Financial Analysis of Companies

This assignment presents a comparative financial analysis of two companies, Booker and another unnamed company. It focuses on vertical and horizontal analysis techniques applied to the income statement and balance sheet. Vertical analysis shows the proportion of each line item relative to the total, while horizontal analysis tracks changes in line items over time. The provided data includes percentages for various financial metrics like revenue, cost of sales, operating expenses, and profit after tax. The goal of this assignment is to illustrate how these analytical methods can be used to understand a company's financial performance and position.

STRATEGIC FINANCIAL
ANALYSIS

Table of Contents
1. INTRODUCTION.......................................................................................................................4
1.1 Define SFA and importance of financial analysis............................................................4
1.2 Assignment objectives......................................................................................................4
1.3 Background of selected companies..................................................................................4
1.4 Techniques used throughout the report............................................................................5
2. RATIO ANALYSIS.....................................................................................................................5
2.1 Profitability.......................................................................................................................5
2.2 Liquidity...........................................................................................................................6
2.3 Efficiency.........................................................................................................................8
2.4 Leverage...........................................................................................................................9
2.5 Investors.........................................................................................................................10
3.0 Common size analysis..............................................................................................................11
3.1 Vertical analysis.............................................................................................................11
3.2 Horizontal analysis.........................................................................................................11
3.3 Du Pont analysis.............................................................................................................11
3.4 Segment analysis............................................................................................................11
4.0 MERITS AND DEMERITS....................................................................................................12
4.1 Ratio analysis..................................................................................................................12
4.2 Common size..................................................................................................................12
4.3 Du Pont...........................................................................................................................13
4.4 Segment analysis............................................................................................................13
5.0 CONCLUSIONS AND RECOMMENDATIONS..................................................................13
5.1 Conclusions....................................................................................................................13
5.2 Recommendations..........................................................................................................14
6.0 CONTEMPORARY METHODS ANALYSIS.......................................................................14
6.1 CAPM.............................................................................................................................14
6.2 EMH...............................................................................................................................14
6.3 EVA................................................................................................................................15
REFERENCES..............................................................................................................................16
APPENDICES.................................................................................................................................1

1. INTRODUCTION
1.1 Define SFA and importance of financial analysis
Strategic financial analysis is that approach commonly used by an entity which consists
of setting end goals and then analysing all the ways of completing the goals. It is that analysis in
which different tools and techniques are used as personnel of this entity will use specific tactics
to reach their specific goals (Braveman, 2016). There are some importance of this analysis which
will assists an enterprise in uplifting their existing situations. It is helpful for an entity in
preparing budgets which is basic form of financial analysis in SFA. The future upcoming cash
flows are forecasted by ascertaining the present the facts and figures. This analysis is also
responsible for conducting price analysis in which external market forces are identified in order
to determine price of an enterprise. In the price analysis the main aim of the owner is to generate
high sales volume at higher prices by determining the external elasticity of demand in the overall
market. The primary objective of this assignment is to clarify the role of strategic financial
analysis by determining their importance in the current business.
1.2 Assignment objectives
Two companies has been selected for this project report such as Booker and Tate&Lyle
among which financial comparison has been done by applying various techniques of strategic
financial analysis. Financial ratios has been calculated by commenting upon the business
efficiency of 5 years in order to take further step in the business in order to select or reject the
current project or expanding with another business.
1.3 Background of selected companies
Booker is one of the company selected for assessing its internal business functioning for
the given project (Agarwal and Green, 2016). It is one of the famous food and beverage entity
operated their business in the United Kingdom which provides their products or services as a
wholesaler. It deals in variety of products such as macro, booker direct, classic drinks, Ritter
courivaud, chef direct, premier, family shopper in order to cater the needs of customers. It is the
biggest strengths is that current it is serving about 1.5 million customers. It is regarded as the
largest cash and carry operator in the UK which are privileged to served around 18000 product
lines ranging from different price and brand ranges according to the budget of an individual. It

