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03Dec

MAF302 – Corporate Finance Assignment

This corporate finance assignment research based analysis on Bongrain, based in France, is one of the world leading dairy companies.

Financial Performance Analysis

Net profit ratio: The net profit ratio of the concern is a measure of the profitability of the concern. Hence the it can be said that the net profit ratio is used to measure the profitability of the organization as a whole and not just the operational profit. The net profit of Bega Chees has shown the highest increase. The same has increased from 1.89 in the year 2012 to 6.18 in the year 2014. On the other hand this ratio has shown inconsistency in the case of Warnambool where it had decreased from 3.08 to 1.51 in the year 2013 before rising again to 3.49 in the year 2014. On the other hand Bongrain’s net profit ratio stands at 1.11 for the year 2013 (Morningstar, 2015).

Asset Turnover: This ratio is used to indicate or analyze the return generated through the employment of the assets of the organization. Though the net profit of Bega is more than that of Warrnambool the asset turnover ratio of the later is more than that of Bega. Though a similar trend has been noticed where the ratio falls in the year 2013 before rising again in the year 2014. On the contrary the ratio for Bongrain stands at 1.37 which is lower than that of both the organizations.

Interest Coverage Ratio: This ratio is also known as the times interest covered ratio. This ratio is used to understand the times the organization is able to use its earnings to pay off the interest obligations. The interest coverage ratio is phenomenal for Bega and the same has increased from 5.18 in the year 2013 to 15.6 times. This ratio has shown signs of improvement in the case of Warrnambool where it has increased from 3.32 to 8.89 times in the year 2014 (Hansen and Palmer, 1997).

Current ratio: The current ratio of the organization is an important indicator of the liquidity position. The same is used to analyze the strength of the current assets of the concern to meet the short term obligations also known as current liabilities. The current assets are those assets which are to be held by the concern for less than a year. The ratio has shown signs of reduction in the case of Bega but has shown an improvement in the case of Warrnambool where it has increased from 1.37 to 1.42 in the year 2014. Though the same has increased the ratio is lower than that of Bega. On the contrary the ratio has reduced for Bongrain.

Quick Ratio: The quick ratio is also used to measure the liquidity of an organization however it is more of an indicator of the strength of the more liquid assets or the quick assets. These assets are those which can be used to meet the current liabilities on a very short notice and hence assets like closing stock and miscellaneous expenses are not considered (Bertonèche and Knight, 2001). The quick ratio of Bega has dipped from 0.71 in the year 2013 to 0.64 in the year 2014. In the case of Warrnambool the ratio has shown a constant decreasing trend since 2012. However this ratio is greater than that of Bega but lower than Bongrain which has shown a similar decreasing trend.

Debt to equity: As the name of the ratio suggests the same is used to indicate the proportion of debt to the equity of the concern. A higher debt to equity ratio is favorable where the organization is enjoying higher sales however the same can be very bad for the organization during the recessionary phase. The debt to equity ratio of Bega has dropped phenomenally which is evident from the high interest coverage ratio. The same currently stands at 0.06 in the year 2014. Though the ratio dropped by a huge margin for Bega the same is lower than the debt to equity ratio of Warrnambool. The ratio has shown a decrease in the case of Bongrain but it is a lot higher than the ratios of the other two organization.

Payables Period: The payables period indicates the number of days the organization takes on an average to pay off its creditors. A higher payable period is considered to be as good as the same improves the quick ratio (Steffan, 2008). Though a very high payables period is unwarranted as the organization might lose out on the discount had it paid earlier and the same creates a bad name for the organization. The payables period of the concern (Bega) has increased over time whereas the same has reduced overtime for Warrnambool. This ratio has also decreased for Bongrain but the decrease is not a very significant one.

Receivables Turnover Ratio: This ratio is used to indicate the debt collection and credit extension efficiency of the concern. A higher ratio shows that the organization has a solid cash base or it very efficient in collecting debts (Penning, 2012). On the other hand a lower ratio should make the organization reconsider its current credit extension policy. Bega has a high receivables turnover ratio but the other two organizations have a lower receivables turnover ratio.

Recommendation

In the light of the above discussion the organization namely Bograin should go for Bega over Warrnambool Cheese and Butter as it has a higher profitability and turnover ratios. The organization has a strong net profit margin and a higher current, return on assets, return on equity and times interest earned ratio to name a few. Also an important factor is that majority of the ratios in the case of Warrnambool Cheese and Butter have shown an inconsistent trend wherein the ratios have decreased in the year 2013 before rising again in the year 2014.

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References

  • BertoneÌ€che, M. and Knight, R. (2001). Financial performance. Oxford: Butterworth-Heinemann.
  • Hansen, B. and Palmer, A. (1997). FRAN, Financial Ratio ANalysis and more. Radnor PA (5 Radnor Corp CTR Suite 200, Radnor 19087-4585): U.S. Dept. of Agriculture, Forest Service, Northeastern Forest Experiment Station.
  • Morningstar, (2015). Growth, Profitability, and Financial Ratios for Bongrain (BH)  from Morningstar.com. [online] Financials.morningstar.com. Available at: http://financials.morningstar.com/ratios/r.html?t=BH&region=fra&culture=en-US [Accessed 29 Apr. 2015].
  • Penning, A. (2012). Financial performance. Worcester: Osborne Books.
  • Steffan, B. (2008). Essential management accounting. London: Kogan Page.