PROJECT REPORT

ON
“A STUDY ON FINANCIAL ANALYSIS”
AT

“THINKNEXT TECHNOLOGY PRIVATE LIMITED”

To be submitted for the partial fulfilment of the requirement for
the award of degree of
BECHELOR IN BUSINESS ADMINISTRATION
(SESSION -2023-26)
Internal guide:
Ms. Shivani
Asst. prof. in mgt.
TO
S.S.D. WOMEN’S INSTITUTE OF TECHNOLOGY, BATHINDA

SUBMITTED TO- SUBMITTED BY-

MANREET
ROLL NO. – 931322

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 CERTIFICATE

This is to certify that the project report entitled “A STUDY

ON FINANCIAL ANALYSIS” at
“Think Next Technologies private limited” is an original
work of Manreet submitted in partial fulfilment for the award
of the “Bachelor of business administration” of the “SSD
women’s institute of technology, Bathinda. This report has
not been submitted earlier either to this university or to any
other university/institution for the fulfilment of the
requirement of a course of study.

SIGNATURE OF TRAINER SIGNATURE OF STUDENT

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 DECLARATION

I Manreet the undersigned hereby declare that the project report

entitled “A STUDY ON FINANCIAL ANALYSIS” with reference
to Think NeXT Technologies Pvt. Ltd, written and submitted by me
to the SSD women’s institute of technology, Bathinda in partial
fulfilment of requirement for the degree of Bachelor of Business
Administration under the supervise and guidance of Miss Bharti
Marmu project guide, Think Next Technologies Pvt. Ltd.
I further declare that report title “A Study on financial
analysis” is my own original research work and this has been
submitted to University/Institute for the award of professional degree.

Signature of student

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 PREFACE

I feel delighted and honoured to present my report on “A study on

Financial Analysis” at Think Next Technologies Pvt. Ltd., Mohali.
The first task for me to know about the concept on which my project
is based. Then I had to set criteria, on the basis of which the above
concept was valued. The factors, on the basis of which the research
had been done, analysed, evaluated and then presented. The data was
collected for each of the parameter found responsible to study the “A
study on Financial analysis” at Think NeXT Technologies Pvt.
Ltd., Mohali. In the organizations now a days when efficiency,
effectiveness and performance of the employees is of grew
importance to the organizations. As the time was limited, so there is a
possibility that some matters might not be taken into consideration,
but every effort has been done from our side to include every
necessary parameter and include every information. I gathered
information from various sources available.

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 ACKNOWLEDGEMENT

Amongst the wide panorama of people who provided me the

inspiration, guidance and encouragement, I take this opportunity to
thank those who gave me indebted assistance and constant
encouragement for completing this project.
I would like to thanks Miss Bharti Marmu, Finance Executive of
Think NeXT Technologies Pvt. Ltd., Mohali for his continuous help
in completion of this project. She is motivated to me and was
available whenever his assistance was sought. She was actively
involved throughout the project and was also kind enough to tell me
the strengths and weaknesses and how I could improve myself to face
the corporate world. Without her support the completion of this
project would be impossible.
I would like to extend my thanks to all the employees/staff of the
Think NeXT Technologies Pvt. Ltd., Mohali for their support.

Thanking you All

Manreet
Place: Bathinda

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 Table of Contents

SR. NO. TOPIC PAGE NO.

1. Company profile 9-14

2. Introduction 15-21
3. Methodology 22-26
4. Financial statement 27-34
analysis
5. Ratio analysis 35-42
6. Vertical and 43-45
Horizontal analysis
7. Cash flow analysis 46-51
8. Trend analysis 52-54
9. Common size 55-57
statement analysis
10. Findings and 58-60
Interpretations
11. SWOT Analysis 61-63
12. Conclusion 64
13. References and 65
Bibliography
14. Questionnaire 66-

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FINANCIAL ANALYSIS

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 FINANCIAL ANALYSIS

Think NEXT Technology Pvt. Ltd. is an ISO-9001:2015 certified Indian IT

services company, founded in 2011 in Mohali (Chandigarh). A Google Partner,
Microsoft-Accredited and Facebook Blueprint-certified firm, it specializes in
digital marketing, web and mobile app development, smart campus ERP,
chatbots, training programs, and security systems.
Over its 12+ years in business, Think NEXT has served 300+ clients globally,
managed ₹25 crore in marketing budgets, and received numerous awards for
excellence in digital marketing and training.
From a financial vantage point, Think NEXT presents an intriguing case. With
estimated annual revenues of around USD 64 million and a workforce of ~350
employees (≈ USD 181,000 revenue per employee) , the company demonstrates
operational proficiency in leveraging human capital. However, public filings
suggest its paid-up capital is modest (₹100,000), with sporadic balance sheet
updates, highlighting opportunities to explore its capital structure, profitability,
working capital efficiency, and growth dynamics
This financial analysis aims to:
 Assess Think NeXT’s fiscal health and performance over the past 3–5
years.
 Examine liquidity, solvency, profitability, and efficiency using ratio
analysis.
 Conduct trend, vertical, and horizontal analyses on its statements.
 Evaluate cash flows, capital structure, and funding adequacy.
 Contextualize its financial trends against broader IT/Digital Marketing
industry standards.
By understanding its financials, we can identify strengths, constraints, risks, and
growth levers, ultimately offering data-driven recommendations—e.g.,
optimizing working capital, funding strategies, scalability, and profitability
enhancement.

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  What is financial analysis?
In the corporate world, financial analysis is the systematic process of examining
a company's financial statements, budgets, and projects to assess its
performance and viability. The primary objective of corporate financial analysis
is to determine profitability, liquidity, and solvency.
 Profitability measures how well a company generates earnings and
includes metrics such as return on investment (ROI) and net profit margin
 Liquidity focuses on a company's ability to cover short-term obligations,
often evaluated through ratios such as the current ratio or quick ratio
 Solvency gauges a company's capacity to meet long-term debts, often
analysed through debt-to-equity ratios or interest coverage ratios
Through financial analysis, stakeholders can determine the financial health and
future prospects of a business or investment.

 Types of Financial Analysis

Financial analysis has a broad range of use cases, so analysts employ various
methods to draw insight from data based on standardized accounting principles.
Two main types of financial analysis used to evaluate a company’s financial
performance are vertical analysis and horizontal analysis.

 Vertical Analysis
Vertical analysis takes a snapshot of a company's financials at a particular point
in time. Here, each item on a financial statement–be it on the income statement,
balance sheet, or cash flow statement–is compared to a base item. For example,
in an income statement, each expense item might be expressed as a percentage
of total revenue. This ratio analysis helps identify correlations and compare
companies of different sizes. By turning raw numbers into percentages,
comparisons are more meaningful.

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  Horizontal Analysis
Horizontal analysis focuses on comparing changes in financial data over a series
of reporting periods rather than at a single point in time. Also called trend
analysis, it examines how specific financial data points grow or shrink over
time. For example, if a company’s revenue increased by 15% from Year 1 to
Year 2 and then by 20% from Year 2 to Year 3, horizontal analysis would flag
this as a positive trend in revenue growth. Financial analysts use horizontal
analysis to identify trends and make projections about future performance.

