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Interpretation of
Financial Statements
Food and Beverage (F&B) Industry
• Food & beverage services comprise
establishments engaged in the sale
of prepared food a...
2008 Key Indicators (F&B Industry)
Background
Information
&
SWOT
Analysis
BreadTalk Group Ltd
Introduction
• Incorporated in 2000
• 26 retail outlets island wide
• Listed in 2003
• IPO shares offe...
BreadTalk Group Ltd
Introduction
(cont’d)
• Bakery: BreadTalk, The Icing Room, Toast
Box
• Food Atrium: Food Republic
• Re...
SWOT Analysis
BreadTalk Group Ltd
Internal Strengths
• Well-known brand with strong brand equity
• Sleek transparent glass concept kitch...
BreadTalk Group Ltd
Internal Strengths
• Wide range of innovative products
BreadTalk Group Ltd
Internal Strengths
• Strategic locations
• Experienced management
BreadTalk Group Ltd
Internal Weaknesses
• Higher rents and failure to renew
existing leases
• Dependence on senior
managem...
BreadTalk Group Ltd
Internal Weaknesses
• Dependence on major suppliers
• Individual kitchen in every outlet
Background
Information &
SWOT
Analysis
Old Chang Kee Ltd
Introduction
• Incorporated in 2004
• Listed in 2008
• IPO shares offered at S$0.20
• 25 million shares ...
Old Chang Kee Ltd
Introduction
(cont’d)
• Retail outlets locally: Old Chang
Kee, Take 5 and The Pie Kia Shop
• Retail outl...
Old Chang Kee Ltd
Internal Strengths
 Corporate social responsibility
 Extensive network of retail outlets
 Diversified...
Old Chang Kee Ltd
Internal Strengths
 Experienced management team
 High quality standards
 Promotions
Old Chang Kee Ltd
Internal Weaknesses
 No risk management committee
 Labour-intensive business
Old Chang Kee Ltd
Internal Weaknesses
 Fluctuations in foreign exchange rates
 Expansion decisions
BreadTalk Group Ltd &
Old Chang Kee Ltd
Opportunities
• Expansion opportunities
• Working capital increment
• Increase out...
BreadTalk Group Ltd &
Old Chang Kee Ltd
Threats
• Outbreak of food-related
diseases
• Strong presence of
competitors
BreadTalk Group Ltd &
Old Chang Kee Ltd
Threats
• Changes in consumer response and
preferences
• Changes in governmental
r...
Competitors
• Four Leaves
• Prima Deli
• Polar Puffs & Cakes Pte Ltd
• Jollibean
• Mr Bean
• Any bakeries and food retail
...
Interpretation of Ratios
We will be
covering
analysis on:
Sales / Turnover
/ Revenue
Gross
Profit
Margin
Net Profit
Margin
Fixed Assets
Turnover
De...
What makes up revenue?
BreadTalk
Bakery Sales
Restaurant Sales
Sales to
Franchisee
Franchisee
Income
Food Court Income
Old...
Revenue
Gross Profit Margin
Net Profit Margin
Extract from BreadTalk’s Financial
Statements
Extract from Old Chang Kee’s Financial
Statements
Revenue 2008 2007 Change
BreadTalk 212,249,000 156,610,000 35.53%
Old Chang Kee 48,437,000 40,548,000 19.46%
Revenue
Revenue 2008 2007 Change
BreadTalk 212,249,000 156,610,000 35.53%
Old Chang Kee 48,437,000 40,548,000 19.46%
Revenue
Gross Profit Margin
Gross Profit Margin
= Gross Profit / Sales
Gross Profit Margin
Gross Profit
Margin
2008 2007 Change
BreadTalk 54.39% 55.39% -1
percentage
point
Old Chang Kee 59.61% ...
Net Profit Margin
Net Income After Tax / Revenue
http://beginnersinvest.about.com/od/incomestatementanalysis/a/net-profit-...
Extract from BreadTalk’s Financial
Statements
Extract from Old Chang Kee’s Financial
Statements
Year /
Company
2008 2007 Change
BreadTalk 3.94% 5.39% -1.45
percentage
point
Old Chang
Kee
4.61% 6.52% -1.91
percentage
po...
