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Bankruptcy prediction- Morinaga-milk, Meiji, Meg Milk -
Introduction
• Method– To apply SAF model to three main companies
in dairy industry• Objective
– To find out the reason why the difference between them is observed
2
If one of their SAF values is not good, we could suggest how they can improve it
Milk demand
Demand is gradually decreasing because of the acceptance of the the taste
3
Market EnvironmentCustomer demand
Milk and Food industry sensitivity
Demand loss because of cold summer (ex. Ice-cream)
Production loss because of an extremely hot weather (ex. Milk)
Downturn in demand due to low birthrate and aging population
Drinking frequencyof milk
Everyday 5-6 3-4 1-2 Less thanper a week
Japan Dairy Industry Association
Companies’ Profile
Morinaga-milk Meiji Yukijirushi
Meg-milk
Logo
Established 1917 1917 2009 (1925)
Main businessMilk Confectionery Milk
Ice-cream Milk Food products
Main product
Sales(2011)Financial report 2012
\ ¥578,299 m \ ¥1,109,275 m \ ¥509,413 m
4
Morinaga milk- Main business -
5
Morinaga milk(Sales \ ¥578,299m)
Milk / Dairy / Ice cream / Others
Financial report 2012
Chairman Akira Ohno
President Michio Miyahara
Employees 3,091 (as of March 31, 2012)
Major Business
Production and sales of milk, daily-based beverages, yogurt, custard, condensed milk, powdered milk, butter, cheese, ice cream, non-dairy beverages (juice, tea, coffee), clinical liquid diets, manufacture and sales of animal feed; design and construction of plant equipment
Capital 21,704 million yen(as of March 31, 2012)
Head office - Tokyo
Sales branches 9
Plants 16
Subsidiaries 30
# of Consolidated companies 75
Financial report
Meiji- Main business -
6
Meiji(Sales \ ¥1,109,275m)
Milk / Dairy / Ice cream / Others
Financial report
Chairman Shigetaro Asano
President Shigetaro Asano
Employees 15,338 (as of March 31, 2012)
Major Business
1. Dairy: milk, condensed milk, powdered milk, butter, cheese, ice cream, daily-based beverages, nutrition, livestock products, etc.
2. Confectionary: sugar, corn sweeteners
3. Healthcare: healthcare products, drugs, management of sports club
4. Pharmaceuticals: ethical pharmaceuticals, agricultural chemicals, veterinary drugs
Capital 30,000 million yen(as of March 31, 2012)
# of Consolidated companies 59
Yukijirushi Meg-milk- Main business -
7
Yukijirushi Meg-milk(Sales \ ¥509,413m)
Milk / Dairy / Ice cream / Others
Financial report
Chairman Yoshiharu Nakano
President Yoshiharu Nakano
Employees 4,989 (as of March 31, 2012)
Major Business
1. Dairy: milk, condensed milk, powdered milk, butter, cheese
2. Beverages and Dessert: ice cream, daily-based beverages, Yogurt
3. Feedstuff: Feedstuff
Capital 20,000 million yen(as of March 31, 2012)
# of Consolidated companies 26
Each company have various different business segments, but we focus on the main segment which is common, dairy industry.
Morinaga-milk Meiji Meg-milk 2009 2010 2011 2009 2010 2011 2009 2010 2011
X7: Retained earnings to total assets
19.25%
19.83%
23.80%
23.80%
16.43%
20.04%
X10: Net income before
tax to total assets
3.03% 2.20% 2.48% 1.99% 3.28% 3.52%
X37: Inventory turnover period 0.70 0.71 1.17 1.17 0.85 0.82
X26: Interest expenses to
sales0.30% 0.32% 0.30% 0.23% 0.20% 0.18% 0.35% 0.24% 0.19%
SAF2002 - 0.94
0.92 - 0.9
40.9
3 - 0.90
0.95
Rating - BB BB - BB BB - BB BB8
Companies’ financial statementbased on SAF2002
Comparison of SAF model• 3 companies are placed on higher level
over cutoff point 0.68 of SAF model
Meg 0.95Meiji 0.93
Morinaga 0.92
9
Why?How to improve?
Cause of Changes in Financial Position- Logic tree-
SAF 2002
Interest expenses to Sales
Inventory turnover period
Net income b/f tax to Total assets
Retained earnings to total assets
Retained earnings Total Assets
Net income b/f tax Total Assets
Interest expenses Sales
Raw Materials and Storage
InventorySales
Merchandises and Finished
Goods
Work In Process
10
Inventory
Divided into each valuables to clarify the cause of changes
Cause of Changes in Financial Position- Logic Tree-
SAF 2002
Interest expenses to Sales
Inventory turnover period
Net income b/f tax to Total assets
Retained earnings to total assets
Retained earnings Total Assets
Net income b/f tax Total Assets
Interest expenses Sales
Raw Materials and Storage
InventorySales
Merchandises and Finished
Goods
Work In Process
11
Cause of Changes in Financial Position- Logic Tree-
SAF 2002
Retained earnings to total assets
Retained earnings Total Assets
Net SalesOperation profitOrdinary profitNet income before taxNet income
12
Profit AnalysisMorinaga-Milk Meiji Meg-milk
In 2011, loss on inventory due to quality deterioration (172 million yen) lowered the ordinary profit. Retained earnings have been accumulated from positive net income.
