The to evaluate and analyse the current situation

The examination of financial
statements is a systematic process used to amount the profitability, growth and
operational efficiency of the company. There are various methods used to
analyse the financial statements of a company. This study is going to use the
horizontal method to analyse the financial statements. Horizontal analysis helps
in examining in what way a company has grown over the years. Horizontal analysis
is also helpful in comparing the performance of the company with its
competitors. The study has taken Kwailty Limited as the subject to analyse it’s
financial statements.

Kwality limited is involved in
processing, manufacturing, and trading of dairy products, milk products and
milk. It started it’s journey in 1992 as a regressive incorporation unit of
Kwality Ice Creams India Ltd. It is known as one of North India’s fastest
growing dairy company in the private sector. It has six manufacturing units in
India. Over the years, it has derived with ground-breaking dairy products for
their consumers. It largely markets and sells it’s product under the family
brand, “Dairy Best.” Kwality has amplified it’s attention on distribution of
dairy products from India to other continents like Australia and Africa and to
more than 28 countries. 

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This report is further going to
evaluate and analyse the current situation of Kwality limited. It is also going
to compare it’s performance from the year 2015 to 2017. The three financial
statements that are going to used are: the Balance sheet, Profit and Loss
Account and Cash Flow Statement.

 

 

 

 

 

 

 

 

 

2. ANALYSIS:

2.1 Capital structure:

The capital structure determines
the commercial well-being of a company. Over the past three years, Kwality
Limited has been increasing the number of shares issued, therefore the equity
share capital has been growing.  From
2015 to 2017 there has been an 8% increase in the equity share capital. Equity
capital is considered to be an expensive cost since the cost is the return the
firm must make in order to attract investors. As the same time it has very low
risk because the company may or may not pay back the shareholders if the
earnings of the company decline. Hence, Kwality is trying to lower their risk
by increasing their share capital. The other way of raising capital is by taking
debt. From 2015 to 2016 the company has increased their borrowings by 73%
whereas from 2016 to 2017 it has increased by 98%. Leveraging has a major
advantage that the interest payable is tax-deductible. Therefore, at times it
has been considered a better option than equity since debt also retains the
ownership of a company. The debt to equity ratio of the company in 2017 is
0.5:1. This indicates that the company has a low leverage ratio and is a very
conservative company that does not believe in taking a lot of loans. This could
lead to a slower growth rate of the company. The increase in loans as well as
equity capital is due to expansion plans of Kwality Limited.

2.2 Investing decisions:

Kwality Limited has made quite a
few investments in the year 2017. Compared to the prior year, the company has improved
their use of cash in investing activities by 96%. The investing activities of a
company plays a very significant role in allocating their capital. One incorrect
decision can turn out to be very expensive for the company. One of the major
investments that the company has made is buying equity shares in it’s own Subsidiary
company. The company increased it’s fixed asset acquisition by 93% compared to
last year. There has been an inflow of cash due to the profit made from the
sales of the fixed assets. The company’s received interest obtained from it’s
previous investments has decreased by 8% since the previous year.

 

 

 

 

2.3 Working capital:

The working capital shows if a
company has adequate current assets to pay off it’s current liabilities. It is
important to run the company’s day to day expenses. If the working capital is
not maintained properly, the company could become insolvent. Analysing the
working capital ratios of the previous years and present in Kwality, it can be
stated that the company has managed to maintain it’s working capital over the
past years and is in a good position. The current ratio also determines the
liquidity of a company. The inventory turnover ratio is high which indicates
that sales of Kwality are strong. The quick ratio is used to analyse the short-term
liquidity of the company. The company’s quick ratio comes under the ideal quick
ratio of a manufacturing unit. This points out that the company has sustained
their operating cash flow of the company. It also portrays the working capital
management of the company is efficient and in control.

2.4 Financing Decisions:

The cash flow from the financing
activities define the financing decisions of a company. The financing decisions
reflect on the payment for the investments and expenses of the company. It is
very crucial to the company to make the right financing decisions, since it has
a direct impact on the capital structure of the company. As already discussed
Kwality limited has raised their equity capital as well as has taken long term
borrowings this year. Their long-term borrowings have increased by 89% compared
to the previous year. They have also paid off their net short-term borrowings.
The company managed to pay 7% more dividend to it’s shareholders compared to
the previous year. Even though the company’s payments increased in the year
2017 compared to 2016, due to the rise in their capital, the net cash used in
the financing activities decreased 22% this year. At the end of their present
financial year, the company was left with 141% more cash and cash equivalents
compared to 2016.

 

 

 

 

 

 

2.5 Cost management:

Cost management is essential for planning and guiding the budget of the
company. The main aim of cost management is to optimise the performance of the
company than to cut the 

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