HC2091 Business Finance Group Assignment: Bega Cheese Limited Analysis

This report provides a comprehensive financial analysis of Bega Cheese Limited, examining its performance based on various parameters. It includes an overview of the company, its sector, and competitors. The report delves into ratio analysis, focusing on profitability and turnover ratios, with detailed calculations for 2017 and 2018. It assesses share price movements, cost of equity, and capital structure, providing insights into the company's financial health and efficiency. The analysis highlights the trends in key financial metrics, discussing the implications for investors and the company's overall performance. The report also includes an analysis of the company's efficiency ratios, share price movements, and the cost of equity. The analysis also provides recommendations based on the financial performance of the company.

Running head: BEGA CHEESE LIMITED 1
BEGA CHEESE LIMITED
Analysis

Running head: BEGA CHEESE LIMITED
Introduction
Bega Cheese Limited is the company is an Australian dairy company which is based in
town Bega of New South Wales. The company was founded as an Agricultural cooperative
owned by the suppliers. The report of the company is based on different parameters which
include the complete analysis of the company right from the company and its operating activities
and the market in which it operates. The detailed analysis of the share price movements have
been analysed along with the cost of the equity. The capital structure and the cost of the capital
have been calculated on the basis of the deep understanding.

Running head: BEGA CHEESE LIMITED
Contents
Introduction......................................................................................................................................2
Overview of the company................................................................................................................4
Sector of the business...................................................................................................................4
Competitors of the company............................................................................................................4
Ratio Analysis..................................................................................................................................4
Profitability Ratios.......................................................................................................................5
Turnover Ratios............................................................................................................................6
Share price movements....................................................................................................................8
Cost of Equity................................................................................................................................10
Capital Structure............................................................................................................................10
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

Running head: BEGA CHEESE LIMITED
Overview of the company
Bega Cheese limited is the company which is an Australian based company in the city of
the New South Wales. The company came into existence in the year 1899 and the same has also
been listed on the Australian Securities Exchange. The current value of the organization is $775
million and the Bega Cheese likewise claims the partner send in the Capitol Chilled
nourishments Private Limited @ 25%. In the long stretch of January 2019, Bega Cheese
constrained displayed A$460 million arrangement with global nourishment aggregate known as
Mondelez International to claim the greater part of the cheddar and the basic food item business
(Bega cheese Limited, 2017).
Sector of the business
The Company has earned a worldwide reputation for being the primary player in the
business of the dairy and also prepares cheddar into the retail and nourishment markets both in
Australia as well as overseas (Bega Cheese, 2018).
Competitors of the company
The major competitors of the Bega Cheese Limited are cracker Barrel, coon and Mil Lel.
Ratio Analysis
It is a process which helps in examining and analysing the financial information of the
company by comparing the report of the company of the current year with the financial
statements of previous years. Such type of analysis is very useful for the investors as well as the
managers of the company which helps them to invest as well as to manage the affairs of the
company. It also helps in providing very crucial and vital information regarding the financial

Running head: BEGA CHEESE LIMITED
health of the company. In other words it is the procedure of getting useful information from the
financial statements in the form of ratios which helps managers to manage and investors to invest
in the company (Chan-Lau, et al 2017).
Profitability Ratios
It is a type of ratio which helps in examining and evaluating the company’s ability to earn
profits in near future. It is considered as one of the most important ratios in the eyes of the
managers as well as investors which help them to understand the ability of the company to earn
profits in future. The basic function of the ratio is to assess the revenue generating ability of the
company in future (Rahman, 2017).
a) Net profit ratio: It is a type of ratio which helps in establishing the basic relationship between
the revenue generated from the day to day transactions of the company and the net profits earned
from the day to day operations of the company. It also helps in determining the efficiency of the
business operations of the company (Iskandar, 2017).
b) Return on Equity: It is a type of ratio which helps the investors and other future investors to
identify whether to invest in the company or not. It is a kind of financial measure which is
calculated on the basis of the proportion between the net profit of the company and the
shareholder’s equity of the company. In other words such ratio helps in determining that how
well the management of the company is using asserts of the company to generate profits
(Kijewska, 2016).
c) Operating Profit Ratio: Such type of ratios helps in determining the operating profit of the
company after bearing the operating cost of production such as the cost of goods sold, wages etc.

