Ratio Analysis of Aryzta AG and Total Produce Plc

CorporateFinance (CW_BBBBM_B) Y4 (FNCEH4305)
Investment Appraisal
of Aryzta AG and
Total Produce Plc
using Ratio Analysis
CorporateFinance Assignment1
Mike Taylor C00174969
11/30/2015

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INSTITUTE of
TECHNOLOGY
CARLOW

Index
Chapter 1....................................................................................................................................................................................1
About Aryzta AG...................................................................................................................................................................1
Frozen Bakery Market.........................................................................................................................................................1
About Total Produce PLC....................................................................................................................................................1
Fresh Produce Sector ..........................................................................................................................................................2
Chapter 2....................................................................................................................................................................................2
Corporate Governance........................................................................................................................................................2
Aryzta AG Corporate Governance Policy.........................................................................................................................2
Total Produce Plc Corporate Governance Policy............................................................................................................3
Chapter 3....................................................................................................................................................................................4
Analysis of Aryzta AG using ratios.....................................................................................................................................4
Profit Margins:.................................................................................................................................................................4
Profitability:......................................................................................................................................................................4
Asset Utilisation:..............................................................................................................................................................4
Liquidity:...........................................................................................................................................................................4
Working Capital Management Cycle: ..........................................................................................................................5
Capital Structure: ............................................................................................................................................................5
Chapter 4....................................................................................................................................................................................6
Analysis of Total Produce Plc using ratios .......................................................................................................................6
Profit Margins:.................................................................................................................................................................6
Profitability:......................................................................................................................................................................6
Liquidity:...........................................................................................................................................................................6
Chapter 5....................................................................................................................................................................................8
Comparison of Aryzta AG and Total Produce based on Ratio Analysis ......................................................................8
Profit Margins:.................................................................................................................................................................8
Profitability:......................................................................................................................................................................8
Liquidity:...........................................................................................................................................................................8
Chapter 6....................................................................................................................................................................................9
Recommendations...............................................................................................................................................................9
Appendix..................................................................................................................................................................................10

1
Chapter1
About Aryzta AG
Aryzta AG is a frozen foods company based in Zurich, Switzerland, and is one of the
world’s largest producers and Distributors of frozen bakery products in the world. The
company was formed in 2008 after the merger between the Irish Agricultural Wholesale
Society (IWAS) and Swiss bakery company Hiestand Holding AG. Aryzta is incorporated
in Switzerland but is both listed in the Swiss and Irish Stock exchanges. The company
operates in Europe, North America, South America, South East Asia and Australia. The
company segments its business into four groups; Food Europe, Food North America,
Food Rest of World and Origin Enterprises. Food Europe is established in 20 bakeries in
14 countries across Europe and deals with an array of companies from convenience retail
all the way to hotels and restaurants. Food North America is centred on The US and
Canada and operates 29 bakeries and kitchens in total. Food Rest of World focuses
activities on nine countries such as Japan, Brazil, Australia and New Zealand and runs a
total of eleven bakeries and kitchens in this district. Origin Enterprises comprises of a
number of agri-services companies that are located in Ireland, the UK and Poland.
Frozen Bakery Market
The Frozen bakery market is one of the fastest growing sectors in the frozen food market
with a significant increase in demand for the ready-to-bake and ready-to-thaw consumer
products, according to market research firm Markets-and-markets. The growth has been
driven by the rising demand for convenience food products by consumers who wish to
save time and effort in their busy schedules. On-the-go restaurants and delis are also
increasing demand for frozen dough and bakery products that they use to create fresh
items for sale. Another advantage is the prolonged shelf life offered by frozen products
that can be used to iron out stock shortages in seasons of higher demand. Due to this
strong outlook experts predict that a compound annual growth rate of 8.5% between
now and 2020 will mean that the industry will be worth $21.2 billion by the end of 2020.
The strongest geographical growth region is Europe, where the demand for frozen
products is consistently growing, due to rising numbers of convenience shoppers and the
advantages of reduction in wastage for retailers with baking on demand among other
reasons.
About Total Produce PLC
Total produce is an Irish provider of fresh fruit and vegetables. They are involved in
growing, sourcing, importing, packaging, distributing and marketing produce from
around the world. Total Produce operates subsidiaries such as Fyffes, Goldland,
Everfresh, Britfresh, to name but a few. The company was incorporated in Ireland in
2006 and has its headquarters in Dundalk, county Louth, with a staff of over 4000
people. They have over 100 operations in 20 countries in including parts of Europe, India
and South Africa. The Group has a dedicated UK division that undertake all operations in
getting fresh produce to the UK market in a similar fashion to that of Irish operations. A
further International division accommodates other countries in marketing distribution
and procurement of over 200 lines of fresh produce and sells to a wide array of retailers
throughout the world.

