Financial Analysis of Amway

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FINANCIAL ANALYSIS OF AMWAY

Financial ratios are useful indicators of a firm’s performance and position. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm’s financials in the industry. (http://www.netmba.com/finance/financial/ratios/)

There are wide ranges of relative financial performance indicators that can be used to assess various aspects of a target company’s financial performance which include:

3.1 Growth
3.2 Operational efficiencies
3.3 Profitability
3.4 Liquidity
3.5 Capital structure
3.6 Investor’s return

3.1 Growth

Table 3.1A: Revenue and Growth
|Year |2002 |2003 |2004 |2005 | |Revenue (RM' Million) |387 |422 |456 |507 | |Growth ( % per annum) |- |9 |8 |11 |

(www.amway2u.com)

Comment:
Year 2002
The revenues were the lowest as compared to the results in the following years because:- • Global economy slow down in year 2001 up to the mid of year 2002. • There were growing difficulties in external environment. • Consumer spending remained cautious due the backdrop of sluggish employment market despite of marginal increase in income levels. • Very lethargic marketplace fraught with uncertainties like many other businesses such as uncertainties in global scene. (Annual report 2002)

Year 2003
Increase revenues were attributed to several factors:-
• Company has introduced strategic measures particularly in marketing area. These include product introductions and aggressive promotion of high ticket items with Easy Payment Plans (EPP) and propose enhancements Sales Incentive Program (SIP), and Non-Cash Award (NCA) programmes. • Outbreak of SARS has caused an increase in sales volume in the food supplement product, NUTRILITE, for health protection. • Amway power brands will continue to drive growth and as a result, brand awareness is critical to the success of the power brands especially “Nutrilite”. • Amway’s steady reputation as a provider of premium products and services has given the impetus for a growing demand of Amway products. (Annual report 2003)

Year 2004
Increase revenues were resulted by the factors of:-
• Introduction of internet access ease the distributors in any deal through www.amway2u.com.my. • The company embarks on several strategic initiatives to ensure that Distributors were well-supported to capitalize on the favorable conditions. • The company expanded its infrastructure, enhances the SIP and NCA to motivate distributors. • The company rolls out unprecedented brand-building campaign for one of its power brands as well as introduced new products and promotion. (Annual report 2004)

Year 2005
Revenues were 11.1% higher than the previous year:-
• The initiatives included aggressive new product introductions and promotions, enhancing its Sales Incentive Programmes for distributors, expanding its information technology capabilities, extending its reach by opening two new regional distribution centers in Sibu and Melaka as well as launching an unprecedented three-year brand-building campaign for one of its power brands called NUTRILITE™. • Growing distributor productivity will continue to be one of the key drivers of their sales growth, which in turn, was attributed to various sales and marketing initiatives undertaken by AMHB. (Annual report 2005)

Table 3.1B: Profit after taxation and Growth
|Year |2002 |2003 |2004 |2005 | |Profit After Taxation (RM' Million) |56 |52...
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