CHAPTER 1

INTRODUCTION OF FINANCIAL POSITION

1.1 Introduction

The statement of financial position (sometimes called the balance sheet) is a statement
that presents an entity's assets, liabilities and equity (net assets) at a given point in time (i.e., as at
a specific date). During the early era of financial reporting standard setting, throughout the
nineteenth century and first half of the twentieth century, the emphasis of legislation was almost
entirely on the statement of financial position but by the mid-twentieth century owners were
asking for more and more information about operating performance, leading to presentations of
an increasingly complex income statement (sometimes called the profit and loss account).

There is a continuing tension between the two financial statements, since—because of

double entry bookkeeping conventions—they are linked together and cannot easily serve
differing objectives. The stock markets look primarily at earnings expectations, which are largely
based on historic performance, as measured by the income statement.

Definition

Statement of Financial Position, also known as the Balance Sheet, presents the financial
position of an entity at a given date. It is comprised of three main components:
Statement of Financial Position helps users of financial statements to assess the financial
soundness of an entity in terms of liquidity risk, financial risk, credit risk and business risk.

1.2 Classification of Components

Assets

An asset is something that an entity owns or controls in order to derive economic

benefits from its use. Assets must be classified in the balance sheet as current or non-current
depending on the duration over which the reporting entity expects to derive economic benefit
from its use. An asset which will deliver economic benefits to the entity over the long term is
classified as non-current whereas those assets that are expected to be realized within one year
from the reporting date are classified as current assets.

Liabilities

A liability is an obligation that a business owes to someone and its settlement involves
the transfer of cash or other resources. Liabilities must be classified in the statement of financial
position as current or non-current depending on the duration over which the entity intends to
settle the liability. A liability which will be settled over the long term is classified as non-current
whereas those liabilities that are expected to be settled within one year from the reporting date
are classified as current liabilities.
Equity

Equity is what the business owes to its owners. Equity is derived by deducting total
liabilities from the total assets. It therefore represents the residual interest in the business that
belongs to the owners.

Rationale - Why the balance sheet always balances?

The balance sheet is structured in a manner that the total assets of an entity equal to the
sum of liabilities and equity. This may lead you to wonder as to why the balance sheet must
always be in equilibrium.

Assets of an entity may be financed from internal sources (i.e. share capital and profits) or
from external credit (e.g. bank loan, trade creditors, etc.). Since the total assets of a business
must be equal to the amount of capital invested by the owners (i.e. in the form of share capital
and profits not withdrawn) and any borrowings, the total assets of a business must equal to the
sum of equity and liabilities.

This leads us to the Accounting Equation: Assets = Liabilities + Equity

1.3 Purpose & Importance

Statement of financial position helps users of financial statements to assess the financial
health of an entity. When analyzed over several accounting periods, balance sheets may assist in
identifying underlying trends in the financial position of the entity. It is particularly helpful in
determining the state of the entity’s liquidity risk, financial risk, credit risk and business risk.
When used in conjunction with other financial statements of the entity and the financial
statements of its competitors, balance sheet may help to identify relationships and trends which
are indicative of potential problems or areas for further improvement. Analysis of the statement
of financial position could therefore assist the users of financial statements to predict the amount,
timing and volatility of entity’s future earnings.

1.4 OBJECTIVES OF THE STUDY

 To analyse the financial performance of the FUTURE GENERALIINDIA INSURANCE

COMPANY with the help of ratio analysis.

 To analyse the profitability position of the FUTURE GENERALIINDIA INSURANCE

COMPANY.
 To find the cash flow statement of the FUTURE GENERALIINDIA INSURANCE
COMPANY with the help of balance sheet.
1.5 SCOPE OF THE STUDY
This study helps to understand the detailed profile of the FUTURE
GENERALINDIA INSURANCE COMPANY LTD .This study tries to make an attempt to
understand the progress and problems of the FUTURE GENERALINDIA INSURANCE
COMPANY LTD. This study helps to understand, analyze an need interpret the basic concepts
of financial statement of the FUTURE GENERALINDIA INSURANCE COMPANY LTD.

