Executive appendix. The financial analysis compares for the year

Executive Summary

 

This
report shows the performance of the company Carlsberg Brewery Malaysia Berhad
for the year 2015 and 2016. The profitability ratios, liquidity ratios and
efficiency ratios including gross profit margin, net profit margin, return on
capital employed, current ratio, quick ratio, stock turnover, debtor’s
turnover, creditor’s turnover and turnover to non-current assets are all
calculated, analysed and compared between 2016 and 2015. According to the
annual report 2016, the revenue of the Group grew by 1.2% to RM 1.68 billion
year-on-year mainly driven by higher export sales and a price increase in
domestic market last year. This report shows the reviews of the performance of
the company by overviewing the financial ratios calculated shown in the
Financial Statement. The proof of the calculations is found in the appendix.

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The financial analysis compares for the year 2016 and 2015 for Carlsberg
Brewery Malaysia Berhad in terms of income statements and various financial
statement ratios. The overall performance of the company was provided on a
clear view due to the ratios. The profits made after taxation decreased from
2015 to 2016 from RM 2 202 000 000 to RM 2 106 000 000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

 

Among
the top global brewers in Asia, Carlsberg Brewery Malaysia Berhad is in the
list. For the year 2016 and 2015, the Financial Statements for the company
Carlsberg Brewery Malaysia Berhad has been extracted from the Bursa Saham
website. The performance of the company is assessed by the profitability ratio,
liquidity ratio and efficiency ratios. The calculations for the ratios have
been calculated and analysed based on the figures shown in the financial statements
for the year 2015 and 2015. The list of recommendations has been provided for
each of the calculations. The overall prospects of the company was reviewed.

 

Profitability Ratios

 

Gross Profit Margin

Gross profit margin is a financial calculation which discloses about a
company’s overall financial state. It is important as it states whether your
sales are sufficient to account for your costs.

 

There was a one percent decline in the gross profit margin from 2015 to
2016. Their gross profit margin had decreased from 36.6% to 35.6%.

 

Due to high export sales and an increase in price within the domestic
market last year, Carlsberg’s revenue was able to rise by 1.2% to reach a
whopping RM1.68 billion. Despite having an increase in revenue, Carlsberg was
not able to increase their gross profit margin due to an increase in the cost
of goods sold. Comparing 2016 to 2015 the cost of goods sold grew about 2.83%.  There large increase in the cost of goods
sold was due to a tremendous boost in their inventory. There was a rise from RM
78 713 000 to RM 96 283 000.

 

Their cost of goods sold had inclined due to new policies to reduce
their carbon footprint in 2016. For example, they had replaced their
fluorescent light bulbs with LED lights at their factories. They had also
installed a control pumps which are more efficient. This lead to a drop-in
electricity consumption.

 

Carlsberg had to also overcome intense competition. As the
attractiveness of offerings in the market from other rivals increases, the more
complex it is to get consumers, to purchase your goods. Some of Carlsberg
rivals include Tiger Beer, Anchor Beer, Heineken and Guinness.

 

 

 

 

 

 

 

 

Net Profit Margin

Net profit margin is another financial calculation which reveals the
total profit a business can take advantage from its total sales. It is
important because it contributes to decisions in lending which they have to
evaluate effectively, to determine a firm’s potential net worth based on the
earnings they receive.

 

A higher profit margin, means that a firm will be able to withstand any
unexpected loses. However, in 2016 Carlsberg’s net profit margin had also
decreased by one percent. Their profit after tax had decreased to 12.5% in
2016, from 13.3% in 2015. Even though there was an economic slowdown, Carlsberg
was still able to increase their inventories in 2016 from RM 96 283 000 to RM
78 173 00.

 

Variable costs may vary according to the number of units produced or
sold, which will deter the company’s net profit margin. As of 1st of
March 2016, the Ministry of Finance had implanted a new excise act which
reconstructed the structure of their excuse duty. The new policy had stated
that not only did firms have to focus on AD Valorem Tax, but also had to be
depicted by ABV content (Alcohol by Volume). Excise duties could fluctuate from
11% to 95%, which could differ by ABV content. This resulted in, Carlsberg’s
tax expense had increased to RM 73 178 000.

