Module 3: Analytical Case Study on TechGrowth Inc.

Augustine Onyeguili

Master of Business Administration, Nexford University

ACC 6050: Accounting and Financial Reporting

Dr Damian Dunbar

Nov 26, 2024

 Review of Tech Growth Inc Financial Statements

Reviewing the Financial Statements of Tech Growth Inc. from the Balance Sheet, Income

Statement and Cash Flow Statements from year 1 to 3 indicates that there is an improved

financial stability over the period and that the company’s growth strategy of focusing on long-

term growth while managing financial risk is working.

The company has shown a steady increase in revenue and reduced expenses within the period

under review. The increased tax expense as seen on the statement is not having a significant

impact due to increased sales revenue over the period. The growth of the company is evident as

they have purchased more fixed assets, and due to increased sales, Tech Growth has been able to

raise their inventory size, acquire more cash, and make a large number of sales on credit,

resulting in an increase in receivables.

The company’s current liabilities increases from year 1 to 3 which indicates that the company is

leveraging short-term loans to be able to expand its business, build up inventory or increase

operational costs. While the decrease in long-term liabilities indicates a focus on paying down

long-term debt which can improve its financial stability and reduce interest costs. There is an

increased in Retained Earnings from year 1 to 3 which is a positive sign of commitment to

growth and stability of the company as it indicates that the business is retaining a larger portion

of its profits for reinvestment rather than distributing them to shareholders as dividends.

A steady increase in net cash from year 1 to 3 indicates that the company is in a healthy financial

position, effectively managing its operations, and generating cash flow.

Overall, Tech Growth’s Financial Statement analysis are very encouraging except for a few

concerns that may limit its long-term growth and business expansion. For instance, the consistent
increase in short-term debts with a corresponding decrease in long-term debts possess a liquidity

concerns. It would obviously strain cash flows in the short term as continued acquiring of more

short obligations to finance its expansion and growth is not sustainable due to high interest rate.

Also there exist a consistent increase in Account Payable from year 1 to 3 which means the

company is taking longer to pay its supplies or creditors. The delay could mean an extended

payment terms with suppliers, or a strategy to improve liquidity. However, if this trend has to do

with cash flow constraint or poor supplier relationship, care should be taken not to damage

supplier relationships or incur additional costs. Therefore, the company needs to increase its

working capital.

Financial Analysis

The Tables below show the horizontal analysis of the Balance Sheet, Income Statement and Cash

Flow Statement;

Horizontal Analysis:

Table 1: Balance Sheet

Balanc Vertical and

e Horizontal Tabl
Sheets Analysis e1
As of
Decembe Vertical Horizontal
r 31 Analysis Analysis

202 202 202 202 202 202

Assets 2023
2 3 4 2 3 4 2024
Net Net
Current
Chan Chan
Assets
ge % ge %
30.
$34, $50, $65,
Cash 12.8 16.6 19.4 $16,0 47.06 $15,0 00
000 000 000
3% 7% 6% 00 % 00 %
Accounts $35, $40, $45, 13.2 13.3 13.4 $5,00 14.29 $5,00 12.
Receivabl 50
000 000 000
e 1% 3% 7% 0 % 0 %
$28, $30, $32, 10.5 10.0 9.58 $2,00 $2,00 6.6
Inventory
000 000 000 7% 0% % 0 7.14% 0 7%
Total $12 $14 18.
$97,
Current 0,00 2,00 36.6 40.0 42.5 $23,0 23.71 $22,0 33
000
Assets 0 0 0% 0% 1% 00 % 00 %

Non-
Current
Assets
Property,
$14 $15 $16
Plant &
0,00 0,00 0,00
Equipmen 52.8 50.0 50.0 $10,0 $10,0 6.6
0 0 0
t 3% 0% 0% 00 7.14% 00 7%
Intangible $28, $30, $32, 10.5 10.0 10.0 $2,00 $2,00 6.6
Assets 000 000 000 7% 0% 0% 0 7.14% 0 7%
Total
$16 $18 $19
Non-
8,00 0,00 2,00
Current 63.4 60.0 60.0 $12,0 $12,0 6.6
0 0 0
Assets 0% 0% 0% 00 7.14% 00 7%
$26 $30 $33 11.
Total 100.
5,00 0,00 4,00 100. 100. $35,0 13.21 $34,0 33
Assets 00%
0 0 0 00% 00% 00 % 00 %