 Financial Ratios
Financial ratios are mathematical calculations that provide valuable insights into
various aspects of a company's performance and financial health. Experts
looking to utilize key financial ratios may turn to:

 Profitability Ratios
Profitability ratios measure a company's ability to generate profit based on its
revenue and expenses. Profitability ratios help investors decide if a company is
worth investing in. They help business leaders make more informed strategy
decisions. Common profitability ratios include:
 Net Profit Margin: Calculates the percentage of revenue that remains as
net profit after all expenses are deducted
 Return on Assets (ROA): Assesses how efficiently a company uses its
assets to generate profits
 Return on Equity (ROE): Evaluates how much profit a company
generates relative to shareholder equity.

 Liquidity Ratios
Liquidity ratios assess a company's ability to meet its short-term obligations,
including debt payments and cash flow. Two main types of liquidity ratios are:

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  Current Ratio: Compares a company’s current assets to its current
liabilities. A ratio over 1 indicates the company can cover its short-term
debts.
 Quick Ratio (Acid-Test Ratio): Similar to the current ratio, quick ratio
excludes inventory from current assets, offering a stricter measure of
liquidity.

 Solvency Ratios
Solvency ratios gauge a company's ability to meet its long-term debt
obligations. Insight gained from this type of ratio can help project future cash
flows, monitor long-term liabilities, establish budgets, and predict the
company’s future performance. Two of the most important solvency ratios
include:
 Debt-to-Equity Ratio: Measures the amount of debt financing relative to
equity financing.
 Interest Coverage Ratio: Calculates how easily a company can pay
interest expenses on its debt.

 Market Value Ratios

Market value ratios are often used by investors to gauge a company's stock
performance and valuation. They measure and analyse stock prices to
understand the financial performance of public companies. Some market value
ratios include:
 Price-to-Earnings (P/E) Ratio: Compares a company's stock price to its
earnings per share, providing an indication of the stock's valuation.
 Earnings Per Share (EPS): Calculates the portion of a company's profit
allocated to each outstanding share of common stock.

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  Practical Applications for Financial Analysis
Financial analysts are widely sought after in many industries because of the
value they bring to an organization. They’re employed in a range of roles and
business activities. Common roles fulfilled by financial analysts include:
 Investment decisions: Investors rely on financial analysis to evaluate the
health and potential profitability of companies; metrics such as P/E ratios,
liquidity ratios, and debt-to-equity ratios help them choose investment
opportunities for both short-term gains and long-term growth.
 Business strategy: Company executives depend on financial analysis to
make critical business decisions, such as entering new markets, launching
products, or acquiring competitors; financial models can simulate
different scenarios to predict outcomes and risks.
 Performance assessment: Financial analysis enables businesses to
evaluate their performance against their direct competitors and industry
standards; this can help identify areas for improvement, whether it’s
reducing operational inefficiencies or improving product offerings.
 Budget planning: Companies use financial analysis to allocate resources
more effectively; by using historical data to predict future expenses and
revenues, they can create more accurate budgets and forecasts.
 Risk management: By analysing variables that contribute to financial
risk, such as market volatility or changes in interest rates, companies can
adopt strategies such as diversification or hedging to mitigate these risks.

 Objectives of the study

1. Assessing Profitability
 Determine how efficiently a company generates profit from its
operations.
 Evaluate margins (e.g., gross, operating, and net profit margins).
2. Evaluating Liquidity
 Assess the company’s ability to meet short-term obligations.
 Use ratios like the current ratio and quick ratio.
3. Analysing Solvency
 Evaluate long-term financial stability and the ability to repay debt.
 Examine debt-to-equity ratio and interest coverage ratio.
4. Understanding Operational Efficiency
 Measure how well the company uses its resources to generate revenue.

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 Use ratios like inventory turnover and asset turnover.
5. Supporting Decision-Making
 Help management, investors, and stakeholders make informed business
decisions.
 Includes investment, lending, or internal strategic choices.
6. Valuing the Business
 Assist in estimating the company’s market value.
 Important for mergers, acquisitions, or raising capital.
7. Monitoring Financial Performance
 Track financial trends over time.
 Identify areas of strength and weakness for strategic planning.
8. Ensuring Regulatory Compliance
 Confirm that financial practices adhere to laws and accounting standards.
 Important for public companies and audited firms.
9. Forecasting and Budgeting
 Predict future financial outcomes based on historical data.
 Useful for preparing budgets and strategic plans.
10.Comparing with Industry Benchmarks
 Assess how a company stands relative to peers or industry averages.
 Benchmarking helps identify competitive advantages or gaps.

FINANCIAL ANALYSIS

CHAPTER.II

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 METHODOLOGY

 Horizontal Analysis
Horizontal analysis, also known as trend analysis, is one of the methods of
financial statement analysis that involves examining financial data over multiple
periods to identify trends, patterns, and changes over time. Its purpose is to
evaluate a company’s performance and growth trajectory by analysing historical
financial statements like income statements, balance sheets, and cash flow
statements across consecutive years or quarters. This method helps analysts

track the evolution of key financial metrics to understand how the company’s
financial health has evolved and to spot trends that could impact future
performance.
 Methodology:
To conduct horizontal analysis, analysts calculate the percentage changes in
financial statement line items from one period to another. For example, if a
company’s revenue increased from $1 million in Year 1 to $1.2 million in Year
2, the horizontal analysis would reveal a 20% increase in revenue.
 Purpose:

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Horizontal analysis is one of the methods of financial statement analysis that
provides insights into the direction and magnitude of changes in financial data.
It helps stakeholders understand trends in revenue growth, cost management,
profitability margins, and efficiency improvements over time. By identifying
positive or negative trends, analysts can assess the company’s financial stability
and forecast future performance.
 Vertical Analysis
Vertical analysis, also known as common-size analysis, focuses on the relative
proportions of financial statement line items within a single period. Unlike
horizontal analysis that compares data across periods, vertical analysis examines
the composition of financial statements by expressing each line item as a
percentage of a base figure—typically total revenue or total assets.
 Methodology:
In vertical analysis, each line item on the financial statement is converted into a
percentage of the base figure. For instance, if total revenue is used as the base
figure, all other line items on the income statement (e.g., cost of goods sold,
operating expenses) are expressed as a percentage of total revenue.
 Purpose:
Vertical analysis helps in understanding the structure and composition of
financial statements. It highlights the relative significance of various expenses,
assets, liabilities, and equity components within the financial framework of the
company. By comparing percentages, analysts can identify trends in cost
structures, profitability drivers, and capital allocation strategies.

 Ratio Analysis
Ratio analysis is one of the methods of financial statement analysis that involves
the calculation and interpretation of various financial ratios derived from data in
financial statements. Financial ratios are quantitative indicators that provide
insights into different aspects of a company’s financial performance, efficiency,
profitability, liquidity, and solvency. Analysts use ratio analysis to assess the
company’s operational efficiency, financial health, and overall management
effectiveness.
 Common Types of Ratios:
 Liquidity Ratios: Measure the company’s ability to meet short-
term obligations.
 Profitability Ratios: Evaluate the company’s ability to generate
profits relative to sales, assets, or equity.
 Activity (Efficiency) Ratios: Assess how effectively the company
utilizes its assets to generate revenue.

