Meaning
Prepared by
Niyaf Ramapuram Types and Methods of Financial Analysis
(M.Phil, M.Com, MBA, MSc Psy, MA
Eco, B.Ed, SET) Comparative Statements
Asst.Professor
Pristine Valley College Trend Analysis
Mongam-Malappuram
Common size Statements
Financial Statements or Final Accounts are the
summaries of financial accounts prepared periodically
by a business
It includes
a) Income statement or Profit and Loss Account
b) Statement of Retained Earnings or Statement of
Changes in Owner’s Equity
c) Balance sheet or Position Statement
d) Fund flow statement
e) Cash flow statement
Analysisand interpretation of financial
statements refers to the process of
determining financial strengths and
weaknesses of the firm
Types of Financial Analysis
A. On the basis of materials used
B. On the basis of modus operandi
C. On the basis of objective of the analysis
A - On the basis of materials used
1. External analysis This analysis is done
by outsiders like Investors, creditors,
government agencies, credit agencies and
general public
2. Internal analysis conducted by internal
persons of the business
B - On the basis of modus operandi (modes of operation)
1. Horizontal Analysis Comparison of
financial data of a company for several
years
2. Vertical Analysis It refers to the study of
relationship of the various items in the
financial statements of one accounting
period
C - On the basis of objective of the analysis
1. Short term analysis It determine the
short term solvency, liquidity, and earning
capacity of the business
2. Long term analysis To determine long
term solvency, stability, and future earning
capacity of a business
I. Comparative Financial Statement analysis/
Horizontal Analysis
II. Common Size Statement analysis/ Vertical
Analysis
III. Trend Analysis
IV. Funds flow analysis
V. Cash flow Analysis
VI. Ratio Analysis
VII. Cost Volume Profit Analysis
Compare the financial data for two or more years. It is also
called inter-period analysis
1. Comparative Balance Sheet
2. Comparative Income Statement
QN
31/03/2010 31/03/2011 Increase/ Percentage
Particulars (Decrease) Increase/
(Decrease)
LIABILITIES
Equity Share Capital 3000 4000 1000 33.33
General Reserve 3000 3000 - -
Profit and Loss A/c 1400 2660 1260 90.00
Share Holders fund[A] 7400 9660 2260 30.54
12% Debentures 5000 4000 (1000) (20)
Sundry Creditors 630 720 90 14.28
Bills Payable 80 150 70 87.50
Borrowed Funds [B] 5710 4870 (840) (14.71)
Total Liabilities [A+B] 13110 14530 1420 10.83
ASSETS
FIXED ASSETS
Land and Building 4000 4000 - -
Plant and Machinery 6500 8000 1500 23.07
Furniture 600 800 200 33.33
Total Fixed Assets [a] 11100 12800 1700 15.32
CURRENT ASSETS
Stock 1500 1200 (300) (20)
Debtors 300 400 100 33.33
Cash at Bank 150 50 (100) (66.67)
Cash in Hand 60 80 20 33.33
Total Current Assets[b] 2010 1730 (280) (13.93)
Total Assets [a+b] 13110 14530 1420 10.83
31/12/2015 31/12/2016 Increase/ Percentage
Particulars (Decrease) Increase/
(Decrease)
LIABILITIES
Share Capital 500000 1000000 500000 100
Reserves 300000 200000 (100000) 33.33
Share Holders fund[A] 800000 1200000 400000 50
Current Liabilities 200000 400000 200000 100
12% Loan 500000 800000 300000 60
Borrowed Funds [B] 700000 1200000 500000 71.42
Total Liabilities [A+B] 1500000 2400000 900000 60
ASSETS
Fixed Assets [A] 1000000 1500000 500000 50
Current Assets [B] 500000 900000 400000 80
Total Assets [A+B] 1500000 2400000 900000 60
31/03/2011 31/03/2012 Increase/ Percentage
Particulars (Decrease) Increase/
(Decrease)
LIABILITIES (in lakh)
Equity Share Capital 50 50 - -
Reserves & surplus 10 12 2 20
Share Holders fund[A] 60 62 2 3.33
Long term loan 30 30 - -
Current Liabilities 10 11 1 10
Borrowed Funds [B] 40 41 1 2.5
Total Funds [A+B] 100 103 3 3
ASSETS(in lakh)
FIXED ASSETS
Investment 10 10 - -
Fixed Assets 60 72 12 20
Total Fixed Assets [a] 70 82 12 17.14
Current Asset [b] 30 21 (9) (30)
Total Assets [a+b] 100 103 3 3
Particulars Amount
Gross Sales
Less : Returns
Net Sales
Less :Cost of Goods sold
Gross Profit
Less: Operating expenses (Administrative exp, Selling
& distribution exp)
Operating Profit
Add: Non Operating incomes
Less :Non operating expenses
Net Profit before tax
Less ; Income Tax
Net Profit after Tax
Qn From the following information
prepare comparative income statement
Particulars 2015 2016
Net Sales 350 420
Cost of goods sold 240 300
Office expenses 30 36
Selling expenses 20 30
Particulars 2015 2016 Increase/ % of