Cross-Sectional Analysis
• Increase of 35.53% of
revenue
• Sales & market
diversification strategies
• Grown substantially...
Cross-Sectional Analysis
• Increase of 35.53% of
revenue
• Sales & market
diversification strategies
• Grown substantially...
Analysis - Are the Profits of BreadTalk
adequate and sustainable?
• Yes, profits are adequate and sustainable
well into fu...
Fixed Asset Turnover
= Sales / Net Fixed Asset Balance
Extract from BreadTalk’s Financial
Statements
Extract from Old Chang Kee’s Financial
Statements
Year/Company 2008 2007
BreadTalk 3.65 3.49
Old Chang Kee 4.32 4.33
Fixed Asset Turnover
Cross-Sectional Analysis
• Analysis of ratio
• Expansion opportunity
with increasing popularity
of bread product of Asia
•...
Cross-Sectional Analysis
• Analysis of ratio
• Expansion opportunity
with increasing popularity
of bread product of Asia
•...
Is BreadTalk investing enough to
safeguard future profitability?
• Yes
• The company has put much money in
investing fixed...
Debt-Equity Ratios
= Total Liabilities / Shareholder’s Equity
Extract from BreadTalk’s Financial
Statements
Extract from Old Chang Kee’s Financial
Statements
Year/Company 2008 2007
BreadTalk
1.62 1.45
Old Chang Kee
0.55 0.88
Debt-Equity Ratios
Interest Coverage
= (Earnings before interest and tax) /
Interest expense
Extract from BreadTalk’s Financial
Statements
Extract from Old Chang Kee’s Financial
Statements
Year/Company 2008 2007
BreadTalk 15.10 13.39
Old Chang Kee 17.90 53.04
Interest Coverage
Cross-Sectional Analysis
• Debt-equity ratio
• Interest coverage
BreadTalk and OCK
Cross-Sectional Analysis
BreadTalk and OCK
• Debt-equity ratio
• Interest coverage
• Yes.
• Increase in debt-equity ratio -> more aggressive
financing and more probability resulting in
volatile earnings.
•...
2008 2007
BreadTalk -5,518 -3,907
Old Chang Kee 5,319 1,298
2008 2007 Change
BreadTalk 0.93 0.94 - 0.1
Old Chang Kee 1.79 ...
• Current liabilities >
current assets
• May seem that they
are not able to pay
debts when due
• Intercompany loans
for fi...
• Did not invest too much
on stocks and
prepayments
• Ideal balance between
assets and liabilities
• Able to pay liabiliti...
2008 2007 Change
BreadTalk 44.58 51.74 -7.16
Old Chang Kee 96.11 67.36 28.75
• Relaxed credit
standards
• Tightened credit...
2008 2007 Change
BreadTalk 24.66 27.88 - 3.22
Old Chang Kee 26.12 31.47 - 5.35
• Might be due to
stock obsolescence
• Food...
Is the company managing its liquidity position well, will it be able
to sustain its operations in the short and medium ter...
Earnings Per Share
• Favourable and
attractive
• Advantage over
constant expansion
plans
2008 2007 Change
BreadTalk 3.31 3.23 0.08
Old Chang ...
• Investors are paying 20 times
more
• Different investors have their
own opinions
• Bigger change compared to
BreadTalk
•...
• Share prices
decreased though
dividend per ordinary
share constant
• No dividends paid in
year 2008
• Reserve cash for
f...
• Increase in value of
shares
• Worth of share higher
due to increase in
cash and bank
balances
2008 2007 Change
BreadTalk...
• Larger decrease than
OCK
• Ratio still maintained
at >1
• Not a significant
change when
compared to
BreadTalk and ratio
...
• Comparison for both BreadTalk and Old Chang Kee
may be different in terms of size of enterprise as
BreadTalk has other i...
Citations
• http://beginnersinvest.about.com/od/incom
estatementanalysis/a/net-profit-margin.htm
• http://breadtalk.listed...
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
Financial Analysis of two companies in the F&B industry
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Financial Analysis of two companies in the F&B industry

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This is a presentation regarding BreadTalk and Old Chang Kee\'s financial position. The purpose was to compare the two company\'s financial position and recommend which company\'s stocks would be better for investment.

