Financial Information for Decision Making

The report analyses the financial performance of Bega Cheese Limited through measuring the efficiency ratios, profitability ratios, gearing ratios and liquidity ratios over the years from 2014 to 2016. The report reveals that the company is capable in generating return, collecting of dues and paying off the short-term obligations. However, the profitability ratios of the company have been decreased from the year 2014 to 2015 though it was able to improve the profitability position in the year 2016. Further, the company was efficient with regard to its efficiency ratios undertaken for analysing its efficiency. The liquid ratio of the company is representing that the company is capable in paying-off its short-term obligation. However, the gearing ratios of the company are revealing that the leverage position of the company is deteriorating.

Running head: FINANCIAL INFORMATION FOR DECISION MAKING
Financial information for decision making
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FINANCIAL INFORMATION FOR DECISION MAKING 1
1. Executive summary
The report will focus on is to analyse the financial performance of Bega Cheese Limited
through measuring the efficiency ratios, profitability ratios, gearing ratios and liquidity ratios
over the years from 2014 to 2016. The efficiency ratios and liquidity ratios of the company
are revealing that the company is capable in generating return, collecting of dues and paying-
off the short-term obligations. However, though the company improved its profitability
position in 2017 as compared to 2016, both the year’s profitability ratios are significantly low
as compared to 2014. Further, the financial risk of the company also increased over the years
from 2014 to 2016.

FINANCIAL INFORMATION FOR DECISION MAKING 2
Table of Contents
1. Executive summary.............................................................................................................1
2. Introduction.........................................................................................................................3
3. Ratio calculation and interpretation....................................................................................3
Profitability ratio........................................................................................................................3
Return on shareholder’s equity..............................................................................................4
Return on total asset...............................................................................................................4
Net profit margin....................................................................................................................4
Efficiency ratio...........................................................................................................................5
Account receivable turnover..................................................................................................5
Inventory turnover..................................................................................................................6
Asset turnover........................................................................................................................6
Liquidity ratio.............................................................................................................................6
Current ratio...........................................................................................................................6
Quick ratio..............................................................................................................................7
Gearing ratio...............................................................................................................................7
Debt to asset ratio...................................................................................................................7
Gearing ratio...........................................................................................................................8
4. Conclusion..........................................................................................................................8
Appendix..................................................................................................................................11

FINANCIAL INFORMATION FOR DECISION MAKING 3
2. Introduction
Established in 1989, Bega Cheese Limited is the Australian company that carries on
its operation mainly in Bega of New South Wales. However, the company was formed as the
cooperative agricultural company and listed as public company during 2011. The company
produces and delivers cheese products of high quality through more than 100 firms of dairy.
The company’s main business products include cream cheese and powdered milk. Other
products dealt by the company are various nutritional products like milk protein concentrate
and Lactoferrin. The company supplies its products over more than 50 nations all over the
world. The company belongs to the cheese manufacturing industry of Australia and holds
almost 15.70% of the market. The growing trend of Australian cheese industry is increasing
the investor’s interest in this industry. Main competitors of the company are Devondale
Murray Goulburn, Fonterra Co-op Group, Lion Nathan National Foods and Warrnambool
Cheese and Butter. About 27% of total revenues are generated from the major business of the
company and 50% of revenue are generated from retail cheese and processed cheese (Bega
Cheese, 2018).
3. Ratio calculation and interpretation
Profitability ratio
Ratio Formula 2016 2015 2014
Profitability ratio
Return on shareholder's
equity
Net income / shareholder's
equity
8.99 3.96 22.92
Return on total asset Net income / total assets 5.05 2.25 12.03
Net profit margin Net profit / Sales *100 2.41 1.12 6.18

FINANCIAL INFORMATION FOR DECISION MAKING 4
The financial analysts and investors use the profitability ratios for measuring the
ability of the entity to create income. Major profitability ratios included in this report for
analysing the performance of Bega Cheese Limited are return on total assets, return on
shareholder’s equity and net profit margin. Profitability ratio can be used efficiently to
compare the performance of the company with the previous year (Čermák, 2015).
Return on shareholder’s equity
Return on the shareholder’s equity is used to measure the profit generated by the
company using the shareholder’s investment. Looking into the above presented table it can be
stated that the return earning capability of the company from the shareholder’s investment
has been reduced significantly as the ratio reduced from 22.92% to 3.96% from the year 2014
to 2015. However, the company improves its position during 2016 as the ratio increased to
8.99% (Bega Cheese, 2018).
.
Return on total asset
Return on total asset ratio focuses on the efficiency of the company in generating
profit through utilizing the assets available with the company. Generally the company with
higher return considered to be in better position in financial aspect (Heikal, Khaddafi &
Ummah, 2014). Looking into the above presented table it can be stated that the return earning
capability of the company from the available assets has been reduced significantly as the ratio
reduced from 12.03% to 2.25% from the year 2014 to 2015. However, the company improves
its position during 2016 as the ratio increased to 5.05% (Bega Cheese, 2018).

