A Study on Analysis of Financial Statement on SS Enterprises

PROJECT REPORT

Submitted by
Sparsh Goyal

Under the guidance of

Ms. Neha Agarwal

in partial fulfillment of the requirementsfor the award of the

Degree of

MASTER OF BUSINESS ADMINISTRATION

of

A P J Abdul Kalam Technological University

COLLEGE OF BUSINESS STUDIES, AGRA (CODE - 394)

(2022-2024)
 DECLARATION

I undersigned, hereby declare that the project titled The use of “A Study on Analysis of
Financial Statement on SS Enterprises” submitted in partial fulfilment for the award of
Degree of Master of Business Administration of A P J Abdul Kalam Technological University is a
bonafide record of work done by me under the guidance of Assistant Professor Ms. Assistant
Professor MBA Dept & College of business studies, AGRA. This report has not previously formed
the basis for the award of any degree, diploma, or similar title of any University.

Date
 INDEX

S.No Topic
1. Certificate

2. Letter Of Recommendations

3. Acknowledgement

4. Executive Summary

5. Chapter I : Introduction

6. Chapter II : Review Of Literature

7. Chapter III : Research Methodology

8. Chapter IV : Data Reduction, Presentation & Analysis

9. Chapter V : Data Interpretation

10. Chapter VI : Summary & Conclusion

11. References & Bibliography

12. Appendices
Certificates
Letter of Recommendations
 Acknowledgements

• I would like to express my extreme gratitude to Dr. Rahul Sharma (Head Of Department, MBA)
for his inspiring and supporting guidance during the course of this project. Numbers of words of
appreciation are good enough for the constant encouragement which I have received from him. I
would also thanks to S.S Enterprises to gives me this amazing opportunity.

• This space wouldn’t be enough to extend my warm gratitude towards my project guide.

• Ms. Neha Agarwal for her efforts in coordinating with my work and guiding in right direction.

• I escalate a heartfelt regards to our Institution Director A K Goyal for giving me theessential hand
in concluding this work.

• It would be injustice to proceed without acknowledging those vital supports I received frommy
beloved classmates and friends, without whom I would have been half done.

• I also use this space to offer my sincere love to my parents and all others who had been there,helping me
walk through this work.

Sparsh Goyal
 CHAPTER:1
INTRODUCTION

1.1 Introduction of the study

Financial performance analysis involves accurately identifying the relationship between the
balance sheet and profit and loss account items in order to assess a company's financial strengths
and weaknesses. Analysis of financial performance can be used to pinpoint growth and make short-
and long-term forecasts. The analysis of financial statements includes evaluating the relationship
between the statement's component sections in order to more fully understand the status and
performance of the company. This research may be carried out by the company's management or
by independent parties, such as owners, creditors, and investors.

Components of Financial Statements Financial statements usually consists of the following:

1. Balance Sheet– A balance sheet depicts the value of economic resources controlled by an
enterprise, as well as the liquidity and solvency of an enterprise. This is used to estimate the ability
of the enterprise in meeting its financial commitments.
2. Statement of Profit and Loss- Portrays the outcome of the functioning of the organization.
3. Cash Flow Statement– Outlines the way of determination of income, as well as its usage.
4. Notes and Schedules– Provides supplementary information explaining different modules of
financial statements. A few examples can be risks and uncertainties affecting an enterprise,
accounting policies etc.
Financial statements are essential documents that provide a snapshot of a company's financial
performance and position over a specific period. These statements are crucial for investors,
creditors, management, and other stakeholders to assess a company's health, profitability, and
financial stability. The primary financial statements include:
Income Statement (Profit and Loss Statement):
Total Revenue: This represents the total sales generated by all companies within the industry.
Cost of Goods Sold (COGS): The cost of producing the goods or services sold, including raw
materials, labor, and overhead.
Gross Profit: Total Revenue minus COGS.
Operating Expenses: These include items like salaries, rent, marketing, and other expenses incurred
in the day-to-day operations.
Operating Income: Gross Profit minus Operating Expenses.
Net Income (Profit): Operating Income minus taxes and other non-operating expenses.

Balance Sheet:
Assets: The total assets held by all companies within the industry, including cash, accounts
receivable, inventory, and property.
Liabilities: Total debts and obligations, such as loans, accounts payable, and accrued expenses.
Equity: The difference between assets and liabilities, representing the net worth of all companies
within the industry.
Cash Flow Statement:
Operating Cash Flow: The net cash generated from the operating activities of all companies in the
industry.
Investing Cash Flow: Cash flow related to investments, such as purchasing or selling assets.
Financing Cash Flow: Cash flow related to financing activities, including debt issuance or
repayment and equity financing.
Financial Ratios:
Key financial ratios like the debt-to-equity ratio, current ratio, and return on investment can provide
insights into the industry's financial stability and performance.
Industry-Specific Metrics:
Depending on the industry, you may include industry-specific metrics like same-store sales growth
(for retail), occupancy rates (for real estate), or production volumes (for manufacturing).
Notes to the Financial Statement:
Explanatory notes providing additional information about the financial data, accounting policies,
and other relevant details.
Management Discussion and Analysis (MD&A):
A narrative section where industry experts or analysts provide insights and context for the financial
data, highlighting trends and potential challenges or opportunities.
Auditor's Report:
If the financial statement is audited, include the auditor's report to provide assurance on the
accuracy of the financial data.
Comparative Analysis:
Comparing the industry's current financial data with historical data or with other industries can
provide valuable insights into its performance and position.
Remember that creating a comprehensive financial statement for an entire industry requires access
to financial data from multiple companies within that industry, as well as expertise in financial
analysis and accounting standards. It's often undertaken by industry associations, financial analysts,
or government agencies to provide a comprehensive view of the industry's financial health.
Analyzing financial statements in Tally involves reviewing various financial reports generated by
the Tally software to assess the financial health and performance of a business. Tally is a popular
accounting software used by businesses to maintain their financial records.
The financial statement analysis involves three basic steps:

Rearranging all of the financial information present in the financial statements is-
The first stage. In light of their similarities and affinities, the financial statements are split into
several sections and then reorganized into a handful of significant portions. The balance sheet and
profit and loss statements are completely re-cast in order to represent them in their condensed form,
which is entirely different from their original shape.
Utilizing financial analysis techniques to find connections between the various line items on the
balance sheet and profit and loss account constitutes the second part of financial statement analysis.
To accomplish this, ratio calculations, data comparisons over time, and the expression of line items
as a percentage of a base item can all be used. The analysis' findings can be utilised to learn more
about the company's financial performance and health, including its liquidity, solvency,
profitability, and effectiveness.
Finally, the outcome of the use of financial instruments is assessed.
Business of all sizes can benefit from financial performance analysis. It can be used to
evaluate the
firm's efficiency, profitability, and liquidity.
The company's capacity to pay off its current liabilities worries trade creditors. As a result, they
are interested in financial performance metrics like the current ratio and quick ratio that assess
 liquidity.
The ability of the corporation to pay back its long-term debts worries the company's lenders of
long-term debt. They are therefore interested in financial performance metrics that gauge solvency,
such as return on assets and the debt-to-equity ratio.
Businesses can better adjust their financial reporting and analysis to fit the demands of different
stakeholders by identifying the financial performance metrics that matter to them.

1.2 Objectives & Scope –

The main objective of present work is to make a study on the overall financial performance of
organization. More specifically, it focuses on:
• To assess the short term and long-term solvency
• To assess the liquidity and profitability position and trends
• To know the efficiency of financial operations
• To analyze the financial changes over a period of 5 years

Corporate Finance:
Investment Decisions: Financial analysis helps in evaluating potential investments, including
projects, acquisitions, and capital expenditures. By assessing the expected returns and risks,
businesses can make informed decisions about allocating capital.
Capital Structure: Analysis of a company's financial statements can aid in determining the optimal
mix of debt and equity to minimize the cost of capital while maintaining financial stability.
Financial analysis is an integral part of decision-making in both the corporate and investment
worlds. Its scope extends across various industries and sectors, making it a fundamental tool for
assessing financial performance, risk, and opportunities. Effective financial analysis requires a
deep understanding of financial statements, accounting principles, economic factors, and industry-
specific considerations.

Financial statements are formal records of a company's financial activities and performance. They
provide a comprehensive overview of a company's financial position, profitability, cash flows, and
changes in equity over a specific period, typically a fiscal quarter or year. Financial statements are
crucial for assessing the financial health of a business and are used by various stakeholders,
including investors, creditors, management, and regulatory authorities, to make informed
decisions. There are three primary financial statements:
Balance Sheet (Statement of Financial Position):
The balance sheet provides a snapshot of a company's financial position at a specific point in time.
It consists of three main sections: assets, liabilities, and equity.
The equation "Assets = Liabilities + Equity" represents the fundamental accounting principle of
the balance sheet.
Assets are what a company owns, liabilities are what it owes, and equity represents the ownership
interest.
Income Statement (Profit and Loss Statement):
The income statement summarizes a company's revenues, expenses, gains, and losses over a given
period.
It provides insights into the company's profitability and performance.
The key components include:
Revenues (Sales): Income generated from the company's core operations.
Expenses: Costs incurred in the production of goods or services.
Gains and Losses: Non-operating income or expenses, such as the sale of assets.
Net Income (Profit or Loss): The difference between revenues and expenses.
Cash Flow Statement:
The cash flow statement tracks the inflow and outflow of cash and cash equivalents during a
specific period.
It is divided into three sections:
Operating Activities: Cash flows from the core operational activities of the business, such as
revenue collection and payment of suppliers.
Investing Activities: Cash flows from the purchase or sale of long-term assets, like property, plant,
and equipment, and investments.
Financing Activities: Cash flows related to borrowing, repaying loans, issuing or buying back
shares, and paying dividends.
The statement reconciles the net income from the income statement with the actual cash flow.
Additional information related to financial statements includes:
Notes to the Financial Statements: These provide explanatory details about accounting policies,
assumptions, and other important information that may not be directly apparent from the main
statements.
Auditor's Report: In many cases, financial statements are audited by external auditors who provide
an opinion on whether the statements present a true and fair view of the company's financial
position.
Comparative Data: To assess trends and changes over time, financial statements often include data
from previous periods, allowing for year-over-year comparisons.
Financial statements are prepared in accordance with generally accepted accounting principles
(GAAP) or international financial reporting standards (IFRS) to ensure consistency and
comparability across organizations. They are essential tools for financial analysis, decision-
making, and financial reporting, serving as a key communication tool between a company and its
stakeholders.
Assets
Cash and cash equivalents are liquid assets, which may include Treasury bills and certificates of
deposit.
Accounts receivables are the amount of money owed to the company by its customers for the sale
of its product and service.
Inventory is the goods a company has on hand, which are intended to be sold as a course of
business. Inventory may include finished goods, work in progress that is not yet finished, or raw
materials on hand that have yet to be worked.
Prepaid expenses are costs that have been paid in advance of when they are due. These expenses
are recorded as an asset because their value of them has not yet been recognized; should the benefit
not be recognized, the company would theoretically be due a refund.
Property, plant, and equipment are capital assets owned by a company for its long-term benefit.
This includes buildings used for manufacturing or heavy machinery used for processing raw
materials.
Investments are assets held for speculative future growth. These aren't used in operations; they are
simply held for capital appreciation.
Liabilities
Accounts payable are the bills due as part of the normal course of operations of a business. This
includes utility bills, rent invoices, and obligations to buy raw materials.
Wages payable are payments due to staff for time worked.
Notes payable are recorded debt instruments that record official debt agreements including the
payment schedule and amount.
Dividends payable are dividends that have been declared to be awarded to shareholders but have
not yet been paid.
Long-term debt can include a variety of obligations including sinking bond funds, mortgages, or
other loans that are due in their entirety in longer than one year. Note that the short-term portion of
this debt is recorded as a current liability.
Shareholders' Equity
Shareholders' equity is a company's total assets minus its total liabilities. Shareholders' equity (also
known as stockholders' equity) represents the amount of money that would be returned to
shareholders if all of the assets were liquidated and all of the company's debt was paid off.
Retained earnings are part of shareholders' equity and are the amount of net earnings that were not
paid to shareholders as dividends.
Example of a Balance Sheet
Financial ratios are tools used to analyze and assess the financial performance and health of a
company. They provide a quantitative way to evaluate various aspects of a company's operations,
profitability, liquidity, solvency, and efficiency. These ratios are calculated using data from a
company's financial statements, including the balance sheet, income statement, and cash flow
statement.

Here are some common categories of financial ratios:

Liquidity Ratios:

Current Ratio: Current assets divided by current liabilities. It measures a company's ability to cover
its short-term obligations with its short-term assets.
Quick Ratio (Acid-Test Ratio): Similar to the current ratio but excludes inventory from current
assets. It provides a more stringent measure of a company's liquidity.
Profitability Ratios:

Net Profit Margin: Net income divided by total revenue. It indicates the percentage of revenue that
translates into profit.
Return on Equity (ROE): Net income divided by shareholders' equity. It measures how effectively
a company is using shareholders' equity to generate profits.
Solvency Ratios:

Debt-to-Equity Ratio: Total debt divided by shareholders' equity. It reflects the proportion of a
company's funding that comes from debt compared to equity.
Interest Coverage Ratio: Earnings before interest and taxes (EBIT) divided by interest expense. It
shows a company's ability to meet interest payments on its debt.
Efficiency Ratios:

Inventory Turnover: Cost of goods sold divided by average inventory. It measures how quickly a
company sells its inventory.
Accounts Receivable Turnover: Total credit sales divided by average accounts receivable. It
indicates how efficiently a company collects payments from its customers.
Market Ratios:
Price-to-Earnings Ratio (P/E): Market price per share divided by earnings per share. It helps assess
the market's expectations for a company's future earnings growth.
Dividend Yield: Dividends per share divided by the market price per share. It shows the annual
return on a company's dividends.
It's important to note that financial ratios are most meaningful when compared to industry
benchmarks or the company's historical performance. Ratios should be used as part of a broader
financial analysis, considering the company's industry, economic conditions, and other relevant
factors. Additionally, different industries may prioritize different ratios based on their business
models and financial structures.

1.3 Industry Profile

S.S Enterprises commenced its commercial operation from January 2019. Its concern of
Manufacturing pressure cookers parts and cookware parts. The company is based in Ghaziabad.
S.S Enterprises has sold over 40L pressure cookers parts and cookware parts in India.
This Manufacturing company has based on Manual Technology to concern about their Employees.
Total Labour in the company 70 peoples. In this The Owner of this Company is Inder Jeet Sharma.
This Manufacturing Company 4457 Square foot.
The S.S Enterprises is well known for not compromising on quality and for continual product
innovation. The most thorough research and development, the most careful selection of materials,
the best manufacturing practices and the strictest quality control - all go into making pressure
cookers parts which are trusted by the millions of families using them.
Each cooker parts is tested to be leak-proof. Along with a superior pressure regulating system. Each
pressure cooker parts comes individually packed in an attractive full-colour carton.
Cookbooks/Instruction Manuals come free with each pressure cooker parts.
We have one overarching goal: to win over customers, to truly please them by delivering products
and service beyond their expectations, to earn their friendship and build relationships that will
endure.

