Egyptian Food Company ( BiscoMisr ) Financial Statement Analysis

Egyptian Food Company – BiscoMisr

            The revenue of BiscoMisr comes from the sale of food. The revenue decreased by 20.5 % from the previous year because of the unrest that affected Egypt in most part of the year 2014. Peace and tranquility in the North Africa country is crucial for the company since the company majorly depend on service to generate revenue(Ermenyi, 2015). This biggest decline in revenue explains the political atmosphere that engulfed the entire country. Prior to this the company had constantly registered growth in revenue by approximately 10 %. The company anticipate to change the business strategy so that to cushion company from political turmoil. From the financial statement analysis, it is clear that the revenue has weighted more on combined revenue year after year.

The cost of goods and service in the two year was relatively stable since the variation is very minimal. Other expenses such as operating revenues, selling and distribution expenses, general and administrative expenses, Board of Directors’ remunerations and other operating expenses all increased marginally in the year ending 2014. This could also explain high decline in revenues posted in the same year(Hassan, 2014). Also, the company had to close down some of the manufacturing facilities and auctioned of some of the properties, plant and equipment. As a result, the net value of property, plant and equipment declined from $172,192,671 in 2013 to $166,796,205 in 2014. Despite of all these development, the company managed to increase the value of non-current assets from $181,100,933 in 2013 to $188,876,084 in 2014. The increase was attributed to significant increase in the buildings that were under construction from $2,926,695 in 2013 to $16,098,312 in 2014. This means that as the company disposes of other buildings, they also invest in the construction of new building in different locations.

The net income performance of the company significantly reduced from $1,625,991 in the previous year to $1,335,465 in 2014. This high reduction led to a 8 % reduction in profit margin and subsequent 5 % decline in Return on Assets (ROA). Low revenues and poor management of costs by the company is attributed to this decline in growth. Another reason for the decline in revenues is hostile environment for business operations(Hassan, 2014). The company predicted growth in revenue in the future because of investment in other locations that are not heavily affected by political hostility. In the fiscal year 2014, the net income declined by 20 % as a result of a reduction in revenue and significant increase in constructions in progress. BiscMisr has planned to continue constructing buildings in the areas considered to be stable politically in order to help the company return to its profitability.

Current assets account increased from $122,219,075 in 2013 to $133,007,238, which represent a growth of 1.2 %. This increment was attributed to a significant increase in cash and cash equivalent account which rose from $30,754,249 in January 2013 to $61,765,147 in January 2014 which is a growth of about 50 %. However, the increase declined in December 2013 from $61,765,147 to $61,035,416 in December 2014, which represent a reduction about 0.5 %(Hassan, 2014). There need for BiscoMisr to recognize the importance for investing in Liquid investment which include the use of credit card receivables with original maturity of less or three months at the date of purchase. This developments is explained by the decline in revenues so cash provided by operations, and mainly by the increase in cash used in investing activities. From the financial statement, cash used for investing activities totaled $13,712,723 in 2013 and $23,372,006 in 2014, which is an increase of about $12,850,000. The increase is primarily attributed to increase acquisition of buildings, plant and equipment in the fiscal 2014 as compared to fiscal year 2013. Additionally, it is an indication of high proceeds from sales of investment and property.

Generally, the BascoMisr had a bad fiscal 2014 since it reduced the ability to generate revenues. Financial statement indicated that the three main profitability ratios such as return on equity, return on assets and profit margin reduced from the previous fiscal year. This means that BascoMisr is not utilizing its resource efficiently and effectively as it should be. Other aspects that negatively affects the performance of the company include contingencies such as local and national government regulations as well as lawsuits(Hassan, 2014). Although the company has not control over these contingencies since it occurs at any time, the company needs to put place strategies that helps in minimizing their effects on financial condition of the company, hence derailing the operations and growth. It is expected that the company should be performing better since they contract qualified auditors to give them opinion. KPMG is a renowned international audit firm that ensures companies obtained accurate information about their financial statement. Audit report from reputable firms enable companies to detect whether the financial statement have misstatement as well as verify the reports given by the internal auditors.

From the financial statement report, the property, plant and equipment accounts weighs heavy in the BiscoMisr’s balance sheet. These accounts represents about 80 % of the total assets since the company cash to purchases and construct new buildings. The depreciation of these assets are provided using the straight-line method which determine by estimating the economic lives of these assets(Hassan, 2014). Normally, the economic live of a building is estimated at 10 to 30 years, while other assets are estimated at 2 to 5 years. The significant growth in construction in progress account from $2,926,695 in fiscal 2013 to $16,098,312 in fiscal 2014, is a clear indication that the company is investing cash to construct new building and acquire land for constructing new business.

This also means that the company is also closing up business in locations that are not generating enough revenues to sustain its operations. due to all these activities, the financial statement in balance indicated a reduction in property, plant and equipment from $172,192,671 in fiscal 2013 to $166,796,205 in fiscal year 2014 which a reduction of about 1.05 %. The fixed asset turnover ratio for the company was 20.5 times, as compared to 40.6 times in the fiscal 2013(Hassan, 2014). The significant drop indicated the company is not utilizing its fixed assets more efficiently and effectively to generate revenues. This condition reflects a negative aspect for the future of the company. BiscoMisr in increasingly providing services that require more fixed assets. This means that the company is unable to operate efficiently with limited fixed assets.

However, the company has strong operations in its liquidity. The financial statement indicated that current assets increased from $122,219,075 in fiscal 2013 to $133,007,238 in fiscal 2014 and the current liabilities decreases. As a result, both quick ratio and current ratio increased from 1.24 and 1.19 in fiscal 2013 to 1.36 and 1.41 respectively(Hassan, 2014). In addition, BiscoMisr’s stockholders equity increased from $216,615,728 to $218,193,459, which is an increment of $1,577,731. This increment is attributed to marginal growth in retained earning which increased from $10,699,212 in fiscal 2013 to $16,038,178 in fiscal 2014. As the net income decrease lower than stockholder’s equity, Return on Equity (ROE) reduced from 25.6 % in fiscal 2013 to 16.9 % in fiscal 2014.

In general, financial statement analysis of Bisco Misr indicated that the company’s revenues decreased from $62,735,753 in fiscal 2013 to $49,862,879 in fiscal 2014. This a reduction of 20.5 % which is not good for the company (Hassan, 2014). Although some of the factor that led to reduction in revenues could be attributed to political instability in Egypt, the management of the company should establish a strategic plan the help the company to withstand political instability and other factors that negatively affect the growth of the company.

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