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Transcript of "Financial Analysis of two companies in the F&B industry"

  1. 1. Interpretation of Financial Statements
  2. 2. Food and Beverage (F&B) Industry • Food & beverage services comprise establishments engaged in the sale of prepared food and drinks for immediate consumption. • Integral part of Singapore’s economy • Caters to local consumption and tourism industry
  3. 3. 2008 Key Indicators (F&B Industry)
  4. 4. Background Information & SWOT Analysis
  5. 5. BreadTalk Group Ltd Introduction • Incorporated in 2000 • 26 retail outlets island wide • Listed in 2003 • IPO shares offered at S$0.24 • 32 million shares bought at S$0.30 • 189 times subscribed • Signature food items are chicken and pork floss buns
  6. 6. BreadTalk Group Ltd Introduction (cont’d) • Bakery: BreadTalk, The Icing Room, Toast Box • Food Atrium: Food Republic • Restaurant: Din Tai Fung, The Station Kitchen and Cosmopolitan Cafe • Overseas: China, Malaysia, Indonesia, Philippines, Korea, Bahrain, Saudi Arabia, Vietnam, Hong Kong, Kuwait, Oman, United Arab Emirates and India
  7. 7. SWOT Analysis
  8. 8. BreadTalk Group Ltd Internal Strengths • Well-known brand with strong brand equity • Sleek transparent glass concept kitchen
  9. 9. BreadTalk Group Ltd Internal Strengths • Wide range of innovative products
  10. 10. BreadTalk Group Ltd Internal Strengths • Strategic locations • Experienced management
  11. 11. BreadTalk Group Ltd Internal Weaknesses • Higher rents and failure to renew existing leases • Dependence on senior management
  12. 12. BreadTalk Group Ltd Internal Weaknesses • Dependence on major suppliers • Individual kitchen in every outlet
  13. 13. Background Information & SWOT Analysis
  14. 14. Old Chang Kee Ltd Introduction • Incorporated in 2004 • Listed in 2008 • IPO shares offered at S$0.20 • 25 million shares bought at S$0.18 • 5.4 times subscribed • 70 retail outlets island wide • Signature food item is Curry ’O
  15. 15. Old Chang Kee Ltd Introduction (cont’d) • Retail outlets locally: Old Chang Kee, Take 5 and The Pie Kia Shop • Retail outlets overseas: Chengdu Eatery • Other services: delivery, catering and O’ My Darling • Overseas: China, Malaysia, Indonesia and Philippines
  16. 16. Old Chang Kee Ltd Internal Strengths  Corporate social responsibility  Extensive network of retail outlets  Diversified customer base
  17. 17. Old Chang Kee Ltd Internal Strengths  Experienced management team  High quality standards  Promotions
  18. 18. Old Chang Kee Ltd Internal Weaknesses  No risk management committee  Labour-intensive business
  19. 19. Old Chang Kee Ltd Internal Weaknesses  Fluctuations in foreign exchange rates  Expansion decisions
  20. 20. BreadTalk Group Ltd & Old Chang Kee Ltd Opportunities • Expansion opportunities • Working capital increment • Increase outlets
  21. 21. BreadTalk Group Ltd & Old Chang Kee Ltd Threats • Outbreak of food-related diseases • Strong presence of competitors
  22. 22. BreadTalk Group Ltd & Old Chang Kee Ltd Threats • Changes in consumer response and preferences • Changes in governmental regulations
  23. 23. Competitors • Four Leaves • Prima Deli • Polar Puffs & Cakes Pte Ltd • Jollibean • Mr Bean • Any bakeries and food retail outlets within the vicinity of their retail outlets
  24. 24. Interpretation of Ratios
  25. 25. We will be covering analysis on: Sales / Turnover / Revenue Gross Profit Margin Net Profit Margin Fixed Assets Turnover Debt-Equity Ratio Interest Coverage
