Warsaw University of Life Sciences Poland
Faculty of Economic Sciences
Department of Economics and Organisation of Enterprises
MARKET AND FINANCIAL ANALYSIS OF THE
SELECTED MARKET SEGMENT: A CASE OF
BEER MARKET IN POLAND, CZECH
REPUBLIC AND OTHER EU MARKETS
Katarzyna Boratyńska, PhD
Agenda
Introduction
1. Financial Analysis – Theoretical Approach;
 Applied Ratios and their Interpretation;
 Advantages and Limitations of Ratios Analysis
(Discussion);
2. European Union Beer Market Analysis;
3. Beer markets (4V countries) and Financial
Analysis – Case Studies of Capital Group Żywiec
S.A. (team work);
Summary.
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1. Financial Analysis – Theoretical
Approach
Financial Analysis – Theoretical
Approach
• Liquidity Ratios
• Liquidity ratios measure a company’s ability to
meet its short-term obligations. Calculating
such liquidity ratios is important because
failure to meet these obligations may lead to
bankruptcy.
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Financial Analysis – Theoretical
Approach
• Liquidity Ratios
• In general, it can be said that the higher the
ratio is, the more is a company able to pay
back its short-term obligations.
• While bankers look at liquidity ratios to check
whether to extend short-term credit or not,
stockholders use them to see how a company
has invested in assets.
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Financial Analysis – Theoretical
Approach
• Liquidity Ratios
• Very high values may make stockholders
wonder why not more resources have been
invested in higher returning fixed assets
instead of more liquid but lower returning
current assets.
• The two main ratios in this category are
Current and Quick Ratio.
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Financial Analysis – Theoretical
Approach
• Liquidity Ratios
• The current ratio compares all the current
assets (cash and other assets that can quickly
and easily be converted into cash) with all the
company’s current liabilities (liabilities that
must be paid soon).
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Financial Analysis – Theoretical
Approach
• Liquidity Ratios
Current Assets
Current Ratio =
Current Liabilities
(1)
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Financial Analysis – Theoretical
Approach
• Liquidity Ratios
• The Quick Ratio is similar, however, also more
conservative as it excludes inventory from
current assets. To calculate it, inventory is
subtracted from current assets. The remaining
value is then divided by current liabilities.
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Financial Analysis – Theoretical
Approach
• Liquidity Ratios
Current Assets − Inventory
Quick Ratio =
Current Liabilities
(2)
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Financial Analysis – Theoretical
Approach
• Asset Activity Ratios
• Asset activity ratios give information on how
efficiently a company uses its assets.
• Thereby, the Working Capital Turnover Ratio
measures how efficiently working capital is used.
It is found by dividing cost of sales by net working
capital.
• Net working capital is thereby found by
subtracting total current liabilities from total
current assets.
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Financial Analysis – Theoretical
Approach
• Asset Activity Ratios
Cost of Sales
Working CapitalTurnover =
NetWorkingCapital
(3)
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Financial Analysis – Theoretical
Approach
• Asset Activity Ratios
• An efficient use of working capital has a direct
effect on a company’s profitability.
• Thereby, a high ratio indicates efficient use of
working capital and quick turnover of current
assets.
• However, a very high working capital turnover
ratio may also indicate lack of sufficient working
capital. In that case, the working capital
employed is too little for the scale of operations
(Jain, 2004). Contrariwise, a low ratio indicates
under-utilization of working capital.
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Financial Analysis – Theoretical
Approach
• Asset Activity Ratios
• The Inventory Turnover Ratio tells us how
efficiently a company converts inventory into
sales.
• If the company has inventory for which there is
high demand, the ratio value will be high.
• If demand is low, also the ratio will be low.
• The inventory turnover is calculated by dividing
sales by inventory. A result of 1.5 for example
would mean that the company turned its
inventory into sales 1.5 times during the year
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Financial Analysis – Theoretical
Approach
• Asset Activity Ratios
Sales
Inventory Turnover =
Inventory
(4)
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Financial Analysis – Theoretical
Approach
• Debt Ratios
• Debt ratios measure the size of a firm’s debt and its ability
to pay off the debt.
