BITS PILANI WILP – 2nd SEM – FINANCIAL ANALYTICS
KIRAN KUMAR K V – PRACTICE QUESTIONS WITH SUGGESTED ANSWERS
PRACTICE QUESTION-1
Hindustan Unilever Ltd. is a leading Indian FMCG company specializing in personal care products, home
care, and food & refreshment segments. Below is the common size income statement of the company for the
past 6 years along with the industry average figures.
Common Size Income Statement (% of Revenue)
Particulars
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Industry Average
Revenues
Less: Cost of Goods Sold
Gross Profit
Less: Selling, General &
Administrative Expenses
EBITDA
Less: Depreciation &
Amortization
EBIT (Operating Profit)
Less: Interest Expenses
100
58.3
41.7
100
59.7
40.3
100
61.2
38.8
100
63.8
36.2
100
65.4
34.6
100
62.1
37.9
100
60
40
18.4
19.2
20.5
21.8
20.6
19.2
18
23.3
21.1
18.3
14.4
14
18.7
22
2.1
2.4
2.7
3
3.2
2.9
2.5
21.2
0.6
18.7
0.8
15.6
1.1
11.4
1.4
10.8
1.6
15.8
1.2
19.5
1
EBT (Earnings Before Tax)
20.6
17.9
14.5
10
9.2
14.6
18.5
Less: Taxes
Net Profit (PAT)
5.3
15.3
4.7
13.2
3.9
10.6
2.7
7.3
2.5
6.7
3.8
10.8
5
13.5
Analyze the key trends in profitability over the 6-year period. Also, compare the company's performance with
industry averages and identify areas of strength and concern.
Suggested Answer:
Key Profitability Trends

Gross Profit Declined steadily from 41.7% in FY2019 to 34.6% in FY2023, before recovering to
37.9% in FY2024, but remains below the industry average of 40%.

EBITDA Decreased significantly from 23.3% in FY2019 to 14.0% in FY2023, with a substantial
recovery to 18.7% in FY2024, still below industry average of 22%.

Operating Profit (EBIT) Fell from 21.2% to 10.8%, then rebounded to 15.8%, underperforming the
industry benchmark of 19.5%.

Net Profit Declined from 15.3% to 6.7%, with recent improvement to 10.8%, but lags behind industry
average of 13.5%.

Comparative Analysis

Strengths Recent recovery across all profitability metrics in FY2024; lower interest expense ratio
compared to industry average.

Concerns Consistent underperformance against industry averages; rising cost of goods sold (58.3% to
65.4%); higher SG&A expenses than industry benchmark.
PRACTICE QUESTION-2
Marico Ltd. is an Indian consumer goods company operating in the beauty and wellness space, known for
brands like Parachute, Saffola, and Set Wet. Below is the comparative balance sheet of the company for the
past three financial years along with industry average figures (in ₹ crores).
Comparative Balance Sheet
Particulars
ASSETS
Non-Current Assets
Property, Plant & Equipment
Intangible Assets
Financial Assets
Other Non-Current Assets
Total Non-Current Assets
Current Assets
Inventories
Trade Receivables
Cash & Cash Equivalents
Other Current Assets
Total Current Assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Share Capital
Reserves & Surplus
Total Equity
Non-Current Liabilities
Long-term Borrowings
Deferred Tax Liabilities
Other Non-Current Liabilities
Total Non-Current Liabilities
Current Liabilities
Short-term Borrowings
Trade Payables
Other Current Liabilities
Total Current Liabilities
TOTAL EQUITY AND LIABILITIES
FY 2022
FY 2023
FY 2024 Industry Average
1,245
825
390
275
2,735
1,380
960
435
310
3,085
1,520
1,105
510
365
3,500
25%
15%
8%
6%
54%
940
710
320
295
2,265
5,000
1,125
845
285
325
2,580
5,665
1,240
925
365
370
2,900
6,400
18%
14%
8%
6%
46%
100%
130
2,870
3,000
130
3,170
3,300
130
3,570
3,700
2%
55%
57%
410
215
175
800
490
245
205
940
560
275
240
1,075
9%
4%
3%
16%
340
620
240
1,200
5,000
425
730
270
1,425
5,665
500
810
315
1,625
6,400
7%
13%
7%
27%
100%
Analyze the key trends in Marico's balance sheet over the three-year period. Compare the company's asset and
liability structure with industry averages. Calculate and interpret important financial ratios (current ratio, debtto-equity, asset turnover) based on the data provided. Identify areas of strength and concern in the company's
financial position.
Suggested Answer:
Key Trends