  26. 26. What makes up revenue? BreadTalk Bakery Sales Restaurant Sales Sales to Franchisee Franchisee Income Food Court Income Old Chang Kee Outlet Income Franchise and Royalties Income Interest Income Rental Income
  27. 27. Revenue Gross Profit Margin Net Profit Margin
  28. 28. Extract from BreadTalk’s Financial Statements
  29. 29. Extract from Old Chang Kee’s Financial Statements
  30. 30. Revenue 2008 2007 Change BreadTalk 212,249,000 156,610,000 35.53% Old Chang Kee 48,437,000 40,548,000 19.46% Revenue
  31. 31. Revenue 2008 2007 Change BreadTalk 212,249,000 156,610,000 35.53% Old Chang Kee 48,437,000 40,548,000 19.46% Revenue
  32. 32. Gross Profit Margin Gross Profit Margin = Gross Profit / Sales
  33. 33. Gross Profit Margin Gross Profit Margin 2008 2007 Change BreadTalk 54.39% 55.39% -1 percentage point Old Chang Kee 59.61% 58.55% 1.06 percentage point
  34. 34. Net Profit Margin Net Income After Tax / Revenue http://beginnersinvest.about.com/od/incomestatementanalysis/a/net-profit-margin.htm
  35. 35. Extract from BreadTalk’s Financial Statements
  36. 36. Extract from Old Chang Kee’s Financial Statements
  37. 37. Year / Company 2008 2007 Change BreadTalk 3.94% 5.39% -1.45 percentage point Old Chang Kee 4.61% 6.52% -1.91 percentage point Net Profit Margin
  38. 38. Cross-Sectional Analysis • Increase of 35.53% of revenue • Sales & market diversification strategies • Grown substantially • Tight rein on expenses due to economic crisis • Increase of 19.46% of revenue • Launched 1st mobile kitchen, O’ My Darling • Investments have yet to contribute materially • Future revenue from investments are expected BreadTalk Old Chang Kee
  39. 39. Cross-Sectional Analysis • Increase of 35.53% of revenue • Sales & market diversification strategies • Grown substantially • Tight rein on expenses due to economic crisis • Increase of 19.46% of revenue • Launched 1st mobile kitchen, O’ My Darling • Investments have yet to contribute materially • Future revenue from investments are expected BreadTalk Old Chang Kee
  40. 40. Analysis - Are the Profits of BreadTalk adequate and sustainable? • Yes, profits are adequate and sustainable well into future • Well-prepared to face challenges in then future economy • Secured 2 franchise agreements • Likely to attract more F&B collaborations • Able to generate more revenues in the near future
  41. 41. Fixed Asset Turnover = Sales / Net Fixed Asset Balance
  42. 42. Extract from BreadTalk’s Financial Statements
  43. 43. Extract from Old Chang Kee’s Financial Statements
  44. 44. Year/Company 2008 2007 BreadTalk 3.65 3.49 Old Chang Kee 4.32 4.33 Fixed Asset Turnover
  45. 45. Cross-Sectional Analysis • Analysis of ratio • Expansion opportunity with increasing popularity of bread product of Asia • Note 10 to financial statement • More sales will be generated in the future • Analysis of ratio • Increase and refurbished local outlets, like Take 5! • Note 11 to financial statement • Perform better than BreadTalk BreadTalk Old Chang Kee
  46. 46. Cross-Sectional Analysis • Analysis of ratio • Expansion opportunity with increasing popularity of bread product of Asia • Note 10 to financial statement • More sales will be generated in the future • Analysis of ratio • Increase and refurbished local outlets, like Take 5! • Note 11 to financial statement • Perform better than BreadTalk BreadTalk Old Chang Kee
  47. 47. Is BreadTalk investing enough to safeguard future profitability? • Yes • The company has put much money in investing fixed assets • The fixed assets were effectively utilized to generate more income.
