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FINANCIAL STATEMENT ANALYSIS OF

ELECTROSTEEL CASTING LtD.

SUBJECT-: Financial management

MBAZG521

Submitted By -:
Dr. Sahil K Parekh
2022hb28640
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Contents.

Table Of Content. Page No.

Introduction to Electro steel
Casting Companies Details with 3
Their Strategy

Observation of Balance Sheet 4

Observation From Cashflow 5

Statement

Observation from Balance 6

sheet

Balance Sheet Horizontal 7

analysis

Balance sheet Vertical analysis 8

Profit & loss Horizontal & 11

Vertical analysis

Cash Flow Horizontal analysis 12

RATIO Analysis 13

Recommendation/ Conclusion 16
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Introduction to Electro steel Casting Companies Details

with Their Strategy

Electro steel Castings Ltd is a company that operates in the manufacturing and
supply of ductile iron pipes, fittings, and related products.
Here's a brief overview of the company and its strategies based on the
provided data:

a) Company Overview-:

- Electro steel Castings Ltd operates in the water infrastructure sector, primarily
engaged in manufacturing ductile iron pipes, fittings, and ancillary products.
- The company's revenue comes from its operations, including revenue from
gross and net sales, along with other operating revenues.

b) Strategies-:

1. Operational Efficiency -:

Focusing on improving operational efficiency to increase profitability,

as seen in the significant improvement in net profit before tax in Mar
'23.

2. Cash Flow Management -:

Addressing cash flow challenges, as evident from the fluctuations in net

cash from operating activities and net cash used in/from financing
activities.

3. Investment -:

Evaluating investment opportunities and managing cash reserves, as

indicated by the changes in cash and cash equivalents.

4. Market Expansion -:

Exploring opportunities to expand its market presence, given the

nature of its industry in water infrastructure.
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Observation of Balance Sheet

Certainly, here are the key observations from the balance sheet without
vertical analysis:

a) Equity and Liabilities -:

-: Equity share capital has significantly increased by 46.63% from Mar 22 to

Mar 23.
-: Reserves and surplus have steadily grown over the last five years, with a
substantial 79.08% increase in the last year.
-: Long-term borrowings decreased by 15.47% from Mar 22 to Mar 23.
-: Short-term borrowings and trade payables increased significantly in the last
year, by 173.07% and 85.04%, respectively.

b) Assets
- Tangible assets have shown consistent growth.
- Current investments in quoted market value saw a massive increase in the
last year.
- Capital work-in-progress increased by 5.32% in the last year.

c) Additional Information
- Contingent liabilities have increased notably.
- Expenditure in foreign exchange saw a substantial increase, indicating
international transactions or operations.
These observations provide a snapshot of the company's financial health and
changes in its financial structure and obligations.
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Observation From Cashflow Statement

a) Net Profit Before Tax

- Net profit before tax has significantly increased in the most recent year,
showing a positive trend compared to the base year (2019)

b) Net Cash from Operating Activities

- Net cash from operating activities has seen substantial fluctuations over the
years, with a significant increase in the most recent year compared to the base
year

c) Net Cash (used in)/from Investing Activities

- There is no specific data provided for this section, which means there might
not have been significant investing activities in the given years.

d) Net Cash (used in)/from Financing Activities

- Net cash used in financing activities has shown substantial fluctuations, with a
significant increase in the most recent year compared to the base year.

e) Net (decrease)/increase In Cash and Cash Equivalents

- There has been a significant decrease in cash and cash equivalents in the most
recent year compared to the base year.

f) Opening and Closing Cash & Cash Equivalents

- The opening and closing cash & cash equivalents have fluctuated over the
years, with a substantial increase in the closing cash & cash equivalents in the
most recent year compared to the base year.

