Financial Statement Analysis and Interpretation

This assignment focuses on analyzing financial statements using key ratios to assess a company's performance. It includes calculations and interpretations of profitability, liquidity, solvency, and activity ratios for different years (2014, 2015, and 2016). The analysis provides insights into the company's financial health, operational efficiency, and risk profile.

Company Analysis Report
Prepared for: Bega Cheese LTD
Prepared by: xxx

1 EXECUTIVE SUMMARY
This report has been prepared to analyse and evaluate the financial position, financial
performance, financial stability, liquidity etc of Bega Cheese limited. This report has been
prepared to offer a conclusion to the investors about the financial position and the
performance of the company so that it becomes easy for them to make a decision about the
investment in the company or not. For this report, ratio study has been conducted. Firstly, the
introduction has been given about the company and the industry further; various ratios have
been measured to evaluate the financial position of the company.

TABLE OF CONTENTS
1 EXECUTIVE SUMMARY...................................................................................................................2
2 INTRODUCTION.............................................................................................................................4
3 Profitability....................................................................................................................................5
3.1 Return on shareholder equity................................................................................................5
3.2 return on total assets.............................................................................................................6
3.3 Net profit margin...................................................................................................................7
3.4 Gross profit margin................................................................................................................8
4 efficiency........................................................................................................................................9
4.1 inventory turnover.................................................................................................................9
4.2 settlement period for accounts receivable..........................................................................10
4.3 settlement period for creditors / accounts payable.............................................................11
4.4 asset turnover......................................................................................................................12
5 liquidity........................................................................................................................................13
5.1 current ratio:........................................................................................................................13
5.2 cash flow from operations...................................................................................................14
6 financial gearing..........................................................................................................................15
6.1 gearing ratio.........................................................................................................................15
6.2 interest coverage.................................................................................................................16
7 conclusion/ recommendations....................................................................................................17
8 references....................................................................................................................................18
9 APPENDIX A.................................................................................................................................19
APPENDIX B.........................................................................................................................................20

2 INTRODUCTION

Profile of Bega Cheese Limited –.
Bega cheese is an Australia company which is managing its operations in dairy
industry of Australia. This company is one of the largest Australian dairy companies.
Current valuation of the company is Australian $ 775 million. Around 25% share of
Australian dairy industry is held by Bega cheese. This company has diversified its market
into various countries to grab more opportunity. Various dairy products such as cheese
yogurt, retail cheese, processed cheese, chilled food etc are offered by the company in the
Australian market (Bloomberg, 2018).
 History
This company has been founded in 1899 and in 2011; it has become public
limited company. Initially, it has been founded by an agriculture corporative firm.
Currently, this company has been listed in Australian stock exchange. Earlier, this
company used to offer its services and the products into limited area. But now, it has
diversified its market.
 Industry
Bega cheese is an Australia company which is managing its operations in
dairy industry of Australia. This is one of the largest Australian dairy companies.
Various companies are operating its business in Australian dairy industry, but around
25% share of Australian dairy industry is held by Bega cheese.

3 PROFITABILITY
For analysing the performance and the position of Bega cheese limited, profitability
ratios have been calculated. Profitability ratios brief the investors and the financial analyst
about the net profit, gross profit position of the company in terms of equity, share capital etc.
Following is the calculation of profitability position of company:
3.1 RETURN ON SHAREHOLDER EQUITY
Return on shareholder is a measurement which analysed the performance of the stock
of a company. Following is the formula of calculating the return on shareholders’:
Return on Equity =
Graph 1: Return on Equity (ROE) (%)
The above ratio explains that the return on equity of 2014 was quite higher but in
2015, the ratio has been lower and in 2016, company has again tried to enhance it. Through
the above graph, it has been found that return on equity position of 2016 of Bega cheese is
quite improved and it explains that the stockholders would get a god return form the company
(Annual report , 2016).
2014-2015 2015-2016
Increase/
decrease 22.923.96 3.96  8.99
= - 18.96% = +5.03%
Figure 1: Yearly Increase/Decrease on Return on Equity (ROE) (%)

