Report

“ROLE OF FINANCIAL STATEMENT ANALYSIS IN

INVESTMENT DECISION MAKING”
(By taking the Example of Two real estate Companies-

Shobha Ltd. And India Bulls Ltd.)

Submitted by- Diksha Pandey

 Faculty Guide Certificate

This is to certify that the dissertation titled “ROLE OF FINANCIAL STATEMENT

ANALYSIS IN INVESTMENT DECISION MAKING” is an original work of
Diksha Pandey and is being submitted in partial fulfilment for the award of a two-year,
full time

The report has not been submitted earlier to the University /Institution for the

fulfilment of the requirement of a course of study.

Signature of Faculty Guide

Date
 DECLARATION

I hereby declare that “ROLE OF FINANCIAL STATEMENT ANALYSIS

IN INVESTMENT DECISION MAKING” is the result of the project work
carried out by me under the guidance of Shrimant sir in partial fulfilment for
the award role of

I also declare that this project is the outcome of my own efforts and that it has

not been submitted to any university or Institute for the award of any other

degree Diploma or Certificate.

 Introduction

Financial analysis is the process of selecting, evaluating, and interpreting financial data and
other important details to determine a company's operating performance and financial
situation. It assesses how well a company has used its assets, both tangible and intangible, to
achieve a return on investment, reflecting overall operational efficiency. Furthermore,
financial analysis assesses a company's financial state, indicating its ability to satisfy
responsibilities such as paying interest and managing debt. Financial statements are essential
to this process since they outline the company's operations, funding, and investment
activities. These statements are valuable tools for investors and creditors, providing insights
that help them make informed judgments about credit, investments, and other commercial
activities. By providing thorough information, financial statements assist users in predicting,
comparing, and evaluating the amount, timing, and uncertainty of anticipated cash flows.
Essentially, they enable stakeholders to analyze a company's future earnings and the cash
flows they are anticipated to create, allowing for a more complete picture of its financial
health and long-term viability. Financial analysis allows for a thorough study of a company's
performance using techniques such as ratio analysis, trend analysis, and cash flow analysis,
providing a solid foundation for strategic decision-making.

Role of Financial Analyst:

A financial analyst is responsible for guiding investment decisions and strategic planning for
firms, investors, and financial institutions. They collect, analyze, and evaluate complicated
financial data to provide insights into a company's performance and market trends. This
entails analysing financial statements, market conditions, and economic factors to anticipate
future earnings, assess risk, and calculate the worth of various investments. Financial analysts
employ tools such as ratio analysis, trend analysis, and financial modelling to assess an
organization's financial health and the possibility of growth. They provide extensive reports
and presentations, making recommendations on whether to buy, hold, or sell assets, and
advising management on investment strategies, cost-cutting initiatives, and potential mergers
and acquisitions. In addition to analysing particular businesses, they may do industry analyses
to better understand competition dynamics and uncover market opportunities. Financial
analysts play an important role in ensuring that businesses and investors make informed,
strategic decisions to meet their financial objectives by delivering data-driven insights.
The balance sheet, income statement, and cash flow statement are the primary financial
statements, and each serves a specific purpose in financial analysis.

The balance sheet, also known as the statement of financial position, is a snapshot of a
company's assets, liabilities, and shareholders' equity at a given period. It reflects the
company's assets and liabilities, as well as the owners' residual interests. Assets are classified
as current or non-current, and liabilities as current or long-term. The equity portion reflects
the investors' claim once all liabilities have been resolved, providing information about the
company's financial soundness and capital structure.

The income statement, also known as the profit and loss statement, shows a company's
sales, expenses, and profits or losses for a specific time period, such as a quarter or year. It
assesses operational efficiency by emphasizing the company's ability to create profit from
sales and services. Revenues, cost of products sold, operational expenses, and net profitability
are all important factors. This statement is critical in evaluating an organization's profitability
and operational efficiency.

