Financial Ratios Analysis And Comparison of Enterprise

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Question :

Some of the main questions which are needed to be answered are like:

  • What are the comprehension and the critical awareness issues in furtrue aspects?
  • Demonstrate all the complex business issues and the concepts that are being formulated to manage the finances.
  • Give the structure and the ideas of working of the financial management in Heiniken .
Answer :
Organization Selected : Farsons & Heiniken


Financial analysis refers to the practice of evaluating the businesses, budgets, projects and the other business transactions regarding finance for the purpose of determining the suitability and the performance. Financial analysis is been used for assessing that an enterprise is liquid, solvent, profitable, efficient and stable enough in warranting the monetary investment. The present report focuses on Farsons that his engaged in production, brewing, distribution and the sale of the branded beverages and the beers. Heiniken is seen as the number one as the brewer in the Europe and stands as number two across the world. Furthermore, the report includes ratio analysis, horizontal and vertical analysis of the both the companies financial statements in order to facilitate comparison of the performance and position of the firms. Moreover, the study highlights significance of the working capital and the cash flow analysis of Farsons and Heiniken.

1. Explaining detailed analysis of the final reports by employing different techniques

Profitability ratios

Operating profit ratio-

It means the profitability ratio which is computed by dividing the operating profit with that of the revenue of the company. It reflects the amount of the profits that is been generated by an entity after paying off its operating expenses and cost of sales (Bastos and Schoffelen, 2016). It is the ratio that depicts an efficiency of an organization in controlling the expenses and the cost that are been attached with running an operational activities of the business.


From the above evaluation it has been interpreted that the ratio of Farsons is showing a better results as compared to Heiniken. A higher ratio of the operating margin tends to be favourable than the lower ratio as it clearly shows that an enterprise is been making sufficient amount of the money from their ongoing operations for fixed and the variable cost. As operating margin of Farsons over the years is indicating a rising trend because its profits and revenue is increasing so this shows that firm is performing better from one accounting period to another but the percentage ratio of Heiniken is declining which shows its poor performance from the previous years.

Net profit ratio-

This ratio indicates the amount of the profits gained as the percentage of the revenue. It is calculated by dividing the net profit by revenue which depicts the profit earned by the company after making payment of tax obligation, costs and expenses (Aktas, Croci and Petmezas, 2015). It means the percentage value of the sales that is been left after paying off all the expenses that are deducted from sales. It is counted as an indicator of an entity's profitability and depicts the proportion of the revenue which is translated into the net profit.


The results generated shows that the profit margin ratio of Heiniken is reflecting a decreasing trend over the years which clearly depicts bad performance of the company. On the other hand, the NP ratio of Farosns is seen as better than Heiniken as it increasing with passage of one financial year to another (Ramiah and, 2016). This shows that Heiniken needs to take corrective measure in order to improve its NP margin as it should reduce utilities, insurance premium, labour cost, operation cost and must focus on increasing the sales revenue.


It is the ratio that tells about profits that is been earned by the company in relation to its total assets. It gives an idea to the analyst, manager and an investor is efficiently managing an enterprise by making the use of tits assets for the purpose of generating more and more returns. It is computed by dividing the profits with total assets of the firm (Baker and, 2017). This ratio is used for comparing the similar companies with that of their previous performance. It takes into account the debt of the company and the other related metrics like ROE.


Positive value of the ROA indicates upwards trend of the profits, however, negative or low ratio reflects ineffective use of the company's assets with respect to generating larger returns. The ROA of Heiniken is seen as stable in the past 4 years which clearly depicts that it is not making an efficient use of its assets for the purpose of generating profits. However, ROA of Farsons is increasing during the past four years and resulting higher ratio than its competitors Heiniken that in turn means that it is making an effective use of the assets so that he higher profitability could be attained.

ROE- It is also one of the major profitability measure of the business relating to an equity and is accounted by dividing the net income to that of the shareholders funds (Afrifa and Tingbani, 2018). It is counted as the measure that reflects the way in which company makes use of an investment for generating growth in its earnings.


Higher ROE considered to be better than the lower ratios so as seen in the results generated return on equity of Farsons within the 4 years has been increased which means that the company is generating increased profits by using the money received from its shareholders in order to achieve growing success in the long run. However, the ROE of Heiniken is declining as the year passes which incubates that company does not performs well in gaining returns from the investment made by their shareholders.

