Despite being rivals, Kao and Shiseido are two of the fastest-growing cosmetics companies in Japan. As of the second quarter of 2020, Kao and Shiseido had earnings per share (EPS) growth rates of 32.9 and 27.3, respectively (Johnston, 2020). Like Kao, Shiseido has had a constant growth in net sales and operating income over the past five years (Coombs, 2019). Nevertheless, Kao has been performing better, as shown in the chart below.
The EPS growth rate, operating margin, payout, and current ratios for Kao are 14.45, 14.25, 42.23, and 1.7, respectively (Reuters, 2020). The same metrics for Shiseido are -37.23, 9.74, 32.58, and 1.15, respectively (Reuters, 2020; Macrotrends, 2020). The EPS shows while Kao has been increasing its profitability in the last fiscal year, Shiseido has been performing poorly. The operating margin shows the amount earned for each unit currency of sales (Ross 2019). Hence, for every ¥1 collected in revenue, Kao earns ¥0.1425 in profit, while Shiseido earns ¥0.0974. Shiseido has a lower payout ratio than Kao; this shows that the company is probably reinvesting more of its earnings for expansion (Bloomental, 2020). Over the current ratios of the two companies have been relatively stable. This shows that the two companies are putting their short-term assets efficiently.
Performance Based on Balanced Scorecard
While financial ratios and metrics are essential in business performance evaluation, there are non-financial factors that affect organizational growth. The balanced scorecard uses a multi-criteria approach to provide a broader view of performance (Nazari-Shirkouhi et al., 2020). The perspectives considered in this report are financial, the customer, internal process, and organizing capacity.
The financial analysis done in the above sections shows that Kao Corporation is performing relatively well. For instance, the company has a healthy operating margin. Also, it had a 17.6 percent ROE, which was a 1.5 increment from 2015’s value (“Financial Report, 2019”). However, 2019’s ROE had declined from 2017’s 19.8 (“Financial Report, 2019”). Hence, the company’s profit from investment decreased over the two years. Consequently, Kao Corporation should devise valid measures to grow its ROE to the projected 20 percent (“Financial Report, 2019”). The company should follow a similar approach to ensure that it does not perform well in some areas and poorly in others.
Kao Corporation strives to ensure optimal customer satisfaction through communication and proper response to consumer feedback (Kao Group, 2020). The company's massive market cap shows that it has effective customer retention. Also, its competitiveness in the local and international markets indicates that customers are satisfied with the various products by Kao Corporation.
Kao Corporation ensures fast and effective production within the five fields through science and technology. The company has various domestic research centers, where scientists strive to explore the most reliable techniques for superior quality products (Kao 2020). Consequently, the company has a plausible production lead time.
As mentioned above, Kao Corporation has various research centers for optimal knowledge and innovation in its operations. The applied research helps generate new product ideas and ways to improve the existing ones (Kao, 2020). Employees are essential for the growth of any organization. While most workers are comfortable with their duties in the company, Kao Corporation has relatively n reviews from employees on online platforms. For instance, the average ratings for culture, management, job security, and work-life balance are 3.2, 3.4, 3.1, and 3.5, respectively (Indeed, 2020). This shows that while Kao is performing well in product development, it should improve its employee management strategies.
This report contains an analysis of both financial metrics and non-financial factors to evaluate the actual business performance of Kao Corporation. Due to its effective management and provision of quality commodities, Kao has grown to become one of the most competitive companies in Japan. However, some of its products sell better than others, resulting in a lack of uniformity in independent net income growth. Over the past five years, Kao Corporation has witnessed an increase in equity and assets. However, its liabilities have also increased. This increment is attributable to the adoption of IFRS 16. Although Kao Corporation faces competition from related companies, its profitability is higher. The leaders at Kao Corporation should improve some aspects of its finances and improve its human resource management for optimal performance.
Bloomenthal, A., 2020. Payout ratio definition. Investopedia. Available at: https://www.investopedia.com/terms/p/payoutratio.asp
Coombs, M., 2019. 2019 first-half results and full-year forecast. Shiseido. Available at: https://corp.shiseido.com/en/ir/pdf/ir20190808_637.pdf
Deloitte, 2019. IFRS 16 valuation impact: What you need to know now. Available at: https://www2.deloitte.com/content/dam/Deloitte/za/Documents/finance/IFRS-1-brochure-V9.pdf
Financial Report 2019, 2019. Kao. Available at:http://www.annualreports.com/HostedData/AnnualReports/PDF/OTC_KAOCF_2019.pdf
Forbes, 2020. Kao. Available at: https://www.forbes.com/companies/kao/#59893a635a99
Forbes, 2020. Shiseido....
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