Project Work
Specific Project 1
ofComnarative Ratios to assess the financial soundness
repare Common-Size Balance Shept and Statoment
the changes and trend of each individual item of
of each copany. Common-size Balance Shot shows
Liquiaiy
Dalance neet (1.e., Assets, Equity and Iiabilitics) On other hand Comparative RatioS show
prontablity, activity or turnover andfinoneial nocition from the data of twocompanies drawn from their
financlal statements. And also oive vosr obenrsrotionelcomments as to which of the two companies 1s
better when compared on the basis of liquidity, profitability, activity orturnover and financial position.
Project Solution
About the Project
The project is to show the changes and trend of each individual item of Balance Sheet (i.e., Assets, Equity
and Liabiltes) and also to compute the accounting ratios showing the Liquidity, profitability, activity
or tumover and finarncial position of the two companies namely, Lotus Tea Ltd. and English Tea Ltd.
ne project also requires to give observations/comments comparing the two companies on the basis of
liquidity, profitability, activity or turnover and financial position.
Information or Data for the Project
Both the companies namely Lotus Tea Ltd. and English Tea Ltd. are in similar business
operating under
similar business environment and also of similar size. Since, both the
have been selected.
companies are comparable, they
The data is taken from their published annual
financial statemnents drawn from their websites, i.e.,
www.lotustea.com and www.englishtea.com. The data is for the finarncial year ended on 31st March,
and is as follows: 2025
Particulars
Lotus Tea Ltd. () English Tea Ltd. )
Revenue from Operations (Net Sales)
25,60,000 24,00,000
Net Profit after Tax
98,400 1,26,400
Equity Share Capital (Subscribed and fully paid-up, shares of 10each)
8,00,000 6,40,000
Reserves and Surplus
1,85,600 5,13,600
6% Debentures
6,40,000 5,28,000
Trade Payables
3,05,600
Provision for Tax 4,39,300
40,000
Bank Overdraft 48,000
48,000
Property, Plant and Equipment 1,60,000
12,79,200
Intangible Assets
40,000
12,72,000
Inventories 48,100
2,64,800
Trade Receivables
3,25,285
6,47,200
Cash and Cash Equivalents
1,09,915 2,97,830
P.22
Planningand Execution
executed as follows:
The project is planned and assess the relative tinancial soundness
of th.
to
Balance Sheet is prepared
. Common-size
companies.
(Liquid or Aid Test) Ratio are computed, which w:t
Current Ratio and Quick
2. Liquidity Ratios, i.e., their short-term financial
commitments in time.
to meet
giveinsight into their ability Ratio and Return on Canis.t
Return on Total Assets
Net Profit Ratio,
3. Profitability Ratios, i.e., insight as to whether resources have been ahl
will give
Employed Ratio are computed, which
to generate profit.
Inventory Turnover Ratio, Fixed Assets Turnover Ratio, Current Assete
4. Turnover Ratios, i.e., computed, which willshow how efficiently the
Turnover Ratio and Total Assets Turnover Ratio are
resources have been used.
Proprietary
Ratios for financial position, ie., Debt to Equitv Ratio, Fixed Assets to Debt Ratio and
5.
of the two companies is in better financial health.
Ratio are computed,its comparison willshow which
in amanner that comparison is easily made.
6. The accounting ratios so computed are plotted
and accordingly commented upon.
7. The accounting ratios of the two companies are analysed
Analytical Tool Used
Ratios.
