"Financial Insight: Unveiling the Dynamics - A Journey

Through Cash Flow and Ratios"

Certificate
This is to certify that _______________has successfully completed
the project file on cash flow statement and ratio analysis, under my
guidance and supervision.

I am satisfied with his initiative and efforts for the completion of

project file as a part of curriculum of CBSE Class XII Examination
for the academic year 2023-2024.

Place:
Date: _________________
Signature
 Acknowledgement

I want to express my gratitude to my teacher, Mr._______________ ,

for his encouragement, insightful suggestions, and mentorship. I’d
also like to extend my thanks to my principal sir, Mr.___________, for
granting me this wonderful opportunity to be part of this project.

Also, I would like to express my appreciation to all those who have

supported and contributed to the completion of this project. Your
assistance, guidance, and encouragement have been invaluable.
Thank you for being a part of this project.

Place:
Date: _________________
Signature

PREFACE
In the world of finance, understanding how to read and
interpret financial statements is a skill that will serve us well,
not just in school but in our future endeavors too. This
project on financial statement analysis, focusing on the Cash
Flow Statement and Ratio Analysis, is designed to help us
grasp these essential concepts.

Throughout this project, we'll make these complex ideas

easier to understand through examples and activities.

Let's get started on this adventure in financial analysis.

 INDEX

S.L. PARTICULAR PAGE NO

1. Introduction to Cash Flow statement and Ratio

Analysis
2. Data Collections
3. Cash Flow Statement
4. Comment on cash flow statement
5. Ratio Analysis
6. Comment on Ratio Analysis
7. Conclusion
8. Bibliography
 Introduction
To
Analysis of cash flow and Ratios.

Cash flow
A cash flow statement is a financial document that provides a summary of a
company's cash inflows and outflows over a specific period of time, typically
divided into operating, investing, and financing activities. It is a crucial tool for
assessing a company's liquidity, solvency, and overall financial health. The
overall purpose of the cash flow statement is to provide stakeholders, such as
investors, analysts, and creditors, with insights into how a company manages
its cash position and whether it generates enough cash to meet its obligations
and fund its growth. A positive net cash flow indicates healthy liquidity, while
negative cash flow may raise concerns about a company's financial stability.

Ratio analysis
Dive into the world of Ratio Analysis, where numbers tell a strategic story. Ratio
analysis is a financial tool that involves evaluating a company's performance
and financial health by examining relationships between various financial
metrics. Ratios are calculated by dividing one financial figure by another,
providing meaningful insights into aspects like profitability, liquidity, solvency,
and efficiency. Ratio analysis helps analysts, investors, and managers make
informed decisions about a company's financial condition and performance.
 Data Collections
For the purpose of this project we have taken data of Tukaram Ltd for two
consecutive years.
Balance sheet of Tukaram Ltd.

Particulars Note no. 31.03.23 31.03.22

EQUITY AND LIABILITIES
(1) Shareholders’ Fund

(a) Share Capital 120000 100000

(b) Reserve and surplus 1 120000 50000

(2) Non-Current Liabilities

(a) Long Term Borrowings 2 40000 30000

(3) Current Liabilities

(a)Short Term Borrowings 3 12000 10000

(b) Trade Payables 18000 15000

(c) Other current liabilities 10000 8000

(d) Short Term Provisions 4 20000 15000

Total 340000 228000

II. Asset
(1) Non-Current Asset

(a) Fixed asset

(i) Tangible asset 5 85000 70000

(b) Non-Current investment 15000 10000

(2) Current Asset

(a) Inventories 85000 50000

(b) Trade Receivables 50000 40000

(c) Cash and cash Equivalents 70000 30000

(d) Other current Asset 6 35000 28000

Total 340000 228000

 Statement of profit and loss

Particulars 31.03.2023 31.03.2022

Amount Amount
(₹) (₹)
Revenue from operation 250000 200000
Other income 12000 10000
Total revenue 262000 210000
Expenses
Cost of goods sold 90000 77000
Depreciation and Amortization 5000 3000
Finance cost 7000 5000
Other expenses 70000 60000
Total expenses 172000 145000
Profit before tax 90000 65000
Less: Provision for tax 20000 15000
Profit after tax 70000 50000
Less transfer to reserve 15000 10000
55000 40000

Notes to accounts
Note no Amount Amount
(₹) (₹)
31.03.2023 31.03.2022
1 Reserve and Surplus
Statement of P/L 95000 40000
General reserve 25000 10000
120000 50000

2 Long term borrowings

a) 10 % Debenture 10000 10000

b) Bank loan 30000 20000

40000 30000
3 Short term borrowings
a) Bank Overdraft 12000 10000
 4 Short term provision
a) Provision for taxation 7000 5000