3.2 RETURN ON TOTAL ASSETS
Return on total assets is a measurement which analysed the performance of the total
assets of a company in context with the total net profit of the company. Following is the
formula of calculating the return on total assets:
Return on total assets (ratio) =
Graph 2: Return on Total Assets (%)
The above ratio explains that the return on total assets of 2014 was quite higher but in
2015, the ratio has been lower and in 2016, company has again tried to enhance it. Through
the above graph, it has been found that return on total assets position of 2016 of Bega cheese
is quite improved and it explains that the good level of total assets have been managed by the
company according to the total assets of the company.
2014-2015 2015-2016
Increase/
decrease 17.05 2.98 2.98  0.01
= - 14.07% = - 2.97%Figure 2: Yearly Increase/Decrease on Return on Total Assets (%)

3.3 NET PROFIT MARGIN
Net profit margin is a profitability ratio. It is a measurement which analysed the
performance of a company in context with the total revenue of the company (Brigham and
Houston, 2012). Following is the formula of calculating the net profit ratio:
Net profit margin (ratio) =
Graph 3: Net Profit Margin (%)
The above ratio explains that the net profit margin of 2014 of Bega Cheese was quite
higher but in 2015, the ratio has been lower and in 2016, company has again tried to enhance
it. Through the above graph, it has been found that net profit position of 2016 of Bega cheese
is quite improved and it explains that the company has managed the expenses and the
enhanced the revenue to manage the performance and the position of the company in 2016.
Following is the calculations of the net profit of the company:
2014-2015 2015-2016
Increase/
decrease 9.35 1.80 1.80  3.66
= - 7.55% = +1.86%

3.4 GROSS PROFIT MARGIN
Gross profit margin is a profitability ratio. It is a measurement which analysed the
performance of a company and the gross profit of the company in context with the total
revenue of the company. Following is the formula of calculating the gross profit ratio:
Gross profit margin (Ratio) =
Graph 4: Gross Profit Margin (%)
The above ratio explains that the gross profit margin of 2014 of Bega Cheese was
quite better but in 2015, the ratio has been lower and in 2016, company has again managed to
enhance the level of gross profit. Through the above graph, it has been found that gross profit
position of 2016 of Bega cheese is quite improved and it explains that the company has
managed the expenses and the enhanced the revenue to manage the performance and the
position of the company in 2016. Following is the calculations of gross profit margin of the
company:
2014-2015 2015-2016
Increase/
decrease
11.06
10.88
10.88 
12.82
= - 0.18% = + 1.94%
Figure 3: Yearly Increase/Decrease on Net Profit Margin (%)Figure 4: Yearly Increase/Decrease on Gross Profit Margin (%)

4 EFFICIENCY
For analysing the performance and the position of Bega cheese limited, efficiency
ratios have been calculated. Efficiency ratios brief the financial analyst and the managers
about the working capital management position of the company in terms of total inventory,
debtors, creditors etc. Following is the calculation of efficiency position of company:
4.1 INVENTORY TURNOVER
Inventory turnover ratio is an efficiency ratio. This ratio measures that how the
inventory could be managed in an effective manner. This measures that how much time the
inventory of the company would be turned in a period. Following is the formula of
calculating the inventory turnover ratio:
Inventory turnover (days) =
Graph 5: Inventory Turnover (days)
The above ratio explains that the inventory turnover days of 2014 of Bega Cheese was
quite higher but in 2015, the ratio has been lower and in 2016, company has again enhanced
the level of inventory turnover ratios. Through the above graph, it has been found that the
more the inventory turnover of the company, the more the working capital of the company
would be affected (Annual report, 2014). The current level of the company is quite good.
Following is the calculations of gross profit margin of the company:
2014-2015 2015-2016
Increase/
decrease
133.2469.7
7
69.77 
67.79
= -63.47 = -1.98Figure 5: Yearly Increase/Decrease on Inventory Turnover (days)

