GSBS6506 Financial Statement Analysis: Freedom Foods Group Ltd Report

This report provides a financial statement analysis of Freedom Foods Group Limited, comparing it with Bega Cheese Limited to assess its market position and investment potential. The analysis includes reformulated financial statements, profitability and growth analysis, common size and trend analysis, forecasting, and sensitivity analysis. The report recommends investing in Freedom Foods Group Limited based on its improved performance and undervalued market price, suggesting it offers better returns compared to Bega Cheese Limited. The forecasting indicates positive future changes in the company's performance, further supporting the investment recommendation. Sensitivity analysis reveals the stock price's dependence on factors like the cost of equity and WACC, highlighting the importance of monitoring these variables.

Running Head: Financial Statement Analysis
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Project Report: Financial Statement Analysis

Financial Statement Analysis
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Executive summary
In the report, the financial statement of freedom food group limited has been studied
and it has been compared with its competitor company in Australian market, Bega cheese to
identify the position of the company in the market and recommend to the investors that
whether it is the right time to invest into the company or investors should wait for the right
time to come. Through the study, it is recommend to the investors to invest into the freedom
foods group limited so that the higher returns could be got.

Financial Statement Analysis
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Contents
Introduction.......................................................................................................................4
Company and industry overview......................................................................................4
Freedom food group limited.........................................................................................4
Bega cheese limited......................................................................................................4
Reformatted financial statement.......................................................................................5
Profitability and growth analysis......................................................................................5
Common size and trend analysis:.....................................................................................6
Forecasting........................................................................................................................7
Sensitivity analysis...........................................................................................................8
Recommendation and conclusion.....................................................................................9
References.......................................................................................................................10
Appendix.........................................................................................................................11

Financial Statement Analysis
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Introduction:
Financial statement analysis is a financial process which is applied and followed by
the financial manager, financial analyst, financial institutions, suppliers and the stockholders
of the company in order to recognize the financial performance of the company. It is a
process in which the financial statement, which includes income statement, balance sheet and
cash flow statement of the company in order to make better decision about the investment
into the stock of the company and deal with the company. It evaluates the overall financial
health of the business (Rabin, 2013). Financial statement records the financial transaction and
financial data of a business which must be measured through the financial statement analysis
in order to become more useful for the managers, shareholders investors and other interested
parties.
In order to evaluate the financial statement of the business, various approaches are
available in the market which measures the financial statement of the business on different
methods in order to reach over a conclusion.
Company and industry overview:
Freedom food group limited:
Freedom food group limited is an Australian company which has been formed in the
year of 1990. It operates its activities under the food processing industry. Company mainly
engaged in the manufacturing, marketing, distributing and exporting the beverages and food
products. The main divisions of the company are freedom food, speciality seafood and
pactum Australia and pactum dairy group. Majority of the income is generated by the
company through processing the food product in the Australian market. The company
operates it business at the global level (Home, 2018).
The food processing industry of Australia has been improved. The report explains that
the forecasted growth rate of the revenue of the industry is 0.4% and the business growth has
been estimated 0.7% which is quite better and explains that the companies under the industry
would be able to generate more profits from the market (IBIS World, 2018). In terms of
evaluating the market position and performance of freedom food group limited, Bega cheese
limited has been taken into concern.
Bega cheese limited:

Financial Statement Analysis
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Bega cheese limited is also an Australian company which also engages in the food
processing industry of Australia. The company owns the dairy business and the food
manufacturing businesses in the Australian market. It has been founded in the year of 1899 in
Bega, New south Wales in Australia (Home, 2018). Since that time, various changes have
been made in the operations of the business.
Reformatted financial statement:
Reformulation of financial statement refers to make financial statement of an
organization for a particular time period then change them and recognize the item in an
accurate way in order to get the accurate and detailed information about the financial position
of the company (Rose & Hudgins, 2012). The general financial statements are prepared by
the businesses on the basis of generally accepted accounting principles but it does not offer
the accurate information about the company’s performance and thus the accounts are
reformulated by the companies.
In case of freedom foods group limited, reformatted financial statement has been
created in order to get the better information about the financial statement of the company.
The reformatted financial statement of Freedom foods depicts that the net income of the
company is quite higher than the stated amount in the income statement of the company.
Further, the balance sheet represents that the net financial obligation of the company, net
operating assets and the closing equity of the company is quite different than the amount
which has been shown in the actual balance sheet of the company (Madura, 2011). On the
basis of the evaluation, it has been found that the financial position and financial performance
of the company is quite better than the general statement of the company.
Further, the financial figures and reformatted financial statement of the company has
been compared with the financial statement of Bega cheese limited and it has been found that
the financial performance of Bega cheese is also different than the stated information in the
financial statement of the company (Morningstar, 2018). Through comparing the statement of
the company, it has been found that the overall performance of both the companies is
improving day by day.
Profitability and growth analysis:
Profitability and growth analysis depict about the changes and the profit generation
capabilities of an organization. It takes the concern on various related figures of the business