The cash flow statement summarizes cash inflows and outflows from operating, investing,
and financing operations. It demonstrates how effectively a company manages its finances in
order to fund operations, invest in growth, and satisfy financial obligations. The statement
divides cash flows into three categories: operational activities (daily business operations),
investing activities (asset acquisition or sale), and financing activities (raising money and
credit repayment). This statement is critical to evaluating the company's liquidity and ability
to sustain and expand its activities.

Horizontal financial statement analysis:

Horizontal financial statement analysis compares financial statements from different time
periods to uncover trends and changes in a company's financial performance. This form of
analysis allows stakeholders to understand how a company's financial measurements have
changed over time.
To put this in technical words, suppose you're examining the ratio of the company's sales
over three years. Assume revenue for years one, two, and three is $10, $12, and $8,
respectively. The horizontal analysis uses one time period's financial statement as a "base", in
this case, the first year's revenue.

The revenue from previous years is now expressed as a percentage of the base figure. So, the
ratios for years 1, 2, and 3 would be 100%, 120%, and 80%, respectively. Here, we can
observe that the company's revenue increased by 20% in year 2, but the trend swung
dramatically downward in year 3.
By comparing the business's current financial reports to its past, you can observe how the
business's growth is progressing. If the business performs better one year and worse the next,
you can analyze your operations records to determine which actions contribute to which
outcomes, and focus on the profitable ones while eliminating the ineffective ones.

Horizontal analysis can also aid with comprehending the financial statements and reports of
the company's competitors. The analysis does not have to be limited to the company's current
and previous financial statements; it can also be used to compare your company's progress
and performance to others in the market.
Vertical Financial Statement Analysis:

Vertical analysis is a way of evaluating financial statements that express each item as a
percentage of a baseline figure, allowing for easier comparison across time periods or firms.
Vertical analysis standardizes financial statements by translating absolute figures to
percentages, making it easier to compare organizations of different sizes or a company's
financial performance over time. It helps to comprehend the relative quantities of various
financial components. For example, it displays how much of a company's total revenue is
spent on operating expenses or how much debt is used to finance its total assets. It makes it
easier to analyze long-term patterns. By comparing percentages year after year, analysts can
determine if specific expenses or revenues are increasing or falling as a fraction of total data.
Author (year) Theory/ Research Data Analysis Analysis & Results
Concept Question(s)/ Methodology
Framework Hypotheses
1. Aminu Financial statement The study questions Data from the The study suggests that
Abdulrahi analysis and interpretation are: annual report of reviewing financial statements
m Olayinka are crucial for making i. How can analyzing Nestlé Nigeria Plc (FSs) is sufficient for effective
informed business financial statements are utilized for the decision-making. Firms should
decisions. The major goal help with investment Analysis and prioritize the use of FSA and
of this study is to explore decisions? Interpretation of employ a variety of ratios to
how firms could use FSA ii. How can financial the financial ratio evaluate financial performance.
and its interpretation to aid information help users using descriptive FSA should be used properly not
funding and investment make informed statistical only for investing but also in
decisions in order to avoid investment decisions? analytical tools for other areas of decision-making.
low profitability or low iii. Are FSs beneficial presentations.
investment returns. for projecting a
company's
performance?

