COMPANY ANALYSIS

ACCOUNTING FOR MANAGERS

(AN INVESTMENT FIRM)

PROFILE OF THE COMPANY:

JM Financial Limited is an integrated financial services group offering a wide range of capital
market services to its corporate and individual clients. The Group's businesses include investment
banking wealth management and securities business; mortgage lending; distressed credit and
asset management business (mutual fund).JM Financial Limited was incorporated on 30th
January of the year 1986 under the name of JM Share & Stock Brokers (JMSSB). JM Financial was
started as a private limited company as an arm of JM Financial & Investment Consultancy
Services. As at 15th June of the year 1988 the company was converted as a deemed public limited
company and subsequently the company became a public company by making necessary
alterations in its Articles of Association. The Company entered into a Joint Venture agreement
with Morgan Stanley in December of the year 1997. During the year 2001 the company redeemed
last installment of 14% Debenture and repaid part of its unsecured loans to its promoters with
the ultimate objective of bringing down the borrowing and making the company a Zero Debt
Company. During the year 2004 the company had changed its name from JM Share & Stock
Brokers to JM Financial Limited. J.M. Securities Private Limited was amalgamated with the
company in the year 2006. JM Financial had launched a corporate private equity fund in August
of the same year 2006 under the name of JM Financial India Fund with US-based Old Lane
Partners LP being the lead investor/co-sponsor to the Fund. As of August 2007, the company had
launched a unique Portfolio Management Scheme that aims to offer 100% capital protection as
well as potential capital appreciation based on the Dynamic Portfolio Insurance (DPI)
methodology. As at March of the year 2008 JM Financial had acquired JM Financial ASK Securities
Private Limited. As at March of the year 2008 JM Financial had acquired JM Financial ASK
Securities Private Limited. The Company has opened a full-fledged branch at Vizag the port city
of Andhra Pradesh in the month of September of the same year 2008.On 3 June 2010 Rand
Merchant Bank (RMB) a division of FirstRand Limited (FirstRand) and JM Financial Consultants
Private Limited agreed to enter into a strategic co-operation to provide M&A advisory services to
Indian and African corporates for their activities in the Indo-Africa corridor. JM Financial
Consultants Private Limited is the investment banking division of JM Financial Group.
VISION: The following points stands as the vision for the JM financials in their business
platform:

LOGO STORY:

KEY MANAGERIAL PERSONNEL:

The company has following key managerial personnel:

S. NO. NAME DESIGNATION

1) Mr. Nimesh Kampani Group Chairman

2) Mr. Vishal Kampani Group Managing Director

3) Mr.Manish Sheth Group Chief Financial Officer

4) Mr.Prashant Choksi Group Head & Company Secretary

COMPETITORS:

1)TATA INVESTMENT CORPORATIONS

Tata Investment (the Company) invests in a diversified portfolio of quoted and unquoted securities
of companies, including Tata Companies, which are engaged in various businesses with a history
of strong operating and financial performance. The typical investment approach of the Company
will be to seek a combination of value and growth. A company that exhibits growth characteristics,
is well managed, has a sound position in its industry, available at fair value according to
conservative accounting norms is an ideal investment opportunity for the Company. The Company
believes that its investments provide a sustainable competitive advantage in volatile markets and
would contribute to its dividend income as well as any profits that may be realized on sale of such
investments. The Company may consider short-term opportunities where it may see prospects for
attractive returns, but will primarily focus on a long-term value creation strategy rather than on
any near-term impact on its revenues, profits or cash flows. The Company’s primary sources of
income consist of dividend income and net profit on sale of investments. The Company also invests
in units of mutual funds, bonds and venture capital funds.

2)TRANSCORP INTERNATIONAL LTD.

Transcorp International Limited (TIL), which was started in early 80s to provide refined travel
services in India, witnessed astounding growth during the next decade and gradually transpired
into a full-fledged single window organization for Currency exchanges, tours and travels,
Insurance, Car renting services , inward and outward remittance , prepaid currency cards ,
travellers cheques etc.

