Corporate Finance Analysis: Farm Superstore vs. Othaim Analysis

This homework assignment provides a comparative financial analysis of two companies, Farm Superstore and Othaim, focusing on key financial metrics and performance indicators. The analysis includes a review of profit margin ratios, liquidity positions, and return on equity (ROE) and return on assets (ROA) using DuPont analysis. It also evaluates the companies' stock price trends and earnings forecasts over a four-year period, assessing their respective risks and growth potentials. Furthermore, the assignment touches on the corporate governance practices of Farm Superstore, highlighting its social responsibility initiatives and consumer-focused strategies. The references include financial accounting textbooks and resources, which support the analysis.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student
Name of the University
Authors Note
Course ID

1CORPORATE FINANCE
Table of Contents
Answer B:...................................................................................................................................2
Answer C:...................................................................................................................................2
Answer D...................................................................................................................................2
Answer E:...................................................................................................................................2
Answer F:...................................................................................................................................3
Answer to question 2:.................................................................................................................3
Answer to question 3:.................................................................................................................3
Answer to question 4:.................................................................................................................4
Answer to question 5:.................................................................................................................4
References:.................................................................................................................................5

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Answer B:
Considering the trend of Farm, the profit margin ratio represented a declining trend as
the ratio stood 0.24% while the profit margin ratio for Othaim reported a rising trend with the
ratio standing 4.27% in 2018. Similarly the liquidity position of Farm remained low as the
current ratio stood 1.01 while the current ratio of Othaim stood 0.83 in 2018. This signifies
that both the company may struggle in meeting its short-term obligations.
Answer C:
The Du Point analysis is useful in assessing the component parts of Othaim’s ROE as
the ratio stood 18.23%, and the ROA stood 8.29% which implies that the company has the
capacity of using shareholders fund to produce profits (Schroeder et al. 2019). While the
ROA for Farm stood 0.23% and the ROE stood 0.66% in 2018 representing that the company
is not effectively using to profit profits from its assets.
Answer D
The overall performance of Farm store has not been satisfying as both the return on
asset and return on equity for the company stood relatively lower. This signifies the inability
of the firm to make effective use of its shareholders fund and total assets to produce profits
(Pratt 2016). While its competitor Othaim has reported a stronger ROE and ROA showing its
ability to convert the money use to purchase assets in net income or profits.
Answer E:
The weakness of both the Farm and Othaim is their liquidity position. As both the
company current ratio stood below the standard norms of 1:1 signifying that it may face
difficulty in meeting its short-term debt obligations.

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Answer F:
The strength of Farm is its efficiency in using its assets to produce the sales. The ratio
is on the higher side and signifies the efficiency in effectively using its assets
(Narayanaswamy 2017). While for Othaim its strength remains in the ability to use its
shareholders equity to produce profits from the investment.
Answer to question 2:
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Stock Price Analysis
Farm Superstores Othaim
Figure 1: 4-Year Stock Price Growth
Source: (As created by Author)
The 4-year stock price analysis suggest that stock price of Farm Superstore has
portrayed a declining trend while the stock price of Othaim has represented a steady rise with
less fluctuation.
Answer to question 3:
Farm Superstores appears to be in more risk as the year-on-year earnings have
declined during the year 2018. The stock price of the company is anticipated to post a
quarterly loss of $0.18 per share which represents a year-on-year change of -50%. While the

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share price of Othaim over the last four year has not reported much volatility. The earnings of
the company is anticipated to grow by 14.1% each year.
Answer to question 4:
The corporate governance report of Farm superstore suggest that the company cares
for the society by extending human touch and facilitating the involvement of employee in the
community (Maynard 2017). It focuses on voluntary practices of highest level of
transparency.
Answer to question 5:
In spite of posting a slow growth the future the company is good as the company
offers wide range of products and items which covers the needs of consumer. The company
has undertaken a social responsibility to offer majority of the service to its customers to meet
their needs and obtain confidence.

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References:
Maynard, J., 2017. Financial accounting, reporting, and analysis. Oxford University Press.
Narayanaswamy, R., 2017. Financial accounting: a managerial perspective. PHI Learning
Pvt. Ltd..
Pratt, J., 2016. Financial accounting in an economic context. John Wiley & Sons.
Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2019. Financial accounting theory and
analysis: text and cases. John Wiley & Sons.