Discuss about the Economic-Financial Performance Of The Brazilian.
This report emphasises upon the financial performance of Bega Cheese Limited. The Bega Cheese Limited Company has been analysed in this report to evaluate the financial performance. The ratio analysis tool includes analysis of the liquidity of the company, profitability, financial leverage and gearing ratio of Bega Cheese Limited. This analysis on the Bega Cheese Limited will assist investors to take effective investment decision and it will also help them to take investment decision. However, Bega Cheese Limited has high financial leverage and it has also increased its profitability throughout the time. The liquidity ratio reflects the company’s ability to pay off its short term and long term debts from its current assets.
Bega Cheese Limited is an Australian Dairy company based in town of Bega New South Wales. It was founded as agriculture co-operative owned by their dairy suppliers. This company is working on domestic and international level with a view to offer its services for the best satisfaction of clients. It is also complying with the legal and listing requirements of the Australian stock exchange to increase the transparency of the business.
The headquarter of the company is in Bega, Australia in which it incorporated its business in 1899.
Vision
It was incorporated with a view to sell dairy products around the globe
Mission
It has mission to acquire at least 18% market share within upcoming 5 years by offering best quality dairy products and services.
Bega Cheese Limited operates in the dairy product industry. The industry total turnover of Bega Cheese Limited is around AUD $ 1311 million which has increased by 22% since last three years. It shows that industry has high profitability growth rate which have been increasing throughout the time. There are several competitors who are running their business in dairy product industry such as Bellamy’s Organic and The A2 milk Company. These both companies are the biggest rival of Bega Cheese Limited and cover at least 22% market share in dairy product industry on collective basis (Yahoo Finance. 2017).
The financial analysis helps in evaluating the financial performance of company. In order to analysis the financial performance of Bega Cheese Limited, ratio analysis tool have been used which will assess the profitability, liquidity, solvency and market pay-out ratio (Jordan, 2014).
The ratio analysis assists in establishing the relation between two financial factors of business. This ratio analysis is divided into three different parts which are given as below (Ehiedu, 2014).
The liquidity ratio evaluates company’s ability to pay off its short term and long term by usin the current assets. The Bega Cheese Limited has strong liquidity and invested more capital in its current asset (Weygandt, Kimmel, and Kieso, 2015).
The current ratio shows company’s ability to pay off its current and long term liabilities by using the current assets of Bega Cheese Limited. The current ratio of Bega Cheese Limited has increased to 1.66 points which divulges that company has increased its investment in tis current assets. However, company has increased the investment in its current assets with view to increase its overall production level in upcoming years. Bellamy’s Organic has also increased its current ratio to 1.66 points in 2017 which is 18% higher as compared to last year data. Bellamy’s Organic has maintained strong Liquidity in its business (White, Sondh, and Fried, 2015).
|
Description |
Formula |
BEGA CHEESE LTD (BGA) |
Bellamy’s Organic |
|||
|
Liquidity ratio |
2013-06 |
2014-06 |
2015-06 |
2016-06 |
TTM |
|
|
cash ratio |
cash equivalents + cash / current liabilities |
0.14 |
0.14 |
0.06 |
0.05 |
2.2 |
|
Current ratio |
Current assets/current liabilities |
1.65 |
1.52 |
1.84 |
1.66 |
2.5 |
|
Quick Ratio |
Current assets-Inventory/current liabilities |
0.73 |
0.65 |
0.75 |
0.74 |
3.1 |
(Yahoo Finance. 2017).
The quick ratio reflects the immediate liquidity position of company which could be used to pay off its short term and long term debts. Bega Cheese Limited has increased its quick ratio to .074 points in 2016 which is 0.1 points higher as compared to last three years. Bellamy’s Organic has quick ratio of 3.1 points which is 12% higher as compared to last three year data. It has kept its liquidity ratio high with a view to create value on its investment and increase the production level (Zhang, and Zhang, 2014).
