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INDUSTRY PROFILE
The ‘Indian dairy industry has made rapid progress since independence .a large number of
modern milk and milk products factories have been established. These organized dairies have
been successfully engaged in the routine commercial production of pasteurized milk and milk
products.India is the world’s largest milk producer that is certified by the ‘international dairy
industry’.
Dairy is a place where handling of milk and milk products is done and technology refers to the
application of scientific knowledge for practical purpose. Dairy technology has been defined as
that branch of dairy science, which deals with the processing of milk and manufacture of milk
products on an industrial scale.
In India, dairying has been practiced as a rural cottage industry since the remote past. Semi-
commercial dairying started with the establishment of military dairy farms and co-operative milk
unions throughout the country towards the end of the nineteenth century.
During the earlier years, each household in those countries maintained its ‘family cow’ or
secured milk from its neighbor who supplied those living closed by. As the urban population
increased, fewer households could keep cow for private use. The high cost of milk production,
problems of sanitation etc, restricted the practice and gradually the family cow in the city was
eliminated and city cattle were all sent back to the rural areas.
Gradually farmers within easy driving distance began delivering milk over regular routes in the
cities. This was the beginning of fluid milk-sheds which surround the large cities of today. Prior
to the 1850s most milk was necessarily produced within a short distance of the place of
consumption because of lack of suitable means of transportation and refrigeration. The Indian
dairy industry has made rapid progress since Independence. A large number of modern milk
plants and products factories have since been established. These organizes dairies have been
successfully engaged in the routine commercial production of pasteurized bottle milk and various
Western and Indian dairy products. With modern knowledge of the protection of milk during
transportation, it became possible to locate dairies where land was less expensive and crops
could be grown more economically.
In India, the market milk technology may be considered to have commenced in 1950, with the
functioning of the Central Dairy of Aarey Milk Colony and milk product technology in 1956
with the establishment of AMUL Dairy, Anand. The industry is still in its infancy and barely
10% of our total milk production The most valuable resources that a dairy business can have are
reliable and productive workers. Today’s tight labor market means that workers have many
employment choices. Dairy producers need to do all they can to keep their best employees and
attract other excellent workers to their team.
COMPANY PROFILE
Milma is the popular name given to Kerala Co-operative Milk Marketing Federation
(KCMMF).Milma started its operation in 1980 with its head office at Thiruvananthapuram. It
was started under the Indo-Swiss project. The project was launched in 1963 on the basis of a
bilateral agreement executed between the Swiss Confederation and the Government of India. The
project has made great strides in the improvement of livestock farming in the state. One of them
is the development of Swiss Brown, a cross breed suited for the states conditions. The project is
now managed by the Kerala Livestock Development and Milk Marketing Board. It main motive
was to implement the Operation Flood programme started by the National Diary Development
Board (NDDB) in Kerala.
The project impact was so widespread that close to about 83%of the adult cattle to the state got
converted to the new breed- Sunandini, the milk production increased by over ten times and the
availability of milk increased by over 7 times with over a million families dependant on milk
production. The project has succeeded in integrating better technology and management to the
traditional small holder production system. It also demonstrated how the high productive, semi
stall fed cows led to a spontaneous decline in the total bovine population of the state from 34.6
lakh in 1977 to 21.86 lakh in 2003 when the total bovine population of India went through an
upsurge. This contributed immensely to environmental sustainability. By demonstrating a growth
model for productivity enhancement, the productivity enhancement, the project not only
impacted the million small livestock in Kerala, but also millions outside the state.
The project demonstrated revolutionary institutional changes beginning with the Indo Swiss
project of Kerala, an autonomous institution under the government of Kerala Livestock
Development Board, with the formidable dairy cooperative System under the Kerala Cooperative
Milk Marketing Federation (MILMA), under the able guidance of its first managing director S.
Nagarajan IAS, spun off as successful an independent entity.
PALAKKAD DAIRY
Milma Palakkad dairy was located in Kalepully Palakkad. Palakkad dairy is one of the three
dairies under Malabar Regional Cooperative Milk producers union limited. This diary came into
existences in 1967 as Palakkad Cooperative milk supply union limited under the Madras
Cooperative societies act. But in 1978 KLD and MM Board had taken over this dairy and it was
under their control until 1983. In 1983 Kerala cooperative milk marketing federation limited
taken over this dairy from KLD and MM Board. Milma milk producers union limited taken over
this dairy and it started functioning very smoothly and achieved success is each and every step
under this dairy two milk chilling plants are also functioning one at Attapady, and other is in
Pattambi.
