Financial Analysis of Heineken and Farsons

Financial Analysis
Management
Enterprise

INTRODUCTION
Financial analysis is the process of evaluating financial statements of any company with
an objective of making better decisions regarding business operations. In other words, financial
analysis helps the management to measure their strength as well as weakness in terms of figures.
Financial analysis establishes relationship between the various elements of statement of financial
position, statement of profit & loss, cash flow statement and other statements (Blum &
Dacorogna, 2014). It is used by the organizations in order to know about liquidity, profitability
and position of the company in terms of profit and loss. This report is based on Heineken and
Farsons. Both of them are brewing companies based out of Malta which produce a variety of
beers, wine and other beverages. This report covers multiple subjects such as financial
information of the two companies at it critically evaluated with the help of vertical & horizontal
statement of financial position or ratio analysis. In addition, it includes the critical evaluation of
working capital as well as flow of cash which is important to analyses by the management to
make effective decisions.
MAIN BODY
Critically evaluate the performance or the financial position of Farsons & Heineken
Overview of Farsons: It is a Maltese Food and beverages conglomerate company which
deals with the brewing, manufacturing, sales & distribution of beers and other kinds of alcoholic
and non-alcoholic beverages. It will be distributed through wholesalers as well as retailer and
also use the franchise options for food retailers. Farsons Company only offers their products in
Malta and it is founded in 1928. they offer variety in their products and its most famous beers
include cisk lager beer, cisk pilsner, hopleaf pale ale, blue label original amber ale, farsons India
pale ale, lacto milk stout etcetera. It is the first company which is a non-financial and private
sector firm that got listed in Malta Stock Exchange and they traded as SFC. It's subsidiary
companies import various international brand foods & beverages that are managed by the
Farsons Beverage Imports Company and Quintano Foods.
Overview of Heineken: It is beer manufacturing company and its beer contain only 5%
alcohol in overall volume of beer. They use green bottle with a red start as effective packaging in
order to attract customers (Bragg, 2012). Heineken is Dutch company which sells quality bear
and more than 300 international or local specialty beers. They sell over 170 countries which
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include China, Mexico, Australia etc. and approx. 8500 people employed under this company.
One of the main objective of the company is to create value which has proved to be the core
strength for its success in the industry. In 2013, Heineken take part in the producer's commitment
in order to reduce the harmful drinks, so they stop producing brown bottle for Dutch market and
use green bottle which they already used for export.
Vertical analysis: It is the proportional analysis of financial statements where every item
of financial statements used to be listed in percentage form. Basically it means, listed item of
Income Statement should be recognized in percentage of overall sales and balance sheet item
will be recognized as the value in terms of aggregate assets. Vertical analysis of the financial
position of the above mentioned companies are being discussed below:
Heineken:
Income statements:
With the use of vertical analysis of the income statement, Heiniken Ltd analyses their
gross profit as percentage of sales and it has been reduced from 2017 to 2018 and it was about
51.29% after perpetual improvement during the period of 2015 to 2017. Along with this, the net
profit of the company was 4.67% in 2015 and it reduced in 2016 to 3.75%. In 2017 or 2018 it
increased and reached 4.46% and 4.28% respectively (Annual Report of Heineken, 2019).
Statement of financial position:
Vertical analysis of statement of financial position will be recognized as the value of
aggregate assets. Here the value of non-current assets of the company are 84.3%, 79.3%, 79.9%
and 78.3% for the year 2015, 2016, 2017 and 2018 respectively. This clearly shows the fall in the
value of non-current assets over the years but on the other hand, cash balance increased in 2018
in comparison to 2017 (Cucchiella, Adamo and Gastaldi, 2015). In 2015 cash proportion was
2.23% which continuously increases and reached at 6.92% in 2018. Current assets of Heineken
are 15.6%, 20.6%, 20.1% and 21.6% of total assets for the year 2015, 2016, 2017 and 2018
respectively.
Shareholder's funds of the organisation were 17.90%, 16.78%, 16.16%, 17.06% during
the year 2015, 2016, 2017 & 2018 respectively. Total proportion of the current liability reduced
from 26.4% to 24.9% during 2016 to 2018. Moreover, the total proportion of the long term
liabilities also decreased from 59.5% to 58.03% during the period of 2015 to 2018.
Farsons:
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Income statement:
Vertical evaluation of Farsons company on the basis of statement of profit and loss, it has
been critically analysed that gross profit as a percentage of aggregate sales and it was 37.9% for
the year 2015. After this it will increased in 2016 and remain 38.8%, 38.6% and 38.9% for the
year 2017 and 2018 respectively. In addition, net revenue of the company was 14.7% of total
sales in 2018 and for the year 2015, 2016 and 2017 it was 10.1%, 12.9% and 13.6% respectively
(Annual Report of Farsons, 2019). It shows that revenue generation capacity of the company has
increased which is beneficial for them or make them capable to maximize their profit margin.
Statement of financial position:
Vertical analysis of the statement of financial position shows that the shareholder's fund
was 67.1% in the year of 2015 which further remain 66.87%, 67.21% and 59.88% in 2016, 2017
& 2018 respectively. Total amount of liabilities of the company was 20.3% for 2018 which
reduced because in 2015, 2016 and 2017 it was 32.79%, 32.52% and 32.89% respectively.
Non-current assets of the firm have reduced in comparison to previous years such as
77.1% in 2018 and 81.42% in 2017. in addition, non-current assets of the firm in 2016 were
79.14% and 78.2% in 2015. It has been critically evaluated that, total proportion of current assets
hiked from 18.5% to 22.2% which was 21.48% and 20.25% in year 2015 and 2016 respectively.
Horizontal analysis: It is an financial analysis techniques which used to identify the
changes in financial statement in figures over the time. It is used for the trend analysis where
organization see the difference in results overs the years. This analysis also face the issue
regarding ongoing adjustments in the figures of each item listed in income statement or balance
sheet (El Kasmioui and Ceulemans, 2012). It include changes in the sales revenue, assets,
liability, expenses and other obligations. Main objective on this analysis is to determine the
changes in the comparative financial statements during the given time period. It is beneficial for
the management to make their decisions regarding their business operations and maximize the
production as well as profitability through making effective strategies. Horizontal analysis of
Heiniken and Farsons mentioned below:
Heineken:
Income statement:
Horizontal analysis based on income statement of Heineken where sales figures of the
2017 was 5.27% and 2.66% in 2018. It clearly mentioned that sales revenue decreases from 2017
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