The report focuses on the financial performance of a Saudi Arabia company named by Almarai. The financial evaluation is a process which is used by the companies, financial analyst and the investors of the company to recognize the position of the business, projects, budgets and other financial related activities of the business (Rabin, 2013). An organization could be evaluated through various bases such as through evaluation on the financial ratios of the company, capital structure and debt payout policies of the company etc. all of these activities explain about the financial risk, liquidity risk, long term solvency position, cost management etc of the business.
In the report, the financial study has been conducted on Almarai. In order to identify the financial position of the company, the capital structure, financial position and the debt payment policies of the business have been evaluated in order to identify the position of the company in the industry and investment position of the business. the corporate governance policy, risk management level, audit committee, mission of the company in 2025 has been studied in the report.
Almarai is Known as the largest company in Saudi Arabia dairy industry because of higher market share of the business. The main operation of the company includes dairy farms and processes food as well as it also do marketing of dairy products and fruit juices in the Saudi Arabia market. Almarai name stands for ‘green pastures’ in Arabic. Almarai has an untiring commitment to the quality services and the products. The quality product and services of the company has helped the company to manage the financial performance and the market share. Their main focus of the company is on its consumers. the company is operating across the gulf region. Around 40,000 employees are working with the company who are offering servicing at 50,000 retail outlets with a turnover that exceeded US $13,396 million in 2017 (Home, 2018). The main competitors of the company in Saudi Arabia market is The Saudi Dairy and Foodstuff Co which offering the similar products in the dairy industry (Gulf base, 2018).
Mission 2025:
The mission of the company by 2025 is to be the market leader at the global level and improve the profitability turnover of the business at great extent. Mission and vision (2018) expresses that the main mission of the business is to offer the quality and nutrition beverage and food to consumers in order to enrich their daily lives.
Audit committee:
The audit committee report of the company has added that the company is following proper AASB rules in order to offer the proper and transparent information to the stakeholders of the business.
Corporate governance policies:
The corporate governance policy of the company is to focus on the environment and improve the lifestyle level of the society (Annual report, 2017). The corporate responsibility (2018) explains that currently company is supporting the excellence in kingdom, education and developing the local talent.
Funding policy and capital addition:
The company has improved the equity level in the year of 2017 whereas the debt level of the company was same; it has reduced the financial gearing position of the company.
The financial position of the business has been measured on the basis of the profitability, liquidity, asset efficient, investment and solvency position of the business.
Profitability analysis:
The profitability analysis on the financial position of the company explains that return on capital employed level of the company has been improved from 9.19% to 10.69% in the year from 2013 to 2017. The capital employed of the company has been improved by 16.41% in last 5 years. It expresses that in near future the return on capital employed of company would be improved more. Further, the gross profit margin of the business has been studied and it has been recognized that the 13.75% changes have occurred into the gross profit position of the company from last 5 years. The current (2017) gross profit of the business is 40.1% which is enough competitive. The changes into the profitability level have been taken because of the reduction in the sales level of the business because of the political changes.
In addition, the operating profit margin has also been studied. The calculations express that the operating profit margin of the company has been improved by 25.17% in last 5 years (Appendix). The forecasting process on the company explains that the profit level of the business would be improved more in near future. The average growth rate in the net profitability level of the business has been found 8% which explains that there is huge room for the growth of the company (Chandra, 2011).
Liquidity analysis:
The liquidity analysis on the financial position of the company explains that current liquidity ratio level of the company has been reduced from 1.44 to 1.18 in the year of 2017 from 2013 (Appendix). The current ratio of the company has been reduced by 17.88% in last 5 years. It expresses that the changes have been done by the company in order to manage the associated cost and manage the liquidity risk of the business. The current liquidity position of the business is enough competitive (Higgins, 2012). Further, the quick ratio of the business has been studied and it has been recognized that the -15.12% changes have occurred into the quick liquidity position of the company from last 5 years. The current quick ratio of the business is 0.64 which explains that the company would not be able to meet the short term debt of the company at all of sudden.
