Financial statements analysis

Analyse the financial statements from Food Solutions, in comparison to its two biggest competitors – FlexiFoods and Econo-Pack and use this to identify:

a. What are the key issues that Food Solutions are facing compared to its main competitors?

b. What could be the potential cause of these problems? State your assumptions and rationale for any causes identified. Include some analysis of financial ratios and/or KPIs to allow you to compare the performance of Food Solutions in comparison to its competitors.

c. What strategic or tactical actions or next steps would you recommend? This can include areas to investigate further as well as potential actions in the short, medium and long term to address the issues and causes that you identified.

Background
The financial situation at Food Solutions has not been positive over the last few years.
As you can see in the chart, after a long period of growth since the founding of the company
in 1987, the last few years had witnessed a downturn in revenue.
Financial statements
Review the income statements from the latest financial year for Food Solutions, FlexiFoods
and Econo-Pack, with comparisons to the previous two years. For the purposes of this case
study you should assume that the current year is 2018 – ie. the latest full financial year is
2017. You also have Balance Sheets data for the year ending Dec 2017 (along with similar
data for one year prior).
The statements are available in the Excel file which you can download here.
(Excel attached)
Your task
1. Analyse the financial statements from Food Solutions, in comparison to its two biggest
competitors – FlexiFoods and Econo-Pack and use this to identify:
a. What are the key issues that Food Solutions are facing compared to its main competitors?
b. What could be the potential cause of these problems? State your assumptions and
rationale for any causes identified. Include some analysis of financial ratios and/or KPIs to
allow you to compare the performance of Food Solutions in comparison to its competitors.
c. What strategic or tactical actions or next steps would you recommend? This can include
areas to investigate further as well as potential actions in the short, medium and long term
to address the issues and causes that you identified.
2. Create a 10-minute narrated presentation outlining your approach to the addressing this
problem, your suggested solution and recommendations. Add this presentation to the
previous presentation you created for part 1.
Income Statement
Food Solutions
For the Years Ending [Dec 31, 2015, 16 & 17]
$thousand
Revenue
Gross sales Equip
Gross sales Consumables
Gross sales MRO
(Less Discounts) Equip
(Less Discounts) Consumables
(Less Discounts) MRO
Net Sales
2017
2016
2015
111,593
534,582
100,966
(6,811)
(27,370)
(2,750)
114,582
558,549
88,681
(6,384)
(25,567)
(2,247)
117,984
567,504
79,506
(6,573)
(19,192)
(2,241)
710,210
727,614
736,988
93,046
338,818
60,796
492,660
94,349
334,713
55,923
484,984
96,482
318,569
51,690
466,741
217,550
242,630
270,247
15,625
3,551
7,102
35,511
33,380
31,959
44,033
15,696
10,653
197,509
19,176
14,204
9,943
36,931
29,829
34,090
39,772
15,127
5,682
204,754
22,017
7,812
12,784
37,641
27,698
36,221
35,511
12,784
3,551
196,018
20,041
37,876
74,229
11,246
(8,505)
22,782
(2,970)
4,857
(7,843)
34,890
(5,839)
(3,834)
(6,832)
63,563
(13,558)
19,812
29,051
50,005
Cost of Goods Sold
Goods purchased or manufactured Equipment
Goods purchased or manufactured Consumables
Goods purchased or manufactured MRO
Cost of Goods Sold
Gross Profit (Loss)
[42]
Expenses
Advertising
Bad debt
Commissions (to Sales Agents)
Depreciation
Office costs (rental, insurance, supplies, utilities)
Research and development
Salaries, wages & employee benefits
Travel
Other
Total Operating Expenses
Operating Income (Loss)
Non-operating revenues, expenses, gains, losses
(Less interest expense)
Income Before Taxes
(Less income tax expense)
Net Income
Income Statement
Flexi Foods
For the Years Ending [Dec 31, 2015, 16 & 17]
$thousand
Revenue
Gross sales Equip
Gross sales Consumables
Gross sales MRO
(Less Discounts) Equip
(Less Discounts) Consumables
(Less Discounts) MRO
Net Sales
2017
2016
2015
86,879
322,269
26,152
(945)
(13,286)
(811)
81,965
317,494
24,805
(731)
(12,505)
(816)
78,577
310,108
22,740
(932)
(11,927)
(619)
420,258
410,212
397,947
64,279
198,058
17,460
279,797
61,088
194,583
16,600
272,271
58,933
188,749
15,396
263,077
140,461
137,941
134,870
13,028
841
17,651
22,694
8,825
15,970
15,970
5,043
3,782
103,804
11,896
1,641
16,819
22,972
9,025
15,178
16,408
5,333
2,871
102,143
10,745
398
17,112
23,081
9,153
14,724
17,908
5,571
3,383
102,073
36,658
35,798
32,796
256
(3,916)
32,998
(10,741)
434
(3,345)
32,887
(12,745)
(1,821)
(3,898)
27,077
(12,326)
22,256
20,142
14,751
Cost of Goods Sold
Goods purchased or manufactured Equip
Goods purchased or manufactured Consumables
Goods purchased or manufactured MRO
Cost of Goods Sold
Gross Profit (Loss)
Expenses
Advertising
Bad debt
Commissions (to Sales Agents)
Depreciation