Today, TIL has grown exponentially and offers multi-faceted services including Prepaid cards and
wallets in association with RUPAY and Yes Bank, travellers cheque in association with AMEX,
Forex travel cards in association with Axis bank, ICICI Bank etc., domestic money transfer via
Trans-cash to name a few. TIL is also a National Business Correspondent of SBI which essentially
means that we act as an extension to the SBI official branch providing a slew of services on behalf
of the bank like collection of various deposits as well as processing and disbursement of loans.
BALANCE SHEET OF THE COMPANY
INCOME STATEMENT:
 RATIO ANALYSIS

Ratio analysis is the comparison of line items in the financial statements of a business. Ratio
analysis is used to evaluate a number of issues with an entity, such as its liquidity, efficiency of
operations, and profitability. This type of analysis is particularly useful to analysts outside of a
business, since their primary source of information about an organization is its financial
statements. So, let’s take a look at the ratio analysis of JM Financial Ltd. and analyze the financial
position and the strength of the company.

TABLE DEPICTING THE RATIOS OF THE COMPANY

 LIQUIDITY RATIOS

1)CURRENT RATIO

Meaning: The current ratio is the classic measure of liquidity. It indicates whether the business
can pay debts due within one year out of the current assets. The current ratio reveals how much
“cover” the business has for every £1 that is owed by the firm.

Formula:

Analysis:
As of March 31st 2019 data; the company’s current ratio was 1.53, which would mean that JM
corporation business has Rs.1.53cr of current assets for every Rs.1cr of current liabilities. An ideal
current ratio is 2:1, but JM financial ratio is around 1.53:1, which is quite moderate as it suggests
that the company has cash to be able to pay its debts, but not too much finance tied up in current
assets which could be reinvested or distributed to shareholders of the firm.

Trend in Years: If we compare the ratios after 2015, then we would clearly observe that
depreciation in the value of current ratio has occurred, which tells that company’s assets have
decreased from the previous years or the company has utilized its assets for investing or clearance
of debt purposes.

Comparison: Let’s compare JM Financial Current Ratio with another investment giant TATA
Investment Corp.

TATA INVESTMENT CURRENT RATIO VS JM FINANCIAL CURRENT RATIO VS

TRANSCORP INT. LTD.

If the comparison between TATA , JM & TRANSCORP is done on the basis of current ratio, then
clearly TRANSCORP would emerge out as the winner because TATA’s current assets have
reduced at very low level, compared to past data and it’s a very serious concern for the firm because
a low current ratio (say less than 1.0-1.5 might suggest that the business is not well placed to pay
its debts. It might be required to raise extra finance or extend the time it takes to pay creditors.

JM is playing moderately in this field but TRANSCORP is a real winner because it is capable of
paying its liabilities plus having some extra assets and values in the end.
2)QUICK RATIO

Meaning: The quick ratio is an indicator of a company’s short-term liquidity position and
measures a company’s ability to meet its short-term obligations with its most liquid assets. Since
it indicates the company’s ability to instantly use its near-cash assets (that is, assets that can be
converted quickly to cash) to pay down its current liabilities, it is also called the acid test ratio. An
acid test is a quick test designed to produce instant results. It includes only assets that can be
converted to cash within 90 days or less.

Formula: The standard formula for quick ratio is quick assets upon quick liabilities. But the
elaborated version is:

Analysis:

As per the 2019 data, the company’s quick asset is around 1.53 times of the quick liabilities. As
we know that the ideal quick ratio is 1:1 and JM financials are performing better than that thus it
clearly depicts that the company can instantly use its assets to pay its quick liabilities and even can
save a bit of them for future use. These assets could also be used as the reserves and surpluses for
the firm.

