Sie sind auf Seite 1von 19

Financial Analysis: Analysis of the Annual Report & Accounts

CONTENTS
1. Introduction
1.1 Introduction of the company
2. Financial Performance
3. Working Capital Management
4. Long term Solvency
5. Sector Analysis
6. Agency Problem
7. Ratio Analysis
8. Conclusion
References
Appendix

1. Introduction

This report deals with the financial analysis of Finsbury Food Group Plc’s interim results for
the 26 weeks to 2 January 2010.

This analysis includes financial performance, working capital management, long-term


solvency, sector analysis, and agency problem and ratio analysis. Thus, giving a clear
understanding of the company’s performance and its position in the market.

1.1 Introduction of the company

Finsbury is the second largest participant in the UK cake industry, a market valued at
£1.51bn (TNS, January 2008) and the market leader in the supply of gluten free baked
goods to the UK’s multiple grocers.

The Group’s strategy is to generate returns for shareholders by building a crafted bakery
group focused on premium, celebration and well being that delivers for customers and
consumers. Finsbury continues to develop its licensed brand portfolio to complement its core
retailer brand relationships and improve its understanding of and response to changing
consumer needs.
Whilst the Company sees exciting organic growth opportunities in all its businesses and its
short term focus is on integrating and growing its existing businesses, the aim is to take
advantage of the right bolt on acquisitions to drive longer term value as opportunities and
circumstance allow.
(www.finsburyfoods.co.uk)

2. Financial performance

a. Sales

Overall sales revenue has gone down from £ 89,088(‘000) in 2009 to £ 82,866(‘000)
in 2010 for the same interim period. This is 7% decline primarily due to the recession
and overall decline in the cake market in UK.
90000
88000
86000
84000
Column2
82000
80000
78000
2009 2010

b. Profits

The net profit (after tax) has gone up from £ 148(‘000) in 2009 to £ 975(‘000) in 2010
mainly due to the decreased impact of the movement in fair value of interest rate
swaps. As this impact was high in previous year than the current year, the profit
figure shot up in the current year.
1000
900
800
700
600
500
Column2
400
300
200
100
0
2009 2010

c. Net cash

Net cash flow in the business increased from a negative £ 8,947(‘000) to a negative £
77(‘000). This increase in the net cash is due to repayments of bank loans and
negative opening cash balances in the previous year compared to the current year.
This is clearly shown in the cash flow statement of the company.

0
2009 2010
-1,000
-2,000
-3,000
-4,000
-5,000 net cash (£'000)
-6,000
-7,000
-8,000
-9,000
-10,000

3. Working capital Management


The number one reason most people look at a balance sheet is to find out a
company's working capital (or "current") position. It reveals more about the financial
condition of a business than almost any other calculation. It tells you what would be
left if a company raised all of its short term resources, and used them to pay off its
short term liabilities. The more working capital, the less financial strain a company
experiences. By studying a company's position, you can clearly see if it has the
resources necessary to expand internally or if it will have to turn to a bank and take
on debt.

(C P Stickney et al; 2010)

Working Capital = Current Assets - Current Liabilities 

Working capital of Finsbury plc for the current year = £ 27,744 (‘000) - £ 49,284(‘000)

= - £ 21,540(‘000)

this is a negative working capital primarily due to the impact of loans and trade
payables as shown in the current and previous years’ balance sheets. This shows
an increase in the financial strain of the company.

One of the main advantages of looking at the working capital position is being able to
foresee any financial difficulties that may arise. Even a business that has billions of
dollars in fixed assets will quickly find itself in bankruptcy court if it can't pay its
monthly bills. Under the best circumstances, poor working capital leads to financial
pressure on a company, increased borrowing, and late payments to creditor - all of
which result in a lower credit rating. A lower credit rating means banks charge a
higher interest rate, which can cost a corporation a lot of money over time.

