Financial Analysis of Farsons and Heineken

This report analyzes and compares the financial performance of Farsons and Heineken through vertical analysis, ratio analysis, and horizontal analysis. It examines their income statements, balance sheets, and cash flows to evaluate their financial condition and efficiency. The report also includes an introduction to both companies and their working capital management.

FINANCIAL ANALYSIS
MANAGEMENT & ENTERPRISE

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Introduction of both companies:.............................................................................................1
(a) Vertical analysis................................................................................................................1
Ratio analysis..........................................................................................................................4
2. IMPORTANCE OF ASSESSING THE WORKING CAPITAL................................................6
Working capital management of Farsons...............................................................................6
Working capital management of Heineken............................................................................7
EVALUATION OF CASH FLOW OF ORGANIZATIONS..........................................................7
Cash flows of Heineken..........................................................................................................7
Cash flows of Farsons............................................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
The term financial analysis is a systematic process of assessing information of different
financial statements in order to evaluate financial condition of business entities in an effective
manner (Hua and Nin-jing, 2012). There are various types of financial statements such as income
statement, balance sheet and many more with an objective of gathering key monetary
information. The aim of project report is to analysing and comparing financial performance of
companies. The project report is based on analysing financial position of two companies that are
Farsons and Heineken. For this purpose, various types of techniques are used such as vertical
analysis, horizontal analysis and ratio analysis. In the end part of the report comparative analysis
is done in order to evaluate efficiency of both companies.
TASK 1
Introduction of both companies:
Farsons company- This company was established in year 1966 and it operates its
business in the production & distribution of wines, beers, coffee etc. The company was
previously known as Wands limited. Its headquarter is at Birkirkara, Malta. This company's key
and most famous products are Blue Label Ale, Cisk Lager and many more. The company is
listed on Malta stock exchange though it is a non-banking sector company.
Heineken company – It is a Dutch brewing company which was established in year 1864
by Gerard Adriaan Heineken in Amsterdam. The company operates its business into 70 countries
and have a large product portfolio. They produce and offer more than 250 international and local
speciality beers. This company's key objective is to focus on value creation that helps them in
core success.
(a) Vertical analysis
Heineken
Income Statement:
On the basis of prepared income statement of Heineken Plc, it can be assessed that it is
prepared as per the consideration of 100% of sales. Their income statement provides a detailed
information regards to profitability and expenditures (Lin, Shicong and Yu, S., 2015). It can be
find out that their gross profits are decreased in year 2018 till 51.29%. While during year 2015 to
2017, it has been increased by huge manner. In addition, their net profits were fluctuating
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throughout the four years 2015,2016,2017 and 2018. Like in year 2015, it was of 4.67% that
reduced in next year and became of 3.75%. In further years, it increased and decreased. Such as
in year 2017, it increased and became of 4.46% but again decreased in year 2018 till 4.28%
(Annual Report of Heiniken, 2019).
Balance sheet:
On the basis of vertical analysis of balance sheet of Heineken company, it can be
assessed that all the items are based on the 100% of net assets value. It be assessed that their non-
current assets had been decreasing in all four years. In the starting year 2015, it was of 84.32%
that decreased significantly like 79.31% in 2016, 79.90 in 2017 and 78.38% in year 2018. On the
other hand, the value of current assets is increasing and decreasing in considered four years. Like
in year 2015, it was of 15.68% that raised in year 2016 by 31.95% and became of 20.69%. While
in next year 2017, it reduced by a little margin and became of 20.10% but again in next year
2018, it increased till 21.62% (Annual Report of Heiniken, 2019).
In the context of shareholder's funds, it can be assessed that its value has been fluctuated
in all four years. Starting from 2015, it can be find out that its value was of 17.90% that
decreased and became of 16.78% in year 2016. While in year 2017 and 2018, it was of 16.16%
& 17.06%. One of the key thing which is beneficial for company is that their current liabilities
are decreasing during year 2016 to 2018. As well as their non-current liabilities are also reduced
from 59.52% to 58.03% during time period of 2015 to year 2018.
Farsons:
Income Statement:
Same as the above mentioned income statement, under this company all the items are
based on proportion of total sales amount. In the context of gross profit, it can be find out that in
year 2015, this was of 37.97% that raised in next year 2016 till 38.82%. As well as in next two
years it was of 38.64% and 38.95% for year 2017 and 2018. In addition, their net income is
fluctuating in all four years. Such as in year 2015, it was of 14.74 that reduced and became of
10.13% in 2016. While in next two years, it had growth of 12.94% and 13.64% (Annual Report
of Farsons, 2019).
