the figure for current liabilities only dropped in 2020 and experienced a marginal increase after
that which is mainly due to the same trend in trade payables (between 10% and 13% of total
equity and liabilities). This is understandable because, during COVID-19, AGFA's suppliers
might have imposed stricter payment requirements, forcing the company to pay them sooner
and lowering the number of trade payables. The increase in 2021 and 2022 might indicate that
suppliers have somewhat relaxed those policies as a result of the improvement in the situation
since then.
In general, it can be easily pointed out that AGFA has positive working capital which is a sign
of a company's financial strength, shown by its current assets being consistently more than its
current liabilities. AGFA’s goodwill and intangible assets took up most of its assets in 2019
(24,67% of total assets), but from 2020 onwards, Cash and cash equivalent account has become
the highest one. It indicates that AGFA’s strategy in 2019 was focused on growing more
externally through acquisition strategies, but then changed into holding more cash to strengthen
their cash position, probably used for restructuring, paying loans, and borrowing due to the
impact of COVID-19.
2.2 Ratio Analysis
Note: As data and results for the year 2022 are only available for half a year, some ratios
needed to be adjusted in order to be able to compare them to the other years. Thus, to compare
the ratios with the full-year data for previous years, the half-year income statement data (for
AGFA and Kodak) was multiplied by a factor 2.
2.2.1 AGFA
The calculations for AGFA’s ratios are included in the Appendix.
2.2.2 Kodak
The calculations for Kodak’s ratios are included in the Appendix.
2.2.3 Interpretation
AGFA’s Return on Assets ratio has significantly increased from 2019 to 2020, as it changed
from a negative result to a positive one. Nevertheless, the company generated negative results
in the following years. A glance at AGFA’s balance sheet shows that the amount of total assets
has not fluctuated much. This means that earnings before interest caused the positive/negative
impact on ROA. In 2020, AGFA sold its HealthCare IT activities, thus increasing its earnings
before interest. The ROA can be decomposed into two other ratios, namely Profit Margin and
Total Asset Turnover. The Profit Margin of AGFA has increased and decreased proportionally
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,with the ROA. In contrast, AGFA’s Asset Turnover decreased in 2020, however, increased in
the following years. As mentioned before, AGFA’s total assets stayed stable throughout the
years. On the other hand, the company’s revenue decreased significantly in 2020 and then
increased in the years 2021 and 2022. Even though AGFA did not suffer gravely from the
pandemic, COVID-19 still had a negative impact on some of its division’s revenue, such as the
Digital Print & Chemical division and Medical Film Business. However, the company was able
to start its recovery phase already in the second half of 2020, therefore, the Asset Turnover
inclined in 2021 and 2022.
In 2019, AGFA had a very high Financial Leverage compared to the other years. The next year,
the result of the ratio declines significantly and keeps on decreasing in the following years. The
reason for the decrease in Financial Leverage is the sudden incline of equity in 2020 and further
growth in the following years. A glance at the balance sheet reveals that retained earnings are
the primary driver of the increase in equity. Due to the ongoing pandemic, an increase in
retained earnings and thus equity was a reasonable decision of AGFA. Return on Assets and
Financial Leverage are two ratios that can be used to break down the Return on Equity. In the
case of AGFA, its ROE in 2019 is negative, which increases to a positive result in 2020.
However, in the following years, the ROE decreases to a negative result again. Since AGFA’s
financial year ended in a loss for every year, except 2020, the profit/loss had an influence
whether the result for ROE was positive or negative. In addition, as mentioned before AGFA
increased its equity from 2020, which would mean a negative impact on the ROE if the
company profits, but a positive influence if the company has a loss. Therefore, as AGFA had
its biggest loss in 2019 and the lowest number of Equity, the ROE in 2019 is much lower
compared to other years. As a result of the sale of HealtchCare IT, AGFA’s profit increased
substantially and, despite growing equity, AGFA achieved its highest ROE in 2020. Overall, if
compared with Kodak, Kodak is doing better in terms of Profitability than AGFA. It is worth
noting that although Kodak has outperformed AGFA in most years, in 2020 the pandemic
caused the company to generate a large loss, thus AGFA achieved better results that year. In
recent years Kodak has had a better ROA and ROE compared to AGFA (except for 2020).
However, a ratio where AGFA had better results is the Return on Assets ratio. Kodak had a
lower Asset Turnover ratio in 2019, but a higher result in 2020. However, Kodak’s Asset
Turnover was severely reduced in 2021 and 2022, thus AGFA had much better results than
Kodak.