Liquidity ratios

Current ratio-

It is the financial ratio which shows proportion of an enterprise current assets over its current obligations. It is the ratio that is classified in terms of the liquidity ratio and larger value of the current ratio is seen as better than lower value (Biswas and, 2015). The liquidity of an entity highly depends on converting the assets into the cash with an objective of making payment for fulfilling an obligation.


An ideal current ratio is said to be 2:1 and higher the ratio seems to show a better liquidity position of the company. The current ratio of Heiniken and Farsons is increasing which means that both the firms are capable of the meeting their short term obligations effectively and efficiently. Moreover, it has been reflected that liquidity position of Farsons is better than Heiniken because it had attained an ideal ratio and the higher results in comparison to its rivalry which in turn depicts an ideal liquidity position of the firm as compared to its competitors.

Quick ratio-

It is been defined as the acid-test ratio which reveals an ability of the company in meeting its current obligation by making use of the immediate assets or the most liquid assets (Farrés and, 2015). It is been computed by dividing the quick assets with the current liabilities where the quick assets are been attained as deducting an inventory from the current assets.


From the analysis, it has been highlighted that the quick ratio of Farsons is increasing over the years and equates to 1 which means that company is having sufficient cash for paying its current obligations. However, the QR of Heiniken is also incraesing but is lower than Farsons which states that it is also having adequate cash but resulted a poor liquid position in comparison to its rivalry.

Leverage ratios

D/E ratio-

It shows the percentage of financing made by an entity from an investors and the creditors. It is been computed by dividing the total liabilities with that of the shareholders funds.


This ratio is been utilized for evaluating the leverage position of the company and is counted as an essential metric that is used in the corporate finance. High value of the ratio indicates the firm or the stock with higher risk towards the shareholders. The analysis shows that the ratio of the two companies is showing an increasing trend and the ratio of Heiniken is greater than Farson which means that leverage position of Farson is better than its competitor as lower ratio is better.

Debt- to- asset ratio-

It is the leverage ratio which measures an amount of the total assets that is been financed by creditors rather than investors (Filbeck, Zhao and Knoll, 2017). It shows the percentage of the assets that are been financed by the borrowing in comparison with percentage of the resources funded by an investors.


Ratio that is equated to 1 states that a company is owing the same amount of the liabilities as their assets and is seen as highly leveraged. Both the firms are resulting a ratio that is lower than one which means that both are conducting its business with better leverage position as it depicts the liabilities are lower than its assets.

Turnover ratios

Accounts receivable days-

It is considered as an efficiency or activity ratio which measures for the number of the times a business could turn their accounts receivables into the cash during a particular period.


High ratio of receivable turnover indicates that the collection process of the company in terms of the accounts receivable is seen as efficient and it has high proportion of the quality customers who pays their dent obligation on quick basis. As the ratio of Farsons is higher than Heiniken which means that former company is more efficient than Heiniken and its collection process is much better than its rivalry.

Accounts payable days-

It means an efficiency ratio which measures an average number of the days that the company takes in paying off to its suppliers.


In case the number of the days gets increases from one accounting period to the another period which indicates that company is making the payment to its suppliers on slow basis and might be an indicator of worsening the financial condition. As the ratio of Farsons is increasing which means it is paying to its suppliers on slower basis while the ratio of Heiniken is decreasing which depicts that it is making timely payment to the suppliers.

Asset turnover-

It tells about an entity's ability in generating higher revenues by making use of the company's assets (Mathuva, 2015). It is an efficiency ratio that indicates the use of assets made by the firm for the producing sales.


The high ratio seems to be favourable and reflects an efficient use of the assets. Lower value of the ratio indicates that the assets are not been used effectively. As per the results ascertained, it is observed that Heiniken is making an efficient and optimum use of its assets as its ratio resulted as greater than Farsons over the 4 years of analysis made.

Inventory turnover ratio-

It acts as the crucial efficiency ratio that measures the way in which an inventory of the company is effectively been managed by making comparison of the COGS with respect to its average inventory for the particular period.


High ratio states that an inventory is getting converted into cash quickly whereas low ratio results in maintaining the excessive level of an inventory. ITR of Farsons is seen as higher and rising over the years as compared to Heiniken which in turn highlights that former company is efficient comparing to latter.

Shareholders ratios

Shareholders funds ratio-

It means the the amount to which the assets are been funded by the shareholders fund of an organization.


Lower ratio indicated more and more debt that the company has used for funding its assets. It shows the ratio that the shareholders would be receiving at the time winding up of the company. The ratio of Farsons and Heiniken is declining during the last 4 years and the Former enterprise is having lower ratio than the latter company which directly indicates better ratio of

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