The topic chosen for this research and analysis report is "The business and financial performance of an organization over a three year period" (Topic 8). This research and analysis report is based on the parent company of Bairaha Farms PLC which is listed in Colombo stock exchange (CSE). I have analyzed the business and financial performance of previous three years of the parent company of the group.
Biarha Farm PLC is in the poultry industry of Sri Lanka and they produce and sell Cobb day old parent chicks, Cobb day old broiler chicks, processed chicken and further processed chicken. The company has achieved lots of awards in the industry and currently is the largest and leading producer of broiler day-old-chicks.
Reasons for chosen topic
In today's business environment, an accountant's role does not limit to book keeping or preparing the financial statements of an organization. In fact, the process of analyzing the business and financial performance of an organization is also a highly essential role for Charted accountants under professional bodies like ACCA.
During the study of ACCA part II, I found that ratio analysis and its application in most of the papers. This can mean that financial analysis is one of the most important syllabus of the course which was very much interesting. Furthermore as currently I study P3 I feel that I would be having enough knowledge to research and analyze on business performance of the company the chosen topic in deep.
It can be said that planning and control are the two most important ingredients in a successful business. In this way, business analysis helps in forming business plan and solid financial analysis can be regarded as a control mechanism.
The above facts inspired me to carry out a research under the chosen topic and I believed by performing this research it would provide me a practical experience which will help me in future career.
Reasons for chosen Organization
I chose the Bairaha Farms PLC not just because it is the largest day-old-chicken producer in Sri Lanka and is less diversified but by considering further facts as discussed below.
When I heard of pre-cooked marinated chicken products in Sri Lanka, it was the Bairaha Farms PLC which came to my mind as its brand name "BAIRAHA" is well established in Sri Lanka. Further the pioneer quality chicken they produce and the process of value adding activities are some of their strong key success factors.
As per Bairaha Farms PLC, they have won the bronze award of the annual report in the Food & Beverage sector in the in the annual award Competition 2009 organised by Institute of Charted Accountant of Sri Lanka. These facts inspired me to do this report on them by analyzing heir data and business position critically.
Project objectives and Research questions
In order to obtain a better understanding of the business and financial performance of Bairha Farm PLC, the project objectives and research questions are designed accordingly.
To find out the reasons behind the company's rapid growth by analyzing its profitability ratios and revenue.
To find out the effectiveness and efficiency of managing inventory, trade receivables and trade payables of the company.
To find out whether Baiarha Farm PLC is viable for investment by analyzing shareholders' investment ratios such as Dividend per Share and Earnings per Share (EPS).
To understand the company's gearing position by considering capital gearing ratios.
To understand and evaluate the competitive environment if the poultry industry in which the company operates. Porter's five forces is used for this purpose.
To analyze and evaluate the current situation and environment of the company in order to identify the most beneficial strategies. SWOT analysis is used for this purpose.
Research Questions
Has the organization shown substantial and consistent growth?
What are the company's new products and services?
Are there any plans for expansion?
How is the company's overall performance when compared to its competitors?
What are the company's strengths, weaknesses, opportunities and strengths that exist?
What are the challenges faced in the competitive poultry industry in Sri Lanka?
What were the effects of government policies such as price control of sales?
What are the company's key success factors to gain competitive advantage?
What is the organization's public image towards the company?
How does the company contribute to the community and environment? Is there any legal issues raised?
Overall research approach
By referring to the Oxford Brooks University's guidelines I have carried out my research approach through the following framework:
Choosing the topic and the organization.
First of all, I read through the topics prescribed by Oxford Brooks University via ACCA website. When I chose the topic I have considered the level of my ability, knowledge as well as the practicality and viability of the topics apart from the reasons which I have discussed in section 1.
It took couple of weeks me to decide the organization that I should choose. This was because; I was roughly investigating some of organization's backgrounds and deciding of an organization which provides sufficient and relevant information through transparency.
Information gathering
At first, I gathered secondary information through annual reports and websites to understand the organization business and financial performance. Secondly I planned to obtain primary information by conducting an interview with the company's management to obtain better understanding information that are not available through secondary source.
The information that I have gathered are filtered for its reliability to ensure this report will not mislead the reader
Project Objectives and research questions
The project objectives are derived by referring to the theme of the project topic, i.e., analysis of financial performance and business performance of the company. The research questions are based on necessary information which would require meeting the project objectives.
Financial and Business analysis
First I have analyzed the financial performance by using ratio analysis so that it would assist in analyzing the business performance more meaningfully. I decided to use SWOT analysis and Porter's five forces model to meet the set objectives. In this analysis I have given particular attention in finding the overall risks existed in the company's business. Finally, I have used my IT (Information and technology) skills and professionalism in presenting this analysis.
