Inventory Turnover (IT)
The inventory turnover ratio refers to how quickly good enter and leave storage at the business (Winston, 2018). It’s measure how many time a company turnover all of its inventory in a designated period. By using the formula (Inventory turnover = Cost of goods sold ÷ Inventory), the inventory turnover of Heineken Company in 2015 and 2016 are 23times and 29times respectively. The ratio has increased by 6 times in the year 2015 to the year 2016. In the year 2015, the inventory turnover is lower, it may mean Heineken Company has more inventory that it really needs.
Furthermore, the inventory turnover in the year 2016 is higher than 2015, it may mean that Heineken had unusually strong sales (Winston, 2018). In other word, Heineken Company increase cost of goods sold in order to have a high ratio. Based on the statement of financial position of the Heineken year 2015 and 2016, it has shown that the cost of goods sold of the year 2016 is greater than the year 2015 which is from RM 1,128,332 to RM 1,806,844. The increase in inventory turnover indicated that the company was good at the management of cost controlling like lower the cost and sold more quantity of finished goods to the customers.
Total Asset Turnover (TAT)
The total asset turnover indicates the efficiency with which the firm uses its assets to generate sales. In short, it reveals how much revenue the company has generated from every Ringgit Malaysia assets like from building, equipment to bank cash, accounts receivable and inventory (Merritt, 2006). By using the formula (Total Asset Turnover = Sales ÷ Total Assets), the total asset turnover ratio of Heineken Company was 2.52 in the year 2015 meanwhile 3.45 in the year 2016 which increased by 0.93. This ratio means that every RM1 of assets generated by Heineken Company, the Heineken Company has made RM2.52 and RM3.45 in the year 2015 and year 2016 respectively in revenue. In addition, the revenue that Heineken Company earned in the year 2016 is RM 0.93 greater than the year 2015.
The total asset turnover ratio for Heineken Company in 2015 is low because the company are simply more asset or intensive than others are. According to the statement of profit and loss of Heineken 2016, the sales of the company had increased from RM1, 748,885 to RM2.810, 308. Let assume that the total assets remain the same, the increase in sales, the higher the total asset turnover ratio. So, that’s why the total asset turnover ratio in the year 2016 is higher than the year 2015. The increase in total asset turnover ratio indicated that company is productive in its business.
Average collection period (ACP)
The average collection period is the average time required for the enterprise to return the account receivable balance to the cash flow (Fondell, 2006). The average collection period is also referred to as the days’ sales in account receivable. By using the formula (Average collection period = Account receivable ÷ Average sales per day), the average collection period of Heineken Company was approximately 62 days in the year 2015 and 58 days in the year 2016. There was a 4 days difference between the year 2015 and year 2016. In other words, it has shown that the Heineken Company takes 62 days to collect an account receivable in the year 2015. Meanwhile, it takes 58 days to collect an account receivable in the year 2016.
The average collection period is meaningful only in relation to the firm’s credit terms. If Heineken extends 60-days credit terms to the customer, an average collection period of 62 days in the year 2015 may indicate a poorly managed credit department, collection department, or both. In addition, with the 60- day’s credit, the 58 days average collection period would be quite acceptable which mean Heineken Company can collection its account receivable within the credit terms.
Average payment period (APP)
The average payment period measures the average number of days it takes for a company to pay its supplier. The target of most companies is the short average payment period as it shows that they are able to fulfil their financial obligations to the supplier. By using the formula (Average payment period = Account payable ÷ Average purchases per day), the average payment period of Heineken Company has decreased by approximately 3.4 days from 62.4 days in the year 2015 to 59 days in the year 2016. This ratio indicated that Heineken Company takes 62.4 days to pay its supplier, at the same time takes 59 days to settle the financial obligations.
The average payment period of Heineken Company in the year 2015 is higher than the year 2016, it could be an indication that the company is having difficulty paying its bills. If Heineken Company’s supplier has extended, on average, 60-days credit term, which means that Heineken Company is paying supplier beyond the accepted collection period in the year 2015 (bdc*, n.d.). This will affect the company’s credit rating due to pay interest on the purchases. On the other hand, the average payment period of Heineken Company in the year 2016 become lower because Heineken Company has increased its average purchases per day as well as account payables compare to the year 2015.
Compare the financial ratio of Heineken and Carlsberg in the year 2016
Inventory Turnover (IT)
In the year 2016, the inventory turnover of Heineken Company was 29 times meanwhile Carlsberg Company was 11 times. There is a difference of 9 times between Heineken Company and Carlsberg Company. Thus, the difference of inventory turnover indicated the Heineken Company has more quickly good enter and leave storage than the Carlsberg Company. The inventory of Carlsberg Company is low because it has more inventory that it really needs. Based on the statement of financial position, the inventory of Carlsberg Company is RM96, 283 meanwhile Heineken Company is RM 61,892. This has shown that the inventory of Carlsberg Company is greater than Heineken Company. On the other hand, the inventory turnover of Heineken Company is 9 times greater than Carlsberg Company because Heineken Company had unexpected strong sales. Therefore, Heineken Company’s cost of goods sold is greater than Carlsberg Company by RM 724,552. So, this indicated that the Heineken Company was good at the management of cost controlling compared to Carlsberg Company.
Total Asset Turnover (TAT)
The total asset turnover of Heineken Company was 3.45 compared to Carlsberg Company was 2.54 in the year 2016. This indicated that the Heineken Company is more efficient than its competitor with use its assets to generate sales. This ratio means that every RM 1 of assets generated by Heineken Company and Carlsberg Company, they made RM3.45 and RM2.54 respectively in revenue. In addition, the revenue earned by Heineken Company is RM0.91 greater than Carlsberg Company. According to the Statement of profit and loss, the total sales of Heineken Company is greater than Carlsberg Company which RM 2,810,308 and RM 1,679,494 each. Assume the total assets of both companies are the same, the higher sales will cause the higher total asset turnover ratio. It can be explained why the total asset turnover of Carlsberg Company is lower than Heineken Company. In the other word, the Heineken Company is more productive compared to Carlsberg Company in the year 2016.
Average collection period (ACP)
In the year 2016, the average collection period of Heineken Company and Carlsberg Company are approximately the same which take 58 days to return the account receivable balance to the cash flow. The average collection period is meaningful only in relation to the firm’s credit terms. Both companies are extending 60- days credit terms to the customer, the average collection period of both companies is 58 days which would be quite acceptable because they can collect its account receivable within the credit terms. This indicated that both companies have good communication with the customer regarding their debt and businesses’ expectation payment. For example, both companies may offer a discount for advance payment and fees for late payment.
Average payment period (APP)
The average payment period of Heineken Company was 59 days compared to Carlsberg Company was 85 days in the year 2016. There is a difference of 26 days between Heineken Company and Carlsberg Company. In other word, this ratio indicated Heineken Company takes 59 days to pay its supplier meanwhile Carlsberg Company takes 85 days to settle the financial obligations. The Carlsberg Company’s average payment period is higher than Heineken Company as the company is having difficulty paying its financial obligations. Both companies’ supplier has extended, on average 60- days credit term, which mean that Heineken Company is able to pay its supplier during the accepted collection period. Besides, the Carlsberg Company is paying the supplier beyond 25 days, meaning to say Carlsberg Company is also paying interest on the purchases (bdc*, n.d.). Thus, this will affect the company’s credit rating and increase the financial obligations.