Financial Performance Analysis of Ingham Chicken Company

This case study analyzes the financial performance of Ingham Chicken Company using ratio analysis and financial statement analysis. It identifies areas that require primary focus for improvement and suggests strategies to improve profitability, liquidity, and efficiency.

Individual case study Ignham
Chicken Company

TABLE OF CONTENTS
INTRODUCTION..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Current financial performance of Inghams group.......................................................................3
Explaining the area that require primary focus...........................................................................5
CONCLUSION...............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Analysis of the financial performance of the company is very important as it provides a
base that how business is performing. This is because of the reason when the financial position
of the company will not be good then its operational efficiency will be affected. Thus, for this the
use of different tools like ratio analysis, financial statement analysis is being done in order to
evaluate the working condition. The present study is based on Ingham which was founded by a
family business in the year 1918. The current study will outline the financial position of the
company and in the end it will outline future steps which company need to take to improve its
performance.
MAIN BODY
Current financial performance of Inghams group
Analysis of the financial performance is very important for the company in order to
improve the working (Easton and et.al., 2018). This is necessary for the reason that when the
financial performance of the company will not be good then this will be impacting the overall
working efficiency of the company.
Particulars Formula 2020 2019
Net profit margin Net profit / sales * 100 1.57 5.07
Net profit 40100 126200
Revenue 2555300 2489800
Particulars Formula 2020 2019
Gross profit margin Net profit / sales * 100 16.98 19.76
Gross profit 433900 492100
Revenue 2555300 2489800
Particulars Formula 2020 2019
Current ratio Current asset/ current liabilities 1.03 1.41
Current asset 690500 661400
Current liabilities 671700 469600
Particulars Formula 2020 2019
Quick ratio
(Current asset- inventory)/ current
liabilities 0.70 1.05
Current asset 690500 661400
Inventory 217000 166700

Current liabilities 671700 469600
Particulars Formula 2020 2019
Debt to equity ratio long term debt/ shareholder equity 13.72 2.72
Long term debt 1771400 447500
Shareholder equity 129100 164500
Particulars Formula 2020 2019
Receivable turnover
ratio (receivable/ sales)* 365 29 31
Receivable 202600 214600
Sales 2555300 2489800
Particulars Formula 2020 2019
Payable turnover ratio (Payable/ COGS)* 365 69 64
Payable 402900 360700
COGS 2121900 2047400
Particulars Formula 2020 2019
Inventory turnover
ratio (inventory/ COGS) * 365 37 30
Inventory 217000 166700
COGS 2121900 2047400
By evaluating the performance of the company it is clear that the performance of the
company has reduced in comparison to the part year. This is evident from the above calculation
that the in the year 2019 the company has performed well but in 2020 it has reduced. With
respect to the profitability ratio it is clear that profitability of the company is reducing in
comparisons to the last year which is not good. With respect to the net profit ratio it is clear that
in 2019 it was 5.07 % but in 2020 it declined to 1.57 %. Moreover, with the help of the gross
profit ratio it is clear that it has also declined as in 2019 it was 19.76% and in 2020 it was
16.98% (Our Company, 2022). this simply implies that the profitability of the company is good
as gross profit is more than the net profit. But with the help of the net profit ratio it is clear that it
is very low and this indicates that the indirect expenses of the company are very high. this was
the reason behind the fact that net profit ratio of the company is very low.
Moreover, with the help of the liquidity ratio it is clear that it has fallen from the last
year. The liquidity of the company highlights the fact that how much the company is capable of

