 Dear students, so far we have discussed various aspects of management accounting. Today, we are going to discuss a very interesting topic that is on analysis of financial statements. So, we will try to analyze and interpret the accounting statements. We have already seen how to record the entries. We have discussed various accounting statements particularly balance sheet, profit and loss account and cash flow. Now, various stakeholders as you know are interested in reading and interpreting the accounting statements. Can you imagine who are those stakeholders? The most important are of course, the owners who want to know the performance of the company. So, they want to know the profitability. They also want to know the financial position of the company. The vendors who give loans to the company like banks or like financial institutions will be more interested in capacity to repay their debt. So, they will also look at profitability and cash flows available with the company. Outside people like creditors, employees, managers all of them want to know about how is company performing. And that can be analyzed looking at the financial statements of the company. Today, we are going to discuss a little bit on what are the techniques of interpretation. We will also see, we will also in a way revise what were the formats of balance sheet and we will solve one or two cases wherein we will actually see how is the analysis done. Now, let us see what is going to be covered in this. We will be starting with two techniques in analysis that is vertical and horizontal analysis and then we will go for ratio analysis. You know that traditionally financial statements were prepared for the owners from the owners angle and a raw statement contains lot of raw data. So, you will know what are the assets, you will know the liabilities, you will know the details of various assets, you will also know the incomes, expenses, inflow, outflow sources. But to exactly get what you want, you will have to relate that information, analyze that information. You may want to compare this information with other companies. You may want to compare this information with the earlier year of the same company and so on. This is something which is going to be discussed more in this topic. So, financial statement analysis refers to the detailed study of these statements. The objective is to arrive at useful interpretation. Unless the statements are properly reorganized, processed and converted into useful information, they just remain lot of unwanted details. So, that is an attempt in these discussions where we will see what can be done to meaningfully understand a financial statement and interpret on whatever aspect you are interested. As we were discussing, for example, lenders may be interested to know what is the interest paying capacity of the company. Employees may be interested to know what is a profit, what is going to be the trends in profit and what are their chances of getting incentives or bonus. So, according to the view of the user or the stakeholder, various types of tools, techniques can be used. Let us see some of the techniques today. One technique popularly used and very simple in nature is horizontal analysis. There is another technique known as vertical analysis. These two are the main techniques. Horizontal analysis is the basic, very simple thing which everyone does. The moment we see the figure, we will try to know what was the position last year or what was the position last quarter. So, this involves comparison of two years or two periods for the same concern. For this, usually a comparative statement is prepared. In a comparative statement, we see this year's figure, we compare them with the last year figure. Difference is found to know how much is an increase and difference is also calculated in percentage terms. So, that we know what is a percentage increase or decrease in the current year or current period. There is another type of analysis that is known as vertical analysis. In vertical analysis, as the name suggests, within the statement, the relationship is found. So, if we know sales, we know profits. One may be interested to know what is a percentage of profit on sales or in case of balance sheet, we know the total assets, we know fixed assets. One may be interested in knowing that what percentage of total assets is represented by fixed assets. So, like this, in vertical statement, relationship between the two items of the same statement are found. Of course, this data can be used for comparison later on with the earlier year data or with the data of some other concern. For vertical analysis, the popular statement which is prepared is known as common size statement. Once again to remind you about the balance sheet formats, we have learnt horizontal format, we have also learnt vertical format. Let us have a look at it again. Here I have shown you horizontal format. As you can see, on one side, the assets are shown. Assets are listed into categories like fixed assets, investment, current assets, loans and advances. Liabilities are also listed. So, you have capital, reserves, various types of loans, current liabilities, provisions. Now, this horizontal statement may not be so much useful to analysis, because we would like to know what are the total owners funds. We may like to know what is a total capital employed and so on. So, usually horizontal balance sheet is converted into vertical balance sheet, so that a better analysis can be done. These are some of the advantages of this conversion. So, what happens with horizontal balance sheet is, it is mainly designed for the owners. The sequence in which the items are presented are mainly useful in the event of liquidation. But when we are going to study the company as a going concern, then it is better to convert it into vertical statement. So, you already know the format, but have a look at it again. So, in vertical statement, generally we start with sources of funds. This is more or less the liabilities, but not exactly the repetition of liabilities. So, in