Preparation of a Cash Flow Statement from -

The following balances are taken from Bagri Ltd. Limited,

st st
Balance Sheet as on 31 March, 2019 and 31 March, 2018

PARTICULARS NOTE.
NO.
31.3.2019 31.3.2018

I. EQUITY AND LIABILITIES

(1) Shareholders’ funds

(a)Share Capital 1 50,00,000 45,00,000
(b)Reserves and Surplus 2 5,00,000 3,00,000

(2)Share application money pending

allotment

(3) Non-current liabilities

(a)Long-term borrowings 3 10,00,000 8,00,000
(b)Other Long-term liabilities 50,000 -

(4) Current liabilities

(a)Short-term borrowings 4 70,000 -
(b)Trade payables 5 50,000 60,000
(c)Other current liabilities 6 1,00,000 1,00,000
(d)Short-term provisions 14 75,000 50,000

TOTAL 68,45,000 58,10,000

II. ASSETS 31.3.2019 31.3.2018

(1) Non-current assets

(a)Fixed Assets
(i)Tangible assets 7 55,00,000 48,00,000
(ii)Intangible assets 8 5,00,000 4,00,000
(b)Non-current Investments 9 5,00,000 4,00,000

(2) Current assets

a) Current investments 10 30,000 20,000
(b)Inventories 11 1,80,000 30,000
(c)Trade receivables 13 30,000 20,000
(d)Cash and Cash Equivalents - 50,000
(e)Short-term loans and advances 75,000 60,000
(f)Other current assets 12 30,000 30,000

TOTAL 68,45,000 58,10,000

Notes to Accounts:
1)
SHARE CAPITAL 2018 2017
Equity Shares 40,00,000 35,00,000
4% Preference 10,00,000 10,00,000

TOTAL 50,00,000 45,00,000

 PROJECT-II
Financial Statement
Analysis
INTRODUCTION
Financial statements of a company exhibit its financial position and profits
earned by it. However, financial statements by themselves do not always satisfy
the needs of the readers. Owners, managers, bankers, creditors, investors and
others all require specialised information that is not directly provided by
standard financial statements. This information can, however, be obtained when
certain techniques of analysis are applied to the financial statements.

The analysis of financial statements is a process of identifying the financial

strengths and weaknesses of the company by properly establishing relationships
between the items of the balance sheet and the profit and loss account.
According to Keneddy and McMuller, analysis of financial statements is ''an
attempt to determine the significance and meaning of data so that a forecast
may be made of the prospects for future earnings, ability to pay interest and
debt maturities (both current and long-term) and probability of a sound
dividend policy". In the words of Myres. "Financial statement analysis is largely
a study of the relationship among the various financial factors in a business as
disclosed by a single set of statements and a study of the trend of these factors,
as shown in a series of statements.
OBJECTIVES OF FINANCIAL
STATEMENT ANALYSIS
(1) To estimate the earning capacity of the company.
(2) To measure the financial position and performance of the company.
(3) To determine the short-term liquidity and long-term solvency of the
company.
(4) To determine the borrowing capacity of the company.
(5) To evaluate the future prospects of the company.

TOOLS OR TECHNIQUES OF FINANCIAL

STATEMENT ANALYSIS
Tools of financial statement analysis usually available to the users of the data
are :
(1) Comparative financial statements and common-size statements.
(2) Cash flow analysis.
(3) Ratio analysis.
Comparative Financial Statements
A study of the balance sheet of a company and the results of its operations for
a period is more meaningful, if the analyst uses the balance sheets and the
income statements for several years. Trend can be better ascertained when
three or more financial statements are compared. Statements in which two or
more years' financial data are shown in single parallel columns for each year are
called comparative financial statements.
Comparative financial statements may show assets, liabilities and equities or
incomes and expenses of two or more years of the same business or of different
businesses in the industry. These are presented in such a way as to show clearly
the nature and trends of current changes affecting the business or businesses.
The value of such comparative statements has long been realised by
accountants, as well as others. A figure in isolation is usually meaningless. We
must have a yard-stick against which we can judge the figure. There is one yard-
stick which (except in the first year of a firm's life) is always available — last
year's figures. Indeed, the Companies Act requires limited companies to show
comparatives (last year's figures) in the published accounting statements.
The American Institute of Certified Public Accountants (AICPA) has explained the
utility of preparing comparative financial statements as follows :
"The presentation of comparative financial statements in annual and other
reports enhances the usefulness of such reports and brings out more clearly the
nature and trends of current changes affecting the enterprise. Such presentation
emphasises the fact that statements for a series of periods are far more
significant than those for a single period and that the accounts for one period
are but an instalment of what is essentially a continuous history".

