Name: Black White and Teal Minimal Abstract Patterns Finance Report Finance Presentation
Uploaded: 2024-10-28
Duration: 10 min 57 s
Description: Today we will be presenting on the capital structure and financial performance of spur tree Jamaica limited.

[Audio] Today we will be presenting on the capital structure and financial performance of spur tree Jamaica limited. 

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2024 Capital Structure and Financial Performance of Spur Tree Jamaica Limited

[Audio] On our agenda we have a overview of the company, capital structure analysis, financial performance evaluation, impact assessment and some recommendations. 

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[Audio] Spur Tree Jamaica Limited is a Jamaican registered food manufacturing company. Cofounded by Harrinarine Jagnarine, in 2006 set its sights on being “the premier manufacturer and supplier of authentic Jamaican flavours to the world” has since been realizing this dream. Outlined in the company’s 2023 Annual Report, additional capital is to be used to “capacity building, innovation, and expansion and repay existing debt”. The company’s primary business includes, but is not limited to the manufacturing and sale of popular canned products, food seasonings and sauces such as canned ackees, jerk and pepper sauce. Since the company’s introduction on the Jamaica Stock Exchange, the company has realized an exponential growth in revenue of 69.74% for the period 2021 – 2023. Spur Tree also holds a 51% stake in Canco Jamaica Limited and a 100% state in Exotic Products Jamaica Limited, further bolstering its commitment of being “premier manufacturer and supplier of authentic Jamaican flavours to the world”.. 

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Spur Tree Jamaica Limited is a Jamaican registered food manufacturing company. Cofounded by Harrinarine Jagnarine, in 2006 set its sights on being “the premier manufacturer and supplier of authentic Jamaican flavours to the world” has since been realizing this dream. Outlined in the company’s 2023 Annual Report, additional capital is to be used to “capacity building, innovation, and expansion and repay existing debt”. The company’s primary business includes, but is not limited to the manufacturing and sale of popular canned products, food seasonings and sauces such as canned ackees, jerk and pepper sauce. Since the company’s introduction on the Jamaica Stock Exchange, the company has realized an exponential growth in revenue of 69.74% for the period 2021 – 2023. Spur Tree also holds a 51% stake in Canco Jamaica Limited and a 100% state in Exotic Products Jamaica Limited, further bolstering its commitment of being “premier manufacturer and supplier of authentic Jamaican flavours to the world”.

[Audio] The capital structure of a company dictates how the company funds their operations, whether with the use of debt or equity. Debt can take various forms, but in most instances, this will be a loan from a financial institution. Analysis is what is known as a debt-too-equity ratio to determine how a company’s assets have been financed. A value greater than one will indicate a greater reliance on debt than equity, while a value less than one is indicative of the reverse. A company is considered to be in a good financial standing with a debt-to-equity ratio of less than one (1) and not risky, while a rating of two or more is risky and considered not as healthy. However, in some industries, having a rating of two or more is not the norm; this is the case for financial institutions. 

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The capital structure of a company dictates how the company funds their operations, whether with the use of debt or equity. Debt can take various forms, but in most instances, this will be a loan from a financial institution.

Analysis is what is known as a debt-too-equity ratio to determine how a company’s assets have been financed. A value greater than one will indicate a greater reliance on debt than equity, while a value less than one is indicative of the reverse.

A company is considered to be in a good financial standing with a debt-to-equity ratio of less than one (1) and not risky, while a rating of two or more is risky and considered not as healthy. However, in some industries, having a rating of two or more is not the norm; this is the case for financial institutions.

[Audio] Please see table with calculated ratios using figures extracted from the financial statements in the annual reports of 2022 & 2023. The next couple of slides will provide clarity to the numbers and their meaning as it relates to financial performance.. 