2
Fresh Produce Sector
Recent research has shown that the fresh produce sector continues to be the strongest
sector of the Irish grocery market with a substantial 14% share, according to Bord Bia.
Fresh produce is currently valued at €1.2 billion per anum to the Irish economy. Surveys
have shown that consumers are purchasing fresh produce more frequently, roughly a
0.7% increase year on year. This is reflected in an increase in the number of purchasing
trips made per year per customer to 154 trips and so too is the volume of goods
purchased. In the UK the market demand fell by 0.8% in 2014 due to an
uncharacteristically poor summer, weather wise, however overall the demand in the UK
is forecasted to grow by a healthy 7.8% between 2015 and 2019.
Chapter2
Corporate Governance
The concept of corporate governance is to act as a means of keeping the board of
directors and senior management in check in relation to the best interests of
shareholders, stakeholders and in compliance with the law of the land. It is defined as a
system of rules, principles and processes used as a deterrence for deliberate
mismanagement. The idea behind corporate governance is to promote transparency and
the undertaking of business with integrity and fairness at the forefront. Corporate
governance, if applied correctly, should not stifle creativity or negatively impact the
decision making process, rather it should act as a policing tool for perpetrators of
dishonest behaviour. One of the most infamous examples of how much damage can be
done when corporate governance policies fail can be seen in the case of the Enron
collapse in the US in 2001. Chief Executive Officer (CEO), Jeff Skilling, along with other
company executives, eroded the once outstanding corporate governance standards of
Enron, and defrauded hundreds of millions of dollars out of shareholders, employees and
customers through a series of dishonest, unethical and often illegal practices over a four
year period. Since the collapse and ensuing scandal at Enron, much more weight has
been placed on transparency of business practices around the world in an effort to
prevent such a disaster from ever happening again.
Aryzta AG Corporate Governance Policy
The board of directors of Aryzta AG consists of ten individuals, three executive and seven
non-executive directors. The purpose of having such a high proportion of non-executive
directors is to have a board that are able to think independently and fairly for the best
interests of the company and not be influenced by politics and other impediments that
come with executive membership. This policy, according to the Aryzta 2014 annual
report is in accordance with the Swiss code of best practice for corporate governance.
The board is made up of ten men and varies in nationality between Irish, English,
American and German, with Irish being predominant nationality, and that of the
Chairman CEO and Chief Financial Officer (CFO). This wide diversity of ethnicity allows
for a good mix of inputs into company culture and creates a more innovative
environment helping to push the company into the future. The average age of the board
members is 70 years and each has a wealth of experience with most having sat on other
boards as directors in the past. The youngest director is the Chief Operations Officer
(COO), Patrick McEniff, who is 48 years old and the oldest is the company Chairman,
Denis Lucey, at 78 years old. This may seem like quite an aged board of directors,
however many boards of directors have a similar age profile, and are made up of