Running head: BEGA CHEESE LIMITED
The ratio can be also expressed in the percentage of sales which shows the efficiency of the
company for the management of the cost structure of the company (Di Tella, 2017).
Profitability 2017 2018 2017 2018
Net Profit Net income 138748 28768 11% 2%
Net sales 1226663 1438281
Return on Equity Net income 138748 28768 24% 5%
Net Equity 572674 631991
Operating profit
margin
Operating profit 29924 66015 2% 5%
Net sales 1226663 1438281
The profitability position of the Bega Cheese Limited can be observed with the help of
three major parameters such as the net profit, return on equity and operating profit margin.
The net profit ratio of the Bega Cheese Limited was 11% and it reduced to 2% which is a
drastic fall on any account. The profitability reduced due to the reduction in the income and the
sales have hardly gone up in comparison to the previous year. The operating expenses also tend
to remain high and hence the net profit reduced with such a speed (Uechi, Akutsu, Stanley,
Marcus & Kenett, 2015).
The ROE is the most favorite of the investors and shareholders and the return on equity
of the com is 5% and it fell from 24% in the year 2017. The return is low and the investors are
trashing out as the money invested by them is blown away by the com.
The operating profit margin however increased from 2% to 5% and the overall scenario
states that the Bega Cheese Limited is not willing to do much to rewind the performance. The

Running head: BEGA CHEESE LIMITED
overall gain of the company is not valuable from the point of view of the investment (Robinson,
Henry, Pirie & Broihahn, 2015).
Turnover Ratios
The turnover ratios basically indicate the effectiveness and efficiency of the company.
The larger the turnover ratios are the better for the company. The ratio can be expressed on the
basis of a clear proportion between the net income and the average asserts of the company. In
other words a turnover ratio is the ratio which provides a clear idea regarding the assets and
obligations of the company in comparison with the sales of the company. The following are the
various types of turnover ratios:
Inventory Turnover Ratio: It is a type of ratio which describes the relationship between the
average inventory which is maintained by the company as well as the cost of goods sold by the
company. Such type of ratio helps in determining the efficiency of the company. The efficiency
of the company is described that how the management of the company converts the investment
into the efficient sales for the company.
Efficiency Ratios 2017 2018 2017 2018
Days Inventory Outstanding Inventory * 365
6128277
0
8470920
0
57.1
4
72.6
3
Cost of goods sold 1072436 1166329
Days Receivable Outstanding
Accounts receivable *
365
5175554
0
6480976
5
42.1
9
45.0
6
Credit sales 1226663 1438281
Days Accounts payable
outstanding
Accounts Payable *
365
4915856
5
6623034
5
45.8
4
56.7
9
Cost of Goods Sold 1072436 1166329
Total Asset turnover Net Sales 1226663 1438281 1.49 1.27
Average total Assets 821467 1136038

Running head: BEGA CHEESE LIMITED
The efficiency ratios of the Bega Cheese Limited can be analyzed with the help of this
table which determines the figures regarding to the different aspects of the efficiency. The
inventory turnover ratio of Bega Cheese Limited in the FY 2017 was 54.17 days whereas the
same increased to 72.63 days in the year 2018. The capability of the Bega Cheese Limited in
realizing the cash from the inventory is processing slow in comparison to the previous year and
the com needs to take initiative to reduce the piled up inventory by following the just in time
inventory concept, where the inventory will be called for as a when demanded (Bega Cheese,
2018).
The accounts receivables turnover ratio of the Bega Cheese Limited is 45.06 days in
comparison the previous year of 42.19 days. The major variance has not been arisen yet the Bega
Cheese Limited needs to focus on the capability of the Bega Cheese Limited and the overall
responsibility. The credit terms shall be shortened and the customers must be penalized in case
they do not make the payment on time (Griffin, 2015).
The accounts payable ratio of the other hand depicts the position of the Bega Cheese
Limited at even more worse situation. Earlier the Bega Cheese Limited was taking only 45 days
in making the payment and now the Bega Cheese Limited takes 56.79 days which is again the
crucial situation. The relationship with the suppliers is getting affected due to the low conversion
of cash and the cash cycle being lowest. The Bega Cheese Limited must pay the cash in
installment sand must realize from the other sources (Riyadi, 2017).
Therefore, from the above analysis it can be stated that the overall situation of the Bega
Cheese Limited is not smooth and the Bega Cheese Limited must take the smart initiatives as

