Strategic Financial Analysis

This project analyzes the financial performance of Booker Group PLC and Tate & Lyle PLC using traditional methods like ratio analysis, common-size analysis, and DuPont analysis. It then critically evaluates these methods and proposes contemporary methods like EMH, EVA, CAPM, and DGM to overcome their limitations. The analysis provides insights into the companies' financial health and concludes with recommendations for improvement.

STRATEGIC FINANCIAL ANALYSIS

Table of Contents
1.0 INTRODUCTION....................................................................................................................................................1
1.1 Defining Strategic financial analysis and significance of financial analysis......................................................1
1.2 Objective of project.............................................................................................................................................1
1.3 Introducing two companies.................................................................................................................................1
1.4 Introducing methods of analysis..........................................................................................................................1
2.0 Calculation of Ratios.................................................................................................................................................1
2.1 Profitability..........................................................................................................................................................1
2.2 Liquidity..............................................................................................................................................................4
2.3 Efficiency............................................................................................................................................................5
2.4 Leverage..............................................................................................................................................................7
2.5 Cash flow ratios...................................................................................................................................................8
2.6 Investor’s ratios.................................................................................................................................................10
2.7 Common-size.....................................................................................................................................................11
Horizontal Analysis.......................................................................................................................................................14
2.8 DuPont analysis.................................................................................................................................................16
2.9 Segmental analysis............................................................................................................................................18
.......................................................................................................................................................................................20
.......................................................................................................................................................................................20
3.0 Advantages and disadvantages of analysis.............................................................................................................20
3.1 Financial Ratios Analysis..................................................................................................................................20
3.2 Common-size Analysis......................................................................................................................................21
3.3 DuPont Analysis................................................................................................................................................21
4.0 Contemporary Methods...........................................................................................................................................22
4.1 EMH..................................................................................................................................................................22
4.2 EVA...................................................................................................................................................................22
4.3 CAPM................................................................................................................................................................22
5.0 CONCLUSION.......................................................................................................................................................22
6.0 LIST OF REFERENCES........................................................................................................................................24
APPENDIXES..............................................................................................................................................................26

Figure Index
Figure 1: Gross profit margin..........................................................................................................................................2
Figure 2: OPM................................................................................................................................................................2
Figure 3: Net Profit Margin............................................................................................................................................3
Figure 4: ROCE..............................................................................................................................................................4
Figure 5: Current Ratio...................................................................................................................................................4
Figure 6: Quick Ratio......................................................................................................................................................5
Figure 7: Days of Sales Outstanding...............................................................................................................................5
Figure 8: Days of Inventory on Hand.............................................................................................................................6
Figure 9: Days of Payables.............................................................................................................................................6
Figure 10: Cash Conversion Cycle.................................................................................................................................7
Figure 11: Debt-to-equity ratio.......................................................................................................................................7
Figure 12: Gearing..........................................................................................................................................................8
Figure 13: Operating cash flow to sales..........................................................................................................................8
Figure 14: Operating cash flow to net profit...................................................................................................................9
Figure 15: Cash flow to debt.........................................................................................................................................10
Figure 16: Earnings Per Share......................................................................................................................................10
Figure 17: Dividend Payout Ratio................................................................................................................................11
Figure 18: Price Earnings Ratio....................................................................................................................................11
Figure 19: Vertical SOPL.............................................................................................................................................12
Figure 20: Vertical SOFP..............................................................................................................................................13
Figure 21: Vertical Cash flow statement.......................................................................................................................13
Figure 22: Horizontal SOPL.........................................................................................................................................14
Figure 23: Horizontal SOFP.........................................................................................................................................15
Figure 24: Horizontal Cash flow statement..................................................................................................................15
Figure 25: 2 FACTORS ROA.......................................................................................................................................17
Figure 26: 2 FACTORS ROE.......................................................................................................................................17
Figure 27: UK Segment................................................................................................................................................19
Figure 28: USA Segment..............................................................................................................................................20
Figure 29: Other European Countries Segment............................................................................................................20
Figure 30: Rest of the world Segment..........................................................................................................................21

