Financial Statement Analysis NATAN 2014-2015KULeuven Campus Brussels (Odisee)

[Financial Statement Analysis][Group 413][04/05/2015]

Financial Statement Analysis NATAN 2014-2015KULeuven Campus Brussels (Odisee)

A.Mkrtichian r0458879 F.Mammadov r0437901G.Muravlenko r0460562 S.Zangiev r474253392C.Sanoh r00443263 A.Vuylsteke r0366750H.DeBrabandere r0388370

2014-2015 Prof. Liesbeth Averhals

Contents

Table of contents List of tables 5-6

Introduction 7

Screening 8-9

balance sheet income statement notes social balance annual report auditor report of the last annual account Horizontal and vertical analysis 10-14

balance sheet income statement Liquidity 15-19 cash ratio current ratio acid test ratio stock rotation trade accounts receivable trade accounts payable the business and cash cycle comparison to sector data Cash flows 20-24 Operational Investing financing Profitability 25-27 sales margins return on assets return on equity added value ratios comparison to sector data Solvency 28-29 financial independence, financial stability capacity of debt redemption and financial leverage comparison to sector data Conclusion30 Attachments

LIST OF TABLESLiquidity20132012201120102009

NET WORKING CAPITAL1,763,571.001,763,571.001,083,480.00711,433.00704,428.00

NEED FOR NET WORKING CAPITAL 534,130.00534,130.00-373,845.001,041,109.001,231,380.00

CASH RATIO1,229,442.001,229,442.00437,325.00-329,677.00-526,952.00

CURRENT RATIO1.651.651.021.251.24

QUICK RATIO0.890.890.580.090.34

TURNOVER PERIOD FOR PURCHASED GOODS IN STOCK158.03158.03183.82186.45201.41

TURNOVER PERIOD FOR FINISHED GOODS IN STOCK AND WORK IN PROGRESS0.000.000.000.000.00

AVERAGE STOCK TURNOVER PERIOD79.81821.59989.0194.81100.77

AVERAGE SETTLEMENT PERIOD FOR TRADE DEBTORS32.5832.5832.3526.7321.21

AVERAGE SETTLEMENT PERIOD FOR SUPPLIERS41.7141.7136.7435.8550.56

BUSINESS CYCLE190.61190.61216.17213.18222.63

CASH CYCLE148.91148.91179.43177.33172.07

Horizontal Analysis20132012201120102009

TOTAL ASSETS98.74%99.37%89.67%94.31%100.00%

TOTAL LIABILITIES98.74%99.37%89.67%94.31%100.00%

PROFIT OF THE YEAR/LOSS AVAILABLE FOR APROPRIATION-191.27%-99.67%-6.79%32.86%100%

Vertical Analysis20132012201120102009

TOTAL ASSETS

TOTAL LIABILITIES

PROFIT OF THE YEAR/LOSS AVAILABLE FOR APROPRIATION8.05%4.36%0.31%-1.58%-4.52

INTRODUCTIONNATAN is a publicly traded company whose main business is to design and sell luxury couture. In recent years, the company has enjoyed steady growth due to the company's perceived product superiority among the throw away culture of cheap fashion. This paper will carry out an analysis of the company's financials to identify the company's strengths and weaknesses. As we already did a project around this company earlier this year for the course COS, it was a logical decision to continue with the same company and deepen ourselves into the financial state of the enterprise. NATAN was not on the list of forbidden companies, fitted regarding all the requirements and we had an insider within the company.Having the financial crisis and the waves after it in mind, we asked ourselves whether the company suffered and whether it recovered during the past few years. This will also be our research question: what is the tendency in companys financial state from 2009 till 2013? Applied to the context: did the company recover from the financial crisis and how did it manage its resources?All the needed information we will acquire through BELFIRST as it is the official channel for disclosure of financial data. Companies are obliged to frequently disclose their financial data following certain rules imposed by the legislation. We also conducted 2 interviews with the CFO of NATAN in order to get a more clear view on the working of the company and get an inside look at how the management conducts daily operations. It is important to state that NATAN provides its clients with a high-end luxury product, which only the highest layers of the society can afford. NATAN supplied different royal families for different occasions ranging from weddings to official visits and galas. This makes its product even more exclusive.In order to conduct a screening this paper will include by the company disclosed financial data, sector data, evaluations, reviews, calculations and comments on these data. We make use of different analyzing methods such as: vertical & horizontal analysis, liquidity, cash flow and other ratios.

