Q.3 Explain the concept of financial statement analysis. Why we do financial statement (04) analysis? Profit and Loss Account Particulars By Sales Particulars Rs Rs To Opening Stock: 1,000,000 Raw Materials 50,000 Add : Purchases 3,00,000 3,50,000 1,50,000 2,00,000 2,00,000 1,00,000 5,00,000 1,00,000 Less: Closing Stock of Raw Materials Raw Materials Consumed To Wages To Factory Expenses Cost of Production Add : Opening Stock of Finished Goods Less : Closing Stock of Finished Goods Cost of Goods Sold To Gross Profit cld 6,00,000 1,00,000 5,00,000 5,00,000 1,000,000 50,000 By Gross Profit b'd 50,000 1,000,000 5,00,000 To Administrative Expenses To Selling and Distribution Expenses Operating Expenses To Operating Profit c/d 1,00,000 4,00,000 2,50,000 To Loss on Sale of Plant 2,50,000 4,00,000 50,000 By Operating Profit 10,000 bid To Interest on Debenture By Profit on Sale of investment 60,000 (Non-operating 3,90,000 income) 50,000 Non-operating Expenses To Net Profit 5,00,000 5,00,000
Q.3 Explain the concept of financial statement analysis. Why we do financial statement (04) analysis? Profit and Loss Account Particulars By Sales Particulars Rs Rs To Opening Stock: 1,000,000 Raw Materials 50,000 Add : Purchases 3,00,000 3,50,000 1,50,000 2,00,000 2,00,000 1,00,000 5,00,000 1,00,000 Less: Closing Stock of Raw Materials Raw Materials Consumed To Wages To Factory Expenses Cost of Production Add : Opening Stock of Finished Goods Less : Closing Stock of Finished Goods Cost of Goods Sold To Gross Profit cld 6,00,000 1,00,000 5,00,000 5,00,000 1,000,000 50,000 By Gross Profit b'd 50,000 1,000,000 5,00,000 To Administrative Expenses To Selling and Distribution Expenses Operating Expenses To Operating Profit c/d 1,00,000 4,00,000 2,50,000 To Loss on Sale of Plant 2,50,000 4,00,000 50,000 By Operating Profit 10,000 bid To Interest on Debenture By Profit on Sale of investment 60,000 (Non-operating 3,90,000 income) 50,000 Non-operating Expenses To Net Profit 5,00,000 5,00,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Q.3
Explain the concept of financial statement analysis. Why we do financial statement
(04)
analysis?
Profit and Loss Account
Particulars
To Opening Stock:
Rs
Particulars
Rs
By Sales
1,000,000
Raw Materials
50,000
3,00,000
3,50,000
1,50,000
2,00,000
2,00,000
Add : Purchases
Less: Closing Stock of Raw Materials
Raw Materials Consumed
To Wages
To Factory Expenses
Cost of Production
Add : Opening Stock of Finished
1,00,000
5,00,000
1,00,000
Goods
6,00,000
1,00,000
Less : Closing Stock of Finished Goods
Cost of Goods Sold
5,00,000
To Gross Profit c/d
5,00,000
1,000,000
5,00,000
To Administrative Expenses
To Selling and Distribution Expenses
Operating Expenses
To Operating Profit c/d
1,000,000
50,000 By Gross Profit b'd
50,000
1,00,000
4,00,000
2,50,000
50,000 By Operating Profit
10,000 bid
2,50,000
4,00,000
To Loss on Sale of Plant
To Interest on Debenture
By Profit on Sale of
investment
60,000 (Non-operating
3,90,000 income)
Non-operating Expenses
50,000
To Net Profit
5,00,000
5,00,000
Balance Sheet
Rs. Liabilites
1,00,000 Creditors
1,00,000 Bills Payable
Assets
Rs.
Plant and Machinery
Land and Building
Furniture
1,00,000
50,000
50,000
Fixed Assets
Bank Balances
Sundry Debtors
Liquid Assets
Stock of Raw
Materials
Stock of Finished
Goods
2,50,000 Current Liabilities
50,000 Working Capital
150,000
2,50,000
100,000
150,000 Capital Employed
5.00.000
150,000 Long-Term Debt:
100,000| 12 % Debenture
2,00,000
4,00,000 Shareholders' Fund
Less: Preference
Share Capital
Equity Shareholders'
Fund or Net Worth
Net Worth
3,00,000
1,00,000
Current Assets
2,00,000
Represented by:
Equity Share Capital
Retained Earnings
Equity Shareholders
Net Worth
1,00,000
1,00,000
2,00,000
Calculate the following ratios:
1) Gross profit ratio
4) Operating ratio
7) Absolute liquid ratio
10) Debt equity ratio
13) Current ratio
16) Liquid ratio
19) Proprietary ratio
(21)
02) Net profit ratio
05) Return on investment ratio 06) Retum on capital employed ratio
08) Stock turnover ratio
11) Creditor's turnover ratio
14) Fixed assets turnover ratio 15) Overall profitability ratio
17) Capital turnover ratio
20) Capital gearing ratio
03) Operating profit ratio
09) Earning per equity share ratio
12) Working capital turnover ratio
18) Net profit to net worth
21) Debtor's turmover ratio
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