1.

Introduction
Finance is the lifeblood of business activities. Finance and functions of finance are the part of
economic process. Finance is very essential needed for all types of organization, viz. small, medium
and largescale industries. Finance is one of the major elements, which contributes to the overall
growth of the economy. A well-knit financial system directly contributes to the growth of economy.
An efficient financial system calls for the effective performance of financial instruments and
financial management as a separate subject. According to Joseph and Massie, “financial
management is the operational activity of a business that is responsible for obtaining and effectively
utilizing the funds necessary for efficient operation”.

1.1 Financial Statements

The financial statements of the business or an organization helps in sharing the financial position of
the business to the creditors, investors, and analysts. They then shortlist broad attributes drawn from
the financial statements and thereby derive meaningful inferences. Such inferences would then result
in actions as planned by the stakeholders.

The financial statements can be broadly classified as balance sheet, income statement, cashflow
statements, and statements of owner’s equity. These can be prepared on a quarterly basis, monthly
basis, semi-annually basis, and on an annual basis. They are to be prepared as per the guidelines
placed in the accounting principles as laid down by the regulatory authority. In lay man terms, they
should be prepared in the standardized form so that such statements can be easily with the other
financial statements of business that are a part of the organization.

Generally, the balance sheet would describe the financial position of the business as to how they
stand in terms of assets and liabilities. The income statement describes the profitability of the
business and provide an explanation of the income streams generated by the business. The cashflow
statement describes the exact cashflow position of the business that is how the inflows and outflows
of cash happens in the business from the prior period to the current period.

1.2 Types of Financial Statements

 Balance Sheet

The balance sheet describes the financial position of the business and it delivers critical and
important insights on how the investments of the company or business are in place. Such information
and insights could be both on tangible and intangible investments and assets. The balance sheet also
provides information pertaining to the debt and equity mix. It can be described as the financial
statements which is regarded as the final outcome resulting from on all financial statements. The
balance sheet is prepared using the following equation:

Total Assets = Liabilities + Shareholder’s Equity

 Income Statement

The balance sheet normally prepared and presented is on as on date. It provides the overall snapshot
of the liability’s positions, asset position, and debt to equity mix. It does not describe the overall
profitability that the business achieved and how they achieved their business growth. The income
statement, therefore, becomes important and it is the second statement that the investors sought to
access so as to gain insights on the profit numbers as shared by the income statements. Therefore, the
income statement reports sales, expenses, profits both before and after tax, and any losses that the
business may incur. The operational expenses may comprise of Salaries, rent, telephones, and
internet, taxes, water bills, sales and marketing costs, taxes, stationaries, etc.

Usually, a general income statement comprises of sales. From Sales, the cost of goods sold or cost of
sales is deducted to arrive at the gross profit. From the gross profit, operational expenses and
depreciation are deducted to arrive at earnings before interest and taxes. From the earnings before
interest and taxes, interest expense is deducted to arrive at earnings before taxes. Finally, the taxes
are deducted to arrive at the profit after taxes.

 Cashflow Statement

The statement of cashflows generally describe the overall cash outflow and cash inflow that the
business experiences during the financial period. This helps the investors and creditors ascertain that
the business has enough to service its expenses and handle their purchases. The cashflow statements
are broadly described in terms of operating cashflows, cashflows from financing activities, and
cashflows from the investing activities.

The cashflow from operations generally begins with the adding up of non-cash expense into
depreciation followed by the changes in assets and liabilities position. The cashflow from the
financing activities describes the changes in the cashflows arising due to retiring or raising funds
from debt and equity as well as reporting of distributions and contributions. The cashflow from
investing activities describes the changes in the cashflows arising from purchase and sales of fixed
assets.

1.3 Objective of Financial Statements

Objectives of financial statements are the specific purposes or reasons (which may include purpose
of compliance, understanding the fundamentals of the company, measuring the financial strength of
the business, reporting of the performance, results, financial stability and liquidity to the various
stakeholders of the organisation, providing confidence of going concern to the creditors) for which
the financial statements are prepared and presented to the owners of the business and other
stakeholders.

 True & Fair view of financial position

1. Balance sheet shows the financial position of the business i.e. it enlists the assets and
liabilities. The difference between those represents the net worth (i.e. book value of the
business). Net worth includes the capital infused by the owners plus the profits earned till
date.
2. Decreasing in the net worth is bad indicator of growth. This gives the management various
hints to improvise the financial position.
3. Financial position is presented for current year and previous year. The increase is assets
represents growth of the earning capacity and decrease in liabilities represents the repaying
capacity of the entity.
4. Thus, the utmost objective of true and fairness is very essential here.