BS & IS Screening

Total assets have decreased by 0.94% in 2013. The company has downsized by less than 1% during that year. The main reason is because theres a decrease by 0.82% in current assets (code 34 from EUR4.639.306 to EUR4.463.843). This means we owe less goods purchased for resale in our stock. On the other hand, this means a good thing because we sold more and that we can see at our cash at hand and in bank because we have an increase by 1.31% compared to 2012. (from 937.325 to 1.229.441)Leasing and other similar rights is the most important tangible asset, (code25 with a value of 1.967.880) together with land and buildings has this become the most important accounts for fixed assets. And it hasnt changed at all over the past year for code 25.

While when we look at current assets, which represents more than 56% of total assets, we find the most important item at code34 for a value of EUR2.014.845

Further Information:+ There are no formation expenses are reported in 2013, whereas there was an expense of EUR15.000 in 2012. Which means theyre depreciated at 100% for 2013. (notes 8003 for a value of 30.000)+Tangible assets are mainly leasing and other similar rights together with land and buildings and other tangible assets. These assets are depreciated, some according to a straight-line method, others according to a diminishing balance method. +No advance payments for 2013, but a slight increase for amounts receivable within one year from trade debtors, an increase by 1,7% (from EUR1.128.062 to EUR 1.148.083) + We have a lot of money at bank and in cash for a value of from EUR937.325 to EUR1.229.441, an increase by 31%. +Deferred charges and accrued income has decreased by its half up to a value of only EUR35.275.

+The fixed assets investment for the 2012/2013 financial year amounted to 51,038.92: 32,143.92 in furniture and vehicles and 18,895.00 in other tangible assets. +Amortization of formation expenses and of tangible and intangible assets amounted to 241,465.66.Inventories decreased by 476,165.13 while receivables increased by 50,865.34.+The available values increased by 292,115.41. Provisions for risks and charges have not changed.

Liabilities+There is also some positive shifts in the liabilities during 2013.+Equity has increased from 21% to 33% of total liabilities. This increase is due to a rise in reserves availabe for distribution, from EUR1.984.058 to EUR2.253.413. In 2012 we had a loss of EUR522.067 which were carried forward. +Provisions and and deferred taxes has stayed the same since several years, for an amount of EUR60.000.+Our debts have clearly decreased compared to total liabilities, from 78% to 67%One of the main debts are Leasing and similar obligations and other loans, representing 49% of total debts incurred a slight increase from 45% in 2012. The higher debts we can find in the accounts of payable within one year, we can see a slight decrease compared to total debts from 55% to 51%. There are a lot of costs, one of the biggest one is of course trade creditors, they supplied for an amount of EUR944.943.The most important change comes from Advances received on contracts in progress, which had a value of EUR1.258.526 and decreased to EUR829.579. A decrease of 34%. We also see they paid less taxes but more Remuneration and social security.The amounts payable after one year decreased by 341,752.24 and debts to one year decreased by 855,403.92.

Horizontal AnalysisBase year: 2009 (extended years: 2010-2013).

