Finance Analysis: SABMiller - Research Proposal Example

SAB MILLER The company is one of the top five United s beer companies. It has a strong foothold in over forty countries. It has managed to maintain the long term debt for its daily operations. It has also increased cash by issuance of stocks that are offered in the stock exchange. It Will continue to increase its territory based on the historical data available. Its sales will also increase due to the increase in territory INTRODUCTION: SABMiller beer has been in the beer and softdrinks businesss for many years. It has its strong foothold in over forty countries. It is one of the top five beer brewers in the United States. The succeeding paragraphs will show how good SABMiller is in acquiring and managing its long term debts and also how it has acquired additional funds from the stock exchange's offering of its stock. Question 1 a)What sources of finance has the company used during these reporting periods. The sources of funds that Miller Plc generated includes the net cash inflow from operating activities for the year 2005 of USD $2,792,000 and for the year 2004 of USD $ 2,292,000. Another source is dividends received from associates amounting to USD $ 47,000 for 2005 and USD $ 25,000 for the year 2004. Additional funds, also, came from interest income received worth USD $ 94,000 for 2005 and USD $53,000 for 2004. After that cash also came from dividends received from other investments worth USD $ 10,000 for 2005 and USD $ 9,000 for 2004. Sales of tangible fixed assets gave $30,000 for 2005 and $ 27,000 for 2004 plus sale of investments $475,000 for 2005 and $6,000 for 2004. Cash came from net funding from associates $1,000 for 2004. And then cash inflow came from proceeds from pension fund surplus from previously disposed operation $ 47,000 for 2004. Cash was also gathered from proceeds from disposal of trademarks $13,000 for 2004 Then cash came from the sale of short term liquid instruments $3,000 for 2005 The company received cold cash from the issuance of shares $ 38,000 for 2005 and $ 10,000 for 2004. Cash was generated from the issue of shares to minorities $1,000 for 2005 and $ 4,000 and the final cash inflow was from money from new loans raised $ 540,000 for 2005 and $ 3,385,000 for 2004 b) Discuss how a stock market listing has enhanced the financial resources options of the company When the stocks of companies are posted in the stock exchanges, people will be allowed to buy or sell stocks in companies. The potential investors will use the balance sheet the income statements as well as the operating and financial review issued by the board of directors as the major basis for deciding which company they will invest. Investor trust the stock exchange. But when there is news that one of the branches in a far away country has generated a loss for the current year, this will result to decreases in the stock market prices. News of a merger or acquisition will generate a round of stock market price increases for the companies involved in the merger or consolidation. The current price of each Miller beer stock sold in the London Stock Exchanges is 1,119.00 pounds. Based on the graph the stock market price of miller beer has increased. It has been reach a fifty two week high of 1,136 pounds SABMiller is within the top forty companies in the FTSE. http://today.reuters.com/stocks/overview.aspxsymbol=SAB.L) . c) Is the stock market listing in the interest of shareholder Discuss with examples drawn from your chosen company. The stock market listing of the miller beer, as with other companies wanting to generate funds for their business, is a neutral indicator of the feasibility of investing hard earned money in a company. The stock market price is based on the supply and demand principle. If there is a strong demand for the stocks offered in the London Stock Exchange as with other stock exchanges around the world, the stock market offer price will go up. d) Discuss what factors should be taken into account when deciding the mix of debt and equity finance. When choosing between debt or equity financing, we must remember that when debt is incurred we will have to pay interest expense for long term debt whether there is income or loss. Whereas, if the company give shares of stocks, the prospective investors will be receive income through dividends if there is income during the accounting period. If the annual accounting period generates a loss, then the investors will not receiving anything. In long term debt situations, the creditor will not be a part owner of the company. Therefore the creditors participate in the decision making. The creditor banks prefer the debt to equity ratio balance in see whether to approve long term loans. A big debt to equity ratio will tell the creditors that the owners of the business have no serious interest in the company since the money that is used to pay for the daily operations of the business is taken from borrowed money. But if the funds of the business are all taken from issuance of shares of stocks, the creditors will think that they are not maximizing their full business potential. The best debt to stockholders equity ratio is that the stockholders' equity must be equal to or even twice the amount of outstanding long term debt. The reason the creditors prefer this one is to one ratio or one is to two ratio is because the creditors are be assured that when the time comes for the payment of the debt, usually in bankruptcy cases, then there are enough funds generated from the shareholders themselves to pay the creditors. Question 2 a) Describe why cash is of importance to a company. Cash is very important to the company SABMiller because it will be used to defray costs and expenses with cash. Although there are suppliers and creditor companies who allow buy now pay later schemes, payment delays will force credit terms to stop. Cash is also used for its continuous expansion to new territories. Presently, it has over it services the beer markets in