Financial Analysis of Heinken and Farson: A Comparative Study

Financial Analysis
Management & Enterprise

Executive summary
The report will be revealing about Heinken and Farson financial health and position using
ration analysis. The report will provide understanding about the various ratios that are used by
organisations and the users of financial statements for making decisions regarding the financials
position of company. It helps in comparison of financials statements of two different companies
for a given period.
1. Presenting detailed analysis of the financial performance of two companies
Ratio analysis of Heiniken and Farson for the period of 5 years are enumerated below:
Heiniken
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farsons
Profitability ratio
Operating profit margin- It means the ratio that indicates the profits earned by the
companies after meeting all its variable cost like raw material, wages etc(Annual Report Farson
2016, 2019). It is type of the profitability ratio that depicts an efficiency of the firm in keeping
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effective control over the cost and the expenses attached with the business operations. Higher the
operating margin reflects better performance of an enterprise for each accounting period
(Rahman, 2017). From the analysis it has been seen that operating margin ratio of Heiniken is
declining over the years while of Farsons is showing an increasing trend which means that
Farsons could efficiently meet its operational expenses as compared Heiniken.
Net profit margin- It is the profitability ratio which indicates proportion of sales revenue
which is translated into the net profit. This ratio is been stated as key performance measure of the
firm's profitability. Higher or increasing net profit margin reflects that the company is more and
more efficient in converting its sales into the net profit. As per the results generated, it has been
analysed that net profit ratio of Heiniken is declining over the four year as the value of its
operating profit reduces and in turn shows that the company is not performing effectively and is
not making use of its sales in respect of generating profits. However, the NP ratio of Farsons is
seen increasing over the past 4 years which clearly means that after paying off all the cost and
the expenses, company is generating enough profits and reflected as the better performing
company in comparison to its rivalry that is Heiniken.
Return on assets- It referred as the ratio which measures the effectiveness of the
companies in respect to earning the return on their investment in the assets. It shows the extent
up-to which company could be able to convert its money in purchasing the assets into the net
profit. Positive value of ROA indicates high amount of profit generated with the use of assets.
The ROA of both the companies in the previous four years is been seen as stable as ratio of
Heiniken remains as 5 and of Farsons resulted as 7 which in turn means that Farons is making
more efficient use of its assets as compared to Heiniken.
Return on equity- This means as the profitability ratio which measures an ability of an
entity in generating the profits from the investment made by their shareholders within the
company (Wheeler, 2017). In accordance to the analysis made it has been seen that ROE of
Heiniken is decreasing whereas of Farsons is increasing that is rising from 8 to 12 over the 4
years. This means that Farsons is generating large amount of profits from an investment made
by their shareholder as compared to its competitor Heiniken.
Leverage ratio
Debt-equity ratio- It shows the percentage value of the company's financing which is
been attained from their investors and the creditors. Higher the debt to equity ratio reflects more
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of the creditor financing is been used than an investor financing. Referring to the evaluation its
has been seen that D/E ratio of both the company is increasing in the past years which is not
stated as the good sign for an entity and represents that company is not been able to make
sufficient cash in order to satisfy their debt related obligation.
Debt-assets ratio- This leverage ratio reflects the amount of the liabilities owned by the
firm over its assets. Ratio resulted equating to 1 means that an organization owns similar amount
of the assets and liabilities and this in turn shows that an entity is highly leveraged. Moreover, if
the ratio resulted greater than 1, an enterprise owns more and more liabilities than its assets.
Therefore, as per result it has been seen that the ratio of both the companies is increasing but is
less than 1 which shows better leverage position of both the firms over the years.
Liquidity ratio
Current ratio- It means the ratio that measures the liquidity position of the company by
assessing the current assets and current liabilities of the firm. Over 4 years, current ratio of
Heiniken is increasing which means that it is making an efficient use of its assets and has the
ability in meeting its short term obligation (Kajananthan and Velnampy, 2018). On the other
side, current ratio of Farsons has reached to an ideal ratio that is 2:1 and is greater than Heiniken
which means better liquidity position of the corporation.
Quick ratio- It indicates current liquid position of the firm and measures an ability of the
company in paying off its current obligation with the use of its immediate assets. The quick ratio
of both the company is seen as increasing which clearly depicts better liquidity position of an
organization within the industry.
Efficiency ratio
Receivable turnover- It means the ratio which indicates collection process of an
organization and ensures that large number of the quality customers pay-off their debts on a
quick basis. High ratio of receivable turnover reflects that the company operates more on the
cash basis rather than on credit basis. As per the outcome evaluated, the ratio of receivable
turnover of Farsons is higher than Heiniken which in turn shows better efficiency of the firm.
Payable turnover- This is the ratio which shows creditors current liquidity and
creditworthiness of an enterprise. High ratio reflects prompt payment is been made to the
suppliers for purchasing on the credit. Both the companies are having stable ratio and shows that
it makes payment on time and not take long period.
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