Financial analysis- DIA Annual Accounts (31 Dec. 2010)
The company must aim for financial equilibrium at all times, maintaining its stability. Next we will look at the current situation regarding financial equilibrium of DIA.
DIA is a distribution chain which was founded in Spain nearly 30 years ago, their strategy has been working on the quality-price formula until they based it in central focus of its mission .This mission is reflected in a policy of optimizing costs in order to offer consumers solutions to their food and commodity requirement at lower prices than the market.
For the economic financial analysis of a company we use Balance Sheet and P&L account. After the knowledge acquired in class and analyzing both financial documents 2009 and 2010 from DIA, my first and clear finding is that short term liabilities are greater than the current assets of the company.
More specifically its current assets ( expressed in thousands €) account for 383.959 and its current liabilities are 1.050.243. Therefore part of the fixed assets are being financed by short term resources.
This may be dangerous for the company since the may not be sufficient liquid or convertible-to-liquid resources yo meet current debts.
However DIA is not in an irreversible situation. It has options such as liquidating part of its non current assets to obtain cash, increase capital or seek new loans.
When we study the financial position of the company from the liquidity perspective we are measuring the ability of DIA to meet its debts and obligations in the short term.
With the general liquidity ratio we measure the relation between availability of cash in the short term and the cash recquired to meet the corresponging short term debts. In the case of DIA the result is 0,36, this means short liquidity, a possible option would be converting sort term debt in lobger financial debts.
In relation to the Working Capital (-666,28) the company has working capital defficiency. The Management of working capital involves inventories, cash, accounts receivable and accpunts payable.
The Acid Test Ratio which removes the inventory (204.408) from current assets is also known as quick ratio as it measures the ability of a company to meet short term debts with the most liquid assets, liquid being regarded as immediate cash because their prices are relatively stable when they are sold to the open market.
Studying the estructure of the various components of the liabilities, so the company´s sources of finance we calculate de Debt Ratio which is 1,16. Being this ratio greater than 1 DIA can still have access to the market for external resources.
Debt structure ratio is 0,18, this ratio described the composition of the liabilities of the company and we can see predominantly the liabilities are composed of short term debt (lto be paid in less than a year).
They are also very important the Efficiency ratios, and we can obtain useful information from them.
Looking to the Accounts Collection Period we have a result of 4,30 days.
Calculating the Accounts Payment Period the final result is 97,68 days.
These two results tell us that DIA is paying late to its suppliers but collecting its money early.The first one indicates the average number of days will occur between the sales being made and the payment received.This is a general average as we do not know the average length of time the crédito clients take to pay, we considera all sales.
Analyzing this company we see that average payment period is greater than average recovery period, the financial Management is being carried out adequately.
Regarding the asset turnover (companys efficiency at using its assets in generating sales or revenue) the obtained result is 1,73 in year 2010 while it was 1,65 in 2009. This means DIA is currently using its assets in a more efficient way.
It is interesting that this ratio also indicates pricing strategy, as companies with low profit margins tend to have high asset turnover result, while those with high profit margins have lower asset turnover.
The inventory turnover of DIA is currently in 2010 at 14,8 while in 2009 was 13,5. This result may imply Sorong sales. Calculating it with the cost of goods sold this shows how many times a company’s inventory is sold and replaced over a period.
http://www.diacorporate.com/diawebapp/web/archivos/DIA%20Annual%20Accounts%202010%20and%20DR.pdf
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21 Dec 2011
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Tatiana Casquero Rodriguez
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