3
individuals who have spent a lifetime in the area of business in which they are directing
and have a grasp of the industry that an individual of lesser experience could not hope to
have. In the case of Aryzta the Chairman, Mr Lucey, has been CEO of two major Irish
food companies during his career and an unrivalled knowledge of the sector. The board
of directors reports directly to the shareholders of the company and oversees strategic
and long-term orientated goals within the company, but delegates the day to day
running of the business to an appointed board of management. Though the board is
directly answerable to the shareholders, they are placed in a position of special trust and
power and have a fiduciary relationship with the welfare of the company over the
individual interest of the company. The annual report outlines the availability of stock
options open to management and directors, which is positive from a corporate
governance perspective because in helps align the agenda of company management with
that of progression of the business.
It is noted on the Aryzta 2015 annual report that as from the 2015 Annual General
Meeting, there will be votes cast concerning the compensation given to the board of
directors and executive managers for their services in the company. At the meeting the
norm is to have ordinary shareholders cast a vote on such issues and the result is drawn
from an ordinary resolution where a simple majority of votes approves or the
remuneration package. This policy is to ensure transparency of remuneration packages
and is particularly appropriate in light of recent remuneration scandals in the Irish
Farmers Association.
TotalProduce Plc Corporate Governance Policy
The board of directors of Total Produc e contains seven members, six men and one
woman, all quite seasoned in the world of business. Four of the directors are executive
and three are non-executive. Total Produce mentions in their annual statement for 2014
the value they place in having a good proportion of non-executive board members and
the “unfettered perspective” that comes with it in regard to board member deliberations.
The report also points out a quite obvious but nonetheless important executive structure
for the formation of the board that the position of Chairman and that of CEO should be,
and is in the case of Total Produce and Aryzta, filled by different individuals. The role of
Chairman, according to the Total Produce report, is to ensure an adequate return to the
shareholders and that long-term strategic targets are met as well as keeping the
boardroom in check. The role of the CEO on the other hand is to develop and deliver on
the long term strategies, to relay critical information to the board in a timely manner and
to responsible for the day-to-day running of the business. The board assess its own
performance on an annual basis. The executive and non-executive members look at such
issues as the appropriateness of its composition, its effectiveness in furthering company
goals, its ability to effectively assess and deal with risk and its response to developing
issues from a shareholder perspective. The report mentions committees such as an
auditing and remuneration committee that are used to effectively govern the company.
The salaries including bonuses and expenses are detailed in the report and it is worth
noting that in an article written on a local news website in Dundalk, the “Talk of the
Town” that the writer expresses dismay that the chairman of Total Produce, Carl
McCann, received remuneration three times higher than that of An Taoiseach, Enda
Kenny, in 2013. This was followed by a subsequence rise of 0.07% in 2014. Whether this
remuneration is justified is a matter for the relevant board and ultimately the
shareholders.

4
Chapter3
Analysis of Aryzta AG using ratios
Profit Margins:
The Gross profit margin for Aryzta has risen by 0.7 of a percentage point (PP) in the
twelve months from July 2013 to July 2014. This is quite a small growth given the fact
that revenue rose by almost 7% in the same period. The net profit margin was
predictably even smaller for the period and rose only 0.1 of a percentage point over the
year. These low rises in the profit margins despite a substantial rise in the revenue may
be explained in a higher than proportional rise in purchased materials and overhead
expenses. This may point to a weakness in the company’s procurement department and
may warrant the implementation of tighter financial controls to control the outflow of
cash.
Profitability:
The profitability is slightly less favourable for Aryzta in 2014 than it was in 2013 from
the shareholder or lenders perspective. The Return on Capital Employed (ROCE) dropped
by 0.7 of a percentage point to 4.9% in 2014 but the Return on Shareholder’s Funds
(ROSF) remained the same at 5.9%. These figures are worryingly low and what’s even
more worrying is that they are well below its Weighted Average Cost of Capital (WACC)
for that year which was 7% down from 7.7% the previous year as stated on page 53 of
Aryzta’s 2014 annual report. This is bad news for investors. It means that for every euro
invested into the business through equity or debt, the company will lose 2.1 cent worth
of value. Generally this is a red flag for investors to put their money elsewhere.
Asset Utilisation:
2014 also seen a significant decrease in the utilisation of assets in the business shown
by the reduction in both the Capital Utilisation ratio and the Non-Current Asset (NCA)
Utilisation ratio. The NCA utilisation ratio fell by 0.16 to a ratio of 0.91:1 while Capital
utilisation fell by 0.1 to a unit to a ratio of 0.92:1. This tells the investor that there is
less revenue being generated per euro invested in the company which is quite a negative
prospect. The steeper fall in the NCA utilisation ratio indicates that there is less efficient
use of non-capital fixed assets, such as buildings and infrastructure, to generate
revenue, which quite worrying for a manufacturing company such as Aryzta.
Liquidity:
Again, the liquidity position of Aryzta is not wonderful for 2014. All three ratios, including
the Current ratio, the Acid Test/ Quick ratio and the Cash ratio, are lower than they were
in 2013. The Current ratio works out at 0.99:1 down 0.15 of a unit on 2013. This ratio
shows the ability of the company to cover short term liabilities with short term assets
but can be misconceived if the investor doesn’t realise that it is very unlikely that all
current assets can be utilised to cover any current liabilities that may occur when the
company is to be seen as a going concern. The general rule for a manufacturing industry
such as Aryzta, is to maintain a current ratio of roughly 2:1 which is more than double
the strength of the ratio that Aryzta actually has. When we remove the inventory from
the current assets we and compare this to the current liabilities we get the Acid Test
ratio and this too is performing quite poorly for Aryzta in 2014. It now sits at 0.77:1,
which is down 0.16 of a unit on last year’s reading. Again this is well below the generally
accepted industry average of 1:1 but is not significantly lower than the current ratio
showing that the company is not over and above dependant on inventory to cover
current liabilities. Though the acid test may be a more comprehensive view of liquidity
within Aryzta should note the turnover period for accounts receivables, which is analysed