 

An increase or decrease in a company’s fixed cost can also greatly
affect a company’s net profit margin. According to Carlsberg’s financial
report, staff costs had increased from 5.5% to 5.8%, which pitches in to the
increase of expenses. Although there was a decrease in expenses such as sales
and distribution, Carlsberg was unable to increase their net profit margin as
their other income had vastly decreased by RM 2 911 000.

 

 

ROCE

Return on Capital Employed shows people who have invested in the company
how many ringgits in profits, each ringgit of the capital employed creates. It
is an effective ratio as it evaluates how efficient assets are performing, whilst
considering the company’s long-term financing. 
A higher ratio is more favorable because it means that more ringgits are
being generated by each employed capital. Despite that, Carlsberg was still
unable to increase their margin due to other reasons such as the following
below.

 

In 2016, Carlsberg had a decrease in their ROCE. Their ROCE had dropped
by 0.01; from 0.62 to 0.61. This means that a 0.61 return will indicate that
the company will make 61 cents for every ringgit invested in their capital employed.

Carlsberg’s shareholders will be interested in the ratio as they would like to
know how the company will employ its capital efficiently and their financing
strategies over a period.

 

Their ROCE had decreased from 2015, as their total current liabilities
were higher than their total assets for the financial year of 2016. Derived
from the financial report, it had seemed that Carlsberg had an increase of
payable and accruals of RM 1 399 000. However, it was not only their payables
and accruals, their current tax liabilities and loans and borrowings had
increased by RM 5 630 000 and RM 1 933 000 respectively.

 

 

Efficiency Ratios

 

Inventory Turnover

(2015-2016)
For the inventory turnover, Carlsberg has been doing extremely well in terms of
reducing its cost, generating enough profit to not only keep the business going
but also keep its shareholders at a comfortable position. Between the years
2015 to 2016, Carlsberg has experienced a tremendous improvement as compared to
the previous years in terms relating to efficiency ratios. The stock turnover
for the year 2016 is 12.4076 times. This is a relatively good amount
considering how big of a company Carlsberg is. To further elaborate, the stock
or inventory turnover is the ratio in which it shows how many times the
company’s (Carlsberg) inventory is sold and replaced over a period of time. A
low turnover ratio suggest that the company’s sales are weak where else a high
turnover ratio implies that the company’s sales is rather strong or that the
company is implementing high discounts. Has shown the inventory turns over 12.4
times a year and is on hand for approximately 29.4 days. This is a relatively
high ratio which implies that it is beneficial to the company as it would not
only show that the company can control its merchandise in an efficient manner
but also it shows that the company can effectively sell its inventory due to
not overspending on its inventories alone.

 

(2014-2015)
However, when compared to its inventory turnover ratio back in 2015, there is a
deduction of 2.16. This shows that Carlsberg has experienced and or seen a drop
in sales due to the fact that sales is one of the main and only factors that
can have an effect on the inventory turnover ratio.

Creditors Turnover

(2015-2016)
Moving on to the company’s trade payables ratio. This ratio is used in order to
identify and measure the rate at which Carlsberg pays off its suppliers. It is
a short term debt liability in which the company must pay off its creditors.

Carlsberg’s accounts payable turns over 52.5 times every 6.9-7 days. This is a
rather high ratio which would suggest that Carlsberg has a relatively short
time between its purchases of goods and its payments. Meaning to say that the
company can pay off its suppliers within a short time. However, if it was a low
turnover ratio then it shows that the company is slow to pay its suppliers.