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  Solvency (Leverage) Ratios: Evaluate the company’s long-term
financial viability and ability to meet long-term obligations.
 Methodology:
To calculate ratios, analysts use formulas that involve dividing one financial
metric by another. For example, the current ratio, a liquidity ratio, is calculated
by dividing current assets by current liabilities.
 Purpose:
Ratio analysis enables stakeholders to benchmark the company’s performance
against industry standards, historical data, and competitors. By interpreting
ratios, analysts can identify strengths, weaknesses, opportunities, and threats
facing the company. Ratio analysis facilitates informed decision-making
regarding investment opportunities, credit risk assessment, operational
efficiency improvements, and strategic planning.
 Cash Flow Analysis
Cash flow analysis is a method of financial statement analysis that examines the
inflows and outflows of cash within a company over a specific period, as
reported in the cash flow statement. It focuses on the sources and uses of cash
generated from operating activities, investing activities, and financing activities.
According to a recent study by Corporate Finance Group, the cash flow
statement is considered by many investors to be the most important indicator of
a company’s performance. Cash flow analysis provides insights into the
company’s liquidity position, financial flexibility, and ability to generate cash to
fund operations, investments, and debt obligations.
 Methodology:
Cash flow analysis involves reviewing and interpreting the cash flow statement
to assess trends in cash flows from operating, investing, and financing activities.
Analysts analyse net cash flow, operating cash flow, free cash flow, and cash
flow adequacy relative to capital expenditures and debt repayments.
 Purpose:
The primary purpose of cash flow analysis is to evaluate the sustainability of a
company’s cash flow and its ability to meet financial obligations. By
understanding cash flow patterns, analysts can assess the company’s liquidity
risk, cash flow volatility, and capacity to pursue growth opportunities. Cash
flow analysis is crucial for financial planning, budgeting, and forecasting future
cash flows.
 Comparative Analysis
Comparative analysis is one of the methods of financial statement analysis that
involves comparing the financial performance and metrics of a company with
its competitors, industry peers, or historical data. The objective is to benchmark
the company’s performance, profitability, efficiency, and financial strength
against relevant benchmarks and industry standards. Comparative analysis

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provides insights into competitive positioning, market share, operational
efficiency, and strategic advantages or disadvantages.
 Methodology:
To conduct comparative analysis, analysts gather financial data from
comparable companies within the same industry or sector. They compare key
performance indicators (KPIs), financial ratios, profitability margins, and
market valuations to assess relative strengths and weaknesses.
 Purpose:
Comparative analysis helps stakeholders understand how the company performs
relative to its peers and industry leaders. By identifying performance gaps,
competitive advantages, and areas for improvement, analysts can recommend
strategic initiatives, operational efficiencies, and investment decisions.
Comparative analysis supports competitive benchmarking, market positioning,
and performance evaluation across different economic cycles.
 Importance of Financial Statement Analysis
Understanding these methods allows stakeholders to make informed decisions
regarding investments, credit decisions, and strategic planning. Whether you’re
an investor assessing the financial health of a potential investment, a creditor
evaluating creditworthiness, or a manager seeking to improve operational
efficiency, financial statement analysis provides the necessary tools to navigate
complex financial landscapes.
For professionals seeking to enhance their analytical skills in strategic financial
management, programmes like the IIM Kozhikode – Professional Certificate
Programme in Strategic Sales Management and New Age Marketing offer
specialized training in complementary areas of business strategy and analytics.
This programme provides invaluable insights into modern business practices,
such as financial statement analysis enhancing your ability to make informed
financial decisions.

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 FINANCIAL ANALYSIS

CHAPTER.III
FINANCIAL STATEMENT ANALYSIS

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 Financial statement is a formal record of the financial activities and position
of a business, organization, or individual. It summarizes financial transactions,
performance, and financial health over a specific period. Financial statement
analysis involves a comprehensive examination of a company’s financial
statements, including the income statement, balance sheet, and cash flow
statement. Analysts assess revenue, earnings, assets, liabilities, and cash flow to
gauge financial health and performance.
 Balance Sheet

A balance sheet is one of the fundamental financial statements that provides a

snapshot of a company’s financial position at a specific point in time. It outlines
what a company owns (assets), what it owes (liabilities), and the shareholders’
equity (the difference between assets and liabilities). It provides a snapshot of a
company’s financial health at a specific moment, showing how much, it owns
versus how much it owes. Investors, creditors, and analysts use the balance
sheet to assess a company’s ability to pay its debts, its overall financial strength,
and its potential for growth. It helps in comparing a company’s performance
over time or against competitors within the same industry The balance sheet
assessment reveals a company’s liquidity through current and quick ratios. A
strong liquidity position, reflecting ample current assets to cover short-term
liabilities, may indicate a company’s ability to meet its financial obligations.
Companies with healthy liquidity positions might be considered more
favourable for investment due to their ability to navigate short-term challenges.
Balance Sheet indicates the amount of debt a company carries. High debt might
indicate risk, while low debt might signal financial strength. Understanding of a
company’s financial health and performance through balance sheet analysis
empowers investors to make informed decisions, whether they aim for long-
term growth, short-term gains, or a balanced investment portfolio.
From the balance sheet, investors focus on liquidity, examining the adequacy of
current assets to cover short-term obligations and leveraging ratios like the
current ratio to assess this. Debt levels hold significant weight, prompting a
close evaluation of the debt structure, its impact on the company’s risk profile,
and the debt-to-equity ratio. Additionally, investors analyse asset quality,
seeking insights into the composition and efficiency of assets in generating
revenue. A balance sheet helps derive various financial ratios, broadly,
Liquidity, Solvency, Efficiency, and Valuation ratios. Liquidity ratios like the
current and quick ratios provide insights into a company’s ability to cover short-
term obligations, guiding assessments of short-term financial health. Leverage
ratios such as the debt-to-equity and debt ratio highlight a company’s reliance

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on debt financing, aiding in gauging financial risk. Efficiency ratios like the
asset turnover ratio reveal how effectively a company utilizes its assets to
generate revenue, while profitability ratios such as ROA and ROE unveil its
ability to translate these assets into profits. Valuation ratios like the P/B ratio
assist in determining if a stock is undervalued or overvalued in relation to its
book value. These ratios, derived from the balance sheet, collectively empower
investors with critical insights into a company’s performance, risk exposure, and
potential returns, forming the bedrock of informed investment decisions.
Tracking changes over time and analysing them against industry standards
further assessment, ultimately guiding their investment decisions.

