A Study on Financial Performance Analysis at Vijay Textiles

Comparative financial statement is those statements which have been designed in a way so as to provide time perspective to the consideration of various elements of financial position embodied in such statements. In these statements, figures for two or more periods are placed side by side to facilitate comparison. But the income statement and balance sheet can be prepared in the form of comparative financial statement. i) Comparative income statement: The income statement discloses net profit or net loss on account of operations. A comparative income statement will show the absolute figures for two or more periods.

The absolute change from one period to another and if desired.

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The change in terms of percentages. Since, the figures for two or more periods are shown side by side; the reader can quickly ascertain whether sales have increased or decreased, whether cost of sales has increased or decreased etc. ii) Comparative balance sheet: Comparative balance sheet as on two or more different dates can be used for comparing assets and liabilities and finding out any increase or decrease in those items. Thus, while in a single balance sheet the emphasis is on present position, it is on change in the comparative balance sheet.

Such a balance sheet is very useful in studying the trends in an enterprise. 2) common-size financial statement:

Common-size financial statement are those in which figures reported are converted into percentages to some common base in the income statement the sales figure is assumed to be 100 and all figures are expressed as a percentage of sales. Similarly, in the balance sheet, the total of assets or liabilities is taken as 100 and all the figures are expressed as a percentage of this total. 3) Ratio analysis: Ratio analysis is a widely used tool of financial analysis. The term ratio in it refers to the relationship expressed in mathematical terms between two individual figures or group of figures connected with each other in some logical manner and are selected from financial statements of the concern.

The ratio analysis is based on the fact that a single accounting figure by it self may not communicate any meaningful information but when expressed as a relative to some other figure, it may definitely provide some significant information the relationship between two or more accounting figure/groups is called a financial ratio helps to express the relationship between two accounting figures in such a way that users can draw conclusions about the performance, strengths and weakness of a firm. Classification of ratios: A) Liquidity ratios B) Leverage ratios C) Activity ratios D) Profitability ratios A) Liquidity ratios: These ratios portray the capacity of the business unit to meet its short term obligation from its short-term resources (e. g. ) current ratio, quick ratio. i) Current ratio: Current ratio may be defined as the relation ship between current assets and current liabilities it is the most common ratio for measuring liquidity.

It is calculated by dividing current assets and current liabilities.

Current assets are those, the amount of which can be realized with in a period of one year. Current liabilities are those amounts which are payable with in a period of one year. Current assets Current assets = ————————- Current liabilities ii) Liquid Ratio: The term ‘liquidity’ refers to the ability of a firm to pay its short-term obligation as and when they become due. The term quick assets or liquid assets refers current assets which can be converted into cash immediately it comprises all current assets except stock and prepaid expenses it is determined by dividing quick assets by quick liabilities.