Specimen of Comparative and Common size P&L and B/S, and Ratio Analysis
COMPARATIVE INCOME STATEMENT
Particulars
Previous Year
Current Year
Increase or decrease
Amount
Percentage
Net Sales/ Sales (Gross sales – Sales Returns)
Less: Cost of Goods Sold
Raw materials
Direct Wages/ Labor
Direct / Manufacturing expenses
Add: Opening stock of Finished Goods
Less: Closing stock of Finished Goods
Gross Profit
Less: Operating Expenses
Administration Expenses
Selling and Distribution Expenses
Operating Profit
Add: Non-trading/ Non-operating Income (dividend, interest etc)
Less: Non-trading/ Non-operating Expenses
Income or Earnings Before Interest and Tax
Less: Interest on Debentures/ Bonds
Net income of Earnings Before Tax
Less: Tax
Income or Profit After Tax
COMMONSIZE INCOME STATEMENT
Particulars
Previous Year
Current Year
Amount
Percentage
Amount
Percentage
Net Sales/ Sales (Gross sales – Sales Returns)
Less: Cost of Goods Sold
Raw materials
Direct Wages/ Labor
Direct / Manufacturing expenses
Add: Opening stock of Finished Goods
Less: Closing stock of Finished Goods
Gross Profit
Less: Operating Expenses
Administration Expenses
Selling and Distribution Expenses
Operating Profit
Add: Non-trading/ Non-operating Income (dividend, interest etc)
Less: Non-trading/ Non-operating Expenses
Income or Earnings Before Interest and Tax
Less: Interest on Debentures/ Bonds
Net income of Earnings Before Tax
Less: Tax
Income or Profit After Tax
COMPARATIVE BALANCE SHEET
Particulars
Previous Year
Current Year
Increase or decrease
Amount
Percentage
ASSETS
Current Assets
Cash / Bank
Stock/ Inventory
Debtors
Bills Receivable
Prepaid Expenses
Total Current Assets (A)
Fixed Assets
Land & Buildings
Plant & Machinery
Furniture & Fittings
Total Fixed Assets (B)
Total Assets (A + B)
LIABILITIES
Current Liabilities & Provisions
Creditors
Bills Payable
Outstanding Expenses
Provisions
Total Current Liabilities (C)
Long – Term Liabilities
Debentures/ Bonds/ Bank Loan
Total Long-Term Liabilities (D)
Capital and Reserves
Share Capital
Reserves and Surplus
Retained Earnings
Total Shareholders Funds (E)
Total liabilities and Capital(C+D+E)
Problem 1:
The following are the income statements of X Ltd., for the year ending 31.12.2008 and 2007. You are required to prepare a comparative income statement for the two years.
31.12.2007 31.12.2008
Net Sales 10,00,000 12,00,000
Cost of Goods Sold (CGS) 5,50,000 6,05,000
Operating expenses
Administration 80,000 1,00,000
Selling 60,000 80,000
Non-Operating Expenses
Interest 40,000 50,000
Income – Tax 50,000 80,000
RATIO ANALYSIS
A ratio us a mathematical relationship between two items expressed in a quantitative form. Basically ratios can be classified as
- Profitability ratio
- Turnover ratio
- Solvency ratio
PROFITABILITY RATIO
FORMULA
EXPLANATION
1. Return on Investment (or) Overall Profitability ratio
Operating Profit
R.O.I = ------------------------- x 100
Capital Employed
Operating Profit = Profit before interest and tax
Capital Employed = Total Assets (or) Total Fixed Assets (or) Net Working Capital (or) Share Capital + Reserves and Surplus + Long term Loans) – (Non business assets – Fictitious Assets)
a. Return on Shareholders Funds
Net Profit after interest and tax
R.O. SF = ------------------------------------------ x 100
Shareholders Funds
Net Profit after Interest and Tax = Profit after interest and tax + (Non-operating income – non-operating expenses)
Shareholders Funds = Equity Share Capital + Preference Share Capital + Reserves and Surplus
b. Return on Equity/ Return on Net Worth/ Equity Shareholders Funds
Net profit after interest, tax and pref. dividend
ROE = ---------------------------------------------------------- x 100
Equity Shareholders Funds/ net worth/ Equity
Equity Shareholders Funds = Equity Share Capital + Reserves and Surplus – Accumulated Losses
c. Return on Total Assets (2 FORMULA)
Net profit after tax + Interest
ROTA = ------------------------------------------------- x 100
Total Assets excluding Fictitious Assets
Net profit after tax
ROTA = ----------------------------- x 100
Total Assets
2. Gross Profit ratio
Gross profit
GP = ----------------------------- x 100
Net Sales
Net Sales = Gross Sales – Sales Returns
3. Operating Ratio
Cost of Sales + Operating Expenses
