Introduction to Accounting Group Project

Required: Select a non-financial company of your choice (different for each group) and
analyse the same using latest available annual report with respect to the following questions:
Analysis of Financial statements
1. Comment upon the business model of the company. What are the primary (core) and
secondary activities that the firm is engaged into?

2. What do you think of the company’s management of inventories and receivables?

Comment upon the depreciation policy of the company.

3. What do you think of the size of the company’s cash and bank balances and investments?

4. Compare the company’s basic and diluted EPS and explain any difference with
calculations.

5. Evaluate performance of the company’s segments (if any).

6. Explain how the information in the chairman’s statement and the directors’ report is
useful in understanding the information in the financial statements.

7. Does the company provide information that would enable investors and analysts to
understand its long term direction?

8. How is the corporate governance report useful? What additional information would be
useful?

9. What additional disclosures would you recommend to the company’s management?

What are the pros and cons of providing these disclosures?
10. Does the company follow the direct method or indirect method for reporting net cash
flow from operating activities?
11. How much cash did the company generate from or use in operating, investing and
financing activities?
12. Verify that the sum of net cash from or used in operating, investing and financing
activities equal the change in cash and cash equivalents over the reporting period
13. Are there any non-cash items in the net cash flow from operating activities? How
would you deal with them in your analysis?
14. Depreciation is not a source of cash, but it is added to net profit. Why?
15. Does the amount of interest income equal interest received? Why or why not?
16. Does the amount of dividend income equal dividend received? Why or why not?
17. Does the amount of interest expense equal interest paid? Why or why not?
18. Try to reconcile the change in working capital items with the information on these
items in the balance sheet.
19. What do you learn from the difference between profit and cash flow from operating
activities?
20. Calculate the company’s free cash flow. What does it tell you about the company?
21. As you know the statement of Profit and loss, balance sheet and cash flow statement
are interrelated. Prepare a statement explaining changes in balance sheet items using
the information in the statement of profit and loss and cash flow statement.
22. Analyse the financial statements of the company using different ratios. Analyse and
interpret the different types of ratios of the chosen company.
Submission instructions:
Each group is required to submit
1. Power point presentation (Maximum 20 slides)
2. Report in word document (Maximum 500 words)

Each group is required to submit the presentation and report in electronic form through JGU
e-learning platform (Moodle).

The presentation and document/report should comprise of answers to all questions stated
above in the same sequence along with the electronic form of annual report as an annexure.

The students should strictly follow the group constitution communicated by the executive
office.

1. Comment upon the business model of the company. What are the primary (core) and
secondary activities that the firm is engaged into?
Nykaa works on an inventory led model - it buys the products from various suppliers and
brands globally based on the demand and then sells the product to customer via its platform.
In each transaction, Nykaa acts as the direct seller unlike at Amazon where the customer is
purchasing an item from a third party seller.

Bulk of Nykaa’s revenue (~90%) comes from this channel. Any discounts and promotions by
specific brands is passed on directly to the consumer and doesn’t effect Nykaa’s bottom
line.The other ~10% of revenue is split between rendering marketing support to brands,
commissions from the limited number of third party brands who sell on Nykaa’s platform and
the delivery and shipping fees charged to the customers.

Nykaa purchases products directly from manufacturers and stores it in their warehouses in
New Delhi, Mumbai and Bangalore
Products are sold either on Nykaa’s website or through its three offline store formats; Nykaa
Luxe, Nykaa On Trend and Nykaa Kiosks
The inventory business model allows for high profit margins with the responsibility of
product damages lying with the company. Businesses can also ensure product authenticity
and follow competitive pricing using the inventory model.

What sets Nykaa apart from most other e-commerce platforms is its singular focus on beauty
and fashion. That, coupled with an enviable selection of products, competitive prices, and
availability of global brands makes Nykaa a true powerhouse in the beauty business. The
brand’s omni-channel presence, including an easy to navigate website, kiosks and pop-up
stores, and dedicated offline stores also help cement Nykaa’s position in the market.
They achieved their breakeven after 5 years of operations.
Nykaa’s target audience is in the 22-35 age groups.
Initially, the cost to acquire a customer was Rs. 1000 which has now reduced to Rs.200-300.

Nykaa has its offline presence in 35 stores.

Nykaa has two store formats – Nykaa Luxe and Nykaa On-Trend.
The primary activity the firm is engaged is in offering beauty and wellness pproducts for men
and women.

2. What do you think of the company’s management of inventories and receivables?

Comment upon the depreciation policy of the company.

