Financial Analysis Management & Enterprise

Introduction

Financial Analysis and management relates to procedures contributes in evaluation and detailed assessment of fiscal and operating performance of a corporation take momentous  and reliable business or financial decisions. This system lets investors and shareholders to  make logical decisions related to investment made in securities and shares of a company. The study's main goal is to provide an explanation about how financial data can be analysed through various financial elements of company (Blum and Dacorogna, 2014). In this study, financial recommendations are provided to beer-manufacturer company related to which corporation either Farsons or Heineken is better, for supply of their beer and other beverage products. In this study, a horizontal, vertical and ratio analysis is carried out against both firms. A cash flow evaluation is also carried out in this study along with working capital to offer valid suggestions for beer manufacturer.

Overview of Companies:

Simonds Farsons Cisk plc:

It is leading food and beverage corporation which is engaged in operations related to brewing, producing or manufacturing, selling of beers brands and other beverages and soft-drinks. Company is public limited corporation and company's securities are listed and trading in Malta's stock and securities exchange. Corporation was formed in year 1928 and has grown rapidly since then, due to which company has a trustworthy business image and unique brand value (About Farsons. 2019).

Heineken

Company is beer manufacturer that operates throughout the globe and engaged in  operations like production, brewing, marketing, distribution and sale of beer and ciders. Company has huge marketing-channel and network due to company's sales are much greater than its core competitors. Company also launching innovative drinks and beer flavours time-to-time, having a wider range of beer brands (About Heiniken. 2019).

Evaluation Of Overall Financial Performance And Financial Position Of Heiniken And Farsons

Vertical analysis of the financial statements:

Vertical analysis is a method of evaluating the financial reports by taking one component of financial statement as a basic factor (generally total revenue) and then contrasting other factors with this in order to determine how other factors influence an organization's revenues (El Kasmioui and Ceulemans, 2012). In given case, vertical analysis has been done with respect to both corporation's annual financial statements of 4years form year 2015 to year 2018 which are attached in appendices, based on this data following is analysis of vertical FS of companies, as follows:

Vertical analysis of Income Statement:

Simonds Farsons Cisk plc:

Sales figures are taken as base for whole analysis. It has been analysed from vertical P&L of company that while sales of company Farsons is 100 percent then cost of sales are 63.29 percent in year2015, 61.18percent in year 2016, 61.36percent in year-2017 and 61.05percent in year-2018. The purpose of such a vertical review is to decide whether Farsons Plc is able to pay-off their distributors promptly to recommend the beer-manufacturer. Above decline in cost of revenue percent indicates that company's operating effectiveness has been  increased over this period. Company's gross-margin percentages was 38.95 percent in 2018 which was 38.64percent, 38.82percent and 37.97percent respectively in year-2017, 2016 and 2015. While net-profit margins were 10.13percent, 12.94percent, 13.64percent and 14.74percent continuously in year-2015, 2016, 2017 and 2018 (Annual Report of Farsons. 2019). Overall trends shows that company's gross-margin and net-profit margins have been increased over the period 2015 to 2018.

Company Heineken:

Vertical P&L of company Heineken exhibits that cost of sales of company are 47.25percent, 46.61percent, 46.23percent and 48.71percent of aggregate sales amount respectively in year-2015,2016,2017 and 2018. In year 2018, company's cost of revenue has been improved which indicate that company's operating efficiency has been decreased. Gross profit percentages are 52.75percent, 53.39percent, 53.77percent and 51.29percent respectively in year-2015, 2016,2017 and 2018. Trends gross profit percent shows that also in year 2018 company's gross-margin has been dropped due to increased cost of sales. While Net profit proportion company was 4.67percent in year 2015 which was dropped to 4.28% with ups and down. In 2016 net-profit was 3.75% while in year 2017 it was reached to 4.46percent. Aggregate changes in NP percentage shows that company after 2017, corporation's net-profit generation capacity has been declined (Annual Report of Heiniken. 2019).

Vertical analysis of Balance Sheet:

Simonds Farsons-Cisk plc:

Simonds vertical BS's analysis reflects that company's overall long -term debts and liabilities level in total assets terms has been reached to 77.16% in year-2018 with a decrease from 81.42percent in year-2017. On other-side current-assets balances shown increase from  18.58percent in year-2017 to 22.22percent in year-2018 while in 2015-2016 it was 21.48percent & 20.25percent.

Level of SH's equity funds was around 67.11-percent of assets in year-2015 that was shifted to 66.87-percent, 67.21-percent and 59.88-percent correspondingly in year-2016,2017 and 2018. Whereas sum of all liabilities was just 20.37-percent in year-2018 that were 32.79-percent, 32.52-percent and 32.89-percent respectively in year-2015,2016 and 2017 (Annual Report of Farsons. 2019).