Decrease increase/
Decrease
Net Sales 350 420 70 20
Less: Cost of goods sold (240) (300) 60 25
Gross Profit 110 120 10 9.1
Lss: Operating expenses
Office expenses (30) (36) 6 20
Selling expenses (20) (30) 10 50
Operating profit(Net profit) 60 54 (6) (10)
QN From the following information, prepare a
comparative income statement of ABC Limited
Particulars 2007 2008 Increase/ % of
Decrease increase/
Decrease
Net sales 2400000 3750000 1350000 56.25
Less: Cost of goods sold (2000000) (2500000) 500000 25
Gross Profit 400000 1250000 850000 212.5
Less: Indirect expenses (40000) (125000) 85000 212.5
Net Profit before tax 360000 1125000 765000 212.5
Less: Income tax (180000) (562500) 382500 212.5
Net profit after tax 180000 562500 382500 212.5
Particulars 2015 2016 Increase/ % of
Decrease increase/
Decrease
Net sales 500000 400000 (100000) (20)
Less: Cost of goods sold (300000) (200000) (100000) (33.33)
Gross Profit 200000 200000 - -
Less: Administrative, selling & (100000) (70000) (30000) 30
distribution exp
Add: Other income 20000 10000 (10000) 50
Profit before tax 120000 140000 20000 16.66
Less: Income tax 60000 70000 10000 16.66
Net profit after tax 60000 70000 10000 16.66
Particulars 2015 2016 Increase/ % of
Decrease increase/
Decrease
Net sales 100000 200000 100000 100
Less: Cost of goods sold (60000) (140000) 80000 133.33
Gross Profit 40000 60000 20000 50
Less: Indirect expenses (4000) 0 (4000) (100)
Profit before tax 36000 60000 24000 66.66
Less: Income tax 18000 0 (18000) 100
Net profit after tax 18000 60000 42000 233.33
1. Common size Balance sheet
2. Common size Income statement
Common size statements examine the
proportion of a single line item to the total
statement
These are statements in which items are
converted into percentages
It is also called 100% statements
Qn Prepare a Common size Balance sheet of XYZ
from the following data
2010 2011
Current Assets
Cash 1,200 900
Accounts receivable 4,800 3,600
Inventory 3,600 2,700
Total fixed assets 6,200 5,500
Total Assets 15,800 12,700
Current liabilities
Accounts payable 2,400 1,800
Accrued expenses 480 360
Short-term debt 800 600
Long-term debt 9,020 7,740
Shareholders’ equity 3,100 2,200
Total liabilities and equity 15,800 12,700
2010 2010 (%) 2011 2011(%)
Current Assets
Cash 1,200 7.6 900 7.1
Accounts receivable 4,800 30.4 3,600 28.3
Inventory 3,600 22.8 2,700 21.3
Total fixed assets 6,200 39.2 5,500 43.3
Total Assets 15,800 100% 12,700 100%
Current liabilities
Accounts payable 2,400 15.2 1,800 14.2
Accrued expenses 480 3.0 360 2.8
Short-term debt 800 5.1 600 4.7
Long-term debt 9,020 57.1 7,740 60.9
Shareholders’ equity 3,100 19.6 2,200 17.3
Total liabilities 15,800 100% 12,700 100%
Particulars Amount
Gross Sales
Less : Returns
Net Sales
Less :Cost of Goods sold
Gross Profit
Less: Operating expenses – FACTORY EXP
Operating Profit
Add: Non Operating incomes - INT
Less :Non operating expenses
Net Profit before tax
Less ; Income Tax
Net Profit after Tax
Qn
2010 %
SALES 500 100
LESS: COST OF SALES (325) 65
GROSS PROFIT 175 35
LESS OPER EXP
SELLING EXP (30) 6
OFFICE (20) 4
OPERATING PROFIT 125 25
LESS; INT (25) 5
+ MIS INCOME 20 4
NET PROFIT 120 24
2010 % 2011 %
Net Sales 500 100 700 100
Less Cost of goods sold (325) 65 (510) 72.86
Gross Profit 175 35 190 27.14
Less Operating Expenses
Office Exp (20) 4 (25) 3.58
Selling Exp (30) 6 (45) 6.42
Operating Profit 125 25 120 17.14
Add other income 20 4 15 2.14
Less Non operating Exp (25) 5 (30) 4.28
(Interest)
Net Profit 120 24 105 15
Trend means a tendency
It discloses the changes in financial and operating data
between specific periods
Favorable or unfavorable tendencies are reflected by the
accounting data
Calculate the trend percentages from the following figures of
X ltd. Taking 2004 as the base and interpret them.
Year sales Stock Profit before
Tax[Rs.In lacs]
2004 1881 709 321
2005 2340 781 435
2006 2655 816 458
2007 3021 944 527
2008 3768 1154 672
Year Amount Sales Stock Profit before tax
(Lacs)
% Amount % Amount %
2004 1881 100 709 100 321 100
2005 2340 124 781 110 435 136
2006 2655 141 816 115 458 143
2007 3021 161 944 133 527 164
2008 3768 200 1154 162 672 209
2013 % 2014 % 2015 % 2016 %
Net sales
Less: Cost of
goods sold
Gross profit
Less: operating
expenses
Operating net
profit
Meaning
Types and Methods of Financial Analysis
Comparative Statements
Common size Statements
Trend Analysis
Thank you
Niyaf Ramapuram
[email protected]