Liabilities
Current
Liabilities
20.
Accounts $20, $25, $30, 16.6
20.8 25.0 $5,00 25.00 $5,00 00
Payable 000 000 000 7%
3% 0% 0 % 0 %
20.
Short- $12, $15, $18,
10.0 12.5 15.0 $3,00 25.00 $3,00 00
term Debt 000 000 000
0% 0% 0% 0 % 0 %
20.
Accrued $8,0 $10, $12,
6.67 8.33 10.0 $200 25.00 $2,00 00
Liabilities 00 000 000
% % 0% 0 % 0 %
Total 20.
$40, $50, $60,
Current 33.3 41.6 50.0 $100 25.00 $10,0 00
000 000 000
Liabilities 3% 7% 0% 00 % 00 %

Long-
term
Liabilities
- -
Long-term $80, $70, $60,
66.6 58.3 50.0 ($10, 12.50 ($10, 14.
Debt 000 000 000
7% 3% 0% 000) % 000) 29
Total $80, $70, $60, 66.6 58.3 50.0 ($10, - ($10, -
Long- 000 000 000 7% 3% 0% 000) 12.50 000) 14.
term % 29
 Liabilities
$12 $12 $12
Total
0,00 0,00 0,00 100. 100. 100.
Liabilities
0 0 0 00% 00% 00% $0 0.00% 0 0

Equity
$10 $10 $10
Common
0,00 0,00 0,00 68.9 55.5 46.7
Stock
0 0 0 7% 6% 3% $0 0.00% 0 0
$11 42.
Retained $45, $80,
4,00 31.0 44.4 53.2 $35,0 77.78 $34,0 50
Earnings 000 000
0 3% 4% 7% 00 % 00 %
$14 $18 $21 18.
Total
5,00 0,00 4,00 100. 100. 100. $35,0 24.14 $34,0 89
Equity
0 0 0 00% 00% 00% 00 % 00 %
Total
$26 $30 $33
Liabilities 11.
5,00 0,00 4,00
and 100. 100. 100. $35,0 13.21 $34,0 33
0 0 0
Equity 00% 00% 00% 00 % 00 %

Between 2022 and 2023, the business saw a 47% increase in cash assets, driven by a notable

improvement in net income from higher sales. However, the cash asset growth in 2024 slowed to

30%. On the liabilities side, current liabilities rose by 25% in 2023 compared to 2022, with a

further 20% increase in 2024 relative to 2023. Long-term liabilities, on the other hand, have been

steadily decreasing, with a 12.5% reduction in 2023 and a 14.29% decrease in 2024. This

suggests that Tech Growth may be financing its long-term investments through short-term loans.

Retained earnings grew significantly, rising from $45,000 in 2022 to $80,000 in 2023 (a 77.78%

increase) and continued to increase by 45.5% in 2024. This consistent growth in retained

earnings implies that the company does not distribute dividends but reinvest.

Table 2: Income Statement

Ta
Income
ble
Statements 2

For the Year Vertical

 Ended Analysis
December 31 %
Net % Net %
Chan Cha Chan Cha
ge nge ge nge
202 202 202 202 202 202
Revenue 2023
2 3 4 2 3 4 2024
$22 $25 $28 100 100 100
Sales Revenue 0,0 0,0 0,0 .00 .00 .00 $30, 13.6 $30, 12.0
00 00 00 % % % 000 4% 000 0%
$22 $25 $28 100 100 100
Total Revenue 0,0 0,0 0,0 .00 .00 .00 $30, 13.6 $30, 12.0
00 00 00 % % % 000 4% 000 0%

Expenses
$13 $15 $17 68. 69. 70. $
Cost of Goods
0,0 0,0 0,0 78 77 54 20,0 15.3 $20, 13.3
Sold
00 00 00 % % % 00 8% 000 3%
$45 $50 $55 23. 23. 22.
Operating
,00 ,00 ,00 81 26 82 $5,0 11.1 $5,0 10.0
Expenses
0 0 0 % % % 00 1% 00 0%
- -
Interest $6, $5, $4,
3.1 2.3 1.6 ($1,0 16.6 ($1,0 20.0
Expense 000 000 000
7% 3% 6% 00) 7% 00) 0%
$10 $12
$8,
Tax Expense ,00 ,00 4.2 4.6 4.9 $2,0 25.0 $2,0 20.0
000
0 0 3% 5% 8% 00 0% 00 0%
$18 $21 $24 100 100 100
Total
9,0 5,0 1,0 .00 .00 .00 $26, 13.7 $26, 12.0
Expenses
00 00 00 % % % 000 6% 000 9%

$31 $35 $39 100 100 100

Net Income ,00 ,00 ,00 .00 .00 .00 $4,0 12.9 $4,0 11.4
0 0 0 % % % 00 0% 00 3%

Revenue has shown steady growth over the past two years, increasing by 13.64% in 2023 and

12% in 2024. This growth is attributed solely to the company’s core business operations.

