Financial Ratio Analysis Example

This assignment presents a collection of solved financial ratios for three different periods. It covers profitability (NP ratio, Return on Equity), liquidity (Current Ratio), solvency (Debt-Equity Ratio), efficiency (Fixed Assets Turnover, Inventory Turnover), and investment (EPS, DPS) ratios. The data provides insights into the company's financial health and performance across these key areas.

Financial Statement Analysis

TABLE OF CONTENTS
1. INTRODUCTION.......................................................................................................................1
1.1 Background of the company..................................................................................................1
1.2 Analysis of company’s position in the industry....................................................................1
1.3 Scope of the report.................................................................................................................2
1.4 Methodology..........................................................................................................................2
2. FINANCIAL STATEMENT ANALYSIS..................................................................................2
2.1 Background............................................................................................................................2
2.2 Business analysis...................................................................................................................3
2.3 Analysis of financial performance.........................................................................................4
Common size financial statement analysis................................................................................10
Trend analysis............................................................................................................................11
Altman Z score..........................................................................................................................13
CONCLUSION..............................................................................................................................14
RECOMMENDATIONS...............................................................................................................14
REFERENCES..............................................................................................................................16
APPENDIX....................................................................................................................................18
1. Ratio analysis of Dairy Crest Group PLC.............................................................................18
2. Ratio analysis of Tate & Lyle Plc..........................................................................................19

1. INTRODUCTION
1.1 Background of the company
On the basis of given case situation, two business units have been selected namely Tate &
Lyle Plc (T&L) and Dairy Crest Group (DCG) PLC. Both the companies are operating in the
sector of Consumer Goods Food & Beverages. Brief introduction of both such companies are
enumerated below:
T&L: It is none of the leading British based multinational agribusiness that lays high
level of emphasis on using innovative technology. By using unique technologies firm turns raw
material like corn, tapioca and oats into ingredients (Tate & Lyle plc (TATE), 2017). T&L is the
main constituent of FTSE 250 index and listed on recognized stock exchange of London.
DCG Plc: Such business unit provides customers with wide range of dairy products and
brands like cheese, Country life butter, Vitalite, Clover etc (Dairy Crest Group plc - Company
Profile, 2017). DCG also listed on London stock exchange and recognized as main element of
FTSE 250.
1.2 Analysis of company’s position in the industry
Bargaining power of buyers
Under F&B sector, bargaining power of buyers are
high because they prefer to purchase products or
services from the retailer who charges lower prices
and maintains better quality.
Bargaining power of suppliers
It is low due to the availability of large number of
suppliers. Hence, by purchasing quality product
from the suitable supplier business unit can
generate high margin.
Threat from substitutes
Company is facing threat from the companies
which are offering similar kind of products or
services. Hence, by making focus on the actual
need of customers T&T can cope with such issue
(Tate & Lyle Plc Porter Five Forces Analysis,
2017).
Threat from new entrants
Moderate level of threat exists in F&B sector in
relation to new entrants. Moreover, innovation and
stiff competition imposes threat in front of new
entrants.

Competitive rivalry
Intensity of rivalry is high under F&B sector which in turn directly impacts the profit margin of firm.
Moreover, for dealing with the highly competitive situation business unit has to decrease the level of
profit margin.
1.3 Scope of the report
Scope of the present report is wide which in turn provides information to the investors
about the extent to which monetary position of the concerned companies recognized as sound.
As it includes financial evaluation of T&L and DCG Plc for the latest 3 years period which
clearly shows the company prove to be fruitful from investment perspective.
1.4 Methodology
To evaluate financial position and performance of T&L and DCG Plc ratio analysis tool
has been selected as well as employed. It is one of the most effectual tools which help in
summarizing financial statements under different categories such as profitability, liquidity,
solvency, efficiency and investment. Along with this, tool of internal and external environmental
analysis such as Porter five forces & SWOT has also been undertaken to support the financial
evaluation of results. Hence, from the below mentioned sources data has been gathered by the
researcher.
 Financial statements of T&L and DCG for the period of 3 years (2016, 2017, interim
results of 2017)
 Books, journals and scholarly articles
2. FINANCIAL STATEMENT ANALYSIS
2.1 Background
In order to get quick indication about the financial position and performance of T&L in
against to the competitor such as DCG Plc ratio analysis tool has been employed. This in turn
helps in getting deeper insight about the level to which profitability, liquidity and solvency
position of T&L Plc is sound over others.

