Trend, Horizontal, and Vertical Analysis of Coca-Cola - Case Study Example

Executive Summary Coca Cola Amatil Ltd & Foster’s Group Ltd have been performing on similar business model and have been successful as beverage players. Their market has grown which is reflected by the growth in sales. There is even scope for the company to move further as this sector is showing improvement. The financial analysis also highlights some important fact related to liquidity and capital structure. The findings shows the positives and negatives of the four companies based on financial analysis. The ratios like liquidity ensures to find liquidity and the capital financed by the company are demonstrated by capital structure ratios. The efficiency ratio indicates the area where Coca Cola Amatil Ltd needs to work to stay ahead of Foster’s Group Ltd. The capital market ratio indicates the companies which are favoured by shareholders and also help to look into the future prospects of the company. An industry wise analysis has also been conducted for both the industry highlighting some demarcating facts between the industries. The recommendations highlights areas where all the companies need to improve which will help them face competition and help in proper strategy execution. Content Introduction 3 Trend Analysis of Coca Cola Amatil Ltd 3 Horizontal Analysis of Coca Cola Amatil Ltd 6 Vertical Analysis of Coca Cola Amatil Ltd 9 Ratio Analysis 12 Liquidity ratio 12 Capital Structure ratio 15 Profitability Ratios 19 Asset Efficiency Ratios 22 Market Performance Ratio 24 Findings 26 Limitations 27 Conclusion 28 Recommendations 28 References 29 Appendix 31 Introduction Coca Cola Amatil is a bverage giant. The company has a huge presence in Australia and deals in “coca cola, diet coke, fanta, sprite, baked beans, canned tomatoes and similar other items”. (Coca Cola, 2011) The fact that the company deals in so many products and huge reach has given a wide market. The company has a presence in supermarkets, malls, departmental stores and provide the basic necessities for people thereby enabling them to grow. Foster’s Group Ltd is also a beverage giant. The company deals in “beer and provides different types of beer”. (Foster’s Group Ltd, 2010) The wide range of product and dispersion has made it a huge success. The company with their policy to satisfy customers has grown and is able to capture a good market. The financial statement of both the companies reveals so. Even the share prices shows improvement. With more consumers moving towards supermarkets and growth in patients suffering from different disease gives an opportunity to expand in overseas market. Trend Analysis of Coca Cola Amatil Ltd The trend analysis for Coca Cola Amatil Ltd shows a bright picture considering the momentum the economies around the world are gathering and also the increase in spending. This will result in profits to soar up. Coca Cola Amatil Ltd on the backdrop of it can benefit greatly by proper services and growth in the people drinking beverages. The trend analysis for sales looks as follows Figure 1: Trend Analysis of Sales for Coca Cola Amatil Ltd The trend shows a slight dip for Coca Cola Amatil Ltd in 2008 due to the economic recession which surrounded world economies but since then has grown to improve their business. The trend analysis for cost of sales looks as follows Figure 2: Trend Analysis of Cost of Sales for Coca Cola Amatil Ltd The above trend for cost of sales highlights the increase in cost of manufacturing despite secrease in sales which will affect the profits of the company and will result in the company loosing some money for the shareholders. This is shown by the EBIT for Coca Cola Amatil Ltd as seen below Figure 3: Trend Analysis of EBIT for Coca Cola Amatil Ltd The above trend for EBIT highlights that the profits of the company before interest and tax have grown over the years which highlights the efficiency in operations. The company needs to continue similarly to ensure proper result. This has further been substantiated by the profits attributable to the members as seen below Figure 4: Profit attributable to members for Coca Cola Amatil Ltd The above trned shows that the profits have dipped due to recession and the amoun of borrowing the company has. This is improving and in comoing years will provide an good opportunity to grow. Coca Cola Amatil Ltd can look forward towards increasing the customer base and cut down on expenses. This will act as a tool and will help to increase the profits. This has been further facilitated by the push provided by the government and measures taken to promote economies which will attract people from around the