A STUDY ON CASH FLOW AND RATIO ANALYSIS OF V- GUARD

INDUSTRIES
CERTIFICATE
 ACKNOWLEDGEMENT

I would like to convey my heartfelt gratitude to everyone who helped

make this project a success.I would like to thank our esteemed
Principal,Ms. Sasipriya, first and foremost, for creating a supportive
learning atmosphere and motivating us to achieve academic success.

I am extremely thankful to my Accountacy teacher,Mrs.Vanitha, whose

guidance, encouragement, and helpful advice guided every aspect of this
project. Your encouragement has been helpful.

I'd also like to express my heartfelt gratitude to my parents for their

constant support, patience, and understanding during this project. Their
support and trust in my ability helped keep me motivated.

Finally, I'd want to thank my fellow classmates for their help,

suggestions, and moral support. Your company made this experience
easier and less stressful.

This project would not have been possible without the collaboration
and assistance of all of these fantastic people.
INDEX
OBJECTIVES
1. To study and compare the accounting ratios of the company &
also to know whether the company has performed better than the
previous year.
2. To evlauate the financial performance of V-Guard industries.
3. To understand the reason behind the company’s profit and the
factors supporting this profit.
4. To analyse company’s cash management decisions.
Period under study
The financial statement s pf the financial year 2022-2023 was taken
for the purpose of study.

Analytical tool
● Cash flow statement
● Ratio analysis

Source material
V- guard’s audited standalone financial statement for the financial
year 2022-2023 was the source material for the study
 INTRODUCTION ABOUT V-GUARD INDUSTRIES LTD.
V-Guard Industries Ltd. is a diversified multi-product company with
pan India presence, and it is engaged in the manufacturing and
marketing of top-quality electric and electronic products that are in
high demand across India.

The Company finds its origins way back in 1977, when the Founder Mr.
Kochouseph Chittilappilly embarked on a journey to realise his dream,
of building a robust brand in the Indian electric and electronic goods
market. He started by manufacturing and marketing of voltage
stabilizers under the brand name “V-Guard”.

The brand has since grown exponentially, increasing its product

portfolio significantly. As a brand of repute in the electronics, electrical
and consumer durables segments, V-Guard has, over the years, built on
its strengths to emerge as a leading manufacturer and marketer of
innovative products designed to enrich customer experience.
Board of directors
 Financial statement analysis

Financial statement analysis is the process of examining a company’s

financial statements—such as the Balance Sheet, Income Statement, and
Cash Flow Statement—to assess its financial health, performance, and
future prospects. It involves breaking down financial data into simpler
components to identify trends, relationships, and patterns that help
stakeholders make informed decisions. This analysis evaluates key areas
such as profitability, liquidity, solvency, and operational efficiency,
often using tools like ratio analysis, trend analysis, and comparative
statements. For example, liquidity ratios assess the company’s ability to
meet short-term obligations, while profitability ratios measure its ability
to generate earnings. Financial statement analysis is valuable for various
stakeholders: management uses it to strategize and improve operations,
investors assess its potential for returns, creditors evaluate its ability to
repay debts, and regulators ensure compliance with standards. By
providing insights into a company’s financial position, it serves as a
foundation for decision-making and planning, though it must be
complemented with qualitative considerations and external factors for a
comprehensive understanding.

Tools

1. Comparitive statements
2. Common size statement
 3. Ratio analysis
4. Cash flow statement

Types of Financial Statement Analysis:

