Bega Cheese Limited is a company which have multiple brands to sell the dairy products but the company is been potentially influence to sell the products of cheese and further the company is also been engage in finding out the actual benchmark in relation to the industry.
Though the company has many option to increase their profits but some of the analysis that the company follows to analyze their profits and other ratios of the company the company should identify a good ratio of Efficiency ratio of the company so that the company should move their working capital as soon as possible. Further the company should analyze their profitability ratio in order to check out the returns from the funds invested by the stakeholders and the Liquidity ratio will be traced in order to check the repayment capability of the company.
So, here the same analysis has been done in order to get the above information.
Company History and background
An Australian Public company which belongs to the Dairy and food processing industry was established in 1899 in Bega, New South Wales, Australia. While the company has initiated their business since 1899, by the Agriculture cooperatives, the company became a public company in the year 2011, by listing their shares in the Australian securities Exchange. The company has their stake of 25% with Capitol Chilled foods (Australia) pty ltd, which also have their own Canberra milk and Canberra Gold brands. The company has the major business segments which include the bulk of “core dairy ingredients” such as the items which defines the milk, some of them are: Cheese, Cream Cheese and powdered milk, nutritional products, lactoferrin and many others. The company is growing their business from one dimension to another so for this the company is planning to acquire many other business like multination food brands and one of them is Mondelez International, Vegemite and Bonox, Peanut butter and many other brands in the year 2017. The company with the increase of A$310 million in the annual revenue move to the strongest position in the Consumer Goods market in the Australia.
|Return on shareholder’s equity||0||0||0|
|Return on assets||54.225||39.995||51.272|
|Net profit margin||2.783||1.979||2.442|
|Inventory turnover period (days)||171.45||116.15||150.80|
|Settlement period for Accounts Receivable (days)||1.308||1.981||1.796|
|Asset Turnover period (days)||54.22||39.99||51.27|
|Current Ratio (times)||1.77||2.26||2.15|
|Quick Asset Ratio (times)||0.65||0.86||0.92|
|Debt to Asset||0.04||0.13||0.11|
|Average Total Assets||548.9||550.5||569.55|
Return on Shareholders equity:
As per the definition this profitability analysis suggest that how much the company is being able to generate profits from the investments made by the shareholders. In the common parlance the ROE is the ratio which shows that the profit each dollar of common shareholders equity generates. So, if the company return 1 for every dollar invested by the shareholders then the ROE will be 1. This analysis is very important from the shareholders point of view, as they want to see that how much their funds are being utilized and to how efficient their money is to generate the net income for the company.
Formula for Calculating:
ROE = Net Income of the company / Shareholder’s Equity
As shown above as the company has no Share capital in their financial statement the company ROE cannot be calculated. The severe reason for that is because of non avaibility of date of the company. So it means that the company is not using the funds from shareholders. They generate funds from borrowing and the reserve only.
Return on Assets:
Return on Assets or the Return on total assets of the company means the net income produced by the total assets of the company during the year. For this the company takes the average of total assets for the current year. It is relevant to identify that how efficiently the company manage their assets to produce the profits for the company. If the company is being able to manage the assets i.e. purchase new assets for the company in the variance of time and use those assets for the production of the company then it will generate higher profit for the company.
Return on Asset Ratio = Net Income/ Average total assets
As shown in the table the company return on assets in the year 2014 was 54.225 which has decreased to 39.99 in the year 2015 but further increased to 51.272. This means that the company assets has potential to participate in the net profit of the company. In the year 2014 it was the highest turnover but it has slightly down in the year 2015 but sooner the company has increased their assets during the year 2016 and so the ratio has increased.
Net profit margin:
Net profit margin of the company is the percentage of the revenue amount left after deducting all the expenses from the sales. It simply defines the net profit to the total sales, which will proportionately increase from increase of the total sales of the company or decrease in the total expenses of the company.
Net Profit/Net Sales *100
The net profit margin of the company is the most efficient analysis for the company as every person either the stakeholders or the owners of the company looks for the net profit margin of the company. So, for this company the Net profit margin was 2.78 in the year 2014 which has decreased to 1.97 in the year 2015 due to decrease in revenue from A$29764 to A$22017. The ratio has increased to 2.44 in the year 2016 due to increase in the revenue for that year to 29202. So this ratio is completely dependent on the total revenue for the year and the expenses made during the year. As shown the company has a balanced equilibrium in the year 2014 and 2016 but in the year 2015 the company net profit margin has slightly down.
Inventory turnover period (days)
It means that the number of times the company is being able to sold their inventory during the year. If the company is been able to sold the goods in 30 days then the turnover period of the company is 30 days. The turnover of the company help to identify payback time of the investment in the goods by the company. If the turnover of the company increases higher to 40-60 days it means the profit of the company will extend to that period, the working capital of the company is not been re-cycling in very rapid way. So, in order to complete the circle of the company quick the turnover of the company should be quick and smooth.