Trend in Years: Even though the company quick ratio is sound enough but from the trends its
clearly observable that company’s assets have shown an up-down graph from 2016 but even then
also, the companies quick assets are in good collection to pay the quick debts.

Comparison: Let’s compare JM Financial Quick Ratio with another investment giant TATA
Investment Corp. and Transcorp Int. Ltd.

TATA INVESTMENT QUICK RATIO VS JM FINANCIAL QUICK RATIO VS

TRANSCORP INT. LTD.

From here, we can again observe that TRANSCORP INT. are clearly a winner in maintaining their
quick ratios as compared to TATA’s and JM’s as TATA’s gives us an impression that if the bills
payable and the other liabilities of the firm kept on increasing then the firm would be under serious
issue as the quick assets are low to help from the redemption of the liabilities, whereas JM’s ratio
depicts that the company can instantly use its assets to pay its quick liabilities and even can save a
bit of them for future use. But among all, TRANSCORP is the giant which could easily pay its
liabilities and could also save a good amount in the end and its market growth and expansion is
increasing repeatedly.
 EFFICIENCY RATIO

1)FIXED ASSET TURNOVER RATIO

Meaning: The fixed asset turnover ratio (FAT) is, in general, used by analysts to measure
operating performance. This efficiency ratio compares net sales (income statement) to fixed assets
(balance sheet) and measures a company's ability to generate net sales from its fixed-asset
investments, namely property, plant, and equipment (PP&E). The fixed asset balance is used as a net
of accumulated depreciation.

Formula:

Analysis:

As per the data, we can observe that the company relies less on utilizing its fixed assets for revenue
purposes. In general, a higher fixed asset turnover ratio indicates that a company has more
effectively utilized investment in fixed assets to generate revenue and is mainly utilized by
manufacturing firms.
Trend in Years:

We can say that as compared to 2018 data for fixed turnover ratio, the company has utilized its
fixed assets in 2019, for generating sales and increasing the revenue of the firm, but its quite clear
that the company relies very less on the utilization of fixed assets.

Comparison:

TATA INVESTMENT FIXED ASSET TURNOVER RATIO VS JM FINANCIAL FIXED

ASSET TURNOVER RATIO VS TRANSCORP INT. FIXED ASSET TURNOVER RATIO

The efficiency ratio analysis in terms of fixed asset turnover ratio between TATA, JM &
TRANSCORP depicts that TATA has utilized much less assets than JM for turnover purposes
whereas JM is not in away better position as well. It’s a clear sign that both the firms being an
investment firm relies less upon their fixed assets for the sales and turnover purposes. If we talk
about TRANSCORP, then it relies heavily on the fixed assets for revenue purposes.
PROFITABILITY RATIOS
1)RETURN ON LONG TERM FUNDS/INVESTMENTS

Meaning: Estimated long-term return is a metric that provides investors with a return estimate
they can expect when investing in a fund over a long-term timeframe. This measure can be
comparable to a savings account rate or the rate of interest quoted for a certificate of deposit.
Generally, fund managers reporting estimated long-term return will be able to arrive at this
calculation because the underlying fund investments have a specified return that is given at the
time of initial investment.

Formula: The estimated long-term return is typically calculated as an annual percentage return
over a specified timeframe. It is often presented net of estimated fees. In fixed income portfolios
it can easily be based on the yields of all the underlying securities in a portfolio. In this case, it is
usually weighted to account for each security's market value and maturity.
Analysis:

From the analysis, its quite clear that if shareholder’s are interested to invest in JM Financial then
the estimated return ratio which they are surely going to get in return is around 5.44, which means
for every single unit of long term investment, the return value is around 5.44% for a period of 10
years( as per the data collected). Also, it’s observable that the ratio has decreased from the previous
years which means that either the firm has faced some kind of loss or the capital invested in
operations of business has increased.

Trend in Years: After 2015, the firm return on long term funds were increasing at a good pace
depicting increase in sale and the value of long-term funds but in 2019 the trend went down
showing the company went through some loss.

