Financial Analysis of Shiseido Co Ltd : Report

Financial Analysis

TABLE OF CONTENTS
1. INTRODUCTION.......................................................................................................................1
1.1 Industry overview..................................................................................................................1
1.2 Company overview................................................................................................................1
1.2.1 KOSE Corp.........................................................................................................................1
1.2.2 Shiseido Co Ltd..................................................................................................................2
1.3 Approach and methodology...................................................................................................2
2. REVIEW ANALYSIS OF MANAGEMENT &DIRECTOR’S REPORT.................................2
2.1 Disclosure and announcement by the companies..................................................................2
2.2 Review of auditor’s report.....................................................................................................2
2.3 Forecasts and potential investment strategies........................................................................3
3. FINANCIAL STATEMENT ANALYSIS..................................................................................4
3.1 Background............................................................................................................................4
3.2 Business analysis...................................................................................................................4
3.3 Analysis of key performance indicators................................................................................5
3.3.5 Trend analysis or share price movement..........................................................................17
3.3.6 Common size financial statement analysis.......................................................................18
3.3.7 Altman Z score.................................................................................................................19
4. REVIEW OF LATEST DEVELOPMENTS............................................................................19
4.1 Market news, trends and developments...............................................................................19
4.2 Internal and external factors................................................................................................20
5. SUMMARY AND RECOMMENDATIONS...........................................................................20
REFERENCES..............................................................................................................................21
APPENDIX....................................................................................................................................23
Income statement of KOSE Corp as at March2015.................................................................23

Income statement of KOSE Corp as at March2016 & 2017....................................................25
Balance sheet of KOSE Corp as at March 2015.......................................................................27
Balance sheet of KOSE Corp as at March 2016 & 2017.........................................................29
Income statement of Shiseido Co Ltdas at March 2015...........................................................36
Income statement of Shiseido Co Ltdas at December 2015& 2016.........................................37
Balance sheet of Shiseido Co Ltd as at March 2015................................................................38
Balance sheet of Shiseido Co Ltd as at December 2015& 2016..............................................40
6. Ratio analysis of Shiseido Co Ltd.........................................................................................45
7. Common size financial statement analysis............................................................................47
8. EV/ EBITDA ratio.................................................................................................................47

1. INTRODUCTION
1.1 Industry overview
Porter five forceanalysis of personal care products sector:
Bargaining power of buyers
From assessment, it has been identified that in
the cosmetic sector customer’s have high
bargaining power. The main reasons behind
such high power arehigh competition and
availability of manufactures which offer beauty
products.
Bargaining power of suppliers
Cosmetic sector of is filled up with the low
bargaining power of suppliers. Large number
of market players and supply of diversified
products is one of the main reasons behind the
decreasing power.
Threat of substitutes
In \the concerned sector, high level of threat
exists from the substitute products. Hence, if
manufacturers will charge higher prices and
compromise with the quality aspect then there
is a risk that customers switch on others.
Threat from new entrants
Low threat exists in the personal care products
sector due to high cost, resource requirements s
etc. Besides this, in the cosmetic industry, due
to the aspect of customer loyalty it is not
possible for the new entrant to survive.
Competition intensity: In the cosmetic sector, competitive rivalry is highbecause there are
leading companies which provide customers with high quality personal care products. It
includesShiseido Co Ltd, Kao, Mandom, KOSE, MoltonBrown etc.
1.2 Company overview
For the present report, two companies have been selected namely KOSE Corp and
Shiseido Co Ltd. Brief introduction of such companies are enumerated below:
1.2.1 KOSE Corp
KOSE Corporation is one of the leading Japanese company which operates at global
level. It offers personal care products to the customers such as cosmetic, skin and hair care.

Further, to assess the financial position and performance of KOSE in against to the competitor
Shiseido has been considered.
1.2.2 Shiseido Co Ltd
Shiseido is known as the producer of quality skin and hair care, cosmetic and fragrance
related products. Such Japanese company has secured first position in Japan and fifth in the
world. Both the companies which are undertaken for the study listed on and traded through
Tokyo stock exchange.
1.3 Approach and methodology
With the motive to evaluate financial results of KOSE over the rival firm such as
Shiseido Co Ltddata has been gathered through the annual reports of such companies. Hence, by
accessing incomestatement and balance sheet of KOSE as well as Shiseido, pertaining to 5 years
from 2012 to 2016, data has been gathered. Along with this, to present the better view ofissue
latest economic developments and company’s latest announcements as well as forecasts have
also been evaluated. Hence, main source of information considered for the present study are as
follows:
 Annual reports of KOSE and Shiseido
 Journals and articles related personal care sector
2. REVIEW ANALYSIS OF MANAGEMENT &DIRECTOR’S REPORT
2.1 Disclosure and announcement by the companies
On 4th March 2014, KOSE announced that it has signed agreement in relation to
acquiring 14856 shares. This aspect shows that KOSE stake in Tarte accounts for 93.5%
respectively whose value is Japan yen135 significantly.
2.2 Review of auditor’s report
Auditor’s report of KOSE Corp shows that financial statements of the concerned
organization are free from errors. Besides this, auditors entailed in their report that company has
made fair distribution of benefits among the shareholders and other stakeholders.

Corporate governance report of KOSE Corp shows that enhancement of the group’s
value is one of the main objectives of the company. Hence, business unit communicates all the
business aspects to the concerned stakeholders by ensuring high level of transparency and
fairness. This in turn provides assistance to the firm in establishing effectual and trustful
relationship with the stakeholders (Corporate governance, 2017). In addition to this, for
managing risk specific committee has developed by the firm.Along with, external auditor has
appointed by the firm to present the fair view of financial performance.
(Source: Corporate governance, 2017)
2.3 Forecasts and potential investment strategies
On the basis of current performance, market trend as well as SWOT analysis, it is
estimated that in the near future KOSE corp. will take entry in the developing countries and
thereby attain high margin.

3. FINANCIAL STATEMENT ANALYSIS
3.1 Background
For the purpose of financial evaluation, ratio analysis technique has been undertaken for
getting deeperinsight or quick indication about thecompany’s performance. In furnishes
informationregarding the several key areas such as profitability, efficiency, investment, liquidity
and solvency. Thus, to summarize the financial position ofKOSE over the years and in
comparison to the competitor such as Shiseido ratio analysis tool has been employed.
3.2 Business analysis
SWOT analysis of KOSE Corporation
Strengths
 Effectual control on cost (labor)
 Highly skilled and efficient workforce
(KOSE Corporation SWOT Analysis
Overview, 2017)
 Sound quality management
Weaknesses
 Less emphasis on R&D
 Lower level of focus on promotional
campaign or aspects
Opportunities
 Enhance customer base and profit
margin by taking entry in emerging
economies
 Company has opportunity to grab high
market share through innovation and
offering new products as well as
services to the customers.
Threats
 Changing rules and regulations
 Presence of strong competitors
SWOT analysis of Shiseido Co Ltd

Strengths
 Effective management
 Sound customer base
 Quality management
 Market leader (Shiseido Company,
Limited SWOT Analysis, 2017)
Weaknesses
 Lack of training & development
session
 Lack of R&D program
Opportunities
 Expansion of business operations in
global market through mergers and
acquisition
Threats
 Government rules and regulations
3.3 Analysis of key performance indicators
3.3.1 Profitability ratios
Return on equity (ROE) Mar
2015
Dec
2015
Dec
2016
Sep2017
Interim
Unaudited
KOSE Corp
Net income / shareholders
equity 10.25% 13.84% 13.16% 10.20%
Shiseido Co
Ltd
9.58% 6.32% 8.19% 9.47%