• Two primary debt ratios are Debt to Assets and Debt to
Equity.
• When a company’s debt increases significantly, bondholder
as well as lender risk increases because more parties
compete for the firm’s resources in times of financial
difficulties. Stockholders are also concerned since
bondholders are paid before stockholders.
• A healthy debt ratio depends on the industry. Generally, a
stable industry can handle higher debt ratios.
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Financial Analysis – Theoretical
Approach
• Asset Activity Ratios
• Debt to Total Assets measures the percentage of
a firm’s assets that is financed with debt. It is
calculated by dividing total debt by total assets
(Gallagher & Andrew, 2007).
Total Debt
Debt / Assets Ratio =
Total Assets
(5)
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Financial Analysis – Theoretical
Approach
• Asset Activity Ratios
• The Debt to Equity Ratio indicates debt the
company has for every dollar/euro of equity
(Brigham and Erhardt, 2011)
Total Debt
Debt /Equity Ratio =
Total Equity
(6)
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Financial Analysis – Theoretical
Approach
• Leverage or Long-term Solvency Ratio
• The equity ratio indicates the long term or
future solvency position of the business.
• It contains the same information as the Debt
to Equity ratio, but presents it slightly
different.
• The ratio divides shareholder’s funds by total
assets.
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Financial Analysis – Theoretical
Approach
• Leverage or Long-term Solvency Ratio
• A ratio of 60 percent indicates that 60 Cents of
each dollar/euro is shareholder contribution,
while the remaining 40 cent equal creditor
contribution.
• Therefore, it indicates how much of financing
is in form of liabilities (Brigham and Erhardt,
2011).
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Financial Analysis – Theoretical
Approach
• Leverage or Long-term Solvency Ratio
Shareholder Funds
Equity Ratio =
Total Assets
(7)
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Financial Analysis – Theoretical
Approach
• Profitability Ratios
• Profitability ratios measure how much revenue is
eaten up by expenses, respectively, how much is
earned compared to sales generated and the
amount earned compared to the firms assets and
equity.
• Stockholders in particular are interested in
profitability ratios as profit leads to cash flow
which is a primary source of value for the firm
(Gallagher and Andrew, 2007).
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Financial Analysis – Theoretical
Approach
• Profitability Ratios
• Five important profitability ratios are Gross
Profit Margin, Net Profit Margin, Return on
Equity, Return on Assets and Return on Sales.
• The Gross Profit Margin measures how much
profit remains out of each sales dollar after
the cost of goods sold is subtracted.
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Financial Analysis – Theoretical
Approach
• Profitability Ratios
• The higher the ratio is, the better are costs
controlled. The resulting percentage indicates
how much of a profit dollar/euro the company
can use for other purposes (Gallagher and
Andrew, 2007).
Gross Profit
Gross Profit Margin =
Sales
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(8)
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Financial Analysis – Theoretical
Approach
• Profitability Ratios
• The Net Profit Margin measures how much profit
remains out of each sales dollar after all expenses
are subtracted. Expenses in this case are
operating expenses as well as interest and
income tax expense (Gallagher and Andrew,
2007).
Net Income
Net Profit Margin =
Sales
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(9)
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Financial Analysis – Theoretical
Approach
• Profitability Ratios
• Return on Equity (ROE) equals net profit divided
by equity. The resulting figure indicates how
many dollars/euro of income were generated for
each dollar invested by common stockholders
(Gallagher and Andrew, 2007).
Net Income
Return on Equity =
CommonStockholder' s Equity
(10)
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Financial Analysis – Theoretical
Approach
• Profitability Ratios
• The Return on Assets (ROA) shows whether
assets are used effectively. It indicates how
much income each dollar of assets equals on
average. Therefore, net income is divided by
total assets (Gallagher and Andrew, 2007).
Net Income
Return on Assets =
Total Assets
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(11)
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Financial Analysis – Theoretical
Approach
• Profitability Ratios
• Return on Sales (ROS) is defined as ratio of net
profit and net revenue. The ratio measures how
efficient a company is in converting one sales dollar
into a profit dollar. ROS depends very much on the
industry the company is operating in (Tyson and
Schell, 2012).