Total Assets Increased by 28% from ₹5,000 crores to ₹6,400 crores over the three-year period, indicating
significant growth.
Asset Composition Non-current assets grew from ₹2,735 crores to ₹3,500 crores (28% increase), while
current assets increased from ₹2,265 crores to ₹2,900 crores (28% increase), maintaining a consistent asset
structure.
Equity Rose from ₹3,000 crores to ₹3,700 crores (23.3% increase), primarily through retained earnings
as share capital remained unchanged.
Liabilities Total liabilities grew from ₹2,000 crores to ₹2,700 crores (35% increase), outpacing equity
growth and indicating increased financial leverage.
Financial Ratios



Current Ratio Declined slightly from 1.89 (FY2022) to 1.81 (FY2023) to 1.78 (FY2024), but remains
healthy above industry norms.
Debt-to-Equity Ratio Increased from 0.25 to 0.29, showing moderate increase in leverage but still below
concerning levels.
Total Debt Ratio Rose from 0.40 to 0.42, indicating a slight increase in the proportion of assets financed
by debt.
Comparative Analysis


Strengths Higher equity proportion (57.8%) compared to industry average (57%); strong current ratio
indicating good liquidity position; consistent asset growth.
Concerns Growing at a faster rate in liabilities (35%) than equity (23.3%); increasing dependence on debt
financing; inventory and receivables growing proportionally faster than sales.
PRACTICE QUESTION-3
Sunray Technologies Ltd. is a growing software development company specializing in enterprise solutions
and cloud services. The company was listed on the Bombay Stock Exchange (BSE) five years ago. Below is
a summary of key financial ratios for Sunray Technologies Ltd. over the past four years, along with industry
average figures.
Financial Ratios (FY 2021-2024)
Ratio
Gross Profit Margin
Net Profit Margin
Return on Assets
Debt-to-Equity Ratio
Receivables Turnover
Dividend Payout Ratio
FY 2021
42.30%
8.90%
6.50%
0.75
5.2 times
15.30%
FY 2022
45.70%
11.20%
8.90%
0.62
6.8 times
18.70%
FY 2023
48.20%
14.50%
12.30%
0.48
7.3 times
22.40%
FY 2024
46.50%
13.80%
11.40%
0.53
6.9 times
25.80%
Industry
47.00%
12.50%
10.20%
0.55
7.5 times
20.00%
Based on the financial ratios provided for Sunray Technologies Ltd., analyze the trends in the company's
performance over the four-year period. Compare the company's performance with industry averages and
identify areas of strength and concern.
Suggested Answer:








Gross Profit Margin Improved from 42.3% to 48.2% (FY2023), before declining to 46.5% in FY2024,
suggesting potential pressure on input costs or pricing in the most recent year.
Net Profit Margin Increased significantly from 8.9% to 14.5% (FY2023), with a slight decrease to 13.8%
in FY2024, still outperforming the industry average.
Return on Assets Showed substantial improvement from 6.5% to 12.3% (FY2023), before dropping to
11.4% in FY2024, remaining above industry average.
Debt-to-Equity Ratio Declined from 0.75 to 0.48 (FY2023), indicating improved financial stability,
before slightly increasing to 0.53 in FY2024.
Receivables Turnover Improved from 5.2 to 7.3 times (FY2023), before decreasing to 6.9 times in
FY2024, suggesting a potential weakening in collection efficiency.
Dividend Payout Ratio Consistently increased from 15.3% to 25.8%, demonstrating growing shareholder
returns.
Strengths Net profit margin and return on assets exceed industry averages; debt-to-equity ratio is slightly
better than industry average; dividend payout ratio is higher than industry norms.
Concerns Recent decline in most profitability metrics (FY2023 to FY2024); receivables turnover below
industry average; slight underperformance in gross profit margin compared to industry standard.
PRACTICE QUESTION-4
Greenfield Renewables Ltd. is an emerging player in the renewable energy sector, specializing in solar
and wind power generation projects. The company completed its initial public offering on the National
Stock Exchange (NSE) three years ago. Below is a summary of key financial ratios for Greenfield
Renewables Ltd. over the past four years, along with industry average figures.
Financial Ratios (FY 2021-2024)
Ratio
EBITDA Margin
Quick Ratio
Fixed Asset Turnover
Operating Cash Flow Ratio
Return on Invested Capital
FY 2021 FY 2022 FY 2023 FY 2024 Industry Average
32.50%
35.80%
39.40%
37.20%
38.00%
0.85
1.05
1.28
1.15
1.2
0.42 times 0.48 times 0.55 times 0.51 times
0.50 times
0.95
1.18
1.36
1.22
1.25
7.80%
9.30%
11.60%
10.50%
10.00%
Based on the financial ratios provided for Greenfield Renewables Ltd., analyze the trends in the company's
performance over the four-year period. Compare the company's performance with industry averages and
identify areas of strength and concern. Provide recommendations for improving the company's overall
financial efficiency and sustainability in the competitive renewable energy market.
Suggested Answer:

