NMIMS

Anil Surendra Modi School of Commerce

S.Y.B.Com (Hons.)

Semester IV

Financial Statements Analysis - Evaluation Paper

Notes:
Maximum Marks: 50
Maximum Time Allotted: 2 Hours
Question no. I carries 20 Marks
Question no. II, III & IV carry 10 Marks each
Financial Statements Analysis - Evaluation Paper

Question I

Given below is the historical extract of Statement of Profit & Loss and Balance Sheet (FY2016-FY2018) pertaining to Impos
In FY2017, on account of crackdown on illegal tanneries, the availability of leather which is the primary constituent of the l

Statement of Profit & Loss - Extract

All figures in ₹ Crores

Particulars
Net Revenue
Corporate Tax Rate
Other Manufacturing Expenses
General & Administration Expenses
Interest Cost
Employee Cost
Selling & Distribution Expenses
Depreciation & Amortisation
Raw Materials Consumed
Stock Adjustments
Power & Fuel
Miscellaneous Expenses

Balance Sheet - Extract

All figures in ₹ Crores

Particulars
Fixed Assets - Net Block
Short Term Borrowings
Current Maturities of Long Term Borrowings
Long Term Borrowings
Debtors
Inventory
Other Current Assets
Creditors
Other Current Liabilities
Shareholders’ Funds

After comprehending and analysing the financial statements given above, answer the following questions:
ii. Other companies
i. Rearrange in the sector
the Statement are&successfully
of Profit Loss as perimplementing cost reduction strategies by curtailing travel
the standard format.
expenditure, curtailing the bonus and salaries of employees and reducing other general and administration
expenses to the extent possible. Compute the Gross Margins and EBITDA Margins of Impossible is Nothing Ltd.
and enlist your observations.

iii. The company is planning to invest into machinery which adopts superior technology to reduce the pressure on
margins. The company is planning to seek fresh funds to the tune of INR 30 Crores in the form of debt funding. As
an analyst with a bank, evaluate the proposal and record your observations.
Particulars
No. of Shares (March 31, 2018)
Average Market Price Per Share - ₹ (FY2018)
Expected Growth in EPS (FY2019)
Industry P/E Ratio (FY2018)

iv. Consider the below mentioned information and comment on the following:
In your opinion, is the company overvalued or undervalued? Kindly compute relevant ratios and enlist your observations.
If you were an existing investor in Impossible is Nothing Ltd., would you consider holding the investment or exiting the inv
ertaining to Impossible is Nothing Ltd. The company operates in the domain of leather footwear manufacturing and its primary factory
constituent of the leather footwear manufacturing was constrained, which in turn lead to an increase in leather prices. The situation h

FY2016 FY2017 FY2018

500 560 600
20% 20% 20%
25 39 48
20 34 42
13 17 21
20 28 36
50 50 54
15 18 21
225 274 282
3 3 4
30 39 42
30 34 36

March 31, 2016 March 31, 2017 March 31, 2018

125 150 175
30 30 30
6 8 10
90 110 130
20 30 50
60 80 100
10 15 20
20 25 30
5 10 15
120 140 150

4 Marks

4 Marks

6 Marks
 10,000,000
350
20%
25x

6 Marks
our observations.
t or exiting the investment?
facturing and its primary factory is based out of Lucknow, Uttar Pradesh.
n leather prices. The situation had improved in FY2018 and is expected to stabilise in FY2019, however the industry is not expected to

6 Marks
 4 Marks
2 Marks
he industry is not expected to witness the margins that it enjoyed in the pre FY2017 era.
Financial Statements Analysis - Evaluation Paper

Question II

Following is the financial statement of a listed fashion player " Cool Fashion" which sells its brands in the retail as we
around 70% of the revenue comes from the institution market and rest from the newly entered retail segment
The management has entered into retail business currently , while its erstwhile institution business is also flourishing
The company is now exploring to improve on its overall performance and also wants to critically evaluate its operatin
You are expected to analyse its operating cycle and various components within it and try to recommend to the mana
If yes substantiate your answers with relevant ratios and their interpretations
The following additional information is at your pursuit
On an average 25% of the purchases in the fashion industry is done on cash and Cool Fashions purchases policy is al
The general debtor collection period is around 30 days in the industry

Liabilities FY19 FY20

Equity Share capital (face value Rs 2) 150,000 150,000
P& L account 100,000 182,063
Debentures - 50,000
Bank term loan 150,000 178,543
Creditors 20,000 20,000
Bills payable 20,000 20,000
Outstanding Expenses 5,000 5,000
Bank Overdraft 10,000 10,000
Total 455,000 615,606

Particulars FY19 FY20

Sales (70% credit) 500000 575000
Less COGS 250,000 258,750
Opening stock 71,000 65,000
Purchases 244,000 273,750
Closing stock 65,000 80,000
Operating expenses excluding dep 100,000 103,500
Depreciation 36,000 46,125
Int on debentures 5,000 2,500
PBT 109,000 164,125
Tax 38,150 82,062.60
PAT 70,850 82,063
Tax rate (%) 35.0% 50.0%

