A Companys Annual Report - Case Study Example

ANNUAL REPORT AND STAKEHOLDERS A company’s annual report is divided into many sections, compulsory and non-compulsory both. The information revealed by each of these sections is discussed below: 1- Directors’ Report The directors’ report contains information presented by the company’s directors, which is not much reliable for any stakeholder of the company. The directors’ report of SABMiller Plc contains much detailed information than that of the Scottish and Newcastle Plc. 2- Auditors’ Report The auditors’ report authenticates the information provided in the annual report. It satisfies the needs of various stakeholders who rely on the company’s annual report in evaluating and assessing the company’s performance and position i.e., government, investors and lenders etc 3- Profit and Loss Account Profit and Loss account contains information on the company’s revenues and expenses. This section is very important for the company’s stakeholders such as investors, lenders, suppliers, employees, customers and general public as it reveals the profit figure of the company. 4- Balance Sheet Balance Sheet shows the company’s position in terms of its assets, liabilities and equity. This section reveals information regarding the company’s liquidity position, customers and suppliers’ balances, shareholders funds etc. This section is very important for the company’s lenders, customers, suppliers, shareholders etc. 5- Cash Flow Statement This statement shows the inflow and outflow of cash through the year. It is very important for the company’s lenders to evaluate the sources disbursements of the company’s cash. 6- Notes to Accounts These notes provide details on the facts and figures stated in the company’s financial statements. They are very important for the company’s stakeholders to analyse the financial statements more thoroughly. OPERATING AND FINANCIAL REVIEW STATEMENT The Operating and Financial review statement of Scottish and Newcastle Plc reveals detailed information on the company’s operating activities in UK and rest of the world. It also exposes to some extent the financial structure of the company by showing the amount of the current debt and liabilities compared to the previous year. However, it doesn’t reveal much information regarding the risks and uncertainties of the company’s business. On the other hand, the SABMiller Plc’s Operating and Financial Review statements give a much detailed information and illustration on company’s operating activities and results relevant to beverages, hotels and gaming in North America, Europe, Asia and Africa and comparison of activities with the previous years’ results. The company’s financial review statement provides the assessment of the company’s financial structure by showing the company’s total debt capital in detail. But there is no information stated in the statement regarding the risks and uncertainties faced by the company. PERFORMANCE REVIEW-- SABMiller Plc The financial position and performance of SABMiller Plc over the three financial years i.e., 2003, 2004 and 2005 has been analysed below with the help of a wide range of accounting ratios, assessing the company’s performance in terms of profitability, liquidity, efficiency and investment etc so as to be helpful for all the stakeholders of the company in analysing and assessing the company’s overall financial position and future. PERFORMANCE ANALYSIS Return on Capital Employed 2005 2004 2003 28.44% 22.61% 14.69% According to the SABMiller Plc’s financial statements, the return generated by the company on its capital employed has an improving trend for the last three years. In 2003, the company’s profit was 14.69% of the total capital employed, which increased to 22.61% in 2004 and finally to 28.44% in 2005. Thus the ratio improved by about 93% over the three financial years, which indicates a good improvement in the management’s performance. Assets Turnover 2005 2004 2003 84.72% 82.37% 66.67% According to this ratio, the turnover generated by the business on its investment in assets is also showing an improving trend. In 2003, the total turnover was 66.67% of the total assets, which jumped to 82.37% in 2004 and finally came to 84.72% in 2005. Thus, this ratio has improved by 27.07% over the three financial years. PROFITABILITY ANALYSIS Return On Equity 2005 2004 2003 17.53% 13.17% 7.56% This ratio reveals the company’s profitability margin on its total shareholders’ funds. According to this