Forensic Analysis - Financial Soldier Series Part-1 Article-1

Forensic Analysis - Financial Soldier Series Part-1 Article-1

FINANCIAL ANALYSIS BASICS

Preamble

There is a lot of buzz about one most heard world “Financial Analysis” or “Forensic Analysis of financial statement” among students and newcomer professionals. Forensic is a new buzz word which gained lots of attention of everyone in last 7-8 years.

Burning Questions

The various question comes to one’s mind what is financial analysis? How to do the financial analysis? How to interpret financial statement? How to find fraud in the financial statement? How to identify financial misstatement? Etc. Full stop because the list is pretty long.

Well, I will try my best to answer all these burning and mind eating questions which comes to your mind. Trust me Forensic Analysis of financial statement is not a big deal but you need to change only your approach. (Will discuss in detail in coming articles).

Why I titled this series as “Financial Soldier”???

Our journey will start from Basic to Intermediate (not advance because it needs experience which you will gain on your own) i.e. From Financial Analysis to Forensic Analysis. If you are good at financial analysis then half job is done, forensic analysis is not a big deal rather I will say enhanced version. The way, our army protect us, the same way, forensic investigator protects the interest of various stakeholders and uncover or prevent frauds that’s why I call it as the financial soldier whose mission or object is always to find a fraud and save stakeholders.

Starting with the answer

Firstly bear in mind that there is no standard operating procedures or standard formula or defined parameters based on which financial analysis is done. Then you may ask what I am going to discuss with you all, the answer is “the way of financial analysis”. Financial Analysis Outcome is the professional judgment or prudent derived based on experience and analytical skills.

Difference between Statutory Audit and Forensic Audit

Difference between Normal Audit and Forensic Audit is “Audit with Closed Eyes and Audit with Open Eyes” (personal perception from Experience)

In last, let me clear one thing: “I can show you Direction but you have to walk on path”.

So, about SCOPE that I will cover:

Part – 1 Financial Analysis:

1.       What is financial analysis? Usefulness of financial analysis.

2.       Understanding Business and Industry in which company operates

PESTLE Analysis, SWOT Analysis, and Porter’s five forces model

3.       Methods of financial analysis

Horizontal Analysis, Vertical Analysis, Ratio Analysis, Peer Comparison

Part – 2 Forensic Analysis

1.       About Forensic and Financial Misstatement including facts and figures

2.       Z score, M Score, O Score, Benford’s law, Relative Size Factor (RSF) Test etc.

3.       How financials are manipulated i.e. Methodologies followed?

Part – 3 Practical Case Studies

Note: Financial Analysis and Financial Statement Analysis often taken as Synonym to each other which is wrong. Financial Statement Analysis mainly deals with “QUANTITATIVE ANALYSIS” i.e. Analysis of Balance Sheet, Profit-Loss Statement & Cash Flow Statement etc., and qualitative factors are not covered. While Financial Analysis covers a broader scope than financial statement Analysis and includes “QUANTITATIVE AND QUALITATIVE FACTORS” into consideration, for e.g. Changes in Management, Regulatory Changes, Natural events like earthquake etc.

Let’s Begin our journey, I hope it will enlighten your mind and knowledge. Starting with basics of financial analysis i.e. meaning and users of financial analysis. Here we go!!!!!!

Financial Analysis

Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of finance) refers to an assessment of the viability, stability, and profitability of a business, sub-business or project. (Source: Wikipedia)

In layman language, to check the genuineness of business or to know true net-worth of the entity or say to know repayment capability of any person or entity. Financial Analysis deals for Present + Future.

Users of Financial Analysis:

Users of Financial Analysis not only include Shareholders and Lenders but includes all stakeholders like Supplier or Creditor, Customers, Government etc.

1.       Existing or Prospective Investor

-          Based financial analysis one can estimate or predict probable growth of the business which is useful for taking a decision whether it is advisable or not to continue hold shares of the company for existing investors, and for Prospective Investor whether to invest fund or not at this moment.

2.       Management

-          As per my understanding, Management is the biggest user of Financial Analysis. Based on Past and Present information, various crucial decisions are taken for future. Like, Long-term business plans of capacity expansion, Cost reduction decisions, whether to discontinue any product line & Segment or not etc.

3.        Lenders

-          Lenders like banks and financial institutions are interested to understand credit profile of borrower i.e. know future prospectus and repayment capacity of the borrower.

4.        Suppliers or Customers

-          Suppliers are interested to know credit profile, operational efficiency, and payment ability.