Industry benchmarks
Gross margins 55%
Net profit 15%
Debt equity 0.5
PER 25
P/BV 5
Net Operating cycle 2 months
RoE 30%
Fixed Assets Turnover Ratio 1.2
ashion" which sells its brands in the retail as well as the institutional market
st from the newly entered retail segment
erstwhile institution business is also flourishing well.
and also wants to critically evaluate its operating cycle.
nts within it and try to recommend to the management whether or not it should change its debtors collection policy?

n cash and Cool Fashions purchases policy is aligned to the industry practices

Assets FY19 FY20

Land & Building 120000 235982
Machinery 180,000 230,624
Debtors 53,000 40,000
Bills Receivable 20,000 12,000
Stock 65,000 80,000
Bank balance 15,000 15,000
Cash balance 2,000 2,000

455,000 615,606
s collection policy?
 Financial Statements Analysis - Evaluation Paper

Question III

As the Manager of Eye Dee Bee Aye Bank, you have received a proposal seeking a term loan of Rs. 500 mn from Johnson
assumptions and calculations clearly. Kindly refer the notes below the financial statements.

Johnson Pharmaceuticals Ltd

I. Statement of Profit and Loss
Years ended March 31 (Rs. In millions) 2018
Net Revenues 2,535.50
Operating Expenses
Cost of Sales (includes depreciation, refer cash flow for amount of depreciation) 1,502.80
Research and Development 170.10
Selling and marketing 232.90
General and Admin Exp 190.50
Amortization 80.70
Loss on sale of asset 0.30
Total Operating expenses 2,177.30
Operating Income 358.20
Other (expense) income
Interest income 9.00
Interest expense -28.20
Other Non-Operating Income 19.30
Total other (expense) income 0.10
Income before income taxes 358.30
Provn for Income taxes 119.90
Net income attributable to common shareholders 238.40

II. Balance Sheet

Years ended March 31 (Rs. In millions)
2018
Assets
Current Assets
Cash & Cash equivalent 507.60
Marketable Securities 13.20
Accounts receivable 305.00
Inventory 473.10
Prepaid expenses& other current assets 48.50
Deferred Tax assets 111.00
Total Current Assets 1,458.40
Property and equipment, net 658.50
Investments 80.60
 Deferred Tax assets 52.30
Product rights and other intangibles, net 560.00
Good will 868.10
Total Assets 3,677.90
LIABILITIES AND EQUITY
Current Liability:
Accounts payable and accrued expenses 381.30
Income taxes payable 15.50
Short term debts and current portion of long term debt 53.20
Deferred tax liabilities 15.90
Deferred revenue 16.10
Total Current liabilities 482.00
Long term debt 824.70
Deferred revenue 30.10
Other Long term liabilities 4.90
Other Taxes payable 53.30
Deferred tax liabilities 174.30
Total liabilities 1,569.30
Equity Shares 690.50
Retained earnings 1,418.10
Total stockholders equity 2,108.60
Total Liabilities and Equity 3,677.90

III. Statement of Cash Flow

Years ended March 31 (Rs. In millions)
2018
Cash Flow from Operating Activities
Net Income 238.4
Adjustments
Depreciation 90.00
Amortization 80.70
Provision for Inventory reserve 45.70
Share based compensation 18.50
Deferred Income tax (Benefit) Provn 3.50
(Gain) Loss on sale of security -9.60
Loss on asset sale 0.30
Increase in allowance for doubtful accounts 1.20
Contingent payment considerations -
Others, net -13.90
Changes in Working capital -38.20
Net Cash from Operating Activities 416.6
Cash Flow from Investing Activities
Purchase of Property & Eqpt -63.50
Addition to product rights & other intangibles -37.00
 Addition to marketable securities -8.20
Long term investments -
Sale of Property & Eqpt -
Sale of marketable securities 6.70
Sale of Investments 8.2
Acq of business, net of cash acquired -
Others investing activities, net 0.40
Net Cash used in Investing activities -93.40
Cash Flow from Financing Activities
Proceeds from issuance of Long term debts -
Principal payment on debt -95.60
Short term debts 67.90
Stock plans 8.40
Repurchase of common stock -0.90
Net cash provided by (used in) Financing activities -20.20
Effect of currency exchange rate changes -
Net increase (decrease) in cash and Cash Eqvt 303.00
Opening balance of Cash & Cash Eqvt 204.60
Closing balance of Cash & Cash Eqvt 507.60

Notes:
I. Kindly refer Cash Flow Statement for the absolute amount of Depreciation.
II. Kindly refer Cash Flow Statement for computing mandatory principal debt repayment.
m loan of Rs. 500 mn from Johnson Pharmaceuticals Ltd. for a new project. The following financial statements are made available to you.
ments.

