Core Context Overview Ratios And Evaluation Finance Essay

Core Context Overview Ratios And Evaluation Finance EssayKesko Corp is a diversified sell business headquartered in Helsinki, Finland. Founded in 1940, it deals with food trading, logistics, data and network management, building and home improvement alongside agricultural supplies, car and machinery trading. Apart from Finland, the comp each operates done subsidiaries like Kesko Food, Musta Porssi, Konekesko, Indoor, Intersport in Norway, Sweden, Russia, Lithuania, Estonia, Belarus and Latvia.2. CORE Context, Overview, Ratios and EvaluationContextExternalKesko has around 2,000 inserts structured as chain opeproportionns in parts of Nordic, Baltic, Scandinavian regions. Kesko and K-retailers appoint of K group which employs approximately 45,000 employees with year 2011 turnover stands at 12 billion.By 2011, Kesko Corporation has circa 19,000 employees with net- gross sales around 9.46 billion. An increase of 7.8% from extend years ( 8.77 billion). Finnish net-sales locomote b y 7.3% and other countries operations increased by 10.1%. Main drivers of success were food trade, building, car and machinery business.Earning-per- handle of 2011 stands at 1.85 comp bed to 2.08 in 2010. A dividend of 1.2, 65% of the EPS was issued.Keskos market share is 35% and local major competitors areS-Group (45%)Suomen LahikauppaInternational competitor includesLidlInternalKesko is controlled by its shareholders. roleholders elect the be on of Directors and Auditor. Kesko Group is managed by the Board and the Managing Director who is excessively the President and CEO.CEO and President are selected by the Board of Directors. The company has Corporate Management Board having 7 members that control different divisions and responsibilities of the group.All Kesko Board members are non-executive directors. In 2011 it was decided by the Board that all of its members are independent of its companys shareholders. The Board ensures that the companys administration, operations and a ccounting as well as monetary management controls are in place.Shareholding as be execrableThe companys share capital is 197.2m. Total subject of shares is 98.6m of which 31.7m are classed as A shares and 66.9m are B shares. Share A carries 10 votes and Share B one vote.Key group strategies include fruit in Russian RegionsInvestment in development of store networkDevelopment of e-commerceHealthy breadable growth and increase shareholder jimmy.All in all Keskos capital expenditure in growth stands at 425m in year-2011. Six new K-citymarket stores, 17 K-supermarkets in food business, 4 new K-rauta stores in building and home-improvement, 1 Kodin Ykkonen departmental store.The aim is to open 10 new stores in Russia with approx. 600m expenditure till 2015.OverviewKeskoYEAR2011 m2010 mTurnover % depart9,4607.8%8,776 greet of Sales % flip81638.17%7546Operating Profit% Change281-8.4%307Profit after Tax% Change197-8.8%216Operating currency f diminished % Change215-51%438Capex% Chan ge42730.2%328Total Debt (Long + Short term)% Change400-16.1%477Total deed of Employees% Change18,9604.1%18,215The difference between costs and sales determines the operating profit. Though turnover is healthy, decrease in operating profit can be attributed to increase in cost of sales. Expenses in any case increased and in scoreity affected the profit position. Increase in capital expenditure is due to expansion in international markets and machinery which impacted negatively on the hard currency-flow position. Total debt position decreased which shows a healthy sign of effective use of company resources. Employee number system constant.Koninklijke AholdYEAR2011 m2010 mTurnover % Change30,2712.5%29,530Cost of Sales % Change22,3503.4%21,610Operating Profit% Change1,3470.8%1,336Net Income% Change1,01719.2%853Operating Cash flow % Change1,786-15.4%2,111Capex% Change881-21.1%1117Net Debt% Change1,08847.6%737Total number of Employees% Change218,0002.3%213,000In comparison to Kesko, Ahold is 3 times bigger company as above.c).Ratio AnalysisThe ratio analysis is made up of consummation, working capital, liquidity/solvency and shareholder ratios.Per actance ratio is how well the company manages its assets and converts them into revenue and how efficiently converts its sales into cash. The disclose these ratios are the punter value for shareholders.Kesko in comparison with AholdPerformancecalculations20112010Change in 2011Ahold 2011Gross margin201113.7%14.0%-0.3%26.17%1297/946020101230/8776Expenses/sales201118.1%18.4%-0.3%21.72%1721/946020101622/8776Net margin*20112.9%3.5%-0.6%4.45%281/94602010307/8776addition turnover20113.63.40.22.929460/256520108776/2550Return on201112.5%13.9%-1.4%12.99%Capital281/2233employed *2010307/2210Gross margin has declined because of increase in cost of sales sub-sequentially impact the net margin. Slightly better asset turnover shows improved sales performance by every invested in the given year. Given the retail nature of the bu siness this is normal.ROCE is not a matter of huge concern, however needs to be monitored closely. The ROCE decline could be the reduced profits attributed to shareholders.Ahold on the other hand shows big numbers. From retail perspective, Keskos performance is not bad at all. There are few dips in the numbers which are usual for a transactional retail business.d).Working capital