ratio, the return generated by the company was 7.56% of the shareholders’ funds in 2003, which increased to 13.17% in 2004 and 17.53% in 2005. This has also been showing a remarkable progress by about 131.88% over just three years. Net Profit Margin 2005 2004 2003 18.30% 13.89% 11.42% This ratio is obtained after accounting for all the costs incurred by the company i.e., production costs, distribution costs, administrative costs and operating costs etc. According to this ratio, the profit generated by the business after accounting for various operating costs was 11.42% in 2003, which increased to 13.89% in 2004 and 18.30% in 2005, again a sign of improvement. LIQUIDITY ANALYSIS Current Ratio 2005 2004 2003 0.83:1 0.83:1 0.45:1 This ratio exposes the company’s ability to pay off its short-term debts and liabilities out of its current assets. According to this ratio, the company’s investment in current asset has increased over the years. In 2003, the current assets were 45% of the total current liabilities and now, in the year 2005, it has increased to about 83% of the total current liabilities. Acid-Test Ratio 2005 2004 2003 0.65 0.62 0.33 The acid-test ratio keeps the stock out of the current assets in analysing the company’s liquidity. This ratio has also improved by 100% over just three years, which shows that the company has been investing more in the current assets. Although the ratio is improving, but the company’s current assets are still less than needed to pay off its short-term debts and liabilities. EFFICIENCY ANALYSIS Stock Turnover Ratio 2005 2004 2003 20.34 18.97 17.91 This ratio shows the company’s ability to generate sales out of its stock. This ratio shows a negative trend in the company’s efficiency in utilising its stock towards turnover. The company took around 17 days in 2001 to finish its entire stock and generate sales, which increased to 19 days in 2004 and 20 days in 2005. Thus, the company is taking more time now to generate sales. Debtor Day’s Collection Period 2005 2004 2003 32.93 33.23 35.84 As revealed by this ratio, the company collected cash from all its debtors in around 36 days in 2003 and in the years 2004 and 2005, all debts were collected in around 33 days. Therefore, this ratio reveals that the company has been efficiently reducing the number of days it took to receive cash from debtors. INVESTMENT ANALYSIS Earning Per Share 2005 2004 2003 94.1 54.1 27.5 The Earning Per Share analysis is of use to the investors who invest in the business to gain out of the market price of a company’s shares. In the year 2005, the company allowed its investors an EPS of 94.1, which is 2.42 times more than that of the year 2003 according to the company’s annual report thus showing an improving investment potential for the company. Dividend Per Share 2005 2004 2003 38.0 30.0 25.0 This ratio is important for the investor who invests in the business to obtain profit out of dividends paid by the company. The dividend paid by SABMiller Plc to its investors has also been improving over the last years. In the year 2005, the dividend per share paid by the company increased by about 52% than what it paid in 2003. PERFORMANCE REVIEW—Scottish and Newcastle Plc The financial position and performance of Scottish and Newcastle Plc over the three years has been analysed with the help of following ratios: PERFORMANCE ANALYSIS Return on Capital Employed 2005 2004 2003 7.9% 4.20% 4.9% According to this ratio, the company generated a return of about 4.09% in the year 2003 on its capital employed, which decreased to 4.2% in 2004 and finally the company’s interim results for the year 2005 show that the company has enhanced its performance by increasing its return on capital employed to 7.9%. Assets Turnover 2005 2004 2003 65.56% 67% 52.83% The asset turnover ratio for Scottish and Newcastle Plc for the three years shows an increasing trend in the company’s performance in generating sales on its investment in assets. But it also reveals a slight decline in the ratio for the year 2005. PROFITABILITY ANALYSIS Return on Equity 2005 2004 2003 3.01% 2.16% 1.49% This ratio shows that the company has been making increasing profits on the funds invested by shareholders. In 2003, the company’s profit was 1.49% of the total shareholders’ equity, while in 2005 it succeeded to make a profit of 3.01% of total shareholders’ funds. Net Profit Margin 2005 2004 2003 5.04% 4.67% 6.73% According to this ratio, the company’s net profit margin has increased