Assets:1. Fix asset turnover ratio: Fixed assets are mostly plant, machinery and equipment of companies. The Good rates related to these assets, change from business to business. According to Nathans financial statement, the fixed assets have decreased. There two reasons for that. Either the machinery and plants have depreciated or theyve sold some parts of their asset to have more cash in hand (current assets); or gathering up capital. The highest negative change of the fixed assets has happened in 2012 and 2013 by respectively -14% and -19%; although there has been a negative flow since the start in 2009. Intangible Fixed Assets: (or intellectual assets such as Patent, Brand equity) have decreased dramatically, especially in 2011, 2012 and 2013 respectively, by -68%, -90%, and -99%.2. Current ratio: is the ratio of current assets current liabilities. It defines the assets of the current year, which can be turned into cash. Moreover, this is considered a good sign for the firm. The higher, the better! Although, the firm needs to manage its excessive cash in order to maximize its profit. Current assets is the factor that firms use to pay off their debts in the current year. Nathans current assets have decreased in 2010 and 2011, but have risen by 26% in 2012. Alas, there is another decline in 2013 by 4% or 163,920 . 3. Trade debtors receivable after one year: have -100% decrease in 2011, 2012, and 2013 compared to the base year of 2009. This means that the amount is 0 in these years as the difference between the amounts of the base year, 12,500, have not change. It doesnt seem to be a problem as customers have paid without delay.4. Cash In Hand: The most remarkable factor that has increased is the firms cash. It has a raise in the entire period of five years; particularly, has increased by 876% in 2012 and 1181% in 2013! At the end, the total assets has slightly decreased through the five years, however it doesnt seem to be a problem as we have a huge increase in our equity and total profit no negative fluctuation during the entire analyzing (check below) Liabilities:Amount Payable: has decreased gradually since the base year. It shows that the amount the firm has had to pay to its suppliers have declined, which is a good sign for progress!Total Liability: the firms debts have decreased during the five years and has been -5% in 2013 compared to the based.

Income statement:Net Added Value: meaning the sum of all the positive values that manufacturer gives to the raw material or the inflow of the firm. Its not profit as both manufacturer and customer benefit from the Net Added Value. In here, the recorded financial value of Natan has increased again with an interesting trend throughout the whole period of five years. For example, from 21% in 2010 to 101.88% in 2013 compared to the base year. Operating income vs. Operating Charges: the former is the income the firm uses for its activities during the current accounting year; and the latter is the charges regarding the activities. The former has fluctuated in 2010, but has increased in 2013. In addition, the latter has been decreasing since 2009 until 2013. The outcome of the both figures give a good sign of a healthy progress in Natan. Note: gain on disposable fixed assets has been around zero or declined. This shows that the firm mostly was not interested in selling its fixed assets during the analyzing five years. Profit for the year: And finally, the profit has turned positive after 2010. This shows that the company has done a good job to change the loss figure of -435,726.00 EUR into the profit of 833,421.00 EUR in 2013.

Vertical Analysis

Assets

In general we see that there are no big changes throughout the 5 years we took to screen the company. There are some developments, even though they are not spectacular. In the year 2009 we start with fixed assets at 51% and current assets at 49%, which is very close. Throughout the following 5 years we see that the importance of fixed assets diminishes as the importance of current assets increases: F.A (51%->43%) and C.A (49%->57). This is a good thing as it is beneficial to have more liquid assets, which can serve as a buffer or can be changed into cash relatively fast in critical situations. This tendency can be explained by the diminished portion of Land & Buildings ( 16%->11%) and Intangible Fixed Assets ( 3%->0%); on the other hand by the increased portion of Cash at Bank & Hand (1%->16%) and Trade Debtors 15%).There have been some other changes within the F.A and the C.A, but they are negligible.