(M S Fridson & F Alvarez; 2002)

Working Capital per Dollar of Sales

Here's the formula for Working Capital per Dollar of Sales

Working Capital ÷ Total Sales (Found on the Income Statement)

For Finsbury plc, this figure is (- 21,540) / (82,866) = (-0.259)


As the company is actively involved in acquisition activities and repayment of bank
loans at a time, there is a considerable strain in the finances of the organisation.

4. Long-term Solvency

Solvency ratios measure the financial soundness of a business and how well the
company can satisfy its short- and long-term obligations.

Quick Ratio –

This ratio, also called "acid test" or "liquid" ratio, considers only cash, marketable
securities (cash equivalents) and accounts receivable because they are considered
to be the most liquid forms of current assets. A Quick Ratio less than 1.0 implies
dependency on inventory and other current assets to liquidate short-term debt. This
ratio is calculated using the following formula:

Cash + Accounts Receivable ÷ Current Liabilities

Quick ratio of Finsbury for the current year is 0.467 showing its dependency on i
inventory and other assets to liquidate its short-term debt.

Current Ratio –  

This ratio is a comparison of current assets to current liabilities, commonly used as a


measure of short-run solvency, i.e., the immediate ability of a business to pay its
current debts as they come due. Potential creditors use this ratio to measure a
company's liquidity or ability to pay off short-term debts. This ratio is calculated using
the following formula:

Current Assets ÷ Current Liabilities

Finsbury’s current ratio is 0.562 which is not healthy in general terms but given the
size and business expansion of the firm, the long-term results is seemed to be
assured to the stake holders in the firm.
Current Liabilities to Net Worth Ratio –

This ratio indicates the amount due creditors within a year as a percentage of the
owners or stockholders investment. The smaller the net worth and the larger the
liabilities, the less security for creditors. Normally a business starts to have trouble
when this relationship exceeds 80%. This ratio is calculated using the following
formula:

Current Liabilities ÷ Net Worth

This value in present case is 1.26 (126 %) which looks alarming to the owners of the
firm. But as the company is acquiring new facilities, the long term security of the
investments is assured by the firm in its opening statement this year.

Current Liabilities to Inventory Ratio –

This ratio shows, as a percentage, the reliance on available inventory for payment of
debt (how much a company relies on funds from disposal of unsold inventories to
meet its current debt). This ratio is calculated using the following formula:

Current Liabilities ÷ Inventory

This ratio in current case is 10.6 which show that the inventory is just enough to
support nearly 10 % of the current liabilities.

Total Liabilities to Net Worth Ratio –

This ratio shows how all of a company's debt relates to the equity of the owners or
stockholders. The higher this ratio, the less protection there is for the creditors of the
business. This ratio is calculated using the following formula:

Total Liabilities ÷ Net Worth


This ratio for Finsbury’s is 1.986 showing less protection for the creditors of the firm.

Fixed Assets to Net Worth Ratio –

This ratio shows the percentage of assets centred in fixed assets compared to total
equity. Generally the higher this percentage is over 75%, the more vulnerable a
concern becomes to unexpected hazards and business climate changes. Capital is
frozen in the form of machinery and the margin for operating funds becomes too
narrow for day-to-day operations. This ratio is calculated using the following formula:

Fixed Assets ÷ Net Worth


Finsbury’s ratio is 2.27 (227%) showing that much of its cash is frozen in assets thus
making it more reliable on external finances for its day-to-day operations.

5. Sector analysis

There are three things that will affect the performance of a company's stock. The first
is the performance of the individual company. The second is the performance of the
market as a whole. The third is the performance of the company's sector.

Just as an individual company's stock tends to rise and fall with the market as a
whole, a company's stock will also tend to rise and fall with its sector.

Sectors are groups of companies that perform similar functions within the economy. Sector
analysis involves dividing the overall market into sectors and then studying the performance
of each sector individually, so that sectors can be compared to each other or to the market
as a whole.
(F J Fabozzi; 2004)

Different analysts use different breakdowns of sectors, but a typical sector list would
include consumer staples, consumer services, energy, financials, health care,
industrials, technology, transportation, and utilities.