sources of funds, we take owner's fund. This is the money, which belongs to the owners. In turn, it has two parts, A capital, B reserves and surplus minus profit and loss account debit balance, which represents the accumulated losses and miscellaneous expenditure, if it is not written off. So, the total of A and B is the total money, which belongs to the owners or which enterprise should pay back to the owners. So, this is the owners fund. The second one is loan funds. Loan fund consists of secured and unsecured loan. The total is the total loan funds, which is also known as borrowed funds. The total of 1 plus 2, that is owner fund plus loan funds is known as capital employed. Now, let us go to application of funds. This is more on assets. First one could be fixed assets, which can be again divided into tangible and intangible. So, tangible assets are known as gross block minus depreciation, we get the net block or the current value. Apart from tangible, we also have an item called as intangible assets. Then second one could be long term or trade investments. The third one is working capital. This consists of current assets, less current laboratories. So, fixed assets plus long term investment plus working capital. This total is known as total assets employed. So, total of funds employed should match with total of assets employed. Of course, we have discussed this earlier, but I am trying to have a recap, so that now we can proceed for analysis. So, this is what a brief was about what is a vertical statement and what is a horizontal statement and also about the format of balance sheet. Now, let us try to take a real case, where we will try to have a raw data and then use it for making vertical and horizontal analysis. So, here a data about a real life company, Venkatesh industry is presented. Of course, this is a raw data right now. I have also changed the name of the company, but it is very close to the real data. I hope it is clear now. So, the format of balance sheet is given and the data relates to year 9 and 10. Balance sheet is already in the vertical format. So, you can see capital, loan, unsecured, mortgage, loan, P and L account and assets. Now, you are required to prepare both common size and comparative statement below. You are also given the income statement and in the end, you are also given certain ratios. We will go to ratios later. First, let us concentrate on common size and comparative statement. Now, given this data, you are required to prepare first a comparative statement. Now, what will you do? How will we start? Before starting for making a comparative statement, it makes sense to rearrange the balance sheet and P and L in a more systematic format. So, you can see the rearrangement. I have already tried to do it for you. So, what has been done now? You can compare the earlier one and this one. In the earlier one, just the information about capital, loan, etcetera was given. Now, it has been rearranged systematically. So, you come to know what are the owner's funds and what are the borrowed funds. So, capital plus reserves are taken and loan, unsecured loan, mortgage loan, you get the borrowed funds. Same way in the assets also, slight rearrangement has been done. So, you know the working capital, investments and fixed assets. Now, using this, we are required to make, let us first start with comparative statement. As I have already told you, comparative statement essentially tries to find the increase or decrease in the current year. So, we will try to make using the same thing. Comparative statement, now the balance sheet as rearranged, I will try to change it and make a comparative statement. I will request you all also to do it along with me, so that it will be clearly understood by you. Now, we will make comparative statement as on 31st March 2010. We have a data for 9 and 10. First step in the comparative is to find the change or the difference. So, let us highlight it as a change in the current year. So, 250 minus 250 in case of capital, there is no change. I will try to drag it down. So, you can see that reserves and surplus has increased by 9, overall owner's fund has increased by 9, unsecured loans have increased by 25. Change loan has decreased by 5. So, on the whole borrowed funds have increased by 20, total increase in the liabilities is 29. Instead of liabilities, now I will re-change it to sources of funds, so that it makes more sense to you. Assets now we will start with, again I will rename it as applications of funds. This is a better title, because I am not going to exactly write the same assets. This is already including assets minus current liabilities. The first part is same, we will find the difference. So, you can have a look at how the assets look like. Fixed assets at gross that is at cost have increased by 30, depreciation has increased by 40. So, net increase in fixed assets is in minus 10, current assets investments have also decreased by 10, current assets you can see each current asset stock. There is an increase of 20, debtors there is an increase of 20, loans there is an increase of 5. So, total increase of current asset is 45. In case of current liabilities there is an increase of 4. So, working capital on the whole has increased by 49, I am sorry in case of current liabilities there is a decrease of 4 that is why net effect on working capital is 45 and minus 4. So, it becomes an increase of 49 and total increase is 29. Now, this first column just shows absolute change. Now, let us try to also understand the change as a percentage. So, this change is in absolute right now. To better understand the importance let us try to find the change in the percentage terms. So, percentage change what we will try to do is this change divided by the base figure into 100 first one is of course, 0. So, now I think it will make more sense to you, you can see that there is no change in the capital. However, in case of reserves and surplus there is a change of 7 percent major change is in mortgage loan which has gone down by 25 percent while unsecured loan