2.2 Business analysis
SWOT analysis of Tate & Lyle Plc (T&L) Plc
Strengths
 Wide product portfolio
 High organic growth in core and
emerging market segment
 Strong growth in food ingredient
segment
 CSR and high focus on sustainable
operations.
 Improvement in quarterly cash
conversion
 Competent workforce
Weaknesses
 Limited awareness among the
customers towards brand in against to
the rival firm
 Lack of presence in small and medium
enterprise sector
Opportunities
 By strengthening the aspects of
innovation and commercial
development firm can gain competitive
edge over others.
 Need to lay emphasis on Asia and
Latin America from the growth
perspective.
Threats
 Supply chain disruptions impose major
threat in front of business unit because
it highly relies on agro products.
 Highly competitive market may also be
served as a major threat for the firm
(SWOT Analysis of T&L Plc, 2017).
SWOT analysis of Dairy Crest Group (DCG) PLC
Strengths
 Strong brand recognition and wide
offerings
 Customer satisfaction and loyalty
 Barriers pertaining to market entry
Weaknesses
 High level of investment in research
and development
 Lack of training session for personnel
Opportunities Threats

 It needs to enter in global and new
markets through the means of
acquisition strategy
 Growing economical aspect exhibits
growth opportunities in front of DCG
plc
 Availability of competitors
 Fluctuations in pricing and packaging
policy (Dairy Crest Group plc SWOT
Analysis, 2017)
2.3 Analysis of financial performance
3.3.1 Profitability ratios
Return on equity (ROE) = Net income / shareholders
equity
2016 2017
Sep2017
Interim
Unaudited
Tate & Lyle Plc
15.9%
19.2
% 9.6%
Dairy Crest Group PLC -
84.3%
52.8
% 66.3%
Interim Unaudited
2016 2017 Sep-17
-100.00%
-80.00%
-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
ROE
Tate & Lyle Plc Dairy Crest Group PLC
Interpretation: Financial statement analysis presents increasing trend in the ROE of both
the companies undertaken for the investigation purpose. In the year of 2016, due to the high
expenses, tax liabilities and loss from discontinuing operations DCG Plc failed to generate high
returns from shareholders equity (Annual report of DCG Plc, 2017). However, ratio results

pertaining to the year 2017 and interim period outcome shows that DCG Plc has used
shareholders fund in a prominent way as compared to T&L. Such financial results can clearly be
linked with SWOT analysis section which in turn exhibits that customers are highly aware from
the products of T&L Plc. Thus, it is one of the main reasons due to which T&L failed to generate
higher returns from funds invested by shareholders.
Net profit ratio = Net profit / net
sales * 100
2016
201
7
Sep2017
Interim
Unaudited
Tate & Lyle Plc
6.9%
9.3
% 8.9%
Dairy Crest Group
PLC -
26.8
%
9.1
% 55.8%
Interim
Unaudited
2016 2017 Sep-17
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
NP ratio
Tate & Lyle Plc
Dairy Crest Group PLC
Interpretation: By doing analysis of 3 year’s annual report it has found that after FY
2016, NP margin of the firm increased significantly from -26.8% to 55.8% respectively at the
end on interim period. However, NP margin of T&L Plc also increased from 6.9% to 9.3% in
2017 (Tate & Lyle plc (TATE), 2017). On the other side, results pertaining to September show
that NP margin accounted for 8.9%. Referring the overall position or performance it can be
depicted that DCG plc has exerted effectual control on both direct as well as indirect expenses as
compared to T&L. Thus, it can be mentioned that profitability aspect of T&L is not good in
against to the rival firm.