The name Milma represents:-
2,702 primary milk co-operative societies
7.78 lakhs farmer members
Three Regional Co-operative Milk Producers' Union
Eleven Dairies capable of handling 9.90 lakhs litres of milk per day
Thirteen Milk Chilling Centers
Two Cattle Feed Plants with cumulative capacity of 600MT per day
One Milk Powder Plant of 10MT per day capacity
A well established Training Centre
5,200 retail outlets
Over 32,000 people working either directly or indirectly for the functioning of Milma.
MISSION
“FARMERS PROSPERITY THROUGH CONSUMER SATISFACTION”
VISSION
“To bring about socio economic development of dairy farmers on a sustainable basis and
providing quality of milk and milk products to the customers at a reasonable price”
PUNCHLINE
“THE GOODNESS KERALA WAKES UP TO”
STRATEGY
The Motto of Co-operation, “of the people, by the people and for the people" is the foundation of
the "three tier system" followed by the organization. At the village level Milma have the Village
Milk Co-operative Societies which have the local milk producers as its members. These Village
Co-operatives unite at the Regional level and form Regional Co-operative Milk Producers'
Unions. These Unions are federated at the State level to form State Federation namely Kerala
Co-operative Milk Marketing Federation (KCMMF).
ASSOCIATES
Milma is in constant touch with other Organizations in this sector. It is only through this active
exchange that Milma grew from a small dairy co-operative to the position it holds in Kerala
today. Chief associates are:-
NATIONAL DAIRY DEVELOPMENT BOARD
NDDB, under Dr. V Kurien's guidance set up KCMMF in 1980. Ever since then, there has been
a very close co-operation between NDDB and the Federation. NDDB are the originators of the
Operation Flood Programme and have been our funding agent for the Operation Flood Projects
in Kerala.
AMUL
The Dairy Co-operatives of Gujarat have been the inspiration for the development of such a vast
network of dairy co-operatives in Kerala. Among the co-operatives in Gujarat, the Kaira District
Co-operative Milk Producers' Unions (Amul) is the first in this sector. Our Co-operatives are
called "Anand Pattern Co-operative Societies" following the illustrious lineage of "Amul".
GOVERNMENT OF KERALA
The Phenomenal success of the Dairy Co-operatives in Kerala could not have been achieved,
without the foundation of animal husbandry activities, led by the Animal Husbandry Department,
Dairy Development Department and Kerala Livestock Development Board, of the Government
of Kerala.
QUALITY POLICY
MRCMPU Ltd is committed to provide consistently safe hygienic and healthy milk and milk
products to achieve and enhance consumer satisfaction. Milma shall strive to excel in the market
leadership by achieving quality and economy in all our activities adopting quality management
system. Milma shall strive scientific approach to ensure the continual improvement in personal
and in own activities that increase value and status of its organization and its associates.
OBJECTIVES OF MILMA
• To channelize marketable surplus milk from the rural areas to urban deficit areas to maximize
the returns to the producers and provide quality milk and milk products to the consumers.
• To carryout activities for promoting production, procurement, processing and marketing of
milk and milk products for economic development of farming community.
• To build up a viable dairy industry In the state.
• To provide constant market and stable price to the dairy farmers for their produce
PRODUCT PROFILE OF MILMA
Milma has a range of products. A marketing chain consisting of nearly 4000 retail outlets, across
the state ensures availability of Milma’s products to consumers. Milma with its motto “Your
health is our concern” has become synonymous with assured quality of milk and milk products.
Milma’s spectrums of products adhere to the PFA rules and are released for distribution only
after stringent quality checks. Their products are;
• Milk
• Ice creams
• Curd
• Fat products
• Beverages
• Sweets
1.MILK
A.PASTEURIED MILK
Milma pasteurized Vitamin A enriched milk comes in 3 varieties
Fat free milk
Toned milk which contains 3.0% fat and 8.5% SNF
Standardized milk which contains 4.5% fat and 9.0 SNF
Conveniently packed in 500 ml and 1 liter sachets, the fat content range of Milma’s milk has
made it the popular health drink of young and old alike.
B. STERILISED FLAVOURED SKIMMED MILK
Prepared from the pasteurized milk and sweetened with sugar cane and flavoured with
cardamom. It is very tasty in chilled condition.
2. ICE CREAMS
Milma ice cream is available in a range of lip smacking flavours : Vanilla, Chocolate, Mango,
Strawberry, and Fruit & Nut.
