Maximizing Profitability: Financial Analysis of Almarai Company, Saudi

This report provides a financial analysis of Almarai, a leading dairy company in Saudi Arabia, focusing on its financial performance, capital structure, and dividend decisions. The analysis covers the company's overview, financial position (profitability, liquidity, asset efficiency, and solvency), market share compared to competitors, and capital structure, including debt-to-equity ratio and EBIT-EPS analysis. The report also examines Almarai's dividend policy and its impact on shareholder returns, concluding with an evaluation of the role of finance in strategic decision-making to maximize organizational profitability. The student-contributed assignment is available on Desklib, a platform offering study tools and solved assignments for students.

Running Head: Finance
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Project Report: Finance

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Contents
Introduction.......................................................................................................................3
Company overview...........................................................................................................3
Financial position..............................................................................................................4
Market share.....................................................................................................................8
Capital structure................................................................................................................8
Debt to equity ratio.....................................................................................................10
Dividend analysis............................................................................................................11
Conclusion......................................................................................................................12
References.......................................................................................................................13
Appendix.........................................................................................................................15

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Introduction:
The report focuses on the financial performance of a Saudi Arabia company named by
Almarai. The financial evaluation is a process which is used by the companies, financial
analyst and the investors of the company to recognize the position of the business, projects,
budgets and other financial related activities of the business (Rabin, 2013). An organization
could be evaluated through various bases such as through evaluation on the financial ratios of
the company, capital structure and debt payout policies of the company etc. all of these
activities explain about the financial risk, liquidity risk, long term solvency position, cost
management etc of the business.
In the report, the financial study has been conducted on Almarai. In order to identify
the financial position of the company, the capital structure, financial position and the debt
payment policies of the business have been evaluated in order to identify the position of the
company in the industry and investment position of the business. the corporate governance
policy, risk management level, audit committee, mission of the company in 2025 has been
studied in the report.
Company overview:
Almarai is Known as the largest company in Saudi Arabia dairy industry because of
higher market share of the business. The main operation of the company includes dairy farms
and processes food as well as it also do marketing of dairy products and fruit juices in the
Saudi Arabia market. Almarai name stands for ‘green pastures’ in Arabic. Almarai has an
untiring commitment to the quality services and the products. The quality product and
services of the company has helped the company to manage the financial performance and
the market share. Their main focus of the company is on its consumers. the company is
operating across the gulf region. Around 40,000 employees are working with the company
who are offering servicing at 50,000 retail outlets with a turnover that exceeded US $13,396
million in 2017 (Home, 2018). The main competitors of the company in Saudi Arabia market
is The Saudi Dairy and Foodstuff Co which offering the similar products in the dairy industry
(Gulf base, 2018).

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Figure 1: Stock price
(Bloomberg, 2018)
Mission 2025:
The mission of the company by 2025 is to be the market leader at the global level and
improve the profitability turnover of the business at great extent. Mission and vision (2018)
expresses that the main mission of the business is to offer the quality and nutrition beverage
and food to consumers in order to enrich their daily lives.
Audit committee:
The audit committee report of the company has added that the company is following
proper AASB rules in order to offer the proper and transparent information to the
stakeholders of the business.
Corporate governance policies:
The corporate governance policy of the company is to focus on the environment and
improve the lifestyle level of the society (Annual report, 2017). The corporate responsibility
(2018) explains that currently company is supporting the excellence in kingdom, education
and developing the local talent.
Funding policy and capital addition:
The company has improved the equity level in the year of 2017 whereas the debt level
of the company was same; it has reduced the financial gearing position of the company.
Financial position:

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The financial position of the business has been measured on the basis of the
profitability, liquidity, asset efficient, investment and solvency position of the business.
Profitability analysis:
The profitability analysis on the financial position of the company explains that return
on capital employed level of the company has been improved from 9.19% to 10.69% in the
year from 2013 to 2017. The capital employed of the company has been improved by 16.41%
in last 5 years. It expresses that in near future the return on capital employed of company
would be improved more. Further, the gross profit margin of the business has been studied
and it has been recognized that the 13.75% changes have occurred into the gross profit
position of the company from last 5 years. The current (2017) gross profit of the business is
40.1% which is enough competitive. The changes into the profitability level have been taken
because of the reduction in the sales level of the business because of the political changes.
Figure 2: Profitability analysis
(Annual report, 2017)
In addition, the operating profit margin has also been studied. The calculations
express that the operating profit margin of the company has been improved by 25.17% in last
5 years (Appendix). The forecasting process on the company explains that the profit level of
the business would be improved more in near future. The average growth rate in the net
profitability level of the business has been found 8% which explains that there is huge room
for the growth of the company (Chandra, 2011).