1. Internal Analysis refers to the evaluation of a company's financial

performance and operational efficiency conducted by its
management or internal team. The goal is to make informed
decisions about budgeting, cost control, and strategic direction.
Internal analysis uses tools such as ratio analysis, cash flow
analysis, and trend analysis to assess key performance indicators
(KPIs) and improve areas like profitability, liquidity, and overall
business operations. This analysis is vital for optimizing
day-to-day operations, managing resources effectively, and
setting long-term goals.
2. External Analysis involves the evaluation of a company's financial
health by external parties such as investors, creditors, analysts, and
regulators. This analysis helps external stakeholders assess the
company's ability to generate returns, meet financial obligations,
and remain competitive within the industry. It typically includes
comparing financial ratios to industry benchmarks, assessing
market conditions, and evaluating creditworthiness. External
analysis is crucial for making investment decisions, evaluating
 lending risks, and ensuring the company complies with industry
standards.
3. Horizontal Analysis (also known as trend analysis) focuses on
comparing a company's financial statements over several periods
to identify patterns, trends, and growth trajectories. This analysis
tracks the changes in financial data such as revenue, expenses, and
profit across multiple years or quarters. Horizontal analysis helps
management, investors, and analysts understand how a company
has evolved over time, identify areas of growth or concern, and
forecast future performance. It provides insights into long-term
financial trends and operational effectiveness.
4. Vertical Analysis (or common-size analysis) involves expressing
each line item in a financial statement as a percentage of a base
item, such as total sales or total assets. This type of analysis allows
for easy comparison of financial statements across companies of
different sizes or across different periods. In an income statement,
each expense category might be expressed as a percentage of total
revenue, while on a balance sheet, each item is shown as a
percentage of total assets. Vertical analysis simplifies complex
financial data, making it easier to analyze the relative weight of
different financial components and assess a company’s
performance in relation to its overall size or industry standards.
Balance sheet

A balance sheet is a financial statement that provides a snapshot of a

company's financial position at a specific point in time. It shows the
company's assets, liabilities, and equity based on the accounting
equation: Assets = Liabilities + Equity. Assets are divided into current
(short-term) and non-current (long-term) categories. Liabilities are
also split into current (due within one year) and non-current
(long-term). Equity represents the owners' residual interest after
liabilities are deducted from assets. The balance sheet helps assess the
company’s financial health, liquidity, and solvency, aiding in investment
and credit decisions.
Importance of the Balance Sheet:

● Assessing Financial Health: Evaluates a company's ability to meet

obligations by comparing assets and liabilities.
● Decision-Making: Guides managers and investors in making
financing, investment, and operational decisions.
● Creditworthiness: Helps creditors assess a company’s ability to
repay loans by analyzing assets versus liabilities.

Profit and loss statement

A profit and loss statement (also called an income statement) is a

financial document that shows a company's financial performance over
a specific period. It summarizes the company's total revenues and the
expenses incurred in generating those revenues, ultimately revealing
whether the company made a profit or suffered a loss during that
period. The statement provides an overview of how efficiently a
company is operating by detailing income from sales, the costs of
running the business, and other expenditures. It is used by stakeholders
to assess the company's profitability and operational efficiency without
focusing on specific calculations.

Importance of profit and losss statement

1. Profitability Assessment: Shows if a company is making a profit by

comparing revenues with expenses.
 2. Financial Performance Monitoring: Tracks the company’s
financial health, revenue trends, and cost management over a
period.
3. Informed Decision-Making: Provides data for investors, creditors,
and management to make strategic and financial decisions.

Ratio analysis

Ratio analysis is a technique of financial statement analysis. it is a more

widely used tool to interpret quantitative relationships between two
variables of the financial statements
The term accounting ratio is used to describe a significant relationship
that exists between figures shown in a balance sheet, in a statement of
profit and loss in a budgetary control system, or in any part of the
accounting organization.
A financial ratio matches two or more pieces of monetary data and
presents them in the form of a percentage, proportion, or in relation to a
period of time.

TOOLS OF ANALYSIS:
Accounting Ratios:
 ● Current Ratio
● Liquid Ratio
● Debt to Equity Ratio
● Proprietary Ratio
● Working Capital Turnover Ratio
● Net Assets Turnover Ratio
● Gross Profit Ratio
● Net Profit Ratio

SOURCE MATERIAL:
PROCESS OF THE ANALYSIS:

RATIO ANALYSIS:

1. “Ratio analysis is a study of relationships among various financial

factors in a business.” – Myers
 2. It is used as a tool to interpret quantitative relationships between
two variables of a financial statement.
3. A financial ratio matches two or more sets of monetary data and
presents them in a form of percentage, proportion, times, and
fraction.

