FINANCIAL PERFORMANCE ANALYSIS

The word ‘Performance is derived from the word ‘parfourmen’, which means
‘to do’, ‘to carry out’ or ‘to render’. It refers the act of performing; execution,
accomplishment, fulfillment, etc. In border sense, performance refers to the
accomplishment of a given task measured against preset standards of
accuracy, completeness, cost, and speed. In other words, it refers to the
degree to which an achievement is being or has been accomplished.

In the words of Frich Kohlar “The performance is a general term applied to a part
or to all the conducts of activities of an organization over a period of time often
with reference to past or projected cost efficiency, management responsibility
or accountability or the like. Thus, not just the presentation, but the quality of
results achieved refers to the performance. Performance is used to indicate
firm’s success, conditions, and compliance.

Financial performance refers to the act of performing financial activity. In

broader sense, financial performance refers to the degree to which financial
objectives being or has been accomplished. It is the process of measuring the
results of a firm's policies and operations in monetary terms. It is used to
measure firm's overall financial health over a given period of time and can
also be used to compare similar firms across the same industry or to compare
industries or sectors in aggregation.

Definition:
A subjective measure of how well a firm can use assets from its primary mode of
business and generate revenues. This term is also used as a general measure of a firm's
overall financial health over a given period of time, and can be used to compare similar
firms across the same industry or to compare industries or sectors in aggregation.

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS

 The term financial analysis is also know as ‘Analysis and interpretation of
financial statements’ refers to the process of determining financial strength and
weakness of the organization by establishing strategic relationship between the items of
the balance sheet profit & loss account and other operative data. The purpose of financial
performance is to diagnose the information contained in financial statements so as to
judge the profitability and financial soundness of the firm.

In general, profit making is one of the major objectives of any organization. Also it is
considered that increase in the value of the organization can be obtained by profit
maximization. This was based on the assumption that profit are the appropriate yardstick
to measure the operational efficiency of an organization should undertake activities that
increase activities that increase the profits earned by the profit earned by the organization.
Also profit maximization would imply most efficient.
The operation and performance of the organization was analyzed using tools like
Comparative balance sheet, Common size balance sheet, Trend analysis and Ratio
analysis. The Subsidiary Company’s past Two years data was obtained and analyzed &
compared with the Group Companies past five years performance. This data was taken
from annual report of the organization, which consists of balance sheet, profit and loss,
and ratios.
Importance of financial statements
Financial statements are the medium by which a company discloses information
concerning its financial performance. Followers of fundamental analysis use
the quantitative information gleaned from financial statements to make investment
decisions. Before we jump into the specifics of the three most important financial
statements -income statements, balance sheets and cash flow statements -

The four main types are balance sheets, profit and loss accounts, cash flow statements,
and income statements.
Balance Sheets

Balance sheets provide the observant with a clear picture of the financial
condition of the company as a whole. It lists in detail the tangible and the intangible
goods that the company owns or owes. These good can be broken further down into three
main categories; the assets, the liabilities and the shareholder’s equity.

Assets

Assets include anything that the company actually owns and has disposal over.
Examples of the assets of a company are its cash, lands, buildings, and real estates,
equipment, machinery, furniture, patents and trademarks, and money owed by certain
individuals or/and other businesses to the particular company. Assets that are owed to the
company are referred to as accounts-, or notes receivables.
Current Assets include anything that companies can quickly monetise. Such current
assets include cash, government securities, marketable securities, accounts receivable,
notes receivable (other than from officers or employees), inventories, prepaid expenses,
and any other item that could be converted into cash within one year in the normal course
of business.
Fixed Assets are long-term investments of the company, such as land, plant,
equipment, machinery, leasehold improvements, furniture, fixtures, and any other items
with an expected useful business life usually measured in a number of years or decades
(as opposed to assets that wear out or are used up in less than one year. Fixed assets are
usually accounted as expenses upon their purchase. They are normally not for resale and
are recorded in the Balance Sheet at their net cost less (less is accounting term for minus)
accumulated depreciation.
Other Assets include any intangible assets, such as patents, copyrights, other
intelectual property, royalties, exclusive contracts, and notes receivable from officers and
employees.
Liabilities

Liabilities are money or goods acquired from individuals, and/or other corporate
entities. Some examples of liabilities would be loans, sale of property, or services to the
company on credit. Creditors (those that loan to the company) do not receive ownership
in the business, only a (usually written) promise that their loans will be paid back
according to te term agreed upon.

Current Liabilities are accounts-, and notes-, taxes payable to financial institutions,
accrued expenses (eg.: wages, salaries), current payment (due within one year) of long-
term debts, and other obligations to creditors due within one year.
Long-Term Liabilities are mortgages, intermediate and long-term loans,
equipment loans, and other payment obligation due to a creditor of the company. Long-
term liabilities are due to be payed in more than one year.

Shareholder's equity

The shareholder’s equity (also called as net worth, or capital) is money or other
forms of assets invested into the business by the owner, or owners, to acquire assets and
to start the business. Any net profits that are not paid out in form of dividends to the
owner, or owners, are also added to the shareholder’s equity. Losses during the operation
of the business are subtracted from the shareholder’s equity.

Assets are calculated the following way:

Assets=Liabilities+Net worth

Balance sheets show how the assets, liabilities, and the net worth of a business are
distributed. They usually are prepared at set periods of time, for example at the end of
each quarter. It is always prepared at the end of fiscal years.

The periodic preparation of the balance sheets, the owner and/or the manager of
the company can see historic-, and current trends and also the general performance of the
corporation. It allows decision makers to make adjustments when needed, like the
proportion of liabilities to assets.
 All balance sheets contain the same categories of assets, liabilities and net worth
figures. Assets are arranged in decreasing order of their liquidity . Liabilities are listed in
order of how soon they must be repaid, followed by retained earnings (net worth of
owner’s equity).

The categories and formats of Balance Sheets are established by a system known
as Generally Accepted Accounting Principles (GAAP). The system is applied to all
companies, large or small, so anyone reading the Balance Sheets can readily understand
what it is saying.

Profit and Loss Account

Profit and loss accounts (abbreviated as P&L account) summarize the incomes
and expenses of a company in a given period of time. It also includes accruals too, which
are incomes that will be realized only after the particular Profit and Loss Account
statement was prepared.

Cash-Flow Statements

These statements show how money is predicted to move around (hence the
phrase cash flow) at a given period of time. It is useful for planning future expenses. It
shows whether or not there will be enough money to carry out the planned activities and
whether or not the cash coming in are enough to cover the expenses. The cash flow
statement is useful in the determination of the company’s liquidity in a given period of
time.
Income Statements

Income statements measure the company’s sales and expenses over a specific
period of time. They are prepared each month and fiscal year end. Income statements
show the results of operating during those accounting periods. They are also prepared
using the Generally Accepted Accounting Principles (GAAP) and contain specific
revenue and expense categories regardless of the nature of the company.