These observations indicate variations in cash flow, particularly in operating

activities and financing activities. Further analysis and context would be
needed to assess the company's cash flow management and financial stability.
Observation from cash flow
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Observation from Balance sheet

a) Revenue

- Revenue from operations has seen significant growth over the past year,
increasing by 193.84% compared to the base year (2019).
- Other operating revenues have fluctuated, with a decrease of -37.99% in the
most recent year compared to the base year.

b) Expenses

- Cost of materials consumed has significantly increased by 260.88% compared

to the base year.
- Employee benefit expenses have increased by 84.44% compared to the base
year.
- Finance costs increased by 20.78% compared to the base year.
- Depreciation and amortization expenses increased by 107.99% compared to
the base year.
- Other expenses have increased by 149.47% compared to the base year.

c) Profit/Loss
- Profit before exceptional items, extraordinary items, and tax has increased
substantially in the most recent year, with a growth rate of 231.48% compared
to the base year.
- Exceptional items show a significant decrease of -100.00% compared to the
base year.
- Profit before tax increased by 231.48% compared to the base year.
- Tax expenses have shown significant fluctuations, with a decrease of -
517.46% in the most recent year compared to the base year.
- Profit after tax and before extraordinary items has increased by 231.48%
compared to the base year.
- Earnings per share (EPS) have fluctuated, with a substantial decrease in the
most recent year compared to the base year.
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d) Dividends
- Equity share dividends have increased over the years, with a growth rate of
74.50% in the most recent year compared to the base year.
- The equity dividend rate has also increased, with a rate of 12.50% in the most
recent year compared to the base year.

Balance Sheet Horizontal analysis

Horizontal analysis involves comparing financial data over a period of time to

identify trends and changes. In your provided balance sheet data. Here's a
summary of the horizontal analysis:

 Equity and Liabilities

1. Shareholder's Funds

- Equity Share Capital has increased by 46.63% compared to 2019.

- Reserves and Surplus have seen substantial growth, with an increase of
79.08% compared to 2019.

2. Non-Current Liabilities

- Long Term Borrowings have decreased by 15.47% compared to 2019.

- Deferred Tax Liabilities have increased by 39.79% compared to 2019.
- Other Long-Term Liabilities have decreased by 59.99% compared to 2019.

3. Current Liabilities

- Short Term Borrowings have significantly increased by 173.07% compared to

2019.
- Trade Payables have increased by 85.04% compared to 2019.
- Other Current Liabilities have seen a 9.08% increase compared to 2019.
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 Assets

1. Non-Current Assets

- Tangible Assets have increased by 69.43% compared to 2019.

- Intangible Assets have experienced significant growth, with a 377.32%

increase compared to 2019.
- Capital Work-In-Progress has increased by 5.32% compared to 2019.

2. Current Assets

- Current Investments (Quoted Market Value) have increased dramatically by

12386.84% compared to 2019.
- Inventories have increased by 200.78% compared to 2019.
- Trade Receivables have increased by 117.83% compared to 2019.
- Cash and Cash Equivalents have increased by 190.48% compared to 2019.

3. Additional Information

- Contingent Liabilities have increased by 143.30% compared to 2019.

- Expenditure in Foreign Currency has increased by 233.29% compared to 2019.
- Other Earnings have increased by 9.87% compared to 2019.
- Current Investments (Quoted Market Value) have increased significantly by
12386.84% compared to 2019.

Balance sheet Vertical analysis

Vertical analysis involves expressing each line item on a financial statement as a

percentage of a base item, typically total assets or total liabilities and equity.
Here's a vertical analysis of the balance sheet data provided
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 Equity and Liabilities

1. Shareholder's Funds

- Equity Share Capital represents 0.73% of total assets in March 2023, up from
0.72% in March 2022.
- Reserves and Surplus account for 51.73% of total assets in March 2023, up
from 47.87% in March 2022.
- Total Shareholders’ Funds account for 52.77% of total assets in March 2023,
up from 48.59% in March 2022.

2. Non-Current Liabilities

- Long Term Borrowings represent 8.72% of total assets in March 2023, up

from 10.22% in March 2022.
- Deferred Tax Liabilities account for 4.30% of total assets in March 2023, up
from 4.34% in March 2022.
- Other Long-Term Liabilities represent 1.00% of total assets in March 2023,
up from 1.40% in March 2022.
- Long Term Provisions account for 0.49% of total assets in March 2023, up
from 0.51% in March 2022.
- Total Non-Current Liabilities account for 14.52% of total assets in March
2023, up from 16.46% in March 2022.