globe. The trend thus predicts a bright and prosperous time for the beverage industry and Coca Cola Amatil Ltd by banking on it can improve its performance. There has a scope and an initiative in the right direction can go a long way in improving the performance. Horizontal Analysis of Coca Cola Amatil Ltd The horizontal analysis of Coca Cola Amatil Ltd shows improvement and growth in certain quarters and decrease in others. The horizontal analysis shows an increase in revenue in 2009 as compared to 2008 which has been attributed finally by the growth in profits. The cost of goods has also increased in line with the revenues thereby ensuring that the business was able to ensure that the growth accounts from better improved management and cutting other areas of cost. INCOME STATEMENT   2009 2008 change % change Revenue, excluding finance income         Trading revenue 4,403.80 4,091.40 312.4 7.64 Other revenue 143 136.7 6.3 4.61   4,546.80 4,228.10 318.7 7.54 Expenses, excluding finance costs         Cost of goods sold -2,419.10 -2,232.80 -186.3 8.34 Selling -590.4 -595.1 4.7 -0.79 Warehousing and distribution -339.1 -316.2 -22.9 7.24 Administration and other -408.6 -397.5 -11.1 2.79   -3,757.20 -3,541.60 -215.6 6.09 Share of net (loss)/profit of joint venture entity accounted for the using method -2.3 0.6 -2.9 -483.33 Earnings before interest and tax     0   Before significant items 787.3 713.8 73.5 10.30 Significant items   -26.7 26.7 -100.00   787.3 687.1 100.2 14.58 Net finance (costs)/income     0   Finance income 14.9 30.4 -15.5 -50.99 Finance costs -148.8 -181.9 33.1 -18.20   -133.9 -151.5 17.6 -11.62 Profit before income tax 653.4 535.6 117.8 21.99 Income tax (expense)/benefit     0   Before significant items -204.4 -158 -46.4 29.37   -204.4 -150 -54.4 36.27 Profit after income tax     0   Profit after income tax 449 404.3 44.7 11.06 Significant items   -18.7 18.7 -100.00 Profit after tax attributable to members of Coca-Cola Amatil Limited 449 385.6 63.4 16.44 Earnings per share (EPS) for profit attributable to members of ciompany 60.5 52.4 8.1 15.46 Basic EPS 60.4 52.3 8.1 15.49 Diluted EPS     0   Dividends paid     0   Prior year final dividend paid per ordinary share 22 20 2 10.00 Current year interim dividend paid per ordinary share 18.5 17 1.5 8.82 The horizontal analysis for Coca Cola Amatil Ltd for Balance Sheet looks as follows STATEMENTS OF FINANCIAL POSITION COCA-COLA AMATIL LIMITED AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2009   2009 2008 changes % change   $M $M     Current assets         cash assets 864.4 298.3 566.1 189.78 trade and other receivables 777.6 671 106.6 15.89 inventories 753.9 778.6 -24.7 -3.17 prepayment 45.1 48.5 -3.4 -7.01 current tax assets 0.6 5.5 -4.9 -89.09 derivatives 38.3 57 -18.7 -32.81 Total current assets 2479.9 1858.9 621 33.41 non - current assets     0   trade and other receivables 2.2 3.7 -1.5 -40.54 investment in joint venture equity 73.2 35.7 37.5 105.04 Investments in securities     0   Investments in bottlers’ agreements 911 926 -15 -1.62 Property, plant and equipment 1457.2 1414.9 42.3 2.99 intangible assets 569.8 527.5 42.3 8.02 prepayment 8.7 14.5 -5.8 -40.00 deffered tax assets 1.1   1.1   Defined benefit superannuation plan assets 13 14.8 -1.8 -12.16 derivatives 54.7 306 -251.3 -82.12 Total non - current assets 3090.9 3233.1 -142.2 -4.40 total assets 5570.8 5092 478.8 9.40 Current liabilities     0   Trade and other payables 621.3 515.2 106.1 20.59 Interest bearing liabilities 607.3 55.7 551.6 990.31 Current tax liabilities 79.4 27.6 51.8 187.68 Provisions 91 98.2 -7.2 -7.33 Accrued charges 346.4 326.7 19.7 6.03 Derivatives 76.7 61.8 14.9 24.11 Total current liabilities 1822.1 1085.2 736.9 67.90 Non-current liabilities     0   Trade and other payables 1.3   1.3   Interest bearing liabilities 1848.2 2350.7 -502.5 -21.38 Provisions 10.2 9.8 0.4 4.08 Deferred tax liabilities 157.4 138.7 18.7 13.48 Defined benefit superannuation plan liabilities 25.8 28.8 -3 -10.42 Derivatives 105.7 106.8 -1.1 -1.03 Total non-current liabilities 2148.6 2634.8 -486.2 -18.45 Total liabilities 3970.7 3720 250.7 6.74 Net assets 1600.1 1372 228.1 16.63 Equity     0   Share capital 2096.7 1987.5 109.2 5.49 Shares held by equity compensation plans -13.7 -16.6 2.9 -17.47 Reserves -38.3 -4.6 -33.7 732.61 (Accumulated losses)/retained earnings -444.6 -594.3 149.7 -25.19 Total equity 1600.1 1372 228.1 16.63 The above analysis shows a growth in the value of assets and liabilities which has ensured that the total value of the balance increases. This helps to ensure that the growth in sales and income statement gets reflected in the balance sheet thereby highlighting that Coca Cola Amatil