Financial Analysis Techniques

Pick a company Read last 3 annual reports Read last 12 earnings call transcripts Find relevant information on the company Calculate key ratios for it Repeat for another company in the same sector See your understanding of the sector soar in a few weeks. Not sure how or where to start? 4 resources to help you 1) What to read in an earnings transcript  (using Eicher Motors as example) https://lnkd.in/gqaYwkNM 2) What to read in an annual report  (using Titan as example) https://lnkd.in/dtt674gu 3) Quick Financial Analysis using Screener  (using Ultratech Cement as example) https://lnkd.in/dFM9ypEa 4) Ratio Analysis: A Step by Step Guide in Excel  (Using SAIL as an example) https://lnkd.in/dd9HwiqC Subscribe to our channel for more such videos. https://lnkd.in/dR4nvGxd ------- Peeyush Chitlangia, CFA I help you build a career in Valuation and Investment Banking

The Bureau of Labor Statistics’ estimate of November consumer price inflation, which it released last week, is badly flawed. So much so, we constructed our own estimate of CPI inflation (courtesy Matt Colyar). Inflation didn’t decelerate to 2.7% on a year-over-year basis in November as the BLS reported, but instead remained unchanged at 3.0%. A big problem with the BLS estimate is the assumption that, in October, when it was unable to conduct its survey due to the government shutdown, prices for most (nearly all) goods and services remained unchanged. Of course, that didn’t happen. Thus, instead, we used data for various prices from private sources, where available, and our forecasts, where not, to estimate the October CPI. Another problem with the BLS estimate for November is that the survey for that month was delayed. This is especially true in November, given that pricing is typically stronger at the start of the month and weaker at the end, when the holiday shopping season begins in earnest. We estimate that core CPI inflation (excluding food and energy) in November was 2.9% year-over-year, but after accounting for this additional bias, it is likely also near 3%. All of this is on top of other measurement problems that have worsened significantly this year due to cuts to BLS funding and staff. Close to one-third of prices in the CPI are no longer directly measured, but imputed from other prices, up from one-tenth of prices at the start of the year. The noise in the inflation data is increasingly drowning out the signal. Abstracting from the noise, inflation remains uncomfortably high – well above the Federal Reserve’s inflation target – and shows no sign of abating. We will continue to update our CPI estimate at least until this time next year when we round-trip this October’s missing data.

3 reactions to today's in-line #inflation report that saw headline CPI falling from over 9% to below 3% over 2 years: 1/ our inflation framework is applying: #goods deflation from pandemic unwind drove most of the fall in core CPI, but that is coming to an end. In the near term, #services disinflation from increased labour supply thanks to immigration could take inflation lower still. Before structural forces like ageing population keep pressure high in the long term. 2/ the runway seems clear for September #Fed rate cut: granted we still have one more payroll and round of inflation. 3/ as inflation fear gave way to #growth fear, retail sales and claims tomorrow may actually matter a bit more: in our assessment recession fear is overblown, and the Fed may push against this too at Jackson Hole starting Aug 22.

🚨 Why Farmers Stay Poor: Are Finance Models Designed to Fail Them? It’s not the weather. It’s not the soil. It’s the system. For decades, financial models in agriculture have appeared to support farmers, yet poverty persists like a crop that won’t die. But why? Because the system is designed to finance the input, not the impact. Farmers are given loans to buy seeds and fertilizer only to sell low and borrow again. This is not empowerment. It’s a financial treadmill. Here’s the uncomfortable truth: > Most agricultural finance schemes were designed for lenders to manage risk not for farmers to build wealth < Three systemic design flaws that keep farmers trapped: 1. Short-term loans for long-term crops: Cash crops like coffee, banana, or avocado need patient capital. But most agri-loans are seasonal, forcing early harvests and losses. 2. Collateral bias: Land titles or assets are demanded, excluding women and youth who ironically are the ones farming most. 3. Profit blindness: No financing model asks: Will this farmer actually make money from this season? It assumes yield = success. But yield doesn’t pay school fees. Profits do. We don’t need more credit. We need credit designed for context. So what’s the solution? 📌 Agri-finance products co-designed with farmer groups. 📌 Flexible repayment systems linked to harvest cycles, not calendar months. 📌 Data-informed risk scoring using real-time climate and market data. 📌 Incentives for banks to finance regenerative and value-adding models, not just inputs. In 2025, agricultural finance must go beyond transactions to build transformation. If you're building a new finance product, running an agri-startup, or investing in food systems and you’re not thinking about this you’re building on sand. Let’s create capital that liberates, not entraps. National Agricultural Research Organisation - NARO FAO M-Omulimisa Enimiro Uganda Avotein Farms Limited Amabanda Uganda Limited Emata Shambapro AgriLink Uganda AgriProFocus Uganda Solidaridad East and Central Africa AGRA Are you curious on how I can redesign your agri-finance approach to actually build farmer wealth? Let’s connect. #Agribusiness #Agrifinance #InclusiveFinance #UgandaAgriculture #Agritech #SmallholderFarmers #Agripreneurs #AgriPolicy #FintechForFarmers #TheAgrithinkersTimes #AgriWealthStrategies #ClimateSmartFinance