5
below, to get a true reflection of the liquidity position in the company as a long turnover
period would render a positive result for the acid test ratio obsolete. Finally the Cash
ratio, which is a useful measure for the immediate clearance of short term liabilities with
no lead time, is unfortunately quite small in the case of Aryzta during 2014 and down
from that of 2013. That being said, it is unusual for a company to keep large amounts of
cash in the company as it can be seen as poor asset utilisation. This is often a ratio that
is overlooked by investors and due to the nature of a manufacturing business, like
Aryzta, there is unlikely to be large cash ratios of any business in the sector and
therefore it is not a ratio of major importance. For Aryzta in 2014 the ratio was 0.41:1
down from 0.45:1 in 2013. This ratio is unlikely to ever reach 1:1, but I would say for
the most part is adequate at its current level.
Working Capital Management Cycle:
Aryzta are in a position of apparent strength in relation to their Working Capital
Management (WCM) cycle. They have negative values for their Working Capital Cycle
(WCC) in both 2013 and 2014, with a larger negative value of 38 days in 2014 compared
with 22 days in 2013. The reason for these negative values is because their settlement
period for outstanding trade payables days are so high when compared with both the
settlement period for trade receivables and their inventory turnover period. This means
that they are able to retain the cash for 38 days within the business before they pass it
on to their creditors. Though this may sound like a good thing there might be benefits to
be gotten by reducing the payables days such as discounts for early payments and good
will with their suppliers, and points like this would surely be raised by any potential
investor in the company. The Inventory turnover period for Aryzta is 39 days in 2014,
while this would be quite long for most food companies, it is affordable for Aryzta as it
produces frozen products, however though the products will not perish during this
period, it would be convenient to reduce this period as storing food in temperature and
hygiene controlled environments is quite expensive. The decrease in length of the WCC
by almost 73% is reflected in the cash being retained by Aryzta rising by 11% in 2014
with respect to 2013, which is positive for the business and facilitates organic growth.
The receivables days are down slightly in 2014 to 47 days from 56 days in 2013. This is
a positive step but more should be done to reduce this further if possible. All in all
however the WCM policy in Aryzta is improved in 2014 and is one of the few positive
areas of the business which may entice investments in equity.
Capital Structure:
Aryzta’s Capital structure is in a reasonably strong position in 2014, even though both
measures that I have analysed have slightly disimproved over the year. The gearing
ratio has risen by a substantial 9.1 percentage points. This shows that Aryzta has
focused on utilising debt to fund investment. It is interesting to note, however, that even
though Aryzta has focused on raising debt, that their NCA utilisation has taken a fall over
the year, which points to a inefficient use of this capital raised, or alt ernatively, and
perhaps more realistically, that the investment is long term and we won’t see the results
of the investment for a couple of years. The Interest cover has fallen slightly over the
period from 3.58 times to 3.54 times, which is not awfully significant, but shows that
there is less operating profit available to service loan interest and a further fall in this
measure would an indication that the company may be heading towards insolvency
which is not something that would draw the approval of equity investors or otherwise.

