SHS Web of Conferences 181, 02019 (2024) https://doi.org/10.

1051/shsconf/202418102019
ICDEBA 2023

KP snack financial statement and ratio analysis

Erling Nie

Faculty of Business, University of Macau, 999078 Macau, China

Abstract. This research looks at the current situation and development of the snacking industry from a
company perspective (taking KP snacks as an example). First, the paper analyses the financial statements
based on the balance sheet, income statement and statement of cash flow. The reason is analysis of
financial statements is one of the most important aspects of company management, it can help in optimize
the financial management of the company. Secondly, this research is based on the annual report of "KP
snacks" between 2017 to 2022 and uses the data from the reports to calculate several ratios, to analyse the
profitability, operating conditions and capital management of the company. Based on those analyses, the
revenue of the company is forecasted for the next 5 years. According to the study, KP Snacks has strong
profitability, but cash flow is not being handled well. However, the company's profitability is expected to
increase over the next few years.

澳
澳Corresponding author: bc10632@connect.um.edu.mo

© The Authors, published by EDP Sciences. This is an open access article distributed under the terms of the Creative Commons Attribution
License 4.0 (https://creativecommons.org/licenses/by/4.0/).
SHS Web of Conferences 181, 02019 (2024) https://doi.org/10.1051/shsconf/202418102019
ICDEBA 2023

2 Financial statements analysis

1 Introduction
2.1 Analysis of balance sheet
As the demand for quality of life is increasing, eating
snacks becomes an indispensable part of people's lives. A balance sheet is a statement used by a company to
To understand the development of the snack industry, KP record the assets consumed in the development of its
snacks was chosen as an example for this study. operations and the financial flows [2]. The balance sheet
Profitability was assessed by analyzing the company's contains information on current assets, current liabilities,
financial statements. Analysis of financial statements is and non-current liabilities, etc. This information reflects
the best way to understand the profitability of the the development and changes in the size of the business,
company, it is the earning ability of the company of the the scale of financing of the business, etc. The balance
daily operation. To deepen the understanding of the sheet is an important basis for analyzing the business
company's financial position and operating results, the development and profitability of a company for a given
company needs to conduct a comprehensive analysis of period. It also provides an analysis of the balance sheet
its profitability in order to make the most appropriate for planning the future development of the company [3].
decisions [1].

Table 1. KP Snacks Assets Between 2019 to 2021.

2019 2020 2021

Current Asset 131,880,000 117,773,000 98,622,000
Non-Current Asset 544,164,000 499,579,000 456,401,000
from £454,192,000 to £358,597,000. The data shows that
From Table 1, total assets of KP Snacks in nearest 3
it is mainly due to the decrease in borrowing, both
year are continue decreasing. As for current assets, it
current and non-current liabilities, that the amount of
decreased from £131,880,000 in 2019 to £117,773,000
borrowing has decreased significantly.
in 2020, and then decreased to £98,622,000 in 2021. At
the same time, the non-current assets have the same
2.2 Analysis of income statement
trend, decreasing from £544,164,000 in 2019 to
£499,579,000 in 2020, and then decreased to The income statement is used to record the results of a
£456,401,000 in 2021. Even though looking for the company's operations over a period and provides
amounts, it is continuing to decrease, as the non-current detailed information about earnings. Managers can use
liabilities as a percentage of total assets, it shows the income statement to forecast future earnings [2]. It
increase trend. From 80.49% in 2019 to 82.23% in 2021. includes revenues, costs, various period expenses, taxes.
The company's liabilities have been decreasing in the last Help to understand the level of total profitability and
three years, but the main decrease was generated in 2020, various sources of profit and their structure.

Table 2. KP Snacks Revenue and Cost of Sale Between 2019 to 2021.

2017 2018 2019 2020 2021

Revenue 345,669 377,073 474,226 479,429 524,751
Cost of sale 196,192 212,945 262,023 256,949 274,410
2019. 2020 increased by 1.10%. 2021 increased by
There are three main acquisitions in recent years,
9.45%. This may be due to the steady progress of KP
which are Largo foods UK limited, Tyrrells Potato
snacks through acquisitions and various efforts to
Crisps Limited and Glennans Limited, the third is
strengthen the speed and quality of advancing the
Popchips Limited. As can be seen in Table 2, through the
company's product innovation [4]. With the rise in
acquisition, the company's operating profit and net profit
revenue, the cost of sales is basically increasing. The
have increased from 2018 to 2021. 2018 revenue
cost of sales in 2018 increased by 8.54% from last year.
increased by 9.08% from last year. 25.77% increase in
In 2019, it increased by 23.05% compared to last year.