Many accountants email the balance sheet and income statement to their CEOs and think,   “Job done.”  But here’s the problem: Your CEO is not necessarily trained in reading financial statements. Even if they were, you've just given them an assignment to "figure it out" If your boss doesn’t understand the numbers, then you haven’t communicated. You’ve just forwarded a report.  🚨 A financial statement without context is just data.   📊 Your job is to turn that data into insights.  How to Present Financials the Right Way  📌 1️⃣ Give a One-Page Summary 🔹 Highlight key figures—Revenue, Profit, Cash Flow, and Key Ratios.   🔹 Include clear takeaways (e.g., “Revenue grew 10%, but margins dropped due to rising costs.”).   🔹 Avoid technical jargon—simplify complex metrics.  📌 2️⃣ Answer the Big Questions   Your CEO doesn’t want numbers—they want meaning. Help them understand:   🔹 What changed? (“Profit dropped 5% due to higher shipping costs.”)   🔹 Why did it happen? (“Fuel prices increased 20% this quarter.”)   🔹 What should we do next? (“We should renegotiate supplier contracts.”)  📌 3️⃣ Use Visuals   🔹 Graphs > Tables—a well-designed chart can explain in seconds.   🔹 Use color-coded trends (e.g., 🔴 Negative, 🟢 Positive).   🔹 Keep it clean—no clutter, no distractions. 📌 4️⃣ Speak the CEO’s Language   🔹 Skip the accounting terminology—focus on impact.   🔹 Tie financials to business goals:     - Sales grew 15% → “We’re expanding market share.”     - Cash flow dipped → “We need to tighten collections.” ✅ Financial statements don’t speak for themselves—you do.   ✅ Numbers are useless without insights.  If your CEO isn’t making better decisions because of your reports, then your job isn’t done.  💡 Don’t just report numbers—explain them. That's how you add value and impact.

The July CPI data imply that the Fed can no longer use inflation as a rationale to keep rates elevated. Today’s inflation data reflects yesterday’s monetary policy. That inflation has already been slowing implies the Fed has tolerated a dramatic increase in real interest rates. That policy rates are running well above most estimates of neutral lowers the threshold for larger moves, all else equal. Given the changing of the winds in the labor market, the trade-offs have now clearly shifted for the Fed. The risks between growth and inflation are moving away from balance. Growth is the main risk now. I think moving in 25bp increments is too slow given the evolution of the data. That said, what I have seen about the Fed’s first move implies the labor market data, not CPI, will determine whether the Fed moves 50bps at the September FOMC. Core CPI inflation rose just 0.165% over the month despite an unexpected increase in housing rents. Over the last three months, core CPI has climbed just 1.6%, the slowest pace since February 2021. Because CPI housing rents are based on leases signed a while ago and because new leases are rising at slower rates, there is good reason to assume that housing rental inflation slows in the months ahead, a temporary setback in July notwithstanding. 

