CHAPTER 3

ANALYSIS AND INTERPRETATION

The data after collection has to be processed and analysed in accordance with the outline laid
down for the purpose of the study. It includes finding of the different ratios with regard to the
balance sheet and profit and loss account that has been collected from the firm named M/s.
SATYAM GROCERY STORE.

M/s. SATYAM GROCERY STORE.

ASSESSMENT YEAR 2017-2018(31-03-2017)

TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31ST
MARCH, 2017

PARTICULARS AMOUNT PARTICULARS AMOUNT

To Opening Stock 9218609.78 By sales 131891582.34
To Purchases 128333021.91 By closing stock 9190301.75
To Freight 4200
To Gross profit 3526052.40
Total 141081884.09 Total 141081884.09
To Accounting 30000 By Gross profit 3526052.40
Charges
To Audit fees 16500 By Scheme, Discount 709145.89
and Incentives
To Bank charges 38764.53
To Bonus 170760
To Depreciation 75065
To Distribution 234719.69
expenses
To Electric charges 26579
To General expenses 30615.31
To Insurance 4600
To Interest 301294
To Membership fee 1900
To Printing and 1536
Stationery
To Rates and taxes 3500
To Rent 301632
To Salary 1138400
To Staff Fooding 73340
expenses
To Telephone 61348
charges
To Travelling 52170
expenses
To Vehicle running 107200
expenses
To Net profit 1565274.76
Total 4235198.29 Total 4235198.29

INTERPRETATION

The above statement of profit and loss amount represents the summary of the revenues,
expenses and the net income for the accounting period 2017-18. The sales for the firm is
satisfactory and because of which the firm is able to earn good amount of gross and net profit
after meeting up the expenses.

On the basis of the statement of profit and loss account stated above profitability ratios can
be calculated. Profitability is the main criteria to measure the liquidity and solvency of the
business.

(i) GROSS PROFIT RATIO

Gross profit ratio = Gross profit x100

Net Sales
Gross profit = Sales- Cost of goods sold

Given,
Cost of goods sold= Beginning inventory+ Purchases during the year+ Direct
expenses- Ending inventory

= 9218609.78+ 128333021.91+ 4200- 131891582.34

= 128365529.94

Net sales = 131891582.34

Gross profit = 131891582.34- 128365529.94

= 3526052.4

Gross profit ratio = Gross profit x100

Net Sales

= 3526052.4 x100
131891582.34
= 2.67%
Interpretation
The gross profit ratio in this case is 2.67%. This means that the gross profit is not
good as it may not be able to cover the operating expenses easily.
(ii) NET PROFIT RATIO

Net profit ratio= Net profit before tax x100

Net sales

Given,
Net profit before tax= 1565274.76

Net sales =131891582.34

Net profit ratio= Net profit before tax x100

Net sales

=1565274.76 x100
131891582.34

= 1.19%
Interpretation
The Net profit ratio in this case is 1.19%. This indicates the greater profitability
and return to the shareholders. But in this case the %age is less so, it is not
satisfactory for the firm.

(iii) OPERATING PROFIT RATIO

Operating profit ratio= Cost of goods sold+ Operating expenses x100

Net sales

Given,
Cost of goods sold= Beginning inventory+ Purchases during the year+ Direct
expenses- Ending inventory

= 9218609.78+ 128333021.91+ 4200- 131891582.34

= 128365529.94
 Operating expenses= Accounting Charges+ Audit fees+ Bank charges+ Bonus+
Depreciation+ Distribution expenses+ Electric charges+ General expenses+ Insurance+
Interest+ Membership fee+ Printing and Stationery+ Rates and taxes+ Rent+ Salary+ Staff
Fooding expenses+ Telephone charges+ Travelling expenses+ Vehicle running expenses

= 2669923.53

Net sales =131891582.34

Operating profit ratio= Cost of goods sold+ Operating expenses x100

Net sales

= 128365529.94+ 2669923.53 x100

131891582.34

= 99.35%

Interpretation
The operating profit ratio in this case is 99.35%. This ratio indicates the non-
operating incomes and expenses with the net profit in order find out the operating
net profit. This is satisfactory for the firm.

M/s. SATYAM GROCERY STORE.