Comparison:

TATA INVESTMENT RETURN ON LONG TERM FUNDS VS JM FINANCIAL

RETURN ON LONG TERM FUNDS VS TRANSCORP RETURN ON LONG TERM
FUNDS
This is an interesting scenario which clearly shows firm’s vision and their way of approach, If we
compare all the company’s data, we will observe that in 2015 TATA was in better position with a
value of 10.05 return on long term funds as compared to JM 5.36 value of return on long term
funds. But over the years, TATA’s value continuously declined whereas JM performed way better
before facing loss in 2019, but it’s still in much better position as compared to TATA Investments
Corp. But if we talk about scenario of TRANSCORP AND JM then we would observe that
TRANSCORP has always invested more on return on long term funds but it faced a huge loss or
reduced its cost heavily in 2019, whereas JM has also invested less but their figures were never in
negative, i.e., they always keep their long term vision in mind.

2) RETURN ON NET WORTH

Meaning: Return on Net worth is a ratio developed from the perspective of the investor and not
the company. Return on Net Worth (RONW) is a measure of profitability of a company expressed
in percentage.

Formula: It is calculated by dividing the net income of the firm in question by shareholders’
equity. The net income used is for the past 12 months. It can be represented mathematically as
follows:

RONW = Net Income / Shareholders’ Equity

Let’s assume that ABC Inc. posted a net income of $100,000 in the past year. At the same time,
the value of shareholders’ equity was $500,000, then the Return on Net Worth would be:

RONW = 100,000 / 500,000 = 0.2 or 20%

The net income should be of the past year and the equity should be as of the end of the period for
which return on net worth is being calculated. Also, equity should be adjusted for stock splits and
should not include preferred shares.

Analysis:

If we see, the firm’s return on net worth then we can clearly observe from 2016 the retun on net
worth has gone down but we can’t say that it’s good or bad because return on net worth has some
points to keep in mind.

In terms of its implication, return on net worth indicates how much profit has been generated for
every dollar of equity investment. Even more plainly, return on net worth is a measure of how well
the company is utilizing the money invested by shareholders. For studying this measure, it is
important to look at it over several periods of time in order to assess whether the company has
been more or less efficient in generating profits on shareholders’ equity over the years.
Also, an increasing RONW may result from a decline in value of shareholders’ equity. Hence, a
share buyback can artificially increase return on equity from which investors and analysts may
draw an incorrect conclusion of higher profits or increased efficiency. Hence, it is important to
look at the ratio in its entirety before drawing conclusions about the firm being analyzed.

Combined with return on assets (ROA), return on net worth can show whether leverage is being
employed by a company. For instance, if ROE is greater than ROA for the same period, it is a sign
of leverage being used to increase profits because higher debt means fewer requirements for equity,
which will boost ROE.

So, if I combine return on assets with return on net worth, then the JM financial’s are in good
position with a return on net worth total to be around 67.9% and thus providing a strong uphold in
the firm’s position.

Trend in Years:

Even though we are observing that the return on net worth has gone down but we can’t clearly say
that its bad for the company because as I have described above we always need to keep the return
on assets in mind along with the value of shareholder’s equity to depict the strength of the firm.

Comparison:

TATA INVESTMENT RETURN ON NET WORTH VS JM FINANCIAL RETURN ON

NET WORTH VS TRANSCORP RETURN ON NET WORTH
As we are progressing ahead in the data, it’s been depicted that Tata Investments has reported
decline in return on net worth, whereas the return on net worth graph of JM financials has been an
up-down journey. Few of the predictions can be, there could have been increase in return on
shareholder’s equity or the company’s net worth might have declined but before judging all this
return on assets should always be kept in mind, in which JM is a clear winner.

Also, talking about TRANSCORP performance, they perform way better than expectations in
2018.But due to mismanagement, their performance declined heavily in 2019 which gives a
negative image about the stability of the firm.

