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Course Questions: Reckitt Benckiser and Kingfisher Plc. - Essay Example

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Masters
Essay
Finance & Accounting
Pages 16 (4016 words)

Summary

The Reckitt Benckiser group has reported sound financial figures. The company has shown a net profit margin at 25% and a gross profit margin of 57%. The two figures, reflected here, speak of a huge difference arising out of interest payments and tax payments that reduce the net profit margin…

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Course Questions: Reckitt Benckiser and Kingfisher Plc.

The Reckitt Benckiser group has reported sound financial figures. The company has shown a net profit margin at 25% and a gross profit margin of 57%. The two figures, reflected here, speak of a huge difference arising out of interest payments and tax payments that reduce the net profit margin. Since tax rates for the 2012 period have remained unchanged, it is clear that such huge difference in the profit figures is owing to borrowings made. The company has made debt obligations to the tune of £887 million. Such debt has been in the form of issue of commercial paper which has short run interest bearing. The company has also paid off its bank loans worth £16 million. Even so, the potential threat arising from short-term investments is that the company has no leverage for long run expansion plans. Some relief in these fronts is brought about by high investment in research and development activities, which speak of potential expansion in future (Izhar, 2001).
The company has also bought back shares, stating the need for preventing dilution of employee stock option schemes. This reflects that the company is not borrowing to pay off debts. The borrowings are needed to meet short run obligations. The group has been showing impressive profit figures, the growth of which might have deterred in the past few years. The YOY growth is marginally less than last year and is at 12.44 (Bhattacharya, 2011) ...
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