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Module 3 Assignment

Nexford University MBA

ACC6050

Analytical Case Study on "TechGrowth Inc."

Dr. Damian Dunbar

25th October 2024

INTRODUCTION
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Financial/accounting analysis allows business owners/executives to make smart financial

decisions about their company or business (Tuovila, 2024). This paper aims to carry out an in-

depth analysis of TechGrowth Inc. financials, identify key changes/trends and offer strategic

recommendations to help drive the company's financial standing.

FINANCIAL STATEMENTS REVIEW

Following an in-depth review of TechGrowth Inc. financial statements, the following

changes were identified:

Balance Sheet

 Assets: From 2022 – 2024 the company's current assets increased from $97,000 to

$142,000 with significant increases in cash and account receivables accounts. The non-

current assets increased from $168,000 to $192,000 with steady increases in the fixed

assets i.e. property, plant and equipment account. These changes led to a 26.04% increase

in total assets from 2022 to 2024. This is seen as $334,000 (2022) - $265000 (2024) =

$69,000 ÷ $26500 = 0.26037 X 100 = 26.04% approximate (BBC Bitesize, 2023).

 Liabilities: The liabilities account has been relatively stable over the years at $ 120,000

with -25% reductions in the company's long-term debts and a 50% increase in the

company's current liabilities. These similar changes have allowed the company to

maintain its liabilities. It is important to note that by 2024 both the companies’ current

and long-term liabilities have the same figure $60000.

 Owner’s Equity: The company’s total equity has seen significant increases over the years

from $145,000 to $214,000 i.e. 47.59%. This increase can be attributed to the company's

retained earnings. The company stock over the years has remained the same no increase

or decrease in its worth/value (Murphy, 2022).

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Income Statements

The company income statements reflect increases in sales revenue from 2022 $220,000 to

2024 $280,000. This is a 27.27% increase, similarly, the expenses incurred to make this revenue,

also increased from $189,000 in 2022 to 241000 in 2024. This has led to a net income increase of

25.81% i.e. from $31,000 to $39,000.

 The review of the income statement shows a gross profit margin with slight reductions in

the profits made on every dollar.

2022 Gross Profit Margin: (Sales) $220,000 – $130,000 (cost of goods) = $90,000 (profits)
$220,000(sales)

= $0.41

2024 Gross Profit Margin: (Sales) $280,000 – $170,000 (cost of goods) = $110,000 (profits)
$280,000(sales)

= $0.39

We can see from the calculations above that in 2022, for every 1 dollar generated in sales

by the company, 0.41 cents was made as profits and 0.59 cents ($1-$0.41) was used to pay for

the cost of making the product that was sold. While in 2024 for every 1 dollar generated in sales,

$0.39 cents was made as profits and 0.61 ($1-0.39) cents was incurred as costs of production.

 The review of the income statement shows a stable net profit margin
2022 Net profit margin: $31,000 (net income after taxes) = $0.14
$220,000 (sales)

2024 Net Profit margin: $39,000 (net income after taxes) = $0.139 Approximate 0.14
$280,000 (sales)
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Despite the increases in the cost of goods as well as other expenses incurred from production, the

company has remained profitable and has maintained a stable net profit margin mainly due to an

increase in the sales revenue generated by TechGrowth Inc. per year.

Cash Flow Statements

From 2022 to 2024, the company has a positive inflow of cash from its operating

activities, which has increased steadily over time from 37000 to 46000. The company’s cash

flow from investing and financing has been outward and negative mainly due to spending on

increasing company assets and reducing the company's long-term debt.

Impact on Financial Health

The positive increase in cash over the years shows a solid and stable financial standing

for TechGrowth Inc. The balance sheet also indicates the company-improved liquidity as it can

comfortably settle its liabilities (short-term/long-term) with its assets if needed (Business Plan

Hut, 2023). In addition, the identified trend of decreasing long-term debts gives the company

financial security, especially with the increase in retained earnings, which is more profits to

shareholders. It is important to note the company stock value/ worth has remained the same over

the years, which indicates a positive perception of the company by investors and reflects positive

future growth prospects (Murphy, 2022).

The increases in sales revenues indicate a surge in the popularity of TechGrowth Inc.

products. The company's stable net profit margins over the years show the company’s

profitability, especially after taxes and other expenses. It simply means that from each sale the

company has enough funds to settle its expenses and taxes with cash retained for the company

shareholders and the company (Business Plan Hut, 2023). It is also important to note the changes

identified in its gross profit margin. While the -4.88% decrease in gross profit does not have
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much impact currently mainly due to the 27.27% increase in sales revenue. It does mean that the

cost of production is increasing and the money being made or retained by the company from

each sale is reducing and if left unchecked could be detrimental in the end (Business Plan Hut,

2023).