 True & fair view of financial performance

1. Income statement shows the financial performance of the entity i.e., its revenue and its
expenses. The difference between those represents the profit or loss earned during the period.
2. Decrease in revenue has direct impact in decrease in profits. Increase in expense have reverse
impact of decrease in profits.
3. If the accounting standards are not followed appropriately, it shows that management can
play with revenue & expenses figures.
4. Thus, the true and fairness is essential objective in preparing the income statement.

 To provide information about resources

1. Another objective behind financial statements is to provide information about the resources
available with business (i.e., production capacity, labour hours, cash reserves, inventory, WIP
percentage, delivery mechanism, etc.) and its usage parameters. It also gives information
about changes in the resources between two periods.
2. This information helps in better understanding of the business as changes in the utilisation
and acquisition of the resources helps the stakeholders to take financial decisions.

 To provide Information about the earning potential

1. Financial statements should also hint about earning potential of the business. This
information is for the top management level of the organisation.
2. With the economic assets and liabilities, the management can decide on the expansion levels.
3. The three components of financial statements in together should provide information about
the earning capacity of the entity.
4. Earning potential is also linked with the utilisation of available resources.

 To form basis for decisions of the stakeholders

1. Stakeholders means the owners, directors, customers, suppliers, employees, workman,

government, finance providers and the public at large.
2. Employees needs to take decision whether to stay employed or not. Customer needs to take
decision whether to give more orders. Suppliers needs to think about whether to supply or
not. Finance providers also have to take decision whether it is feasible to give loans to the
entity. Public at large needs to think whether to invest in the entity. Directors have to decide
on the dividend pay-outs, raising finance, employing more staff, acquisition of resources and
many other things to keep the business running.
3. All such decisions are based primarily on the financial statements.

 To report on the effectiveness and efficiency of the management

1. Owners have no time to attend the daily operations of the business and thus, they appoint the
management to look forward for the entity. The strong financials are the picture of the
effectiveness and efficiency with which the decisions are taken by the management.
2. Effectiveness means whether the purpose is served or not. So, owners can think whether the
decision made by them in appointing the management is appropriate or whether it needs any
change. It also shows whether the internal policies are strong.
3. Efficiency means whether the target is achieved in reasonable time. Owners can think upon
their decision by observing the gross profit ratio and the net profit ratios of recent years.
  7. To increase the understandability of the end users.

1. End users means the owners, for whom the financial statements are prepared. All the laws,
regulations, accounting standards, accounting framework, etc. are here to ensure the
understandability of the end users.
2. Financial statements are summaries of the operations during the year and therefore it is
required to provide various disclosures to help the owners understand the statements in a
better manner.
3. If the end users can arrive at correct decision with the help of financial statements, this
objective is achieved.

 8. Other Objectives

1. To help settle disputes arising between various parties.

2. To provide information about the credibility of the entity in the finance world.
3. To decide on whether it is right time to replace the assets of the firm with new assets having
increased capacities
4. To decide whether to invest in other entities so to expand the empire.
5. To help government with information about payment of taxes, etc.

1.4 Financial Analysis

Every business needs to prepare basic financial statements that summarize its operating results and
financial position for a particular period. These statements primarily include income
statements, balance sheets, and cash flow statements.

Thus, the purpose of preparing these statements is to ascertain the profitability and financial
soundness of a business. But the detailed information reflected in such statements alone is not
sufficient to reach meaningful managerial conclusions. Therefore, detailed financial analysis and
interpretation of these statements is required using various tools and techniques.

This analysis helps to understand the relationship between various components showcased in each of
these statements. So, one of the tools commonly used to undertake financial statement analysis is
creating comparative financial statements. Other techniques include:

 Common Size Statement Analysis

 Ratio Analysis
 Cash Flow Analysis
 Trend Analysis

1.5 Comparative Financial Statements

Preparing Comparative Financial Statements is the most commonly used technique for analysing
financial statements. This technique determines the profitability and financial position of a business
by comparing financial statements for two or more time periods. Hence, this technique is also termed
as Horizontal Analysis. Typically, the income statements and balance sheets are prepared in a
comparative form to undertake such an analysis.

Furthermore, there is a provision attached to comparing the financial data showcased by such
statements. This relates to making use of the same accounting principles for preparing each of the
comparative statements. In case the same accounting principles are not followed to prepare such
statements, then the difference must be disclosed in the footnote below.

