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Financial performance comparison - Essay Example

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Its sales are much higher than Brown-forman’s sales total of $3,946 million. The net income of Anheuser Bush in 2014 was $11,302 million, while Brown-foreman had a net income in the same period of $659 million. The net…
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Financial performance comparison
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To compare the financial performance of Anheuser Bush and Brown-forman a ratio analysis of the two companies is illustrated below: Financial Ratio Anheuser Bush
Brown-forman
Net margin
24.01%
16.70%
Return on assets
7.93%
16.06%
Return on equity
20.83%
32.43%
EPS
$5.54
$3.08
Current ratio
0.68
1.05
Working capital
-8667.00
$106
Debt ratio
0.62
0.50
Debt to equity
1.63
1.02
Inventory turnover
6.31
1.04
Avg. sale period
57.88 days
352.61 days
Anheuser Bush had total sales in 2014 of $47,063 million. Its sales are much higher than Brown-forman’s sales total of $3,946 million. The net income of Anheuser Bush in 2014 was $11,302 million, while Brown-foreman had a net income in the same period of $659 million. The net margin is a measure of the absolute profitability of a company. In 2014 Anheuser Bush had a net margin of 24.01%, a figure that is superior to Brown-foreman by 7.31%. Return on assets (ROA) measures how effective management has been at employing their assets to generate profits. Brown-forman had a return on assets in 2014 of 16.06%. The ROA of Brown-foreman was better than Anheuser Bush. Return on equity (ROE) when compared to return on assets, measures the extent to which financial leverage is working for or against common stockholders (Garrison & Noreen). Brown-foreman’s ROE of 32.43% was superior to the 20.83% return on equity of Anheuser Bush.
The earnings per share (EPS) metric is the portion of a company’s profit allocated to each outstanding share of common stock (Investopedia). The EPS of Anheuser Bush in 2014 was $5.54, while Brown-foreman had a lower EPS in the same period of $3.08. The current ratio shows the ability of a company to pay off its short term debt. A current ratio is considered good if is above the 1.0 threshold. Anheuser Bush had a current ratio of 0.62, while Brown-foreman had a current ratio of 1.02 in 2014. The working capital shows whether a company can pay off its current liabilities solely using its current assets. The working capital of Anheuser Bush was -$8,867 million, while Brown-forman had a working capital of $106 million. Based on these two ratios the liquidity of Brown-forman is superior of Anheuser Bush.
The debt ratio shows how much leverage a company uses. In 2014 Anheuser Bush had a debt ratio of 0.62, a figure that is 0.12 higher than Brown-foreman. The desirable outcome is to have a lower debt ratio, thus Brown-foreman outperform Anheuser Bush in this financial metric. The inventory turnover shows how many times a company sold its inventory during a year. Anheuser Bush sold its inventory 6.31 times during 2014. Brown foreman only sold its inventory 1.04 times during the year. Average sale period measures the number of days taken to sell the inventory one time. It takes Anheuser Bush 57.88 days to sell its inventory, while it took Brown-foreman 352.61 days.
The financial performance of both companies was good since both firms generated positive income during 2014. When comparing the two companies despite the fact the Anheuser Bush has a bigger operation and better profitability Brown-forman had a better financial performance in 2014. The ratio analysis performed demonstrated that Brown-forman had better solvency, liquidity, and efficiency. If I was to choose one company to invest in my selection would be Brown-forman.
Work Cited Page
Garrison, Ray, and Eric Noreen. Managerial Accounting (10th ed.). Boston: McGraw-Hill. (2003).
Investopedia.com. 2015. “Earnings Per Share – EPS.” 27 April 2015. Read More
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