Consider the following extract from EFG Inc.’s financial statements over 5 years

	2016	2017	2018	2019	2020
Revenues	10,500	12,000	14,000	16,000	18,000
Operating Income	400	470	390	350	365
Gain on sale of Investment	-	-	105	158	170
Writeback of depreciation	-	-	40	60	20
Other Income	10	20	40	80	140
Property, Plant & Equipment/ Total Assets	25%	30%	32%	38%	46%
License fees incurred for use of Infrastructure	3000	3,800	2,800	2,600	2,700
Accounts Receivable	1,000	1,100	1,500	3,950	7,000
Accounts Receivable turnover	5	6	5	3	3
Cash flow from operations	350	390	100	-60	140
Income tax before interest and Taxes	455	500	585	648	752

 

EFG has presented that its income before interest and taxes has increased steadily year on-year, and it is a financially strong company. As an analyst, you have been asked to evaluate this assertion and report if there are red flags with the quality of its reporting.

Analyse the data and provide your insight under the following categories

1. Impact of non-recurring and non-operating items
2. Impact of cost and revenue recognition policies

In your analysis, briefly discuss the principals involved in analysing the two categories.

Further, describe the financial trends and ratios you have considered, and the possible conclusions you can derive from the same to support your analysis.

Answer rating: 100% (QA)

1 Impact of non recurring and non operating items Non recurring and non operating items refer to items that do not occur regularly and are not related ... View the full answer