Balance sheet:
In the aspect of balance sheet of this company, it can be assessed that the value of
shareholder's equity is decreasing in three years except from year 2017. Such as in year 2015, it
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was of 67.11 that reduced and became of 66.87% in 2016. While in year 2017, it increased and
became of 67.21% but again in next year 2018, it reduced till 59.88%. On the other hand, in
aspect of total liabilities of this company, it can be find out that this is increasing and decreasing
significantly in all four years. Like in year 2015, it was of 32.79% that decreased in next year
and became of 32.52%. Though in year 2017, its value increased by a little margin and became
of 32.89% but in year 2018, it reduced dramatically till 20.37%. This is a good sign for company
that their total liabilities have been decreased.
In the context of non-current assets, it can have assessed that its value has been increased
except year 2018. Like in year 2015, it was of 78.52% that raised in next two years till 79.14%
and 81.42%. While in year 2018, it reduced by a huge margin and became of 77.16%. As well as
company's current assets were of 21.48%, 20.25%, 18.58% and 22.22% for year 2015,2016,2017
and 2018 respectively (Annual Report of Farsons, 2019).
(b) Horizontal analysis
Heineken:
Income Statement:
On the basis of horizontal analysis of income statement of this company, it can be find
out that their sales % was higher in year 2017 that was of 5.27% while it was lower in year 2018
that was of 2.66%. In addition, their gross profit value fell down by 2.08% in year 2018 and the
higher growth was in year 2017 which was of 6.04%. Same as their net profit is also decreased in
year 2018 from 1.64% and its value increased in year 2017 from 25.42% (Annual Report of
Heiniken, 2019)..
Balance sheet:
On the basis of balance sheet of this company, it can be find out that increasing % in the
shareholder's fund was of 0.53% and 7.91% in year 2017 and 2018. While in year 2016, it
decreased from 2.25%. In addition, their non-current liabilities are also raised by 7.24% in year
2017 and 1.69% in year 2018. The value of current liabilities increased from 22.09% and 0.59%
in year 2016 and 2017. While in year 2018, it reduced from 0.08%.
In the aspect of current assets of this company, it can be find that this is increasing
significantly such as 37.59% in year 2016, 1.36% in year 2017 and 9.97% in 2018. The value of
cash funds raised from 268.33% in year 2016 that reduced from 19.54% in year 2018. Their non-
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current assets reduced from 1.94% in year 2016 which increased in next two years from 5.14% in
year 2017 and 0.31% in year 2018 (Annual Report of Heiniken, 2019)..
Farsons:
Income Statement:
In the context of above company this can be find out that their revenue has been
increased in year 2018 from 7.95% but in year 2016-17, it raised from 3.53% and 7.59%. Apart
from it, their gross profit is increased as 10% in year 2016, 3.03% in 2017 and 8.82% in year
2018. Along with their net profitability has been raised from 37.50% in year 2016, 9.09% in
2017 and 16.67% in year 2018 (Annual Report of Farsons, 2019).
Balance sheet:
In the aspect of balance sheet of this company, it can be find out that their shareholder's
funds reduced in year 2018 from 21.14% but there was an increase in year 2016 and 2017 that
was of 9% & 12.84%. Apart from it, their total noncurrent liabilities raised as 8.16%, 13.21%
and 11.67% for year 2016, 2017 and 2018. The value of current liabilities also increased from
33.33% in year 2018. In the context of total assets of company, it can be find out that it raised in
two years 2016 and 2017 from 12.27% and 9.40% but in year 2018, it reduced by 11.48%. In
addition, the value of non-current assets reduced from 16.11% in year 2018 that was increased in
last year’s 2016 and 2017 from 10.26% and 15.50%. Along with their current assets raised from
3.13%, 3.03% and 5.88% in year 2016, 2017 and 2018 (Annual Report of Farsons, 2019).
Ratio analysis
Gross profit margin
Farsons Heineken
2015 2016 2017 2018 2015 2016 2017 2018
Gross
Margin 37.97% 38.82% 38.64% 38.95% 52.75% 53.39% 53.77% 51.29%
The gross profit of organisation increasing form the year 2015 to 2018 for Farsons it is
Cleary seen that the G.P. margin for the year 2015 were recorded high for Heineken
comparatively to Farsons. The net profit for the year 2017 increased by 38.92%, similarly the
profit for the year 2016, 2017 and 2018 subsequently recorded as 37.50%, 39.15% and 31.68%.