also works as retailer business but major sales and the revenue comes from the wholesaling
business.
Tate&Lyle is multinational business entity which is based in the British agribusiness
which deals in the food and beverage sectors. This enterprise has also listed in the London stock
exchange with a constituent of FTSE 250 indexes. This enterprise specialises in the innovative
technology which is applied in providing all kinds of products (Hasan and Kobeissi, 2016). The
technology has used to transform different raw materials into finished products without affecting
their nutrients. These materials whose nutritional level will enhance by using these methods such
as corn, tapioca and oats. The main emphasises of this entity is on using all kinds of organic
materials by avoiding chemicals and artificial in the food as health is the key to keep fit and
health is the basic motto of this firm It operated with round 25 manufacture facilities and good
network of research and development centres all across the world. The income and financial
conditions has raised due to several good decisions taken by this enterprise such as
diversification approach in which entering into another markets will be beneficial for an entity.
1.4 Techniques used throughout the report
This assignment gives greater importance to all the techniques used by an entity by using
different methods of analysis in assessing the business efficiency of both the selected entities.
The profitability of this entity will be ascertained by applying profitability ratios. The liquidity
has been ascertained by calculating current ratios which will determine available cash balance
held with an enterprise (Braveman, 2016). The business efficiency are determined by calculating
asset turnover and inventory turnover. Leverage can be found out which reflects financial health
of both the enterprise. These ratios will be helpful for all the investors in order accept or reject
the decision of investing in the business. Du-pont analysis which will break ROCE in three
different parts. Cash flow analysis has been used to know the movement of cash flow and cash
outflow from the business. Common size balance sheet are prepared which is a comparative
analysis of a previous year.
2. RATIO ANALYSIS
2.1 Profitability
Table 1: Profitability ratios of Booker
Ratios Formula 2012 2013 2014 2015 2016

Profitabilit
y
GP ratios GP/Net
sales*100
3.78% 3.99% 4.40% 4.80% 5.08%
Np ratios NP/Net
sales*100
1.90% 2.08% 2.25% 2.48% 2.56%
Operating
margin
Operating
profit/Net
sales
2.3 2.4 2.6 3.0 3.1
Table 2: Profitability ratios of Tate& Lyle
Ratios Formula 2012 2013 2014 2015 2016
Profitabilit
y
GP ratios GP/Net
sales*100
93.43% 36.55 37.40 100.00 100.00
Np ratios NP/Net
sales*100
9.88 8.51 8.67 1.27 6.92
Operating
margin
Operating
profit/Net
sales
13.1 10.3 9.1 1.4 5.4
Interpretations
The profitability of the above companies are compared by calculating different ratios of
years to ascertain its overall trend (Drummond and Sculpher, 2015). The GP ratio is gross figure
of the profit without taking intro considerations the taxation factors. The GP ratio of both the
companies Booker and Tate&Lyle is showing good financial position as Booker shows
increasing trend with the increasing rate and on the contrary to it another company started

initially with higher and in end two years shows 100% efficiency and in middle shows lack of
progress. Again the NP ratios are increasing again and Tate&Lyle shows fewer efforts. The slow
steady approach again proves to be beneficial as their operating profit are shown good profit
trends as compared to the other companies.
2.2 Liquidity
Table 3: Liquidity ratio of Booker
Ratios Formula 2012 2013 2014 2015 2016
Liquidity
Current
ratios
Current
asset/Curr
ent
liabilities
0.85 0.87 0.98 0.99 0.36
Quick
ratios
Quick
asset/Curr
ent
liabilities
0.23 0.27 0.35 0.37 0.36
Table 4: Liquidity ratios of Tate&Lyle
Ratios Formula 2012 2013 2014 2015 2016
Liquidity
Current
ratios
Current
asset/Curr
ent
liabilities
2.01 2.31 1.59 1.32 1.64
Quick
ratios
Quick
asset/Curr
ent
liabilities
1.20 1.41 1.02 0.79 1.00

Interpretations
Liquidity ratios of the business enterprise will show available cash balance held with an
enterprise in order to meet their short term obligations (Agarwal and Green, 2016). When the
current ratios are constant trend has been identified then in that situation Booker has generated
good ratios but less than one. On the other hand, another entity has higher ratio greater than one
but not in a systematic way. Other ratio is quick assets which ascertained the business efficiency
by excluding the inventory from the current assets. Booker shows upward with increasing rate
and Tate&Lyle generates lower ratios towards the downward position.
2.3 Efficiency
Table 5: Efficiency ratios of Booker
Ratios Formula 2012 2013 2014 2015 2016
Efficiency
Asset
turnover
Total
assets/Net
sales4.37
4.37 3.90 3.96 3.76 3.75
Inventory
turnover
COGS/
Average
inventory
15.48 14.31 15.05 13.80 13.89
Receivabl
es
turnover
Receivabl
es/Net
credit
sales
82.23 73.79 79.08 70.57 50.93
Table 6: Efficiency ratios of Tate&Lyle
Ratios Formula 2012 2013 2014 2015 2016
Efficiency
Asset
turnover
Total
assets/Net
1.04 1.14 1.18 0.95 0.95

