Financial Statement Analysis - Progility Plc - Assignment Example

Financial ment Analysis Financial ment Analysis Introduction of Companies: Progility PLC: Progility PLC is the Holding company of a group that provides project management services. Subsidiaries of the company are specialized in people, processes, training and system integration. Progility operates in four divisions. First division is training division, which operates under the brand name of ILX. ILX is a system which provide training for project program such as classroom training, practical workshops and coaching and also deals with portfolio management. Second division is consulting division in which company have thirty years of experience. Consulting division operates under the brand names of Obrar and ILX Consulting. Obrar deals with multimedia driven call centers, corporate technology infrastructure and operational change. Third division sis recruitment which operates under the brand names of TFPL, Sue Hill recruitments and Progility Recruitments. This sector specializes in knowledge, information and data management industries. Fourth and the last division is Training Division, which operates under the ILX brand. This sector deals with the communication system that design, implement and provides maintenance solution for enterprises. Other than these sectors, the company also provides vocational training to unemployed people (About Progility, 2015). Wilmington PLC: Wilmington operates with a vision to transform knowledge into advantage and keeping the company customer focused. The company deals in four knowledge areas: Risk & Compliance, Finance, Legal and Insight. Risk and compliance division provides solution to firms mainly working in a financial sector. The division focuses on training and compliance services to facilitate clients and provide a complete solution. Major brands in Risk & compliance division are Axco, CLT International and ICT. Finance division provides training in financial and taxation matters to the employees in the client company. The company uses technological means, case studies and methodologies that are suitable to individual client. Finance division operates under the brand names of AMT Training, Mercia and Practice Track. More than six thousand accounting organizations use the financial services of the Wilmington. Legal division facilitates barristers, judges and legal professionals in post qualification training. Legal division operates under the brand names of ARK Group, Bond Solon and Central Law Training. In 2014, the company provided above 1150 witnesses in high profile court trials. Legal division also produces reports and magazines. Last division Insight, collect, processes and then analyze the data for client and provide them with the smarter business solutions with desirable outcomes. APM International, Binley’s and NHIS are the famous brands in the Insight Division (Our Perspective, 2015). Education Industry The education services industry is considered as to be the most important industry in UK just like any other country of the world the government supports the educational infrastructure. The United Kingdom is known as one the best educational service provider all over the globe. The region has one of the best schooling systems, the universities are well designed and ranked on the top. The government and private sector are working to improve the quality and focus on the R&D and innovations. The institutes and authorities are planning to build a nation that is enrich with highly educated with regards to the basic and complex knowledge areas like finance, risk and its management, legal and insight. The revenues generated are quite high and the overall economic conditions are largely affected by the educational service industry of United Kingdom. Core Companies Analysis: Progility PLC No. Ratios Definition Formula 06/30/14 06/30/13 03/31/12 03/31/11 1 RNOA Return on Net Operating Assets (RNOA) Operating income after tax / [(NOAt+NOAt-1)/2] 6.43% -17.75% 8.67% -69.89% 2 NBC Net Borrowing Cost (NBC) NFE after tax / [(NFOt+NFOt-1)/2] -27.62% -8.89% -9.52% -12.94% 3 PM Operating profit margin Operating Income after tax / Sales 1.68% -10.45% 5.49% -70.75% 4 Net Comprehensive Profit Margin Comprehensive income / Sales -0.77% -11.33% 4.01% -73.31% 5 OLLEV Operating Liability Leverage Operating liability / Net operating assets 79.43% 59.38% 52.20% 35.13% 6 FLEV Financial Liability Leverage (FLEV) (NFOt+NFOt-1)/(CSEt+CSEt-1) -51.57% -20.30% -32.63% -24.29% 7 SPREAD RNOA-NBC 34.05% -8.86% 18.19% -56.94% 8 ATO Asset Turnover (ATO) Sales / [(NOAt+NOAt-1)/2] 383.7% 169.9% 157.8% 98.8% 9 ROCE Return on Common Equity Comprehensive income / [(CSEt + CSEt-1)/2] -4.50% -23.16% 8.39% -90.00% Progility PLC is striving hard and made landmark achievements in 2014. An important part of an expansion by the company was the acquisition of entire share capital of Starkstorm Group Limited for $9.68 million. Acquisition provided the company with manufacturing facility of medical infrastructure equipment for operating theatres and intensive care units. It will increase the efficiency of the company in health care sector. Operating profit margin was positive for 2014 and the company reported a profit of 1.68% for the year 2014. Operating profit in the 2013 showed the loss of around 10%. Net revenues of the company had increased by 4% as a result of acquisition and application of merger accounting. Merger has increased the diversity of the group and enabled it to provide greater amount of services