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Particulars  2023  2022  2021    $'000  $'000  $'000  Current Assets    $      507,935.00    $      490,661.00    $            366,010.00   Inventory   $      155,370.00    $      127,554.00    $              91,575.00   Current Liabilities    $      137,731.00    $         73,980.00    $            123,536.00   Total Assets    $  1,148,440.00    $  1,069,024.00    $            584,705.00   Net Income   $         96,883.00    $      117,846.00    $              98,565.00   Total Liabilities   $      359,882.00    $      347,566.00    $            166,199.00   Ebit   $      124,411.00    $      124,565.00    $            142,464.00   Interest Expense   $         27,528.00    $           8,921.00    $              16,124.00   Shareholders’ Equity     $      366,967.00    $      366,967.00    $            157,143.00           Ratios   2023  2022  2021  Quick Ratio  2.56  4.91  2.22  Return on Assets   0.08  0.11  0.17  Return on Equity   0.26  0.32  0.63  Debt to Equity   0.98  0.95  1.06  Interest Coverage   4.52  13.96  8.84

Table comprising figures from the company's Financial statements from 2021-2023

[Audio] The Quick Ratio has fluctuated over the three years. In 2022 , the company made its first appearance on the junior stock exchange market, as a result with the aid of its Initial Public Offering (I-P-O--) the company managed to increase current assets through increase in cash flows. Consequently, resulting in a particularly high liquidity for that year represented by 4.91.However, this dipped in 2023 to 2.56, though still stable when compared to industry standards (where a ratio above 1 is generally favourable). The decline could possibly be as result of increased cost of raw materials as mentioned in the Chairman’ report for 2023. Despite that the company still remain in a comfortable position in meeting its short-term obligations. Therefore, it can be deduced that the company’s liquidity position is solid.. 

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1. Liquidity Position     Assessment:  The Quick Ratio has fluctuated over the three years. In 2022 , the company made its first appearance on the junior stock exchange market, as a result with the aid of its Initial Public Offering (IPO) the company managed to increase current assets through increase in cash flows. Consequently, resulting in a particularly high liquidity for that year represented by 4.91.However, this dipped in 2023 to 2.56, though still stable when compared to industry standards (where a ratio above 1 is generally favourable). The decline could possibly be as  result of increased cost of raw materials as mentioned in the Chairman’ report for 2023. Despite that the company still remain in a comfortable position in meeting its short-term obligations. Therefore, it can be deduced that the company’s liquidity position is solid.

[Audio] Both R-O-A and R-O-E are declining, with R-O-A declining steadily from 0.17 to 0.08 indicating a reduction in asset efficiency. While R-O-E followed a similar trend, falling from 0.63 to 0.26; suggesting that shareholders are receiving significantly less on their investments when compared to prior year. The company’s ability to convert its assets and equity into profit have declined. Like any other company in the manufacturing sector, Spur Tree Spices Jamaica has faced supply chain disruptions due to extended drought periods which consequently caused a rise in raw materials. On an overall scale, the downward trend in profitability over the last three years is a concern of deteriorating operational efficiency and declining profitability for investors.. 

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2. Profitability (Return on Assets and Return on Equity)    Assessment:  Both ROA and ROE are declining, with ROA declining steadily from 0.17 to 0.08 indicating a reduction in asset efficiency. While ROE followed a similar trend, falling from 0.63 to 0.26; suggesting that shareholders are receiving significantly less on their investments when compared to prior year. The company’s ability to convert its assets and equity into profit have declined. Like any other company in the manufacturing sector, Spur Tree Spices Jamaica has faced supply chain disruptions due to extended drought periods which consequently caused a rise in raw materials. On an overall scale, the downward trend in profitability over the last three years is a concern of deteriorating operational efficiency and declining profitability for investors.

[Audio] The Debt to Equity ratio has remained relatively stable, showing that the company has maintained a balanced approach to leveraging debt. In 2023, the ratio slightly increased to 0.98, approaching a 1:1 ratio, which suggests the company is using debt almost as much as equity to finance its operations. While this is not necessarily risky, as a balanced debt to equity structure is a good sign of long-term stability, it leaves little room for increased borrowing without raising the risk of financial burdens. A ratio near 1 means creditors and shareholders are contributing almost equally to the company's financing. So it is safe to say the company’s leverage is under control, but if any significant increase in barrowings without matching increase in earning could pose a risk.. 