Running head: BEGA CHEESE LIMITED
mentioned to improve. Further, from the point of view of the investor the efficiency of the Bega
Cheese Limited is not satisfactory and must not invest in the business.
Share price movements
The share price movements of the Bega Cheese Limited can be depicted with the help of
the graph presented below. The share price movements are compared on the basis of the trend
lines against the stock index of S&P ASX 200. There are several factors that affect the price of
the Bega Cheese Limited and such factors are consistently moving the share price of the Bega
Cheese Limited (Motley, 2019).
8/1/2017
10/1/2017
12/1/2017
2/1/2018
4/1/2018
6/1/2018
8/1/2018
10/1/2018
12/1/2018
2/1/2019
4/1/2019
6/1/2019
8/1/2019
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Price Movements
bega sheese
S&P ASX 200
While observing the graph and the trend lines, it can be observed that the trend lines of
the Bega Cheese Limited are of fluctuating nature. In the middle of the February and March the
Bega Cheese Limited’s average rate of return fell down in comparison to the ASX 200. This
again led to the loss to the Bega Cheese Limited however the share price of the Bega Cheese

Running head: BEGA CHEESE LIMITED
Limited rocketed well. Till February and March the Bega Cheese Limited saw a reduction by
17% and valuing the EBITDA to $57.9 million. Since then the shares have tumbled significantly
at the lower stage, however the scenario of the Bega Cheese Limited changed in the month of the
June when, Bega Cheese Limited was awarded as the best performer of the Australian ASX
(ElFayoumi, 2018).
This move was the most overwhelming move from the point of view of the Bega Cheese
Limited. Bega Cheese has seen a troublesome couple of months in the number one spot up to this
declaration, principally with their court procedures with Kraft Heinz over the responsibility for
nutty spread exchange dress, related with the notable yellow cover and mark, and blue or red
gadget. Bega won their entitlement to keep utilizing their promoting system on 1 May 2019,
anyway it has not done a lot to win back investor certainty until today. From the point of view of
the investor he/she shall hold the shares as the Bega Cheese Limited has shown some drastic
improvements in the overall performance in terms of the share price and the factors affecting it.
Cost of Equity
The cost of equity is the return which is paid by the firm in the theoretical manner to the
investors as well as the shareholders. This return is given to the investors so that they can
compensate the cost of the capital being invested by them. The cost of equity can be calculated
with the help of the two major formulas, the first being the capital asset pricing model and the
second being with the use of the dividend model. Under this section in case of the Bega Cheese
Limited the cost of the equity will be calculated on the basis of the dividend paid by the Bega
Cheese Limited (Du, Tepper & Verdelhan, 2018).
Cost of Equity 2018

Running head: BEGA CHEESE LIMITED
Dividend 0.055
Price 3.98
Growth Rate 4%
Cost of Equity 5.38%
Capital Structure
The capital structure of the Bega Cheese Limited comprises of the proportion of the debt
and the equity. The Bega Cheese Limited funds the assets with the help of the 30% of the debt
and the 70% of the Equity. The total capital of the Bega Cheese Limited comprises of $898966
and the individual weights are assigned to each of them as presented in the table below
(Muritala, 2018).
Capital Structure 2018 Weights
Debt 266975 30%
Equity 631991 70%
Total 898966 100%
In the opinion of the financial analysts the capital formation is the distribution of the debt
and the equity. The balance of the debt and the equity is necessary in order to cater the needs of
the management. It is the right blend of the assets and the funds obtained by the funds. The
capital structure of the Bega Company is also divided into the debt and the equity. The debt
component is taken to get an advantage of the deduction in the tax whereas the company if
willing to take the risk takes into accounts the equity factor. Here from the capital structure it can
be identified that the Bega is more towards taking the risk. This risk, be that as it may, tends to
be the preliminary source of the growth (Motely fool, 2019).
Calculation of WACC

Running head: BEGA CHEESE LIMITED
Cost of Equity 10%
cost of Debt 5%
Market value of Equity 25153
Market value of Debt 10626
Total Market value 35779
Tax Rate @ 30% 30%
WACC 8.07%
The WACC is the rate at which the Bega Cheese Limited that is required to be
compensated among the promoters and the investors of the business in order to finance of the
assets. The WACC is dictated majorly by the external market and nothing can be done at the cost
of the management. In the present scenario the cost of the capital of the Bega Cheese Limited
tends to be 8.07%. This indicates the Bega Cheese Limited is required to pay at the rate of 8.07%
and the fact is higher the cost of the capital, higher is the risk to be borne by the Bega Cheese
Limited (Bega Cheese, 2018).
Conclusion
From the continuous and the in-depth analysis it can be defined as the position of the
company is not satisfactory and the company needs the immediate steps to grab back the position
equivalent or better than the previous year. Further, in terms of the share price the company has
started performing in the better manner yet the cost of the capital is high. The debt component is
low and the long term debt is advised to finance the assets rather than the short term debt to
improve the overall position of the BEGA CHEESE LIMITED.