has increased by 31 percent. Overall the company looks fairly stable there is neither significant increase nor major decrease. It is a marginal increase of 6 percent on the total values. Same way let us try to do it for assets. So, in assets you can have a look you can see that investments have decreased by 25 percent depreciation has increased by 28 percent stock there is a major increase which perhaps you can note. There is a increase in the stock by 60 sorry there is a increase in the daters by 66 percent increase in the stock is not very high it is just 12 percent. So, in absolute terms both the increases are same it is just 20, but if you look in relative terms you will realize that increase in the stock is just a normal increase from 160 to 180. So, it is a 12 percent rise not much to worry, but increase in the daters from 30 to 50 though the increase is only of 20 in absolute terms it is 66 percent in percentage terms. So, what does it mean for an interpreter? So, what perhaps it shows is there is some issue because now there may be some items which are accumulated unpaid for a very long time or there is also a possibility that there are some amounts which are unlikely to be received, but they are just continued to be shown as daters these things you will come to know when you see in percentage terms this major rise. Other things are more or less same you can see that there is a increase in working capital by relatively higher amount that is 30 percent around that is also mainly because of increase in daters. So, major increase and decreases I am just marking to draw your attention. So, you will realize that investments have gone down and to an extent there is a increase in daters. Now have a look at the whole statement this is known as comparative statement. Now, let us also try to make one more statement that is known as common size statement. So, what comparative statement tries to do is comparative statement is mainly for comparing the same companies financial comparing the same companies financial with the earlier year, but now if you want to compare with other companies or if you want to compare with industry averages this comparison may not be enough. So, you may like to go for next step that is known as a common size statement. Let us try to do it then it will be more clear to you. So, this is I have just copied what we had earlier now instead of comparing from last year to this year we are going to compare the figure of the same statement. So, when we look at 250 as capital we will try to see what percentage it is of the total that is 466 then it is known as common size statement. Let us try to make it again my request is you try to solve it with me so that you really understand. So, we are making now common size statement as on both 31st March 2009 and 10 now instead of absolute and relative changes we are going to calculate both in percentage terms. So, nothing to do with change now, but it is more a percentage of total. So, you can see this 250 I will try to relate the total of sources which is 466. So, it is C 4 divided by C dollar 10 which makes it 55. So, now I think it will be clear to you I will just try to reduce the decimal places does it make sense to you now. So, 53 percent of the total funds is contributed by capital 78 percent is the owners fund these type of interpretations are possible. First let us do it for both the years we will also try to do it for the assets in case of assets we are going to compare it with the total of sources of funds. Now, the whole data is ready with you so what we have done is we have taken the total and we have compared each item as a percentage of total. So, you can see that the major contribution in case of this company actually comes from capital. So, owners have put in a significant amount of money may be the company has still not grown they have do not have very high amount of accumulated profits as compared to owner fund and the loans which they have taken are much lesser may be they have a policy not to rely on borrowed funds which you can see from here. What you can observe if you try to compare you will realize that now the percentage of unsecured loan has slightly increased or the total loan has increased from 21 to 24, but still the company is largely financed by owners fund. So, vertical analysis or a common size statement as you can see here helps you to find each item in relative terms. Now, it is not so much useful for comparing with the same company because you can see we do not see much difference in the percentage where it is much more useful is if you want to compare this company with some other company then common size statement data is extremely useful because two companies are at different sizes one company may be small another may be big. So, it does not make much sense to compare them without adjusting the figures in common size statement and attempt is made to bring all the figures in relative terms as a percentage to total. So, that this data can be compared with any other company. So, even if the company is large we can see that as a percentage how much is contributed by let us say capital let us say how much is contributed by loans and so on. Now, have a look at assets you will realize that out of the total assets bulk of the assets are coming from bulk of the assets are in the nature of fixed assets. It looks like the company is a manufacturing concern or a company is a service entity but which has lot of reliance on asset even if you look at WDV it is still contributing to 55 percent. The next very big amount consist of stock which is 34 percent which has now increased to 36 percent. So, what it shows or what it means is probably company is a manufacturing or a trading concern maintains a large quantity of stock. So, it is does not look like a service entity from high amount of fixed assets you may feel either it is manufacturing or it involves intensive services like say relays or airlines intense capital intensive services. Now, once you look at stock you will realize that it is not a service company