to its clients. Training, consulting and recruitment services of the company now operate from two different regions of Australia and UK. The company had incurred the cost of 1.08 million and an amortization of 0.56 million as result of acquisition and mergers, which increased the overall operating, costs for the company which faced a net loss of 0.77% in 2014. However the company adopted cost reduction measures due to which administration cost was decreased by 0.8 million as compared `to 2013 (Vandyck, 2006). Company borrowed money in 2014 to finance the working capital requirements. The finance cost of $1 million was incurred which resulted in the increase of financial liability leverage to 51%. Borrowing cost have also increased and reached -27.7%. Borrowings were also made by the company to finance its acquisitions. Operating liability of the company is showing a constant increase every year due to the high increasing fixed costs resulting from acquisitions and increased restructuring costs. As the company continued to grow and performed acquisitions and mergers, their asset turnover also increased relative to 2013 and reached 383%. It shows that the company is making the best use of its assets and is utilizing them in exceeding capacity. Return on assets also showed an increase and was positive as compared to negative figure of 17% in 2013. It was due to the fact that company has distributed its sectors between Australia and UK and now the clients have a larger portfolio of services at both the divisions. Hence the utilization of assets had increased and resulted in positive growth (Morley, 1984). Return on capital employed of the company increased significantly and reached -4.5% in 2014 as compared to -23.16% in 2013. It was due to the fact that investments in Starkstorm group haven’t generated sufficient revenue yet and further planning and marketing of the operations in that group is still in pipeline. Furthermore, directors have made changes in the capital structure in the light of economic conditions and they are of the view that income generated will be re invested to implement growth strategy and hence no dividend was proposed in 2014 (Tracy, 2012). Wilmington Group PLC No. Ratios Definition Formula 06/30/14 06/30/13 06/30/12 06/30/11 1 RNOA Return on Net Operating Assets (RNOA) Operating income after tax / [(NOAt+NOAt-1)/2] 9.58% 6.14% 7.85% 7.38% 2 NBC Net Borrowing Cost (NBC) NFE after tax / [(NFOt+NFOt-1)/2] -5.02% -4.76% -5.30% -4.59% 3 PM Operating profit margin Operating Income after tax / Sales 9.20% 6.23% 8.23% 7.05% 4 Net Comprehensive Profit Margin Comprehensive income / Sales 7.21% 4.17% 5.72% 5.14% 5 OLLEV Operating Liability Leverage Operating liability / Net operating assets 54.12% 54.42% 53.81% 59.57% 6 FLEV Financial Liability Leverage (FLEV) (NFOt+NFOt-1)/(CSEt+CSEt-1) -65.91% -67.25% -71.19% -53.41% 7 SPREAD RNOA-NBC 14.60% 10.89% 13.15% 11.97% 8 ATO Asset Turnover (ATO) Sales / [(NOAt+NOAt-1)/2] 104.1% 98.5% 95.4% 104.6% 9 ROCE Return on Common Equity Comprehensive income / [(CSEt + CSEt-1)/2] 12.49% 6.88% 9.34% 8.26% In 2014, Wilmington continued its overseas expansion that increased its income flow from operations outside the UK. International revenues of the company grew 37% in 2014 as compared to 32% in 2013. The Company also diversified the services offered and it is now on the verge of further expansion. Overall revenue of the group in 2014 was $90 million, which was 6% higher than the previous year. The company showed an operating profit of 9.2%, which reflected the strong growth in banking & compliance and pensions & insurance sectors of the company. The company made an acquisition of Compliance week in august 2013 which contributed in a profit growth of 0.9 million. Higher margins business registered growth for the company and the board of directors discontinued low margin operations. Although the operating cost of the company increased 5% in 2014 due to the acquisition and restructuring cost the company applied tight cost reduction and control measures, which increased the percentage of net profit margin to 7.21%. Adjusted EBITA Margin of the company increased to 20.38%, which in combination with reduced operating costs increased the profits before tax by 13% to $16.6 million. Operating liability of the company remained almost flat throughout the five year with an average of 54% approximately. Trade payables of the company showed slight increase due to the increase in deferred income of $1.4 million. Financial leverage of the company decreased from 67% to 65% due to the company’s increased reliance on equity financing rather than debt financing. Additionally, financial cost of the company was also reduced and interest cost was reduced by 5% from 2.3 to $2 million. Return on net assets of the company increased to 9.5 % as compared to 6.1% in 2013, which indicates that the company is making the best use of its assets in generating revenues. Asset turnover of the company also increased to 104.1% in 2014 from 98.5% of 2013, which reflects the increase in goodwill of $3 million of the company as a result of acquisition. Tangible assets of the company although were slightly reduced due to increased depreciation and disposals of property, plant and equipment. The company has made the use of its free cash flows to finance the acquisitions and to pay the dividend. Working capital of the company had improved in 2014 despite the cash purchase consideration paid and remained strong a 108%. Return on capital employed of the company increased to 12.49% in 2014 as a result of potential investment made by the company and diversification of its services in Australia. Furthermore, decrease in financial costs and growth in higher margin services also increased the return on capital employed. Directors of the company announced dividend to distribute the higher earnings and dividend of 3.7p was paid in November 2014. 