1.6 SIGNIFICANCE OF THE STUDY

This study focuses on profitability and solvency position of the company. It covers
the two financial performance of the FUTURE GENERALINDIA INSURANCE COMPANY
LTD. For the success of present study data was collected mainly from the secondary data. Under
this study it has applied to compare the comparative balance sheet to know the difference
between two years. This study is applied ratio analysis to know the efficiency of the company.
This study also applied trend analysis to find the profit from the sales and stock of the company.

1.7 LIMITATIONS OF THE STUDY

 This study is based on the information given in the secondary data.
 A decision regarding the financial efficiency is based on the ratio
calculation which depends on their financial statement.
 This study is framed within the limited period of time.
 This study cannot be compared to other company.

1.8 FINANCIAL TOOLS

● Ratio analysis
● Cash flow statement
● Comparative balance sheet

RATIO ANALYSIS

Ratio analysis is the comparison of line items in the financial statements of a

business. Ratio analysis is used to evaluate a number of issues with an entity, such as its
liquidity, efficiency of operations, and profitability. This type of analysis is particularly useful to
analysts outside of a business, since their primary source of information about an organization is
its financial statements. Ratio analysis is less useful to corporate insiders, who have better access
to more detailed operational information about the organization.
● Determine liquidity or Short-term solvency and Long-term solvency.
● Short-term solvency is the ability of the enterprise to meet its short-term
financial obligations.
 ● Long-term solvency is the ability of the enterprise to pay its long-term liabilities
of the business.

The financial ratio can be broadly categorized into four categories. They are as follows:
● Profitability Ratios
● Solvency Ratios

CASHFLOW STATEMENT
A cash flow statement is a financial statement that provides aggregate data regarding
all cash inflows a company receives from its ongoing operations and external investment
sources. It also includes all cash outflows that pay for business activities and investments during
a given period.

COMPARATIVE BALANCE SHEET

A comparative statement is a document used to compare a particular financial statement
with prior period statements. Previous financials are presented alongside the latest figures in
side-by-side columns, enabling investors to identify trends, track a company's progress and
compare it with industry rivals.

 The balance sheet showing the financial position of the entity as of more than one
balance sheet date. (2018-2019)-(2019-2020)
 The statement of cash flows showing the cash flows for more than one period.

1.9 CHAPTER SCHEME

 Chapter I : Introduction of the financial statement.

 Chapter II : Review of literature.
 Chapter III : Profile of the company.
 Chapter IV : Data analysis and interpretation.
 Chapter V : Findings, suggestions and conclusions.
 CHAPTER 2
2.1 REVIEW OF LITERATURE

l) south Asia network of economic research institute report on "Impact of financial crisis on
Textile industry of Pakistan" (201 1) March by Imran Alam states when developing countries
saw record declines in their stock markets. These declines were registered in those sectors were
dependent on the markets of developed world. Its repercussions were seen in developing
countries also. Ongoing financial crisis has affected them through many channels. However,
exports, employment and investment are suspected to be affected most. Textile sector is the most
important sector of Pakistan's economy, contributing about 57% to the export earnings and 46%
to the employment. The results revealed that rising unemployment rate; high cost of production,
lower demand and exchange rate volatility in foreign countries had Unpleasant impact on
Pakistan's export indents. The main cause of the above-mentioned deteriorating conditions is said
to be the ongoing financial crisis.

2) Kumar and Kulkarni (2012) had conducted analysis of the Gujarat textile industry with
reference to working capital evaluation on selected five company for the eleven years and
performed ratio analysis, descriptive statistics etc. Various ratios like current and quick ratio,
current asset on total asset, sales, turnover etc. were analyzed with the help of ANOVA and the
study concluded that the financial performance of all the selected companies was sound and
effective.