it has a high component of fixed assets it also has a high component of stock. So, probably it is into a manufacturing entity you can also see here that the data percentage has increased though it is a very small as compared to total but still from 6.44 it has gone to about 10 percent. Loans and advances also are fairly high because 18 percent of the total assets is a reasonably big amount. So, as an analyst we may have to enquire into why such high instance of loans and advances. There could be a possibility that some of them are dummy or there could be a possibility that some money from this company is being used by some other entity which is owned by the same owners. So, we will have to look at it. So, on the whole you can see that 33 percent 35 percent is financed by working capital 35 percent is used to finance working capital and 55 percent about was used for fixed assets is it ok. So, this is what a comparative balance sheet looks like. Now, let us try to do both comparative income statement and balance sheet. Let us try to make both common size and comparative but for a income statement. Now, this was a income statement which was given to us. Now, let us try to make a common size and comparative statement using these data. So, here you had a comparative balance sheet. Now, using the similar data we will using the similar technique we will try to make a comparative income statement. Now, in income statement as the name suggests we have taken the income statement information and similar to balance sheet we will find absolute and percentage changes. Now, you know the techniques so it should be much easier for you. So, you have the data on sales, cost of production, selling, marketing, admin expenses, interest and profits. So, what we have tried to do is we have seen the percentage change. So, you can see that the sales have increased by 1000 and in absolute sense it is 1000 and in percentage term it comes to 13.33 percent. Production costs there is a increase of 500 which does not tell you much information but in percentage term you can understand well that production costs have not increased significantly they have increased only by 8.9 percent. So, though the sales have increased by 13 percent the production costs have increased by only 8 percent. This is a good sign it shows that company was able to contain the increases in the cost that has helped them to increase the gross profit margin. This difference is known as gross profit or gross margin as it is sometimes called. So, now you will realize that there is a good increase in gross profit and it is mainly because of savings in the cost of production. Now have a look at selling expenses they have increased by 16 percent which is because it is almost in tune with sales. There is a increase in operating profit by 46 percent. Now why has this increase happened? It is mainly because though the sales are rising the cost of production is controlled that has helped them to have a significant increase on the net profit margin I mean I am not sorry not the net profit margin but the net operating profit as a percentage over last year shows a good increase of 46 percent. Interest cost has also increased by 5, but the profit before tax could be increased by 46 percent again this rise is mainly attributable to savings in the cost of production. We will also try to find it for the remaining. So, you can see that tax remains at a similar percentage. So, there is a 46.09 percent increase in both PBT, tax and PAD. So, is it clear to you here we have tried to learn making of a comparative income statement. Now, let us try to make a common size income statement. So, we will go to next sheet where we have already made a common size statement for the balance sheet. Now, you know that in common size we take the total and find each item as a percentage to total. Now, here again we will try to do the same thing right now I have just copied the comparative income statement. Let us make a common size statement from it. So, how will you proceed for a common size statement? Let us try to remember. So, here there is no funda of comparing between the two figures or two years. Here we compare with the total. So, we will try to convert all the figures into percentages. Now, in case of income statement we take the sales as the total amount with which it will be compared. So, here you have a data sales is compared with sales. So, obviously it is 100 percent and then other figures you get now as a percentage of sales. We will also do it for 2010. So, are you getting? So, here from the same income statement you get some other insight because you were able to see the cost of production, GP and other information. But now you have a view where you know that how much of the percentage of sales is your cost of production? How much percentage is your gross profit and so on? So, you can see here that cost of production is your major expense. It consists of about 75 percent in 09. Now, it has slightly come down still it is 72 percent. So, this is one of the important costs for the company. Selling costs have remained constant they are around 16 to 17 percent. Their net profit net operating profit is 8.67 now it has slightly increased to 11.18 percentage of sales. PBT remains more or less same from 8 or 9 percent it is now 11 percent and net profit after tax was 6.4 percent it has slightly increased to 8.25 percent. Now, here we have tried to make a common size income statement is it clear to everyone? Now, let us try to understand. So, two major techniques we have done one we were looking at a common size statement the other one which we have learnt is sorry first we learnt comparative statement and the second we have also learnt common size statement. I hope it is clear to you. Let us try to understand the third technique which is known as ratio analysis. Now, in both these statements we have tried to relate one item with another. In ratio analysis the same thing we will do more systematically. So, we will pick up various items from various statements and we will try to find