E.
Specific Project 2
Retail Ltd., is a company engaged in the business of retailing of general goods. It has 6 large
depart
31st m ental stores and plans to openmore such stores. It has provided data for 3 years, i.e.,
in theMarch, 2025, 2024 and 2023 and has asked to analyse the data and
years ended
comment whether the business is
data
right direction and whether it will be in aposition to meet its short-term
The
financial obligation.
provided by the company is: ( in Hundred)
Particulars |31st March,|31st March,31st March,
2025 () 2024 ) 2023 (T)
I. EQUITY AND LIABILITIES
1. Sharehoiders' Funds
(a) Share Capital 1,25,000 95,000 95,000
(b) Reserves and Surplus 48,000 36,000 25,000
2. Non-Current Liabilities
Long-term Borrowings 58,000 55,000
3. Current Liabilities
(a) Trade Payables 88,000 85,000 58,500
(b) Short-term Provisions 7,000 5,000 2,500
Total 3,26,000 2,76,000 1,81,000
I. ASSETS
1. Non-Current Assets
Property,Plant and Equipment and Intangible Assets:
-Property, Plant and Equipment 1,70,000 1,55,000 86,000
2. Current Assets
65,000 55,000 45,000
a) Inventories
48,000 35,000 25,000
(b) Trade Receivables
35,000 25,000 20,000
(c) Cash and Cash Equivalents
8,000 6,000 5,000
(d) Other Current Assets
3,26,000 2,76,000 1,81,000
Total
STATEMENT OF PROFIT &LOSS
and 2023 R in Hundred)
for the years ended31st March, 2025, 2024
31st March,|31st March,31st March,
Particulars 2025 () 2024 () 2023()
2,20,000 1,80,000 1,20,000
I. Revenue from Operations (Net Sales) 1,80,000 1,20,000
I. Total Revenue 2,20,000
Ill. Expenses:
1,15,000 75,000
COSt of 1,25,500
Construction/Cost of Goods Sold
Finance Cost 5,800 5,500
Other Expenses 50,700 39,500 35,000
1,60,000 1,10,000
IN. Net Proft (l|- 1,82,000
lU) 20,000 10,000
38,000
P28 Analysis of Financial
Additional Information:
L 1ne Company's closing Inventory as on 31st March, 2022 was 35,U00.
Statements- CBSE XI
Z. Reserves and Surplus js of Surplus. ie. Balance in Statement of Profit & Loss.
3. Short-term provision is for Provision for Tax.
4. Other Current Assets comprises of Prepaid
Expenses.
5. Credit terms are 60 days from the date of invoice.
Project Solution
About the Project
The project is to analyse the financial data of the company using tools of analysis, i.e.,
Balance Sheet and Accounting Ratios to assess whether the company's business is in the rightComparative
direcion
and whether the company will be able to meet its short-term financial obligations.
Information and Data of the Project
Data required for the project is given by the company. It having been provided by the company is
considered to be reliable. The data provided by the company is produced in the beginning of the project
and is not repeated for the sake of brevity.
Analytical Tools Used
In view of the requirements of the company, analytical tools used for analysis are:
1. Comparative Balance Sheet, and
2. Accounting Ratios.
Planning and Execution
Comparative Balance Sheets have been prepared to analyse changes (i.e., increase or decrease) both in
terms of rupees and percentage for each item of Assets, Equity and Liabilities.
The company has asked to assess the direction of business for which I have computed
(i) Inventory Turnover Ratio; (i) Gross Profit Ratio; and (iii) Return on Total Assets Ratio.
The comnpany has also asked to assess whether it will be able to meet its short-term financial commitments
for which Ihave computed (i) Current Ratio; (i) Quick Ratio; and (ii) Debt Collection Period.
The project has been planned and executed as follows:
its
1. Inventory Turnover Ratio is computed to assess whether the company is able to manage
inventories efficiently.
2. Gross Profit Ratio is computed to assess the protitability of the company.
assets
3. Return on Total Assets Ratio is computed to assess whether the Company has used its fixed
efficiently.