3. Current Liabilities

- Short Term Borrowings represent a significant portion, accounting for

21.38% of total assets in March 2023, up from 22.75% in March 2022.
- Trade Payables account for 6.33% of total assets in March 2023, up from
6.83% in March 2022.
- Other Current Liabilities represent 4.81% of total assets in March 2023, up
from 5.19% in March 2022.
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- Short Term Provisions account for 0.18% of total assets in March 2023,
down from 0.17% in March 2022.
- Total Current Liabilities account for 32.71% of total assets in March 2023, up
from 34.94% in March 2022.

 Assets

1. Non-Current Assets

- Tangible Assets represent 32.62% of total assets in March 2023, up from

32.71% in March 2022.
- Intangible Assets account for a small portion, representing 0.06% of total
assets in March 2023.
- Capital Work-In-Progress represents 16.09% of total assets in March 2023,
up from 14.72% in March 2022.
- Fixed Assets account for 48.78% of total assets in March 2023, up from
47.47% in March 2022.
- Non-Current Investments account for 1.60% of total assets in March 2023,
up from 1.93% in March 2022.
- Other Non-Current Assets represent 0.79% of total assets in March 2023, up
from 0.78% in March 2022.
- Total Non-Current Assets account for 51.65% of total assets in March 2023,
up from 50.22% in March 2022.

2. Current Assets

- Current Investments (Quoted Market Value) represent 1.17% of total assets

in March 2023, up from 2.95% in March 2022.
- Inventories account for 20.93% of total assets in March 2023, up from
22.35% in March 2022.
- Trade Receivables represent 16.18% of total assets in March 2023, up from
12.70% in March 2022.
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- Cash and Cash Equivalents account for 4.72% of total assets in March 2023,
up from 5.57% in March 2022.
- Short Term Loans and Advances represent 1.35% of total assets in March
2023, up from 0.65% in March 2022.
- Other Current Assets represent 3.98% of total assets in March 2023, up
from 4.11% in March 2022.
- Total Current Assets account for 48.35% of total assets in March 2023, up
from 49.78% in March 2022.

This vertical analysis provides a clear picture of how each category contributes
to the company's total assets and liabilities, allowing for a better understanding
of the company's capital structure and asset composition.

Profit & loss Horizontal & Vertical analysis

 Horizontal Analysis as per 2019 Base Year

In horizontal analysis, we compare each year's financial data to a base year (in
this case, 2019) to see how it has changed over time.
- Revenue From Operations [Gross] increased significantly by 193.84% in 2023
compared to 2019, while it increased by 113.27% in 2022 compared to 2019.
However, it decreased by -5.57% in 2023 compared to 2022 and increased by
3.87% in 2022 compared to 2021.
- Total Operating Revenues followed a similar trend, with a significant increase
of 189.30% in 2023 compared to 2019 and 109.77% in 2022 compared to 2019.
However, it decreased by -6.46% in 2023 compared to 2022 and increased by
3.73% in 2022 compared to 2021.
- Profit/Loss Before Tax shows fluctuations, with a substantial decrease of -
165.64% in 2023 compared to 2019, an increase of 220.62% in 2022 compared
to 2019, but a significant decrease of -118.74% in 2023 compared to 2022.
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 Vertical Analysis as per 2019 base year

In vertical analysis, we express each line item as a percentage of the total

revenue for the respective year.
- Revenue From Operations [Gross] accounted for 98.21% of total revenue in
March 2023, 98.11% in 2022, 96.87% in 2021, 96.54% in 2020, and 95.48% in
2019.
- Cost Of Materials Consumed represented 56.91% of total revenue in March
2023, 54.03% in 2022, 45.39% in 2021, 44.35% in 2020, and 45.05% in 2019.
- Employee Benefit Expenses accounted for 5.11% of total revenue in March
2023, 6.40% in 2022, 7.47% in 2021, 6.82% in 2020, and 7.91% in 2019.
- Profit/Loss Before Tax represented 6.17% of total revenue in March 2023,
8.22% in 2022, 2.14% in 2021, 4.90% in 2020, and 5.32% in 2019.

