The Islamia University Of
Bahawalpur
Name:
Ali Muhammad
Roll No:
F21BACFN1E02005
Class:
Accounting and Finance 8th (E)
Subject:
International Financial Management
Topic:
Financial health Analysis
Submitted To:
Mr. Hamza Sajid
Analyze financial health with help of income
statement
Based on the provided financial data, we can assess the company's financial health by
analyzing key performance indicators such as revenue, profitability, operating expenses,
taxes, earnings per share (EPS), and EBITDA. Here's a breakdown of the key points:
Total Revenue
Total revenue has grown modestly over the last few years, from $365.8M in
FY2021 to $395.8M in FY2024. The revenue increase over the years is fairly consistent.
Analysis: The company has managed to achieve steady revenue growth, indicating that it
is able to maintain or slightly increase its market share or customer base. The increase in
revenue suggests relatively stable business operations.
Cost of Revenu
The cost of revenue has remained stable, with slight fluctuations, staying between
$210M and $223M in the past few years. The cost of revenue was $211.7M in FY2024.
Analysis: The company has controlled its cost of revenue reasonably well, which is a
positive sign of operational efficiency. The stable cost of revenue, despite increased
revenues, suggests that the company is managing its direct costs effectively.
Gross Profit
Gross profit has steadily increased from $152.8M in FY2021 to $184.1M in FY2024,
reflecting an improving gross margin.
Analysis :The increase in gross profit over the years indicates that the company is not
only growing its revenue but also maintaining a solid margin on its sales, which is a sign of
healthy business fundamentals and pricing power.
Operating Expenses
Operating expenses have been steadily increasing, from $43.9M in FY2021 to
$58.4M in FY2024. The increase in operating expenses reflects a rise in the company's
operational costs.
Analysis: While the increase in operating expenses is natural for a growing company, it
should be monitored to ensure that these expenses are leading to proportional growth in
revenue and profitability. The increase in operating expenses could also signal areas where
cost control measures may be needed.
Operating Income
Operating income has generally increased from $108.9M in FY2021 to
$125.7M in FY2024.
Analysis: The company has been able to improve its operating income, driven by higher
revenue and stable costs. The increase in operating income reflects improved operational
efficiency and effective cost management.
Net Income
Net income has remained relatively stable, with a slight decrease from $99.8M in
FY2021 to $96.2M in FY2024. The decline is minor, but it's important to note that the
company has been able to maintain a solid level of profitability over time.
Analysis; The company’s ability to generate consistent net income is a strong indicator of
financial health. The stability in net income, despite minor fluctuations, shows resilience in
the face of potential challenges like rising costs or market conditions.
Earnings Per Share (EPS)
EPS has increased from $5.67 in FY2021 to $6.33 in FY2024 (basic), and
from $5.61 to $6.30 (diluted).
Analysis: The increase in EPS over time is a positive indicator, showing that the company is
delivering greater value to its shareholders. The consistent rise in EPS suggests that the
company is effectively managing costs and improving profitability per share, which is
attractive to investors.
EBIT and EBITDA
Both EBIT and EBITDA have shown consistent growth from FY2021 to FY2024. EBIT
increased from $111.9M in FY2021 to $125.7M in FY2024. Similarly, EBITDA grew from
$123.1M to $137.4M during the same period.
Analysis: The growth in EBIT (Earnings Before Interest and Taxes) and EBITDA (Earnings
Before Interest, Taxes, Depreciation, and Amortization) signals that the company is
improving its earnings capacity without being overly impacted by non-operating factors like
interest and depreciation. This is a good sign of operational strength and profitability.
Other Income/Expense
Other income/expenses have fluctuated, with a gain of $71K in FY2024
compared to a loss of $565K in FY2022.
Analysis : The company has shown variability in its other income/expenses, but it has
managed to keep this impact small. This reflects the company’s core business performance
being strong, with non-operating factors having a minimal impact on overall profitability.
Tax Provision
The tax provision increased from $14.5M in FY2021 to $29.6M in FY2024.
Analysis: The increase in the tax provision corresponds with the increase in net income
and pre-tax income, suggesting that the company is more profitable, which is a good sign.
