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Transcript of finance
Carlsberg & Guinness
Our purpose today is to study the financial statements and give an in depth study on financial ratios and comparison between two companies. To do this, we have chosen Guinness's Anchor Berhad and Carlsberg Brewery Berhad as our focus.
Total debt ratio
Figure 3: total debt ratio
Debt equity ratio
Figure 4: debt equity ratio
The Corporate Finance
Figure 6: inventory turnover
Figure 7: receivables turnover
Return on assets
Figure 8: Return on assets
Return on equity
Figure 9: return on equity
Market value measure
Figure 10: P/E ratio
Factors to concern
Times interest earned
Figure 5: Times interest earned
Figure 1: current ratio
If the current ratio is less than 1, the company may not able to pay its debt at the due date.
From figure 1, both companies have their current more than 1. In the years 2007 and 2008, Carlsberg has higher current ratio than Guinness.
Guinness has higher current ratio than Carlsberg from the year 2009 to 2011.
Current ratio is used to measure company’s ability to pay short term obligation, and its formula is current assets divided by current liabilities. The higher the ratio, the company is more capable to pay its short term debt.
Figure 2: cash ratio
Creditors will look at the ratio indicates the ability of company repay its short-term liabilities, the higher ratio the better. In year 2007 and 2008, Carlsberg has higher ratio than Guinness, whereas Guinness has higher ratio from year 2009 to 2011.
Cash ratio is commonly used to measure company liquidity, and the formula is total cash and cash equivalents divided by current liabilities. Cash ratio is more conservative than current ratio as it excludes inventories and account receivables.
It also indicates that how much company’s assets are financed by debt. From the total debt ratio, investors and lenders can know that the leverage and the potential risk of one company with its debt load, where higher total debt ratio, the higher risk. In the year of 2007 and 2008, the total debt ratio of Guinness Anchor Berhad is slightly higher than Carlsberg. But from year 2009 to 2011, the Carlsberg’s level of risk is higher than Guinness especially in year 2009.
Total debt ratio indicates what is the proportion of debt are relative to its total assets, and the formula is total debt divided by total assets.
High debt equity ratio tells that a company depends more on debt in financing its growth. In year 2007 and 2008, Guinness’s debt equity ratio is higher than Carlsberg’s; yet from year 2009 to 2011, Carlsberg’s debt equity ratio is higher than Guinness. The cost of debt financing should not overweigh the revenue the company generates in order to protect the benefits of stockholders.
Debt equity ratio measures a company’s financial leverage; its formula is dividing total debt by stockholders’ equity. The ratio indicates the company utilizes how much proportion of debt and equity to finance its assets.
The ratio tells how many times a company can cover its interest expenses by its pretax earnings Company that fail to meet the obligation may face bankruptcy. In year 2007 and 2008, Carlsberg do not have any interest expenses, so the Times interest earned can’t compute. From year 2009 to 2011, Guinness seems to have higher ratio than Carlsberg, thus it is easier for Guinness to fulfill its interest payment.
Times interest earned is used to measure a company’s capability to meet its debt obligation. The formula is company’s earnings before interest and taxes (EBIT) divided by interest expenses.
Low ratio means the company has excess inventories, it represent a fail investment with zero return. From 2007 to 2009 and year 2011 as well, Guinness has inventory turnover ratio slightly higher than Carlsberg. In year 2010, Carlsberg has higher inventory turnover ratio than Guinness.
Inventory turnover ratio tells how quickly a company sells off their inventories and replace over a period. Higher inventory turnover ratio means the company has strong selling operation.
The formula of the ratio is total sales divided by account receivable during the year. High ratio indicates that the company operates more on cash basis or the collection of account receivables is efficient. From the figure 7, both companies’ ratio is quite similar, in year 2007 and 2010, Carlsberg has slightly higher ratio, whereas in year 2008, 2009 and 2011, Guinness has higher receivables turnover ratio.
Receivables turnover ratio used to measure a company’s effectiveness in extending credit and collecting debts.
Return on assets varies on different industry, so it is a good indicator to compare company in same industry. Total asset of the company is financed by debt and equity, so percentage of ROA tells investors how effectively the company converting money invested into net income. The higher the ROA, the better, as the company is generating more income on less investment. From the figure 9, Guinness Anchor Berhad has very high ratio of ROA compare to Carlsberg from year 2007 to 2011
Return on assets indicates how efficient a company using its assets to generate profit. It is calculated by annual net income divided by total assets and displayed in percentage.
It is calculated by annual net income divided by total shareholders’ equity. ROE is a good indicator to compare companies in same industry. The higher percentage, the better, as the company well utilizes investment fund to generate high net income. From the graph, Guinness has very high ratio and more favorable compare to Carlsberg, because Guinness’s management has utilizes the investment fund well for the sake of the shareholders.
Return on equity ratio indicates how efficient a company generates net income using money invested by shareholders and it is expressed in percentage.