4.2 SETTLEMENT PERIOD FOR ACCOUNTS RECEIVABLE
Account receivable turnover days ratio is an efficiency ratio. This ratio measures that
how the accounting receivables collection process could be managed in an effective manner.
This measures that how much time the accounting receivables of the company would be
turned in cash a period. Following is the formula of calculating the accounting receivable
ratio:
Accounts receivable turnover (days) =
Graph 6: Accounts receivable turnover (days)
The above ratio explains that the accounting receivable days of 2014 of Bega Cheese
was quite lower in comparison of 2015 and 2016. In 2015, the ratio has been enhanced and in
2016, the debtor’s turnover days have been highest. Through the above graph, it has been
found that the more the accounting receivable days of the company, the more the working
capital of the company would be affected. The company is required to maintain a lower level.
Following is the calculations of accounting receivable days of the company:
2014-2015 2015-2016
Increase/decrease 35.8637.10 37.10  40.16
1.24 3.06
Figure 6: Yearly Increase/Decrease on Accounts receivable turnover (days)

4.3 SETTLEMENT PERIOD FOR CREDITORS / ACCOUNTS PAYABLE
Accounts payable turnover days ratio is an efficiency ratio. This ratio measures that
how the accounting payable payment process could be managed in an effective manner. This
measures that how much time the accounting payables of the company would be turned in
cash a period (Fulin, 2011). Following is the formula of calculating the accounting payable
ratio:
Accounts payable turnover (days) =
Graph 7: Accounts Payable Turnover (days)
The above ratio explains that the accounting payable days of 2014
of Bega Cheese was quite higher in comparison of 2015 and 2016. In
2015, the ratio has been lower and in 2016, the debtor’s turnover days
have been lowest. Through the above graph, it has been found that the
less the accounting receivable days of the company, the more the working
capital of the company would be affected. The company is required to
maintain a higher level. Following is the calculations of accounting
payable days of the company:
2014-
2015 2015-2016
Increase/
decrease
57.6055.
21 55.21 51.78
-2.39 -3.43

Figure 7: Yearly Increase/Decrease on Accounts Payable Turnover (days)

4.4
4.5 ASSET TURNOVER
Asset turnover day’s ratio is an efficiency ratio. This ratio measures that how the total
assets could be managed in an effective manner. This measures that how much time the asset
of the company would be turned in a period. Following is the formula of calculating the asset
turnover ratio:
Asset turnover Period (Ratio) =
Graph 8: Asset Turnover Period (Days)
The above ratio explains that the asset turnover days of 2014 of
Bega Cheese were quite higher in comparison of 2015 and 2016. In 2015,
the ratio has been lower and in 2016, the debtor’s turnover days have
been lowest. Through the above graph, it has been found that the less the
asset turnover days of the company, the more the working capital of the
company would be affected (Brigham and Ehrhardt, 2013). The company
is required to maintain a lower level. Following is the calculations of asset
turnover days of the company:
2014-2015 2015-2016
Increase/
decrease 187.36 180.60 180.60  173.82
-6.76 -6.78

Figure 8: Yearly Increase/Decrease on Asset Turnover (Days)

5 LIQUIDITY
For analysing the performance and the position of Bega cheese limited, liquidity ratios
have been calculated. Liquidity ratios brief the financial analyst and the managers about the
short term debt obligations of the company (Bromwich and Bhimani, 2005). Following is the
calculation of liquidity position of company:
5.1 CURRENT RATIO:
Current ratio is a liquidity ratio. This ratio measures that how the current assets and
current liabilities of an organization could be managed in an effective manner. This measures
that how much obligation could be paid by the company in a short period of time. Following
is the formula of calculating the current ratio:
Current Ratio (times) =
Graph 9: Current Ratio (times)
The above ratio explains that the current ratio of 2014 of Bega
Cheese were quite lower in comparison of 2015 and 2016. In 2015, the
ratio has been enhanced and in 2016, the current ratio has been lowered
by the company. Through the above graph, it has been found that the
current ratio must be managed by the company according to the market
position. Through the analysis, it is suggested to the company to lower the
level. Following is the calculations of current ratio of the company:
2014-
2015
2015-
2016
Increase/
decrease
1.521.8
3 1.83 3.5
0.31 1.67
Figure 9: Yearly Increase/Decrease on Current Ratio (Times)