3.3.2 Efficiency ratios
Fixed assets turnover ratio = Net sales /
fixed assets 201
6
201
7
Sep2017
Interim
Unaudited
Tate & Lyle Plc 1.5
8
1.5
8 0.85
Dairy Crest
Group PLC 1.2
0
1.2
2 0.62
Interim
Unaudited
2016 2017 Sep-17
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Fixed assets turnover ratio
Tate & Lyle Plc
Dairy Crest Group PLC
Interpretation: Column graph clearly presents that in all the financial periods taken into
consideration, T&L plc has made effectual use of fixed assets for the generation of sales. This
aspect can clearly be supported with SWOT analysis which in turn shows that workforce of T&L
is highly skilled and competent. However, fixed assets turnover ratio of DCG plc was lower as
compared to the rival firm. Internal analysis presents that in DCG Plc, there is a lack of suitable
training session. It might be the cause because employees are encouraged to perform better when
they have idea about the same. Thus, it can be entailed that both the companies need to make
focus on conducting suitable training session for enhancing employee performance.
Inventory turnover ratio

Inventory turnover ratio = Net sales /
fixed assets 201
6
201
7
Sep2017
Interim
Unaudited
Tate & Lyle Plc 0.0
0
0.5
8 0.00
Dairy Crest Group
PLC 2.0
5
1.9
9 1.16
Interpretation: Tabular presentation shows decreasing trend in the inventory turnover
ratio of DCG Plc which is not a good indicator. Along with this, as compared to DCG Plc, in
2017 stock turnover ratio of T&T plc was only .58 times. In comparison to T&T, such ratio of
DCG Plc was good but both the companies need to lay focus on undertaking GH
3.3.3Liquidity and solvency
Current ratio = Current assets / current
liabilities 201
6
201
7
Sep2017
Interim
Unaudited
Tate & Lyle Plc 1.6
4
2.1
0 2.31
Dairy Crest Group
PLC 1.3
4
2.2
5 2.54
Interim Unaudited
2016 2017 Sep-17
0
0.5
1
1.5
2
2.5
3
Current Ratio
Tate & Lyle Plc Dairy Crest Group PLC

Interpretation: The above depicted table presents that liquidity ratio and position of both
the companies have increased over the time frame. In 2017, current ratio of T&L and DCG Plc
implied for 2.10 & 2.54. Hence, by taking into account the results of evaluation it can mentioned
that current ratio of the firms are in line with the ideal standards such as 2:1. Thus, both the
companies are capable in relation to meeting their obligations from current assets.
Debt-equity ratio: Long-term debt /
shareholder’s equity 20
16
201
7
Sep2017
Interim
Unaudited
Tate & Lyle Plc 0.5
3
0.4
4 0.44
Dairy Crest
Group PLC 1.8
5
3.7
9 1.61
Interim
Unaudited
2016 2017 Sep-17
0
0.5
1
1.5
2
2.5
3
3.5
4
Tate & Lyle Plc
Dairy Crest Group PLC
Interpretation: Graphical presentation shows that solvency position of T&L plc was
good in the last 3 years period in against to DCG. Moreover, as per the ideal standard such
as .5:1 firm needs to issue 2 equities over 1 debt which in turn helps in developing optimal
capital structure. Interim results entail that solvency ratio of DCG Plc declined from 3.7 to 1.61
but it is still far from the ideal standard. Hence, business unit needs to lay emphasis on
maintaining suitable capital structure because high debt imposes fixed burden in terms of interest
payment and thereby affects profit margin. Thus, considering the results it can be presented that
solvency position of T&L was good over others.