6
Chapter4
Analysis of Total Produce Plc using ratios
Profit Margins:
Both the gross profit and the net profit margins are down slightly in 2014 from what
they were in 2013, with equal falls of 0.1 of a percentage point to 13.7% and 1.9%
respectively. The fact that the net profit margin is not down by more than that of the
gross profit margin leads me to conclude that the loss is derived from a disproportionate
rise in the cost of goods sold to the revenue generated and not as a result of added
overhead expenses. It makes sense however, because Total Produce is essentially a
wholesale and distribution company that there largest overheads would probably lie in
fuel costs and this would likely be proportional to the level of sales. It is well
documented that fruit farmers in less developed economies are receiving rock bottom
prices for their produce, and therefore it is unlikely that the cost of goods sold will
significantly fall in the coming years, and therefore the only way to improve the profit
margins will be to increase their prices, which with such stiff competition in the industry
and a highly elastic demand for the product, will not be easy.
Profitability:
The profitability of Total Produce in 2014 is down a little on the previous year’s
percentages with the ROCE taking a greater fall than ROSF. ROCE for 2014 stands at
10.7% which is down 1.2 percentage points on 2013 and the ROSF is at 16.5% down 1.1
percentage points in the same period. Unlike Aryzta, Total Produce don’t mention a clear
WACC rather they give a pre-tax discount rate that they apply to future projects as being
in the range of 12.2% to 12.9%. From an external internet source I found that the
WACC at the moment is 5.05% and assuming that this has remained relatively stable
give or take 1% or 2% the investors should be quite satisfied with this return. Assuming
that the WACC was at 5.05% on 31 July 2014, then for every euro invested through debt
or equity in the company, the value of the company to the investor would rise by 5.65
cent. This prospect would be looked on quite positively by investors as there is potential
for them to make money.
Asset Utilisation:
Unfortunately, both the capital utilisation and the non-current asset utilisation ratios for
2014 are down on the figures for 2013. Capital utilisation is down from 5.87:1 to 5.77:1
while the NCA utilisation is down by more to 6.94:1 from 7:14:1 in 2013. These indicate
that there is a smaller sales revenue per euro invested in the company and less sales
revenue per euro spent on non current infrastructure. A company like Total Produce may
not be too worried about their revenue per infrastructure as they wouldn’t have a lot of
infrastructure to begin with apart from warehouses and vehicles. A company that is more
involved in manufacturing would take closer note of this figure as the work of processing
goods is integral to their value adding exercise and their unique selling point.
Liquidity:
Total Produce are slightly more liquid in 2014 than they were in 2013 in regards to their
cash on hand but both their current and ac id test ratio have slightly disimproved over
the period. The cash ratio grew by nearly 7% to 0.31:1 from 0.29:1. The growth in this
aspect of liquidity comes from the influx of cash in the business, which may be from
payment from by debtors or the liquidation of an asset. The current ratio is below the
recommended 2:1 rule, however this applies more to a manufacturing company, and
because Total Produce is a wholesaler the cash flow should be quite strong, and certainly
strong enough to service debts as they fall due. Though the acid test ratio is slightly

7
down on last year, it still remains quite strong and over the recommended value of 1:1
which investors would find encouraging if they were interested in buying into the
company.
The WCM for total produce for 2014 is, give or take, identical to that of 2013 using every
metric. This suggests quite a robust internal supply chain within Total Produce along with
quite reliable customers and suppliers. The total working capital is reading negative 8
days that suggests that Total Produce is able to hold on to the cash for 8 days before
paying their debtors, on average. This might explain their healthy cash ratio but as their
cycle time didn’t change from 2013, it doesn’t explain the cash ratio is growing. Their
Inventory turnover period is 8 days which looking objectively seems very good, but for a
fresh produce company I would expect it to be lower. However taking into account the
massive distance that the produce must travel before reaching the retailer, it is quite
impressive nonetheless. Both the settlement period for trade receivables and payables
are quite respectable, however if they were able to work on reducing payables days they
may be eligible for discounts, so too if they offered discounts to receivables they may
improve the WCM even further. As a whole, however, the WCM of Total Produce is
impressive and would certainly be enticing to potential investors.
Capital Structure:
Total Produce has quite a strong capital structure for 2014, and though they are higher
geared than 2013, can afford to gear up a little more as they are well below the
recommended marker of 50%. The leverage or gearing percentage is up to 38.2% from
36.4 in 2013. This seems like a safe ratio when we consider how sensitive the supply of
produce is in relation to weather and possibly political issues concerning the country of
origin. A company that is too highly geared will suffer more hardships in hard times and
gain more in good times. When we look at the interest cover that Total Produce has
accumulated over the year it seems reasonable that an increase in debt would be well
able to be handled if they choose to increase their leverage. In 2014 the interest cover
increased by 0.09 units to 7.41 times

