Fonterra Corporation is a global dairy co-operative owned by around 10,000 New Zealand farmers. It supplies over 140 countries with dairy products including fresh milk, milk powders, butter, cheese and yogurt. Between 2013-2014, Fonterra's profitability increased as shown by higher return on equity and net profit margin. However, gross profit margin declined. Stability ratios show working capital decreased while debt increased from 2013-2014. The price-earnings ratio was stable at 1:1 in 2014. Based on Fonterra's financial performance and opportunities in growing global dairy markets, investment in Fonterra is recommended for 2015 due to its stable profits, management and products that meet increasing global demand. However

1. 1
SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
FOUNDATION IN NATURAL BUILD ENVIRONMENT
AUGUST 2014
MODULE: BASIC ACCOUNTING
Lecturer/ Tutor : Mr. Chang Jau Ho
Submission Date : 4th
of June 2015
GROUP MEMBERS:
Names Student ID
Deong Khai Keat 0320055
Boon Yi Chung 0318300
Chan Tian Ji 0320831

2. 2
Content
Content Page
BACKGROUND OF
FONTERRA CORPORATION
3
RECENT DEVELOPMENT 4
PROFITABILITY RATIO 5 - 6
STABILITY RATIO 7 - 8
PRICE & EARNING RATIO 9
INVESTMENT
RECOMMENDATION
10
APPENDIX 11 - 17
REFERENCES 18

3. 3
Background of Fonterra Corporation
Fonterra is a global and co-operatively company in the world. Fonterra was started by
a bunch of farmer shareholder which decided to build up a co-operative to be a world
leader in New Zealand over the 140 years. They supply fresh milk to different country all
over the world .Every year Fonterra will collect 22 billion liters of milk and supply it out
of the country. They stand together and focus on the quality of milk supplied. Fonterra
have 16,000 passionate in New Zealand helping out the farmer so the milk supplied is
enough for people from 140 countries. With the strong team Fonterra had, they produce 2
million tones of milk every day.
New Zealand’s dairy industry started in the year 1814. The earlier European settlers
imported the first cattle into New Zealand. The first export began just six year after the
Treaty of Waitangi signed. The first co-operative was created in Otago in
1871.Refrigeration opened new markets to New Zealand’s agriculture industry as the
United Kingdom becoming the largest export market for dairy until 1970s. Slowly many
different products were exported to the world market. Fonterra was formed in the year
2001 to represent 95% of New Zealand’s dairy farmer, the shareholder.
Fonterra supply not only milk but also other product such as food. Fonterra supply
their products to many countries such as New Zealand, Australia, China, Asia, North
America, Europe, Middle East and Africa and also Latin America. Fonterra have 3
famous brands which is Anchor, Anmum and Anlene. Fonterra also supply different type
of food such as cheese, butter, yogurt and so on. The farmgate milk price is around $4.40
to $5.40 .

4. 4
Recent Development
Over the years, Fonterra had started and changed from just producing milk to
producing food that have milk as the ingredients. They started to produce more and
more milk nowadays and their selling had reached 15.7 billion a years. The business
started with a bunch of farmer and now there are 16,000 people all around the world
are helping out.
Recently, Fonterra had set fixed base milk price at $ 5.54 per kilogram of milk solid
on the 22th of May 2015. On the 27th
of May 2015, Fonterra also announced that Sir
Ralph Norris which is the Independent Director of Fonterra had resigned because of his
other commitment. Fonterra also revised forecast farm gate milk price for 2014/2015
and announce forecast for 2015/2016. Fonterra had reduced its forecast farm gate milk
price to $ 4.40 per kgMS. So, the Co-operative also announce the forecast farm gate milk
price which is $ 5.25 per kgMS. So, following the announcement of the forecast farm
gate milk price, applications are now open for Fonterra to farmer to lock in a Guaranteed
Milk Price(GMP) for a percentage of their milk on the 2nd
of June 2015. The applications
runs until 5 pm of 19th
of June. Once the applications closed, the total kgMs offered by
the applicants will be total up.