1.0 INTRODUCTION
1.1 Defining Strategic financial analysis and significance of financial analysis
The term strategic financial analysis is used for integrating data, analysing and then form decisions by
incorporating accounting regulations. The strategic plan and financial objectives can be enhanced by getting into
account risk assessment metrics with ease (Cumming and Johan, 2017). The financial planning can be made and
decision-making can be done properly with main of increasing overall profitability position of company in effectual
manner.
1.2 Objective of project
Main objective of present project is to assess business performance of companies like Booker Group PLC
and Tate & Lyle PLC for past five years and making comparison of financial health of companies. Furthermore,
project will be made for describing, critically assess and evaluate the principal methods of accounts to firm’s
outsider. Indicating shortcomings in process and proposing contemporary analysis methods for eradicating
shortcomings. Moreover, dynamic analysis of two companies will be made (Vanhegan and et.al., 2012).
1.3 Introducing two companies
Booker Group PLC and Tate & Lyle PLC are being taken which are under same segment of food industry
and are bigger firms in terms of market capitalisation and consumer’s base (Laudon and Traver, 2013). Booker
Group PLC is British food wholesaler organisation based in UK. It was founded by George and Richard Booker in
1835. It has various subsidiaries such as Makro, Booker Direct, Chef Direct, Family Shopper and many others. It
serves more than 1.5 million customers and has 13000 employees.
Tate & Lyle PLC is British MNC started and run as agribusiness. In 1921, merger was formed by Henry
Tate & Sons and Abraham Lyle & Sons. It has employees strength of 4326 and provides food commodities to
customers.
1.4 Introducing methods of analysis
The financial methods used in present project are ratio analysis, common size method and DuPont analysis are
being conducted.
Ratio analysis is one of important technique for analysing health of company.
Common size method analysis help to compare performances of firm with the help of base year quite
effectually (Liang and et.al., 2016). DuPont analysis will also carried out for investors to under capital
structure, asset efficiency and profit efficiency of two reputed firms.
2.0 Calculation of Ratios
Ratio analysis is one of the widely used method for analysing financial performance of company in effectual
manner (Sheikhi, Ranjbar and Oraee, 2012). It can be analysed that financial ratios are computed for company
which provide firm’s stakeholders with better decisions to be taken.
1

2.1 Profitability
Gross Profit Margin
Figure 1: Gross profit margin
Gross profit means profit left after deducting cost of goods sold from revenue and should be higher. It can
be analysed from the chart that gross profit of both companies is increased up to a high extent. The GPM of Booker
Group PLC was 3.78 % in 2012 which maximised to 3.99 % in 2013 and 4.40 % in 2014. Furthermore, ratio of
company was further increased to 4.80 % in 2015 and reached 5.08 % in next year (Annual Report of Booker Group
PLC. 2016). While, Tate & Lyle PLC has also shown steady growth over the profits. The figure was 30.21 % in
2012 which reached 37.54 % in 2016. Thus, both companies have good performance.
Operating Profit Margin-
Figure 2: OPM
2

Operating profit means profit left after deducting operational expenses of firm. The OPM is calculated for
both companies. Booker Group PLC had OPM in 2.3 % in 2012 which increased to 2.4 % in next year. Moreover, it
reached 2.6 % and 3 % in next two years respectively. The figure reached to 3.1 % in 2016. On the other hand, it can
be analysed that OPM of Tate & Lyle PLC has considerably gone down up to a high extent (Tian and Yu, 2017). It
was 13.1 % in 2012 and reached 5.4 % in 2016 which means that company has incurred lot of operating expenses
causing fall down.
Net Profit Margin-
Figure 3: Net Profit Margin
Net profit means that profit achieved after making deduction for taxes and interest from operating profit.
Higher the profit, better for firm (El Kasmioui and Ceulemans, 2012). The net profit of Booker Group PLC has
increased up to a high extent. This is evident from the fact that internet sales are increased leading to robust growth
of company. On the other hand, good progress has been made by company. While, Tate & Lyle PLC shows that
NPM has decreased quite significantly as OPM has decreased (Annual Report of Tate and Lyle PLC. 2016). NPM of
company was 10 % in 2012 which reached to 8.4 % in next year and 9.9 % in 2014. Moreover, reach to 1.3 % in
2015 and 6.9 % in 2016.
Return on Capital Employed (ROCE)-
3

Figure 4: ROCE
It is the ratio which is used for assessing how much return is generated out of the capital invested (Michael
and Albert, 2015). ROCE of Booker Group PLC was 20.64 % in 2012 and reached 22.53 % in 2016. On the other
hand, Tate & Lyle PLC had 18.26 % in 2012 and 7.01 % in 2016. This effectively implies that ROCE has gone
significantly of firm. This is evident from the fact that NPM, OPM, ROCE have gone down. Thus, ROCE of Booker
Group PLC is good in comparison to its rival (Sharma and et.al., 2012).
2.2 Liquidity
Current Ratio-
Figure 5: Current Ratio
It shows how efficient is company in meeting out its short-term obligations with ease (Xuân Vinh, 2015).
The current ratio of Booker Group PLC was 0.85 in 2012 which increased to 0.87 in 2013. Furthermore, it can be
said that ratio reached 0.95 in 2016. Thus, current ratio is ideal for company and has good liquidity position. On the
other side, Tate & Lyle PLC had ratio of 1.87 in 2012 which increased to 2.31 in effective manner. Further, figure
reached 1.50 and 1.32 in 2014 and 2015 respectively. It reached 1.63 in 2016 which clarifies that firm has good
liquid assets in comparison to another firm (Doucette and et.al., 2012).
Quick Ratio-
4

