Mock 4 — Forensics & sectors¶
Take after: Modules 08 and 09. Time: 2 hours, closed book (calculator allowed). Marks: 100 — Part A 20, Part B 45, Part C 35. Pass: 70.
Rules: show workings. Amounts in ₹ crore unless stated. Round ratios to three decimal places and percentages to one. Mark with the answer key.
Part A — multiple choice (20 × 1 mark; ~20 minutes)¶
A1. In Schilit's taxonomy, booking revenue before the customer has accepted delivery is an example of: (a) shifting future expenses into the current period · (b) recording revenue too soon · (c) boosting income with one-time gains · (d) hiding liabilities
A2. A company's CFO jumps because it sold receivables to a bank without recourse in the last week of the year. The right adjustment is to: (a) ignore it — it is real cash · (b) treat the jump as financing-like and look at CFO before factoring · (c) add the amount to capex · (d) reduce revenue
A3. The "Satyam test" for reported cash compares: (a) cash with market cap · (b) interest income with the average cash balance · (c) cash with debt · (d) cash with dividends
A4. A company capitalises a growing share of its software development costs. Which of the following rises in the short term? (a) operating expenses · (b) CFO and EBITDA · (c) investing cash inflows · (d) the tax rate
A5. An auditor resigning mid-term under LODR must: (a) give no reason · (b) state detailed reasons, which the company must disclose to the exchanges · (c) wait for the AGM · (d) inform only the audit committee
A6. A Beneish M-score above −1.78 means: (a) the company is committing fraud · (b) the company's ratios resemble those of known manipulators, warranting investigation · (c) the company is bankrupt · (d) the stock will fall
A7. Beneish's DSRI rises when: (a) sales grow faster than receivables · (b) receivables grow faster than sales · (c) depreciation slows · (d) debt rises
A8. Altman's Z-score is mainly a screen for: (a) fraud · (b) financial distress · (c) growth · (d) governance
A9. A promoter's shareholding shows 60%, but 45% of it is pledged. The effective unencumbered promoter holding is: (a) 60% · (b) 45% · (c) 33% · (d) 15%
A10. Frequent related-party transactions with unlisted promoter entities are a concern mainly because they: (a) are illegal · (b) create channels to move value out of the listed company · (c) lower tax · (d) raise costs of audit
A11. For a bank, CASA ratio measures: (a) capital adequacy · (b) the share of low-cost current and savings deposits in total deposits · (c) asset quality · (d) the share of retail loans
A12. Provision coverage ratio (PCR) is: (a) provisions ÷ gross NPAs · (b) NPAs ÷ loans · (c) capital ÷ risk-weighted assets · (d) provisions ÷ profit
A13. For an Indian IT services company, constant-currency growth: (a) includes the effect of rupee depreciation · (b) strips out currency movements to show underlying growth · (c) is always lower than reported growth · (d) excludes acquisitions
A14. The single most useful per-unit metric for a cement company is: (a) revenue per employee · (b) EBITDA per tonne · (c) price per share · (d) EBITDA margin only
A15. For a life insurer, value of new business (VNB) margin measures: (a) the solvency ratio · (b) the profitability of the new policies written in the year · (c) claims paid ÷ premiums · (d) investment returns
A16. In pharma, a USFDA "Official Action Indicated" (OAI) status after an inspection primarily risks: (a) domestic sales · (b) approvals and supplies to the US from that plant · (c) the tax rate · (d) dividend payouts
A17. Which metric matters most when analysing a real-estate developer's near-term cash generation? (a) land bank in acres · (b) collections and pre-sales · (c) revenue recognised under Ind AS 115 · (d) the P/E
A18. For telecom operators, ARPU is: (a) average revenue per user · (b) annual revenue per unit of spectrum · (c) assets relative to peers used · (d) an EBITDA measure
A19. For a metals company, the main driver of earnings volatility is usually: (a) employee costs · (b) commodity prices and spreads · (c) depreciation · (d) dividend policy
A20. For an AMC (asset management company), revenue is best modelled as: (a) a share of loans · (b) average AUM × yield (fee rate) · (c) premiums × claims ratio · (d) volume × price per tonne
Part B — problems (45 marks; ~55 minutes)¶
B1. Beneish M-score (12 marks). Godavari Components Ltd (fictional), ₹ Cr:
| Item | Year t−1 | Year t |
|---|---|---|
| Revenue | 800 | 1,000 |
| Cost of goods sold | 520 | 610 |
| Trade receivables | 120 | 210 |
| Current assets | 400 | 560 |
| Net PP&E | 300 | 330 |
| Securities (investments) | 20 | 20 |
| Total assets | 800 | 1,050 |
| Depreciation | 30 | 30 |
| SG&A | 96 | 110 |
| Current liabilities | 180 | 220 |
| Long-term debt | 150 | 230 |
| Net profit (continuing operations) | 80 | 110 |
| Cash from operations | 70 | 40 |
(a) Compute all eight indices. Use the definitions in 09.6, with the depreciation rate = depreciation ÷ (depreciation + net PP&E) and leverage = (current liabilities + long-term debt) ÷ total assets, as Beneish defines them. (b) Compute M and interpret it against −1.78. (c) Which two indices contribute most to the result, and what would you check in the notes for each?