the relationship. So, ratio is nothing but a relationship between one item with the another item. We are talking of financial ratios, but ratios are also common and they can be used with comparing one data from financial statement with some other data with some other statement or you can also have a qualitative ratio. So, we will compare input with output to know the productivity and so on. So, let us try to look at the ratio analysis. This is one of the most important statements one of the most important tools in the financial statement analysis as we have already seen here we are trying to see the relationship between two or more items. Now, we have seen this in the last comparative statement, but have a look at it again. Now, if there are two entities a and b, a earns a profit of 65, b earns a profit of 45. Now, which one is more profitable, a is more profitable or b is more profitable? You may immediately feel that a is more profitable because in absolute terms a has earned a profit of 65 versus b is profit of 45, but if we really try to know profitability or profit earning capacity of the entity, we should compare the profit with sales and then only come out with the conclusions. Now, this sale data is given to you. Now, what do you feel which is more profitable, so a has sale of 650 while b has a sale of 300. So, what do you know now? Now, here it can be seen that if you calculate the ratio of profit upon sales, which is popularly known as net profit ratio, we will come to know that 65 upon 650. That means the net profit ratio is about 10 percent for entity a. Entity b you can see 45 is earned on a sale of 300. So, this gives the net profit ratio of about 15 percent. So, in other words b is more profitable than a. If you look at more profit in absolute terms, yes definitely a is better, but if you look at the profitability, then b is better. I hope it is clear. So, this was an example of a ratio. Now, this type of ratios can be calculated for profit and loss, for balance sheet from across one statement to another or from one item of financial statement to with some other quantitative information and so on. It is a really interesting area. Now, let us try to look at a few ratios and then we will go back to our problem and try to calculate the ratios for the Venkatesh industries, which we have been already studying. So, what happens is a single statement does not give you that much of a information. If you pick up a single accounting figure from one statement, it really does not tell you what it tries to explain. So, we will have to relate it with some other statement, some other statement or some other item and that is something which is run or attempted in ratio analysis. So, here we are not just comparing different numbers from the same statement as we do in common size comparative statement. So, here we may compare with previous year. So, you calculate the ratio and compare with the ratio of the last year or you can calculate the ratio for this company, compare with ratio of another company like we have done in for A and B or you can also calculate the ratio and compare with industry average. This is the way ratio analysis is versatile. It can be used for comparing for the same company earlier year, for one company with another or for one company with the industry. So, it helps all stakeholders, it helps owners, managers, investors, lenders, employees and so on. So, you may want to get various types of conclusion. Somebody may be interested in performance of past, present, future. So, you may be interested in calculating ratios like net profit ratio and so on. It also, there are also certain ratios which talk about strengths and weaknesses and you can take certain decisions about the firm using ratio analysis. That is why ratio analysis is the most popular of all the techniques of financial statements. So, though we have learnt various techniques, whether it is common size, comparative or ratio, all of them should be used together. That gives us a better look of the whole position of the company. Now, try to study different types of ratios. Rationals can be categorized broadly into liquidity, capital structure, activity and profitability. Actually, there are hundreds and hundreds of ratios which can be calculated, but considering that availability of time, we will try to calculate, understand a few ratios. Then you can make more and more ratios as per your need. Let us first look at the liquidity ratios and then we will go back to the problem and try to apply them on the industry or the company which we are studying. So, first example of liquidity ratio is current ratio. This is a very simple ratio which links current assets to current liabilities. You all know what is a current asset. So, in this examples are given that it includes inventories, sundry daters, cash balances, loans, disposable income and so, investment and so on. These are those assets which can be liquidated in maximum one year. You also know what are the current liabilities. These are the items like craters, outstanding expenses, provisions. They are required to be paid within a short time, say 3 months, 4 months, 5 months and not more than one year. So, in current ratio, we try to link current assets and current liabilities. So, what will the ratio tell? Can you imagine now? What is it? You will know from the ratio. So, what we can find is, how many times are the current assets on upon current liabilities? Because for a stable business, in order that it can meet its liabilities, it is very important that it has sufficient current assets and this sufficiency is shown by current ratio. So, the main question that does the business have enough current assets to meet its current debt is answered by current ratio. Usually 2 is to 1 is considered as a acceptable current ratio, but do not take it as a fixed ratio or a standard of 2 is to 1. It significantly varies with the nature of business and also the nature of current assets and liabilities which you have. For example, let us say there is a manufacturing company, there