Analysis of financial statements is an important exercise for the purpose of studying the trends and behaviour of different financial parameters from a leader's point of view. Before an analysis is undertaken, the variou

Analysis of financial statements is an important exercise for the purpose of studying the trends and behaviour of different financial parameters from a leader's point of view. Before an analysis is undertaken, the various parameters and items of financial statements are restructured and rearranged in the order of priority set by a credit analyst. This is necessary because enterprises prepare financial statements mainly in order to cater to the needs of the shareholders and the government. Analysis of these statements without any rearrangement may not serve a meaningful purpose for a lending banker. The process of restructuring of financial statements starts with classification of various items as current, non-current and fixed assets or liabilities. Restructuring also includes the process of filtering out items or entries resulting from those transactions which, though permitted by statutes, may present picture other than reality. Apart from this, the analyst also undertakes various other analysis, like, comparative balance sheet, ratio analysis, cash flow and funds flow, etc., to name a few to arrive at a considered view. The following example is a live situation requiring your logical conclusion as an analyst. Analyse the situation and respond to the questions indicated there against. The Balance Sheet of Sri Ganesh & Co. Ltd., for the years 2015 and 2016 are given below: (Amount in Rupees) Particulars 31-03-2015 31-03-2016 Liabilities Equity Share Capital 6,00,000 12,00,000 10% Preference Share Capital 5,00,000 9,00,000 Profit and Loss Account 6,00,000 8,00,000 Long-term Loans 2,00,000 5,00,000 Creditors 1,00,000 3,00,000 Total 20,00,000 37,00,000 Assets Fixed Assets (Gross Block) 15,00,000 28,00,000 Less: Depreciation 5,00,000 8,00,000 Net Block 10,00,000 20,00,000 Investments 4,00,000 5,00,000 Inventories 4,50,000 6,50,000 Accounts Receivables 1,00,000 4,00,000 Cash on hand 50,000 1,50,000 Total 20,00,000 37,00,000 Questions: (c) Assuming that the current ratio is 1.5, state with reasons in each of the following cases, whether the current ratio will improve or decline or will have no change: (ii) Purchase of fixed assets;