3) Raihan, presents the textile and clothing industry of Bangladesh: in a changing world
economy. The growth in this sector, and other small and medium scale enterprises, undoubtedly
has a positive effect on national economic development but there are also negative implications.
The textile industry in Bangladesh has grown in an unplanned manner and a critical demand
supply gap has arisen for both yarn and fabric. The crisis will naturally deepen unless appropriate
backward linkages, the incorporation of the fundamental steps in the textile industry all through
to the RMG industry, can be built to meet the rapidly approaching challenges in the global textile
market. As the population is growing and the standard of living is increasing in Bangladesh, the
demand for textiles is increasing rapidly. This presents an urgent need to dramatically increase
capacities in spinning, weaving, knitting, and dyeing, printing, and finishing sub-sectors. This
will require the adoption of the most modern and appropriate technology to ensure quality
products at competitive prices.

4) Ahmed, analyzed the Financial Reporting Practices in the Textile Manufacturing Sectors Of
Bangladesh' the study used ordinary least squares (OLS) regression model to examine the
relationship between dependent variable and independent variables. The factors are Proportion of
independent non-executive directors (INDs), board size, and board audit Committee, ownership
structure, Profitability and firm size. The extent of voluntary disclosure level is measured by
using 68 items of information. Data have been taken from annual reports of 21 listed Textile
Manufacturing Companies in DSE of Bangladesh-2010. The result shows a positive association
between board size and voluntary disclosure and also total assets with voluntary disclosure. In
contrast, the extent of voluntary disclosure is negatively related to the ownership structure.
5) Rakesh and Kulkami (2012) analyzed the Gujarat textile industry working capital evaluation
on selected five company for the eleven years and performed ratio analysis, descriptive statistics
etc. The study concluded with all the company financial performance with sound effective as
well as current and quick ratio, current asset on total asset, sales, etc. arc analyzed with the help
of hypothesis and used ANOVA. In this research also, researcher followed this attribute.

6) Nusrat and Assocham (2018) analyse the performance of sector analysis on 28 textile from
Mumbai Stock Exchange with the attributes of net sales, net profit; interest cost, raw tutorial,
power and fuel cost.

7) virambhai (2010) textile industry productivity and financial efficiency focused on industry’s
current position and its performance. It concluded the company/management should try to
increase the production, minimize the cost and operating expenses, exercise proper control on
liquidity position, reduction of power, fuel, borrowing funds, overheads, interest burden, etc.

8) Ajay Kumar (2011) discussed on Indian textile industry analysis with inflation, textile
production, sales, Income, PAT, Income, etc. and found the export and import performance in
the crisis period.

9) Shruti Jhawar (2009) prescribed the Indian textile industry mission, vision, history of textile
industry in addition; it discussed the case study of textile industry performance evaluation etc.

10) Swaran and Bansal (2010) evaluated on co-operative sector comparative study and
performed working capital management and used ratio analysis, t-test and operating cycle
analysis etc. it concluded with both sectors should concentrate on their liquidity and current
assets utilization and concentrates working capital management techniques, implementation,
profitability measures etc.

Reference:

l) Report of South Asia network of-economic research institute (2011), "Impact of financial
crisis on Textile industry of Pakistan.

2) D.N., Porter, D.C and Gunasekar, S. (2012). Basic Econometrics (5thed.). New Delhi, ND.
McGraw Hill education.

3) M. S. Raihan, "The textile and clothing industry of Bangladesh: In a changing world

economy," Centre for Policy Dialogue, Report No. 18, 1999.

4) A. A. A. Ahmed, "Financial reporting practices in the textile manufacturing sector of

Bangladesh," ABC Journal of Advanced Research, vol. 3, pp. 2312-203X (e), 2014.

5) Rakesh Kumar Manjhi and Kulkarni, S.R, (2012), Working Capital Structure and Liquidity
Analysis: An empirical research on Gujarat Textiles Manufacturing Industry, Indian Journal of
Finance, Vol-6 (8), pg.: 25-35.

6) Nusrat Ahmed and Assocham Research Bureau (2008), Assocham Financial Pulse Study
Quarterly Performance Analysis of Textile Sector, ASSOCHAM.
7) Virambhai S. Zala (2010), "A study of productivity and financial Efficiency of textile
industry of India," under the guidance of Shailesh J. Parmar, Saurashtra University, Rajkot.

