A Study on Financial Statement Analysis

V. Ajay
______________________________________________________________________________
Introduction
Financial Analysis is the process of determining the operating & financial characteristics of a
firm from accounting data & financial statement. The goal of such analysis is to determine
efficiency & performance of the firm management, as reflected in the financial records and
reports. Its main aim is to measure the firms liquidity, profitability and other indications that
business is conducted in a rational and orderly way. The basic financial statement Of the
various reports that the companies issue to their shareholder, the annual report is by far the most
important. Two types of information are given in this report, first there is a text that describes the
firms operating results during the past year and discusses new development that will affect future
operations. Second there are few basic financial statements the income statement, the balance
sheet, the statement of retained earnings and the sources and uses of funds statements.

The financial statement taken together give an accounting picture of the firms operation and
financial positions. Financial statement 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
trends of these factors as shown in a series of statements
Final management is one of the important functions in the area of management.
The aim of every firm to maximize the wealth of the shareholders and reputation of the
company. There exist no inseparable relationship between the financial functions and other
mangers to achieve its goal and objectives, which are related to the companys investment and
financial decisions. The analysis of the past information helps us to forecast the future accurately
since financial statements provide valuable and genuine information concerning the past, hence
financial analysis will help us to analyze the present position and fix future goals.The financial
decision making authority vests in the hands of managements.Management should be
particularly interested in knowing financial strength & weakness of the firm, working Capital
Management and Ratio Analysis are the two important tools in the hands of the management to
identify the strength the weakness of the firm. Two sections to justify the titled of the project,
one Is the working capital management and the other is the financial ratio analysis. One may
argue that ratios analysis fit into the working capital management but detail with which I have
dearth into in the ratios has forced me section it into a new one. Each of the main sections has its
own sub-stations and some theory for every exercise done according to the requirement. One
section on introduction to the industry and one with a company profile.
Review of Literature

Dr. Anurag. B. Singh (2012) Banking Sector plays an important role in economic development
of a country. The banking system of India is featured by a large network of bank branches,
serving many kinds of financial services of the people. The State Bank of India, popularly known
as SBI is one of the leading bank of public sector in India. SBI has 14 Local Head Offices and 57
Zonal Offices located at important cities throughout the country. ICICI Bank is second largest
and leading bank of private sector in India. The Bank has 2,533 branches and 6,800 ATMs in
India. The purpose of the study is to examine the financial performance of SBI and ICICI Bank,
public sector and private sector respectively. The research is descriptive and analytical in nature.
The data used for the study was entirely secondary in nature. The present study is conducted to
compare the financial performance of SBI and ICICI Bank on the basis of ratios such as credit
deposit, net profit margin etc. The period of study taken is from the year 2007-08 to 2011-12.
The study found that SBI is performing well and financially sound than ICICI Bank but in
context of deposits and expenditure ICICI bank has better managing efficiency than SBI.
Investors, regulators, academics, and researchers all emphasize the importance of comparability.
However, an empirical construct of financial statement comparability is typically not specified
In addition, little evidence exists on the benefits of comparability to users. This study attempts to
fill these gaps. We develop two measures of financial statement comparability. Empirically,
these measures are positively related to analyst following and forecast accuracy, and negatively
related to analysts optimism and dispersion in earnings forecasts. These results suggest that
financial statement comparability lowers the cost of acquiring information, and increases the
overall quantity and quality of information available to analysts about the firm.
Alok Raj Bhatt(2012) Statements prepared with the help of accounting information are known
as financial statements. Analysis of financial statements involves two jobs 1) Analyzing the data
2) interpreting the analyzed data. The process of applying different tools of analysis to know the
behavior or nature of accounting information is known as analysis. Commenting up on the
analyzed data is known as interpretation of data. Andhra Pradesh state financial corporation is a
term lending Institution established in 1956 for promoting small and medium scale industries in
Andhra Pradesh under the provisions of the state financial corporation and act, 1951. The
corporation came in to existence on 1-11-2005 by merger of Andhra state financial corporation
and Hyderabad state financial corporation. corporation has launched many entrepreneur-friendly
schemes to provide term loans, special and seed capital assistance to suit the needs of various
categories of entrepreneurs. The corporation has completed five decades service in industrial
financing of tiny, small and medium scale sector units and contributing to the balanced regional
development of the state Statements like comparative statements are computed from historical
accounting records, they possess limitations and weakness which is been possessed by
accounting records process. Ratio analysis is based on financial statements which are themselves
subject to the several limitations therefore any ratio analysis based on such statement suffers
from similar limitations.
Objectives of The Study
To estimate the earning capacity
To study the financial position and financial performance of the firm
To determine the long terms liquidity of the funds as well as solvency
To determine the debt capacity of the firm
To decide about the future prospective of the firm
An analysis of financial statements with the help of ratio may be termed as Ratio
Analysis
Need Of The Study
Financial performance analysis is the process of identifying the financial strengths and
weaknesses of the firm by properly establishing the relationship between the items of balance
sheet and profit and loss account. It also helps in short-term and long term forecasting and
growth can be identified with the help of financial performance analysis.The dictionary meaning
of analysis is to resolve or separate a thing in to its element or components parts for tracing
their relation to the things as whole and to each other.The analysis of financial statement is a
process of evaluating the relationship between the component parts of financial statement to
obtain a better understanding of the firms position and performace. This analysis can be
undertaken by management of the firm or by parties outside the namely,
owners,creditors,investors
Limitation of The Study

Due to constraints of time and resources, the study is likely to suffer from certain limitations.

Some of these are mentioned here under so that the findings of the study may be understood
in a proper perspective.

The study is based on the secondary data and the limitation of using secondary data may
affect the results.
Research Methodology
Data collection methods
There are two methods of collecting data
Primary data.
Secondary data.
Primary data
Primary data are collected by holding interview with the concerned people, though
consultations and personal observations.
Secondary data
Information relation of the secondary data is collected from printed material text books
and consultation with the people concern.
Tools
Current Ratio= Current Assets/ Current Liabilities
Acid Test Ratio=Quick Assets/Current Liabilities
Cash Ratio= Cash and Bank balances/Current liabilities
Net Working Capital Ratio = net working capital/capital employed
Debt Equity Ratio=long term liabilities/share holders funds
Proprietary ratio = Net worth/ Total Assets
Net worth = Equity share capital + fictitious Assets
Total assets= fixed assets + Current Assets
Fixed assets Ratio= Fixed assets/capital employed
Capital employed= equity share capital + preference share capital +reserves + long term
Liabilities Fictitious Assets.

Bibliography
Books
I.M.Pandey Financial Management, published by the Vikas Publishers, (2007), 9/e
Prassanna Chandra Financial Management, Tata McGraw-Hill Publishing Company ltd
pune (2005), 5/e.

Websites
www.financeindia.com
www.scclmaines.com
Jounals

Dr. Anurag. B. Singh a study of financial performance: a comparative analysis of SBI
and ICICI bank international journal of marketing, financial services & management
research Vol.1 issue 11, November 2012, ISSN 2277 3622
Alok Raj Bhatt Financial StatementAnalysis of Andhra Pradesh State Financial
corporation Arth Prabhand: A Journal of Economics and Management Vol.1 Issue 8,
November 2012, ISSN 22780629