Financial due diligence of Trusted health private limited

Analysis of revenue and profits

2016 & 2017 2017 & 2018

Particulars % Change % Change
Incomes
Revenue from Operations 4729.93% 145%
Other income 208504.55% -75%
Total Revenue 4809.67% 141%
Cost of Materials consumed 0.00% 100%
Cost of Sales 0.00% 100%
Employee benefit expense 347.87% 127%
Other operating expenses 1395.00% -100%
Administrative expenses 923.96% 101%
Finance costs 2585.68% 1610%
Depreciation and Amortization expense 89.37% 150%
Other expenses 4379.14% -63%
Total Expenses 860.94% 35%
Profit before tax 572.62% -22%
Tax expenses
Excess written back -100%
Deferred Tax 98.29% -52%
Profit for the Year -569.84% -22%

• The revenues have increased substantially by 4810% and 141% in the 1st and 2nd years
respectively.
• Total expenses increased more in the 1st year by 861% when compared to the 2nd year
by 35%.
• The company started spending on sales in 2017-18.
• There is a huge percentage increase in financial costs which means the company has
debt and payment of interest is increasing.
• Expenses like employee benefit-cost and administrative cost also increased.
Depreciation also increased by 90% in 1st year and 150% in 2nd year which means the
company has brought more assets in 2nd year.
• An increase in expenses is more than an increase in revenue so the company incurred
losses. The loss increased more in the 1st year and then decreased in the 2nd year.
 Trend analysis for three years

Particulars 2015-16 2016-17 2017-18

Incomes
Revenue from Operations 56,199 100.00% 2714371 4829.93% 6639755 11814.72%
Other income 22 100.00% 45893 208604.55% 11500 52272.73%
Total Revenue 56221 100.00% 2760263 4909.67% 6651255 11830.55%
Cost of Materials consumed 0 0.00% 0 0.00% 531648 100.00%
Cost of Sales 0 0.00% 0 0.00% 57247 100.00%
Employee benefit expense 675480 100.00% 3025305 447.87% 6881975 1018.83%
Other operating expenses 5000 100.00% 74750 1495.00% 0 0.00%
Administrative expenses 33580 100.00% 343846 1023.96% 689955 2054.66%
Finance costs 1816 100.00% 48772 2685.68% 834122 45931.83%
Depreciation and Amortization
expense 11560 100.00% 21891 189.37% 54813 474.16%
Other expenses 98790 100.00% 4424945 4479.14% 1633619 1653.63%
Total Expenses 826226 100.00% 7939509 960.94% 10683379 1293.03%
Profit before tax -770005 100.00% -5179246 672.62% -4032124 523.65%
Tax expenses
Excess written back 0 100.00% -3 -300.00% 0 100.00%
Deferred Tax 4550 100.00% 9022 198.29% 4323 95.01%
Profit for the Year -774555 100.00% -5188271 -669.84% -4036447 -521.13%

• When compared to 2015-16, the company experienced a substantial increase in

revenue by 4910% and 11830% in 2016-17 and 2017-18 respectively as revenue from
operations and other income both increased.
• Loss has increased in 2016-17 and then decreased in 2017-18. This shows that the
company is improving.
 Balance sheet analysis

Trusted health balance sheet

31.03.2018
31.03.2016(Rs. In 31.03.2017(Rs. (Rs. In
Particulars Lakhs) In Lakhs) Lakhs)
EQUITY AND
LIABILITIES
Shareholders’ Funds
Share Capital 148030 9% 971400 92% 1021400 36%
-
Reserves and Surplus -4863675 -282% -2757206 262% -6793653 -242%
-
Total Equity -338345 -20% -1785806 170% -5772253 -205%
Non - Current
Liabilities
Long Term Borrowings 175000 10% 304000 29% 5314625 189%
Deferred Tax Liability
(Net) 4550 0.264% 13572 1.29% 17895 0.637%
Total non-current
liabilities 179550 10% 317572 30% 5332520 190%
Current Liabilities
Other Current Liabilities 178500 10% 2520357 240% 3249142 116%
Total current liabilities 178500 10% 2520357 240% 3249142 116%
Total Equity and
liabilities 1723495 100% 1052123 100% 2809409 100%

