A

SYNOPSIS REPORT

ON

FINANCIAL STATEMENT ANALYSIS

AT

RELIANCE INDUSTRIES LIMITED

Submitted

By

: PHANINDRA

H.T.NO: ***

PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

Department of Business Administration

 AURORA’S PG COLLEGE

PEERZADIGUDA

(Affiliated to Osmania University)

2023-2024

Aurora’s PG College , PEERZADIGUDA

Department of Management

SYNOPSIS

Title of the Project : FINANCIAL STATEMENT ANALYSIS

Student Name : PHANINDRA

Hall Ticket Number : ***

Signature of the Student :

Signature of the Guide :

 INDEX
. No. CONTENTS Page No

1 TITLE OF THE PROJECT

2 STATEMENT OF THE PROBLEM

3 INTRODUCTION

4 AIMS AND OBJECTIVES

1) NATURE OF THE STUDY
2) SCOPE OF THE STUDY
3) DATA COLLECTION METHODS
4) TOOLS FOR ANALYSIS
5) CHAPTERISATION
Introduction

The study of financial statement is prepared for the purpose of

presenting a periodical review or report by the management of and deal with the
state of investment in business and result achieved during the period under
review. They reflect the financial position and operating strengths or
weaknesses of the concern by properly establishing relationship between the
items of the balance sheet and remove statements.

Financial statement analysis can be under taken either by the management

of the firm or by the outside parties. The nature of analysis defers depending
upon the purpose of the analysis. The analyst is able to say how well the firm
could utilize the resource of the society in generating goods and services.
Turnover ratios are the best tools in deciding these aspects.

Hence it is overall responsibility of the management to see that the

resource of the firm is used most efficiently and effectively and that the firm’s
financial position is good. Financial statement analysis does indicate what can
be expected in future from the firm.
Meaning of Financial Statement

Financial statements refer to such statements which contains financial information about an
enterprise. They report profitability and the financial position of the business at the end of
accounting period. The team financial statement includes at least two statements which the
accountant prepares at the end of an accounting period. The two statements are: -

 The Balance Sheet

 Profit And Loss Account

They provide some extremely useful information to the extent that balance Sheet mirrors the
financial position on a particular date in terms of the structure of assets, liabilities and owners
equity, and so on and the Profit and Loss account shows the results of operations during a
certain period of time in terms of the revenues obtained and the cost incurred during the year.
Thus the financial statement provides a summarized view of financial position and operations
of a firm

Meaning of Financial Statement analysis

The first task of Financial Statement analysis is to select the information relevant to the
decision under consideration to the total information contained in the financial statement. The
second step is to arrange the information in a way to highlight significant relationship. The
final step is interpretation and drawing of inference and conclusions. Financial statement is
the process of selection, relation and evaluation.
Features of Financial Statement analysis

 To present a complex data contained in the financial statement in simple and

understandable form.
 To classify the items contained in the financial statement inconvenient and rational
groups.

 To make comparison between various groups to draw various

conclusions.

Purpose of Analysis of financial statements

 To know the earning capacity or profitability.

 To know the solvency.
 To know the financial strengths.
 To know the capability of payment of interest & dividends.
 To make comparative study with other firms.
 To know the trend of business.
 To know the efficiency of mgt.
 To provide useful information to mgt
Procedure of Financial Statement Analysis

 The following procedure is adopted for the analysis and interpretation of financial
statements:-
 The analyst should acquaint himself with principles and postulated of accounting. He
should know the plans and policies of the managements that he may be able to find
out whether these plans are properly executed or not.
 The extent of analysis should be determined so that the sphere of work may be
decided. If the aim is find out. Earning capacity of the enterprise then analysis of
income statement will be undertaken. On the other hand, if financial position is to be
studied then balance sheet analysis will be necessary.
 The financial data be given in statement should be recognized and rearranged. It will
involve the grouping similar data under same heads. Breaking down of individual
components of statement according to nature. The data is reduced to a standard form.
A relationship is established among financial statements with the help of tools &
techniques of analysis such as ratios, trends, common size, fund flow etc.
 The information is interpreted in a simple and understandable way. The significance
and utility of financial data is explained for help indecision making.
 The conclusions drawn from interpretation are presented to the management in the
form of reports.
Analyzing financial statements involves evaluating three characteristics of a company: its liquidity, its profitability, and its insolvency. A
short-term creditor, such as a bank, is primarily interested in the ability of the borrower to pay obligations when they come due. The
liquidity of the borrower is extremely important in evaluating the safety of a loan. A long-term creditor, such as a bondholder, however,
looks to profitability and solvency measures that indicate the company’s ability to survive over a long period of time. Long-term creditors
consider such measures as the amount of debt in the company’s capital structure and its ability to meet interest payments. Similarly,
stockholders are interested in the profitability and solvency of the company. They want to assess the likelihood of dividends and the growth

