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The term µfinancial analysis, also known as analysis and interpretation of

financial statements¶, refers to the process of determining financial strengths and

weaknesses of the firm by establishing strategic relationship between the items of the

balance sheet, profit and loss account and other operative data. The purpose of

financial analysis is to diagnose the information contained in financial statements so

as to judge the profitability and financial soundness of the firm. It is performed by

professionals who prepare reports using ratios that make use of information taken

from financial statements and other reports. These reports are usually presented to

top management as one of their basis in making business decisions.

Meaning of Financial Analysis

Financial analysis refers to an assessment of the viability, stability and

profitability of a business, sub-business or project. The term financial analysis also

called financial statement analysis. The term financial statement analysis includes

both µanalyses and µinterpretation¶. Analysis is used to mean the simplification of

financial data by methodical classification of the data given in the financial

statements. Interpretation means explaining the meaning and significance of the data

so simplified. However, both analysis and interpretation are interlinked and

complimentary to each other. Analysis is useless without interpretation and

interpretation without analysis is difficult or even impossible.

The analysis and interpretation is of financial statements is essential to bring out

the mystery behind the figures in financial statements. Financial statements are
 prepared primarily for decision-making. They play dominant role in setting the

framework of managerial decisions. Financial statements at least refer to the two

statements which are prepared by a business concern at the end of the year. These

are:

i. Income Statement or Trading and Profit and Loss Account which is prepared

by a business concern in order to know the profit earned and loss sustained during a

specified period.

ii. Position statement or Balance sheet which is prepared by a business concern on a

particular date in order to know its financial position.

To these statements are added the statement of Retained Earnings and some

other statements (as Fund Flow Statement, cash Flow statement etc ) and schedules

of fixed assets (as investment, current assets etc) to give a full view of the financial

affaires, All these statements are collectively called as package of financial

statements. Statement of retained earnings or Profit and Loss Appropriation Account

shows the utilization of profit of the company. Funds flow statements summarizes

the changes in working capital in a specified period and indicates the various sources

and applications of funds. Cash flow statements give the various items of inflow and

outflow of cash. Various schedules of fixed assets are prepared by companies to

show as to how the figures shown in the balance sheet have been arrived at.
c ALS F FINANCIAL ANALYSIS

Financial analysts often assess the firm's:

1. Profitability- its ability to earn income and sustain growth in both short-term and

long-term. A company's degree of profitability is usually based on the income

statement, which reports on the company's results of operations;

2. Solvency- its ability to pay its obligation to debtors and other third parties in the

long-term;

3. Liquidity- its ability to maintain positive cash flow, while satisfying immediate

obligations;

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4. Stability- the firm's ability to remain in business in the long run, without having

to sustain significant losses in the conduct of its business. Assessing a company's

stability requires the use of the income statement and the balance sheet, as well as

other financial and non-financial indicators.

B) BJECTIVES F THE STUDY

JY To analyse the Financial Position of the company.

JY To give suggestions to improve the financial position of the company.

JY To study the operating efficiency of the Company.

JY To find out how effectively the company has utilised its financial resources.

JY To understand the importance of Ratio Analysis in rganization.

JY To recognize the diagnostic role of financial ratios and highlights

 the utility of financial ratios in determining the financial solvency

of the company.

JY To find out the Loop Holes and offer suggestions if necessary.

C) SC PE F THE STUDY

Financial Performance information is the basis for financial planning, analysis and

decision-making. Financial Information is needed to predict, compare and evaluate

the firms earning ability. Management, creditors, investors and others to form

judgment about the operating performance and financial position of the firm use the

information. It also helps to get further insight about financial strength and weakness

of the firm if they properly use this information. It is also a starting point for making

future plans.

D) METH D L cY

Title of the Study

A study on the Financial Performance in Hindustan Newsprint Ltd, Kottayam

Field Study

The study was conducted at Finance Department of Hindustan Newsprint Ltd,

Kottayam.