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Liquidity analysis:
The liquidity analysis on the financial position of the company explains that current
liquidity ratio level of the company has been reduced from 1.44 to 1.18 in the year of 2017
from 2013 (Appendix). The current ratio of the company has been reduced by 17.88% in last
5 years. It expresses that the changes have been done by the company in order to manage the
associated cost and manage the liquidity risk of the business. The current liquidity position of
the business is enough competitive (Higgins, 2012). Further, the quick ratio of the business
has been studied and it has been recognized that the -15.12% changes have occurred into the
quick liquidity position of the company from last 5 years. The current quick ratio of the
business is 0.64 which explains that the company would not be able to meet the short term
debt of the company at all of sudden.
Figure 3: Liquidity analysis
(Annual report, 2017)
Thus, it has been concluded that the business should improved the level of the quick
assets such as receivables, cash etc in order to meet the short term debt demand of the
business. The forecasting process on the company explains that the liquidity risk of the
business is in control as well as the company is performing average in terms of the short term
debt management.
Asset efficiency ratios:

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Asset efficiency ratio analysis on the financial position of the company explains that
Trade payable payment period ratio level of the company has been reduced from 102.31 days
to 71.93 days in the year of 2017 from 2013. It expresses that the changes have been done by
the company in order to manage the working capital but it explains that at this level company
would require more funds to manage the operations. The reduction in the Trade payable
payment period ratio is not good for the company. Further, the inventory turnover ratio of the
business has been studied and it has been recognized that the days of inventory turnover has
been improve which explains that now the huge inventory would be ordered by the business
at a time which would improve the demand of the funds in the business (Rose & Hudgins,
2012).
Figure 4: Asset efficiency ratios
(Annual report, 2016)
Lastly, in case of receivable turnover of the businesses it has been measured that the
changes are in the favour of the company as the receivable turnover days has been reduced
from 31.82 days to 27.29 days only whereas the changes into the trade payable turnover days
and inventory turnover days are higher which explains that the requirement of the working
capital has been reduced in the business as well as the efficiency level of the business has
also been improved.
Stock market ratios:

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The stock market or investment ratio analysis on the financial position of the
company has been done further. The current stock price of the company is SAR 44.50. It
explains that earnings of the company have been reduced from SAR 1.51 to SAR 2.13 from
2013 to 2017. The EPS ratio of the company has been improve from 40.55% in last 5 years. It
expresses that the changes have been taken place in the business because of the better market
share and the earnings of the company Madura, 2011. The EPS level of the business explains
that the investment level of the company is enough competitive. Further, the dividend
coverage ratio of the business has been studied and it has been recognized that the 704.32%
changes have occurred into the dividend coverage position of the company from last 5 years
(Appendix). The dividend coverage ratio of the business in the year of 2017 is 2.67 which
explain that the company is offering a great dividend amount to its stock holders in order to
impress them and manage the market position of the business.
Figure 5: Stock market ratios
(Annual report, 2015)
Thus, it has been concluded that the investment level of the business is quite
attractive. The company is managing the marketing position and the investment level at better
stage. The forecasting process of the company explains that the investment position of the
business is better as well as the company is performing great in terms of the management of
the capital market.
Market share:

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The market share of both the companies has been studied further in order to measure
the non financial performance and marketing level of the business. In case of Almarai
Company, it has been found that the company is one of the largest dairy companies in the
Saudi Arabia market. The total market share of the business has been 35.3% (Statista, 2018).
The Statista (2018) expresses that the gulf cooperation council has tracked the Almarai
Company as the leading player in the GCC dairy market which consists the 35.3% of market
share in the Saudi Arabia market. Further, in case of Saudi Dairy and Foodstuff Co, it has
been found that the market share of the company is 6.6% in the industry. It is one of the top 3
leading companies in the dairy market after the Nestle. It explains that the level of market
share and the financial performance of Almarai Company are highest in the industry which
explains that the company would be a better option in terms of the investment (Reuters,
2018).
Capital structure:
On the basis of the debt equity ratio of the company, it has been found that the
financial gearing level of the business is huge which must be reduced by the company in
order to maintain the financial risk of the business (Porcelli & Delgado, 2009). The current
level explains that the business would not even be able to meet all the long term debt
requirement of the business (Koropp, Kellermanns Grichnik & Stanley, 2014). Further, in
terms of measuring the better capital structure level, the EBIT-EPS analysis has been done.
EBIT-EPs approach explains that the optimal capital structure level of a business is the point
where the EPS level of the business is higher than the expected range of the EBIT.
The EBIT-EPS level of the Almarai company has been calculated and it has been
compared with the EBIT APS level of Saudi Dairy and Foodstuff Co. the evaluation on
Almarai comapny expresses that the EBIT EPS level of the company has been improved from
SAR 1185.64 to SAR 1311.63 which expresses that the capital structure level of the company
is quite better and the company is performing better in the industry in terms of the
management of the debt and equity level of the business (DemaMoreno, 2009).
Further, the of Saudi Dairy and Foodstuff Co has been taken into the context and it
has been found that the EBIT EPS level of the company has been lowered at great level
which denotes the current position of the company SAR 34.25 (Gulf base, 2018). On the
basis of the study on both the companies, it has been found that the position of EBIT EPS of