ASSESSMENT YEAR 2017-2018(31-03-2017)

BALANCE SHEET AS ON 31ST MARCH, 2017

LIABILITIES AMOUNT ASSETS AMOUNT

Capital A/c 6615490.64 Fixed assets 413864
Loans and 5223985.29 Closing stock 9190301.75
borrowings
Liabilities for 253700 Security deposit 239493
expenses
Sundry creditors 2593416.82 Sundry debtors 3386524.44
Statutory liabilities 460054.03 Loans and advances 25000
Advance from 461518.25 Advance to suppliers 1982721.38
customers
Cash and bank 370270.94
balance
Total 15608175.51 Total 15608175.51

INTERPRETATION

The above table shows the balance sheet prepared by the M/s Satyam grocery store. The
balance sheet represents the values of both assets and liabilities from which different ratios
can be calculated. These ratios will help in determining whether the firm is performing in a
positive way or not.

From the above balance sheet short term and long term financial position can be depicted
easily.

(A) LIQUIDITY RATIOS

This ratios will help to know the ability of the firm to meet up its claims and
obligations on time.
(i) CURRENT RATIO

Current ratio= Current assets

Current liabilities

Given,
Current assets= Cash+ Debtors+ Inventory+ Security deposit+ Advances to
suppliers
= 370270.94+3386524.44+239493+1982721.38
=5979009.76

Current liabilities= Creditors+ Statutory liabilities+ Liabilities for expenses+

Advance from customers
= 2593416.82+460054.03+253700+461518.25
= 3768689.1

Current ratio= Current assets

Current liabilities
= 5979009.76
3768689.1
 =1.59:1
Interpretation
The current ratio in this case is 1.59:1. The normal ratio is 2:1. The ratio is
less than the ideal ratio which indicates the inability of a firm to meet its
current liabilities on time.

(ii) ABSOLUTE LIQUID RATIO

Absolute Liquid ratio= Absolute Liquid assets

Current liabilities
Given,
Absolute Liquid assets= Cash in hand and cash at bank+ Marketable
securities
=370270.94

Current liabilities= Creditors+ Statutory liabilities+ Liabilities for expenses+

Advance from customers
= 2593416.82+460054.03+253700+461518.25
= 3768689.1

Absolute Liquid ratio= Absolute Liquid assets

Current liabilities
=370270.94
3768689.1
=0.09:1

Interpretation
The absolute ratio in this case is 0.09. The ideal ratio is 1:2. Since the liquid
assets is less than 1 so, it is not satisfactory.

(B) SOLVENCY RATIOS

(i) TOTAL ASSETS TO DEBT RATIO

Total assets to debt ratio= Total assets

 Debt
Given,
Total assets= Fixed assets + Current assets
=15608175.51

Debt = Loans and borrowings

= 5223985.29

Total assets to debt ratio= Total assets

Debt
= 15608175.51
5223985.29
=2.98
Interpretation
The total assets to debt ratio in this case is 2.98. This indicates that total assets
are more than debt which is a good sign for the firm.

(ii) FIXED ASSETS RATIO

Fixed assets ratio= Fixed assets after depreciation

Long term funds
= 413864
5223985.29
=0.08

Interpretation
The fixed assets ratio in this case is 0.08. The normal ratio is 1:1. As the ratio
is less than the normal ratio it is satisfactory as more fixed assets were not
purchased.

(C) ACTIVITY RATIOS

(i) DEBTOR’S TURNOVER RATIO

Debtors turnover ratio= Total sales

Debtors
= 131891582.34
3386524.44
 =38.95 times
Interpretation
The debtors turnover ratio in this case is 38.95 times. The ratio indicates in
this case is the time taken at which the debts are collected on an average
during the year. A high ratio implies a shorter collection period which
indicates the efficiency of the management.

(ii) CREDITOR’S TURNOVER RATIO

Creditors turnover ratio= Total credit purchases

Creditors
= 128333021.91
2593416.82
= 49.48 times

Interpretation
The creditors turnover ratio in this case is 49.48 times. This ratio indicates the
number of times the creditors are turned over in relation to purchases. The
ratio in this case is quite high which indicates that the enterprise is not availing
the full credit period and credit worthiness.