 

(2014-2015)
Compared to its previous annual report in 2015, Carlsberg’s accounts payable
ratio has been reduced by a slight amount. This can be supported by the profit
comparison made in 2015 and 2016. Carlsberg has gone into a slight loss of
profit however, because of its other shares in other companies, it is able to
pay off its slight losses and still gained a little profit. In 2015, Carlsberg
accounts payable turns over 53.5 times over a period of 6.8-7 days. Where else,
in 2016, its accounts payable turns over 52.5 times every 6.9-7 days. 

 

Debtor’s Turnover

Carlsberg
has a surprisingly high trade receivables ratio. This proves to be very
beneficial to the company due to the fact that it implies that Carlsberg is a
very efficient manufacturer in terms of collecting its accounts receivable and
has a reasonably high number of customers who seem to pay off its debts in a
short period of time. In 2015, Carlsberg accounts receivable turns over 44
times over the period span of 8.3 days. Where else in 2016, its accounts
receivables turns over 42.4 times every 8.6 days. Over the course of one year,
the turn over decreases over 2.4 times. A decrease in debtor’s turnover
indicates that Carlsberg could have a bad collecting process with its debtors.

 

N.C.A turnover:

(2016)
The N.C.A turnover ratio for Carlsberg has seen an increase in its assets. It
shows that Carlsberg is able to do an effective job of generating sales from a
relatively small amount of non-current assets. This can be proved by stating
the non-current assets turnover ratio for 2016. It turns over 4.34 times every
84.8-89 days.

 

Liquidity Ratios

 

The
current ratio indicates whether there are sufficient current assets to meet
short term liabilities and it shows the number of times current liabilities are
covered by current assets. Hence, the current ratio is basically the ability of
Carlsberg Brewery Malaysia Berhad company to pay creditors who are due to be
paid. From 2015 to 2016, the current ratio decreases from 1.34 to 1.30. In
2016, the company’s current assets are RM 408, 730, 000 and the current
liability of the company is RM 314, 576, 000. By using the formula, the current
ratio for the company in the year 2016 is approximately 1.299( rounded to 1.3).

In 2015, the company’s current assets is RM 410, 741, 000 and the current
liability of the company is RM 305, 614, 000. Hence, the current ratio for the
company in the year 2015 is approximately 1.34. The inventories increased from
RM 78, 173, 000 to RM 96, 283, 000 from 2015 to 2016. It can be assumed that
the increase in inventories shows that more cash are being on par with assets.

Thus, the current assets show a decrease from 2015 to 2016.

 

 

 

 

 

The
quick ratio concentrates on assets which can immediately be turned into cash if
liquidity problem occurs and ignores stock. A low ratio indicates that the
business is too dependent on short term borrowings and has a high current
liability. Whereas a high ratio shows that the company has no problem in cash
flow and the company is not using its resources efficiently. In 2015, the
inventories are RM 96, 283, 000 while in 2016, the inventories are RM 78, 173,
000. By using calculation, it shows the quick ratio for 2016 is approximately
0.993(rounded off to 1.0) and for 2015 it is 1.08(rounded off to 1.1). This
shows there is a decrease in quick ratio from 2015 to 2016. The company is
assumed to be struggling to maintain or grow their sales as there is a decrease
in the quick ratio.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conclusion

 

To increase their gross profit margin, Carlsberg would
have to decrease their cost of goods sold. It would be recommended that
Carlsberg push their efforts, into finding cheaper suppliers or independently
manufacture their own goods. Following the information given in their financial
report, Carlsberg had an increase in the purchases of finished goods of about
RM 21 960 000 and a decrease in their work in progress. To overcome
competition, Carlsberg would have to use tactical advertising strategies. Due
to strict laws, Carlsberg will not be able to advertise their brand through
television or radios. However, they are able to advertise their brands through
sponsorships of concerts and entertainment events.

Increasing their revenue is normally the most popular
option. Carlsberg can raise their revenue by increasing the price of their beer
or by selling more of their products. If Carlsberg wants to reduce their costs
of production, they would have to expand to take advantage of economies of
scale. The theory behind economies of scale is that larger companies tend to be
more profitable as they have advantages such as technology economies,
purchasing economies and so on.