8
Chapter5
Comparison of Aryzta AG and Total Produce based on Ratio Analysis
Profit Margins:
Over both 2013 and 2014, Aryzta performed better than Total Produce in relation to both
gross and net profit margins. Aryzta had a profit margin that was 14.1 percentage points
larger than Total Produce in 2014 and a net profit margin 3.5 percentage points larger.
From looking at the Income statements of both companies, Aryzta clearly has almost
double the level of revenue entering the company, and though this doesn’t impact on the
margins, as it is the relationship with the profits are what are measured, it is possible
that the directors are willing to sacrifice higher margins due to the higher volume of cash
flowing into the company in revenue.
Profitability:
When looking at profitability from the point of view of investors in either equity or debt,
Total Produce far out performs Aryzta in both years. The rate of return to all investors of
Total Produce is 5.8 percentage points higher than that of investors in Aryzta. Looking at
only return to shareholders this figure is much higher with a difference of 10.6
percentage points in favour of Total Produce. Some of this comes from the fact that
Aryzta has a much larger balance sheet that Total Produce, because of the need for large
amounts of fixed assets in the form of infrastructure and manufacturing equipment.
More capital is required to build and maintain these infrastructures and as they may well
be new in the company it may take some time for this to be recognised as increasing
profits in the income statement, and therefore for the profitability ratios to return.
Asset Utilisation:
Total Produce are stronger in the area of asset utilisation and have far better sales
revenue to capital employed and sales to fixed asset ratios. Total Produce has a capital
utilisation ratio of 5.77:1 in 2014 versus Aryzta that has a ratio of just 0.92:1 in the
same year. This means that Total Produce are more efficient at generating sales than
Aryzta per euro invested in the company. This is a critical marker to gauge the efficiency
of the business as a whole and is a major determining factor for an investor that is
looking at a business to invest in as he likely would prefer to put his money in a business
that is more efficient and effective at adding value to a product.
Liquidity:
In regards to liquidity ratios, there is very little difference between the two companies,
but Total Produce is ever so slightly stronger overall. Aryzta have a higher cash ratio
than Total Produce, but Total Produce are stronger with respect to current and acid test
ratios. Both companies are a little below the recommended ratios to safely cover debts
as they fall due, as I explained earlier, but they are reasonably good, especially for Total
Produce, who are further down the supply chain than Aryzta and have a low and steady
WCM and therefore a reasonably good cash flow.
Both Aryzta and Total Produce have quite a positive outlook with regards to their WCM
cycle, with both having negative net cycle days, meaning that the working capital stays
within the business for a number of days before being paid to creditors. Aryzta has a
much larger negative number of days, at 38 days, than Total produce which is only 8
days in 2014. This may not necessarily be a good thing, as shorter settlement periods
lead to better liquidity, as I mentioned above. The most striking figure when comparing
the two companies is the extraordinarily long settlement period for trade payables that