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3. Leverage (Debt to Equity)    Assessment:  The Debt to Equity ratio has remained relatively stable, showing that the company has maintained a balanced approach to leveraging debt. In 2023, the ratio slightly increased to 0.98, approaching a 1:1 ratio, which suggests the company is using debt almost as much as equity to finance its operations. While this is not necessarily risky, as a balanced debt to equity structure is a good sign of long-term stability, it leaves little room for increased borrowing without raising the risk of financial burdens. A ratio near 1 means creditors and shareholders are contributing almost equally to the company's financing. So it is safe to say the company’s leverage is under control, but if any significant increase in barrowings without matching increase in earning could pose a risk.

[Audio] The massive decline in the interest coverage ratio from 13.96 in 2022 to 4.52 in 2023 is a noteworthy red flag. This indicates the company’s ability to cover its interest payments has weakened considerably. A ratio of 4.52 still implies that the company can meet its interest obligations, but the downward trend is a concern, especially if not rectified. Higher interest expenses or lower earnings may be the cause of this shift. Which in the case of this company we have seen the decline in earnings over the past three years. Ultimately, the company’s capacity to service its interest obligation has weaken and a concern because if this is not managed properly the company could face financial strains.. 

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4. Interest Coverage Ratio    Assessment:  The massive decline in the interest coverage ratio from 13.96 in 2022 to 4.52 in 2023 is a noteworthy red flag. This indicates the company’s ability to cover its interest payments has weakened considerably. A ratio of 4.52 still implies that the company can meet its interest obligations, but the downward trend is a concern, especially if not rectified. Higher interest expenses or lower earnings may be the cause of this shift. Which in the case of this company we have seen the decline in earnings over the past three years. Ultimately, the company’s capacity to service its interest obligation has weaken and a concern because if this is not managed properly the company could face financial strains.

[Audio] Liquidity: Strong, though declining slightly. Profitability: Both R-O-A and R-O-E are in a decline, indicating weakening efficiency and shareholder returns. Leverage: Stable, with a moderate level of debt, but increasing debt without growing profits could be risky. Interest Coverage: Significant decline, which raises concerns about the company’s ability to comfortably manage its debt obligations.. 

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Financial Ratios  2023  2022  2021  Quick Ratio   2.56  4.91  2.22  Return on Assets   0.08  0.11  0.17  Return on Equity   0.26  0.32  0.63  Debt-to-Equity  0.98  0.95  1.06  Interest Coverage  4.52  13.96  8.84

Overall Evaluation  The company's financial performance shows deteriorating profitability and declining operational efficiency over the three years. Deduced from:    Liquidity: Strong, though declining slightly.  Profitability: Both ROA and ROE are in a decline, indicating weakening efficiency and shareholder returns.  Leverage: Stable, with a moderate level of debt, but increasing debt without growing profits could be risky.  Interest Coverage: Significant decline, which raises concerns about the company’s ability to comfortably manage its debt obligations.

[Audio] Spur Tree’s capital structure after listing on the Jamaica Stock Exchange has become more favorable to funding with the use of equity rather than debt. Within most sectors, a standard ratio of less than 1 is considered a more favourable investment. This is primarily due to the cost of debt is considered to be cheaper than equity, in relation to taxation and other factors affecting the overall financial health of the company. Spur Tree’s risk profile will ultimately dictate the direction in which the company will operate in relation to a number of factors; one being, the raising of capital to funds its expansion or operations. Currently the company’s capital structure is more favorable to funding through equity. Making a switch to do this could affect the company’s operational cash flow, in addition to investor expecting a higher rate of return on their investment. If this were to have a less than favorable outcome, it could lead to a reduction in the company’s overall market capitalization.. 

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Spur Tree’s capital structure after listing on the Jamaica Stock Exchange has become more favorable to funding with the use of equity rather than debt. Within most sectors, a standard ratio of less than 1 is considered a more favourable investment.  This is primarily due to the cost of debt is considered to be cheaper than equity, in relation to taxation and other factors affecting the overall financial health of the company.