Investors can use sector analysis in three ways: to guide diversification, to find
sectors with above-average performance and to time the market.

(C burns; 2000)
Finsbury’s focus was more on improving internal efficiency by leveraging the
acquired Group scale and integrating many functions within the firm. It has mainly
concentrated on significant investments by acquiring new properties in order to place
itself for the upturn in the market. This is the reason why there is a severe strain in
the finances of the firm for the running of its operations.

The trading for the Group in its first half year was impacted by consumers seeking
better value, by trading down and choosing promotional product offerings. The
company is trying to offset this negative impact by growth in its organic business and
improving efficiencies.
Despite these recessionary effects, the company achieved a strong growth in Bread
and Free From division with a sale of £ 17.6 m with an increase of 14 % in the same
period last year. This is further boosted by Goswell acquisition of the firm.

The total cake market has declined over the period thus impacting the cake division
of Finsbury mainly due to the scale and specialisation in premium and healthier
cakes. The decline is not only due to the overall decline in the market but also due to
the choice to exit from low margin businesses. The overall sales declined by 8 %
however, some of the licensed brands like Thorntons branded cakes, in particular,
growing by 9 %.

The business is trying to come out of the recession leaner as with the sector on a
whole, and also equipping itself for further growth. Thus, investing in new facilities,
warehouses and acquiring senior professionals in the field for a future growth in the
premium cake market.

6. Agency problem

Executives of a corporation may, for example, be interested in achieving good long-


term growth of the company. Since their performance is measured by how the
company does in both the short term and the long run, the decisions they make are
based on the goals of generating profit both now and in the future. This may mean
they wish to engage in capital expenditures now to secure a possible benefit or gain
in the future.

(G T Friedlob & L L F Schleifer; 2003)

The Group’s total net debt as at 2 January 2010 was £40.6 million (3 January 2009:
£42.9 million) including net borrowings from HSBC Bank Plc and secured loan notes.
Whereas, the net equity at this period is £ 39.1 million. The ratio of debt to equity is
nearly 1:1 which shows a fine combination.
The earnings per share stood at 2.3 pence per share in the current year as compared to
6.9 pence per share during last year primarily due to the negative movement in the fair
value of interest rate swaps in the current year.

Many stockholders, on the other hand, may be focused on the immediate earnings
and returns of a company, as these are important metrics in the valuation of the price
of a share of stock on the open market. A stockholder who doesn't intend to hold the
company long term may prefer a dividend be paid instead of that the money be
reinvested to achieve a long-term gain for the company. This is just one example in
which the interests of the shareholders may not be perfectly aligned with those of
the corporate governance. A more dramatic example of an agency problem may
occur when the corporate executives are out to maximize their own compensation,
sometimes at the expense of the company or shareholders.

(J Madura; 2009)

The board of directors as well may have a difference of opinion from the
shareholders or the executives, aiming to take the company in a different direction
still. The board may have the power to remove a chief executive or manager from
power, but the shareholders may disapprove of this decision. Conflicts can abound
among all three entities, creating issues that are difficult to resolve.

When an agency problem exists, it can be difficult for a company to resolve.


Shareholders generally get a vote and can vote with the board of directors against
the executives, for example. When the agency problem is resolved in this manner,
the executives could end up forced to follow a course of action they do not entirely
agree with, as the majority rules.

Finsbury plc mentioned clearly in its opening statement about its current expansion
activities. It is currently in a very special situation where all of its finances are strained
and the returns to its shareholders are minimal. They are requested to acknowledge
the fact that the company is preparing itself to reap the future benefits of positive
market growth in organic and premium cake sectors.

7. Ratio analysis

Financial Ratio Analysis is the calculation and comparison of main indicators -


ratios which are derived from the information given in a company's financial
statements (which must be from similar points in time and preferably audited financial
statements and developed in the same manner). It involves methods of calculating
and interpreting financial ratios in order to assess a firm's performance and status.
This Analysis is primarily designed to meet informational needs of investors, creditors
and management. The objective of ratio analysis is the comparative measurement
of financial data to facilitate wise investment, credit and managerial decisions.

