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Dr
Cr
Particulars
Rs.
To opening stock
Particulars
By cost of finished Goods c/d
Raw materials
Work in progress
xxx
xxx
To manufacturing wages
xxx
To carriage inwards
xxx
xxx
Rs.
Xxxx
Raw materials
xxx
Work in progress
xxx
xxx
xxx
By sales
xxx
goods
xxx
goods
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
To general reserve
To Dividend
To Balance c/f
xxx
xxx
xxx
xxx
Rs.
Rs.
Sales
xxxx
xxx
xxx
(1)
xxxx
xxxx
xxxx
Direct Labour
xxxx
Manufacturing Expenses
xxxx
(2)
xxxx
xxxx
Gross Profit
(1) (2)
xxx
xxx
xxx
Operating Profit
xxx
Xxxx
Xxx
xxxx
xxx
xxxx
Less : Tax
Profit After Tax
xxx
xxxx
Appropriations
Transfer to reserves
Dividend declared /paid
Surplus carried to Balance sheet
xxxx
xxx
xxx
xxxx
Balance Sheet
The Companies Activities, 1956 stipulates that the Balance sheet of a joint stock
company should be prepared as per part I of schedule VI of the Activities. However, the
statement form has been emphasized upon by accountants for the purpose of analysis and
Interpretation. The permission of the Central Government is necessary for adoption of the
'statement* form.
(i) Horizontal Form
Balance sheet of .................... as on ....................
Liabilities
Share Capital
(with all paticulars of Authorized,
Issued, Subscribed capital) Called
up capital
Rs.
Assets
Rs.
xxx
xxx
xxx
xxx
xxx
xxx
xxx 7. Vehicles
xxx
Investments
xxx Current Assets, loans and
Advances
reserve
3. Share premium
4. Other premium
xxx Investments
xxx
xxx
3. Stock in trade
xxx 4. Sundry Debtors
xxx
xxx
xxx
6. cash in Bank
Secured Loans
Debentures
xxx
xxx
xxx
xxx
Unsecured Loans
Fixed Deposits
Short-term loans and advances
xxx
xxx
1. Preliminary expenses
xxx
xxx
and debentures
A. Current Liabilites
3. Underwriting Commssion
1. Bills Payable
xxx
2. Sudnry Creditors
xxx if any
4. unclaimed Dividends
xxx
5. Other Liabilities
xxx
xxx
B. Provisions
6. Provisions for Taxation
xxx
7. Proposed Dividends
xxx
xxx
xxx
Schedule No.
Current year
Previous
Year
I. Source of funds
1. Share holders funds
a. capital
xxxx
xxxx
xxxx
xxxx
a. Secured Loans
xxxx
xxxx
b. Unsecured Loans
xxxx
xxxx
a. Gross Block
xxxx
xxxx
b. less Deprciation
xxxx
xxxx
c. Net block
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
a. Inventions
xxxx
xxxx
b. Sundry Debtors
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
2. Loans funds
Total
II. Application of funds
1. Fixed Assets
2. Investments
xxxx
xxxx
b. Provisions
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
a. Miscellaneuos Expenditure to
2,00,000
Opening stock
10,000
Closing stock
15,000
Purchases
40,000
Operating Expenses
12,000
Solution:
Income Statement
Particulars
Rs.
Sales
Rs.
2,00,000
10,000
40,000
50,000
Less: closing Stock
15,000
35,000
Gross Profit
1,65,000
12,000
Operating profit
1,53,000
4,000
1,49,000
74,500
74,500
Illustration: 2 From the following information Prepare P& L Accounts And Balance sheet
For the year ended March 31, 2015
Particulars
Purchase and sales
Carriage on Purchase
Wages and Salary
office expence
Rent
Insurance
Audit Fees
Accounts Receivable/ payable
Printing and Advertising
Commission
Opening Stock
Cash in hand
Cash at bank
Bank Loan
Interest On Loan
Share Capital
Reserves
Fixed Assets
Debit
Credit
600000
1200000
25000
120000
44000
24000
40000
24000
280000
33000
125000
20000
72000
36000
55000
240000
24000
500000
132000
888000
2241000
Adjustments:
1.
2.
3.
4.