EBITDA Margin Improved steadily from 32.5% to 39.4% (FY2023), before declining to 37.2% in
FY2024, indicating strong but recently challenged operational profitability.

Quick Ratio Strengthened from 0.85 to 1.28 (FY2023), then decreased to 1.15 in FY2024, showing
improved but recently weakened short-term liquidity.

Fixed Asset Turnover Increased from 0.42 to 0.55 times (FY2023), before declining to 0.51 times in
FY2024, reflecting improved then slightly diminished efficiency in utilizing capital-intensive assets.

Operating Cash Flow Ratio Rose from 0.95 to 1.36 (FY2023), then fell to 1.22 in FY2024, showing a
pattern of improved then reduced ability to cover current liabilities with operating cash flow.

Return on Invested Capital Climbed from 7.8% to 11.6% (FY2023), before decreasing to 10.5% in
FY2024, suggesting improved then slightly diminished efficiency in allocating capital.

Strengths EBITDA margin slightly below but near industry average; fixed asset turnover slightly above
industry average; return on invested capital exceeds industry benchmark.

Concerns Quick ratio below industry average; operating cash flow ratio slightly below industry standard;
recent downward trend across all metrics from FY2023 to FY2024.
PRACTICE QUESTION-5
As a financial analyst, you need to make recommendations based on reliable data. Explain any three sources
of financial data available to analysts in today's market environment.
Suggested Answer:
ANY THREE OF THE BELOW






Financial Statements & Regulatory Filings
o Income statements, balance sheets, cash flow statements
o SEC filings (10-K, 10-Q, 8-K) for public companies
o Provides official, audited financial information
o Used for fundamental analysis and valuation
Market Data Providers & Terminals
o Bloomberg, Reuters, FactSet, S&P Capital IQ
o Real-time and historical price data, trading volumes
o Company news, analyst estimates, consensus forecasts
o Comprehensive market intelligence and analytics tools
Alternative Data Sources
o Satellite imagery (retail parking lots, shipping activity)
o Social media sentiment analysis
o Consumer spending patterns from credit card data
o Web traffic metrics and app download statistics
Economic Indicators & Government Reports
o GDP growth rates, inflation figures, unemployment data
o Federal Reserve publications and central bank reports
o Census data and industry-specific government statistics
o Provides macroeconomic context for investment decisions
Credit Rating Agencies & Research
o Moody's, S&P, Fitch ratings and analysis
o Bond ratings, default probability assessments
o Industry outlooks and sovereign credit ratings
o Critical for fixed income analysis and credit risk assessment
Industry & Trade Publications
o Sector-specific journals and reports
o Trade association data and forecasts
o Competitive landscape analysis
o Industry benchmarks and performance metrics
o Delivers specialized insights for sector-focused investment strategies
PRACTICE QUESTION-6
You are a financial analyst at HDFC Asset Management tasked with evaluating a potential investment in Tata
Consultancy Services (TCS). The Portfolio Manager needs a comprehensive report that utilizes multiple
sources of financial data to make an informed investment decision. Identify and explain five different sources
of financial data you would use for this investment analysis, and briefly describe how each source would
contribute to your overall assessment of TCS as an investment opportunity.
Suggested Answer:
ANY FIVE OF THE BELOW






