Financial Statement Analysis Finsbury vs Cranswicks

Topics: Financial ratios, Financial ratio, Balance sheet Pages: 13 (4685 words) Published: February 16, 2013
Investment in securities has become a popular business activity that not only brings return to investors, but also provides a large amount of capital for corporations. However, which company should be invested in might be a controversial issue for each investor. Thanks to the information found in a company’s financial report, most people take interest in evaluating the past and current performance as well as financial position of an entity in order to form expectations about firm’s operations in the future. Annually, a company publishes several financial statements such as Income statement, Balance sheet, Cash flow statement which each presents different aspects about its business. An examination of these reports can provide to analysts an assessment of company’s profitability, ability to generate positive cash flows to pay debts as they fall due and dividend prospects (CFA Institute, Volume 3, 2012). Base on published annual financial reports of Finsbury Food Group PLC and Cranswick PLC during the period from 2011 to 2012, the objective of this essay is to determine how users can make economic decisions by analysing these documents. Finsbury is the second largest manufacturer of Ambient Packaged Cake (excluding In Store Bakery) in the UK. It has been listed to trading on Stock exchange since 23 Feb 2007. Cranswick went on to the Stock market in 1985 and since that time has evolved into a business that is highly focused on the food sector with a wide range of tasting products. As required by the AIM rules of the London Stock Exchange, financial statements of both companies are prepared and approved by Directors in accordance with International Financial Reporting Standards (IFRSs). This paper starts with calculating, interpreting and evaluating some main indexes in four sectors: profitability, liquidity, gearing as well as shareholder interests. It will go on to compare two firms’ situations. As a consequence, investment decisions would be made. 1. Evaluating Profitability

O’ Regan (2006) claims that measures of profitability are essential for a variety of users such as shareholders, creditors and managers. It is the reason for numerous ratios have been developed. In this section, the four main indicators: Return of capital employed, Return on equity, Profit margin and Asset turnover will be calculated to evaluate two companies’ ability to make profit. INDICATORS| FINSBURY FOOD

| 2012| 2011| 2012| 2011|
PBT (£m)| 6.529| 5.953| 48.351| 47.094|
Fin. Cost (£m)| 3.846| 4.105| 1.154| 1.729|
PBIT (£m)| 10.375| 10.058| 49.505| 48.823|
Growth of PBIT| 3.15%| -| 1.40%| -|
Equity (£m)| 48.440| 45.352| 245.932| 220.932|
Debt (£m)| 18.459| 21.064| 42.301| 49.286|
Cap. Emp (£m)| 66.899| 66.416| 288.233| 270.218|
TALCL (£m)| 71.777| 69.584| 301.130| 282.385|
PAT (£m)| 4.851| 4.536| 37.480| 35.326|
Gross Profit (£m)| 54.899| 51.097| 102.170| 101.276|
Revenue (£m)| 207.036| 189.575| 820.775| 758.442|
ROCE 1*| 15.51%| 15.14%| 17.18%| 18.07%|
ROCE 2*| 14.45%| 14.45%| 16.44%| 17.29%|
ROE| 10.01%| 10.00%| 15.24%| 15.99%|
Profit margin| 5.00%| 5.31%| 6.03%| 6.44%|
Asset Turnover (Times)| 3.10| 2.85| 2.85| 2.81|

Table 1: Profitability ratios

Regardless the inconsistent rule for calculation, ROCE can be useful for inter-firm comparison. The higher this ratio is, the more efficient an entity’s fund utilization is. Regarding Finsbury Food Group PLC, both ROCE ratios nearly remained constant, apart from ROCE 1 with a slight growth (15.14% to 15.51%). It was due to the level of increase in PBIT was a bit more than Capital employed growth rate. To be more specific, the rise of equity was equivalent to the decrease of borrowings, result in almost unchanged of capital employed. Besides, PBIT climbed up by 3.15% to £10.375m in 2012 because Group sales surpassed £200m for the first...

Bibliography: 1. McKenzie (2009) The financial times guide to using and interpreting company accounts, Great Britain: Pearson Education Limited
3. CFA Institute (2012) Level I 2012 Volume 3 Financial Reporting and Analysis, 7th edition
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