SIMCO also need different kinds of personnel for
metal works , supervisors , clerks and so on.This company specifies separate skill and
experience for all these work. SIMCO find out its human resources through various
source like advertisement ,unsolicitated application.
INDUSTRIAL RELATION
Trade union are a powerful instrument to promote and safe guard the interests of the
workers and to achieve the economical psychological and social goal of workers
Trade union of the company are as follows
CITU
INTUC
B.M.S
SIMCO Staff Association (staff union)
WELFARE
Labour comprises all human efforts of body and mind, which is exchanged for a
consideration in term of cash or kind or bosh. Welfare to a broad concept referring to a
condition of an individual or group of relationship – with the whole environmental.
Friendly existence physiological balance, population free existence and proper sanitation,
solid welfare is the prevention of decimation bred on costs, creed sex, establishment of
equity and fairness, ensuring safety. The office of economic welfare same time promotes
Economic development of society by increasing production, productivity and quality of
products and services.
21 Saja.K.A
WAGE AND SALARY ADMINISTRATION
There are different rule for determining the wages of workers and salary of
office staff. Office staff and watch man received fixed salary.But the workers receive
wages under piece rate system.The firm pays iut the wages as per the minimum wages
Act of 1948
Benefits given to employees
This organization provides following retirement benefits to the employee, i.e. Gratuity,
Provident fund and Pension etc.
FAMILY PENSION
Family pension is paid to employees who died before superannuating.Graded
person is provided. Those who retire get a lump sum but no pension. Minimum
eligibility condition of pension is to be 10 years experience.
PROVIDENT FUND
Provident fund is give to the employee by way of contribution equally done by employer
and the employees.
GRATUITY
Gratuity is calculated by using the following formula
Gratuity = Basic Pay + Dearness allowance X 15/26 X year of service
BONUS
SIMCO provide certain percentage of profit as a bonus in a festival season.
EMPLOYEE STATE INSURANCE
Both employees and employers contribute a fixed sum to ESI.
LOANS
The concern provide,loan facility to its employees in times of festival,marriage
and other needs.
CANTEEN FACILITY
The canteen facility are also provided to the employees. For availing this facility
the employees should take canten token from the office and then his token should be
given to canteen instead of cash.
22 Saja.K.A
SAFETY & SECURITY
Management is primarily responsible for safety. Management involves all
managers including top management. All department head and their management staff
including supervisors are equally responsible for safety of their workers and equipment.
A worker who is working with a machine is equally responsible for the safety of his life
as well as the lives of his colleagues. So as also the security man as the gate of his
factory thus we find safety encompasses every employee, every department and every
functionary in the organization.
60 minor accidents are reported in the last year. The main cause of these
accidents is to carelessness of the workers. Most of the workers are working near the
furnace. This is always a chance to burn body of the workers. The company can avoid
this accident to give more training and safety program to the workers.
OTHER ADMINSTRATIVE ACTIVITIES
PERFORMANCE APPRAISAL
The performance of each employee is evalutated by the respective supervisor
and the evaluation report is submitted to the top level executives by the
supervisor.According to this workers may rewarded at the monthly meeting.
ABSENTEESIM
There are two types of absentees. They are habitual absentees and non habitual
absentees. Habitual absentees will take leave frequently without any reason or
somewhere engaged in other wise, other than their workers in the company.Non habitual
absentees those who take leave very rarely. SIMCO permits 10 % absenteeism in a year
GRIEVANCE HANDLING
23 Saja.K.A
If there is any grievance are occupied it will be reported to the top leve
managers and a mmeting will be called immediately.In this the workers and top level
management reveal their problems and complaints according to this proper action will be
taken
TIME OFFICE
For recording the attendance of workers instead of attendance register and
attendance card method is followed.It is placed in the time office. The attendance card
contains the name of the worker, ticket number, name of the dept in which he works,
working hours etc. At the time of his arrival the worker should submit his attendance
card. The charge man also records the attendance in a particular book the note book
include the name of worker, ticket number, 6time of arrival etc. After doing the charge
man submits this book to the personal manager and he will make tick marks on the
attendance card and this is the base for preparing wage sheet.
ACCOUNTING AND FINANCE DEPAREMENT
The accounting and finance department under the control of office manager.
It consists of account clerk wage clerk, sales clerk and dispatch clerk and computer
operator.
The main functions of the finance department are as follows.
1. Maintenance of liquid asset.The department ensures that there is adequate cash in
hand and at bank to meet its obligation at all times.
2. Building up reserves for growth expansion.
3. Maximisations of profit and wealth of the owners.
4. Ensuring maximum operational efficiency by efficient and effective utilization of
finance for ensuring financial discipline in the organization.
5. Evaluation of financial performance.
24 Saja.K.A
6. Negotiate with bankers, financial institution and creditors.
7. The department undertakes financial planning to forecast the needs and source of
finance.
ACCOUNTING SYSTEM
The Accounting Department is fully computerized. The company maintains the accounts
on double entry system of Book-Keeping.Office manager is in charge of accounts section
and is responsible for the entire function of this section.
Main books of accounts
The company prepares mainly the following books.