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Net profit margin
Farsons Heineken
2015 2016 2017 2018 2015 2016 2017 2018
Net
profit
margin 10.11% 13.22% 13.77% 14.49% 4.67% 3.75% 4.46% 4.28%
The net profit margin for the year 2015 recorded high in favour of Farsons by 5.44%, for
the year 2016 9.47% higher form Heineken. However, the profit for Heineken increased for the
year 2017 but comparatively Farsons the net profitability was lower by 9.31% and the
profitability for the year 2018 was recorded as 10.21%.
Current ratio
Farsons Heineken
2015 2016 2017 2018 2015 2016 2017 2018
Current
Ratio 1.72 1.39 1.39 1.12 0.69 0.78 0.79 0.87
The current ratio presents the balance between the current ratio and current liabilities
(Vogel, 2014). as the ratio analysis of both the organisations presents the clear difference form
the year 2015-2018. The current ratio position of Farsons shifting down and the position of
Heineken shifting positively. At present the current ratio of Farsons in adequate comparatively to
Heineken but it is lagging behind form ideal current ratio whereas the Heineken is growing
towards ideal ratio of current ratio.
Return on equity ratio
Farsons Heineken
2015 2016 2017 2018 2015 2016 2017 2018
Return on
Equity 12.52% 10.43% 10.70% 8.19% 14.87% 11.67% 14.77% 13.94%
Return on equity presents favourable results for Heineken respectively to Farsons. ROE
of Heineken is higher than Farsons by 2.35% for 2015, 0.91% in 2016, 4.07% for the year 2017
and 5.75% for the year 2018.
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2. IMPORTANCE OF ASSESSING THE WORKING CAPITAL
The approach a n organisation manages the short-term bond between current assets and
liabilities is to control working capital. Simply stated, that a business handles the cash for the
day-to-day activities and any current debt repayments is working capital planning (Longhai,
2012). The business will handle receivable payments, accounts payable, stocks, and money while
handling liquidity. Working capital management's objective is to have sufficient cash flow for
ongoing operations as well as the most efficient asset use.
The productivity of working capital is calculated by measuring the proportion of operating
capital. The profitability of working capital is analysed by dividing existing assets separated by
current assets (JIANG and LI, 2014). This proportion of is a key indicator of the economic
performance of the entity. If the measurement outcome is less than 1.0, then it will be considered
an indication of that financial problems for the company exists. If the measurement value is
higher than 1.0 and less than 2.0, then the business is in sound working capital financial
management. If the equation produces an outcome higher than 2.0, otherwise the organization
cannot use its capital effectively. There are two key measures helps in determining the working
capital performance of organisation as receivable turnover position and inventory turnover ratios.
Receivable turnover indicates that How often frequently during period a transaction is
produced and received. Receivables turnover is determined by total accounts receivable
separating total income. it is a good measure to tell how often instances in the accounting period
orders are now being produced and billed (Lange, Mendling and Recker, 2016).
The inventory turnover rate is based on cost of the products sold separated by the average price
of both the stock. If the outcomes remain below from 1 then it is estimated that the organisation
is not circulating optimum level of stock in business process (Kumar, 2016).
Working capital management of Farsons
The working capital management of Simonds Farsons cisk PLC presents a favourable
working capital position in terms of managing the flow of working capital to devise the day to
day business operations. comparing the last two year’s inventory turnover it is examined that the
company’s inventory turnover increased from 2017 to 2018. as the ratio in 2018 was 4.10 and in
2017 it was calculated 3.99 and increased by 2.75%. the receivable turnover of the company
states the favourable position as the ratio get decreased by 3.64% that reflects that the amount of
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outstanding debtors decreased which is a favourable sign subject to manage working capital
requirement with in organisation (Annual Report of Farsons, 2019).
Working capital management of Heineken
The working capital management of Heineken company is quite effective and organized in
terms of managing the operating capital adequacy. It is analyzed that the organization is
maintaining the operating capital or capital ratio 1.08. the receivable turnover ratio on an average
of last five years is calculated as 8.11 whereas the inventory turnover ratio is calculated as 7.33.
However, it is observed that the cash conversion ratio of company gets increased since last five
years that enhanced the working capital cycle of Heineken (Annual Report of Heiniken, 2019)..
