State the objectives of 'Analysis of Financial Statements'.


Objectives of Analysis Financial Statements:
The following are the various objectives for preparing financial statements.
It enables the conduct of meaningful comparisons of financial data. It provides better and easy understanding of the changes in the financial data overtime. It helps in designing effective plans and better execution of plans by enabling control and checks over the use of the financial resources.
Analysis of Financial Statements helps to know the earning capacity and profitability of a business firm. It also measures the efficiency of the business operations.
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What is meant by a 'Common Size Statement’? 


Common Size Statement or component percentage statement, is a financial tool to analyse the key changes and trends in the financial position and operational result of a company. 

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Prepare a Comparative Income Statement from the following information.

                                                                                  2009                             2010

                                                                                   Rs.                                 Rs.                                                                        

Sales                                                                           10,00,000                   12,50,000
Cost of goods sold                                                      5,00,000                      6,50,000
Carriage inwards                                                          30,000                         50,000
Operating Expenses                                                     50,000                          60,0000
Income Tax                                                                   50%                              50%


Comparative Income Statement

       Particulars

 

 

2009 (Rs)

2010(Rs)

Absolute Change Rs

% of Increase or Decrease

Sales

 

Less Cost of Goods Sold

 

Gross Profit

 

Less Operating Expenses

 

 

Net Profit before tax

 

Less Income Tax

 

 

Net Profit After tax

10,00,000

 

5,00,000

12,50,000

 

6,50,000

2,50,000

 

1,50,000

25

 

30

 

5,00,000

 

50,000

 

6,00,000

 

60,000

 

1,00,000

 

10,000

 

20

 

20

 

4,50,000

 

 

2,25,000

 

5,40,000

 

 

2,70,000

 

90,000

 

 

45,000

 

20

 

 

20

2,25,000

2,70,000

45,000

20

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Following is the Income statements of Raj Ltd. For the year ended 31-3-2011: 

Particulars

Amount

Rs

Income:

 

Sales

2,00,000

Other Incomes

15,000

Total Income

2,15,000

 

 

Expenses:

 

Cost of goods sold

1,10,000

Operating expenses

5,000

Total Expenses

1,15,000

Tax

40,000

Prepare a common size Income Statements of Raj Ltd. for the year ended 31-3-2011.

 


Common size income statement of Raj Ltd for the year ended 31-3-2011

Particulars

2011

Rs

Percentage (%) of Sales

Sales

2,00,000

100

Less: Cost of Goods Sold

(1,10,000)

(55)

Gross Profit

90,000

45

Less: Operating Expenses

(5,000)

(2.5)

Operating Profit

85,000

42.5

Add: Non Operating Income

15,000

7.5

Profit before Tax

1,00,000

50

Less: Tax

(40,000)

(20)

Profit after Tax

60,000

30

 

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