Research Design

The study is descriptive in nature. This is an attempt to evaluate the performance of

the company through the financial statement analysis by the financial data which
are disclosed in accounting policies.
Sources of Data

Primary as well as secondary data has been collected for the purpose of

study.

Primary Data:

19TH JAN-2010 T 19TH MARCH-2010

n the 1st day of my study I met my organization guide Mr. NARAYANA

SWAMI . He gave a briefing about the company. During the 1st four weeks I spent

in the following sections of the company.

JY Personnel Department

JY Welfare Department

JY Head ffice of the company

1ST FEB-2010 T 19TH MARCH-2010

During this period I concentrated my studies on finance costing department.

I visited the following sub departments and collected the required data.

JY Finance Sales

JY Finance Accounting

JY DM Tax

JY DcM Costing

JY Company Secretary

Secondary Data :

The secondary sources are mainly the published information available in books,
Annual Reports, Broachers and Leaflet.
E) LIMITATI N F THE STUDY

XY It was not possible to get all the details of the organization especially in terms

of financial matter.

XY The study has been taken only from the published information and hence

analysis can be only on macro basis.

XY The information collected from the company records relates only to the past

which may not be an overall representative of the future

XY The study is purely of academic intrest.The inexperience makes the analysis

less precious when compared to professional analysis. Hence the conclusion

from the analysis of statement is not sure indicators.

XY The result of this study cannot be generalized for other similar organizations.

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Financial statement may refer to any formal and original statement which

discloses financial information, relating to any business concern. It refers to the two

statements which are prepared by the business concern at the end of the year. These

are

1) Income statement or trading and profit and loss account which is prepared by a

business concern in order to know the profit and loss earned during a specified

period

2) Position statement or Balance sheet which is prepared by a business concern

on a particular date in order to know its financial position.

These statements reflect a combination of recorded facts; accounting

conventions and personal judgments. nly those facts which are recorded in the

business books will be reflected in the financial statements. The focus of financial

analysis is on key figures contained in the financial statements and the significant

relationship that exists between them.

The most important objective of the analysis and interpretation of financial

statements are to understand the significance and meaning of financial statement data

to know the strength and weakness of "Hindustan newsprint ltd, Kottayam



The important financial analysis tools used were:-

(i) Comparative financial statement

(a) Comparative income statement

 (b) Comparative Balance sheet statement

(ii) Common size financial statement

(a) Common size income statement

(b) Common size balance sheet statement

(iii) Trend analysis

(a) Trend analysis of balance sheet

(b) Trend percentage of working capital

(iv) Ratio analysis

(a) Liquidity ratio - short term and long term

(b) Profitability ratio:

(c) Turnover ratio

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The preparation of comparative financial and operating statement is an

important device of horizontal financial statement. Financial data become more

meaningful when it is compared with similar data for a previous period or number of

prior period. Statement prepared in the form that reflects financial data for two more

periods are known as comparative statements. Such statements are very helpful in

measuring the effects of the conducts of the business during the period under

consideration.

Comparative statement can be of two types:

(i) Comparative Income statement

(ii) Comparative Balance sheet statement

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It is the statement prepared to compare the income and expenses of one year

with those of a previous year to ascertain the progress of the enterprise. The

comparative Income statement gives an idea of the progress of the business over a

period of time. The changes in absolute data in money values and percentage can be

determined to analyze the profitability of the business. It has got four columns. First

two columns give figures of various items for two years. Third and fourth columns are

used to show the increase or decrease in figure in absolute amounts and percentages

respectively.

The comparative income statement serves the following purpose.