sales
Inventory
turnover
COGS/
Average
inventory
4.77 0.45 4.23 3.38 -
Receivabl
es
turnover
Receivabl
es/Net
credit
sales
12.16 10.96 10.53 9.13 9.69
Interpretations
The ratio of asset turnover in both the companies are decreasing but the less impact of the
declining performance on the overall market is less in Tate&Lyle as compared to the Booker.
The decrease in the asset turnover ratio can be decreases due to the less amount of the sales and
the re revenue generated by an enterprise (Bellostas and López-Arceiz, 2016). The inventory
turnover ratio will reveal the proportion of cost of goods as compared to the average inventory
stored in an enterprise. It is decreasing in both the companies due to the higher expenses
involved in the entity. Receivables turnover ratios are calculated to determine the firm's ability in
order to receive the money from all its debtors. The deficiency of both the entities are reflected
with the help of this ratio as it is showing decreasing ratios.
2.4 Leverage
Table 7: Leverage ratios of Booker
Ratios Formula 2012 2013 2014 2015 2016
Leverage
Financial
leverage
EBIT/EBT 2.54 2.06 2.10 2.13 2.35
Debt to
equity
Debt/
Equity
- - - - -

Table 8: Leverage ratios of Tate&Lyle
Ratios Formula 2012 2013 2014 2015 2016
Leverage
Financial
leverage
EBIT/EBT 1.20 1.41 1.02 0.79 1.00
Debt to
equity
Debt/
Equity
0.78 0.79 0.42 0.49 0.54
Interpretations
The Booker has shown good increasing trends as it shows exact proportion of EBIT in
relation to the EBIT (Agarwal and Green, 2016). In another venture is decreasing due to the
higher EBT as in this amount interest will be deducted from the main figure. The above company
like Booker has no debt to equity ratio but Tate& Lyle shows decreasing trends in the ratios.
2.5 Investors
Table 9: Investors ratios of Booker
Ratios Formula 2012 2013 2014 2015 2016
Investors
Dividend
payout
ratio
Dividend/
Net
income
- - - 0.03 0.04
EPS 0.05 0.04 0.06 0.07 0.07
Table 10: Investors ratios of Tate&Lyle
Ratios Formula 2012 2013 2014 2015 2016
Investors
Dividend
payout
Dividend/
Net
44.0 49.5 53.5 72.8 288.7

ratio income
EPS Income for
equity
holders/N
umber of
shares
0.64 0.57 0.58 0.07 0.34
Interpretations
These ratios will be helpful for all the investors in order to invest in an enterprise or reject the
proposal on the basis of the results obtained by applying these ratios. Dividend payout ratio
determines the firm's ability in order to generates higher amount of profit to payback dividend to
all its shareholders (Agarwal and Randhawa, 2015). In booker the firm show's deficiency in
order to generate higher sales and the revenue. In another establishment this ratio is higher. EPS
is that share which reflects an entity's efficiency by ascertaining al positive factors. It is
increasing in the booker company and on the contrary to this Tate&Lyle shows opposite results
by showing all decreasing values.
3.0 Common size analysis
3.1 Vertical analysis
It is one of the common method used in the common size analysis in which the business entity
will use their major financial statements that is profit and loss statements and balance sheet are
used (Braveman, 2016). It is considered as important as it will determine the profitability and
financial position of an entity in the external market in order to beat all their competition. The
analysis will present the % changes from one period to another as in profit and loss statements all
the components of these statements are identified by using sales as a base component. While
preparation of the balance sheet the base component will be assets on which all other element are
identified.
3.2 Horizontal analysis
The way of presentation in this analysis has different from vertical analysis as the name suggests
that the presentation of the financial statements are in the horizontal position. In this kind of
analysis the amounts are nit considered only % change are taken into considerations while
preparing this form of analysis. It is beneficial for an enterprise as it will reflect the true business

