Dairy Farm International Holdings Limited: Analyze an Annual Report Case Solution

Company profile

This case study is about Dairy Farm International Holdings (Dairy Farm), and it is one of the leading pan-Asian retailers. The company has more than 3,000 in its outlet profile and these include supermarket, hypermarkets, beauty stores, convenience store, home furnishing and restaurants. There are 6,000 employees working for the company with sales in excess of US $ 5 billion. The major competitors of the company are Tesla PLC and Canadian food retailer. In this case study, ratios calculation and analysis of annual report are required.

Annual report

An annual report is the report issued by the company for the purpose of public its financial performance. It also contains the economic and other data about the cooperation. The annual report of the company also contains elaborated discussion by the management about the company. The performance of the company was also included in terms of the economy as well as issues related to corporate governance.

The users of the annual report are both internal and external, for instance, external includes investors, creditors and stakeholder, whereas, interior includes employees of the company. The annual report of the company is formed by following Accepted Accounting Principles (GAAP).

Analysis

Ratio Analysis

In order to examine and analyze the annual report of the company, therefore, the best financial tool for measuring the financial performance of the company is calculating the financial ratios of the company and comparing it with the competitor’s rates. The financer widely uses this approach for interpreting the financial performance of the company.

There are several types of ratios through which the company can be thoroughly analyzed, for instance, liquidity ratio, Solvency ratio, Assets management ratios, profitability ratio and return on investment ratio and common sized financial statements.

Liquidity Ratio

Current Ratio

Current ratio is one of the liquidity ratios of the company that measures the ability of the company to pay its debt from its current assets.

Interpretation

A higher current ratio is good for the company because its shows that the company is more capable to its obligation from its current assets. If the current ratio is below 1 then it means that current liability exceeds current assets as its shows that the company may have to face problems in paying its bill on time. On the other hand, if current ratio is more than 1 then its means that its current liability is lower than its current assets, therefore, it is a good sign for the company.

The current ratio of dairy farm is below 1 which means that it might face difficulty in paying its bills in time, where as, it is better than Tesco PLC because the current ratio of Dairy farm is 0.87 and 0.82 in 2006 and 2005 respectively, whereas, the current ratio of Tesco PLC is 0.52 and 0.56 in 2006 and 2005 respectively. The current ratio of Sobey’s is much better than other two companies. The current ratio of the company in 2006 is more than its preceding year that is a good sign for the investors of the company.

Quick ratio

The quick ratio is used to calculate the short-term liquidity of the company and it measures the ability to use its cash and cash equivalent to paying its current obligation.

Interpretation

If the quick ratio is below 1, then it is highly preferred as it shows the immediate amount of cash available to satisfy the short-term liability of the company. The quick ratio of Dairy farm is better than other two companies as shown in Appendix 1, whereas, the quick ratio of Dairy farm in 2006 is in progressive position as compared to 2005 quick ratio.

Cash flow Operation

The operating cash flow measures the cash amount generated by the company from its normal business operations. Operating cash flow is one of the significant ratios of the company as it shows that whether a company can generate sufficient positive cash flow to maintain and grow the business operations from its own earning or it may require external financing in order to expand its operations………………………..

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Dairy Farm International Holdings Limited: Analyze an Annual Report Case Solution
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