These analyses provide insights into how the company's revenue and expenses
have changed over the years and how they relate to the total revenue in each
respective year. It appears that there have been significant fluctuations in
revenue and profitability over the years, and cost management may be an area
of focus for the company.

Cash Flow Horizontal analysis

 Horizontal Analysis as per 2019 (Base Year)

- Net Profit Before Tax in 2023 decreased significantly by -165.64% compared to

2019.
- Net Cash From Operating Activities in 2023 decreased by -1015.40%
compared to 2019.
- Net Cash (used in)/from Investing Activities and Financing Activities showed
significant changes compared to 2019.
- Net (decrease)/increase In Cash and Cash Equivalents increased by 261.18%
in 2023 compared to 2019.
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- The Closing Cash & Cash Equivalents increased by 31.79% in 2023 compared
to 2019.

 Horizontal Analysis as per YOY Changes

- Net Profit Before Tax increased by 3.39% in 2023 compared to 2022.

- Net Cash from Operating Activities decreased significantly by -222.25% in
2023 compared to 2022.
- Net Cash (used in)/from Investing Activities and Financing Activities showed
substantial percentage changes compared to the previous year.
- Net (decrease)/increase In Cash and Cash Equivalents decreased dramatically
by -4342.98% in 2023 compared to 2022.
- The Closing Cash & Cash Equivalents increased by 31.79% in 2023 compared
to 2022.

This analysis provides a clear picture of the changes in key financial indicators
over time and between consecutive years. It highlights both the overall trends
and specific variations in the company's cash flow and profitability.

Ratio Analysis

1. Liquidity Ratios

a) Current Ratio-:

This ratio measures the company's ability to cover short-term liabilities with its
current assets. An increase from 1.22 in 2019 to 1.48 in 2023 is a positive sign.
It suggests that the company has improved its ability to meet its short-term
obligations, which is important for day-to-day operations and indicates a
stronger financial position.
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b) Quick Ratio-:

Also known as the Acid-Test Ratio, this ratio excludes inventory from current
assets to provide a more conservative measure of liquidity. The increase from
0.78 in 2019 to 0.84 in 2023 indicates that the company can meet its short-
term liabilities even without relying on selling inventory

c) Cash Ratio -:

This ratio measures the proportion of cash and cash equivalents to current
liabilities. An increase from 0.10 in 2019 to 0.14 in 2023 signifies that the
company has more cash on hand to cover its immediate obligations, which is a
good indicator of liquidity.

2. Solvency Ratios

a) Debt to Equity Ratio:

This ratio reflects the proportion of debt used to finance the company's assets
compared to shareholders' equity. The decrease from 0.62 in 2019 to 0.57 in
2023 indicates that the company is relying less on debt financing, which
reduces financial risk.

b) Debt to Capital Employed -:

It measures the extent to which debt is used in financing capital employed. A

decrease from 29.55% in 2019 to 30.10% in 2023 suggests a slight decrease in
the reliance on debt, which can be seen as a positive trend.

c) Interest Coverage Ratio-:

This ratio indicates the company's ability to cover its interest expenses with its
earnings. It remains stable, suggesting that the company can comfortably meet
its interest obligations.

d) Equity Multiplier-:

A decrease indicates that the company is using less equity to support its assets.
This can be seen as a reduction in financial leverage.
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3. Turnover Ratios (Efficiency of Assets)

a) Total Assets Turnover Ratio -:

The increase from 0.48 in 2019 to 0.85 in 2023 suggests that the company is
generating more sales for each dollar of assets. It indicates improved asset
utilization and efficiency in generating revenue.

b) Fixed Assets Turnover Ratio -:

These measures how efficiently the company is using its fixed assets to
generate sales. The increase indicates better utilization of these assets.

c) Inventory Turnover Ratio -:

An increase implies that the company is selling its inventory more quickly,
which can free up cash and reduce carrying costs.

d) Account Receivable Turnover Ratio -:

It reflects how efficiently the company collects payments from customers. The
improvement suggests faster collection of receivables, which can enhance cash
flow.