2241000
Illustration: 3
particular
Purchase and sales
Carriage on Purchase
Wages and Salary
office expense
debit
credit
180000
900000
0
37500
180000
66000
dividend received
Insurance
Audit Fees
Accounts Receivable/ payable
Printing and Advertising
Interest received
Opening Stock
Investment
Cash at bank
Bank Loan
Interest On Loan
Share Capital
Reserves
Fixed Assets
36000
60000
36000
420000
49500
187500
30000
108000
54000
82500
360000
36000
750000
198000
1332000
3361500
336150
0
(e) in case of a company covered under sub-section (1) of section 178, companys policy on
directors appointment and remuneration including criteria for determining qualifications,
positive attributes, independence of a director and other matters provided under sub-section (3)
of section 178;
(f) Explanations or comments by the Board on every qualification, reservation or adverse remark
or disclaimer made
(i) By the auditor in his report; and
(ii) By the company secretary in practice in his secretarial audit report;
(g) Particulars of loans, guarantees or investments under section 186;
(h) particulars of contracts or arrangements with related parties referred to in sub-section (1) of
section 188 in the prescribed form; (i) the state of the companys affairs;
(j) The amounts, if any, which it proposes to carry to any reserves;
(k) The amount, if any, which it recommends should be paid by way of dividend;
(l) Material changes and commitments, if any, affecting the financial position of the company
which have occurred between the end of the financial year of the company to which the financial
statements relate and the date of the report;
(m) The conservation of energy, technology absorption, foreign exchange earnings and outgo, in
such manner as may be prescribed;
(n) a statement indicating development and implementation of a risk management policy for the
company including identification therein of elements of risk, if any, which in the opinion of the
Board may threaten the existence of the company;
(o) The details about the policy developed and implemented by the company on corporate social
responsibility initiatives taken during the year;
(p) in case of a listed company and every other public company having such paid-up share
capital as may be prescribed, a statement indicating the manner in which formal annual
evaluation has been made by the Board of its own performance and that of its committees and
individual directors;
(q) such other matters as may be prescribed.
(4) The report of the Board of Directors to be attached to the financial statement under this
section shall, in case of a One Person Company, mean a report containing explanations or
comments by the Board on every qualification, reservation or adverse remark or disclaimer made
by the auditor in his report.
(5) The Directors Responsibility Statement referred to in clause (c) of sub-section (3) shall
state that
(a) in the preparation of the annual accounts, the applicable accounting standards had been
followed along with proper explanation relating to material departures;
(b) the directors had selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a true and fair view of the
state of affairs of the company at the end of the financial year and of the profit and loss of the
company for that period;
(c) the directors had taken proper and sufficient care for the maintenance of adequate accounting
records in accordance with the provisions of this Act for safeguarding the assets of the company
and for preventing and detecting fraud and other irregularities;
(d) the directors had prepared the annual accounts on a going concern basis; and
(e) the directors, in the case of a listed company, had laid down internal financial controls to be
followed by the company and that such internal financial controls are adequate and were
operating effectively.
Explanation.For the purposes of this clause, the term internal financial controls means the
policies and procedures adopted by the company for ensuring the orderly and efficient conduct of
its business, including adherence to companys policies, the safeguarding of its assets, the
prevention and detection of frauds and errors, the accuracy and completeness of the accounting
records, and the timely preparation of reliable financial information;
(f) the directors had devised proper systems to ensure compliance with the provisions of all
applicable laws and that such systems were adequate and operating effectively.
(6) The Boards report and any annexures thereto under sub-section (3) shall be signed by its
chairperson of the company if he is authorized by the Board and where he is not so authorised,
shall be signed by at least two directors, one of whom shall be a managing director, or by the
director where there is one director.
(7) A signed copy of every financial statement, including consolidated financial statement, if any,
shall be issued, circulated or published along with a copy each of
(a) any notes annexed to or forming part of such financial statement;
(b) the auditors report; and
(c) the Boards report referred to in sub-section (3).
(8) If a company contravenes the provisions of this section, the company shall be punishable
with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five
lakh rupees and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to three years or with fine which shall not be less
than fifty thousand rupees but which may extend to five lakh rupees, or with both.
Auditors report
UNIT-3
FINANCIALSTATEMENTSANALYSIS
AN INTRODUCTION
You have already learnt about the preparation of financial statements i.e. Balance Sheet and
Trading and Profit and Loss Account. After preparation of the financial statements, one may be
interested in analyzing the financial statements with the help of different tools such as
comparative statement, common size statement, ratio analysis, trend analysis, fund flow analysis,
cash flow analysis, etc. In this process a meaningful relationship is established between two or
more accounting figures for comparison. In this lesson you will learn about analyzing the
financial statements by using comparative statement, common size statement, trend analysis and
ratio Analysis.