5 Tangible Asset
a) Machine 85000 70000

6 Other Current Asset

a) Prepaid Expenses 35000 28000

● Additional info: Credit purchase for 2022-23 and 2021-22

were ₹ 125000 and ₹ 100000.
Solution:
Cash Flow Statement as on 31.03.2023

Particular ₹ ₹
Profit Before Tax 90000
Add: Depreciation 5000
Interest 7000 12000
Operating profit before changes in working capital 102000
Add: Increase in Trade payable 3000
Increase in other current liabilities 2000 5000
107000
Less: Increase in Inventory 35000
Increase in trade receivables 10000
Increase in Prepaid Expenses 7000 52000
Cash generated from operation. 55000
Less : Income Tax Paid 15000
Net Cash Flow from Operating Activities 40000
Cash Fow from investing Activity
Purchase of machine (20000)
Purchase of investment (5000)
Cash Fow from investing Activity (25000)
Cash Flow from Financing Activity
Proceeds from issue of share 20000
Proceeds from bank loan (long term) 10000
Proceeds from bank overdraft 2000 32000
Interest paid (7000)
Cash Flow from Financing Activity 25000

Net Changes in Cash and Cash Equivalent 40000

Add: Opening Cash and Cash Equivalent 30000
Closing cash and cash equivalent 70000

Workings
Dr. Machinery Account Cr.
Particular Amount Particular Amount
(₹) (₹)
To Balance B/D 70000 By Depreciation 5000
To Bank A/c 20000
(Purchase)
By Balance C/D 85000
90000 90000

Dr. Provision for Taxation Account Cr.

Particular Amount(₹ Particular Amount(₹
) )
By Balance B/D 15000
To Bank A/c 15000 By P/L A/c 20000
To Balance C/D 20000
35000 35000
 Graphical Representation of Cash Flow from Different Activities

Comments On Cash Flow:

● Operating Activities:
Positive Operating Cash Flows:

The company generated positive cash flows from its core operating activities, indicating
that its fundamental business operations are generating cash.

Working Capital Management:

The increase in inventories and trade receivables, along with the increase in trade
payables, suggests a strategic approach to working capital management. However,
careful attention is required to balance inventory levels (as it is increased significantly)
and ensure timely collections.

● Investing Activity:
Negative Cash Flows from Investing Activity
The purchase of fixed assets indicates capital expenditure for the expansion or maintenance of
the company's infrastructure. It's essential to monitor such investments for their contribution
to future revenue generation.

● Financing Activity:
Positive Cash Flows from Investing Activity

Share Capital Issuance: The positive cash flow from the issuance of share capital suggests
that the company raised funds through equity. This could be for funding growth initiatives or
strengthening the company's financial position.

Loan Taken: The company has also taken a long-term bank loan. From the financial statement of the
company, it is clear that its financial position is good, but it should ensure that all activities will run
smoothly in the future so that there will not be any problem repaying the loan amount.

Ratio Analysis
1. Liquidity Ratio

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡
a. Current Ratio: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

For the year 01.04.2022 to 31.31.2023 For the year 01.04.2021 to 31.31.2022

240000
= 4:1 148000
60000
48000
=3.08:1

b. Quick Ratio:
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡−𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦−𝑃𝑟𝑒𝑝𝑎𝑖𝑑 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
For the year 01.04.2022 to 31.31.2023 For the year 01.04.2021 to 31.31.2022

240000−85000−35000
= 2:1 148000−50000−28000
60000
48000
=1.46:1

Solvency Ratios
𝑙𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡
● Debt Equity Ratio = 𝑆ℎ𝑎𝑟𝑒 ℎ𝑜𝑙𝑑𝑒𝑟 𝑓𝑢𝑛𝑑

𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝐷𝑒𝑏𝑡

● Debt To Capital Employed Ratio= 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝐹𝑢𝑛𝑑
● Proprietary Ratio = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡
● Total Asset to Debt Ratio= 𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝐷𝑒𝑏𝑡
Particular 2022-2023 2021-2022
₹ ₹
Share Holder Fund
a) Share Capital 120000 100000

b) Reserve and Surplus 120000 50000

240000 150000
Long Term Debt
a) 10 % Debenture 10000 10000

b) Bank loan 30000 20000

40000 30000

Total Asset 340000 228000

Solvency Ratios 2022-2023 2021-2022

Debt To Equity Ratio 40000/240000 30000/150000

=1:6 =1:5
Debt To Capital Employed Ratio 40000/280000 30000/180000
=1:7 =1:6
Proprietary Ratio 240000/340000 150000/228000
= 0.71:1 =0.66:1
Asset to Debt Ratio 340000/40000 228000/30000
=8.5 : 1 =7.6:1

Graphical Representation of Long-Term Debt and Shareholder Fund

 Activity Ratios
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛
Inventories Turnover Ratio = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