Spur Tree’s risk profile will ultimately dictate the direction in which the company will operate in relation to a number of factors; one being, the raising of capital to funds its expansion or operations. Currently the company’s capital structure is more favorable to funding through equity. Making a switch to do this could affect the company’s operational cash flow, in addition to investor expecting a higher rate of return on their investment. If this were to have a less than favorable outcome, it could lead to a reduction in the company’s overall market capitalization.

[Audio] Currently, the company has chosen to use a mix of both equity and debt financing. In the initial stages of the company’s listing on the stock exchange, the company saw a need to eliminate debt through the use equity financing. By doing this the company sought to free up additional working capital, and focus on expanding their current offerings. Equity and Debt financing is ultimately two different sides of the same coin, as it gets you to where the company needs; only using a different route. As mentioned above, equity-financing calling for the relinquishing of some mount of ownership as opposed to debt financing. However, you will find that companies might not opt for this option, based on debt financings tax benefits and the ability to retain ownership. Nonetheless, equity financing does allow the company to avoid having the obligation of fixed repayments, which can be demanding in hard financial times. 

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Currently, the company has chosen to use a mix of both equity and debt financing. In the initial stages of the company’s listing on the stock exchange, the company saw a need to eliminate debt through the use equity financing. By doing this the company sought to free up additional working capital, and focus on expanding their current offerings.

Equity and Debt financing is ultimately two different sides of the same coin, as it gets you to where the company needs; only using a different route. As mentioned above, equity-financing calling for the relinquishing of some mount of ownership as opposed to debt financing. However, you will find that companies might not opt for this option, based on debt financings tax benefits and the ability to retain ownership. Nonetheless, equity financing does allow the company to avoid having the obligation of fixed repayments, which can be demanding in hard financial times.

[Audio] Spur Tree Spices' interest coverage is problematic since interest payments are not adequately covered by profits. Company should try to mitigate this through reducing its debts by lower interest rates or longer repayment periods. It is encouraging that shareholders' equity increased from 721 million dollars to 788 million dollars. Instead than depending just on debt funding, think about reinvesting a percentage of profits into growth projects to further enhance the equity foundation. This will promote long-term sustainability and provide financial flexibility. Keep a careful eye on debt levels: As the debt to equity ratio gets closer to 1, make sure that any further borrowing is accompanied by a rise in earnings in order to preserve a balanced financial structure. Using cash flow estimates, establish a clear cutoff point for permissible debt levels. 

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Risk Analysis Financial Situation Spur Tree Spices' interest coverage is problematic since interest payments are not adequately covered by profits. Company should try to mitigate this through reducing its debts by lower interest rates or longer repayment periods

It is encouraging that shareholders' equity increased from $721 million to $788 million. Instead than depending just on debt funding, think about reinvesting a percentage of profits into growth projects to further enhance the equity foundation. This will promote long-term sustainability and provide financial flexibility.

Keep a careful eye on debt levels: As the debt to equity ratio gets closer to 1, make sure that any further borrowing is accompanied by a rise in earnings in order to preserve a balanced financial structure. Using cash flow estimates, establish a clear cutoff point for permissible debt levels.

References Scott, S. (2022, January 17). Spur Tree Spices is the first listing for 2022. Loop News. https://jamaica.loopnews.com/content/spur-tree-spices-first-listing-2022 2. Scott, S. (2021, December 29). Spur Tree Spices to launch frozen foods, canned beans. Loop News. https://jamaica.loopnews.com/content/spur-tree-spices-launch-frozen-foods-canned-beans 3. Tuovila, A. (2024, October 17). Capital Structure Definition, Types, Importance, and Examples. Investopedia. https://www.investopedia.com/terms/c/capitalstructure.asp. 