-          Customers are interested mainly in Operational efficiency and business continuity etc. This may happen when Customer has significant dependency on the entity for its operations.

5.       Competitors     

-          It is very obvious that Competitors are interested to know business strategies, Cost structure, various product innovations, SWOT analysis etc. of rival and so, performance evaluation can be done in relation to rivals.

6.       Specific Users

-          Like Government may be interested in knowing financial profile changes for a particular period for a specific sector or Industry, so that information can be used to take regulatory changes or tax structure changes etc.

-          Rating Agencies, who are responsible for assigning credit rating to borrower based on analysis of financial information

Be connected to upcoming articles…

Compiled by: Tehsinkhan Pathan (CA, CMA, DISA (ICAI), B.com)

My Blog: http://knowledgekhan.blogspot.in/ 

If you have any suggestion or query or if you want to add something to this scope please let me know through PM or you can reach to me through email – tehsinblog@gmail.com  

Note: No part of this article or any article in series is allowed to be copied and share in public (e.g. on any blog or website) without written prior permission of the author in whatsoever manner and, this article strictly meant for Personal use only, not for commercial purpose.

Downloading Documents of Companies from MCA: Is it Easy???

From various informal talks with my friends, colleagues and various professionals, I came to know about the problems they are facing in downloading documents from MCA. Imagine, if it is difficult for professionals then what about other various stakeholders. I decided to pen down small article since I came across various other tech solutions from third-party companies to download documents from MCA, how they made it easy!!! I will discuss some of the good alternate options to download documents from MCA as per my personal opinions and experience.

Usefulness of Documents – MCA

It is useful for Professionals (CA, CS, CMA), Investor, Lender, Vendor/Supplier or Customer due diligence, Researcher, academicians, prospective job seeker etc. A person can know various quantitative or qualitative information about the company.

For Example:

A vendor can know about financial condition and repayment capability of customer or Customer can know about Vendor’s business size so that can ensure the quality of products.

Investors like private equities can have a full picture of the company. How company evolved over a period of time? Persons behind the company.

A researcher may refer for a particular industry analysis and do research for financial parameters for various companies.

Prospective job seeker before joining the company may get an idea of financial position and prospectus about the company.

A lender may check borrower’s profile to gauge repayment capacity for loans or any other outstanding borrowings details.

MCA Fees for downloading documents

Company

Any person can download documents of any private limited or public limited from MCA (Ministry of Corporate Affairs) by paying nominal fees of ` 100 per company. After successful payment, you have 3 hours to view and download documents from MCA.

LLP

Fees in case of LLP is ` 50 payable to MCA. The same way, here, as well you have 3 hours to view and download documents from MCA

Difficulties faced: Direct downloading documents from MCA

     1.  One document at one click – you can’t download all documents in a single click. For downloading you need to click each and every document.

2.      Captcha for each document – For downloading each and every document, you need to enter Captcha.

3.     Renaming of Document – Story not ended yet! After point 1 & 2, you need to rename documents since downloaded documents are serially named like “ViewDocdownload or fetchV1DocBytes(1).do”. Imagine a scenario, wherein there are 300+ documents.

4.      Infrastructure Cost – You need to have a computer with internet connectivity which will be hijacked when used for downloading by the user. No other task can be performed.

5.     Manpower Cost – It is very obvious that you need a person to run Computer who will download the document, for that time period your manpower will be blocked.

6.   Time-Consuming and Wasting – Since downloading the single document on clicking, it is totally waste of time of your manpower.

Alternate options to download MCA documents:

I came across three option that I have discussed here for documents downloading from MCA. If you are comfortable to incur some more cost above MCA fees, then you should definitely go for it.

First Option: CorpData

Website: https://corpdata.in/

Business Model: Service Provider; they facilitate and offer real-time downloading documents from MCA.

Downloading fees: ` 30 per company + GST as applicable i.e. Presently 18%. Effectively it cost ` 135 per company including MCA Fees of ` 100, or in case of LLP - ` 85 including MCA Fees of ` 50.

Pros and Cons:

Pros:

1.       Real-time downloading and monitoring progress

since they facilitate only downloading, you can see status of documents getting download from MCA on your dashboard.

2.       One click downloading, and Saving in Manpower and Infrastructure cost.

You don’t need to deploy resources for downloading. Just place order and rest till download complete. After download, you will get email from them for download link of a ZIP file containing folder-wise documents and properly renamed.