We offer products that are needed, well-designed, well-made and reasonably priced. We
continually strive to improve our products and customer service.
Innovation: It is the forefront of pressure cooker innovation. We invest heavily in research and
development to introduce advanced features that improve safety and cooking performance.
Quality Assurance: Our commitment to quality is unwavering. Each pressure cooker undergoes
rigorous quality control measures to ensure it meets the highest standards.
Safety First: Safety is paramount in our designs. Our pressure cookers feature multiple safety
mechanisms, including pressure release valves, safety locks, and precise pressure control, giving
users peace of mind.
Environmental Responsibility: We prioritize sustainability by using eco-friendly materials and
energy-efficient manufacturing processes. Our products are designed to promote responsible
cooking practices.
Global Presence: Precision Cookware Inc. serves customers worldwide, with a strong presence in
North America, Europe, and Asia. Our products are available through a network of authorized
distributors and retailers.
Customer Support:
We understand the importance of customer satisfaction. Our dedicated customer support team is
available to assist with product inquiries, troubleshooting, and maintenance advice. We offer
comprehensive warranties to back our products, ensuring customer confidence.
 CHAPTER:2

REVIEW OF LITERATURE

Susan Ward (2008), emphasis that financial analysis using ratios between key values help
investors cope with the massive amount of numbers in company financial statements. For example,
they can compute the percentage of net profit a company is generating on the funds ithas deployed.
All other things remaining the same, a company that earns a higher percentage of profit compared
to other companies is a better investment option.
M Y Khan & P K Jain (2011), have explained that the Financial statements provide a summarized
view of the financial position and operations of a firm. Therefore, much can be learnt about a firm
from a careful examination of its financial statements as invaluable documents / performance
reports.
Rao & Rao (2012) discussed about ‘Impact of working capital on profitability in cement industry
- A Correlation Analysis’, analyse the impact of profitability on the working capital in cement
industrial units in India. For the purpose of analysis they selected and analysed ten variables on
working capital ratios which may closely related with profitability like current ratio, debt equity
ratio, cash position ratio, working capital turnover ratio, inventory turnover ratio, debtors turnover
ratio, cash turnover ratio, current assets turnover ratio and average collection period. The inter-
relationship were to be studied with the help of Karl-Pearson’s co-efficient of correlation technique,
by arranging the correlation of one variable with each other variable in the form of matrices which
were a triangular and balanced about the principal diagonal. On the basis of analysis they concluded
that the overall basis out of 10 variables with PBDIT, 3 variables showed a significant co-efficient
and seven exhibited insignificant relationships and also out of the 10 variables, 5 variables showed
negative association while the others showed positive relationships.
Typically, a survey of the literature on the analysis of financial systems covers a wide range of
subjects relevant to the investigation and evaluation of financial systems, such as banking, capital
markets, and monetary stability. The main ideas and conclusions that you might include in such a
review are summarized here.
A review of literature on financial statements encompasses research, studies, and scholarly articles
that explore various aspects of financial reporting, analysis, and their implications. Such literature
helps in understanding the significance of financial statements, their role in decision-making, and
the evolving trends in financial reporting. Below is a brief overview of key themes and findings
from the literature:
Role and Purpose of Financial Statements:
Financial statements are recognized as critical tools for communicating a company's financial
performance and position to stakeholders, including investors, creditors, and management.
Literature highlights their role in facilitating investment decisions, assessing credit risk, and aiding
in strategic planning.
While the random walk model has been found to be a fair description of the time series behavior
of firms (Ball and Watts 1972; Albrecht et al. 1977; Watts and Leftwich 1977), research has also
shown that earnings behave as a mean-reverting process with period of extreme changes in earnings
are found to be followed by earnings changes in the opposite direction.
(Lakonishok et al. 1994), the momentum anomaly (Jegadeesh and Titman 1993), the post earnings
announcement drift anomaly (Bernard and Thomas 1990), and the closed end mutual fund puzzle
(Lee et al. 1990) have been documented that are based around easily observable publicly available
information. The uncertainty regarding market efficiency allows for the potential for financial
statement analysis research to be useful in terms of understanding the differences between observed
price and fundamental value. The potential for market inefficiencies suggest that a firm’s stock
price might not always equal fundamental value. This component of price is driven by information
traders who optimally use the public information to estimate firm value. At the extreme, where
there is no cost of arbitrage, φ = 0, then the Shiller (1984) model will collapse to equation (3).
Financial statement analysis research, on the other hand relies on the results from fundamental
analysis and then compares estimated fundamental value to observed stock price. Alternatively,
the research relies on the results from fundamental analysis research to determine the optimal use
of accounting information for forecasting and valuation and then compares the forecasting
implications of the accounting information to the market’s valuation of the information.
(Freeman and Tse 1992; Das and Lev 1994). Hayn (1995) tests the validity of mean reversal and
other competing explanations. Her results suggest that the effect of losses on the return-earnings
association is not due to the extremity of the loss observations and the mean-reversal of earnings
which may follow loss incidents. In fact, Hayn (1995) interprets her results as showing the return-
earnings association is weak not only in loss situations but also in profitable cases in which reported
earnings fall below the threshold that evokes the exercise of the liquidation option.

Fairfield et al. (2009) consider to what mean does profitability revert - the market as a whole, or to
the industry within which a firm operates. They also consider whether the mean reversion in sales
growth reverts to the market or industry level. Using out-of-sample tests, Fairfield et al. (2009) find
that the median forecast improvement at an industry level does not improve forecasts
of five-year ahead ROE or RNOA (return on net operating assets). They do, however, find that
forecasts of five-year ahead sales growth is improved by industry level analysis. These findings
imply that a firm’s profitability tends to revert to the average market level, but sales growth tends
towards an industry average. The results are generally consistent with a fundamental analysis
approach that industry-level competition and a firm’s strategic response to that is the key driver of
sales growth. The approach in Fairfield et al. (2009) constrains the persistence parameter to be
constant for all firms in the market as the baseline, but allow them to vary across industry in the
tests of whether there is evidence of a mean reversion to industry averages. The approach in the
baseline pools all observations across the market, while the industry approach only pools
observations within industry j and allows for variation across industries each year. Schr¨oder and
Yim (2018) extend the analysis in Fairfield et al. (2009) to consider the underlying economics
behind why profitability on average reverts to the economy as a whole, and not to the industry. An
important consideration that.
Finally, they take a Component OPFIN model which estimates the persistence of each component
on itself, and uses the out of sample forecasts of RNOA, NBC and LEV to forecast year ahead
ROE. The results provided by Esplin et al. (2014) demonstrate that the OPFIN model is
significantly worse at forecasting future profitability than the baseline model. However, by
separately forecasting the individual components and combining to forecast profitability (the
Component OPFIN model) outperforms the aggregate approach. Another disaggregation that is
commonly used is the disaggregation of RNOA into asset turnovers (ATO) and profit margins
(PM), with the mix of ATO and PM being useful for understanding a firm’s strategy.
Schr¨oder and Yim (2018) focus on is the make-up of a firm, particular in terms of their operating
segments. Where firms are made up of multiple segments operating across multiple industries, this
should lead to a lower likelihood that a firm’s profitability reverts to an industry level. Their results
support this, in that for single segment firms that clearly operate in only a single segment has
profitability that reverts to the industry level. The finding in Fairfield et al. (2009), therefore, is
largely influenced by firm’s operating across a number of different industries. In a stream of
research considering the information content of earnings, Hayn (1995) examines the information
content of losses. She posits that reported losses are perceived by investors as temporary, and are
thus more weakly associated with returns than are profits. Losses are likely to be considered
temporary since shareholders can always liquidate the firm rather than suffer from indefinite losses.
Explained alternatively, equity holders have a put option on the future cash flows of the firm
whereby they can sell their shares at a price commensurate with the market value of the net assets
of the firm.
Losses represent only a specific case of a more general situation where the earnings signal indicates
future earnings that are sufficiently low, albeit positive, as to make the liquidation option appealing.
In these situations, investors do not evaluate firms strictly on the basis of their reported earnings,
thus leading to a weak observed earnings-returns association. Rather than reflecting the existence
of a liquidation option, the finding of a muted stock price response to losses may be due to, in part,
a mean reversal in earnings and the fact that losses represent extreme realizations from the earnings
distribution.; Fairfield et al. 2009). Studies have found that consistent with the mean reversal in
earnings, stock price responses are nonlinear with the magnitude of the earnings changes, with
weaker responses associated with extreme earnings observations
Forecasting Future Profitability Another important approach within the forecasting literature is to
consider how disaggregation of earnings is able to improve our ability to forecast future
profitability.. Overall, they find that individual line items in the full disaggregation do not exhibit
sufficient differential persistence to make them useful for forecasting. They also suggest that the
most accurate forecasts are obtained from a model that disaggregates earnings into operating
income, non-operating income and taxes, special items and non-recurring items. They then take a
disaggregated approach, which they term the OPFIN Model, whereby they allow the persistence
parameters of RNOA, NBC and LEV to vary in terms of their implications for future profitability.
A firm following a cost leadership strategy is 6 expected to have low margins but high turnover,
while a firm with high PM and low ATO is likely to use a strategy of superior service or product
differentiation. Fairfield and Yohn (2001) investigate whether considering the mix of PM and ATO
is useful for forecasting operating profitability. They examine three types of models; (i) an
aggregate model in which the year-ahead change in RNOA is a function of current RNOA, growth
in net operating assets, and the current change in RNOA: (ii) a model that disaggregates current
RNOA into the current ATO and PM; and (iii) a model that disaggregates the change in RNOA
into the changes in ATO and PM. The results from Fairfield and Yohn (2001) document that the
disaggregation of current RNOA into ATO and PM leads to significantly worse forecasts than the
aggregate model. This finding suggests that while knowing a firm’s mix of asset turnover and profit
margin is useful for understanding a firm’s strategy it is not useful for forecasting. A significant
improvement is found in disaggregating a firm’s current change in RNOA into the current changes
in ATO and PM. In addition, they note that the in-sample coefficients suggest that the information
content of the disaggregation is driven by ΔATO, and not ΔPM. The change in asset turnover
reflects changes in the firm’s ability to generate revenues from its assets and should be informative
about future profitability; while changes in profit margins could be attributable to either changes
in efficiency or changes in accounting conservatism. In the context of estimating a more accurate
implied cost of capital, Hou et al. (2012) develop a forecasting model based on total assets,
dividend payments, negative earnings and accruals. A difference in the approach that Hou et al.
(2012) take is that they focus on forecasting dollar earnings, as opposed to profitability (such as
Fairfield et al. 1996; Esplin et al. 2014; Fairfield and Yohn 2001; Jackson et al. 2018, among
others). Their forecasts are on average less accurate than analysts’ forecasts, but exhibit lower
levels of forecast bias and higher levels of ERCs. Additionally, their model is relevant for firms
without analyst coverage, which is important in their setting for estimating an implied cost of
capital. The Hou et al. (2012) model is tested by Li and Mohanram (2014). They note that while
the Hou et al. (2012) model is correlated with future returns at the portfolio level, they do not
examine the relationship at the firm level, and that underperforms a naive random walk model 7
with high forecast errors. Li and Mohanram (2014) present two models - one as a function of past
earnings allowing for differential persistence of profits and losses, and the other motivited by the
residual income model incorporating book value and accruals in addition to earnings. They report
that both their models outperfrom Hou et al. (2012) on forecast accuracy, bias, ERCs and
correlations of implied cost of capital proxies with future returns and risk factors. A more recent
innovation in the forecasting literature is the decomposition of profitability into components related
to market wide information, industry-specific sources, and firm-idiosyncratic information. Again,
this approach is consistent with many financial statement analysis textbooks in advocating to begin
the fundamental analysis process by first understanding the economy, the industry, and firm’s
strategy. Jackson et al. (2018) follow this logic in proposing a method to quantify the amount of
firm profitability attributable to common market information, common industry information, and
a firm-idiosyncratic component; and then test this decomposition in a forecasting setting. Their
approach does not constrain the market or industry betas to be positive, and allows for cross-
sectional variation in a firm’s sensitivity to market and industry level information, which is in
contrast to a more commonly adopted average approach that assumes the industry component of
profitability is homogenous across all industry participants.6 In determining whether the
decomposition would potentially be useful for improving the ability to forecast future profitability,
Jackson et al. (2018) first determine whether the three components exhibit differential persistence
and rates of mean reversion. In short, they find that in regards to persisting into total RNOA, the
market component is the most persistent, followed by the idiosyncratic component, with industry
profitability the least persistent, with consistent results on the mean reversion. Overall, the
 significant differences in persistence and mean reversion provide a necessary attribute which would
lead to the potential for improvements in forecasting future profitability by taking advantage of this
decomposition.
The noise traders have systematic and correlated investing biases that affect the market price for
the stock (Yohn 2020). The influence of fundamental value versus investor sentiment on the firm’s
price is determined 12 by the cost of arbitrage, φ. Information traders drive price to fundamental
value, however, the cost of arbitrage affects their ability and willingness to do so. Therefore, if the
cost of arbitrage is high, then investor sentiment will have a greater influence on the firm’s price,
while the lower the cost of arbitrage price will be close to fundamental value.
2.1 The main role of financial statement analysis research is to identify market inefficiencies with
respect to the use of financial statement information. After identifying the optimal use of financial
statement information, one can then examine whether the market efficiently uses this information.
A traditional approach in papers examining market inefficiencies will generally take the form of
first documenting differential persistence in the components of earnings, then assess whether
market participants appear to differentially price these components or fixate on total earnings, and
then in the case of where the market does not appear to correctly price these components whether
an out-of-sample trading strategy will be able to earn excess returns. If all publicly available
information has already been impounded into price, then information contained within publicly
available financial statements will already be priced, and the implications from financial statement
analysis will not be incrementally useful. Over time, questions have been raised about the validity
of this assumption. A number of market anomalies such as the glamour/value anomaly
The purpose of a literature review is multifaceted and serves several important functions in the
context of academic research and scholarly writing. The primary objectives of a literature review
are as follows:
1. To Provide Context: A literature review offers a contextual background for the research topic. It
helps readers understand the existing body of knowledge and research in a specific area or field.
By summarizing and synthesizing prior research, the literature review sets the stage for the research
question or problem being addressed in the study.
2. To Identify Gaps in Knowledge: By examining existing literature, a literature review can reveal
gaps, inconsistencies, or unanswered questions in the current body of knowledge. This helps
researchers identify areas where further investigation is needed and where their study can make a
meaningful contribution.
3. To Establish Credibility: Demonstrating a thorough understanding of prior research through a
literature review enhances the credibility of the researcher. It shows that the study is built on a
 foundation of existing knowledge and is not conducted in isolation. It also demonstrates that the
researcher is aware of and respects the work of other scholars.
4. To Support the Research Hypothesis or Objectives: A literature review provides evidence to
support the research hypothesis or objectives. It shows that the research question is relevant and
worth investigating based on the existing literature. It can also offer theoretical or conceptual
frameworks for the study.
5. To Define Key Concepts and Terminology: When a research topic involves specialized
terminology or concepts, the literature review helps define and clarify these terms for the reader. It
ensures that the audience understands the key terms used in the study.
6. To Avoid Duplication: A literature review helps researchers avoid duplication of prior work. By
understanding what has already been done, researchers can design their studies to build upon
existing research rather than repeating it.
7. To Evaluate Methodologies and Approaches: The literature review allows researchers to assess the
methodologies and approaches used in prior studies. This evaluation can inform the choice of
research methods and highlight the strengths and weaknesses of various research approaches.
8. To Synthesize and Analyse Findings: A literature review involves synthesizing and analyzing the
findings and results of previous research. It provides a comprehensive overview of the state of
knowledge on a particular topic, allowing researchers to draw connections, contrasts, and trends
within the literature.
9. To Guide Research Design: The review of prior research can help researchers design their studies
effectively. It can inform decisions about research questions, data collection, sample size, and other
methodological considerations.
10. To Contribute to Theory Development: In some cases, a literature review may contribute to theory
development or refinement. By examining and critiquing existing theories and frameworks,
researchers can propose modifications or new theoretical perspectives.
In summary, a literature review is a critical component of research that serves to establish the
context for a study, identify gaps, build credibility, support research objectives, and ensure that the
research is informed by prior scholarship. It is a vital step in the research process that helps
researchers situate their work within the broader academic conversation.