Ltd has been able to improve its management process and ensure growth in overall performance of the business. Vertical Analysis of Coca Cola Amatil Ltd The vertical analysis wbich compares the financial statement of Coca Cola Amatil Ltd will help to identify the percentage the individual expense and revenue forms in comparison to the total revenue. This will help to identify the areas that Coca Cola Amatil Ltd needs to work on. The vertical analysis of income statement looks as follows INCOME STATEMENT   2009 2008 % of 2009 % of 2008 Revenue, excluding finance income         Trading revenue 4,403.80 4,091.40 96.85 $96.77 Other revenue 143 136.7 3.15 $3.23   4,546.80 4,228.10 100.00 $100.00 Expenses, excluding finance costs         Cost of goods sold -2,419.10 -2,232.80 -53.20 -$52.81 Selling -590.4 -595.1 -12.98 -$14.07 Warehousing and distribution -339.1 -316.2 -7.46 -$7.48 Administration and other -408.6 -397.5 -8.99 -$9.40   -3,757.20 -3,541.60 -82.63 -$83.76 Share of net (loss)/profit of joint venture entity accounted for the using method -2.3 0.6 -0.05 $0.01 Earnings before interest and tax         Before significant items 787.3 713.8 17.32 $16.88 Significant items   -26.7   -$0.63   787.3 687.1 17.32 $16.25 Net finance (costs)/income         Finance income 14.9 30.4 0.33 $0.72 Finance costs -148.8 -181.9 -3.27 -$4.30   -133.9 -151.5 -2.94 -$3.58 Profit before income tax 653.4 535.6 14.37 $12.67 Income tax (expense)/benefit         Before significant items -204.4 -158 -4.50 -$3.74   -204.4 -150 -4.50 -$3.55 Profit after income tax         Profit after income tax 449 404.3 9.88 $9.56 Significant items   -18.7   -$0.44 Profit after tax attributable to members of Coca-Cola Amatil Limited 449 385.6 9.88 $9.12 Earnings per share (EPS) for profit attributable to members of ciompany 60.5 52.4 1.33 $1.24 Basic EPS 60.4 52.3 1.33 $1.24 Diluted EPS         Dividends paid         Prior year final dividend paid per ordinary share 22 20 0.48 $0.47 Current year interim dividend paid per ordinary share 18.5 17 0.41 $0.40 The above vertical analysis highlights the percentage composition of each individual expense and revenue for Coca Cola Amatil Ltd. The vertical analysis of the balance sheet looks as follows STATEMENTS OF FINANCIAL POSITION COCA-COLA AMATIL LIMITED AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2009   2009 2008 % of 2009 % of 2008   $M $M     Current assets         cash assets 864.4 298.3 15.52 $5.86 trade and other receivables 777.6 671 13.96 $13.18 inventories 753.9 778.6 13.53 $15.29 prepayment 45.1 48.5 0.81 $9.41 current tax assets 0.6 5.5 0.01 $0.11 derivatives 38.3 57 0.69 $1.12 Total current assets 2479.9 1858.9 44.52 $36.51 non - current assets         trade and other receivables 2.2 3.7 0.04 $0.07 investment in joint venture equity 73.2 35.7 1.31 $0.70 Investments in securities         Investments in bottlers’ agreements 911 926 16.35 $18.19 Property, plant and equipment 1457.2 1414.9 26.16 $27.79 intangible assets 569.8 527.5 10.23 $10.36 prepayment 8.7 14.5 0.16 $0.28 deffered tax assets 1.1   0.02   Defined benefit superannuation plan assets 13 14.8 0.23 $0.29 derivatives 54.7 306 0.98 $6.01 Total non - current assets 3090.9 3233.1 55.48 $63.49 total assets 5570.8 5092 100.00 $100.00 Current liabilities         Trade and other payables 621.3 515.2 11.15 $10.12 Interest bearing liabilities 607.3 55.7 10.90 $1.09 Current tax liabilities 79.4 27.6 1.43 $0.54 Provisions 91 98.2 1.63 $1.93 Accrued charges 346.4 326.7 6.22 $6.42 Derivatives 76.7 61.8 1.38 $1.21 Total current liabilities 1822.1 1085.2 32.71 $21.31 Non-current liabilities         Trade and other payables 1.3   0.02   Interest bearing liabilities 1848.2 2350.7 33.18 $46.16 Provisions 10.2 9.8 0.18 $0.19 Deferred tax liabilities 157.4 138.7 2.83 $2.72 Defined benefit superannuation plan liabilities 25.8 28.8 0.46 $0.57 Derivatives 105.7 106.8 1.90 $2.10 Total non-current liabilities 2148.6 2634.8 38.57 $51.74 Total liabilities 3970.7 3720 71.28 $73.06 Net assets 1600.1 1372 28.72 $26.94 Equity         Share capital 2096.7 1987.5 37.64 $39.03 Shares held by equity compensation plans -13.7 -16.6 -0.25 -$0.33 Reserves -38.3 -4.6 -0.69 -$0.09 (Accumulated losses)/retained earnings -444.6 -594.3 -7.98 -$11.67 Total equity 1600.1 1372 28.72 $26.94 The above analysis shows the percentage composition of each individual assets and liabilities for Coca Cola Amatil Ltd which helps to find the areas that the company has done well and areas they need to work on. It also highlights the strategies Coca Cola Amatil Ltd needs to prepare to ensure that it doesnt have more cash than required. Ratio Analysis Financial analysis is very important for all