Company Heineken:

Taking total assets amount as baseline, vertical analysis of company's balance sheet exhibits that aggregate non-current assets including tangible and intangible assets are 84.32 percent, 79.31 percent, 79.90 percent and 78.38 percent during period of year-2015 to year-2018 respectively reflecting a declining trend in figures. Cash and liquid funds of company are 6.92 percent of entire assets in year-2018 which was 5.95 percent, 7.72 percent and 2.23 percent in year-2017, 2016 and 2015 correspondingly which points out that company's cash funds are decreased after 2016. On other-hand current assets of corporation are 21.62 percent in year 2018, 20.10percent in year-2017, 20.69percent in year-2016 and 15.68percent in year-2015 indicating overall improvement in current asset level in company.

Shareholder's equity funds has covered 17.06percent part in company's entire assets  in year-2018v while in year-2017, 2016 and 2015 it was  16.16 percent, 16.78 percent and 17.90 percent respectively. Enterprise's current liabilities level was drooped from 26.44-percent to 24.91-percent in period 2016-2018. Further non-current liabilities level has been declined  to 58.03% in year-2018 form 59.52percent in year-2015.

Horizontal Analysis of Financial Statements:

Horizontal analysis implies to systematic technique utilized for effective evaluation of  financial information where previous or just recent period is considered as base-line and thereafter each element and item reported in financial-statements are compared with figures stated in baseline period (Eng, Lea, and Cai, 2014). Core objective of a horizontal analysis is assessment of true growth either negative or positive and variance in performance of corporation based on each item's variance.

Horizontal analysis of Income-statements:

Simonds Farsons Cisk plc:

Company's horizontal income-statement shows that in 2018 increment in revenue was 7.95 percent while this increase in 2017 and 2016 was just 3.53% and 7.59% respectively. It shows that company's sales generating efficiencies has been grown. Along with increase company's cost of sales has been increase by almost same percentage of 7.41% in year 2018. While company's gross-profits are reported an increment of 8.82% in year-2018 which was 10-percent and 3.03-percent in year-2016 and 2017. Increment in Net-profits was 16.67% in year-2018 which was 37.50-percent in year-2016 while in year-2017 it was only increased by 9.09-percent which reflects that net-profitability position of corporation has been enhanced after year-2017. Entire analysis represents that company's profitability position has been increased.

Company Heineken:

Horizontal analysis of Heinkeken shows that company's turnover has been grown by 2.66% in year 2018 while in year-2016 and 2017 such growth was around 1.37percent and around 5.27-percent. Company's cost of sales has reported a growth of 0.01percent, 4.40-percent and 8.18-percent during year-2016, 2017 and 2018. Growth in gross profits has been reached to negative 2.08 percent in year-2018 while in 2016 and 2017 there was increase of 2.59-percent and 6.04-percent. Company's net-income figures has shown a negative growth of 1.64 percent and 18.60-percent in year-2018 and 2016 only a positive growth of 25.42-percent in year-2018.        Overall performance growth in term of profitability of company is not so much good as there are negative growth in gross as well as net profits' figures.

Horizontal analysis of Balance Sheet:

Simonds Farsons Cisk plc:

Horizontal BS of Simonds shows that shareholder's equity-funds balance has been achieved a negative growth of 21.14% in year-2018 while increment in year-2017 and 2016 was 12.84-percent and 9-percent respectively reflecting a overall declining trend. While long-term debts funds also declined by around 2.86-percent in year-2018 that was increased by 20.69-percent in year-2017 and declined by 3.33% in year-2016. Current or short-run liabilities of company has been grown by 33.33-percent in year-2018 and 2016 but in 2017 there was no fluctuation.

Level of current assets has been achieved a 5.88-percent in year-2018, that growth in 2017 and 2016 was 3.03-percent and 3.13-percent, indicating a upward trend in current-assets' level. Non-current assets reported negative growth of 77.16-percent in year-2018 while increment in non-current assets in year-2016 and 2017 was 10.26-percent and 15.50-percent. Cash balance of company has been attained 300% growth in year-2018 while there as negative growth in cash-funds of 60 and 50 percent in year-2016 and 2017. Overall assets of Simonds declined by around 11.48-percent in year-2018 while there was increase of 12.27-percent and 9.4percent in year-2016 and 2017.

Company Heineken:

Analyzing Horizontal BS of Heiniken provides that company's equity funds raised by 7.91-percent in year 2018 while changes in equity funds were -2.25 % and 0.53 % respectively in year-2016 and 2017. Long-term debt funds just grown by around 1.69-percent during year-2018 that was reported increments of -0.54 percent and 7.24percent in year-2016 and 2017. Current liabilities level in company has reported minor negative growth of 0.08-percent that was enhanced by around 0.59-percent and 22.09-percent in year-2017 and 2016.