The main objectives of comparative financial statements are :

 (a) to compare the achievements of one period with another or one
section of a business with another or one business with another in
the industry.
(b) to evaluate the financial stability and prospects of a business.

Comparative financial statements may be prepared to show :

(a) Absolute money values.
(b) Increases and decreases in absolute values.
(c) Increases and decreases by way of percentages.
(d) Percentage of totals by way of common-size statements.

IMPORTANCE (ADVANTAGES) OF
COMPARATIVE FINANCIAL
STATEMENTS
The importance or advantages of comparative financial statements may be
summarised as follows :
(a) Such statements help analysis and evaluation of the performance of an
enterprise by comparing two or more periods or by comparing two or
more enterprises.
(b) Comparative statements indicate changes in terms of money value as well
as in terms of percentage.
(c) Analysis of such statements gives information regarding the nature of
change indicating weakness or strength about the solvency, liquidity and
profitability of an enterprise. Weak points may be analysed in depth and
remedial measures taken. Strong points may be applied in other areas.
(d) Multi-year analysis of income statement and balance sheet is possible.
(e) Comparative position of the enterprise may be known vis a vis the
performance of similar enterprises in the same industry.
(f) Such statements help management take proper decisions about crucial
financial matters.
(g) Managerial efficiency of an enterprise may be judged with the help of
such statements.
LIMITATIONS (DISADVANTAGES) OF
COMPARATIVE FINANCIAL
STATEMENTS
Some of the limitations of comparative financial statements are :
(1) Inter-firm comparison may give misleading results if accounting
concepts and convention are not properly followed.
(2) Changes in the price level reduce the importance of comparative
statement analysis as a tool for financial analysis.
(3) Comparative financial statements cannot effectively compare
companies of different sizes.
 COMMON-SIZE STATEMENTS —
VERTICAL ANALYSIS
Comparative statements with percentages of increase and decrease and trend
percentages provide for horizontal analysis. Similarly, common-size statements
provide for vertical analysis. In this form, the comparisons are made vertically
from the top to bottom for an analysis of the component changes that occur
from year to year with certain base year. On a common-size balance sheet, the
total assets figure is selected as the base figure and given the value of 100%.
Other figures are then calculated as percentages of this base figure. On a
common-size income the sales figure for the year is selected as the base figure
and is given the value of 103%. Chet figures on the income statement are now
converted to percentages of the sales figure. Since these bases represent 100%
in all the statements in the comparison, there is a common basis for analysis ;
therefore, the statements are referred to as common-size statements.
Common-size statements make it to compare companies of different sizes ; i.e.,
a big firm and a small firm in the same industry.

THE IMPORTANCE (ADVANTAGES) OF

COMMON-SIZE FINANCIAL STATEMENT
ANALYSIS
(a) Common-size statements are especially useful for inter-firm
comparisons because such statements make it possible to compare
companies of different sizes, i.e., a big firm and a small firm in the
same industry.
 (b) Common-size statements are equally useful for intra-firm
comparisons because such statements show the relative changes in
the assets and liabilities of a company as well as its capital structure
composition of different dates or the relative changes in the
components of profit and loss statement in relation to revenue from
operations of different periods.
(c) Such statements show the asset mix or investment mix of a company
at a glance.
(d) Such statements reveal the relative importance of different sources
of financing a concern or the relative importance of different
components of profit and loss statement.

LIMITATIONS (DISADVANTAGES) OF
COMMON-SIZE FINANCIAL
STATEMENTS:
Some of the limitations of common-size financial statement analysis are stated
below :
(1) Common-size statement analysis does not take into consideration
changes in price level.
(2) Such analysis does not consider qualitative factors.
(3) It is not possible to make segment-wise analysis with the help of
common-size statements.
(4) Inter-firm comparison may give misleading information if accounting
concepts and conventions are not uniformly followed by different
companies.
Difference between Comparative
Statement (horizontal analysis) and
Common-size Statement (vertical
analysis)
The following points of difference between a comparative statement and a
common-size statement may be noted :
Comparative Statement (Horizontal
analysis)
(1) It shows figures for successive
years side by side, along with the
amount of change and percentage
of change.
(2) Comparison is made between
the figures of current year/
successive years with those of a
base year.
(3) It is a horizontal analysis
because the comparisons are on a
horizontal plane from left to right.
(4) Comparison is made both in
absolute figures and percentages.
(5) It is used for inter-firm and
intra-firm comparison both.
Common-size Statement (Vertical
analysis)
(1) It shows figures for the same
year in the form of percentages of
some base figure.
(2) Comparison is made between
the figures of the same year.
(3) It is a vertical analysis because
the comparisons are made
vertically from the top to bottom
for an analysis of the component
changes that occur from year to
year with certain base figure within
those years.
(4) Comparison is always made in
percentage form.
(5) It is mainly used for inter-firm
comparison.
 (6) It fails to show the relative (6) It shows the relative importance
importance of individual figures in of each individual figure in a
a statement. statement.