converting the current asset into cash. By evaluation of the data it is clear that the liquidity of the
company has also declined in comparison to the last year (Krueger, 2018). In the year 2019
current ratio was 1.41 and in 2020 it was 1.03. Though both the ratio is less in comparison to the
ideal ratio of 2: 1. This simply means that the liquidity of the company is not good and this
affects the working efficiency of the company. as per the ideal ratio it is necessary for the
company to increase the current asset so that it becomes twice every current liability.
With respect to the solvency ratio it is clear that the debt to equity ratio of the company
has increased to a great extent. in the year 2019 it was 2.72 but in 2020 it increased to 13.72 and
this simply means that the company has increased the funding through debt (Palepu and et.al.,
2020). This simply means that the company has increased the ratio of the debt within their
capital structure as compared to the equity. The increase in debt simply means that company has
increased in non- current liability in order to arrange funds for the business.
Furthermore, with the help of the efficiency ratios it is clear that the performance of the
company is not good. On the evaluation of the receivable turnover ratio it is clear that in 2019 it
was 31 and for 2020 it was 29. Thus, this simply means that company will be clearing the
amount of receivable in less time in the current year which is good. Earlier in 2019 it took 31
days in clearing the receivable and in 2020 it is being done in 29 days only. Further with the help
of payable turnover ratio it is clear that in 2019 it was 64 and in 2020 it is 69 days. Thus, this
simply means that for paying the creditors was 64 days and currently it is 69 days which is better
(Husna and Satria, 2019). Moreover, with help of the inventory turnover ratio it is clear that in
the previous year t was 30 days and currently it is 37 days. This simply means that time to
convert the inventory into cash has increased which is not good for the company. hence, for this
there is requirement for the company to improve the efficiency, liquidity and profitability ratio.
This is because of the reason that when the company will be in position to improve the
performance then it will be better for development of the company.
Explaining the area that require primary focus
Financial analysis is related with having significant level of evaluation of the all the
aspects that is affecting the monetary condition of enterprise. In order to become successful in
the specified sector, Ignham chicken company need to pay attention on the lacking areas that are
affecting its overall performance. On the basis of the conducted evaluation of the financial
performance it can be interpreted that firm is poorly performing in the current year as compared

to previous. For gaining success, firm should pay attention on developing significant strategy so
that improvement in overall performance of enterprise to uplift its organizational condition in
sector can become possible.
The crucial lacking areas as per the prevailing involve low profitability, liquidity
efficiency, higher risk, declined receivable turnover ratio and less credibility. There is
declination of the performance in all the mentioned areas which are adversely affecting the
position of the enterprise due to inappropriate formulation of strategy that has weakened the
functioning of firm and position in sector. These can unfavourably affect the stakeholders such
as investors, creditor, financial institutions, etc. by negative;y impacting its competitive edge.
Financial imperative allows the firm to gin the appropriate level of information regarding
which factors can be avoided in respect to gain the growth and development via making relevant
changes in the prevailing functioning pattern. The primary focus that is required to be taken into
consideration for increasing its ability to generate revenue. This can be exerted by declining cost
of good sold so that higher profitability margin can be set (Assenga, Aly and Hussainey, 2018).
In addition to this, it can be properly implemented by managing cost so that regulating cash in
and out flows controlling exertion is possible.
For reducing the cost, application of the variance and benchmarking methods it can
permit to identify the prevailing deviations so that prevailing causes can be eliminated to bring
positive change. This can contribute in having relevant level of improvement in the profitability
generating which can favourably influence financial condition of Ignham chicken company.
Consolidation of the firm's activities to build larger cash balance, expanding customer base, etc.
so that proper significant processing can be achieved. This can help to limited extent as there are
several actions which are exerted for carrying forward the operational function. Consolidation
can lead to result in higher level of complications which can tend to result in confusion in
management. This can result in decline ability to optimize resources, etc.
There are different kinds of the actions which can be applied by the firm of modifying it
poor performance. It is important to give emphasis on developing the relevant strategy that can
eliminate the prevailing imitations like low profit margin. Ineffective liquidity management,
improper relationship with debtors & creditors, etc. These all can be done following the below
mentioned actions.