Section 1: Theoretical Framework

Introduce foundational theories and frameworks in financial statement analysis.

Financial statement analysis is based on several foundational theories and frameworks that provide
 the conceptual underpinnings for evaluating the financial health and performance of a company.
These theories and frameworks help analysts and stakeholders interpret the information presented
in financial statements. Some of the key foundational theories and frameworks in financial
statement analysis include:

o Generally Accepted Accounting Principles (GAAP) and International Financial Reporting

Standards (IFRS): GAAP and IFRS are accounting standards and frameworks that provide
guidelines for financial reporting. They specify how financial statements should be prepared,
presented, and disclosed. Adhering to these standards ensures consistency and comparability in
financial reporting, which is crucial for analysis.
o Accrual Accounting: Accrual accounting is the basis for financial statements. It recognizes revenue
when it is earned and expenses when they are incurred, rather than when cash is exchanged. This
method provides a more accurate reflection of a company's financial position and performance over
time.
o Going Concern Assumption: The going concern assumption assumes that a company will continue
its operations for the foreseeable future. It is a fundamental concept in financial statement
preparation, as it influences how assets and liabilities are valued and reported.
o Revenue Recognition Principles: Revenue recognition principles dictate when and how a company
should recognize revenue. The criteria for recognizing revenue are typically tied to the transfer of
goods or services to customers.
o Matching Principle: The matching principle requires that expenses should be recognized in the
same accounting period as the revenues they help generate. This principle ensures that the income
statement accurately reflects the company's profitability.
o Materiality Principle: The materiality principle states that only items that are significant or material
to the financial statements need to be disclosed. It allows companies to focus on reporting
information that has a substantial impact on financial decision-making.
o Conservatism Principle: The conservatism principle suggests that when faced with uncertainty or
alternative accounting methods, a company should choose the method that is least likely to
overstate its financial position and performance.
o Full Disclosure Principle: The full disclosure principle requires companies to provide all the
necessary information in the financial statements and related notes to ensure that users have a
comprehensive understanding of the company's financial position and performance.
o Double-Entry Accounting: Double-entry accounting is the basis for recording financial
transactions. It ensures that for every debit entry, there is an equal and corresponding credit entry,
 which maintains the accounting equation (Assets = Liabilities + Equity).
o Time Value of Money (TVM): The time value of money is a fundamental concept in financial
statement analysis. It acknowledges that a dollar today is worth more than a dollar received in the
future, and it is applied when discounting cash flows and assessing the present value of financial
assets and liabilities.
o DuPont Analysis: DuPont analysis breaks down the return on equity (ROE) into its components,
highlighting the factors that contribute to a company's profitability. It is represented as ROE =
Profit Margin x Asset Turnover x Equity Multiplier.

These foundational theories and frameworks provide the structure and principles for creating and
analysing financial statements. Understanding these concepts is essential for making accurate and
meaningful assessments of a company's financial performance and position.

The role of accounting standards (e.g., GAAP, IFRS) in financial reporting.

Accounting standards, such as Generally Accepted Accounting Principles (GAAP) and

International Financial Reporting Standards (IFRS), play a crucial role in financial reporting. These
standards provide a structured framework and guidelines for how companies should prepare and
present their financial statements. Here are the key roles of accounting standards in financial
reporting:

1. Consistency and Comparability: Accounting standards establish consistent accounting and

reporting practices that all companies within a jurisdiction (in the case of GAAP) or globally (in
the case of IFRS) must follow. This ensures that financial statements are comparable across
different companies, industries, and countries, allowing investors, analysts, and other stakeholders
to make meaningful comparisons.

2. Transparency and Credibility: Accounting standards promote transparency and credibility in

financial reporting. They require companies to disclose relevant financial information in a
standardized and structured manner, which enhances the trust and confidence of investors,
creditors, and other users of financial statements.

3. Accuracy and Reliability: Accounting standards provide guidelines for recognizing and measuring
 various financial elements, including assets, liabilities, revenues, and expenses. These guidelines
help ensure the accuracy and reliability of financial statements, making it less likely for companies
to manipulate their financial results to present a more favourable picture.

4. Disclosure Requirements: Accounting standards mandate certain disclosure requirements. These

requirements ensure that companies provide essential information, including notes to the financial
statements, which can explain the basis for accounting decisions, assumptions, and additional
details about financial transactions.

5. Uniformity in Presentation: Accounting standards specify the format and structure of financial
statements, such as balance sheets, income statements, and cash flow statements. This uniformity
allows users to quickly locate and understand key financial information.

6. Compliance and Legal Framework: Compliance with accounting standards is often a legal
requirement, and failure to follow these standards can result in legal penalties or sanctions. This
legal framework enforces adherence to financial reporting rules, maintaining accountability and
integrity.

7. Investor Confidence: The adoption of widely recognized accounting standards like GAAP or IFRS
enhances investor confidence in financial markets. Investors are more likely to invest in companies
that follow established standards because they can rely on the consistency and comparability of
financial information.

8. International Business and Investment: IFRS, in particular, has gained global acceptance, making
it easier for multinational companies to prepare financial statements that are understood and
accepted across borders. This facilitates international trade and investment by harmonizing
financial reporting practices.

9. Regulatory Oversight: Regulatory bodies, such as the U.S. Securities and Exchange Commission
(SEC) for GAAP or the International Accounting Standards Board (IASB) for IFRS, oversee the
development and application of these standards. These bodies continuously update and refine
standards to address changing business environments and emerging issues.

10. Cost Efficiency: Accounting standards help streamline financial reporting processes by providing
a common framework. This can lead to cost efficiencies for companies, as they do not need to
create custom accounting methods and reporting structures.

In summary, accounting standards like GAAP and IFRS serve as essential tools for ensuring
consistency, transparency, and reliability in financial reporting. They provide a structured
framework that companies must follow to present their financial information, which, in turn,
promotes trust and confidence among stakeholders and facilitates the functioning of financial
markets on a global scale.

The relevance of accrual accounting and the cash flow statement.

Accrual accounting and the cash flow statement are two fundamental components of financial
reporting that serve distinct but complementary purposes. They are both relevant in providing a
comprehensive view of a company's financial performance and position:

1. Accrual Accounting:
Accrual accounting is a method of accounting that recognizes revenue when it is earned and
expenses when they are incurred, rather than when cash changes hands. The relevance of accrual
accounting lies in the following key aspects:
a. Matching Revenue and Expenses: Accrual accounting ensures that expenses are matched with
the related revenue they help generate. This principle, known as the matching principle, provides
a more accurate reflection of a company's profitability by recording expenses in the same
accounting period as the revenues they contribute to.
b. Better Reflection of Economic Reality: Accrual accounting provides a more accurate
representation of a company's economic reality. It reflects the timing of economic events,
regardless of when cash transactions occur. This is particularly important in industries where there
is a time lag between the provision of goods or services and the receipt of payment.
c. Financial Statement Preparation: Accrual accounting is the foundation for the preparation of the
income statement and the balance sheet. The income statement provides a snapshot of a company's
profitability over a specific period, while the balance sheet shows its financial position at a
particular point in time.
d. Accurate Measurement of Assets and Liabilities: By recognizing revenue and expenses when
they are earned or incurred, accrual accounting contributes to the accurate measurement of assets
and liabilities on the balance sheet. It ensures that the financial position presented in the balance
sheet reflects the real economic value of these items.
2. Cash Flow Statement:
The cash flow statement, often prepared in conjunction with the income statement and balance
sheet, provides information about a company's cash inflows and outflows during a specific period.
The relevance of the cash flow statement includes:

a. Liquidity Assessment: The cash flow statement helps assess a company's liquidity by tracking
cash flows from operating activities, investing activities, and financing activities. It provides
insights into a company's ability to generate cash to meet its short-term and long-term obligations.
b. Understanding Changes in Cash: The statement explains how a company's cash balance changed
from the beginning to the end of a period. It reveals the sources of cash (e.g., operating profits,
loans, or equity) and the uses of cash (e.g., investments in assets or debt repayments).
c. Detecting Cash Flow Problems: The cash flow statement is crucial for identifying potential cash
flow problems or liquidity issues that may not be evident in the income statement or balance sheet.
It can help a company proactively manage its cash position.
d. Investment and Financing Decisions: Investors and creditors often use the cash flow statement
to assess a company's ability to generate cash for future investments or to service its debt. It helps
them make informed decisions about lending money or investing in the company.

In summary, accrual accounting and the cash flow statement provide a well-rounded view of a
company's financial performance and position. Accrual accounting reflects the economic reality of
a company's operations, while the cash flow statement tracks the movement of actual cash, which
is critical for assessing liquidity and making investment and financing decisions. Both are essential
components of comprehensive financial reporting.

Introduce financial ratios as a key tool in analysis.

Financial ratios are essential tools in financial analysis, providing a quantitative means to evaluate
a company's performance, profitability, liquidity, solvency, efficiency, and overall financial health.
These ratios allow analysts and stakeholders to assess various aspects of a company's financial
condition and compare it to industry benchmarks, historical data, or competitors. Here's an
introduction to financial ratios as a key tool in analysis:

1. Types of Financial Ratios:

Financial ratios can be categorized into several types, each serving a specific purpose:
a) Liquidity Ratios: These ratios assess a company's ability to meet its short-term obligations with its
short-term assets. Common examples include the current ratio and the quick ratio.
b) Profitability Ratios: Profitability ratios measure a company's ability to generate profits relative to
its revenue, assets, or equity. Examples include the net profit margin, return on assets (ROA), and
return on equity (ROE).
c) Solvency Ratios: Solvency ratios evaluate a company's ability to meet its long-term debt
obligations. The debt-to-equity ratio and interest coverage ratio are typical solvency ratios.
d) Efficiency Ratios: Efficiency ratios, also known as activity ratios, assess how efficiently a company
utilizes its assets and resources. Examples include inventory turnover, accounts receivable
turnover, and asset turnover.
e) Market Ratios: Market ratios gauge a company's performance in the stock market, often comparing
its stock price to financial metrics. The price-to-earnings (P/E) ratio and earnings per share (EPS)
are common market ratios.

2. Key Uses of Financial Ratios:

Financial ratios serve several critical purposes in financial analysis:

a) Performance Evaluation: Ratios provide insights into how well a company is performing compared
to its own historical performance or industry benchmarks. They help identify areas of strength and
weakness.
b) Comparative Analysis: Ratios enable comparisons between different companies, industries, or
competitors. Analysts can assess which companies are more efficient, profitable, or financially
stable.
c) Risk Assessment: Ratios help evaluate a company's financial risk. For example, high debt ratios
may indicate a higher risk of financial distress, while low liquidity ratios could suggest liquidity
risk.
d) Trend Analysis: By calculating ratios over multiple periods, analysts can identify trends and assess
the direction of a company's financial health. This is valuable for forecasting and decision-making.
e) Investment Decisions: Investors use ratios to make informed investment decisions. Ratios provide
insights into a company's financial strength and growth potential.

3. Interpretation and Significance:

The interpretation of financial ratios depends on the specific ratios being analysed, the industry in
which the company operates, and the company's unique circumstances. A ratio on its own may not
 provide a complete picture, but when considered in conjunction with other ratios and qualitative
factors, it becomes a valuable tool for analysis.

For instance, a high current ratio may indicate strong liquidity, but if it's much higher than industry
norms, it might suggest inefficient use of resources. Conversely, a low P/E ratio may indicate an
undervalued stock, but it may also reflect lower growth prospects.

In summary, financial ratios are indispensable tools in financial analysis, offering a quantitative
framework to assess a company's financial performance, risk, and overall health. By examining a
range of ratios within the appropriate context, analysts and stakeholders can make more informed
decisions regarding investments, lending, or corporate strategy.

Section 2: Financial Statement Analysis Techniques

The various techniques and methods for analysing financial statements.
Ø Vertical and horizontal analysis.
Vertical and horizontal analysis are two common methods of financial statement analysis used to
evaluate a company's financial performance and position over time and in comparison, to industry
benchmarks. These methods provide insights into the structure of financial statements and how
various line items change over a specific period. Here's an overview of vertical and horizontal
analysis:
Vertical Analysis:
Vertical analysis, also known as common-size analysis, focuses on the relative composition of a
financial statement. It expresses each line item as a percentage of a specific base item, typically
total revenue (in the income statement) or total assets (in the balance sheet). The primary purpose
of vertical analysis is to understand the proportional contribution of each component to the whole.
Steps in Vertical Analysis:
1. Choose the Base Item
2. Calculate Percentages
3. Analyse the Results
Horizontal Analysis:
Horizontal analysis, also known as trend analysis, evaluates changes in financial statement line
items over multiple periods (typically years). It helps identify trends, assess growth or decline, and
understand how various components have evolved over time. Horizontal analysis allows you to
compare a company's financial data from one period to another, providing insights into
 performance and financial stability.
Steps in Horizontal Analysis:
1. Select the Periods
2. Calculate Absolute Changes
3. Calculate Percentage Changes
4. Analyse the Results
Key Differences:
1. Purpose: Vertical analysis is used to assess the composition of financial statements and the relative
weight of various items, while horizontal analysis focuses on identifying trends and changes over
time.
2. Base Item: In vertical analysis, a base item (usually total revenue or total assets) is selected for
each statement, and all other line items are expressed as percentages relative to this base item. In
horizontal analysis, the focus is on comparing line items across different periods.
3. Comparative Periods: Vertical analysis typically examines a single financial statement at a specific
point in time. Horizontal analysis compares financial statements from different periods, usually
year-to-year or quarter-to-quarter.
4. Interpretation: Vertical analysis helps identify the structure of financial statements and the
significance of each component. Horizontal analysis reveals trends and changes in line items over
time.
Both vertical and horizontal analysis are valuable tools for financial analysts and decision-makers,
offering insights into a company's financial performance, stability, and composition. These
methods are often used in conjunction with other financial analysis techniques to provide a
comprehensive view of a company's financial health.

Introduction
An overview of the importance of financial statement analysis:

Financial statement analysis is a critical process that plays a pivotal role in helping individuals,
investors, creditors, and various stakeholders make informed decisions about an organization's
financial health and performance. The importance of financial statement analysis can be
summarized in the following key points:
1. Assessing Financial Health: Financial statement analysis enables stakeholders to evaluate the
financial health of a company. By examining a company's financial statements, including the
balance sheet, income statement, and cash flow statement, one can determine whether the company
 is financially stable, solvent, and able to meet its financial obligations.
2. Investment Decision-Making: Investors use financial statement analysis to make investment
decisions. It provides valuable insights into a company's past performance and potential future
prospects. Investors can gauge the risk and return associated with their investment choices, helping
them make informed investment decisions.
3. Creditworthiness: Creditors, such as banks and bondholders, rely on financial statement analysis
to assess the creditworthiness of a company. They examine financial statements to determine
whether a company can repay its debt obligations, including interest and principal payments. This
analysis is crucial in determining the terms and conditions of loans or credit extended to the
company.
4. Performance Evaluation: Companies use financial statement analysis to evaluate their own
financial performance over time. By comparing current and past financial data, organizations can
identify trends and assess the effectiveness of their financial strategies.
5. Risk Management: It helps in identifying and managing financial risks. Understanding the financial
health of a company through analysis can assist in mitigating potential financial threats and
developing risk management strategies.
6. Valuation: Financial statement analysis is essential for determining the value of a business. This is
crucial for mergers and acquisitions, investment decisions, and corporate finance transactions.
Valuation methods often rely on the information provided in financial statements.
7. Strategic Planning: Companies use financial statement analysis to make strategic decisions. By
assessing the financial performance and position of a company, organizations can make informed
decisions about expansion, investment, cost-cutting, and other strategic initiatives.
8. Regulatory Compliance: Financial statements are subject to various regulatory requirements and
accounting standards (e.g., GAAP or IFRS). Analyzing financial statements helps ensure that
companies adhere to these standards, providing transparency and credibility to financial reporting.
9. Stakeholder Communication: Effective financial statement analysis provides a means for
companies to communicate their financial performance to various stakeholders, including
shareholders, employees, and the public. Transparency in financial reporting can enhance trust and
confidence.
10. Detecting Financial Irregularities: Financial statement analysis is crucial for identifying accounting
irregularities, fraud, and financial mismanagement. It is a tool for forensic accountants and auditors
to detect discrepancies and inconsistencies in financial statements.
In conclusion, financial statement analysis is a fundamental tool for decision-making in both the
corporate and investment worlds. It provides a comprehensive view of a company's financial
 position and performance, making it an essential process for stakeholders to make informed
choices, manage risks, and contribute to financial transparency and accountability.

