Calculate the ratios for your company and the benchmark companies

Learning Goal: I’m working on a finance report and need an explanation and answer to help me learn.

You are required to submit an individual assignment that is expected to be approximately 1500 words in length.

SELECTION OF A TARGET COMPANY and at least one other company in the same industry as a BENCHMARK

You have to select a target company that is listed on a UK LSE but you should avoid companies that are any kind of financial institution. It must not be a subsidiary of another company or an overseas company with a UK listing. Avoid companies that have been involved in a major takeover or disposal during the period that you are investigating. It is likely that there will be some changes that will have occurred in most companies but do not choose one if the change is substantial. In addition, do not select a company that has made a loss during the period.

Send the name of your company to your lecturer. This is to ensure that your company has not already been chosen by another student and that it is a suitable company for you to analyse. Before submitting your company for approval, ensure that the information that you will need is shown in the Annual Report as some companies disclose more than others. Also, check that there are at least one other companies in the same industry that can be used as a benchmark in terms of the performance and financial position of your company. It is unlikely that you will find a company that is an exact match but you should consider the broad industry base in which the companies function.

SOURCES OF INFORMATION

Your main source of information is the annual report which will be available on the company’s website. The company website may have more information in the section for ‘investor relations’. You may wish to use other reference sources that are available on the university library website. Give clear reference to all sources used and numbered footnote references should be included in the text of your report.

OUTLINE OF REPORT

Your report is expected to be at least 1500 words (excluding tables and references). As a guideline, it is suggested that the report should contain the following sections:-

1. Introduction (150 words) (10 marks)

The nature of the business of the company and relevant information of the industry.

2. Performance (150 words) (10 marks)

How has your company performed over the last three years?

3. Ratio analysis (table plus 750 words)

Prepare a table of ratios for the two-year period and show the calculations of the ratios in an appendix. However, show a summary of the ratios in the body of the report. Use the attached ratio formulae, which will also be attached to the final examination paper.

• Calculate the ratios for your company and the benchmark companies. (15 marks)
• Discuss the possible causes and effects of changes in the ratios that you have calculated. (20

marks)

• Discuss your calculations with the those of the other company that you have selected.(15 marks)
• Table of Ratios Profitability ratios:-Return on Capital EmployedReturn on Shareholders Funds (also called Return on Equity)Net Profit Percentage (based on profit after interest and tax)Gross Profit Percentage Operating Profit Percentage Liquidity Ratios:-Current RatioQuick Ratio (Acid Test)Efficiency Ratios:-Stock Holding Period (days) Debtors Payment Period (days) Creditors Payment Period (days) Cash Conversion Cycle (days) Financial Structure:-GearingInterest CoverPrice/Earnings ratio (year end) Dividend yield (year end)4. Cash flow (75 words)Current Working year calculationsPrevious yearsWorking calculations From the cash flow statement, what are the main aspects of the cash flow position of the company? How does this fit in with the picture that you obtained from the section that looked at the strategy and forward planning and also the ratio analysis. (10 marks)5. Non-financial performance indicators (150 words)Does the company provide any form of non-financial performance indicator? (10 marks)6. Conclusion and Recommendations(200 words) (10 marks)(i) What steps should be taken to improve the performance of the company?(ii) What is the current financial position of the company?(iii) Is the company viewed favorably by financial markets?