OBJECTIVES
After studying this lesson, you will be able to:
explain the meaning, need and purpose of financial statement analysis;
identify the parties interested in analysis of financial statements;
Explain the various techniques and tools of analysis of financial statements.
TECHNIQUES AND TOOLS OF FINANCIAL STATEMENT ANALYSIS
Financial statements give complete information about assets, liabilities, equity, reserves,
expenses and profit and loss of an enterprise. They are not readily understandable to interested
parties like creditors, shareholders, investors etc. Thus, various techniques are employed for
analysing and interpreting the financial statements. Techniques of analysis of financial
statements are mainly classified into three categories :
Cross-sectional analysis
It is also known as inter firm comparison. This analysis helps in analysing financial
characteristics of an enterprise with financial characteristics of another similar enterprise in that
accounting period.
For example, if company A has earned 15% profit on capital invested. This does not say whether
it is adequate or not. If we analyse further and find that a similar company has earned 16%
during the same period, then only we can make a conclusion that company B is better.
Thus, it turns into a meaningful analysis.
Time series analysis
It is also called as intra-firm comparison. According to this method, the relationship between
different items of financial statement is established, comparisons are made and results obtained.
The basis of comparison may be :
Comparison of the financial statements of different years of the same business unit.
Comparison of financial statement of a particular year of different business units.
The following is the Balance Sheets of MS Gupta for the years 2014 and 2015.Prepare the
comparative Balance Sheet and study the financial position of the concern.
2014
Rs
2015
Rs
500,000
700,000
330,000
Debentures
Long term loan
Assets
2014
Rs
2015
Rs
270,000
1,70,000
222,000
400,000
600,000
200,000
300,000
Furniture
20,000
25,000
100,000
150,000
25,000
30,000
50,000
45,000
Cash in hand
20,000
40,000
100,000
120,000
Bill Receivables
100,000
80,000
5000
10,000
Sundry debtors
200,000
250,000
Stock
250,000
350,000
2000
1285000
1547000
mortgage
Bill Payables
Sundry creditors
Other current liabilities
Prepaid Expenses
1285000
1547000
Solution:
Comparative Balance Sheet of MS Gupta for the year ending December 2014 and 2015
Year ending 31st Dec
Assets
Increase/
Decrease
Increase
Decrease
(Percentage)
2014
2015
(Amount)
(Rs)
20,000
40,000
+20,000
+100
Receivables Sundry
100,000
80,000
20,000
20
Debtors
200,000
250,000
+50,000
+25
Stock
250,000
350,000
+100000
+40
2000
+2000
+100
570,000
722,000
+152,000
26.67
400,000
600,000
+200,000
+50.00
Furniture
20,000
25,000
+5000
+25.00
25000
30,000
+5000
+20.00
715000
825000
+110000
+13.49
Total Assets
1285000
1547000
+262000
20.39
Sundry creditors
100,000
120,000
+20,000
+20
5,000
10,000
+5,000
+100
155,000
175,000
+20,000
+12.9
100,000
150,000
+50000
+50
300,000
450,000
+150,000
+50
Total liabilities
455000
625000
+170,000
+37.36
330,000
2,22,000
108,000
32.73
8,30,000
9,22,000
+82,000
+50
1285000
1547000
+262,000
+20.39
II.
Fixed Assets
II.
Debentures
III.
Equity share capital
Interpretation
(i) The comparative balance sheet of the company reveals that during 2015 there has been an
increase in fixed assets of 110,000 i.e. 13.49%. Long term liabilities to outsiders have relatively
increased by Rs 150,000 and equity share capital has increased by Rs 200000. This fact indicates
that the policy of the company is to purchase fixed assets from the long term sources of finance.
(ii) The current assets have increased by Rs 152000 i.e. 26.67% and cash has increased by Rs
20,000. The current liabilities have increased only by Rs 20000 i.e. 12.9%. This further confirms
that the company has used long-term finances even for the current assets resulting into an
improvement in the liquidity position of the company.
(iii) Reserves and surplus have decreased from Rs 330,000 to Rs 222,000 i.e. 32.73% which
shows that the company has utilized reserves and surplus for the payment of dividends to
shareholders either in cash or by way of bonus.