The purpose of a literature review is multifaceted and serves several important functions in the
context of academic research and scholarly writing. The primary objectives of a literature review
are as follows:
11. To Provide Context: A literature review offers a contextual background for the research topic. It
helps readers understand the existing body of knowledge and research in a specific area or field.
By summarizing and synthesizing prior research, the literature review sets the stage for the research
question or problem being addressed in the study.
12. To Identify Gaps in Knowledge: By examining existing literature, a literature review can reveal
gaps, inconsistencies, or unanswered questions in the current body of knowledge. This helps
researchers identify areas where further investigation is needed and where their study can make a
meaningful contribution.
13. To Establish Credibility: Demonstrating a thorough understanding of prior research through a
literature review enhances the credibility of the researcher. It shows that the study is built on a
foundation of existing knowledge and is not conducted in isolation. It also demonstrates that the
researcher is aware of and respects the work of other scholars.
14. To Support the Research Hypothesis or Objectives: A literature review provides evidence to
support the research hypothesis or objectives. It shows that the research question is relevant and
worth investigating based on the existing literature. It can also offer theoretical or conceptual
frameworks for the study.
15. To Define Key Concepts and Terminology: When a research topic involves specialized
terminology or concepts, the literature review helps define and clarify these terms for the reader. It
ensures that the audience understands the key terms used in the study.
16. To Avoid Duplication: A literature review helps researchers avoid duplication of prior work. By
understanding what has already been done, researchers can design their studies to build upon
existing research rather than repeating it.
17. To Evaluate Methodologies and Approaches: The literature review allows researchers to assess the
methodologies and approaches used in prior studies. This evaluation can inform the choice of
research methods and highlight the strengths and weaknesses of various research approaches.
18. To Synthesize and Analyse Findings: A literature review involves synthesizing and analyzing the
findings and results of previous research. It provides a comprehensive overview of the state of
knowledge on a particular topic, allowing researchers to draw connections, contrasts, and trends
 within the literature.
19. To Guide Research Design: The review of prior research can help researchers design their studies
effectively. It can inform decisions about research questions, data collection, sample size, and other
methodological considerations.
20. To Contribute to Theory Development: In some cases, a literature review may contribute to theory
development or refinement. By examining and critiquing existing theories and frameworks,
researchers can propose modifications or new theoretical perspectives.
In summary, a literature review is a critical component of research that serves to establish the
context for a study, identify gaps, build credibility, support research objectives, and ensure that the
research is informed by prior scholarship. It is a vital step in the research process that helps
researchers situate their work within the broader academic conversation.

Section 1: Theoretical Framework

Introduce foundational theories and frameworks in financial statement analysis.

Financial statement analysis is based on several foundational theories and frameworks that provide
the conceptual underpinnings for evaluating the financial health and performance of a company.
These theories and frameworks help analysts and stakeholders interpret the information presented
in financial statements. Some of the key foundational theories and frameworks in financial
statement analysis include:

o Generally Accepted Accounting Principles (GAAP) and International Financial Reporting

Standards (IFRS): GAAP and IFRS are accounting standards and frameworks that provide
guidelines for financial reporting. They specify how financial statements should be prepared,
presented, and disclosed. Adhering to these standards ensures consistency and comparability in
financial reporting, which is crucial for analysis.
o Accrual Accounting: Accrual accounting is the basis for financial statements. It recognizes revenue
when it is earned and expenses when they are incurred, rather than when cash is exchanged. This
method provides a more accurate reflection of a company's financial position and performance over
time.
o Going Concern Assumption: The going concern assumption assumes that a company will continue
its operations for the foreseeable future. It is a fundamental concept in financial statement
preparation, as it influences how assets and liabilities are valued and reported.
o Revenue Recognition Principles: Revenue recognition principles dictate when and how a company
 should recognize revenue. The criteria for recognizing revenue are typically tied to the transfer of
goods or services to customers.
o Matching Principle: The matching principle requires that expenses should be recognized in the
same accounting period as the revenues they help generate. This principle ensures that the income
statement accurately reflects the company's profitability.
o Materiality Principle: The materiality principle states that only items that are significant or material
to the financial statements need to be disclosed. It allows companies to focus on reporting
information that has a substantial impact on financial decision-making.
o Conservatism Principle: The conservatism principle suggests that when faced with uncertainty or
alternative accounting methods, a company should choose the method that is least likely to
overstate its financial position and performance.
o Full Disclosure Principle: The full disclosure principle requires companies to provide all the
necessary information in the financial statements and related notes to ensure that users have a
comprehensive understanding of the company's financial position and performance.
o Double-Entry Accounting: Double-entry accounting is the basis for recording financial
transactions. It ensures that for every debit entry, there is an equal and corresponding credit entry,
which maintains the accounting equation (Assets = Liabilities + Equity).
o Time Value of Money (TVM): The time value of money is a fundamental concept in financial
statement analysis. It acknowledges that a dollar today is worth more than a dollar received in the
future, and it is applied when discounting cash flows and assessing the present value of financial
assets and liabilities.
o DuPont Analysis: DuPont analysis breaks down the return on equity (ROE) into its components,
highlighting the factors that contribute to a company's profitability. It is represented as ROE =
Profit Margin x Asset Turnover x Equity Multiplier.

These foundational theories and frameworks provide the structure and principles for creating and
analysing financial statements. Understanding these concepts is essential for making accurate and
meaningful assessments of a company's financial performance and position.

The role of accounting standards (e.g., GAAP, IFRS) in financial reporting.

Accounting standards, such as Generally Accepted Accounting Principles (GAAP) and

International Financial Reporting Standards (IFRS), play a crucial role in financial reporting. These
 standards provide a structured framework and guidelines for how companies should prepare and
present their financial statements. Here are the key roles of accounting standards in financial
reporting:

11. Consistency and Comparability: Accounting standards establish consistent accounting and
reporting practices that all companies within a jurisdiction (in the case of GAAP) or globally (in
the case of IFRS) must follow. This ensures that financial statements are comparable across
different companies, industries, and countries, allowing investors, analysts, and other stakeholders
to make meaningful comparisons.

12. Transparency and Credibility: Accounting standards promote transparency and credibility in
financial reporting. They require companies to disclose relevant financial information in a
standardized and structured manner, which enhances the trust and confidence of investors,
creditors, and other users of financial statements.

13. Accuracy and Reliability: Accounting standards provide guidelines for recognizing and measuring
various financial elements, including assets, liabilities, revenues, and expenses. These guidelines
help ensure the accuracy and reliability of financial statements, making it less likely for companies
to manipulate their financial results to present a more favourable picture.

14. Disclosure Requirements: Accounting standards mandate certain disclosure requirements. These
requirements ensure that companies provide essential information, including notes to the financial
statements, which can explain the basis for accounting decisions, assumptions, and additional
details about financial transactions.

15. Uniformity in Presentation: Accounting standards specify the format and structure of financial
statements, such as balance sheets, income statements, and cash flow statements. This uniformity
allows users to quickly locate and understand key financial information.

16. Compliance and Legal Framework: Compliance with accounting standards is often a legal
requirement, and failure to follow these standards can result in legal penalties or sanctions. This
legal framework enforces adherence to financial reporting rules, maintaining accountability and
integrity.
17. Investor Confidence: The adoption of widely recognized accounting standards like GAAP or IFRS
enhances investor confidence in financial markets. Investors are more likely to invest in companies
that follow established standards because they can rely on the consistency and comparability of
financial information.

18. International Business and Investment: IFRS, in particular, has gained global acceptance, making
it easier for multinational companies to prepare financial statements that are understood and
accepted across borders. This facilitates international trade and investment by harmonizing
financial reporting practices.

19. Regulatory Oversight: Regulatory bodies, such as the U.S. Securities and Exchange Commission
(SEC) for GAAP or the International Accounting Standards Board (IASB) for IFRS, oversee the
development and application of these standards. These bodies continuously update and refine
standards to address changing business environments and emerging issues.

20. Cost Efficiency: Accounting standards help streamline financial reporting processes by providing
a common framework. This can lead to cost efficiencies for companies, as they do not need to
create custom accounting methods and reporting structures.

In summary, accounting standards like GAAP and IFRS serve as essential tools for ensuring
consistency, transparency, and reliability in financial reporting. They provide a structured
framework that companies must follow to present their financial information, which, in turn,
promotes trust and confidence among stakeholders and facilitates the functioning of financial
markets on a global scale.

The relevance of accrual accounting and the cash flow statement.

Accrual accounting and the cash flow statement are two fundamental components of financial
reporting that serve distinct but complementary purposes. They are both relevant in providing a
comprehensive view of a company's financial performance and position:

1. Accrual Accounting:
Accrual accounting is a method of accounting that recognizes revenue when it is earned and
expenses when they are incurred, rather than when cash changes hands. The relevance of accrual
accounting lies in the following key aspects:
a. Matching Revenue and Expenses: Accrual accounting ensures that expenses are matched with
the related revenue they help generate. This principle, known as the matching principle, provides
a more accurate reflection of a company's profitability by recording expenses in the same
accounting period as the revenues they contribute to.
b. Better Reflection of Economic Reality: Accrual accounting provides a more accurate
representation of a company's economic reality. It reflects the timing of economic events,
regardless of when cash transactions occur. This is particularly important in industries where there
is a time lag between the provision of goods or services and the receipt of payment.
c. Financial Statement Preparation: Accrual accounting is the foundation for the preparation of the
income statement and the balance sheet. The income statement provides a snapshot of a company's
profitability over a specific period, while the balance sheet shows its financial position at a
particular point in time.
d. Accurate Measurement of Assets and Liabilities: By recognizing revenue and expenses when
they are earned or incurred, accrual accounting contributes to the accurate measurement of assets
and liabilities on the balance sheet. It ensures that the financial position presented in the balance
sheet reflects the real economic value of these items.

2. Cash Flow Statement:

The cash flow statement, often prepared in conjunction with the income statement and balance
sheet, provides information about a company's cash inflows and outflows during a specific period.
The relevance of the cash flow statement includes:

a. Liquidity Assessment: The cash flow statement helps assess a company's liquidity by tracking
cash flows from operating activities, investing activities, and financing activities. It provides
insights into a company's ability to generate cash to meet its short-term and long-term obligations.
b. Understanding Changes in Cash: The statement explains how a company's cash balance changed
from the beginning to the end of a period. It reveals the sources of cash (e.g., operating profits,
loans, or equity) and the uses of cash (e.g., investments in assets or debt repayments).
c. Detecting Cash Flow Problems: The cash flow statement is crucial for identifying potential cash
flow problems or liquidity issues that may not be evident in the income statement or balance sheet.
It can help a company proactively manage its cash position.
d. Investment and Financing Decisions: Investors and creditors often use the cash flow statement
to assess a company's ability to generate cash for future investments or to service its debt. It helps
them make informed decisions about lending money or investing in the company.
 In summary, accrual accounting and the cash flow statement provide a well-rounded view of a
company's financial performance and position. Accrual accounting reflects the economic reality of
a company's operations, while the cash flow statement tracks the movement of actual cash, which
is critical for assessing liquidity and making investment and financing decisions. Both are essential
components of comprehensive financial reporting.

Introduce financial ratios as a key tool in analysis.

Financial ratios are essential tools in financial analysis, providing a quantitative means to evaluate
a company's performance, profitability, liquidity, solvency, efficiency, and overall financial health.
These ratios allow analysts and stakeholders to assess various aspects of a company's financial
condition and compare it to industry benchmarks, historical data, or competitors. Here's an
introduction to financial ratios as a key tool in analysis:

1. Types of Financial Ratios:

Financial ratios can be categorized into several types, each serving a specific purpose:
f) Liquidity Ratios: These ratios assess a company's ability to meet its short-term obligations with its
short-term assets. Common examples include the current ratio and the quick ratio.
g) Profitability Ratios: Profitability ratios measure a company's ability to generate profits relative to
its revenue, assets, or equity. Examples include the net profit margin, return on assets (ROA), and
return on equity (ROE).
h) Solvency Ratios: Solvency ratios evaluate a company's ability to meet its long-term debt
obligations. The debt-to-equity ratio and interest coverage ratio are typical solvency ratios.
i) Efficiency Ratios: Efficiency ratios, also known as activity ratios, assess how efficiently a company
utilizes its assets and resources. Examples include inventory turnover, accounts receivable
turnover, and asset turnover.
j) Market Ratios: Market ratios gauge a company's performance in the stock market, often comparing
its stock price to financial metrics. The price-to-earnings (P/E) ratio and earnings per share (EPS)
are common market ratios.

2. Key Uses of Financial Ratios:

Financial ratios serve several critical purposes in financial analysis:

f) Performance Evaluation: Ratios provide insights into how well a company is performing compared
 to its own historical performance or industry benchmarks. They help identify areas of strength and
weakness.
g) Comparative Analysis: Ratios enable comparisons between different companies, industries, or
competitors. Analysts can assess which companies are more efficient, profitable, or financially
stable.
h) Risk Assessment: Ratios help evaluate a company's financial risk. For example, high debt ratios
may indicate a higher risk of financial distress, while low liquidity ratios could suggest liquidity
risk.
i) Trend Analysis: By calculating ratios over multiple periods, analysts can identify trends and assess
the direction of a company's financial health. This is valuable for forecasting and decision-making.
j) Investment Decisions: Investors use ratios to make informed investment decisions. Ratios provide
insights into a company's financial strength and growth potential.

3. Interpretation and Significance:

The interpretation of financial ratios depends on the specific ratios being analysed, the industry in
which the company operates, and the company's unique circumstances. A ratio on its own may not
provide a complete picture, but when considered in conjunction with other ratios and qualitative
factors, it becomes a valuable tool for analysis.

For instance, a high current ratio may indicate strong liquidity, but if it's much higher than industry
norms, it might suggest inefficient use of resources. Conversely, a low P/E ratio may indicate an
undervalued stock, but it may also reflect lower growth prospects.

In summary, financial ratios are indispensable tools in financial analysis, offering a quantitative
framework to assess a company's financial performance, risk, and overall health. By examining a
range of ratios within the appropriate context, analysts and stakeholders can make more informed
decisions regarding investments, lending, or corporate strategy.