2019 2020
2,793.00 3,566.90

1,596.80 1,998.50
197.30 296.10
263.10 320.00
257.10 436.10
92.60 180.00
2.20 30.80
2,409.10 3,261.50
383.90 305.40

5.00 1.60
-34.20 -84.10
7.90 28.80
-21.30 -53.70
362.60 251.70
140.60 67.30
222.00 184.40

2019 2020

201.40 282.80
13.60 11.10
517.40 560.90
692.30 631.00
213.90 134.20
130.90 179.40
1,769.50 1,799.40
694.20 642.30
114.50 84.50
 110.80 141.00
1,713.50 1,632.00
1,501.00 1,528.10
5,903.50 5,827.30

614.30 741.10
78.40 39.90
307.60 -
31.30 20.80
16.30 18.90
1,047.90 820.70
1,150.20 1,016.10
31.90 18.20
118.70 183.10
76.00 65.10
455.70 441.50
2,880.40 2,544.70
1,383.00 1,458.10
1,640.10 1,824.50
3,023.10 3,282.60
5,903.50 5,827.30

2019 2020

222 183.3

96.40 101.90
92.60 180.00
51.00 50.00
19.10 23.50
-19.00 -118.30
1.10 -27.30
2.60 29.80
3.40 9.50
2.20 38.40
-7.60 11.30
-87.00 88.90
376.8 571

-55.40 -56.60
-16.50 -10.90
 -8.00 -5.50
- -43.70
3.00 2.70
9.00 9.50
- 95.40
-968.20 -67.50
- 2.50
-1,036.10 -74.10

1,109.90 -
-786.60 -459.70
- -
33.40 54.70
-3.60 -6.30
353.10 -411.30
- -4.20
-306.20 81.40
507.60 201.40
201.40 282.80
nts are made available to you. What are your recommendations? Please state your
Ramsons & Ramsons : Credit Ratios

2018 2019 2020

Operating Profit Margin 25.10% 25.20% 26.80%

Debt/EBITDA 0.6x 0.8x 0.9x
EBITDA/Interest 43.3x 40.7x 42.8x
FCF after dividends/debt 58.10% 61.10% 48.90%
Debt/Capital 21.80% 22.30% 22.90%
Financial Statements Analysis - Evaluation Paper

Question IV

Mr. Venkatashwer, Equity Research Analyst, is working with well known equity research firm.Currently he is updating hi
His supervisor, Mr.Sameer Arora, has asked Venkatashwer to use price multiples for valuation when updating the report
Before approving Venkatashwers' work, Sameer Arora wants to discuss the calculations and choices of ratios used in th
summarized in Table 1.

Table 1
Financial Data for United Beverage and GM Breweries Ltd.
United Spirits Ltd.
FY2020 Earnings per share (EPS) 9.7
FY2021 estimated EPS 13.5
Book value per share - March 31, 2020 52.44
Share Price - March 31, 2020 (MPS) 537.75
Sales (Crores) 9090
Shares outstanding end of year (Nos.) 726,638,715

Arora provides Venkatashwer, financial data on Breweries & Distilleries Industry in Table 2.
He asks Venkatashwer to determine, whether United Spirits Ltd. and GM Breweries Ltd. shares are overvalued or unde

Table 2
Breweries & Distilleries Sector Data
Companies P/E Earnings growth
United Spirits Ltd To be computed 39.18%
GM Breweries Ltd To be computed 36.36%
Tilak agar Ind 1.16 9.52%
Assoc Alcohol 14.66 11.94%
Radio Khatna 31.89 20%
Piccadilly Agro 8.11 8.15%

Answer the following questions:-

1. Based on information given in table 1 calculate the trailing (FY2020) and forward P/E (FY2021) of United Spirits Ltd. an
2. Based on information given in table 1 calculate the price-to-book (P/B) ratio for United Spirits Ltd. and GM Breweries
3. Based on the information in table 1 and table 2 calculate the forward PEG ratio of United Spirits Ltd and GM Brewerie
4. Based on PEG ratio what analyst would likely to conclude that shares of United Spirits Ltd. and GM Breweries Ltd are
firm.Currently he is updating his research reports on Indian Breweries & Distilleries companies before first quarter FY2021 earnings repor
ation when updating the reports.
and choices of ratios used in the valuation of United Spirits Ltd. Ltd. and GM Breweries Ltd.. The data used by Venkatashwer in his analysi

e and GM Breweries Ltd.

GM Breweries Ltd.
11
15
235.36
410.15
112
18,277,538

shares are overvalued or undervalued based on price-to-earnings growth (PEG) ratio

FY2021) of United Spirits Ltd. and GM Breweries Ltd. 3 Marks

Spirits Ltd. and GM Breweries Ltd. 2 marks
ed Spirits Ltd and GM Breweries Ltd. 3 marks
Ltd. and GM Breweries Ltd are over valued or under valued 2 marks
t quarter FY2021 earnings reports are released.

d by Venkatashwer in his analysis is