The increased positive cash inflow from operating activities shows the company's ability

to generate cash from its business operations as well as having enough cash available to carry out

the company's core activities. The company has also spent heavily on purchasing equipment and

properties that contribute towards company assets, which have prospects of bringing in revenue.

The negative outward cash flow shows the company’s commitment to reducing its long-term

debt which gives the company financial security.

FINANCIAL ANALYSIS

 Horizontal Analysis: Horizontal analysis is used to compare financial data from

different accounting periods (years) to determine the company's performance over a

certain time or period( Alicia, 2024). The calculation for it is

Current year – base year

Base Year X 100

Horizontal Analysis of TechGrowth Inc. Balance Sheet from Dec 31st, 2022 - Dec 31st 2024
Assets 2022 2023 2024 2023-2022 2024-2023
Difference % of Differenc % of
change e change
Current
Assets
Cash $34,000 $50,000 $65,000 $16,000.00 47.06% $15,000 30.00%
Accounts $35,000 $40,000 $45,000 $5,000.00 14.29% $5,000 12.50%
Receivable
Inventory $28,000 $30,000 $32,000 $2,000.00 7.14% $2,000 6.67%
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Total $97,000 $120,00 $142,000 $23,000.00 23.71% $22,000 18.33%

Current 0
Assets
Non-Current
Assets
Property, $140,000 $150,00 $160,000 $10,000.00 7.14% $10,000 6.67%
Plant & 0
Equipment
Intangible $28,000 $30,000 $32,000 $2,000.00 7.14% $2,000 6.67%
Assets
Total Non- $168,000 $180,00 $192,000 $12,000.00 7.14% $12,000 6.67%
Current 0
Assets
Total Assets $265,000 $300,00 $334,000 $35,000.00 13.21% $34,000 11.33%
0

Liabilities
Current
Liabilities
Accounts $20,000 $25,000 $30,000 $5,000.00 25.00% $5,000 20.00%
Payable
Short-term $12,000 $15,000 $18,000 $3,000.00 25.00% $3,000 20.00%
Debt
Accrued $8,000 $10,000 $12,000 $2,000.00 25.00% $2,000 20.00%
Liabilities
Total $40,000 $50,000 $60,000 $10,000.00 25.00% $10,000 20.00%
Current
Liabilities
Long-term
Liabilities
Long-term $80,000 $70,000 $60,000 ($10,000.00) (12.50%) ($10,000) (14.29%)
Debt
Total Long- $80,000 $70,000 $60,000 ($10,000.00) (12.50%) ($10,000) (14.29%)
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term
Liabilities
Total $120,000 $120,00 $120,000 $0.00 0.00% $0 0.00%
Liabilities 0

Equity
Common $100,000 $100,00 $100,000 $0.00 0.00% $0 0.00%
Stock 0
Retained $45,000 $80,000 $114,000 $35,000.00 77.78% $34,000 42.50%
Earnings
Total Equity $145,000 $180,00 $214,000 $35,000.00 24.14% $34,000 18.89%
0
Total $265,000 $300,00 $334,000 $35,000.00 13.21% $34,000 11.33%
Liabilities 0
and Equity

Horizontal Analysis TechGrowth Inc. Income Statement

from Dec 31st 2022 - Dec 31st 2024
Revenue 2022 2023 2024 2023-2022 2024-2023
% of Differenc % of
Difference change e change
Revenue 2022 2023 2024
Sales Revenue $220,000 $250,000 $280,000 $30,000 13.64% $30,000 12.00%
Total Revenue $220,000 $250,000 $280,000 $30,000 13.64% $30,000 12.00%

Expenses
Cost of Goods
$130,000 $150,000 $170,000
Sold $20,000 15.38% $20,000 13.33%
Operating
$45,000 $50,000 $55,000
Expenses $5,000 11.11% $5,000 10.00%
Interest
$6,000 $5,000 $4,000
Expense ($1,000) (16.67%) ($1,000) (20.00%)
Tax Expense $8,000 $10,000 $12,000 $2,000 25.00% $2,000 20.00%
Total
$189,000 $215,000 $241,000
Expenses $26,000 13.76% $26,000 12.09%

Net Income $31,000 $35,000 $39,000 $4,000 12.90% $4,000 11.43%

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i. Horizontal Analysis Results: The company's total assets have grown significantly from

$265,000 to $334,000 but the rate of its increase for each year is reducing from 13.21%

in 2022 to 11.33%. The non-current assets accounts have also increased consistently by

6.67% each year. The company has effectively managed its liabilities to reduce risks, its

liabilities account has reduced from 25% in 2023 to 20% in 2024. Its long-term debt

being settled has increased from 12.50% (2023) - to 14.29% (2024). This indicates

effective cash management of cash and company resources. As a result, the liabilities

account of the company has remained stable over time. The Revenue and income have

maintained growth. In 2023 revenue grew by 13.64% and in 2024 it grew by 12.00%.

