(Sample) Financial Analysis Assignment

Running head: FINANCIAL ANALYSIS
Financial Analysis
Name of the Student:
Name of the University:
Authors Note:

FINANCIAL ANALYSIS
1
Table of Contents
1. Evaluating performance of the company and analysing its financial health, while
explaining the variations in the financial over time:..................................................................2
2. Analysing the financial ratio performance across companies, while identifying the weak
and strong areas of performance:...............................................................................................5
3. Stating the suggestions for improvement for each company:..............................................13
4. Stating whether it is a better company to buy shares from:.................................................14
5. Stating the company considered for investment:.................................................................14
6. Stating the company considered to lead:..............................................................................14
References:...............................................................................................................................15

FINANCIAL ANALYSIS
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1. Evaluating performance of the company and analysing its financial health, while
explaining the variations in the financial over time:
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
10
20
30
40
50
60
70
80
90
Gross Margin %
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-5
0
5
10
15
20
25
Net Margin %
From the evaluation of gross profit margin, the overall financial performance of the
company has mainly improved over time leaving Kao, which decline over the period. Estate
Lauder has achieved the highest gross profit margin due the decline in its cost of sales
expenses, which was obtained by the company. However, from the evaluation of net profit

FINANCIAL ANALYSIS
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margin the L’Oréal is considered to have the highest value in comparison to other companies.
The difference in gross and net profit madding indicates the administrative expenses incurred
by the company over the period. Hence, from the evaluation it could be stated that L’Oréal
administrative expenses has relatively declined over the period for generating high level of
profits. The profit and gross profit level maintained by all the four companies is due to the
innovative factors involved in their operations. The companies are aggressively innovating
new products to be in the market, which is helping them to become one of the largest
producers of cosmetic and packaged goods company. The effective market and distribution
system has allowed the companies to maximise the level of profits from their operations1.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-5
0
5
10
15
20
Return on Assets %
1 Loreal.com. (2018). Loreal.com. Retrieved 23 May 2018, from https://www.loreal.com/

FINANCIAL ANALYSIS
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-10
-5
0
5
10
15
20
25
30
35
40
Return on Equity %
From the overall evaluation it could be identified that Estee Lauder has the highest
overall return on asset and equity in comparisons to other companies. The return on equity
has mainly declined for Shiseido and L’Oréal, and Estee Lauder from 2008 to 2017, which
indicates the accumulation of debt in conducting its operations. The financial position of
Shiseido declined as its return on assets from 2008 to 2017, while the company was not able
to generate adequate returns from investment. From the evaluation, it could be understood
that Estee Lauder, Kao, and L’Oréal has maintained the level of return on assets and equity
by changing their destruction policy, where maximum focus are on retailers and shopping
complex. The companies are reducing their own owned shops with distributors. This has
helped them to maximise their return on assets and equity. On the other hand, Shiseido is
focused on maintain quality cosmetic shops, which is increasing their assets accumulation,
while profits remain stagnant. This relevantly reduces their return on assets and equity, as the
company’s distribution system is adequate for the industry2.
2 Kao.com. (2018). Kao | Kao Worldwide. Retrieved 23 May 2018, from
http://www.kao.com/global/en/worldwide.html

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2. Analysing the financial ratio performance across companies, while identifying the
weak and strong areas of performance:
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
10
20
30
40
50
60
70
Days Sales Outstanding
The financial health of four organisation could be identified with the help of
profitability, liquidity, and efficiency ratios, which is calculated to understand financial
performance of the company. After evaluating the financial ratios, the days sale outstanding
for L’Oréal is identified to be of highest value, while Estee Lauder has the lowest value. This
relevantly indicates the financial performance of Estee Lauder in having the least outstanding
the sales days. The values of Shiseido have increased and declined adequately making the
difference minimal between 2008 and 2017. The values of Kao have increased exponentially
indicating the positive values of the organisation. The distribution system used by the
companies has affected its overall days sales outstanding, where Estee Lauder, L’Oréal and
Shiseido outstanding sales declined, as the companies use both own stores and distributors for
the selling process. However, the value of Kao has increased, as the companies focuses only
on distributors, where providing credit is essential for the continued growth of the business3.
3 Shiseido.com. (2018). Shiseido.com. Retrieved 23 May 2018, from
https://www.shiseido.com/staticcountryselect.html