business. Analyzing the statement helps in “planning, budgeting, monitoring, forecasting and improving the financial performance by taking vital decision”. (Micro Strategy, 2010) Proper analysing helps a long way to “understand the financial health”. (Micro Strategy, 2010) It helps to identify trends and compare with competitors and industry to gain advantage. The following is the ratios for Coca Cola Amatil Ltd & Foster’s Group Ltd Liquidity Ratios This ratio plays an important part and helps “to identify the firms ability to meet its short term obligations and plays a huge role in the performance”. (Financial Modelling Guide, 2010) The ratios for Coca Cola Amatil Ltd & Foster’s Group Ltd are as Current Ratio: “It measures the ability to pay the short term liabilities out of short term assets”. (Financial Modelling Guide, 2010) This ratio helps creditors, suppliers and investor to identify the liquid position. It is calculated as “Current Assets / Current Liabilities”. The graph looks as follows Figure 5: Current Ratio Comparing both the players we see that Coca Cola Amatil Ltd has a better liquidity position as compared to Foster’s Group Ltd over 2007 to 2009. Foster’s Group Ltd need to improve the ratio as it is a concern as the short term obligations are higher. This might make investors and suppliers stay away. When we consider the two companies together it shows that Coca Cola Amatil Ltd has better policies and strategies as compared to Coca Foster’s Group Ltd. Quick Ratio: It is also known as acid test ratio. “It measures the ability of the firm to meet its short term obligation when inventories are removed as inventories take some time to be converted into cash”. (Financial Modelling Guide, 2010) It is calculated as “(Current Assets – Inventories) / Current Liabilities”. The graph looks as Figure 6: Quick Ratio Comparing the ratio of both the players we see that Coca Cola Amatil Ltd is better positioned as compared to Foster’s Group Ltd both in 2007 and 2008. Foster’s Group Ltd need to improve this as it is a concern and presenting a bleak picture. An industry comparison shows that both the companies have huge inventories. The ratio when compared to current ratio also indicates huge inventories. Since, both the industry deal in products where the inventory has to be high so having a low ratio is predictable. Cash Flow Ratio: It is defined as “the ability of the firm to meet the current liabilities out of its operating activities”. (Financial Modelling Guide, 2010) It is calculated as “Net Cash from Operating Activities / Current Liabilities X 100”. The graph looks as follows Figure 7: Cash Flow Ratio The ratio for Coca Cola Amatil Ltd has improved over the years as compared Foster’s Group Ltd. It shows that the inability of Foster’s Group Ltd to pay its current bills has decreased. Coca Cola Amatil Ltd on the other hand has shown improvement. It is placed better compared to Foster’s Group Ltd. Both the companies need to ensure that the operating activities contribute more as it suggests the line of business the company is in and the ability to meet its current obligations from those. Capital Structure Ratio This ratio is of prime importance and provides relevant information about the company. “It identifies how much of the firm’s assets are financed through debt and includes long term debt”. (Transtutor, 2010) The ratios which help to determine it are as Debt to Equity Ratio: “It determines the proportion of long term debt in relation to the shareholders fund and long term debt”. (Transtutor, 2010) This ratio helps to identify the financial soundness. It is calculated as “Long Term Debts / Equity X 100”. The graph looks as Figure 8: Debt to Equity Ratio Comparing the players we see that the ratio indicates very high debt for both the companies. It shows that the company has a little scope for more investment through debts. This is a bad sign and shows the company has a space for future projects. Foster’s Group Ltd needs to reduce it further so that it can save on interest. Coca Cola Amatil Ltd on the other hand has an equal mix of debt and equity highlighting proper policies. Debt Ratio: “It determines the proportion of long term debt in relation to the shareholders fund and long term debt”. (Transtutor, 2010) This ratio helps to identify the financial soundness. It is calculated as “Total Liabilities / Total Assets”. The graph looks as follows Figure 9: Debt Ratio The ratio indicates soundness on the part of both the companies. It shows that the company has a scope for more investment through debts. This is a good sign and shows the company has a space for future projects. As both the companies work in a type of market