However, it also means that the company is paying a higher proportion of its income in
taxes, which might limit the net income growth.
Key Takeaways
1. Steady Revenue Growth: The company has demonstrated consistent growth in revenue
over the years, signaling a strong demand for its products or services.
2. Gross Profit Improvement: The company is able to maintain a solid gross profit margin,
with an increasing trend in gross profit, indicating strong operational efficiency.
3.Operating Income and Expense Management: While operating expenses have risen,
operating income has also grown, suggesting that the company is managing expenses well
relative to its revenue growth.
4. Net Income Stability: Net income has been stable, with only a minor decrease over the
years. This is a positive indicator of profitability and the company's ability to generate steady
earnings.
5.EPS Growth: The increase in EPS over the period highlights that the company is
improving its value to shareholders, driven by growth in net income and effective share
management.
6. Strong EBITDA/EBIT Growth: The growth in EBIT and EBITDA indicates that the
company is improving its core operating profitability and is in a strong position in terms of its
operational efficiency.
7. Tax and Non-Operating Income: The tax provision has increased, in line with higher
profitability, while the company’s non-operating income/expenses have had a minor impact
on overall results.
Conclusion:
Overall, the company is in good financial health. It is generating steady revenue growth,
improving profitability, and maintaining strong operational efficiency. Despite rising
operating expenses, the company has managed to control costs and increase earnings. The
stable net income and growth in EPS demonstrate that the company is providing value to
shareholders. The growth in EBIT and EBITDA further confirms that the company is
enhancing its core operating performance.
The increase in tax provision corresponds with higher profitability, and while there is some
variability in other income/expenses, it has not had a significant negative impact. The
company’s fundamentals look strong, making it well-positioned for continued success,
though it should keep an eye on controlling expenses and managing the impact of taxes
Analyze financial health with help of Balance sheet
Based on the annual data provided, we can assess the financial health of the company by
examining key financial metrics such as total assets, liabilities, equity, working capital, and
leverage. Below is the breakdown of the key points:
Total Assets
The total assets have remained relatively stable over the past few years, increasing
slightly from $351M in FY2021 to $365M in FY2024.
Analysis: Stability in total assets is positive, suggesting that the company has maintained a
consistent asset base. No significant asset expansion or contraction indicates that the
company is neither aggressively growing nor significantly downsizing its operations.
Total Liabilities
Total liabilities increased from $287.9M in FY2021 to $308M in FY2024. However,
this increase is relatively modest.
Analysis: The increase in liabilities could indicate some level of additional borrowing or
financial obligations. While the liabilities are increasing, the overall ratio to assets has
remained manageable, and the company has not taken on excessive debt relative to its asset
base.
Total Equity
Equity fluctuated from $63.1M in FY2021 to $56.9M in FY2024. The decrease in
equity over time might be a result of net losses, dividends, or stock repurchases.
Analysis : A decline in equity suggests a reduction in the company’s net worth. This could
be due to either poor earnings performance or shareholder distributions (like repurchasing
shares). It's important to keep an eye on whether this is driven by operational inefficiencies
or strategic moves like stock buybacks.
Total Capitalization
Total capitalization has decreased over the period, from $172.2M in FY2021 to
$142.7M in FY2024.
Analysis: A decreasing total capitalization could indicate a reduction in the company’s
leverage, possibly through debt repayments or equity repurchases. While lower
capitalization can suggest the company is less leveraged, it also may indicate reduced growth
prospects or that the company is focusing on financial conservatism rather than expansion.
Working Capital
The company experienced a sharp decline in working capital from positive $9.4M in
FY2021 to negative $23.4M in FY2024. The negative working capital in FY2024 is a significant
concern.
Analysis: Negative working capital means that the company might not have enough short-
term assets to cover its short-term liabilities, which could indicate potential liquidity
problems. The decline from positive to negative working capital is concerning and warrants
closer attention to the company’s ability to manage its cash flow effectively, especially in
times of financial stress.
Invested Capital
Invested capital has been relatively stable, decreasing slightly from $187.8M in
FY2021 to $163.6M in FY2024.