 Income Statement

An income statement, also known as a profit and loss statement, is a financial

report that summarizes a company’s revenues, expenses, and profits (or losses)
over a specific period. The income statement provides valuable insights into a
company’s financial performance, indicating its ability to generate profit,
manage expenses, and operate efficiently over a specific period. Investors,
analysts, and stakeholders use this statement to assess the company’s
profitability and financial health. Income Statements provide a snapshot of a
company’s financial performance by detailing its revenues, expenses, and
overall profitability over a specific period.
Ratios derived from the income statement offer crucial insights into a
company’s financial health and guide investment decisions. Metrics like profit
margin unveil a company’s efficiency in generating profits from sales,
influencing investor confidence. The profit Margin ratio shows the company’s
profitability by indicating how much profit is generated from each dollar of
sales. A higher profit margin signifies better efficiency in managing costs and
higher earnings potential, which can positively impact investment decisions.
Return on Assets (ROA) measures how effectively a company uses its assets to
generate profit. It indicates the company’s efficiency in utilizing its resources.
Investors generally prefer a higher ROA as it suggests better management of
assets to generate earnings. Return on Equity (ROE) measures a company’s
ability to generate profits from shareholders’ equity. It shows how effectively
the company reinvests shareholder funds. Higher ROE is often seen as a sign of
efficient utilization of shareholders’ investments and can positively influence
investment decisions. Earnings Per Share (EPS) reflects the company’s
profitability on a per-share basis. It’s a crucial metric for investors as it indicates

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how much profit a company makes for each outstanding share. Higher EPS can
make a company more attractive to investors seeking profitable opportunities.
The price-earnings (P/E) ratio compares a company’s current share price to its
earnings per share. It helps investors assess the company’s valuation. A higher
P/E ratio might indicate that investors expect higher earnings growth in the
future, while a lower P/E ratio might suggest undervaluation. Operating margin
measures the proportion of revenue that remains after covering variable costs of
production. It shows how efficiently the company manages its operating
expenses. Investors generally prefer a higher operating margin. The debt-to-
equity ratio compares a company’s total debt to its shareholders’ equity. It
indicates the company’s reliance on debt financing. A lower debt-to-equity ratio
is often preferred, suggesting lower financial risk and better financial health.
These ratios help assess a company’s performance, profitability, efficiency, and
financial health.

 Cash Flow Statement

A cash flow statement is a financial report showing the cash inflow and outflow
within a company over a specified period. Cash flow analysis is crucial in
fundamental analysis as it reflects a company’s ability to generate cash from its
operating activities, manage debts, invest in growth, and provide returns to
shareholders. It offers insights into the company’s cash position, which is vital
for its sustainability. Companies exhibiting stronger financial health and better
cash flow management are often preferred in investment decisions. The CFS
helps evaluate a company’s ability to meet its short-term obligations. Investors
can assess how the company manages its cash flow from operating, investing,
and financing activities. Negative trends or inconsistencies in cash flow can
signal underlying problems within the company, such as issues with sales, high
debt, or inefficient operations. Consistent positive cash flow from operations
indicates a healthy and sustainable business model.
Cash flow can be divided into three sections based on their sources and uses of
cash: operating activities, investing activities, and financing activities. The
operating section reveals the cash generated or utilized by the core business
operations, encompassing sales, expenses, and taxes. Meanwhile, the investing
section sheds light on cash flow from asset investments, like property or
equipment. Lastly, the financing section elucidates cash movements linked to
capital structure, encompassing actions such as issuing stock, paying dividends,
or acquiring loans. This statement is pivotal for investors and stakeholders,

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providing insights beyond profitability by illuminating a company’s ability to
generate cash and meet its financial obligations. Ratios derived from the Cash
Flow Statement (CFS) provide valuable insights for investment strategies.

• Operating Cash Flow Ratio: Assesses a company’s ability to generate cash

from its core operations, often calculated as Operating Cash Flow divided by
Total Debt. A higher ratio indicates a better capability to cover debt obligations
from operating activities.

• Free Cash Flow (FCF) Yield: FCF Yield measures the cash generated after
accounting for capital expenditures. It’s calculated as FCF divided by Market
Capitalization. A higher FCF Yield suggests the company generates ample cash
relative to its market value, indicating potential value for investors.

• Cash Flow to Sales Ratio: It evaluates the percentage of sales that convert
into cash. It’s computed as Operating Cash Flow divided by Sales. A consistent
or improving ratio signifies efficient cash generation from sales.

• Cash Flow Coverage Ratios: These ratios assess a company’s ability to cover
various obligations: Interest Coverage Ratio and Debt Service Coverage Ratio.
Interest Coverage Ratio is measured by Operating Cash Flow divided by
Interest Expense. It indicates how easily a company can cover interest
payments. Debt Service Coverage Ratio is determined Operating Cash Flow
divided by Total Debt Service. It gauges the ability to service all debt
obligations.

• Cash Return on Assets (CROA): CROA measures the cash generated from a
company’s total assets. It’s calculated as Operating Cash Flow divided by Total
Assets. A higher CROA indicates efficient utilization of assets to generate cash,
indicating that a company efficiently generates cash from its assets.

• Dividend Coverage Ratio: It’s calculated as Operating Cash Flow per Share
divided by Dividends per Share. It indicates if a company’s cash flow
adequately covers dividend payments. A high Dividend Coverage Ratio is

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generally considered positive for investment, indicating a company’s ability to
sustain and potentially increase dividend payments using operating cash flow.

• Capex to Operating Cash Flow: Capital Expenditure (Capex) refers to the

funds a company invests in acquiring, upgrading, or maintaining physical assets
like property, buildings, equipment, or technology with the aim of improving or
expanding its operations. The Capex to Operating Cash Flow ratio signifies the
proportion of cash used for capital expenditures concerning the cash generated
from operations. A lower ratio might suggest positive capital expenditure
management.
Cash Flow from Operations (CFO) reflects the cash generated or used by a
company’s core business operations. A positive CFO indicates that the company
generates enough cash from its day-to-day activities to sustain its operations
without relying on external financing. This stability in cash generation is a
positive sign for investors. CFO reflects changes in working capital, such as
inventory, accounts receivable, and accounts payable. Monitoring these changes
can indicate how effectively a company manages its working capital and
whether it can convert sales into cash efficiently. A strong CFO can indicate the
company’s ability to reinvest in its operations, pursue growth opportunities, or
distribute dividends to shareholders. It provides insights into the company’s
potential for future expansion and development.
Cash Flow from Investing Activities (CFI) details cash flows related to asset
investments like property, equipment, acquisitions, or divestitures. Analysing
these cash flows helps understand management’s allocation of resources. It
indicates whether the company invests in projects that can drive future growth
and profitability. Understanding the cash flows related to acquisitions, mergers,
or divestitures provides insights into the company’s strategic decisions. It helps
assess whether these actions align with the company’s goals and if they are
generating positive cash flows. CFI analysis aids in understanding the risk
associated with large capital investments. Excessive spending on non-
productive assets or risky ventures might indicate potential financial strain or
misallocation of resources.
Cash Flow from Financing Activities (CFF) details cash flows related to raising
capital, repaying debts, issuing stocks, or paying dividends. Analysing these
cash flows helps investors understand how a company funds its operations and
growth. It provides insights into the company’s financing structure and its
strategies for managing debt and equity. Positive cash flow from financing

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might indicate a company’s ability to raise capital without solely relying on
debt. It reflects the company’s financial strength and ability to attract investors
or secure financing under favorable terms. Understanding a company’s cash
flow from financing activities helps evaluate its financial risk. High levels of
debt or reliance on external financing for operations cause risks.