performance of an entity in which internal performance are compared in order to make corrective
actions in order to remove their internal weaknesses.
3.3 Du Pont analysis
Return on Equity= Total assets/Shareholder's equity*Return on assets
Return on equity= Total assets/Shareholder's equity*Net income/Total assets
Return on equity= Total assets/shareholder's equity*Revenues/total assets*Net income/Revenues
Return on Equity= Total assets/shareholder's equity*Revenues/total assets* Operating
income/Revenues* EBIT/operating income*(1-tax/EBIT)
3.4 Segment analysis
The segments are integral part of an enterprise whose main motive is to complete the overall
work on time by allotting all work into different departments (Drummond and Sculpher 2015).
The segmentation in the above food and beverage industries includes groceries, shelf space
allocation, monitoring of all the items, drinks, raw groceries, food processing, finished product's
cell. These standard segmentation will be same in the both organisation as both falls in the same
industry. The variations in the segments may due to the changes in the needs and expectations of
an enterprise.
4.0 MERITS AND DEMERITS
4.1 Ratio analysis
It refers to comparative analysis of the business performance of two organisations among which
this comparison has been established by categorising all the variables of the business into
different categories.
Advantages
 It helps in forecasting and plaining as it will reveal the costs involved in the business of
Booker and tate& lyle which helps them in order to determine their sales level.
 Comparison of the current figures of both the company in relation to their previous years
 The operational efficiency has been measured by calculating different kinds of ratios
Disadvantages
 Ratios will be provide wrong results due to errors in the financial statements
 The ratios based on the financial information will only provides historical information
and no real information.

4.2 Common size
Advantages
 The simplified structure of common size statements is easy to understanding in order to
interpret the results of booker and tate& lyle.
 The booker and tate&lyle can predict their future cash flows by using time series analysis
over one period to another period.
 The different components which is to be covered in the different financial statements are
compared easily.
Disadvantages
 The information may get misleading to the users of the business as external changes like
inflationary rate will change the prices level.
 These statements failed to reveal true positions of sales and all other components covered
in the business due to widow dressing of financial statements.
4.3 Du Pont
Advantages
 It will assist all the investors in order to make business decisions equally by taking into
considerations all the external factors
 This will reveal the complete picture regarding financial health of an enterprise and their
business performance.
 It uses financial and leverage resources in order to remove the minute deficiency remains
in the factors.
Disadvantages
 It heavily relies on the accounting data from the company's financial statements which is
not good as slight changes in the data may lead to complete transformation.
 This analysis is based on other ratios so in case of lack fop information it is not proved to
be beneficial for an enterprise.
4.4 Segment analysis
Advantages

 It is beneficial for an entity in separating the profitable segments covered in their business
enterprise.
 This analysis will also improve the business structure in order to benefited various
stakeholders
 The basic strengths of this entity is that it gives more emphasises on the present business
conditions in order to maintain their higher efficiency.
Disadvantages
 The data can be manipulated in the case of segment reporting as the information is not
necessary as per the standard guidelines imposed on the business.
 Lack of compliance of all the rules and regulations will be negative sign for an enterprise
in order to meet their basic obligation towards an entity.
5.0 CONCLUSIONS AND RECOMMENDATIONS
5.1 Conclusions
It can be summarised from the above given report that this report has based on the strategic
financial analysis (Drummond and Sculpher, 2015). The main aim of this report is to get clear
idea regarding the financial condition of an enterprise by critically assessing their business
functioning by using different tools and techniques. The techniques used in the report includes
ratio analysis which will able to determine the business efficiency by comparing their efficiency
from its previous years. Common size analysis used here in both the perspectives such as
horizontal and vertical analysis which is given the report. The results have been obtained from
these techniques are in favour of an enterprise which shows that the Booker has generated higher
returns.
5.2 Recommendations
The common suggestions to be given to both the enterprise to maintain their financial efficiency
by appraising the value of their entity in order to increase their overall worth of the business
enterprise (Hasan and Kobeissi, 2016). The quality needs to maintained in the firm by using
quality assurance techniques like six sigma in their business entity as their main motive is to
cater all the needs and expectations of all kinds of the customers. The financial controls are
imposed in order to determine the truthfulness of the financial capabilities of an entity in order to
face tough competition in the external market.

