TASK 1
Profitability Ratios
in Euro
Million
Year 2018 2019 2020
Sales 50,982 51,980 50,724
Operating Profit 12,639 8,708 8,303
PBT 12,360 8,289 7,996
Net Profit 9,788 6,026 6,073
Operating Profit
Margin 25% 17% 16%
PBT Margin 24% 16% 16%
Net Profit Margin 19% 12% 12%
Conclusion:
All the profitability ratios have seen a declining trend over the period of three years. This
shows that the company is not being able to generate sufficient profits due to increased costs
because the sales figures are showing a sideways trend with declining margins. This could be
due to increased operating costs as shown by the operating profits. Further, there is also an
increased fixed cost to the company which can be seen by the profit before tax as it has been
declining continuously. Further, the reason why these costs are rising is due to the fact that
the supply chain crisis has come at a global level due to which the shipping costs have
increased for the company.
Efficiency Ratios
in Euro
Million
Year 2017 2018 2019 2020
Sales 53,715 50,982 51,980 50,724
Total Assets 60,285 59,456 64,806 67,659
Inventory 3,962 4,301 4,164 4,462
COGS 41,076 42,274 43,677
Trade Receivables 5,222 6,485 4,164 4,462
Trade Payables 13,426 14,457 14,768 14,132
Purchases 41,415 42,137 43,975
Inventory Turnover Ratio 9.94 9.99 10.13
Accounts Receivable Turnover
Ratio 8.71 9.76 11.76
Accounts Payables Turnover
Ratio 3 3 3
Conclusions:
Inventory turnover tells how many times the inventory has been converted into sales in a
given year. Here, the ITR shows that constant trend and this is due to the fact that the sales
have remained consistent during the period. Further, the impact of pandemic can also be seen
2020 figures because of lower sales value, resulting in a slightly better ITR.
Accounts receivables have shown an increasing trend meaning that the company has either
increased its credit sales or the current debtors are not able to pay. In 2020, this is highly due
to the high number of purchases by the customers but a longer payment cycle.
A constant accounts payable turnover is stating that the company is making timely payments
to its vendors; thus, affecting the working capital of the company negatively.
Liquidity Ratios
in Euro
Million
Year 2017 2018 2019 2020
Current Assets 16,983 15,481 16,430 16,157
Current Liabilities 23,177 19,772 20,978 20,592
Quick Assets 13,021 11,180 12,266 11,695
Current Ratio 0.78 0.78 0.78
Quick Ratio 0.57 0.58 0.57
Conclusion:
Both the liquidity ratios are not performing well. Ideally, the current assets should be higher
than the current liabilities, which is not the case here. As stated earlier, the company is
making timely payments to its vendors but not receiving enough from the debtors, resulting
higher receivables and lower cash. Moreover, as mentioned above, the company's working
capital is negative, due to which these ratios are not performing well. Thus, the company
needs to release some of its working capital or delay in making payments to the vendors in
order to have a positive liquidity ratio.
Financial Gearing Ratios
in Euro
Million
Year 2017 2018 2019 2020
Debt 45,898 47,164 50,920 50,004
Equity 14,387 12,292 13,886 17,655
Total Capital 60,285 59,456 64,806 67,659
Debt-Equity Ratio 3.84 3.67 2.83
Debt-to-Total Capital
Ratio 79% 79% 74%
Conclusion:
Debt equity ratio shows how much debt has the company raised in comparison to equity.
Here, the D/E ratio is more than one, showing a higher percentage of debt in the total capital.
This can also be measured using the debt-to-total capital ratio, where the percentage of debt
hovers around 75-80%. This shows that the company is having higher finance cost, which is
also reflected in the PBT margin.
TASK 2
A) Sales Higher by 10%
Year 2018 2019 2020
Sales 56,080 61,688 67,857
COGS 41,076 42,274 43,677
Operating Profit 15,004 19,414 24,180
Fixed Costs 2,644 5,517 4,407
PBT 12,360 13,897 19,773
Tax 2,572 2,263 1,923
Net Profit 9,788 11,634 17,850
Operating Profit 27% 31% 36%
Margin
PBT Margin 22% 23% 29%
Net Profit Margin 17% 19% 26%
Conclusion: Any increased change in the sales will result in higher margins for the future,
keeping other costs constant.
