Introduction

A financial statement (or financial report) is a formal record of the financial activities of a
business, person, or other entity. In British Englishincluding United Kingdom company law
a financial statement is often referred to as account, although the term financial statement is also
used, particularly by accountants.

For a business enterprise, all the relevant financial information, presented in a structured manner
and in a form easy to understand, are called the financial statements. They typically include four
basic financial statements:

For large corporations, these statements are often complex and may include an extensive set of
notes to the financial statements and management discussion and analysis. The notes typically
describe each item on the balance sheet, income statement and cash flow statement in further detail.
Notes to financial statements are considered an integral part of the financial statements.

The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an enterprise that is useful to a wide range of
users in making economic decisions." Financial statements should be understandable, relevant,
reliable and comparable. Reported assets, liabilities and equity are directly related to an
organization's financial position. Reported income and expenses are directly related to an
organization's financial performance.

Financial statements are intended to be understandable by readers who have a reasonable

knowledge of business and economic activities and accounting and who are willing to study the
information diligently. Financial statements may be used by users for different purposes.

Analysis of financial statement

Analysis refers to the process of critical examination of the financial information
contained in the financial statement in order to understand and make decisions regarding the
operations of the firm. The analysis is basically study of the relationship among various
financial facts and figure as given in a set of financial statements. Complex figures as
given in this statements are dissected\broken up into simple and variable elements
and significant relationship are established between the elements of the same statements are
different financial statements.
This process of dissection, establishing and identifying the financial weaknesses and strengths of
the firm. It is indicative of two aspects of a firm i.e. The profitability and the financial position
and it are what are known as the objectives of the analysis.
Financial analysis can be of two types:
1. External analysis
This analysis is done by outsiders who do not have access to the detailed internal accounting
records of the business firm. These outsiders include investors, potential investors, creditors,
potential creditors, government agencies, credit agencies and the general public.
2. Internal Analysis
The analysis conducted by persons who have access to the internal accounting records of a
business firm is known as internal analysis. Such an analysis can, therefore, be performed by
executives and employees of the organization as well as government agencies which have
statutory powers vested in them.
According to the method of operation followed in the analysis, financial analysis can also be of
1. Horizontal analysis
Horizontal analysis refers to the comparison of financial data of a company for several years.
The figures for this types of analysis are presented horizontally over a number of columns.
The figures of the various year are compared with standard or base year. This type of
analysis is also Dynamic analysis as it is based on the data from year to year rather than on
2. Vertical Analysis
Vertical analysis refers to the study of relationship of the various items in the financial statements
of one accounting period. In the types of analysis is the figures from financial statement of a year
are compared with a base selected from the same years statement. It is also known as Static
analysis.

Procedure of Financial Statements Analysis

Broadly speaking there are three steps involved in the analysis of financial statements. There
are:
i)Selection,
ii)Classification,
iii)Interpretation.
The first step involves selection of information (data). The second step involved is the
methodical classification of the data and the third step includes drawing of internees and
conclusions.
The following procedure is adopted for the analysis and
Interpretation of financial statements:
1) The analyst should acquaint himself with the principles and postulates of accounting.
2) The extent of analysis should be determined so that the sphere of work may be decided.
3) The financial data given in the statements should be re-organized and re-arranged.
4) A relationship is established among financial statements with the help of tools and techniques
of analysis such as ratios, trends, common size, funds flow etc.,
5) The information is interpreted in a simple and understandable way. The significance and
utility of financial data is explained for helping decision-taking.
6) The conclusions drawn from interpretation are presented to the management in the form of
reports.

Objectives
The financial management is generally concerned with procurement, allocation and control of
financial resources. The objectives can be-

1. To ensure safety on investment, i.e., funds should be invested in safe ventures so that
adequate rate of return can be achieved.
2. To plan a sound capital structure-There should be sound and fair composition of capital
so that a balance is maintained between debt and equity capital.
6. Interpret financial reports Including income statements, Profits and Loss or P&L, cash flow
statements and balance sheet statements.
7. Improve the allocation of working capital within business operations.
8. Review and fine tune financial budgeting, and revenue and cost forecasting.
9. Look at the funding options for business expansion, including both long and short term
financing.
10. Review the financial health of the company or business unit using ratio analyses, such as
the gearing ratio, profit per employee and weighted cost of capital.
11. Understand the various techniques using in project and asset valuations.
12. Apply critical financial decision making techniques to assess whether to proceed with an
investment.
13. Understand valuations frameworks for businesses, portfolios and intangible assets

Research Methodology
Research Design
This is a systematic way to solve the research problem and it is important component for
the study without which researches may not be able to obtain the format. A research design is the
arrangement of conditions for collection and analysis of data in a manager that aims to combine
for collection and analysis of data relevance to the research purpose with economy in procedure.

The formidable problem that follows the task of defining the research problem is the preparation
of design of the research project, popularly known as the research design, decision regarding what,
where, when, how much, by what means concerning an inquiry of a research study constitute a
research design. A research design is the arrangement of conditions for collection and analysis of
data in a manager that aims to combine for collection and analysis of data relevance to the research
purpose with economy in procedure.

Sources
Data we collected based on two sources.
Primary data.
Secondary data.
Primary data
The Primary data are those informations, which are collected afresh and for the first
time, and thus happen to be original in character.
Secondary Data:
The Secondary data are those which have already been collected by some other agency
and which have already been processed. The sources of Secondary data are Annual Reports,
browsing Internet, through food processing magazines.
Methodology Used
1. TYPES OF FINANCIAL STATEMENTS ADOPTED:
Following two types of financial statements are adopted in analyzing the firm financial
position
a. Balance Sheet.
b. Profit and Loss statements.

2. Tools of Financial Statement Analysis used

The following financial analysis tools are used in order to interpret the financial position
of the firm.

Period of study

The period of study consists of 45 days

Scope of the Study

Analysis of financial statement can be undertaken by different persons and for different
purposes, therefore, the scope of the AFS may be varying from one situation to
another.
However, the following are some the techniques of the AFS:
a) Comparative financial statements.
b) Common-size financial statements.
c) Trend percentage analysis.
d) Statement of changes in financial position.
 e) Cost-volume-profit relations, and
f) Ratio analysis and others.

The last technique i.e. The ratio analysis is the most common, comprehensive and powerful
tool of the AFS. The importance of ratio analysis lies in the fact that it presents facts
on a comparative basis. As such, this study focuses only on this (ratio) analysis.

Limitations
1. Only Interim Reports
Only interim statements dont give a final picture of the concern. The data given in these
statements is only approximate. The actual position can only be determined when the business is
sold or liquidated.

2. Dont Give Extra Position

The financial statements are expressed in monetary values, so they appear to give final and
accurate position. The values of fixed assets in the balance sheet neither represent the value for
which fixed assets can be sold nor the amount which will be required to replace these assets.

3. Historical Costs
The financial statements are prepared on the basis of historical costs or original costs. The
value of assets decreases with the passage of time current price changes are not taken into account.
The statements are not prepared keeping in view the present economic conditions. The balance
sheet loses the significance of being an index of current economic realities.

4. Act of Non Monitory Factors Ignored

There are certain factors which have a bearing on the financial position and operating
results of the business but they dont become a part of these statements because they cant be
measured in monetary terms. Such factors may include in the reputation of the management.

5. No Precision
The precision of financial statement data is not possible because the statements deal with
matters which cant be precisely stated. The data are recorded by conventional procedures
followed over the years. Various conventions, postulates, personal judgments etc.