B2. Altman Z and Z″ (8 marks). Narmada Infraprojects Ltd (fictional): total assets ₹5,000 Cr; working capital ₹200 Cr; retained earnings ₹400 Cr; EBIT ₹350 Cr; market capitalisation ₹900 Cr; total liabilities ₹3,900 Cr; revenue ₹2,500 Cr. (a) Compute Z and classify it. (b) Compute Z″ (using book equity) and classify it. (c) Why do the two disagree, and which do you prefer for an infrastructure developer?
B3. Cash-flow games (10 marks). Sindhu Consumer Ltd (fictional) reports CFO of ₹260 Cr, up from ₹120 Cr. Four notes explain most of the jump:
- ₹90 Cr of receivables were sold to a bank without recourse on 27 March.
- A new supplier-finance programme with a bank lengthened payable days from 60 to 95 on annual purchases of ₹1,200 Cr.
- ₹30 Cr of product-development costs were capitalised (nil last year).
- ₹40 Cr of "advances from customers" came from a company owned by the promoter's brother.
(a) Estimate the CFO before these four items. (b) For each item, say how it should be treated in your analysis. (c) Which item worries you most, and why? (09.4)
B4. Sector KPIs (15 marks).
(a) Bank (5). Net interest income ₹4,200 Cr; average interest-earning assets ₹1,20,000 Cr; CASA deposits ₹42,000 Cr of total deposits ₹1,00,000 Cr; gross NPAs ₹2,400 Cr on gross advances ₹80,000 Cr; NPA provisions ₹1,680 Cr. Compute NIM, CASA ratio, GNPA %, PCR and NNPA %.
(b) IT services (3). Reported US-dollar revenue grew 6.0%; the company says cross-currency movements added 1.5 pp. Billed headcount is 72,000 of 90,000 delivery staff. Compute constant-currency growth and utilisation, and say what a utilisation above 85% sustained for several quarters would tell you.
(c) Cement (4). EBITDA ₹1,650 Cr on 15 million tonnes sold; capacity 20 MTPA; EV ₹16,000 Cr. Compute EBITDA per tonne, utilisation and EV per tonne of capacity. If replacement cost is ₹7,500 per tonne, is the stock pricing in value above or below the cost of building new capacity?
(d) Life insurer (3). Annualised premium equivalent (APE) ₹10,000 Cr; VNB ₹2,600 Cr. Compute the VNB margin, and name the one metric you would pair with it to judge value creation over time.
Part C — forensic mini-case: Tapti Infratech (35 marks; ~45 minutes)¶
Tapti Infratech Ltd (fictional) is an EPC contractor building roads and water projects, mostly for state governments. It listed on the NSE in FY20. The stock has risen 4× in three years on "a ₹9,000 Cr order book".
| ₹ Cr | FY22 | FY23 | FY24 | FY25 | FY26 |
|---|---|---|---|---|---|
| Revenue | 900 | 1,150 | 1,480 | 1,900 | 2,450 |
| EBITDA margin | 16.0% | 16.5% | 17.0% | 17.2% | 17.5% |
| PAT | 70 | 95 | 130 | 170 | 225 |
| Cash from operations | 40 | 15 | (30) | 20 | (60) |
| Trade receivables + contract assets | 330 | 480 | 690 | 950 | 1,320 |
| Cash, bank and fixed deposits | 150 | 260 | 420 | 600 | 810 |
| Gross debt | 250 | 380 | 560 | 780 | 1,050 |
| Interest income | 9 | 12 | 14 | 15 | 16 |
| Finance costs | 28 | 40 | 58 | 82 | 112 |
| Contingent liabilities: guarantees for related parties | 60 | 150 | 280 | 420 | 600 |
| Net worth | 600 | 690 | 810 | 970 | 1,180 |
Other facts:
- In FY25 the statutory auditor, a mid-sized firm, resigned mid-term. Its letter cited "inability to obtain sufficient information on balances with related parties". A two-partner firm replaced it.
- Pledged promoter shares rose from 0% to 38% of the promoter holding over FY24–FY26.
- A note to the FY26 accounts says ₹350 Cr of fixed deposits are "under lien for facilities availed by a group company".
- Two subsidiaries in Dubai, set up in FY24, report "trading of construction materials" with the parent as their main customer.
- Management attributes the negative CFO to "delays in state government payments, which are fully recoverable".
Required:
- (8 marks) Compute: EBITDA each year; cumulative PAT, EBITDA and CFO over FY22–FY26; receivable days (on revenue) each year; the yield on average cash (interest income ÷ average cash) and the cost of average debt for FY23–FY26; reported net debt and net debt ÷ equity; contingent liabilities as a percentage of net worth.
- (8 marks) List the six most important red flags in order of severity. For each, give the evidence and the lesson it comes from (09.2, 09.4, 09.5).
- (6 marks) Name four documents or notes you would read next, and what you would look for in each.
- (7 marks) Recompute net debt ÷ equity (a) excluding the lien-marked deposits from cash, and (b) also assuming half of the related-party guarantees crystallise, adding to debt and reducing equity. Compare with the reported figure.
- (6 marks) Management says the receivables are "fully recoverable". Give the strongest honest bull case in two sentences, then your verdict (avoid / watch / investigate further / buy) and the one fact that would change it.