Financial Statements & Regulatory Filings
o Income statements, balance sheets, cash flow statements
o SEC filings (10-K, 10-Q, 8-K) for public companies
o Provides official, audited financial information
o Used for fundamental analysis and valuation
Market Data Providers & Terminals
o Bloomberg, Reuters, FactSet, S&P Capital IQ
o Real-time and historical price data, trading volumes
o Company news, analyst estimates, consensus forecasts
o Comprehensive market intelligence and analytics tools
Alternative Data Sources
o Satellite imagery (retail parking lots, shipping activity)
o Social media sentiment analysis
o Consumer spending patterns from credit card data
o Web traffic metrics and app download statistics
Economic Indicators & Government Reports
o GDP growth rates, inflation figures, unemployment data
o Federal Reserve publications and central bank reports
o Census data and industry-specific government statistics
o Provides macroeconomic context for investment decisions
Credit Rating Agencies & Research
o Moody's, S&P, Fitch ratings and analysis
o Bond ratings, default probability assessments
o Industry outlooks and sovereign credit ratings
o Critical for fixed income analysis and credit risk assessment
Industry & Trade Publications
o Sector-specific journals and reports
o Trade association data and forecasts
o Competitive landscape analysis
o Industry benchmarks and performance metrics
o Delivers specialized insights for sector-focused investment strategies
PRACTICE QUESTION-7
As a financial advisor, you need to explain investment performance metrics to your clients. Write a short note
comparing Compound Annual Growth Rate (CAGR) and Arithmetic Mean Return. Explain how each metric
is calculated, their respective usefulness in different contexts, and which situations would call for using one
over the other.
Suggested Answer:
CAGR
CAGR represents the constant annual rate of return needed for an investment to grow from its beginning value
to its ending value over multiple years. It smooths out volatility and provides a single growth rate that reflects
compounding effects.
Formula
CAGR = (Ending Value / Beginning Value)^(1/n) - 1, where n is the number of years
Usefulness
 Measures the geometric progression of investment growth
 Better represents actual investor experience over time
 Accounts for compounding effects
 Ideal for evaluating long-term investments
 More accurate for comparing investments with different time horizons
Arithmetic Mean Return
The arithmetic mean return is the simple average of a series of periodic returns, calculated by summing all
returns and dividing by the number of periods.
Formula
Arithmetic Mean = (R₁ + R₂ + ... + Rₙ) / n, where R represents returns for each period
Usefulness
 Easier to calculate and understand
 Appropriate for measuring performance over single periods
 Useful for analyzing short-term variability in returns
 Better for understanding central tendency of return distribution
 More suitable for statistical analyses like standard deviation calculations
The arithmetic mean will always be higher than or equal to CAGR when there is volatility in returns. The
greater the volatility, the larger the gap between the two metrics. For strategic investment decisions, CAGR
typically provides a more realistic picture of investment performance, while arithmetic mean remains valuable
for statistical analysis.
PRACTICE QUESTION-8
As a portfolio manager, you need to explain risk metrics to your investment committee. Write a short note
comparing Standard Deviation of returns and Beta of a stock's returns. Explain how each metric is calculated,
their respective usefulness in portfolio risk assessment, and which situations would call for using one over the
other.
Suggested Answer:
Standard Deviation of Returns
Standard deviation measures the total volatility or dispersion of returns around the mean return, indicating
how much an investment's returns fluctuate over time.
Formula
σ = √[Σ(R - R̄)²/n], where R is each return, R̄ is the mean return, and n is the number of observations
Usefulness
 Measures total risk (systematic and unsystematic)
 Applicable to any asset class or portfolio
 Expressed in the same units as returns (%)
 Critical for evaluating standalone investment risk
 Used in Sharpe ratio and modern portfolio theory
 Essential for analyzing absolute volatility regardless of market conditions
Beta of a Stock's Returns
Beta measures the sensitivity of an investment's returns relative to a benchmark (typically the market),
indicating systematic or market risk.
Formula
β = Covariance(Asset returns, Market returns) / Variance(Market returns)
Usefulness
 Measures only systematic (market) risk
 Specific to equity investments
 Shows how volatile a stock is relative to the market
 Key input for CAPM and calculating required returns
 Essential for risk-adjusted performance evaluation
 Valuable for portfolio construction and diversification strategies
 Helps predict behavior during market movements (β>1: more volatile than market; β<1: less volatile
than market)
When to Use Each Metric
Standard deviation is preferable when:
 Evaluating standalone investments
 Comparing investments across different asset classes
 Assessing total risk of a portfolio
 Analyzing investments with non-normal return distributions
Beta is preferable when:
 Evaluating stocks relative to market movements
 Building portfolios with specific market exposure targets
 Pricing assets using CAPM
 Hedging against market risk
 Making market-relative investment decisions
Both metrics are complementary and should be used together for comprehensive risk assessment in portfolio
management.
PRACTICE QUESTION-9
You are provided the following data for four mutual funds compared to a market benchmark:
Fund/Index
Dynamic Growth Fund
Value Stability Fund
Balanced Opportunity Fund
Tech Momentum Fund
Market Benchmark
Annual Return
16.80%
14.30%
12.50%
19.20%
13.50%
Beta
1.25
0.85
0.7
1.4
1
Standard
Risk-Free Rate
21.50%
3.75%
15.80%
3.75%
13.20%
3.75%
24.90%
3.75%
17.20%
3.75%
The respective Treynor ratios for these funds are:
 For Dynamic Growth Fund: (16.80% - 3.75%) ÷ 1.25 = 10.44%
 For Value Stability Fund: (14.30% - 3.75%) ÷ 0.85 = 12.41%
 For Balanced Opportunity Fund: (12.50% - 3.75%) ÷ 0.70 = 12.50%
 For Tech Momentum Fund: (19.20% - 3.75%) ÷ 1.40 = 11.04%
 For Market Benchmark: (13.50% - 3.75%) ÷ 1.00 = 9.75%
Explain the Treynor ratio and its significance in evaluating fund performance. Based on the calculated Treynor
ratios, which fund demonstrates the best risk-adjusted performance?
Suggested Answer:
Treynor Ratio


