Financial Analysis of Farsons and Heineken

Financial Analysis
Management & Enterprise -
FAME

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Evaluation of financial performance of Farsons and Heineken..................................................3
Evaluation of horizontal analysis of Farsons and Heinikein.......................................................7
Evaluation of vertical analysis of Farsons and Heinikein..........................................................8
Evaluation of working capital of Farsons and Heineken............................................................8
Evaluation of cash flows of Farsons and Heineken....................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
APPENDIX....................................................................................................................................12

INTRODUCTION
Financial analysis management can be defined as a process of evaluation of business
reports, budgets, business project and various transactions related to finance to analyze the
company's performance and efficiency. It is helpful for the business to review the historical trend
and frame future policies for the business. It is helpful to investor to analyze the profitability to
invest in the firm. Financial analysis of the enterprises includes various tools like ratio analysis,
profit and loss statement, balance sheets, working capital and cash flow statements. All these
financial tools are helpful in analyzing the business of the company on financial grounds. Here
we are going to analyze the Heineken and Farsons. These are the organisations that are busy in
production, sales as well as distribution of branded beverages. It includes import, retailing and
wholesale of wines as well as spirits.
MAIN BODY
Evaluation of financial performance of Farsons and Heineken.
Profitability ratio
Operating profit margins:- It identifies the profit made by the organisation after paying
all of its variable costs like payoff, rent, raw material before payment of interest and tax. This
type of ratio keeps the cost in control which results in the efficiency of firm. It can be calculated
by dividing the firm's operating profit by the net sales. Company's operating profit shows that
how efficient it is working and what is return on its operational cost (Zou and Li, 2018). Higher
the variability of operating cost higher will be the risk associated with the business. The analysis
of operating profit margin of Farsons and Heineken shows that the operating profit margin ratio
of Farsons is showing increasing trends which shows it can efficiently meet the operational
efficiency while Heineken shows the declining trend in its operating profit margin ratio which is
not favorable for the company. Hence, Farsons is more efficient than Heinken in attaining
operational efficiency.
Net profit margin:- It is the total net income and profitability arrived from the total
revenue. It can be calculated by division of net profit by revenue. It is expressed in terms of
percentage. It is equal to net income shown in income statements. It shows the overall
profitability of the company. Higher net profit margin will show higher convertibility of sales
into net profit and vice versa. The analysis of net profit margin shows that the net profit of
Heineken is declining as company is not able to convert its sales into net profit. While net profit

ratio of Farsons is increasing over the last 4 years which shows that company is performing well
after paying all the expenses and cost. Here Farsons is able to effectively control its costs and
and able to provide goods and services at significantly higher price than its cost. Company is
generating good profits.
Return on assets :-It shows the profitability of company on the basis of total assets of
the company. This ratio gives an idea about effectiveness of Assets of the company in generating
profitability for the company (Al-Hares and Saleem, 2017). The positive value shows the high
amount of profit generated from the usage of company's assets. The ratio of ROA in case of both
the companies is positive. The Farsons is 7 and Heineken is 4. So it may be interpreted that
Farsons is making more efficient use of assets as compared to Heineken. Here Farsons is more
efficient to gain profit from the available resources.
Return on Equity :-It is measurement of how company is generating profits from the
investment made by share holders. The above analysis shows that Return on equity of Heineken
is declining whereas Farsons is increasing from 8 to 12 over 4 years. Here it is interpreted that
Farsons has made more profits from the investment made by equity shareholders. While
Heineken is making less profits out of the investment made by the shareholders in the company.
Leverage ratio
Debt equity ratio :- It is company, s total liability divided by shareholders fund. Higher
the debt equity ratio shows the higher creditor financing as compared to investors financing.
High Debt equity ratio shows the association of high risk with the company, it means company is
aggressive in part of employing external debt in its capital (Arunachalam, Chen and Davey,
2016). The analysis pd D/E ratio of both the companies shows the higher trend which interprets
that it is not favourable for the company. It shows that company is not able to make sufficient
cash to meet its debt obligation.
Debt Assets Ratio :-This ratio is indicator of company's financial leverage. It shows the
total liabilities that firm has against its Assets. It is total of assets owned on the credit basis by
the company. Higher the ratio higher will be degree of leverage and higher will be risk
associated with the company. If ratio is equivalent to 1 then company has equal amount of assets
and liabilities hence company will be highly leveraged. While when ratio is higher than 1 than
liabilities will be more than assets owned by the company. The analysis shows that ratio of both
the companies is less than 1 which is favorable for both the companies. It states that assets of