The profitability ratio of Bellamy’s Organic divulges its ability to earn profit from its overall sales. It evaluates its earnings from its overall sales. The profitability ratio is divided into following parts (Raki?evi?, et al. 2016).
|
Description |
Formula |
BEGA CHEESE LTD (BGA) |
Bellamy’s Organic |
||
|
Profitability ratio |
2013-06 |
2014-06 |
2015-06 |
2016-06 |
TTM |
|
Net profit ratio |
Net profit/revenues |
2.5% |
6.2% |
1.1% |
11.3% |
|
Return on assets |
Net profit/Equity |
24.5% |
63.5% |
11.5% |
61.8% |
|
Earnings per share |
Net income – pref div / shares outstanding |
0.25 |
0.63 |
0.12 |
0.62 |
(Yahoo Finance. 2017).
The net profit ratio of company shows company’s ability to earn profit from its overall sales. It has maintained its net profit ratio around1.1 % since last three years. It has managed stable profitability in its business (Rodrigues, and Rodrigues, 2018). Nonetheless, Bega has increased its investment but kept its profitability stable since last three year. The net profit of Bellamy’s Organic is way too higher as compared to Bega which shows negative indicator for the performance of Bega in long run (Dokas, Giokas, and Tsamis, 2014).
The return on assets of Bega is 11.5% in 2017 which is 13% lower as compared to last three year data. It is observed that Company has invested its capital investment in its investment activities by buying more plans and machineries. Bellamy’s Organic has also kept 61% return on assets which is highly positive as compared to Bega (Brigham, et al. 2016).
The earning per share of Bega has increased by .03 points since last three years. It has increased its net profit and earning throughout the time. However, Bellamy’s Organic has maintained higher profitability and increased its earnings per share to .62 points (Zainudin, and Hashim, 2016).
The efficiency ratio of company shows how well company has managed its capital in the business of organization.
The receivable turnover of Bega is 82 .03 points in 2016 which is 13 points higher as compared to last three year data. It is observed that Company has invested its capital investment in its business and kept its receivable turnover by blocking more funds in the credit sales.
The Creditors turnover of Bega is 46.89 points in 2016 which is 5 points lower as compared to last three year data. Bellamy’s Organic has also kept 55 points creditor’s turnover which is highly positive as compared to Bega.
The inventory turnover ratio has increased to 67.19 points which is 10 points higher as compared to last three year data. It has increased its business efficiency to block less funds in its business. Bellamy’s Organic has inventory turnover of 60.2 points which is way too high comparatively (Vogel, 2014).
|
Description |
Formula |
2013-06 |
2014-06 |
2015-06 |
2016-06 |
Bellamy’s Organic |
|
Receivable turnover |
Receivables/ Total sales*365 |
62.93 |
63.16 |
69.43 |
82.70 |
25.2 |
|
Inventory turnover |
Inventory / cost of goods sold *365 |
67.99 |
70.62 |
71.75 |
67.19 |
60.2 |
|
Creditors turnover |
Creditors/ COGS*365 |
50.47 |
53.73 |
43.42 |
46.89 |
55.1 |
(Bega Cheese, 2017).
This ratio shows company’s ability to maintain sustainable future in long run. It divulges the financial leverage, interest coverage ratio and time interest earned by company. This ratio reflects the capital structure of Bega Cheese Company and how well it could reduce its cost of capita (Weygandt, Kimmel, and Kieso, 2015).
|
Description |
Formula |
2013-06 |
2014-06 |
2015-06 |
2016-06 |
Bellamy’s Organic |
|
Times interest earned |
EBIT / Interest expenses |
-9.875 |
-16.33333333 |
-29 |
51 |
2 |
|
Cash coverage ratio |
EBIT + non-cash expenses / interest expenses |
(78.00) |
(97.00) |
(115.00) |
205.00 |
(225) |
|
Debt to Equity Ratio |
Debt/ Equity |
2.84 |
2.25 |
2.31 |
2.49 |
5.1 |
(Bega Cheese, 2017).
The time interest earned ratio is also known as gearing ratio. It shows the relation between the interest expenses and EBIT of company. It reflects how well company could manage its EBIT with its interest payment. The gearing ratio of Bega Cheese has shown the negative result which depicts that company has been incurring loss in its business since last three year. It might negatively impact the financial leverage of company.
If Bega does not reduce its financial leverage then it will negatively impact the sustainability of the business in long run. Bellamy’s Organic has also faced the same problem in its financial leverage. The debt to equity of Company has increased 5 points which is way too higher as compared to Bega Cheese Limited (Subramanyam, and Wild, 2009).