where to grow large debt is needed so the ratio seems to be sound. Equity Ratio: “It determines the proportion of shareholders financing in relation to the shareholders fund and long term debt”. (Transtutor, 2010) This ratio helps to identify the financial soundness. It is calculated as “Total Equity / Total Assets”. The graph looks as follows Figure 10: Equity Ratio The ratio indicates soundness on the part of both the companies. It shows that the company had a sound finance of equity. This is a good sign and shows the company has a space for future projects. As both the companies work in a type of market where to grow equity is needed so the ratio seems to be sound. Interest Coverage ratio: “It measures how well a companies is able to meet its interest cost from in comparison to the finance expenses”. (Transtutor, 2010) It is calculated as “EBIT / Net Finance Expenses”. The graph looks as follows Figure 11: Interest Coverage ratio The ratio shows that Coca Cola Amatil Ltd performance has improved in 2009 as in 2007. The company has improved its interest paying ability showing improvement in performance. The performance on Foster’s Group Ltd on the other hand is steady as shows the ability to meet the interest expenses from financing activities. Debt Coverage Ratio: It is defined as “the ability to pay the monthly debt on the loan taken on the mortgage of property”. (Financial Modelling Guide, 2010) It is widely used by banks. It is calculated as “Non Current Liabilities / Net Cash Flow from Operating Activities”. The graph looks as Figure 12: Debt Coverage Ratio Comparing the performance of players we see that Foster’s Group Ltd shows better performance in 2007 compared to 2009. It indicates that the company is lowly moving towards its competitor i.e. Coca Cola Amatil Ltd. Coca Cola Amatil Ltd & Foster’s Group Ltd need to continuously work and ensure that the debt coverage ratio improves further so that growth is better. Profitability Ratios Profitability ratios form a very vital part of financial analysis. This ratios help to understand the profit which can be attributed to the different factors which work in tandem to achieve the desired results. Comparing it with the previous years and the competitors’ helps to evaluate the shortcomings, and shows area which needs to be improved. The profitability ratios are as follows Gross Profit Margin: “It is defined as the profit generated after deducting cost of goods sold and before the indirect expenses are accounted for and considers only the direct expenses”. (Kennon, 2010) Gross profit helps to find out the actual profit that is attributed directly to the product. It is calculated as– “Gross Profit / Sales X 100”. The graph looks as follows Figure 13: Gross Profit Margin The ratio indicates consistency for Coca Cola Amatil Ltd & Foster’s Group Ltd. Foster’s Group Ltd has a higher gross profit indicating soundness in manufacturing process. It also shows that the strategies are well managed. Coca Cola Amatil Ltd on the other hand needs to improve to match its competitor Net Profit Margin: “It is defined as the profit generated per dollar of sales and is calculated after all the direct and indirect expense has been considered”. (Kennon, 2010) Organisations prefer this to be high. It is calculated as “Earning before Interest and taxes (EBIT) / Sales X 100”. The graph looks as Figure 14: Net Profit Margin Comparing the performance of both the player indicates similarity. It is seen that the net profit has increased for Foster’s Group Ltd in 2009 as compared to 2008. This is a good factor and reflects efficiency to maintain the indirect expense. The ratio for Coca Cola Amatil Ltd is higher compared to Foster’s Group Ltd When we look at the broader picture it shows that Foster’s Group Ltd despite having a higher gross profit has a lower net profit showing the amount of indirect cost incurred. It signifies improper management and strategies to cut cost is required. Return on Assets: “It is defined as the amount of profit generated for per dollar of asset”. (Joseph, 2010) It helps to identify whether the assets are utilized properly or underutilized. It is calculated as “Earning before Interest and Taxes (EBIT) / Average assets X 100). The graph looks as Figure 15: Return on Asset Comparing the performance of both the giants’, shows that the return on assets has improved in 2009 as compared to 2008 for Coca Cola Amatil Ltd & Foster’s Group Ltd. This has resulted in better utilization having of the assets. Coca Cola Amatil Ltd on the other hand has a better return showing proper utilization of assets. Return on Equity: “It is defined as the profit earned as compared to the equity