• Any financial decision is based

2. Abdulshakour 1. What are the stages The population of on a set of correct information
Know the impact of of financial decision- the study consists of obtained from the analysis of
analyzing financial making based on all financial financial statements. The
statements on financial analyzing the decision-makers. financial decision maker in the
decision making, and Corporation's financial The study was
the degree of benefit companies after obtaining this
statements in the light based on a simple
from them, as financial of the Kingdom's information starts at the stage of
random sampling
analysis is one of the Vision 2030? method. A random making the appropriate financial
most important means 2. To what extent does sample size (70) decision. By choosing the right
upon which the results the analysis of was taken from the alternatives to maximize your
of institutions. In financial statements financial decision- return with the least risk. • The
addition, it is built upon contribute to financial makers, (68) financial statements should
in the case of future decision-making in questionnaire was contain various additional
plans, using the analysis light of the Kingdom's valid for analysis, a information needed by the
related to financial Vision 2030? rate of recovery of investor, which contributes to
statements, as it is the 3. Does the use of 97% increasing confidence in the
real database about the financial statement information received from the
company and its analysis differ analysis of the financial
resources and depending on the size statements. In addition to
movements of balances of the entity (large-
consistency in following
in it, which helps in medium-small)?
reaching sound financial accounting methods. The
4. Is there a
decisions based on clear statistically significant multiplicity of methods makes it
scientific and accurate relationship between difficult to compare a similar
analysis. 2. Identify the the use of financial institution to another. This also
financial statements and reports and financial gives an unfair picture of the
their importance to the decision-making? financial position and
institutions within the performance of the institution
framework of the and thus makes a misleading
Kingdom's vision of financial decision. • Accurate
2030. 3. Identify how information should be provided
decision-makers can on the alternatives available to
benefit from the the financial decision, in order to
analysis of financial achieve greater quality of
statements within the
financial decision and timely
framework of the
delivery of information. This
Kingdom's Vision 2030.
will increase the appropriate
decision-making and honest
information resulting from the
 analysis of the lists to enable
financial decision-makers to
make the appropriate decisions.
The overall goal is to According to Uzoagulu The purpose of this study was to
3. AMEDU, MERCY comprehend the function (1998), research This chapter look into the importance of
A of financial statements in questions assist describes the financial statements in
investing decision-making. researchers in methodologies, investment decisions, utilizing
The goal is to investigate developing procedures, and
First Bank of Nigeria Plc as a
how analytical tools assist questionnaires that act systems used for data
case study. The findings showed
prospective investors in as study tools. In this gathering during the
assessing a company's case, the following research. Given the that financial statements are
financial position, questions were asked: intricacy of including reliable instruments for making
evaluating its performance To what extent do all variables, investment decisions and
for investment purposes, financial statements sampling was used at anticipating firm performance.
determining its inform a company's all stages. To collect There is a strong positive
profitability, and assessing investment decisions? relevant data, the correlation between financial
the fundamental use of Are financial study used a survey statements and investing
financial statement statements relevant in research design decisions. They give critical
information to support anticipating a utilizing a Yes/No information, such as detailed
informed investment company's questionnaire. The records of revenue, expenses,
decisions. performance? Do they study was carried out assets, and liabilities.
determine an at the First Bank of Respondents recognized the
organization's Nigeria Plc, Anyigba value of financial statements in
profitability? Do branch, Kogi State,
guiding investment decisions.
financial statements with a sample of 70
Finally, financial statements are
entice new investors? senior staff and
These questions help functional heads. important instruments for
to guide the study's Due to time and evaluating a company's
focus. resource constraints, profitability and risk, offering
only a subset of the key information to potential
population was investors.
researched, with Taro
Yamane's (1964)
formula used to
estimate sample size.
Research Methodology

The purpose of the study

Financial Statement Analysis and Interpretation is an important tool for making smart
company decisions. The primary goal of this research is to identify how firms might use
Financial Statement Analysis and its interpretation to improve funding and investment
decisions, avoid low profitability or low investment returns, and how essential Financial
Statement Analysis are.

Other objectives-

• Examine how analytical tools might help prospective investors assess a company's financial
status.

• Analyzed the financial health of Shobha Ltd. and India Bulls Ltd. to identify potential
investment risks and losses based on ESG aspects.

• Analyze statements using various categories, including equity statements, horizontal and
vertical analysis, income statements, and balance sheets.

• Analyze the company's financial performance to inform investors, management, and

shareholders. To ensure profitability for investors, attract companies, and make easy the
examination of risk appetite to make decisions.

Balance sheet analysis, Profit and loss statement analysis, and Ratio Analysis are done to check
the performance of the two companies.

