Module 3
An Analysis of the Financial report of TechGrowth Inc.
AUGUST 9, 2024
BY: Olajumoke Oyewo
Introduction
This report presents a financial analysis of TechGrowth Inc. It seeks to highlight the
company's financial well-being and strategic placement based on its three-year
performance, and to offer strategic recommendations.
A review of TechGrowth’s Financial Statements
Sales increased year on year, from $220,000 in 2022 to $250,000 in 2023 and $280,000
in 2024. Cost was more or less stable over the period and this guaranteed growth in Net
income for the company.
TechGrowth’s Total Assets equally increased year on year as seen from their Balance
sheet i.e. $$265,000 in 2022 to $300,000 in 2023 and $334,000 in 2024. They also
invested more in Properties plants and Equipment during the period under review.
Total Long term Debts also reduced year on year indicating loan repayment and a
maintenance of a good balance between Shareholder’s Equity and Debt.
Finally, Cashflows from operation was positive which is a good indication of how
efficient Techgrowth inc is in managing their resources.
TechGrowth’s Financial Analysis
Balance Sheet Review (Horizontal & Vertical Analysis)
TechGrowth Inc.'s total current assets increased by 24% in 2023 and by 18% in 2024.
Although all the components of Current assets grew over the 3 years period, Cash
balance grew the most by 47% in 2023 and by 30% in 2024. TechGrowth’s Non-current
asset as a percentage of Total asset was 63% in 2022, $60% in 2023 and 57% in 2024.
Similarly, all the components of Non-current assets also increased consistently by 7%
over the previous year’s balances.
All the components of Current liabilities i.e. Account Payables, Short-term Debt and
Accrued Liabilities increased by 25% in 2023 over 2022 balances. And by 20% in 2024
over 2023 balances. Current Liabilities as a percentage of Total Liabilities and Equity are
15%, 17% and 18% in 2022, 2023 and 2024 respectively.
Long term Debts reduced by 13% in 2023 and by 14% in 2024. Total Liabilities remained
flat over the 3 years of review i.e. $120,000 in years 2022, 2023 and 2024.
Retained earnings increased considerably in 2023 by 78% over 2023 balance and by 43%
in 2024 over 2023 balance.
Table 1. Horizontal & Vertical calculations for TechGrowth Inc.’s Balance Sheet
TechGrowthInc. BalanceSheets
As of December31
%of Total %of Total %change %of Total %change
Assets 2022 2023 2024
Asset Asset from2022 Asset from2023
Current Assets
Cash $34,000 13% $50,000 17% 47% $65,000 19% 30%
Accounts
$35,000 13% $40,000 $45,000
Receivable 13% 14% 13% 13%
Inventory $28,000 11% $30,000 10% 7% $32,000 10% 7%
Total Current
$97,000 37% $120,000 $142,000
Assets 40% 24% 43% 18%
Non-Current Assets
Property, Plant &
$140,000 53% $150,000 $160,000
Equipment 50% 7% 48% 7%
Intangible Assets $28,000 11% $30,000 10% 7% $32,000 10% 7%
Total Non-Current
$168,000 63% $180,000 $192,000
Assets 60% 7% 57% 7%
Total Assets $265,000 $300,000 13% $334,000 11%
Liabilities
Current Liabilities
Accounts Payable $20,000 8% $25,000 8% 25% $30,000 9% 20%
Short-termDebt $12,000 5% $15,000 5% 25% $18,000 5% 20%
Accrued Liabilities $8,000 3% $10,000 3% 25% $12,000 4% 20%
Total Current
$40,000 15% $50,000 $60,000
Liabilities 17% 25% 18% 20%
Long-term
Liabilities
Long-termDebt $80,000 30% $70,000 23% -13% $60,000 18% -14%
Total Long-term
$80,000 30% $70,000 $60,000
Liabilities 23% 18%
Total Liabilities $120,000 45% $120,000 40% 0% $120,000 36% 0%
Equity
Common Stock $100,000 38% $100,000 33% 0% $100,000 30% 0%
Retained Earnings $45,000 17% $80,000 27% 78% $114,000 34% 43%
Total Equity $145,000 55% $180,000 60% 24% $214,000 64% 19%
Total Liabilities and
$265,000 $300,000 $334,000
Equity 13% 11%
Income Statement Review (Horizontal and Vertical Analysis).
At TechGrowth Inc, Sales revenue grew by 14% in 2023 from $220,000 in 2022 to
$250,000 and grew in 2024 by 12% to $280,000. Cost of goods sold also increased as
well as the percentage of COGS in relation to sales which also increased year on year by
1% i.e. from 59% in 2022 to 60% in 2023 to 61% in 2024. Operating expenses and Tax
expenses equally increased over the period but their cost in relation to sales were the
same in every year. i.e. Operating expense as a percentage of Sales – 20%, Tax expense
as a percentage of sales – 4%. Interest expense however reduced significantly over the
period by 17% in 2023 and 20% in 2024. Net income as a percentage of sales was 14% in
the 3 years but Net income grew in 2023 by 13% and by 11% in 2024.