shareholders i.e. earning per dollar of equity” (Joseph, 2010) and is calculated as “Net Profit available to ordinary shareholders / Average Equity (excluding minority interest and preference capital) X 100”. The graph looks as follows Figure 16: Return on Equity We see that Foster’s Group Ltd has a very high return on equity as compared to Coca Cola Amatil Ltd. The return for Coca Cola Amatil Ltd has improved but is far beyond Foster’s Group Ltd. This is a worrying factor and shows the strategies and policies implemented hasn’t been successful. The return for Coca Cola Amatil Ltd is very low which might lead to shareholders moving out to other companies or investing in risk free securities. Asset Efficiency Ratios Operating ratios forms a very important part as it helps to “show the efficiency of the management and also indicates the company’s efficiency to manage its capital”. (Joseph, 2010) this ratios help to find the efficiency when it comes to turnover. The following ratio helps to calculate the operating efficiency. They are as Asset Turnover Ratio: It is defined as “the total sales generated per revenue of assets”. (Joseph, 2010) It is calculated as “Sales Revenue / Average Total Assets”. The graph looks as follows Figure 17: Asset Turnover Ratio Comparing the performance of the players shows improvement for Coca Cola Amatil Ltd in 2009 as compared to 2008. Foster’s Group Ltd has been able to use its assets better compared to Coca Cola Amatil Ltd. This has made the ratio to improve. It needs to continue similarly. Coca Cola Amatil Ltd on the other hand needs to improve this ratio and look towards matching Foster’s Group Ltd. Inventory Turnover Ratio: “It is defined as the number of times inventory is rolled over during a year”. (Joseph, 2010) Companies prefer it to be high. It is calculated as “Cost of Goods Sold / Average Inventory”. The ratios for all four the companies are as Figure 18: Inventory Turnovr Ratio Comparing the ratio for players highlights that Foster’s Group Ltd has shown improvement in inventory in 2009 as compared to 2008. It shows the efficiency on the part of the players to revolve inventory quickly. This thereby shows that Coca Cola Amatil Ltd & Foster’s Group Ltd is able to revolve their inventory properly. Debtors Turnover Ratio: “It is defined as the number of times the company is able to recover the dues from the customer”. (Kennon, 2010) The higher it is the better it is. It is calculated as “Credit Sales / Average Receivable”. The graph looks as follows Figure 19: Debtors Turnover Ratio Here we see that Foster’s Group Ltd s has a very good rate and it recovers its chances of bad debts to be less. Foster’s Group Ltd has also shows consistency and is a good sign. Coca Cola Amatil Ltd on the other hand has a poor receivable rate compared to Coca Foster’s Group Ltd. The good sign for Coca Cola Amatil Ltd is that it has improved drastically in 2009 as compared to 2008. If the company can continually improve it then it would be a good sign and reduce the chances of debts. Market Performance Ratio This ratios help to find the shareholders confidence in the company. This ratio helps to find the prediction the shareholders have and company’s performance is also reflected here. A company having sound capital market ratios ensures that people prefer this companies and this is seen by the growth in share prices. The ratios which will help to find the capital market are as follows Earnings per Share: “It is defined as the profit attributed to the equity shareholders”. (Joseph, 2010) It is calculated as “Net profit available to ordinary shareholders / weighted number of ordinary shares on issue”. The graph looks as follows Figure 20: Earnings per Share Comparing the performance of players indicates soundness on the part of Foster’s Group Ltd. Foster’s Group Ltd has a higher earning per share indicating that the shareholders are getting a good return. The return for Foster’s Group Ltd has increased in 2009 as compared to 2008 which shows that the profit has increased. Coca Cola Amatil Ltd on the other hand has consistent earnings in 2009 and 2008 and it reflected on the well being of the shareholders. The overall result for both the giants seems sound and is a good prospect to invest. Dividend per Share: “It is defined as the dividend paid per outstanding equity share”. (Joseph, 2010) It helps to find the dividend equity shareholders receive. It is calculated as “Dividend Paid to ordinary shareholders / Weighted Number of Ordinary shares on issue”. The graph looks as follows Figure 21: Dividend per Share It is seen that both the companies have given dividend for all the years. This is a good sign and shows