Carlsberg is can improve their ROCE by reducing costs
or increasing sales. They can also improve it by selling of assets which are
redundant and worthless assets. For example, disposing a machine which outlived
its useful life. Lastly to improve the ratio, Carlsberg can also pay off their
debts to decrease their liabilities.

A way
to increase Carlsberg’s inventory turnover is to either decrease your
investment into other business or to increase your goods sold. A good way to
increase your inventory turnover is to set better overall prices so that the
consumer is more willing to pay for the product. By setting affordable
discounts, it would increase the amount sold to its consumers (Balle,2018). A
way to improve Carlsberg’s debtor’s turnover is to have consistent and
efficient collecting methods. This can be implemented by having a team to set
timely reminders and/or post-dated cheques. Another way is to have strict
regulations and policies. By having a strict regulations and policies, it will
reduce the amount of late payers and could reduce the sales to debtors who have
had history of paying late. Carlsberg should focus on increasing its debtor’s
turnover and reduce its collection period (Borad, 2018). To increase
Carlsberg’s non-current asset turnover ratio, Carlsberg should focus on
increasing its revenues and sales by giving out promotions (Borad, 2018). With
another way including to lease its assets. These are some of the ways in which
Carlsberg is able to improve its 2016 efficiency ratios turnover from its 2015.

 

 

 

 

Based
on calculations, the current ratio and quick ratio decreases from 2015 to 2016
for Carlsberg Brewery Malaysian Berhad. The liquidity ratios are important as a
company should have enough cash in hand to cover accounts payable. The decrease
in current ratio shows that the company is having difficulties to earn profits.

Carlsberg Brewery Malaysia Berhad should switch from short-term debts to
long-term debts as this helps onto lowering interest rates and thus, allows to
save abit of the company liquidity and put it for better use.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Social Responsibility

 

Corporate Social Responsibility (CSR) is a business
approach that gives feasible improvement by giving financial, social and
natural advantages for all partners. CSR is an idea that have numerous
definitions and practices. The way it is comprehended and arranged varies
enormously for each organization or association and nation. Whatever the
significance for it is, the reason for CSR is to drive change towards
maintainability. Albeit a few organizations may accomplish phenomenal endeavors
with one of a kind CSR activities, it is difficult to be on the front line on
all parts of CSR. Considering this, there are a couple of illustrations that
gives great practices on one part of CSR, ecological manageability.

For Carlsberg, they additionally centre their
maintainability activities crosswise over even regions in their esteem chain. The
organization profoundly centre consideration in Responsible Drinking,
Sustainable Packaging, and Efficient Brewery. Carlsberg likewise features how
their way to deal with their CSR system has the advantage of “a reputational
and hazard relieving support as well as a vital driver for business openings
and future esteem creation for the Carlsberg Group and society.” In
Environmental Components, Carlsberg is persistently enhancing their thought o
asset proficiency at generation locales and general cost reserve funds. The
natural region of CSR procedures comprises of Energy and Emissions, Water, and
Sustainable Packaging. In any case, Carlsberg keeps on drawing consideration
for the significance of a perfect situation expressing: “The generation of
lager is subject to a steady stream of crude materials sourced
straightforwardly from nature. All things considered, we value the significance
of a solid, clean condition to our generation and future development and we
stay committed to diminishing our effect on the earth and the atmosphere.

 

 

 

 

Carlsberg’s Labor and Human Rights Policy “depends on
worldwide traditions, for example, the United Nations Universal Declaration of
Human Rights and the International Labor Organization’s Declaration on
Fundamental Principles and Rights at Work.” The Carlsberg Group
accomplished all their work and human rights focuses for 2013 and has now set
new focuses for both 2015 and 2016. The primary target is to build the quantity
of females in administration positions. While Carlsberg’s quantities of female
workers are in accordance with whatever remains of the business, the
organization has define an objective of having 40% females on its Supervisory
Board by 2015, a 19% expansion from current figures.