Analytical tools used in the project are: (a) Common-size Balance Sheet; and (b) ACCOunting
Analysis and Conclusion
Before Common-size Balance Sheet is prepared, Balance Sheet is prepared to ensure that assets and
liabilities match. Balance Sheets of the two companies are as follows:
BALANCE SHEET
asat 31st March, 2025
Particulars Note Lotus English
No. Tea Ltd. ()Tea Ltd. ()
. EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital 8,00,000 6,40,000
(b) Reserves and Surplus 1,85,600 5,13,600
2. Non-Current Liabilities
Long-term Borrowings (6% Debentures) 5,28,000
6,40,000
3. Current Liabilities
(a) Short-term Borrowings (Bank Overdraft) 48,000
1,60000
(b) Trade Payables 4.39,300
3,05,600
(c) Short-term Provision (Provision for Tax) 48,000
40,000
Total 20,19,200 23.28,900
Project Work
P.23
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and intangible Assets:
() Property, Plant and Equipment
12,79,200 12,72,000
(ii) Intangible Assets
40,000 48,100
2. Current Assets
(a) Inventories
2,64,800 6,47,200
(b) Trade Receivables
3,25,285 2,97,830
(c) Cash and Cash Equivalents 1,09,915 63,770
Total
20,19,200 23,28,900
Solution:
COMMON-SIZE BALANCE SHEET
as at 31st March, 2025
Particulars Note Absolute Amounts Percentage of
No. Balance Sheet Total
Lotus English Lotus English
Tea Ltd. () Tea Ltd. () Tea Ltd. (%) Tea Ltd. (%)
I. EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital 8,00,000 6,40,000 39.62 27.48
(b) Reserves and Surplus 1,85,600 5,13,600 9.19 22.05
2. Non-Current Liabilities
Long-term Borrowings (6% Debentures) 6,40,000 5,28,000 31.70 22.67
3. Current Liabilities
(a) Short-term Borrowings (Bank Overdraft) 48,000 1,60,000 2.38 6.87
3,05,600 4,39,300 15.13 18.87
(b) Trade Payables
40,000 48,000 1.98 2.06
(c) Short-term Provisions (Provision for Tax)
20,19,200 23,28,900 100.00 100.00
Total
II, ASSETS
1. Non-Current Assets
Property, Plant and Equipment and
Intangible Assets:
12,79,200 12,72,000 63.35 54.62
Equipment
(i) Property,Plant and 48,100 1.99 2.06
40,000
(i) Intangible Assets
2. Current Assets
2,64,800 647,200 13.11 27.79
(a) Inventories
3,25,285 2,97,830 16.11 12.79
(b) Trade Receivables
1,09,915 63,770 5.44 2.74
(c) Cash and Cash Equivalents
Total 20,19,200 23,28,900 100.00 100.00
Analysis of Financial Statements--
P.24 -CBSE XI|
AND STATEMENT OF COMPARATIVE RATIOS
COMPUTATIONOF ACCOUNTING RATIOS
Lotus Tea Ltd. English Tea Ltd.
Accounting Ratios
A. Liquidity Ratios
(0) Current Ratio:
77,00,000 10,08,800
Current Assets =1.78:1
73,93,600 6,47,300 =1.56:1
Current Liabilities
(ii) Quick Ratio:
4,35,200-=1.11:1 73,61,600
6,47,300 =0.56:1
Quick Assets
Current Liabilities 3,93,600
B. Profitability Ratios
(i) Net Proft Ratio:
Net Profit (after Tax) 798,400 -x 100 = 3.84% 71,26,400
x 100
x 100=5.27%
Revenue from Operations,i.e., Net Sales 25,60, 000 24,00, 000
(i) Return on Total Assets:
Net Profit (after Tax) 798,400 -x 100= 4.87% 1,26,400 x 100=5.43%
x 100
Total Assets 20,19,200 723,28,900
(ii) Return on Capital Employed:
Profit before Interest and Tax 71,76,800 -x 100=10.88% 2,06,080
-x 100 -x100 =12.25%
Capital Employed T16,25,600 16,81,600
C. Activity or Turnover Ratios
() Inventory Turnover Ratio:
Revenue from Operations (Net Sales) 25,60, 000 7 24,00, 000
-=9.67 Times -=3.71 Times
Inventories 2,64,800 6,47,200
(i) Fixed Assets Turnover Ratio:
F 25,60, 000 24,00,000 =1.82 Times
Revenue from Operations (Net Sales) =1.94 Times
Fixed Assets 713,19, 200 713,20,100
(iiü) Current Assets Turnover Ratio:
Revenue from Operations (Net Sales) 25,60, 000 24,00, 000 =2.38 Times
=3.66 Times
Current Assets 77,00,000 710,08,800
(iv) Total Assets Turnover Ratio:
Revenue from Operations (Net Sales) 725,60, 000 24,00,000 -=1.03 Times
Total ASsets -=1.27 Times
?20,19, 200 723,28,900
D. Financial Ratios
() Debt to Equity Ratio:
Long-term Debts 6,40,000
=0.65:1 75,28,000 =0,46:1
Equity/Shareholders' Funds
?9,85,600 11,53,600
(ii) Fixed Assets to Debt Ratio:
Fixed Assets
{13,19, 200 ?13,20,100-=0.79 Times
Debt or Long-term Funds 0.81 Times
16,25,600 16,81,600
(ii) Proprietary Ratio:
Proprietor's Funds
TotalAssets
79,85,600 =0.49
11,53, 600 =0.50:1
20,19, 200 23,28, 900
ProjectWork P.25
Comments
1. Common-size Balance Sheets of the two companies reveal the following:
(a) Lotus
Tea ]Ltd. has lower base of Long-term Borrowings
(6,40,000) and lower Short-termShareholders'
Borrowings (Funds(9,85,600),
48,000) higher
as Compared to English Tea Ltd., which
has Shareholders' Funds ( 11,53,600), Long-term Borrowings (* 5,28,000) and Short-ter
Borrowings ( 1,60,000).
