Analysis & Interpretation of financial statements and ratio analysis- solvency and liquidity ratio

1. FINANCIAL
STATEMENT
ANALYSIS &
INTERPRETATION
Liquidity Ratio

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3. FINANCIAL STATEMENT
• Financial statement analysis is the process of analysing a company’s financial statement
for decision making purposes.
• Financial analysis is the process of examining a company’s performance in the context of
its industry and economic environment in order to arrive at a decision or
recommendation.
• Financial analysis is the process of identifying the financial strengths and weaknesses of
the firm by property establishing relationships between the item of the balance sheet and
the profit and loss account.

4. Financial Statement Analysis – Methods

5. Financial Statement Analysis - Objectives
⮚To judge the financial health of the firm.
⮚To evaluate the profitability of the enterprise.
⮚ To gauge the debt servicing capacity of the firm.
⮚ To understand the long-term and short-term solvency of the
firm.
⮚ To know the return of capital employed or invested.

9. ADVANTAGES FOR RATIO ANALYSIS

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26. Microsoft Financial report from 2017-2020
–Liquidity ratio
Ratios 2019-20* 2018-19* 2017-18*
Current ratio 2.5288:1 2.9008:1 2.9186:1
Quick Ratio 2.4991:1 2.8552:1 2.8794:1
Cash Ratio 1.9277:1 2.2871:1 2.3855:1
Source:
Income Statement- https://www.macrotrends.net/stocks/charts/MSFT/microsoft/income-statement
Balance Sheet- https://www.macrotrends.net/stocks/charts/MSFT/microsoft/balance-sheet
Ratios- https://www.macrotrends.net/stocks/charts/MSFT/microsoft/financial-ratios
* Values are in $ and are calculated as same.
0
0.5
1
1.5
2
2.5
3
3.5
2019-20* 2018-19* 2017-18*
Chart Title
Current ratio Quick Ratio Cash Ratio

27. PROFITABILITY
Profitability ratios are the financial measures to analyze the earning capacity and determine
the financial soundness of the organization by comparing the earnings with different
expenditures, and ensure the optimum utilization of the various resources.
GROSS
PROFIT
RATIO
NET
PROFIT
RATIO
The gross profit ratio determines the percentage of disposable income
available with the organization to carry out business operations.
Gross Profit Ratio= Gross Profit/ Net Sales*100
The net profit ratio depicts the net income of an organization which is
available for the shareholders after paying off all the operating and non-
operating expenses.
Net Profit= Net Profit/ Net sales *100

30. Microsoft Financial report from 2017-2020
– Profitability ratio
Ratios 2019-20* 2018-19* 2017-18*
Gross
Profit ratio
65.902% 65.2474% 64.5225%
Net Profit
Ratio
31.1182% 15.0154% 26.3941%
Source:
Income Statement- https://www.macrotrends.net/stocks/charts/MSFT/microsoft/income-statement
Balance Sheet- https://www.macrotrends.net/stocks/charts/MSFT/microsoft/balance-sheet
Ratios- https://www.macrotrends.net/stocks/charts/MSFT/microsoft/financial-ratios
* Values are in $ and are calculated as same.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2019-20* 2018-19* 2017-18*
Chart Title
Gross Profit ratio Net Profit Ratio

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34. MSME Co.- Chai Point
⮚MSME stands for Micro, Small, and Medium Enterprises. In accordance with
the Micro, Small, and Medium Enterprises Development (MSMED) Act in
2006, the enterprises are classified into two divisions.
1. Manufacturing enterprises – engaged in the manufacturing or production of
goods in any industry
2. Service enterprises – engaged in providing or rendering services
⮚Chai Point (Medium Enterprise) Chai Point, by Mountain Trail Foods, was
founded in 2010 by Amuleek Singh Bijral and Tarun Khanna of Harvard
Business School. It has now grown to become the largest organised chai retailer
in India. Chai Point is an omni-channel business with stores, delivery and a
fresh-milk based dispenser platform, boxC, as its operating channels. Chai Point
is also the country’s largest hot beverage delivery brand and recently delivered
its 11th lakh flask.

35. Case study – Chai point liquidity & profitability analysis
Ratios 2018 2017
Current ratio 2.68 2.57
Quick Ratio 2.15 2
Cash Ratio 1.17 1.06
Ratios 2018 (%) 2017 (%)
Gross Profit ratio 41.65 41.61
Net Profit Ratio 10.79 9.76
0
1
2
3
Current ratio Quick Ratio Cash Ratio
Chart Title
2018 2017
0.00%
50.00%
2018 2017
Chart Title
Gross Profit ratio Net Profit Ratio
Source: https://www.vccircle.com/is-profitability-on-the-horizon-for-tea-startups-chai-point-and-chaayos/

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