Tools of Financial Statement Analysis

  • In the Comparative Statements, figures for two or more years are placed side by side to facilitate comparison. This shows financial amounts in different columns on a single statement and facilitates comparison of a company’s financial position & performance across time. This is also known as ‘Horizontal Analysis’.
  • Comparative Balance Sheet is used for comparing assets, liabilities and capital and it shows increase and decrease in assets, liabilities and capital in absolute and percentage forms.
  • Comparative Profit & loss is used to show company's income and expenses over a given period. It shows changes in figures of statement of Profit & Loss both in absolute terms and in percentages.
  • Here operating expenses are expenses related to the main revenue generating activities of the enterprise, operating revenue or revenue from operations non-operating incomes are the incomes which are not generated from the principal revenue producing activities and non-operating expenses are expenses and losses which are not related to operating activities.
  • Common Size Statement uses percentages to express relationship of individual components to a total within a single period. It is also known as ‘Vertical Analysis’.
  • It compares each item in a financial statement to a base number set to 100%. In Common Size Statement of Profit & Lossthe revenue from operations figure is assumed to be 100 and other figures of cost or expenses are expressed as a percentage of revenue from operations.
  • In Common Size Balance Sheet, total assets/liabilities are taken as 100 and all individual items of assets/liabilities are expressed as a percentage of total.
  • Trend Analysis is one of the most useful forms of horizontal analysis in making comparative study of the financial statements for a number of years,but if same accounting policies are not followed consistently the trends become incomparable and misleading and it ignores price level changes.

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  • Q1

    From the following Statement of Profit and Loss, prepare Common-size Statement of Profit and Loss of Jagat Ltd. for the year ended 31st March, 2016:

    Particulars

    INR

    Income

    Revenue from Operations

    30,00,000

    Other Incomes

    20,000

    Total Revenue

    30,20,000

    Expenses

    Cost of Material Consumed

    20,50,000

    Other Expenses

    40,000

    Total expenses

    20,90,000

    Tax

    2,25,000

    Marks:4
    Answer:

    COMMON-SIZE STATEMENT OF PROFIT AND LOSS for the year ended 31st March, 2016

    Particulars

    Absolute Amount (INR)

    (%) of Revenue from Operations

    I. Revenue from Operations

    30,00,000

    100.00

    Other Income

    20,000

    0.67

    Total Revenue

    30,20,000

    100.67

    II. Expenses:

    (a) Cost of Materials Consumed

    20,50,000

    68.33

    (b) Other Expenses

    40,000

    1.33

    Total Expenses

    20,90,000

    69.66

    III. Net Profit before Tax (I-II)

    9,30,000

    31.00

    Less: Income Tax

    2,25,000

    7.50

    IV. Net Profit after Tax

    7,05,000

    23.50

    View Answer
  • Q2

    From the following Balance Sheets of D Ltd. as at 31st March 2014 and 2015. Prepare Comparative Balance Sheet.

    Particulars

    2015(INR)

    2014(INR)

    1. Equity & Liabilities

    (a)Shareholder’s Funds

    Share Capital

    1,40,000

    90,000

    Reserves & Surplus

    50,000

    50,000

    (b)Non-Current Liabilities

    Long term Borrowings

    40,000

    10,000

    (c)Current Liabilities

    Trade payables

    25,000

    15,000

    Total

    2,55,000

    1,65,000

    1. Assets

    (a)Non-Current Assets

    Fixed Assets:

    Tangible Assets

    1,40,000

    90,000

    Intangible Assets

    25,000

    15,000

    Non-current Investments

    40,000

    25,000

    (b)Current Assets

    Inventories

    35,000

    15,000

    Cash & Bank Balances

    15,000

    20,000

    Total

    2,55,000

    1,65,000

    Marks:4
    Answer:

    Comparative Balance Sheet, 2014 and 2015

    Particulars

    2015

    2014

    Abs. Change Rs.

    Change %

    1.Equity & Liabilities

    (a)Shareholder’s Funds

    Share Capital:

    Share Cap.