4. Current Ratio and Quick Ratio is computed and analysed to assess short-term financial position
of
obligations.
the company to assess whether the company will be able to meet its short-term financial
debts
5. Debt Collection Period is computed to assess whether the company is able to Collect its
efficiently.
Project Work
Rin
Hundred)
Change (Increase/Decrease)
P.29
G=100x
F/B
Percentage 31.58 33.33 5.45 3.53 40.00 18.12 9.68 18.1837.1440.00 33.3318.12
(%)
Change
((ncrease/Decrease)
F=C-B 30,000 12,000 3,000 3,000 2,000 50,000 15,000 10,000 10.000 2,00050,000
13,000
Absolute
|(Increase/Decrease)|
Change
E=100
xD/A
44.00 45.30 100.00
52.49 80.23 22.22
40.0025.00 20.0052.49
Percentage
(%)
2025
and
2024 (Increase/Decrease)
Change
2023, D=B-A 11,000 55,000 26,500 2,50095,000 69,000 10,000 5,000 1,00095,000
10,000
Absolute
March,
Ltd.1st
E.Retail
3
at March, 1,25,000 48,000 88,000 7,0003,26,000
as 2025 58,000 1,70,00065,000
48,000
35,000 8,0003,26,000
SHEET C
31st
March,
BALANCE
2024 95,000 36,000 55,000 85,000 5,0002,76,000 1,55,00055,000 25,000 6,0002,76,000
35,000
31st B
COMPARATIVE
March.
95,000 25,000 58,500 2,5001,81,000 25,000
86,000 45,000 20,000 5,0001,81,000
2023
Comments31st A
NoteNo.
Equipment
and (i.e., Equipment Equivalent
of Short-term
(b)
Provisions
Analysis, Surplus
Statement
Liabilities
2.Non-Current
Long-term
Borrowings
for
Tax)
Provision
and (b)
Trade
Current
Other
Assets
Receivables
-Prepaid
Expenses
LIABILITIES
Funds Assets and
intangible
Assets:
Non-Current
Share
(a)
Capital -10%3. (a)
Trade
Payables
Liabilities
Current
Debentures and Plant Cash
and Profit
&
Loss) Current
2.
Assets
Inventories
(a)
Shareholders'
1. in Piant and
Reserves -Property,
Computation, AND
Balance
Property, Cash
EQUITY (b) ASSETS
(c) (d)
Particulars Total Total
1.
I. I.
1.
Anal
P30
1. Absolute
Notes: Change in each item of Compärative Balance Sheet is calculated by subtracting the previous year's balance
(-).
increase(+) or decrease
from the current year and indicatethe change as
2. Percentage change is catculated as follows:
absolute figure X100.
year's or
If currentlncrease
3. Absolute value has decreased,year
Decrease/previous showthe Absolute change and Percentage change in brackets to reflect
negative item.
RATIOS R in Hundred
2. COMPUTATIONOF ACCOUNTING
31st March, 2023
31st March,2024 31st March, 2025
Ratio
() Inventory Turnover Ratio:
Cost of Revenue from Operations 1,15,000 ?1,25,500
(Cost of Goods Sold) 775,000
740,000 50,000 60,000
Average Inventory
= 1.88 Times = 2.30 Times = 2.09 Times
() Gross Profit Ratio:
45,000 -x100 65,000 94,500
Gross-Profit -x 100 x 100
100 72,20,000
1,20,000 1,80,000
Revenue from Operations
(Net Sales) =0.375 or 38% =0.361 or 36% =0.430 or 43%
(ii) Returnon Total Assets Ratio:
Profit after Tax* {7,500 -x 100 15,000 31,000 x 100
-x 100 x 100
Total ASsets 1,81,000 2,76,000 3,26,000
=4.14% = 5.43% =9.51%
(iv) Current Ratio:
Current Assets 795,000 1,21,000 *1,56,000 =1.64:1
= 1.56: 1 =1.34: 1 95,000
Current Liabilities 761,000 790,000
(v) Quick Ratio:
Quick Assets 45,000 = 0.74:1 60,600 83,000 =0.87:1
= 0.67:1
Current Liabilities 761,000 90,000 95,000
(vi) Debt Collection Period:
Trade Receivables 25,000 -x365 35,000 48, 000 x 365
x 365
Average Daily Credit Sales 71,20,000 1,80,000 2,20,000
=76 Days =71 Days =80 Days
i nHundred)
2025(
Particulars 31st March, 2023 () 31st March,2024 () 31stMarch,
*Profit before Tax 10,000 38,000
20,000
Less: Tax (Provision for Tax) 2,500 7,000
5,000
Profit after Tax 7,500 31,000
15,000
Project Work P.31
Analysis and Conmments
1 Camnorative Balance Sheets of the company show that there is increase in Sharo Ctst ,
0o0 (i.. 31.58%) during tne year 2024-20. Whle
200 000 (ie. 33%) and by 55,00,00 during Long-term Borrowings increased by
the year 2024-25 and 2023-24 respectively.