Cash book : Cash book is prepared for entering all the receipt and
expenses of cash
Purchase day book : Transaction of credit purchase of goods are recorded
in this book
Sales day book : Sales day book includes all sales made in a day. There
are separate column for taxable and nontaxable items in these books.Two
separate column for @ 4 percentages and 10 %. At the end of every
month the sales clerk prepares sales day book.
General Ledge r: A general ledger contains all other accounts.
Bankbook: The bank book contains the receipt and payments of check,
demand draft etc.
Personal Ledger : It includes personal accounts, which are divided into
two separate accounts. They are:
Sundry creditors:- All purchases are treated as credit purchase and so that
all purchases entered in to sundry creditors account.
Sundry debtors: - This account is kept for ending reminder and for
Calculating sundry debtors.
25 Saja.K.A
CHAPTER 3
FINANCIAL STATEMENT ANALYSIS
Financial Statements are the principal sources of Financial Information.
They are the statements showing the financial position and the results of business
operation at the end of the accounting period. It is prepared on the basis of recorded
facts .The statements are prepared for a particular period, generally once in a year
According to John .N. Myer,” the financial statement provide a
summary of accounts of a business enterprise in the balance sheet reflecting the assets,
liabilities and capitals as on certain date and the income statements showing the results of
operations during a certain period. Financial statements are the outcome of summarizing
process of accounting.
Financial analysis refers to the process of determining financial strength
and weakness of the firm by establishing the strategic relationship between the items of
the Balance Sheet, Profit &Loss account and other operative data .It is the use of
financial statements to analyze a company’s financial position and performance and to
assess future financial performance. It is a technique of X-raying the financial position as
well as progress of a firm.
In the words of John .N. Myer “Financial statements analysis is largely a
study of relationship among the various financial factors in a business as disclosed by a
single set of statements and a study of the trend of these factors in a series of statements.”
The analysis and interpretation of financial statements is used to
determine the financial position and operation as well.
For analyzing and interpreting the financial statements, some important
tools used they are as follows.
1. Comparative Statements.
2. Trend Analysis.
26 Saja.K.A
3. Common size statements.
4. Ratio Analysis.
5. Single and multiple bar diagram.
COMPARATIVE STATEMENTS The comparative financial statements are statements
which show the financial position of a firm at different period of time. The changes in
financial data are best understood if the statements of two or more years are placed side
by side to facilitate comparison. Such statements are called Comparative Financial
Statements.
The two Comparative Statements are Comparative Balance Sheet &
Comparative Income Statement.
COMPARATIVE INCOME STATEMENT
The Comparative Income Statements will show the operating results
for two periods and the amount as well as percentage increase or decrease in them. It
explains clearly the relation ship between sales and cost of goods sold and its effect on
gross profit. It gives an idea of a progress of a business over a period of time. The
changes in absolute data and money value and percentages can be determined to analyze
the profitability of the business.
Comparative Income Statement 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.
The increase or decrease in sales will be comparative with increase or
decrease in cost of goods sold. The second step of analysis should be the study of
operational profit .The increase or decrease in net profit will gave you an idea about
27 Saja.K.A
overall profitability. Thus an opinion is formed about profitability, i.e. whether good or
not.
TABLE 3-1 COMPARATIVE INCOME STATEMENT
PARTICULARS 2006-2007 Rs
2007-2008 Rs
ABSOLUTE INCREASE/DECREASE
% INCREASE/DECREASE
SALES
LESS COST OF GOODS SOLD
1,85,38,693.38
1,43,4,7440.8
2,15,67,735.45
1,66,17,804.53
30,29,042.07
22,70,363.73
16.34
15.82GROSS PROFIT
{ADD}.OTHER INCOME
41,91,252.58
10,37,88.54
49,49,930.92 54,571.39
7,58,678.34 49,217.15
18.10 47.42
TOTAL
{LESS}OPERATING EXPENSES
42,95,041.12
31,47,563.54
50,04,502.31
36,69,114.19
7,09,461.19
5,21,55,0.65
16.52
16.57
OPERATING PROFIT
{LESS}. NONOPERATING EXPENSES
11,47,477.58
7,24,581.60
13,35,388.12
7,83,111.02
1,87,910.54
58,529.42
16.38
8.07
NET.OPERATING PROFIT
4,22,895.98 5,52,227.10 1,29,381.12 30.59
INTERPRETATION
The comparative income statement gives above reveals that
1. There has been an increase in sales of Rs 30,29,042.07 in the year 2007- 2008while
the cost of goods sold has increased nearly by 15.82%ther by resulting in an
increase in gross profit of Rs.7,58,679.34.
2. The miscellaneous income decreased in the year 2007-2008.
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3. In the year 2007-2008 operating expenses shows an increase of 16.57%.The
operating profit of the company is increased by 16.38%.
4. In the year 2007-2008the non operating expenses show an increase of 8.07%.
5. In the year 2007-2008 the net operating profit of the company is increased by
30.59%.There is a sufficient progress in the firm and the overall profitability of the
firm is good.
COMPARATIVE BALANCE SHEET
The comparative balance sheet analysis is the study of the same 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 while interpreting comparative balance sheet the interpreter is expected to study
the aspects like current and liquidity position, long term financial position and