by about 8% over the last year. Its previous year’s records show a decreasing trend but as revealed by the company’s current year records, Scottish and Newcastle Plc has an increasing profitability trend. LIQUIDITY ANALYSIS Current Ratio 2005 2004 2003 0.89 0.80 0.96 According to this ratio, the company’s liquidity position does not seem to be improving during the last three years rather it has declined 7.29% from 0.96:1 in 2003 to 0.89:1 in 2005. It means that the company’s investment in current assets is diminishing over the years. Acid-Test Ratio 2005 2004 2003 0.76 0.66 0.79 If we keep aside stock from current assets, this ratio says that the company can only meet about 76% of its current liabilities in 2005 out of its current assets. This ratio has worsened by about 3.8% over the last three years, showing that the company is not being able to maintain the balance between current assets and current liabilities. EFFICIENCY ANALYSIS Stock Turnover Ratio 2005 2004 2003 20.45 17.4 14.3 According to the company’s financial statements, the company had a trend of finishing its entire stock by generating sales within around 14 days in 2003, which kept on being stretched and in the year 2005 it took the company around 20 days to finish its entire stock. Thus showing a negative side of the company’s efficiency in generating sales for the business. Debtor Day’s Collection Period 2005 2004 2003 72.4 92.16 115.57 This ratio reveals that it takes the company astonishingly long to recover its debts and collect cash out of credit sales. But this ratio has been improving over the years i.e., in 2003; the company collected all its debts in around 116 days whereas in 2005, it took the company only 72 days to collect cash from its debtors. INVESTMENT ANALYSIS Earning Per Share 2005 2004 2003 5.4p 4.5p 3.1p The EPS of the company’s stock has also been increasing over the three years, which is an attractive sign for the investors interested in stock prices. Dividend Per Share 2005 2004 2003 13.92p 13.75p 13.41p The dividend per share paid by the company has although been stable over the three years but is also showing a slightly increasing trend, which is an attractive sign for the investors interested in the dividends paid by the company. COMPARISON-- SABMiller Plc & Scottish and Newcastle Plc As evident from the above evaluation of both the companies’ financial performance over the three years, the following are some points of distinction and similarities between the two companies’ performance and position: The profit margin of SABMiller Plc is much higher than that of the Scottish and Newcastle Plc. The net profit margin of SABMiller Plc has a constantly increasing trend but Scottish & Newcastle Plc’s net profit margin has declined over the three years. SABMiller is able to generate more turnover, returns and profits on its assets, shareholders’ funds and capital employed. The reason for Scottish and Newcastle Plc’s lower profit margin is that although the company has an increasing rate of turnover but it also incurs heavy operating costs that reduce its profit margin. The company’s operating costs amount to about 82% of the company’s total turnover. The Working capital availability for both the companies is not satisfactory. The current assets of SABMiller Plc are enough to cover only about 83% of the total short-term liabilities and obligations whereas Scottish and Newcastle Plc can pay off 89% of its current liabilities out of its current assets. This is just one side of the picture, the other side is that although it seems that Scottish and Newcastle Plc has more current assets to cover its short-term debts and liabilities but it’s investment in current assets has been declining over the years, as revealed by the companies financial statements for the previous years. It has declined by 7.29% in the period of three years whereas SABMiller Plc has improved its investment in current assets very remarkably by 84.44% over the three years. SABMiller Plc is more than twice efficient in collecting cash out of its credit sales from its debtors than the Scottish and Newcastle Plc. But both the companies take almost equal number of days to finish their entire stock and generate sales. The Earning Per Share offered by both the companies has an increasing trend. But the trend in SABMiller Plc is exceptionally high. It has increased by 3.42 times just in the period of three years whereas the Earning Per Share offered by Scottish and Newcastle Plc has increased