REPORT ON DAIRY CREST GROUP PLC
Report on Dairy Crest Group PLC
Question 1:
Dairy Crest Group plc is a U.K based dairy food establishment. The company processes branded daily products and market fresh milk. The establishment has a clear vision, well-established strategy, and robust values.
Dairy Crest Group plc produces butter and spreads. They concentrate on Country life and Clover brands. The establishment also sells and manufactures Frylight one calories spray.Dairy Crest Group PLC manufactures whey and Cheese. The Company has a global cheese supply chain. It has Davidstow creamery located in Cornwall. The creamery matures cuts, and wraps cheese. The establishment has a facility situated at Frome, somerset, which packs cheese. Whey is manufactured at Davidstow. The establishment dries and sells whey powder.
Dairy is another product produced by Dairy Crest Group plc. The establishment processes and delivers traditional, organic, and flavored milk to large retailers, residential customers, hospitals, and shops. The corporation manufactures and sells FRiji. It sells FRiji in milk and cream powders.
Question 2:
Comment on the outcome of the auditor’s report for Dairy Crest Group plc. Briefly discuss the importance the auditor’s report with respect to financial information.
The auditor’s report is important with regard to financial information. Many external users, such as investors prefer financial information to be certified by an external editor. Additionally, edited financial information attracts investors, and enhances loan acquisition. Besides, it enhances public appearance. Editor’s report provides an opinion of whether the presented financial information has no material misstatements and is correct. The editor provides unqualified opinion concluding that the financial statement is prepared fairly and truly in adherence to financial reporting framework guiding the presentation and preparation of the statement. The editor’s unqualified opinion shows that the company’s disclosure is adequate, and that any adjustments in accounting requirements have accurately been established and presented. It also indicates that the company financial statements adhere to relevant statutory regulations and requirements. The editors’ report indicates that an establishment’s financial statements are prepared in accordance to Generally Accepted Financial Statements.
The auditor’s report offers audit evidence regarding the degree of disclosures in the financial statements. She/he also evaluates risk of material misstatements, and whether the risk is due to error or fraud. The auditor’s report expresses the effectiveness of an establishment’s internal control. Further, it evaluates the appropriateness of the corporation’s accounting principles and the degree of reasonableness of critical accounting estimates. The auditor’s report analyses the entire presentation. It establishes the financial statement audited in the introductory paragraph. It also explains the type of an audit.
The Auditor’s report for Dairy Crest Group plc for the year ended Dec 2014 was performed on establishment’s parent and consolidated Cash Flow statements, parent and consolidated establishment’s statement of changes in Equity, consolidated statement of comprehensive income, and consolidated income statement. The Auditor’s report indicates that the establishment financial statements complied with financial statement frameworks, including International Financial Reporting Standards, and applicable laws as detailed in the European Union, and in conformity to the requirements of Company act 2006. Further, Dairy Crest Group plc financial statements were true and fair.
Question 4
Calculate the yearly percentage change in the following items stating, in each case, whether the change is a rise or fall:
Sales-9 percent increase
Operating Profit 3- percent increase
Share Price-4 percent increase
Question 5
Comment and reflect upon the ratios and percentage changes in items computed in your answers to questions 3 and 4
Return on equity (ROE) measures the capacity if an establishment to yield profits for its shareholders. It is computed follows:
A greater value is better than a lower ratio. Nevertheless, it have to be analyzed relative other firms in the same industry. ROE increased by 0.09 percent in 2014. The REO for Dairy Crest Group plc is lower than the industry average of 9 percent. The company’s capacity to yield profit improved in 2014.
Gross profit margin evaluates amount of money left over after settling cost of goods sold. It is computed as {(revenue-cost of goods sold)/ revenue}. It shows financial viability and success of a product. The higher the value, the greater the capacity of an establishment to retain profits for every sales amounts to settle its obligations. Dairy Crest Group PLC gross profit margin is higher than the industry value. The ratio increased in 2014 by 0.13 percent. The establishment’s profitability is better than the industry, and improved in 2014.