5.2 CASH FLOW FROM OPERATIONS
Cash flow from operations is a liquidity ratio. This ratio measures that how the
operating cash flows and current liabilities of an organization could be managed in an
effective manner. This measures that how much obligation could be paid by the company in a
short period of time. Following is the formula of calculating the operating cash flow ratio:
Operating Cash Flow ratio (times) =
Graph 10: Operating cash Flow Ratio (times)
The above ratio explains that the
operating cash flow ratio of 2014 of Bega
Cheese were quite lower in comparison of
2015 and 2016. In 2015, the ratio has been
lowest and in 2016, the current ratio has
been improved by the company. Through
the above graph, it has been found that the
operating cash flow ratio must be managed
by the company according to the market
position. Through the analysis, it is
suggested to the company to enhance the

level to manage better position. Following
is the calculations:
2014-2015 2015-2016
Increase/
decrease 0.01-0.05 -0.05 0.17
-0.06 0.22
6 FINANCIAL GEARING
For analysing the performance and the position of Bega cheese limited, financial gearing
ratios have been calculated. Financial gearing ratios brief the financial analyst and the
managers about the capital structure of the company (Higgins, 2012). Following is the
calculation of financial gearing position of company:
6.1 GEARING RATIO
Gearing ratio is a financial gearing ratio. This ratio measures that how the total debts,
total equity and the total liabilities of an organization could be managed in an effective
manner. This measures that how the capital structure of the company is. Following is the
formula of calculating the gearing ratios:
Gearing Ratio=
Graph 11: Gearing Ratio (times)
Figure 10: Yearly Increase/Decrease on Cash Flow from Operations Ratio (times)

The above ratio explains that the
gearing ratio of 2014 of Bega Cheese
were quite lower in comparison of 2015
and 2016. In 2015, the ratio has been
highest and in 2016, the gearing ratio
has been lowered in the company.
Through the above graph, it has been
found that the gearing ratio must be
managed by the company according to
the market position (Annual report,
2015). Through the analysis, it is
suggested to the company to enhance
the level of capital employed.
Following is the calculations:
2014-2015 2015-2016
Increase/decrease 6.5616.20 16.20 13.14
9.64 -3.06
Figure 11: Yearly Increase/Decrease on Gearing Ratio (times)

6.2 INTEREST COVERAGE
Interest coverage ratio is a financial gearing ratio. This ratio measures that how the
interest expenses could be paid by the company on its outstanding debt. This measures that
what is the position of the company in terms of managing the funds through debt. Following
is the formula of calculating the interest coverage ratios:
Interest coverage ratio (times) =
Graph 12: Interest coverage ratio (times)
The above ratio explains that the interest coverage ratio of 2014 of Bega Cheese were
highest in comparison of 2015 and 2016. In 2015, the ratio has been lowest and in 2016, the
interest coverage ratio of the company has been improved. Through the above graph, it has
been found that the interest coverage ratio must be managed by the company according to the
total funds and the ratio of outstanding debt (Gitman and Zutter, 2012). Through the analysis,
it is suggested to the company to manage the same level in near future. Following is the
calculations:
2014-2015 2015-2016
Increase/
decrease 15.645.51 5.51 11.40
= -10.13 = +5.89
Figure 12: Yearly Increase/Decrease on Interest Coverage Ratio (times)

7 CONCLUSION/ RECOMMENDATIONS
Through the above study, it has been found that various alternations have been done by
the management of the comapny in the financial position of the company in last 3 years.
Through analysing the profitability position of the company, it has been evaluated that the
position of the profits of the comapny has been lowered in 2016 and thus the management of
the company must reduce the level of expenses to maintain a good position. Further,
efficiency ratios have been measured and it has been evaluated that the organization should
maintain the resources in such a manner that maximum utilization could be done.
In addition, the liquidity ratios of the company brief that the level of current assets is
quite higher in context of the current liabilities of the comapny and due to it, the company is
not able to do maximum utilization of the resources. Further, the gearing ratios brief that the
current capital position of the company is bit better and company should maintain it further.
To conclude, investors are suggested to invest into the company to enhance the
investment amount. The current position of the company is not that much good but the future
prediction of the company would be better and thus the return of the company would also be
higher.