(SHOBHA LTD.)
The above table shows the balance sheet of Shobha Ltd.
 (India Bulls Ltd)

When data is available, defining range limits for project variables is a straightforward
procedure of analysing the data to arrive at a probability distribution. For example, when
looking at past observations of an occurrence, the information can be organised into a
frequency distribution. This can be calculated by aggregating the number of occurrences of
each outcome at successive value intervals. In this situation, the probability distribution is the
frequency distribution itself, but the frequencies are stated in relative rather than absolute
terms.

Shobha Ltd.

After calculating and reviewing the Balance Sheet Statement, the profit and loss statement is
equally significant in assessing the financial performance of the company's health in terms of
sustainability.
The P&L statement analysis of SOBHA Ltd.

1. The company's highest profit was INR 297 Cr. in March 2019.
2. The lowest profit is INR 62 Cr. in 2021.
3. The company prioritizes sustainable profits and maintains a positive EBITA throughout.
 (India Bulls Ltd.)
The above table shows the Profit and Loss account of India Bulls Ltd.

INDIABULLS Ltd.'s P&L statement analysis shows that-

1. The company's biggest profit was INR 2360 Cr. in March 2018.
2. The lowest profit was INR -132 Cr. in 2022 and 2023.

Additionally,

Ratio Analysis
Ratio analysis is extremely valuable for gaining deeper insights into a company's operations and
finding and reporting potential problems or opportunities. It also helps with budgeting and planning
for future endeavors.
The data analysis for both companies shows the following ratios:

 current ratio,
 quick ratio,
 debt to equity ratio,
 return on capital employed,
 return on equity,
 and interest coverage ratio.
Diversification helps to spread risk across multiple assets, decreasing the impact of poor
performance in a single investment on the entire portfolio. The risk factor can be estimated,
and therefore—
1) Ratio analysis of Shobha Ltd., GDP, Indiabulls Ltd., and Reality Index identifies
growth-related factor ratios.
2) The ratios identify characteristics that correlate positively with one another while
negatively affecting protective factors. In other words, those with some variables are
more likely to experience additional risk factors, whereas they are less prone to possess
protective factors.

HORIZONTAL ANALYSIS
As the Corporate Finance Institute puts it: "Horizontal analysis is an approach used to analyze
monetary statements by comparing particular financial data for an accounting period with information
from other periods."
Horizontal financial statement analysis is essentially a historical comparison of the company's current
financial health and performance to its previous records. When it comes to comprehending financial
records and reports, horizontal analysis is one of the most effective techniques to extract meaningful
data for decision-making.
 Horizontal analysis of India bulls Ltd.

Horizontal Analysis of Shobha Ltd.

 According to the Horizontal Analysis, SOBHA Ltd.'s Net Profits increased by 179%.

 INDIABULLS Ltd.'s trade receivables have increased in recent years, causing delays
in the cash cycle, etc.

 The study can also be used to compare a company's progress and performance to that of
others in the market before making a choice.

 Shobha Ltd's EPS increased by 178% in March 2022.

Horizontal analysis can also assist you in comprehending your competitors' financial accounts and
reports. The analysis does not have to be limited to the company's current and previous financial
statements; it can also be used to compare your company's progress and performance to others in the
market.

VERTICAL ANALYSIS
According to Datarails, vertical analysis is a method of comprehending financial statements
and reports that presents each line on the financial statement as a percentage of another item
on the financial sheet.
Technically, it implies picking a "base" as a fixed point of reference from the financial sheet's
elements and then displaying other items as base ratios. Historical analysis compares
financial statements from different time periods. As demonstrated in the following figures-

Vertical analysis of Shobha Ltd.

Vertical analysis of India Bulls Ltd.