Additionally, interest expenses have been gradually declining, with a 16.67% reduction in 2023

and a further 20% decrease in 2024. This decrease is a result of the company’s efforts to reduce

its long-term loan obligations.

Table 3: Statement of Cash Flow

Cash
Flow
s
from
Oper
ating Ta
Activi Vertical Horizontal ble
ties Analysis % Analysis 3
202 202 202 202 202 202
2023
2 3 4 2 3 4 2024
Net % Net %
Chan Cha Chan Cha
ge nge ge nge
Net
$31, $35, $39,
Incom 83.7 85.3 84.7 $4,00 12.9 $4,00 11.4
000 000 000
e 8% 7% 8% 0 0% 0 3%
Adjus
tment
s for
Non-
Cash 0.00 0.00 0.00 0.00 0.00
Items % % % $0 % $0 %
Depre
$9,0 $10, $11,
ciatio 24.3 24.3 23.9 $1,00 11.1 $1,00 10.0
00 000 000
n 2% 9% 1% 0 1% 0 0%
Chan
ges in
Worki
ng
Capit 0.00 0.00 0.00 0.00 0.00
al % % % $0 % $0 %
Incre
ase in
Acco ($4, ($5, ($5,
unts 000) 000) 000) - - -
Recei 10.8 12.2 10.8 ($1,0 25.0 0.00
vable 1% 0% 7% 00) 0% $0 %
Incre
ase in ($1, ($2, ($2, - - -
Invent 000) 000) 000) 2.70 4.88 4.35 ($1,0 100. 0.00
ory % % % 00) 00% $0 %
Incre
ase in
Acco $2,0 $3,0 $3,0
unts 00 00 00
Paya 5.41 7.32 6.52 $1,00 50.0 0.00
ble % % % 0 0% $0 %
Net $37, $41, $46, 100. 100. 100. $4,00 10.8 $5,00 12.2
Cash 000 000 000 00% 00% 00% 0 1% 0 0%
from
Oper
ating
Activi
ties

Cash
Flow
s
from
Inves
ting
Activi
ties
Purch
ase of
Prope
($18 ($20 ($22
rty,
,000 ,000 ,000
Plant
) ) )
&
Equip 100. 100. 100. $2,00 11.1 $2,00 10.0
ment 00% 00% 00% 0 1% 0 0%
Net
Cash
from ($18 ($20 ($22
Inves ,000 ,000 ,000
ting ) ) )
Activi 100. 100. 100. $2,00 11.1 $2,00 10.0
ties 00% 00% 00% 0 1% 0 0%

Cash
Flow
s
from
Finan
cing
Activi
ties
Issua
nce of
$10, $10, $10,
Com - - -
000 000 000
mon 200. 200. 200. 100. 100.
Stock 00% 00% 00% $0 00% $0 00%
Repa
yment
($15 ($15 ($15
of
,000 ,000 ,000
Long-
) ) )
term 300. 300. 300. 100. 100.
Debt 00% 00% 00% $0 00% $0 00%
Net ($5, ($5, ($5, 100. 100. 100. $0 100. $0 100.
Cash 000) 000) 000) 00% 00% 00% 00% 00%
 from
Finan
cing
Activi
ties

Net
Incre
$14, $16, $19,
ase
000 000 000
in 41.1 32.0 27.5 $2,00 14.2 $3,00 18.7
Cash 8% 0% 4% 0 9% 0 5%
Cash
at
Begin
$20, $34, $50,
ning
000 000 000
of
Perio 58.8 68.0 72.4 $14,0 70.0 $16,0 47.0
d 2% 0% 6% 00 0% 00 6%
Cash
at
End $34, $50, $69,
of 000 000 000
Perio 100. 100. 100. $16,0 47.0 $19,0 38.0
d 00% 00% 00% 00 6% 00 0%

The business has experienced an increase in investing activity cash flow, driven by its overall

growth. Operating cash flow rose by 10.81% in 2023 and by 12.20% in 2024, reflecting the

expanding operational activities of the company. Additionally, the company has been issuing

shares and repaying long-term loans.