Average inventory = (opening inventory + closing inventory)/2

𝐶𝑟𝑒𝑑𝑖𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛

Trade Receivable Turnover Ratio= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑟𝑎𝑑𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠

Average trade receivables = (opening trade receivable + closing trade receivable)/2

𝐶𝑟𝑒𝑑𝑖𝑡 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒
Trade Payable Turnover Ratio= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑟𝑎𝑑𝑒 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠

Average trade payable = (opening trade payable + closing trade payable)/2

𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛

Working Capital Turnover Ratio= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

Average Working Capital = (Opening Working Capital + Closing Working Capital)/2

Particular 2022-2023 2021-22
₹ ₹
Cost of Goods Sold 90000 77000

Average Inventories (85000+50000)/2 50000

=67500

Average trade payable (18000+15000)/2 15000

=16500

Average trade receivable (40000+50000)/2 40000

=45000

Working Capital 180000 100000

Average Working Capital (180000+100000)/2 100000

=140000
Note: In the absence of available opening balances for the financial year 2021-22,
we have made assumptions and utilized closing balances as an approximation for
the average.

Activity Ratio 2022-23 2021-22

Inventory turnover ratio 90000/67500 77000/50000
= 1.333 times =1.54 times
Trade Receivable Turnover Ratio 250000/45000 200000/40000
=5.55 times =5 times
Trade payable turn over ratio 125000/16500 100000/15000
=7.5 times =6.66 times
Working Capital turnover ratio 250000/140000 200000/100000
=1.8 times =2 times

Profitability Ratio
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
a. Gross Profit Ratio = 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑎𝑟𝑎𝑡𝑖𝑜𝑛
𝑥100

Gross profit = Net Revenue from operation – Cost of Goos Sold

For the year 01.04.2022 to 31.31.2023 For the year 01.04.2021 to 31.31.2022
Gross Profit = 250000-90000 Gross Profit = 200000-77000
Gross Profit=160000 Gross Profit=123000
160000 123000
Gross profit ratio= 250000
x 100 Gross profit ratio= 200000
x 100
=64% =61.5%

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑇𝑎𝑥

Net Profit Ratio= 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛
x100
For the year 01.04.2022 to 31.31.2023 For the year 01.04.2021 to 31.31.2022
70000 50000
x100=28% 200000
x100=25%
250000

Comments on Ratio
Liquidity Ratios:
● Current ratio Improved from 3.08:1 to 4:1 in 2022-23 indicating enhanced
short-term solvency and Quick Ratio: Increased from 1.46:1 in 2021-2022
 to 2:1 in 2022-2023 signifying increased ability to meet short-term
obligations without relying on inventory.

Solvency Ratio:
● In the current year, the Debt Equity Ratio has improved
compared to the previous year. It is clear that the company is
increasing its reliance on owned funds, signaling positive
prospects for long-term solvency.
● The change in the Debt to Capital Employed ratio from 1:6 in
2021-22 to 1:7 in 2022-23 suggests a shift in the capital structure.
This shift may imply a strategic move to decrease financial
leverage, potentially lowering financial risk and interest
obligations.
● The increase in the Asset to Debt ratio from 7.6 in 2021-22 to 8.5
in 2022-23 suggests a strengthening financial position for the
company. Stakeholders should view this positively, as a higher
Asset to Debt ratio often signifies a more secure financial
foundation and enhanced capacity to meet financial obligations.

Activity Ratio:
● The decline in inventory turnover from 1.6 to 1.33 suggests a
potential slowdown in inventory management efficiency.
● Trade receivable ratio was 5 times in 2021-22 become 5.55 in
2022-23 is showing slight improvement in cash collection
period.
● The decline in the working capital turnover ratio from 2 to 1.8 suggests a
decrease in the efficiency of working capital utilization. A lower ratio
 indicates that the company is generating slightly less revenue per unit of
working capital.
● The increase in the trade payable ratio from 6.66 times to 7.5 times
indicates an extension in the average payment period for trade payables.
This change may suggest that the company is taking longer to settle its
outstanding bills.

Profitability Ratio:
●Gross Profit Margin (from 61.5% to 64%) and
Net Profit Margin (from 32.5% to 36%)
improved in the year 2022-23 than 2021-22,
demonstrating better profitability relative to
revenue.

Conclusion
After analysis cash flow statement and ratio, it is clear that
financial health of the company is quite good. The company
demonstrates positive signs in profitability, liquidity, and solvency
ratios, reflecting strong financial health. However, a slight red flag
in the activity ratios suggests, slight inefficiencies in managing
assets. It is crucial for stakeholders to investigate and address the
factors impacting activity ratios to ensure optimal operational
efficiency and sustained overall financial well-being.

Bibliography
1. ACCOUNTANCY BOOKS OF N.C.E.R.T.
2. www.investopedia.com
3. Money Control
4. Wikipedia