Financial Analysis Report: Comparing KOSE Corp and Shiseido Co Ltd

This report presents a comprehensive financial analysis comparing KOSE Corp and Shiseido Co Ltd, two key players in the personal care products sector. The analysis begins with an industry overview, utilizing Porter's Five Forces to assess the competitive landscape. Company overviews provide background on KOSE Corp and Shiseido Co Ltd, followed by a discussion of the approach and methodology employed, including data gathered from annual reports and market analysis. The report reviews management and director's reports, including disclosures, auditor's reports, and forecasts. A detailed financial statement analysis is conducted, encompassing business analysis, SWOT analysis, and the analysis of key performance indicators such as profitability, efficiency, and liquidity ratios. Trend analysis, common size financial statement analysis, and Altman Z-scores are also included. The report also reviews latest market developments and internal and external factors influencing the companies. Finally, the report concludes with a summary of findings and recommendations, supported by references and appendices including financial statements and ratio calculations.

Financial Analysis

TABLE OF CONTENTS
1. INTRODUCTION.......................................................................................................................1
1.1 Industry overview..................................................................................................................1
1.2 Company overview................................................................................................................1
1.2.1 KOSE Corp.........................................................................................................................1
1.2.2 Shiseido Co Ltd..................................................................................................................2
1.3 Approach and methodology...................................................................................................2
2. REVIEW ANALYSIS OF MANAGEMENT &DIRECTOR’S REPORT.................................2
2.1 Disclosure and announcement by the companies..................................................................2
2.2 Review of auditor’s report.....................................................................................................2
2.3 Forecasts and potential investment strategies........................................................................3
3. FINANCIAL STATEMENT ANALYSIS..................................................................................4
3.1 Background............................................................................................................................4
3.2 Business analysis...................................................................................................................4
3.3 Analysis of key performance indicators................................................................................5
3.3.5 Trend analysis or share price movement..........................................................................17
3.3.6 Common size financial statement analysis.......................................................................18
3.3.7 Altman Z score.................................................................................................................19
4. REVIEW OF LATEST DEVELOPMENTS............................................................................19
4.1 Market news, trends and developments...............................................................................19
4.2 Internal and external factors................................................................................................20
5. SUMMARY AND RECOMMENDATIONS...........................................................................20
REFERENCES..............................................................................................................................21
APPENDIX....................................................................................................................................23
Income statement of KOSE Corp as at March2015.................................................................23

Income statement of KOSE Corp as at March2016 & 2017....................................................25
Balance sheet of KOSE Corp as at March 2015.......................................................................27
Balance sheet of KOSE Corp as at March 2016 & 2017.........................................................29
Income statement of Shiseido Co Ltdas at March 2015...........................................................36
Income statement of Shiseido Co Ltdas at December 2015& 2016.........................................37
Balance sheet of Shiseido Co Ltd as at March 2015................................................................38
Balance sheet of Shiseido Co Ltd as at December 2015& 2016..............................................40
6. Ratio analysis of Shiseido Co Ltd.........................................................................................45
7. Common size financial statement analysis............................................................................47
8. EV/ EBITDA ratio.................................................................................................................47

1. INTRODUCTION
1.1 Industry overview
Porter five forceanalysis of personal care products sector:
Bargaining power of buyers
From assessment, it has been identified that in the
cosmetic sector customer’s have high bargaining
power. The main reasons behind such high power
arehigh competition and availability of
manufactures which offer beauty products.
Bargaining power of suppliers
Cosmetic sector of is filled up with the low
bargaining power of suppliers. Large number of
market players and supply of diversified products is
one of the main reasons behind the decreasing
power.
Threat of substitutes
In \the concerned sector, high level of threat exists
from the substitute products. Hence, if
manufacturers will charge higher prices and
compromise with the quality aspect then there is a
risk that customers switch on others.
Threat from new entrants
Low threat exists in the personal care products
sector due to high cost, resource requirements s etc.
Besides this, in the cosmetic industry, due to the
aspect of customer loyalty it is not possible for the
new entrant to survive.
Competition intensity: In the cosmetic sector, competitive rivalry is highbecause there are leading
companies which provide customers with high quality personal care products. It includesShiseido Co Ltd,
Kao, Mandom, KOSE, MoltonBrown etc.
1.2 Company overview
For the present report, two companies have been selected namely KOSE Corp and
Shiseido Co Ltd. Brief introduction of such companies are enumerated below:
1.2.1 KOSE Corp
KOSE Corporation is one of the leading Japanese company which operates at global
level. It offers personal care products to the customers such as cosmetic, skin and hair care.
Further, to assess the financial position and performance of KOSE in against to the competitor
Shiseido has been considered.