Table 2 – Horizontal & Vertical calculations for TechGrowth Inc.’s Income
Statement
IncomeStatements
FortheYearEndedDecember31
Costs / Costs / % Costs /
%change
Revenue 2022 Profit as a 2023 Profit as a changes 2024 Profit as a
over2023
%of Sales %of Sales over2022 %of Sales
Sales Revenue $220,000 $250,000 $280,000
Total Revenue $220,000 $250,000 12% $280,000 14%
Expenses
Cost of Goods Sold $130,000 59% $150,000 60% 15% $170,000 61% 13%
$90,000 41% $100,000 40% $110,000 39%
OperatingExpenses $45,000 20% $50,000 20% 11% $55,000 20% 10%
Interest Expense $6,000 3% $5,000 2% -17% $4,000 1% -20%
TaxExpense $8,000 4% $10,000 4% 25% $12,000 4% 20%
Total Expenses $189,000 $215,000 14% $241,000 12%
Net Income $31,000 14% $35,000 14% 13% $39,000 14% 11%
Statement of cashflow review
TechGrowth Inc. reported a positive net cash flow from operating activities, of $37.000
in 2022. $41,000 in 2023 and $46,000 in 2024. However, due to investments in Fixed
Assets , Net cashflows from Investing activities was negative in all the years i.e.
($18,000) in 2022, ($20,000) in 2023 and ($22,000) in 2024. Cashflow from financing
activities was also negative in 2022, 2023 and 2024 as a result of repayment of Long term
debt. But due to the high operating profit made in 2022 of $31,000 and $35,000 in 2023
and $35,000 in 2024, TechGrowth inc reported strong cash balances of $34,000, $50,000
and $69,000 respectively. Overall, Techgrowth Inc maintained a liquid position with
positive cash balances at the end of each period.
Ratio Analysis
Below are key ratios for TechGrowth Inc’s financial statement to check their
performance and financial strength
Current Ratio: Total Current Assets / Total Current Liabilities
Current Ratio
2022
97000/40000 2.43
2023 120000/5000
0 2.40
2024 142000/6000
0 2.37
TechGrowth Inc’s current ratio of and average of 2.4 indicates that they have strong
short-term financial stability and can easily fulfill their short-term obligations.
Asset Turnover: Total Revenue / Total Assets
Asset Turnover
2022 220000/2650
00 0.83
2023 250000/3000
00 0.17
2024 280000/3340
00 0.84
TechGrowth.s average Asset Turnover ratio of 0.61 implies that for every dollar of Asset
utilized, 60 cents of revenue is generated. It would be beneficial to consider this result
with industry standards to determine if TechGrowth is performing well or not.
Debt Ratio: Total Debt / Total Assets
Debt Ratio
2022 (12000+80000)/265
000 0.35
2023 (15000+70000)/300
000 0.28
2024 (18000+60000)334
000 0.23
TechGrowth's debt ratios are considered low at 0.35, 0.28 and 0.23 respectively. This is
generally considered good, as it indicates that the company's total debts constitute, on
average, only 29% of its Total Assets. Although It is always better to compare
TechGrowth's performance against industry standards to ascertain if their financial
standing is good.
Strategic Recommendations
TechGrowth Inc has shown very strong performance ratios and a good indication of
sustainable delivery of values to their shareholders therefore, they should focus on
sustaining growth, maximizing value, and preparing for future challenges. My
recommendation to the Board and Management are as follows.
To enhance increased revenues, TechGrowth should consider expansion into new
geographical regions to reduce reliance on a single market. They can also
diversify their product or service offerings to capture different customer
segments. (Barney, 2020)
According to Richards & Laughlin, maintaining strong cash flow management
supports ongoing operations and investment opportunities (Richards & Laughlin,
1980). TechGrowth should adopt strong financial management techniques in their
operations to ensure liquidity and a balance between debt and equity in their
business.
Finally, TechGrowth should align more closely with the United Nations
Sustainable Development Goals (SDGs) by integrating sustainability and social
responsibility into various aspects of its business operations. Implementing
environmentally friendly practices enhances reputation and complies with
regulations (Elkington, 1997).
References
Barney, J. B. (2020). Firm resources and sustained competitive advantage.
Journal of Management, 27(1), 99-120.
Richards, V. D., & Laughlin, E. J. (1980). A cash flow approach to liquidity
analysis. Financial Management, 9(1), 32-38.
Elkington, J. (1997). Cannibals with forks: The triple bottom line of 21st century
business. Capstone Publishing.