Vertical Analysis:

Over the past three years, there has been a steady increase in cash as current assets, which could

be better utilized for other economic purposes. Changes in non-current assets have been minimal

relative to the overall growth the business has experienced. Between 2022 and 2024, both current

and total liabilities have gradually increased, primarily due to loans and rising expenses. At the

same time, long-term liabilities have decreased, suggesting that the company may be using short-

term loans to pay off long-term debt which is not a good business decision as it is not
sustainable. Meanwhile, retained earnings have consistently grown year-on-year, reflecting

strong profitability partly due to the absence of dividends pay out for its shareholders.

Ratio Analysis

FINANCIAL STATEMENT RATIOS Table 4

2022 2023 2024
Liquidity Ratios
Current Ratio 2.43 2.40 2.37
Quick Ratio 1.73 1.8 1.83
$57,00 $70,00 $82,00
Net Working Capital 0 0 0

Solvency Ratios
82.76 66.67 56.07
Debt-Equity Ratio % % %
45.28 40.00 35.93
Debt-Assets Ratio % % %
Interest Coverage Ratio 7.50 10.00 13.75

Profitability Ratios
11.70 11.67 11.68
Return on Assets % % %
21.38 19.44 18.22
Return on Equity % % %
20.00 20.00 20.07
Return on Capital employed % % %
40.91 40.00 39.29
Gross Profit Margin % % %
14.09 14.00 13.93
Net Profit Margin % % %

Efficiency Ratios
Days Inventory Outstanding 78.62 73.00 68.71
Days Sales Outstanding 42.16 42.40 42.59
Days Payables Outstanding 56.15 60.83 64.41
Assets Turnover 0.83 0.83 0.84
Cash flow Cycle Days 64.62 54.57 46.88

From the above table, an increasing liquidity ratio shows financial flexibility and lower short-

term financial risk because the liquid resources is enough to nail off its current liabilities.
However, an increase in liquidity ratios could indicate that the company is not utilizing its

resources effectively, choosing to hold on to excess cash or not reinvesting in its operations or

long-term assets which is not a healthy business practice.

From the Solvency ratio, it is obvious that the business is focused on utilizing it’s to fund

investments. The decreasing solvency ratio (debt to equity and debt to asset) from year 2022-

2024 indicates that the company’s financial leverage is increasing, and its ability to meet long-

term obligations is declining. An ideal solvency ratio typical ranges between 20% and 40%

depending on the industry and business model.

The profitability ratios have shown consistent growth over the years, with the exception of the

return on equity (ROE), which experienced a slight decline. However, this decrease in ROE can

be attributed to the increase in equity during the same period.

The high efficiency ratios suggest that the company is effectively utilizing its assets.

Additionally, the gradual reduction in the cash flow cycle days indicates that the company is able

to sell its inventory quickly, reflecting strong sales performance. (GetSmarter,2020).

Data Analysis

Descriptive Analysis: The company is in a good financial position as profits is being generated

and enough cash liquid assets to meet any immediate financial obligation.

Diagnostic Analysis: The company’s cost of sales has increased year over year, which warrants

further investigation, as this may be driven by rising expenses such as labour costs, potentially

impacting net income. Additionally, the company’s total assets are relatively high, resulting in a

low asset turnover. This suggests that the assets are not being utilized efficiently to generate

revenue. There is also a discrepancy between revenues and asset values across the years,
indicating that the company is not optimizing its assets to deliver long-term value. Furthermore,

the company’s increasing tax expenses are likely due to a reduction in long-term liabilities and a

rise in equity, which has affected their overall tax obligations.( The CPA Journal,2017).

Predictive Analysis:

There is an overall increase in current assets and a corresponding decrease in non-current asset

which is not a healthy situation looking into the future of the company as fewer long-term assets

would be unable to finance long-term liabilities. The increased sales, is responsible for increased

revenue and a corresponding increase in equity resulting to a reduced interest expense with a

steady increase in tax expense.

Prescriptive Analysis:

The company's financial position could be strengthened by better managing leverage and

efficiency ratios, which would free up cash for future expansion. Additionally, investing more in

marketing is crucial to boost sales. Adopting AI and digital marketing strategies could help

identify future trends, improve customer loyalty, better understand customer behaviour, and

attract new customers.