 Comparative Balance Sheet

A comparative balance sheet showcases:

1. Assets and liabilities of business for the previous year as well as the current year
2. Changes (increase or decrease) in such assets and liabilities over the year both in absolute and
relative terms
Thus, a comparative balance sheet not only gives a picture of the assets and liabilities in
different accounting periods. It also reveals the extent to which the assets and liabilities have
changed during such periods.

Furthermore, such a statement helps managers and business owners to identify trends in the various
performance indicators of the underlying business.

A business owner or a financial manager should study the following aspects of a comparative
balance sheet:
1. Working Capital: Working capital refers to the excess of current assets over current
liabilities. This helps a financial manager or a business owner to know about the liquidity
position of the business.
2. Changes in Long-Term Assets, Liabilities, and Capital: The next component that a
financial manager or a business owner needs to analyse is the change in the fixed assets,
long-term liabilities and capital of a business. This analysis helps each of the stakeholders to
understand the long-term financial position of a business.
3. Profitability: Working capital refers to the excess of current assets over current liabilities.
This helps a financial manager or a business owner to know about the liquidity position of the
business.

 Comparative Income Statement

A comparative income statement showcases the operational results of the business for multiple
accounting periods. It helps the business owner to compare the results of business operations
over different periods of time. Furthermore, such a statement helps in a detailed analysis of the
changes in line-wise items of the income statement.
A business owner or a financial manager should study the following aspects of a comparative
cashflow statement:

1. Comparing Sales with Cost of Goods Sold: Changes in the sales in the given accounting
periods should be compared with the changes in the cost of goods sold for the same
accounting periods.
 2. Change in Operating Profits: Change in the operating profits should be analysed.
3. The profitability of a Business: Understanding the overall profitability of a business
concern taking into consideration the changes in the net profit of the given accounting
periods.

օ Advantages of Comparative Financial Statements

1. Comparison: The comparative statements show the figures of various firms or number
of years side by side i.e., both for inter-firm comparison and intra-firm comparison.
2. Horizontal Analysis: The variables are arranged horizontally for the purpose of
analysis and interpretations of data taken from financial statements for assessing
profitability, overall efficiency and financial position of a firm.
3. Trend Analysis: The comparative financial statement helps to ascertain the ‘trend’
relating to sales, cost of goods sold, operating expenses etc. so that a proper
comparison can easily be made which helps the analyst to understand the overall
performance of a firm.
4. Trend and Directions: The comparative financial statement provides necessary
information for comparison of trends in related items e.g., the analyst can compare the
trend of sales with the trend of accounts receivable which gives very useful
information. A 20% increase in accounts receivable and an increase of sales by only
10% warrants investigation into the reasons for this difference in the rate of increase.
5. Evaluation of: The comparative financial statement helps the analyst to compare
Performance the performance of one firm with that of other similar firm in the industry
and also compare the performance of the competitors in the line. This comparison
helps to find out the weakness or strength of a firm and to take adequate steps.
6. Measuring Financial: Comparative financial statements help to measure important
Distress financial ratios which are used for predicting financial distress and predicting
corporate failure with the help of Multivariate Model.

օ Disadvantages of Comparative Financial Statements

1. Inter-firm Comparison: Inter firm comparison will only be effective if both the firms
follow the same accounting principles, method of valuations of stocks, assets etc. i.e.,
all the accounting concepts and conventions, which in real world situation, are not
identically followed by both the firms e.g. Firm A follows the FIFO method of valuing
stock whereas Firm B follows LIFO method for the same.
2. Inflationary Effect: Comparative financial statements do not recognise the change in
prices level and, as such, it will be of no use.
3. Ascertaining Correct Trend: It is very difficult to ascertain the correct trend if there
is a structural change in a firm which are frequently happened.
4. Supply Misleading Information: Sometimes a comparative financial statement
provides meaningless information, e.g., if a negative amount comes in base year, and a
positive amount in the next year, it is not possible to find out the change in percentage.
5. Uniformity in Principle: There must be a consistency while following accounting
principles, concepts and convention. But in practice, this is not done and as such,
multi-year analysis becomes useless.
 2. Company Profile

