How Did Diageo Perform In Its FY 2016 In Terms Of Key Financial Indicators?

See Our Complete Analysis For Diageo Here

Organic Net Sales Growth

This is the sales growth once the excise duties have been deducted, and excluding the impact of foreign currency movements, acquisitions, and disposals. This indicates the ability of a company to build brand value, increase prices, and grow market share. In FY 2016, this metric rebounded from its flat performance over the previous two years, driven by volume growth of 1.3% in North America and Europe, coupled with positive price/mix.

Organic Operating Margin Improvement

This metric can be defined as the percentage point movement in operating profit, before exceptional items, divided by net sales, after excluding the impact of exchange rate movements, and acquisitions, and disposals. This measures the efficiency of the business, and Diageo has been consistently improving on this, reflecting its focus on driving down costs across its business and improving its mix. During FY 2016, the organic operating margin improved as a result of a favorable mix effect, combined with procurement efficiencies in marketing, offset by higher overheads.

Earnings Per Share Before Exceptional Items

This reflects the profitability of the business, and how effectively a company finances its balance sheet. In FY 2016, the increase in this metric was driven by operating profit growth, higher associate income, and lower finance charges, slightly offset by adverse currency effects, and the impact of disposals.

Free Cash Flow

Free Cash Flow comprises of the net cash flow from operating activities, together with the net cash received/paid for loans receivable and other investments, and the net cash cost paid for property, plant, and equipment, and computer software. It is an indicator of the financial management of the company, and reflects the cash generated by the company to fund payments to shareholders and for acquisitions. During the year, the improvement in this metric was a result of lower capital expenditure, higher operating profit, and lower interest payments.

Return On Average Invested Capital

ROIC is the profit before finance charges and exceptional items, attributable to equity shareholders, divided by the average invested capital. In FY 2016, adverse exchange rates resulted in a decline of the ROIC, marginally offset by an increased return from growth in operating profit and income from associates.

Total Shareholder Return

This is the percentage growth in the value of a Diageo share, assuming all dividends and capital distributions are reinvested. The company has a fiduciary responsibility to maximize the long term value for its shareholders. In FY 2016, the company delivered a TSR of 17%, as dividends paid increased by 5%, and share price rose as a result of the business performance, and the exchange rate.

Have more questions on Diageo? See the links below:

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• How Has Diageo’s Volume Composition Changed In The Last 3 Years?

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