Question

In this unit, we learned how to evaluate the overall performance of a company using ratio and trend analyses. These tools are important for internal (management, employees, mergers and acquisition departments) and external (investors, suppliers, analysts) users of company financial statements. Apply this knowledge to this discussion task below:

In the second week, you selected a manufacturing company and described its products and costs. For this week, refer back to that company and perform trend analysis for the most recent 4 years (the Yogurt Greek Company no specific company). Analyze the trends for 3 line items you believe are most important in evaluating a company for the balance sheet and for the income statement (3 each). In your initial post, answer the following questions:

• What do you observe in the linear trends (i.e., are values increasing or decreasing)?
• What are the trends on a common-size basis?
• What would be your next steps in completing a thorough analysis of the trends?

Answer 1

Income Statement of FAGE INTERNATIONAL S.A.
	2016	2017	2018	2019
Sales	653,361	619,629	551,879	494,266
Cost of sales	(333,908)	(325,977)	(320,313)	(310,596)
Gross Profit	319,453	293,652	231,566	183,670
Selling, general and administrative expenses	(199,674)	(177,585)	(173,246)	(132,996)
Other Income	1,001	1,033	1,632	998
Other Expenses	(1,129)	(1,435)	(1,311)	(922)
Operating Profit	119,651	115,665	58,641	50,750
Financial income/(expenses), net	(66,116)	(25,185)	(23,822)	(24,103)
Impairment Loss	(1,105)	-	-	-
Loss on disposal of Financial Assets	-	(56)	-	-
Foreign Exchange gains /(losses), net	(6,001)	7,122	(2,536)	(2,888)
Profit before income taxes	46,429	97,546	32,283	23,759
Income tax benefit/(expense)	15,075	(11,135)	(10,148)	(2,334)
Net Profit	61,504	86,411	22,135	21,425

Trend analysis of three line items in Income Statement:

	2016	2017	2018	2019
Sales	653,361	619,629	551,879	494,266
Increase/(decrease)	-	-5%	-11%	-10%
Selling, general and administrative expenses	199,674	177,585	173,246	132,996
Increase/(decrease)	-	-11%	-2%	-23%
Net Profit	61,504	86,411	22,135	21,425
Increase/(decrease)	-	40%	-74%	-3%

The above trend analysis shows that :

1. Sales trend shows a decreasing order year on year with a compounded annual rate of -8.88% (Approx).

2. Sellling, general and administrative expenses shows a decreasing trend with a compounded annual rate of -12.66% (Approx).

3. Net Profit shows an upward trent in 2017 while downward trend thereafter with a compunded annual rate of -29.63% (Approx).

Trend analysis of three line items in Statement of Financial Position:

	2016	2017	2018	2019
Intangible Assets	2,060	1,830	2,094	2,519
Increase/(decrease)	-	-11%	14%	20%
Interest bearing Loans and Borrowings	410,165	410,949	411,781	412,662
Increase/(decrease)	-	0.2%	0.2%	0.2%
Trade Accounts Payable	32,257	22,841	24,224	24,373
Increase/(decrease)	-	-29.2%	6.1%	0.6%

The above trend analysis shows that :

1. Intangible Assets shows an increasing trend with a compounded annual rate of 6.93% (Approx).

2. Interest bearing Loans and Borrowings shows a constant upawrd trend of 0.2%.

3. Trade Accounts Payable shows a decreasing trend with a compounded annual rate of -8.91% (Approx).

TRENDS ON A COMMON SIZE BASIS: INCOME STATEMENT

	2016	2017	2018	2019
Sales	100.00%	100.00%	100.00%	100.00%
Cost of sales	51.11%	52.61%	58.04%	62.84%
Gross Profit	48.89%	47.39%	41.96%	37.16%
Selling, general and administrative expenses	30.56%	28.66%	31.39%	26.91%
Other Income	0.15%	0.17%	0.30%	0.20%
Other Expenses	0.17%	0.23%	0.24%	0.19%
Operating Profit	18.31%	18.67%	10.63%	10.27%
Financial income/(expenses), net	10.12%	4.06%	4.32%	4.88%
Impairment Loss	0.17%	0.00%	0.00%	0.00%
Loss on disposal of Financial Assets		0.01%	0.00%	0.00%
Foreign Exchange gains /(losses), net	0.92%	1.15%	0.46%	0.58%
Profit before income taxes	7.11%	15.74%	5.85%	4.81%
Income tax benefit/(expense)	2.31%	1.80%	1.84%	0.47%
Net Profit	9.41%	13.95%	4.01%	4.33%

TRENDS ON A COMMON SIZE BASIS: STATEMENT OF FINANCIAL POSITION (ASSET PORTION)

	2016	2017	2018	2019
ASSETS
Non-Current Assets
Property Plant and Equipment	54.67%	56.91%	57.96%	55.67%
Right of use leased assets	0.00%	0.00%	0.00%	0.21%
Intangible Assets	0.28%	0.23%	0.27%	0.33%
Goodwill	0.39%	0.40%	0.35%	0.35%
Available for sale financial assets	0.01%	0.01%	0.00%	0.00%
Investment in Equity Instruments	0.00%	0.00%	0.01%	0.01%
Other Non-current Assets	0.08%	0.06%	0.06%	0.04%
Deferred Income Taxes	12.57%	11.11%	10.37%	10.47%
Total Non-Current Assets	68.00%	68.73%	69.02%	67.09%
Current Assets:
Inventories	5.22%	5.04%	5.04%	5.26%
Trade and other Receivables	10.36%	9.84%	9.01%	6.66%
Due from related companies	0.07%	0.10%	0.13%	0.13%
Prepaid income Taxes	0.28%	0.03%	0.10%	0.51%
Available for sale financial assets	0.07%	0.00%	0.00%	0.00%
Cash and cash equivalents	16.01%	16.27%	16.70%	20.34%
Total current assets	32.00%	31.27%	30.98%	32.91%
TOTAL ASSETS	100.00%	100.00%	100.00%	100.00%