good prospects. It is seen that Foster’s Group Ltd has reduced the dividend paid per share which reflects that Foster’s Group Ltd has some future projects so the company instead of paying handsomely to the shareholders it is looking to reinvest it. Coca Cola Amatil Ltd on the other hand has given a higher dividend per share showing that the company is already on a growth pace and has abundant funds. Findings The liquidity position especially the current ratio is sound for Coca Cola Amatil Ltd & Foster’s Group Ltd needs to improve it. All the companies due to the nature of business have a huge inventory which is affecting the quick ratio. The long term debt ratios is very for both the companies and needs to take srep to reduce it The companies have used their short term debt to finance long term assets is a worrying factor and steps needs to be taken. Coca Cola Amatil Ltd & Foster’s Group Ltd profit has improved in 2009 as compared to 2008 but it needs to reduce its indirect expenses so that it stays ahead of competition. The operating ratio especially the inventory and asset turnover ratio for Foster’s Group Ltd and has shown tremendous improvement. Coca Cola Amatil Ltd needs to look to match to its competitor. The capital market analysis ratio shows wide improvement for Foster’s Group Ltd in 2009 and when we compare it to Coca Cola Amatil Ltd it shows better performance highlighting that Foster’s Group Ltd have better projects and this can help them. The financial analysis shows Coca Cola Amatil Ltd & Foster’s Group Ltd performance has improved in 2009 as compared to 2008. Limitations Inflation and changes in price has not been accounted for which might be misleading Historical cost has been considered which might not be true in the present scenario as value changes with time Changes in technology for production, distribution, marketing has not been accounted for which might give different result Conclusion Coca Cola Amatil Ltd & Foster’s Group Ltd both have been performing on similar lines and have been successful. The financial statement even highlights similar facts. Both the companies can improve with better strategy. The financial ratios of both the companies show some demarcating things and also highlight the different strategies taken by each. This even highlights that companies similar in nature use different strategies and improve their performance. Both this companies have room for improvement and with the growth this sector is showing it gives them opportunity to capture a good market and grow. Recommendations Foster’s Group Ltd needs to improve its current ratio so that it reflects soundness in its policies and strategies. Foster’s Group Ltd need to reduce debt especially long term so that they are able to save on the interest Coca Cola Amatil Ltd needs to improve its operating ratios so that it can match its competitor Coca Cola Amatil Ltd & Foster’s Group Ltd needs to reduce its indirect cost, improve efficiency, bring down assets and improve their management Foster’s Group Ltd need to improve the inventory turnover rate References Coca Cola. (2011). Coca Cola Amatil Ltd Website. Retrieved on April 4, 2011 from http://ccamatil.com/Pages/default.aspx Foster’s Group Ltd. (2011). Foster’s Group Ltd Website. Retrieved on April 4, 2011 from http://www.fostersgroup.com/ Financial Modelling Guide. (2010). Liquidity ratios. Retrieved on April 4, 2011 from http://www.financialmodelingguide.com/financial-ratios/liquidity-ratios/ Joseph, K. (2010). Analyzing an income statement: Return on Assets. about.com guide, The New York Times Company. Retrieved on April 4, 2011 from http://beginnersinvest.about.com/od/incomestatementanalysis/a/return-on-assets-roa-income-statement.htm Horizontal Analysis. (2011). Horizontal Analysis or Trend Analysis. Retrieved on April 4, 2011 from http://www.accountingformanagement.com/horizontal_analysis_or_trend_analysis.htm Joseph, K. (2010). Analyzing an income statement: Inventory Turnover. about.com guide, The New York Times Company. 