FROM THE FOLLOWING STATEMENT

OF PROFIT AND LOSS OF BAGRI LTD,
PREPARE COMPARATIVE AND
COMMON SIZE INCOME STATEMENTS:

INCOME STATEMENT FOR THE YEAR ENDED

31.3.19 AND 31.3.18

Current Previous
Particulars Note Year Year
no 2018-19 2017-18
Rs Rs
(i) Revenue from Operations 12,00,000 16,00,000
(ii) Other Income 2,50,000 4,50,000
(iii) Total Revenue(i+ii) 14,50,000 20,50,000
(iv) Expenses
Purchase of Stock-in-Trade 2,36,000 5,41,000
Changes in inventories of Finished Goods 6,40,000 8,28,000
Employee Benefit Expenses 40,000 30,000
Finance Cost 60,000 45,000
Depreciation and Amortisation Expenses 85,000 30,000
Other Expenses 50,000 40,000
Total Expenses 11,11,000 15,14,000
(v) Profit before tax(iii-iv) 3,39,000 5,36,000
(vi) Less: Tax (40%) (1,35,600) (2,14,400)

(vii) Profit after Tax(v-vi) 2,03,400 3,21,600

BAGRI LTD.
COMPARATIVE STATEMENT OF PROFIT AND LOSS
FOR THE YEAR ENDED 31.3.19 and 31.3.18

Increase/Decrease
Current Previous
Note Year Year
Particulars
no 2018-19 2017-18
Rs Rs
Absolute %
Rs. CHANGE

(i) Revenue from Operations 12,00,000 16,00,000 (4,00,000) (25.00)

(ii) Other Income 2,50,000 4,50,000 (2,00,000) (44.44)

(iii) Total Revenue(i+ii) 14,50,000 20,50,000 (6,00,000) (29.27)

(iv) Expenses

Purchase of Stock-in-Trade 2,36,000 5,41,000 (3,05,000) (56.38)

Changes in inventories of
Finished 6,40,000 8,28,000 1,88,000 22.71

Employee Benefit Expenses 40,000 30,000 10,000 33.33

Finance Cost 60,000 45,000 15,000 33.33

Depreciation and
Amortisation Expenses 85,000 30,000 55,000 183.33

Other Expenses 50,000 40,000 10,000 25.00

Total Expenses 11,11,000 15,14,000 (4,03,000) (26.62)

(v) Profit before tax(iii-iv) 3,39,000 5,36,000 1,97,000 (36.75)

(vi) Less:Tax(40%) (1,35,600) (2,14,400) (78,800) (36.75)

(vii) Profit after Tax(v-vi) 2,03,400 3,21,600 1,13,400 (33.75)

Graphical Analysis of Comparative

Statement of Profit and Loss
 (vii) Profit after Tax(v-vi)

COMMON-SIZE STATEMENT OF PROFIT AND LOSS

(vi) Less:Tax(40%)

FOR THE YEAR ENDED 31.3.19 and 31.3.18

Comparitive Analysis of Income Statement

(v) Profit before tax(iii-iv)

Total Expenses
Other Expenses
Depreciation and Amortisation Expenses

BAGRI LTD.
Absolute Change
Finance Cost
Employee Benefit Expenses
Changes in inventories of Finished
Purchase of Stock-in-Trade
(iii) Total Revenue(i+ii)
(ii) Other Income
(i) Revenue from Operations
300,000

200,000

100,000

-100,000

-200,000

-300,000

-400,000

-500,000

-600,000

-700,000
 Absolute amounts % of Revenue
Note from Operations
Particulars
no 2018-19 2017-18 2019- 2017-
Rs Rs 18 18