 Financial Overview

1. Revenue & Scale

 According to Tofler, the FY ended 31 March 2019 showed an operating
revenue under ₹1 crore, with EBITDA up 117.7% and net worth rising
26.3%.
 More recent data (FY23) is marked as “approved,” but not accessible
publicly without paid access.
2. Profitability & Margins
 In 2019, with sub-₹1 crore revenue and strong EBITDA growth, the
company likely managed cost controls well. But absence of explicit net
profit figures makes margin analysis incomplete.
3. Asset & Liability Trends
 Total assets fell by 21.8%, while current liabilities dropped 42.5%,
suggesting repayment of short-term debt or payables.
 Current ratio stood at around 1.45, reflecting a decent liquidity cushion
4. Leverage & Returns
 Debt-to-equity ratio about 1.05, indicating matched debt and equity
levels.
 ROE was good at 20.8%, pointing to strong equity returns at that time.

🏢 Company Profile & Scale

 Founded in 2011, ISO-certified, employing around 300–350 staff; Tofler
and Growjo estimate ≈ 353 employees with ~₹420 crore (≈ USD 64 M) in
annual revenue growjo.com. These estimates conflict with Tofler’s low-

32
 revenue figure—probably due to different data models or company
evolution over time.

🤖 Summary & Analysis

Strength Weakness
Strong EBITDA/profit growth
Very small revenue base back then
(2019)
Healthy liquidity & leverage
No recent detailed filed financials
ratios (2019)
High employee count and digital Publicly estimated revenue mismatch
footprint indicates data uncertainty

 Private Company: Annual returns are filed with MCA, but unless you
purchase from platforms like Tofler or India Filings, you won’t see the
full FY22/FY23 financials.
 Scaling Rapidly? The divergence between Tofler’s ₹1 cr and Growjo’s
USD 64 M suggests either a fast growth in past few years or estimation
errors.
✅ Next Recommended Steps
1. Obtain official filings: Download the MCA balance sheets & P&L
statements (FY21–FY23). Services like India Filings or Tofler
Company360 can provide these.
2. Trend analysis: Examine revenue, margins, asset, and liability
trajectories over the past 3 years.
3. Benchmark: Compare with other local IT & training companies in
Punjab region.
4. On-site audit/interview: Talk to the finance team for clarity on profit
quality, client concentration, receivables, and real growth path.

33
📌 Bottom Line
Think NEXT demonstrated healthy financial indicators in FY19 despite a small
base. However, without recent audited numbers, it's hard to evaluate current
performance. Public estimates show a much larger scale—suggesting notable
growth—or just a data gap.

FINANCIAL ANALYSIS

CHAPTER.IV
RATIO ANALYSIS

34
  What Is Ratio Analysis?
Ratio analysis is a method of examining a company's balance sheet and income
statement to learn about its liquidity, operational efficiency, and profitability. It
doesn't involve a single metric; instead, it is a method of analysing a range of

financial data about a company. Ratio analysis is a cornerstone of fundamental

equity analysis.
There are many different ratios that investors and other business experts can use
to make predictions about a company's financial stability and potential future
growth. These can be used to evaluate either how a company's performance has
changed over time or how it compares to other businesses in its industry.

35
 How Ratio Analysis Works
Investors and analysts use ratios to evaluate a company's financial health by
scrutinizing its past and current financial statements. For example, comparing
the price per share to earnings per share allows investors to find the price-to-
earnings (P/E) ratio, a key metric for determining the value of a company's
stock.
The ratios of these different financial metrics from a company can be used to:
 Evaluate a company's performance over time
 Estimate likely future performance
 Compare a company's financial standing with industry averages
 Measuring how a company stacks up against others within the same
sector
Every figure needed to calculate the ratios used in ratio analysis is found on a
company's balance sheet, income statement, statement of cash flows, and
statement of shareholders' equity.
Ratios are comparison points for companies and are not generally used in
isolation. Instead, they are compared either to past ratios for the same company
or to the same ratio from other companies.
Ratios are used in analysis by investors, but they can also be used by the
company itself to evaluate how strategic changes have impacted sales, growth,
and performance.

Limitations of Ratio Analysis

Ratio analysis can help investors understand a company's current performance
and likely future growth. However, companies can make small changes that
make their stock and company ratios more attractive without changing any
underlying financial fundamentals. To counter this limitation, investors also
need to understand the variables behind ratios, what information they do and do
not communicate, and how they are susceptible to manipulation.

36
Ratios also can't be used in isolation. Instead, they should be used in
combination with other ratios or financial metrics to give a fuller picture of both
a company's financial state and how it compares to other companies in the same
industry.

Types of Ratios for Ratio Analysis

The financial ratios available can be broadly grouped into six types based on the
kind of data they use and what they communicate. Using ratios in each category
will provide a comprehensive view of the company from different angles,
helping you identify potential red flags.
1. Liquidity Ratios
Liquidity ratios measure a company's ability to pay off short-term debts as they
become due, using the company's current or quick assets. Liquidity ratios
include:
 Current ratio
 Quick ratio
 Working capital ratio
2. Solvency Ratios
Also called financial leverage ratios, solvency ratios compare a company's debt
levels with its assets, equity, and earnings. These are used to evaluate the
likelihood of a company staying afloat over the long haul by paying off both
long-term debt and the interest on that debt. Examples of solvency ratios
include:
 Debt-equity ratios
 Debt-assets ratios
 Interest coverage ratios
3. Profitability Ratios
These ratios convey how well a company can generate profits from its
operations. Examples of profitability ratios are:
 Profit margin ratio
 Return on assets

37
  Return on equity
 Return on capital employed
 Gross margin ratio
4. Efficiency Ratios
Also called activity ratios, efficiency ratios evaluate how efficiently a company
uses its assets and liabilities to generate sales and maximize profits. Key
efficiency ratios include:
 Turnover ratio
 Inventory turnover
 Day's sales in inventory
5. Coverage Ratios
Coverage ratios measure a company's ability to make the interest payments and
other obligations associated with its debts. Examples include:
 Times interest earned ratio
 Debt-service coverage ratio

6. Market Prospect Ratios

Market prospect ratios are the most commonly used ratios by investors.
Typically, they use these metrics to attempt to predict earnings and future
performance. These ratios include:
 Dividend yield
 P/E ratio
 Earnings per share (EPS)
 Dividend payout ratio

Application of Ratio Analysis

Using ratio analysis will give you multiple figures and values to compare.
However, those values will mean very little in isolation. Instead, the values
derived from these ratios should be compared to other data to determine

38
whether a company's financial health is strong, weak, improving, or
deteriorating.
 Ratio Analysis Over Time
Comparing how the same ratio changes over time provides a picture of how a
company has performed during that period, what risks might exist in the future,
and what growth trajectory it is likely to follow.
To perform ratio analysis over time, select a single financial ratio, then calculate
that ratio at set intervals (for example, at the beginning of every quarter). Then,
analyze how the ratio has changed over time (whether it is improving, the rate at
which it is changing, and whether the company wanted the ratio to change over
time).