  48. 48. Debt-Equity Ratios = Total Liabilities / Shareholder’s Equity
  49. 49. Extract from BreadTalk’s Financial Statements
  50. 50. Extract from Old Chang Kee’s Financial Statements
  51. 51. Year/Company 2008 2007 BreadTalk 1.62 1.45 Old Chang Kee 0.55 0.88 Debt-Equity Ratios
  52. 52. Interest Coverage = (Earnings before interest and tax) / Interest expense
  53. 53. Extract from BreadTalk’s Financial Statements
  54. 54. Extract from Old Chang Kee’s Financial Statements
  55. 55. Year/Company 2008 2007 BreadTalk 15.10 13.39 Old Chang Kee 17.90 53.04 Interest Coverage
  56. 56. Cross-Sectional Analysis • Debt-equity ratio • Interest coverage BreadTalk and OCK
  57. 57. Cross-Sectional Analysis BreadTalk and OCK • Debt-equity ratio • Interest coverage
  58. 58. • Yes. • Increase in debt-equity ratio -> more aggressive financing and more probability resulting in volatile earnings. • Increase in interest coverage -> investors will be more confident that they would be able to meet interest obligations. Analysis - Are the finances of the company sensibly and effectively structured?
  59. 59. 2008 2007 BreadTalk -5,518 -3,907 Old Chang Kee 5,319 1,298 2008 2007 Change BreadTalk 0.93 0.94 - 0.1 Old Chang Kee 1.79 1.21 0.58
  60. 60. • Current liabilities > current assets • May seem that they are not able to pay debts when due • Intercompany loans for financing • Ideal balance between assets and liabilities • Able to pay liabilities when they fall due
  61. 61. • Did not invest too much on stocks and prepayments • Ideal balance between assets and liabilities • Able to pay liabilities when they fall due in the short term 2008 2007 Change BreadTalk 0.86 0.87 - 0.1 Old Chang Kee 1.61 1.03 0.58
  62. 62. 2008 2007 Change BreadTalk 44.58 51.74 -7.16 Old Chang Kee 96.11 67.36 28.75 • Relaxed credit standards • Tightened credit policies
  63. 63. 2008 2007 Change BreadTalk 24.66 27.88 - 3.22 Old Chang Kee 26.12 31.47 - 5.35 • Might be due to stock obsolescence • Food wastage • Similar to BreadTalk
  64. 64. Is the company managing its liquidity position well, will it be able to sustain its operations in the short and medium term?
  65. 65. Earnings Per Share
  66. 66. • Favourable and attractive • Advantage over constant expansion plans 2008 2007 Change BreadTalk 3.31 3.23 0.08 Old Chang Kee 2.42 3.87 -1.45
  67. 67. • Investors are paying 20 times more • Different investors have their own opinions • Bigger change compared to BreadTalk • Still lower than BreadTalk and less attractive 2008 2007 Change BreadTalk 22.19 21.98 0.21 Old Chang Kee 9.71 6.07 3.64
  68. 68. • Share prices decreased though dividend per ordinary share constant • No dividends paid in year 2008 • Reserve cash for funding of future overseas expansions 2008 2007 Change BreadTalk 9.86 8.45 13.31 Old Chang Kee 0.00 77.77 -77.77
  69. 69. • Increase in value of shares • Worth of share higher due to increase in cash and bank balances 2008 2007 Change BreadTalk 17.14 13.84 3.30 Old Chang Kee 22.35 18.77 3.58
  70. 70. • Larger decrease than OCK • Ratio still maintained at >1 • Not a significant change when compared to BreadTalk and ratio still close to 1 2008 2007 Change BreadTalk 4.12 5.00 -0.88 Old Chang Kee 1.07 1.23 -0.16
  71. 71. • Comparison for both BreadTalk and Old Chang Kee may be different in terms of size of enterprise as BreadTalk has other investments such as restaurants and food courts while Old Chang Kee does not. • Non-quantifiable items, which could have aided in a comprehensive analysis, not reflected in financial statements such as efficiency and effectiveness of the company’s management. • 31st December year end for both companies may not represent the position of both companies for whole year from January to December
  72. 72. Citations • http://beginnersinvest.about.com/od/incom estatementanalysis/a/net-profit-margin.htm • http://breadtalk.listedcompany.com/shareh olders.html • http://www.oldchangkee.com/ • http://oldchangkee.listedcompany.com/fina ncial_ratios.html • http://uk.reuters.com/business/quotes/chart? symbol=BRET.SI • http://uk.reuters.com/business/quotes/chart? symbol=OCKL.SI • http://liberta.co.za/blog/what-is-net-worth/
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