Net Profit
Return on Sales =
Net Revenue
(12)
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Advantages and Limitations of
Ratios Analysis
Discussion
Advantages of Ratios Analysis
• Simplifies financial statements
• It simplifies the comprehension of financial
statements. Ratios tell the whole story of
changes in the financial condition of the
business.
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Advantages of Ratios Analysis
• Facilitates inter-firm comparison
• It provides data for inter-firm comparison.
Ratios highlight the factors associated with
successful and unsuccessful company.
• They also reveal strong firms and weak firms,
overvalued and undervalued enterprises.
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Advantages of Ratios Analysis
• Helps in planning
• It helps in planning and forecasting. Ratios can
assist management, in its basic functions of
forecasting. Planning, co-ordination, control
and communications.
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Advantages of Ratios Analysis
• Makes inter-firm comparison possible
• Ratios analysis also makes possible comparison of
the performance of different divisions of the
company. The ratios are helpful in deciding about
their efficiency or otherwise in the past and likely
performance in the future.
• Help in investment decisions
• It helps in investment decisions in the case of
investors and lending decisions in the case of
bankers etc.
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Limitations of Ratios Analysis
• Limitations of financial statements
• Ratios are based only on the information which
has been recorded in the financial statements.
• Financial statements themselves are subject to
several limitations. For example, non-financial
changes though important for the business are
not relevant by the financial statements.
• Personal judgment plays a great part in
determining the figures for financial statements.
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Limitations of Ratios Analysis
• Comparative study required
• Ratios are useful in judging the efficiency of the
business only when they are compared with past
results of the business.
• However, such a comparison only provide
glimpse of the past performance and forecasts for
future may not prove correct since several other
factors like market conditions, management
policies, etc. may affect the future operations.
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Limitations of Ratios Analysis
• Ratios alone are not adequate
• Ratios are only indicators, they cannot be
taken as final regarding good or bad financial
position of the business. Other things have
also to be seen.
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Limitations of Ratios Analysis
• Problems of price level changes
• A change in a price level can affect the validity of
ratios calculated for different time periods. In
such a case the ratio analysis may not clearly
indicate the trend in solvency and profitability of
the company.
• The financial statements, therefore, be adjusted
keeping in view the price level changes if a
meaningful comparison is to be made through
accounting ratios.
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Limitations of Ratios Analysis
• Lack of adequate standard
• No fixed standard can be laid down for ideal
ratios. There are no well accepted standards
or rule of thumb for all ratios which can be
accepted as norm. It renders interpretation of
the ratios difficult.
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Limitations of Ratios Analysis
• Limited use of single ratios
• A single ratio, usually, does not convey much
of a sense. To make a better interpretation, a
number of ratios have to be calculated which
is likely to confuse the analyst than help him
in making any good decision.
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Limitations of Ratios Analysis
• Personal bias
• Ratios are only means of financial analysis and
not an end in itself. Ratios have to interpreted
and different people may interpret the same
ratio in a different way.
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Limitations of Ratios Analysis
• Incomparable
• Not only industries differ in their nature, but
also the firms of the similar business widely
differ in their size and accounting procedures
etc. It makes comparison of ratios difficult and
misleading.
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2.European Union Beer Market
Analysis
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Table 1. Beer production in selected EU countries
Germany
United Kingdom
Poland
Spain
Netherlands
Czech Republic
Belgium
2011
2010
2009
Romania
France
Italy
Hungary
Slovakia
Cyprus
Luxembourg
Malta
0
20
40
60
80
100
120
mln hl
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Źródło: The Brewers of Europe, Beer Statistics. 2012 edition, p.4.
43
Table 2. Beer consumption per capita
in selected EU countries (litres)
0
20
40
60
80
100
120
140
160
Czech Republic
Germany
Austria
Poland
Slovenia
2009
Lithuania
2010
Belgium
2011
Netherlands
Hungary
Portugal
Cyprus
Spain
France
Źródło:01:53
The
2015-04-13
Brewers of Europe, Beer Statistics. 2012 edition, p.8.
44
3. Beer markets (4V countries)
and Financial Analysis – Case
Studies of Capital Group Żywiec
S.A. (team work)
Summary
Thank You for Your Attention
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