DFX Solutions Inc: A Data-Driven Investment Guide
Profit generation is the basis for establishing a business; they offer a service/commodity in exchange for money. Buying and selling are the transactions that occur in a business. The transaction is recorded, stored, and they are processed. Over time, the data collected from a company can help assess its financial health through Financial Analysis.
Financial Analysis is analysing a company’s financial reports to assist in making well-informed decisions for management and investors. There are three documents that financial analysts use in their work.
- Balance Sheet
- Income Statement
- Cash Flow Statement
Below is a brief explanation of the documents
Balance Statement
A document that tells management and investors the financial worth of the company.
Income Statement
It shows whether a company is making a profit or a loss.
Cash Flow Statement
It provides an overview of how much cash went in and out of the business over a specific period.
Financial Analysis is analysing a company’s financial reports to assist in making well-informed decisions
Business Use Case
This report is for DFX Solutions Inc., which offers data analytics and consulting services. I obtained the necessary documents, which captured records within three years (2021–2023), with 2021 as the base year.
I analysed the Balance, Income, and Cash Flow statements to assess the company’s health. I will share the insights I discovered from each document and give an overall conclusion on the company’s financial position.
My Approach
ChatGPT generated the data. I checked the data to ensure it was fit for use; I found no errors or anomalies. For the analysis, I used Power BI to design the dashboard, allowing users to filter by using the years available; a menu by the left panel will enable users to navigate the report quickly.
I discovered exciting observations from the data after analysing it. I will share them below alongside the designed dashboards.
The first dashboard shows an overview of the company’s profitability. In the finance world, several ratios exist for different purposes. The ratios used in this analysis were concerned with profitability.
The Debt to Asset ratio measures how much debt is needed to finance a company’s assets. At DFX Solutions, this metric has declined YoY — in 2022 by 0.91% and in 2023 by 1.67%; this could be a result of the growth of profit, which the company can use to purchase assets using debt to finance other operational activities.
The Net Income ratio remained unchanged at 32%, revealing that the company maintained a consistent level of profitability. It is an indication that management was able to manage their cost. Revenue and Net income are growing at the same rate.
The Return on Assets (ROA) ratio was constant at 16% throughout the years. It is a good sign that assets generate profit consistently. The management has been making sound investment decisions have been made.
The Gross Profit Margin also maintained the same value at 60%. DFX Solutions has converted a reasonable portion of its Revenue into gross profit by effectively managing its Cost of Goods Sold (COGS). A further implication is that the company maintained its market position.
The Operating Profit Margin also remained unchanged at 40%. It implies that profit is consistently generated from operating income.
The second dashboard gives insights into the company’s balance sheet.
The company’s assets have increased within two years. In 2022 by 10% and 2023 by 20%. The company has been able to generate profit consistently and has made significant investments in its assets, which led to a compounding in its earnings.
The company’s equity grew by 11% in 2022 and 23% in 2023. Due to the firm’s profitability, it is evident that more investors will be willing to invest their money, which is guaranteed an excellent return.
Liabilities climbed higher but not out of control: 6.7% in 2022 and 13.33% in 2023. There was effective utilisation of debts and loans. It is evident because the company’s profits have grown steadily.
The Third dashboard provides a picture of the income statement. Overall, the company has made $16.5M in Revenue and realised a profit of $5.28M within three years. Bar charts were used to show comparisons between line items.
The first chart compares the Net Income and Revenue YoY and shows how much was used as expenses in that fiscal year by subtracting the Net Income from the Revenue.
The second chart compares the YoY Gross Profit and Operating Expenses (OpEx). It also gives details of how much was made as Operating Income (EBIT) by subtracting the Gross Profit from Operating Expenses (OpEx)
The third chart compares the YoY values of the Revenue and Cost of Goods Sold.
The Revenue Forecast chart predicts how much the company will make in Revenue within the next three years (2024–2026). Below are the forecasted values.
2024 — $6.5M
2025 — $7.0M
2026 — $7.5M
The fourth dashboard provides an understanding of the company’s cash flow.
Operating Cash Flow represents the money used in day-to-day transactions. The YoY values increased by $200,000; it is logical that as the company’s profits grew, there was also an increase in the operational activities of the business.
Net Cash Flow defines the amount of money the company has gained over time; the YoY value remains constant, indicating a solid cash base.
Financing Cash Flow represents the amount used to fund its financial operations, e.g. debt servicing, making dividend payments or stock repurchases.
Regardless of the company’s negative financing cash flow, it can signify financial stability, indicating the company has excess cash to return to shareholders or reduce its debt burden. The value for each year is $300,000 in 2021, $400,000, and $500,000.
Investing Cash Flow indicates the amount the company used for investment purposes, e.g. purchasing long-term assets or acquisitions. It (negative numbers) can be a good thing because these investments can offer a good return in the future. The company has negative cash flows from investing activities each year -$500,000 in 2021, -$600,000 in 2022, and -$700,000 in 2023.
Conclusion
As a potential investor, DFX Solutions has an excellent financial position regarding profitability, cost management, and a solid cash base. The company’s YoY performance was outstanding as new records were set, especially in 2023, which was the best financial year of the company in comparison to the previous years.
The company has a good standing in the competitive market and is poised to do well in the future, setting new records along the way. So why look any further? DFX Solutions offers a good ROI!