3. CURD
It is a subsidiary product of Milma which is produced in dairies. Curd is an important milk
product produced from milk by the addition of cacture prepared in the laboratory to the skimmed
milk. Milma curd does not contain much fat in it but it contains 10.2 % SNF in it. The product is
generally marketed in 500 gram packets through a chain of wholesale and retail dealers. Each
packet of curd is sold to the wholesale and retail dealers. The maximum retail price is Rs.14.50
per packet.
SAMBHARAM:
Sambharam (Buttermilk) contains 4.5 percent total solids and natural flavour extracts. Ideal as
thirst quencher during hot season. Prepared under hygienic conditions using fully natural
processes. It is available in 200 ml sachets.
LASSI
It is a sweetened and flavoured product prepared from curd. It is available in 200ml pack.
4. FAT PRODUCTS
A. GHEE
Milma produces good quality, pure ghee from butter or cream at all dairies.
B.BUTTER
Milma butter prepared from the cream of milk contains 81%fat and less than 15% water
5. BEVERAGES
A.TETRA PACK FLAVOURED MILK
Milma offers a range of flavoured health drinks in hygienic tetra packs. Cardamom milk has
already captured the market and are available at all Milma outlets.
B. REFRESH
In addition to health drinks Milma also has a Mango drink in the market.
6. SWEETS
A. PEDA
An indigenous milk product manufactured by evaporating water content from a whole sale cow’s
milk.
B. CREAM ROLL
Mixtures of tasty ice cream and fruity encircled with oven fresh sponge cakes.
FUNCTIONAL DEPARTMENTS
1. Quality control/ assurance department:
Quality control department is headed by Quality Control Officer assisted by Technical
Superintendent. They check incoming and outgoing milk. Responsibilities:
Checking the quality of raw milk.
Determine the Fat and SNF level in the raw milk.
Checking the quality of milk at different sit permits during the production processes.
Ensuring quality of packed milk.
To ensure that the supplied milk satisfies the conditions stated in process of food
adulteration act, Package commodities act and Weight and measurement.
2. Production Department:
This department deals with the production activities. The production department is headed by
Technical officer (dairy).
3. Technical Department:
There is an engineering department to maintain the machines and other equipment installed for
the production process. This department is headed by Dairy Engineer. They are deals with
machinery maintenance, machinery operation, Vehicle scheduling, electricity, water and other
statutory requirements of the company.
Responsibilities:
Inspection of machineries for damage.
Repairs and maintenance of installed machines
Ordering for the new machines and replacement of parts.
Refrigerator and boiler maintenance
4. Marketing Department:
MRCMPU has a centralized marketing department for the whole region headed by marketing
manager at head office and dairy level marketing department in each unit is headed by marketing
manager at dairy.
Responsibilities
New product Development.
Forecasting of sales
Development and Execution of market development activities.
Developing of marketing strategies.
Brand management
Packaging and product development
Coordinate promotional activities
5. Finance and Accounts Department:
It is centralized department situated in the diary and headed by Assistant Finance Manager. This
department deals with financial and accounting activities of the diary.
Responsibilities:
Calculation and charging of depreciation to fixed asset
Preparation of P&L A/c and Balance sheet
Making payment to workers
Capital Management Schemes for primary co-operative societies
Liaison with government for availing government financial assistance
6. Human Resources Department:
The unit level Human Resource Department is headed by HR Manager. Activities like
recruitment of permanent staff training and development planning etc centralized in the P& A at
the head office. This department deals with accounting matters related to ranging from
recruitment to retention.
Responsibilities:
Recruitment and Selection of employees
Providing training and development programs.
Fixing compensation and other benefits.
Finalize long term wage settlement,bonus
Taking care of employee welfare activities
7. MIS and Systems Department:
Computers are widely used for information processing and other office automation functions.
Computer system are installed in diary for various purpose such as Milk billing, Financial
Accounting, Raw Milk Reception and Dispatch, Stores, Payroll, Plant Operation, Marketing etc.
All Diaries are interconnected with Management Information System (MIS).
NEED FOR THE STUDY
OBJECTIVES OF THE STUDY
Primary objectives
To analyze the financial position of Milma Palakkad
Secondary objective
To know the ability of the firm to meet its current obligations
To highlight the short comings in the area of finance with the aid of comparative analysis
and common size analysis to give recommendations with a view to increase efficiency of
the company.
RESEARCH METHODOLOGY
Research methodology is a method to solve the research problem systematically. It involves
gathering data, use of statistical techniques, interpretation and drawing conclusion about the
research data.