Figure 6: Quick Ratio
The ratio states that firm could meet its short-term obligations with relation to extreme liquid assets to be
repaid within one year (Vedd and Yassinski, 2015). It can be analysed from quick ratio that Tate & Lyle PLC has
good ratio over the years which shows that it is able to meet extreme short-term obligations. The ratio in 2012 was
1.21 which increased to 1.44 in next period. While, it decreased to 0.98 in 2014 and reached 0.81 in 2015. The
figure reached 1.03 in 2016. Booker Group PLC had average of 0.40 over last five years and will face difficulty in
meeting liabilities within one year.
2.3 Efficiency
Days of Sales Outstanding (DSO)-
Figure 7: Days of Sales Outstanding
The ratio shows how quickly company collects its receivables from debtors for a particular period
(Alviniussen and Jankensgard, 2015). The above chart indicates that DSO of Booker Group PLC is good as it
collects credit allowed to customers within 5 to 6 days on average of past years. On the other hand, Tate & Lyle
PLC takes on an average 35 days to collect receivables. This shows that Booker Group PLC has good DSO ratio as
mainly it has cash sales leading to low receivables.
Days of Inventory on Hand (DOI)-
5

Figure 8: Days of Inventory on Hand
It means how quickly company can convert its inventory into sales for maximising revenue in effective
manner (Bragg, 2012). DOI of Booker Group PLC is on an average 25 days which means that it is able to quickly
convert inventory into sales. While, Tate & Lyle PLC has an average of 80 days of inventory in hand which shows
that Booker Group PLC has good ratio.
Days of Payables (DOP)-
Figure 9: Days of Payables
The ratio shows how quickly company pays-off its payables to suppliers within short time duration. Lesser
the time, better for firm as it can avail discounts from them (Chiaramonte and Casu, 2017). It can be analysed from
chart that Tate & Lyle PLC enjoys longer credit period as ratio was 55 in days in 2016. On the other side, Booker
Group PLC has low DOP as it is averaged around 40 days over recent years. Thus, DOP of Tate & Lyle PLC is
good.
Cash Conversion Cycle (CCC)-
6

Figure 10: Cash Conversion Cycle
CCC means ability to convert firm's current assets in hand into cash and cash equivalents for increasing
liquidity position and enhancement in working capital (Ogiela and Ogiela, 2015). It can be analysed that Booker
Group PLC has negative CCC from last five years because it had low receivables leading to negative figures. While,
Tate & Lyle PLC had maintained CCC quite effectively as it has increased 62 in 2014, 75 in next year and reached
76 in 2016.
2.4 Leverage
Debt-to-equity ratio (D/E)-
7

Figure 11: Debt-to-equity ratio
The ratio shows what portion of capital structure of firm is financed through debt and equity. Higher ratio
means it is using more debt which is not favourable. It can be analysed from D/E ratio that both companies are
heavily reliant on debt in comparison to equity (Doss and et.al., 2013). The ratio is more than 1 of organisations,
Tate & Lyle PLC had net debt of £151 million because of change found in global exchange rate. Booker Group PLC
had built good cash reserve and paid all obligations of short-term in nature. However, it should lower down its usage
of debt (Faello, 2015).
Gearing ratio-
Figure 12: Gearing
The gearing ratio depicts that long-term liabilities of both companies are risen and have reached 50 % of
total capital employed. However, capital structure of Booker Group PLC seems to more effective in comparison to
Tate & Lyle PLC as it is able to utilise debt more firmly. It shows amount of debt in capital structure with reference
to equity in effective manner and should be lowly geared for balancing capital structure (Lord and et.al., 2013)
2.5 Cash flow ratios
Operating cash flow to sales-
8

Figure 13: Operating cash flow to sales
It can be analysed from chart that cash flow to sales ratio of Booker Group PLC has been steadily increased
over years. On the other side, ratio of Tate & Lyle PLC has declined in 2015 and reached 0.080. The ratio shows
ability of organisation to turn its sales revenue into cash (Shah, Liang and Akbar, 2013).
Operating cash flow to net profit-
Figure 14: Operating cash flow to net profit
The Operating cash flow to net profit shows amount of net profit being converted into operating cash flow
(Miller, 2018). The figures reveal that Booker Group PLC is able to attain good conversion as ratio has increased
gradually towards upward. While, Tate & Lyle PLC had been remained constant. The ratio shows ability of
organisation to turn its net profit into cash.
Cash flow to debt-
9

Figure 15: Cash flow to debt
The chart shows that ratio of Booker Group PLC has been steady over five years. While, after 2014, ratio
of Tate & Lyle PLC has fallen down up to a major extent. Cash flow of debt ratio shows comparison of company's
operating cash flow to its total debt.
2.6 Investor’s ratios
Earnings Per Share (EPS)-
Figure 16: Earnings Per Share
It can be depicted from EPS performance of companies that Booker Group PLC has good ratio over the
years but drop down by 0.32 % in 2013 due to purchase of Makro in exchange for shares. The EPS of Tate & Lyle
PLC has also decreased mainly in 2015 due to poor supply chain control. EPS of company shows how much profit
of company is allocated to each share of common stock showing profitability position of firm.
Dividend Payout Ratio-
10

