An report between Katrina Group Ltd and ABR Holdings Ltd (2015 and 2016). Report needs to included the SWOT analysis, analysis of performance and position of two companies, vertical and horizontal analysis, ratio analysis for comparing current year and previous year, both companies cash flow statements and segmental analysis. The end, give a recommendation for which company is the best for investment and why.
Description and SWOT analysis
Financial analysis means evaluating and analysing the financial performance of a company. For an investor, it is very important to know about the profitability of the company, in which he is going to invest his funds (Bragg, 2012). The report contains an analysis of performance and position of the two companies named as Katrina Group Ltd and ABR Holdings Ltd. It includes SWOT analysis, vertical, horizontal and ratio analysis. The cash flow statement and segment analysis of the both the companies is also done in the report. The findings of the analysis are stated in the last part of the report followed by recommendation and conclusion.
Katrina Group Ltd is a Singapore based investment holding company that owns and operates a chain of restaurants and cafes under nine food and beverages brand including Bali Thai, Muchos, Indobox and many more. The company is listed on Singapore Stock Exchange as SGX: 1A0 (Katrinagroup.com., 2018).
ABR Holdings Limited is a food and beverages company, having its headquarters in Singapore. The company, along with its subsidiaries manufactures ice-creams in Malaysia, Singapore and all over the Asia. Listed in Singapore exchange, it is traded as SGX: 533 (Abr.com.sg., 2018).
· It has developed its own nine brands and among them, the strongest are Bali Thai, So Pho and Streats.
· Provides online services related to ordering and delivery.
· Company has high profitability position. It also makes high revenue.
· The labour cost of ABR holdings is low and it has skilled workforce.
· The company mainly operates in Singapore and has only two stores in China. Most of the revenue is generated from Singapore business only.
· It conducts its business in a very competitive market, where many mid-range restaurant owners operates with their own unique concept (Dbs.com. 2016).
· The only weakness is that it has small business units operating all over Asia (Swotanalysis24.com. 2018).
· As it has its own brands, it can easily get a franchisee and became an operator of other F&B brands also.
· Establishing new stores in Singapore and acquiring small F&B chains (Dbs.com. 2016).
· ABR can increase its growth and profitability by approaching to new target markets.
· The company can offer its manufacturing services in global markets also.
· Providing store space on lease can be crucial for company’s operations. It might lose its regular customers.
· The license can be revoked, if Katrina Group does not met the set standards of food safety and hygiene (Dbs.com. 2016).
· The increasing rates of interest can be a threat to ABR Holdings.
· Changes in technology and problems related to it can hinder the manufacturing process of ice-creams (Swotanalysis24.com. 2018).
Vertical analysis: It is one of the tool used for financial statement analysis in which relationship between various items of the statement is measured. On balance sheet, each item is represented as a percentage of total assets and liabilities, whereas on income statement, each item is shown as percentage of sales. The financial statements prepared are known as common-size statement (Weygandt, Kimmel and Kieso, 2009).
Referring to Appendix 1.1, the analysis shows that, the COGS of Katrina Group has increased not only in terms of dollars but also in terms of percentage. In 2015, it was 84.04% of the sales and in 2016, it was 85.20% of sales. The same goes with ABR Holdings but comparatively, the cost of sales of the company is less than the former company. ABR’s gross profit reported at 44.37% in 2016 is also more than Katrina group’s GP of 14.80% in the same year, though reduced as compare to 2015. The expenses of both the companies has risen in 2016. The net profit of Katrina Group was 8.21% of sales in 2015 and in next year, it reduced to 4.17%. In contrast to it, ABR Holdings has a net profit of 7.55% in 2015 and 5.40% in 2016, which was much more than Katrina Group Ltd.
Vertical and Horizontal Analysis
The vertical analysis of the balance sheet shows that Katrina’s portion of current assets is 52.45% of the total assets in 2015, which raised to 55.15% in 2016. Whereas, the current liabilities comprises of 28.71%, that increased to 36.28% in 2016. This shows that Katrina Group has strong position of its working capital and can meet its financial obligation easily. Moreover, the percentage of total equity is also higher than the liabilities. Similarly, ABR Holdings also has higher portion of assets and equity than the liabilities but when compare to Katrina, it has more assets and equity and very less portion of liabilities. In 2016, ABR’s equity comprises 85.45% of total liabilities and equity, current assets were 77.98% of total assets and current liabilities were only 13.39% of total liabilities. This implies that, ABR is better at maintaining its capital structure and meeting its short term and long term obligations.
Horizontal analysis: It measures year to year change in each and every item of financial statement. The change is determined in both the terms, dollar and percentage by taking one year as a base. In other words, the analysis shows increase or decrease in the items of statement (Godwin and Alderman, 2012).
Referring to Appendix 1.2, in income statement, the revenue of Katrina Group has been increased by $4928 and 9.5% in 2016 along with the increase in gross profit of $128 and 1.5%. In contrary to this, revenue of ABR has increased by $3514 and 3.5% with a rise of 0.1% in gross profit. But in terms of amount, revenue and GP of ABR is much more than Katrina Group. All the expenses has increased except the interest expense of Katrina Group which has reduced by $6. The net profit of both the companies has reduced in 2016 but comparatively, the decrease in the profit of ABR is less than that of in the profit of Katrina Group Ltd. ABR’s profit falls by 21.8% and the former company’s profit decreases by 44.3%. So overall, it can be said that, though the change in the revenue earned by ABR is less but the company is making profits which are more than Katrina Group.