5. 5
Profitability Ratios
FORMULA 2013 2014
Return on
Equity
(ROE)
X 100%
x 100%
= 4%
x 100%
= 5.5%
Net Profit
Margin
(NPM)
X 100%
x 100%
= 1.44%
x 100%
= 1.64%
Gross Profit
Margin
(GPM)
X 100%
x 100%
= 16.26%
x 100%
= 11.05%
Selling Exp.
Ratio
(SER) X 100%
x 100%
= 7.44%
x 100%
= 6.08%
General
Exp.
Ratio
(GER)
X 100%
x 100%
= 2.76%
x 100%
= 2.24%
Financial
Exp.
Ratio
(FER)
X100%
x 100%
= 1.9%
x 100%
= 1.6%

6. 6
Interpretation of Profitability Ratios
• Return on Equity
Over the 2013 to 2014 period, the business’s ROE has increased from 4% to
5.5%. The owner is getting more return from the capital.
• Net Profit Margin
During the year 2013 to 2014, the Net Profit Margin has increased from
1.44% to 1.64%. The business is getting better at it overall expenses last year.
• Gross Profit Margin
During the year 2013 to 2014, the Gross Profit Margin has decreased from
16.26% to 11.05%.The business ability to control its COGS expenses is
getting worst.
• Selling Expenses Ratio
During the year 2013 to 2014, the SER has decreased from 7.45% to 6.08%.
The business ability to control its Selling expenses is better than last year.
• General Expenses Ratio
During the year 2013 to 2014, the GER has decreased from 2.76% to 2.24%.
The business ability to control its General expenses is better than last year.
• Financial Expenses Ratio
During the year 2013 to 2014, the FER has decreased from 1.9% to 1.6%. The
business ability to control its Financial expenses is better than last year.

7. 7
Stability Ratios
FORMULA 2013 2014
Working
Capital
.
= 1.38 : 1 = 1.26 : 1
Total
Debt
x 100%
= 5.31%
x 100%
= 57.9%
Stock
Turnover
365days x 365 /
= 70.8 Days
365 /
= 62.4 Days
Interest
Coverage
.
= 0 = 0

8. 8
Interpretation of Stability Ratios
• Working Capital
Over the 2013 to 2014 period, the business’s Working Capital has
decreased from 1.38 : 1 to 1.26 : 1.
• Total Debt
During the year 2013 to 2014, the business Total Debt has increased
from 5.31% to 57.9%. The total debt of business has increased.
• Stock Turnover
During the year 2013 to 2014, the business stock turnover has
decreased from 70.8days to 62.4days. The business sell its good
faster compared to last year.
• Interest Coverage
During the year 2013 to 2014, the business interest coverage is still
the same.

9. 9
Price & Earning Ratio
2013
P & E Ratio = Market Value per Share / Earnings per Share (EPS)
= 32 cents / 44 cents
= 0.7273 : 1
2014
P & E Ratio = Market Value per Share / Earnings per Share (EPS)
= 10 cents / 10 cents
= 1 : 1
Investment Recommendation
According to the data that we had researched and analyzed, it shows that Fonterra Cooperating Company is

10. 10
a company that are worth to be invest. From 2013 to 2014, this company gaining more profit every year. By
comparing every of the data that we analyze, shows clearly that this company can consider as a least percentage
risk investment company. Its profitability ratios are all positive which means that the profits gained are also
positive too. Fonterra is a company that mainly produce milk powder for child and elderly as mentioned on the
statement above. Report of the population for every country are increasing as the babies produced are
increasing nowadays. This is a benefits for Fonterra, because the products produced will be increasing as the
population of babies are increasing. This happen same to the elderly. Every elder that suffer from diseases such
as diabetes, high blood pressure needs the suitable milk powder. When the sales become higher, the share will
also increases as the result shows this company is earning profit.
Moreover, the stability ratios also show that Fonterra is a well managed company. As the years move on,
this company is also becoming more and more stable. As for every stable company, the investment applied will
also be safer compare to unstable company.
Therefore, to make an investment in Fonterra in 2015 is a good choice referring to its development of in
2013 to 2014. My recommend for investor is to make a small investment at the beginning of their investment
instead from putting all effort on it. This is to prevent the risk of failure in investment because nobody knows
what will happen in the next second.
Appendix
INCOME STATEMENT
FOR THE YEAR ENDED 31 JULY 2014
GROUP $ MILLION
Revenue from sale of goods 22,275 18,643
Dividends received – –
Total revenue 22,275 18,643
Cost of goods sold 1 (19,813) (15,611)
Gross profit 2,462 3,032
Other operating income 139 105
Selling and marketing expenses (593) (622)
Distribution expenses (499) (514)

11. 11
Administrative expenses (762) (766)
Other operating expenses (356) (354)
Net foreign exchange gains/(losses) 3 39 (7)
Share of profit of equity accounted investees 11 73 63
Profit before net finance costs and tax 2 503 937
Finance income 4 13 25
Finance costs 4 (379) (294)
Net finance (costs)/income (366) (269)
Profit before tax 137 668
Tax credit 5 42 68
Profit after tax 179 736
Profit after tax is attributable to:
Equity holders of the Parent 157 718
Non-controlling interests 22 18
Profit after tax 179 736