    1,40,000

    90,000

    50,000

    55.55

    Reserves & Surplus

    50,000

    50,000

    Shareholder’s Funds

    1,90,000

    1,40,000

    50,000

    35.71

    (b)Non-Current Liabilities

    Long term Borrowings

    40,000

    10,000

    30,000

    300

    (c)Current Liabilities

    Trade Payables

    25,000

    15,000

    10,000

    66.66

    Total

    2,55,000

    1,65,000

    90,000

    54.54

    2.Assets

    (a)Non-current Assets:

    Fixed Assets:

    Tangible Assets

    1,40,000

    90,000

    50,000

    55.55

    Intangible Assets

    25,000

    15,000

    10,000

    66.66

    Non-Current Investment

    40,000

    25,000

    15,000

    60

    (b)Current Assets

    Inventories

    35,000

    15,000

    20,000

    133.33

    Cash & Bank balances

    15,000

    20,000

    (5,000)

    (25)

    Total

    2,55,000

    1,65,000

    90,000

    54.54

    View Answer
  • Q3

    Prepare the Common-Size Statement of EM Ltd. from the following for the year ended 31st March, 2015:

    Particulars

    Revenue from Operations

    21,00,000

    Cost of Materials Consumed

    9,90,000

    Other Expenses

    3,90,000

    Interest on Investment

    80,000

    Tax Payable

    @ 50%

    Marks:4
    Answer:

    COMMON-SIZE STATEMENT OF PROFIT & LOSS

    for the year ended 31st March, 2015

    Particulars

    Absolute Amount ()

    (%) of Total Revenue

    1. Revenue from Operations

    21,00,000

    96.33

    Other Income[Interest on Investment]

    80,000

    3.67

    Total Revenue

    21,80,000

    100

    2. Expenses:

    (a) Cost of Materials Consumed

    9,90,000

    45.41

    (b) Other Expenses

    3,90,000

    17.88

    Total Expenses

    13,80,000

    63.30

    3. Net Profit before Tax (I-II)

    8,00,000

    36.69

    Less: Tax

    4,00,000

    18.34

    4. Net Profit after Tax

    4,00,000

    18.34

    View Answer
  • Q4

    Prepare a ‘Comparative Statement of Profit and Loss’ of S. Ltd. from the following information:

    Particulars

    31.3.2016

    31.3.2015

    Revenue from Operations

    200% of Raw Materials Consumed

    175% of Raw Materials Consumed

    Expenses:

    Cost of Raw Materials Consumed

    INR 5,00,000

    INR 3,00,000

    Other Expenses

    5% of Revenue from Operations

    5% of Revenue from Operations

    Rate of Income Tax

    50% of Net Profit before Tax

    50% of Net Profit before Tax

    Marks:4
    Answer:

    S. Ltd.

    COMPARATIVE STATEMENT OF PROFIT & LOSS

    For the years ended 31st March, 2015 and 2016

    Particulars

    31.3.2016 (INR)

    31.3.2015 (INR)

    Absolute Change (INR)

    % Change

    1. Revenue from Operations (Total Revenue)

    10,00,000

    5,25,000

    4,75,000

    90.47

    2. Expenses:

    (a) Cost of Materials Consumed

    5,00,000

    3,00,000

    2,00,000

    66.67

    (b) Other Expenses

    50,000

    26,250

    23,750

    90.47

    Total Expenses

    5,50,000

    3,26,250

    2,23,750

    68.58

    3. Net Profit before Tax (I-II)

    4,50,000

    1,98,750

    2,51,250

    126.41

    Less: Income Tax

    2,25,000

    99,375

    1,25,625

    126.41

    4. Net Profit after Tax

    2,25,000

    99,375

    1,25,625

    126.41

    View Answer
  • Q5

    From the following information, prepare comparative Statement of Profit and Loss of Zero Ltd.

    Particulars

    31st March, 2017 (INR)

    31st March, 2016 (INR)

    Revenue from Operations

    25,00,000

    20,00,000

    Cost of Materials Consumed

    70% of Revenue from Operations or Sales

    80% of Revenue from Operations or Sales

    Employee Benefit Expenses

    1,50,000

    40,000

    Income Tax

    70%

    40%

    Marks:4
    Answer:

    View Answer