Formula: Net Sales / Average Inventory or Cost of Goods Sold / Average Inventory
As shown in the table the turnover of the company is 171.45 days in the year 2014 i.e. in 171 days the company use to sell their inventory in the market which is too high for any company as to stop their working capital is a big issue for 170 days. Further in the year 2015 the turnover days has deceased to 116 days but in the year 2016 it has again increased to 150 days. This means that the company were about to recover the funds in 2015 sooner but due to lower profit and sales the company has again increased their turnover period in the year 2016.
Settlement period for Accounts Receivable (days)
Accounts receivable means the total time taken by the company to receive their amounts from the debtors. The lower the period the higher the movement in the working capital of the company. If suppose the company has the receivable in the 30 days then, the company can put that value in their business and again increase the current sales. But if the company is failed to recover the receivable amount then the company will fail to rotate their funds.
Accounts Receivable during the period / Credit Sales * Total number of days during the period
In the given table, the company turnover days is 1.308 means that the company is been efficient to collect their funds from the debtors in 1.3 days which has increased to 1.981 days in the year 2015 and to 1.796 in the year 2016.
Asset Turnover Ratio:
The ratio measures that the company sales or revenue is generated to what percentage of the assets of the company. If the ratio is higher then it means that the company is being able to increase the value of their assets.
Formula: Sales/ Average Total Assets
In the table it has mentioned that the company asset turnover ratio is 54.22 which means that the asset is been used to 54.22 days in order to generate the sales of the company. This has further increased to 39.99 days in the year 2015 and 51.27 days in the year 2016
The current ratio means and indicate the ability of the company to repay their short term and long term obligations. So, if the current ratio of the company is higher then it means that the company is being able to repay their obligation in quick period of time but if the ratio is not favorable to the industry then the investor identify it as non working company and will liquidate in sooner period of time.
Formula: Current Assets / Current Liabilities
As mentioned in the table the current ratio of the company in the year 2014 was 1.77 i.e. company is been able to repay their debts i.e. if the liability is 0.77 then the company has $1 to repay the debts. In the year 2015 the ratio has further increased to 2.26, which means that the company potential to repay the debts has further increased. In the year 2016 it has decreased to 2.15 but still the ratio is a good infinity to repay their debts.
It is extract version of the current ratio i.e. if the company is in the opinion to find that which assets of the company are been efficient enough to repay their current liabilities then in that case the company will calculate these ratio’s. In the similar terms the company will select the assets like Cash, marketable securities and Accounts receivable as their quick assets.
Current Assets- Inventory / Current Liability
As shown, this ratio is not so good for the company. As the company is been able to repay their debts from other funds but if we don’t take the inventory then the ratio will be 0.65 in the year 2014, 0.86 in 2015 and 0.92 in the year 2016. Though it has increased from 2014 to 2016 but still the ratio implement that the company has $0.92 as a fund if they want to pay $1 liability.
Gearing ratio is the financial leverage that use to identify the degree of the firm’s operations and will find out the fund invested by the equity capital in ratio with the borrowed funds. In simple terms it is a debt- to equity ratio.
Equity Gearing: Preference share capital + Long term debt / Ordinary share capital and reserves
Total Gearing: Preference share capital + Long term debt / Total Long term capital
The gearing ratio has not been calculated due to non-availability of data of the company.
Debt to assets:
It indicates the financial leverage of the company. It will determine the total percentage of the total assets are been financed by the creditors, financial institution or from any long term debts.
Total Liabilities/ Total Assets
Debt to assets of the company is 0.04 in the year 2014 which means that the company has higher assets rather than the debt for the company. It has increased to 0.13 that means the company has increased their debts from A$20.6 ‘000 to 69 in the year 2015. This ratio has been decreased to 0.11 due to repayment of dues in the year 2016 and it tends to 62.7 in that year only.
On the note of the various ratios it can be concluded that, as the profit of the company is increasing from 2014 to 2016, though in the year 2015 there was some small downfall the company has potential to move ahead in futures. The company has further planned to increase their brands and to takeover many other brands in Australia, so the company now can increase much more profit in coming year. Further the suggestion for the company will be that the company have to improve their inventory turnover ratio so that the working capital can move much more faster than what they are currently. It should be to 60 days as per the industry practice.
- Bega Cheese Limited, 2014-15, “Annual Returns and values”, Available from: https://www.begacheese.com.au/
- Retuers, 2015, “Annual performance of the company”, Available from: https://www.reuters.com/finance/stocks/company-officers/BGA.AX
- com, 2017, “Formulas of profitability ratio”, Available from: https://www.myaccountingcourse.com/financial-ratios/return-on-equity
- com, 2018, “Formula of Efficiency”, Available from: https://www.investopedia.com/terms/a/average_collection_period.asp