While Costs of Goods (COGS) has also increased, the rate of its increase each year is

also reducing from 15.38% in 2023 to 13.33% in 2024. This indicates the company has

employed effective cost-control measures.

 Vertical Analysis: This is used to determine the percentages of accounts and the

relationships between certain accounts within a financial year (Alicia, 2024). This

analysis can be used to compare a company's account with its competition. The

calculation for it is

Specific category
Base account value X 100

Vertical Analysis of TechGrowth Inc. Balance Sheet as of Dec 31st 2022, Dec 31st 2023 and
Dec 31st 2024
Assets 2022 % of Assets 2023 % of 2024 % of Assets
Assets
Current
Assets
Cash $34,000 12.83% $50,000 16.67% $65,000 19.46%
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Accounts $35,000 13.21% $40,000 13.33% $45,000 13.47%

Receivable
Inventory $28,000 10.57% $30,000 10.00% $32,000 9.58%
Total $97,000 36.60% $120,000 40.00% $142000 42..51%
Current
Assets
Non-
Current
Assets
Property, $140,000 52.83% $150,000 50.00% $160,000 47.90%
Plant &
Equipment
Intangible $28,000 10.57% $30,000 10.00% $32,000 9.58%
Assets
Total Non- $168,000 63.40% $180,000 60.00% $192,000 57.49%
Current
Assets

Total Assets $265,000 100.00% $300,000 100.00% $334,000 100.00%

Liabilities 2022 % of 2023 % of 2024 % of

Liabilities Liabilities Liabilities
Current
Liabilities
Accounts $20,000 7.55% $25,000 8.33% $30,000 8.98%
Payable
Short-term $12,000 4.53% $15,000 5.00% $18,000 5.39%
Debt
Accrued $8,000 3.02% $10,000 3.33% $12,000 3.59%
Liabilities
Total $40,000 15.09% $50,000 16.67% $60,000 17.96%
Current
Liabilities
Long-term
Liabilities
Long-term $80,000 30.19% $70,000 23.33% $60,000 17.96%
Debt
Total Long- $80,000 30.19% $70,000 23.33% $60,000 17.96%
term
Liabilities
Total $120,000 45.28% $120,000 40.00% $120,000 35.93%
Liabilities
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Equity 2022 % of 2023 % of 2024 % of

Equity Equity Equity
Common $100,000 37.74% $100,000 33.33% $100,000 29.94%
Stock
Retained $45,000 16.98% $80,000 26.67% $114,000 34.13%
Earnings
Total $145,000 54.72% $180,000 60.00% $214,000 64.07%
Equity

Total $265,000 100.00% $300,000 100.00% $334,000 100.00%

Liabilities
and Equity

Vertical Analysis of TechGrowth Inc. Income Statements as of Dec 31st 2022, Dec 31st 2023
and Dec 31st 2024
Revenue 2022 % of 2023 % of 2024 % of
Revenues Revenues Revenues
Sales $220,000 100.00% $250,000 100.00% $280,000 100.00%
Revenue
Total $220,000 100.00% $250,000 100.00% $280,000 100.00%
Revenue

Expenses 2022 % of 2023 % of 2024 % of

Expenses Expenses Expenses
Cost of $130,000 59.09% $150,000 60.00% $170,000 60.71%
Goods Sold

Operating $45,000 20.45% $50,000 20.00% $55,000 19.64%

Expenses
Interest $6,000 2.73% $5,000 2.00% $4,000 1.43%
Expense
Tax $8,000 3.64% $10,000 4.00% $12,000 4.29%
Expense
Total $189,000 85.91% $215,000 86.00% $241,000 86.07%
Expenses
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2022 % of Net 2023 % of Net 2024 % of Net

Income Income Income
Net Income $31,000 14.09% $35,000 14.00% $39,000 13.93%

i. Vertical Analysis Results: Vertical Analysis of the company statements shows a steady

growth rate for the company’s assets and equity accounts with cash increasing from

12.83% to 19.46% and equity increasing from 54.72% in 2022 to 64.07% in 2024. The

company's current assets have increased from 36.60% in 2022 to 42.5% in 2024 while the

percentage or impact of COGS on sales revenue has slightly increased, from 59.09% in

2022 to 60.71% in 2024. As earlier stated the company's net income is increasing from

$31,000 to $39,000, vertical analysis shows its growth rate and impact on revenue sales

has been reducing each year with 2022 at 14.09%, 2023 at 14.00% and 2024 at 13.93%.