OBJECTIVES OF RATIO ANALYSIS:

● It is used to analyse the profitability of the business.

● It simplifies the accounting information of an enterprise.
● It helps in comparative analysis i.e., inter-firm and
intra-firm.(refer book)

ADVANTAGES OF RATIO ANALYSIS:

● It simplifies complex accounting statements and financial data into

simple ratios.
● Allows the company to conduct comparisons with other firms and
helps the organization to get a better understanding of its fiscal
position in the economy.
● The trend of ratios is analysed and used as a guide for future
planning.

LIMITATIONS OF RATIO ANALYSIS:

 ● Ratio analysis ignores qualitative factors, which may be an
important factor in decision making.

● The firm can make some year-end changes to their financial

statements, to improve their ratios. Then the ratios end up being
nothing but window dressing.

LIQUIDITY RATIO:
These ratio shows the ability of the enterprise to meet its short-term
liabilities. The commonly used liquidity ratios are:

● Current Ratio
● Liquid/ Quick Ratio

i. CURRENT RATIO:
Current ratio establishes the relationship between current asset and
current liability. It refers to company’s ability to generate enough
cash to pay off its short-term financial debts when they are due. Ideal
ratio of current ratio is 2:1

Current Ratio = Current Asset

Current Liabilities
 31-Mar-22 31-Mar-23

Current Asset 150,319 133,301

Current Liability 61,276 74,953

Current Ratio 2.45 : 1 1.78 : 1

There has been a decrease in the current ratio, from 2022 to 2023. Low
current ratio may be due to inadequate investment in current asset. This
may result in low liquidity and be a threat to short-term solvencies of
the organisation.

ii. LIQUID RATO:

Liquid ratio or Quick Ratio or Acid Test Ratio establishes the
relationship between the liquid assets and current liabilities. It indicates
the company’s short-term liquidity positions. It measures the
company’s ability to meet its immediate short-term financial
obligations. The ideal ratio of quick ratio is 1:1

Liquid Ratio = Liquid Asset

Current Liabilities

Liquid Assets = Current assets – Inventories – Prepaid Expenses

31-Mar-22 31-Mar-23
Liquid Assets 65,330 64,360
Current Liability 61,276 74,953
Liquid Ratio 1.07 : 1 0.86 : 1

Quick ratio has decreased from 2022 to 2023. This situation denotes
that current liabilities are more than the liquid assets. So lower ratio
indicates that the enterprise cannot pay its current liabilities if they fall
due for payment.
iii. DEBT TO EQUITY RATIO:

Debt to Equity Ratio is used to evaluate the company’s financial

leverage and it is computed to assess the long-term financial soundness
of the company. The ideal ratio of Debt to equity ratio is 2:1

Debt to Equity Ratio = Debt

Equity (Shareholder’s fund)

Debt = Total liabilities – Current Liabilities

31-Mar-22 31-Mar-23
Debt 6,706 37,740
Equity 140,251 158,800
 Debt to Equity Ratio 0.048 : 1 0.238 : 1

Debt to equity ratio is lower the ideal ratio which means that the
enterprise is more dependent on shareholder’s funds as against
long-term liabilities. The ratio has reduced from 2022 to 2023, so as a
result, lenders are at a lower risk. As the margin is very low, this also
attracts more investment from the lenders.

iv. PROPRIETARY RATIO:

Proprietary Ratio establishes the relationship between the shareholder’s

fund and the total assets. This ratio is important for the lenders and
creditors to ascertain the safety margin available. It is expressed as a
pure ratio.
Proprietary Ratio = Shareholder’s Fund or Equity

Total Assets

31-Mar-22 31-Mar-23
Shareholder's fund 140,251 158,800
Total Asset 208,233 271,493
Proprietary Ratio 0.67 : 1 0.58 : 1

Proprietary ratio of the enterprise has not changed much from 2022 to
2023, so this indicates that there is adequate safety for the lenders and
creditors and they have safety margin available to them.
 v. WORKING CAPITAL TURNOVER RATIO:

Working capital turnover ratio shows the relationship between working

capital and revenue from operations. This ratio shows whether or not
the working capital has been effectively and efficiently used to generate
the revenue. It is usually expressed as number of times.

