Corporate Analysis Report

Appendix VI: Financial Analysis

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Appendix VI: Financial Analysis

	2009				2010				2011				2012				2013
	Diageo	Pernod Ricard	Brown-Foreman	Diageo		Pernod Ricard	Brown-Foreman	Diageo		Pernod Ricard	Brown-Foreman	Diageo		Pernod Ricard	Brown-Foreman	Diageo		Pernod Ricard	Brown-Foreman
Profitability
ROA %	9.50	4.36	12.65	8.68		3.66	13.09	9.69		3.96	16.12	9.19		4.23	14.23	10.48		4.26	16.64
ROE %	48.25	13.65	24.57	45.07		11.49	24.20	41.07		11.36	28.93	35.76		11.38	24.78	39.37		10.82	31.97
ROS %	18.53	16.77	13.63	17.82		16.58	13.92	21.55		14.09	16.80	19.25		11.91	14.19	22.69		11.27	15.62
We are doing extremely well for our returns on equity. However, this has been decreasing over the past 5 years and we may need to look into what is causing this decrease and make the necessary change. We also seem to have a low return on assets, but it is slowly on the rise.
Liquidity
Current	1.56	1.96	1.88	1.76		1.49	2.80	1.46		1.95	2.79	1.52		1.76	4.33	1.55		1.47	3.85
Quick	.76	.52	.84	.84		.41	1.18	1.18		.57	1.49	.64		.56	1.99	.76		.43	1.57
These ratios show that we are not a very liquid business, which we can also see with the large amount of debt we are incurring (see leverage ratios). We see no rising trend in these numbers and Diageo definitely needs better debt-paying methods to raise these ratios. Some of our competitors are doing very well in this area, which only enhances the need to have strategies that improve this area.
Leverage
TD %	271	151	91	219		121	127	160		105	125	154		159	147	143		159	81
LTD %	239	146	28	204		108	27	129		101	24	132		86	24	117		69	61
DE %	266	226	55	219		190	37	156		171	37	154		94	25	143		83	62
The long-term debt to equity and total debt to equity ratios are both extremely high for both Diageo and Pernod Ricard. Due to our large profitability ratios, this high amount of debt is good for Diageo. We have the funds to pay back these debts if we need to and it gives us a higher leverage over out competition. Pernod Ricard does not have as high of profitability ratios, making their high debt more worrisome than our own.
Activity
TA	.55	.33	.72	.52		.27	.72	.51		.29	.73	.51		.30	.76	.48		.31	.80
Inventory	1.32	.80	1.35	1.27		.74	1.32	1.19		.77	1.33	1.15		.78	1.37	1.09		.73	1.16
Receivables	4.56	6.92	6.05	4.84		7.53	6.29	4.99		8.27	5.66	5.45		7.47	5.59	5.30		6.60	5.57
Our highest activity ratio consistently is the amount we receive in return from receivables, which is still below how much our competitors receive. These ratios also appear to remain almost unchanged throughout the 5 year span.
PE Ratio	13.44		17	15.69			19.91	16.67			17.97	21.34			23.79	19.19			25.68
We were unable to determine the PE ratio for Pernod Ricard because they are a French-traded company. Compared to Bown-Forman, however, it seems we are consistently receiving less return on our shares, despite the increasing trend.

Appendix VI: Corporate Strategy Justification

Criteria		Weight	Alternative 1: Acquire a luxury clothing line			Alternative 2: Acquire a world renowned ski resort			Reason
			Rating	*Wt. Rate**	Rating		*Wt. Rate**
Revenue Synergy		0.15	2	0.30	3		0.45	Alternative 2: Carrying Diageo products which will encourage higher number of sales.
Cost Synergy		0.15	3	0.45	2.5		0.375	Alternative 1: Advertise clothing and alcohol in same campaign (same celebrity).
Durability of Synergy		0.40	3	1.20	4		1.6	Alternative 2: Less likely to be quickly copied by other alcohol companies.
Absolute Cost		0.05	3	0.15	5		0.25	Alternative 2: Larger cost to purchase a ski resort
Time horizon of pay-off		0.10	4	0.40	2		0.2	Alternative 1: Will take less time to give us a return on our investment.
Risk of loss		0.15	4	0.60	2		0.3	Alternative 1: Less risk involved and unlikely to fail.
Total		1		3.1			3.175
	The durability of the strategy is most important because we want to maintain an advantage over our competition. If it can be easily copied, we do not want to bother trying it.
	Cost synergies, revenue synergies and risk of loss are .15 because they are important to show how likely it is that the alternative will be a success with our company.
	Time horizon of payoff is .10 because we have a large profit to pay for these alternatives, but we want to ensure it does not add to our debt for too long.
	Finally, absolute cost is not vital to our company because we have the profits to fund these alternatives and short-term debt is not a risk to our company.

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