P/E ratio is very useful if comparing companies’ future growth prospect in the same industry. The P/E ratio indicates that how much dollar should be invested in order to get RM 1 of current earning. From the figure 15, from year 2007 to 2010, Carlsberg Brewery Malaysia Berhad seems less attractive because it have higher P/E ratio as investors need to invest more money in order to get RM 1 of earnings per share compared to Guinness Anchor Berhad. But in year 2010 and 2011, Guinness Anchor Berhad is less attractive.
The price-to-earnings ratio is a valuation ratio, and the formula is company’ market price per share divided by per-share earnings. Stocks with higher P/E ratio are expected to have higher earnings growth if compared with stocks with lower P/E ratio.
They are temporary reports. These statements are neither complete nor exact. They reflect only monetary transactions of a business.
Financial statements are based on historical costs hence, price level changes is ignored.
Profit revealed cannot be accurate, they are interim reports
Financial position is affected by several factors such as economic,
social and financial, but financial factors are being recorded in these financial statements
Only quantitative factors are taken into account, but not qualitative factors
such as prestige, reputation and loyalty of employees/consumers. Thus, investors might only look at financial report and miss out the potential.
Monetary unit is never stable under inflationary condition
Personal judgment of the accountant
Differences in accounting. The problem with this is that the companies may not use the same accounting methods. One might use first-in first-out inventory methods while another uses the average cost method
The problem with classification. We may not get an accurate picture of what a company actually represents.
A diversified company may be difficult to fit into a particular classification of companies. For example, a company may be involved in telecommunications, software and health-related devices.
When dealing with very large companies that have many different sources of income, the financial statements do not give you the entire picture
Importance of Sustainability report
Organizational report that gives information about economic, environmental, and social and governance performance and what is the plan or plans they have for external sources such as customers, environment and social.
Establishing a sustainability reporting process helps to set goals, measure performances and manage changes.
For organizations itself, they can increase understanding of risks and opportunities, they can influence long term strategies and policies.
Benchmark and assess sustainability performance according to laws, codes and performances standard.
More importantly, it measure items that financial statement couldn't’t.
Corporate theory started to be debated where shareholders or managers are important in the business but unaccountable managers can lead to fraud (Berle and Means, 1932)
Dood (1932) accepted the pluralist approach where a need to concern of company’s social responsibility as well. This is where the term Corporate Citizens came in.
Hill and Jones (1992) developed stakeholder agency theory and argues the managements tend to take advantage of stakeholders who end up having a greater risk. The stakeholders therefore will develop mechanisms to make managements
-Engaging the stakeholders involves establishing good lines of communication between a company and its various stakeholders and then maintaining a relationship with them.
They have the responsibility to provide detailed reporting to a wide range of stakeholders
Practicing sustainable performance reporting
Its an organizational report that gives information about the company’s economic.
The sustainability performance report is voluntary
Started reporting since 2007
Since year 2011 they started (CSR) Report
(ii) Launch of e-procurement tool for better transparency.
approaches undertaken by the company are as follows:
(iii) An overall improvement in waste reduction, water and energy consumption to ensure a safe working environment for employees and to reduce environmental impact.
(iv) Enforced optimized usage of transport and fuel usage efficiency to reduce environmental impact.
(v) Increase the awareness campaign of the ‘No drink and drive’ and launching of the ‘Enjoy Responsibly’ campaign.
(i) Continuous research for alternate raw materials and products and started brewing Asahi Super Dry to reduce carbon footprint.
(vi) Books, bags and water tumblers for schools and raising funds at charity campaign for the communities.
Guinness Anchor Berhad started reporting their corporate responsibilities year 2008.
(iii) Flexi Time and ‘Go home early Wednesdays’ initiatives to promote better time management at work and personal lives.
(iv) Regular breakfast meetings with the MD and employee engagement activities to promote better communication and feedback within workplace.
(v) To promote health and safety in the workplace, 11 safety teams were launched, many trainings were launched safety work procedures were finalized.
(vi) Reduced water and electricity consumption to reduce dependence on this essential commodity.
(i) Strict guideline for all brands advertisement to avoid, religious, cultural and gender sensitiveness.
In the latest CSR report GAB reported as follows:
(ii) Launch of ‘Drink Sensibly’, a responsible drinking initiative to employees, trade partners, suppliers and media.
(vii) RIVER Project – bringing communities to rehabilitate the rivers and to safeguard that no harmful substance is released to the rivers.
No Time Conclude Already
Tan Je-Yen 1121200130
Maha Al Nahas 1121200094
Gazzaz yahya ahmed 1121200095
Tan Li Hau 1121200109
Abdul-Mushen Turki 1121200035
Lecturer: TEH BOON HENG
-Renowned for the quality and popular with customers who chose to buy their products over competitors.
-Easier to expand its activities and investors were happy invest
-Engaging with stakeholders helps ensure potential problems are addressed
-"Environment will become bigger issue and get it right now, because trouble in years to come.”
-Gaining a competitive advantage by differentiating yourself as a “Greenified” Company.
we have study the questions, then we realized that both reports are important
we hope that you all understand the meaning of all these reports.