Net profit margin represents the proportion of revenue remaining after settling all operating expenses, preferred stock dividends, taxes , and interest ( exclusive of common stock dividends) have been subtracted from the establishment’s revenue. It is computed as a proportion of net profit and revenue. It indicates how an establishment can turn revenue into returns. A increasing net profit margin for Dairy Crest Group PLC experienced in 2014 is associated with adequate management of expense, customer experience, and increasing sales. Investors prefer a higher value of the ratio than a lower one. The profitability of Dairy Crest Group PLC is lower that the industry’s.
Liquidity
Current ratio depicts an establishment’s capacity to settle short-term obligations. It is computed by finding a proportion between current assets and current liabilities. A value of 2.4 for Dairy Crest Group plc indicates that the establishment had 2.4 times more value attached to current assets than current liabilities in 2014. Banks favor a current ratio of 1 or 2, as it implies that all current liabilities can be settled by current assets. Dairy Crest Group PLC is less leveraged than the industry. The capacity of Dairy Crest Group PLC to settle short term goals improved in 2014 by 0.3 percent.
Asset Management
Inventory (stock) turnover period refers to the rate at which stock is utilized over a financial period. This ratio is assessed in trend line. It can also be compared to industry average to evaluate how an establishment is performing relative to others. Low rates of inventory turnover are an indication of a flawed purchasing system. Besides, a low value of the ratio shows that stocks were augmented in expectation of sales that failed to take place. This indicates high inventory aging risk. Goods are likely to become obsolete. A high value of inventory turnover shows that the purchasing system is effectively managed. It can also imply that an establishment lacks sufficient system to maintain normal level of stock, and not accepting potential sales. Apart from that, a high ratio may mean few cash reserves and unusually high debts. This ratio computed as a proportion of annual cost of goods sold and inventory or divide inventory turnover ratio into 365 days. Dairy Crest Group PLC Inventory turnover ratio reduced in 2014 by 7 days, and higher than the industry average of 50 days.
Trade payables’ turnover period measures how shifty an establishment pays offs its suppliers. It is computed as the proportion of total purchases and average accounts payable. A high value implies that the establishment has a comparatively short duration between purchases of services and goods and their payment. In contrast, a lower value means that an establishment is slow in creditors’ payment. A high value is not favored. Lower value of Accounts payable turnover ratio offers more liquidity to the company. Payables’ turnover period for Dairy Crest Group plc increased by one day in 2014, and is higher than the industry average. This implies that the establishment has higher liquidity than the industry.
Other
Gearing ratio is the ratio of an establishment’s debt to equity. A greater value of gearing ratio indicates that an establishment has a great proportion of debt to equity. However, a low gearing ratio signifies high financial risk. A high value of this ratio shows better deal of leverage. An establishment is using debt to settle its operations. During economic downturn, such establishments encounter difficulties in meeting their debt requirements. The gearing ratio for Dairy Crest Group plc decreases in 2014 for 0.08 percent and is higher than the industry average. The establishment has a better deal of leverage than the industry.
Price earnings ratio is the proportion of an establishment’s market price per share and earning per share. It measures comparative attractiveness of an establishment’s stock. It is computed as the proportion between price per share and earning per share. When earning per share increases, price per share increases too. A high P/E ratio is favored. It indicates better performance in future. A low value indicates poor future and current performance. Price per earnings increase for Dairy Crest Group plc in 2014 by 0.4 percent, and are greater than the industry average. The increase in profitability of Dairy Crest Group plc can be attributed to the improvement is sales in 2014. Share price increase due to increase in price per earning of Dairy Crest Group plc.
Question 6
Using the DuPont analysis technique, evaluate and comment on any changes in profitability (ROE) from 2013 to 2014. In particular, use the DuPont method to assess which aspects of the company’s performance have played a key role on the change in its profitability (if any).
Dupoint analysis focuses on assessment of the establishment’s capacity to augment its return on equity. It concentrates on financial leverage, total asset turnover, and profit margin. Based on the three, the establishment can augment its ROE by ensuring sustained high profits, rise in asset turnover and enhancing effectiveness in leveraging assets. Dupoint analysis for Dairy Crest Group plc indicates poor financial leverage, lower asset turnover and gross profit.