Liabilities

On the liabilities side we also noticed some positive developments: we see the LT and the ST liabilities lose positions, while the equity remarkably rose (especially in the last 2 years). LT liabilities ( 37%->46%->44%->36%->33%)ST liabilities ( 46%->38%->39%->43%->34%)Equity ( 17%->16%->18%->21%->33%)In the first years the LT liabilities rose, but kicked back strongly in the last two years. As for the equity: it has been growing constantly in the first years and had a boom in the last two years, it almost doubled in size in 5 years. These tendencies can be explained by the following changes and developments: The reserves available rose from 25% to 29% Accumulated P/L went from negative (-11%) to 0, which means the accumulated losses have been compensated. Amounts payable have decreased over time ( 82%->67%) :- Debts payable >1year (36%->32%) - Leasing & other similar rights ( 20%->16%) - Credit institutions (7%->4%) - Debts payable 34%) - Financial debts 0%) - Suppliers 12%) - Advances received (6%->11%)Taking all of this into account it is important to state that Natan has done a good job! The company not only succeeded to pay off different debts and obligations (or at least significantly reduce them), but also managed to double the equity. This is a good sign as we see the liabilities reduce and the equity grow: debts make place for a gain in possessions, which reflects upon financial health and good management of finances and resources.

Income Statement

Keeping in mind the fact that the company already exists for over 30 years and we only base our analysis on the data of last 5 years we see that Natan had a difficult start in 2009: several accounts started with a negative sign. The possible cause of this could be the financial crisis of 2008. During the sequent years we see the company pulling upwards and improve its financial situation. Lets take a closer look: Net added value almost doubles (16% in 2009->29% in 2013) Operating charges decrease (105%-> 89%) Purchase of raw materials (53%->41%) Services & other goods (34%-26%)

Operating P/L went from negative to positive (-4%->11%) Current P/L before taxes (-5%->9%) P/L for year after taxes (-5%-> 8%) Profit for the year (-5%->8%)The company did a great job reducing the costs by spending less on input materials and services. At the same time this could be explained by the fact the company started to outsource a part of their production to countries with lower wedges (India). We also see that the company managed to pull their negative profit account into positive.

Liquidity

Net Working CapitalWhen funding exceeds fixed assets on the long term, the enterprise will dispose of a liquidity buffer and this liquidity buffer is formally known as the networking capital of a company. Now to have a thorough overview of the networking capital of our company, it is evident to point the steady yet impressive increase our company has experienced over the 5 years from 2009-2013. You can notice that the networking capital in 2013 (1.763.571,00) is more than seven times the number it had in 2009 (250.406,00). Although it is obvious to mention that the figures shown do indeed indicate a positive aspect for the company, it is not all that should be taken into account when analyzing them because these figures tell you a lot more about the company than what had been mentioned in the beginning. It is also a way to reflect up until what extent your current assets exceed your short-term debts. As the years go by you can notice how the adjusted fixed assets have drastically decreased, which could be credited to the fact that the company opted into the sale of their financial fixed assets as well as their tangible and intangible ones. In contrary our permanent financing resources has, although with some minor fluctuations, all in all increased over the years.

Even though having a positive networking capital is a rather favorable sign for the company, it isnt enough to completely predict a companys liquidity as more than one factor has to be taking into consideration.

Need for Networking Capital

The need for networking capital of a company can be defined as the difference between its trade cyclic needs and its trade cyclic means. Now the trade cycle of a business is the sum of all the operational actions the company is undergoing. To furthermore define trade cyclic needs, you may say that it is the need to pre-finance your short term expenses while the trade cyclic means tells you the spontaneous financing the company is experiencing. Taking a look at the numbers for the need of networking capital you can see that there is a gradual decrease within the first 4 years in the company from 2009-2013 as they went from 1.314.380,00 to -373.845,00, this could be due to the fact that over the years there was a general decrease in the amounts receivable within one year while the spontaneous financing was having an entirely opposite effect. A negative need for networking capital shows that the company is in great need of a positive liquidity buffer and hence further financing is needed. As we can see in the last year they managed to get an increase in their amounts receivable within one year and reestablish a positive need for networking capital.

