Scribd
Upload
607 views3 pages

Fortune Teller

This case study analyzes the financial health of two companies, Kharag & Co. and Sahil Kapoor & Bro. Various financial ratios are calculated and compared between the two companies. Kharag & Co. is found to have stronger current ratios but poorer cash flow and longer credit cycles. Alternative solutions propose calculating additional ratios like the Altman Z-score to further assess bankruptcy risk. A hypothetical company is then analyzed over three years, showing improving ratios across parameters. While the PBIT/Total Capital ratio averages a healthy 20%, further investment is deemed potentially profitable given the company's 10-year business vision.

Uploaded by

bharat
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
607 views3 pages

Fortune Teller

This case study analyzes the financial health of two companies, Kharag & Co. and Sahil Kapoor & Bro. Various financial ratios are calculated and compared between the two companies. Kharag & Co. is found to have stronger current ratios but poorer cash flow and longer credit cycles. Alternative solutions propose calculating additional ratios like the Altman Z-score to further assess bankruptcy risk. A hypothetical company is then analyzed over three years, showing improving ratios across parameters. While the PBIT/Total Capital ratio averages a healthy 20%, further investment is deemed potentially profitable given the company's 10-year business vision.

Uploaded by

bharat
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Case Study Name: The Fortune Teller

Class MBA –I Sem – II: Case Study No.: 1 Date:30 /06/2023

Group Members:

1)________________________________ 2)____________________________________

3)________________________________ 4)____________________________________

Case Write UP

Objective of the Case:


 To take the appropriate decision relating to selecting of company.
 To decide the quantum of credit.
 To ascertain the ability to repay.
 To find out liquidity profitability solvency & concern.
 Analyse the comparative ratio of Kharag & Co. And Sahil Kapoor &
Bro.
 To Study the big company in Delhi & calculate ratios.

Problem (s) Identified:

 To understand the financial of both the companies.


 Forecast the financial adaptability of both companies basis their
credit and Liability.
 Assets investment of Delhi based company seems to be higher side
of impacting the capital flow in operational transaction.
 Earnings before Tax / Total Asset is very poor , which questions the
Marginal Earnings in business Transaction.
 Retain Earning /Asset ratio is also 3% which implies low cash in hand
for transactions.
Analysis of Problem(s):

Case No .1

Ratios Of Both Kharag & Sahil


Sr. No Companys co. Kapoor Interpretation
This ratio implies that Kharag & Co has a
strong position against Sahil Kapoor & Co,
Current Assets clearly indicating Kharag & Co has lower
1 /Current Liabiliies 2.49 1.52 current liabilities comparatively
This ratio implies Poor cash flow of Kharag &
Co. relatively hence questions its ability to
Liquid Assets drive daily business transactions and hence
/Short term may face heat in the Market from its
2 Liabilities 0.57 1.17 competitors
The Credit cycle of Kharag & Co is 1.5 times of
Sahil Kapoor & Bro which again indicates the
Cash flow of the company. Hence it questions
Total Credit Companies capacity to hold its stand against
*360/Total Credit its competion for getting lucrative Business
3 Purchase 121 days 89 days deals

Suggestion(s)/Alternative Solution(s):

Case No.2
Ratio Calculation by Prof . Mahesh Kumar Amt Analysis
Ideal Ratio should be between 40% to 50%
against 15% in this scenario which is highly
concerning for long term sustainaibility of the
net working Capital / total Assests 0.15 firm.
Ideal Ratio should be between 80% to 100%
against 31% in this scenario which is highly
concerning for long term sustainaibility of the
Retained earnings / total Assets 0.31 firm.

EBIT/Total Assests 0.13 All these scores also can be consolidated into
single Z score =
Market Value of all Equity / Book values Of (1.2*0.15)+(1.4*0.31)+(3.3*0.13)+(0.6*107)+(1*0.
Debt 107 9)/100. This score in this scenario is 0.66. as per
Altman principle of Z score a Firm with a Z score
of less than 3 is headed towards bankruptcy.
Sales / Total Assets 0.9
Total 108.49 0.66143

https://www.investopedia.com/terms/a/altman.asp#:~:text=The%20formula%20for
%20Altman%20Z,*(sales%20%2F%20total%20assets) .
How to Calculate the Altman Z-Score

One can calculate the Altman Z-score as follows:

Altman Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Where:

 A = working capital / total assets


 B = retained earnings / total assets
 C = earnings before interest and tax / total assets
 D = market value of equity / total liabilities
 E = sales / total assets

Decision:
Case No.3
Averag
Parameters 2020 2021 2022 e Remarks
Current Assets/Current Liabilities 1.4 1.4 1.5 1.43 All the parameters show a
Long Term Debts /Equity 0.5 0.5 0.6 0.53 positive upwards trajectory
Cost of goods sold/ Avarage Inventory 2.3 2.2 2.2 2.23 which is a optimal sign about
Net sales / Average Assets 0.8 0.8 0.9 0.83 the company’s financial future.
Net proft (%)/Net sales 3.8 5.5 6.3 5.20 However PBIT/Total capital
PBIT/ Total Capital 16.4 19.4 25.6 20.47 Ratio averages at 20% which is
fairly positive sign about the
company’s financial health.
Hence investment in this firm
can turn out to be a profitable
Income from Equities(%)/Average Net deal considering their business
Worth 7.3 11.4 14 10.90 vision of next 10 years
Total 32.5 41.2 51.1 41.60

Take Away / Learning:

 Financial health of any Company can be evaluated basis 38 financial


ratios which imply its unique proposition for the survival of the
business.
 A strong Z score of more than 3 is highly essential for long term
sustainability of an organisation.
 A strong PBIT/Total Capital ratio of more than 20% is essential for
signifying the sustainable operations cost and a stable working capital of
the firm.

You might also like