Financial Statement Analysis
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to measure the overall profitability and performance level (Porcelli & Delgado, 2009).
Through the calculation on Freedom foods group limited, it has been found that the ROCE,
RNOA and PM of the company is 8.21%, 1.20% and 2.27% which is quite lower. If the
calculations on Bega cheese are taken into concern than the ROCE, RNOA and PM of the
company are 13.59%, -4.4% and -3.34% (Morningstar, 2018). It depicts that the performance
of the company, Freedom foods group limited is lower in the market but it is better in the
industry.
On the basis of comparison of both the companies, it has been recognized that the
performance of the companies have been changed in last few years and the current
performance of Freedom food group limited is way better in order to manage the generated
profit and the earning of the company. The overall evaluation depicts about better
performance and position of the company in the industry.
Common size and trend analysis:
Common size and trend analysis are the part of financial statement analysis which
evaluates the financial statement of the company of past few years in order to measure the
changes in the financial performance and position of the company from the base year and in
order to measure the share of particular items against the main financial item of the business
(Higgins, 2012).
Through the calculation and analysis on the income statement and balance sheet of
freedom foods group limited, common size and trend analysis has been done. In common size
statement evaluation, it has been found that the net profit level of the company was higher in
the year of 2015 because of the unexpected and abnormal performance of the company but by
the end of the year, 2018 it has been lower again (Morningstar, 2018). The operating expense
level has been controlled by the company in current years in order to manage the earnings of
the business.
Further, the common sized balance sheet of the company depicts that the level of
current assets is lower against the current liabilities of the company in the year of 2018 which
has affected the liquidity ratio of the company (Koropp, Kellermanns, Grichnik & Stanley,
2014). Further, the overall financial position of the company is quite average and depict about
average performance of the company.

Financial Statement Analysis
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Similarly, the trend analysis study has also been done on the income statement and
balance sheet of the company and it has been recognized that the sales revenue of the
company has been improved by 34.73% from last year and along with that, the profitability
level have been improved by 85.71%. The reason behind these changes is better performance
of the company in the market. The company has managed the operating expenses at better
level which has improved the profitability level of the business. Further, the balance sheet
indicates that the overall financial position of the company has been affected at great level
from last year. the total resources of the company has been improved and in order to improve
the level of resources, the debt and equity, both the sources have been used by the company.
The financial position and performance of the company has been compared with the
Bega cheese limited as well and it has been found that the financial position and financial
performance both has been lowered in the year of 2018 because of the lower market share
and the internal changes in the company (Gibson, 2011). In comparison with both the
companies, it has been realized that the position of Freedom food group limited is better and
the company would offer better return to the investors.
Forecasting:
the forecasting process and the valuation process has been done further on Freedom
foods group limited to measure the total worth of the business in the market and the future
changes in the company. The forecasting process explains that the below changes would take
place in the overall performance of the company in next 5 years:
2018A 2019E 2020E 2021E 2022E 2023E
Gross margin 24.6% 30.0% 30.0% 30.0% 30.0% 30.0%
SG&A expense
ratio
27.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Tax rate 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
Sales growth 34.7% 10.0% 10.0% 10.0% 10.0% 10.0%
2018A 2019E 2020
E
2021
E
2022
E
2023
E
Accounts receivable
turnover
55.00 50 50 50 50 50
Inventory turnover 81.00 70 70 70 70 70
PPE turnover
389.00
350.0 350 350 350 350