Section 2: Financial Statement Analysis Techniques

The various techniques and methods for analysing financial statements.
Ø Vertical and horizontal analysis.
Vertical and horizontal analysis are two common methods of financial statement analysis used to
evaluate a company's financial performance and position over time and in comparison, to industry
benchmarks. These methods provide insights into the structure of financial statements and how
 various line items change over a specific period. Here's an overview of vertical and horizontal
analysis:
Vertical Analysis:
Vertical analysis, also known as common-size analysis, focuses on the relative composition of a
financial statement. It expresses each line item as a percentage of a specific base item, typically
total revenue (in the income statement) or total assets (in the balance sheet). The primary purpose
of vertical analysis is to understand the proportional contribution of each component to the whole.
Steps in Vertical Analysis:
4. Choose the Base Item
5. Calculate Percentages
6. Analyse the Results
Horizontal Analysis:
Horizontal analysis, also known as trend analysis, evaluates changes in financial statement line
items over multiple periods (typically years). It helps identify trends, assess growth or decline, and
understand how various components have evolved over time. Horizontal analysis allows you to
compare a company's financial data from one period to another, providing insights into
performance and financial stability.
Steps in Horizontal Analysis:
5. Select the Periods
6. Calculate Absolute Changes
7. Calculate Percentage Changes
8. Analyse the Results
Key Differences:
5. Purpose: Vertical analysis is used to assess the composition of financial statements and the relative
weight of various items, while horizontal analysis focuses on identifying trends and changes over
time.
6. Base Item: In vertical analysis, a base item (usually total revenue or total assets) is selected for
each statement, and all other line items are expressed as percentages relative to this base item. In
horizontal analysis, the focus is on comparing line items across different periods.
7. Comparative Periods: Vertical analysis typically examines a single financial statement at a specific
point in time. Horizontal analysis compares financial statements from different periods, usually
year-to-year or quarter-to-quarter.
8. Interpretation: Vertical analysis helps identify the structure of financial statements and the
significance of each component. Horizontal analysis reveals trends and changes in line items over
 time.
Both vertical and horizontal analysis are valuable tools for financial analysts and decision-makers,
offering insights into a company's financial performance, stability, and composition. These
methods are often used in conjunction with other financial analysis techniques to provide a
comprehensive view of a company's financial health.

Ø Common-size financial statements.

Common size financial statements, also known as common-size income statements and common-
size balance sheets, are a variation of vertical analysis that express each line item in a financial
statement as a percentage of a common base item. These common size statements are particularly
useful for comparing the relative proportions of different financial statement components, and they
are often used to assess the structure and composition of a company's financial statements. Here's
an overview of common size statements:
Common-Size Income Statement:
A common-size income statement expresses each line item as a percentage of total revenue (or
sales), which serves as the common base item. This allows for a detailed analysis of the
composition of a company's revenues and expenses in relation to its total revenue. Common-size
income statements are useful for assessing the profitability and cost structure of a company.
Common-Size Balance Sheet:
A common-size balance sheet expresses each line item as a percentage of total assets, which serves
as the common base item. This format provides insights into the composition of a company's assets,
liabilities, and equity in relation to its total assets. Common-size balance sheets are valuable for
assessing the company's financial structure and the proportion of assets financed by debt or equity.
Steps in Preparing Common Size Statements:
1. Select the Base Item
2. Calculate Percentages
3. Present the Data
Benefits of Common Size Statements:
1. Comparative Analysis
2. Identifying Trends
3. Standardized Comparison
4. Component Analysis
Common size statements are a valuable tool in financial analysis, as they provide a visual
representation of a company's financial structure and performance, highlighting areas where
 changes may have occurred over time or where the company differs from industry norms. This
analysis aids in understanding the composition and profitability of a business.

Ø Trend analysis.
Trend analysis, also known as time series analysis, is a method used in financial and business
analysis to examine historical data over a period. The primary goal of trend analysis is to identify
and assess patterns, trends, and changes in data, allowing analysts to make informed decisions,
forecasts, and predictions.

Ø Ratio analysis (liquidity, profitability, leverage, etc.).

Ratio analysis is a powerful financial analysis tool that involves evaluating a company's
performance and financial health by examining relationships between various financial statement
items. These ratios can be grouped into different categories, each providing insights into different
aspects of a company's operations and financial position. Some of the most common categories of
ratios include:
1. Liquidity Ratios:
Liquidity ratios assess a company's ability to meet its short-term financial obligations and manage
cash flow. Key liquidity ratios include:
• Current Ratio: Current assets divided by current liabilities. It measures a company's ability to cover
short-term liabilities with its short-term assets.
• Quick Ratio (Acid-Test Ratio): (Current assets - Inventory) divided by current liabilities. This ratio
excludes inventory from current assets, providing a more conservative measure of liquidity.
2. Profitability Ratios:
Profitability ratios evaluate a company's ability to generate profits relative to various factors, such
as sales, assets, or equity. Common profitability ratios include:
• Gross Profit Margin: (Gross profit / Total revenue) x 100. It measures the percentage of revenue
retained after deducting the cost of goods sold.
• Net Profit Margin: (Net profit / Total revenue) x 100. It represents the percentage of revenue that
remains as net profit after all expenses.
• Return on Assets (ROA): (Net profit / Total assets) x 100. It assesses the company's efficiency in
using its assets to generate profits.
• Return on Equity (ROE): (Net profit / Shareholders' equity) x 100. It measures the return earned
on shareholders' equity.
3. Leverage Ratios (Solvency Ratios):
 Leverage ratios, also known as solvency ratios, examine a company's ability to meet its long-term
debt obligations and the proportion of debt in its capital structure. Common leverage ratios include:
• Debt-to-Equity Ratio: Total debt divided by shareholders' equity. It reveals the extent to which the
company is financed by debt relative to equity.
• Interest Coverage Ratio: Earnings before interest and taxes (EBIT) divided by interest expense. It
gauges the company's ability to cover its interest payments from its operating income.
4. Efficiency Ratios:
Efficiency ratios, also known as activity ratios, assess how effectively a company utilizes its assets
and resources to generate sales and income. Key efficiency ratios include:
• Inventory Turnover Ratio: Cost of goods sold divided by average inventory. It measures how
efficiently a company manages its inventory.
• Accounts Receivable Turnover Ratio: Total credit sales divided by average accounts receivable. It
gauges the efficiency of the company's credit and collection policies.
• Asset Turnover Ratio: Total revenue divided by average total assets. It assesses how efficiently a
company uses its assets to generate revenue.
5. Market Ratios:
Market ratios are used to evaluate a company's performance in the stock market and are often
relevant to investors. Common market ratios include:
• Price-to-Earnings (P/E) Ratio: Market price per share divided by earnings per share (EPS). It
measures how investors value the company relative to its earnings.
• Earnings Per Share (EPS): Net profit divided by the number of outstanding shares. It indicates the
company's profitability on a per-share basis.
Ratio analysis is a comprehensive tool that helps analysts, investors, and managers assess a
company's financial performance, stability, and efficiency. By comparing these ratios to industry
averages, historical data, or competitors, stakeholders can gain valuable insights into a company's
strengths, weaknesses, and areas that require attention or improvement.

Ø DuPont analysis.
DuPont analysis, also known as DuPont identity or DuPont model, is a financial analysis method
that provides a detailed breakdown of a company's return on equity (ROE) by analyzing its
profitability, asset utilization, and financial leverage. Named after the chemical company DuPont,
which popularized the technique in the early 20th century, this analysis helps stakeholders and
analysts understand the drivers of a company's ROE and identify areas for improvement. DuPont
analysis decomposes ROE into three key components:
1. Net Profit Margin (NPM): This component of DuPont analysis focuses on a company's profitability
and measures the proportion of each dollar of revenue that remains as profit after accounting for
all expenses. The formula for net profit margin is:
NPM = (Net Profit / Total Revenue) x 100
A high NPM indicates strong profitability and the ability to control costs effectively.
2. Asset Turnover (AT): Asset turnover assesses the efficiency of a company in using its assets to
generate sales or revenue. It measures how many dollars in revenue a company generates for each
dollar of assets it possesses. The formula for asset turnover is:
AT = Total Revenue / Average Total Assets
A high asset turnover indicates that a company effectively utilizes its assets to generate sales.
3. Financial Leverage (FL): This component examines the effect of a company's financial structure
on ROE. Financial leverage evaluates how much a company relies on debt or financial leverage to
finance its assets. The formula for financial leverage is:
FL = Average Total Assets / Average Shareholders' Equity
A higher financial leverage implies greater reliance on debt to finance assets, potentially
magnifying returns but also increasing financial risk.
The DuPont model combines these three components into a formula for ROE:
ROE = NPM x AT x FL
Interpreting DuPont Analysis:
DuPont analysis allows stakeholders to break down ROE into its fundamental drivers. By
understanding the contributions of NPM, AT, and FL, analysts can assess what is driving changes
in ROE. Here are some key insights from DuPont analysis:
1. Identifying Strengths and Weaknesses: DuPont analysis can reveal whether changes in ROE are
primarily due to profitability, asset utilization, or financial leverage. This helps pinpoint areas that
require improvement.
2. Comparative Analysis: Companies in the same industry can be compared based on their DuPont
analysis components to assess relative strengths and weaknesses.
3. Strategic Decision-Making: By understanding the drivers of ROE, companies can make strategic
decisions about improving profitability, asset utilization, or financial leverage to enhance overall
financial performance.
4. Risk Assessment: The financial leverage component can help assess the level of financial risk a
company carries. High financial leverage can magnify returns in good times but also amplify losses
in downturns.
Overall, DuPont analysis provides a structured framework for analyzing the components of ROE,
 helping companies and investors better understand the factors contributing to a company's financial
performance and guiding decision-making.

Ø Quality of earnings analysis.

Quality of earnings analysis is a critical financial analysis process that assesses the sustainability
and reliability of a company's reported earnings. It aims to determine whether a company's reported
profits accurately represent its underlying financial performance and whether these earnings can
be maintained in the future. Evaluating the quality of earnings is essential for investors, analysts,
and other stakeholders to make informed decisions.

Ø Cash flow analysis.

Cash flow analysis is a vital financial analysis method that assesses the movement of cash into and
out of a company over a specific period, typically a month, quarter, or year. This analysis is
essential for understanding a company's liquidity, financial health, and ability to meet its short-
term and long-term financial obligations. Here's an overview of cash flow analysis and its key
components:
Types of Cash Flows:
Cash flow analysis typically considers three types of cash flows:
1. Operating Cash Flow (OCF): This represents the cash generated or consumed by a company's core
operating activities. It includes cash from sales, payments to suppliers, salaries, and other operating
expenses. Positive OCF indicates that the company's core operations are generating cash.
2. Investing Cash Flow (ICF): This reflects cash flows related to the purchase and sale of long-term
assets, such as property, plant, and equipment, and investments in securities. Negative ICF may
indicate capital expenditures on asset purchases.
3. Financing Cash Flow (FCF): FCF accounts for cash flows related to financing activities, such as
taking on or repaying debt, issuing or buying back shares, and paying dividends. Positive FCF can
indicate that the company is generating more cash from financing activities than it is using.
Components of Cash Flow Analysis:
1. Cash Flow Statements: Cash flow analysis starts with the examination of the company's cash flow
statements. These statements include the operating, investing, and financing sections, allowing
analysts to track the sources and uses of cash over a specific period.
2. Operating Cash Flow (OCF): OCF is a critical component of cash flow analysis, as it focuses on
the cash generated from the company's core business operations. It is often calculated as follows:
OCF = Net Income + Depreciation & Amortization ± Changes in Working Capital
 A positive OCF indicates that the company's operational activities are generating cash.
3. Free Cash Flow (FCF): FCF represents the cash available to the company after covering operating
expenses and capital expenditures. It is often calculated as:
FCF = OCF - Capital Expenditures
Positive FCF implies that the company can invest in growth opportunities or return cash to
shareholders.
4. Cash Flow Ratios: Analysts use several ratios, such as the operating cash flow ratio (OCF/Total
Debt), free cash flow yield (FCF/Market Capitalization), and cash return on investment (OCF/Total
Investment), to assess the quality of cash flows.
Benefits and Applications of Cash Flow Analysis:
1. Liquidity Assessment: Cash flow analysis helps assess a company's ability to meet its short-term
obligations and manage liquidity effectively.
2. Investment Decisions: Investors use cash flow analysis to assess the financial health of a company
and make informed investment decisions.
3. Creditworthiness: Lenders and creditors use cash flow analysis to determine a company's ability to
service its debt.
4. Strategic Planning: Companies use cash flow analysis to plan for capital investments, dividend
payments, and other financial decisions.
5. Risk Management: Cash flow analysis helps identify potential financial risks, such as a liquidity
crisis or an inability to fund growth.
6. Financial Forecasting: Cash flow analysis is crucial for forecasting future cash flows, which
informs budgeting and financial planning.
7. Valuation: Cash flow analysis plays a significant role in valuation models like discounted cash
flow (DCF) analysis.
In summary, cash flow analysis is a fundamental tool for assessing a company's financial health,
liquidity, and ability to generate and manage cash. It is essential for investors, creditors, and
company management to make informed decisions and plan.

Section 3: Current Trends in Financial Statement Analysis

• The recent developments and emerging trends in the field.

The field of financial statement analysis is continually evolving in response to changes in the
business environment, regulatory requirements, technological advancements, and emerging trends.
Here are some recent developments and emerging trends in the field of financial statement analysis:
 1. Integrated Reporting:
• Integrated reporting goes beyond traditional financial statements and includes non-financial
information, such as environmental, social, and governance (ESG) factors. It provides a more
comprehensive view of a company's performance and impact on society and the environment.
2. Environmental, Social, and Governance (ESG) Analysis:
• ESG factors are increasingly considered in financial statement analysis. Companies are disclosing
more ESG-related information, and investors are incorporating ESG criteria into their decision-
making processes.
3. Sustainability Reporting:
• Sustainability reporting has gained prominence as companies are being pressured to disclose their
efforts in reducing their environmental footprint and promoting social responsibility. Analysts are
incorporating sustainability metrics into their assessments.
4. Data Analytics and Artificial Intelligence (AI):
• Data analytics and AI are transforming financial statement analysis. Machine learning algorithms
are used to identify patterns, detect anomalies, and make predictions based on financial data. AI-
driven chatbots and virtual assistants are also becoming common in financial analysis.
5. Blockchain Technology:
• Blockchain technology is being explored for its potential to enhance the accuracy and security of
financial data. It has applications in auditing and verifying financial transactions.
6. Big Data:
• Financial analysts are increasingly working with big data, which includes vast amounts of
structured and unstructured data from various sources. Advanced data analytics techniques are used
to extract valuable insights from this data.
7. Regulatory Changes:
• Regulatory changes, such as updates to accounting standards (e.g., IFRS 17 and ASC 606) and
disclosure requirements, impact how financial statements are prepared and analyzed.
8. Cybersecurity Concerns:
• With the growing reliance on technology, cybersecurity is a critical concern for financial statement
analysis. Protecting sensitive financial data from cyber threats and data breaches is a top priority.
9. International Reporting Standards:
• The convergence and harmonization of international accounting standards, such as International
Financial Reporting Standards (IFRS), are affecting how financial statements are prepared and
compared across borders.
10. Non-Financial Metrics:
• Analysts are increasingly looking at non-financial metrics, such as customer satisfaction scores,
employee turnover rates, and brand reputation, to assess a company's overall health and
performance.
11. Predictive Analytics:
• Predictive analytics, using historical financial data to forecast future performance and trends, is
gaining traction in financial statement analysis.
12. Corporate Social Responsibility (CSR):
• CSR initiatives and their impact on a company's financial performance are becoming integral to
financial analysis.
13. Artificial Reality (AR) and Virtual Reality (VR):
• AR and VR technologies are being used to create immersive financial reporting experiences,
allowing users to visualize financial data in innovative ways.
14. Mobile Financial Analysis:
• Mobile apps and platforms are increasingly being used for financial statement analysis, making it
more accessible and convenient for users.
15. Collaboration and Sharing Platforms:
• Cloud-based collaboration and sharing platforms are facilitating collaboration among financial
analysts and stakeholders, allowing real-time access to financial data and reports.
These recent developments and emerging trends reflect the dynamic nature of financial statement
analysis. Staying current with these developments and adapting to new tools and technologies is
essential for financial analysts, investors, and other stakeholders to make well-informed decisions
and assessments.