B) Sales Lower by 10%
Year 2018 2019 2020
Sales 45,884 41,295 37,166
COGS 41,076 42,274 43,677
- -
Operating Profit 4,808 979 6,511
Fixed Costs 2,644 5,517 4,407
- -
PBT 2,164 6,496 10,918
Tax 2,572 2,263 1,923
- - -
Net Profit 408 8,759 12,841
Operating Profit
Margin 9% -2% -10%
PBT Margin 4% -11% -16%
Net Profit Margin -1% -14% -19%
Conclusion: Any decreased change in the sales will result in negative margins for the future,
keeping other costs constant.
C) Operating costs Higher by 7%
Year 2018 2019 2020
Sales 50,982 51,980 50,724
COGS 43,951 47,028 50,320
Operating Profit 7,031 4,952 404
Fixed Costs 2,644 5,517 4,407
- -
PBT 4,386 565 4,003
Tax 2,572 2,263 1,923
- -
Net Profit 1,814 2,828 5,926
Operating Profit 14% 10% 1%
Margin
PBT Margin 9% -1% -8%
Net Profit Margin 4% -5% -12%
Conclusion: Any increased change in the operating costs will result in negative margins PBT
and net profit margins for the future, keeping sales figure constant.
D) Operating Costs Lower by 7%
Year 2018 2019 2020
Sales 50,982 51,980 50,724
COGS 38,201 35,527 33,040
Operating Profit 12,781 16,453 17,684
Fixed Costs 2,644 5,517 4,407
PBT 10,137 10,936 13,277
Tax 2,572 2,263 1,923
Net Profit 7,565 8,673 11,354
Operating Profit
Margin 25% 32% 35%
PBT Margin 20% 21% 26%
Net Profit Margin 15% 17% 22%
Conclusion: Any decreased change in the operating costs will result in positive margins PBT
and net profit margins for the future, keeping sales figure constant.
TASK 3
A) Trade Receivables Higher by 10%
Year 2017 2018 2019 2020
Sales 53,715 50,982 51,980 50,724
Total Assets 60,285 59,456 64,806 67,659
Inventory 3,962 4,301 4,164 4,462
COGS 41,076 42,274 43,677
Trade Receivables 5,744 6,319 6,950 7,646
Trade Payables 13,426 14,457 14,768 14,132
Purchases
41,415 42,137 43,975
Inventory Turnover Ratio 9.94 9.99 10.13
Accounts Receivable Turnover
Ratio 8.45 7.83 6.95
Accounts Payables Turnover Ratio 3 3 3
Conclusion: An increase in trade receivables has decreased the Accounts receivable turnover
ratio, showing that the cash will be received after a long time. Thus, the cash conversion
cycle will be higher. Moreover, the company will need to deploy more cash in working
capital to continue its operations.
B) Trade Receivables Lower by 20%
Year 2017 2018 2019 2020
Sales 53,715 50,982 51,980 50,724
Total Assets 60,285 59,456 64,806 67,659
Inventory 3,962 4,301 4,164 4,462
COGS 41,076 42,274 43,677
Trade Receivables 4,178 3,342 2,674 2,139
Trade Payables 13,426 14,457 14,768 14,132
Purchases 41,415 42,137 43,975
Inventory Turnover Ratio 9.94 9.99 10.13
Accounts Receivable Turnover
Ratio 13.56 17.28 21.08
Accounts Payables Turnover Ratio 3 3 3
Conclusion: A decrease in trade receivables has increased the Accounts receivable turnover
ratio, showing that the cash will be received in a shorter period. Thus, the cash conversion
cycle will be shorter. Moreover, the company will need to deploy less cash in working capital
to continue its operations.
C) Trade Payables Higher by 30%
Year 2017 2018 2019 2020
Sales 53,715 50,982 51,980 50,724
Total Assets 60,285 59,456 64,806 67,659
Inventory 3,962 4,301 4,164 4,462
COGS 41,076 42,274 43,677
Trade Receivables 5,222 6,485 4,164 4,462
Trade Payables 17,454 22,690 29,497 38,346
Purchases 41,415 42,137 43,975
Inventory Turnover Ratio 9.94 9.99 10.13
Accounts Receivable Turnover
Ratio 8.71 9.76 11.76
Accounts Payables Turnover Ratio 2 2 1
Conclusion: An increase in trade payables has reduced the Accounts payable turnover ratio,
showing that the cash will be paid in a longer period. Thus, the cash conversion cycle will be
shorter. Moreover, the company will need to deploy less cash in working capital to continue
its operations.