Financial Statement Analysis
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Other NOA/Sales -31.4% -10% -10% -10% -10% -10%
(Fridson & Alvarez, 2011)
On the basis of the forecasting, it has been realized that the overall position of the
company would be better in near future. Further, the intrinsic value of the company has been
calculated to identify that whether the market price of the company is overvalued or
undervalued (Chandra, 2011). Through the calculations on the company, it has been found
that the cost of equity, cost of debt and cost of firm of the company is 6%, 8% and 7.95%.
Further, it has been found that the value per share of the company should ne $ 12.30 whereas
the market price of stock of the company is $ 5.46 which depicts that the market price of the
company is undervalued and defines that this is the right time for the investors to invest in the
stock and earn the higher profit from the market (Banes, 2007).
In case of Bega cheese limited, it has been found that the stock price of the company
should be $ 28.51 whereas the market price of the company is $ 6 which also explains that
the market price of the company is undervalued but the forecasting level and the financial
analysis position describe that the performance of the company would be affected and
lowered in near future (DemaMoreno, 2009).
On the basis of comparison on both the companies and the intrinsic stock prices, it has
been found that the market price of the freedom foods is overvalued and defines that this is
the right time for the investors to sell the stock and earn the higher profit from the market
Sensitivity analysis:
Sensitivity analysis study has been done further and it has been recognized that along
with the changes in the cost of equity and WACC level of the company, the stock pried of the
company would also be affected which defines that the stock price is variable and dependent
in nature which get affected with every changes in the organization.
Cost of equity
Δ
CAPM Cost of equity
share
price
Δ share price
change
sensitive
valuation
Optimistic 10% 6.60% 5.46 -9.00% 30.000
6% 6.36% 6.21 3.50%
0 6.00% 6.52 8.67%
Pessimistic -6% 5.64% 5.30 -11.67%
-10% 5.40% 5.10 -15.00%
Δ Cost of share Δ share price sensitive

Financial Statement Analysis
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WACC equity(firm) price change valuation
Optimistic 9% 7.58% 5.46 -9.00% 28.742
7% 7.45% 6.21 3.50%
0 6.96% 6.52 8.67%
Pessimistic -7% 6.47% 5.30 -11.67%
-9% 6.33% 5.10 -15.00%
Recommendation and conclusion:
Through the study, it is recommended to the stockholders and the investors of the
company that the future performance of the company would be quite better and currently he
stock price of the company is undervalued and thus it is the best time for the investors to
invest in the stock of the Freedom food groups limited to improve the return and the overall
worth of the investment.

Financial Statement Analysis
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References:
Barnes, P. (2007), The Analysis and Use of Financial Ratios: A Review Article, Journal of
Business Finance & Accounting, 14 (4), p. 449-461
Chandra, P. (2011). Financial management. Tata McGraw-Hill Education.
DemaMoreno, S. (2009). Behind the negotiations: Financial decision-making processes in
Spanish dual-income couples. Feminist Economics, 15(1), 27-56.
Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner's
guide (Vol. 597). John Wiley & Sons.
Gibson, C. H. (2011). Financial reporting and analysis. South-Western Cengage Learning.
Higgins, R. C. (2012). Analysis for marketing management. McGraw-Hill/Irwin.
Home. (2018). Bega Cheese limited. (online). Retrieved from:
https://www.begacheese.com.au/
Home. (2018). Freedom Foods group limited. (online). Retrieved from:
http://ffgl.com.au/our-business/
Ibis World. (2018). Australian industry trend. (online). Retrieved from:
https://www.ibisworld.com.au/industry-trends/market-research-reports/manufacturing/
food-product/
Koropp, C., Kellermanns, F. W., Grichnik, D., & Stanley, L. (2014). Financial decision
making in family firms: An adaptation of the theory of planned behavior. Family
Business Review, 27(4), 307-327.
Madura, J. (2011). International financial management. Cengage Learning.
Morningstar. (2018). Bega Cheese limited. (online). Retrieved from:
https://www.morningstar.com/stocks/xasx/bga/quote.html
Morningstar. (2018). Freedom Foods group limited. (online). Retrieved from:
http://financials.morningstar.com/cash-flow/cf.html?t=FNP&region=aus&culture=en-
US
Porcelli, A. J., & Delgado, M. R. (2009). Acute stress modulates risk taking in financial
decision making. Psychological Science, 20(3), 278-283.

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Rabin, M. (2013). Risk aversion and expected-utility theory: A calibration theorem.
In Handbook of the Fundamentals of Financial Decision Making: Part I (pp. 241-252).
Rose, P. S., & Hudgins, S. C. (2012). Bank management & financial services. McGraw-Hill
Education.

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Appendix:
See the attached spreadsheet.