The market ratio of company shows how well company has created value in the market for its shares. The price earnings ratio of Bega Cheese has increased to 34 points which is 8 points higher as compared to last three year data.
|
Description |
Formula |
2013-06 |
2014-06 |
2015-06 |
2016-06 |
2017-06 |
Bellamy’s Organic |
|
Price / earnings ratio |
Market value per share / earnings per share |
26.52 |
11.82 |
73.67 |
34.07 |
17.00 |
15 |
|
Dividend yield ratio |
dividend / current share price |
1.69 |
1.60 |
1.53 |
1.47 |
1.43 |
1.25 |
The price earnings ratio of company has increased to 60.90 points which shows that company has increased its price earning. It shows that company has been giving higher return to its shareholders (Swain, and Dutta, 2015).
The dividend yield ratio of Bega has gone down to 1.43 points in 2016. The dividend ratio of Bega is higher as compared to Bellamy’s Organic. The dividend yield ratio shows how much dividend company has paid to its shareholders (Maaloul, and Zéghal, 2015).
Summary and Conclusion
After analysing all the detail and financial performance of Bega Cheese Limited, it is inferred that company has high financial leverage which will negatively impact the business functioning of Bega in long run. It is further observed that profitability of Bega has also increased since last three years. The main recommendation for the investors is related to their investment decision. They should keep their capital invested in long run In Bega Cheese if they want to create value on their investment. Investing money in short run may result to their loss. The interest coverage ratio shows that company has failed to cover its interest payment and it will negatively impact the sustainability of the business in long run. Now in the end, it could be inferred that Bega Cheese need to lower down its financial leverage by reducing the debt funding. The debt funding might reduce the overall costing of business but in case of sluggish market condition, it would negatively impact the financial performance of Bega Cheese.
References
Bega Cheese, 2017., Annual report., [Online]., Available from https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BGA_2016.pdf., [Accessed 14th May, 2018].
Bega Rodrigues, L., & Rodrigues, L. (2018). Economic-financial performance of the Brazilian sugarcane energy industry: An empirical evaluation using financial ratio, cluster and discriminant analysis. Biomass and Bioenergy, 108, 289-296.
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment: Theory and Practice, Canadian Edition. Nelson Education.
Dagwell, R., Wines, G. and Lambert, C., 2015. Corporate accounting in Australia. Pearson Higher Education AU.
Dokas, I., Giokas, D. and Tsamis, A., 2014. Liquidity efficiency in the Greek listed firms: a financial ratio based on data envelopment analysis. International Journal of Corporate Finance and Accounting (IJCFA), 1(1), pp.40-59.
Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.
Jordan, B., 2014. Fundamentals of investments. McGraw-Hill Higher Education.
Maaloul, A. and Zéghal, D., 2015. Financial statement informativeness and intellectual capital disclosure: An empirical analysis. Journal of Financial Reporting and Accounting, 13(1), pp.66-90.
Raki?evi?, A., Miloševi?, P., Petrovi?, B. and Radojevi?, D.G., 2016. DuPont Financial Ratio Analysis Using Logical Aggregation. In Soft Computing Applications (pp. 727-739). Springer, Cham.
Subramanyam, K.R. and Wild, J.J., 2009. Financial statement analysis. McGraw-Hill.
Swain, R.K. and Dutta, A., 2015. Strategic Financial Management: Strategic Financial Management, Financial Engineering, Financial Statement Analysis, Merger & Acquisition. Lap Lambert.
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.
White, G.L., Sondh, A.C. and Fried, D., 2015. Analysis of Financial Statement. Analysis.
Yahoo Finance. 2017., Balance Sheet., [Online]., Available from https://financials.morningstar.com/income-statement/is.html?t=BGA®ion=aus., [Accessed 14th May, 2018].
Yahoo Finance., 2017., Income statement., [Online]., Available from https://financials.morningstar.com/income-statement/is.html?t=BGA®ion=aus., [Accessed 14th May, 2018].
Zainudin, E.F. and Hashim, H.A., 2016. Detecting fraudulent financial reporting using financial ratio. Journal of Financial Reporting and Accounting, 14(2), pp.266-278.
Zhang, C. and Zhang, J., 2014. Analysing Chinese citizens’ intentions of outbound travel: a machine learning approach. Current Issues in Tourism, 17(7), pp.592-609.
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