9
Aryzta has. It went from 112 days in 2013 to 124 days in 2014 while Total Produce’s
figure remained constant at 55 days. This lengthy settlement may have been agreed to
by creditors in return for added business, or may have been due to poor financial
management on the part of Aryzta, if it is the latter creditors may begin to feel upset by
the situation and good will may begin to break down.
Capital Structure:
Both companies have a similar level of gearing and neither are too reliant on long term
loans from the point of view of the gearing ratios. Aryzta have edged slightly higher into
debt than Total Produce in 2014 with levels 46.7% and 38.2% respectively. Both
companies increased their levels of gearing in 2014 however this may be positive as
debt can be quite cheap in comparison to equity and given their growing levels of sales
revenue, it may be warranted. In 2014 Total Produce’s interest cover ratio improved
slightly while Aryzta’s disimproved slightly, however the differences are almost
negligible. As I mentioned earlier, it is likely that Aryzta made investments in
infrastructure during the year and upped their gearing to cover it and thus their interest
cover deteriorated because the fruits on any investment in non-current assets would
likely take some time before they would appear on the income statement.
Chapter6
Recommendations
Using purely ratio analysis to determine which company has a greater chance of
providing good returns to a potential investor, I would recommend an investment in
Total Produce Plc. Total Produce out performed Aryzta in most ratios that I analysed for
the purpose of this exercise, and seem to have a more steady financial management
structure all-round. One significant area that Total Produce underperformed in was in
delivering profit margins. However I believe that short margins are not uncommon in the
fresh produce industry as there is stiff competition, but further industry research would
be necessary to know for sure.
It is worth noting however, that the ratio analysis was only done over two years and to
get a thorough insight into the performance of the companies it would be necessary to
look at their financial performance over several years, so as to iron out any random
variations in data. Events that may have impacted on the ratios may include irregular
weather or possible civil or political unrest in the supplier countries, in the case of Total
Produce, while Aryzta may have been impacted by fluctuating grain and flour prices from
poor harvests or from competition that has increased due to the rising numbers of
artisan bakeries opening around the country. Either way further information would
increase the probability of making a profitable decision as to where to invest.
Though it is outside the scope of this assignment, it is useful to look at share prices
when determining which company would be greater value for money or would be likely
to grow in value. In the graphs which I downloaded from “Yahoo Finance” it seems that
Total Produce is enjoying a 10 year high when it comes to the price of shares. This tells
me that the market believes that the company is thriving and is a safe investment, but
at the same time is very expensive and a sudden shock in the industry may wipe out any
value the shares now have. Aryzta, on the other hand, seems to be a little less steady, if
not falling in value. This indicates that the market hasn’t got great confidence in the
performance of Aryzta at the moment, but may be good value for money if an investor
felt that the share price wasn’t going to fall any further. The choice is down to the
investor and how averse to risk they are. An investor who is willing to undertake greater

10
risk would choose to invest in Aryzta, based on stock market activity, while an investor
who wants to play it safe may invest in Total Produce.
Appendix
(Workings, Income Statements and Balance Sheets are included in the Excel File which I
emailed to you)
Ratio Analysis:
Aryzta AG Total Produce
2014 2013 2014 2013
Profit Margins
Gross ProfitMargin 27.8% 27.2% 13.7% 13.8%
NetProfitMargin 5.4% 5.5% 1.9% 2.0%
Profitability
Returnon Capital Employed 4.9% 5.6% 10.7% 11.9%
Returnon Shareholder'sFunds 5.9% 5.9% 16.5% 17.6%
Asset Utilisation
Capital Utilisation 0.92 :1 1.02 :1 5.77 :1 5.87 :1
Non-currentAssetUtilisation 0.91 :1 1.07 :1 6.94 :1 7.14 :1
Liquidity Ratio
CurrentRatio 0.99 :1 1.14 :1 1.21 :1 1.23 :1
AcidTest Ratio 0.77 :1 0.93 :1 1.08 :1 1.09 :1
Cash Ratio 0.41 :1 0.45 :1 0.31 :1 0.29 :1
Working Capital Management
InventoryTurnoverPeriod 39 Days 34 Days 8 Days 8 Days
ReceivablesDays 47 Days 56 Days 39 Days 39 Days
PayablesDays 124 Days 112 Days 55 Days 55 Days
WorkingCapital Cycle -38 Days -22 Days -8 Days -8 Days
Capital Structure
Gearing 46.7% 37.6% 38.2% 36.4%
Interestcover 3.54 times 3.58 times 7.41 times 7.32 times

11
Graph of Time Vs. Share Price of Total Produce Plc over a 10yr period:
Graph of Time Vs. Share Price of Aryzta AG over a 10yr period:

Ratio Analysis of Aryzta AG and Total Produce Plc

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