Figure 17: Dividend Payout Ratio
Investors want higher dividends on investment made by them (Maina and Sakwa, 2017). This ratio shows
profit earned by company and how much dividends are paid to shareholder's leading to maximise their wealth. It can
be analysed that Booker Group PLC has stable increase in dividends as depicted by ratio which has reached 64 % in
2016. While, Tate & Lyle PLC has also good dividend payout ratio but is not stable in comparison to other firm.
Price Earnings Ratio (P/E)-
Figure 18: Price Earnings Ratio
It can be interpreted from the chart that Booker Group PLC has stability in its stock price which can be
noted by figure in 2014 to 27.51. While, Tate & Lyle PLC has good P/E ratio but it is not stable. This implies that
other firm has enhanced ratio up to a high extent. It is the ratio of current stock price of company to its EPS and
showing profitability of company in the best manner possible (Nia, 2015).
2.7 Common-size
11

Common-size Analysis
Horizontal Analysis The horizontal analysis is an effective method which helps to review several years
of performance of company in the best way possible (Crowther, 2018). Current
year's figures are compared with standard year and change if any are shown as a
percentage. It is useful analysis for management to get clarity about strengths and
weaknesses in effective manner.
Vertical Analysis It is known as proportional analysis in which each item in financial statement is
listed as a percentage of another item for seeing relative changes in financial
performance over the years. Vertical analysis is referred to as timeline analysis as
relative trend is shown by it.
Vertical analysis
Figure 19: Vertical SOPL
12

Figure 20: Vertical SOFP
Figure 21: Vertical Cash flow statement
The vertical analysis has been carried out for SOPL, SOFP and Cash flow statement for both companies
over the last five years in order to analyse performance in the best way possible (McLean, 2018). SOPL shows that
Booker Group PLC has effectively reduced its operating expenditures which has lead to increase in net profit quite
effectually. This practice has not been done by followed by Tate & Lyle PLC and as a result, net profit has not
13

maximised. SOFP shows both organisations have good grip over their respective amount of inventories (Misund,
2017). This can be further analysed that Booker Group PLC has more of intangible assets while, other firm has more
of PPE.
Cash flow statements can also be analysed which shows that cash and cash equivalents of Booker Group
PLC was 75 % in 2012 which is quite fluctuating over the years and reached 73 %. While, Tate & Lyle PLC has
good cash balance at the end of year as it was 193 % in 2012 increased to 151 % in 2013 and again decreased to 147
% in 2014 and 2015 in 150 % and reached 208 % in 2016. This shows that changes in cash position of Tate & Lyle
PLC is much changed.
Horizontal Analysis
Figure 22: Horizontal SOPL
14

Figure 23: Horizontal SOFP
Figure 24: Horizontal Cash flow statement
The horizontal analysis of companies are carried out of all financial statements in order to effectively
analyse overall performance in effectual way. The income statement has been analysed which shows that Booker
Group PLC is being able to accomplish desired sales targets and control upon operational expenditures has provided
15

with good amount of net profit. It highlights that profits are increased (Wolfson, 2017). On the other side, it can be
analysed that Tate & Lyle PLC has not initiated same level of profits over the years and much negative change can
be extracted in a better manner.
Horizontal analysis of SOFP shows that profitability position of Booker Group PLC has increased in recent
years which also has led to maximise its equity value. While, Tate & Lyle PLC has not been able to accomplish
desired profitability and value as per equity aspect has gone down. On the other side, cash flow statements for last
2012-2016 years have been assessed which shows that Booker Group PLC has been positive with respect to ending
cash balance. This can be shown in cash and cash equivalents as figures are maximised in upward trend in
comparison to other firm (Hodgson, 2017). Hence, cash flow position of Tate & Lyle PLC is not good as ending
cash balance is not adequate.
2.8 DuPont analysis
DuPont analysis is one of the important financial measure which is bad on the return on equity ratio being
used to assess firm's ability for increasing its return on equity. It is much essential from investor’s point of view as
major profits earned by firm will be divided to shareholders in the form of dividends on per share held by them
(Erdogan, Erdogan and Ömürbek, 2015). It looks for three components such as profit margin, total asset turnover
and financial average in the best manner possible. In relation to this, it provides clarity to company that it can raise
its ROE by maintaining good profit margin, enhance asset turnover ratio and leveraging assets.
ROA VS ROE (%)
Figure 25: 2 FACTORS ROA
16

Figure 26: 2 FACTORS ROE
The graph depicts that companies are required to enhance return on equity up to a high extent so that investors may
be satisfied by earning dividends in effective manner. It can be analysed that ROE is more than ROA for both firms
from last five years time period. Firms are judiciously using shareholder's funds in an optimum manner. Booker
Group PLC has attained increase in asset turnover ratio and financial leverage has been minimum (Louwers and
et.al., 2015). On the other hand, Tate & Lyle PLC has more of financial leverage in comparison to asset turnover
which shows that firm should judiciously use asset for maximising earnings which in turn will increase return on
equity. For accomplishing robust growth, Tate & Lyle PLC needs to use more debt and decrease use of equity up to
certain extent. Thus, it can be compared that Booker Group PLC has more of the shareholders' investment and return
on assets than other firm.
DuPont- Net Profit Margin
The chart shows that NPM of Booker Group PLC has increased in recent years and has become quite
steady in the best manner possible (Schmidgall and DeFranco, 2016). The margin has remained stable over the
years. While, of Tate & Lyle PLC, ratio has not been same.
DuPont- Asset turnover
It can be analysed from above chart that Asset turnover ratio of Booker Group PLC has been able to
effectively increase its position as per the trends of assets usage. It means that assets are used in a productive
manner. On the other hand, Tate & Lyle PLC is able to enhance in effective manner.
DuPont- Equity Multiplier
The equity multiplier is used to measure firm's financial leverage. It is attained by dividing total assets by
total equity (Wheelen and et.al., 2017). Higher equity multiplier implies company is using more of debt in
comparison to debt. Both companies are using higher debt but Booker Group PLC is more of it.
17