Cumulative cash and equivalent figures has been grown by around 268.33-percent in year-2016 that was declined in year-2017 by 19.54-percent and ultimately increased by 18.88-percent in year-2017. Current assets in company achieved a growth of 37.59-percent, 1.36-percent and 9.97-percent correspondingly in year-2016, 2017 and 2018. On other-side non-current ( both tangible and tangle) assets are shown a minor growth of around 0.31-percent in year-2018, this growth rate in year-2017 was 5.14% and 1.94% in year-2016.

Ratio analysis of the financial statements:

Ratio analysis is way to gain insight into the corporation's operating efficiency and solvency. This helps in decision-making process so that the interested parties and prospective customers can make a quantified financial decision. Even in this case, ratio analysis technique is important as vertical analysis performed above represents company's efficiency outputs and horizontal analysis suggests the performance effectiveness factors of both selected corporation (Isberg and Pitta, 2013). In this situation, ratio analysis is conducted to examine both firms' liquidity, profit making efficiency and solvency, so that a systematic decision can be made that could support the beer's future potential suppliers.

Profitability Analysis:

It simply reflects corporation's profitability making capacities. Through gross-margin ratio and net-profit ratio of companies their profitability position can be easily determined (Palepu and Healy, 2013). Following are the ratios of both respective corporation in this context, as follows:

Net-profit Ratio

Net Margin

2015

2016

2017

2018

Farsons

10.11%

13.22%

13.77%

14.49%

Heineken

4.67%

3.75%

4.46%

4.28%

Net profit ratio is crucial profitability measure that represents enterprise's profit earning capacity after providing overall expenses. Company Farsons reported net-profit ratio in percent are 14.49, 13.77, 13.22 and 10.11 in year-2018,2017,2016 and 2015 reflecting a upward trend. While Heiniken's net-profit ratio percent during the same years are 4.28, 4.46, 3.75 and 4.67 respectively which shows that in 2016 and 2018 net-profit rate has been dropped. It means that company's net profitability level has been decreased. Farsons's profitability level and growth is higher than Heineken.

Gross Profit

Gross Margin

2015

2016

2017

2018

 

Farsons

37.97%

38.82%

38.64%

38.95%

 

Heineken

52.75%

53.39%

53.77%

51.29%

Gross profit rate or ratio of a company represents that company's operational effectiveness as here in this gross profit is considered which is profits though company's core business operations (O'Donnell, Kramar and Dyball, 2013). Here above table and graph shows that Heineken's gorss margin percent i.e. 51.29-percent is higher than Farsons's gross-margin rate i.e. 38.95-percent in year-2018. Farsons's gross-margin percent are 37.97, 38.82, 38.64 and 38.95 in year-2015, 2016,2017 and 2018. Which indicates a upward growth in gross-margin. While during same period gross-margin percentages of Heineken were 52.75, 53.39, 53.77 and 51.29 that shows decrement in gross-margin rate in year 2018. It implies that company's efficiencies to generate profits form core operations has been declined.

Current Ratio:

Current Ratio

2015

2016

2017

2018

 

Farsons

1.72

1.39

1.39

1.12

 

Heineken

0.69

0.78

0.79

0.87

A company's current ratio actually reflects company's short-term current liquidity position. It reflects relationship among current assets level and current liabilities level in corm pay. It shows efficiency of company to make payment of its all short-term debts and obligation during a specific time-frame (Post and Byron, 2015). Normally 2:1 is regarded as most appropriate and effective level of current ratio below this represents adverse liquidity position.  Above graph displays that Heiniken has reported current-ratio of 0.69,0.78, 0.79 and 0.87 in year-2015, 2016,2017and 2018 whereas Farsons's overall current ratio Current Ratio has been dropped down to 1.12 in year-2015 from 1.72 in year-2018. Both companies' reported current ratios are below the specified criteria but comparative evaluation shows that Farsons's position in liquidity in much better than company Heiniken.

Evaluation Of The Working Capital

Working capital is sum that an organization preserves to efficiently perform the corporation's regular processes. It is a fiscal metric that helps to determine the business's liquidity stance. It is necessary to assess and evaluate both firms ' working capital because it can help the beer producer recognize which corporation is more stable and able of sufficiently paying off the provider's or supplies dues (Sheikhi, Ranjbar and Oraee, 2012). In this scenario, two beer manufacturing firms, Heineken and Farsons Plc, are listed and their net-working capital figures are carried out below:

 

Farsons

Heineken

(EUR in Million)

2015

2016

2017

2018

2015

2016

2017

2018

Current Assets

32

33

34

36

5914

8137

8248

9070

Current Liabilities

18

24

24

32

8516

10397

10458

10450

Working Capital

14

9

10

4

-2602

-2260

-2210

-1380

Farsons

Above tables exhibits that Farsons's current assets (EUR in million) are: 36428, 33682, 33407 and 32597 in year-2018,2017, 2016 and 2015 reflecting an overall increments in current assets while company's current liabilities (EUR in million) have been reached to 32444 which was in year 2015 of 19299. Resulted working capital of company are around 14, 9, 10 and 4 million in year-2015, 2016,2017 and 2018 respectively pointing towards declining trend in company's working-capital level.

