The Financial Statements of Diageo and Advice an Investor on the Way Forward - Essay Example

An investor will check if there has been an increase in sales propelling the earnings. Other indicators of how well a company is doing are the debt levels and assets of a company.

Diageo's financial reports for the year ended 30 June 2012 reveal the strength of the business. In summary, the business increased net sales by 6%, 9% in net operating profit, and 4% points of positive price/mix. Emerging markets played a big role in improving Diageo's business, which amounted to about 40%. These emerging markets increased sales by 15% and operating profits by 23%. In addition, the business has free cash flow available for investment amounting to Euros one point six billion.

Earnings per share went up by 13 % increasing final divided by 8%. The most important tool to an investor interested in stocks of Diageo is the income statement. From this statement earnings per share in the year 2010 was at 72 pence and rose to 83.6 pence in the year 2011. Profits went up too by 292 million Euros. Operating profit went up by 133 euros. The margins are also at 29.4, which is higher than the previous year. This is a good indicator of how a company’s stocks are fairing in the market.

The balance sheet of Diageo will help an investor see the extent of the expansion of the company and the diversification of its markets. A balance sheet gives information on the value of the assets of the company and their growth over the last few years. From Diageo’s balance sheet, an investor can see there is a big growth in assets of the company from emerging markets. In addition, the balance sheet of Diageo reveals that 2% volume growth is driven by growth in strategic brands, emerging markets, premium plus products, innovation, and acquisitions.

The stocks of Diageo earn good dividends and present great growth over the last few years. Thus, I would advise an investor to take up the shares. Stocks of international companies are a bit tricky to analyze. One reason is that they are affected by issues like dramatic changes in market value, politics, reliance on foreign legal remedies, and poor exchange rates (“SEC” web). Other costs that go with international stocks include withholding tax on dividends and brokerage fees. Therefore, Diageo stocks may be a bit expensive but I would advise the investor to still go for them because the rate of return is so much higher than any other stocks. In addition, the company had diversified its markets per brands and geographical locations, which makes its shares quite stable