Beiersdorf AG – Expanding Nivea’s Global Reach Case Study Sample
The Ratio Analysis of Beiersdorf AG financials shows obvious company’s strengths and weaknesses. The company is in good position in terms of liquidity and inventory turnover. At the same time, the company’s profitability and return on investment are not so good. Beiersdorf AG has the lowest Return on Net Sales ratio among leading competitors and the lowest net profit. In order to improve profitability, the company should compare its profit margins by product to the industry average and consider starting new high margin products.
Current ratio was used in order to evaluate Beiersdorf AG liquidity. This ratio shows the ability of the company to cover its current liabilities with its current assets. Through the period of four years, (2008 – 2011) current ratio has been relatively stable and has gone up from 0.84 to 0.88. It shows that the company can manage its liquidity even when challenged with failed expansion projects (C-Bons in China) and restructuring.
Inventory turnover ratio indicated how many times during the year the company sells its inventory. This ratio has gone up 7 percent from 3.15 in 2009 to 3.38 in 2010, but dropped to 3.12 in 2011, presumably due to the China expansion disaster, where large stock of unsold products had to be written off.
Accounts receivable turnover ratio should raise some concerns because it has been going down steadily. It has dropped percent from 6.39 in 2009 to 5.58 in 2011, meaning that company’s ability to collect cash from the customers is declining, or the company is extending its credit conditions too much.
Beiersdorf AG Debt ratio is not a subject of concern to the management. Only 45 percent of its assets has been financed by the debt, which is more than acceptable. This is the area of possible improvement and additional source of financing for new projects.
Gross margin, as an absolute number looks quite healthy at 63.1percent in 2011. However, it has dropped from 67.3 percent in 2009 and shows a negative tendency for three consecutive years.
Another profitability-measuring ratio – Rate of Return on Net Sales shows the same trend: it has dropped from 9.5 percent in 2008 to 4.6 percent in 2011. Which means that every dollar of sales earns twice less income than the year before. At 9.5 percent, Beiersdorf AG was abreast with the main competitors, but in 2011, it was the lowest among industry leaders. (Table 1)
The next two ratios show a negative tendency as well. Asset Turnover has dropped from 1.32 to 1.07 and Return on Assets from 12.5 percent to 6.3 percent. The efficiency of the asset management is a serious issue with the Beiersdorf AG and should be addressed immediately.
The Return on Equity ratio should also be a subject of concern for the management and investors, since it has dropped more than 50 percent from 22.3 percent in 2009 to 11.0 percent in 2011. The investors cannot be happy with this kind of performance.
Comparison to the biggest competitors in the industry shows that Beiersdorf AG is the smallest company among the major players. It has the least number of employees (Chart 1), the lowers revenues (Chart 2) and the lowest Net Profit (Chart 3). Procter & Gamble has seven times more employees than Beiersdorf AG. It is hardly a surprise that the American giant has attempted to buy the German competitor. However, the German company has the largest share of the world’s hand and body care market; it is second in sun care industry, and third in facial care.
Beiersdorf AG Rate of Return on Net Sales ratio of 4.4 percent is the lowest among the competitors. L’Oreal, being only 4 times bigger than Beiersdorf in the number of employees, makes 10 times more in net profit. Market share analysis shows that Beiersdorf has 91.2 percent of its revenues in three segments: facial care, sun care, hand and body care. The same indicator for L’Oreal is just 32.5 percent. The French manufacturer makes two thirds of its sales elsewhere. Two conclusions can be drawn from this observation: a) Beiersdorf AG products in the abovementioned segments have a lower margin; or L’Oreal makes more profit on the markets where the German company is not present. In order to improve profitability Beiersdorf AG should compare its products margins with the competition and explore the possibility of entering new market segments with high margins. The profitability-by-product analysis and comparison with the industry benchmarks will show the most profitable items on its manufacturing list. If the margins are close, the competition is earning higher profits on other markets. If the margins are lower, discontinuing the low-profit items will improve the financial situation, increase the gross margin and will give the company resources to enter new market segments. Cash flow may go down temporarily, but the company with 2.2 billion euros of reserves can afford a temporary liquidity drop. With higher margin products the cash flow will increase, the losses will be covered.
Return on Net Sales Ratio
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