potential of the stock.

Comparison can be made on a number of different bases.

Following are the three illustrations:

1. Intra-company basis.
This basis compares an item or financial relationship within a company in the current year with the same item or relationship in one or
more prior years. For example, Sears, Roebuck and Co. can compare its cash balance at the end of the current year with last year’s balance
to find the amount of the increase or decrease. Likewise, Sears can compare the percentage of cash to current assets at the end of the current
year with the percentage in one or more prior years. Intra-company comparisons are useful in detecting changes in financial relationships
and significant trends.
2. Industry averages.
This basis compares an item or financial relationship of a company with industry averages (or norms) published by financial ratings
organizations such as Dun & Bradstreet, Moody’s and Standard & Poor’s. For example, Sears’s net income can be compared with the
average net income of all companies in the retail chain-store industry. Comparisons with industry averages provide information as to a
company’s relative performance within the industry.

3. Intercompany basis.

This basis compares an item or financial relationship of one company with the same item or
relationship in one or more competing companies. The comparisons are made on the basis of
the published financial statements of the individual companies. For example, Sears’s total
sales for the year can be compared with the total sales of its major competitors such as Kmart
and Wal-Mart. Intercompany comparisons are useful in determining a company’s competitive
position.

Tools of Financial Statement Analysis

Various tools are used to evaluate the significance of financial statement data. Three
commonly used tools are these:

 Ratio Analysis
 Funds Flow Analysis
 Cash Flow Analysis
  Ratio Analysis:

 Fundamental Analysis has a very broad scope. One aspect looks at the general
(qualitative) factors of a company. The other side considers tangible and measurable
factors (quantitative). This means crunching and analyzing numbers from the
financial statements. If used in conjunction with other methods, quantitative analysis
can produce excellent results.

 Ratio analysis isn't just comparing different numbers from the balance sheet, income
statement, and cash flow statement. It's comparing the number against previous years,
other companies, the industry, or even the economy in general. Ratios look at the
relationships between individual values and relate them to how a company has
performed in the past, and might perform in the future.

Meaning of Ratio:

A ratio is one figure express in terms of another figure. It is a mathematical yardstick that
measures the relationship two figures, which are related to each other and mutually
interdependent. Ratio is express by dividing one figure by the other related figure. Thus a
ratio is an expression relating one number to another. It is simply the quotient of two
numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute
figures as “so many times”. As accounting ratio is an expression relating two figures or
accounts or two sets of account heads or group contain in the financial statements.

Meaning of Ratio Analysis:

Ratio analysis is the method or process by which the relationship of items or group of items
in the financial statement are computed, determined and presented.
Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial
health and profitability of business enterprises. Ratio analysis can be used both in trend and
static analysis. There are several ratios at the disposal of an analyst but their group of ratio he
would prefer depends on the purpose and the objective of analysis.
While a detailed explanation of ratio analysis is beyond the scope of this section, we will
focus on a technique, which is easy to use. It can provide you with a valuable investment
analysis tool.

This technique is called cross-sectional analysis. Cross-sectional analysis compares financial

ratios of several companies from the same industry. Ratio analysis can provide valuable
information about a company's financial health. A financial ratio measures a company's
performance in a specific area. For example, you could use a ratio of a company's debt to its
equity to measure a company's leverage. By comparing the leverage ratios of two companies,
you can determine which company uses greater debt in the conduct of its business. A
company whose leverage ratio is higher than a competitor's has more debt per equity. You
can use this information to make a judgment as to which company is a better investment risk.