is another IT company. Now, which company will have more current ratio? Can you guess? I think you are guessing it right. Manufacturing company will have significantly high current ratio, because a manufacturing entity is required to maintain various types of stocks like raw material, working progress, finished goods. It also has to deliver goods to its customer and after some months it gets money. So, it also has significant amount of receivables. All these are high amount of current assets which make it essential to have a high current ratio whereas an IT industry there is no need of stocks. What they may have is only debtors or receivables that is why usually their current ratio will be low. So, the standard of 2 is to 1 need not be applied blindly for each industry you have to look at the standard and then apply it. What happens is sometimes the quality of current assets is also important. Suppose your company has current assets which cannot be liquidated very easily. They consist of let us say high extent of advances. It may make sense to have a higher current ratio in this case. There is also another ratio known as quick ratio or asset test ratio. It is quick assets divided by quick liabilities. Now, what is a quick asset? So, quick assets are those current assets which can be easily converted into cash. So, you can see the definition which is given here. Usually current assets minus inventory is defined as a quick asset. But you have to look at the list of assets which are given to you. If there are some items which cannot be readily converted into cash those have to be removed. So, for example, you may want to remove advances because they cannot be readily converted into cash same way quick liabilities. So, those liabilities which need not be paid immediately will be removed reduced from current liabilities. The remaining current liabilities are quick liabilities. So, here I have given it as current liabilities minus bank overdraft. Generally bank overdraft is sanctioned for a period of say 1 year. So, that need not be taken as quick. Other current liabilities are taken as quick. So, these were the two important liquidity ratios. So, quick ratio is more conservative tool than current ratio because this measures the immediate solvency of the company. Current ratio was more broader in nature. You can compare the two ratios. You will realize that in current ratio we were comparing current asset versus current liabilities. In quick ratio we are comparing quick assets versus quick liabilities. So, quick assets are those specific assets which can be readily converted and dem we are comparing with those liabilities which have to be immediately paid. So, if you want to know the immediate liquidity quick ratio will be a better tool. If you want to know overall liquidity current ratio could be a better tool. Anything coming to the ideal current ratio generally a ratio of 1 is to 1 is considered better. Now, it measures as we have seen immediate liquidity that is why it has a shorter or a smaller ratio is enough instead of 2 is to 1 here current ratio of 1 is to 1. Usually the nature of business does not matter so much because whether it is manufacturing or IT company let us say the difference of one having stock another not having stock does not matter because in liquid ratio we are not going to consider stock in any case that is why ratio of 1 is to 1 considered to be a reasonably good ratio. So, now we have seen two liquidity ratios. Now, let us go ahead and look at some other ratios the other type of ratios the second type are known as capital structure or leverage ratios. They indicate how is the financing of the business made. So, if in financing a larger portion is provided by the owners then the owners fund will be more as compared to outsiders funds or borrowed funds. So, in capital structure ratios we try to relate owner fund with the borrowed funds. There are two major ratios one are capital structure the other are coverage ratios in capital structure we focus on how is the financing done. So, you can see the ratio here one of the popular ratio is known as equity ratio which compares the shareholders equity with the total capital employed. There is also another ratio which is known as debt ratio where we compare the total debt with the capital employed sometimes we also have a ratio you can have a look at it. So, in here we compare take the total debt both short term and long term it also includes debt in the form of debentures bonds and so on and it is compared with the capital employed. So, this tells us what is a long term solvency of the business. Now is it better to have a higher ratio let us say this is a debt ratio is it good to have a higher debt ratio or a lower debt ratio what happens is if your debt ratio is high it means that more of your assets are financed by outsiders borrowed money. So, it somewhat questions or somewhat affects the stability of the entity that is why too high a debt ratio may not be good, but if you do not have any debt it hampers the growth of business it may also hamper profitability that is why you should have a decent level of debt ratio neither too high nor too low again the decent level varies from industry. For a manufacturing company a higher debt ratio may be acceptable for a I T company because their business itself is volatile higher debt ratio may not be recommended they also do not need very high amount of capital. So, they need not resort to debt funds that is why there are no standard ratios for equity or debt they may again vary from industry to industry. There are some more ratios like debt equity and some more coverage ratios that we will see in the next session and in the next session we will also try to actually apply them in the real life case. So, in today's session we have understood horizontal analysis which is generally done with a comparative statement, vertical analysis which is done with common size statement and now we are discussing the concept of ratio analysis. Let us stop here we will meet in the next session thank you.