 Comparative Ratio Analysis Across Companies

Comparative ratio analysis can be used to understand how a company's
performance compares to similar companies in the same industry. For example,
a company with a 10% gross profit margin may be in good financial shape if
other companies in the same sector have gross profit margins of 5%. However,
if the majority of competitors achieve gross profit margins of 25%, that's a sign
that the original company may be in financial trouble.
When using ratio analysis to compare different companies, be sure to:
 Only analyze
 similar companies within the same industry.
 Be mindful of how different capital structures and company sizes may
impact a company's ability to be efficient.
 Consider the impact of varying product lines (for example, two
companies offer similar services, but only one sells physical products).

 Ratio Analysis Against Benchmarks

Companies may set internal targets for their financial ratios. The goal may be
to hold current levels steady or to strive for operational growth. For example, a
company's existing current ratio may be 1.1; if it wants to become more liquid,
it could address the issue by increasing production to generate more revenue,
streamlining processes, and removing inefficiencies.

39
Benchmarks are also frequently implemented by external parties such as
lenders. Lending institutions often set requirements for financial health as part
of covenants in loan document's terms and conditions. An example of a
benchmark set by a lender is often the debt service coverage ratio, which
measures a company's cash flow against its debt balances. If a company doesn't
maintain certain levels for these ratios, the loan may be recalled or the interest
rate attached to that loan may increase.

📊 Key Ratios & Trends (FY 2015-16 to 2016-1

Ratio 2015-16 2016-17 Trend/Interpretation

Declined — liquidity dropped; below
Current Ratio 0.81 0.47
acceptable threshold (1.0).
Quick (Acid- Falling, indicating poor ability to meet
0.79 0.43
test) Ratio short-term obligations.
Inventory Improved, suggesting better inventory
~0 32.08
Turnover management or turnover.
Declined, more leverage; lower own funds
Equity Ratio 0.38 0.28
share.
Fixed Asset to Increased, suggesting fixed assets
0.44 0.59
LT Funds increasingly funded by long-term capital.
Gross Profit
81.5% 84.6% Strong & rising, healthy core profitability.
Margin
Net Profit Marked improvement, good control over
2.94% 7.36%
Margin expenses.
Return on Doubled, but still modest — reflects net
0.45 1.00
Equity (ROE) gain relative to equity.
Interpretation: The company shifted from average profitability and stable
liquidity (2015-16) to significantly improved profit margins in 2016-17, albeit
at the expense of liquidity and equity cushion.
🧾 Summary of FY 2018-19 Metrics (from Tofler)
 Operating Revenue: < INR 1 cr (very small scale)
 EBITDA Growth: +117.7%
 Net Worth Growth: +26.3%

40
  Total Assets: –21.8%
 Liabilities: –42.5%
 Debt/Equity Ratio: 1.05 (moderate leverage)
 ROE: ~20.8% (strong)
 Current Ratio: 1.45 (solid liquidity)
 Trade Receivables: up 14,312% (alarmingly high spike)
 Trade Payables: flat

Interpretation: Though revenues are small, margins and equity jumped

sharply. Liquidity recovered (CR > 1), but massive rise in receivables
may hint at collection or billing issues. Reduction in assets and liabilities
points to a balance sheet cleanup.
✅ Overall Financial Health (Up to FY 2018 -19)
Strengths
 Robust profit margins and ROE in recent FYs.
 Improved liquidity (current ratio now healthy).
 Strong EBITDA growth and equity revaluation.
Concerns
 Very limited scale (<₹1 cr revenue).
 Historically weak liquidity (below 1), improved more recently.
 Low equity ratio and reliance on debt (D/E ≈1).
 Sharp rise in receivables could suggest inefficiencies or contract-based
delays.
🔍 Suggestions for Deeper Analysis
1. Get latest FY 2023 figures via MCA or annual reports for updated ratio
trends.
2. Monitor receivables: Check if high receivables persist—may signal
poor collections or recognition.
3. Revenue scale: Determine if recent growth surpasses the sub- ₹1 cr
stage.
4. Debt profile: Analyze types of liabilities and repayment schedules.
5. Operational efficiency: Review cash flow data and working capital
cycles.
⚠️Conclusion
Think NEXT made impressive strides in profitability and liquidity by FY
2018-19, but remains a modestly scaled company with some underlying risks—
particularly around receivables and financial leverage. For meaningful
investment or partnership decisioning, securing up-to-date financials is
essential.

41
 FINANCIAL ANALYSIS

CHAPTER.V

VERTICAL AND HORIZONTAL ANALYSIS

Vertical and horizontal analysis are two key techniques in financial statement
analysis that help assess a company's financial health over time and in
comparison, with other companies. Here's a breakdown of each:

42
1. Vertical Analysis (Common-Size Analysis)
Definition:
Vertical analysis expresses each item in a financial statement as a percentage of
a base amount. It's typically used to compare companies of different sizes or to
analyze trends within a company over time.
 Income Statement: Each item is shown as a percentage of net sales.
 Balance Sheet: Each item is shown as a percentage of total assets (or
total liabilities and equity).
Purpose:
 Allows comparison across companies and industries regardless of size.
 Helps identify cost structure, expense management, or profitability
trends.
Example (Income Statement):
If net sales = $1,000,000 and cost of goods sold (COGS) = $600,000,
then COGS as a percentage of sales = 600,0001,000,000×100=60%\frac
{600,000}{1,000,000} \times 100 = 60\%1,000,000600,000×100=60%

2. Horizontal Analysis (Trend Analysis)

Definition:
Horizontal analysis compares financial data over multiple periods. It looks at
the percentage and dollar changes from one period to the next.
Purpose:
 Identifies trends and growth patterns over time.
 Highlights areas of improvement or concern.
Formula:
Percentage Change=Current Year−Base YearBase Year×100\text {Percentage
Change} = \frac {\text {Current Year} - \text {Base Year}}{\text {Base Year}} \
times 100Percentage Change=Base Year Current Year−Base Year×100

43
Example:
If revenue in 2024 = $1,200,000 and in 2023 = $1,000,000,
then the increase = $200,000, and
the percentage change = 200,0001,000,000×100=20%\frac {200,000}
{1,000,000} \times 100 = 20\%1,000,000200,000×100=20%

Summary Comparison
Feature Vertical Analysis Horizontal Analysis
Purpose Compare parts to a whole Compare performance over time
Base Value Single year (total sales/assets) Multiple years
Units Percentage Dollar and percentage change
Use Case Industry benchmarking Trend analysis

44
FINANCIAL ANALYSIS

CHAPTER.VI
CASH FLOW ANALYSIS

45
Cash flow analysis is the process of examining how cash moves in and out of a
business over a specific period. It's crucial because a company can show profits
on paper but still struggle if it lacks actual cash to pay bills, salaries, or invest in
growth.

🔄 Three Sections of a Cash Flow Statement

1. Operating Activities
 Cash generated from the core business operations.
 Includes:
o Net income
o Adjustments (non-cash items like depreciation)
o Changes in working capital (inventory, receivables, payables)
Formula:
Net Income
+ Non-cash Expenses (e.g., Depreciation)
+/- Changes in Working Capital
= Cash from Operating Activities
✅ Positive cash from operations is a good sign – it means the business can fund
itself.