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SHS Web of Conferences 181, 02019 (2024) https://doi.org/10.1051/shsconf/202418102019
ICDEBA 2023

2021, it increased by 6.80%. From the percentage of management. The management objective includes all
increase, the increase of operating cost is mostly close to cash receipts and expenditures of the company.
the ratio of revenue growth, so the company can save Companies can solve cash flow problems through cash
costs while expanding the sales in the future, which can flow forecasting, budgeting and optimizing the cash flow
make the profit continue to rise. management process. Cash flow forecasting means
forecasting future cash flows based on the analysis of
2.3 Analysis of statement of cash flow existing cash flow statements to ensure the stability of
cash flow statements. Cash flow management refers to
The cash flow statement is the financial statement of a
optimizing the company's cash flow management
company that specifically records the cash flow [2]. The
process to improve the efficiency and stability of cash
management of cash flow statement is very important.
flow [5].
There are many companies that have gone out of
business and bankrupt because of poor cash flow

Table 3. Cash and Cash Equivalents of KP Snacks Between 2018 to 2021.

2018 2019 2020 2021

Cash and Cash
288,000 69,000 0 0
Equivalents

According to Table 3, KP Snacks has managed its

2.4 Financial ratio analysis
cash flow quite well in 2018. There is enough cash and
cash equivalents for contingencies. But in 2019, cash and Financial ratios can be divided into four categories. The
cash equivalents dropped sharply, down to 69,000 from four ratios are profitability ratios, efficiency ratios,
288,000 in 2018. This means that the company have less liquidity ratios, and investment ratios. This paper
assets that are liquidity, indicated that the company is analysis the company's situation through these four ratios.
exposed to significant cash flow risk. Cash flow risk First are profitability ratios. Profitability ratios include
control can protect its operations. If cash flow risk gross profit margin, net profit margin, return on equity
control is ignored, it may lead to bankruptcy and and return on capital employed. The most important are
collapse of the company [6]. It is crucial to ensure that the gross profit margin and net profit margin. Gross
there is enough cash and cash equivalents on the profit margin = (Gross Profit / Revenue) x 100%. This
financial statements. It can be used to cope with ratio shows % of sales left over after taking away costs
short-term debt crises that might otherwise face a credit of buying in materials and costs relating to processing
crisis. Therefore, it is vital to ensure a healthy cash flow the materials. The table below shows the gross profit
no matter how much profit the company earns. margin from 2018 to 2021.

Table 4. Gross Profit Margin Between 2018 to 2021.

2018 2019 2020 2021

43.53% 44.70% 46.70% 47.70%
efficient in the transfer of the raw materials to revenue.
According to the Table 4, the gross profit margin has
Net profit margin has the same trends as gross profit
continued to increase in these 4 years. The increase in
margin. Net Profit margin = (Net Profit / Revenue) x
gross profit margin indicates that the profitability of KP
100%. It is showing in Table 5.
snacks is also increased. It means that the company gets
more profit from the sale of products and is more

Table 5. Net Profit Margin Between 2018 to 2021.

2018 2019 2020 2021

3.60% 4.30% 7.20% 7.60%

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SHS Web of Conferences 181, 02019 (2024) https://doi.org/10.1051/shsconf/202418102019
ICDEBA 2023

Receivables / Revenue) x 365. This ratio measures the

Second is efficiency ratios. It includes inventory
number of says that should be used to receive the
holding period, receivables collection period, payables
account receivable from the sale of goods. From the
payment period and working capital cycle. The most
results, the company has a quick turnover in inventory
important are the inventory holding period, receivables
and can receive payment from customers quite short.
collection period. Inventory holding period (in days) =
This is a good phenomenon; it means that the company
(Average inventory / cost of sales) x 365, which is shown
has a low risk of obsolescence, and it can collect the
in Table 6. This ratio measures the number of days that
account receivable in time.
should be used to sell the inventory purchased.
Receivables collection period (in days) = (Trade

Table 6. Efficiency Ratios Between 2018 to 2021.

2018 2019 2020 2021

Inventory holding
27.15 25.47 31.74 29.97
period
Receivables collection
79.86 86.12 69.48 51.25
period
standard, which means KP Snacks is not able to cover its
Third is liquidity ratio. It includes the current ratio
current liability quickly and easily. That is because the
and quick assets ratio. Current ratio = Current Assets /
current liabilities are more than current assets. The
Current Liabilities. The current ratio shown in Table 7
company may face the problem of insolvency. Because
compares the firm's level of liquid assets to its upcoming
there are too few liquid assets, in the event of an urgent
liabilities. Often said that the current ratio should be
debt repayment situation, it may default because it does
around two. The current ratio dropping below 1 may be a
not have enough cash.
problem [7]. However, the company's ratio is far from

Table 7. Current Ratio Between 2018 to 2021.

2018 2019 2020 2021

0.54 0.66 0.83 0.54

Table 8. Quick Ratio Between 2018 to 2021.