Office costs (rental, insurance, supplies, utilities)
Research and development
Salaries, wages & employee benefits
Travel
Other
Total Operating Expenses
Operating Income (Loss)
Non-operating revenues, expenses, gains, losses
(Less interest expense)
Income Before Taxes
(Less income tax expense)
Net Income
Income Statement
Econo Pack
For the Years Ending [Dec 31, 2015, 16 & 17]
$thousand
Revenue
2017
2016
2015
119,922
(11,001)
–
96,261
(8,029)
–
85,467
(9,225)
–
108,921
88,232
76,242
Goods purchased or manufactured Equip
Goods purchased or manufactured Consumables
Goods purchased or manufactured MRO
Cost of Goods Sold
78,096
78,096
64,056
64,056
56,190
56,190
Gross profit Equip
Gross profit Consumables
Gross profit MRO
30,825
–
24,176
–
20,052
–
Gross Profit (Loss)
30,825
24,176
20,052
555
251
8,714
6,535
1,198
1,307
2,505
327
163
21,555
653
212
7,941
7,059
971
441
2,118
353
71
19,817
755
91
7,243
7,624
1,372
305
2,135
381
38
19,945
9,269
4,359
107
2,121
(964)
10,426
(864)
984
(592)
4,751
(950)
139
(324)
(78)
456
9,562
3,801
378
Gross sales Equip
Gross sales Consumables
Gross sales MRO
(Less Discounts) Equip
(Less Discounts) Consumables
(Less Discounts) MRO
Net Sales
Cost of Goods Sold
Expenses
Advertising
Bad debt
Commissions (to Sales Agents)
Depreciation
Office costs (rental, insurance, supplies, utilities)
Research and development
Salaries, wages & employee benefits
Travel
Other
Total Operating Expenses
Operating Income (Loss)
Non-operating revenues, expenses, gains, losses
(Less interest expense)
Income Before Taxes
(Less income tax expense)
Net Income
Balance Sheet
Food Solutions
For the Years Ending [Dec 31, 16 & 17]
$thousand
Assets
2017
2016
Total current assets $
84,545
177,500
162,360
3,838
6,121
434,364
$
81,904
158,934
156,879
4,909
5,676
408,302
Property, plant, equipment and other long term assets
Intangible assets
Total fixed assets $
559,498
12,309
571,807
$
547,854
13,080
560,934
Total Other Assets $
8,114
$
7,034
$
1,014,285
$
976,270
Total current liabilities $
124,090
38,060
4,845
4,309
28,909
26,457
226,670
$
119,090
32,322
7,898
4,100
31,333
18,889
213,632
Total long-term liabilities $
283,527
4,743
5,060
293,330
$
269,045
5,654
413,839
688,538
Total owner’s equity $
74,100
420,185
494,285
$
74,100
$
1,014,285
$
976,270
Current Assets
Cash
Accounts receivable
Inventory
Prepaid expenses
Short-term investments
Fixed (Long-Term) Assets
Other Assets
Other
Total Assets
[42]
Liabilities and Owner’s Equity
Current Liabilities
Accounts payable
Short-term loans
Income taxes payable
Accrued salaries and wages
Unearned revenue
Current portion of long-term debt
Long-Term Liabilities
Long-term debt
Deferred income tax
Other
Owner’s Equity
Owner’s investment
Retained earnings
Other
Total Liabilities and Owner’s Equity
74,100
–
{42}
Balance Sheet
Flexi Foods
For the Years Ending [Dec 31, 16 & 17]
$thousand
Assets
2017
2016
Total current assets $
43,908
85,312
50,566
1,090
4,545
185,421
$
38,090
78,653
48,909
2,100
3,423
171,175
Property, plant, equipment and other long term assets
Intangible assets
Total fixed assets $
163,399
1,091
164,490
$
145,232
1,102
146,334
Total Other Assets $
1,323
1,323
$
1,432
1,432
$
351,234
$
318,941
Total current liabilities $
51,187
10,784
3,145
1,437
12,045
25,136
103,735
Total long-term liabilities $
98,040
4,060
9,320
111,420
Current Assets
Cash
Accounts receivable
Inventory
Prepaid expenses
Short-term investments
Fixed (Long-Term) Assets
Other Assets
Other
Total Assets
Liabilities and Owner’s Equity
Current Liabilities
Accounts payable
Short-term loans
Income taxes payable
Accrued salaries and wages
Unearned revenue
Current portion of long-term debt
$
48,021
14,350
2,134
1,212
14,045
38,054
117,816
$
76,022
5,612
2,321
83,955
Total owner’s equity $
44,050
92,029
136,079
$
44,050
73,120
117,170
$
351,234
$
318,941
$
Long-Term Liabilities
Long-term debt
Deferred income tax
Other
Owner’s Equity
Owner’s investment
Retained earnings
Other
Total Liabilities and Owner’s Equity
{42}
Balance Sheet
Econo Pack
For the Years Ending [Dec 31, 16 & 17]
$thousand
Assets
2017
2016
Total current assets $
14,505
19,620
19,500
898
1,012
55,535
8,787
12,345
12,356
765
787
35,040
Property, plant, equipment and other long term assets
Intangible assets
Total fixed assets $
54,466
54,466
$
36,767
Total Other Assets $
–
$
–
$
110,001
$
71,807
Total current liabilities $
14,544
16,787
1,080
290
3,233
7,308
43,242
$
8,989
11,628
890
270
2,123
4,345
28,245
Total long-term liabilities $
38,589
38,589
Current Assets
Cash
Accounts receivable
Inventory
Prepaid expenses
Short-term investments
$
Fixed (Long-Term) Assets
36,767
Other Assets
Other
Total Assets
Liabilities and Owner’s Equity
Current Liabilities
Accounts payable
Short-term loans
Income taxes payable
Accrued salaries and wages
Unearned revenue
Current portion of long-term debt
Long-Term Liabilities
Long-term debt
Deferred income tax
Other
21,157
$
21,157
Owner’s Equity
Owner’s investment
Retained earnings
Other
Total Liabilities and Owner’s Equity
38,060
(9,890)
38,060
(15,655)
Total owner’s equity $
28,170
$
22,405
$
110,001
$
71,807
{42}