Financial Analysis of Capilano Honey Limited: Case Study Report

This case study analyzes Capilano Honey Limited, focusing on its financial performance and creditworthiness to aid in lending decisions. It examines the company's background, including its history and product range, and provides an overview of the loan deal, including fixed and overdraft loans for expansion. The assignment delves into industry analysis, comparing Capilano Honey to its peers, and performs a detailed financial analysis using ratio analysis to assess profitability, efficiency, and solvency over two fiscal years. The analysis includes short-term and long-term liquidity assessments, cash flow conditions, and key strengths and weaknesses of the deal. The study concludes with a recommendation based on the financial findings.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Background Details:...................................................................................................................2
Brief and overview of the facts of the Deal:..............................................................................2
Overview of the Borrower:........................................................................................................3
Industry Analysis:......................................................................................................................4
Financial Analysis:.....................................................................................................................5
Key Strength and Weakness to do with the Deal:......................................................................9
Recommendation:....................................................................................................................11
Reference and Bibliography:....................................................................................................12
Appendices:..............................................................................................................................15

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Background Details:
Borrower Capilano Honey Limited
Address 1 QLD Head Office
399 Archerfield Road
Richlands QLD 4077
Postal address: PO Box 531 Inala QLD 4077
Address 2 WA Office
WA Office
99 Beechboro Rd (South)
Bayswater WA 6053
Postal address: PO Box 284 Bayswater WA 6933
Address 3 VIC Office
7 Capilano Drive
Maryborough VIC 3465
Directors
Mr Brian F O’Donnell
Mrs Julie A Pascoe
Mr Simon L Tregoning
Ms Valentina Tripp
Top 5 Shareholders Number of ordinary
shares
Percentage
share
Wroxby Pty Ltd 1,948,689 20.60%
Citicorp Nominees Pty Limited 446,729 4.72%
HSBC Custody Nominees (Australia)
Limited
301,009 3.18%
National Nominees Limited 240,692 2.54%
J P Morgan Nominees Australia Limited 181,216 1.92%
Brief and overview of the facts of the Deal:
The overall deal relevantly comprises of both fixed and overdraft loans, which is
needed by the organisation for adequately conducting the expansion process and acquiring
additional machines for increasing the production process. In addition, the loan is relevantly

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for $21 million, which is needed from the lenders on two different parts, where one part
comprises of fixed loan amount of 13 million and the rest as overdraft facilities, which is
used for supporting the working capital requirements. The overall term loans are relevantly
needed for supporting the long-term debt accumulation that has been conducted by the
company to support its operational expansion. In addition, the increment in the overall debt
will ensure the increase in its productivity. Moreover, the overdraft facilities is mainly used
by the organisation for supporting the short term debt, which will be paid and the rest of the
loan amount will be used for working capital.
Details Term Loan
Purpose  Purchase of new equipment
 Repay and replace all their long-term debt at their existing bank
 New property for storage purposes
Amount $13 Million
Term 15 years
Interest Rate 8%
Details Term Loan
Purpose  Working capital
 Replace all their short term
Amount $8 Million
Term 5 years
Interest Rate 8%

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Overview of the Borrower:
Capilano Honey Limited was started in 1953, where the management celebrated the
50-year completion in 2003. The company has been one of the major producers of honey in
Australia by accumulating loyal beekeepers, which increase their productivity level.
Moreover, the company has been engaged in packing of honey for domestic and export sales,
which helps the management to acquire the required level of revenue for future growth. In
addition, the company has range of products such as kids honey, premium selections, classic
honey, pure manuka honey, and creamed pot se (Capilanohoney.com, 2018).
The financial capability of Capilano Honey Limited is seen from their financial
report, which depicts the progress and financial position of the organisation. The overall
revenue of the organisation has increased from the levels of $133 million in 2017 to $138
million in 2018, while the overall total assets has increased from $96 million in 2017 to $104
million in 2018. The improvement in the financial progress has relevantly allowed the
organisation to generate high level of income from operations. Therefore, it could by
understood that the financial progress of Capilano Honey Limited has relevantly improved
over the period of two fiscal years, which can eventually indicate the progress of the
management for generating high level of income from investment (Capilanohoney.com,
2018).
Industry Analysis:
Figure 1: Comparing Capilano Honey Limited with Industry