FINANCIAL INFORMATION FOR DECISION MAKING 5
Net profit margin
The net profit margin states the percentage of revenue available with the company
after deducting all the operating, tax and finance expenses. Higher margin of net profit
represents that company’s financial position is strong and it is able to meet all its expenses
(Board & Skrzypacz, 2016). It can be identified from the above presented table it can be
stated that net profit margin of company has been reduced significantly as the margin reduced
from 6.18% to 1.12% from the year 2014 to 2015. However, the company improves its
position during 2016 as the profit margin of the company increased to 2.41%.
Efficiency ratio
Ratio Formula 2016 2015 2014
Efficiency ratio
Inventory turnover Cost of goods sold/ average
inventory
5.38 5.23 5.48
Inventory turnover in days 365/inventory turnover 67.79 69.77 66.62
Settlement period for
account receivable
Credit sales/ average
receivables
9.09 9.84 10.18
Account receivable in days 365/Account receivable ratio 40.16 37.10 35.86
Asset turnover Net sales/ Average total asset 2.10 2.02 1.95
Asset turnover in days 365/asset turnover ratio 173.82 180.60 187.36
Efficiency ratio measures the company’s efficiency in managing the liabilities and
utilization of the assets. The major efficiency ratios used in this report to measure the
efficiency of Bega Cheese Limited are the account receivable ratio, inventory turnover ratios
and asset turnover ratio (Delen, Kuzey & Uyar, 2013).

FINANCIAL INFORMATION FOR DECISION MAKING 6
Account receivable turnover
Account receivable ratio is used to measure the number the days taken by the
company to convert its credit sales into cash. In other words, it is the time taken by the
company to receive the dues on account of credit sales. It can be identified from the above
table that the account receivable ratio over the last 3 years period was in decreasing trend. It
is signifying that the company’s efficiency has been decreased over the years. Further, the
days taken by the company to recover its dues has been increased from 35.86 days to 37.10
days over the years from 2014 to 2015 and further increased to 40.16 days in 2017 (Bega
Cheese, 2018).
Inventory turnover
It measures the number of days taken by the company to replace or sell the entire
stock of inventories. The efficiency in selling or replacing the inventories has not been varied
on large scale over the years from 2014 to 2016. The number of days taken by the company
to sell or replace the inventories was 66 days to 70 days (Bega Cheese, 2018).
Asset turnover
Asset turnover ratio measures the company’s ability to generate revenue through
using the assets available with the company and the time taken to generate the income
(Sunder, 2016). From the computation table it can be identified that the days taken by the
company to generate income through utilization of assets has been reduced from 187.36 days
to 173.82 days over the years from 2014 to 2016 (Bega Cheese, 2018).
Liquidity ratio
Ratio Formula 2016 2015 2014
Liquidity ratio
Current ratio Current assets / current 1.65 1.83 1.52

FINANCIAL INFORMATION FOR DECISION MAKING 7
liabilities
Quick asset ratio (Current assets-inventories) /
current liabilities
0.74 0.75 0.65
Liquidity ratios are used for measuring the liquidity position of the company that
states the ability to pay off its short term obligations with the short-term assets available with
the company. To measure the liquidity position of Bega Cheese Limited current ratio and
quick ratio over the years from 2014 to 2016 has been computed (Drehmann & Nikolaou,
2013).
Current ratio
Current ratio measures the current assets of the company in proportion to its current
liabilities. If the company’s current asset is more than current liabilities that is the current
ratio is more than 1 the company will be efficient in paying off its short-term obligations
(Grant, 2016). Analysing the calculation table it is observed that the current ratio of the
company for all the 3 years under consideration is more than 1. Thus, the liquidity position
Bega Cheese is strong enough to pat off the short term obligation.
Quick ratio
Quick ratio is also used to measure the company’s short-term liquidity position.
However, the major difference of quick ratio with the current ratio is that the quick ratio does
not considers the assets those take considerable time to be converted into cash like
inventories (Luez & Wysocki 2016). The quick ratio of the company is increased from 0.65
to 0.74 over the years from 2014 to 2016. Therefore, the liquidity position of the company
has been improved over the years.