is apply to stair the companys short-term financial health. It is also called operational liquidity for the dot of 12 months. Positive working capital can prove that the company can contain its short-term liabilities well. Negative working capital leave increase the risk of default on short-term liabilities.Keskos working-capital ratiosWorking CapCalculations20112010ChangeAhold 2011Inventory years201138.8 days36.6 days2.223.9(divided by CoS)867 x 365/8,1632010757365/7,546Debtor days201127.0 days25.8 days1.29.1(divided by700 x 365/9,460sales)2010620365/8776Creditor days201151.3 days52.4 days-1.139.8(di vided by CoS)1148 x 365/8,16320101,085 x 365/7,546Some difference year-on-year. Increase in inventory days shows negative cash-flow and control on inventory. Increase in debtor-days is bad for cash and so the cash position. This could be poor collection or legal injury negotiations for discounts. Also seems like customers are taking longer to pay. Early payments to creditors depict the decrease in creditor-days, a virtuous gesture for suppliers but not good for cash.(d).Liquidity and Solvency ratios also a measure of companys ability to pay its short-term obligations also called a riotous ratio. This means that the current assets should outweigh current liabilities to stay positive. It also indicates the companys ability to meet entertain payments. Higher the level of capital compared to debt, the lower these ratios are.Liquiditycalculations20112010ChangeAhold 2011Current ratio20111.331.49-0.161.132161/162520102407/1616Acid test20110.801.02-0.220.812161- 867/162520102407-757/161 6Solvency20112010ChangeAhold 2011Interest cover201113.4018.05-4.65281/214.012010307/17Gearing20110.180.21-0.030.56400/22332010477/2210Decrease in current ratio is due to in-efficiencies in debtor and inventory turnover. Shortfall in cash has deteriorated acid test which is more conservative than current ratio. Variation in interest cover is an imminent concern given its retail landscape and possible inability to meet its debt obligations. Keskos cost of sales needs to be addressed to better manage profits sub-sequentially improving its cash reserves to shield the interest-cover shortfall. Decrease in gearing is a positive sign, showing Keskos good portion of lawfulness is in place displaying monetary strength.e).Shareholders and Investment ratiosReturn on equity is the measure to see how much profit is left for shareholders. Higher this ratio, juicyer the profit for shareholders. Shareholders can decide to withdraw this profit or keep it invested in the business as retained earnin gs.Earning per share is a measure of firms profitability. Dividend cover is the number of times a firms dividends to shareholders is paid from its net profits. Higher the cover, more the ability to pay the shareholders. PE ratio measures price compared to earnings. The bigger the earning, more potential of rise in future earnings.ShareholderCalculations20112010ChangeAhold 2011Ratios2011ROE197 / 2,2338.8%9.7%0.917.3%2010216 / 2,21020111.852.080.10.92EPS197 / 992010216 / 992011Dividend Cover1.85 / 1.201.54 times1.6 times0.062.30EPS / Dividend2010Per share2.08 / 1.30PE Ratio2011 24.1 / 1.852010 34.70 /2.0813.016.82*-3.8211.48Low ROE is result of low profit. Debt in the company also affects ROE, but in Keskos case debt has been reduced which might not be relevant for decline in ROE. Keskos increase in intangible assets can also result in low ROE. EPS is declined resulting from decline in operating profit, and possible increase in capital expenditure from last year. But still manageable and shows strong growth potential. Dividend cover is constant but relatively lower than Ahold. PE ratio is declined from previous year. This may show low market confidence in 2011.*http//www.kesko.fi/en/Investors/Share-information/Key-indicators-by-share/f).Conclusion and RecommendationKesko is a strong company with year-on-year growth. However year 2011 has underperformed. The year seems a bit challenging ranging from its high cost of sales and higher volatility in its share price. Given its higher interest payments shows a possibility of higher borrowing costs. Increase in intangible assets (Computer Software, Licences) and expansion cost in the form of CAPEX is also a driver of declining cash-flows.The seasonal nature of operations arising from seasonal fluctuations took a toll on profits which are not earned throughout the year. Depending on Keskos segmental characteristics these profit variations are possible.KeskoStrengthsDiversified product portfolioEffective Business modelGr owth in E-commerceStrong chain support functionsWeaknessesHigh dependency on euro-zone.Lack of skilled laborForeign exchange risksChanges in the Groups structure by creating a new subsidiary in Russian market and transferring 36 stores to the subsidiary has also affected Keskos performance.Uncertainties in the euro zone, volatility in consumer demand is affecting the appetite for CAPEX in the euro zone.Hence the reason of strong expansion in Russia. E-commerce is booming with international customers creating alternative benefits for Kesko.Future looks favorable for Kesko. Low investment in euro-zone will offset high CAPEX in Russian region. Steady growth in the food business expects to continue. Home and building business is expected to residuum against consumer demand. Net sales are expected