3.3.4 Investment ratios
Particulars
Earnings per share:
Net income –
preferred dividend /
Number of shares
outstanding
2016 2017
Sep2017
Interim
Unaudited
Tate & Lyle Plc 0.34 0.54 0.53
Dairy Crest Group PLC -0.81 0.27 1.06
Interim Unaudited
2016 2017 Sep-17
-1
-0.5
0
0.5
1
1.5
EPS
Particulars
DPS = Net income /
number of
outstanding shares 2016 2017
Sep2017
Interim
Unaudited
Tate & Lyle Plc
0.28 0.28 0.28
Dairy Crest Group PLC
0.21 0.22 0.23

Interim Unaudited
2016 2017 Sep-17
0
0.05
0.1
0.15
0.2
0.25
0.3
DPS
Interpretation: By applying the tool of ratio analysis on data set it has assessed that EPS
offered by T&L Plc is higher pertaining to the financial year ended on 31st March 2017. Along
with this, in 2017, EPS of DCG also inclined significantly. Due to the attainment of negative
margin in the year of 2016, firm failed to provide investors with positive earnings or results. In
addition to this, interim period results exhibit that EPS of T&L and DCG plc accounted for .53 &
1.06 significantly. Further, outcome of investment ratio analysis shows that constant dividend
policy was undertaken by T&L plc. Moreover, it has offered .28 dividend on per share in all the
concerned years such as 2016, 2017 and interim period. In addition to this, DPS associated with
the securities of DCG plc is showing increasing pattern from .21 to .23. Irrespective of having
negative returns in 2016, business unit offered dividend to the shareholders with the motive to
maintain the faith of investors. Thus, by taking into account overall position and performance it
can be depicted that both the firms are offering suitable returns to the investors or shareholders.
Common size financial statement analysis
Tate & Lyle Plc
Particulars 2016 % 2017 %
interim
2017 %
Revenue 2355 100% 2753 100% 1398 100%
GP 2355 100% 2498 91% 1398 100%
Total operating 2228 95% 2265 82% 1233 88%

expenses
(Interim
report of
T&L Plc,
2017)
Operating income 127 5% 233 8% 165 12%
Interest expense 23 1% 26 1% 37 3%
Other income
(expense) 22 1% 26 1% - -
Income before tax 126 5% 233 8% 161 12%
Dairy Crest Group PLC
Particulars 2016 % 2017 %
interim
2017 %
Revenue 422 100% 417 100%
220 (Interim
report of
DCG Plc,
2017) 100%
GP 111 26% 110 26% 220 100%
Total operating
expenses 67 16% 61 15% 64 29%
Operating income 45 11% 49 12% 156 71%
Interest expense 8 2% 8 2% 5 2%
Other income
(expense) 9 2% -1 0% -0.4 0%
Income before tax 45 11% 40 10% 151 69%
Interpretation: The above depicted table presents that in comparison to the sales,
operating expense level of T&L Plc was higher in all the concerned years. On the other side,
operating expense level of DCG Plc was high in the interim period such as 29% but it still
maintained. Further, comparatively sales, interest expenses incurred by DCG Plc were not high
as it accounts for only 2%. In addition to this, earnings before taxation of DCG Plc were higher
in against to T&L. Hence, it can be presented from evaluation that financial performance and
framework of DCG Plc was good over T&L plc.
Trend analysis
Share prices of T&L and DCG Plc from 2015 to 2017 is as follows:

Date T&L DCG
12/1/2014 null null
1/1/2015 592.2 459.7
2/1/2015 520.1 473.5
3/1/2015 521.9 421.6
3/31/2015 521.0 435.5
4/30/2015 508.3 488.7
5/31/2015 453.7 507.8
6/30/2015 476.0 493.5
7/31/2015 491.9 558.3
8/31/2015 533.7 579.7
9/30/2015 542.3 613.5
11/1/2015 535.5 581.1
12/1/2015 551.1 647.8
1/1/2016 575.5 621.1
2/1/2016 540.1 562.4
3/1/2016 531.8 594.6
3/31/2016 541.0 544.6
4/30/2016 578.3 529.3
5/31/2016 615.1 516.8
6/30/2016 685.4 579.7
7/31/2016 695.4 650.0
8/31/2016 710.1 641.5
9/30/2016 739.5 603.9
11/1/2016 642.8 570.3
12/1/2016 678.8 613.3
1/1/2017 643.3 589.6
2/1/2017 713.8 566.5
3/1/2017 733.5 553.5
3/31/2017 725.8 589.5
4/30/2017 708.0 611
5/31/2017 635.1 599
6/30/2017 663.5 597.5
7/31/2017 674.9 595.5
8/31/2017 640.3 614.5
9/30/2017 638.4 607.5
11/1/2017 664.5 558.5
12/1/2017 703 576.5
1/1/2018 686.8 566