s.labod profits, i.e., Balance in Statement of
I 2500.000 in 2023, R 36,00,000 in year 2024 and ? Profit && Loss increases year after year being
2 Lone_term Borrowings have
48,00,000 in year 2025.
increased
Share Capital has also increased in themarginally
in the year 2025 as
year 2025 by 30,00,000. compared 2024 by 3,00,000.
to
4. TradePayables has increased from ?
58,50,000 in
the company has been using credit period from 2023 to 88,00,000 in the year 2025. It shows that
5. The above resources of funds have
suppliers efficiently.
been invested in Property, Plant and
Trade Receivables. Equipment, Inventories and
6. Property, Plarnt and Equipment has
increased from 86,00,000 in the year 2023 to 1,70,00,000 in
the year 2025. Major investment has been in the
year 2024 which was 69,00,000 in the year 2024.
This is majorly invested from Long-term Borrowings
55,00,000 and balance from internal accruals.
7. Inventories have increased from
45,00,000 in 2023 to 65,00,000 in 2025. The company is
in retail trade with six large Departmental Stores and engaged
thus, the investment in inventories is judicious.
8. Trade Receivables of the company are
reasonable keeping in view that the sales are normally in cash
or against credit card. Credit sale is made to regular
customers or when buying is by business houses.
9. Property, Plant and Equipment have increased by 15,00,000 (i.e.,
whereas they have increased by 69,00,000 (i.e., 80.23%) during the9.68%) during the year 2024-25
year 2023-24. This fact shows
that the company has utilised its major Long-term Funds for purchasing Fixed
Assets.
10. Increase in Trade Receivables may be because of
inefficiency in colection from Debtors and/or
may be because of extended credit period. In effect, working capital
would increase.
requirement of the company
11. There is also increase in Trade Payables that shows either the
company is ernjoying extended credit
period for payment or it is delaying the payments to creditors.
12. Inventory Turnover Ratio has increased from 1.88 times in 2023 to 2.04 times in 2025. It indicates
slow movement of stocks. It is possible that the company is carrying large stock of unsaleable
items. It requires further investigation.
13. Gross Profit Ratio has declined from 38% in 2023 to 36% in 2024 and increased to 43% in 2025.
Sales have increased in each year. It indicates that sales were made at reduced selling price in the
year 2024. Alternatively, Cost of Revenue from Operations, i.e., Cost of Goods Sold had increased.
In the absence of adequate information on these matters, Iam unable to pinpoint the exact reason
of decline in Gross Profit in the year 2024.
14. Return on Total Assets Ratio is favourable. The ratio has increased from 4.14% in 2023 to 5.43%
in 2024 arnd further increased to 9.51% in 2025. It shows that the Property, Plant and Equipments
are utilised efficiently.
15. Current Ratio and Quick Ratio are not satisfactory. In all the three years, these ratios are below
the accepted norms, i.e, 2: 1 and1:1respectively. The company had raised furnds by issue of shares
and these funds have been invested in Property, Plant and Equipments instead of investing them
in working capital. The company may not be in aposition to meet its financial obligations in time.
16. yY of the company allows 60 davs of credit. The debt collection period in all the three
years is more than the period of 60 davs The credit period rose to 76 days in 2023 but declined
a Dit aays in 2024. Again in 2025 it rose to 80 davs. The company needs to review its debt
coueuon POhcy and process and take efective steps to bring the credit period below 60 days.