This will reflect on the company's cash standing, if not monitored. The Tax expense

percentage on revenue sales has increased from 3.64% to 4.29% while interest and

operating expense have seen decreases with operating expense reducing from $20.45% in

2022 to $19.64% in 2024 and interest expense from 2.73% in 2022 to 1.43% 2024. These

lower expenses allow the company to retain more of its profits. Finally, the balance sheet

shows strong liquidity standing for TechGrowth with its larger assets and equity accounts

to its liabilities accounts.

RATIO ANALYSIS

 Profitability Ratios

i. Gross Profit Margin Ratios = Total Revenue−Cost of Goods Sold X 100

Total Revenues

2022 Gross Profit Margin Ratio = 220,000−130,000 = 90,000 X 100 = 40.91%

220,000
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2023 Gross Profit Margin Ratio = 250,000−150,000 =100,000 X 100 = 40.00%

250,000

2024 Gross Profit Margin Ratio = 280,000−170,000 =110,000 X 100 = 39.29%

280,000

Evaluation: With the technology industry average ratio at 36.56%, TechGrowth Inc.’s Gross

Profit Margin ratio of 39.29% can be considered as good as it is still above average (Vena

Solutions, 2024). However, the negative decline over the years from 40.19% to 39.29% indicates

a steady increase in Cost of Goods (COGS), which reduces the company's profits or revenues.

ii. Net Profit Margin Ratios = Net Income X 100

Total Revenue

2022 Net Profit Margin Ratio = 31,000 X 100 = 14.09%

220,000

2023 Net Profit Margin Ratio =35,000 X 100 = 14.00%

250,000

2024 Net Profit Margin Ratio = 39,000 X 100 = 13.93%

280,000

Evaluation: The average net profit margin is at 8.54% and TechGrowth Inc.'s net profit as of

2024 was 13.92% (Vena Solutions, 2024). This is a good ratio for the company and indicates the

company's positive financial standing after payments of taxes and expenses. The net profit

margins over the years show a decline from 14.09% to 13. 93%, which can be attributed to rising

COGS.

 Liquidity Ratios

i. Current Ratio = Current Assets

Current Liabilities
2022 Current Ratio = 97,000 = 2.43
40,000

2023 Current Ratio = 120,000 =2.40

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50,000

2024 Current Ratio = 142,000 =2.37

60,000

Evaluation: A Current ratio of above 2 is considered a good ratio as it indicates the company’s

ability to cover its current liabilities especially short-term debts (FreshBooks, 2024). With a

current ratio above 2, TechGrowth Inc. has more than twice the current assets to settle its current

debts.

ii. Quick Ratio = Current Assets−Inventory

Current Liabilities

2022 Quick Ratio = 97,000−28,000 = 69,000 = 1.73

40,000

2023 Quick Ratio =120,000−30,000 = 90,000= 1.80

50,000

2024 Quick Ratio =142,000−32,000 = 110,000 = 1.83

60,000

Evaluation: Any quick ratio above 1 is considered a good ratio, and TechGrowth Inc.'s Quick

ratio of 1.83 simply means the company has enough cash and assets that can be easily liquidated

and converted to cash within 90 days (FreshBooks, 2024). The steady increase in this ratio from

1.73 to 1.83 indicates the company improved liquidity standing without resorting to selling

inventory and supplies.

iii. Cash Ratio = Cash

Current Liabilities

2022 Cash Ratio = 34,000 = 0.85

40,000
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2023 Cash Ratio = 50,000 =1.00

50,000

2024 Cash Ratio= 65,000 =1.08

60,000

Evaluation: The cash ratio determines if funds are readily available to cover debts (FreshBooks,

2024). A cash ratio that is greater than 1 is considered positive (FreshBooks, 2024). TechGrowth

has a positive cash ratio that is 1.08 in 2024. This indicates the company’s ability to cover its

short-term debt with cash remaining for company use. Besides being positive, TechGrowth Inc.'s

cash ratio has steadily increased, so the company must appropriately direct this surplus cash into

profitable returns. Lastly, the ratios signify to investors the company’s good credit standing.