by 1.74 times in the same period. The dividend per share paid by SABMiller Plc is much higher than the Scottish and Newcastle Plc. Moreover the dividend per share paid by the company has increased by 52% over the three years, whereas the dividend paid by Scottish and Newcastle Plc has almost been stable over the years. DIFFERENCE IN CORPORATE REPORTS The differences in the companies’ annual report in terms of stating the results clearly and transparently in the annual reports reflect the stability and concreteness in the company’s financial position. For instance, after the analysis of both the companies’ annual report, it can be figured out that the facts and figures in SABMiller Plc’s annual report and financial statements are stated more clearly and give a full account of company‘s activities, whereas the annual report and financial statements of Scottish and Newcastle Plc do not reveal a detailed account of the company’s financial activities. The reason behind the two companies in identical sectors producing different corporate reports is that a company that is not confident about its financial position puts forth concealed facts in its report whereas a company having a strong financial position shows clear facts in its annual report. NEEDS OF STAKEHOLDERS AND CORPORATE REPORTS Both the companies’ annual reports on the whole provide all the information needed by the companies’ various stakeholders such as investors, lenders, shareholders, general public and government to assess the company’s financial performance and predict any future possibilities, uncertainties and prospects on the basis of the company’s current year results. The stakeholders just need to go through the complete report and analyse the company’s position by comparing it with the previous results to gain a better insight of the company’s directions. References Annual report 2005, accessed December 10, 2005 from: http://www.sabmiller.com/NR/rdonlyres/443D3CFF-637F-4FC0-AC5C-A967EF4667B9/3446/SABANNUALREPORTweb1.pdf Annual report 2004, accessed December 10, 2005 from: http://www.sabmiller.com/NR/rdonlyres/096C119A-3F40-4F18-94C0-02C4C29AD1BE/0/2004CompleteAnnualReport.pdf Interim report 2005, accessed December 10, 2005 from: http://www.scottish-newcastle.com/sn/investor/fininfo/results/ytd2005/sninterimrep/sninterimrep.pdf Annual report 2004, accessed December 10, 2005 from: http://www.scottish-newcastle.com/sn/investor/fininfo/results/ytd2004/ar2004/sctn_ar_2004_en.pdf Bernstein Leopold A. (5th ed. 1993), Financial Statement Analysis: Theory, Application and Interpretation, Richard D. Irwin Inc., USA SABMiller Plc Appendix 2005 2004 2003 Return on Capital Employed Profit before interest and tax (PBIT) x 100 2,361 1,579 933 Capital Employed 8,303 6,984 6,350 28.44% 22.61% 14.69% Assets Turnover Turnover x100 12,901 11,366 8,167 Total Assets 15,228 13,799 12,250 84.72% 82.37% 66.67% Return On Equity Profit After interest and tax (PAIT) x 100 1,344 812 421 Ordinary Shareholder’s Funds 7,665 6,165 5,572 17.53% 13.17% 7.56% Net Profit Margin Profit before interest and tax (PBIT) x 100 2,361 1,579 933 Turnover 12,901 11,366 8,167 18.30% 13.89% 11.42% Current Ratio Current assets 2,941 2,316 1,819 Current liabilities 3,550 2,783 4,027 0.83 0.83 0.45 Acid-Test Ratio Current Assets- Stock 2,307 1,717 1,363 Current Liabilities 3,550 2,783 4,027 0.65 0.62 0.33 Stock Turnover Ratio Turnover 12,901 11,366 8,167 Stock 634 599 456 20.34 18.97 17.91 Debtor Day’s Collection Period Debtors x 365 1,164 1,035 802 Turnover 12,901 11,366 8,167 32.93 33.23 35.84 Scottish & Newcastle Plc Appendix 2005 2004 2003 Return on Capital Employed Profit before interest and tax (PBIT) x 100 228 207 242 Capital Employed 2,886 3,086 3,396 7.9% 4.20% 4.9% Assets Turnover Turnover x100 4,521 4,432 3,594 Total Assets 6,896 6,611 6,803 65.56% 67% 52.83% Return On Equity Profit After interest and tax (PAIT) x 100 71 59 43 Ordinary Shareholder’s Funds 2,886 2,733 2,882 3.01% 2.16% 1.49% Net Profit Margin Profit before interest and tax (PBIT) x 100 228 207 242 Turnover 4,521 4,432 3,594 5.04% 4.67% 6.73% Current Ratio Current assets 1,493 1,476 1,483 Current liabilities 1,668 1,846 1,551 0.89 0.80 0.96 Acid-Test Ratio Current Assets- Stock 1,272 1,222 1,232 Current liabilities 1,668 1,846 1,551 0.76 0.66 0.79 Stock Turnover Ratio Turnover 4,521 4,432 3,594 Stock 221 254 251 20.45 17.4 14.3 Debtor Day’s Collection Period Debtors x 365 898 1,119 1,138 Turnover 4,521 4,432 3,594 72.4 92.16 115.57 Read More