Analysis on ROE:
From the graph, it can be notice that the company has been involved in many activities which affected it’s profitability within the company. From 2005 to 2006, it had a significant increase on the Return on Owner’s Equity and a rapid drop from 2006 to 2007.
From 2005 to 2006, the ROE has increased approximately from 20 % to 29%. A 9% increase was due to the company involved in the following transactions and result in generating profit which can also cover other expenses within the company. First, the Forster’s completed sale of Foster’s brand in Europe on 11th April, 2006. Foster’s trademark has sold for $750m and gained a number 7 ranking in Europe; Second, Forster’s sold Shanghai brewing business; Third, Foster’s sold brewing interests in Vietnam and India for US$225m.
According to the income statement, the net profit has increased from $919.9m in 2005 to $1,166.2m in 2006, and a pre-tax profit of $713m was related to the above transactions. The third transaction plus the sales of Foster’s Group’s Chinese brewing business and Foster’s brand in Europe add up with related sponsorship and overhead restructing initiatives has led the company to generate net more than $1billion with less than $5m of net earnings forgone. (2006 Fosters Business Review) These transactions had improved the financial returns of the company and result in increase the returns to equity. By selling the trademark in Europe, the proceeds had far exceeded the value of the loyalty income foregone. On the other hand, the sales of Foster Group’s business in China, India and Vietnam had generated approximate net proceeds of over $300m, and reduce the loss-making operations within the company. (2006 Fosters Business Review) Another source that helped to increase ROE ...