Standard format of financial statements for ratio analysis (Balance Sheet & retained earnings)

## Preparing Financial Statements for Ratio Analysis

Before computing ratios, the financial statements must be rearranged into a consistent analytical format. This makes it easy to pick the correct numerator and denominator for each ratio.

### A. Tail of the P&L (Appropriation)

```

Profit available for shareholders XXX

Less: Equity Dividend (XXX)

Retained Earnings XXX

```

### B. Balance Sheet — Liabilities Side

```

Equity Share Capital XXX

Reserves & Surplus XXX

Less: Accumulated Losses (XXX)

Less: Miscellaneous Expenses (fictitious) (XXX)

(a) Equity Shareholders' Funds XXX

(b) Preference Share Capital XXX

(c) Net Worth / Equity / Proprietor's /

Shareholders' Funds = (a) + (b) XXX

(d) Debentures / Bonds / Long-Term Liab. XXX

(e) Current Liabilities XXX

Total Liabilities XXX

```

Key derived figures:

• Total Debt = (d) + (e) — both long-term and current liabilities.
• Total Capital Employed = (c) + (d) — net worth plus long-term debt.

### C. Balance Sheet — Assets Side

```

Net Fixed Assets (Tangible + Intangible) XXX

Add: Investments XXX

(a) Fixed Assets / Non-Current Assets XXX

(b) Current Assets XXX

Total Assets (a + b) XXX

```

• Net Fixed Assets = Fixed Assets − Accumulated Depreciation.

### Why this matters

Fictitious assets (miscellaneous expenditure, accumulated losses) are deducted from shareholders' funds because they have no realisable value. Forgetting this is the single most common source of wrong net-worth figures.