The company stores the stock of goods purchased directly from manufacturers. They store the
products in their warehouses. Nykaa’s business has warehouses in New Delhi, Mumbai and
Bangalore.

Presence across India- Nykaa has tied up with over 2500 brands for its BPC business. It has
pan India reach and delivers products in 24000+ pin codes across India. They have a strong
presence even in Tier 2/3/4 cities.

Depreciation is provided using the straight like method based on useful lives of the assets
prescribed in Schedule II to the companies act, 2013. Leasehold improvements are amortized
on straight line basis over the period of primary lease or expected useful life whichever is
lower.

The asset’s residual value, useful lives and method of depreciation are reviewed at each
financial year and adjusted prospectively, if appropriate.

3. What do you think of the size of the company’s cash and bank balances and
investments?

It is classified as a private limited company and is located in Mumbai City, Maharashtra. It's
authorized share capital is INR 12.00 cr and the total paid-up capital is INR 9.51 cr.

Nykaa E- Retail's operating revenues range is Over INR 500 cr for the financial year ending
on 31 March, 2019. It's EBITDA has increased by 124.28 % over the previous year. At the
same time, it's book networth has increased by 35.08 %.

Nykaa makes a profit of about ~Rs 250 to Rs 300 per average order value of ~Rs 2000, in
the BPC Category. Per unit economics for Nykaa Fashion aren’t clear yet as its relatively
new. The fashion and apparel business is ramping up fast though and should significantly
contribute towards revenues and unit economics in FY22.

6. Explain how the information in the chairman’s statement and the directors’ report is
 useful in understanding the information in the financial statements.
The information in board of directors report ensures that the company's corporate
governance policies incorporate the corporate strategy, risk management, accountability,
transparency, and ethical business practices.

he information provided by the directors’ report helps shareholders

understand:

1. Whether the company’s finances are in good health;

2. Whether the company has the capacity to expand and grow;
3. How well the company is performing within its market, and how well the
market is performing in general;
4. How well the company is complying with financial regulations, accounting
standards and social responsibility requirements. 

By knowing this information, shareholders can make better informed

decisions and can hold the directors of the company to greater account

7. Does the company provide information that would enable investors and analysts to
understand its long term direction?

The financial statements of the company are detailed and thorough. The comparative
statements provide the investors and analysts an idea on how the company is
performing.

This along with the constant innovations introduced, help building the trust. The
company is a leading player in the market with increasing consumer base and
emerging innovations.

8. How is the corporate governance report useful? What additional information

would be useful?

Corporate governance is the structure of rules, practices, and processes used to direct and
manage a company.
A company's board of directors is the primary force influencing corporate governance.
Bad corporate governance can cast doubt on a company's operations and its ultimate
profitability.
Corporate governance entails the areas of environmental awareness, ethical behavior,
corporate strategy, compensation, and risk management.
The basic principles of corporate governance are accountability, transparency, fairness, and
responsibility.

Most companies strive to have a high level of corporate governance. For many shareholders,
it is not enough for a company to merely be profitable; it also needs to demonstrate good
corporate citizenship through environmental awareness, ethical behavior, and sound
corporate governance practices. Good corporate governance creates a transparent set of rules
and controls in which shareholders, directors, and officers have aligned incentives.

13. Are there any non-cash items in the net cash flow from operating activities? How would
you deal with them in your analysis?

Income statements, a tool used by companies in financial statements to tell investors how
much money they made and lost, can include several items that affect earnings but not cash
flow. That’s because in accrual accounting, companies measure their income by also
including transactions that do not involve a cash payment to give a more accurate picture of
their current financial condition.

Examples of non-cash items include Depreciation, Amortization, Unrealized gain,Unrealized

loss, Impairment expenses, Stock-based compensation, Provision for discount expenses
Deferred income taxes, Asset write-down, Provisions for future losses.
 18. Try to reconcile the change in working capital items with the information on these
items in the balance sheet.
Depends on the que 14-17

22. Analyse the financial statements of the company using different ratios. Analyse and
interpret the different types of ratios of the chosen company.

1. Working Capital Ratio (current assets/ total current liabilities)=.

2. Quick Ratio Current Assets - Inventories - Prepaid Expenses) / Current Liabilities.=.
3. Earnings per Share (EPS)=. 41.66. (current) - 37(balance sheet)
4. Price-Earnings (P/E) Ratio=. 56/ 41.66=1.344 …… 56/37= 1.513
5. Debt-Equity Ratio= -48.60
6. Return on Equity (ROE)= N/A