(i) Revenue from Operations 12,00,000 16,00,000 100.00 100.00

(ii) Other Income 2,50,000 4,50,000 20.83 28.13

(iii) Total Revenue(i+ii) 14,50,000 20,50,000 120.83 128.13

(iv) Expenses

Purchase of Stock-in-Trade 2,36,000 5,41,000 19.67 33.81

Changes in inventories of Finished 6,40,000 8,28,000 53.33 51.75

Employee Benefit Expenses 40,000 30,000 3.33 1.88

Finance Cost 60,000 45,000 5.00 2.81

Depreciation and Ammortisation
Expenses 85,000 30,000 7.08 1.88

Other Expenses 50,000 40,000 4.17 2.5

Total Expenses 11,11,000 15,14,000 92.58 94.63

(v) Profit before tax(iii-iv) 3,39,000 5,36,000 28.25 33.5

(vi) Less:Tax(40%) (1,35,600) (2,14,400) 11.3 13.4

(vii) Profit after Tax(v-vi) 2,03,400 3,21,600 16.95 20.1

Graphical Analysis of Common-Size

Statement of Profit and Loss
 PREPARE COMPARATIVE AND COMMON-SIZE BALANCE
FROM THE FOLLOWING BALANCE SHEET OF BAGRI LTD,
(vii) Profit after Tax(v-vi)

SHEET FOR THE YEAR ENDED 31.3.19 AND 31.3.18:

(vi) Less:Tax(40%)

BALANCE SHEET AS AT 31.3.19 AND 31.3.18

% Of Revenue From Operation 17-18
Common Size Analysis of Balance Sheet

(v) Profit before tax(iii-iv)

Total Expenses
Other Expenses
Depreciation and Ammortisation
Expenses
Finance Cost

% Of Revenue From Operation 18-19

Employee Benefit Expenses
Changes in inventories of Finished
Purchase of Stock-in-Trade
(iii) Total Revenue(i+ii)
(ii) Other Income
(i) Revenue from Operations

60
140

120

100

80

40

20

0
 Current Previous
Note Year Year
Particulars
No. 31.3.19 31.3.18
Rs. Rs.
I. EQUITY AND LIABILITIES
1. Shareholders Funds
(a) Share Capital 75,00,000 55,00,000
(b) Reserves and Surplus 12,00,000 8,00,000
2. Non-Current Liabilities
(a) Long-term Borrowings 17,00,000 20,00,000
(b) Long-term Provisions 15,00,000 8,00,000
3. Current Liabilities
(a) Short-term Borrowings 1,70,000 20,000
(b) Trade Payables 45,000 25,000
(c ) Other Current Liabilities 1,35,000 1,70,000
(d) Short-term Provisions 1,75,000 1,50,000
TOTAL 1,24,25,000 94,65,000
II. ASSETS 31.3.2019 31.3.2018
1.Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets 65,00,000 38,00,000
(ii) Intangible Assets 22,00,000 22,00,000
(b) Non-Current Investment 14,10,000 12,00,000
( c) Long-term Loans and Advances 12,00,000 11,00,000
2. Current Assets
(a) Current Investments 70,000 85,000
(b) Inventory 6,90,000 4,90,000
(c ) Trade Receivables 1,20,000 1,10,000
(d)Cash and Bank Balances 60,000 1,90,000
(e)Short-term Loans and Advances 75,000 1,40,000
(f) Other Current Assets 1,00,000 1,50,000
TOTAL 1,24,25,000 94,65,000
COMPARATIVE BALANCE SHEET OF BAGRI LTD.
AS AT 31.3.19 AND 31.3.18
Particulars
 Current Previous
Year Year Increase/Decrease
Note
31.3.19 31.3.18 Absolute
No.
Rs. Rs. Rs. %
I. EQUITY AND LIABILITIES
1. Shareholders Funds
(a) Share Capital 75,00,000 55,00,000 20,00,000 36.36
(b) Reserves and Surplus 12,00,000 8,00,000 3,50,000 50.00
2. Non-Current Liabilities
(a) Long-term Borrowings 17,00,000 20,00,000 (3,00,000) (20.00)
(b) Long-term Provisions 15,00,000 8,00,000 7,00,000 87.50
3. Current Liabilities
(a) Short-term Borrowings 1,70,000 20,000 1,50,000 750.00
(b) Trade Payables 45,000 25,000 20,000 80.00
(c) Other Current Liabilities 1,35,000 1,70,000 (35,000) (20.59)
(d) Short-term Provisions 1,75,000 1,50,000 25,000 16.66
TOTAL 1,24,25,000 94,65,000 28,50,000 29.64
II. ASSETS
1.Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets 65,00,000 38,00,000 27,00,000 71.05
(ii) Intangible Assets 22,00,000 22,00,000 0 0.00
(b) Non-Current Investment 14,10,000 12,00,000 2,10,000 17.50
(c) Long-term Loans and
Advances 12,00,000 11,00,000 1,00,000 9.09
2. Current Assets
(a) Current Investments 70,000 85,000 (15,000) (17.65)
(b) Inventory 6,90,000 4,90,000 2,00,000 40.81
(c ) Trade Receivables 1,20,000 1,10,000 10,000 9.09
(d)Cash and Bank Balances 60,000 1,90,000 (1,30,000) (68.42)
(e)Short-term Loans and
Advances 75,000 1,40,000 (65,000) (46.43)
(f) Other Current Assets 1,00,000 1,50,000 (50,000) (25.00)
TOTAL 1,24,25,000 94,65,000 28,50,000 29.64