1. To know the increase or decrease in cost

2. To know the increase or decrease in revenue

3.Y To know the trend of movement of cost & revenue

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AM UNT %

PARTICULERS 2004-05 2005-06 INCREASE/ INCREASE/

DECREASE DECREASE

Sales 27393 30296 2903 10.6

Add: ther income 352 310 -42 -11.93

Cost of goods sold 25336 26253 917 3.61

cross margin 2409 4353 1944 80.69

Less: interest 289 296 7 2.42

Cash profit (+) 2120 4057 1937 91.36

/deficit(-)

Less: Depreciation 1166 1321 155 13.29

Profit before Tax 954 2736 1782 186.79

Less: Provision for Tax 532 1168 636 119.54

Profit after Tax 422 1568 1146 271.56

Source: Annual reports and Accounts of HNL.

!!!:

Here in this FY the sales turnover has increased up to 10.6% as a result the cross

margin has also increased up to 80.69 %. This made 186.79% increase in Profit before

Tax and 271.56% increase in Profit after tax. This was very profitable year in

percentage comparing to other FY.

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AM UNT %

PARTICULERS 2005-06 2006-07 INCREASE/ INCREASE/

DECREASE DECREASE

Sales 30296 31519 1223 4.03

Add: ther income 310 312 2 0.64

Cost of goods sold 26253 25939 -314 -0.01

cross margin 4353 5892 1539 35.35

Less: interest 296 139 -157 -53.04

Cash profit (+) 4057 5753 1696 41.80

/deficit(-)

Less: Depreciation 1321 1245 -76 -5.75

Profit before Tax 2736 4508 1772 64.76

Less: Provision for Tax 1168 1316 148 12.67

Profit after Tax 1568 3192 1624 103.57

Source: Annual reports and Accounts of HNL.

!!!$

The gross margin increased upto 35.35 % and have a cash profit increase of 41.80%

and profit after tax increased to 103.57% which shows companies management skills
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AM UNT %

PARTICULERS 2006-07 2007-08 INCREASE/ INCREASE/

DECREASE DECREASE

Sales 31519 29861 -1658 -5.26

Add: ther income 312 546 234 75

Cost of goods sold 25939 27358 1419 5.47

cross margin 5892 3049 -2843 -48.25

Less: interest 139 59 -80 -57.55

Cash profit (+) 5753 2990 -2763 -48.02

/deficit(-)

Less: Depreciation 1245 1180 -65 -5.22

Profit before Tax 4508 1810 -2698 -59.84

Less: Provision for Tax 1316 656 -660 -50.15

Profit after Tax 3192 1154 -2038 -63.84

Source: Annual reports and Accounts of HNL.

Inference:

Here sales has decreased to 5.26 % which resulted in 48.25 % loss in gross margin

and caused a cash deficit of 48.02 % and profit after tax reduced to 63.84% which is

huge loss to organization.

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AM UNT %

PARTICULERS 2007-08 2008-09 INCREASE/ INCREASE/

DECREASE DECREASE

Sales 29861 29767 -94 -0.31

Add: ther income 546 694 148 27.10

Cost of goods sold 27358 27015 -343 -1.25

cross margin 3049 3446 397 13.02

Less: interest 59 134 75 127.11

Cash profit (+) 2990 3312 322 10.76

/deficit(-)

Less: Depreciation 1180 1202 22 1.86

Profit before Tax 1810 2110 300 16.57

Less: Provision for Tax 656 846 190 28.96

Profit after Tax 1154 1264 110 9.53

Source: Annual reports and Accounts of HNL.

Inference

Here sales has decreased to 0.31 % which resulted in only 13.02 % increase in gross

margin and made a cash profit of 48.02 % and profit after tax increased to 9.53%

which is good come back by organization after a huge loss.

  % 
   

A comparative balance sheet is a statement prepared on two or more different

dates for comparing assets and liabilities to find out decrease or increase in the

amount of various items in statements. This facilitates the comparison of figures of

two or more periods and provides necessary information which may be useful in

forming an opinion regarding the financial condition as well as progressive outlook of

the firm.

This comparative balance sheet shows:

In absolute money value or

Increase or decrease in absolute values or

By way of percentages

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