(Share
prices
of T&L,
2017)
12/1/2014
2/13/2015
4/28/2015
7/11/2015
9/23/2015
12/6/2015
2/18/2016
5/2/2016
7/15/2016
9/27/2016
12/10/2016
2/22/2017
5/7/2017
7/20/2017
10/2/2017
12/15/2017
0
100
200
300
400
500
600
700
800
Share price movement of T&L and
DCG Plc
T&L
DCG
Prices
Interpretation: The above depicted line chart shows upward trend or movement in the
share prices of T&L Plc over DCG. Along with the financial, market news has significant impact
on the share prices or value of the firm. Hence, at the end of 2017, share prices of T&L Plc
accounts for £686, whereas adjusted closing prices of DCG Plc implied for £566 respectively.
On the basis of share price trend or movement, it can be mentioned that T&L Plc has developed
its effectual image at marketplace.
Altman Z score
Symbol
of
formula
Ratio Tate & Lyle Plc Dairy Crest Group PLC
A Working capital / total assets 538 / 2771 = .19 120 / 557 = .22
B Retained earnings / total
assets 548 / 2771 = .20 (97) / 557 = -.17
C EBIT / total assets 233 / 2771 = .08 49 / 557 = 0.09

D Market capitalization / book
value of debt
3236.52 / 588 =
5.50 873.94 / 273 = 3.20
E Sales to total assets 2753 / 2771 = .99 417 / 557 = .75
Sum of
Score
(A to E)
6.97
4.08
Interpretation: By applying Altman Z score on financial data set it has assessed that sum
of all the values pertaining to both the companies are above 3 (Altman Z-Score, 2017). Hence, by
keeping such aspect in mind it can be mentioned that both T&L and DCG Plc will not likely to
go bankrupt.
CONCLUSION
By summing up this report, it has been concluded that ratio analysis is used for analyzing
and interpreting financial statements. Besides this, it can be inferred from the financial
evaluation that monetary position of DCG Plc is good over the rival firm. It can be depicted from
overall evaluation that from in investment perspective, it can be mentioned that investors will
attain desired return by investing money in the securities of DCG plc.
RECOMMENDATIONS
Considering the outcome of ratio analysis following recommendations is given to T&L and
DCG plc.
 It is recommended to T&L to employ the techniques of budgetary control which in turn
helps in making control on expenses and thereby enhances profit margin.
 Further, for strengthening solvency position or aspect DCG Plc needs to lay emphasis on
following ideal debt-equity ratio such as .5:1. Currently, firm’s capital structure is far
from the ideal standard or level. Hence, in the near future, firm should focus on issuing
equities which in turn helps in building appropriate capital structure.
 Suitability: By taking into account ratio analysis outcome, it can be presented that
investors should focus on investing money in the securities of DCG plc. As, profitability,

liquidity, efficiency and investment ratio of DCG Plc is good as compared to the rival
firm such as T&L Plc. Thus, investors will earn higher return by investing money in the
shares of T&L plc. Thus, from the investment perspective, DCG Plc can said to be good.