6.0 CONTEMPORARY METHODS ANALYSIS
6.1 CAPM
This approach stands for capital asset pricing model that describes the relationship between
systematic risk and the expected market risks for assets held with the business (Jacobs and de
Groot, 2016). It is widely used technique in the finance commonly used in determining the prices
of shares such as equity shares or risky securities which generated expected returns for a given
asset by calculating cost of capital. This is helpful model from the investor's perspectives in
which the investor will compensate the future expected returns in two different ways such as
time value of money and risks. The investment decision can be take by the investors by using
this technique by ascertaining the risks and returns.
6.2 EMH
Efficient market hypothesis is one of the investment theory which states that it is impossible to
beat the external market due to the good efficiency of the stock market. This strength of these
stock markets will cause existing share prices to incorporate and reflect all necessary information
that is related to the business. (Kameshwar and Karahalios, 2016) The assumptions of this theory
suggest that the trade value estimated for dealing in case of shares is the fair value on stock
exchanges to determine the actual situations to all the investors. The impossibility will reflect the
undervaluation of the stock prices which will alert the investors not to buy the undervalued
prices which will create trade barriers in near future.
6.3 EVA
Economic value added is another alternative to the above mentioned techniques of strategic
financial analysis. It is that approach which is sued to ascertain the economic profit generated by
an entity in comparison with their external market. This shows the value created by an enterprise
by generating higher economic profit (Kastberg and Siverbo, 2016). This can be created if an
enterprise will achieve higher profit as compared to the required rate of return of the company. It
is that profit which is exclusive profit after deducting equity cost from the available profit with
both the enterprise. The internal and hidden talent will be brings out by following this kind of
techniques in which exact and real additional profit generated by an enterprise in the same time
period.

REFERENCES
Books and journals
Agarwal, N. and Randhawa 2015. Management practices in Australian healthcare: can NSW
public hospitals do better?.Journal of health organization and management. 30(3). pp.331-
353.
Agarwal, R., Green 2016. Benchmarking management practices in Australian public healthcare.
Journal of health organization and management. 30(1). pp.31-56.
Bellostas, A. J., López-Arceiz 2016. Social Value and Economic Value in Social Enterprises:
Value Creation Model of Spanish Sheltered Workshops. VOLUNTAS: International
Journal of Voluntary and Nonprofit Organizations. 27(1). pp.367-391.
Braveman, B., 2016. Leading & managing occupational therapy services: an evidence-based
approach. FA Davis.
Drummond, M. F., Sculpher 2015. Methods for the economic evaluation of health care
programmes. Oxford university press.
Hasan, I., Kobeissi 2016. Corporate social responsibility and firm financial performance: the
mediating role of productivity. Journal of Business Ethics. pp.1-18.
Höög, E., Lysholm 2016. Quality Improvement in large healthcare organizations: Searching for
system-wide and coherent monitoring and follow-up strategies. Journal of health
organization and management. 30(1). pp.133-153.
Jacobs, B., de Groot 2016. Financial access to health care for older people in Cambodia: 10-year
trends (2004-14) and determinants of catastrophic health expenses. International Journal
for Equity in Health.15(1). p.1.
Kameshwar, K., Karahalios 2016. False economies in home-based parenteral antibiotic
treatment: a health-economic case study of management of lower-limb cellulitis in
Australia. Journal of Antimicrobial Chemotherapy. 71(3). pp.830-835.
Kastberg, G. and Siverbo, S., 2016. The role of management accounting and control in making
professional organizations horizontal. Accounting, Auditing & Accountability Journal.
29(3). pp.428-451.