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Almarai Company is better than the Saudi Dairy and Foodstuff Co. Because the risk level in
Saudi Dairy and Foodstuff Co. is higher. Though, the comparison among the two companies
would not offer better result because of the different market share and the operational
changes in both the companies.
EBIT-EPS
analysis 2013 2014 2015 2016 2017
EBIT-EPS
analysis Almarai company
EBIT/ 1,797 1,950 2,262 2,542 2,794
EPS 1.52 1.64 1.93 2.10 2.13
Answer: % 1185.64 1190.67 1171.14 1212.34 1311.63
EBIT-EPS
analysis Saudi Dairy and Foodstuff Co
EBIT/ 184 156 276 311 275
EPS 5 4 8 9 8
Answer: % 34.91 35.94 34.46 33.59 34.25
On the basis of the study, it has been found that the financial gearing level of the
business is higher which leads to the higher financial risk in the business. This impact could
be minimized in the business through issuing more equity shares in the market or payment of
the borrowings of the company. It would maintain the debt equity position of the company
and the optimal capital structure level of the business would be maintained.
Debt to equity ratio:
Debt to equity ratios of the business has been further studied in order to identify the
capital structure level of the business. The financial statement of the company of last 5 years
has been studied and it has been found that the various changes have been done by the
company in its capital structure.
Capital
structure 2013 2014 2015 2016 2017
Debt to equity
Long term
liabilities / 9,417 9,019 10,506 11,194 11,640
Equity 10,142 10,887 12,058 13,036 14,484
Answer: % 92.85% 82.84% 87.13% 85.87% 80.36%

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(Earnings, 2018)
The above given table represents the debt equity ratio of the company was 92.85% in
the year of 2013. Further, few continuous changes have been made by the financial manager
of the company to reduce the financial gearing level and manage the cost of the business. The
management has reduced the level of debt of the company and it has been found that the
current debt of the company is just 80.36% of total equity of the business. Even though, the
current level of debt equity is also higher in the business and explains that the financial risk
of the business which must be reduced by the company through issuing more shares or
buying back the debentures of the company (Annual report, 2013).
The debt equity ratio of the company has been compared with the main competitor of
the business i.e. Saudi Dairy and Foodstuff Co to measure that what is the capital structure
level of the business and how the industry position is? The debt equity structure of Saudi
Dairy and Foodstuff Co is as follows:
Solvency
Ratios 2013 2014 2015 2016 2017
Debt to equity
Long term
liabilities / 82 85 102 113 113
Equity 922 948 1,092 1,261 1,321
Answer: % 8.89% 8.97% 9.34% 8.96% 8.55%
(Annual report, 2015)
It explains that the level of financial gearing position of the company is even lower than
the ideal position of capitals structure. It explains that the associated financial risk of the
company is quite lower as well as the associated cost of the business (4 traders, 2018). On the
basis of the evaluation on both the companies, it has been found that the debt to equity level
of Almarai Company is way better. Few changes into the debt level would make the capital
structure of the company more attractive.
Dividend analysis:
The dividend structure level of both the businesses has also been evaluated to measure
that how the investment level of the company is and how much the dividend could be
expected from the stockholders of the business from the company. On the basis of the
Almarai Company, it has been found that the dividend coverage ratio of SDFC was better in

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past years. But along with the time, the level of dividend coverage has been reduced in the
company. In case of Almarai Company, it has been found that the dividend level of the
company is better in the industry (Barnes, 2007). The company is capable to pay enough
amounts as return to the stockholders of the company and thus it leads to the conclusion that
the divided position and the market position of the Almarai Company are better.
The Almarai Company is following the variable dividend payout policies where a
fixed dividend payout 5 is not paid to the stakeholders of the business. In the year of 2017,
the dividend payment ratio of the company is highest even after the increment in the equity
level from last year.
2013 2014 2015 2016 2017
Dividend coverage ratio
SDFC 1.744898 1.236842 2.241379 2.263158 1.331633
Dividend coverage ratio
Almarai 0.332224 2.714047 3.198664 0.330769 2.672152
(Annual report, 2017)
Figure 6: Dividend position
(Bloomberg, 2018)
Conclusion:
The financial evaluation is a complex and crucial stage in order to identify and
analyze the financial decision about the allocation of the resources in the company. On the
basis of the report on Almarai Company, its profitability position, capital structure position,
dividend position etc, it has been found that the overall performance of the company has been
improved at a great level in last 5 years. There is a big room for the growth of the company,
the better financial strategies have been made by the company in order to meet the
performance and manage the better level in the industry. The overall evaluation on the