Research Design
Descriptive form of research method is adopted for this study. The major purpose of
descriptive research is description of state of affairs of the institution as it exists at present.
The nature and characteristics of the financial statement of Milma dairy in Palakkad has been
described in this study.
Data Collection Method
The data required for the study has been collected from secondary sources. It is collected from
the audited financial statements, annual reports of the company.
Financial Tools Used
Financial statement gives complete information about asset, liability, reserves, equity,
expenses, profit and loss of an enterprise. They are not readily understood to interested parties
like creditors, shareholders, investors. Thus, various techniques are employed for analysis and
interpretation of financial statement. Tools which are commonly used for analyzing and
interpreting financial statements are
Ratio analysis
Common size statement
Comparative financial statement
Period of Study
FINANCIAL STATEMENTS
Financial statements are the statements containing financial information of a business enterprise.
The basic purpose preparing financial statements is to convey information about financial
position of the enterprise to owners, creditors and investors. Financial statements are the
essential documents of business. These are the statements showing financial position and results
of business operation at the accounting period. These are the final products of accounting
process.
A financial statement is an organized collection of data according to logical and consistent
accounting procedures. Its purpose is to convey an understanding of some financial aspects of a
business firm. It may show a position at a moment of time as in case of a balance sheet, or may
reveal a series of activities over a given period of time, as in the case of an income statement. On
the basis of information provided in the financial statement management makes a view of the
progress of the company & decides the future course of action.
TRADITIONAL financial statement includes
Balance sheet
Profit and loss
The companies act 1956 stipulates the balance sheet of a joint stock company. However, the
statement form has been emphasized upon by accountants for the purpose of analysis and
interpretation. The balance sheet shows the financial position at the particular point of time.
That is why it is called as statement of financial position. The profit and loss account shows the
result of operation for a period of time. Profit and loss account also known as “income
statement”. There is no legal format for the profit and loss account. Therefore it can be
represented in the traditional ‘T’ form or vertically
Objective of financial statement
1.Providing information for economic decisions: The economic decisions that are taken by
users of financial statements require an evaluation of the ability of an enterprise to generate
cash and cash equivalents and of the timing and certainty of their generation.
2. Providing information about financial position:
The financial position of an enterprise is effected by the economic resources it controls. it
includes:-
Information about financial structure is useful in predicting future borrowing needs
Information is useful in predicting how successful the enterprise is likely to be raising
in further finance.
Information about liquidity and solvency is useful in predicting the ability of the
enterprises to meet their financial commitments as fall due.
3.Providing information about changes in financial position:-
The financial statement provide information concerning changes in the financial position of an
enterprise, which is useful in order to assess its investing financing and operating activities
during the reporting period.
4.Providing information about performance of an enterprise:-
It provides information about the performance and in particular its profitability, which is
required in order to assess potential changes in the economic resources that are likely to
control in future. It is also useful in forming judgments about the effectiveness with which the
enterprise might employ additional resources.
TYPES OF FINANCIAL STATEMENT
INCOME STATEMENT:-
The income statement or profit and loss account is considered as very useful statement of all financial
statements. It depicts the expenses incurred on production, sales and distribution and sales revenue and
the net profit or loss for a particular period. It shows whether the operations of the firm results in profit
or loss at the end of accounting period.
BALANCE SHEET:-
It is a statement which shows the financial position of a business as on a particular date. It represents the
assets owned by the business and the claims of the owners and creditors against the assets in the form of
liabilities as on the date of the statement.
Statement of retained earnings:-
It is also called the profit and loss appropriation account. It is a link between the income statement
and balance sheet. Retained earnings are the accumulated excess of earnings over losses and
dividends. The balance shown by the income statement is transferred to the balance sheet through this
statement after making the necessary appropriations.
Fund flow statement:-
It described the source s from which additional funds were derived and the use to which these funds
were put. It helps the financial analyst in having more detailed analysis and understanding the
changes in the distribution of resources between two balance sheet periods. The statement reveals the
sources of funds and their application of different purposes.
Cash flow statement:-
A cash flow statement depicts the changes in cash position from one period to another. It shows the
inflow and outflow of cash and helps the management in making plans for immediate future. This
statement is useful for short-term planning by management.
Schedules:-
These are the statement which explains the items given in the income statement and balance sheet.
Schedules are the part of financial statements which give detailed information about the financial
position of the business organization.
