Meet ABC Manufacturing Ltd — a fictional Indian company that makes industrial components and sells them to other businesses. Its financial year runs from April to March, like most Indian companies, and all figures below are in ₹ crore unless stated otherwise.
The numbers
The table gives ABC's figures for three financial years: FY22, FY23 and FY24. Read across each row and notice the direction of travel, not just a single year.
| Item (₹ crore unless stated) | FY22 | FY23 | FY24 |
|---|---|---|---|
| Revenue | 1,000 | 1,250 | 1,500 |
| Total expenses (before interest and tax) | 900 | 1,132 | 1,362 |
| Operating profit (EBIT) | 100 | 118 | 138 |
| Net profit | 80 | 95 | 110 |
| Net profit margin | 8.0% | 7.6% | 7.3% |
| Operating cash flow | 90 | 40 | −20 |
| Capital expenditure | 60 | 120 | 150 |
| Free cash flow | 30 | −80 | −170 |
| Trade receivables | 150 | 250 | 420 |
| Total debt | 300 | 550 | 900 |
| Cash and equivalents | 120 | 80 | 30 |
| Total assets | 900 | 1,150 | 1,550 |
| Shareholders' equity | 500 | 560 | 610 |
| Shares outstanding (crore) | 10 | 10 | 11 |
| Earnings per share (₹) | 8.0 | 9.5 | 10.0 |
ABC Manufacturing — three years of figures. The share price in FY24 is ₹150.
Two measures deserve a quick explanation. Return on equity (ROE) shows the profit earned on the money shareholders have put into the business. The price-to-earnings ratio (P/E) compares the share price with the earnings per share, and is one way people describe how a price relates to profit.
Free cash flow = Operating cash flow − Capital expenditure
The cash left after money spent on long-term assets such as plant and machinery.
Return on equity = Net profit ÷ Shareholders' equity
Profit measured against the shareholders' money in the business.
Case study: ABC Manufacturing
A fictional company with three years of numbers. Investigate it yourself before revealing each answer.
| ₹ crore | FY22 | FY23 | FY24 |
|---|---|---|---|
| Revenue | 1,000 | 1,200 | 1,350 |
| Net profit | 90 | 110 | 120 |
| Total debt | 300 | 420 | 600 |
| Cash | 80 | 70 | 60 |
| Receivables | 150 | 210 | 300 |
| Operating cash flow | 110 | 95 | 60 |
| Shareholders' equity | 500 | 560 | 610 |
Shares outstanding
12 crore
Share price
₹150
Market capitalisation
₹1,800 Cr
EPS ≈ ₹10
What happened to revenue?
Is profit growing?
What happened to debt?
What happened to cash flow?
What is the company's ROE?
What is the P/E?
What risks should be investigated?
What to investigate
- What happened to revenue over the three years? Did it grow, and by how much?
- Is profit growing at a similar pace? Are the margins holding steady?
- What happened to total debt, and how does it compare with shareholders' equity?
- What happened to operating cash flow and free cash flow? Are they rising or falling?
- What is the return on equity for FY24?
- What is the price-to-earnings ratio at a share price of ₹150?
- How did the number of shares change, and what might that suggest?
- Which of the red flags from the earlier chapter appear in these numbers?