Firm can pay attention on developing the significant diversification of source of finance.
It helps in gaining the credibility position in sector via ensuring appropriate ability to accomplish
the requirements of business. It boosts the capability of enterprise to have such relevant level of
functioning via reducing cots of capital which is one of the major concern that hampers growth
and development of business. The main reason behind declination of cost of capital is to achieve
proper level of position to build credibility & trustworthiness in market.
The one of the major aspect that has influence on the financial health of enterprise is
pricing strategy adopted (How to Improve Your Business’s Financial Position? 2022). For this
purpose, having proper relevant ability to attract customer price optimization system should be
adopted. It provides assistance in gaining information regarding customer response to changing
price level so that highly suitable action can be adopted. Profitability & liquidity of firm is
largely depended on the pricing strategy adopted by enterprise. It can help in improving its
liquidity position and profitability margin via ensuring greater amount of revenue through
attracting larger market share.
Formulation of effective credibility policy can help the firm to build good level of financial
trustworthiness in market. On the basis of the comparison of current performance with previous
it can be recognized that credibility improvement is highly prioritized via paying attention on
relevant explanation of terms & condition so that building good relationship with creditors can
become possible. Offering discount, making reminders of payment, etc. can be used to enforce
the debtors make immediate payment which can help in having reliable liquidity position in
industry.
Financial health can be improved by having implementation of effective budgetary
control system. This can help in attaining road map for attaining the information regarding
expected expenses and revenue. This can contribute in managing appropriate via ensuring
proper allocation, managing and monitoring resources in turn higher potential outcome from
department contributing to success can be obtained. This can also allow the company to get the
understanding about the required level of funds and ability to predict unforeseen circumstances
in turn better functioning can be derived.
From the financial perspective it is highly important for the enterprise to give emphasis
on gaining highly effective risk management approach. Financial leverage is indicating grater
level of risk in the current year which can adversely affect investors decision-making. The

specified course of action can allow the firm to take risk mitigation practices that can permit
achieving trustworthiness from stakeholders in turn successful functioning can become possible.
These can allow to get the good level of financial condition to meet organizational objectives.
CONCLUSION
From the above study it can be concluded that having financial analysing can provide
assistance in achieving information about the strengths and weaknesses. With help of the ratio
analysis it can be interpreted that specified firm is poorly performing which requires to be
improved. The course of action which can be used to make modifications comprises having
variance analysis to reduce cost, diverse source of findings, having budgetary control, price
optimization, credit policy formulation, etc. to achieve desirable outcomes.

REFERENCES
Books and Journals
Assenga, M.P., Aly, D. and Hussainey, K., 2018. The impact of board characteristics on the
financial performance of Tanzanian firms. Corporate Governance: The International
Journal of Business in Society.
Easton, P. D. and et.al., 2018. Financial statement analysis & valuation. Boston, MA:
Cambridge Business Publishers.
Husna, A. and Satria, I., 2019. Effects of return on asset, debt to asset ratio, current ratio, firm
size, and dividend payout ratio on firm value. International Journal of Economics and
Financial Issues. 9(5). p.50.
Krueger, T. M., 2018. Gonzalez Energy Partners: A Hypothetical Teaching Case Study of
Financial Statement Analysis and Firm Valuation. Journal of Accounting & Finance
(2158-3625). 18(5).
Palepu, K. G. and et.al., 2020. Business analysis and valuation: Using financial statements.
Cengage AU.
Yu, W., Jacobs, M.A., Chavez, R. and Yang, J., 2019. Dynamism, disruption orientation, and
resilience in the supply chain and the impacts on financial performance: A dynamic
capabilities perspective. International Journal of Production Economics. 218. pp.352-
362.
Online
How to Improve Your Business’s Financial Position? 2022. [Online]. Available through:
<https://www.rivierafinance.com/finance-blog/how-to-improve-your-businesss-financial-
position/>
Our Company. 2022. [Online]. Available through: <https://inghams.com.au/our-company/about-
us/>