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References Scott, S. (2022, January 17). Spur Tree Spices is the first listing for 2022. Loop News. https://jamaica.loopnews.com/content/spur-tree-spices-first-listing-2022 
 2. Scott, S. (2021, December 29). Spur Tree Spices to launch frozen foods, canned beans. Loop News. https://jamaica.loopnews.com/content/spur-tree-spices-launch-frozen-foods-canned-beans
 3. Tuovila, A. (2024, October 17). Capital Structure Definition, Types, Importance, and Examples. Investopedia. https://www.investopedia.com/terms/c/capitalstructure.asp

References cont’d. 4. Kim, J. (2024, April 15). Capital structure. Wall Street Prep. https://www.wallstreetprep.com/knowledge/capital-structure/ -- 5. Kibet, L., & Campbell, T. (2024, July 18). Debt to equity ratio: Calculating company risk. Business Insider. https://www.businessinsider.com/personal-finance/investing/debt-to-equity-ratio. 

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4. Kim, J. (2024, April 15). Capital structure. Wall Street Prep. https://www.wallstreetprep.com/knowledge/capital-structure/ 
  --
 5. Kibet, L., & Campbell, T. (2024, July 18). Debt to equity ratio: Calculating company risk. Business Insider. https://www.businessinsider.com/personal-finance/investing/debt-to-equity-ratio

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Black White and Teal Minimal Abstract Patterns Finance Report Finance Presentation

Today we will be presenting on the capital structure and financial performance of spur tree Jamaica limited

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On our agenda we have a overview of the company, capital structure analysis, financial performance evaluation, impact assessment and some recommendations

The capital structure of a company dictates how the company funds their operations, whether with the use of debt or equity. Debt can take various forms, but in most instances, this will be a loan from a financial institution. Analysis is what is known as a debt-too-equity ratio to determine how a company’s assets have been financed. A value greater than one will indicate a greater reliance on debt than equity, while a value less than one is indicative of the reverse. A company is considered to be in a good financial standing with a debt-to-equity ratio of less than one (1) and not risky, while a rating of two or more is risky and considered not as healthy. However, in some industries, having a rating of two or more is not the norm; this is the case for financial institutions

Please see table with calculated ratios using figures extracted from the financial statements in the annual reports of 2022 & 2023. The next couple of slides will provide clarity to the numbers and their meaning as it relates to financial performance.

The Quick Ratio has fluctuated over the three years. In 2022 , the company made its first appearance on the junior stock exchange market, as a result with the aid of its Initial Public Offering (I-P-O--) the company managed to increase current assets through increase in cash flows. Consequently, resulting in a particularly high liquidity for that year represented by 4.91.However, this dipped in 2023 to 2.56, though still stable when compared to industry standards (where a ratio above 1 is generally favourable). The decline could possibly be as  result of increased cost of raw materials as mentioned in the Chairman’ report for 2023. Despite that the company still remain in a comfortable position in meeting its short-term obligations. Therefore, it can be deduced that the company’s liquidity position is solid.

Both R-O-A and R-O-E are declining, with R-O-A declining steadily from 0.17 to 0.08 indicating a reduction in asset efficiency. While R-O-E followed a similar trend, falling from 0.63 to 0.26; suggesting that shareholders are receiving significantly less on their investments when compared to prior year. The company’s ability to convert its assets and equity into profit have declined. Like any other company in the manufacturing sector, Spur Tree Spices Jamaica has faced supply chain disruptions due to extended drought periods which consequently caused a rise in raw materials. On an overall scale, the downward trend in profitability over the last three years is a concern of deteriorating operational efficiency and declining profitability for investors.

The Debt to Equity ratio has remained relatively stable, showing that the company has maintained a balanced approach to leveraging debt. In 2023, the ratio slightly increased to 0.98, approaching a 1:1 ratio, which suggests the company is using debt almost as much as equity to finance its operations. While this is not necessarily risky, as a balanced debt to equity structure is a good sign of long-term stability, it leaves little room for increased borrowing without raising the risk of financial burdens. A ratio near 1 means creditors and shareholders are contributing almost equally to the company's financing. So it is safe to say the company’s leverage is under control, but if any significant increase in barrowings without matching increase in earning could pose a risk.