Operating Ratio = --------------------------------------------- x 100
Net Sales
Operating Expenses = Cost of Goods Sold + Administrative expenses + Selling and Distribution Expenses
4. Operating Profit Ratio
Operating profit
OPR = ----------------------------- x 100
Sales
Operating Profit = Net Profit + Non-operating Expenses – Non-operating incomes
(or)
Gross Profit – Operating Expenses
5. Expenses Ratio
Admin./ Sell & Dis./ Financial expenses
ER = ------------------------------------------------------ x 100
Net Sales
Administration Expenses, Selling and Distribution Expenses and Financial Expenses
6. Net Profit Ratio
Net profit
GP = ---------------- x 100
Net Sales
Net Profit = Non-operating incomes + profits (Or) Profit – Non-operating expenses
(provision for tax is also subtracted from profit)
7. Earnings Per Share
Net profit after tax and preference dividend
EPS = ------------------------------------------------------
No. of Equity Shares
8. Price Earnings Ratio
Market Price per Equity Share
P/E Ratio = ----------------------------------------
Earnings per Equity Share
9. (a) Pay out Ratio
Dividend per Equity Share
Payout Ratio = ---------------------------------------- x 100
Earnings per Equity Share
Equity Dividend
Payout R. = ---------------------------------- x 100
Net Profit after tax and Pref. Div
9. (b) Retained Earnings Ratio
Retained Earnings per Equity Share
R. E. Ratio = ---------------------------------------- x 100
Earnings per Equity Share
10. Interest Cover (or) Fixed Charges Cover
Profit before interest and tax
IC (or) FCC = ----------------------------------------
Fixed Interest charges
It establishes the relationship between before interest and tad and fixed interest charges
11. Dividend Yield Ratio
Dividend per Equity Share
Div. Yield = ---------------------------------------- x 100
Market Price per Equity Share
TURNOVER OR ACTIVITY RATIOS
1.Inventory (or) Stock Turnover Ratio
Cost of Goods Sold
STR = ----------------------------
Average Inventory
CGS = Sales – Gross Profit (Or)
= (Opening Stock + Purchases + Direct Expenses) – Closing Stock
Av. Stock = Op. Stock + Cl. Stock / 2
2. Stock Turnover Period
Days or Months in a year
STP = ------------------------------------
Inventory turnover ratio
Average Inventory
STP = ------------------------ x days or months
Cost of Goods Sold
3. Debtors Turnover Ratio
Net Credit Sales
DTR = ----------------------------------------------------
Average Account Receivables (Or) Debtors
Average Account Receivable = Opening Debtors and Bills Receivable + Closing Debtors and Bills Receivable / 2
4. Debt (Or) Average Collection Period
Days or Months in a year
DCP = ------------------------------------
Debtors turnover ratio
Average Accounts Receivable
DCP = ------------------------ x days or months
Net Credit Sales
5. Creditors Turnover Ratio
Net Credit Purchases
CTR = ------------------------------------
Average Accounts Payable (Or) Creditors
Average Account Payable = Opening Creditors and Bills Payable + Closing Creditors and Bills Payable / 2
6. Average Payment Period
Days or Months in a year
APP = ----------------------------------
Creditors turnover ratio
Average Accounts Payable
DCP = ------------------------ x days or months
Net Credit Purchases
7. Working Capital Turnover Ratio
Sales (Or) Cost of Sales
WCTR = --------------------------------
Net Working Capital
Net Working Capital = Current Assets – Current Liabilities
8. Fixed Assets Turnover Ratio
Cost of Sales (Or) Sales
FATR = --------------------------------
Net Fixed Assets
Net Fixed Assets = Fixed Assets – Depreciation
9. Capital Turnover Ratio
Cost of Sales (Or) Sales
Cap. TR = -----------------------------
Capital Employed
Capital Turnover = Shareholders funds + Long-term Loans
(Or)
Total Assets – Current Liabilities
SOLVENCY (OR) FINANCIAL RATIOS
1. Overall Solvency (Or) Total Debt (Or) Debt Ratio
Total Debt
OS = ------------------------------
Total Tangible Assets
Total Debt includes both short-term and long-term borrowings.
A higher ratio includes greater risk and lower safety to owners.
2. Current Ratio
Current Assets
CR = -------------------------
Current Liabilities
Rule of Thumb (Or) Ideal Ratio is 2 : 1
Current Assets: Debtors, Stock, B/R, Bank, Cash, Prepaid Expenses and ST Investments.