8) Ajay Kumar (2011 State of Indian Textile Industry, Quarter ending December-2011,
Confederation of Indian Textile Industry

9) Shruti Jhawar (2009), Reconnmending possible solutions to revive the Indian Textile
Industry, Thakur Institute of Managetnent Studies and research, Mumbai.

1()) Swaran Singh and Bansal (201 Managetnent of Working Capital in IFFCO and KRIBHCO-
A Comparatiye Study, Indian Journal Finance.
 CHAPTER 4
ANALYSIS & INTERPRETAION
RATIO ANALTSIS
LIQUIDITY RATIO:
The liquidity ratio is a key metric used to measure an enterprise’s ability to meet its
debt obligation and is used often by prospective business lenders. The solvency ratio indicates
whether a company’s cash flow is sufficient to meet its shot and long-term liabilities. The lower
a company’s solvency ratio, the greater the profitability that it will default on its debt obligations.
Here we are going to see about short-term solvency ratios of the company. They are as follows:

o Current ratio
o Liquid ratio (or) Acid Test ratio
o Absolute liquid ratio

CURRENT RATIO:

The current ratio is a liquidity ratio that measures a company’s ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on it balance sheet to satisfy its current debts and other payables. It
compares a firm current assets and liabilities.

Current Ratio = Current Assets / Current liabilities

TABLE SHOWING CURRENT RATIO OF THE COMPANY

Particulars 2016-2017 2017-2018 2018-2019

Current assets 414.04 416.49 407.75
Current liabilities 443.69 459.93 442.94
Current ratio (in times) 0.93 0.90 0.92

Interpretation:

The Current ratio of the company was high in the year 2016-2017 at 0.93 and was low in the
year 2017-2018 at 0.90 and 2018-2019 at 0.92. The standard ratio of the company is if it exceeds
it is sound financial position.
 LIQUIDRATIO:

The term "liquidity" refers to the ability of a firm to pay its short-term obligation as
and when they become due. The term quick assets or liquid assets refers current assets which can
be converted into cash immediately it comprises all current assets except stock and prepaid
expenses it is determined by dividing quick assets by quick liabilities.

Liquid ratio = liquid assets / liquid assets

TABLE SHOWING LIQUID RATIO OF THE COMPANY

Particulars 2016-2017 2017-2018 2018-2019

Liquid assets 414.04 416.49 407.75
Liquid liabilities 443.69 459.93 442.94
Liquid ratio (in times) 0.93 0.90 0.92

Interpretation:

The Liquid ratio of the company was high in the year 2016 - 2017 at 0.93 and was low in
the year 2017-2018 at 0.90 and 2018-2019 at 0.92. The standard liquid ratio of the company is

ABSOLUTE LIQUIDITY RATIO:

Absolute liquid assets include cash, bank, and marketable securities. The ratio
obtained by dividing cash and bank and marketable securities by current liabilities.

Absolute liquid assets = cash + bank + marketable securities / current liabilities.

TABLE SHOWING ABSOLUTE LIQUID RATIO OF THE COMPANY

Particulars 2016-2017 2017-2018 2018-2019

cash 16.09 15.74 17.83
current liabilities 443.69 459.93 442.94
Absolute liquid 0.036 0.034 0.04
ratio (in times)
Interpretation:

The Absolute liquid ratio of the company was high in the year 2016-2017 at 0.036 and
was low in the year 2017-2018 at 0.034 and 2018-2019 at 0.04. The standard absolute liquid
ratio of the company is

Debt equity ratio:

The debt equity ratio establishes the relationship between shareholders and out siders
funds. Outsider’s funds include all long-term and short-term debts shareholders funds consist of
preference share capital, equity share and resave surplus.

Debt Equity ratio = Debt/Equity

TABLE SHOWING ABSOLUTE LIQUID RATIO OF THE COMPANY

Particulars 2016-2017 2017-2018 2018-2019

debt 327.02 283 257
equity 171.14 176.51 189.39
Debt Equity ratio 1.91 1.6 1.35

Interpretation:

The Debt Equity ratio of the company was high in the year 2016-2017 at 1.91 and was
low in the year 2017-2018 at 1.35 and 2018-2019 at 16. The standard debt equity ratio of the
company is