However, you must be careful not to place too much importance on one ratio. You obtain a
better indication of the direction in which a company is moving when several ratios are taken
as a group.
 Objective of Ratios:

Ratios are worked out to analyze the following aspects of business organization-

A) Solvency-
1) Long term
2) Short term
3) Immediate
B) Stability
C) Profitability
D) Operational efficiency
E) Credit standing
F) Structural analysis
G) Effective utilization of resources
H) Leverage or external financing

STEPS IN RATIO ANALYSIS:

 The first task of the Financial Statement analysis is to select the information relevant
to the decision under consideration from the statements and calculates appropriate
ratios.

 To compare the calculated ratios with the ratios of the same firm relating to the pas6t
or with the industry ratios. It facilitates in assessing success or failure of the firm.

 Third step is to interpretation, drawing of inferences and report writing conclusions

are drawn after comparison in the shape of report or recommended courses of action.

 Third step is to interpretation, drawing of inferences and report writing conclusions

are drawn after comparison in the shape of report or recommended courses of action.

Pre-Requisites to Ratio Analysis:

In order to use the ratio analysis as device to make purposeful conclusions, there are certain
pre-requisites, which must be taken care of. It may be noted that these prerequisites are not
conditions for calculations for meaningful conclusions. The accounting figures are inactive in
them & can be used for any ratio but meaningful & correct interpretation & conclusion can be
arrived at only if the following points are well considered.
1) The dates of different financial statements from where data is taken must be same.
2) If possible, only audited financial statements should be considered, otherwise there must be
sufficient evidence that the data is correct.
3) Accounting policies followed by different firms must be same in case of cross section
analysis otherwise the results of the ratio analysis would be distorted.
4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios
must be preferred. This will be conductive to counter checks.
5) Last but not least, the analyst must find out that the two figures being used to calculate a ratio
must be related to each other, otherwise there is no purpose of calculating a ratio.

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS:

The calculation of ratios may not be a difficult task but their use is not easy.
Following guidelines or factors may be kept in mind while interpreting various ratios are

 Accuracy of financial statements

 Objective or purpose of analysis

 Selection of ratios

 Use of standards

 Caliber of the analysis

Importance of Ratio Analysis:

As a tool of financial management, ratios are of crucial significance. The importance of ratio
analysis lies in the fact that it presents facts on a comparative basis & enables the drawing of
interference regarding the performance of a firm. Ratio analysis is relevant in assessing the
performance of a firm in respect of the following aspects:
1] Liquidity position

2] Long-term solvency

3] Operating efficiency

4] Overall profitability

5] Inter firm comparison

6] Trend analysis.

1] Liquidity position: -
With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a
firm. The liquidity position of a firm would be satisfactory if it is able to meet its current
obligation when they become due. A firm can be said to have the ability to meet its short-
term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt
usually within a year as well as to repay the principal. This ability is reflected in the liquidity
ratio of a firm. The liquidity ratio is particularly useful in credit analysis by bank & other
suppliers of short term loans.
2] Long-term solvency: -

Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This
respect of the financial position of a borrower is of concern to the long-term creditors,
security analyst & the present & potential owners of a business. The long-term solvency is
measured by the leverage/ capital structure & profitability ratio Ratio analysis s that focus on
earning power & operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios,
for instance, will indicate whether a firm has a reasonable proportion of various sources of
finance or if it is heavily loaded with debt in which case its solvency is exposed to serious
strain. Similarly the various profitability ratios would reveal whether or not the firm is able to
offer adequate return to its owners consistent with the risk involved.

3] Operating efficiency:
Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of
management, is that it throws light on the degree of efficiency in management & utilization
of its assets. The various activity ratios measure this kind of operational efficiency. In fact,
the solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues
generated by the use of its assets- total as well as its components.
4] Overall profitability:
Unlike the outsides parties, which are interested in one aspect of the financial position of a
firm, the management is constantly concerned about overall profitability of the enterprise.
That is, they are concerned about the ability of the firm to meets its short term as well as long
term obligations to its creditors, to ensure a reasonable return to its owners & secure optimum
utilization of the assets of the firm. This is possible if an integrated view is taken & all the
ratios are considered together.