FINANCIAL STATEMENT ANALYSIS:
Financial statement analysis is defined as the process of identifying financial strengths and
weakness of the firm by properly establishing relationship between the items of balance sheet
and profit and loss account.
It is the process of identifying the financial strength and weakness of a firm from the
available accounting data and financial statement. The analysis is done by properly establishing
the relationship between the items of balance sheet and profit and loss account the first task of
financial analyst is to determine the information relevant to the decision under consideration
from the total information contained in the financial statement. The second step is to arrange
information in a way to highlight significant relationship. The final step is interpretation and
drawing of inferences and conclusion. Thus financial analysis is the process of selection relating
and evaluation of the accounting data/information.
This studying contain following analysis:
Ratio Analysis Comparative Analysis Statement Common-Size Analysis Statement Trend Analysis.
1) Ratio Analysis:
Ratio analysis is a widely used tool of financial analysis. The term ratio in it refers to the
relationship expressed in mathematical terms between two individual figures or group of figures
connected with each other in some logical manner and are selected from financial statements of
the concern. The ratio analysis is based on the fact that a single accounting figure by it self may
not communicate any meaningful information but when expressed as a relative to some other
figure, it may definitely provide some significant information the relationship between two or
more accounting figure/groups is called a financial ratio helps to express the relationship
between two accounting figures in such a way that users can draw conclusions about the
performance, strengths and weakness of a firm.
Purpose of ratio analysis
To study the short term solvency of the firm
To study the leverage position of the firm
To interpret the profitability of the firm
To identify the operating efficiency of the firm
Ratio analysis is a very powerful analytical tool useful for measuring performance of an
organization. The ratio analysis concentrates on the interrelation ship among the figures
appearing the financial statements. It also helps the management to analyze the past performance
of the firm and to make further projections.
The ratio provide an easy way to compare present performance with past.
Ratios depict the areas in which a particular business is competitively advantage.
The ratio analysis is made under 6 broad categories:-
Liquidity ratios
Leverage ratios
Asset management ratios
Profitability ratios
Operating ratios
Market based ratios
A. Short term solvency / Liquidity ratio:-
Liquidity ratio means the ability of the firm to pay off its short term liabilities. It includes the
following ratios
Current ratio:
It is the ratio of current asset to current liability. It is a measure of firm’s short term solvency. It
is also called as “Working Capital Ratio”. Standard current ratio is 2:1.
Current Ratio = Current Assets
Current Liabilities
Quick/ liquid ratio:
This ratio is also known as “acid test ratio”. Liquid ratio establishes the relationship
between quick asset and quick/current liability. Standard quick ratio is 1:1
Liquid Ratio= Liquid Assets
Liquid/Current Liabilities
Liquid Assets = Current Assets – (Stock + Prepaid Expenses)
Liquid Liabilities = Current Liability – Bank Overdraft
Absolute liquid ratio:
This ratio is also called ‘cash position ratio’, or ‘cash ratio’ or ‘super quick ratio’. This ratio
establishes the relationship between absolute liquid assets and current liabilities. Absolute
liquid assets include cash, bank and immediate releasable assets eg: marketable securities.
Standard cash ratio is 0.5:1.
Absolute liquid ratio = Cash in hand and Cash at bank + Easily Marketable Securities
Current Liabilities
A. Activity ratio
Activity ratio shows how efficiently a firm uses its available resources or assets. These
ratios indicate efficiency in asset management. These ratios indicate the speed with which
the resources are turned over or converted into sales. That is why these ratios are called
turnover ratios are:-
Inventory turnover ratio:
This ratio shows relationship between cost of goods and average stock calculated by
dividing the cost of goods sold by average inventory. It indicates the number of times the
stock is turned over converted into sales. Generally a ratio of 8 times is considered
satisfactory.
Stock Turnover Ratio = Cost of goods sold
Average Stock
Cost of goods sold = Sales- Gross Profit
Average Stock = Opening Stock + Closing Stock
2
Debtors Turnover Ratio:
Debtor’s turnover ratio explains the relationship between net credit sales and average debtors
including bills receivables. This ratio shows how quickly debtors are realized or converted
into cash. It indicates how efficiently the firm collects cash from debtors. Generally a turnover
ratio of 7 may be taken as satisfactory.
