Financial Statement Analysis of Gul Ahmed

Topics: Financial ratio, Financial ratios, Balance sheet Pages: 21 (5895 words) Published: April 27, 2012
Financial Statement Analysis
Report on
Financial Statement Analysis of Gull Ahmed Company
Sir Raza Haider Sawal
Mohammad Sadiq
Imran khan
Raza Khan
Taimur Shareef
BBA Hons Semester Vii Section A


Financial statement analysis
Introduction: Financial statement analysis is the art of transforming data from financial statement into information that is useful for informed decision making. Financial analysis involves the use of various financial statements. These statements do several things. First the balance sheet summarizes the asset, liabilities, and owners equity of a business at a moment in time, usually the end of a quarter or year. Income statement summarizes the revenues and expenses of the firm over a particular period of time, again usually year or at the end of a quarter. Simply the balance sheet represents the company position at a given point in time and income statement shows the summary of the firm profitability over time. The tool we are using in this project is Ratio analysis, Index analysis, and common size analysis. Ratio Analysis: Ratio analysis involves methods of calculating and interpreting financial ratios to analyze and monitor the firm performance. Types of Ratio: Financial ratio can be divided for convenience into four categories: liquidity, activity, debt, and profitability. Activity liquidity and debt ratios primarily measure the risk and profitability ratios measure the return. We are using these ratios to analyze the financial reports and the current position of the GULL AHMED Company. Liquidity Ratios: The liquidity of a firm is measured by its ability to satisfy its short term obligations as they come due or refers to the solvency of the firm overall financial position. In liquidity ratios we are finding the liquidity of the proposed company through these two ratios 1) Current ratio the most commonly cited financial ratio measure the firm ability to meet its short term obligation, its expressed as follows: Current ratio = Current assets

Current liabilities
The current ratio of the Gull Ahmed Company of year 2009 is
= 0.90

Time series or Trend analysis: The remaining year’s current ratios are obtained through this method. The table of five year ratio is given below: Year| 2009| 2008| 2007| 2006| 2005|
Current Ratio| 0.95| 0.9| 0.95| 1| 1.05|

Generally the higher the current ratio the more liquid the firm is considered to be but in many cases it depends upon the nature of the firm. Now it is clearly shows from the above table that the company current ratio is not good. It’s continuously declining but after year 2008 there is some little increase in current ratio. The main reason of this decline or poor performance is increasing in current liabilities. However there is also increase in current assets but the proportion of liabilities is greater than the current assets. In 2007 current liabilities is the 54.75% of the total liabilities and equity, and in 2008 it was 57.45 and in 2009 it was 57.05 %.The reason of this increase in current liabilities is short term borrowing, current maturity of long term loans and trade and other payable which is continuously increasing. The overall decrease in current asset ratios during these five years is -9.5%.

Industry analysis: the industry comparison for Gull Armed company current ratio is given below with table. years| Gull Ahmad| Industry average|
2005| 1.05| 1.10|
2006| 1| 1.15|
2007| 0.95| 1.25|
2008| 0.9| 0.95|
2009| 0.95| 0.87|

In industry analysis which is the combination of cross sectional and time series makes us to assess the trend in the behavior of the ratio in relation to the trend for the industry. As we know that higher the current ratio the better is considered. So from...
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