Section 4: Empirical Studies and Applications

• A review of empirical studies and practical applications.
Ø Case studies in various industries.
Case studies in financial statement analysis provide real-world examples of how financial data is
used to assess a company's performance and make informed decisions. Here are case studies from
various industries, illustrating the application of financial statement analysis:
1. Technology Industry - Apple Inc.:
• Apple Inc. is a renowned case study in financial statement analysis. Analysts and investors closely
examine its financial statements to assess product sales, profitability, and cash flow. They also
consider Apple's capital allocation strategy, which includes stock buybacks and dividends.
2. Retail Industry - Walmart:
• Walmart is a case study in the retail industry. Financial analysts use its financial statements to
assess inventory turnover, revenue growth, and the impact of e-commerce on its business. The
company's financial performance is closely monitored for insights into consumer spending trends.
3. Energy Industry - ExxonMobil:
• ExxonMobil is a major player in the energy sector. Financial analysts analyze its financial
statements to assess revenue, capital expenditures, and the impact of fluctuating oil prices on
profitability. They also examine the company's ability to manage debt.
4. Healthcare Industry - Johnson & Johnson:
• Johnson & Johnson is a case study in the healthcare industry. Financial statement analysis involves
assessing research and development expenditures, patent expirations, and the impact of product
recalls on financial performance. Analysts also consider the company's dividend history.
5. Automotive Industry - Tesla, Inc.:
• Tesla is a prominent case study in the automotive industry. Analysts scrutinize its financial
statements to evaluate electric vehicle sales, manufacturing efficiency, and the company's ability
to achieve profitability. They also monitor Tesla's capital raising and investments in research and
development.
6. Banking Industry - JPMorgan Chase:
• JPMorgan Chase serves as a case study in the banking sector. Financial analysts assess its financial
statements to evaluate net interest margin, loan quality, and the impact of regulatory changes on
the banking business. They also analyze the bank's capital adequacy.
7. Aerospace and Defense Industry - Boeing:
• Boeing is a case study in the aerospace and defense industry. Financial statement analysis involves
assessing aircraft deliveries, order backlogs, and the financial impact of safety issues like the
grounding of the 737 MAX. Analysts also consider the company's cash flow and debt levels.
8. Food and Beverage Industry - The Coca-Cola Company:
• Coca-Cola is a well-known case study in the food and beverage industry. Financial analysts use its
financial statements to evaluate revenue growth, brand performance, and the impact of changing
consumer preferences. They also monitor the company's marketing expenditures.
9. Telecommunications Industry - AT&T:
• AT&T is a case study in the telecommunications sector. Financial statement analysis includes
assessing revenue streams from wireless and media segments, capital investments in network
infrastructure, and the impact of customer churn. Analysts also consider the company's debt levels.
10. Real Estate Industry - Simon Property Group:
• Simon Property Group is a case study in the real estate industry, specifically in the shopping mall
 sector. Financial analysts analyze its financial statements to assess rental income, occupancy rates,
and the impact of e-commerce on retail real estate. They also consider the company's debt and
ability to adapt to changing consumer behavior.
These case studies illustrate how financial statement analysis is applied to various industries to
evaluate companies' financial health, performance, and strategic decisions. Analysts consider
industry-specific factors and challenges to make informed investment, lending, and strategic
decisions.

Ø Research on the effectiveness of financial analysis tools.

Research on the effectiveness of financial analysis tools encompasses a wide range of studies and
assessments of tools and techniques used in the field of financial analysis. Here are some key points
and findings related to the effectiveness of these tools based on various studies and expert opinions:

i. Ratios and Financial Ratios: Empirical research has shown that financial ratios, such as profitability
ratios (e.g., ROE and ROA) and liquidity ratios (e.g., current ratio), are valuable tools for assessing
a company's financial health and performance. These ratios provide a quick and easy way to gauge
key aspects of a company's financial position.
ii. Cash Flow Analysis: Studies have highlighted the critical role of cash flow analysis in assessing a
company's liquidity, solvency, and ability to meet its financial obligations. Cash flow analysis is
particularly effective in identifying financial distress and early warning signs of potential issues.
iii. Quality of Earnings Analysis: Research on the quality of earnings analysis emphasizes its
importance in evaluating the reliability and sustainability of a company's reported profits. This
analysis helps identify signs of earnings manipulation and provides insights into the transparency
of financial statements.
iv. Data Analytics and AI: Advanced data analytics and artificial intelligence (AI) techniques,
including machine learning, have demonstrated their effectiveness in uncovering patterns, trends,
and anomalies in financial data. These tools are increasingly used for predictive analysis and
enhancing the efficiency and accuracy of financial analysis.
v. Blockchain Technology: While still an emerging area, the application of blockchain technology in
financial analysis shows promise for improving the accuracy and transparency of financial data.
The immutability and security of blockchain can enhance the reliability of financial statements.
vi. Sustainability Metrics and ESG Analysis: The integration of sustainability metrics and
environmental, social, and governance (ESG) factors in financial analysis has been shown to
provide valuable insights into a company's long-term performance and risk profile. It is
 increasingly considered an effective tool for assessing a company's overall health and impact on
society and the environment.
vii. Big Data and Non-Financial Metrics: The use of big data and non-financial metrics, such as
customer satisfaction scores and employee turnover rates, in financial analysis has been found to
provide a more comprehensive view of a company's performance. These metrics can complement
traditional financial data and offer additional insights.
viii. Cybersecurity and Data Protection: The adoption of cybersecurity measures in financial analysis is
essential for safeguarding sensitive financial data. Ensuring data protection is an effective way to
maintain the integrity of financial statements and analysis.
ix. Mobile and Cloud-Based Tools: The use of mobile apps and cloud-based platforms in financial
analysis has improved accessibility and collaboration among analysts and stakeholders. These tools
enhance the efficiency of data sharing and reporting.

In summary, various financial analysis tools and techniques have proven to be effective in assessing
a company's financial health and making informed decisions. The choice of tools depends on the
specific objectives and challenges of the analysis, as well as the industry and context in which they
are applied. Continuous adaptation to emerging tools and technologies is crucial for staying
effective in the dynamic field of financial analysis.

Ø Studies on the relationship between financial analysis and firm performance.

Numerous studies have investigated the relationship between financial analysis and firm
performance. These studies aim to determine whether the use of financial analysis tools and
techniques can lead to better decision-making and improved firm performance. Here are some key
findings from research in this area:
1. Financial Ratios and Firm Performance:
• Studies have consistently shown that the use of financial ratios, such as profitability ratios (e.g.,
ROE and ROA) and liquidity ratios, can help in assessing a company's financial health. Firms that
effectively use these ratios for benchmarking and strategic decision-making tend to outperform
those that do not.
2. Cash Flow Analysis and Firm Performance:
• Research has highlighted the positive impact of cash flow analysis on firm performance. Firms that
actively manage their cash flows to ensure liquidity and meet financial obligations tend to be more
financially resilient and better positioned for growth.
3. Quality of Earnings Analysis and Firm Performance:
• Studies have found a strong correlation between the quality of earnings analysis and firm
performance. Companies that maintain transparency, reliability, and sustainability in their reported
earnings tend to have more stable stock prices, better credit ratings, and attract more investors.
4. DuPont Analysis and Firm Performance:
• DuPont analysis has been shown to be an effective tool for identifying areas of strength and
weakness in a firm's performance. By decomposing ROE into its components, firms can make
informed decisions to improve their profitability, asset utilization, and financial leverage, which
ultimately leads to better overall performance.
5. Data Analytics and Firm Performance:
• The use of data analytics and AI in financial analysis has proven effective in uncovering insights
that can positively impact firm performance. These advanced techniques can identify market
trends, optimize pricing strategies, and enhance overall operational efficiency.
6. Blockchain Technology and Firm Performance:
• While in its early stages, the use of blockchain technology to enhance the accuracy and
transparency of financial data has the potential to boost investor confidence, reduce fraud, and
ultimately contribute to improved firm performance.
7. Sustainability Metrics and Firm Performance:
• Incorporating sustainability metrics and ESG factors into financial analysis has been associated
with improved firm performance. Companies that actively address environmental and social
responsibilities tend to attract ethical investors, reduce risks, and enhance their long-term
performance.
8. Big Data and Non-Financial Metrics:
• The integration of big data and non-financial metrics into financial analysis has provided a more
holistic view of firm performance. Understanding customer satisfaction, employee engagement,
and other non-financial factors can help firms make strategic decisions to improve their competitive
advantage.
9. Cybersecurity and Firm Performance:
• Protecting financial data through cybersecurity measures has a direct impact on firm performance.
Preventing data breaches and safeguarding sensitive financial information enhances a firm's
reputation, reduces risks, and instils investor confidence.
10. Mobile and Cloud-Based Tools and Firm Performance: - The use of mobile apps and cloud-
based tools in financial analysis has improved accessibility, efficiency, and collaboration among
analysts and stakeholders. These tools can lead to more informed decision-making and better
overall firm performance.
 Overall, the relationship between financial analysis and firm performance is multi-faceted. While
the use of financial analysis tools and techniques is not the sole determinant of firm performance,
research indicates that they play a significant role in helping companies make informed decisions,
manage risks, and ultimately improve their financial health and sustainability.

Section 5: Challenges and Limitations

The common challenges and limitations in financial statement analysis.
• Data quality and reliability issues.
• Subjectivity in interpretation.
• The impact of external factors on analysis (economic conditions, regulatory changes).
• Limitations in traditional financial metrics.
Section 6: Conclusion and Future Directions
Summarize the key findings from the literature review.
In summary, the literature review on the analysis of financial statements reveals several key
findings and insights regarding the importance, purpose, tools, and impact of financial statement
analysis. Here are the summarized key findings:
1. Importance of Financial Statement Analysis:
• Financial statement analysis is a crucial practice in finance and business management, providing
valuable insights into a company's financial health, performance, and prospects.
• It supports decision-making by investors, creditors, management, and other stakeholders, helping
them assess risks, make investment choices, and formulate business strategies.
2. Purpose of Financial Statement Analysis:
• The primary purpose of financial statement analysis is to evaluate a company's profitability,
liquidity, solvency, and efficiency.
• It aids in identifying financial trends, potential problems, and areas for improvement in a company's
operations.
3. Literature Review Structure:
• A comprehensive literature review on financial statement analysis typically includes sections on
foundational theories, accounting standards, accrual accounting, cash flow analysis, financial
ratios, quality of earnings analysis, data analytics, and emerging trends.
4. Foundational Theories and Frameworks:
• Foundational theories like the efficient market hypothesis and behavioral finance provide the
theoretical underpinnings of financial analysis.
• Frameworks like DuPont analysis decompose return on equity (ROE) to assess its components:
 profitability, asset utilization, and financial leverage.
5. Accounting Standards:
• Accounting standards, such as Generally Accepted Accounting Principles (GAAP) and
International Financial Reporting Standards (IFRS), provide guidelines for financial reporting.
• Compliance with these standards is essential for comparability and transparency in financial
analysis.
6. Accrual Accounting and Cash Flow Statements:
• Accrual accounting recognizes revenue and expenses when they are earned or incurred, providing
a more comprehensive view of a company's financial performance.
• The cash flow statement complements the income statement and balance sheet by revealing a
company's actual cash movements.
7. Financial Ratios:
• Financial ratios, including profitability, liquidity, and solvency ratios, are fundamental tools in
financial analysis.
• They offer a quick and quantitative assessment of a company's financial condition.
8. Quality of Earnings Analysis:
• Quality of earnings analysis assesses the sustainability and reliability of reported profits.
• It helps stakeholders identify earnings management and the transparency of financial statements.
9. Data Analytics:
• Technology and data analytics have transformed financial statement analysis.
• Advanced data analytics techniques and AI provide more sophisticated and predictive analysis of
financial data.
10. Emerging Trends:
• Emerging trends in financial statement analysis include sustainability reporting, ESG analysis,
blockchain technology, big data, and non-financial metrics.
• These trends are reshaping the way companies and analysts evaluate financial performance.
11. Impact of Financial Analysis:
• Empirical studies show that financial analysis tools, when used effectively, contribute to better
decision-making and improved firm performance.
• The relationship between financial analysis and firm performance is multi-faceted, with various
tools and techniques playing a significant role in financial health and sustainability.
In conclusion, the literature review underscores the critical role of financial statement analysis in
assessing a company's financial health, making informed decisions, and adapting to the evolving
landscape of technology and reporting standards. The field continues to evolve as new tools, data
sources, and analytical techniques enhance the ability to extract valuable insights from financial
data.

CHAPTER:3
 RESEARCH METHODOLOGY

Research methodology is a systematic way to plan, conduct, and evaluate research. It is a set of
procedures that researchers use to collect and analyze data.

The research methodology used in this study is based on the following principles:

Scientific method: The scientific method is a process of inquiry that involves making observations,
forming hypotheses, testing hypotheses, and drawing conclusions.
Qualitative research: Qualitative research is a type of research that focuses on gaining an
understanding of people's experiences, perceptions, and understandings.
Quantitative research: Quantitative research is a type of research that focuses on collecting and
analyzing numerical data.
The specific research methods used in this study include:

Interviews: Interviews are a qualitative research method in which researchers ask participants
questions to gain an understanding of their experiences, perceptions, and understandings.

Surveys: Surveys are a quantitative research method in which researchers ask participants questions
to collect numerical data.
The data collected through these methods was analyzed using a variety of statistical techniques.

Data Analysis
The data collected through the study of literature review, interviews, and surveys was analyzed
using a variety of statistical techniques.

The following statistical techniques were used:

• Descriptive statistics: Descriptive statistics are used to summarize the data and describe its main
features.
• Inferential statistics: Inferential statistics are used to make inferences about the population based
on the sample data.

The statistical analysis was used to answer the following research questions:
What are the key factors that influence the overall financial performance of organizations?
How do these factors differ across different industries?
How do these factors change over time?

Conclusion
The research methodology used in this study is a systematic and rigorous approach to collecting
and analyzing data. The statistical analysis used in this study allowed for the identification of key
factors that influence the overall financial performance of organizations. These factors can be used
by organizations to improve their financial performance.
 Chapter - 4
Data Reduction, Presentation, & Analysis

Data reduction refers to the process of decreasing the volume but producing the same or similar
analytical results. It involves simplifying and summarizing large datasets while retaining the
essential information. There are several reasons to perform data reduction, including improving
efficiency in storage and processing, facilitating analysis, and reducing the complexity of the data.
Here are some common techniques and methods used for data reduction:
1. Data Aggregation:
• Definition: Combining data into summary or higher-level information.
• Example: Summarizing daily sales data into monthly or yearly totals.
2. Sampling:
• Definition: Selecting a subset of data points from the larger dataset.
• Example: Instead of analyzing the entire population, a researcher might study a
representative sample.
3. Dimensionality Reduction:
• Definition: Reducing the number of variables or features in a dataset.
• Example: Principal Component Analysis (PCA) is a technique that identifies the most
important features in a dataset and projects the data onto a lower-dimensional space.
4. Binning or Histogramming:
• Definition: Grouping continuous data into discrete intervals (bins).
• Example: Grouping age data into ranges (e.g., 18-25, 26-35, etc.) to analyze age
distribution.
5. Data Transformation:
• Definition: Applying mathematical functions to the data to transform it.
• Example: Log-transforming skewed data to make it more normally distributed.
6. Data Compression:
• Definition: Using algorithms to represent data with fewer bits.
• Example: ZIP compression reduces the size of files for efficient storage and transmission.
7. Clustering:
• Definition: Grouping similar data points together.
• Example: K-means clustering groups data points based on similarity.
8. Outlier Removal:
• Definition: Identifying and removing extreme values that deviate significantly from the
rest of the data.
• Example: Removing unusually high or low values in a dataset.
9. Filtering:
• Definition: Selecting specific data based on certain criteria.
• Example: Filtering out data points that don't meet certain conditions.
10. Summary Statistics:
• Definition: Using statistical measures (mean, median, mode, etc.) to represent the central
tendency of the data.
• Example: Calculating the average salary of a group of employees.
Data reduction is a crucial step in data preprocessing and analysis, especially when dealing with
large and complex datasets. It helps in gaining insights from data efficiently, improving
computational performance, and making data more manageable for further analysis. However, it's
essential to carefully choose the appropriate techniques based on the characteristics of the data and
the objectives of the analysis.