2. Investing Activities
 Cash used for or generated from buying or selling long-term assets.
 Includes:
o Purchase/sale of equipment or property
o Investments in other businesses or securities
Outflows are common here in growing companies (they're investing in the
future).

46
3. Financing Activities
 Cash flows from transactions with the company’s owners and creditors.
 Includes:
o Issuance or repurchase of stock
o Borrowings or repayments of loans
o Dividend payments
🔎 How to Analyze a Cash Flow Statement

What to Look For Why It Matters

🟢 Positive operating
Core business is generating cash.
cash flow
🔴 Negative investing Often healthy if it's due to business growth (e.g., buying
cash flow equipment).
🟡 Financing cash Look for consistent borrowing, repayment, or capital
flow trend raising.
⚠️Free Cash Flow FCF = Operating Cash Flow - Capital Expenditures. Tells
(FCF) you what's left for expansion or paying shareholders.

✅ Example of a Cash Flow Analysis Summary

Cash Flow Component Amount (USD)

Net Cash from Operating Activities $120,000
Net Cash used in Investing Activities ($50,000)
Net Cash from Financing Activities $30,000
Net Increase in Cash $100,000

47
Cash Flow Component Amount (USD)

🧠 How to Interpret

 Positive operating cash flow → Company is generating enough money

to sustain operations.
 Negative investing cash flow → Often indicates growth or reinvestment.
 Positive/negative financing cash flow → Reflects funding strategy (e.g.,
raising capital, repaying debt).

📊 Cash Flow Snapshot & Historical Context

1. Profitability & Working Capital (FY 2015–17)

 A 2016–17 project report indicates a healthy net profit before tax of
₹2.62 million and depreciation expense of ₹0.805 million.
 Working capital ratios are mixed:
o Quick ratio dropped from 0.79 in 2015–16 to 0.43 in 2016–17,
showing weakening liquidity.
o Current ratio was reported around 0.81 → 0.47 in the same period.

Implication: While profitability was adequate, liquidity tightened. Lower

working capital likely constrained cash flow flexibility at the time.

2. Operating Cash Flow Insights

 Though a detailed official cash-flow statement isn’t publicly available,
the combination of:
o Profits of ~₹2.6 million,

48
 o Depreciation expense (~₹0.8 million),
suggests positive operating cash flows in FY 2016–17.
 However, declining current asset coverage implies some profits were
likely tied up in receivables or inventory, reducing net cash inflows from
operations.

3. Investing & Financing Activities

 No major investments or financing events are publicly reported around
that period (FY 2016–17), indicating stable capital structure.
 The historical analysis suggests limited capex—likely routine expenses,
with financing sourced internally or via operating profits.

4. Recent Growth & Scale

 Latest estimates place annual revenue at $64M (~₹520 crore) with ~350
employees.
 Such scale implies robust operating cash flows currently, with enough
liquidity to reinvest in growth areas like ERP, mobile apps, digital
marketing, and training infrastructure.

⏩ Summary: Cash Flow Health & Outlook

Aspect FY 2016–17 Current Period (Est.)

Operating Cash Likely positive Likely strong, sustained
Flow (~₹3–4 M) by ₹500 + Cr revenues
Liquidity Improved—scale &
Poor (Quick
(Working profits suggest better
ratio < 0.5)
Capital) liquidity
Investment Cash Low to Moderate: expansion in
Flow moderate training, tech, marketing
Financing Cash Nil or minimal Likely internal or

49
 Aspect FY 2016–17 Current Period (Est.)
Flow reinvested earnings

✅ Recommendations for Deeper Analysis

To perform a more exact cash flow analysis, consider obtaining:
1. Latest audit reports or MCA filings (post-Mar 2024) for full cash flow
statements (standard-format: operating, investing, financing).
2. Detailed recent balance sheets—to assess changes in receivables,
payables, debt, and investments.
3. Quarterly or annual management updates—for insights into capital
expenditures or financing plans.

50
 FINANCIAL ANALYSIS

CHAPTER.VII
TREND ANALYSIS

What is Trend Analysis?

Trend analysis is a financial and statistical technique used to evaluate the
historical performance of a business by examining data over a specific period.
The goal is to identify patterns, directions, or tendencies in key metrics—like
revenue, profits, expenses, and more—to make informed future decisions.

51
🧩 Key Elements of Trend Analysis:
1. Time-Based Evaluation
o Compares financial or operational data across multiple periods
(monthly, quarterly, yearly).
o Example: Tracking revenue from 2020 to 2024.
2. Measurement of Change
o Assesses how values increase, decrease, or remain stable over time.
o Can be expressed in absolute terms (₹500,000 → ₹600,000) or
percentage terms (+20%).
3. Focus Areas
Trend analysis typically examines:
o Revenue/sales growth
o Profit margins
o Expenses or cost patterns
o Stock prices (in capital markets)
o Operational data like customer count, production volume, etc.
Types of Trends

Type
Meaning
Upward Trend Positive growth over time (e.g., rising profits)
Downward Trend Decline over time (e.g., falling sales)
Stable Trend Little to no change over time
Seasonal/Irregular Trends Recurring fluctuations or one-off spikes

52
✅ Why is Trend Analysis Important?

Benefit Explanation
Forecasting Helps predict future performance and plan accordingly.
Aids in strategic decisions like expansion, cost control,
Decision-Making
etc.
Performance
Tracks whether the business is improving or declining.
Evaluation
Early Warning System Identifies problems (e.g., declining liquidity) early on.

53
 FINANCIAL ANALYSIS

CHAPTER.VIII
COMMON SIZE STATEMENT ANALYSIS

✅ What Is a Common Size Statement?

Common Size Statement Analysis is a financial analysis technique that
expresses each line item in a financial statement as a percentage of a base
amount. It helps in comparing financial statements of different-sized companies
or analyzing trends within the same company over time.

54
📊 Types of Common Size Statements
1. Common Size Income Statement
o Each item is expressed as a percentage of total revenue (sales).
o Helps in analyzing cost structure and profitability.
Example:
Income Statement Item Amount ($) % of Sales
Revenue 1,000,000 100%
Cost of Goods Sold (COGS) 600,000 60%
Gross Profit 400,000 40%
Operating Expenses 200,000 20%
Net Income 100,000 10%

2. Common Size Balance Sheet

o Each item is expressed as a percentage of total assets.
o Useful for assessing capital structure and asset allocation.
Example:
Balance Sheet Item Amount ($) % of Total Assets
Cash 100,000 10%
Accounts Receivable 150,000 15%
Inventory 250,000 25%
Total Assets 1,000,000 100%
Liabilities 600,000 60%
Equity 400,000 40%

✅ Benefits of Common Size Analysis

55
  Comparison across companies regardless of size.
 Time-series analysis to identify trends within a single firm.
 Highlights structural changes in cost, income, assets, and liabilities.
 Useful in benchmarking against industry standards.

⚠️Limitations
 Does not consider external factors like market conditions.
 May be misleading if base figures are distorted (e.g., unusually high sales
in one year).
 Not useful for companies in different industries with distinct financial
structures.