Working capital turnover ratio = Revenue from operations

Working Capital

Working Capital = Current Asset –Current Liability

31-Mar-22 31-Mar-23
Revenue from operation 347,667 404,960
Current Asset 150,319 133,301
Current Liability 61,276 74,953
Working capital 89,043 58,348
Working capital turnover ratio 3.9 times 6.9 times

Working capital turnover ratio has approximately increased by 3 times.

This indicates that the enterprise is able to generate huge amount of sale
and shows efficient use of working capital. This increase in the ratio can
attract investors and increase the company's chance of expanding.

vi. NET ASSETS TURNOVER RATIO:

Net assets turnover ratio is also known as capital employed turnover

ratio. It shows the relationship between capital employed and revenue
from operations. It analyses how well the enterprise uses its assets to
drive sales. It is usually expressed as number of times.

Net assets turnover ratio = Revenue from operation

Capital Employed

Capital Employed = Shareholder’s fund + Non-current assets

 31-Mar-22 31-Mar-23
Revenue from operation 347,667 404,960
Shareholder's fund 140,251 158,800
Non-current asset 57,914 138,192
Capital Employed 198,165 296,992
Net assets turnover ratio 1.75 times 1.36 times

Net assets turnover ratio has approximately increased by 0.39 times.

This increase in the ratio indicates, a more efficient use of assets. This
means that the enterprise has higher profitability and liquidity.

vii. GROSS PROFIT RATIO:

Gross profit ratio establishes the relationship between gross profit and
revenue from operations. This ratio determines the efficiency with which
production and selling operations are carried on. The ratio is usually
expressed in percentage.

Gross Profit Ratio = Gross Profit * 100

Revenue from operations

Gross Profit = Net profit for the year + Operating expenses

Operating expenses = Employee benefit expenses + Outsourcing

expenses + Depreciation and amortization expenses

31-Mar-22 31-Mar-23
Net profit for the year 22,680 17,932
Operating expenses 31,438 35,330
Gross Profit 54,118 53,262
Revenue from operation 40,638 46,276
Gross Profit Ratio 133% 115%

Gross profit ratio has decreased from 2022 to 2023 which leaves lower
margin to meet operating and non-operating expenses. As the profit is
less, the enterprise cannot provide adequate amount for depreciation
and for creation of reserves.
viii. NET PROFIT RATIO:
Net profit ratio measures the enterprise’s financial performance or
profitability after tax. It is an indicator of the overall efficiency of the
business and measures how much net income or profit a company
generates as a percentage of its revenue. The ratio is usually expressed in
percentage.

Net Profit Ratio = Net profit after tax *100

Revenue from operations

31-Mar-22 31-Mar-23
Net profit after tax 22,680 17,932
Revenue from operation 40,638 46,276
Net Profit Ratio 55.81% 38.75%
Net profit ratio of the enterprise has approximately decreased by
17.06%. This decrease in the ratio over the previous period shows
decline in the operational efficiency of the enterprise.
Cash flow statement

SOURCE MATERIAL:

MEANING OF CASH FLOW STATEMENT:

A cash flow statement is a financial report that shows the inflow and
outflow of cash within a company during a specific period, typically
quarterly or annually. It provides insights into how a company generates
and uses cash from operating, investing, and financing activities. The
statement is divided into three main sections: operating activities, which
include cash transactions from the core business operations; investing
activities, which reflect cash spent or received from buying and selling
assets like property or equipment; and financing activities, which
involve cash flows related to borrowing, repaying debt, or issuing
shares. The cash flow statement is crucial for assessing a company’s
liquidity, its ability to meet financial obligations, and its overall financial
health.