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(Source: Investsmart.com.au, 2018)
Capilano Honey Limited mainly falls under the Packaged Foods & Meats Industry,
where the current position of the company is relevantly not high in comparison to its peers.
The market capitalisation of the organisation is also not adequate, as the company has
generated high level of income from investment over the time. The improvements in the
current financial progress can eventually help in generating high level of income from
investment. the current earnings ratio is not adequate, while the P/E ratio and P/B ratio is
relevantly high. The organisation has been efficiently operating since 1953, where the current
base of suppliers is relevantly loyal and high, which can be used for generating high level of
income from investment. The Packaged Foods & Meats Industry relevantly needs higher
operational capability for supporting the productivity, which can generate high level of
returns from investment.
Financial Analysis:
Ratio Analysis 2018 2017
Gross Profit / Sales 57.62% 57.71%
Operating Expenses / Sales 10.38% 9.19%
Net Profit (before tax) / Sales 10.14% 10.37%
Net Profit / Sales 7.09% 7.76%
Trade Debtors / Ave. Daily Sales 65.93 66.37
Trade Creditors / Ave. Daily Cost of Sales 79.27 99.03
Stock Turnover 234.43 209.75
Basic Earnings Per Share 103.90 109.30
Basic Earnings Per Share Diluted 103.20 108.90
No. of shares Basic 9,457,481 9,457,481
No. of shares Diluted 9,517,481 9,487,481
The above table represents the overall financial progress and a stability of Capilano
Honey Limited for the past two years. The increment in the overall financial progress has

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relevantly allowed the organisation to increase its profitability conditions. In addition, the
gross profit margin of the company has slightly declined over the period of time, which
indicates the increment in cost of goods sold. This increment in cost will directly have
negative impact on the financial progress of the company. The increment in operating income
of the organisation is relevantly detected, where the values have increased from the level of
9.19% to 10.8%. This increment in the current financial progress has relevantly depicted the
use of adequate measures for generating high level of income from operations. The decline in
administrative expenses of Capilano Honey Limited has relevantly allowed the organisation
to increase its operational ratio over the period of two fiscal years, which indicates a positive
attribute for the organisation (Czajor & Michalak, 2017).
Both the net profit margin before tax and after tax has relevantly declined over the
period of two fiscal years. This decline in the revenue has relevantly indicated the overall
reduction in revenues generated by the organisation. However, the increment in revenue of
Capilano Honey Limited during the fiscal year of 2017 was due to the disposal of Manuka
beekeeping assets. the gains made from the disposal has relevantly allowed the organisation
to generate high revenue, without which the revenue of the company is in line and is
relevantly progressing. Therefore, it could be understood that the financial progress of
Capilano Honey Limited is relevantly adequate, where the increment in cost is due the rising
sales of the company. On the other hand, the evaluation of financial cost also indicates a
certain decline in values, which is considered a positive attribute for the company.
The future evaluation of the efficiency ratio relevantly indicates both the positive and
negative attributes of organisational progress. The collection period from the trade debtors
has relevantly declined from the values of 66.37 days to 65.93 days, which depicts the
reduction of collection days that might increase cash flows of the organisation. However, in
the same instance the overall trade creditors days of the organisation has relevantly declined

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from the levels of 99.03 days to 79.27 days in 2018. The decline in trade creditors days is a
negative attribute for the organisation, where the management must conduct the payment to
its creditors sooner than anticipated, which will directly reduce cash position of Capilano
Honey Limited. Furthermore, the overall stock turnover conditions of the organisation have
relevantly indicated an inclination on the holding days, which has increased from 209.75 days
to 234.43 days. This relevantly depicts that the organisation has been accumulating higher
inventory over time, which is blocking essential working capital. However, the overall
evaluation directly indicates that the financial progress of Capilano Honey Limited is
relevantly positive, where the management has conducted adequate investment for generating
high level of returns from investment (Lukason, Laitinen, & Suvas, 2015).
Short term liquidity:
The short-term liquidity conditions of Capilano Honey Limited can be detected from
the overall appendix 2, where the relevant condition is adequately depicted. In addition, from
the evaluation it can be understood that short term liquidity position of the company has
increased over the period of two fiscal years. This improvement has been conducted by
raising the values of total current assets in comparison to the current liabilities, which has
improvised the current ratio from the values of 2.62 in 2017 to 2.76 in 2018. This increment
in the overall financial progress has mainly allowed the organisation for improving its current
financial progress. Furthermore, from the evaluation it can also be detected that the financial
progress of the organisation has been adequately been conducted (Soares & Pina 2017).
The overall quick ratio of the organisation has also improved over the period of time,
which has increased from the level of 1.04 in 2017 to 1.23 in 2018. This increment in the
overall values has been calculated by dividing the current assts with current liabilities of the
organisation, where the investors are detected from the current assets. This has relevantly