Thus, it has been concluded that the business should improved the level of the quick assets such as receivables, cash etc in order to meet the short term debt demand of the business. The forecasting process on the company explains that the liquidity risk of the business is in control as well as the company is performing average in terms of the short term debt management.
Asset efficiency ratios:
Asset efficiency ratio analysis on the financial position of the company explains that Trade payable payment period ratio level of the company has been reduced from 102.31 days to 71.93 days in the year of 2017 from 2013. It expresses that the changes have been done by the company in order to manage the working capital but it explains that at this level company would require more funds to manage the operations. The reduction in the Trade payable payment period ratio is not good for the company. Further, the inventory turnover ratio of the business has been studied and it has been recognized that the days of inventory turnover has been improve which explains that now the huge inventory would be ordered by the business at a time which would improve the demand of the funds in the business (Rose & Hudgins, 2012).
Lastly, in case of receivable turnover of the businesses it has been measured that the changes are in the favour of the company as the receivable turnover days has been reduced from 31.82 days to 27.29 days only whereas the changes into the trade payable turnover days and inventory turnover days are higher which explains that the requirement of the working capital has been reduced in the business as well as the efficiency level of the business has also been improved.
The stock market or investment ratio analysis on the financial position of the company has been done further. The current stock price of the company is SAR 44.50. It explains that earnings of the company have been reduced from SAR 1.51 to SAR 2.13 from 2013 to 2017. The EPS ratio of the company has been improve from 40.55% in last 5 years. It expresses that the changes have been taken place in the business because of the better market share and the earnings of the company Madura, 2011. The EPS level of the business explains that the investment level of the company is enough competitive. Further, the dividend coverage ratio of the business has been studied and it has been recognized that the 704.32% changes have occurred into the dividend coverage position of the company from last 5 years (Appendix). The dividend coverage ratio of the business in the year of 2017 is 2.67 which explain that the company is offering a great dividend amount to its stock holders in order to impress them and manage the market position of the business.
Thus, it has been concluded that the investment level of the business is quite attractive. The company is managing the marketing position and the investment level at better stage. The forecasting process of the company explains that the investment position of the business is better as well as the company is performing great in terms of the management of the capital market.
The market share of both the companies has been studied further in order to measure the non financial performance and marketing level of the business. In case of Almarai Company, it has been found that the company is one of the largest dairy companies in the Saudi Arabia market. The total market share of the business has been 35.3% (Statista, 2018). The Statista (2018) expresses that the gulf cooperation council has tracked the Almarai Company as the leading player in the GCC dairy market which consists the 35.3% of market share in the Saudi Arabia market. Further, in case of Saudi Dairy and Foodstuff Co, it has been found that the market share of the company is 6.6% in the industry. It is one of the top 3 leading companies in the dairy market after the Nestle. It explains that the level of market share and the financial performance of Almarai Company are highest in the industry which explains that the company would be a better option in terms of the investment (Reuters, 2018).
On the basis of the debt equity ratio of the company, it has been found that the financial gearing level of the business is huge which must be reduced by the company in order to maintain the financial risk of the business (Porcelli & Delgado, 2009). The current level explains that the business would not even be able to meet all the long term debt requirement of the business (Koropp, Kellermanns Grichnik & Stanley, 2014). Further, in terms of measuring the better capital structure level, the EBIT-EPS analysis has been done. EBIT-EPs approach explains that the optimal capital structure level of a business is the point where the EPS level of the business is higher than the expected range of the EBIT.
The EBIT-EPS level of the Almarai company has been calculated and it has been compared with the EBIT APS level of Saudi Dairy and Foodstuff Co. the evaluation on Almarai comapny expresses that the EBIT EPS level of the company has been improved from SAR 1185.64 to SAR 1311.63 which expresses that the capital structure level of the company is quite better and the company is performing better in the industry in terms of the management of the debt and equity level of the business (DemaMoreno, 2009).