The Bosch Group is a leading global supplier of technology and services. It employs roughly
395,000 associates worldwide (as of December 31, 2020). The company generated sales of 71.5
billion euros in 2020. Its operations are divided into four business sectors: Mobility Solutions,
Industrial Technology, Consumer Goods, and Energy and Building Technology. As a leading IoT
provider, Bosch offers innovative solutions for smart homes, Industry 4.0, and connected mobility.
Bosch is pursuing a vision of mobility that is sustainable, safe, and exciting. It uses its expertise in
sensor technology, software, and services, as well as its own IoT cloud, to offer its customers
connected, cross-domain solutions from a single source. The Bosch Group’s strategic objective is to
facilitate connected living with products and solutions that either contain artificial intelligence (AI)
or have been developed or manufactured with its help. Bosch improves quality of life worldwide
with products and services that are innovative and spark enthusiasm. In short, Bosch creates
technology that is “Invented for life.” The Bosch Group comprises Robert Bosch GmbH and its
roughly 440 subsidiary and regional companies in some 60 countries. Including sales and service
partners, Bosch’s global manufacturing, engineering, and sales network covers nearly every country
in the world. With its more than 400 locations worldwide, the Bosch Group has been carbon neutral
since the first quarter of 2020. The basis for the company’s future growth is its innovative strength.
At 129 locations across the globe, Bosch employs some 73,000 associates in research and
development, of which nearly 34,000 are software engineers. In short, Bosch creates technology that
is “Invented for life.”

2.1 Objective

In the spirit of Robert Bosch, they aim to secure their company’s future by ensuring its strong and
meaningful development and preserving its financial independence, Volkmar Denner, Chairman,
Board of Management.

Their new mission statement says, “We are Bosch” explains what drives them, what they have in
common, and what they stand for. They want to leave a lasting trace in the world – achieved by a
unique outstanding team.

2.2 Motivation

The motivation which drives them is “Invented for life”, explains that the organisation want their
products to spark enthusiasm, improve quality of life and help conserve natural resources.

2.3 Strategy

 Focusing on customers: they understand their customer’s requirements. They tailor their
products to them, and they create innovative business models.
 Shaping change: They shape change and seize the opportunities it brings, especially in
connectivity, electrification, energy efficiency, automation and the emerging markets.
 Striving for excellence: They measure themselves against their strongest competitors. Their
work is fast, agile, and accurate. Efficient processes, lean structures, and high productivity
secure and increase the value of the company.

2.4 Strengths

 Organisation Culture: Worldwide, their distinctive corporate culture is a common bond.

They live by their own values and strive for continuous improvement. They are proud to
work for Bosch.
 Innovation: Their creativity is the basis for new technological solutions that translate into
best selling products. They are innovation leaders.
 Outstanding Quality: They deliver products that offer the best quality and reliability. In this
way, they meet customers’ wishes and expectations.
 Global Presence: It is an international company. While constantly extending their global
presence, they strengthen local responsibility.

2.5 Values

 Future and result focus: Their actions are result-oriented. This allows them to secure their
future. It also creates a sound basis for the social initiatives of the company and the
foundation.
 Responsibility and sustainability: They act and responsibility for the benefit of society and
the environment.
 Initiative and determination: The act on their own initiative, take entrepreneurial
responsibility, and pursue their goals with determination.
 Openness and trust: They communicate important company matters in a timely and open
fashion. This is the best foundation for a relationship built on trust.
 Fairness: They deal fairly with their colleagues and business partners, and view this fairness
as a cornerstone of their corporate success.
 Reliability, credibility, legality: They promise only what they can deliver, accept
agreements as binding, and respect and observe the law in all their business transactions.
 Diversity: They appreciate and encourage diversity for the enrichment it brings and see it as
essential for their success.
 3. Research Methodology

 Objective of the study

To analyse comparative financial statements of Bosch company for the year ending on Dec 31st, 2020

 Steps To Prepare a Comparative Balance Sheet

Step 1
Firstly, specify absolute figures of assets and liabilities relating to the accounting periods considered
for analysis.
Step 2
Find out the absolute change in the items mentioned in the balance sheet. This is done by subtracting
the previous year’s item amounts from the current year ones.

Step 3
Finally, calculate the percentage change in the assets and liabilities of the current year relative to the
previous year.

Percentage Change = (Absolute Increase or Decrease)/Absolute Figure of the Previous Year’s Item)
* 100

 Steps To Prepare a Comparative Income Statement

Step1
Firstly, specify absolute figures of items such as cost of goods sold, net sales, selling expenses, office
expenses, etc. relating to the accounting periods considered for analysis.

Step 2
Find out the absolute change in the items mentioned in the income statement. This is done by
subtracting the previous year’s item amounts from the current year ones.

Step 3
Finally, calculate the percentage change in the income statement items of the current year relative to
the previous year.