(iv) The overall financial position of the company is satisfactory.
Illustration: 2
From the following particulars, pertaining to Mohan Ltd., you are required to prepare a
comparative Income Statement and interpret the changes.
Particulars
Rs.
Rs.
Sales
58,000
65,200
47,600
49,200
1,016
1,000
Administration expenses
Selling expenses
1,840
1,920
140
155
Non-operating expenses
96
644
2000
1,200
43.75%
43.75%
Sales returns
Tax rate
Solution:
Comparative Income Statement of Mohan Ltd., for the years 2000 and 2001.
Particulars
Sales
2000
2001
Rs.
Rs.
58,000
65,200
2,000
1,200
Net sales
56,000
64,000
47,600
49,200
8,400
14,800
Administration expenses
1,016
1,000
Selling expenses
1,840
1,920
2,856
2,920
5,544
11,880
96
644
5,640
12,524
140
155
5,500
12,369
Less: Tax
2,406
5,411
3094
6,958
Less Returns
Gross Profit
(A)
(B)
Operating profit
(A)-(B)
Comparative Statements
Common size Statements
Trend Analysis
Funds flow Analysis
Cash flow Analysis
Ration Analysis
Value Added Analysis.
The first three topics are covered in this chapter and the rest are discussed in the
subsequent chapters in detail.
Comparative Financial Statements
Comparative financial statements are statements pf financial position of a business
designed to provide time perspective to the consideration of various elements of financial
position embodied in such statements. Comparative Statements reveal the following: .
Absolute data (money values or rupee amounts)
Increase or reduction in absolute data (in terms of moiwy values)
Increase or reduction in absolute data (in terms of percentages)
Comparison (in terms of ratios)
Percentage of totals.
a. Comparative Income Statement or Profit and Loss Account:
A comparative income statement shows the absolute figures for two or more periods and
the absolute change from one period to another. Since the figures are shown side by side, the user
can quickly understand the operational performance of the firm in different periods and draw
conclusions.
Balance sheet as on two or more different dates are used for comparing the assets,
liabilities and the net worth of the company Comparative balance sheet is useful for studying the
trends of analysis undertaking.
Financial Statements of two or more firms can also be compared for drawing inferences.
This is called interfirm Comparison.
Illustration 3:
The following is the profit and loss account of Ashok Ltd., for the years 2000 and 2001.
Prepare comparative Income Statement and comment on the profitability of the undertaking.
Particulars
To Cost of
goods sold
2000
2001
Rs.
Rs.
2,31,625
Particulars
2,41,950 By Sales
To Office
expenses
23,266
To Interest
expenses
45,912
57,816
To Loss on
sale of fixed
627
2000
2001
Rs.
Rs.
3,60,728
4,17,125
5,794
6,952
3,54,934
4,10,173
1,896
1,750 By Other
incomes :
To Income
Tax
21,519
40,195 By Discount
on purchase
2,125
To Net Profit
35,371
44,425 By Profit on
sale of land
1,500
3,60,457
4,13,379
3,60,457
4,13
,379
Solution:
ASHOK LTD.
Comparative Income Statement for the years ending 2000 and 2001
Particulars
Sales
2000 Rs.
2001 Rs.
Increase (+)
Increase (+)
Decrease (-)
Decrease (-)
Amount (Rs.)
Percentages
3,60,728
4,17,125
+56,397
+15.63
5,794
6,952
+1.158
+19.98
3,54,934
4,10,173
+55,239
+15.56
2,31,625
2,41,950
+ 10,325
+4.46
Gross Profit
1,23,309
1,68,223
+44.914
+36.42
Office expenses
23,266
27,068
+3,802
+ 16.34
Selling expenses
45,912
57,816
+11,904
+25.93
69,178
84,884
+15,706
+22.70
Operating profit
54,131
83,339
+29,208
+53.96
5,523
3,206
-2,317
-41.95
59,654
86,545
+26.891
+45.08
2,764
1,925
-839
-30.35
56,890
84,620
+27,730
+48.74
21,519
40,195
+18,676
+86.79
35,371
44,425
+9,054
+25.60
Operating Expenses:
The comparative Income statement reveals that while the net sales has been increased by
15.5%, the cost of goods sold increased by 4.46%. So gross profit is increased by 36.4%. The
total operating expenses has been increased by 22.7% and the gross profit is sufficient to
compensate increase in operating expenses. Net profit after tax is 9,054 (i.e., 25.6%) increased.
