Excellent — let’s now create a Current Assets Analysis Framework, in the same style as Revenue,
COGS, Cash Flow, and Fixed Assets.
Current Assets Analysis Framework
1. Defini on & Importance
Current Assets: Assets conver ble into cash within 12 months or opera ng cycle (whichever
is longer).
Why it ma ers:
o Shows short-term liquidity and working capital strength.
o Reveals opera onal efficiency (inventory, receivables).
o Cri cal for assessing cash conversion cycle and business sustainability.
2. Components of Current Assets
a) Cash & Cash Equivalents
Cash in hand, bank balances, short-term deposits.
Indicator of liquidity buffer.
b) Trade Receivables
Money owed by customers.
Quality depends on collec on efficiency and credit policy.
c) Inventory
Raw materials, WIP (work-in-progress), finished goods.
Reflects demand condi ons & supply chain management.
d) Loans & Advances / Other Current Assets
Short-term loans to subsidiaries/related par es.
Prepaid expenses, GST credits, deposits, etc.
Can hide inefficiencies or related-party funding.
3. Trend Analysis
Growth in current assets vs growth in revenue.
Working capital intensity → (Current Assets – Current Liabili es) / Sales.
Rising current assets without revenue growth = inefficiency or stress.
4. Receivables Analysis
Days Sales Outstanding (DSO) = (Receivables / Sales) × 365.
Rising DSO → aggressive revenue booking / poor collec ons.
Check receivable concentra on → dependence on few clients.
Provisioning for doub ul debts.
5. Inventory Analysis
Inventory Turnover = COGS / Average Inventory.
Days Inventory Outstanding (DIO) = (Inventory / COGS) × 365.
Rising inventory with flat sales → demand slowdown or obsolete stock.
Compare product mix (raw material vs finished goods buildup).
6. Cash & Liquid Assets
Assess quality of cash: is it free cash or restricted?
Link CFO with cash balance → is company genera ng/storing cash?
Compare cash levels vs upcoming obliga ons (debt repayments).
7. Loans, Advances & Other Current Assets
Short-term loans to group cos → possible fund diversion.
High “other current assets” → lack of transparency.
Prepaid expenses, deposits, GST credits → should be monitored but not over-weighted.
8. Compara ve Analysis
Benchmark working capital cycle vs peers.
Compare cash conversion efficiency.
Check if company enjoys nega ve working capital (good in FMCG, retail).
9. Forward-looking Indicators
Seasonality in working capital needs.
Credit policy changes → affect receivables.
Raw material stocking ahead of price hikes or supply disrup ons.
Digitaliza on of supply chain → can reduce working capital needs.
10. Red Flags
Receivables growing faster than sales.
Large related-party receivables/advances.
Stagnant or obsolete inventory.
Very high “other current assets” without disclosure.
Cash balance high but CFO weak → possible window dressing.
11. Key Ra os
Current Ra o = Current Assets / Current Liabili es.
Quick Ra o = (Current Assets – Inventory) / Current Liabili es.
Working Capital Days = DSO + DIO – DPO.
Receivables Turnover = Sales / Receivables.
Inventory Turnover = COGS / Inventory.
Cash Ra o = Cash & Equivalents / Current Liabili es.
Final Deliverable (Equity Research Summary)
Start with size & growth of current assets.
Break down major components (cash, receivables, inventory).
Analyze working capital efficiency (ra os).
Benchmark vs peers.
Assess quality of current assets (cash vs receivables vs other).
Highlight forward-looking drivers (policy, seasonality, supply chain).
Flag risks/red flags.
Would you like me to also prepare this into a 1-page PDF format (like forensic, revenue, COGS, cash
flow, fixed assets), so you’ll have a complete ready-to-use equity research analysis toolkit covering
all major financial statement areas?
