Goodwill Finance Q4 2024/25: Struggling Revenue and Profitability Amidst Challenging Market Conditions

Total Revenue

The total revenue of the company has shown a substantial decline across the periods, with a year-over-year decrease of 46.53% in Q4 2024/25. The total revenue stood at Rs. 1,106,971.33 thousand in Q4, significantly lower than the Rs. 1,536,003.65 thousand reported in Q4 of the previous year. This downward trend reflects a period of lower demand, adverse economic conditions, or reduced sales volumes. On a quarter-over-quarter basis, the revenue dropped by 24.78% from Q3 to Q4 of 2024/25. A similar decrease is observed from Rs. 882,860.68 thousand in Q3 to Rs. 1,106,971.33 thousand in Q4. This shows that the company may have faced operational or market challenges that impacted its revenue generation, possibly stemming from lower sales or a reduction in service uptake.

Gross Profit

The gross profit showed a decline as well, decreasing by 17.77% in Q4 2024/25 compared to the same quarter last year. The gross profit for Q4 stood at Rs. 196,760.63 thousand, significantly lower than the Rs. 318,595.44 thousandreported in Q4 of 2023/24. This suggests a decrease in the company's ability to manage its cost of goods sold (COGS), which may have been driven by rising production or operational costs. Gross profit margins, however, remained relatively stable around 17.77% in Q4, though this is a drop from 20.74% in the previous year's Q4, indicating that the company’s cost structure has become slightly less efficient.

Net Income

The net income also experienced a sharp reduction, with a 94.54% drop from Q4 of 2023/24, falling from Rs. 148,429.28 thousand to Rs. 5,119.39 thousand in Q4 of 2024/25. This drastic fall in net income can be attributed to several factors, such as declining revenues, increased operating expenses, or potential one-time losses. The net margin also decreased, from 9.66% in Q4 2023/24 to a mere 0.46% in Q4 2024/25. This highlights the company’s struggle to convert its revenue into profit, indicating significant cost pressures or inefficiencies.

Return on Assets (ROA) and Return on Equity (ROE)

The Return on Assets (ROA) in Q4 2024/25 was 0.03%, a considerable drop from 0.99% in Q4 2023/24. This reflects a low level of asset utilization, suggesting that the company might not be efficiently utilizing its assets to generate earnings. Similarly, the Return on Equity (ROE) showed a significant decline from 7.80% in the previous year's Q4 to 0.28% in Q4 2024/25. This decrease is concerning as it implies that the company is generating very little return for its equity investors, signaling inefficiency in capital utilization and a reduced ability to generate profits relative to shareholder equity.

Earnings Per Share (EPS) and Price-to-Earnings Ratio (P/E)

The Earnings Per Share (EPS) fell from Rs. 15.69 in Q4 2023/24 to Rs. 0.54 in Q4 2024/25, reflecting a massive decrease in profitability. This sharp reduction in EPS aligns with the overall decline in net income, and it indicates that the company is facing severe challenges in generating earnings for its shareholders. The Price-to-Earnings (P/E) ratio in Q4 2024/25 is extremely high at 1,320.23, up from 39.97 in Q4 of the previous year. This extraordinary increase in the P/E ratio suggests that the stock is overpriced relative to the company’s earnings, possibly due to investor speculation or a market overreaction.

Book Value and Market Value per Share

The Book Value per Share increased slightly from Rs. 187.72 in Q4 2023/24 to Rs. 197.14 in Q4 2024/25, indicating a marginal increase in the net worth per share. However, the Market Value per Share rose significantly, from Rs. 627.00in Q4 2023/24 to Rs. 714.37 in Q4 2024/25. Despite the rise in market value, the gap between market value and book value remains quite large, reflecting market optimism despite underlying financial struggles.

Capital Fund to Risk-Weighted Assets (RWA)

The Capital Fund to Risk-Weighted Assets (RWA) ratio stands at 14.38% in Q4 2024/25, up from 12.77% in Q4 2023/24. This indicates an improvement in the company’s capital adequacy, suggesting that it is in a better position to absorb potential losses, though the rise is modest.

Non-Performing Loan (NPL) Ratio

The Non-Performing Loan (NPL) to Total Loan ratio has increased from 4.89% in Q4 2023/24 to 5.76% in Q4 2024/25. This reflects an increase in the number of loans that are unlikely to be repaid, indicating a higher risk for the company’s loan portfolio. This increase in NPLs may be due to a deterioration in loan quality, which could result from economic challenges or poor lending practices.

Cost of Funds and Credit Deposit Ratio

The Cost of Funds decreased from 8.13% in Q4 2023/24 to 6.12% in Q4 2024/25, indicating improved efficiency in managing borrowing costs. On the other hand, the Credit Deposit Ratio, calculated according to NRB guidelines, improved slightly from 69.78% in Q4 2023/24 to 72.27% in Q4 2024/25, indicating that the company is increasing its loan book relative to deposits, which can be a sign of stronger lending activity.

Base Rate and Net Interest Spread

The Base Rate has decreased from 10.35% in Q4 2023/24 to 8.23% in Q4 2024/25, reflecting a more favorable interest rate environment. However, the Net Interest Spread, which measures the difference between the interest earned on loans and the interest paid on deposits, has decreased slightly from 4.59% in Q4 2023/24 to 4.20% in Q4 2024/25. This decrease suggests that the company’s interest income is under pressure, possibly due to declining lending rates or increased funding costs.

Net Liquid Assets

The Net Liquid Asset ratio has improved from 29.88% in Q4 2023/24 to 33.47% in Q4 2024/25, indicating that the company is maintaining a higher level of liquidity, which is crucial for covering short-term obligations. This increase in liquidity could be a strategic move to manage potential financial challenges or capitalize on opportunities in a volatile market.