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
50
100
150
200
250
Days Inventory
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
50
100
150
200
250
Payables Period
Moreover, the days inventory for Estee Lauder, L’Oréal, and Shiseido has increased
exponentially from 2008 to 2017. On the other hand, Kao’s inventory days has declined
indicating a positive attribute of organisation in controlling its inventory. Currently, Kao
among all the three companies needs the least days in clearing their inventory. From the
evaluation of payable periods, L’Oréal is identified to have the highest value, which indicates
that the company gets the highest credit from its suppliers. The ratio has increased

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substantially from 2008 to 2017, while the value of Shiseido has declined indicting low trust
of supplies on the activities of the company. The payable period has substantially increased
for Estee Lauder and Kao, where the values has increased from 2008 to 2017. The changing
values of payables period and days inventory is due to the distribution system used by the
companies the high inventory and payable days is due to the distribution policy. The
companies such as Estee Lauder, L’Oréal, and Shiseido has used both instore distribution and
distributions, which increases the level of payables period and inventory stock 4. However,
Kao uses whole sales distribution system only, which has helped in reducing their inventory
blockage and payable period.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-100
-50
0
50
100
150
200
Cash Conversion Cycle
4 Esteelauder.com. (2018). Estée Lauder Official Site. Retrieved 23 May 2018, from
https://www.esteelauder.com/

FINANCIAL ANALYSIS
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
2
4
6
8
10
12
Receivables Turnover
The cash conversion cycle indicate that Shiseido has effectively conducted its
activities, which allows the company to collect cash from operations, as fast as possible.
However, the L’Oréal cash conversion cycles is negative indicating the incapability of the
company to convert its investor in cash quickly as its peers. Estee Lauder cash conversion
cycle has declined due to competition, while Kao’s conversion increased slightly. The
measures taken by management allows Shiseido to maximise its cash conversion process and
reduce its investor blockage. The evaluation of receivables turnover ratio indicates that Estee
Lauder has the highest receivable, which has improved over time. On the other hand,
receivable of Kao has declined indicting the efficiency of the company to collecting
payments from its operations. Estee Lauder, Kao, and Shiseido market and product system
has effective improved over time, while the operations of L’Oréal indicate the low use of
distribution system. In addition, the positive product demand in the market has allowed Estee
Lauder, L’Oréal, and Shiseido to maximise its accounts receivable measures. The distribution

FINANCIAL ANALYSIS
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method used by Kao has mainly declined its receivable turnover ratio, as the company is
providing extra days payments to its buyers5.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
1
2
3
4
5
6
7
8
9
Fixed Assets Turnover
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Asset Turnover
5 Hutabarat, F. M., & Tarigan, D. (2015). Financial Performance Based on Profitability,
Liquidity, Solvency and Its Impact on the Stock Price of Companies Listed in Consumer
Goods Sector at Indonesia Stock Exchange from Year 2008-2014.

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The fixed asset turnover and asset turnover indicates a positive attribute of Estee
Lauder, which has focused in accumulating high-end assets for its operations. In addition, the
overall improvement in Asset turnover to of Kai, L’Oréal and Shiseido is seen over the period
of 2008 to 2017, while Estee Lauder values has declined over time. On the other hand, the
fixed asset turnover ratio of Estee Lauder and Kao has mainly declined, while value of
L’Oréal and Shiseido increased from 2008 to 2017. The distribution and market condition of
companies has mainly helped in improving the level of profits from operations. However, the
fixed and total asset turnover ratio has affected by the distribution system and product used
by the companies6.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Debt/Equity
6 Greenbaum, S. I., Thakor, A. V., & Boot, A. (Eds.). (2015). Contemporary financial
intermediation. Academic press.

