FINANCIAL ANALYSIS

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DRUG STORE AND BUSINESS MANAGEMENT
FINANCIAL ANALYSIS
Mr. Maroti M. Jeurkar Lecturer, YBCP, chandrapur
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• FINANCIAL STATEMENTS
• After the preparation of the trial balance, the
  management of a business enterprise proceeds to
  get the financial statements prepared.
• The purpose of preparing financial statements is
  to enable the management to have a periodical
  review of the progress made by the enterprise and
  deal with
• The present status of investments the business.
• The results achieved during the period under
  review.
• The term Financial Statements' means the two
  statements prepared at the end of the accounting
  period of the enterprise viz, the Balance Sheet
  (statement of the present financial position) and
  Profit and Loss Account (income statement). The
  two statements together are called the final
  accounts in traditional accounting language.

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Advantages of Financial Statements 1.The
accounting information given in financial
statements made by the enterprise and then decide
about necessary course of action to be taken in
future. 2. Creditors The creditors can decide
about extending, maintain ing or restricting the
flow of their credit to the business 3. Share
holders -On the basis of financial statements,
the shareholders are in a position to judge the
future prospects of their investment and thus
decide either to sell or continue with the
ownership of their shares in the firm 4.
Employees or Unions -The employees groups or
unions can find out the present financial
condition of the firm from the financial
statements and are thus able to decide whether
the firm is in a position to pay higher wages,
bonus etc.
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• Limitations of Financial Statements
• The profit shown in Profit and Loss Account and
  the financial position revealed by the
  Balance-Sheet cannot be exactly true since these
  statements are only interim reports.
• The Balance-Sheet is affected by various factors,
  such as, fixed assets, going concern concept and
  conventions like conservatism and consistency. As
  such, the balance-sheet does not reveal the exact
  financial position of the concern as is claimed
  by it.
• Many items in financial statements are influenced
  by personal judgement. Hence the quality of
  statements therein depend on the competence and
  integrity of those who prepare it.
• Financial statements record and reveal only those
  facts which can be expressed in terms of money.
  Other important information like the working
  condition the employees, administrative set up,
  sales policies of the company, quality of
  products introduced by the company etc. find no
  mention in a Balance-Sheet.

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• PROFIT AND LOSS ACCOUNT
• Profit and loss account reveals the net profit
  earned or net loss suffered by a firm in course
  of its business operations during the accounting
  period.
• It is prepared at the end of the financial year
  of the business.
• The main purpose for which a profit and loss
  account prepared is to ascertain net profit or
  net loss from business operations.
• The net income of the current year can be
  compared with that of the previous years and
  deviations in income of different periods may be
  analysed to ascertain the factors responsible for
  such deviations.
• Such an analysis is helpful in controlling
  expenses incurred in running the business
  enterprise and in sale of goods and thus
  eliminating wastage.

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• Preparation of Profit and Loss Account On
  determining the gross profit or gross loss from
  the Trading Account, the gross profit is recorded
  on the credit side of the profit and loss account
  and gross loss is recorded on the debit side of
  the profit and loss account.
• After this, the other incomes or gains, such as,
  rent received, interest received, commission
  earned, discount received etc. are credited. The
  expenses or losses, such as, salaries, rent,
  advertisement expenses, printing, stationery
  etc., are recorded on the debit side.
• The grand total on both debit and credit sides
  are obtained. If the grand total on credit side
  is more than on the debit side, it shows a net
  profit.
• If the grand total on the debit side is more than
  on the credit side, it shows a net loss.

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Preparation of a Profit and loss account Dr
Cr
Particular Amount Particular Amount

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• Points Worth Noting in Profit and Loss Account
  Various types of items are included in a profit
  and loss account. A detailed description of some
  of these items is given below for better
  understanding as to how a profit and loss account
  is prepared
• Salaries
• Rent.
• Discount -Discount is of two types (i) Trade
  discount(ii) Cash discount
• Commission
• Printing and stationery
• Advertisement
• Carriage outwards or freight outwards
• Bad debts
• Repairs
• Drawings
• Income-tax
• Etc

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• BALANCE SHEET
• Balance sheet is a statement of accounts prepared
  for the purpose of ascertaining the exact
  financial position of the business on the last
  date of the financial year under review. It is
  called balance sheet because it is prepared on a
  sheet of ledger folio. While the assets are
  recorded on the credit side, the liabilities are
  shown on the debit side of the balance sheet.
• Uses of a Balance-Sheet
• It provides information as to the total amount of
  money involved in running the business
  enterprise.
• It shows the financial state of the business firm
  as on a particu lar date.
• It gives information regarding the nature and
  cost of the assets of the firm.
• The information regarding nature and cost of firm
  liabilities is available from a balance-sheet.

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Preparation of a Balance-Sheet Dr Cr
Liability Amount Assets Amount

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• Items generally included in a Balance Sheet are
  as under
• Current assets
• Fixed assets
• Current liabilities
• Long-term liabilities
• Investments
• Capital
• Drawings

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Balance Sheet Profit and Loss Account
Here Personal accounts and real Here shown In this account the nominal accounts are accounts are shown
It provides information regarding net profit or financial position of the business It provides information regarding net loss
It is only a statement of assets and liabilities It is ledger account which provides information about debits and credits
It is prepared on loose sheet It is prepared in bound book
It is a statement so the words To and By are not used. It is an account so the words To and By are used
The totals of both the side of the balance sheet are always equal The balance of this account indicates profit or loss of the business
It is prepared on the last date of the financial year under review. It is prepared at the end of the financial of the business.
It shows the financial position of the business enterprise on a fixed date. The account shows profit or loss made by the business as on a fixed date.
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