Graphical Analysis of Comparative Balance

Sheet
 TOTAL

COMMON SIZE BALANCE SHEET OF BAGRI LTD.

(f) Other Current Assets
(e)Short-term Loans and Advances
(d)Cash and Bank Balances
Comparitive Analysis of Balance Sheet

(c ) Trade Receivables

AS AT 31.3.19 AND 31.3.18

(b) Inventory
(a) Current Investments
( c) Long-term Loans and Advances
(b) Non-Current Investment

Absolute Change
(ii) Intangible Assets
(i) Tangible Assets
TOTAL
(d) Short-term Provisions
(c ) Other Current Liabilities
(b) Trade Payables
(a) Short-term Borrowings
(b) Long-term Provisions
(a) Long-term Borrowings
(b) Reserves and Surplus
(a) Share Capital

-500,000
500,000

0
3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000
 Note Absolute Amount % of Balance Sheet
No. Total
Particulars
31.3.2019 31.3.2018
Rs. Rs. 31.3.2019 31.3.2018
I. EQUITY AND LIABILITIES
1. Shareholders Funds
(a) Share Capital 75,00,000 55,00,000 60.36 58.11
(b) Reserves and Surplus 12,00,000 8,00,000 9.66 8.45
2. Non-Current Liabilities
(a) Long-term Borrowings 17,00,000 20,00,000 13.68 21.13
(b) Long-term Provisions 15,00,000 8,00,000 12.07 8.45
3. Current Liabilities
(a) Short-term Borrowings 1,70,000 20,000 1.37 0.21
(b) Trade Payables 45,000 25,000 0.36 0.26
(c ) Other Current 1,35,000 1,70,000
Liabilities 1.08 1.80
(d) Short-term Provisions 1,75,000 1,50,000 1.40 1.58
TOTAL 1,24,25,000 94,65,000 100.00 100.00
II. ASSETS
1.Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets 65,00,000 38,00,000 52.31 40.15
(ii) Intangible Assets 22,00,000 22,00,000 17.71 23.24
(b) Non-Current 14,10,000 12,00,000
Investment 11.34 12.68
( c) Long-term Loans and
Advances 12,00,000 11,00,000 9.66 11.62
2. Current Assets
(a) Current Investments 70,000 85,000 0.56 0.90
(b) Inventory 6,90,000 4,90,000 5.55 5.18
(c ) Trade Receivables 1,20,000 1,10,000 0.97 1.16
(d)Cash and Bank Balances 60,000 1,90,000 0.48 2.01
(e)Short-term Loans and
Advances 75,000 1,40,000 0.60 1.48
(f) Other Current Assets 1,00,000 1,50,000 0.80 1.58
TOTAL 1,24,25,000 94,65,000 100 .00 100.00

Graphical Analysis of Common-Size Balance

Sheet
 TOTAL
(f) Other Current Assets
(e)Short-term Loans and Advances
Common Size Analysis of Balance Sheet

(d)Cash and Bank Balances

% Of Balance Sheet Total 17-18

(c ) Trade Receivables
(b) Inventory
(a) Current Investments
( c) Long-term Loans and Advances
(b) Non-Current Investment
(ii) Intangible Assets
(i) Tangible Assets

% Of Balance Sheet Total 18-19

TOTAL
(d) Short-term Provisions
(c ) Other Current Liabilities
(b) Trade Payables
(a) Short-term Borrowings
(b) Long-term Provisions
(a) Long-term Borrowings
(b) Reserves and Surplus
(a) Share Capital

100
120

80

60

40

20