The overall profitability of the undertaking is satisfactory.
Illustration: 4
The following are the Balance Sheets of Gokul Ltd., for the years ending 31 s1 December,
2000,2001.
Particulars
2000
2001
Rs.
Rs.
2,00,000
3,30,000
1,00,000
1,50,000
20,000
30,000
15,000
20,000
50,000
50,000
40,000
50,000
20,000
25,000
15,000
25,000
4,60,000
6,80,000
2,40,000
3,50,000
40,000
50,000
1,00,000
1,25,000
20,000
60,000
10,000
12,000
40,000
53,000
10,000
30,000
4,60,000
6,80,000
Liabilities
Equity share capital
Preference share capital
Reserves
Profit and Loss a/c
Bank overdraft
Creditors
Provision for taxation
Proposed Dividend
Total
Fixed Assets
Less: Depreciation
Stock
Debtors
Bills Receivable
Prepaid expenses
Cash in hand
Cash at Bank
Total
Solution:
Comparative Balance Sheet
Particulars
31st Dec.
31st Dec.
2000
2001
Rs.
Rs.
Inerease(+)
Decrease(-)
Amount(Rs.)
Increase(+)
Decrease(-)
Percentages
ASSETS
Current Assets:
Cash at bank and in hand
Bills receivable
50,000
20,000
83,000
60,000
+33,000
+40,000
1,00,000
1,25,000
+25,000
+25
Stock
40,000
50,000
+10,000
+25
Prepaid expenses
10,000
12,000
+2,000
+20
2,20,00
3,30,000
+1,10,000
+50
Fixed Assets
2,40,000
3,50,000
+1,10,000
+45.83
Total Assets
4,60,000
6,80,000
2,20,000
47.83
Bank overdraft
50,000
50,000
Creditors
40,000
50,000
+10,000
+25
Proposed dividend
15,000
25,000
+10,000
+66.67
20,000
25,000
+5,000
+25
1,25,000
1,50,000
+25,000
+20
2,00,000
3,30,000
+1,30,000
+65
1,00,000
1,50,000
+50,000
+50
20,000
30,000
+10,000
+50
Debtors
+66
+200
LIABILITIES
Current Liabilities:
Reserves
Total Liabilities
15,000
20,000
+5,000
+33.33
3,35,000
5,30,000
+1,95,000
+58.21
4,60,000
6,80,000
+2,20,000
+47.83
Interpretation:
1.
The above comparative Balance sheet reveaJs the current assets has been increased to
50%, while current liabilities increase to 20% only. Cash increased to Rs.33,000 (i.e.
66%), There is an improvement in liquidity position.
2.
The fixed assets purchased was for Rs, 1,10,000. As there are no long-term funds, it
should have been purchased partly from Share Capital.
3.
Reserves and Profit and Loss a/c increased by 50% and 33.33% respectively. The
company may issue bonus shares in near future.
4.
Current financial position of the company is satisfactory. It should issue more long-term
funds.
Illustration: 5
Common Size Income Statement of XYZ Ltd., for the year ended 31st March, 2001.
Particulars
Sales
Raw materials
Amount (Rs.)
(A)
% to Sales
14,00,000
100
5,40,000
16.4
Direct wages
2,30,000
16.4
Faciory expenses
1,60,000
11.4
9,30,000
66.4
4,70,000
33.6
1,10,000
7.9
80,000
5.7
2,80,000
20.0
40,000
2.9
3,20,000
22.9
60,000
43
2,60,000
18.6
80,000
5.7
1,80,000
12.9
(B)
GrossProfit
(A) - (B)
Amount (Rs.)
% to Total
ASSETS
Fixed Assets
Land
50,000
5.3
Buildings
1,10,000
11.7
2,50,000
26.6
Raw materials
80,000
8.5
Work-in-progress
50,000
5.3
1,60,000
17.0
Current Assets :
Inventory
Finished goods
Sundry debtors
2,10,000
22.4
30,000
3.2
9,40,000
100.0
2,50,000
26.6
1,00,000
10.6
General reserve
1,60,000
17.0
80,000
8.5
2,20,000
23.4
40,000
4.3
Bills payable
90,000
9.6
9,40,000
100.0
Cash at Bank
Total
Capital and Liabiltiies
Debentures
Current Liabilities
Sundry Creditors
Analysis of performance and position can be made from the above Common Size
Statements.
llustration: 6
From the following P&L A/c prepare a Common Size Income StatementParticulars
To Cost of goods
2000
2001
Rs.
