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?

	This year	Last year	Change	% change
Gross profit (if disclosed)
Gross profit %
Operating profit
Operating profit %
Profit before tax
Profit before tax %
Profit after tax
Profit after tax %

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

	This year	Last year
Current ratio
Quick ratio

Asset utilisation

14 Compare the level of assets/ net assets to levels of activity

	This year	Last year
Net asset turnover
Asset turnover
Non-current asset turnover
Sales/ Working capital
Inventory turnover
Number of days sales in receivables
Number of days purchases in payable

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?

	This year	Last year
Sales per employee
Profit per employee
Salaries/turnover
Shareholders Funds per employee (unit)

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?

	This year (Pence per share)	Last year(Pence per share)
Interim
Final
Other

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

	This year	Last year
Capital gearing ratio
Debt/equity ratio
Other

Overall performance

21. Has the overall performance improved as evidenced by

	This year	Last year
Return on capital employed
Return on net assets
Return on equity

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

	This year	Last year
Earnings per share
Dividend per share
Dividend cover
Dividend yield
Price earnings ratio

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