3) EARNING PER SHARE

Meaning: The earnings per share ratio, or simply earnings per share, or EPS, is a corporation's
net income after tax that is available to its common stockholders divided by the weighted average
number of shares of common stock that are outstanding during the period of the earnings.

Net income available for common stock is the corporation's net income after income taxes minus
the required dividend for the corporation's preferred stock, if it has preferred stock outstanding.
Formula:

Analysis:
There are basically five to six types of EPS ratios, namely:
So let’s straight away move to the analysis part, if we look at adjusted EPS or adjusted cash EPS
along with reported EPS or reported cash EPS, then it’s quite visible that Company’s diluted net
earnings per share for such year as determined under U.S. generally accepted accounting principles
(“GAAP”) but subject to adjustments have varied with time but still has a low value between 1.30-
3.40 of each share which is a diplomatic sign as a high EPS indicates that investors expect higher
earnings but always its not good because sometimes it could depict that the stock is being over-
valued.

Trend in Years: As per the trend in years, we can just say that Stocks that are expected to grow
will have a larger price-to-EPS (PE) ratio than those that are not expected to grow.

Comparison:

TATA INVESTMENT EARNING PE SHARE VS JM FINANCIAL EARNING PER

SHARE VS TRANSCORP EARNING PER SHARE
When it comes to comparison, an important aspect of EPS that is often ignored is the capital that
is required to generate the earnings (net income) in the calculation. Two companies could generate
the same EPS, but one could do so with fewer net assets; that company would be more efficient at
using its capital to generate income and, all other things being equal, would be a "better" company
in terms of efficiency. A metric that can be used to identify companies that are more efficient is
the return on equity (ROE). Also, based on a different set of assumptions, a company may report
a high EPS number, which reduces the P/E multiple and makes the stock look undervalued. The
EPS reported to the SEC may result in a much lower EPS and an overvalued stock on a P/E basis.
This is why it is critical for investors to read carefully and know what type of earnings are being
used in the EPS calculation. Thus, before doing this comparison we need to know what type of
earnings are being used in the EPS calculation (which is unavailable on the net).

4) OPERATING PROFIT PER SHARE

Meaning: The term “operating profit” refers to an accounting metric measuring the profits a
company generates from its core business functions, where the deduction of interest and taxes is
excluded from the calculation. This operating value likewise excludes any profits earned from the
firm's ancillary investments, such as earnings from other businesses a company may be partially
vested in. Also, Operating Profit per share means the net operating profit generated for each share
of the firm.
Formula:

Operating profit per share= Operating Profit/ Total No. of shareholders

Analysis:

Operating profit per share should be high which is not the case here because it might depict that
more operating cost/investments is being applied and less income is being generated.

Trend in Years: It has been substantially low over the years which shows that JM have not
been able to efficiently generate operating profit and it might happen in future that shareholders
might decide not to invest more in the firm, which is not a good sign.

Comparison:

TATA INVESTMENTS OPERATING PROFIT PER SHARE VS JM FINANCIALS

OPERATING PROFIT PER SHARE VS TRANSCORP OPERATING PROFIT PER
SHARE
If we compare all the company trends then we would find out that TATA’s profit per share is way
more than JM financials and TRANSCORP which would depict that TATA is much stronger in
generating operating profits as compared to them and JM should find a way in order to avoid
alarming situation in the future, whereas TRANSCORP is already in bad situation. The one main
reason behind all this is illustrated in TATA’s vision that the Company’s primary sources of
income consist of dividend income, net profit on sale of investments & operating profit per share.

5)DIVIDEND PER SHARE

Meaning: DPS is an important metric to investors because the amount a firm pays out in
dividends directly translates to income for the shareholder, and the DPS is the most straightforward
figure an investor can use to calculate his or her dividend payments from owning shares of a stock
over time. Meanwhile, a growing DPS over time can also be a sign that a company's management
believes that its earnings growth can be sustained.