 Leverage Ratios

i. Debt-to-Equity Ratio = Total Liabilities

Total Equity

2022 Debt-to-Equity Ratio = 120,000 = 0.83

145,000

2023 Debt-to-Equity Ratio = 120,000= 0.67

180,000

2024 Debt-to-Equity Ratio = 120,000 = 0.56

214,000

Evaluation: A good debit-to-equity ratio is a ratio that is less than one (Kibet & Campbell, 2024).

The lower the rate of debt to equity the more financially stable the company becomes (Kibet &

Campbell, 2024). TechGrowth Inc.’s D/E ratio has always been less than 1 reducing from 0.83 to

0.56, this indicates that the company’s total assets are more than its total debts and the gradual

declines in the ratio signify financial stability with prospects for future growth.

ii. Debt-to-Asset Ratio = Total Liabilities

Total Assets
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2022 Debt-to-Asset Ratio = 120,000 = 0.45 or multiplied by 100 45%

265,000

2023 Debt-to-Asset Ratio = 120,000 = 0.40 or multiplied by 100 40%

300,000

2024 Debt-to-Asset Ratio = 120,000 = 0.36 or multiplied by 100 36%

334,000

Evaluation: The Debt-to-Assets ratio determines how much of the company's assets are financed

through debt (Kibet & Campbell, 2024). A safe range for the D/A ratio falls between 0.3-0.6 or in

percentage 30% - 60% (Kibet & Campbell, 2024). TechGrowth Inc.'s. D/A ratio has steadily

decreased from 0.45 to 0.36 falling currently within the safe range, which indicates the company

is less dependent on debts to carry out its refinancing activities such as investments and purchase

of assets (Kibet & Campbell, 2024).

DATA ANALYSIS

 Descriptive Analytics: TechGrowth Inc. has shown an increase in its Assets and Equity

accounts from $245,000 to $334,000 while the liability account has remained at a stable

level of $120,000. The sales revenue has shown growth and profitability over the past

three years, with a net income increase from $31,000 to $39,000. The company accounts

also reflect an increased inward flow of cash from $37,000 to $46,000. The company has

been able to significantly reduce its debts and lower interest expenses.

 Diagnostic Analytics: While the rate of percentage increase for COGS per year is

reducing from 15.38% to 13.33% COGs is still rising no matter how little it is in 2022

the COGS was $130,000 with a 59.09% impact on sales revenue. In 2024, COGS is now

170,000 with a 60.71% impact on revenue, this must be monitored and managed because

it can affect company revenues and what the company keeps as retained earnings. The
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cash flow statement indicates a need for the company to increase its positive inward flow

because it has enough cash to run core activities. The funds cannot settle debts and fund

investments at the same time. There needs to be a way to generate more funds for the

company sustainably. Lastly, with the common stock value of $100,000 going steadily

for over 3 years, the company needs to ensure its stock price has an upward or rising

price. Being fixed for too long at a price can be detrimental to the company's cash flow

and prospects (Murphy, 2022).

 Predictive Analytics: based on the data from the past 3 years, and assuming the company

maintains its growth trajectory, with stricter controls on production costs revenue could

reach $310,000 in the next year. If the production costs continue to rise with no

adjustments to pricing, the Net/Gross Profit margins on the revenue will reduce

accordingly (Jinadu, 2024). Current patterns also suggest stable levels regarding

liquidity and solvency. Cash flow from operations is also expected to rise positively

leading to more investments and strong management of liabilities I.e. debts.

 Prescriptive Analytics: TechGrowth Inc. should consider:

i. Cost Control Measures: Strategies such as pricing and effective supply chain

management to manage the rising production costs (Jinadu, 2024).

ii. Diversification: Launching new product lines and entering into new markets can help

increase cash generation for shareholders and investing. (Lioudis, 2024).

iii. Debt Management: This is vital as it enables the company to enjoy lower interest

rates and reduced financial risks (Sutton, 2024).

STRATEGIC RECOMMENDATIONS

I would strongly recommend TechGrowth Inc. to

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 Effectively manage its production cost by employing stricter controls on costs, operating

expenses etc. In addition, the company should adjust its pricing (within the competitive

range) to maximize its profits (Jinadu, 2024). This is backed by the slight increase in

COGS and its rising percentage or impact on the company revenues.

 Direct cash flow to settle short-term/long-term to take advantage of lower interest rates

for refinancing purposes (Sutton, 2024). These new funds can then be directed into

activities that would generate more income for the company. This is backed by the

company’s strong liability control and positive cash ratio.

 Consider/identify similar markets that the company's existing products can be marketed

to generate more funds and redirect those funds into profitable ventures such as product

diversification and launching into new markets and territories (Lioudis, 2024).

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