FINANCIAL INFORMATION FOR DECISION MAKING 8
Gearing ratio
Ratio Formula 2016 2015 2014
Gearing ratio
Debt to asset ratio Total debt/total assets 44.12 43.40 42.70
Gearing ratio Non-current liabilities/ (non-
current liabilities +
Equity)*100
13.14 16.20 6.56
Gearing ratio measures the long-term obligations of entity as compared to capital
employed by the company. It is further used to assess the leverage position of the company
(Hill, Jones & Schilling, 2014).
Debt to asset ratio
Debt to assets ratio is a financial leverage metric and used to measure the proportion
of assets obtained through debt, credit and liabilities. Generally the 40% proportion is
considered better and it represents that the company’s financial health is stable (Prasetyorini,
2013). It is observed that the debt to assets ratio of the company is increased from 42.07% to
44.12% over the years from 2014 to 2016.
Gearing ratio
Gearing ratio is most used method for measuring the leverage position of the
company. Higher gearing ratio states that the company is highly leveraged and is exposed to
high financial risk (Jones & Kulish, 2013). It can be found out from the calculation table that
the gearing ratio of the company has been significantly increased from 6.56% to 13.14%.
Therefore, the company’s leverage level has been increased over the years from 2014 to
2016.

FINANCIAL INFORMATION FOR DECISION MAKING 9
4. Conclusion
It can be concluded from the above analysis that the profitability ratios of the
company have been decreased from the year 2014 to 2015 though it was able to improve the
profitability position in the year 2016. Further, the company was efficient with regard to its
efficiency ratios undertaken for analysing its efficiency. The liquid ratio of the company is
representing that the company is capable in paying-off its short-term obligation. However, the
gearing ratios of the company are revealing that the leverage position of the company is
deteriorating.
References
Bega Cheese., (2018). Home - Bega Cheese. [online] Available at:
https://www.begacheese.com.au/ [Accessed 17 May 2018].
Board, S., & Skrzypacz, A., (2016). Revenue management with forward-looking
buyers. Journal of Political Economy, 124(4), 1046-1087.
Čermák, P., (2015). Customer profitability analysis & customer life time value models:
Portfolio analysis. Procedia Economics & Finance, 25, 14-25.
Delen, D., Kuzey, C. & Uyar, A., (2013). Measuring firm performance using financial ratios:
A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Drehmann, M., & Nikolaou, K., (2013). Funding liquidity risk: definition &
measurement. Journal of Banking & Finance, 37(7), 2173-2182.
Grant, R.M., (2016). Contemporary strategy analysis: Text & cases edition. John Wiley &
Sons.

FINANCIAL INFORMATION FOR DECISION MAKING 10
Heikal, M., Khaddafi, M., & Ummah, A., (2014). Influence analysis of return on assets
(ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER),
& current ratio (CR), against corporate profit growth in automotive in Indonesia Stock
Exchange. International Journal of Academic Research in Business & Social
Sciences, 4(12), 101.
Hill, C.W., Jones, G.R. & Schilling, M.A., (2014). Strategic management: theory: an
integrated approach. Cengage Learning.
Jones, C., & Kulish, M., (2013). Long-term interest rates, risk premia & unconventional
monetary policy. Journal of Economic Dynamics & Control, 37(12), 2547-2561.
Luez, C. & Wysocki, P., (2016). Economic Consequences of Financial Reporting &
Disclosure Regulation: A Review & Suggestions for Future Research. J. Acct. &
Econ., 50, p.525.
Prasetyorini, B. F. (2013). Pengaruh ukuran perusahaan, leverage, price earnings ratio dan
profitabilitas terhadap nilai perusahaan. Jurnal Ilmu Manajemen, 1(1), 183-196.
Sunder, S., (2016). Rethinking financial reporting: st&ards, norms &
institutions. Foundations & Trends® in Accounting, 11(1–2), pp.1-118.

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Appendix

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FINANCIAL INFORMATION FOR DECISION MAKING 13