Name & Roll Number: Kshitij Jawa (EPGP-13C-045)

Indian Institute of Management Kozhikode

Q-IV/VII EPGCFM-13/EPGP-13
End-Term Exam
FINANCIAL STATEMENTS ANALYSIS
Max Time: 90 minutes Date : Jan 2023
Max Marks: 100

READ INSTRUCTIONS CAREFULLY

a)
Write your name and roll number on the question paper with answer booklet.
b)
Answer all questions.
c)
This is an open book exam.
d)
Clean and neat presentation will be rewarded
e)
Answer all the questions in the space provided for each question within the
word file of this question paper.
f) If required, make suitable assumptions after clearly stating them.
_____________________________________________________________________

QUESTIONS

You are required to refer the Balance Sheet, Statement of Profit and Loss, and Cash Flow
Statement of Vikas WSP Limited attached with this question paper to answer the following
questions.

1. You are required to compute the following ratios for the year 2019-20:
a. Liquidity ratios:
i. Current ratio,
ii. Quick ratio, and
iii. Super Quick ratio
b. Solvency ratios:
i. Debt-to-Equity ratio and
ii. Interest Coverage ratio
c. Efficiency ratios:
i. Total assets efficiency,
ii. Receivables collection days and
iii. Inventory holding days.
d. Profitability ratios:
i. Net Income ratio,
ii. Return on assets and
iii. Return on equity.

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 Answer 1. Ratio’s 2019-2020

Liquidity Ratios

Current Ratio = Current Assets/Current Liabilities

= 76014.97/54483.68
= 1.395

Quick Ratio = (Current Assets – Inventory)/Current Liabilities

= (76014.97-7303.17)/54483.68
= 1.26

Super Quick = (Cash + Marketable Securities)/Current Liabilities

Ratio
= (106.18+266.08)/54483.68
= 0.007

Solvency Ratios

Debt to Equity = Total Liabilities/Shareholder Equity

Ratio
= 54667.8/114507
= 0.477

Interest = EBIT/Interest Expense

Coverag Ratio
= 2336.65/416.27
= 5.61

Efficiency Ratios

Total Asset = Net Sales/Total Assets

Efficiency
= 75762.89/169174.82
= 0.45

Receivable = (Account receivable/Annual Credit Sales) x 365

Collection Day
= (605560.79/75762.89) x 365
= 292

Inventory = (Inventory/Cost of Goods Sold) x 365

Holding Days
= (7303.17/67422.21) x 365
= 40

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 Profitability Ratios

Net Income = Net Income/Sales

Ratio
= 2134.82/75762
= 2.8%

ROA = Net Income/Total Assets

= 2134.82/169174
= 1.26%

ROE = Net Income/Shareholder Equity

= 2134.82/114507
= 1.86%

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 2. Using the ratios computed in above question 1, you are required to write a report on
liquidity condition, solvency, efficiency and profitability of the company for the year
2019-2020 (not exceeding five lines in each category and 20 lines in total).
Answer 2.
Based on the ratios provided, the company’s liquidity appears to be strong with a healthy
current ratio of 1.395 and quick ratio of 1.26. This indicates that the company has enough
current assets to cover its short-term liabilities. However, the Super Quick Ratio of 0.007
suggests that the company may not have enough liquidity assets to cover its immediate
financial obligations.
In terms of solvency, the debt to equity ratio of 0.477 indicates that the company has a
moderate level of debt and interest coverage ratio of 5.61 indicates that company is able to
fulfil its interest expense obligations.
In terms of efficiency, the total asset efficiency of 0.45 is relatively low, indicating that the
company may not be using its assets efficiently. The company’s receivable collection days of
292 and inventory holding days of 40 suggest that the company may have some inefficiencies
in its AR & inventory management.
The profitability ratios indicate that the company’s net income ratio is only 2.82% and it’s
ROA & ROE is 1.26% & 1.86%. This indicates that the company’s profitability is relatively
low.

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 3. Based on “Notes” to balance sheet and statement of profit and loss of the company
attached with the question paper, you are required to (i) Identify what are three
questionable line items of the financial statements? and (ii) Identify the double effect
of correcting such questionable line items on financial statements, and (iii) Identify
the effect the questionable line items on financial condition and performance of the
company for the year 2019-20.
Answer 3.

Company seems to have a low interest coverage ratio. The company has delivered poor
sales growth of -34.6% over past 5 years. Promoter holding is low at 14.6%. Company
has a low ROE of -4.85% over last 3 years. Contingent liabilities of INR. 382Cr.
Promoters have pledged 56.9% of their holding. Company has high debtor of 292 days.
Working capital days have increased from 1412 to 3810 days.

The double effect of correcting questionable line items would be that it shall improve the
accuracy and credibility of the financial statements however could have a negative impact
on the company’s perceived financial health. Once the errors are corrected it will lead to
reinstating past years financial data which in turn may bring out other errors. It can also
impact the company’s reputation & investor confidence.

The questionable line items impact on the year 2019-2020 can’t be inferred from the
financial statement however it is impacting the overall profitability and financial health of
the company adversely.

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 *****

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