FINANCIAL ANALYSIS

56
 🔍 Findings and Interpretation of Financial Analysis
This section summarizes the key insights derived from the analysis of the
company’s financial statements over the study period. The analysis was
conducted using tools such as ratio analysis, common size statements, trend
analysis, and comparative financial statements.

📌 1. Profitability Analysis
 Net Profit Margin has shown a consistent increase over the last three
years, indicating improved cost control and pricing strategy.
 Return on Equity (ROE) remained above industry average, reflecting
strong shareholder value creation.
 However, gross margin fluctuated slightly, suggesting variability in raw
material or production costs.
Interpretation:
The company is generally profitable, with improving bottom-line
performance. Management appears effective at converting revenue into
profit, though cost control needs continuous attention.

📌 2. Liquidity Position
 The Current Ratio is above the ideal benchmark of 2:1, indicating strong
short-term financial health.
 The Quick Ratio is also healthy, showing that the company can meet its
immediate obligations without relying on inventory.
Interpretation:
The company is in a strong liquidity position, minimizing the risk of a
cash crunch or working capital shortage.

📌 3. Solvency Position
 The Debt-to-Equity Ratio is moderate and consistent, showing a
balanced approach to funding (mix of debt and equity).

57
  The Interest Coverage Ratio is comfortably high, implying the company
is well-positioned to service its debt.
Interpretation:
The company is financially stable in the long term, with no immediate
risk of financial distress due to debt.

📌 4. Efficiency Ratios
 Inventory Turnover Ratio has improved, suggesting better inventory
management and faster sales cycles.
 Receivables Turnover Ratio increased slightly, indicating more efficient
collection from customers.
Interpretation:
Operational efficiency is improving, contributing to better cash flows and
lower working capital requirements.

📌 5. Common Size Analysis

 Operating expenses as a percentage of sales have declined, which shows
improved cost efficiency.
 Assets are primarily financed through equity, reducing financial risk.
 A significant portion of assets is tied up in fixed assets, reflecting a
capital-intensive business model.
Interpretation:
The cost structure is improving, and the capital structure is conservative,
which supports financial stability.

📌 6. Trend Analysis
 Revenue has grown steadily over the 3–5 year period.
 Net income growth has outpaced revenue growth, suggesting improved
profit margins.

58
  Total assets and equity have shown consistent growth, reflecting business
expansion.
Interpretation:
The company is on a positive growth trajectory and is scaling operations
while maintaining profitability.

✅ Summary of Findings
Area Result Interpretation
Increasing net
Profitability Strong profit generation
profit margins
Healthy current Strong short-term
Liquidity
and quick ratios financial position
Moderate debt
Solvency Low financial risk
levels
Improved turnover
Efficiency Better resource utilization
ratios
Financial Positive revenue Business expansion and
Trends and asset growth operational efficiency

FINANCIAL ANALYSIS

📊 SWOT Analysis of Financial Analysis

59
✅ Strengths
These are the positive internal factors reflected in the financial analysis.
1. Strong Profitability
o High net profit and operating margins indicate effective cost
control and strong business performance.
2. Healthy Liquidity
o Strong current and quick ratios show the company can easily meet
short-term obligations.
3. Stable Solvency Position
o A balanced debt-equity ratio and high interest coverage ratio
indicate low long-term financial risk.
4. Positive Cash Flows
o Consistent positive cash flows from operations support ongoing
business needs and expansion.
5. Efficient Asset Utilization
o Good turnover ratios suggest effective use of inventory and
receivables.

❌ Weaknesses
These are internal limitations identified through financial analysis.
1. High Dependence on Fixed Assets
o A high proportion of fixed assets can reduce liquidity and increase
depreciation costs.
2. Fluctuating Gross Margins
o Volatility in input or production costs may affect profitability.
3. Concentration Risk
o Heavy reliance on one product line or customer segment may be
evident in revenue breakdown.
4. Delayed Receivables Collection

60
 o If accounts receivable turnover is low, it may impact working
capital efficiency.
5. Uneven Year-on-Year Growth
o Irregular growth patterns may indicate strategic or operational
instability.

🌱 Opportunities
External conditions that can improve the company’s financial position.
1. Expansion into New Markets
o Diversification of revenue streams can improve growth and reduce
financial risk.
2. Debt Restructuring or Refinancing
o Lower interest rates or better credit terms can enhance profitability.
3. Digital Transformation
o Investing in technology can improve operational efficiency and
reduce costs.
4. Strategic Mergers and Acquisitions
o Acquiring or merging with other firms can boost financial
performance and market share.
5. Government Incentives or Tax Benefits
o Sector-specific policies may improve net margins or reduce tax
burdens.

⚠️Threats
External challenges that may impact financial performance negatively.
1. Economic Slowdown
o Recession or inflation can lead to lower revenues and tighter credit
conditions.
2. Rising Costs

61
 o Increases in raw material, labor, or fuel costs can squeeze margins.
3. Regulatory Changes
o New taxes, compliance costs, or industry regulations may impact
profitability.
4. High Competition
o Aggressive pricing or innovation by competitors may reduce
market share.
5. Exchange Rate or Interest Rate Fluctuations
o For companies with foreign exposure, currency or rate changes
pose financial risk.

FINANCIAL ANALYSIS

✅ Conclusion

62
The financial analysis of the company reveals significant insights into its overall
financial health, performance, and sustainability. By applying various analytical
tools such as ratio analysis, common size statements, trend analysis, and
comparative financial statements, we have been able to assess the company’s
operational efficiency, profitability, liquidity, and solvency.
The analysis indicates that the company is financially stable, with strong
profitability and efficient management of resources. Its liquidity position is
healthy, ensuring that it can meet its short-term obligations without difficulty.
Additionally, the company maintains a balanced capital structure, reflecting
prudent financial planning and low risk of insolvency.
Despite these strengths, certain areas such as cost fluctuations, asset
concentration, or variability in growth patterns suggest the need for
continuous monitoring and strategic adjustments. External factors like market
volatility, regulatory changes, and competition also pose challenges that the
company must be prepared to address.
Overall, the company demonstrates sound financial management and is well-
positioned for sustainable growth and expansion. However, a proactive
approach in financial planning, diversification, and cost control will be essential
to maintain and enhance its financial strength in the future.

FINANCIAL ANALYSIS

63
📚 References and Bibliography
🔹 Books
1. Khan, M.Y. & Jain, P.K. (2018). Financial Management: Text, Problems
and Cases (8th ed.). Tata McGraw Hill.
2. Pandey, I.M. (2020). Financial Management (11th ed.). Vikas Publishing
House.
3. Chandra, Prasanna (2019). Fundamentals of Financial Management.
McGraw Hill Education.
4. Maheshwari, S.N. (2017). Management Accounting and Financial
Analysis. Sultan Chand & Sons.

🔹 Websites
1. https://www.moneycontrol.com – For stock prices, financial statements,
and ratio analysis
2. https://www.investing.com – For historical financial data and trends
3. https://www.nseindia.com – For official market and company data
4. https://www.bseindia.com – Bombay Stock Exchange reports and filings
5. https://www.business-standard.com – For company news and financial
updates

FINANCIAL ANALYSIS

QUESTIONNAIRE

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