4. Profitability Ratios

a) Net Profit Margin -:

The increase from -26.60% in 2019 to 4.84% in 2023 indicates that the
company has turned around from losses to profitability. It shows the
percentage of sales that translates into profit.

b) Gross Profit Margin -:

This ratio has improved, indicating better control over the cost of goods sold.

c) Operating Profit Margin -:

It has increased, reflecting improved operational efficiency.

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d) ROE (Return on Equity) -:

The improvement from -26.74% in 2019 to 7.84% in 2023 suggests that

shareholders are earning a better return on their investments.

e) ROA (Return on Assets) -:

The increase from -12.80% in 2019 to 4.14% in 2023 indicates that the
company is generating more profit from its assets.

f) Earning Power -:

An increase implies that the company is generating more earnings relative to

its total assets.

g) Return on Capital Employed -:

It has improved, indicating better returns on the capital invested in the

business.

In summary, these ratios collectively indicate that the company has made
significant improvements in liquidity, profitability, and efficiency while
effectively managing its debt. However, it's crucial to consider industry
benchmarks and qualitative factors to make a comprehensive assessment of
the company's financial health and sustainability.

Recommendation/ Conclusion
Certainly, let's provide more detailed recommendations for each stakeholder
group based on the financial analysis findings:

 Investors

a) Investment Strategy -:

Given the company's improving financial health, investors may consider

increasing their holdings or maintaining their current positions in the company.
The positive trend suggests the potential for future returns.
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b) Diversification -:

While the company is performing well, it's essential for investors to diversify
their portfolios to spread risk. Consider a balanced mix of investments in
various sectors and industries.

c) Due Diligence -:

Continue to conduct due diligence by closely monitoring the company's

financial reports, industry trends, and competitive landscape to make informed
investment decisions.

 Proprietors (Owners)

a) Reinvestment -:

Owners should assess the company's long-term strategic goals and decide
whether to reinvest profits back into the business. These profits can fund
expansion, research and development, or new product/service offerings.

b) Exit Strategy -:

Consider your exit strategy. If you're thinking of selling the company, the
improved financials could fetch a better selling price. Alternatively, if you plan
to pass it on to the next generation, ensure a smooth transition plan is in place.

 Government

a) Economic Growth -:

Government entities should recognize the company's contribution to economic

growth and job creation. Encourage the business through policies that support
entrepreneurship and innovation.

b) Regulation -:

Maintain appropriate regulatory oversight to ensure the company's financial

practices remain transparent and fair. This can protect stakeholders and the
broader economy.
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 Management

a) Operational Efficiency -:

Management should continue efforts to control costs and improve operational

efficiency. Invest in technology, training, and processes that streamline
operations.

b) Strategic Planning -:

Use the improved financial position as a foundation for strategic planning. Set
clear objectives for growth, market expansion, and diversification.

c) Risk Management -:

Continue to monitor and manage debt levels prudently. Avoid over-leveraging,

which could pose risks in uncertain economic conditions.

 Creditors

a) Lending Terms -:

Creditors may consider offering more favourable lending terms, such as lower
interest rates or longer repayment periods, if the company's financial stability
continues to improve.

b) Risk Assessment:

Continuously assess the company's ability to meet its debt obligations. Ensure
risk mitigation strategies are in place.

 Customers

a) Stability -:

Customers can have increased confidence in their business dealings with

the company, knowing it has an improved financial position. This stability
suggests reliability and consistency in product or service delivery.
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b) Long-Term Partnerships -:

Explore opportunities for long-term partnerships or contracts with the

company, as it may be better positioned to offer favourable terms.

In summary, stakeholders should adapt their strategies based on the positive

financial performance of the company. Investors and proprietors can explore
growth opportunities, while creditors and customers can have increased
confidence. Government should support this success through favourable
policies, and management should continue to focus on efficiency and strategic
growth. Regular monitoring and flexibility are key in ensuring continued
success.