(iii) INVENTORY TURNOVER RATIO

Inventory turnover ratio= Cost of goods sold

Average inventory

Given,
Cost of goods sold= Beginning inventory+ Purchases during the year+ Direct
expenses- Ending inventory

= 9218609.78+ 128333021.91+ 4200- 131891582.34

= 128365529.94

Average inventory= Opening stock+ Closing stock

2
= 9218609.78+ 9190301.75
2
= 9204455.765

Inventory turnover ratio= Cost of goods sold

 Average inventory
= 128365529.94
9204455.765
=13.95 times

Interpretation
The inventory turnover ratio in this case is 13.95 times. It indicates the number
of times inventory of the firm rotates within an accounting cycle. The above
figure is satisfactory for the firm.

(iv) FIXED ASSETS TURNOVER RATIO

Fixed assets turnover ratio= Net sales

Net fixed assets

Given,
Net sales = 131891582.34

Net fixed assets = 413864

Fixed assets turnover ratio= Net sales

Net fixed assets

= 131891582.34

413864

=318.68 times
Interpretation
The fixed assets ratio is 318.68 times. It is too high for the firm which is not
good as more of funds are blocked in fixed assets.

(v) CURRENT ASSETS TURNOVER

Current assets turnover= Net sales

Current assets

Given,
 Net sales = 131891582.34

Current assets = Cash+ Debtors+ Inventory+ Security deposit+ Advances

to suppliers
= 370270.94+3386524.44+239493+1982721.38
=5979009.76

Current assets turnover= Net sales

Current assets
= 131891582.34
5979009.76
=22.06 times
Interpretation
The current assets turnover ratio in this case is 22.06 times. It indicates that
the firm have utilized the current assets efficiently in achieving the sales
target. Optimum utilization of current assets is done.

(vi) WORKING CAPITAL TURNOVER RATIO

Working capital turnover= Net sales

Net working capital

Given,
Net sales = 131891582.34

Net working capital = Current assets- Current liabilities

=5979009.76-3768689.1
=2210320.66

Working capital turnover= Net sales

Net working capital
=131891582.34
2210320.66
=59.67 times

Interpretation
 The working capital turnover ratio calculated is 59.67 times. It means the
working capital is effectively utilized or invested in making sales. It also
depicts the efficient utilization of resources.

CHAPTER 3
FINDINGS, SUGGESTIONS AND CONCLUSION

a. The gross profit ratio firm is 2.67%. This means that the gross profit is not
good as it may not be able to cover the operating expenses easily.

b. The Net profit ratio for the firm is 1.19%. This indicates the greater
profitability and return to the shareholders. But in this case the %age is less so,
it is not satisfactory for the firm.

c. The operating profit ratio in this case is 99.35%. This ratio indicates the non-
operating incomes and expenses with the net profit in order find out the
operating net profit. This is satisfactory for the firm.

d. The current ratio in this case is 1.59:1. The normal ratio is 2:1. The ratio is
less than the ideal ratio which indicates the inability of a firm to meet
its current liabilities on time.

The absolute ratio in this case is 0.09. The ideal ratio is 1:2. Since the liquid
assets is less than 1 so, it is not satisfactory.

i. The total assets to debt ratio in this case is 2.98. This indicates that
total assets are more than debt which is a good sign for the firm.
 ii. The fixed assets ratio in this case is 0.08. The normal ratio is 1:1. As
the ratio is less than the normal ratio it is satisfactory as more fixed
assets were not purchased.

iii. The debtors turnover ratio in this case is 38.95 times. The ratio
indicates in this case is the time taken at which the debts are collected
on an average during the year. A high ratio implies a shorter collection
period which indicates the efficiency of the management.

iv. The creditors turnover ratio in this case is 49.48 times. This ratio
indicates the number of times the creditors are turned over in relation
to purchases. The ratio in this case is quite high which indicates that
the enterprise is not availing the full credit period and credit
worthiness.

v. The inventory turnover ratio in this case is 13.95 times. It indicates the
number of times inventory of the firm rotates within an accounting
cycle. The above figure is satisfactory for the firm.
vi. The fixed assets ratio is 318.68 times. It is too high for the firm which
is not good as more of funds are blocked in fixed assets.

vii. The current assets turnover ratio in this case is 22.06 times. It indicates
that the firm have utilized the current assets efficiently in achieving the
sales target. Optimum utilization of current assets is done.

viii. The working capital turnover ratio calculated is 59.67 times. It means
the working capital is effectively utilized or invested in making sales.
It also depicts the efficient utilization of resources.