FINANCIAL ANALYSIS
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
0.5
1
1.5
2
2.5
3
3.5
Financial Leverage
The debt to equity position of L’Oréal has relatively improved, where the company
uses equity to support its operations. In addition, the increment in Estee Lauder’s and
Shiseido debt accumulation is seen from 2008 to 2017 for supporting its operations.
Moreover, the debt to equity position of L’Oréal is adequate for operations. On the other
hand, the financial leverage of Estee Lauder is considered to be high in comparison to other
companies. However, the financial leverage of Estee Lauder has been declining instead the
values of Shiseido has been increasing. The leverage value of Kao and L’Oréal has been
declining since 2008 to 2017, which indicates the low financial position of the company. The
increment in debt is due to the increment in production needs, which is been conducted by
Estee Lauder. This is the main reason behind the financial deficiency in operations of Estee
Lauder. However, operations of companies such as Kao, L’Oréal, and Shiseido have mainly
improved due to the low accumulation debt for conducting its operations7.
7 Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.

FINANCIAL ANALYSIS
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Quick Ratio
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
0.5
1
1.5
2
2.5
Current Ratio
From the overall evaluation of quick and current ratio indicates the financial position
of Kato in comparison to other companies. In addition, all the four companies have seen an
increment in their current and quick ratio from 2008 to 2017. This is only possible when the
current asset accumulation of the company is relevantly higher than its current liabilities.
Hence, from the evaluation it could be identified that the value of Kao has effectively
conducting its operations and reduce the overall level of current liability in their financial

FINANCIAL ANALYSIS
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report to increase their capability for supporting their short term obligations. The demand for
the products, market and distribution system has mainly allowed Estee lauder, Kao, and
Shiseido to maintain adequate level of current asset for supporting its financial obligations.
However, the low market penetration and product demand has increased current liabilities of
L’Oréal8.
3. Stating the suggestions for improvement for each company:
From the overall evaluation it could be identified that improved in the operations of
Shiseido needs to be conducting, as the financial performance of the company from 2008 to
2017 has declined substantially. In addition, the debt and solvency position of Estee Lauder
needs to be improved, as the company accumulates high end debt to support its activities.
4. Stating whether it is a better company to buy shares from:
From the perspective of investment Estee Lauder and L’Oréal is considered to be the
best investment option for the investors, who could generate high level of returns from
investment. From the evaluation it could be identified that the company has mainly improved
the level of profit over time and strengthened their financial condition9.
5. Stating the company considered for investment:
However, from further evaluation of the pay-out ratios investments in L’Oréal is
considered to provide the highest rate of return from investment to their investors. The rising
8 Titman, S., Keown, A. J., & Martin, J. D. (2017). Financial management: Principles and
applications. Pearson.
9 DeFusco, R. A., McLeavey, D. W., Pinto, J. E., Anson, M. J., & Runkle, D. E.
(2015). Quantitative investment analysis. John Wiley & Sons.

FINANCIAL ANALYSIS
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profits and stable financial position of L’Oréal mainly portrays an adequate investment
opportunity for the investors, which could help in improving their profit level.
6. Stating the company considered to lead:
In addition, the evaluation of ratios indicates that Estee Lauder has the highest level of
financial performance and can be considered, as the market leader. The high profitability and
strengthened financial position of Estee Lauder mainly makes the company the industry
leader, where performance of other companies needs to be compared10.
References:
Esteelauder.com. (2018). Estée Lauder Official Site. Retrieved 23 May 2018, from
https://www.esteelauder.com/
Hutabarat, F. M., & Tarigan, D. (2015). Financial Performance Based on Profitability,
Liquidity, Solvency and Its Impact on the Stock Price of Companies Listed in Consumer
Goods Sector at Indonesia Stock Exchange from Year 2008-2014.
Greenbaum, S. I., Thakor, A. V., & Boot, A. (Eds.). (2015). Contemporary financial
intermediation. Academic press.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.
Titman, S., Keown, A. J., & Martin, J. D. (2017). Financial management: Principles and
applications. Pearson.
DeFusco, R. A., McLeavey, D. W., Pinto, J. E., Anson, M. J., & Runkle, D. E.
(2015). Quantitative investment analysis. John Wiley & Sons.
10 Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.

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Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.
Shiseido.com. (2018). Shiseido.com. Retrieved 23 May 2018, from
https://www.shiseido.com/staticcountryselect.html
Kao.com. (2018). Kao | Kao Worldwide. Retrieved 23 May 2018, from
http://www.kao.com/global/en/worldwide.html
Loreal.com. (2018). Loreal.com. Retrieved 23 May 2018, from https://www.loreal.com/