1. CHAPTER 3 : Tools of Financial Statements Analysis

March 25, 2020

Chapter 3

Tools of Financial Statements Analysis

Study the given notes, steps, formulas and examples to understand comparative tool of analysis of financial statements (i.e. Statement of profit & loss and Balance Sheet)...

Comparative statements.. refer to the statement showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods.

It usually applies to the two important financial statements namely, balance sheet and statement of profit and loss prepared in a comparative form. This, comparative statements are:

i. comparative statement of profit and loss and
ii. comparative balance sheet.
These are prepared by providing columns for the figures for both the current year as well as for the previous year and for the changes during the year, both in absolute and percentage terms.
*Comparative statements indicate the trend and direction of financial position and operating results of a firm over a period of time. This analysis is also known as horizontal analysis / time series analysis.*
*
The following steps to be followed to prepare the comparative statements:

Step 1. list out absolute figures in rupees relating to two points of time (as shown in column II and III )

Step 2. find out change in absolute figures by subtracting the first year (column II ) from the second year ( column III) and indicate the change as increase + or decrease ( - ) and put it in column IV.

Step 3. calculate the percentage change as follows and put it in column V.

Calculate the percentage change as follows ..

Absolute Change

_________________________ * 100

First year absolute figure

particulars first year second year absolute change % change
(I) ( II) (III) (IV)= (III - II) (V)

Uses of comparative statement:

1. it is possible to find out not only the balances of accounts as on different dates and summaries of different operational activities of different periods but also the extent of their increase or decrease between these dates.

2. the figures in the comparative statements can be used for identifying the direction of changes and also the trends in different indicators

of performance of an organisation.

Comparative statement of profit and loss

Prepare Comparative statement of profit & loss

Ques.1 (EXAMPLE)

                                                                     2018-19      2019 - 20
Revenue from operations                            6000000     7500000
Other incomes                                               150000       120000 Expenses                                                     4400000      5060000
Income tax                                                       35%           40%

Ans.

Comparative statement of profit and loss

for the year ended 31st march 2019 and 20

Particulars note 2018-19 2019-20 absolute percentage

                                        no.                                              change    change
I. revenue from operations    60,00000       7500000      1500000      25%
II. add other incomes               150000         120000         (30000)     (20)
III. total revenue (I+II)          6150000        7620000       1470000     23.9%
IV. Less expenses                  4400000        5060000         660000      15%
profit before tax                     1750000        2560000        810000 46.29%
V. less tax                                612500        1024000         411500     67.18
profit after tax                        1137000       1536000          398500   35.03%

Comparative balance sheet

Ques. 1 ( EXAMPLE)

Particulars                                                      March 2020        March 2019
I. Equity and Liabilities
1. Shareholder's Funds
(a) Share capital                                               2000000             1500000
(b) Reserves and surplus                                   300000               400000

2. Non current liabilities
(a) Long term borrowings                                   900000               600000

3.Current liabilities
(a)Trade payables                                               300000                200000

Total                                                                  3500000                2700000

II.Assets
1.Non current assets
(a)Fixed assets
(i)tangible assets                                                2000000              1500000
(ii)intangible assets                                               900000               600000

2. Current assets
(a)Inventories                                                        300000               400000 (b)Cash and cash equivalents                             300000                200000

Total                                                                    3500000              2700000

Ans.

Comparative Balance Sheet

as on 31^st March 2019 & 20

Particulars March 2020 March 2019 Absolute %

                                                                                             change     change
I. Equity and Liabilities
1. Shareholder's Funds
(a) Share capital                   1500000           2000000         500000    33.33%
(b) Reserves and surplus       400000             300000        (100000)   (25%)

2. Non current liabilities
(a) Long term borrowings       600000             900000          300000      50%

3.Current liabilities
(a)Trade payables                  200000             300000          100000       50%

Total                                      2700000           3500000         800000    29.63%

II.Assets
1.Non current assets
(a)Fixed assets
(i)tangible assets                   1500000              2000000       500000   33.33%
(ii)intangible assets                  600000                900000       300000      50%
2. Current assets
(a)Inventories                           400000               300000        (100000)   (25%)

(b)Cash and cash equivalents 200000 300000 100000 50%

Total 2700000 3500000 800000 29.63%