Debtors Turnover Ratio = Net Credit Sales
Average Debtors
Net Credit Sales = Gross Credit Sales – Sales Returns
Gross credit sales = Total Sales – Cash Sales
Average Debtors = Opening Debtors + Closing Debtors
2
Creditors Turnover Ratio:
This ratio shows the relationship between net credit purchases and average creditors
including bills payable. This ratio indicates the number of times the creditors are paid
Creditors Turnover Ratio = Net Credit Purchases
Average Creditors
Net Credit Purchase = Total Credit Purchase – Purchase Returns
Total Credit Purchase = Total Purchase – Cash Purchase
Average Creditors = Opening Creditors + Closing Creditors
2
Working Capital Turnover Ratio:
Current assets will change with changes in sales. his means working capital is related with
sales. The relation between sales and working capital is called working capital turnover ratio.
This ratio shows how many times working capital is turned over to produce sales. The
objective of computing this ratio is to determine how efficiently the working capital is
utilized in business. The ideal working capital turnover ratio is 7 or 8 times.
Working Capital Turnover Ratio = Net Sales
Working Capital
Net Sales = Total Sale - Sales Returns
Working Capital = Current Assets – Current Liabilities.
Fixed asset turnover ratio
Fixed asset turnover ratio establishes the relationship between net sales and fixed assets. It
measures the efficiency with which a firm is utilizing its fixed assets in producing sales. The
sales and profits of a firm is depends on how fixed assets are utilized in business. For
knowing whether fixed assets re efficiently, utilized or not, fixed assets turnover ratio is used.
Fixed Assets Turnover Ratio = Net Sales
Net Fixed Assets
A. Profitability ratio
The ability to earn profits from the efficient use of the available resources by the business
concern is known as profitability. It depends on the volume of sales, nature of cost and
proper use of financial resources. Profitability ratio means measure the ability of the firm
to earn an adequate return on sales, total assets and investment capital.
Gross profit ratio:
This is the ratio of gross profit to sales expressed as a percentage. It is also known as
gross margin. The ideal ratio is 20% to 25%.
Gross profit ratio = gross profit x 100
Net sales
Gross profit = Net sales – cost of Goods sold
Operating ratio:
Operating ratio expresses the relationship between operating cost and sales. It indicates
the overall efficiency in operating the business. The ideal operating ratio is 75% to 85%.
Operating ratio = Cost of Goods sold + Operating Expenses x 100
Net sales
Operating profit ratio:
It explains the relationship between operating profit and net sales
Operating profit ratio = Operating Profit x 100
Net Sales
Operating profit = Net sales – Cost of Goods Sold – Operating Expenses
Return on investment( ROI)
ROI is also known as ‘rate of return’ or ‘return on capital employed’. It measures the
overall profitability of the firm. It establishes the relationship between profit or return on
investment. The ideal ROI is 15%.
ROI = Profit before Interest and Tax x 100
Capital Employed
Here capital employed means gross or net capital employed. Generally net capital
employed is taken.
Net capital employed = share capital + Reserves + Debentures + other long term loans
OR
Total assets – current liabilities
Return on shareholder’s fund:
This ratio establishes the profitability from shareholder’s point of view. It is calculated by
dividing net profit after interest and tax by the shareholder’s fund.
1) Current financial position and liquidity position
2) Long – term financial position
3) Profitability of the concern
Comparative Financial Statement:
Comparative financial statement is those statements which have been designed in a way so
as to provide time perspective to the consideration of various elements of financial position
embodied in such statements. In these statements, figures for two or more periods are placed side
by side to facilitate comparison.
But the income statement and balance sheet can be prepared in the form of comparative
financial statement.
i) Comparative Income Statement:
The income statement discloses net profit or net loss on account of operations. A
comparative income statement will show the absolute figures for two or more periods. The
absolute change from one period to another and if desired. The change in terms of percentages.
Since, the figures for two or more periods are shown side by side; the reader can quickly
ascertain whether sales have increased or decreased, whether cost of sales has increased or
decreased etc.
ii) Comparative Balance Sheet:
Comparative balance sheet as on two or more different dates can be used for comparing
assets and liabilities and finding out any increase or decrease in those items. Thus, while in a
single balance sheet the emphasis is on present position, it is on change in the comparative
balance sheet. Such a balance sheet is very useful in studying the trends in an enterprise.
3) Common-Size Financial Statement:
Common-size financial statement are those in which figures reported are converted
into percentages to some common base in the income statement the sales figure is assumed to be
100 and all figures are expressed as a percentage of sales. Similarly, in the balance sheet, the
total of assets or liabilities is taken as 100 and all the figures are expressed as a percentage of this
total.
Financial statement analysis is the process of understanding the risk and profitability of a firm,
through analysis of reported financial information, by using different accounting tools and
techniques.