Heineken

Company's current assets have been increased from 5914 million to 9070 million during 2015 to 2018. On other side company's current-liabilities have been increased from 8516 million in year 2015 to 10450million in year 2018 although in this year company's current liabilities has been declined by around 8 million. Applying these figures computed net working-capital of company is negative in all years which are: -1380, -2210, -2260 and -2602million in year 2018,2017 , 2016 and 2015 correspondingly.     

Both companies' comparison reflects that Farosns has reported positive and increased working capital figures while Heineken has reported negative figures of working capital which indicates that company has shortage of funds to operate routine business processes. Thus Farsons is more efficient as per evaluation of working-capital position.       

Evaluation Of The Cash Flow

A cash flow report or statement is crucial document which provides details about net in and out flow cash or monies in an enterprise. A cash-flow is prepared by companies by classifying business tasks into financing, operating and investments (Vogel, 2014). Through aggregation of  these all activities' cash flows company's net free-cash-flows are determined. Analysis of cash-flows is significant to assess adequacy of liquid cash-funds in company to operate business activities. It also aid in controlling overall cash spending and receipts within corporation.

Heiniken:

Corporation's cash-flows generated by operational activities are 3489, 3718, 3882  and 4388 in 2015,2016,2017 and 2018 (figure are in million) respectively. While overall net outflows of corporation by its all investment tasks from 2015 to 2018 are: 2064, 2,007, 2965 and 2355-million respectively. Through financing operations company's cash-flows are 1173million, 672, 966 and 967-million  respectively during period 2015-2018. By summarizing all cash in-out flows from different activities net-free cash-flows are: 1759, 1,852, 2,049and 2,333 million in year-2015,2016, 2017 and 2018 correspondingly and indicating up ward or increasing trend. Throughout the entire period business has reported positive balance of free-cash-flow it means company's liquidity situation in sound and efficient to pay all short-term liabilities.

Farsons:

Cash-flows generated by company Farsons are around 16, 16, 13 and 21million during 2015 to 2018 respectively, reflecting increment in cash generation capacity of company. Where as though investing task company has made outflows of 7, 18, 20 and 21 million during 2015,2016,2017 and 2018 year respectively. Corporation's financing operation have lead to cash-flows of -4, -2, 4 and -1 millions through year-2015, 2016,2017 and 2018 respectively. Overall net cash-flows in business after considering all activities are 9, -1, -6 and 7million during year-2015,2016, 2017 and2018 respectively. These reported figures shows that during after period of 2016, in business cash-flows goes negative which are further improved in 2018. A negative cash-flows figure reflecting that corporation is not so much efficient to generate cash from business and paying-off its obligations (Lee and et.al., 2018).

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Comparison of both companies cash-flows evaluation exhibits that Heiniken's liquidity and operational performance is more adequate as compare to another corporation Farsons. As in Heiniken company has positive-cash flow balance throughout the entire period while Farosns negative free-cash-flows shows that company is not financially strong and unable to make all payments of its short-term dues.

Conclusion

It has been inferred from above study that financial analysis is method of reviewing income statement, balance sheet and cash flow statement so that company's financial condition could be assessed in a sector. Financial analysis also act as crucial aspect of financial decision-making processes. Though above financial analysis in context of Farsons and Heineken Plc., it has been evaluated that company Farsons Plc., is much finer and effective organization so company can be selected as supplier for beer manufacture company.

References

  • Blum, P. and Dacorogna, M., 2014. DFA‐Dynamic Financial Analysis. Wiley StatsRef: Statistics Reference Online.
  • El Kasmioui, O. and Ceulemans, R., 2012. Financial analysis of the cultivation of poplar and willow for bioenergy. Biomass and bioenergy, 43, pp.52-64.
  • Eng, L. L., Lea, B. R. and Cai, R., 2014. Use of clickers for assurance of learning in introductory financial accounting. In Advances in Accounting Education: Teaching and Curriculum Innovations (pp. 269-291). Emerald Group Publishing Limited.
  • Isberg, S. and Pitta, D., 2013. Using financial analysis to assess brand equity. Journal of Product & Brand Management, 22(1), pp.65-78.
  • Palepu, K.G. and Healy, P.M., 2013. Business analysis and valuation: Using financial statements, text and cases.
  • O'Donnell, L., Kramar, R. and Dyball, M., 2013. Complementing a positivist approach to investment analysis with critical realism: challenges and a way forward. Qualitative Research in Financial Markets. 5(1). pp.6-25.
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