Diageo

Topics: Audit, External auditor, Auditing Pages: 10 (2863 words) Published: June 20, 2013
Corporate Reporting Case Study Diageo plc
1. Information about the company
Diageo, formed in 1997, from the merger of Guinness PLC and Grand Metropolitan PLC, is a multinational company, trading in over 180 markets across the world, listed on both the London Stock Exchange (DGE) and the New York Stock Exchange (DEO). It is the world's leading premium drinks business. The company containes 24,270 employees worldwide with offices in around 80 countries. Company takes up about 30% global markets, and holds world’s top 20 brands include: Smirnoff, Johnnie Walker, Captain Morgan, Baileys, J&B, José Cuervo, Tanqueray, Guinness, Crown Royal, Beaulieu Vineyard and Sterling Vineyards wines, and Bushmills Irish whiskey. Key numbers for fiscal year ending June, 2009:

Sales: $15,378.0M
One year growth: (4.7%)
Net income: $2,849.0M
Income growth: (10.6%)
Source: Answers (2009) Diageo: Information from answers
2. Competitive Environment
1) Industry Competition Overview
The world drink market is broadly exploited in the mature markets. Among the competitors, the most successful are Pernod Ricard Group, Majestic Wine PLC, Bacardi & Company Limited, Brown-Forman Corporation, Fortune Brands, Inc. Diageo PLC holds 30 per cent of the total drink market. 2) Globalisation and Mergers & Acquisitions

There is a rapid growth in international trade and increasing globalisation of Liquor industry. The main competitions focus on the emerging market and expanding the global market shares by mergers and acquisitions. Pernod Ricard and Fortune Brands jointly buyout the world's second largest spirits company Doumic in UK. In order to precedence over its competitors, the company speeds up mergers and acquisitions internationally. 3) Legislation and Economic Environment

The EU will enact legislation to uniform the standards for wine production. Regulation is also rapidly developing in emerging markets, which may compounds some difficulties in taking up the emerging market. Economic crisis had a deep impact on the pattern of alcohol manufacturing competition, which had a varied impact on Diageo’s brand performance and parts of the brands' sales fell significantly. Evaluation of Financial Statements

The Corporation’s financial position is evaluated by ratio analysis, horizontal analysis and vertical analysis, which is measured by using FinSAS, according to the Income Statements and Balance Sheets, compared with another biggest drink manufacture-Majestic Wine PLC. 1. Ratio Analysis

The value of the firm is determined by its profitability and growth. In ratio analysis, I compare the ratios of the Diageo PLC for six years and compare the group with another firm in the same industry. The objective of ratio analysis regarding to the firm’s financial position is to evaluate the effective of the group’s policies in operating management, investment management, financial strategy and dividend policy. 1) Overall Profitability Assessment

The ROE is a comprehensive indicator of firm’s performance. The ROE of Diageo shows a significant increase from 2007 to 2009, from 33.94% to 43.78%, much higher than its competitor in UK. On average over long periods, large publicly traded firms in the U.S. generate ROE in the range of 11 to 13 percent. The ROE of Diageo is stable at a relatively high level around 30% to 50%. That indicates the managers are suitable performed in employing the funds invested by the firm’s shareholders to generate returns. Diageo’s strategies of focusing on profit improvement, such as acquisitions, restructuring initiatives and targeting at emerging markets, gains positive results. 2) Operating Management Assessment

The Gross Profit Ratio and EBIT Margin show the profitability of company’s operating activities. The figures above show that the Gross Profit Ratio and EBIT Margin of Diageo are much higher than Majestic Wine plc, indicating a seriously competition in the economic situation. Both ratios of Diageo decreased slightly...
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