>> Case Study
DO THE NUMBERS MEAN ANYTHING TO YOU?
Your uncle is a retired headmaster who believes he is an astute investment analyst. He has been following the financial performance of Unilever Ghana and Fan Milk Ghana for several years. Indeed he has substantial shares in both companies and has recently been elected the Chairman of Pensioners Investors Association (PIA). Of late PIA members have become jittery about the performance of Unilever and want to know what exactly is going on at the manufacturing concern. On the other hand, they seem to be impressed with the performance of Fan Milk Ghana. There have been several discussions among the members on whether to sell their Unilever shares and buy shares of Fan Milk orkeep the status quo and hope the situation improves soon.
You went to see your uncle during the weekend over some family issues and he got to know that you are doing your MBA in Accounting and Finance at no less a University than UPSA. Your uncle proudly introduces you to his PIA members as a seasoned financial analyst who can provide answers to all their concerns, of course at no cost to them. The rumour network spread like wild fire and soon your uncle’s house is filled to capacity with worried pensioners. Your uncle’s wife is very concern about the ambush and suggests that they allow you time to think about the issues and address them later. PIA members welcome this suggestion enthusiastically and fix an emergency general meeting for April 11th 2015 where you are expected to address them on their concerns, principally about what explains the seemingly sluggish performance of Unilever as against the buoyant performance of Fan Milk.
After the crowd had left, your uncle’s wife felt very bad as she did not anticipate this outcome when she made the suggestion and you assured her she need not worry because financial analysis is in the blood!
1. On the trip back to Accra, you realize the first thing to do is to compare the liquidity, leverage, activity, profitability and market ratios of the two companies. Using the statements of comprehensive income and financial position shown below, prepare a detailed comparison report indicating the strength and weakness of each company.
2. Your spouse, who is very supportive of your schooling, suggested that you should include an analysis of common size statements in the report. Is s/he right? Of what use is such an analysis? Please prepare the analysis and explain your answer.
3. Your spouse further recommended that a DuPont analysis would be valuable. How can such an analysis be performed and what information does it indicate about relative performance of the two companies?
4. Knowing your uncle, you have decided to include some caveats into your report particularly about the limitations regarding the various analyses that have been suggested above as well as qualitative factors that should be considered in addition to the financial analysis.
5. What are your conclusions after your analysis and what recommendations do you intend making in your report to PIA members.