The primary objective is to assess a company's performance or value using its balance sheet,
income statement, or statement of cash flows.
 Investors can gain a more sophisticated understanding of a company's financial
profile by employing a variety of methodologies, such as horizontal, vertical, or ratio
analysis.
  To assess a company's profitability and shareholder value, analysts may examine
several income statement ratios.
For instance, the gross profit margin will display the difference between revenues and
costs of items sold. A higher gross profit margin compared to competitors can be a
favourable indicator for the company.
 During a horizontal review of the company's operating trends, analysts may notice an
increase in the gross profit margin across nine fiscal quarters.

A survey was conducted to determine the influence/behaviour of these statement analyses on

investors and what their potential responses would be.
The survey included numerous questions designed to draw conclusions from the perspectives
of individual investors.
The present poll contains a question about individual interest in investing in India Bulls Ltd
and Shobha Ltd.

The collected responses helped to form the conclusion in the results.

Research Type:

1. Empirical Research:

 Quantitative Research: A study that employs quantitative data and statistical

analysis to explore the relationship between mergers and acquisitions and financial
performance is classified as quantitative empirical research. Methods such as event
studies, difference-in-differences approaches, and regression analysis may be used.

2. Scope of research:

 Descriptive research: It involves describing the existing condition of Adjusted

closings in the Real Estate industry and their impact on financial performance without
a clear hypothesis or causal analysis.

 Explanatory research: It aims to explain causal links between the Reality Index and
specific financial performance metrics, identifying underlying mechanisms and
variables, it would be classified as explanatory study for the outcome.

 Data Collection Method:

• The study uses secondary data from chosen units' annual reports.
• Primary data is collected through a survey.
• Data on the history, growth, and development of the real estate business from 2013
to 2023, sourced from "Money Control" and official company statements provided by
Shobha Ltd. and IndiaBulls Ltd.

 Data Analysis Methods:

 MS Excel was employed as a statistical tool.
 This study is based on ratio analysis and the comparison of two real estate companies.

Limitations:

The analysis is confined to FSs and relies on data published by Shobha Ltd. and
IndiaBulls Ltd. from 2013-2023.

Contribution:

This report helps investors make informed investing decisions.

 CONCLUSION

The study concludes that financial statement analysis is adequate for effective decision
making and that firms should pay close attention to the use of financial statement analysis to
properly equip themselves with this tool, as well as a combination of different ratios should
be used in analysing a firm's financial performance. Financial Statement Analysis should be
used properly not only for investing but also for other decision-making purposes.
 Results:

Various analytical approaches are utilized to assess FSA and make investment decisions.
The profit and loss account shows that Sobha Ltd performed better than IndiaBulls Ltd.
It is also noted that even after a thorough review of the financial statements, there are
numerous additional elements that may impact the decision-making of investors.

• While different analyses have varying impacts on investment decisions, statement

analysis has a significant impact.

• Indiabulls outperforms Shobha Ltd. at managing their current ratio based on data from the
past decade.

In a peer comparison, Indiabulls Ltd. has a negative P/E ratio, whereas Shobha Ltd. has a
positive ratio of 60 points.

• While different analyses have varying impacts on investment decisions, statement analysis
has a significant impact.

• Analyzing diverse companies' financial statements to identify distinctive trends that

influence investing decisions.

• Diversification spreads risk across multiple assets, minimizing the impact of poor
performance in a single investment on the entire portfolio.

• The risk factor can be assessed alongside with the statement analysis to take investment
decisions.

• Calculate the risk factor alongside the statement analysis to make informed investment
decisions.
 REFERENCES

https://www.researchgate.net/publication/361292771_Financial_statement_analysis_as_a_tool_for_in
vestment_decisions_and_assessment_of_companies'_performance

https://osjournal.org/ojs/index.php/OSJ/article/view/2260/291
https://pub.abuad.edu.ng/Open_Access_Research_Projects_of_Universities_-
_Batch_1/Accounting/ROLE%20OF%20FINANCIAL%20STATEMENT%20IN%20INVESTMENT
%20DECISION%20MAKING.pdf