(K Vandyck; 2006)

We are going to analyse the ratios of Finsbury plc below:

Profitability

 Gross Profit ratio = ( Gross profit / Sales ) * 100 = 27.25 %

Showing healthy condition of the business operations and the margin of sales and cost
of sales.

 Operating Profit = ( Operating profit / Sales) * 100 = 2.18 %

This is mainly due to the administrative and financial expenses.

 ROCE - Return on Capital Employed, in times = ( Profit before interest and


tax / Net Assets ) = 0.0463
30

25

20

Gross profit ratio(%)


15 Operating profit
ratio(%)
ROCE(%)
10

0
profitability ratios

Financial or Liquidity ratios

 Current ratio, in times = ( Current Assets / Current Liabilities ) = 0.562


 Quick ratio, in times = ( (Current Assets - Stock) / Current Liabilities ) = 0.468
 Gearing ratio = (Long Term Liabilities / (Total Capital and Reserves + Long term
Liabilities) = 0.956
 Interest Cover, in times = ( Operating profit / Interest expense ) = 0.2
1.2

0.8
current ratio
0.6 quick ratio
gearing ratio
0.4 interest cover

0.2

0
financial ratios

Activity or Management Efficiency ratios

 Debtors days, in days = ( Av. Debtors / Sales ) * 365 = 116.14 days


 Creditors days, in days = ( Av. Creditors / COGS ) * 365, where COGS is the Cost of
Goods Sold by the firm = 139.8 days
 Stock days, in days = (Av. Stock / COGS) * 365 = 27.27 days which shows that the
stock is held for 27 days on hold for new stock to arrive the warehouses.

160

140

120

100

Debtor days
80
Creditor days
Stock days
60

40

20

0
Activity ratios

Market or Investment ratios

 P/E = ( Share price / Earnings per share ) = 8.9

Here the share price is 20.6 pence and earnings per share are 2.3 pence which is a
good return to the share holders.

8. Conclusion

Given the present market condition and the economic down turn, Finsbury plc’s strategy is to
increase its efficiency by acquiring new facilities. The success of this strategy purely
depends on how well the financing institutions and major stake holders take it. It also
depends on the success of their prediction about the future of the market. Anyhow, the long
term returns are very much assured in the form of long term assets and goodwill of the
organisation.
REFERENCES

 Jeff Madura; 2009; International financial management; 9th edition; Abridged;


Canada

 Christian burns; 2000; Sector analysis: retail and e-commerce; DG bank

 G. Thomas Friedlob,Lydia Lancaster Folger Schleifer; 2003; Essentials of financial


analysis; John Wiley & Sons; NJ USA

 K. Vandyck; 2006; Financial Ratio Analysis: A Handy Guidebook; Charles Trafford


Publishing

 Frank J. Fabozzi, Harry M. Markowitz, Leonard Kostovetsky; 2004; The theory and
practice of investment management workbook; John Wiley & Sons; NJ USA

 Martin S. Fridson, Fernando Álvarez; 2002; Financial statement analysis: a


practitioner's guide; John Wiley& Sons; NJ USA

 Clyde P. Stickney, Roman L. Weil, Katherine Schipper; 2010; Financial Accounting: An


Introduction to Concepts, Methods and Uses; South western Cengage learning; USA
 www.finsburyfoods.co.uk http://www.finsburyfoods.co.uk/investors.php?
p=Interim+Report+to+January+2010

Accessed on: 06-Aug-2010


APPENDIX

A. INCOME STATEMENT
(Source: www.finsburyfoods.co.uk/investors.php?p=Interim+Report+to+January+2010 )

B. BALANCE SHEET
(Source: www.finsburyfoods.co.uk/investors.php?p=Interim+Report+to+January+2010 )
C. CASH FLOW STATEMENT

(Source: www.finsburyfoods.co.uk/investors.php?p=Interim+Report+to+January+2010 )

Das könnte Ihnen auch gefallen