The massive decline in the interest coverage ratio from 13.96 in 2022 to 4.52 in 2023 is a noteworthy red flag. This indicates the company’s ability to cover its interest payments has weakened considerably. A ratio of 4.52 still implies that the company can meet its interest obligations, but the downward trend is a concern, especially if not rectified. Higher interest expenses or lower earnings may be the cause of this shift. Which in the case of this company we have seen the decline in earnings over the past three years. Ultimately, the company’s capacity to service its interest obligation has weaken and a concern because if this is not managed properly the company could face financial strains.

Liquidity: Strong, though declining slightly. 
Profitability: Both R-O-A and R-O-E are in a decline, indicating weakening efficiency and shareholder returns. 
Leverage: Stable, with a moderate level of debt, but increasing debt without growing profits could be risky. 
Interest Coverage: Significant decline, which raises concerns about the company’s ability to comfortably manage its debt obligations.

Spur Tree’s capital structure after listing on the Jamaica Stock Exchange has become more favorable to funding with the use of equity rather than debt. Within most sectors, a standard ratio of less than 1 is considered a more favourable investment.  This is primarily due to the cost of debt is considered to be cheaper than equity, in relation to taxation and other factors affecting the overall financial health of the company. Spur Tree’s risk profile will ultimately dictate the direction in which the company will operate in relation to a number of factors; one being, the raising of capital to funds its expansion or operations. Currently the company’s capital structure is more favorable to funding through equity. Making a switch to do this could affect the company’s operational cash flow, in addition to investor expecting a higher rate of return on their investment. If this were to have a less than favorable outcome, it could lead to a reduction in the company’s overall market capitalization.

Currently, the company has chosen to use a mix of both equity and debt financing. In the initial stages of the company’s listing on the stock exchange, the company saw a need to eliminate debt through the use equity financing. By doing this the company sought to free up additional working capital, and focus on expanding their current offerings. Equity and Debt financing is ultimately two different sides of the same coin, as it gets you to where the company needs; only using a different route. As mentioned above, equity-financing calling for the relinquishing of some mount of ownership as opposed to debt financing. However, you will find that companies might not opt for this option, based on debt financings tax benefits and the ability to retain ownership. Nonetheless, equity financing does allow the company to avoid having the obligation of fixed repayments, which can be demanding in hard financial times

Spur Tree Spices' interest coverage is problematic since interest payments are not adequately covered by profits. Company should try to mitigate this through reducing its debts by lower interest rates or longer repayment periods. It is encouraging that shareholders' equity increased from 721  million dollars to 788  million dollars. Instead than depending just on debt funding, think about reinvesting a percentage of profits into growth projects to further enhance the equity foundation. This will promote long-term sustainability and provide financial flexibility. Keep a careful eye on debt levels: As the debt to equity ratio gets closer to 1, make sure that any further borrowing is accompanied by a rise in earnings in order to preserve a balanced financial structure. Using cash flow estimates, establish a clear cutoff point for permissible debt levels

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  References Scott, S. (2022, January 17). Spur Tree Spices is the first listing for 2022. Loop News. https://jamaica.loopnews.com/content/spur-tree-spices-first-listing-2022 
 2. Scott, S. (2021, December 29). Spur Tree Spices to launch frozen foods, canned beans. Loop News. https://jamaica.loopnews.com/content/spur-tree-spices-launch-frozen-foods-canned-beans
 3. Tuovila, A. (2024, October 17). Capital Structure Definition, Types, Importance, and Examples. Investopedia. https://www.investopedia.com/terms/c/capitalstructure.asp 


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 4. Kim, J. (2024, April 15). Capital structure. Wall Street Prep. https://www.wallstreetprep.com/knowledge/capital-structure/ 
  --
 5. Kibet, L., & Campbell, T. (2024, July 18). Debt to equity ratio: Calculating company risk. Business Insider. https://www.businessinsider.com/personal-finance/investing/debt-to-equity-ratio 



