Financial Statement Analysis - Component B

FINANCIAL STATEMENT
ANALYSIS - COMPONENT
B

Table of Contents
INTRODUCTION...........................................................................................................................3
Analyst’s tear sheet......................................................................................................................3
Company Profile..........................................................................................................................5
Industry Analysis.........................................................................................................................5
Competitors analysis....................................................................................................................6
L’Oréal Business model and corporate strategy..........................................................................7
Analysis of L’Oréal key corporate events and activities.............................................................7
Summary Analysis of L’Oréal Financial statement.....................................................................8
Financial ratio calculation of L’Oréal and Revlon along its interpretation and comparison.......8
Company Valuation using multiples model..............................................................................11
Cash Flow Model.......................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES................................................................................................................................1
Appendix..........................................................................................................................................3
Discounted cash flow value per share.........................................................................................3

INTRODUCTION
Financial statement analysis means the process of analysing and identifying the financial
health of the business using the financial ratio, free cash flow model, EBITDA multiples and
analyst tear sheet. The present report will be based on L’Oréal S.A. and will cover the tear sheet
of company along with the stock recommendation to investors. Further, the report will cover the
industry analysis, competitor analysis, business model, financial statement & ratio analysis of
company Lastly, the report will determine the valuation of L’Oréal business on the basis of free
cash flow model and multiples model.
Analyst’s tear sheet

L’ORÉAL S.A. ANALYST’s TEARSHEET
L’Oréal SA (OREP)
Headquarter: Paris
379.40 -9.40 (-2.42%)
Date: 14/01 – Close EUR
Overvalued
Current Price: $379.40
Target (intrinsic) Price:
$388.80
Day’s Range: 378.90 – 383.40
52 wk Range: 290.10 – 433.65
Prev. close: 379.40
Open: 381.50
Volume: 424,867
Average Vol.(3m): 355,106
1-year Change: 27.14%
Market Cap: 211.58B
Beta: 0.55
P/E ratio: 51.95
Type: Equity
Market: France
ISIN: FR0000120321
CUSIP: -
Share outstanding: 557,672,360
Revenue: 30.11B
Dividend (yield): 4 (1.05%)
Div. ex-date: April 27, 2021
Div. pay date: April 29, 2021
Price Volatility Information
High: 383.40
Low: 378.90
Bid: 379.00
Offer: 382.00 Source: (investing.com)
Key Performance Indicators: (Source investing.com)
Particulars 2020 2019 2018 2017 2016
Sales 27992.10 29876.60 26937.40 26023.70 24916.30
GP Margin 73% 73% 73% 72% 72%
NP margin 13% 13% 14% 14% 12%
Normal EPS 4 3.85 3.85 3.55 3.30
Diluted EPS 7.92 7.14 7.07 7.18 6.16
Share Price 251.90 210.10 183.10 168.35 157.55
EBITDA 4500 5111 4827 4400 3964.80
Dividend 3.85 3.85 3.55 3.3 3.1
Free cash flow Yield 3.33% 2.93% - - -
Contact Details:
Location: 41 rue Martre, Clichy Cedex
Clichy 92117
France
FRA
Phone: [phone]
Fax: [phone]
Website: http://www.loreal.com

Company Profile
L’Oréal SA is one of the largest cosmetic company of UK having headquarter in Clichy,
France with a register office in Paris. The company is basically a French personal care company
that focus on various segment products such as hair colour, skin care, sun protection, make-up,
perfumes and hair care. The company operates in cosmetic industry and serve its both local as
well as international customers. Presently, the company operates in more than 150 countries
which is consider as their large geographical segment. The total number of employees work with
L’Oréal is around 88000 as per 2020 annual report. Further, in the year 2021, the company has
announced the acquisition of Vegan skin care brand in order to increase their business segment
and attract more and more customers. The financial health of the company is best and growing
day by day. The operating profit, revenue, net profit of the company in the year 2021 is €2672.80
million, 15196.60 million and 2362.60 million respectively which is higher than the previous
year i.e., 2020 figures (AREAS, 2018). This means that after Covid-19, company again come on
their growing track. The company have various mergers and acquisitions which help them
existing their business in the competitive market and taking advantage of higher sales and
customer base.
Industry Analysis
In order to analyse the industry in which L’Oréal company operates, the PEST analysis tool
is used. The PEST analysis of cosmetic industry is as follows:
 Political: This factor denotes the political stability etc. impact over the cosmetic
industry. Different country has their own rules and regulation which affects the industry
as well as company. Because of brexit and Covid-19, the sales of the company has
showed vast decline which also affect its profitability and financial health. The political
factor is creating threat for the cosmetics industry and L’Oréal company (Gassama,
2020).
 Economical: This includes the economic stability and people income factor impact over
industry and company. After covid-19, the income of the consumers has shifted their
purchasing criteria to basic goods from luxury and unnecessary goods. Along with the
trade war between China and USA has also causes decrease in the demand of L’Oréal
products.

 Social: In the present time, people all over the world love to show off which helps the
cosmetic industry in the increase of their demand. The impact of which the sales of the
L’Oréal company has also increase because company provides products as per the taste
and preference of consumers (Eriksrød, 2018).
 Technological: The technology is increasing day by day and consumer prefer more
digital and online shopping rather than offline shopping. The industry and cosmetics
companies such as L’Oréal has adopted digital platform to connect with the customer is
an opportunity for them which leads to increase in customer base.
Competitors analysis
The competitor’s analysis of cosmetics industry using the Porter five forces model are as
follows:
 Buyer Power: The power of buyer over cosmetics is weak because they have little
influence on price and products. Thus, L’Oréal are able to offer high price for the
products as well negotiate for pricing with other companies.
 Supplier Power: The bargaining power of supplier over the supply of raw material to
cosmetics companies are also weak. It is because the number of suppliers of cosmetics
such as beauty and personal care products are high and switching cost is also expensive
(Ndirangu, 2019).
 Threat of new Entrants: The number of firms that produces similar cosmetics products
are low in the market thus the threat of new entrants is also low. L’Oréal is highly
affected with this factor because their market share will get increase with low threat of
new entrants.
 Threat of substitute: The threat of substitute products is high in cosmetics industry
because there are many firms which produces same personal and skin care products
which is produces by L’Oréal. The impact of which they are facing the risk of losing their
sales and customer base (Galetić and Požega, 2019).
 Degree of rivalry: The degree of rivalry is high in the case of cosmetics industry because
the number of competitors in the industry are increasing day by day. As the switching
cost for consumer are quite low thus they can easily shift to new and other competitors
which is a risk for L’Oréal.