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Financial Analysis of Associated British Foods for the year 2008&2009 - Admission/Application Essay Example

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Financial Analysis of Associated British Foods for the year 2008&2009

The company was in a better position in 2008 to fulfil the claims of short term creditors with its current assets than in year 2009.
It is a more conservative measure of liquidity and it includes all the current assets except inventory since it is considered to be most illiquid among current assets. Again a declining Quick ratio confirms that the company's liquidity has reduced and it might have faced a liquidity crisis in year 2009.
This ratio shows the number of times the amount of account receivable is collected during the year. A high receivable turnover indicates that amount receivable are being turned over quickly implying that the company has a tight credit policy and hence it can result in a low level of bad debts. Associated British Foods have increased there receivable turnover ratio to 7.88 from 7.50 indicating they are better managing their receivables and reducing the chances of incurring bad debt.
The inventory turnover ratio measures the number of times the stock is sold and replaced in a year. Associated British Foods inventory turnover ratio in 2009 reduced from 8.48 to 7.50 indicating that there products are being sold at a slower pace as compared to the last year. It may also imply that they are holding an excess of inventory in year 2009 as compared to the previous year.
The Days in inventory ratio shows that on average how many days' inventory remains in stock before it is sold to the customer. Associated British Foods higher days in inventory ratio in 2009 (48.67 days) shows that there products are replenished at a slow pace as compared to the last year.

The Total Asset turnover measures the efficiency of a company's use of its assets in generating sales revenue. The total asset turnover ratio of Associated British Foods declined slightly to 1.08 in 2009 from 1.09 in year 2008. Although the total asset turnover ratio declined slightly but yet it can have a large impact on ROE since it is one of the most important element in Du Point analysis.

The financial leverage ratio is a solvency ratio and it measures a company's reliance on debt as a source of financing. A higher ratio indicates that the company heavily relies on debt financing as a source of financing thus increasing the chances of being bankrupt. It also implies that creditors may prefer a company with lower Debt to Asset rate and it is much easier for these companies to borrow funds from creditors.
For the above case, Associated British Foods Debt to Assets ratio increased to 1.73 indicating that they have become more leveraged.

The Times interest earned ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest expense (Brigham & Gapenski, 1994). In this case, Associated British Foods ratio has declined as the firm generates 5.89 in operating income for every dollar of interest expense compared to last year's 7.55.

This is one of the best measures of profitability as it indicates how much of net income is generated for each dollar of revenue. Associated Briti ...Show more


The company which have been taken for analysis is Associated British Foods and it belongs to Food Industry. It is publicly traded on London Stock Exchange (LSE). The years for analysis are 2008 and 2009 and the annual reports are available on its website.
Author : schimmelkeshawn
Financial Analysis of Associated British Foods for the year 2008&2009 essay example
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