Analysis: The decrease in invested capital suggests the company might be scaling back its
investment in operations or reducing the amount of capital deployed in the business. While
this might be a move to streamline operations, it can also indicate a slowdown in growth or
expansion.
Tangible Book Value
Tangible book value mirrors total equity, declining from $63.1M in FY2021 to
$56.9M in FY2024.
Analysis: The decrease in tangible book value indicates that the company's net tangible
assets (assets minus intangible assets) have diminished. This could mean that the company
is relying more on intangible assets or has incurred depreciation or impairments.
Total Debt
Total debt decreased from $136.5M in FY2021 to $106.6M in FY2024, indicating the
company has been reducing its debt load.
Analysis: The reduction in total debt is generally a positive sign, as it shows the company
is lowering its financial leverage. This may reduce the company’s interest burden and
financial risk, though the company’s ability to continue servicing its remaining debt should
be monitored.
Net Debt
Net debt (total debt minus cash and equivalents) decreased from $89.8M in FY2021
to $76.7M in FY2024.
Analysis: A reduction in net debt shows the company is paying down debt, which
improves its balance sheet and reduces financial risk. The company seems to be improving
its financial position by reducing reliance on debt.
Share Issued and Ordinary Shares Outstanding
The number of shares issued has been decreasing over the years (from 16.4M in FY2021
to 15.1M in FY2024), suggesting the company is buying back shares.
Analysis: The reduction in shares outstanding could be a sign of the company returning
value to shareholders through stock buybacks. This is typically a positive sign for
shareholders, but it can also indicate that the company has fewer opportunities to reinvest
in growth or acquisitions.
Key Takeaways
1. Assets and Liabilities: The company has managed to keep its total assets stable but has
seen an increase in liabilities. The overall leverage, as shown by total debt, is decreasing,
which is a good sign for financial stability.
2. Equity and Book Value: There has been a decline in equity and tangible book value,
indicating that the company’s net worth is shrinking. This could be a result of stock buybacks
or an indication of weaker performance.
3. Working Capital: The most concerning trend is the negative working capital, which means
the company may struggle to cover its short-term obligations. This could lead to liquidity
issues in the future if not addressed.
4. Debt Reduction: The company has been actively reducing its debt, which is positive from
a financial risk perspective. This improvement in its debt position should help reduce the
financial burden and interest expenses.
5.Cash Management: The reduction in debt and net debt shows that the company is
managing its cash position prudently, but the negative working capital trend raises concerns
about its short-term liquidity.
Conclusion:
Overall, the company appears to be in a solid position regarding long-term debt reduction
and financial risk management. However, the negative working capital is a significant
concern, as it suggests potential short-term liquidity problems. While the company has been
reducing debt and managing its assets, the decreasing equity and working capital should be
closely monitored. If the company cannot improve its short-term liquidity, it could face
challenges in sustaining operations and covering liabilities without raising more capital or
taking on more debt.
Analyze financial health help with help cash flow data
To analyze the financial health of the company based on the provided cash flow data, let’s
break down the key components:
1.Operating Cash Flow (OCF)
Operating Cash Flow represents the cash generated from core business operations. It is an
important indicator of a company’s ability to generate sufficient cash to maintain and grow
its operations.
The operating cash flow has been relatively stable, though it decreased slightly from
$122.2M in FY2021 to $108.3M in FY2024. It was higher in FY2022 ($110.5M) but lower
compared to FY2021. However, it has generally stayed above $100M for the past few years,
indicating that the company generates a strong cash flow from its core business operations.
Analysis: A steady or slightly declining OCF may suggest the company is facing some
pressure in terms of operating efficiency or that its operations are becoming less profitable,
but it remains above $100M, which is a healthy sign.
2.Investing Cash Flow
Investing Cash Flow reflects the cash used for or generated from investing activities, such as
purchasing or selling long-term assets.
Investing cash flow shifted from positive in FY2023 ($2.9M) and FY2022 ($3.7M) to a
significant positive inflow of $10.8M in FY2024. In FY2021 and FY2020, it was negative (-
$22.4M and -$14.5M respectively), indicating large investments in assets.
