Reference no: EM132769814
Briefly introduce the company and identify one major competitor
Calculate the TEN (10) most relevant ratios for the two years reported in the latest annual financial statements that you believe will enable you to understand the company's operational and financial performance. You should justify each ratio chosen. The ratios should cover the areas of profitability, efficiency and liquidity, and should reflect the performance of the company and the industry that it is in
Using only the ratios in part two, critically appraise the company's performance in relation to the major competitor identified in part 1. You may use similar ratios calculated for the competitor.
Based on all your analysis, make a series of no more than five key practical recommendations to the board as to how the company might improve its financial performance.
The following is a suggested approach, which will start to highlight issues with the financial statements
General review
Review the Income statement, balance sheet and cash flow statement
1. List five "good things" about the performance
2. List five areas of concern about the performance
3. List five areas that may require further investigation
Income statement
4. Has the level of sales increased or decreased and by how much?
5. Has this change in sales been reflected in the various levels of profitability?
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This year
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Last year
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Change
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% change
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Gross profit (if disclosed)
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Gross profit %
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Operating profit
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Operating profit %
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Profit before tax
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Profit before tax %
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Profit after tax
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Profit after tax %
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6. Have there been any major changes in the level of expenses disclosed?
7. Consider also Interest cover, and Effective tax rate
8. Review the management discussion and analysis sections for reasons for the above changes
9. Review segmental information to highlight which divisions or products might be responsible for the changes highlighted above
Balance sheet
10. Review the balance sheet for major changes in levels of assets or liabilities
11. Do the notes to the accounts or the management discussion and analysis allow you to understand why these changes have taken place?
12. Is the group solvent? Does it have more assets than liabilities?
13 Are there any potential liquidity issues? Compare the level of current assets to current liabilities
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This year
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Last year
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Current ratio
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Quick ratio
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Asset utilisation
14 Compare the level of assets/ net assets to levels of activity
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This year
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Last year
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Net asset turnover
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Asset turnover
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Non-current asset turnover
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Sales/ Working capital
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Inventory turnover
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Number of days sales in receivables
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Number of days purchases in payable
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Are sales being generated more or less efficiently?
Are there any reasons given for this in the management discussion and analysis?
Employee utilisation
15. Are any statistics given about employment levels in the financial statements?
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This year
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Last year
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Sales per employee
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Profit per employee
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Salaries/turnover
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Shareholders Funds per employee (unit)
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Financing
16 What is the company's share capital?
Shareholders fund
Number of ordinary shares issued
Nominal value (if appropriate)
etc
17. Does it pay dividends?
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This year (Pence per share)
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Last year(Pence per share)
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Interim
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Final
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Other
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18. Does it have any other types of share?
19. Are there any long term borrowings?
How much?
When are they repayable?
20 Work out the gearing ratio
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This year
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Last year
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Capital gearing ratio
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Debt/equity ratio
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Other
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Overall performance
21. Has the overall performance improved as evidenced by
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This year
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Last year
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Return on capital employed
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Return on net assets
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Return on equity
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22 Which of the factors identified in your previous analysis explains the above changes?
23. Are there any comments in the management discussion and analysis that give the management's view of the above changes?
24. How does the performance compare with that of its major competitors? (You may wish to go through a similar review of the competitors' performance in order to answer this question)
Share price
Using one of the major stock market websites, find information about the current share price and its history
25. Document any major changes in the price over the last year, and try to isolate the reason for these.
26. Compare the share price movements with those of the market over the last year
27. Document the following market ratios
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This year
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Last year
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Earnings per share
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Dividend per share
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Dividend cover
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Dividend yield
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Price earnings ratio
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28 How does the dividend yield and price earnings ratio compare to the sector and/or market average ratios?
29 What does this tell you about the markets view of the performance?
Attachment:- financial essay.rar