20 profit ratios that will transform how you analyze any business The numbers never lie, but you need to know how to read them 📊 Let me break down the most critical financial metrics you'll ever need 👇 ➡️ CORE PROFITABILITY RATIOS These ratios tell you exactly how well a business turns revenue into profit: 1️⃣ Gross Profit Margin The foundation of business profitability - what's left after direct costs. When this number drops, it's often the first sign of pricing pressure or rising material costs. 2️⃣ Operating Profit Margin This strips away the noise and shows pure operational performance. Want to know if a business is actually good at what it does? This ratio tells you. 3️⃣ Net Profit Margin The bottom line that matters. Shows exactly what you're left with after everything's paid. 4️⃣ EBITDA Margin Strips out accounting decisions to show true operational performance. Critical for comparing companies with different capital structures. ➡️ RETURN RATIOS - THE REAL PERFORMANCE INDICATORS 5️⃣ Return on Equity Your shareholders' report card. This number can make investors either jump for joy or run for the hills. 6️⃣ Return on Assets  Shows how well a company uses its assets to generate profits. This ratio becomes crucial when comparing asset-heavy industries. 7️⃣ Return on Capital Employed The heavyweight champion of performance metrics. It's like ROE and ROA had a super-smart baby. ➡️ EFFICIENCY RATIOS Now we're getting to the good stuff… 8️⃣ Asset Turnover Reveals how efficiently a company generates sales from its assets. Higher ratios usually mean better operational efficiency. Think of this as your business's speedometer. The faster it spins, the more efficient you are. 9️⃣ Inventory Turnover Critical for retail and manufacturing - shows how quickly inventory moves. Lower numbers might signal obsolete stock or poor purchasing decisions. 🔟 Accounts Receivable Turnover Measures how fast a company collects what it's owed. This ratio directly impacts cash flow - the lifeblood of any business. ➡️ MARKET PERSPECTIVE RATIOS 1️⃣1️⃣ P/E Ratio The market's expectation of growth packed into one number. But remember - high P/E isn't always better. It's about whether the company can meet those expectations. 1️⃣2️⃣ EPS Growth Shows the rate of earnings growth per share. This becomes powerful when tracked over multiple quarters. === Three principles I always follow when using these ratios: 1. Compare within industries - ratios mean different things in different sectors 2. Look for trends - a single number means nothing without context 3. Use multiple ratios - they work together to tell the complete story Which ratio do you find most valuable in your analysis? Share your thoughts in the comments below 👇

The Balance Sheet is the most valuable Financial Statement, yet most businesses ignore them. Here is what the Balance Sheet teaches you and how to analyze it: The Balance Sheet formula is: Assets = Liabilities + Equity Rework that formula and you get Assets - Liabilities = Equity What you own - what you owe = book value of the business. In this way, it’s answering the question, is this business healthy? A book value < 0 = Accounting Insolvency But Accounting Insolvency is just a book number; you might still be able to meet your obligations with cash flows. Good? No… but not cash flow insolvency, where you can’t meet your short or long-term obligations. The Balance Sheet is broken into 3 sections: • Assets: what you own • Liabilities: what you owe • Equity: the difference Both Assets & Liabilities are further broken down into short-term (less than year) or long-term (more than year hold or maturity). The Equity section is broken into these components: • Common stock (initial capital investment) • Owner’s contributions • Owner’s distributions • Retained earnings • Current Year Net Income Current Year Net Income from the Income Statement shows up in the equity section. Every year, that balance is zeroed out and rolled in Retained Earnings, which is a reflection of historical earnings of the business. To analyze this statement, you’re going to do two types of analysis: • Horizontal • Ratio Horizontal Analysis is looking at the change between a past period and the current period. That can be past month, quarter, or year. With Ratio Analysis, you’ll look for benchmarks as well as trends. Some common types of ratios are: • Liquidity Ratios These ratios measure your ability to turn assets into cash. Some favorites are: - Current Ratio or Quick Ratio - Cash Burn Rate / Cash Runway - Cash Conversion Cycle • Solvency Ratios These ratios show your ability to pay-off debts. Some common ones are: - Debt-to-equity Ratio - Interest Coverage Ratio - Debt Service Coverage Ratio • Return on Ratios These tell you what your return on investment is. Trying to use your assets efficiently? Use Return on Assets (ROA) Looking to measure financial efficiency compared to competitors? Return on Equity (ROE) Wonder how efficiently you’ve deployed investor capital? Return on Invested Capital (ROIC) Want to understand how well current capital is utilized (especially in capital-intensive industries)? Return on Capital Employed (ROCE) You should NEVER use all of these ratios. Choose the specific analysis tools that are best for your business and watch: • trends • thresholds When a trend turns bad or a threshold number is broken, dive deeper and determine why. Thanks for reading! If you’re a business owner and want to be able to use your financials as a decision-making tool, check out my cohort (it starts March 11th): https://lnkd.in/gXMntDyz