Analysis: The company seems to have shifted towards less spending on investments in
recent periods, as reflected by the positive cash flow from investing activities. The lack of
major capital expenditures (as shown by capital expenditure data) may indicate that the
company is conserving cash for other activities or focusing on optimizing existing assets.
3.Financing Cash Flow
Financing Cash Flow is related to how a company raises and repays capital, including issuing
or repurchasing stock and borrowing or repaying debt.
Financing cash flow is consistently negative, which is typical for a company
that is repurchasing shares and repaying debt. The negative financing cash flow in FY2024
($130.8M) and prior periods indicates the company is primarily repaying debt and buying
back its own stock.
Analysis: While a negative financing cash flow can be a positive sign of reducing
leverage, the company has been repurchasing stock at a significant scale. It’s important to
consider whether this is sustainable and whether it's reducing shareholder value over time.
4.End Cash Position
The end cash position is the company’s cash balance at the end of each period.
The cash position remained relatively stable, with small fluctuations from
$35.9M in FY2021 to $30.3M in FY2024. It decreased from $30.7M in FY2022 to $29.9M in
FY2023 but didn't drop significantly, indicating the company’s cash reserves are stable.
Analysis: A consistent cash position provides liquidity, but a declining trend could be a
concern if the company is using its cash reserves to fund operations or stock repurchases.
The decline in cash from $35.9M in FY2021 to $30.3M in FY2024 could be a red flag for
liquidity, but it's not dramatic.
5.Free Cash Flow
Free Cash Flow (FCF) is a measure of the cash the company generates after accounting for
capital expenditures.
Free cash flow has been fairly stable at around $100M, peaking at $111.4M in FY2021,
and fluctuating between $99.6M and $108.8M in the following years. It has remained above
$90M throughout, which is a strong indicator that the company generates ample cash after
investments to return to shareholders or reinvest in operations.
Analysis: A steady and strong free cash flow position is a good sign, as it demonstrates
that the company is able to fund its capital expenditures, pay down debt, and possibly
return capital to shareholders without relying heavily on external financing.
6. Capital Expenditures
Capital expenditures reflect the company’s investment in physical assets
Capital expenditures have remained relatively stable around $10M, with a slight decrease
over the years. This indicates a steady level of investment in maintaining and growing
operational capacity.
Analysis: The company seems to be managing its capital expenditures well, which might
indicate a focus on efficiency rather than expansion. However, it is important to evaluate
whether the company is investing enough to maintain or grow its market position over time.
7. Income Tax Paid
The tax paid has varied but remains substantial ($37.5M in FY2024 vs. $25.4M in FY2021),
reflecting the company’s profitability.
Analysis: The increase in taxes paid is consistent with a relatively steady or growing
revenue base, suggesting that the company remains profitable. However, fluctuations in
taxes paid should be reviewed in context with overall profitability and operational efficiency.
8. Interest Paid
Interest paid has been relatively stable, with a significant amount in FY2022 ($3.8M).
However, there were no interest payments reported for FY2023 and FY2024.
Analysis: The company may have reduced its debt or shifted its financing strategy, as
reflected by the absence of interest payments in the most recent periods. This could indicate
improved financial health or more conservative financial management.
Key Takeaways:
Strong Operating Cash Flow: The company generates a healthy operating cash flow, which
is vital for covering operational expenses and reinvestment.
Free Cash Flow: Free cash flow remains strong, allowing the company to potentially repay
debt or return capital to shareholders.
Stable Cash Position: The company maintains a solid cash position, though there is a slight
decline in recent years.
Debt Management: The negative financing cash flow suggests a focus on debt repayment
and stock buybacks, which could improve the balance sheet but might limit growth
opportunities.
Investment Strategy: The company has reduced its investing activities in recent years,
possibly signaling a more conservative approach to growth.
Conclusion:
The company appears to be in relatively good financial health with strong operational cash
flow and free cash flow, stable investing activities, and a focus on reducing debt. However,
the decrease in cash reserves and lack of significant reinvestment into the business could
indicate that it may not be prioritizing growth as aggressively as in the past. The company’s
strategy seems focused on returning value to shareholders through stock buybacks and debt
repayment, which could be a positive sign of financial discipline but may raise concerns
about long-term growth prospects.
