Evaluating Financial Performance PDF

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Case Study
Table of ContentsINTRODUCTION...............................................................................................................................3COMPANY BACKGROUND.............................................................................................................3MAIN FINDINGS................................................................................................................................3MAIN BODY.......................................................................................................................................31. Evaluating financial performance................................................................................................32. Investment Appraisal...................................................................................................................83. Target Company.........................................................................................................................10Rationale for choosing target company.........................................................................................10Synergistic gain behind acquisition..............................................................................................10Proposed value of deal associated with acquisition.......................................................................11Implications of acquisition on firm performance...........................................................................11Challenges associated with acquisition..............................................................................................11CONCLUSION..................................................................................................................................12REFERENCES...................................................................................................................................13APPENDIX........................................................................................................................................15
INTRODUCTIONFinancial planning is a process related with formulation of strategies and plans for the betterment ofbusiness in attaining its set defined business goals and objectives smoothly. Financial plan alsoknown as Budget which defines the limit of amount to be spent for carrying on a particularoperations or activities. With the help of financial plan, a company can design its capital structureand project about future revenue. The present report is on Diageo plc, one of the Britishmultinational alcoholic beverage company. It will be based on importance of financial informationin business decision making. Also, it will focus on different types of accounting techniques used forascertaining quantitative information.COMPANY BACKGROUNDDiageo plc is a British multinational company dealing in alcoholic beverages. It is having itsheadquarters in London, England and other continents as well. Was worlds largest distiller unlessovertaken by China's Kweichow Moutai. It is having a revenue of£1,216.3 Crorewith 29,917 asnumber of employees (Diageo Plc Wikipedia,2019). This company sells its products and goods inmore than 180 countries with offices in 80 countries.MAIN FINDINGSThe main competitors of Diageo plc includes Pernod Richard, Bacardi, Fortune Brands etc. It wasformed in 1997 from the merger of Guinness and Grand Metropolitan. In the year 2012 November,Diageo acquired 53.4% stake in the Indian spirits company named as United Spirits for £1.28billion. In December 2015, Diageo had announced $10 million investment in the Danish whiskybrand name Stauning so as to facilitate expansion of production function.MAIN BODY1. Evaluating financial performance.1.ProfitabilityRatio- It determines whether the company is performing well or a per thestrategies formulated for achieving its set defined aims. It is a measure which depicts theability of a company in generating profits or revenue out of operations being undertaken byit.Gross Margin Ratio -This ratio helps in determining the amount of gross profit it hasgenerated from the sales made during the year (Petria, Capraru and Ihnatov, 2015).
Diageo PlcParticulars2014 (in £m)2015 (in £m)2016 (in £m)2017 (in £m)2018 (in £m)Gross MarginRatioGross Margin62296203623473707529Net Sales1025810813104851205012163Gross MarginRatio = GrossMargin/ NetSales60.72%57.37%59.46%61.16%61.90%Pernod RichardParticulars2014 (inm)2015 (inm)2016 (inm)2017 (inm)2018 (inm)Gross MarginRatioGross Margin49885295537156025603Net Sales85578557868290098986Gross MarginRatio = GrossMargin/ NetSales58.29%61.88%61.86%62.18%62.35%Interpretation– From the above table it can be stated that in case Diageo plc the ratio isdeclining from 60.72% to 59.46% in two years. After 2016, it has increased from 59.46% to 61.90%which depicts that company is performing well in generating profits out of sales. In case of PernodRichard's, there has been increase in gross profit ratio from 58.29% to 62.35% which is a good signdefining that company is performing much better than Diageo plc in achieving market share andprofits.2.Efficiency Ratio– With the help of this ratio, a company can easily analyse how effectivelyits is using its business assets and liabilities on internal basis for generating profits ion thecurrent period.Accounts Receivable Turnover –It defines how effectively the credit policy of companyis implemented for carrying on business transactions on credit basis.Diageo PlcParticulars2014 (in £m)2015 (in £m)2016 (in £m)2017 (in £m)2018 (in £m)AccountsreceivableturnoverRevenue1025810813104851205012163Average22441968.52043.521422141
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