5] Inter firm comparison:

Ratio analysis not only throws light on the financial position of firm but also serves as a
stepping-stone to remedial measures. This is made possible due to inter firm comparison &
comparison with the industry averages. A single figure of a particular ratio is meaningless
unless it is related to some standard or norm. One of the popular techniques is to compare the
ratios of a firm with the industry average. It should be reasonably expected that the
performance of a firm should be in broad conformity with that of the industry to which it
 belongs. An inter firm comparison would demonstrate the firms position vice-versa its
competitors. If the results are at variance either with the industry average or with those of the
competitors, the firm can seek to identify the probable reasons & in light, take remedial
measures.
6] Trend analysis:

Finally, ratio analysis enables a firm to take the time dimension into account. In other words,
whether the financial position of a firm is improving or deteriorating over the years. This is
made possible by the use of trend analysis. The significance of the trend analysis of ratio lies
in the fact that the analysts can know the direction of movement, that is, whether the
movement is favorable or unfavorable. For example, the ratio may be low as compared to the
norm but the trend may be upward. On the other hand, though the present level may be
satisfactory but the trend may be a declining one.

Advantages of Ratio Analysis:

Financial ratios are essentially concerned with the identification of significant accounting
data relationships, which give the decision-maker insights into the financial performance of a
company. The advantages of ratio analysis can be summarized as follows:
 Ratios facilitate conducting trend analysis, which is important for decision making and
forecasting.
 Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability and
solvency of a firm.
 Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons.
 The comparison of actual ratios with base year ratios or standard ratios helps the management
analyze the financial performance of the firm.
Limitations of Ratio Analysis:

Ratio analysis has its limitations. These limitations are described below:
1] Information problems
 Ratios require quantitative information for analysis but it is not decisive about
analytical output.
 The figures in a set of accounts are likely to be at least several months out of date, and so
might not give a proper indication of the company’s current financial position.
 Where historical cost convention is used, asset valuations in the balance sheet could be
misleading. Ratios based on this information will not be very useful for decision-making.

2] Comparison of performance over time

 When comparing performance over time, there is need to consider the changes in price.
The movement in performance should be in line with the changes in price.
 When comparing performance over time, there is need to consider the changes in
technology. The movement in performance should be in line with the changes in
technology.
 Changes in accounting policy may affect the comparison of results between different
accounting years as misleading.

3] Inter-firm comparison

 Companies may have different capital structures and to make comparison of performance
when one is all equity financed and another is a geared company it may not be a good
analysis.
 Selective application of government incentives to various companies may also distort
intercompany comparison. Comparing the performance of two enterprises may be
misleading.
 Inter-firm comparison may not be useful unless the firms compared are of the same size
and age, and employ similar production methods and accounting practices.
 Even within a company, comparisons can be distorted by changes in the price level.
 Ratios provide only quantitative information, not qualitative information.
 Ratios are calculated on the basis of past financial statements. They do not indicate
future trends and they do not consider economic conditions.Evaluation of efficiency

 Effective tool
Objective of Study
To understand the information contained in financial statements with a view to know the strength or weaknesses of the firm and to make
forecast about the future prospects of the firm and thereby enabling the financial analyst to take different decisions regarding the operations
of the firm.

1. To study the present financial system at Reliance Industry.

2. To determine the Profitability, Liquidity Ratios, Cash flow and Fund flow statement.
3. To analyze the capital structure of the company with the help of Leverage ratio.
4. To offer appropriate suggestions for the better performance of the organization

Research Methodology

 Research is defined as a systematic, gathering recording and analysis of data about

problem relating to any particular field.
 It determines strength reliability and accuracy of the project.

1. Research Design: Research Design pertains to the great research approach or strategy
adopted for a particular project. A research project has to be the conducted scientifically
making sure that the data is collected adequately and economically.

The study used a descriptive research design for the purpose of getting an insight over the
issue. It is to provide an accurate picture of some aspects of market environment. Descriptive
research is used when the objective is to provide a systematic description that is as factual
and accurate as possible.

2. Method of Data Collection:

Secondary Data: Through the internet and published data