Measures excess return per unit of systematic risk (beta)
Evaluates risk-adjusted performance focusing only on non-diversifiable risk
Formula - (Fund Return - Risk-Free Rate) ÷ Beta
Evaluation of Funds





Balanced Opportunity Fund: Highest Treynor ratio (12.50%)
Value Stability Fund: Second-highest (12.41%)
Tech Momentum Fund: Third (11.04%)
Dynamic Growth Fund: Fourth (10.44%)
Market Benchmark: Lowest (9.75%)
Analysis





Balanced Opportunity Fund demonstrates the best risk-adjusted performance
Generates 12.50% excess return per unit of systematic risk
Despite lowest absolute return (12.50%), most efficient at generating returns relative to market risk
Lower beta (0.70) indicates defensive positioning while maintaining competitive returns
All funds outperform the market benchmark on a risk-adjusted basis
Implications



Higher Treynor ratios indicate more efficient use of market risk exposure
Particularly valuable for evaluating funds as components of larger portfolios
Demonstrates importance of risk-adjusted metrics over absolute returns alone
PRACTICE QUESTION-10
You are provided the following data for four sector-focused ETFs compared to a broad market ETF.
ETF/Index
Healthcare Sector ETF
Financial Sector ETF
Technology Sector ETF
Consumer Staples ETF
Broad Market ETF
Annual Return
Standard Deviation
15.20%
18.40%
13.90%
20.70%
21.50%
26.30%
11.70%
11.90%
13.20%
16.50%
Risk-Free Rate
2.80%
2.80%
2.80%
2.80%
2.80%
The respective Sharpe ratios for these ETFs are:





For Healthcare Sector ETF: (15.20% - 2.80%) ÷ 18.40% = 0.67
For Financial Sector ETF: (13.90% - 2.80%) ÷ 20.70% = 0.54
For Technology Sector ETF: (21.50% - 2.80%) ÷ 26.30% = 0.71
For Consumer Staples ETF: (11.70% - 2.80%) ÷ 11.90% = 0.75
For Broad Market ETF: (13.20% - 2.80%) ÷ 16.50% = 0.63
Explain the Sharpe ratio and its significance in evaluating investment performance. Based on the calculated
Sharpe ratios, which ETF demonstrates the best risk-adjusted performance? If an investor is particularly
concerned about downside risk, would the Sharpe ratio still be the most appropriate metric to use? Explain
your answer.
Suggested Answer:
Sharpe Ratio
 Measures excess return per unit of total risk (standard deviation)
 Evaluates risk-adjusted performance considering all volatility
 Higher values indicate better risk-adjusted returns
Formula  (Investment Return - Risk-Free Rate) ÷ Standard Deviation
Evaluation of ETFs
 Consumer Staples ETF: Highest Sharpe ratio (0.75)
 Technology Sector ETF: Second-highest (0.71)
 Healthcare Sector ETF: Third (0.67)
 Broad Market ETF: Fourth (0.63)
 Financial Sector ETF: Lowest (0.54)
Analysis
 Consumer Staples ETF demonstrates the best risk-adjusted performance
 Despite lowest absolute return (11.70%), most efficient at generating returns relative to total risk
 Significantly lower volatility (11.90%) creates superior risk efficiency
 Technology ETF shows highest absolute returns (21.50%) but higher volatility reduces efficiency
Implications
 Conservative investors might prefer Consumer Staples ETF despite lower returns
 Growth-oriented investors might accept Technology ETF's lower efficiency for higher returns
 Comprehensive risk assessment requires multiple metrics beyond Sharpe ratio
PRACTICE QUESTION-11
You are provided the images of a Python code snippet for retrieving stock market data and a resulting pair plot
(scatter plot matrix) comparing the NIFTY Index (^NSEI) and Reliance Industries Limited (RELIANCE.NS)
for the year 2023.
Explain what a pair plot, its purpose and usefulness in analyzing securities. Based on the pair plot shown in
Image 2, provide an analysis of the relationship between the NIFTY Index and Reliance Industries stock during
2023.
Suggested Answer:
A pair plot is a matrix-style visualization that displays relationships between multiple variables
simultaneously, combining scatter plots for correlations and histograms for individual distributions.
In financial analysis, it serves as a powerful tool for examining correlations between securities, identifying
distribution patterns, detecting outliers, and assessing potential diversification benefits or risks in a portfolio.
The pair plot between NIFTY Index and Reliance Industries reveals a strong positive correlation during 2023,
indicating that both securities moved in similar directions.
Reliance stock prices show a multimodal distribution centered around ₹2300-2500, while NIFTY shows
multiple peaks around 19000-20000.
This strong correlation suggests limited diversification benefits when holding both securities and indicates
that Reliance likely has a beta close to 1 relative to the broader market index.
PRACTICE QUESTION-12
You are provided the images of a Python code snippet for retrieving NIFTY Index data and a resulting
histogram showing the distribution of closing prices for the year 2023.
Explain what a distribution plot (histogram), its purpose and usefulness in analyzing securities. Based on the
histogram shown in Image 2, provide a detailed analysis of the NIFTY Index price distribution during 2023.
Suggested Answer:
A distribution plot or histogram is a statistical visualization that displays the frequency distribution of a dataset,
dividing the data into bins and showing the count or density of observations in each bin.
In financial analysis, histograms are valuable for understanding price distributions, identifying market
regimes, assessing volatility patterns, detecting outliers, and evaluating the normality assumption for risk
models.
They reveal the complete distribution rather than just summary statistics, helping analysts understand where
prices most frequently traded and potential support/resistance levels.
The NIFTY Index histogram for 2023 reveals a bimodal distribution with two distinct peaks - one around
18,000 and a larger peak near 19,500-20,000.
This suggests the index traded in two primary price ranges during the year, potentially indicating a market
regime shift.
The distribution shows limited observations above 21,000, indicating these were relatively rare price levels in
2023.
The histogram also shows a positive skew with a longer right tail, suggesting the index experienced more
upside outlier days than downside ones, consistent with the generally bullish Indian market in 2023.