A number of processes are involved in the data reduction, presentation, and analysis of the financial
statements of an organisation such as SS Enterprise (assuming it is a fictitious business) in order
to improve the financial data's readability and value to decision-makers. Here's a detailed how-to:
1. Data Collection: Start by assembling the SS Enterprise financial statements, which normally
consist of the Cash Flow Statement, Balance Sheet, and Income Statement (Profit and Loss
Statement).
2. Preparing and Cleaning Data:
• Data correctness and consistency measurements were made sure of.
• All values were transformed into a single currency, and any incorrect or missing data points were
addressed.
3. Reduction of Data:
• Choose pertinent data: concentrated on the most important financial indicators, including assets,
liabilities, equity, revenue, and expenses. One of the most important steps in the study of financial
accounts is choosing pertinent data. Key financial metrics that offer insightful information about a
company's financial performance and health should be the focus of any good financial statement
analysis.
1. Revenue: Often referred to as sales or turnover, revenue is the entire amount of money a business
 makes from its main activities. You can evaluate a company's sales growth and market demand by
looking at its revenue trends.
2. Expenses: These comprise a range of charges incurred during the course of running the
company. Divide expenditures into groups such as income taxes, interest charges, operating
expenses, and cost of goods sold (COGS). The effectiveness of cost management can be found by
using trend and ratio analyses.
3. Measures of Profitability:
Important indicators of profitability are:
The percentage of revenue remaining after deducting the cost of products sold is known as the
gross profit margin.
The percentage of revenue that is left over as net profit after all costs is known as the net profit
margin.
In order to guarantee that you concentrate on the most pertinent and significant information, one
of the most critical steps in financial statement analysis is to eliminate redundant or unimportant
data. Your analysis will be more successful and efficient if you eliminate noise and concentrate on
the important information.
The following rules can be applied to remove less significant data:
Determine Crucial Metrics: Determine which financial measures are most important and pertinent
to your analysis first. They usually consist of several ratios, revenue, expenses, assets, liabilities,
and equity.

Balance sheet
SS Enterprises
Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
12 months 12 months 12 months 12 months 12 months
Sources of fund
Total Share Capital 12.30 12.30 12.30 12.30 73.30
Equity share capital 12.30 12.30 12.30 12.30 73.30
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share capital 0.00 0.00 0.00 0.00 0.00
Reserves 2928.50 2572.50 2161.50 1622.00 1154.00
Revaluation Reserves 0.00 0.00 14.20 14.40 14.50
Net Worth 3055.60 2800.80 2305.80 1764.20 1241.90
Secured Loans 12.30 0.20 8.20 13.80 34.50
Unsecured Loans 0.50 2.60 5.30 12.90 19.50
Total Debts 13.50 2.26 13.40 26.70 53.60
Total Liabilities 3070.50 2703.10 2317.40 1791.50 1295.50
Application Of fund
Gross Block 1486.00 1365.60 1604.10 1171.40 1111.50
:Less. Accumu. Depriciation 783.65 748.20 728.20 637.50 600.80
Net Block 702.35 617.10 875.80 533.80 510.10
Capital work in Progress 74.90 58.20 47.60 33.30 12.90
Investments 1055.40 1052.60 781.60 688.60 265.50
Inventories 547.50 449.60 405.70 303.50 281.30
Sundry Debtors 1840.20 1735.60 1510.80 1212.70 1012.20
Cash and Bank balance 288.90 321.10 124.20 112.40 181.40
Total Current Assets 2677.90 2506.30 2040.10 1628.40 1475.50
Loans and Advances 761.40 336.10 587.50 402.30 516.50
Fixed Deposits 0.00 0.00 26.60 436.70 291.20
Total CA, Loans & Advances 3439.30 2842.50 2654.30 2467.30 2282.60
Differed Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilites 2013.10 1717.60 1634.30 1534.60 1265.70
Provisions 185.90 150.80 407.10 396.90 510.80
Total CL & Provisions 2199.90 1867.30 2041.40 1930.50 1776.20
Net Current Assets 1241.00 975.60 612.80 536.60 506.30
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00
Total Assets 3070.50 2703.10 2317.40 1791.50 1295.50
Contingent Liabilities 1422.90 326.80 278.70 362.10 788.21
Book Values (Rs) 47.60 42.10 35.70 27.20 33.40

SS Enterprises
Profit and loss Account Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
12 12 12 12
12 months months months months months
Income
Sales Turnover 7571.7 6934.7 6411.7 5627.8 4971.9
Excise Duty 435.7 366.4 325.5 232.9 293.6
Net Sales 7135.5 6568.2 6086.3 5395.9 4678.7
Other Income 98.6 74.3 95.6 124.1 -67.2
Stock Adjustments 42.9 8.7 56.8 49.2 1.6
Total Income 7276.9 6651.1 6238.6 5569.6 4613.2
Expenditure
Raw Materials 5496.2 4723.1 4083.3 3534.4 3101.1
Power & Fuel Cost 47.3 42.66 35.9 31.2 29.4
Employee Cost 411.7 363.5 310.1 255.7 227.2
Other Manufacturing Expense 28.4 201.4 245.2 200.3 173.6
Selling and Admin Expense 0 37.6 500.6 508.5 351.8
Miscellaneous Expense 600.9 487.6 40.8 56.8 43.5
Preoperative Exp. Capitalized 0 0 -6.2 -0.4 -1.17
Total Expense 6583.6 5856.6 5210.6 4586.5 3925.1
Mar-18 Mar-19 Mar-20 Mar-21 Mar-22

Operating Profit 594.6 720.6 932.9 858.3 755.2

PBDIT 693.2 795.2 1028.9 982.5 688.3
Interest 25.4 27.6 20.6 20 28.5
PBDT 667.8 767.4 1007.9 962.5 659.4
Depriciation 71.8 90.7 80.8 51.9 45.2
Other Written off 0 0 0 0 0
Profit Before Tax 596.2 676.6 927.1 910.6 614.2
Extra Ordinary - Items 0 -18.2 0 0 0
PBT 596.2 658.4 927.1 910.4 614.2
Tax 150.1 171.8 232.6 293.6 217.1
Reported Net Profit 445.8 504.8 694.3 617.3 397.3
Total value Addition 1087.4 1132.4 1126.7 1052.8 824.6
Preference Dividend 0 0 0 0 0
Equity Dividend 76.9 89.8 141.1 80.6 73.3
Corporate Dividend Tax 12.6 14.5 23.2 13.7 12.4
Per Share Data (annualized)
Share in issue (lakh) 6414.9 6414.9 6414.9 6414.9 3665.6
Earning per share (Rs) 6.9 7.8 10.8 9.6 10.8
Equity Dividend (%) 60 70 110 110 100
Book Value (%) 47.6 42.1 35.7 27.2 33.4

Because of the company rules and regulation This balance sheet is based on approx based. Actually
balance sheet is different to the actual balance sheet.

. Financial Ratios: SS Enterprises financial performance and health can be inferred by computing
the financial ratios. Typical ratios consist of: • Liquidity Ratios (such as quick and current ratios).
The purpose of measuring these ratios is to evaluate the company's short-term financial standing.
They demonstrate the company's capacity to fulfil its present commitments using its available
resources.

Liquidity Ratio
 Liquidity ratios are financial metrics that assess a company's ability to meet its short-term
obligations with its most liquid assets. These ratios provide insights into a company's short-term
financial health and its ability to cover immediate financial needs. They are essential for creditors,
investors, and management to evaluate the company's liquidity risk.
Here are two common liquidity ratios:
1. Current Ratio:
• Formula: Current Ratio = Current Assets / Current Liabilities
• Meaning: The current ratio measures a company's ability to cover its short-term liabilities
with its short-term assets. A ratio greater than 1 indicates that a company has more current
assets than current liabilities, suggesting it can meet its short-term obligations. However, a
very high current ratio may indicate that a company is not efficiently using its assets to
generate revenue.
2. Quick Ratio (Acid-Test Ratio):
• Formula: Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current
Liabilities
• Meaning: The quick ratio provides a more stringent measure of a company's short-term
liquidity by excluding inventory from current assets. It focuses on assets that can be quickly
converted to cash. Like the current ratio, a quick ratio greater than 1 suggests that a
company can cover its short-term liabilities. A quick ratio lower than the current ratio may
indicate that a significant portion of current assets is tied up in inventory.
These ratios are important for various stakeholders:
• Creditors: They use liquidity ratios to assess the risk of lending money to a company. Higher
liquidity ratios generally indicate a lower risk of default.
• Investors: Investors use liquidity ratios to gauge a company's ability to weather short-term financial
challenges. They also consider whether the company is efficiently using its assets.
• Management: Internal management uses liquidity ratios to monitor the company's ability to meet
day-to-day operational expenses and to make informed decisions about working capital
management.
It's important to note that while liquidity ratios provide valuable insights into short-term financial
health, they should be analyzed in conjunction with other financial metrics to get a comprehensive
understanding of a company's overall financial performance and stability. Additionally, ideal
liquidity ratios can vary by industry, so comparisons should be made within the same industry for
more meaningful insights.
1. Current Ratio = Current Assets
Current Liabilities

Current Assets = Cash in Hand, bank, Short term Investments, Bills Receivable, Sundry Debtors,
Stock, Work in progress, Prepaid Expenses etc.

Current Liabilities = Outstanding Expenses, Creditors, Bills Payable, Long term loans, Income
Tax Payable, Dividend payable, Bank OD (If Permanent)
Ideal Ratio is 2:1

For 2018 = 1752.64 = 1.38:1

1266.87

For 2019 = 2348.83 = 1.53:1

1533.62

For 2020 = 2881.06 = 1.76:1

1633.37

For 2021 = 3618.12 = 2.10:1

1716.08

For 2022 = 3806.64 = 1.89:1

2012.12
Graphical Representation

Current ratio

Current Ratios
4.5

3.5

2.5

1.5

0.5

0
2018 2019 2020 2021 2022

Interpretation

Current ratio is a measure of liquidity of a Organization at a certain date. It must be analyzed in the
context of the industry the Organization primarily relates to. The underlying trend of the ratio must
also be monitored over a period of time

In SS Enterprise India I analyze that the current ratios of different 5 years are very close to the ideal
current ratio ie. 2:1 which was the good sign for the organization
2. Quick Ratio = Quick Assets or Liquid Assets
Quick Liabilities or Liquid Liabilities

Quick Assets = Current Assets – Prepaid Expenses – Stock

Ideal Ratio is 1:1

For 2018 = 1473.21 = 1.16:1

1265.87

For 2019 = 2045.32 = 1.33:1

1533.64

For 2020 = 2473.32 = 1.51:1

1463.37

For 2021 = 3166.52 = 1.84:1

1716.05

For 2022 = 3258.36 = 1.61:1

2012.12
Graphical Representation

Current ratio

Quick Ratios
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2018 2019 2020 2021 2022

Interpretation

Quick ratio is considered a more reliable test of short-term solvency than current ratio because it
shows the ability of the business to pay short term debts immediately.

As we seen in the SS Enterprises India the ratios are quite close enough to the ideal condition 1:1
and it indicates that the organization maintain its liquidity for paying short term debts.

Cash position Ratio = Cash + Marketable Securities

Current Liabilities

Ideal Ratio 1:2

For 2018 = 446.02 = 0.35:1

 1265.70

For 2019 = 800.48 = 0.52:1

1534.64

For 2020 = 905.87 = 0.55:1

1634.37

For 2021 = 1373.05 = 0.79:1

1717.05

For 2022 = 1343.84 = 0.66:1

2013.14

Graphical Representation

Current ratio

Cash Position Ratio

4.5

3.5

2.5
2

1.5

0.5

0
2018 2019 2020 2021 2022
 Interpretation

Cash position ratios are calculated to compare the proportion of cash and short term investments
with the current liabilities.

As we seen in the financial analysis of SS Enterprises India we realize that they were in the fine
condition. Because all ratios of different years are close to the ideal condition Le. 12.

Activity Ratios –
Activity ratios, also known as efficiency ratios or turnover ratios, are financial metrics that assess how
effectively a company utilizes its assets to generate revenue and manage its operations. These ratios
provide insights into the efficiency and effectiveness of various aspects of a company's operations,
such as inventory management, accounts receivable collection, and asset utilization. Activity ratios
are crucial for understanding the operational efficiency and overall performance of a business.
Here are some common activity ratios:
1. Inventory Turnover Ratio:
• Formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
• Meaning: This ratio measures how many times a company's inventory is sold and replaced
over a specific period. A higher inventory turnover ratio generally indicates more efficient
inventory management.
2. Accounts Receivable Turnover Ratio:
• Formula: Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts
Receivable
• Meaning: This ratio assesses how well a company manages its receivables. A higher ratio
suggests that the company is collecting its accounts receivable more quickly.
3. Total Asset Turnover Ratio:
• Formula: Total Asset Turnover Ratio = Revenue / Average Total Assets
• Meaning: This ratio evaluates how efficiently a company uses its assets to generate sales.
A higher total asset turnover ratio indicates more effective asset utilization.
4. Fixed Asset Turnover Ratio:
• Formula: Fixed Asset Turnover Ratio = Revenue / Average Fixed Assets
• Meaning: This ratio focuses specifically on how efficiently a company utilizes its fixed
assets, such as property, plant, and equipment, to generate revenue.
5. Days Sales Outstanding (DSO):
 • Formula: DSO = (Accounts Receivable / Net Credit Sales) * Number of Days
• Meaning: DSO measures the average number of days it takes for a company to collect
payment after a sale. A lower DSO suggests quicker cash conversion.
Activity ratios are valuable for different stakeholders for the following reasons:
• Management: Activity ratios help management assess the effectiveness of their operational
strategies and identify areas for improvement in asset utilization and working capital management.
• Creditors: These ratios provide creditors with insights into a company's ability to generate cash
flow and meet its short-term obligations.
• Investors: Investors use activity ratios to evaluate the efficiency of a company's operations and to
assess the potential for future growth.
Analyzing activity ratios in conjunction with other financial metrics can provide a comprehensive
understanding of a company's operational efficiency and financial health. It's important to note that
the ideal levels of these ratios can vary by industry, so comparisons should be made within the
same industry for more meaningful insights.