3.0 Advantages and disadvantages of analysis
3.1 Financial Ratios Analysis
Financial Ratios Analysis
Advantages
 It is helpful in increasing transparency for stakeholders of Booker Group PLC and Tate
& Lyle PLC so that they may be able to take decisions (Kawalla and et.al., 2018). This
is evident from the fact that net profit can be seen from the graph that Tate & Lyle PLC
is increased over the years while, decreased to 5.39 % in 2016. (Figure 3) It is helpful in
increasing transparency in effective manner as stakeholders are required to take
decisions with the help of financial statements which provides figures help to ascertain
whether financial performance of company is good or not. Hence, it is proved that for
assessing performance, transparency of financial statements helps to take decision.
 Accounting data is difficult for layman to understand and interpret the same. But ratio
analysis help to analyse data through charts and tables which eases off for the concerned
party (Weimer and Vining, 2017).(Figure 3). It can be analysed that ratio analysis is
quite helpful for stakeholders in effective manner. This is evident from the fact that
ratios are calculated so that it can be provided to stakeholders for taking decision quite
effectively. With the help of preparation of charts from tables, stakeholders are able to
know trends of profitability of both companies as to which is performing good or not.
 Weaknesses if any can be spotted as management compares current year with previous
years and thus, remedial measures are taken with ease. It can be analysed that
weaknesses in net profit of Tate & Lyle PLC is highlighted (Chen, 2018).(Figure 3). It is
evident from the fact that weaknesses are evaluated in a better manner as it is seen in
performance of Tate & Lyle PLC is low as it is unable to initiate control on expenses.
Thus, it is proved that ratio analysis clarifies firm's expenses are higher which need to be
reduced.
Disadvantages
 Accounting data if manipulated will provide falsify ratios being computed leading to
false information about firm. The financial position of Booker Group PLC will be
distorted. On the behalf of figures, net profit of both company is calculated which can be
18

manipulated by window-dressing (Georgescu-Roegen, 2018). (Figure 3) It can be said
that manipulation in accounting is quite simple and if it is practised, financial statements
will be prepared from it. It will not be highlighted by producing ratio analysis as it is
prepared from financials only. Thus, manipulation leads to false results.
 Comparison cannot be done of companies if they follow different policies. It is the
biggest limitation of ratios. Both companies follow different policies and thus,
comparison cannot be possible. The comparison cannot be done as different accounting
policies are followed by two firms (Bringezu. and Moriguchi, 2018). (Figure 16). The
accounting policies followed by Booker Group PLC and Tate & Lyle PLC are not same.
This shows that in the event of different policies, ratio analysis will be done which will
not take into account, accounting policies. Thus, performance of Tate & Lyle PLC may
be lower but it would be due to accounting policies differ from Booker Group PLC.
 Price level in one year cannot be same in another year. This leads to inefficiency in
ratios and as a result, comparison cannot be made with reference to change in price level
(Chandra, 2017).The comparison cannot be done as price level change followed by two
firms. (Figure 16). There are various reasons of price level changes such as economic
downturn, market fluctuations in countries where organisations operate, exchange rate
etc. Thus, it is not taken into account by ratios and only concrete figures are taken into
account.
Demerits Critical Evaluation and Contemporary method to
overcome
 Accounting data if manipulated will provide
falsify ratios being computed leading to false
information about firm. The financial position
of Booker Group PLC will be distorted. On the
behalf of figures, net profit of both company is
calculated which can be manipulated by
window-dressing (Georgescu-Roegen, 2018).
(Figure 3) It can be said that manipulation in
accounting is quite simple and if it is practised,
financial statements will be prepared from it. It
will not be highlighted by producing ratio
analysis as it is prepared from financials only.
It can be critically evaluated as accounting data can be
manipulated distorting real net profit figures. It can be
overcome by EVA as economic value can be added. It
can be elaborated that EVA helps to ascertain when
economic return exceeds cost of capital of firm, value is
created (Wouters and et.al., 2018). The manipulation can
be minimised or eradicated with the help of deployment
of this method as ratio analysis does not take economic
value derived while calculating firm's performance.
19