Formula:

DPS= D – SD/S

Analysis:
 We would observe that the dividend per share for JM is low, which might be a dissatisfying factor
for the shareholders as it tells about the earnings of the shareholders of the firm. It might happen
that the firm would be cutting the dividends of shareholder’s and investing more in the
establishment of the business.

Trend in Years: If we talk about the trend then it has been significantly low over the years only
whose reason is described above.

Comparison:
TATA INVESTMENTS DIVIDEND PER SHARE VE JM FINANCIALS DIVIDEND PER
SHARE VS TRANSCORP DIVIDEND PER SHARE

If we compare situation of all the companies, then TATA in terms of dividends is at a better
position which could be one of the satisfying factors for the investors investing in the firm, even
though the company’s performance in overall ratio analysis is moderate in liquidity and efficiency
but the best in profitability; whereas JM dividend per share is low but they tried to outperform
TATA investments in many other factors which is an interesting story to compete. However, the
story of TRANSCORP is very dissatisfying in profitability terms.
CASH -FLOW
1) Cash Flow from Operations is reporting to us about the amount of cash from the income
statement that was originally reported on an accrual basis. A few of the items included in this
section are accounts receivables, accounts payables, and income taxes payable.

If a client pays a receivable, it would be recorded as cash from operations. Changes in current
assets or current liabilities (items due in one year or less) are recorded as cash flow from
operations, which turns out to be (1009.35) in 2018 and (1,868.64) in 2017, thus depicting that as
compared to 2017 less cash has been used in operating activities in 2018.

2) Cash Flow from Investing is telling us about the cash flow from sales and purchases of long-
term investments like fixed assets that include property, plant, and equipment. Items included in
this section are purchases of vehicles, furniture, buildings, or land. Typically, investing
transactions generate cash outflows, such as capital expenditures for plant, property and
equipment, business acquisitions and the purchase of investment securities. Cash inflows come
from the sale of assets, businesses, and securities. Investors typically monitor capital expenditures
used for the maintenance of, and additions to, a company's physical assets to support the
company's operation and competitiveness. In short, investors can see how a company is investing
in itself. The cash generated from investing activities increased from 1.48 crores in 2017 to 48.08
crores in 2018.

3) Cash flow from financing is telling us about the debt and equity transactions. Any cash flows
that include payment of dividends, the repurchase or sale of stocks, and bonds would be
considered cash flow for financing activities. Cash received from taking out a loan, or cash used
to pay down long-term debt. So, the net cash flow from financing activities decreased from 1419.30
crores in 2017 to 965.25 crores in 2018.

DECISIONS FOR MAKING INVESTMENT IN THE COMPANY

At the end, in the viewpoint of an investor I would like to invest in the JM financials because the
company’s performance in the liquidity, efficiency and profitability ratios have been satisfying
because its performance range varies from moderate to the best; but it has never gone too down
beyond the expectations. Its profitability ratios have never been in negative as compared to
TRANSCORP, which performed well in liquidity & efficiency ratios but has a poor performance
in profitability. Also, I feel that the growth of JM financials will be much better in future as it has
a lot of blooming opportunities.

Apart from all this, from the cash flow statement its quite obvious that the investment activities
for the firm has increased showing that the investors are showing faith in the position of the firm,
so yes as an investor I would surely like try my faith by investing in the JM Financials.

REFERENCES:

https://www.goodreturns.in/company/jm-financial/ratios.html
https://www.goodreturns.in/company/transcorp-international/profile.html

https://www.goodreturns.in/company/tata-investment-corporation/profile.html

http://transcorpint.com/about-us/transcorp-group-page/

https://tatainvestment.com/investment_philosophy.asp

https://www.lawinsider.com/dictionary/

https://www.investopedia.com/investing/5-types-of-earnings-per-share/

https://www.moneycontrol.com/financials/jmfinancial/cash-flowVI/JMF#JMF

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