Financial Analysis Management & Enterprise: Importance and Techniques

Financial Analysis Management
& Enterprise

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Explaining detailed analysis of the final reports by employing different techniques.............1
2. Outlining an importance of assessing working capital prior in making the decision...........19
3. Critically analysing cash flow statement of the companies in past two years .....................20
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22

INTRODUCTION
Financial analysis refers to the practice of evaluating the businesses, budgets, projects
and the other business transactions regarding finance for the purpose of determining the
suitability and the performance. Financial analysis is been used for assessing that an enterprise is
liquid, solvent, profitable, efficient and stable enough in warranting the monetary investment.
The present report focuses on Farsons that his engaged in production, brewing, distribution and
the sale of the branded beverages and the beers. Heiniken is seen as the number one as the
brewer in the Europe and stands as number two across the world. Furthermore, the report
includes ratio analysis, horizontal and vertical analysis of the both the companies financial
statements in order to facilitate comparison of the performance and position of the firms.
Moreover, the study highlights significance of the working capital and the cash flow analysis of
Farsons and Heiniken.
1. Explaining detailed analysis of the final reports by employing different techniques
Heiniken
Farsons
1

Farsons
2

Profitability ratios
Operating profit ratio- It means the profitability ratio which is computed by dividing the
operating profit with that of the revenue of the company. It reflects the amount of the profits that
is been generated by an entity after paying off its operating expenses and cost of sales (Bastos
and Schoffelen, 2016). It is the ratio that depicts an efficiency of an organization in controlling
the expenses and the cost that are been attached with running an operational activities of the
business.
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Interpretation- From the above evaluation it has been interpreted that the ratio of Farsons
is showing a better results as compared to Heiniken. A higher ratio of the operating margin tends
to be favourable than the lower ratio as it clearly shows that an enterprise is been making
sufficient amount of the money from their ongoing operations for fixed and the variable cost. As
operating margin of Farsons over the years is indicating a rising trend because its profits and
revenue is increasing so this shows that firm is performing better from one accounting period to
another but the percentage ratio of Heiniken is declining which shows its poor performance from
the previous years.
Net profit ratio- This ratio indicates the amount of the profits gained as the percentage of
the revenue. It is calculated by dividing the net profit by revenue which depicts the profit earned
by the company after making payment of tax obligation, costs and expenses (Aktas, Croci and
Petmezas, 2015). It means the percentage value of the sales that is been left after paying off all
the expenses that are deducted from sales. It is counted as an indicator of an entity's profitability
and depicts the proportion of the revenue which is translated into the net profit.
Interpretation- The results generated shows that the profit margin ratio of Heiniken is
reflecting a decreasing trend over the years which clearly depicts bad performance of the
company. On the other hand, the NP ratio of Farosns is seen as better than Heiniken as it
increasing with passage of one financial year to another (Ramiah and et.al., 2016). This shows
that Heiniken needs to take corrective measure in order to improve its NP margin as it should
reduce utilities, insurance premium, labour cost, operation cost and must focus on increasing the
sales revenue.
ROA- It is the ratio that tells about profits that is been earned by the company in relation
to its total assets. It gives an idea to the analyst, manager and an investor is efficiently managing
an enterprise by making the use of tits assets for the purpose of generating more and more
returns. It is computed by dividing the profits with total assets of the firm (Baker and et.al.,
2017). This ratio is used for comparing the similar companies with that of their previous
performance. It takes into account the debt of the company and the other related metrics like
ROE.
Interpretation- Positive value of the ROA indicates upwards trend of the profits,
however, negative or low ratio reflects ineffective use of the company's assets with respect to
generating larger returns. The ROA of Heiniken is seen as stable in the past 4 years which clearly
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