Answer To: Assignment Instructions:Students are required to submit a working website link of the selected case...
Prateek answered on Jan 16 2022
TASK 1
Profitability Ratios
in Euro Million
Year
2018
2019
2020
Sales
50,982
51,980
50,724
Operating Profit
12,639
8,708
8,303
PBT
12,360
8,289
7,996
Net Profit
9,788
6,026
6,073
Operating Profit Margin
25%
17%
16%
PBT Margin
24%
16%
16%
Net Profit Margin
19%
12%
12%
Conclusion:
All the profitability ratios have seen a declining trend over the period of three years. This shows that the company is not being able to generate sufficient profits due to increased costs because the sales figures are showing a sideways trend with declining margins. This could be due to increased operating costs as shown by the operating profits. Further, there is also an increased fixed cost to the company which can be seen by the profit before tax as it has been declining continuously. Further, the reason why these costs are rising is due to the fact that the supply chain crisis has come at a global level due to which the shipping costs have increased for the company.
Efficiency Ratios
in Euro Million
Year
2017
2018
2019
2020
Sales
53,715
50,982
51,980
50,724
Total Assets
60,285
59,456
64,806
67,659
Inventory
3,962
4,301
4,164
4,462
COGS
41,076
42,274
43,677
Trade Receivables
5,222
6,485
4,164
4,462
Trade Payables
13,426
14,457
14,768
14,132
Purchases
41,415
42,137
43,975
Inventory Turnover Ratio
9.94
9.99
10.13
Accounts Receivable Turnover Ratio
8.71
9.76
11.76
Accounts Payables Turnover Ratio
3
3
3
Conclusions:
Inventory turnover tells how many times the inventory has been converted into sales in a given year. Here, the ITR shows that constant trend and this is due to the fact that the sales have remained consistent during the period. Further, the impact of pandemic can also be seen 2020 figures because of lower sales value, resulting in a slightly better ITR.
Accounts receivables have shown an increasing trend meaning that the company has either increased its credit sales or the current debtors are not able to pay. In 2020, this is highly due to the high number of purchases by the customers but a longer payment cycle.
A constant accounts payable turnover is stating that the company is making timely payments to its vendors; thus, affecting the working capital of the company negatively.
Liquidity Ratios
in Euro Million
Year
2017
2018
2019
2020
Current Assets
16,983
15,481
16,430
16,157
Current Liabilities
23,177
19,772
20,978
20,592
Quick Assets
13,021
11,180
12,266
11,695
Current Ratio
0.78
0.78
0.78
Quick Ratio
0.57
0.58
0.57
Conclusion:
Both the liquidity ratios are not performing well. Ideally, the current assets should be higher than the current liabilities, which is not the case here. As stated earlier, the company is making timely payments to its vendors but not receiving enough from the debtors, resulting higher receivables and lower cash. Moreover, as mentioned above, the company's working capital is negative, due to which these ratios are not performing well. Thus, the company needs to release some of its working capital or delay in making payments to the vendors in order to have a positive liquidity ratio.
Financial Gearing Ratios
in Euro Million
Year
2017
2018
2019
2020
Debt
45,898
47,164
50,920
50,004
Equity
14,387
12,292
13,886
17,655
Total Capital
60,285
59,456
64,806
67,659
Debt-Equity Ratio
3.84
3.67
2.83
Debt-to-Total Capital Ratio
79%
79%
74%
Conclusion:
Debt equity ratio shows how much debt has the company raised in comparison to equity. Here, the D/E ratio is more than one, showing a higher percentage of debt in the total capital. This can also be measured using the debt-to-total capital ratio, where the percentage of debt hovers around 75-80%. This shows that the company is having higher finance cost, which is also reflected in the PBT margin.
TASK 2
A) Sales Higher by 10%
Year
2018
2019
2020
Sales
56,080
...