to grow next year i.e. 2013.All in all the growth-story looks good for Ahold. Ahold has the means to acquire Kesko. However my recommendation would be hold the acquisition desire for now till numbers become promising. As an alternative a 20% shareholding now will be suitable for Ahold. In both scenarios, if Kesko does well in the future, Ahold is sure to benefit from its interest in Kesko.Answer 3The cash-flows of the assure are on a lower floor yr 020142015201620172018Sales Revenue0300,000510,000680,000450,000240,000Loss of Contribion(35,000)(35,000)(35,000)(35,000)(35,000)Variable Costs(160,000)(240,000)(280,000)(210,000)(140,000)Fixed Costs(22,000)(22,000)(22,000)(22,000)(22,000)Op Cash flow65,000195,000325,000165,00025,000Working capital(70,000)(70,000)(70,000)(70,000)(70,000)Capital Cost(500,000)Residual Value100,000Net Cash flow(500,000)78,000338,000598,000278,00098,000Depreciation of 80,000 is not included in fixed costs as it does not affect cash. star office overheads are also not a constant fixed cost over 5 year period so not including in the fixed costs.The Payback time is approx. 2 years 6 months.Net Present Value calculation is below with discount rate o f 15%. categoryCash flowPV FactorPV0(500,000)1.0(500,000)178,0000.87067,8602338,0000.756255,5283598,0000.658393,4844278,0000.572159,016598,0000.49748,706NPV424,594NPV is positive, so recommendation to the board is to go ahead with the projectWith adding back depreciation of 40,000 i.e. 80,000 x 5 at the end of 5 yearYearCash flowPV FactorPV0(500,000)1.0(500,000)178,0000.87067,8602338,0000.756255,5283598,0000.658393,4844278,0000.572159,016598,0000.49748,706Depreciation(400,000)NPV24,594NPV is still positive, so recommendation to the board is to go ahead with the project.The IRR is 43.7%, where NPV becomes zero.Answer 4Usefulness of bon ton accounts to task value of companiesHello friend,In order to understand company accounts, the financial accounting statements provide a representation of financial position and performance of the company.Company accounts are made up of 3 statementsBalance Sheet (aka Statement of financial position)Income Statement ( aka Profit and Loss account)Cas h-flow statementCash-flow statements show how much cash came in or went out in a particular period.For example, I started a business of selling flowers with 40. On Tuesday morning, I bought flowers worth 40 and interchange three-quarters of flowers for 45 cash that day. My cash-flow position during Tuesday will look like thisCash invested by me 40Cash from sales of flowers 45Cash paid to demoralise flowers (40)Closing balance of cash 45Income statements show how much riches i.e. profit is generated or lost by the company over a period of time. Profit and loss can be defined as increase or decrease in wealth through trading activities.For income statement it shows wealth generated on Tuesday. It represents the difference between the value of the sales made and the cost of goods sold.Sales revenue 45Cost of goods sold (3/4 of 40) (30)Profit 15It is the cost of flowers sold that is matched against the sales revenue to get profit. Not the whole cost of flowers is shown as unsold flow ers in my case of 40= 10 will adjusted against the future sales revenue that it will generate.Balance sheet shows accumulated wealth of the business at the end of the given period. It also shows what form have that wealth taken?For balance sheet the wealth created at the end of Tuesday trading. It will show list of resources held at the time.Cash (closing balance) 45 decline or inventory for resale 10Total assets 55Equity 55Equity is the stake of the owner in the business. Where-as assets include cash and stock.Cash is a vital resource for a business to function. It is used to retire debt and or for the purchase of stock. However, reporting cash alone will not portray the health of the business. The changes in cash do not tell us how much profit is generated. Thats why income statements are used.A balance-sheet on the other hand shows total wealth of the business. Cash is only one form in which wealth can be held, however in bigger businesses there are land, machinery and equipment is also classed as wealth in the balance-sheet.A combination of these statements states the financial position and health of the company.The relationship of these statements can be seen by a figure belowAnother way to valuing a business is through company assets, price of parallel business and finally the cash-flow. Company assets are appraised to assess their value deducting any liabilities. The sales of similar business are valued in the area of your business. Location is very important in valuing the business though the limitations include undermining the value of your business by management and sales.The most effective way is the liquidity of the business i.e. cash position minus liabilities. You know what is coming your way.IssuesIssues related to these statements are the way they are presented. Use of creative accounting can somehow alter the real picture and position of the company.Audited company accounts are seldom used by investors or potential buyers, primarily for the r eason of creativeness.Depending on the nature of your query for valuing the company, apart from simplified company accounts mentioned above, it can vary from share price to ratio analysis to cost of capital or debt and so on.