Conclusion and Recommendations
Conclusion would include the overall answers of research questions and the results of the analysis of both financial and business performance by recommending for any vulnerable areas to be improved.
PART 2
Information gathering
It is said that a well-researched foundation of knowledge will help you to develop your own opinions and approaches more accurately. Therefore I tried to to carry out an effective information gathering procedures resulting to efficient and effective utlilisation of my time in preparation of this report. Since all the information requirements of Bairaha Farm PLC were not able to apply directly to this report, I have evaluated and summarized them in Appendix, which helped me in developing a critical thinking in application of those information in analyzing business and financial performance. Furthermore during information gathering I have taken comprehensive notes detailing what I have found and its source in order to avoid any plagiarism.
There are two sources of information ,ie, primary and secondary. When research is conducted to unearth original data, it is called primary research. (http://www.marketresearchworld.net/index.php?option=com_content&task=view&id=802) . This means that Primary research is about obtaining original data from the company directly to the particular project. Eventhough this sources of information is more reliable, I have not carried out a primary research because secondary information obtained for this report was sufficient enough for business and financial analysis. However I I have tried to have an interview with management inorder to understand their business culture, particularly to understand their attitudes towards the risk of uncertainity involved in the buinsess. Unfortunately, I could not held this meeting as the management's time constraints.
Secondary research
Also known as desk research, secondary research is the most common research method employed in the industry today. It involves processing data that has already been collected by another party. (http://www.marketresearchworld.net/index.php?option=com_content&task=view&id=810)
Collecting secondary data often takes considerably less time than collecting primary data. Thus it is possible to gather more data by this way. My research was mainly based on secondary research since the all most all relevant information to the chosen topic) were available through his technique. The secondary sources of information that I have obtained are discuused below:
Annual Reports
Annual report provides information of both financial and non-financial in a standard form. This can be the most essential sources of information to do business and financial analysis of Bairaha Farm PLC. As per the nature of the topic I have chosen, annual report provides the most reliable, relevant and important information which I needed to complete this report.
Company websites
A huge number of information relating to the company was available in the company website, www.bairahalk.com .Since I haven't conducted a primary research, I obtained enough information of certain internal procedure and processes, their culture and organizational structure, new products etc by accessing to their company website.
Websites
I browsed some other business related websites in order to benchmark and to obtain any information relevant in preparation of this report. Gathering information through internet was the most convenient way in terms of cost and time when compare to other sources of information. Browsing the internet provided me obtaining lots of information about the industry and various business sectors. I browsed to CSE too which is the stock market for listed companies of Sri Lanka which is one of the most reliable places to obtain information about the company. In order to obtain a thorough understanding of Bairah Farm PLC's performance particularly in terms of investors, stock market data available in CSE was important.
Nwespaper articles
This provides up to date information regarding the company's major events and overall business operation. Articles in newspapers and certain magazines provided me latest information about the company's major activities such as changing their supplier to a USA company.
Text Books
ACCA Text books such as F5,F7,P1,P2 and P3 helped me in refreshing the knowledge I have gained to apply business and accounting techniques to be used in this research. The knowledge I have gained through these text books gave me a proper understanding about the chosen topic and also it helped me in applying those knowledge during the preparation of this report.
Methods used in gathering the secondary information
Reading the company's annual report
I found easy in obtaining the Bairaha Farm PLC's published annual reports since they have been listed in the Colombo Stock Exchange. I went through the annual report of last three years (2008, 2009 and 2010) in order to gain an understanding of the company's back ground and to use the relevant financial extracts of balance sheet, Income statement and Cash flow statement.
Accessing the website of Colombo Stock Exchange
I have accessed the CSE's website in order to gain further information about the Bairaha Farm PLC's trade summary such as share price variation and its market capitalization.
Browsing the internet
Apart from the company's website I accessed websites which were relevant in gathering the information to this report. Accessing to those sites which are related to the same business sector in which Bairaha Farm PLC carry out its business gave me additional understanding of the nature of the business environment. This also helped me to benchmark Bairaha Farm PLC's performance with others in the same industry.
Reading the news paper articles
I read some of business related articles about Bairaha Farm PLC that are published in newspapers and magazines. This gave me up-to-date information about their major business operation and of any outstanding achievement in the business sector.
Library research and reading the ACCA text books
By using business text books such as ACCA -GTG P3 I gained enough knowledge to carry out the business analysis part of this report. Furthermore I read some other ACCA -GTG text books and some of Kaplan textbooks in obtaining relevant information to apply in the financial analysis of this report.
Limitations of methods used to gather secondary information
Too much information in annual reports
I found that the annual report of Bairaha Farm PLC consisted of too much information which I could not read entirely. Because of this, I may have rejected some important information unintentionally. This may affect the completeness of the information I gathered from the annual report.
