Almarai Company: Key Financial Ratios Analysis Essay

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Almarai Company (Almarai) is a large conglomerate based in Saudi Arabia, which specializes in manufacturing and distributing food and beverages. It is the largest dairy company in the country, with sales exceeded SAR 13 billion in 2018. Its stock id is 2280, and the current share price is SAR 51.40. This report presents a financial statement analysis of Almarai along with the calculation of key financial ratios compared with the industry averages. The analysis is based on the financial reports of the company for the last two years.

Table 1 presents the trend analysis of Almarai’s Consolidated Statement of Financial Position and Consolidated Statement of Profit or Loss in a summarized way.

Consolidated Statement of Financial Position
2018SAR ‘000s% Change2017
Current Assets3,231,626-459,247-12.4%3,690,873
Inventory3,874,193752,29024.1%3,121,903
Investments102,62411,91313.1%90,711
Fixed Assets22,606,542204,8500.9%22,401,692
Other Assets2,503,435-87,235-3.4%2,590,670
Total Assets32,318,420422,5711.3%31,895,849
Current Liabilities5,406,067-365,042-6.3%5,771,109
Non-Current Liabilities12,396,3631,152,86310.3%11,243,500
Shareholders’ Equity13,926,796-557,577-3.8%14,484,373
Minority Interests589,194192,32748.5%396,867
Total Liabilities and Shareholder Equity32,318,420422,5711.3%31,895,849
Consolidated Statement of Profit or Loss
2018SAR ‘000s% Change2017
Sales13,722,797-212,735-1.5%13,935,532
Sales Cost8,277,435-74,458-0.9%8,351,893
Total Income5,445,362-138,277-2.5%5,583,639
Admin and Marketing Expenses2,707,391-32,994-1.2%2,740,385
Other Expenses660,25119,2053.0%641,046
Total Expenses3,367,642-13,789-0.4%3,381,431
Net Income Before Zakat2,077,720-124,488-5.7%2,202,208
Zakat70,49828,25366.9%42,245
Net Income2,007,222-152,741-7.1%2,159,963

Table 1. Trend Analysis.

Table 2 presents the common size statement analysis of Almarai’s Consolidated Statement of Financial Position and Consolidated Statement of Profit or Loss in a summarized way.

Consolidated Statement of Financial Position
2018%2017%
Current Assets3,231,62610.0%3,690,87311.6%
Inventory3,874,19312.0%3,121,9039.8%
Investments102,6240.3%90,7110.3%
Fixed Assets22,606,54269.9%22,401,69270.2%
Other Assets2,503,4357.7%2,590,6708.1%
Total Assets32,318,420100.0%31,895,849100.0%
Current Liabilities5,406,06716.7%5,771,10918.1%
Non-Current Liabilities12,396,36338.4%11,243,50035.3%
Shareholders’ Equity13,926,79643.1%14,484,37345.4%
Minority Interests589,1941.8%396,8671.2%
Total Liabilities and Shareholder Equity32,318,420100.0%31,895,849100.0%
Consolidated Statement of Profit or Loss
2018%2017%
Sales13,722,797100.0%13,935,532100.0%
Sales Cost8,277,43560.3%8,351,89359.9%
Total Income5,445,36239.7%5,583,63940.1%
Admin and Marketing Expenses2,707,39119.7%2,740,38519.7%
Other Expenses660,2514.8%641,0464.6%
Total Expenses3,367,64224.5%3,381,43124.3%
Net Income Before Zakat2,077,72015.1%2,202,20815.8%
Zakat70,4980.5%42,2450.3%
Net Income2,007,22214.6%2,159,96315.5%

Table 2. Common Size Analysis.

