Report for Potential Investor - Assignment Example

Financial Analysis The Company’s Financial Analysis is based on the last 5 year’s financial data as per London Stock Exchange Website (Source: Robert Wiseman Dairies Fundamentals). . the raw milk and oil prices (Source: annual report 2011, pg 17, web version) For 2011, the Company has reported an operating margin of 4.1% (Source: annual report 2011, pg 11, web version) after adjusting for non recurring items like closure of Okehampton Dairy and Cupar Depot (Source: annual report 2011, pg 17, web version) Net Profit Margin : Calculated as the ratio of Net Profit or Profit after tax to Revenue NPM 2.96% 4.03% 0.78% 2.68% 3.

99% The profit margin of the Company is quite volatile as seen from the 5 year data. The Company benefited from lower finance cost which declined from ?1.3m to ?1.0m (Annual Report 2011, Pg 17, Web Version) and lower effective tax rate, down to 20.9% from 27.3%(Annual Report 2011, Pg 17, Web Version) in 2011 but the gains on absolute basis were more than offset by reduction in operating profit. Return on Equity : Calculated as the ratio of Net Income to Shareholder’s equity RoE 16.73% 25.61% 4.89% 13.85% 17.

28% Net Profit Margin 2.96% 4.03% 0.78% 2.68% 3.99% Asset Turnover (Sales/Assets) 2.72x 2.69x 2.75x 2.46x 2.50x Financial Leverage (Asset/Equity) 2.08x 2.36x 2.28x 2.10x 1.73x The return on equity for a Company justifies the investment of shareholder’s funds in that firm. It should be higher than the cost of equity which implies the Company has been adding value to shareholders. A high RoE is desirable, it should be analyzed in its components based on Dupont’s formula (i.e ROE = Net Profit Margin * Asset Turnover * Financial Leverage) to assess impact of each of component on ROE.

Based on this, volatility in net profit margin it seems has made ROE volatile with Company managed to improve its asset turnover (conversion of asset employed in sales) over