D) Trade Payables Lower by 15%
Year 2017 2018 2019 2020
Sales 53,715 50,982 51,980 50,724
Total Assets 60,285 59,456 64,806 67,659
Inventory 3,962 4,301 4,164 4,462
COGS 41,076 42,274 43,677
Trade Receivables 5,222 6,485 4,164 4,462
Trade Payables 11,412 9,700 8,245 7,008
Purchases 41,415 42,137 43,975
Inventory Turnover Ratio 9.94 9.99 10.13
Accounts Receivable Turnover
Ratio 8.71 9.76 11.76
Accounts Payables Turnover Ratio 4 5 6
Conclusion: A decrease in trade payables has increased the Accounts payable turnover ratio,
showing that the cash will be paid in a shorter period. Thus, the cash conversion cycle will be
longer. Moreover, the company will need to deploy more cash in working capital to continue
its operations.
E) Inventories Higher by 40%
Year 2017 2018 2019 2020
Sales 53,715 50,982 51,980 50,724
Total Assets 60,285 59,456 64,806 67,659
Inventory 5,547 7,766 10,872 15,220
COGS 41,076 42,274 43,677
Trade Receivables 5,222 6,485 4,164 4,462
Trade Payables 13,426 14,457 14,768 14,132
Purchases 43,295 45,380 48,026
Inventory Turnover Ratio 6.17 4.54 3.35
Accounts Receivable Turnover
Ratio 8.71 9.76 11.76
Accounts Payables Turnover Ratio 3 3 3
Conclusion: An increase in inventory level has decreased the inventory turnover ratio,
showing that the stock purchases are higher than the level of sales the company is doing.
Thus, the cash conversion cycle will be longer. Moreover, the company will need to deploy
more cash in working capital to continue its operations.
F) Inventories Lower by 20%
Year 2017 2018 2019 2020
Sales 53,715 50,982 51,980 50,724
Total Assets 60,285 59,456 64,806 67,659
Inventory 3,170 2,536 2,029 1,623
COGS 41,076 42,274 43,677
Trade Receivables 5,222 6,485 4,164 4,462
Trade Payables 13,426 14,457 14,768 14,132
Purchases 40,442 41,767 43,271
Inventory Turnover Ratio 14.40 18.52 23.92
Accounts Receivable Turnover
Ratio 8.71 9.76 11.76
Accounts Payables Turnover Ratio
3 3 3
Conclusion: A decrease in the inventory level has increased the inventory turnover ratio,
showing that the stock purchases are done quite often in the operating period. This may result
in higher transportation costs for the company, thereby reducing the margins. Thus, the cash
conversion cycle will be shorter. Moreover, the company will need to deploy less cash in
working capital to continue its operations.
TASK 4
A) The capital structure of the company is based highly on debt. The company has
financed its assets majorly from debt, which account for almost 3/4 of the total capital
and hovers around this percentage over the three-year period.
From the balance sheet of the subject company, it can be seen that the debt received is
used to purchase PP&E and rest of the sum is spread across working capital and
inventory purchases.
From the standpoint of the ratios, the company is suggested to make adjustments into
its capital structure by shifting towards equity financing. This will not only increase
the margins of the company but also make the company less prone to financial
distress due to decrease cost of financing. However, a lower percentage of debt may
increase the cost of equity or the required rate of return to the investors, which may
drive down the stock's value in the future.
Finally, the company should utilise its capital in such a way that its working capital
becomes positive; otherwise, it will keep on adding more and more short-term funds.
B) Ordinary equity shares refer to the stock that is being issued to the general public.
These shares do not get a fixed dividend; however, are the participants to the profits
and capital gains of the company. They are paid at last at the time of liquidation of the
company. Moreover, if the company is making losses, then also the dividends are not
paid to ordinary equity shareholders.
In contrast, preference shares are those who receive a fixed percentage of dividend
during its life. These are not issued indefinitely, but has a maturity period. These are
paid before the company pays to ordinary equity at the time of liquidation. Moreover,
there are several provisions in which the company has to be pay dividends to these
shareholders at a later period when it starts making profits.