Rs.
12,000
sold
To Administrative
400
400
600
800
3,000
3,800
expenses
To Selling expenses
To Net Profit
Particulars
2000
2001
Rs.
Rs.
16,000
20,000
16,000
20,000
16,000
20,000
2000
2001
Rs.
Rs.
Net sales
16,000
100.00
20,000
100.00
12,000
75.00
15,000
7500
4,000
25.00
5,000
25.00
400
2.50
400
2.00
Gross Profit
Less: Operating expenses
Administration expenses
Selling expenses
600
3.75
800
4.00
1,000
6.25
1,200
6.00
Net Profit
3,000
18.75
3,800
19.00
Illustration: 7
Following are Balance sheet of Vinay Ltd. for the year ended 31 st December 2000 and
2001.
Liabilities
Equity capital
2000
2001
Rs.
Rs.
1,00,000
Assets
2000
Rs.
2001
Rs.
1 ,20,000
1,75,000
Pref. Capital
50,000
75,000 Stock
20,000
25,000
Reserves
10,000
15,000 Debtors
50,000
62,500
P&L A/c
7,500
10,000
30,000
Creditors
20,000
20,000
26,500
Provision
for taxation
10,000
5,000
15,000
2,30,000
3,40,000
Proposed dividends
7,500
12,500
2,30,000
3,40,000
Solution;
Particulars
2000
Rs.
2001
Rs.
1,00,000
43,48
1 ,65,000
48.53
Pref. Capital
50,000
21,74
75,000
22.05
Reserves
10,000
4.34
15,000
4.41
P&L A/c
7,500
3.26
10,000
2.95
1,67,500
72.82
2,65,000
77.94
Bank overdraft
25,000
10.87
25,000
7.35
Creditors
20,000
8.70
25,000
7.35
10,000
4.35
12,500
3.68
7,500
3.26
12,500
3.68
62,500
27.18
75,000
22.06
(i)
Current Liabilities:
Proposed dividends
(ii)
2,30,000
100.00
3,40,000
100.00
1,20,000
52.17
1,75,000
51.47
Stock
20,000
8.70
25,000
7.35
Debtors
50,000
21.74
62,500
18.38
Bills receivable
10,000
4.34
30,000
8.82
Cash al bank
20,000
8.70
26,500
7.79
Cash in hand
5,000
2.18
15,000
4.41
1,10,000
47.83
1,65,000
48.53
(a)
Current Assets:
(b)
100.00
3,40,000
100.00
Interpretation :
(1)
In 2001 Current Assets were increased from 47.83% to 48.53%. Cash balance increased
by Rs. 16,500.
(2)
Current Liabilities were decreased from 27.18% to 22.06%. So, the company can pay off
the Current Liabilities from Current Assets. The liquidity position is reasonably good.
(3)
Fixed Assets were increased from Rs. 3,20,000 in 2000 to Rs. 1,75,000 in 2001. These
were purchased from the additional share capital issued.
(4)
TREND ANALYSIS
In trend analysis ratios of different items are calculated for various periods for
comparison purpose.
Trend analysis can be .done by trend percentage, trend ratios and
graphic and diagrammatic representation.
The trend analysis is a simple technique and does
not involve tedious calculations.
Illustration: 8
From the following data, calculate trend percentage taking 1999 as base.
Particulars
1999
2000
2001
Rs.
Rs.
Rs.
Sales
50,000
75,000
1,00,000
Purchases
40,000
60,000
72,000
Expenses
5,000
8,000
15,000
Profit
5,000
7,000
13,000
Solution:
Particulars
1999 Rs.
2000 Rs.
2001 Rs.
Rs.
Rs.
Rs.
2000
2001
Purchases
40,000
60,000
72,000
100
150
180
Expenses
5,000
8,000
15,000
100
160
300
Profit
5,000
7,000
13,000
100
140
260
Sales
50,000
75,000
1,00,000
100
150
200
Illustration: 9
From the following data, calculate trend percentages (1999 as base)
Particulars
1999
2000
2001
Rs.
Rs.
Rs.