Percentage Change = (Absolute Increase or Decrease)/Absolute Figure of the Previous Year’s Item)
* 100

4. Analysis of Data & Interpretation

 Comparative Income Statement

Particulars 2020 2019 Absolute Change Percentage Change
Sales revenue 71494 77721 -6227 -8.01%
Cost of sales -48946 -53236 4290 -8.06%
Gross profit 22548 24485 -1937 -7.91%
Distribution and administrative cost -14692 -16262 1570 -9.65%
Research and development cost -5890 -6079 189 -3.11%
Other operating income 1818 2306 -488 -21.16%
Other operating expenses -2123 -1540 -583 37.86%
Profit from entities consolidated using the
equity method -4 -7 3 -42.86%
EBIT 1657 2903 -1246 -42.92%
Financial income 2570 2301 269 11.69%
Financial expenses -2722 -1948 -774 39.73%
Profit before tax 1505 3256 -1751 -53.78%
Income taxes -756 -1196 440 -36.79%
Profit after tax 749 2060 -1311 -63.64%
of which attributable to non-controlling
interests 433 469 -36 -7.68%
of which attributable to parent company 316 1591 -1275 -80.14%

 As is evident from the above comparative income statement, the sales of BOSCH decreased
by Rs 6,227 during 2020 as against 2019. Also, the cost of goods sold for the company
increased by just Rs 4290 in the same period. If you see carefully, sales decreased by -8.01%
whereas the cost of goods sold increased by -8.06%. Thus, the Gross Profit for BOSCH did
not increase significantly. Now, there can be several reasons for accounting lower Gross
Profit during the year.
 Distribution and Advertisement cost decreased by Rs 1,570 during 2020 again 2019.
Research and development cost decreased by -3.11% . Other operating income decreased by
Rs 488 and other operating expenses increased by Rs 583. Thus, earnings before income and
tax decreased by Rs 1246.
 Financial income increased by 11.69% and financial expenses increased by 39.79%.
Therefore, profit before tax decreased by 53.78%.
 And profit after tax decreased by Rs 1,311 in 2020 against 2019.
  Comparative Balance Sheet - Assets

Absolute Percentage
Particulars 2020 2019 Change Change
Current assets        
Cash and cash equivalents 8,955 4,558 4,397 96.47%
13,69 14,02
Trade receivables 6 4 -328 -2.34%
Other financial assets 5,031 3,400 1,631 47.97%
Contract assets 865 1,003 -138 -13.76%
Income tax receivables 352 329 23 6.99%
Other assets 1,961 2,087 -126 -6.04%
10,53 10,98
Inventories 8 3 -445 -4.05%
41,39 36,38
  8 4 5,014 13.78%
Non-current assets        
15,27 14,85
Financial assets 3 9 414 2.79%
Contract assets 468 648 -180 -27.78%
Income tax receivables 151 151 0 0.00%
20,75 21,89
Property, plant, and equipment 1 4 -1,143 -5.22%
Right-of-use assets 1,977 2,083 -106 -5.09%
10,09
Intangible assets 9,288 7 -809 -8.01%
Investments measured at equity 0 4 -4 -100.00%
Other assets 733 371 362 97.57%
Deferred taxes 1,330 1,370 -40 -2.92%
49,97 51,47
  1 7 -1,506 -2.93%
91,36 87,86
Total assets 9 1 3,508 3.99%
  Comparative Balance Sheet – Liabilities

Current liabilities        
Trade payables 8,335 7,673 662 8.63%
Lease liabilities 491 503 -12 -2.39%
Other financial liabilities 1,495 1,417 78 5.50%
Contract liabilities 1,278 1,385 -107 -7.73%
Income tax liabilities 667 809 -142 -17.55%
Other contingent liabilities 6,596 5,864 732 12.48%
Other provisions 5,899 4,974 925 18.60%
24,76 22,62
  1 5 2,136 9.44%
Non-current liabilities        
Financial liabilities 5,656 4,149 1,507 36.32%
Lease liabilities 1,541 1,608 -67 -4.17%
Contract liabilities 345 288 57 19.79%
Other contingent liabilities 163 172 -9 -5.23%
12,81 12,64
Pension provisions 1 8 163 1.29%
Other provisions 5,384 4,769 615 12.90%
Deferred taxes 542 523 19 3.63%
26,44 24,15
  2 7 2,285 9.46%
Equity        
Issued capital 1,200 1,200 0 0.00%
Capital reserve 4,557 4,557 0 0.00%
32,47 33,22
Retained earnings 2 9 -757 -2.28%
38,22 38,98
Equity attributable to parent company 9 6 -757 -1.94%
Non-controlling interests 1,937 2,093 -156 -7.45%
40,16 41,07
  6 9 -913 -2.22%
91,36 87,86
Total equity and liabilities 9 1 3,508 3.99%
 As we can see in the comparative balance sheet above, the current assets have increased by
Rs 4,397 in the year 2020 over 2019. And, current liabilities have decreased by Rs