Assessment of Financial Statements Using Comparative Ratio Analysis : Case of Indus Motor and Pak Suzuki

Abstract

Financial ratios play a significant role in evaluating firm’s financial performance. These ratios are typically used to review the information in a firm’s financial statements, analyzing and evaluating its financial position. This study was based on secondary data collected from selected companies of Automobile Industry in Pakistan for the period of 2009-2013. In the theoretical section of the study different perspective of financial statements were discussed, with the focus being on the financial ratios. For the sake of reviewing the income statement and balance of two renowned companies namely Suzuki Motor and Indus Motor, specific tools and techniques under the umbrella of performing ratio analysis of the financial statements have beenconducted. The main aim of this research is based upon the m onetary output of two leading companies, Indus Motor Company Limited (IMC) and Pak Suzuki Motor Company Limited (PSMC). Further, this study used various financial ratios like ratios regarding level of liquidation, level of activity, level of leverage, level of proficiency and market worth. Moreover, the results of the study indicates that in term of liquidity ratios, PSMC ranked first and IMC ranked second, whereas in terms of activity, leverage profitability and market value or shareholder ratios, IMC ranked first and PSMC placed second. Overall, IMC ranked first and secured 29 points, whereas PSMC ranked second and secured 19 points. Finally, the results revealed that financial performance of IMC was better than incomparison to PSMC.