1.2.2 Shiseido Co Ltd
Shiseido is known as the producer of quality skin and hair care, cosmetic and fragrance
related products. Such Japanese company has secured first position in Japan and fifth in the
world. Both the companies which are undertaken for the study listed on and traded through
Tokyo stock exchange.
1.3 Approach and methodology
With the motive to evaluate financial results of KOSE over the rival firm such as
Shiseido Co Ltddata has been gathered through the annual reports of such companies. Hence, by
accessing incomestatement and balance sheet of KOSE as well as Shiseido, pertaining to 5 years
from 2012 to 2016, data has been gathered. Along with this, to present the better view ofissue
latest economic developments and company’s latest announcements as well as forecasts have
also been evaluated. Hence, main source of information considered for the present study are as
follows:
 Annual reports of KOSE and Shiseido
 Journals and articles related personal care sector
2. REVIEW ANALYSIS OF MANAGEMENT &DIRECTOR’S REPORT
2.1 Disclosure and announcement by the companies
On 4th March 2014, KOSE announced that it has signed agreement in relation to
acquiring 14856 shares. This aspect shows that KOSE stake in Tarte accounts for 93.5%
respectively whose value is Japan yen135 significantly.
2.2 Review of auditor’s report
Auditor’s report of KOSE Corp shows that financial statements of the concerned
organization are free from errors. Besides this, auditors entailed in their report that company has
made fair distribution of benefits among the shareholders and other stakeholders.
Corporate governance report of KOSE Corp shows that enhancement of the group’s
value is one of the main objectives of the company. Hence, business unit communicates all the

business aspects to the concerned stakeholders by ensuring high level of transparency and
fairness. This in turn provides assistance to the firm in establishing effectual and trustful
relationship with the stakeholders (Corporate governance, 2017). In addition to this, for
managing risk specific committee has developed by the firm.Along with, external auditor has
appointed by the firm to present the fair view of financial performance.
(Source: Corporate governance, 2017)
2.3 Forecasts and potential investment strategies
On the basis of current performance, market trend as well as SWOT analysis, it is
estimated that in the near future KOSE corp. will take entry in the developing countries and
thereby attain high margin.

3. FINANCIAL STATEMENT ANALYSIS
3.1 Background
For the purpose of financial evaluation, ratio analysis technique has been undertaken for
getting deeperinsight or quick indication about thecompany’s performance. In furnishes
informationregarding the several key areas such as profitability, efficiency, investment, liquidity
and solvency. Thus, to summarize the financial position ofKOSE over the years and in
comparison to the competitor such as Shiseido ratio analysis tool has been employed.
3.2 Business analysis
SWOT analysis of KOSE Corporation
Strengths
 Effectual control on cost (labor)
 Highly skilled and efficient workforce
(KOSE Corporation SWOT Analysis
Overview, 2017)
 Sound quality management
Weaknesses
 Less emphasis on R&D
 Lower level of focus on promotional
campaign or aspects
Opportunities
 Enhance customer base and profit
margin by taking entry in emerging
economies
 Company has opportunity to grab high
market share through innovation and
offering new products as well as
services to the customers.
Threats
 Changing rules and regulations
 Presence of strong competitors
SWOT analysis of Shiseido Co Ltd
Strengths Weaknesses

 Effective management
 Sound customer base
 Quality management
 Market leader (Shiseido Company,
Limited SWOT Analysis, 2017)
 Lack of training & development
session
 Lack of R&D program
Opportunities
 Expansion of business operations in
global market through mergers and
acquisition
Threats
 Government rules and regulations
3.3 Analysis of key performance indicators
3.3.1 Profitability ratios
Return on equity (ROE) Mar
2015
Dec
2015
Dec
2016
Sep2017
Interim
Unaudited
KOSE Corp
Net income / shareholders
equity 10.25% 13.84% 13.16% 10.20%
Shiseido Co
Ltd
9.58% 6.32% 8.19% 9.47%