The analysis on the balance sheet shows that, former company’s total assets are increased by $1085 which is less than the increase in the total assets of latter company that is $1815. The total liabilities of Katrina group has increased by 29.64%, whereas in case of ABR, same has risen by 6.25%. Moreover, an increase of 0.82% is been noticed in the total equity of ABR Holdings as compare to Katrina Group. This reflects that, the financial position of ABR Holdings is better than Katrina Group Ltd, because of high percentage of assets and equity and less debt.
This method is used to measure profitability, efficiency, liquidity of a company. It includes calculation of several ratios to know about the different aspects of an organisation. They are categorized as liquidity, efficiency, profitability and capital structure ratios. In order to analyse the final accounts of both the companies, ratio analysis is done (Tracy, 2012).
Liquidity ratio: These ratios measures the liquidity of a company. They are used to determine how quickly a company can converts its assets into liquid. Two types of ratios are current ratio and quick ratio (Lee, Lee and Lee, 2009).
Taking the reference from Appendix 1.3, the current and quick ratio of Katrina Group is same because the company has no inventory. In 2015, it was 1.83 and in 2016, 1.52. On the other hand, the CR of ABR Holdings was 6.23 in 2015, which reduced to 5.82 in 2016. The QR also decreases and reported at 5.67 in year 2016. Both of the ratios of ABR are more than the Katrina Group, which implies that the company’s liquidity position is better and it has enough assets to pay off its short term liabilities.
Profitability ratios: These ratios help in knowing the ability of a company to generate profits from its operations. They provide an overview of the company’s profits made during the year (Sharan, 2015)
Referring to Appendix 1.4, a 5% decrease was there in the operating profit ratio of Katrina group, whereas ABR’s OPR reduced by 3% only. This shows that ABR is good at maintaining its profits. Similarly net profit ratio of ABR is better than Katrina Group and in 2015, both companies has same ratio. The reason for having a better ratio is that the decrease in the amount of net profit of ABR is less than the reduction in the profit of Katrina Group Ltd.
As compare to the latter company, the former company generates more return on its equity and total assets. In 2016, ROE of the company was 16% and ROA was 10% which was way more than the ROE and ROA of latter company, irrespective of the fact that it has been decreased in year 2016. Reason behind making more return is that, the equity of Katrina Group reduces by 7.61%, whereas the profit falls by 44.3%. Such small reduction in total equity, boosted up the ROE.
Capital structure ratio: They shows the degree of financial leverage maintained by a company. It basically includes debt equity ratio and interest coverage ratio (Leach, 2010).
From the table mentioned in Appendix 1.5, it can be said that the D/E ratio of Katrina Group Ltd is 69% in 2016, whereas the same for ABR was 17%. This implies that most of assets of Katrina group are financed through debt rather than equity. As a result, having high debt portion would lead to high risk. Also ABR has high interest coverage ratio which means it can pay its interest expense more effectively.
Efficiency ratios: This shows efficient management of available resources by the company. They indicate the potentiality of the company to use its assets and manage its liabilities in an effective and efficient manner (Barman and Sengupta, 2017).
Refer Appendix 1.6, the DTR and CTR of ABR Holdings is less than the former company. This reflect that company is not efficient enough in collecting its receivables and paying its creditors. Inventory turnover ratio of ABR is 24.2 and of Katrina group is 0 because of no inventory in the business. The ATR of former company was reported at 2.37 cents, which is more than the latter company’s ATR of 0.89 cents. So, on a whole it means that Katrina Group is much more efficient than ABR in maintaining its resources.
Cash flow statement shows the inflow and outflow of the cash in the business. In Appendix 1.7, the cash flow statements of both the companies are analysed. In year 2016, ABR has generated more cash from its operations than Katrina, amounted to $9376, though less than that of in 2015. This is because the changes in working capital of the company are comparatively less, creditors has increased which leads to the inflow of cash in the business. Talking about investing activities, Katrina only has cash outflow of $2016 and $602 for the purpose of purchasing property and acquiring shares. On the other hand, major cash outflow in ABR’s investing activities was in purchase of property amounted to $5839 in 2016. This resulted in net cash used worth $5074, which is more than that of Katrina group. Similarly, in financing activities, ABR and Katrina group has more cash outflow than inflow. But comparatively, the net cash used in the financing activities of Katrina group Ltd, is less than ABR because of its gross proceeds from IPO worth $7518. This overall analysis shows that, the former company is slightly more effective and efficient in managing its cash position than the latter company (Jury, 2012).
The analysis of each and every segment of the companies is done. The revenue generated from the segments is determined. Referring to Appendix 1.8, Katrina’s most of the revenue is generated from Singapore amounted to $54,941 and the non-current assets used are worth $6,798 (Katrinagroup.com. 2016). On the other hand, ABR has its revenue mostly form Singapore and Malaysia amounted to $89,611 and $14,239 respectively. Also its Non-current assets are in the same countries worth $20,828 and $4,866. This shows that segments of ABR produces more revenue than Katrina Group Ltd., reason being the company not only operates in Singapore but also in Malaysia and rest of the Asia (Abr.com.sg. 2016).
From the above analysis, it can be recommended that ABR Holding is performing well in comparison to Katrina Group Ltd. It has high liquidity and profitability position and is also less risky because of less debt financing. Though it generate less returns on its assets and equity, but from other aspects it is way better than Katrina Group. For an investor, it will be better to choose ABR over Katrina Group for the purpose of investment because of its high profits, high sales and less borrowings or debt. Moreover, it is capable of generating enough cash from its operations. So, ABR Holdings is a desirable option for investing the funds.
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