Further, the of Saudi Dairy and Foodstuff Co has been taken into the context and it has been found that the EBIT EPS level of the company has been lowered at great level which denotes the current position of the company SAR 34.25 (Gulf base, 2018). On the basis of the study on both the companies, it has been found that the position of EBIT EPS of Almarai Company is better than the Saudi Dairy and Foodstuff Co. Because the risk level in Saudi Dairy and Foodstuff Co. is higher. Though, the comparison among the two companies would not offer better result because of the different market share and the operational changes in both the companies.
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EBIT-EPS analysis |
|
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
|
|
|
|
|
|
|
EBIT-EPS analysis |
Almarai company |
|||||
|
EBIT/ |
1,797 |
1,950 |
2,262 |
2,542 |
2,794 |
|
|
EPS |
1.52 |
1.64 |
1.93 |
2.10 |
2.13 |
|
|
Answer: |
% |
1185.64 |
1190.67 |
1171.14 |
1212.34 |
1311.63 |
|
EBIT-EPS analysis |
Saudi Dairy and Foodstuff Co |
|||||
|
EBIT/ |
184 |
156 |
276 |
311 |
275 |
|
|
EPS |
5 |
4 |
8 |
9 |
8 |
|
|
Answer: |
% |
34.91 |
35.94 |
34.46 |
33.59 |
34.25 |
On the basis of the study, it has been found that the financial gearing level of the business is higher which leads to the higher financial risk in the business. This impact could be minimized in the business through issuing more equity shares in the market or payment of the borrowings of the company. It would maintain the debt equity position of the company and the optimal capital structure level of the business would be maintained.
Debt to equity ratios of the business has been further studied in order to identify the capital structure level of the business. The financial statement of the company of last 5 years has been studied and it has been found that the various changes have been done by the company in its capital structure.
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Capital structure |
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2013 |
2014 |
2015 |
2016 |
2017 |
|
|
|
|
|
|
|
|
|
Debt to equity |
||||||
|
Long term liabilities / |
9,417 |
9,019 |
10,506 |
11,194 |
11,640 |
|
|
Equity |
10,142 |
10,887 |
12,058 |
13,036 |
14,484 |
|
|
Answer: |
% |
92.85% |
82.84% |
87.13% |
85.87% |
80.36% |
Earnings, 2018)
The above given table represents the debt equity ratio of the company was 92.85% in the year of 2013. Further, few continuous changes have been made by the financial manager of the company to reduce the financial gearing level and manage the cost of the business. The management has reduced the level of debt of the company and it has been found that the current debt of the company is just 80.36% of total equity of the business. Even though, the current level of debt equity is also higher in the business and explains that the financial risk of the business which must be reduced by the company through issuing more shares or buying back the debentures of the company (Annual report, 2013).
The debt equity ratio of the company has been compared with the main competitor of the business i.e. Saudi Dairy and Foodstuff Co to measure that what is the capital structure level of the business and how the industry position is? The debt equity structure of Saudi Dairy and Foodstuff Co is as follows:
|
Solvency Ratios |
|
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
|
|
|
|
|
|
|
Debt to equity |
||||||
|
Long term liabilities / |
82 |
85 |
102 |
113 |
113 |
|
|
Equity |
922 |
948 |
1,092 |
1,261 |
1,321 |
|
|
Answer: |
% |
8.89% |
8.97% |
9.34% |
8.96% |
8.55% |
(Annual report, 2015)
It explains that the level of financial gearing position of the company is even lower than the ideal position of capitals structure. It explains that the associated financial risk of the company is quite lower as well as the associated cost of the business (4 traders, 2018). On the basis of the evaluation on both the companies, it has been found that the debt to equity level of Almarai Company is way better. Few changes into the debt level would make the capital structure of the company more attractive.
Dividend analysis:
The dividend structure level of both the businesses has also been evaluated to measure that how the investment level of the company is and how much the dividend could be expected from the stockholders of the business from the company. On the basis of the Almarai Company, it has been found that the dividend coverage ratio of SDFC was better in past years. But along with the time, the level of dividend coverage has been reduced in the company. In case of Almarai Company, it has been found that the dividend level of the company is better in the industry (Barnes, 2007). The company is capable to pay enough amounts as return to the stockholders of the company and thus it leads to the conclusion that the divided position and the market position of the Almarai Company are better.