company are not financed by debts. Hence, both the companies has fewer liabilities as compared
to its assets.
Liquidity ratio
Current ratio :- It identifies company's obligation to pay its short-term debts or
debts from within a year. It helps the company how to increase its current assets and pay off its
debts and other payable. It involves the comparison of firm's total possession with the existing
liabilities. The current ratio can also be referred as working capital ratio and helpful to company
in understanding organisation's capability to cover its short-term liabilities. The current ratio of
Heineken is increasing over the last four years which shows that company is efficiently making
use of its current assets and able to pay off its short term debts. While on the other hand Farsons
is able to attain ideal current ratio of 2:1.It aslo indicates Farsons ability to pay off short term
debts and company is also making efficient use of its resources (Nataraja, Chilale and Ganesh,
2018). It can be interpreted that Farsons has better liquidity position as compared to Heineken.
Quick ratio :- It is referred as an indicator of short-term liquid orientation of company .It
measures the company's short term obligation to pay off its debts with the available liquid assets.
The analysis shows that the quick ratio of both the company is shown increasing which is
favorable for both the companies. Both companies have better liquidity position within the
industry. These both have capacity to pay their current liabilities without additional finance and
selling assets or inventories of the company.
Efficiency ratio
Receivable turnover ratio :- It shows the company's efficiency in collection of money
and receivables which are owned by its clients. It shows how company manages and collects the
debts from the clients whom company has provided credit. And also how quickly the debts are
collected from them. It is also called account receivable turnover ratio. It is calculated by
dividing net credit sales by average account receivables. Lower receivable turnover ratio is not
favorable as it shows the poor collection process. While higher ratio indicates favorable
collection process for the company. The receivable turnover ratio of Farsons is higher than
Heineken. Which shows Farsons is more efficient in collection of its receivables.
Payable turnover ratio :-It is helpful in measuring the rates at which company payoffs
to its suppliers. It shows number of times company pay offs to settle its accounts payable. It
shows how many times a company pays to settle its debts over a accounting period. High ratio

indicates that company is making payment on time and not taking too long in making payments.
Here ratio of both companies Farsons and Heineken are stable and hence both company is paying
its creditors on time and not taking too long for payments.
Assets turnover ratio :- It measures the total value of frm's sales relative to the
company's assets. It shows investor how companies are using their assets to generate sales for the
company. It is used to analyse the use of assets and identification of weakness of the firm. Here it
can be interpreted that both companies are making better use of its assets as the ratio of both is
rising. This indicates that companies are more efficient in using its assets. The ratio is positive
indicator for the company's efficiency.
Inventory days ratio :- It helps in measuring of the average number of days a firm holds
the stock earlier to selling to the potential consumers in the market. It calculates the number of
days the fund is locked with the inventory. The high ratio shows the inventory is fast moving
while low ratio indicates inventory is slow moving (Al-Hares and Saleem, 2017). The inventory
days ratio of both the companies is high which indicates that stock of both the firms is fast
moving. And companies does not hold inventory for long time or does not hold excess inventory.
Shareholders ratio
Shareholders equity ratio :- It shows the ratio of company's assets funded by the equity
shareholders of the company. It is calculated by dividing total shareholders equity by total assets
of the company. It is expressed in percentage form. Lower ratio indicates more debts are to be
paid for the company's assets. The interpretation of both the companies evaluates that the
Shareholder's equity ratio for both the companies is stable over the 4 years so. Company is
having better financial stability in the industry. This states that company is stable for the long run
and is less dependent on external debts. This indicates overall favorable for both the companies
Farsons and Heineken.
The above interpretation of various accounting ratios of Farsons and Heineken shows that
Farsons is efficient as compared to Heineken. The profitability ratio indicates the favorable
outcomes for Farsons as compared to Heineken. The Farsons is having increasing trends in all
profitability ratio which is favorable for the company. Favorable ratio shows the efficiency of the
company in using the assets and other resources.
The next ratio is liquidity ratio. They indicate the debtors' ability to pay off the current obligation
without raising the capital. The above analysis indicates that both the companies have better