Question

State the meaning of Analysis and Interpretation.

Answer 1

Analysis and Interpretation refers to a systematic and critical examination of the financial statements. It not only establishes cause and effect relationship among the various items of the financial statements but also presents the financial data in a proper manner. The main purpose of Analysis and Interpretation is to present the financial data in such a manner that is easily understandable and self explanatory. This not only helps the accounting users to assess the financial performance of the business over a period of time but also enables them in decision making and policy and financial designing process.

Country Man Ltd Comparative statement as on March 31, 2010 and 2011

Particular	2009–10	2010–11	Absolute Change	% Change
Sales	1,00,000	1,50,000	50,000	50
Less: Cost of Goods Sold	60,000	78,000	18,000	30
Gross Profit	40,000	72,000	32,000	80
Less: Operating Expenses:
Office and Administrative Exp.	8,000	10,000	2,000	25
Selling and Distribution Exp.	5,000	6,000	1,000	20
Operating Profit	27,000	56,000	29,000	107.4
Add: Other Income	3,000	4,800	1,800	60
Less: Non-operating Expenses	4,000	4,800	800	20
Profit Before Interest and Tax	26,000	56,000	30,000	115.38
Interest	2,000	1,800	(200)	(10)
Profit before Tax	24,000	54,200	30,200	125.83
Less: 50% Income Tax	12,000	27,100	15,100	125.83
	12,000	27,100	15,100	125.83

`"Percentage Change" = "Absolute Change"/ "BAse year of 2009-08" `

Interpretation:

1. Sales of the company have increased by 50% during the year 2010−11 whereas the cost of goods sold has also increased but at a lesser rate. From this, we can infer that the company has followed an efficient sales strategy consequent of which the gross profit of the company has increased by 80% compared to the previous year (2009-10).

2. In 2010−11, operating expenses have also increased but on the contrary operating profit has increased at a higher rate than the rate of operating expenses.

3. Profit before interest and tax has also increased by 115.38% during these two years. This indicates the improvement in the operating efficiency of the company.