The Almarai Company is following the variable dividend payout policies where a fixed dividend payout 5 is not paid to the stakeholders of the business. In the year of 2017, the dividend payment ratio of the company is highest even after the increment in the equity level from last year.
|
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Dividend coverage ratio SDFC |
1.744898 |
1.236842 |
2.241379 |
2.263158 |
1.331633 |
|
Dividend coverage ratio Almarai |
0.332224 |
2.714047 |
3.198664 |
0.330769 |
2.672152 |
(Annual report, 2017)
Conclusion:
The financial evaluation is a complex and crucial stage in order to identify and analyze the financial decision about the allocation of the resources in the company. On the basis of the report on Almarai Company, its profitability position, capital structure position, dividend position etc, it has been found that the overall performance of the company has been improved at a great level in last 5 years. There is a big room for the growth of the company, the better financial strategies have been made by the company in order to meet the performance and manage the better level in the industry. The overall evaluation on the financial performance and other factors of the company expresses that the company is better choice in terms of investment. It explains that the current position of the company is impressive and there is also huge room for the growth of the company in near future
References:
4 tarders. (2018). Saudi Dairy & Foodstuff Co. [online]. Retrieved from: https://www.marketscreener.com/SAUDI-DAIRY-FOODSTUFF-C-6497983/news/Saudia-Dairy-and-Foodstuff-Company-SADAFCO-Announces-the-Dividend-Distribution-Date-for-the-Fina-24541806/
Annual report. (2017). Almarai company. [online]. Retrieved from: https://www.almarai.com/wp-content/uploads/2018/04/Almarai-AR2017-ENG-web.pdf
Annual report. (2015). Almarai company. [online]. Retrieved from: https://www.almarai.com/wp-content/uploads/2018/01/Annual-Report-2015-EN-2.pdf
Annual report. (2013). Almarai company. [online]. Retrieved from: https://www.almarai.com/en/corporate/investors/annual-report-financial-statement/
Barnes, P. (2007), The Analysis and Use of Financial Ratios: A Review Article, Journal of Business Finance & Accounting, 14 (4), p. 449-461
Bloomberg. (2018). Almarai company. [online]. Retrieved from: https://www.bloomberg.com/quote/ALMARAI:AB
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.
Earnings. (2018). Almarai company. [online]. Retrieved from: https://www.almarai.com/wp-content/uploads/2018/01/2017-Q2-Earning-Presentation-EN.pdf
Gulf base. (2018). Saudi stock exchange list. [online]. Retrieved from: https://www.gulfbase.com/company-list-saudi-stock-exchange-1
Higgins, R. C. (2012). Analysis for marketing management. McGraw-Hill/Irwin.
Home. (2018). Almarai company. [online]. Retrieved from: https://www.almarai.com/
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.
Porcelli, A. J., & Delgado, M. R. (2009). Acute stress modulates risk taking in financial decision making. Psychological Science, 20(3), 278-283.
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).
Reuters. (2018). Almarai company. [online]. Retrieved from: https://www.reuters.com/article/us-nadec-alsafidanone-m-a/saudis-nadec-agrees-to-acquire-dairy-competitor-idUSKBN1H1097
Rose, P. S., & Hudgins, S. C. (2012). Bank management & financial services. McGraw-Hill Education.
Statista. (2018). Dairy market share. [online]. Retrieved from: https://www.statista.com/statistics/582316/dairy-market-share-gcc-by-company/
Corporate responsibility. (2018). Almarai company. [online]. Retrieved from: https://www.almarai.com/en/corporate/community/csr-initiatives/
Mission and vision. (2018). Almarai company. [online]. Retrieved from: https://www.almarai.com/en/corporate/almarai/mission-vision-values/
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