Cash
200
240
160
Debtors
400
500
650
Stock
600
800
700
450
600
750
Land
800
1,000
1,000
Buildings
1,600
2,000
2,400
Plant
2,000
2,000
2,400
Solution:
Particulars
Rs.
2000
2001
Rs.
Rs.
2000
2001
Cash
200
240
160
100
120
80
Debtors
400
500
650
100
125
163
450
600
750
100
133
167
1,650
2,140
2,260
100
130
137
800
1,000
1,000
100
125
125
Buildings
1,600
2,000
2,400
100
125
150
Plant
2,000
2,000
2,400
100
100
120
4,400
5,000
5,800
100
114
132
Fixed Assets:
Land
1999: Satyam Infoway, a subsidiary of Satyam Computer, becomes the first Indian information
and communication technology company to be listed on Nasdaq, and Satyam expands footprint
to 30 countries.
2006: Satyams revenues cross $1 billion. Raju becomes the chairman of industry body, The
National Association of Software and Services Companies.
2007: Raju is named Ernst & Young Entrepreneur of the Year. Thecompany bags contract to be
the official IT services provider of the FIFA World Cups in 2010 and 2014.
2008: Satyams revenues cross $2 billion. In December, the company decides to buy out Maytas
Infraowned by Rajus sonsfor $1.6 billion. The deal falls through after investors and board
members object, and in a span of four days, four directors of the company quit. (Maytas is
Satyam spelt backwards.)
January 2009: Satyam is barred from doing business with the World Bank for eight years. The
World Bank alleges that Satyam was involved in data thefts and staff bribery. Shares fall to
record low in four years. Satyam employees receive a letter from Raju admitting to the fraud,
following which he resigns as chairman.
Raju and his younger brother B Rama Raju are arrested by police, while the Indian government
steps in and disbands Satyam board.
June 2009: Tech Mahindra, owned by the Mahindra Group, and Satyam merge to form Indias
fifth largest IT exports company. The merged entity is called Mahindra Satyam.
November 2011: Raju gets bail from Indias supreme court after the CBI fails to file chargesheet.
October 2013: Indias enforcement directorate files a charge-sheet against Raju and 212
others under money-laundering charges.
July 2014: Indias market regulator SEBI bars Raju from the capital markets for 14 years, and
also seeks Rs1,849 crore as fine.
April 2015: The special CBI court holds Raju and nine other officials guilty of cheating. Among
those held guilty are two former partners at PwC. We are disappointed with this verdict given
by the court of the Additional Chief Metropolitan Magistrate at Hyderabad, accounting
firm PwC said in a statement.
Raju, who also has to pay a fine of about $800,000 (Rs5 crore), has served 32 months in prison
so far
B Ramalinga Raju, one of the pioneers in the industry and Satyam's founder and then chairman,
allegedly confessed to manipulating his company's account books and inflating profits over
many years to the tune of crores of rupees. The confession sent shockwaves across the industry.
He was arrested by Andhra Pradesh Police's Crime Investigation Department along with his
brother Rama Raju and others on January 11. All the 10 accused in the case are currently out on
bail. Around 3,000 documents were marked and 226 witnesses examined during the trial that
began nearly six years ago.
Satyam scam untangled:
- 2003-2008: False clients, projects and invoices created to boost companies profile
- 2009: Satyam reports Rs 5200 cr sales vs real sales of Rs 4100 cr
- 2009: Satyam reports 24% profits vs real profits of 3%
- Damages calculated at Rs 7900 cr
Satyam scam probe:
- Concurrent probe by CBI, ED, SEBI
- 53,000 employees, millions of investors impacted
- Accused charged with cheating, forgery, faking accounts and IT violations
- 3000 documents, 223 witnesses examined
- Verdict postponed twice
The timeline:
January 7, 2009: Ramalinga Raju resigns, discloses a Rs 7000-crore accounting fraud in balance
sheets about cash which never existed in the company.
January 8, 2009: Satyam's bank Citibank freezes its 30 accounts. Interim CEO Ram Mynampati
says company in severe cash crunch and may not be able to pay salaries. Satyam's auditor PwC
faces ire.
January 9, 2009: Ramalinga Raju and his younger brother B Rama Raju arrested by Police.
Central Govt disbands Satyam board, to appoint its own 10 directors.
Jan 9, 2009: Satyam removed from Sensex, Nifty; NSE excludes F&O
contracts on expiry of Jan contract.