Thus, manipulation leads to false results.
 Comparison cannot be done of companies if
they follow different policies. It is the biggest
limitation of ratios. Both companies follow
different policies and thus, comparison cannot
be possible. The comparison cannot be done as
different accounting policies are followed by
two firms (Bringezu. and Moriguchi, 2018).
(Figure 16). The accounting policies followed
by Booker Group PLC and Tate & Lyle PLC
are not same. This shows that in the event of
different policies, ratio analysis will be done
which will not take into account, accounting
policies. Thus, performance of Tate & Lyle
PLC may be lower but it would be due to
accounting policies differ from Booker Group
PLC.
It can be critically analysed that accounting policies are
not same in Booker Group PLC and Tate & Lyle PLC,
thus, comparison can be done with the help of CAPM
model. CAPM is quite useful and it helps to ascertain
separate cost of equity financed by investors and cost of
debt provided by lenders (Gupta, 2017). Thus, it can be
critically assessed that comparison can be done by
looking into both firm's capital structure.
 Price level in one year cannot be same in
another year. This leads to inefficiency in ratios
and as a result, comparison cannot be made
with reference to change in price level
(Chandra, 2017).The comparison cannot be
done as price level change followed by two
firms. (Figure 16). There are various reasons of
price level changes such as economic
downturn, market fluctuations in countries
where organisations operate, exchange rate etc.
Thus, it is not taken into account by ratios and
only concrete figures are taken into account.
It can be critically analysed that price level differs and
can be overcome by using CAPM model. This
contemporary method calculates cost of capital and cost
of debt of company in separate manner which involves
factors of price level namely economic downturn,
market fluctuations and exchange rate (Libby, 2017).
Thus, CAPM is helpful in reflecting what is financed
with help of debt and equity to reflect price level
changes.
3.2 Common-size Analysis
20

Common-size Analysis
Advantages
 Common-size analysis is easy to understand as it aids capital sources and related
sources of funds which can be effectively attained by Booker Group PLC and Tate &
Lyle PLC. It is provided in graph that SOFP is done with the help of Tate & Lyle PLC
and Booker Group PLC that current and long term assets are acquired (Jasinevičius
and et.al., 2018). (Figure 19 and 20). It can be said that common-size analysis is useful
in reflecting distribution or application of funds for buying assets of company in the
best manner possible. It means that firm is able to analyse where it has used funds or
distributed or gained funds in effective manner.
 The comparison can be done with the help of both horizontal and vertical analysis
which helps to measure corporate's credit rating (Revesz, 2017). It can be said that
Credit Rating agency such as Fitch is able to set benchmark as per the industry. With
the help of common-size analysis, Fitch is able to give credit rankings on clarifying
solvency of firm.
 Multiple comparisons could be done with reference to usage of common-size analysis
and further strengths and weaknesses of Tate & Lyle PLC and Booker Group PLC can
be assessed with ease. The graph shows that all major non-current and current
liabilities and assets could be made (Jasinevičius and et.al., 2018). (Figure 22, 23) It
can be analysed that with the help of common-size analysis, comparisons with regards
to change in assets and liabilities can be ascertained so that change can be highlighted.
This helps to ascertain whether assets and liabilities of Booker Group PLC is good or
of other company.
Disadvantages
 It is not suitable to generate better results of overall performance of company as there
is no established standard proportion. It is reflected from graph that only assets and
liabilities change is provide but not reason behind it (Goretzki and et.al., 2018).(Figure
22, 23). It can be analysed that common-size analysis just provide percentage change
in assets and liabilities. It does not provide reason why change is observed. Hence, it is
proved that there is no standard set for identifying reason for change in effective
manner.
 It only provides one aspect about increase or decrease in assets or liabilities, however,
it does not signify reasons behind such increase or decrease (Kaffash and Marra,
21

2017). The figures only indicate increase and decrease as listed under SOPL and SOFP
but reason is not provided (Zurano-Cervelló and et.al., 2018). (Figure 22, 23). It
clarifies about percentage change in assets and liabilities of Booker Group PLC and
Tate & Lyle PLC which means that on basis of concrete evidence of figures only,
computation is made. However, it does not take into account effect of reasons behind
changes which marks the biggest limitation of common-size analysis.
 The effect of window-dressing cannot be ignored which leads to preparation of false
financial statements leading to incorrect computation of sales, profits etc. The figures
could be manipulated as listed under SOFP and SOPL (Tang and et.al., 2018).(Figure
22, 23) With slight increase in one asset and decreasing liability, manipulations could
be done with much ease. This is proved that by effect of window-dressing in
financials, real picture of overall financial health can be done leading to false analysis.
Demerits Critical Evaluation and Contemporary method to
overcome
 It is not suitable to generate better results of
overall performance of company as there is no
established standard proportion. It is reflected
from graph that only assets and liabilities
change is provide but not reason behind it
(Goretzki and et.al., 2018).(Figure 22, 23) It
can be analysed that common-size analysis just
provide percentage change in assets and
liabilities. It does not provide reason why
change is observed. Hence, it is proved that
there is no standard set for identifying reason
for change in effective manner.
It can be critically analysed that EVA can be used to
ascertain amount of assets and liabilities of companies. It
can be ascertained that EVA is quite helpful in
overcoming disadvantage of common-size analysis. This
is because it takes financials by referring to all
fluctuations and changes in market and economic return
generated is provided to shareholders and thus, overall
performance is judged (Barth, 2018).
 It only provides one aspect about increase or
decrease in assets or liabilities, however, it does
not signify reasons behind such increase or
decrease (Kaffash and Marra, 2017). The
figures only indicate increase and decrease as
listed under SOPL and SOFP but reason is not
It can be overcome by using CAPM to ascertain debt
and equity in the form of assets and liabilities of
company. It can be critically analysed that CAPM
separates equity and debt quite effectively with the help
of incorporating reasons behind change observed in
market (Thomas, 2018). This helps to ascertain finance
22