OBJECTIVES OF CASH FLOW:

● To determine the sources and applications of cash and cash

equivalents under operating, investing and financing activities of
the enterprise.
● To determine the net changes in cash and cash equivalents.((Check
the book)

IMPORTANCE:

● Facilitates in Ascertaining Cash Flow from Operating, Investing,

and Financing Activities: Breaks down cash inflows and outflows
into categories, helping understand how cash is generated and
used in different areas.

● Facilitates Planning: Provides a clear view of cash movements,

aiding in budgeting and ensuring there’s enough cash for
operational and strategic goals.
● Helps in Assessing Liquidity and Solvency: Assesses if a company
can meet its short-term and long-term obligations, ensuring it’s
financially stable and capable of sustaining operations.

● Efficient Cash Management: Enables businesses to monitor cash

flow, avoid shortages, and manage their liquidity for day-to-day
operations effectively.

● Comparative Study: Allows for comparing cash flow over periods,

revealing trends in cash generation and utilization to assess
performance.

● Reasons for Cash Position: Explains changes in cash balances,

helping identify reasons behind cash increases or decreases and
supporting informed decision-making.

● Evaluate Management Decisions: Assesses how well management

is utilizing cash by evaluating cash flow from operations,
investment choices, and financial strategies.

● Dividend Decision: Helps determine if sufficient cash is available

to distribute dividends, ensuring financial stability and long-term
sustainability while rewarding shareholders.
LIMITATIONS:

● Non-Cash Transactions Are Not Shown: The statement

excludes non-cash transactions like depreciation or asset
revaluations, focusing only on actual cash inflows and
outflows.

● Historical in Nature: It reports past cash movements over a

specific period, providing a retrospective view of financial
activity.

● Assessment of Liquidity: It helps evaluate a company's ability

to meet short-term financial obligations by tracking cash
availability from operations.

● Accuracy of Cash Flow Statement: Ensures reliable and

precise reporting of cash flow, enhancing decision-making
by clearly showing actual cash movement within the
company.

Classification of cash flow statement

OPERATING ACTIVITIES:

Operating Activities are the principle revenue producing activities of the

enterprise. These are generally from the business transactions and events
that determine net profit or loss for the year.

Examples:

Cash receipts from sale of goods and rendering of services

Cash receipts from trade receivables.
Cash payment to trade payables.
Cash payment of wages, and salary.

INVESTING ACTIVITIES:

Investing activities are the acquisition and disposal of the long-term

Assets and other investments, not included in cash equivalents. These
also include the purchase and sale of long-term assets which are not
held for sale.

Examples:

Payments for purchase of PPE

Receipts from sale of PPE
Receipts from repayment of advances and loans

FINANCING ACTIVITIES:
Financing activities are the activities which result in change in size and
composition of owner’s capital and borrowings of the enterprise
from other sources.

Examples:

Proceeds from issue of shares, debentures, bonds, loans and other

short-term borrowings.
Payment for buy-back of equity shares.
Payments of dividends for both Equity and Preference shares.

CASH AND CASH EQUIVALENTS:

Cash equivalents are short term, highly liquid investments that are
readily convertible into the known amount of cash.

Types of cash and cash equivalents are:

Cash at Bank
Cheques and drafts on hand
Short-term Investments (Marketable securities)
Short-term Deposits in Bank
Current Investment
GRAPHICAL REPRESENTATION:

Conclusion
the project on V-Guard Industries, focusing on ratio analysis and the
cash flow statement, provided a detailed understanding of the
company's financial health. The ratio analysis revealed the company’s
profitability, liquidity, and solvency, while the cash flow statement
offered insights into its cash management and liquidity. Overall,
V-Guard demonstrates strong financial stability, with adequate
resources to meet short-term obligations and pursue long-term
growth.

Through this project, I gained practical knowledge of financial

statement analysis, learning how to interpret key ratios and assess cash
flow.It gave me a strong basis for future financial analysis by deepening
my awareness of financial measurements and their significance in
assessing a company's success.