3.       Most Cost Effective

CorpData is the only player in the industry with very less fraction of cost. It is the most effective option if you don’t want to incur much cost on downloading. You will get two invoices: one for MCA fees and other for CorpData service.

Cons:

1.       Only Downloading

Only downloading service is provided. Facility of premade financial report is not available right now on this portal. 

Downloading Process:

Four step simple process, all you need is CIN of a company you want to download; and follow this process:

(Sourced from their website).

1.       Sign in to your account and select “Place Order”.

2.       Enter CIN along with MCA credentials and proceed to checkout

3.       Make payment via Payment Gateway (We accept Debit/Credit Cards and PayTM)

4.       We download the documents on your behalf and email you on completion

Or

you may refer to one minute video: https://www.youtube.com/watch?v=N5VslNgIK1Y

Second Option: Instafinancials

Website: https://www.instafinancials.com/

Business Model: Reseller; they download on their own and selling the same to ultimate user.

Downloading fees: ` 299 per company + GST as applicable i.e. Presently 18%. Effectively it cost ` 353 per company. MCA fees is already included in above cost.

Various other options other than downloading also available. (discussed in benefits)

Pros and Cons:

Pros:

1.       One click downloading, and Saving in Manpower and Infrastructure cost.

You don’t need to deploy resources for downloading. Just place order and download documents from Instafinancials if readily available. If it is not available, then they may take 1 working day to download.

A ZIP containing all documents or selective document based on your selection will be there.

2.       Premade Financial Report and other reports option also available.

InstaSummary (` 69+tax) providing Company Master data, Financial highlights, Compliance and Rating details etc. Documents not included.

InstaDetailed (` 599+tax) providing all details stated in InstaSummary plus detailed financials. Documents not included.

InstaCombo (` 699+tax) providing all details stated in InstaSummary and InstaDetailed. Documents included.

Cons:

1.       Not Real time downloading if readily not available

Since Instafinancials is reseller then there may be chances you will get report or document in 1 business working day if a particular company you are looking for, is not readily available.

2.       Costly as compared to option - 1

If you want to download say 1 or 2 documents of a particular Company, then it may be much costly. If you don’t need additional features like detailed financials then also not useful.

Downloading Process:

Simple Steps to follow:

1.       Sign in to your account and search for a company. Select type of report to download.

2.       Add to Cart and proceed to checkout

3.       Make payment via Payment Gateway (Debit/Credit Cards and Various Wallet options).

4.       Download documents or reports as the case may be.

Or

you may refer to a video: https://www.youtube.com/watch?v=_PsVGXvTths

Third Option: ZaubaCorp

Website: https://www.zaubacorp.com/ 

Business Model: Reseller; they download on their own and selling the same to the ultimate user.

Downloading fees: ` 499 per company + GST as applicable i.e. Presently 18%. Effectively it cost ` 589 per company. MCA fees is already included in above cost. This also contains financial report.

Pros and Cons:

Pros:

1.       One click downloading, and Saving in Manpower and Infrastructure cost.

You don’t need to deploy resources for downloading. Just place order and download documents from ZaubaCorp if readily available. If it is not readily available, then they may take some time to download.

A ZIP containing all documents or selective document based on your selection will be there.

2.       Premade Financial Report.

With document downloading premade financial report is included containing historical financials and major events, directors, employees etc.

Cons:

1.       Not Real time downloading if readily not available

Since ZaubaCorp like InstaFinancials is also reseller then there may be chances you will get report or document in some time if a particular company you are looking for, is not readily available.

2.       Costly as compared to option - 1

If you want to download say 1 or 2 documents of a particular Company, then it may be much costly. If you don’t need additional features like detailed financials then also not useful. Further downloading single document cost ` 149 each.

Downloading Process:

Simple Steps to follow:

1.       Sign in to your account and search for a company.

2.       Add to Cart and proceed to checkout

3.       Make payment via Payment Gateway (Debit/Credit Cards and Various Wallet options).

4.       Download documents and reports.

The myth about using third-party services:

1.     Security Perspective
Some of my colleagues raised question on security perspective. Remember there is no question of security at all since anyone can download any company from MCA database so that’s not the issue at all.

2.       Multiple Payment option including Wallet

If a person is not comfortable using net banking or credit/debit card, then they provide option for wallet as well. It would be best using wallet like PayTM so you don’t worry about your bank account credentials.

I hope, above information is useful to our professional community at large. Please share this to maximum professionals so that they can also take advantage of this facilities.