12. 12
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 JULY 2014
GROUP $ MILLION
31 JULY 2014 31 JULY
2013
Profit after tax 179 736
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges:
– Net fair value gains 732 116
– Transferred and reported in revenue from sale of goods (505) (317)
– Tax (expense)/credit on cash flow hedges (63) 56
Net investment hedges:
– Net fair value gains/(losses) on hedging instruments 25 (5)
– Tax (expense)/credit on net investment hedges (7) 2
Available-for-sale investments:
– Net fair value losses on available-for-sale investments (1) –
Foreign currency translation losses attributable to equity holders (207) (45)
Foreign currency translation reserve transferred to income statement – (7)
Share of equity accounted investees’ movements in reserves (11) (1)
Total items that may be reclassified subsequently to profit or loss (37) (201)
Items that will not be reclassified subsequently to profit or loss:
Foreign currency translation (losses)/gains attributable to non-
controlling interests
(4) 1
Total items that will not be reclassified subsequently to profit or loss (4) 1
Total other comprehensive (expense)/income recognised directly in
equity
(41) (200)
Total comprehensive income 138 536
Total comprehensive income is attributable to:
Equity holders of the Parent 120 517
Non-controlling interests 18 19
Earnings per share:
Basic and diluted earnings per share 24 0.10 0.44

13. 13
Total comprehensive income 138 536
STATEMENT OF FINANCIAL POSITION
AS AT 31 JULY 2014
GROUP $ MILLION
NOTES 31 JULY 2014 31 JULY
ASSETS
Current assets
Cash and cash equivalents 340 330
Trade and other receivables 8 1,950 2,054
Inventories 9 3,701 3,078
Tax receivable 20 26
Derivative financial instruments 303 100
Assets held for sale 58 –
Other current assets 112 58
Total current assets 6,484 5,646
Non-current assets
Property, plant and equipment 10 5,091 4,807
Investment in subsidiaries – –
Equity accounted investments 11 388 449
Intangible assets 12 2,791 2,858
Deferred tax assets 16 231 217
Available-for-sale investments 74 –
Derivative financial instruments 154 127
Other non-current assets 316 269
Total non-current assets 9,045 8,727
Total assets 15,529 14,373
LIABILITIES
Current liabilities
Bank overdraft 21 1
Borrowings 15 1,534 1,569
Trade and other payables 13 1,638 1,491
Owing to suppliers 1,771 711
Tax payable 18 23
Derivative financial instruments 30 149
Provisions 14 47 82
Other current liabilities 74 52
Total current liabilities 5,133 4,078
Non-current liabilities
Borrowings 15 3,364 3,108
Derivative financial instruments 415 346
Provisions 14 65 76
Deferred tax liability 16 5 6
Other non-current liabilities 13 11
Total non-current liabilities 3,862 3,547
Total liabilities 8,995 7,625
Net assets 6,534 6,748
EQUITY
Subscribed equity 5,807 5,807
Retained earnings 1,059 1,249
Foreign currency translation reserve (455) (266)
Cash flow hedge reserve 82 (82)

14. 14
Available-for-sale reserve (1) –
Total equity attributable to equity holders of the Parent 6,492 6,708
Non-controlling interests 42 40
Total equity 6,534 6,748
The accompanying notes form part of these financial statements.

