UMACLK-15-M Financial Statement Analysis Exam Answer Sheet

This assignment analyzes the financial statements of a company for the years ending 31 December 2020 and 2019 from an equity investor's perspective. It involves the calculation and interpretation of profitability, gearing, efficiency, liquidity, and investor-related ratios. The analysis includes the impact of political (Brexit), macroeconomic (COVID-19), socio-cultural, and technological factors on the company's financial position and performance. Furthermore, the assignment discusses the potential impact of Porter’s Five Forces, specifically rivalry among existing firms and the bargaining power of suppliers, on the industry and evaluates the company’s strategic responses to these forces. The student's analysis provides insights into the company's financial health and strategic positioning in the market.

UMACLK-15-M FINANCIAL STATEMENT ANALYSIS
Exam Answer Sheet
Please type your answers below.
1. Analyse, comment on, and interpret (i) two profitability, (ii) two gearing, (iii) one
efficiency, (iv) one liquidity and (v) two investor related ratios which you feel will
help you to assess the position and performance of the company for the years
ending 31 December 2020 and 31 December 2019 only from the perspective of an
equity investor.
In your analysis you should include the ratios you have calculated.
Maximum word count: 800 words
Answer:
Profitability ratios
Ratios 2019 2020
Gross profit margin 7778 / 12486 * 100 =
62.29%
8435 / 13993 *100 =
67.55%
Net profit margin 3137 / 12486 * 100 =
25.12%
3014 / 13993 * 100 =
21.53%
Interpretation : in terms of gross profit which indicates the company’s profitability
after deducting those expenses which are associated with making and selling of the
products and thus shows the success of the management of the company in
generating sales by reducing the cost associated with various aspects involved in
producing final products. Thus here the company’s gross profit has improved by
approximately 3% which indicates management’s success in generating higher
revenue and accordingly higher profits.
Net profit ratio of the company has reduced due to increase in interest expense and
reduction in income derived from interest received from various investments. This
indicates that company’s non-operating activity has caused reduction in the
company’s profitability.
Gearing ratios
Ratios 2019 2020
Debt to equity ratio 13801 / 9407 = 1.47 15195 / 9159 = 1.66
Equity ratio
(shareholder’s equity /
total assets)
9407 / 32139 = 0.29 9159 / 31292 = 0.29
Debt equity ratio has been increased as compared to previous year which indicates
that company has include more of debt capital into its capital and accordingly
indicating higher financial risk for the company as an ideal ratio is 1:1.
Equity ratio of the company indicates how much of the company’s total assets has
been financed through equity capital raised by the company. This ratio is quite stable

for the company indicating that the company has similar financing technique for the
two years.
Efficiency ratio
Ratios 2019 2020
Fixed assets turnover
ratio (Net sales / average
fixed assets)
12486 / (33002+27106 /
2)
= 12486 / 30054 = 0.415
13993 / (27106 + 25978 /
2)
= 13993 / 26542 = 0.527
Efficiency of the company has increased has indicated by the fixed assets turnover
ratio which has increased in the current year as compared to previous year, therefore
indicating higher efficiency of the company in utilizing its assets towards generating
revenue for the company.
Liquidity ratio
Ratios 2019 2020
Current ratio 5033 / 8931 = 0.564 5314 / 6938 = 0.766
Liquidity of the company is not better as indicated by the lower ratio in both the years
which is below 2, as the ideal current ratio for any company is 2:1. But there is an
improvement in the company’s liquidity position in the current year as compared to
previous year as the current ratio has increased indicating company’s ability to meet
short term obligations has improved.
Investor’s ratio
Ratios 2019 2020
Price earnings ratio (price
per share / earnings per
share)
61.29 / -5.20 = -11.79 65.42 / 1.67 = 39.17
Dividend payout ratio
(dividend per share /
earnings per share)
1.75 / -5.2 = - 0.34 1.75 / 1.67 = 1.05
Price earnings ratio is negative in 2019 indicating that the company is not able to
return to share shareholder’s anything in terms of distributing profits. But the same
has improved in 2020 indicating that the company’s profitability has improved or its
non-operating expenses has reduced which allows for more profits available for
shareholders.
Dividend payout ratio has also improved and become positive in 2020 where it is more
than one indicating that the company is utilizing its retained earnings to distribute
dividends to shareholders.
2. Identify one political, one macroeconomic, one socio-cultural and one technology
factor that affect the company, and evaluate their impact on the company’s
financial position and performance.
Maximum word count: 800 words

Answer:
Political: Government of UK is responsible for formulating rule and regulation that need to be
abided by company for its smooth operation. Brexit is one of the political factor that has impacted
on Reckitt Benckiser Group PLC as maximum sales of UK is with European member countries.
Thus, it has resulted in decreasing the sales whereas globalization has helped in providing
opportunities to company to enhance its profitability. Therefore, company through expanding its
businesses in international market can influence new customer's as well as existing to be part of
organization rather than other firms.
Macroeconomic: Covid-19 is one of the macroeconomic factors that has impacted on overall
financial performance and positioning of Reckitt Benckiser Group PLC as it has lead in
unemployment and reduction in disposable income of people. Thereby, many of the individuals
wants to have products and services at minimum price possible for satisfaction of their respective
wants. So Reckitt Benckiser Group PLC through offering products at minimum price possible can
attract and retained maximum number of customer's in the firm. Thereby it has help in improving
financial positioning as customers are more willing to have products at minimum price.
Socio-cultural: Taste and preference of people are every changing therefore company need to
effective adapt to them to sustain competitive advantages. Likewise, In current scenario, with
impact of covid-19, most of the customers are more interested to have health and wellness products
and personal care in order to keep themselves fit and healthy. Thus it has lead in providing
opportunities to company to earn high profitability through offering healthy and more essential
products to customer's.
Technology: The last factor that impact on Reckitt Benckiser Group PLC is technology as it is
every changing likewise there are many companies that have started making use of digital
marketing to connect with people. Therefore, the Reckitt Benckiser Group PLC through effectively
making use of digital platform such as social media like instragram, Facebook is able to generate
awareness among customer's. Thereby it is able to add more and more customer's in the firm and
earn high profitability thus it has lead in enhancing financial position and performance of firm.

3. Discuss the potential impact of the following Porter’s 5 forces factors on the
industry and evaluate the company’s strategy in response to those forces:
(i) Rivalry among existing firms;
(ii)Bargaining power of suppliers;
Maximum word count: 400 words
Answer:
Rivalry among existing firm: Reckitt Benckiser Group PLC operate in consumer good
industry as it produces and distribute household cleaning, health and personal care products to
customer's for earning high profit margin. So like it there are various firm in UK such as
Unilever that have wide range of products and strong market presence that create that resulted
in high existing rivalry in consumer goods industry. Thereby challenge for Reckitt Benckiser
Group PLC so it must need to focus on delivering more qualitative and better services to
customer's for satisfaction of their wants.
Bargaining power of suppliers: This is factor of porter five force that helps in understanding
power of suppliers in market that is low as Reckitt Benckiser Group PLC have opportunities to
get raw material from different supplier. Company have strong brand image and reputation in
mind and hearts of customers that helped it in gaining supply of products at minimum price
possible. At the same time it needs to focus on building strong relationship with suppliers in
order to get timely services and meet customer's wants in effective manner.