REFERENCES
Online
Altman Z-Score. 2017. [Online]. Available through:
<http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/altman-
z-score-5188>.
Annual report of DCG Plc. 2017. [Online]. Available through:
<http://www.dairycrest.co.uk/~/media/Files/D/Dairy-Crest-Group/documents/annual-report-
2017.pd>.
Dairy Crest Group plc - Company Profile. 2017. [Online]. Available through: <
http://www.referenceforbusiness.com/history2/37/Dairy-Crest-Group-plc.html >.
Dairy Crest Group plc SWOT Analysis. 2017. [Online]. Available through:
<https://www.swotanalysis24.com/swot-d/29425-swot-analysis-dairy-crest-group-plc.html>.
Interim report of DCG Plc. 2017. [Online]. Available through:
<http://www.dairycrest.co.uk/~/media/Files/D/Dairy-Crest-Group/reports-and-
presentations/2017/interim-results-announcement-for-the-six-months-ended-30-sep-2017.pdf
>.
Interim report of T&L Plc. 2017. [Online]. Available through:
<https://www.businesswire.com/news/home/20171102005298/en/Tate-Lyle-PLC-UK-
Regulatory-Announcement-Half-year >.
Share prices of T&L. 2017. [Online]. Available through:
<https://finance.yahoo.com/quote/TATE.L/history?
period1=1420050600&period2=1515090600&interval=1mo&filter=history&frequency=1mo
>.
SWOT Analysis of T&L Plc. 2017 [Online]. Available through:
<https://www.mbaskool.com/brandguide/food-and-beverages/13804-tate-a-lyle.html>.

Tate & Lyle plc (TATE). 2017. [Online]. Available through: <
http://www.tateandlyle.com/home>.
Tate & Lyle plc (TATE). 2017. [Online]. Available through:
<http://www.hl.co.uk/shares/shares-search-results/t/tate-and-lyle-plc-ordinary-25p/financial-
statements-and-reports >.
Tate & Lyle Plc Porter Five Forces Analysis. 2017. [Online]. Available through:
<http://fernfortuniversity.com/term-papers/porter5/lse/282-tate---lyle-plc.php>.

APPENDIX
1. Ratio analysis of Dairy Crest Group PLC
Particulars Formula 2016 2017 interim 2017
Profitability ratio
Net profit -113 38 122.7
Shareholders’ equity 134 72 185
Sales revenue 422 417 220
NP ratio Net profit / sales * 100 -26.8% 9.1% 55.8%
Return on equity
Net profit / shareholders
equity *100 -84.3% 52.8% 66.3%
Liquidity ratio
Current assets 312 216 216
Current liabilities 232 96 85
Current ratio
Current assets/ current
liabilities 1.34 2.25 2.54
Solvency ratio
Long-term debt 248 273 298
Shareholders’ equity 134 72 185
Debt-equity ratio
Long term debt /
shareholders equity 1.85 3.79 1.61
Efficiency ratio
Fixed assets 353 341 353
Stock 152 154 169
sales revenue 422 417 220
COGS 311 307 196
Fixed assets turnover ratio Net sales / fixed assets 1.20 1.22 0.62
Inventory turnover ratio COGS / inventory 2.05 1.99 1.16
Investment ratios

EPS -0.81 0.27 1.06
DPS 0.21 0.22 0.23
2. Ratio analysis of Tate & Lyle Plc
Particulars Formula 2016 2017 interim 2017
Profitability ratio
Net profit 163 256 124
Shareholders’ equity 1028 1332 1294
Sales revenue 2355 2753 1398
NP ratio Net profit / sales * 100 6.9% 9.3% 8.9%
Return on equity
Net profit / shareholders
equity *100 15.9% 19.2% 9.6%
Liquidity ratio
Current assets 1064 1025 980
Current liabilities 650 487 424
Current ratio
Current assets/ current
liabilities 1.64 2.10 2.31
Solvency ratio
Long-term debt 543 588 574
Shareholders’ equity 1028 1332 1294

Debt-equity ratio
Long term debt /
shareholders equity 0.53 0.44 0.44
Efficiency ratio
Fixed assets 1490 1746 1637
Stock 389 441 380
sales revenue 2355 2753 1398
COGS 255
Fixed assets turnover ratio Net sales / fixed assets 1.58 1.58 0.85
Inventory turnover ratio COGS / inventory 0.00 0.58 0.00
Investment ratios
EPS 0.34 0.54 0.53
DPS 0.28 0.28 0.28