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allowed the organisation to detect the level of assets that can be sold quickly for fulfilling the
short-term obligations and continue its operations. This improvement has relevantly allowed
the company to generate high level of income from investment, while reducing the risk
attributes. Laitinen (2018) mentioned that investors using the short-term solvency calculation
is able to understand the financial capability of the organisation to support its obligations and
continue the operations without any hinderance. Capilano Honey Limited has adequate short-
term assets over the period of two fiscal years, which has relevantly allowed the company to
supports its operations even after repaying their obligations. This mainly indicates that the
assets of the organisation are appropriate for supporting its operations.
Long term solvency:
The long-term solvency position of the company is mainly detected from appendix 2,
where adequate condition of long term solvency position is calculated. The calculation has
relevantly indicated that the fixed assets by shareholder funds has relevantly declined from
the values of 42.53% to 37.98% in 2018. This decline in values have relevantly indicated that
fixed assets mustered by the organisation is being supported by debt and not by shareholders
fund. Further evaluation of the assets has relevantly indicated that the shareholders fund by
total assets have relevantly increased from the level of 64.69% in 2017 to 65.53% in 2018.
This relevantly depicts that Capilano Honey Limited has increased its total assets with the
help of rising shareholders value. Moreover, the decline in the value of shareholders fund by
outside liabilities directly indicate that the shareholders’ value has increased significantly
higher than the total liabilities of the company. This increment has mainly indicated that
financial stability of the company (Kanapickiene & Grundiene, 2015).
The increment in gearing ratio from the levels of 14.62% to 19.53% in 2018 is due to
the rising levels of long term and short-term obligations of the organisation. The increment in

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debt accumulation of the organisation is relevantly hampering the level of returns from
investment. Furthermore, the calculations have also depicted the level of changes in debt that
has been used for supporting operations of Capilano Honey Limited. Thus, it could be
understood that Capilano Honey Limited has adequately maintained its long terms solvency
position, where the possibility of insolvency conduction is nil.
Cash Flow Conditions:
Appendix 3 relevantly depicts the calculation of cash flow condition of Capilano
Honey Limited, which has relevantly depicted the surplus that can be generated from loans.
This calculation relevantly indicates a surplus of the cash flow after detecting the principal
amount of loan. This relevantly indicates that past performance of the organisation directly
supports the positive cash flow and raises the cash balance. The calculation also indicated
that the organisation has a current long-term debt of 7 million, which can be repaired from
the overall profits that is generated from operations. This mainly indicates the positive
attributes of the company in supporting its long-term obligations and continuing with the
operations even after fulfilling the obligations. Rey and Santelli (2017) mentioned that
positive cash flow condition of the organisation could eventually help in detecting its current
cash position, which could be helpful in supporting its working capital requirements.
Key Strength and Weakness to do with the Deal:
Strength of the Deal:
 The major strength of the overall deal is the financial viability of Capilano Honey Limited
in supporting the additional debt, which can increase its operations in future
 The debt acquired by Capilano Honey Limited is distributed in two different segments,
where it mainly consists of term loan and overdraft.

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 The financial ratios such as profitability, liquidity and solvency condition are adequate
and have indicated a positive financial position of the organisation that can eventually
help in supporting the new debt aimed by the management.
 The safe lending margin has relevantly indicated a positive value, where it might
eventually help in supporting the debt requirements, where the organisation is not able to
pay its dues.
 The positive surplus value indicates the rising capability of the organisation to support its
obligations from the net profits and continue with the operations.
Weakness of the Deal:
 The major weakness of the deal mainly lies from the rising disconcert of declining
demands, which can negatively affect revenue generation capability of the organisation.
 The second weakness of the deal is the valuation method, which is mainly conducted on
the basis of balance sheet, where any manipulations in the report might adversely affect
position of the deal. The wrong valuation of assets will directly affect the decision of the
deal, as asset valuation was considered while analysing overall deal.
Mitigation of the weakness:
 The overall risk of declining demand can be mitigated by Capilano Honey Limited with
the help of adequate marking plan. The marketing plan can be used for raising the level of
demand for the company product, which might mitigate the risk of declining demands.
 The second risk can be mitigated with the help of adequate audit process, which can be
used for valuing the assets of the organisation that is taken into consideration. The audit
process might eventually help in understanding actual value of the assets and allow the
lender to make adequate decisions.

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Recommendation:
The financial progress of Capilano Honey Limited can be detected with the help of
financial ratios, cash flow analysis, and safe lending margin. Capilano Honey Limited is
consisted a safe investment scope, as the company has higher financial statues, where it could
adequately repay borrowed money within the specified time. Hence, Capilano Honey Limited
can be allowed the loan amount of $21 million, as the organisation has positive financial
viability. The organisation has positive profitability conditions, where revenues are rising,
while administrative expenses are declining, which in turn is raising profits of the company.
Furthermore, the safe lending margin value is more than twice the amount of loan amount, as
the assets, trade receivables and investment of company can be considered, as a prohibition of
supporting the borrowed money. The relevant strength and weakness of the deal is analysed,
which also indicate that the deal can be conducted by the lender, as the investment is secure.