15. 15
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 JULY 2014
ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
FORE
IGN
CURREN
CY
TRANSL
CASH
FLOW
AVAIL
ABLE-
NO
N-
As at 1 August 2013 5,807 1,249 (266) (82) – 6,708 40 6,748
Profit after tax – 157 – – – 157 22 179
Other comprehensive – (11) (189) 164 (1) (37) (4) (41)
Total comprehensive income/ – 146 (189) 164 (1) 120 18 138
Transactions with equity holders in their capacity as equity holders:
Dividend paid to equity holders of – (336) – – – (336) – (336)
Dividend paid to non-controlling – – – – – – (16) (16)
As at 31 July 2014 5,807 1,059 (455) 82 (1) 6,492 42 6,534
As at 1 August 2012 5,690 1,078 (211) 63 – 6,620 35 6,655
Profit after tax – 718 – – – 718 18 736
Other comprehensive – (1) (55) (145) – (201) 1 (200)
Total comprehensive income/ – 717 (55) (145) – 517 19 536
Transactions with equity holders in their capacity as equity holders:
Dividend paid to equity holders of – (546) – – – (546) – (546)
Equity instruments issued 611 – – – – 611 – 611
Equity instruments cancelled (475) – – – – (475) – (475)
Equity instruments surrendered (1) – – – – (1) – (1)
Equity transaction costs (18) – – – – (18) – (18)
Dividend paid to non-controlling – – – – – – (14) (14)
As at 31 July 2013 5,807 1,249 (266) (82) – 6,708 40 6,748
SUBSCRIBED ACCUMUL
CASH
FLOW
As at 1 August 2013 5,807 (900) (60) 4,847
Profit after tax – 167 – 167
Other comprehensive income – – 3 3
Total comprehensive income – 167 3 170
Transactions with equity holders in their capacity as equity holders:
Dividend paid to equity holders – (336) – (336)
As at 31 July 2014 5,807 (1,069) (57) 4,681
As at 1 August 2012 5,690 (584) (67) 5,039
Profit after tax – 230 – 230
Other comprehensive income – – 7 7
Total comprehensive income – 230 7 237
Transactions with equity holders in their capacity as equity holders:
Dividend paid to equity holders – (546) – (546)
Equity instruments issued 611 – – 611
Equity instruments cancelled (475) – – (475)
Equity instruments surrendered (1) – – (1)
Equity transaction costs (18) – – (18)
As at 31 July 2013 5,807 (900) (60) 4,847

16. 16
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 JULY 2014
GROUP $ MILLION
31 JULY 2014 31 JULY
Cash flows from operating activities
Profit before net finance costs and tax 503 937
Adjustments for:
Foreign exchange losses 11 1
Depreciation and amortisation 538 530
Movement in provisions 132 (17)
Other (41) (16)
640 498
(Increase)/decrease in working capital:
Trade and other receivables (111) 38
Amounts owing to suppliers 1,060 (410)
Payables and accruals 111 68
Other movements (28) (8)
Total 275 (355)
Cash generated from operations 1,418 1,080
Net taxes paid (51) (83)
Net cash flows from operating activities 1,367 997
Cash flows from investing activities
Cash was provided from:
– Proceeds from sale of Group entities and other business operations 46 5
– Proceeds from disposal of property, plant and equipment 12 22
– Net loans from Group entities – –
– Other cash inflows 21 5
Cash was applied to:
– Acquisition of Group entities and other business operations (18) (49)
– Acquisition of available-for-sale investments (78) –
– Acquisition of property, plant and equipment (791) (701)
– Acquisition of intangible assets (102) (147)
– Net loans to Group entities – –
– Other cash outflows (99) (3)
Net cash flows from investing activities (1,009) (868)
Cash flows from financing activities
Cash was provided from:
– Proceeds from borrowings 4,241 3,188
– Proceeds from issue of equity instruments – 653
– Proceeds for equity instruments not yet issued – –
– Interest received 13 26
– Other cash inflows 8 3
Cash was applied to:
– Interest paid (332) (334)
– Repayment of borrowings (3,894) (3,268)
– Settlement of borrowing derivatives (24) –
– Surrendered/cancelled equity instruments – (475)
– Dividends paid to non-controlling interests (16) (14)
– Dividends paid to equity holders of the Parent (336) (546)
– Equity transaction costs – (18)
– Other cash outflows – (1)
Net cash flows from financing activities (340) (786)
Net increase/(decrease) in cash and cash equivalents 18 (657)
Cash and cash equivalents at the beginning of the year 329 991
Effect of exchange rate changes on cash balances (28) (5)
Cash and cash equivalents at the end of the year 319 329
Cash and cash equivalents 340 330
Bank overdraft (21) (1)
Closing cash balances 319 329

17. 17
References
www.fonterra.com
https://www.fonterra.com/wps/wcm/connect/25050b8c-0661-4811-a8f0-
8f134fa6d804/Fonterra+Financial+Statements+2014.pdf?MOD=AJPERES
https://www.fonterra.com/wps/wcm/connect/Fonterra_Global_en/Fonterra/Hub%20Sites/News%20and
%20Media/Media%20Releases/Fonterra%202014%20annual%20result/Fonterra%202014%20annual%20result?
pageID=Z6QReDe5ROA6JD6L1D8MM8CN9D6MMG65BC4MM0723P8JM4C1RD2MQ86IPDIJQKCH1
http://www.investopedia.com/terms/p/price-earningsratio.asp
http://www.fonterra.com/global/en/financial/financial+results