ASSETS
Non - Current Assets
Fixed Assets
Tangible Assets 76054 4% 253433 24% 187546 7%
Intangible Assets 0 0% 0 0% 311219 11%
Long Term Loans and
Advances 0 0% 59000 6% 10500 0.37%
Total Non-current assets 76054 4% 312433 30% 509265 18%
Current Assets
Cash and Bank Balances 1616738 94% 398996 38% 753079 27%
Other Current Assets 30702 2% 340693 32% 1547065 55%
Total current assets 1647440 96% 739689 70% 2300144 82%
Total Assets 1723495 100% 1052122 100% 2809409 100%

• The total assets of the company decreased from 2016 to 2017 and then increased from
2017 to 2018 because of changes in cash and bank balances.
 • Cash and bank balances of the company are 94%, 38%, 27% of total assets in 2016,
2017 and 2018 respectively. The cash is decreasing constantly year after year that
means its ability to pay current liabilities is low.
• Fixed assets are very less 4%, 30%, 18% of total assets in 2016, 2017 and 2018
respectively which indicates that the company owns fewer physical resources and
hence is dependent on other sources to complete its operations.
• Current assets of the company are high 96%, 70%, 82% of total assets in 2016, 2017
and 2018 respectively that majorly includes cash and bank balances which indicates
that the working capital of the company is good.
• The share capital is 9%, 92% and 36% of total liabilities in 2016,2017 and 2018. The
share capital substantially increased and again decreased which means the shares
might be canceled by the shareholders or the company is trying to reduce its
accumulated losses.
• Reserves and Surplus are in negative and are increasing year after year, they are 28%,
262% and 242% of total liabilities for the years 2016,2017 and 2018 respectively. It
means that the revenue of the company isn’t enough to pay its debts and expenses.
• Long-term borrowings substantially increased from 10% in 2016 to 189% in 2018 of
total liabilities which means to sustain the company is depending on the borrowings.
• Current liabilities are 10%, 240%, 116% of total liabilities in 2016,2017 and 2018
respectively. It is also a source of funding on which the company is depending on its
everyday operations.

Financial Ratios
Current Assets/Current
Current Ratio Current Assets Current Liabilities Liabilities

2018 23,00,144 32,49,142 0.71

2017 7,39,689 25,20,357 0.29

2016 16,47,440 1,78,500 9.23

• CURRENT RATIO - The current ratio for 2016 is 9.23 which is greater than 1 that
indicates the company can pay off its liabilities using its Current Assets. It is 0.29 and
0.71 in 2017 and 2018 respectively. Though the company is in a better position to pay
off its debts in 2018 compared to 2017, it cannot clear all the debts.

Quick ratio Quick Assets Current Liabilities CA-Inventory/Current Liabilities

2018 23,00,144 32,49,142 0.71

2017 7,39,689 25,20,357 0.29

2016 16,47,440 1,78,500 9.23

• QUICK RATIO = current assets- inventory/current liabilities.

• For this company, inventory is not given so the current ratio comes quick ratio.
Gross Profit Margin Gross profit Net sales Gross Profit/net Sales

2018 60,50,860 66,39,755 0.91

2017 27,14,371 27,14,371 1

2016 56,199 56,199 1

• GROSS PROFIT MARGIN - Gross profit margin is almost equal to 1 in all the 3
years which indicates that the company has almost no sales expenses.

Net Profit margin Net Profit (Loss) Net sales Net Profit/Net sales
-
2018 40,36,447 66,39,755 -0.61
-
2017 51,88,270 27,14,371 -1.91
-
2016 7,74,555 56,199 -13.78

• NET PROFIT MARGIN - Net profit margin is (0.61) in 2018, (1.91) in 2017,
(13.78) in 2016. Net Profit margin is one of the most important indicators of the
company's financial health. Despite earning profits from the revenue, due to huge
expenses like finance cost, employee benefit expenses, administrative expenses the
company incurred a huge loss. Though it is reducing year after year the negative
margin shows that it takes much time to cover those losses.

Final review on the company financials

• The company’s revenues have increased substantially so expenses also increased. But
the expenses are more than revenues, so the company incurred losses.
• Long term borrowings have increased so the financial cost increased.
• The cash is decreasing constantly year after year that means its ability to pay current
liabilities is low.
• Less fixed assets hence dependent on other sources of operations.
• Reserves and surplus are also negative so that shareholders won't get a proper return
on investments.
• This company is not preferred for investment because of huge losses. In last year's
loss decreased, there is a chance of improvement in the future.