over forty countries. People must concentrate the business efforts to make sure that when the time comes to pay the bills, there will be enough collections and loan amounts to pay such bills. b) Has the company you are investigating described its motive for cash management policy. SABMiller Plc uses the following methods to generate cash inflow. The sources of funds are described in Question 1 above. Miller uses these cash inflows to pay expansion cost to other countries. Cash is used to pay the daily operating expenses of the many branches of SAB Miller in many countries in the world. The cash inflows are used to pay for the expansions to new territories and payment of daily operating expenses of the company's many branches all over the world. The major activities of the company are the manufacture, distribution and sale of beer and soft drinks, further. Question 3 Explain the treasury management and working capital policy for your company. SABMiller generates funds as explained in sources of funds in no. 1 above for the payment of daily operating expenses of the business. A major portion of the total funds are generated from both long term debts. Another major source of funds is the issuance of stock certificates in the London Stock Exchange. Long term loans are acquired to pay some of the prior approved loans that are already due for payment. Working capital is also generated from EBITA that is divided into North America 20%, Central America 4%, Europe 19%, Africa & Asia 15%, Beer South Africa 29%, Other Beverage Interests 10%, Hotels and Gaming 3%. Question 4 a) Evaluate the advantages and disadvantages of the various means of long term finance available to the company. The Miller company had generated long term finances as of 2005. Some long terms debts are USS$ 270 million and US$ 328,000 for 2004, 8.3% private bond placing . Another unsecured bank loans 1,029,000 for 2005 and 717,000 for the year 2004. Another loan is the USD $ 600,million guaranteed convertible bonds due 2006. Still another loan is US$600 million guaranteed notes due 2008 and still another loan is US $ 1,100 million 5.5% guaranteed Notes due 2013. $ 294 million. The advantages are they can continue with the expansion to other new territories and they can also continue to maintain the operations of their different branches in over forty countries. The disadvantage is that a loan will always be payable. The payment includes the principal amount paid plus the interest expense for borrowing such huge funds. Therefore if the operations in the new territories will be unsuccessful, meaning it will result in more expenses than sales, then their loan strategy did not work out for that particular territory b)Explain how the company has reduced its exposure to risk. It has reduced its exposure to risks in borrowing funds by first making sure that the Company generates profits. This is done by making investments in installments from the early nineties to the present. Because if the venture will result in a loss, the company will stop its operations and transfer to a better performing location while the investments are still permissible. Risk can also be reduced by making operations safe from accidents & producing quality products. Non payment of long term loans on time will result in increased interest payments. Alternative risk financing was also done when several loans were entered into. One new loan was entered into in order to pay another long due loan. The business is also insured from fire and damages to reduce risk of loss of property. Loss of property, thru fire or tornado, will result in non payment of long term loans. It also placed cash some short term investments in its subsidiaries. Give details supported with financial data from the accounts. Short term investments were $ 675,000 short term bank deposits for 2005 and $ 18,000 Short term bank deposits for 2004. Another short term investments was the investment In Short term liquid instruments worth $ 14,000. They also had the following loan taken in installments USS$ 270 million and US$ 328,000 for 2004, 8.3% private bond placing . Other unsecured bank loans 1,029,000 for 2005 and 717,000 for the year 2004. Another loan is the USD $ 600,million guaranteed convertible bonds due 2006. Still another loan is US$600 million guaranteed notes due 2008, Still another loan is US $ 1,100 million 5.5% guaranteed Notes due 2013. $ 294 million. With financial data from the accounts. (www.sabmiller.com) Question 5 a) Detail the information available on the FTSE listings; map the progress of the company over the duration of this project. Explain how one reads this information. There have been 4. 03 million transfer of stocks that occurred Jan 10, 2005 The Mid Price is 1119, the bid price 1119, the offer price was 1120. Miller is included in the top forty companies ranked by FTSE. (http://www.moneyworld.co.uk/stocks/ftse100/) ( http:// www.millerbrands.co.uk/aboutus_2.aspx) The stock market price of Miller Beer has been steady and increasing for the past two years. In fact, due to the increase in income for the past many years, Miller has been been able to generate more investments from trusting prospective investors. Conclusion: Whether it is verified or not, news will affect the stock market of companies branches has closed down because the employees have waged a strike for higher wages. Based on the London stock exchanged, the stock market price of Miller beer has been steady and even increasing for the past two years. It is forecasted that the stock market price of SABMiller will be steady for the next few years, BIBLIOGRAPHY Harvard Business Review on Managing Uncertainty, Harvard Business School Press, USA, 1999 Harvard Business Review, on leadership,p118-119 Harvard Business School Press, USA, R Daft, Management, Dryden Press, USA 1997 Hilton, R, Managerial Accounting, Page 770-772, McGrawhill publishing,USA,1999 Stickney, C & Weil, R, Financial Accounting 8th ed. 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