provided (Zurano-Cervelló and et.al., 2018).
(Figure 22, 23) It clarifies about percentage
change in assets and liabilities of Booker Group
PLC and Tate & Lyle PLC which means that on
basis of concrete evidence of figures only,
computation is made. However, it does not take
into account effect of reasons behind changes
which marks the biggest limitation of common-
size analysis.
made by with the help of debt and equity by stating
reasons thereof.
 The effect of window-dressing cannot be
ignored which leads to preparation of false
financial statements leading to incorrect
computation of sales, profits etc. The figures
could be manipulated as listed under SOFP and
SOPL (Tang and et.al., 2018).(Figure 22, 23)
With slight increase in one asset and decreasing
liability, manipulations could be done with
much ease. This is proved that by effect of
window-dressing in financials, real picture of
overall financial health can be done leading to
false analysis.
It can be critically evaluated that window-dressing can
be eradicated by using EMH to provide public
information. It can be assessed that by using EMH
particularly semi-strong efficiency provides information
to public and in the event of change in news, fluctuations
takes place in stock of company (Raik, Etzold and
Haukkala, 2017). Thus, window-dressing can be
overcome as true picture is provided to public.
3.3 DuPont Analysis
DuPont Analysis
Advantages
 It is useful technique in order to effectively analyse the weaknesses and strengths of
a firm. The weaknesses can be assessed by getting deeper insights about performance
of business. The chart list out that equity and assets are provided under it clarifying
figures increase or decrease (Choi, 2018). ((Figure 25, 26) It can be analysed that
DuPont analysis is significant in making out deeper insight regarding weakness
encountered and as a result, elements of financial statements can be reflected in
23

effective manner which affects financial health of company.
 Control can be effectively initiated to ascertain and improve upon control on
expenses in marketing and asset management to enhance return on equity. It is
required that marketing expenses should be reduced for maximising profits. DuPont
analysis helps to reduce on expenses and as a result, assets management may be
strengthened quite effectively (Gujjar and Manjunatha, 2018). Hence, it can be said
that return on equity can be enhanced in a better manner.
 This type of analysis is useful for shareholders who invests in company and as a
result, increase or decrease in returns can be identified in the best manner possible
(Epstein, 2018). The chart provides NPM of Booker Group PLC is increased and has
more profitability in comparison to other firm (Weimer and Vining, 2017). (Figure
3) It can be analysed that change in or increase or decrease in equity returns could be
enhanced in a better manner with the help of DuPont analysis. Hence, it is quite
important for investors' point of view for assessing performance of company and
investment decision-making is done.
Disadvantages  It has one of the major disadvantage that DuPont does not utilise cost of capital and
as a result, perfect analysis of accounting data cannot be made which distorts
financial position of Tate & Lyle PLC and Booker Group PLC. It only provides
concrete figures but cost of capital is not provided (Araujo, Sillva and Mattos, 2018).
(Figure 25, 26). It can be analysed that firm cost of capital is not entertained in it and
only concrete figures are listed which does not provide any evidence of figures
ascertained. Thus, accurate accounting data must be imputed so that real results can
be attained.
 The limitation of comparative study applies to DuPont analysis as no organisation
follows the same accounting regulations and policies (Chan and Chong, 2017). Both
company follows different equity and debt in capital structure according to their
product selling range and comparison cannot be done (Wheelen and et.al., 2017).
(Figure 25, 26). It can be assessed that comparative study can be done only to firms
in the same industry. This means that comparison cannot be done when firms are of
different industry. Apart from it, due to implementation of different accounting
policies, comparison cannot be done.
 It is highly reliant on accounting data which can be easily altered and as such, true
and fair view of financial health of both firms cannot be possible to ascertain. The
asset and liabilities can be manipulated with the help of window-dressing (Miller,
2018). (Figure 19. 21, 22, 23) It can be analysed that DuPont analysis provides
24

