Question

The following information is related to Bengaluru Silk Ltd.:

BALANCE SHEET as at 31st March
		Note No.	31.3.2023 (Figures in ₹’000)	31.3.2022 (Figures in ₹’000)
I.	Equity & Liabilities:
	Shareholder’s Funds:
	Share Capital	1	3,000	2,000
	Reserves & Surplus		2,500	1,300
	Non-Current Liabilities:
	Long term Borrowings	2	900	500
	Current Liabilities:
	Trade Payables		1,050	980
	Short-term Provision	3	300	220
			7,750	5,000
II.	Assets:
	Non-Current Assets:
	Property, Plant and Equipment (Machinery)		4,240	2,840
	Current Assets:
	Inventory		2,295	1,020
	Trade Receivables		1,100	1,000
	Cash and Bank Balance		115	140
			7,750	5,000

Note:

1. Share Capital Comprises of equity shares of ₹10 each.
2. Rate oflnterest on long term borrowings is 12% p.a.

3. Short term Provision	31.3.2023 (Figures in ₹’000)	31.3.2022 (Figures in ₹’000)
   Provision for Tax	300	220

		31.3.2023	31.3.2022
Revenue From Operations (Sales)		8,960	7,000
Cost of Revenue from Operations		6,020	4,900
Administration & Selling Exp.		960	600
Depreciation		372	280
Interest on Long term borrowings		108	60
Provision for Tax		300	220

     You are required to prepare a Project Report to be submitted to board of directors commenting upon the working and financial position of the firm on the basis of appropriate ratios.

Answer 1

(1) Statement of Profit and Loss for the years ended 31^st March 2023 and 2022:

Bengaluru Silk Ltd.
For the Years Ended 31st March 2023 and 2022
Particulars		2022–23 (Figures in ₹’000)	2021–22 (Figures in ₹’000)
I.	Revenue from Operations (Sales)	8,960	7,000
II.	Other Income	-	-
III.	Total Revenue (I + II)	8,960	7,000
IV.	Expenses:
	Cost of Revenue from Operations	6,020	4,900
	Administrative & Selling Expenses	960	600
	Depreciation and Amortisation	372	280
	Finance Costs (Interest on Borrowings)	108	60
	Total Expenses (IV)	7,460	5,840
V.	Profit Before Tax (III - IV)	1,500	1,160
	Less: Provision for Tax	300	220
VI.	Profit After Tax (Net Profit)	1,200	940
VII.	Earnings Per Share (EPS)	₹4	₹4.7

(2) Comparative Financial Ratio Analysis:

Ratio	2022–23	2021–22
Current Ratio	3.34 : 1	2.2:1
Quick Ratio	1.16 : 1	1.16 : 1
Debt-Equity Ratio	0.16:1	0.15:1
Debt to Total Assets Ratio	0.12 times	0.10 times
Inventory Turnover Ratio	3.6 times	4.8 times
Trade Receivables Turnover Ratio	8.5 times	7 times
Gross Profit Ratio	32.81%	30%
Operating Ratio	82.05%	82.57%
Net Profit Ratio	13.39%	13.43%
Earnings per Share (EPS)	₹4.00/share	₹4.70/share

(3) Interpretation & Comments:

1. Profitability Analysis:
   • Gross Profit Ratio improved to 32.81%, indicating better margin control.
   • Net Profit Ratio slightly declined from 13.43% to 13.39%, showing marginal increase in overheads.
   • EPS decreased from ₹4.70 to ₹4.00, which may reflect increased share base or less earnings growth.
2. Liquidity Analysis:
   • The Current Ratio increased from 2.2 to 3.34, indicating excellent short-term financial health.
   • Quick Ratio remained stable, confirming efficient liquidity management.
3. Efficiency Analysis:
   • Inventory Turnover declined from 4.8 to 3.6 times, suggesting slower inventory movement.
   • Trade Receivables Turnover improved, showing faster collections and stronger credit control.
4. Solvency Analysis:
   • Debt-Equity and Debt to Assets Ratios are low, indicating a conservative capital structure and low financial risk.

Working Note of Comparative Financial Ratio Analysis:

1. Liquidity Ratios:

   Ratio	Formula	2022-23	2021-22
   Current Ratio	`"Current Assets"/"Current Liabilities"=(2,295 + 1,100 + 115)/(1,050 + 300)`	3.34 : 1	2.2 : 1
   Quick Ratio	`("Current Assets"-"Inventory")/"Current Liabilities"= (3,510-2,295)/(1,350)`	1.16 : 1	1.16 : 1

2. Solvency Ratios:

   Ratio	Formula	2022-23	2021-22
   Debt-Equity Ratio	`"Long-term Debt"/"Shareholders"=(900)/(5,500)`	0.16 : 1	0.15 : 1
   Debt to Total Assets Ratio	`"Total Debt"/"Total Assets"=(900 + 1,350)/(7,750)`	0.12 times	0.10 times

3. Activity Ratios:

   Ratio	Formula	2022-23	2021-22
   Inventory Turnover	`"Cost of Revenue"/"Avg. Inventory"=(6,020)/((2,295+1,020)/2)`	3.6 times	4.8 times
   Trade Receivables Turnover	`"Revenue"/"Avg. Receivables"=(8,960)/((1,100 + 1,000)/2)`	8.5 times	7 times

4. Profitability Ratios:

   Ratio	Formula	2022-23	2021-22
   Gross Profit Ratio	`"Gross Profit"/"Revenue"xx100=(8,960 − 6,020)/(8,960)xx100`	32.81%	30%
   Operating Ratio	`("Cost of Ops."+"Admin."+"Depr.")/"Revenue"xx100=(6,020 + 960 + 372)/(8,960)xx100`	82.05%	82.57%
   Net Profit Ratio	`("Net Profit")/"Revenue"xx100=(1,020)/(8,960)xx100`	13.39%	13.43%
   Earnings Per Share (EPS)	`("Net Profit After Tax")/"No. of Shares "=(12,00,000)/(3,00,000)`	₹4	₹4.7