Net income is on the same trade as sales. Retained earnings have been accumulated from positive net income.
In 2011, revaluation of land(3,542 million yen) was incorporated into retainedearnings.
13
unit: millions of yen unit: millions of yen unit: millions of yen
Cause of Changes in Financial Position- Logic Tree-
SAF 2002
Retained earnings to total assets
Retained earnings Total Assets
Total AssetTotal non-current AssetTotal current AssetTotal tangible fixed assetTotal intangible assetInvestments and other assets
14
Cause of Changes in Financial PositionTotal assets are basically stable
Morinaga-Milk Meiji Meg-milk
Inventory is increasing from 2010 to 2011 due to slow demand after earthquake
Inventory is increasing from 2010 to 2011 due to slow demand after earthquake. Buildings for leases were reclassified as other assets
15
unit: millions of yen unit: millions of yen unit: millions of yen
Inventory is increasing from 2010 to 2011 due to slow demand after earthquake
Cause of Changes in Financial Position- Logic Tree-
SAF 2002
Interest expenses to Sales
Inventory turnover period
Net income b/f tax to Total assets
Retained earnings to total assets
Retained earnings Total Assets
Net income b/f tax Total Assets
Interest expenses Sales
Raw Materials and Storage
InventorySales
Merchandises and Finished
Goods
Work In Process
16
Cause of Changes in Financial Position- Logic Tree-
SAF 2002
Net income b/f tax to Total assets
Net income b/f tax Total Assets
-26.5% +5.1%Net SalesOperation profitOrdinary profitNet income before taxNet income
Total AssetTotal non-current AssetTotal current AssetTotal tangible fixed assetTotal intangible assetInvestments and other assets
Decrease of net sales Extra ordinary loss due to earthquakeDecrease of loss of securities for investment
Same as previous slides
17
SAF 2002
Interest expenses to Sales
Inventory turnover period
Net income b/f tax to Total assets
Retained earnings to total assets
Retained earnings Total Assets
Net income b/f tax Total Assets
Interest expenses Sales
Raw Materials and Storage
InventorySales
Merchandises and Finished
Goods
Work In Process
18
These 3 criteria are inventory.
Cause of Changes in Financial Position- Logic tree-
Morinaga-Milk Meiji Meg-milk
Even though the sales was decreased and inventory was increased, they kept inventory turnover period as 0.71. That means they controlled the inventory very well.
19
0.70→0.71 1.17→1.17 0.85→0.82
Cause of Changes in Financial Position- Inventory Turnover Period-
(right scale)
(left scale)
(left scale)
(left scale)
Unit: million yen
Financial report
They kept inventory turnover period as 1.17. That means they controlled the inventory very well. But due to their pharmaceutical business, the period is longer than other competitors.
The inventory was increased, but the sales remained stable due to their diversified product line-up. They improved the inventory turnover period.
unit: millions of yen unit: millions of yen unit: millions of yen
Cause of Changes in Financial Position- Logic Tree -
SAF 2002
Interest expenses to Sales
Inventory turnover period
Net income b/f tax to Total assets
Retained earnings to total assets
Retained earnings Total Assets
Net income b/f tax Total Assets
Interest expenses Sales
Raw Materials and Storage
InventorySales
Merchandises and Finished
Goods
Work In Process
20
Short term loanLong term loan matured within 1 yearLong term loan
These 3 criteria are interest bearing liabilities.
Morinaga-Milk Meiji Meg-milk
21
Cause of Changes in Financial Position-Interest Expenses to Sales-
0.30→0.32→0.30% 0.35→0.24→0.19%0.23→0.20→0.18%
(right scale)
Unit: million yen
(left scale) (left scale)Financial report
Even though the interest bearing debt was decreased, the interest expenses was increased from 2009 to 2010 because their financial situation became worse. They borrowed the liabilities which has higher interest rate.
Even though the interest bearing debt was decreased, the interest expenses was remained from 2009 to 2010 because Meiji’s rating is very good.
The interest bearing debt was decreased and interest expenses was kept very small, that means their financial situation is stable.
unit: millions of yen unit: millions of yen unit: millions of yen
Conclusion
• SAF values for 3 companies are below cut-off point of 0.68. They need counter-measure to improve their business performance.
• Meiji (worst SAF value : 0.63) is trying to expand their business through capturing Asian market. However, since SAF value indicated, they are not healthy company and have possibilities to go bankrupt.
• We suggest following measures before expanding their businesses to new fields.– Reduce inventory turnover period to at least competitors’ level– Increase profit by capturing demand with before earthquake level by
strengthening brand of products.– Limit dividend payments to increase retained earnings for earthquake
recovery.
22
Appendix A: Morinaga milk- History -
23
Milk Confectionary1917 Nihon rennyu
Co,1910 Morinaga syouten
1920 Merger “Morinaga confectionary”
1949 Morinaga milk 1949 Morinaga confectionary
Morinaga milk and Morinaga confectionary are not related company at the moment.Morinaga confectionary was originally found as “Morinaga syouten” in 1910, and Morinaga milk was originally found as “Morinaga rennyu” in 1917. They merged in 1920, and again they separated in 1949.
Financial report
Appendix B: Morinaga milk- Main factors -
24Financial report
Appendix B: Meiji- Main factors -
25Financial report
Appendix B: Yukijirushi Meg-milk- Main factors -
26Financial report