negligible and irrelevant sub elements, which are weakly meaningful and as a result,
window-dressing is made. This leads to unfair view of financial health is provided
which is the limitation of such analysis.
Demerits Critical Evaluation and Contemporary method to
overcome
 It has one of the major disadvantage that
DuPont does not utilise cost of capital and as a
result, perfect analysis of accounting data
cannot be made which distorts financial
position of Tate & Lyle PLC and Booker
Group PLC. It only provides concrete figures
but cost of capital is not provided (Araujo,
Sillva and Mattos, 2018). (Figure 25, 26) It can
be analysed that firm cost of capital is not
entertained in it and only concrete figures are
listed which does not provide any evidence of
figures ascertained. Thus, accurate accounting
data must be imputed so that real results can be
attained.
It can be critically evaluated that CAPM model will be
helpful in ascertaining cost of capital such as cost of
debt and equity. It can be proved with the point that
CAPM helps to separate cost of equity and cost of debt
which provides fair view of capital structure (Daane,
Vincent, Isaacs and Ioriatti, 2018). Thus, limitation of
DuPont analysis is overcome by this contemporary
method.
 The limitation of comparative study applies to
DuPont analysis as no organisation follows the
same accounting regulations and policies (Chan
and Chong, 2017). Both company follows
different equity and debt in capital structure
according to their product selling range and
comparison cannot be done (Wheelen and et.al.,
2017).(Figure 25, 26) It can be assessed that
comparative study can be done only to firms in
the same industry. This means that comparison
cannot be done when firms are of different
industry. Apart from it, due to implementation
of different accounting policies, comparison
cannot be done.
It can be critically assessed that EVA model will be
helpful for assessing comparison of regulations. It can be
analysed that EVA model is helpful in providing
economic return to shareholders. The economic value is
added by providing shareholders with returns which
exceeds cost of capital (Sivapalan, and Jebarajakirthy,
2017). Thus, comparison can be quickly done within
firms in either same or different industry.
25

 It is highly reliant on accounting data which
can be easily altered and as such, true and fair
view of financial health of both firms cannot be
possible to ascertain. The asset and liabilities
can be manipulated with the help of window-
dressing (Miller, 2018). (Figure 19. 21, 22, 23)
It can be analysed that DuPont analysis
provides negligible and irrelevant sub elements,
which are weakly meaningful and as a result,
window-dressing is made. This leads to unfair
view of financial health is provided which is
the limitation of such analysis.
It can be critically evaluated that EMH will be useful in
eradicating unfair data and thus, it is helpful for
overcoming limitation. Moreover, with the use of semi-
strong market form where information is publicly
available, manipulations could be controlled in a better
manner (Kaura, Durga Prasad and Sharma, 2015). This
provides clarity that firm cannot make manipulative
financial statements.
4.0 Contemporary Methods
4.1 EMH
EMH (Efficient Market Hypothesis) shows that current price of an asset reflects public related information
with reference to economic indicators that affects future asset value (Maynard, 2017). It has three components or
forms namely strong, semi-strong and weak efficiency. Both companies are in semi-strong efficiency position. It
overcome demerit of traditional methods as market analysis can be done on the basis of daily price of stock available
to public.
4.2 EVA
EVA (Economic Value Added) is an economic indicator which measure company's capability based on
economic profits or value created in excess to returns to shareholders. It is calculated by reducing equity cost of
capital from the net profit (Eckert and Gatzert, 2017). Expected earnings of Booker Group PLC will increase and
other firm will have decline in earnings. It helps to overcome limitation of traditional methods as economic effect
cannot be ascertained by financial ratios as it is company-specific only.
4.3 CAPM
CAPM (Capital Asset Pricing Model) is one of the important technique for company as it shows how assets
should be priced in the capital market for maximising returns in the best manner possible. The CAPM of both
companies are good which highlights that investors will get returns and are less volatile in market as beta is less than
1. It helps to overcome limitation as asset pricing can be assessed in effective manner which cannot be ascertained
by other methods.
4.4 DGM
It is an effective growth model which is used to calculate fair value of stock making assumption that
dividends either grow at a stable rate or at different rate. The main merit of it uses discounted cash flows which
26

relies on the basis of NPV (Net Present Value) and expected future limitations. This is helps to overcome traditional
methods as constant stability is provided by the method to compute fair stock value.
5.0 CONCLUSION
Hereby it can be concluded that financial analysis is required so that overall performance can be analysed
in a better manner. Booker Group PLC and Tate & Lyle PLC both are performing good in market. However,
profitability and liquidity position of Booker Group PLC is good in comparison to other firm. Moreover, DuPont
analysis and common-size analysis also clarify that firm is able to perform better and is expected that profits will be
enhanced in the future as well. Tate & Lyle PLC is required to expand into UK so that it may be able to attain profits
from various operations and as a result, profitability position may be improved with ease. Furthermore, capital
structure needs to be strengthened of both companies as they are heavily relying more on debt. It is required that
equity should be raised and optimum balance of debt and equity should be used for meeting capital requirement.
27

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ONLINE
Annual Report of Booker Group PLC. 2016 [PDF] Available Through:
<http://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_BOK_2016.pdf>
Annual Report of Tate and Lyle PLC. 2016 [PDF] Available
Through:<https://www.tateandlyle.com/sites/default/files/2017-06/Annual%20Report%202016_0.pdf>
31

APPENDIXES
32

33

34

35

36

37

38

39

TATE & LYLE PLC
40

41

42