Current Liabilities: Creditors, BOD, B/P, Outstanding Expenses
3. Liquid (Or) Quick (Or) Acid Test Ratio
Quick Assets
LR = -------------------------
Current Liabilities (Or) Liquid Liabilities
Rule of Thumb (Or) Ideal Ratio is 1 : 1
Liquid Assets = Current Assets – Stock
4. Cash Position Ratio
Cash + Bank + ST Investments
CPR = ------------------------------------------
Current Liabilities
Rule of Thumb (Or) Ideal Ratio is 0.75 : 1
5. Fixed Assets Ratio
Fixed Assets
FAR = -------------------------
Long – Terms Funds
Long-Term Funds = Share Capital + Reserves and Surplus + Long term Loans) – Fictitious Assets
Rule of Thumb (Or) Ideal Ratio is 0.67 : 1
6. Debt- Equity Ratio
Debt External Equities
D/E R = ---------- (Or) ------------------------
Equity Internal Equities
Rule of Thumb (Or) Ideal Ratio is 1 : 1
7. Proprietary Ratio
Shareholders Funds
PR = ------------------------------
Tangible Assets
Tangible Assets = Total Assets – Intangible Assets
8. Capital Gearing Ratio
LT Loans + Debentures + Preference Share Capital
CGR = --------------------------------------------------------------
Equity Shareholders Funds
FUNDS FLOW STATEMENT
The following are the principle for preparation of Working Capital Statement
Increase in Current Assets – Increases Working Capital
Decrease in Current Assets – Decreases Working Capital
Increase in Current Liability – Decreases Working Capital
Decrease in Current Liability – Increases Working Capital
STATEMENT OF CHANGES IN WORKING CAPITAL
Particulars
Previous year
Current year
Changes in working capital
Increase
Decrease
Current Assets
Cash
Bank
Stock/ Inventory
Sundry debtors
Trading investments/ ST investments
Prepaid Expenses
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
-
XX
-
-
XX
-
XX
-
XX
XX
-
Total Current Assets (A)
XXX
XXX
Current Liabilities
Creditors
Bills Payable
Outstanding Expenses
Short-term Loans
Bank Overdraft
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
-
-
-
-
-
XX
XX
Total Current Liabilities (B)
XXX
XXX
Working Capital (A – B)
XXX
XXX
Net increase or Decrease in working Capital
Total
ADJUSTED PROFIT AND LOSS ACCOUNT (LEDGER FORM)
Particulars
Rs.
Particulars
Rs.
To Depreciation on fixed assets
To Loss on sale of fixed assets
To Loss on sale of investments
To Goodwill written off
To Discount on debentures written off
To Provision for tax
To Proposed Dividend
To Balance c/d
XX
XX
XX
XX
XX
XX
XX
XX
By Balance b/d
By Profit on sale of fixed assets
By Profit on sale of investments
By income from investments
By income tax refund
By Funds From Operations (FFO) (Bal. fig)
XX
XX
XX
XX
XX
XX
XXX
XXX
The excess cash position is called as FFO, Shortage is called Funds Lost in Operation (FLO)
STATEMENT OF FUNDS FROM OPERATIONS (STATEMENT FORM)
Particulars
Rs.
Rs.
Net Profit for the current year
XXX
Add: Items which do not decrease FFO but debited to P&L A/c
Depreciation on fixed assets
Loss on sale of fixed assets
Loss on sale of investments
Goodwill written off
Discount on debentures written off
Provision for tax
Proposed Dividend
XX
XX
XX
XX
XX
XX
XX
XXX
Less: Items which do not increase FFO but credited to P&L A/c
Profit on sale of fixed assets
Profit on sale of investments
Income from investments
Income tax refund
XX
XX
XX
XX
XXX
FFO
XXX
FUNDS FLOW STATEMENT
Sources
Rs.
Applications
Rs.
Issue of Equity Shares
Issue of Preference Shares
Issue of Debentures
Sale of Fixed Assets
Sale of Long-term Investments
Loans from banks etc
Funds From Operation
XX
XX
XX
XX
XX
XX
XX
Purchase of Fixed Assets
Purchase of Long-Term Investments
Redemption of Preference Shares
Redemption of Debentures
Repayment of loans
Payment of Dividend
Payment of Tax liability
Funds Lost In Operation
XX
XX
XX
XX
XX
XX
XX
XX
XXX
XXX
Questions and Answers
Article Tags:
comparative and common size pl and b s
,and ratio analysis
,solvency ratios
,profitability ratios
,turnover ratios and fund flow statement
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