(3,05,600)
(b) EnglishTea Ltd. has higher Trade Payables(4,39,300) ass compared to Trade Payables
of Lotus Tea Ltd. A comparison of Trade Pavables in percent of total liabilities, it is 18.87% for
English Tea Ltd. and 15.13% for Lotus Tea Ltd. It means that English Tea Ltd. depends more On
outside funds than Lotus Tea Ltd.
Intangible Assets (fixed assets) is about the
(c) Investment in P'roperty, Plant and Equipment and placed. Its investment
same amount but when considered in percent. English Tea Ltd. is better means English
Lotus Tea Ltd. it is 65.34%. It
being 56.68% Of total assets whereas in the case of
Tea Ltd. is utilising the fixed assets better.
Lotus Tea Ltd. in Inventory. It is 2,64,800 (13.11%
(d) English Tea Ltd. hasinvested much more thanwhereas it is 6.47, 200 (27.79% of total assets) in
oftotal assets) in the case of Lotus Tea Ltd. more judicious
investment in inventories by Lotus Tea Ltd. is
case of English Tea Ltd. It seems
as compared to English Tea. Ltd. recovering the due
compared, English Tea Ltd. is more efficient in
(e) When Trade Receivables are both in terms of absolute amount
2,97,830) and
amounts as it has lower Trade Receivables Receivables
total assets) as compared to Lotus Tea Ltd. having Trade
percent terms (12.79% of
as absolute amount ( 3,25,285) and
percent terms (16.11).
Liquidity Position accepted
Ratio varies on the basis of nature of the business. However, generally 1.78 :1;
1. Norms for Current ratio of 2:1, Lotus Tea Ltd. has Current
Ratio of
2:1. Against the accepted companies
Current Ratiois 1.56:1. Since, the Current Ratios of the two
Ltd. has Current Ratio of of
whereas English Tea
each other. But when compared to accepted ratio, Current Ratio
is not materiallydifferent from Tea Ltd. can be said to be in better position to
meet its
2: 1. Thus, Lotus
Lotus Tea Ltd. is closer to English Tea Ltd.
current liabilities on time as compared to has a
1:1. Against the accepted norm of 1:1, Lotus Tea Ltd.
Ratio is derived
2. Accepted norm for Quick English Tea Ltd. has a Quick Ratio of 0.56 : 1. Thus, it can be
Quick Ratio of 1.11:1; whereas meet its current liabilities at a short notice.
is better placed to
that Lotus Tea Ltd.
positioned as compared to English Tea Ltd. as far as Liquidity position
Thus, Lotus Tea Ltd. is better
is concerned.
Profitability Position Ltd. It shows that English Tea Ltd.
are better than that of Lotus Tea Net Profit
Trohtability Ratiosof English Tea Ltd. resources than Lotus Tea Ltd. Presuming that bettereconomical
of available more
S making better utilisation Ratio, it means English Tea Ltd. is either making Operations.
Gross Profit realisation, i.e., Revenue fromn
alo is a result of better priced resulting in better
racnases or its products arebetter both the factors.
It is also possible that it is a result of
Activity Ratios Ratios, be it Inventory Turnover Ratio,
Fixed Assets Turnover Ratio, Current
Ltd. are better than
Theanalysis of allthe Activity Assets Turnover Ratio, shows that ratios of Lotus Tearesources to achieve
ers Turnover Ratio or Total Lotus Tea Ltd. is better utilising the
available
shows that
OT English Tea Ltd It compared to English Tea
Ltd.
sales, But it is eaarning lower profit as
FinancialPosition Ratios shows that the financial position of both the
conmpanies is not much
d analysis of Financial the companies are equally placed.
both
different. The ratios indicate that