Cash RatioThe cash ratio is the difference between the networking capital and the need for networking capital and it is commonly used to measure the companys ability to meet its short-term obligations. We can notice that, although there is a steady increase/decrease in the NWC/NNWC respectively, there is a negative cash ratio from 2009 till 2011 because of the NNWC being a lot greater than the NWC which also shows that the spontaneous financing by our suppliers is indeed limited and that our liquidity buffer is not enough to carry on such a load as to finance the whole business cycle. In the year 2012 particularly we can see that even though our trade cyclic means overcomes our trade cyclic needs resulting in a negative NNWC, our cash ratio is still positive due to the combination with our positive NWC. Finally in the last year, which is 2013, you can see that our company has yet again managed to get itself back to a positive cash ratio indicating that the company does not need additional financing.

Current RatioSince all the companies obviously have different sizes depending on their operational actions, it is not always easy to compare them to each other solely based on their figures. That is why certain ratios have been set up for the purpose of ruling out this size effect, thus current ratio has been considered as a liquidity buffer which is at a companys disposal to finance its adjusted current assets. Now taking into account the current ratios of our company from 2009-2013 you can see that, even though there are minor fluctuations along the years, our companys financial health is rather stable as the ratios are >1 in every single year. As we can see in the first three years, our total adjusted assets show a decreasing trend indicating a decline in the amounts receivable while our short-term liabilities show a zigzag movement until finally increasing the last two years. Compared to the figures in our sector, it can be said that our company is doing a great job in keeping themselves on track and in par with the others as they constantly keep their figures intact with the average current ratio of the sector throughout the years.

Quick RatioSometimes, despite having a large sum of adjusted current assets in your possession, it is not always that evident to liquidate them all as certain conditions do apply. Conditions as such may range from having to wait for the right moment to be able to convert a stock as to get the maximum amount of revenue possible, to not being able to convert any assets at all due to the maturity being greater than a year. The quick ratio takes these limitations into consideration by excluding certain accounts. So if you have a careful look at our ratios, the first impression would be that our company is in a very critical position as all of them are 30% which is a very good sign. This should make the shareholders happy as they see the return on the money they brought in grow. Taking all this into account we come to the conclusion that the company did a good job on pulling its financial situation up and improving its position on many fields.

Added Value

In general Natan generates a big Value Added as we are speaking about millions. In 2009 Natan had a gross added value of almost 6 millions euro which fell down to 1.8 million euro in 2010. This fall is due to the big acquisition of raw materials in 2010 (this is already discussed above: in 2010 Natan invested 4.000.000 euro in raw materials). In the sequent years it steadily grows until it reaches 3 millions; this grow is caused by the increasing operating income. The GVA margin is a ratio that compares the GVA with the inputs; because of this it has the same tendency as the GVA and also has the same explanation for this behavior.GVA allocated to personnel expenses starts at 26% in 2009 and suddenly goes up to 2010: the shift in importance of this production factor may be a consequence of opening of new shops, production plants and maybe attracting some very expensive specialists and designers. In the sequent years this ratio keeps falling to 51.6 in 2013. Because this peak was not permanent and happened just after the financial crisis, it raises questions. Supposedly the company started to make bigger turnover, which reduces the impact of the personnel expenses.Operating non-cash expense ratio is a very important one as it shows the impact of the factors of production such as machinery and equipment. There is a rise from 5.7% to 19% in 2010 that can be explained by a sharp decrease in amounts of written off stocks and trade debtors and a rise of depreciation and amounts written off. Further on we see the importance of operating non-cash expenses falling to 15.6%, 12% and finally 7.8% as the depreciation starts to fall with amounts that make written off stocks negligible and push its importance forward.The cost of debts ratio are pretty low in the first two years as the 9126 account has a value of 173000, which pulls the ratio down. A low debt ratio is always a positive sign! In 2011 the debt ratio makes a jump to 7.7% caused by fall to 0 in the 9126 account. In 2012 and 2013 the ratio falls to 6.2 and 5.9 respectively, caused by the rise of the interest and other debt charges.The tax ratio is very small (