Interim
Unaudited
Mar-15 Dec-15 Dec-16 Sep-17
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
KOSE Corp
Shiseido Co Ltd
Interpretation: The above depicted table shows that ROEof KOSE lies within the range
of 10.20% to 13.84% during the concerned years taken for investigation.In addition to this,
Shiseido’s ROIC showed fluctuated trend within the period of March 2015 to September 2017.
During the interim period, rate of return of Shiseido Co Ltd accounts for 9.47%% respectively
which is higher as compared to year ending on 2015 & 2016. Hence, by considering the outcome
of ROE, it can be presented that KOSE Corp have made effectual use of shareholder’s fund. This
aspect can clearly be supported with the increasing trend assessed in ROE of KOSE. Along with
this, findings of such evaluation can clearly be supported with SWOT analysis which shows that
effective management, sound financial planning and quality maintenance are the key strengths of
KOSE Corp and Shiseido Co Ltd. Further, increasing trend shows that strategic management of
the company is sound (KOSE Company, Limited SWOT Analysis. 2017). Thus, it can be stated
from overall evaluation that KOSE Corp has generated higher margin over the invested capital in
comparison to Shiseido.
Net profit ratio = Net profit /
net sales * 100 Mar
2015
Dec
2015
Dec
2016
Sep2017
Interim
Unaudited
KOSE
Corp
6.4% 11.1% 10.7% 11.6%
Shiseido Co 4.33% 3.04% 3.78% 4.69%

Ltd
Interim
Unaudited
Mar-15 Dec-15 Dec-16 Sep-17
0.00%
100.00%
200.00%
300.00%
400.00%
500.00%
600.00%
700.00%
800.00%
900.00%
Shiseido Co Ltd
KOSE Corp
Graphical presentation shows that NPmargin of KOSE Corp inclined from 6.4% to 11.6%
at the end of September2017. On the other side, fluctuating trend has been identified in NP
margin of Shiseido Co Ltd during the concerned three years. This aspect shows that due to
having high level of indirect expenses Shiseido Co Ltd failed to generate high margin from 2012
to 2014. Unaudited financial statement of Shiseido shows that NP margin of the firm increased
from 4.33% to 4.69% respectively. However, still net margin generated by Shiseido ltd is highly
lower as compared to the rival firm. Thus, for enhancing NP margin business unit is required to
employ budgetary control techniques which in turn helpin assessing deviations and thereby gives
indication for improvement. In conclusive way, it can be presented that profitability aspect of
KOSE Corp is good over the rival firm.

3.3.2 Efficiency ratios
31/3/2015 31/12/2015 31/12/2016 30/8/2017
0
1
2
3
4
5
6
Fixed assets turnover ratio
in times
Interpretation: Graph depicted above clearly shows that fixed assets turnover ratio of
KOSE declined from 1.92to 1.69 times which is a good indicator for the firm. On the other side,
fluctuated and decreasing trend has been assessed in the fixed asset turnover ratio ofShiseido.
Tabular presentation clearly exhibits that,in FY ending on March 2015, fixed assets turnover
ratio of Shiseido Ltd was 2.95 times, whereas in interim period such ratio accounts for 1.89 times
respectively.Thus, considering the overall trend it can be said that both the companies failed to
make optimumuse of assets during the concerned years.Business analysis results show that, in
KOSE and Shiseido, there is a lack of effective training session (Shiseido Company, Limited
SWOT Analysis. 2017). This is one of the main reasons behind decreasing pattern of fixed assets
turnover because training session persuades personnel about the manner in which they need to
carry out activities more effectively. Along with, lack of proper maintenance of assets may
another cause of declining FA ratio. Thus, for improving such ratio firms need to take strategic
measureregarding organizing training session etc.
Inventory turnover ratio: COGS /
average stock Mar
2015
Dec
2015
Dec
2016
Sep2017
Interim
Unaudited
KOSE
Corp
2.95 2.53 2.72 1.89

Shiseido
Co Ltd
1.84 1.85 1.79 1.23
31/3/2015 31/12/2015 31/12/2016 30/8/2017
2.95
2.53 2.72
1.891.84 1.85 1.79
1.23
Inventory turnover ratio
KOSE Corp Shiseido Co Ltd
Interpretation: From the financial statementanalysis, it has been assessed thatstock
turnover ratio of KOSE&Shiseidois showing fluctuatingtrend in the performance. This aspect
shows thatstock of both the companies wasnot sold more frequently. From macro analysis, it has
been assessed that high level of competition takes place in the cosmetic sector. Further, internal
analysisexhibits that business unit lays lessemphasis onpromotional aspect or campaign. Hence,
bydeveloping promotional strategies firm can increase the demand of customers and thereby
would become able to improve such ratio.
3.3.3Liquidity and solvency
Current ratio = Current
assets / current liabilities Mar
2015
Mar
2016
Mar
2017
Sep2017
Interim Unaudited