Strategic Recommendations

Diversify Financial Sources: Considering that the increase in current liabilities are largely due

to short-term borrowing or payables, there is need for the business to diversify its financing

sources in order to reduce the dependency on short-term debt and avoid refinancing risk. The

financing sources includes issuing bonds or securing longer-term loans, to balance the overall

debt structure. It also cost less to finance long-term loan facility as interest expenses are tax-

deductible, which will reduce the company’s tax liability in the future. (Investopedia,2024).
Short-Term Investments: There is need to invest in acquiring short-term assets or investments

that would generate steady income for the business. This Short-term investments are essential for

a business's financial health. They enhance liquidity, improve cash flow, support growth

opportunities, and provide a safety net against unexpected financial challenges. By efficiently

managing short-term investments, businesses can not only thrive in the present but also build a

solid foundation for long-term success.

Inventory Management Optimization:

In order to enhance efficiency in operations, there is need to reduce inventory days by

implementing RFID and ERP technology in warehouse operations, and negotiating faster

delivery terms with suppliers, which will enhance cash flow and shorten the Cash Conversion

Cycle.
 References

Bloomenthal, Andrew. “Financial Ratio Analysis: Definition, Types, Examples, and How to

Use.” Investopedia, 26 July 2024, www.investopedia.com/terms/r/ratioanalysis.asp.

GetSmarter. “What’s the Difference between Data Analytics and Data Analysis?” GetSmarter

Blog, 23 Jan. 2020, www.getsmarter.com/blog/career-advice/difference-data-analytics-

data-analysis/.

International Financial Reporting Tool. “Accounting Analysis.” Www.readyratios.com, 2024,

www.readyratios.com/reference/accounting/accounting_analysis.html.

Kogan, Alexander, et al. “Introduction to Data Analysis for Auditors and Accountants.” The

CPA Journal, 16 Feb. 2017, www.cpajournal.com/2017/02/16/introduction-to-data-

analysis-for-auditors-and-accountants/.

“Profitability Ratios Explained - Examples and Calculations | Business Plan Hut.” Archive.org,

2023, web.archive.org/web/20200224150709/https:/www.businessplanhut.com/

profitability-ratios-explained-examples-and-calculations.

In today's fast-paced
business world, it's
essential to keep yourself
updated with the latest
trends
and advancements in
product marketing. With
the advent of new
technologies, there are
several
innovative and effective
ways to market your
products and services.
However, it's important
to
note that the
effectiveness of these
technologies can vary
depending on several
factors, such as
your industry, target
audience, and marketing
goals. Therefore, it's
crucial to analyze your
business needs and
choose the most suitable
marketing strategies for
your organization. Some
of
the emerging
technologies that have
been gaining popularity
in product marketing
include
artificial intelligence,
machine learning,
Internet of things, virtual
reality, wearable, voice
assistant, Augmented
reality, Mixed reality and
Blockchain. To create a
compelling marketing
campaign that resonate
with the target market,
machine learning will be
suitable to market Nestle
Alkaline water to the
target audience (Sharma,
2023)
In today's fast-paced
business world, it's
essential to keep yourself
updated with the latest
trends
and advancements in
product marketing. With
the advent of new
technologies, there are
several
innovative and effective
ways to market your
products and services.
However, it's important
to
note that the
effectiveness of these
technologies can vary
depending on several
factors, such as
your industry, target
audience, and marketing
goals. Therefore, it's
crucial to analyze your
business needs and
choose the most suitable
marketing strategies for
your organization. Some
of
the emerging
technologies that have
been gaining popularity
in product marketing
include
artificial intelligence,
machine learning,
Internet of things, virtual
reality, wearable, voice
assistant, Augmented
reality, Mixed reality and
Blockchain. To create a
compelling marketing
campaign that resonate
with the target market,
machine learning will be
suitable to market Nestle
Alkaline water to the
target audience (Sharma,
2023)
In today's fast-paced
business world, it's
essential to keep yourself
updated with the latest
trends
and advancements in
product marketing. With
the advent of new
technologies, there are
several
innovative and effective
ways to market your
products and services.
However, it's important
to
note that the
effectiveness of these
technologies can vary
depending on several
factors, such as
your industry, target
audience, and marketing
goals. Therefore, it's
crucial to analyze your
business needs and
choose the most suitable
marketing strategies for
your organization. Some
of
the emerging
technologies that have
been gaining popularity
in product marketing
include
artificial intelligence,
machine learning,
Internet of things, virtual
reality, wearable, voice
assistant, Augmented
reality, Mixed reality and
Blockchain. To create a
compelling marketing
campaign that resonate
with the target market,
machine learning will be
suitable to market Nestle
Alkaline water to the
target audience (Sharma,
2023)