APPENDICES
1. Vertical analysis of Booker
Vertical analysis
Statement of profit and loss of
Booker
Particulars 2012 % change 2013 % change
Total Revenue 3933 100.00% 3992 100.00%
Cost of sales 3784 65.57% 3833
96.01703406
81
Gross profit 149
3.788456648
9 159
4.148186798
9
Operating Expenses
Distribution 59
1.500127129
4 0 0
Sales and general 0 2 63
1.578156312
6
Total Operating Expenses 59
1.500127129
4 63
1.578156312
6
Operating income or loss 90
2.288329519
5 96
2.404809619
2
Other income 2
0.050851767
1 6
0.150300601
2
Total income 92 2.339181286 102 2.555110220

5 4
EBIT 91 2.00% 101
63.52201257
86
Interest 1
0.026427061
3 1
0.025050100
2
EBT 90
60.40268456
38 100 2.50501002
tax 16
0.406814136
8 18
28.57142857
14
Profit after tax 74
1.881515382
7 82
2.054108216
4
Statement of financial position of
Booker
Assets
Current asset
cash 64
5.460750853
2 77
6.390041493
8
Inventories 269 22.95221843 267
22.15767634
85
Trade receivables 50
4.266211604
1 58
4.813278008
3

Total current assets 602
51.36518771
33 611
50.70539419
09
Non-current asset
land 0 0 0 0
Property and equipment 317 27.04778157 330
27.38589211
62
Furniture and fixtures 253
21.58703071
67 264
21.90871369
29
Total non-current assets 570
48.63481228
67 594
49.29460580
91
Total assets 1172 100.00% 1205 100
Liabilities
Current liabilities
Trade payable 420
35.83617747
44 428
35.51867219
92
Other current liability 51
4.351535836
2 40
3.319502074
7
Total current liability 471
40.18771331
06 468
38.83817427
39

Non-current liabilities
Other long term liabilities 80
6.825938566
6 35
2.904564315
4
Total non-current liability 80
6.825938566
6 35
2.904564315
4
Total liability 551
47.01365187
71 503
41.74273858
92
2. Vertical analysis of Tate& Lyle
Statement of profit and loss of
Tate& Lyle
Particulars
Total Revenue 3088 100.00% 3256 100.00%
Cost of sales 2155
69.78626943
01 215
6.603194103
2
Gross profit 933
30.21373056
99 3041
93.39680589
68
Operating Expenses
Sales and general 485
15.70595854
92 2705
83.07739557
74
Total Operating Expenses 485
15.70595854
92 2705
83.07739557
74
Operating income or loss 404
13.08290155
44 336
10.31941031
94

Other income 7
0.226683937
8 3
0.092137592
1
Total income 411
13.30958549
22 339
10.41154791
15
EBIT 379
12.27331606
22 309
9.490171990
2
Interest 32
1.036269430
1 30
0.921375921
4
EBT 347
11.23704663
21 279
8.568796068
8
tax 72
2.331606217
6 49
1.504914004
9
Profit after tax 275
8.905440414
5 230
7.063882063
9
Statement of financial position of
Tate&Lyle
Assets
Current asset
cash 504
23.55140186
92 465
20.54794520
55
Inventories 450 21.02803738 510 22.53645603

32 18
Trade receivables 264
12.33644859
81 330
14.58241272
65
Total current assets 1218
56.91588785
05 1305
57.66681396
38
Non-current asset
Property and equipment 922
43.08411214
95 958
42.33318603
62
Total non-current assets 922
43.08411214
95 958
42.33318603
62
Total assets 2140 100.00% 2263 100.00%
Liabilities
Current liabilities
Trade payable 256
11.96261682
24 264
11.66593018
12
Other current liability 245
11.44859813
08 195
8.616880247
5
Total current liability 501
23.41121495
33 459
20.28281042
86

Non-current liabilities
Other long term liabilities 329
15.37383177
57 41
1.811754308
4
Total non-current liability 329
15.37383177
57 41
1.811754308
4
Total liability 830
38.78504672
9 500
22.09456473
71
2. Horizontal Analysis of Booker
Statement of profit and
loss of Booker
Particulars 2012 2013 2014 2015 2016
Total Revenue 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of sales 96.21% 96.01% 95.57% 95.23% 94.90%
Gross profit 3.79% 3.99% 4.43% 4.77% 5.10%
Operating Expenses
Distribution 1.50% 0 0 0 0
Sales and general 0.00% 1.57% 1.75% 1.85% 2.03%
Total Operating Expenses 1.50% 1.57% 1.75% 1.85% 2.03%
Operating income or loss 2.28% 2.40% 2.64% 61.40% 3.06%
Other income 2.30% 2.50% 2.60% 2.90% 3.04%
Total income 4.58% 4.90% 5.24% 64.30% 6.10%