Financial Ratio

FINANCE ASSIGNMENT

USEFULNESS AND LIMITATIONS OF RATIO ANALYSIS (ASSOCIATED BRITISH FOODS)

BY

OLUWASEUN OGUNDARE (MBA GENERAL)

JUNE 2012

865117

WORD COUNT: 1537

Introduction

Brief History of the Company

Associated British Foods (ABF) is a diversified international food, ingredients and retail group with sales of £11.1 billion and over 102,000 employees across 46 countries. It was founded by a Canadian Willard Garfield Weston in 1935. The initial name was Allied bakeries limited but was changed in 1963 to Associated British Foods. A major breakthrough came in 1963 through acquisition of Fine fare, which was a leading British supermarket chain. In 1991, the company also acquired British Sugar in 1991. In 1997, ABF sold its retail operations in the Northern Ireland and the Republic to Tesco.

Financial Highlights

Associated British Foods has recorded an increase in revenue from £10.2billion in 2010 to £11.1billion in 2011. Investment on capital and acquisitions rose from £699b in 2010 to £825billion in 2011. Operating profits also increased from £819b in 2010 to £842b in 2011. The company recorded an increase in turnover from £10167 in 2010 to £11065m. The adjusted earnings per share rose from 72.2pence in 2010 to 74.0pence in 2011. The dividend also went up from 23.8pence in 2010 to 24.75pence in 2011 (ABF, 2011).

Literature Review

Ratio analysis is a systematic use of ratios to interpret the financial statements in terms of the operating performance and financial position of a firm. It plays an important part in evaluating the financial conditions of an entity and continues to represent one of the most powerful and versatile tools of the financial world (Ben Chin et al, 2010). Financial ratios provide a quick and relatively simple means of assessing the financial health of a business and it is important to appreciate that they are really only a starting point for further analysis (Atril & McLaney, 2008).

Usefulness of Ratio Analysis...