EVALUATION OF CASH FLOW OF ORGANIZATIONS
Cash works as a nutrition to an organisation subject to manage the business requirements of
business (Wenlin and Yonghui, 2014). The difference among the amount of time it has to charge
for its vendors and staff as well as the amount of time organisation receives from its customers is
the issue, and cash flow control is really the solution Cash flow management in its finest implies
avoiding is the main process and enhance the same time motivating for managers for better
working. The cash flow formation is mainly based upon the International Financial Reporting
Standards adopted by EU (Rixin, 2012).
Cash flows of Heineken
The cash flow position of Heineken presents an increase of cash flow position of company.
As the cash flow for the year 2018 increased by 90.99% from last year. the cash and cash
equivalents as on December 2018 was recorded as €2248 and for the year ended in millions of €
2017 was millions of €1177. The reason behind the increase in cash flows resulted due to
increase in cash flow from operating activities. The cash flow from investing activity also
decreased by 20.57% as the cash flow from investing activity in the year 2018 was recorded as of
-€2355 million and in 2017 it recorded as -€2965 million. Cash flow from investing activity
increased by 0.1% as the cash flow from financing activity was recorded as -€966 in 2017 and -
€967 in 2018. The cash and cash equivalents in the year ended 2016 counted as €1366 million
and €282 million for the year 2015. it is seen that from 2015 to 2018 the cash flow position was
quite fluctuating. The managers agreed that certain established liquidity management
partnerships already listed in active liquidity partnerships would begin to apply within IFRS 9 for
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hedge reporting. Because IFRS 9 does not alter the principles on how an organization accounts
for active hedges, IFRS 9 will not have a significant impact on both the hedge reporting
implementation of the company (Annual Report of Heiniken, 2019).
Cash flows of Farsons
The cash flow position of SIMONDS FARSONS CISK PLC presents cash and cash
equivalents as -€1322 million, -€1157 million, €1166 million and -€485 million subsequently for
the year ended 2018, 2017, 2016 and 2015. The figures indicate towards favourable aspects
towards cash flow position of organisation. it is anticipated that organisation’s cash flow
positions are becoming broader that shows wide image of business. The operating activities are
decently managed due to which cash flow are increasing in year on year. there was no any
change was recorded in cash flows from financing activities during the year 2016 and 2015. The
same flow was maintained by the organisers for the year ended 2018. For equity, the successful
remainder of adjustments in the fair market value of securities approved and eligible as cash flow
shrubs will be recognized. In the balance sheet, the gains or losses related to the unsuccessful
component is recognized (Annual Report of Farsons, 2019).
CONCLUSION
Form the devised study, it is resulted that evaluation of financial aspects of an organisation
helps in assessing the sustainability of organisation in near future. In term of determining that
organization is financially viable or solid, the financial information was very confrontational.
The document requires three ways to produce the subject. The first section essentially describes
the horizontally and vertically examination of the financial reports for the entities involved, as
well as the ratios analysis specifically demonstrates the organizations ' financial performance. It
is understood successfully that active free cash flow allows to measure the success of an
organization's short-term business objectives. In the end, assessment of the financial performance
of the organisation by calculating the working capital requirement and cash flow management
adequate strategy and actions are advised to maintain an effective flow of operations and control.
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REFERENCES
Books and Journals:
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Lin, W., Shicong, Y. and Yu, S., 2015. Effect of Cost Leadership Strategy for Enterprise Core
Competitiveness——Evidence from the Listed Companies around Financial
Crisis. Journal of Hebei University of Economics and Business. 1. pp.89-96.
Vogel, H. L., 2014. Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.
Longhai, M. A., 2012. Analysis on the Status Quo of Domestic High-tech Enterprise Leadership
and Employee Participation [J]. Science and Technology Management Research. 24.
JIANG, W. and LI, R., 2014. An Analysis of the Game of Venture Investment and Start-Up
Enterprise [J]. In Finance Forum. (Vol. 9).
Kumar, D., 2016. Enterprise growth strategy: vision, planning and execution. Routledge.
Wenlin, F. and Yonghui, Z., 2014. Tax incentive, cash flow and the deviation of enterprise
investment structure. Economic Research Journal. 5. pp.19-33.
Rixin, L., 2012. Resources to Integrate the Perspective of A Small Micro-enterprise Finance
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Online:
Annual Report of Farsons, 2019. [Online]. Available through:
<https://www.farsons.com/en/financial-statements-archive>
Annual Report of Heiniken, 2019. [Online]. Available through:
<https://www.theheinekencompany.com/Age-gate.aspx?returnurl=%2f>
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