Irrelevant information at Websites
The company's website may contain outdated information as I found that there had been no update to the website during previous two months in which I was reading the company's backgrounds. Other websites I visited may provide less accurate information, as gathering information through online can be less reliable. However, I minimized this by visiting only to reputable sites in internet.
Company's websites were not maintained up-to-date.
The website of Bairaha Farm PLC did not present the details of their financial statements and annual reports of the company. The corporate information included in website was company's business activities and their history. Thus the company's website provided limited information which might be outdated or inaccurate for this project.
Ethical Issues that arose when gathering information
During the data gathering process, I tried to promote the neutrality and objectivity of this process and its outputs where relevant. These include issues such as professional competence and integrity.
All the data obtained for this project were secondary sources of information which were publicly accessible and hence the concern of confidentiality and causing inconveniences to others are being eliminated. I found that the information gathering process was easy and relatively simple as I had no interaction with any staff of the organization or any other stakeholders. This avoided any psychological stress to them during obtaining information.
However throughout the research and analysis of the obtained information, I ensured that reliable information was being taken and proper references were being made in order to avoid any plagiarism. This shows that I have respected the intellectual property of the original party and hence demonstrating my integrity towards the work.
The accounting and business techniques used in analyzing business and financial performance of the company (Bairaha Farms PLC)
In analyzing the company's business and financial performance, I used the following techniques which I believed the most relevant techniques for the topic and the organization that I have chosen.
Ration analysis
An industry analysis by using Porter's Five Forces Model
A situation analysis by using SWOT Analysis
Ratio analysis
Ratio analysis is a vital tool used to conduct a quantitative analysis of gathered information from the company's financial statements. Ratio analysis is the measuring of interrelationship between sections of the financial statement. Ratios should be taken as guides that that are useful in evaluating a company's financial position and operations and making comparisons with results in previous years or with the other companies. The main purpose of ratios is to find out the areas that are needed for a further investigation. Ratios can be also regarded as indicators of the broad state of the business.
Limitations of Ratio analysis
Competitor's financial statement have been prepared for/as at year ended 31st December, while Bairaha Company's financial statements have been prepared for/as at 31st March. I have used FY 2007 financial statement of the competitor's as FY 2008 and there on, in order to compare the ratio analysis. This has resulted to a poor and unfair comparison of both company's financial statements as the actual period of both company's financial performance has not been matched.
Financial ratios are not definitive measures and it can't give whole picture about the company
A manipulated financial statement results ratios to be manipulated. This will result incorrect decision on of financial performance
Porter's Five Force Model
Porter's five forces model is a popular and useful framework with which to analyse industry attractivenss. Industry attractiveness refers to how easy a business will find it to make reasonable profits. ( www.Opentution.com)
As per this model there are five key factors which influence the business performance and position od an organisation within a particular industry. They include:
Competitive rivalry - This refers to the intensity of competition between the existing rivals in the industry.
Threat of new entrant - If it is easy for a new company to enter the industry, then there will be a high impact to the organization through competition.
Threat of substitutes - If there are lot of alternative products available for customers, then here will be a high impact to the organization's revenue.
Bargaining power of suppliers - If the suppliers bargaining power is quite high, then it will influence the performance of the organization due to due to costs of input or raw materials.
Bargaining power of customers - If the customers bargaining power is quite high, then it will influence the performance of the organization due to unexpected discounts for them.
Limitations of Porter's Five Force Model
The model assumes a classical perfect market. This means if the industry is well regulated the model will be less meaningful.
For complex industries, this model is not best applicable.
The model does only assume that companies try to achieve competitive advantages over other players in the markets and over customers or suppliers.
www.themanager.org/pdf/p5f.pdf
SWOT analysis
A SWOT ( Strengths, Weaknesses, Opportunities and Threats) is a tool for analyzing an oranisation's competitive position in relation to its competitors. In the context of a quality improvement programme, a SWOT analysis refers to a summary of the gaps and positive features of a process following the analytical stage. ( Basu, 2004)
Strengths and Weaknesses relates to the resources and capabilities of the company while Opportunities and threats relates to external factors.
Limitation of SWOT analiysis
One major problem with the SWOT analysis is that while it emphasizes the importance of the four elements associated with the organizational and environmental analysis, it does not address how the company can identify the elements for their own company. (http://www.referenceforbusiness.com/management/Pr-Sa/SWOT-Analysis.html)
A firm's strengths and capabilities, no matter how impressive or unique, may not enable it to achieve a competitive advantage in market place. Further focus on external environment is too narrow. (Dess,Lumpkin,Taylor,2004)