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Retrieved on April 4, 2011 from http://www.buzzle.com/articles/vertical-analysis.html Appendix Calculation of Ratios for Foster’s Group Limited RATIO ANALYSIS OF FOSTER'S GROUP LIMITED RATIOS FORMULAS 2009 2008 2007 Return on equity (ROE) profit available to owners / average owners equity * 100 438.3 / 3,521.7 * 100 = 12.45 111.7 / 3,493.3 * 100= 3 966.2 / 3,612.9 * 100 = 26 Return on assets (ROA) EBIT / average assets *100 1,143.1 / 3,757.4 * 100 = 30 1,140.8 / 3,850.7 * 100 = 29 1,116.8 / 4,633.2 * 100 = 24 Gross profit margin gross profit / sales revenue * 100 1770 / 4,684.5 * 100 = 37 1,872.2 / 4,558.5 * 100= 41 2041.9 / 4,760.2 * 100 = 42.89 Profit margin EBIT / sales revenue * 100 1,143.1 / 4,684.5 * 100 = 24 1,140 .8 / 4,558.5 * 100 = 25 1,116.8 / 4,760.2 * 100 = 23.46 asset turnover ratio sales revenue / avg total assets 4,684.5 / 8,374.1 = .56 4,558.5 / 8,253.1 = .55 4,760.2 / 9,563.0 = .50 times inventory turnover cost of sales / avg inventory 2,914.5 / 1,151.2 = 2.53 2,686.3 / 1,010.8 = 2.65 2,718.3 / 962.6 = 2.82 times debtor turnover sales revenue / average accounts receivable 4,684.5 / 980.0 = 4.78 4,558.5 / 1,099.8 = 4.14 (2,718.3) / 1,211.4 = 2.24 current ratio current assets / current liabilities 2,367.7 / 1,359.0 = 1.74 2,311.2 / 1,038.8 = 2.22 2,563.8 / 1,521.6 = 1.68 quick asset ratio current assets - inventory / current liabilities (2,367.7 - 1,151.2) / 1,359.0 = 0.89 (2,311.2 - 1,010.8)/ 1,038.8 = 1.25 (2,563.8 - 962.6) /1521.6 = 1.05 Cash flow ratio net cash from operating activities / current liabilities * 100 884.9 / 1,359.0 = 0.65 669.9 / 1,038.8 = 0.64 747.3 / 1,521.6 = 0.49 debt to equity ratio total liabilities / total equity * 100 4,616.7 / 3,757.4 * 100 = 122.86 4,402.4 / 3,850.7 * 100= 114.32 4,633.2 / 3612.9 * 100 = 128.24 debt ratio total liabilities / total assets * 100 4,616.7 / 8,374.1 * 100 = 55.13 4,402.4 / 8,253.1 * 100 = 53 4,633.2 / 9,563.0 * 100 = 48.44 equity ratio total equity / total assets * 100 3,757.4 / 8,374.1 * 100 = 44.86 3,850.7 / 8,253.1 * 100 = 46 3612.9 / 9,563.0 * 100 = 37.77 interest coverage ratio EBIT / net finance costs 1,143.1 / 146.6 = 7.79 1,140.8 / 144.7 = 7.88 1116.8 / 187.1 = 5.96 debt coverage ratio non-current liabilities / net cash flow provided by operating activities 3,257.7 / 884.9 = 3.68 3,363.6 / 669.9 = 5.02 3,408.2 / 747.3 = 4.56 earnings per share profit available to ordinary share holders / weighted no. of ordinary shares on issue 24.1 ( given in financial statement) 22.8(given in financial statement) 38.4 (given in financial statement) Dividend per share Dividends paid to ordinary shareholders in current period /Weighted no. of ordinary shares on issue 27.25 cents 26.25 cents 23.75 cents Calculation of Ratios for Coca Cola Amatil Ltd RATIO ANALYSIS OF COCO COLA AMATIL GROUP LIMITED RATIOS FORMULAS 2009 2008 2007 Return on equity (ROE) profit available to owners / average owners equity * 100 449.0/ 1,600.1 * 100 = 28.06 385.6 / 1,372.0 * 100 = 28.10 310.7 / 1,440.7 * 100 = 21.56 Return on assets (ROA) EBIT / average assets *100 787.3/5570.8 * 100 = 14.13 713.8/5092 * 100 = 14.01 648.4/4638.1 * 100 = 13.97 Gross profit margin gross profit / sales revenue * 100 1984.7 / 4403.8 * 100 = 45.06 1858.6 / 4091.4 * 100 = 45.42 1774.6 / 3931.8* 100 = 45.13 Profit margin EBIT / sales revenue * 100 787/3 / 4403.8 * 100 = 18.1 713.8 / 4091.4 * 100 = 17.55 648.4 / 3931.8 * 100 = 16.49 asset turnover ratio sales revenue / avg total assets 4,546.8 / 5,570.8 = 0.81 4,228.1 / 5,092.0 = .83 4017.2 / 4638.1 = 0.87 times inventory turnover cost of sales / avg inventory 2,419.1 / 753.9 = 3.20 2,232.8 / 778.6 = 2.86 2,157.2 / 646.0 = 3.34 times debtor turnover sales revenue / average accounts receivable 4,546.8 / 777.6 = 5.84 4228.1 / 671.0 = 6.30 4,017.2 / 686.0 = 5.85 current ratio current assets / current liabilities 2,479.9 / 1,822.1 = 1.36 1,858.9 / 1,085.2 = 1.71 1,774.7 / 1,139.2 = 1.55 quick asset ratio current assets - inventory / current liabilities 2,479.9 - 753.9 / 1,822.1 = 0.94 (1,858.9 - 778.6) / 1,085.2 = 0.99 (1,774.7-646.0) /1,139.2 = 0.99 Cash flow ratio net cash from operating activities / current liabilities * 100 751.3 / 1,822.1 = .41 430.6 / 1,085.2 = .40 523.9 / 1,139.2 = .46 debt to equity ratio total liabilities / total equity * 100 3,970.7 / 1,600.1 * 100 = 248.15 3,720.0 / 1,372.0 * 100 = 271.13 3,197.4 / 1,440.7 * 100 = 221.93 debt ratio total liabilities / total assets * 100 3,970.7 / 5,570.8 * 100 = 71.27 3720.0 / 5,092.0 * 100 = 73.05 3,197.4 / 4638.1 * 100 = 68.93 equity ratio total equity / total assets * 100 1600.1 / 5,570.8 * 100 = 28.72 1,372.0 / 5,092.0 * 100 = 26.94 1,440.7 / 4638.1 * 100 = 31.06 interest coverage ratio EBIT / net finance costs 787.3 / 751.3 = 1.04 713.8 / 430.6 = 1.65 648.4 / 523.9 = 1.24 debt coverage ratio non-current liabilities / net cash flow provided by operating activities 2,148.6 / 751.3 = 2.85 2,634.8 / 430.6 = 6.11 3,197.4 / 523.9 = 6.10 earnings per share profit available to ordinary share holders / weighted no. of ordinary shares on issue 60.5 (given in financial statement) 52.4 (given in financial statement) 48.8 (given in financial statement)) Dividend per share Dividends paid to ordinary shareholders in current period /Weighted no. of ordinary shares on issue 25 cents 22 cents 35.5 cents Read More