2018 2019 2020 2021

0.45 0.56 0.66 0.43
The last is investment ratios, it is shown in Table 9. It
Quick assets ratio shows the same problem. Quick
includes the earnings per share, price earnings ratio,
assets ratio = (Current Assets – Closing Inventory) /
dividend cover, dividend yield, capital gearing ratio and
Current Liabilities. Traditionally 1:1 is viewed as
interest cover ratio. Because KP doesn’t show market
optimal, but Table 8 shows that KP snacks has not gotten
price in its report, the earnings per share ratio and
1 ever. These two ratios show that the company faces
dividend yield cannot be calculated. However, the
some problems with cash flow. Cash flow is the basis for
earnings per share, dividend cover, capital gearing ratio
maintaining sustainable development of the entire
and interest cover ratio can be used to analysis the
company's production and operation [8]. That's why the
investment of the company.
management of cash flow is crucial for a company that
The gearing ratio of KP Snacks is in a safety area. It
wants to grow sustainably. Cash flow management is a
is calculated by gearing ratio = long-term debt /
way to manage and control cash flow, which covers all
(shareholders' funds + long-term debt). It is not too high
cash receipts and expenditures of a company [5]. Failure
to face the financial risk, also not too low to miss out on
to pay attention to cash flow risk control will make the
tax benefits and cheaper financing. The high interest
company unable to resist losses or even face the risk of
cover ratio also indicates that KP Snacks is in a
collapse.
relatively secure position. What's more, KP Snacks can

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SHS Web of Conferences 181, 02019 (2024) https://doi.org/10.1051/shsconf/202418102019
ICDEBA 2023

easily cover its interest, so it has a qualification to dividend / ordinary dividends), which indicates that the
borrow money from a bank and use that money to invest company may not pay the dividends to shareholders. The
or develop. However, KP Snacks shows low dividend earnings per share are increasing from 0.07 to 0.2, which
cover (dividend cover = profit after tax less preference shows a positive performance for the shareholder.

Table 9. Investment Ratios Between 2018 to 2021.

2018 2019 2020 2021

Interest cover ratio 3.82 3.86 7.25 11.81
Dividends cover ratio 0 0 0 0.82
Capital gearing ratio 0.57 0.55 0.51 0.37
Earnings per share 0.07 0.10 0.17 0.2
been reducing borrowing in recent years. This has led to
3 Revenue forecast a consistent decline in current liabilities and non-current
liabilities. Perhaps because of acquisitions, the company
The drivers of KP snack are people who would like to
has expanded its sales. The revenue has been continuing
eat snacks. The revenue from 2019 to 2022 shows that
to rise. However, the company's management of cash
snacks are becoming more and more popular, so the
flow has been poor in recent years, especially in 2020
company income continues to rise. And the willingness
and 2021, and there is no cash and cash equivalent on the
of British people to try new snacks is very high [9].
books at present. This also means that the company is
Throughout the snack food industry, revenues have been
facing a large cash flow risk. If the company faces
rising steadily in recent years. Based on that, the revenue
unexpected situations or cruises, they may not have
of KP snack will continue to growth. On the other hand,
enough time to raise funds and put them in serious cases,
it is possible that the increase in revenue is also due to an
such as the risk of closure. This study analyzes the
increase in the volume of exported products. In recent
company's financial situation in more detail through
years, communication and cooperation between
ratios analysis. These ratios include profitability ratios,
countries has gradually increased. The imports and
efficiency ratios, liquidity ratios, and investment ratios.
exports of products have also grown rapidly. The local
The increase in profitability ratios shows that the
snack industry in the UK may also be popular with
company's product sales are increasing every year and
foreigners, thus increasing revenue.
the company's production process is becoming more
However, eating too many snacks are harmful for
efficient. The efficiency ratios show that the company
people's health. People begin to pursue a healthier
can receive account receivable more and more quickly.
lifestyle after several year, they will eat traditional
This is a good improvement because the company may
snacks less frequently [10]. The revenue of the snack
use those funds in other areas if they are needed. The
industry may decline as a result. However, this may not
liquidity shows some problems. The current ratio has
lead to a decline in revenue for KP snacks. This is
been below the standard for the last 4 years. This implies
because KP Snacks started to research and produce
the current liabilities are more than current assets.
healthy snacks several years ago. They have reduced the
Company may face insolvency.
use of refined vegetable oils (which contain harmful
This study first examines the three statements of the
trans fatty acids), that can make their snacks more
company and then ratios analysis. This helps the
relevant to customers' needs. However, revenue may still
company to understand its financial position and
be affected a bit because of the whole industry. So, the
improve it, and at the same time, improves the
rate of revenue growth may decrease.
management process and avoids cash flow risks.
Finally, this paper does not analyze more specifically
4 Conclusion the different categories of the company's products.
This study found that KP snacks has a good profitability, Revenue is a crucial part when analyzing the profitability
and the revenues are likely to continue to rise in the of a company. Analyzing the revenue of different
future. Looking at the balance sheet, the company has products can make the profitability analysis more

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SHS Web of Conferences 181, 02019 (2024) https://doi.org/10.1051/shsconf/202418102019
ICDEBA 2023

specific. In the future, the analysis can be further refined

on different categories of goods to facilitate in-depth
research on the topic.

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