FINANCIAL STATEMENT ANALYSIS

Submitted By:

Vivek Kalagaggari (22)

Shreya Kapoor (23)

Sumedha Kapoor (24)

Akrit Kashyap (25)

Shreyansh Kejriwal (26)

Ambarish Kulkarni (27)

INTRODUCTION

• “Analysis of Financial Statements” involves the process of reviewing and evaluating a company's financial statements (such as the balance sheet or profit and loss statement), thereby gaining an understanding of the financial health of the company and enabling more effective decision making.

• As a part of IT Project, horizontal comparative analysis of Balance Sheet is performed in order to identify Company’s financial health using various functionalities available in Excel.

• Post which the parameters are analyzed and reported using dashboards and graphs.

• In order to make the analysis significant and ready to use, decision making enablers and discussions are provided.

METHODOLOGY

• In order to make the analysis more authentic we have taken up the actual Financial Statements of HUL from Financial Year 2009 to 2013.

• We have calculated the various possible financial ratios in order to compute the Solvency, Liquidity, Profitability and Market ratios using the data available.

• The trend of these ratios over time is studied to check whether they are improving or deteriorating.

• Ratios are also compared across different years to see how they stack up, and to get an idea of comparative valuations.

• Apart from analyzing ratios we have also made projections for coming years in order to determine the financial standing of the company in the future.

TYPES OF RATIOS

RATIOS ANALYZEDSOLVENCY RATIOS• Current ratio• Quick ratio• Debt equity ratio• Interest coverage ratio• Total debts to total assets ratio• Proprietary ratio

PROFITABILITY RATIOS• Operating profit ratio• Net profit ratio• Return on shareholders’ funds

MARKET RATIOS• Earnings per share• Book value per share

EXCEL FUNCTIONALITIES USED

• In order to perform the aforementioned analysis we have made use of various excel functions such as:

1. H-lookup.

2. Macros.

3. Graphing.

4. Data tables.

5. Scenario manager.

6. Trend analysis, maximum – minimum function ,etc.

7. Data analysis using pictorial displays.

SUMMARY OF RATIO

ANALYSIS AND INTERPRETATIONSOLVENCY RATIOS• The Current Ratio for a company is ratio of

current assets to current liabilities. In this case it is much lower than the industry standard ratio of 2:1  which means the company may have problems meeting its short-term obligations.

• The standard quick ratio for industry is 1:1. Low or decreasing quick ratios suggests that a company is over-leveraged, struggling to maintain or grow sales, paying bills too quickly or collecting receivables too slowly.

• As far as Debt equity ratio is concerned the company does not rely much on debt financing it rather finances its resources with equity capital. The debt equity ratio is nil for some years whereas it is marginal in other years.

• Total debt to total assets ratio is marginal which signifies that very less assets are financed through debt capital.

Mar '09

Mar '10

Mar '11

Mar '12

Mar '13

Mar '14

0.00

0.20

0.40

0.60

0.80

1.00

1.20

0.780.86 0.87 0.85

1.02 1.03

CURRENT RATIO

CURRENT RATIO

FY' 09 FY' 10 FY' 11 FY' 12 FY' 130

0.5

1

1.5

2

2.5

1.99155924583696

0.04968602465966910 0

0.114404624277457

Debt Equity Ratio

Debt Equity Ratio

PROFITABILITY RATIOS• Operating profit ratio and net profit

ratio of the firm has been considerably consistent over the years which mean that the company’s operations have been fairly good in converting the profits.

• Since the company finances most of its operations through equity and less of capital therefore return on shareholders fund is considerably good over the years.

Mar '09 Mar '10 Mar '11 Mar '12 Mar '1311%

12%

13%

14%

15%

16%

14%

15%

13%

14%

15%

OP Ratio

OP Ratio

Mar '09 Mar '10 Mar '11 Mar '12 Mar '130%

2%

4%

6%

8%

10%

12%

14%

16%

12% 12% 12% 12%

14%

NP Ratio

NP Ratio

Mar '09 Mar '10 Mar '11 Mar '12 Mar '130.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

117.42

81.10 84.3476.07

134.02

Return on Share holder's Capital

Return on Share holder's Capital

MARKET RATIOS• EPS of the company has been

steadily rising over the years with a slight decline in 2010 because of new competitors coming in but HUL soon realized the needs of the market and came up with more for its customers and shareholders.

• Book value per share compares the amount of stockholders' equity to the number of shares outstanding. Higher the BV the better it is for the shareholders. The BV of the company has been rising over the year which is a good sign for the company.

• From the graph we can easily comprehend that the EPS of the firm has been consistently at par with Book Value and even more at times which indicates the company’s good financial standing in the market.

Mar '09 Mar '10 Mar '11 Mar '12 Mar '130.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

11.519.92 10.68

12.95

17.75

9.81

12.23 12.66

17.03

13.25

Comparison of EPS & BV

Earnings per shareBook value per share

PROJECTED PROFITS AND SALES

USERS OF FINANCIAL STATEMENT ANALYSIS

• Creditors- Anyone who has lent funds to a company is interested in this analysis.

• Investors- Both current and prospective investors examine financial statements.

• Management- The company controller prepares an ongoing financial results, particularly in relation to a number of operational metrics .

• Regulatory authorities-Financial statements are examined by the SEBI and other authorities to see if its statements conform to the various accounting standards and the rules.

ADVANTAGES OF FINANCIAL STATEMENT ANALYSIS

• It provides an idea to the investors on investing their funds in a particular company.

• Regulatory authorities can ensure company follow the required accounting standards.

• Helpful to the government agencies in analyzing the taxation owed to the firm.

• Company is able to analyze its own performance over a specific time period.

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS

• Comparability of financial data and the need to look beyond ratios.

• Differences between two companies’ accounting methods make it, sometimes, difficult to compare the data of the two.

• The analyst should remember the lack of data comparability before reaching any clear-cut conclusion.

• Ignores qualitative aspects of data.

DECISION MAKING BASED ON ANALYSIS

• As the sales have been fairly good throughout and is even expected to rise in the coming years but still the management can look for more marketing efforts so as to reap higher profits.

• As far as the solvency position is concerned the company’s liquidity position is not at par with the industry standard therefore it should work on maintaining its current and quick ratios so as to maintain a better working capital and for avoiding liquidity crunch.

• The EPS of the firm has been consistently at par with Book Value and even more at times which indicates the company’s good financial standing in the market.

• The overall financial position of the company is fairly good and to it take to higher levels the company should increase its efforts in product diversification and product expansion in context with increasing competition.

• The company should leverage more on its capital structure and employ more of debt capital in its capital structure.

• After comprehensively analyzing financial statements of HUL we can easily make out the company’s sales have been rising over the years with a positive sign.

• The profit ratios of the company are consistent over the years and show an increasing trend in coming years as well.

• Company’s capital structure includes more of Equity which increases the investors trust thereby leading to increased EPS and Book Value.

• Therefore through scenario manager and data tables we have projected future position of the company’s sales and profits which definitely indicates a bright future.