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,In 2019, AGFA had a relatively high Gearing ratio compared to the other years. However,
starting from 2020 the ratio decreases significantly and even goes below 1 in 2022. This means
that in 2022 AGFA financed its assets more with equity than debt. This is due to AGFA
deciding to use some part of the income acquired from the sale of HealthCare IT to pay its long-
term liabilities. Even though debt financing increases financial risk as it involves fixed
commitments like principal repayment, interest payment and exposure to changes in interest
rates, debt financing is often favored by businesses since it generally increases Earnings Per
Share. However, this is not the case for AGFA, as the company made a loss in 2019, 2021 and
2022 and thus had negative EPS. In addition, the company had its biggest positive change in
EPS from 2019 to 2020 when its total liabilities decreased and total equity increased. Although
it is worth mentioning that the main reason for the major increase in equity is the increase in
retained earnings, which resulted from AGFA selling its HealthCare IT unit in 2020. Except
for 2020, interest cover numbers in the other three years are higher than ROA, but interest
coverage in 2020 is excessively low (-8,67) while this figure in 2020 and 2021 is positive.
Normally, if ROA > interest cover, the company is able to operate efficiently enough to pay
for its interest expense, while the interest coverage rate is low meaning that there is a greater
chance the company won't be able to service its debt, putting it at risk of bankruptcy because a
low-interest coverage ratio means there is a low amount of profits available to meet the interest
expense on the debt. The contradiction as mentioned above can be explained by the fact that
AGFA generated a high amount of cash thanks to the sale of part of HealthCare IT, so this
could mean that AGFA has avoided relying on debt to finance its operations in uncertain times
(COVID-19 hit hard in 2020), and has preferred to count on their cash reserves in the meantime.
However, once there is a sign that AGFA’s business activities are gradually recovering, the
company continues to invest in strategies (Lighthouse program, partnering with Atos). AGFA’s
interest coverage decreased sharply in 2021 means that the company is quite open-minded
about using debt to finance its operations. Regarding Solvency ratios, both companies financed
their assets more through debt than equity from 2019 to 2021, but this level decreased over time
until 2022, both Kodak and AGFA used equity financing over debt financing. This shows that
both companies’ strategies to rely on cash reserves and lessen their debt to get over COVID-19
and after COVID-19, they still keep on reserving cash as a way to strengthen their financial
position.
The Operating and Profit Margins demonstrate how effectively management generates profit
from a given volume of sales. Mainly due to COVID-19, AGFA’s revenue decreased in 2020
and also its cost of sales declined, thus the lower Gross Profit Margin compared to 2019. Even
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, though AGFA’s sales and cost of sales increased in 2021 due to the business being able to begin
its recovery phase in the second half of 2020, its Gross Operating Margin decreased in
comparison to the year 2020. This is a result of 2021’s gross profit growth being much less than
revenue growth. In 2022, the sales increased by more than the cost of sales, resulting in an
increase in the Gross Operating Margin. Although it is worth mentioning that the Revenue of
2022 is still substantially lower than the Revenue in the year 2019. Compared to the Gross
Operating Margin, AGFA has a significantly lower result on its Net Operating Margin. The
results are reasonable since the Net Operating Margin measures how much profit a business
generates from sales after reducing the variable costs of production (e.g.: raw materials, wages,
…), and before reducing interest or tax. While the Gross Operating Margin in 2020 only
decreased slightly, the Net Operating Margin in 2020 decreased sharply, resulting in a negative
ratio. The reason for the low result is the negative EBIT AGFA generated. As the company’s
revenue in 2021 only increased slightly, but its EBIT inclined significantly, AGFA’s Net
Operating Margin increased close to the same result as in 2019. However, in 2022, the Net
Operating Margin decreased back to a negative result, again influenced by the negative EBIT.
Since the Gross Profit for the year 2020 decreased and the variable costs of production stayed
similar to the year before, AGFA generated a negative EBIT. However, due to its strict cost
management, the company was able to cut down costs and have an increase in its EBIT in 2021.
In contrast to the Operating Margins AGFA had a negative result for its Net Profit Margin in
2019. This negative result was due to the fact that the company generated a loss for the financial
year. Because of the extreme increase in AGFA’s net income and decrease in sales in 2020, the
Net Profit Margin increased drastically. However, the result of the ratio declined sharply in the
following year. As AGFA used most of its income from the sale of HealthCare IT to pay its
liabilities and reward shareholders, the company did not manage to generate profit in 2021.
Furthermore, in 2022, AGFA’s Net Profit Margin declined further to about the same result as
in 2019. Although it is worth mentioning that AGFA had a higher revenue in 2019 than in 2022,
and also a bigger loss. The main reasons for AGFA’s declining Net Profit Margin are, for
example, supply chain issues, cost inflations, but also COVID-19 lockdowns in China, which
are still ongoing. In terms of Margins, generally, Kodak had better results for Net Margins
compared to AGFA, thus having a better return on the sale of its goods and services. On the
other hand, Kodak was outperformed by AGFA in terms of Gross Margin. Although it is worth
mentioning that both companies had less than optimal results.
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