The trend analysis indicates that the current assets, excluding inventory, of Almarai declined by 12.4% in 2018. Its inventory increased by 24.1%, which highlighted a slowdown in the company’s international sales. The company increased its investments in 2018 to generate income from other sources. The total assets increased by 1.3%, but its shareholders’ equity declined by 3.8%. It implies that the company had to raise funding for its assets by acquiring additional liabilities. Furthermore, the company’s sales and cost of sales reduced in 2018. The company’s net income declined by 7.1%, which could raise concerns among shareholders about its future profitability.

The vertical analysis of Almarai’s financial position indicated that its fixed assets were almost 70% of its total assets. It is also noted that the company’s inventory as a proportion of total assets increased from 9.8% in 2017 to 12% in 2018. Although the company’s current liabilities reduced, Almarai’s non-current liabilities increased as a proportion of total liabilities. Finally, the shareholders’ equity also declined in 2018. The analysis of Almarai’s statement of profit indicates that the cost of sales increased from 59.9% in 2017 to 60.3% of sales in 2018, which also affected its gross margin. The company maintained the same allocation to its admin and marketing expenses in both years. Almarai’s business is registered in Saudi Arabia and does not pay taxes; instead, it made a zakat contribution of 0.5% in 2018. The company’s net profit reduced from 15.5% in 2017 to 14.6% in 2018. However, it could be stated that the profitability of Almarai remained strong in both years.

The financial ratio analysis calculates the values of key financial ratios provided in Table 3.

20182017Industry Average
Current Ratio7,105,819/5,406,067= 1.316,812,776/5,771,109 = 1.181.36
Quick Ratio2,657,006/5,406,067= 0.493,310,407/5,771,109 = 0.570.72
Accounts Receivable Turnover7.118.1912.91
Days Sales Outstanding51.3344.5928.27
Inventory Turnover2.142.683.59
Du Pont:
Net Profit Margin0.1460.1550.1048
Asset Turnover0.4250.4370.73
Equity Multiplier2.2362.143
Return on Equity (ROE)13.83%14.51%15.81%
Return on Assets (ROA)2,007,222/32,318,420 = 0.0622,159,963/30,459,294.5 = 0.071.0727
Debt to Equity17,014,609/14,881,240= 1.1417,802,430/14,515,990= 1.23.8404

Table 3. Financial Ratio Analysis.

The current ratio of Almarai improved to 1.31 in 2018 but was lower than the industry average of 1.36. The short-term liquidity position of the company was regarded as weak because its quick ratio value was less than one and lower than the industry average. The asset turnover of the company slightly declined in 2018 and was lower than the industry average. The net profit margin of Almarai reduced from 0.155 in 2017 to 0.146 in 2018 but was higher than the industry average of 0.1048. The equity multiplier value increased in 2018 that indicated that the proportion of assets financed by the company’s equity decreased.

The ROE was 13.83% in 2018, which was less than the industry average. Similarly, its ROA was less than the industry average, and the company only generated SAR 0.06 in revenue for every SAR 1 in assets. The Debt to Equity ratio value indicated that the company had high leverage, which was also greater than the industry average.

The accounts receivable turnover declined in 2018 and was less than the industry average. It implies that the company took a long time to receive cash for its credit sales. The allowance for doubtful trade receivables was SAR 76.824 million and SAR 57.333 million in 2017 and 2018, respectively. It indicated that this allowance was almost 4% of the total trade receivables, which was a significant value.

There is no change in the method of recording inventory, and the company uses the periodic method of accounting for inventory that records all purchases and sales continuously and updates the purchase account at the end of the period. The company’s inventory increased by 24.1% in 2018, and its inventory turnover was just 2.14 in 2018 as compared to the industry average of 3.59. It implies that Almarai’s business efficiency weakened in 2018 as it did not manage its inventories effectively that resulted in a high cash amount held in non-income generating items. The company’s total assets were SAR 32.318 billion in 2018, and its total liabilities were SAR 17.802 billion. The company’s goodwill was SAR 1.038 billion in 2018, which was less than its value in 2017 due to its impairment. Almarai recorded goodwill upon the acquisition of three companies in 2007, 2009, and 2012.

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