Novozymes Harvard Case Solution & Analysis

Novozymes Case Solution 

1. You have to interpret and explain the most relevant accounts for the Financial Statements (Balance Sheet, Income Statement and Cash Flow Statement) in the Excel Sheet “Novozymes”.

The financial statement are the financial summary of the company for a certain period that is after 1 year (annually) which shows the performance of the company, how the company uses the its assets and funds from stockholders and debtors and the current financial standing of the company at the year end.This financial statement includes Balance sheet which gives the overview of the financial standing of the company at the specified date, income statement that shows the net income of the company for the period and cash flow statement which shows the inflows and outflows of cash and how the company use and manage its cash.

The most relevant statement used by investors is balance sheet of the company;relevant accounts of the financial statements are taken for making forecasting based on average growth rate calculated, and to make interpretations.
Balance sheet of the company shows the financial position of the company at stated date. Many investors used balance sheet to make their decisions. Different ratios are calculated based on figures of balance sheet. As we forecasted some figures of balance sheet with average growth rate we can see that the liabilities of the company are increasing at greater rate as compared to assets. Another thing which is good is that the current assets and liabilities has steady rate of growth however the company should increase its current assets more to have lowered risk.
Sales was also forecasted which grows at the rate of 8% at an average growth rate. (See excel)

2. Build a common size Balance Sheet and Income Statement. Write your conclusions.

Common size Balance Sheet

Common size balance sheet is one of the analysis technique used for the financial analysis, it is vertical analysis. In this we take total asset as a base and calculate each item of balance sheet restated as per percentage of total asset. We take DKK 18426 million as base, representing total assets, and accordingly make the calculations.(Common size financial statements, n.d)
The calculations reveal that the company’s fixed assets are 60% of the total assets.This may conclude that company is investing more in manufacturing facilities since plant and machinery shows 21% of total assets. The company prefers buying of equipment rather getting on lease. The cash is 14% as compared to current liabilities of 21%. The debt paying capacity of the company is slightly unfavorable. The company has slight threat as it has less cash available for more current obligation. The company might face difficulty in selling inventory since it has 12% ratio which is slight high.Shareholders equity contributes to only 61% in the total assets.This shows the capital structure of the company. The company has got 39% capital from its liabilities.
With this analysis we can make comparison between items of the similar nature of different companies. However there might be limitations if other company uses different accounting policy. A company can also use this analysis to compare itself with the industry benchmark. This helps in the strategy and planning formulation. Let if the industry benchmark of fixed asset is 55% of total assets then company assess their fixed assets and accordingly formulate its policy. (See excel)..............

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