Financial Analysis of Farsons and Heineken

Financial Analysis Management &
Enterprise

Contents
INTRODUCTION...........................................................................................................................1
Overview of the companies.........................................................................................................1
Evaluation of the financial performance and financial position of FARSONS and HEINIKEN....1
Vertical analysis of the financial statements...............................................................................1
Horizontal analysis of the financial statements...........................................................................3
Ratio analysis of the financial statements....................................................................................4
EVALUATION OF THE WORKING CAPITAL..........................................................................7
EVALUATION OF THE CASH FLOW........................................................................................8
CONCLUSION AND RECOMMENDATIONS............................................................................9
REFERENCES..............................................................................................................................10
APPENDIX....................................................................................................................................11

INTRODUCTION
Financial analysis management is the procedure of analysing the financial performance and
position of an organisation in order to make reliable decisions (Blum and Dacorogna, 2014). This
management assists stakeholders in making calculated decisions so that they can earn reliable
returns of their investments (Bragg, 2012). The main aim of this report is to develop an
understanding about the ways by which financial information can be evaluated. In this report,
financial advice to a beer can manufacturer will be provided regarding to which company, this
organisation can supply their produce goods. The options which are available to this beer can
manufacturer are Farsons and Heineken. In this report, financial analysis against both these
companies are done using horizontal, vertical and ratio analysis. Along with working capital a
cash flow analysis is also done in this report to provide valid recommendations to the beer can
manufacturer.
Overview of the companies
Simonds Farsons Cisk plc. is a food and beverage company which is involved in
operations of brewing, manufacturing, sale and distribution of beers and other soft drinks. This is
a public limited company and its shares are listed at Malta stock exchange. This company was
established in 1928 and since then it is growing with a rapid pace, due to which it has a reliable
image in the market (Annual Report of Farsons, 2019).
Heineken is a beer manufacturing company which is dealing in operations such as brewing,
production, marketing and sales of the beer around the world. This company is engaged in huge
marketing activities due to sales revenue of this company is much higher than its competitors due
to which it is considered by the beer can manufacturer (Annual Report of Heineken, 2019).
Evaluation of the financial performance and financial position of FARSONS
and HEINIKEN
Vertical analysis of the financial statements
Vertical analysis is a technique of analysing the financial statements by considering one
element of financial statement as a base figure (usually sales revenue) and then comparing other
elements with it so that it can decided how other elements effect the sales of an organisation
(Christensen, Cottrell and Baker, 2013). In present case, this analysis is done on two companies’
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financial statements of four years (2015-2018) which is attached in appendix; commentary based
on that analysis is developed as below.
Vertical analysis of Simonds Farsons Cisk plc. (Income Statement)
Sales revenue is selected as the base for this analysis. It has been seen from the conducted
analysis that if the sales revenue of Farsons is 100% then the cost of revenue is 63% in 2015,
61.29% in 2016, 61.36% in 2017 and 61.05% in 2018. The aim of this vertical analysis is to
ascertain whether or not Farsons Plc. timely pay off their suppliers to advice beer can
manufacturer. The percentage of cost of sales is declining continuously in the case of this
company but it is also a benefit that the percentage of cost of revenue is considerably high that is
average of 62%. Cost of revenue includes the expenses which must be paid off to suppliers
against their supplied goods. This high percentage of supplier cost can be a benefit but also the
declining percentage can result into a limitation. Apart from sale revenue cost, other aspects of
the income statement are sound inclined as the end result of profit is average of 12% that is
continuously rising which says that the company is competent enough to pay their suppliers.
Vertical analysis of Simonds Farsons Cisk plc. (Balance Sheet)
In the case of balance sheet, total assets and liabilities are selected as a base from which
other elements of this financial statement will be compared. It has been seen from the analysis
that this company invests average of 8% against inventory from the total assets which means this
company invests huge amount on the raw material of beer cans that can be considered as an
opportunity for beer can manufacturer to offer them their proposal. To be more accurate, if the
total assets are 100% then the inventory percentage is 6.71% in 2015, 7.36% in 2016, 8.20% in
2017 and 8.64% in 2018. All other elements of balance sheet are effectively inclined against the
total assets and liabilities as the total of retained incomes and other incomes are averagely more
than 60% by which it can be said that this is a profit making company which enables them to pay
off their suppliers on time.
Vertical analysis of Heineken (Income Statement)
In the case of Heineken company analysis, the cost of revenue is observed to be increasing.
From the vertical analysis of income statement, it has been seen that if the sales revenue is 100%
then cost of sales is 47.25% in 2015, 46.64% in 2016, 46.23% in 2017 and 48.71% in 2018.
From this observation, it is analysed that this company is increasing their cost against the
suppliers which is a benefit for beer can manufacturer but even after this increasing trend the
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percentage of Heineken expenses which they incur against their supplies is much lower than the
percentage of Simonds Farsons Cisk plc.
Vertical analysis of Heineken (Balance Sheet)
From the analysis of statement of financial position, it has been seen that Heineken has
average of 4% against their inventory level if compared to their total assets. This means, this
company believes in spending on fixed assets more than the current assets specially inventories.
In order to emphasis on the aim, it can be said that Heineken invests approximately half of their
total assets against inventory than of Simonds Farsons Cisk plc.
After analysing financial statements of both the companies, it has been evaluated that
Simonds Farsons Cisk plc. is much better than Heineken when compared in terms of the value
which they spend against procurement of supplies.
Horizontal analysis of the financial statements
Horizontal analysis of Simonds Farsons Cisk plc. (Income Statement)
Horizontal analysis is the technique evaluating financial statements in which a year is
taken as a base and then elements of the financial year of the base year are compared to other
years (El Kasmioui and Ceulemans, 2012). The main aim of this analysis is to ascertain the
growth and survival rate of the company so that relevant decisions can be taken. In the present
case of Simonds Farsons Cisk plc., year 2015 is taken as base year for 2016, 2016 is taken as
base year for 2017 and so on.
It has been observed from the analysis, that percentage of cost of revenue which is
increasing every year is increasing with a low difference which makes this company a slow
growing company. Also, as the beer can manufacturer is intending to be supplier of Simonds
Farsons Cisk plc., it is important to get it in notice to them growth rate of this company is low.
Horizontal analysis of Simonds Farsons Cisk plc. (Balance Sheet)
For the purpose of beer can manufacturer which intend to be a supplier of this company,
elements of balance sheet which can assist in valid recommendation are inventory and creditors
amount. From the analysis, it can be seen that recently inventory flow of this company has been
decreased which means this company is no more acquiring huge raw material which is a
restriction for the beer can manufacturer. Apart from the inventory level, creditors amount
(debts) are continuously increasing which means this company is unable to effectively pay off
their debts now. To be precise, debts has increased by 50% in 2016, 33% in 2017 and 150% in
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