8 REFERENCES
Annual report. 2014. Bega Cheese limited. Available at
http://www.annualreports.com/HostedData/AnnualReportArchive/b/ASX_BGA_2014.pdf
[Accessed on 11th Jan 2018].
Annual report. 2015. Bega Cheese limited. Available at
http://www.annualreports.com/HostedData/AnnualReportArchive/b/ASX_BGA_2015.pdf
[Accessed on 11th Jan 2018].
Annual report. 2016. Bega Cheese limited. Available at
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BGA_2016.pdf
[Accessed on 11th Jan 2018].
Bloomberg. 2018. Bega Cheese limited. Available at
https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=5440962
[Accessed on 11th Jan 2018].
Borio, C., 2014. The financial cycle and macroeconomics: What have we learnt?. Journal of
Banking & Finance, 45, pp.182-198.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice.
Cengage Learning.
Brigham, F., and Houston.J. 2012. Fundamentals of financial management. Cengage
Learning.
Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima
publishing.
Fulin, S. 2011. Preface by SHANG Fulin. Corporate Governance of Listed Companies in
China, 9-10.
Gitman, L.J. and Zutter, C.J., 2012. Principles of managerial finance. Prentice Hall.
Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

9 APPENDIX A
Bega Cheese Ltd
Ratios
2014 2015 2016
Profitability
Return on assets (%) 17.05 2.98 7.01
Gross profit margin (%) 11.06 10.88 12.82
Net Profit Margin (%) 9.35 1.80 3.66
Return on equity (%) 22.92 3.96 8.99
Efficiency
Accounts receivable
turnover (days)
35.86 37.10 40.16
Inventory turnover (days) 133.24 69.77 67.79
Accounts payable turnover
(days)
57.60 55.21 51.78
Asset Turnover Period
(days)
187.3
6
180.6
0
173.8
2
Liquidity
Current ratio (times) 1.52 1.83 1.65
Operating Cash Flow (times) 0.01 -0.05 0.17
Financial Gearing
Interest coverage ratio
(times)
15.64 5.51 11.40
Gearing Ratio 6.56 16.20 13.14

APPENDIX B
PROFITABILITY
1. Return on total assets (ratio) =
2. Gross profit margin (ratio) =
3. Net profit margin (ratio) =
4. Return on Equity (Return on ordinary shareholder’s funds)=
2014
(
= 11.06
2015
(
= 10.88
2016
(
= 12.82
2016
(
(
2015
(
(
2014
(
(
2014
(
(
(
2015
(
(
2016
(
(
(
2014
(
(
(
2015
(
(
(
2016
(
(
(

EFFICIENCY
5. Accounts receivable turnover (days) =
6. Inventory turnover (days) =
7. Accounts payable turnover (days) =
8. Asset Turnover Period (Days) =
2014
(
(
(
2015
(
(
(
2016
(
(
(
2014
(
(
(
2015
(
(
(
2016
(
(
(
2014
(
(
(
2015
(
(
(
2016
(
(
(
2014
(
= 187.36
2015
(
= 180.60
2016
(
= 173.82

Liquidity
1. Current Ratio (times) =
2. Operating Cash Flow (times) =
FINANCIAL GEARING
1. Interest coverage ratio (times) =
2. Gearing ratio=
2014
(
= 15.64
2015
(
= 5.51
2016
(
= 11.40
2014
(
(
2015
(
(
2016
(
(
2014
(
= 1.52
2015
(
= 1.83
2016
(
= 1.65
2014
= 0.01
2015
= -0.05
2016
= 0.17