Inflation cools broadly, but upside risks remain ✅ Headline CPI fell more than expected, down 0.4% m/m in June. Headline inflation eased sharply, falling 0.7 percentage points to 3.5% y/y, down from its highest level in three years in May. Energy prices were the key disinflationary force, falling 5.7% m/m, with gasoline prices down 9.7% m/m and electricity prices down 1.0% m/m. 📊 Core #CPI also came in much lower than expected, posting a flat monthly reading, or -0.02% for the second-decimal aficionados, the lowest reading outside a recession since 2017. This pushed core inflation well below expectations, down 0.3 percentage points to 2.6% y/y. Disinflationary pressures were broad-based across both core goods and services. Lower prices for vehicles, apparel, furniture, and medical care goods all helped ease goods inflation. Core services prices were unchanged on the month for the first time since 2021, with shelter costs posting their smallest monthly increase since January 2021, rising just 0.1% m/m, while hotel, medical care, and auto insurance prices all declined. ✳️ Still, despite the good news, three factors represent upside risks to inflation persistence in the coming months. Tensions in the Middle East, with renewed strikes and a US blockade, have pushed oil prices higher, creating risks for downstream commodity prices. While there has been little passthrough from higher energy costs to core inflation—outside of airfare—this remains a risk. Lingering tariff pressures also remain a concern, with a recent New York Fed study showing that around 45% of firms are still planning to pass higher duties through to final prices. Finally, strong AI-related investment will likely continue to support pricing in selected consumer technology products and software categories. Already, computer software prices are up 17% y/y. 🔥 Looking ahead, we foresee headline inflation moving toward 3.3% y/y by December, while core CPI #inflation is expected to ease toward 2.4% y/y. With Federal Reserve policymakers increasingly concerned about inflation persistence, the notably softer core CPI reading has lowered the odds of an imminent rate hike. However, following a string of hotter-than-desired core inflation prints, policymakers will likely need confirmation from PPI data, along with several additional months of softer core inflation, before taking rate hikes off the table. 🚫 As it stands, we don't believe the July Federal Open Market Committee (#FOMC) meeting will be a live one. #Fed Chair #Warsh stressed in his Semiannual Monetary Policy Report testimony to Congress that the FOMC "has no tolerance for persistently elevated inflation," but we view this more as a credibility statement than a signal that a rate hike is imminent. EY-Parthenon EY

Over-Estimation in EVE Assumptions: The Perilous Path to Financial Instability Economic Value of Equity (EVE) is an essential metric in banking, employed for gauging the long-term financial stability of an institution. It serves as a cornerstone in the management of Interest Rate Risk in the Banking Book (IRRBB). However, the accuracy of EVE is highly contingent on the assumptions made during its calculation, particularly those related to asset and liability behaviours. Over-estimating these assumptions can lead to a distorted view of financial health, carrying significant risks that may even culminate in the collapse of a bank. The Consequences of Over-Estimation: 1. Liquidity Risk: One of the most immediate dangers of over-estimating assumptions in EVE is the potential misjudgment of liquidity needs. Optimistic assumptions about deposit longevity or loan prepayments can lead to an overestimation of available funds, making the bank susceptible to liquidity shortages. 2. Capital Adequacy: Over-estimation can also give a false sense of security regarding the capital buffer. If assumptions about asset performance are too optimistic, the institution may not hold sufficient capital to absorb losses, breaching regulatory requirements. 3. Strategic Flaws: Exaggerated positive assumptions can skew strategic decisions, such as pricing of loans or deposits, product offerings, and risk-taking behaviour. This can be detrimental to the bank's competitive position and profitability in the long term. 4. Stress Testing: Over-optimistic assumptions will also affect the results of stress testing exercises. These exercises are designed to evaluate how an institution can cope under adverse conditions; therefore, a false sense of security can severely undermine crisis preparedness. The Collapse Risk: The most dire outcome of these compounded issues is the risk of financial instability leading to a collapse. If the bank consistently over-estimates assumptions, it will find itself in a precarious position with inadequate capital and liquidity, while being ill-prepared for market shocks. In the worst-case scenario, the lack of realistic planning can trigger a loss of confidence among investors and depositors, accelerating the path to insolvency. The Importance of Prudent Assumptions: Given these significant risks, it is prudent to approach EVE assumptions with caution. Continuous monitoring and back-testing are essential for ensuring that the assumptions are as realistic as possible. Sensitivity analysis should also be undertaken to understand the impact of various scenarios on EVE, thus enabling more effective decision-making. In essence, the accuracy of EVE relies heavily on the validity of underlying assumptions. Over-estimating these can lead to a cascade of issues that might render a bank financially unstable. Therefore, it is essential to maintain conservative estimates and regularly reassess them to prevent such devastating outcomes.