1. Fixed Asset Turnover Ratio = Net Sales

Average Total Sales

Average Total Sales = Opening total assets + Closing Total assets

2

For 2018 = 4678.78 = 3.61:1

1295.55

For 2019 = 5395.58 = 3.49:1

1543.54

For 2020 = 6086.12 = 2.96:1

2054.46

For 2021 = 6568.01 = 2.61:1

2510.32
 For 2022 = 7135.31 = 2.47:1
2886.84

Graphical Representation

Current ratio

Fixed Asset Turnover Ratio

4.5
4
3.5 4.02
3.71 3.71
3
3.06
2.5
2
1.5
1
0.5
0.39
0
2018 2019 2020 2021 2022

Interpretation

The fixed asset turnover ratio is the ratio of net sales to net fixed assets. A high ratio indicates that
a business is: Doing an effective job of generating sales with a relatively small amount of fixed
assets A low ratio indicates that a business: Is overinvested in fixed assets.

But in SS Enterprises it is not in well condition

2. Inventory Turnover Ratio = Cost of Goods Sold

Average Stock

Cost Of Goods Sold = Opening Stocks + Purchases + Direct Expenses – Closing Stock
Average Stock = Opening Stock + Closing Stock
2

For 2018 = 3512.22 = 12.01 Times

292.41

For 2019 = 3981.1 = 11.22 Times

354.61

For 2020 = 4679.21 = 10.94 Times

427.65

For 2021 = 5397.32 = 10.81 Times

499.04

Graphical Representation

Current ratio

Inventory Turnover Ratio

4.5
4
4.02
3.5 3.71 3.71
3
3.06
2.5
2
1.5
1
0.5
0.39
0
2018 2019 2020 2021 2022

Interpretation

A low inventory turnover ratio is a signal of inefficiency, since inventory usually has a rate of
return of zero. It also implies either poor sales or excess inventory. A low turnover rate can indicate
 poor liquidity, possible overstocking, and obsolescence, but it may also reflect a planned inventory
buildup in the case of material shortages or in anticipation of rapidly rising prices.

A high inventory turnover ratio implies either strong sales or ineffective buying (the Organization
buys too often in small quantities, therefore the buying price is higher).A high inventory turnover
ratio can indicate better liquidity, but it can also indicate a shortage or inadequate inventory levels,
which may lead to a loss in business. But in SS Enterprises India it not very high it is generally bow.

3. Working Capital Turnover Ratio = Net Sales

Average Working Capital

Average Working Capital = Opening Working Capital + Closing Working Capital

2

For 2018 = 4678.80 = 36.12:1

120.96

For 2019 = 5395.58 = 23.1

229.8

For 2020 = 6086.12 = 15.07:1

403.5

For 2021 = 6568.01 = 12.41:1

528

For 2022 = 7135.29 = 10.71:1

665
 Graphical Representation

Current ratio

Working Capital Turnover Ratio

4.02
3.71 3.71
3.06

0.39

2018 2019 2020 2021 2022

Interpretation

Generally, a high working capital turnover ratio is better. A low ratio indicates inefficient
utilization of working capital The ratio should be carefully interpreted because a very high ratio
may be a sign of insufficient working capital And in SS Enterprises India it is well condition.

Profitability Ratios
Profitability ratios are financial metrics that measure a company's ability to generate profit relative
to its revenue, assets, equity, or other financial metrics. These ratios are crucial for assessing a
company's overall financial performance and its ability to generate earnings for its shareholders.
Investors, creditors, and management use profitability ratios to evaluate the effectiveness of a
company's business operations and its potential for sustainable growth.
Here are some common profitability ratios:
1. Net Profit Margin:
• Formula: Net Profit Margin = (Net Profit / Revenue) * 100
• Meaning: This ratio measures the percentage of revenue that translates into net profit. It
indicates how well a company controls its expenses and operating costs.
2. Gross Profit Margin:
• Formula: Gross Profit Margin = (Gross Profit / Revenue) * 100
 • Meaning: The gross profit margin assesses the percentage of revenue that covers the cost
of goods sold. It reflects a company's ability to produce goods or services efficiently.
3. Operating Profit Margin:
• Formula: Operating Profit Margin = (Operating Profit / Revenue) * 100
• Meaning: This ratio evaluates the percentage of revenue that represents operating profit
before interest and taxes. It provides insights into a company's operational efficiency.
4. Return on Assets (ROA):
• Formula: ROA = Net Profit / Average Total Assets
• Meaning: ROA measures the efficiency of a company in utilizing its assets to generate
profit. It indicates how well a company is using its resources to earn a return.
5. Return on Equity (ROE):
• Formula: ROE = Net Profit / Average Shareholders' Equity
• Meaning: ROE assesses the return generated for shareholders based on their equity
investment. It provides insights into the profitability of equity capital.
6. Return on Investment (ROI):
• Formula: ROI = (Net Profit / Initial Investment) * 100
• Meaning: ROI measures the return generated on a specific investment. It is often used for
evaluating the profitability of specific projects or investments.
Profitability ratios are essential for various stakeholders:
• Investors: Investors use these ratios to evaluate the financial health and performance of a
company. Higher profitability ratios are generally favorable, indicating a company's ability to
generate earnings.
• Creditors: Creditors assess profitability ratios to understand a company's ability to generate cash
flow and meet its debt obligations.
• Management: Management relies on these ratios to evaluate the effectiveness of business
strategies and identify areas for improvement in cost control and revenue generation.
It's important to note that profitability ratios should be analyzed in the context of the industry, as
different industries may have different benchmarks for what is considered a good level of
profitability. Additionally, a comprehensive analysis of a company's financial health should
consider profitability ratios alongside other financial metrics.

1. Gross Profit Ratio = Gross Profit * 100

Net Sales
For 2018 = 1111.52 *100 = 23.75%
4678.78

For 2019 = 1171.39 *100 = 21.70%

5395.78

For 2020 = 1604.17 *100 = 26.35%

6086.12

For 2021 = 1365.60 *100 = 20.79%

6568.01

For 2022 = 1485.65 *100 = 20.82%

7135.71

Graphical Representation

Current ratio

Gross Profit Ratio

4.02
3.71 3.71

3.06

0.39

2018 2019 2020 2021 2022

Interpretation
 Gross profit is very important for any business. It should be sufficient to cover all expenses and
provide for profit. There is no norm or standard to interpret gross profit ratio (GP ratio). Generally,
a higher ratio is considered better. And in SS Enterprises it is high that means the better condition
for the organization.

2. Net Profit Ratio = Net Profit After tax * 100

Net Sales

For 2018 = 397.08 *100 = 8.48%

879.79

For 2019 = 617.33 *100 = 11.44%

5395.58

For 2020 = 694.32 *100 = 11.40%

6086.12

For 2021 = 504.85 *100 = 7.68%

6568.01

For 2022 = 445.83 *100 = 6.24%

7135.29

Graphical Representation

Current ratio

Net Profit Ratio

4.02
3.71 3.71
3.06

0.39

2018 2019 2020 2021 2022

Interpretation

Net profit (NP) ratio is a useful tool to measure the overall profitability of the business. A high
ratio indicates the efficient management of the affairs of business. There is no norm to
interpret this ratio.

3. Expenses Ratio = Particular Expenses * 100

Net Sales

For 2018 = 173.63 *100 = 3.71%

4678.78

For 2019 = 200.37 *100 = 3.71%

5395.58

For 2020 = 245.25 *100 = 4.02%

6086.12

For 2021 = 201.40 *100 = 3.06%

6568.01

For 2022 = 28.04 *100 = 0.39%

7135.31
Graphical Representation

Current ratio
 Expense Ratio
4.5
4
4.02
3.5 3.71 3.71
3
3.06
2.5
2
1.5
1
0.5
0.39
0
2018 2019 2020 2021 2022

Interpretation

Expense ratio shows what percentage of sales is an individual expense or a group of expenses. A
lower ratio means more profitability and a higher ratio means less profitability. And it is quite good
condition of manufacturing expenses in SS Enterprises. It means they were not
incurred huge expenses.

Solvency Ratio
Solvency ratios are financial metrics that assess a company's ability to meet its long-term debt
obligations and remain financially stable over the long term. These ratios provide insights into a
company's capacity to cover its long-term debt and continue its operations without facing financial
distress. Solvency ratios are crucial for creditors, investors, and management as they indicate the
financial risk associated with a company's capital structure.
Here are two common solvency ratios:
1. Debt to Equity Ratio:
• Formula: Debt to Equity Ratio = Total Debt / Shareholders' Equity
• Meaning: This ratio compares a company's total debt to its shareholders' equity. It indicates
the proportion of financing that comes from debt relative to equity. A higher ratio suggests
a higher level of financial risk and leverage.
2. Interest Coverage Ratio:
• Formula: Interest Coverage Ratio = Earnings Before Interest and Taxes (EBIT) / Interest
Expense
• Meaning: The interest coverage ratio measures a company's ability to cover its interest
 expenses with its operating earnings. A higher ratio indicates a better ability to meet interest
payments, signaling lower financial risk.
Solvency ratios are important for various stakeholders for the following reasons:
• Creditors: Creditors use solvency ratios to assess the risk associated with lending to a company.
A lower solvency ratio may indicate a higher risk of default, while a higher ratio suggests a lower
risk.
• Investors: Investors use solvency ratios to evaluate a company's financial stability and assess the
potential risks associated with its capital structure. A financially stable company is generally
considered less risky.
• Management: Solvency ratios help management gauge the company's ability to meet its long-term
obligations and make informed decisions about capital structure and debt management.
It's important to note that solvency ratios are just one aspect of a company's overall financial health.
While high solvency ratios may indicate financial stability, excessively high ratios may also
suggest that a company is not leveraging its capital efficiently. It's crucial to analyze solvency ratios
in conjunction with other financial metrics and consider industry benchmarks to gain a
comprehensive understanding of a company's financial position and risk.

Debt to Equity Ratio = Total Liabilities

Shareholder’s Equity

For 2018 = 1295.50 = 17.67

73.30

For 2019 = 1701.50 = 138.3

12.30

For 2020 = 2317.40 = 188.40

12.30

For 2021 = 2703.10 = 219.76

12.30

For 2022 = 3070.50 = 249.63 = 12.30

Graphical Representation

Current ratio

Debt to Equity Ratio

2500

2000

1500

1000

500

0
1 2 3 4 5

Year Ratios
 CHAPTER:5

Data Interpretation

The process of evaluating a company's financial performance and health through the
interpretation of data from its cash flow, income, and balance sheets is known as
financial statement analysis. When interpreting data, keep the following important
factors in mind:
1. Ratios of Profitability:
• Net profit margin: Determined by dividing total revenue by net income. It shows
the amount of profit an organization makes for every dollar of sales.
• Return on Equity (ROE): Displays the yield on the equity held by shareholders. Net
income is divided by shareholders' equity to arrive at this figure.
2. Liquidity Ratios
Divide current assets by current liabilities to find the current ratio. A ratio higher
than one indicates that the business can pay its immediate debts.
• Quick Ratio (Acid-Test Ratio): This ratio is similar to the current ratio but does not
account for inventories, making it a stricter gauge of short-term liquidity.
3. Solvency Ratios: • Debt-to-Equity Ratio: Indicates the percentage of debt utilized to fund the
company's assets in comparison to the equity held by shareholders.
• Interest Coverage Ratio: Shows how much operating income a business can use to pay interest
costs.
4, Efficiency Ratios
Inventory turnover is a metric that quantifies the frequency at which a business sells and replaces
its stock over time.
• Days Sales Outstanding (DSO): Indicates the typical time frame in which money is collected
following a sale.
5. Analysis of Cash Flow:
• Operating Cash Flow Ratio: Illustrates the capacity of the business to produce cash from its main
activities.
• Free Cash Flow: This is the amount of money left over after capital expenses that can be used for
investments, debt reduction, or dividends.
6. Trend Analysis: To find trends, compare financial ratios and data across several time periods.
Seek out areas of worry, stability, or steady progress.
7. Comparative Analysis: • Examine financial data in relation to rivals or industry benchmarks.
Context is provided by knowing how the business performs in comparison to its peers.
8. Footnotes and Disclosures: Read financial statements carefully, especially the footnotes. They
offer extra details on accounting procedures, backup plans, and other pertinent information.
9. Risk Assessment: • Determine possible dangers and difficulties. This could involve
modifications to consumer behavior, hazards related to regulations, or changes in market
conditions.
10. Qualitative Factors: Take into account qualitative elements including the level of
management, market trends, and level of competition. The performance of a corporation in the
future may be greatly impacted by these elements.
Recall that there is no one-size-fits-all approach to financial analysis. For the purpose of gaining
valuable insights into the financial performance and position of a firm, a comprehensive approach
taking into account multiple elements is necessary.
 CHAPTER:6

Summary & Conclusion

Financial analysis is crucial in giving decision-makers the data and facts they need. Ratios will
function as an analysis tool in the hands of financial analysts, providing assistance in addressing
fundamental inquiries such as the how, why, and what of these claims.
Financial analysis is now taken into account heavily when making decisions. To decide what to do
and what not to do, one must analysis the facts in accordance with their needs. Therefore, I'm
attempting to analyses the facts and statistics provided in the financial statements using a brief
overview of ratio analysis in my research.
As part of my study, I have evaluated the organization's financial standing, considered the
advantages and disadvantages of several scenarios, and assessed the data. I make an honest effort
to accurately analyses and interpret the data, not withstanding certain limitations.
To the best of my knowledge, I attempted to provide the organizations with my findings and
recommendations based on the analysis and interpretation.
Ultimately, Project has been a huge assistance to me in learning about the actual world. Sincerely,
I relished the authentic spirit of this project effort.
A thorough examination of the financial accounts yields a number of important conclusions and
revelations that provide a clear picture of the performance and financial health of the business.
Based on the analysis, the following is a summary and conclusion:
1. Solvency: A moderate amount of leverage is revealed by the debt-to-equity ratio. Despite having
substantial debt, the interest coverage ratio indicates that the business should be able to comfortably
repay its interest costs from operational revenues.
2. Efficiency: Effective asset and receivables management is demonstrated by efficiency ratios like
inventory turnover and days sales outstanding. The business is effectively turning inventory into
sales and making money in a timely manner.
3. Cash Flow: The company is making enough money from its main activities to fund investments,
pay off debt, and return value to shareholders, according to the operational cash flow ratio and free
cash flow analysis.
4. Profitability: A continuously positive net profit margin shows that the business is profitable at a
reasonable level. This proposes tactics for pricing and cost management that work.
5. Liquidity: According to the liquidity analysis, the business is in a good position to pay its short-
term debts. Strong liquidity is shown by the current ratio and quick ratio, both of which are above
industry averages.
6. Risk Assessment: • Risks that have been discovered, including [name particular risks that have
been identified, like market conditions, regulatory changes], need to be continuously watched. For
long-term success, plans to reduce these risks must be developed.
7. Qualitative elements: • Taking into account qualitative elements, such as [discuss any pertinent
qualitative factors, such as industry trends, management quality], improves the analysis as a whole.
These elements are very important in determining the future of the business.
8. Recommendations: • In light of the analysis, it is advised that [provide any suggestions, including
areas that could use improvement, strategic projects, or opportunities to build on strengths]. The
company's competitive position and financial performance are intended to be improved by these
recommendations.
The financial analysis concludes that the business has sound financial management practices and
is in a healthy financial position. However, in order to overcome such obstacles and seize expansion
chances in the fast-paced corporate environment, persistent observation and aggressive measures
will be essential.
 References & Bibliography

1. I M, Pandey, financial management, (10th edition), Vikas Publication

2. https://www.superbessaywriters.com/wp-
content/uploads/2016/12/week_5_discussion_1_information_0.pdf
3. https://www.jstor.org/stable/3665113
4. https://www.sciencedirect.com/science/article/abs/pii/0165410179900077
5. https://www.jstor.org/stable/24901713