597 Conclusion of Core Companies Analysis: The comparison was made above between Progility PLC and Wilmington Groups PLC with the help of the ratio. Analysis revealed that Wilmington PLC was more efficient and profitable company as compared to Progility PLC. Progility had been facing loss while the profit margin of the Wilmington PLC were attractive and reflected the effectiveness of the future strategies of the company. Profits and performance of the Wilmington had also been consistent throughout their history and showed moderate and positive growth. The performance of the company was due to the debt financing used for the operations the increasing trends of the leverage must be reduced in the future. The increased trends of the leverage illustrated the presence of risk with regards to the operations of the firm. The core competitor of the company is focused on the reduction of the leverage and is focused more on the equity financing. The asset turnover ratio of Wilmington Group illustrated that the company was performing efficiently with regards to the utilization of their Assets. The returns generated from the assets were exceptionally increased in the final year of analysis (i.e. 2014). Financial leverage and operational leverage of Wilmington group were although higher than Progility at some places but they were reasonable on the basis of the acquisitions made by the company. Return on capital employed of the RTC was valued at 12.49% as compared to negative value of 4.5% of Progility PLC. Wilmington group must focus on the reduction of the leverage as to become more attractive for the investors and other external stakeholders. The results illustrated Wilmington PLC was attractive to investors. Cash flows and profit margins of the company were lucrative and indicated a promising future of the company. Spread of Wilmington was better than the Progility which showed that return on assets of Wilmington were better than Progility while its borrowing cost was much lower. The higher spread ratio also suggested that the investors who want quick and higher gains in shorter periods of time must invest in the stocks of Wilmington Group. Wilmington does not hold any long-term liability that would have indicated the increase in its long term borrowing cost. But the current debt structure used to finance the operations must be reduced to minimum levels. Industry Average Comparisons: RNOA: ROCE: FLEV: SPREAD: Other Companies Analysis: Industry Average Analysis:   RNOA         2014 2013 2012 2011 Progility PLC 6.43% -17.75% 8.67% -69.89% Wilmington Group PLC 9.58% 6.14% 7.85% 7.38% Industry Average 8.76% 3.28% 10.63% 95.51%   NBC         2014 2013 2012 2011 Progility PLC -27.62% -8.89% -9.52% -12.94% Wilmington Group PLC -5.02% -4.76% -5.30% -4.59% Industry Average -9.38% -4.61% -4.48% -5.80%   PM         2014 2013 2012 2011 Progility PLC 1.68% -10.45% 5.49% -70.75% Wilmington Group PLC 9.20% 6.23% 8.23% 7.05% Industry Average 3.32% 0.05% 4.43% 7.81%   Net Comprehensive Profit Margin         2014 2013 2012 2011 Progility PLC -0.77% -11.33% 4.01% -73.31% Wilmington Group PLC 7.21% 4.17% 5.72% 5.14% Industry Average 2.12% -0.81% 3.31% 6.55%   OLLEV         2014 2013 2012 2011 Progility PLC 79.43% 59.38% 52.20% 35.13% Wilmington Group PLC 54.12% 54.42% 53.81% 59.57% Industry Average 89.97% 80.55% 84.73% 89.20%   FLEV         2014 2013 2012 2011 Progility PLC -51.57% -20.30% -32.63% -24.29% Wilmington Group PLC -65.91% -67.25% -71.19% -53.41% Industry Average -75.90% -90.80% -124.49% -115.37%   SPREAD         2014 2013 2012 2011 Progility PLC 34.05% -8.86% 18.19% -56.94% Wilmington Group PLC 14.60% 10.89% 13.15% 11.97% Industry Average 18.13% 7.89% 15.11% 101.31%   ATO         2014 2013 2012 2011 Progility PLC 383.70% 169.90% 157.80% 98.80% Wilmington Group PLC 104.10% 98.50% 95.40% 104.60% Industry Average 557.00% 500.35% 516.73% 504.95%   ROCE         2014 2013 2012 2011 Progility PLC -4.50% -23.16% 8.39% -90.00% Wilmington Group PLC 12.49% 6.88% 9.34% 8.26% Industry Average 13.04% 7.99% 22.02% 55.05% Analysis: Servicing sector of the UK grew after the decline in manufacturing industry and de - industrialization. Financial sector alone contributed $129 billion in the UK economy in 2011 which was 9.5% of that year’s GDP. These factors had a significant impact on the educational sector of the country and companies earned major revenues in that year. Education Industry average of the return on capital employed increased to 55.05% in 2011 as a result which was historical record. As the servicing industry grew, more educational and training services were purchased by the financial and other professional institutions and educational service firms earned huge profits as a result. However, it proved to be the temporary boost and returns on equity declined in subsequent years to 22.02% and 7.99% in 2012 and 2013 respectively. In 2014, some growth was seen due to the growth in UK economy and the returns increased almost 80% and on average 13.4% returns on equity were registered. Returns on net operating assets were significantly higher in 2011 as the firms in the educational sector were utilizing their assets in full capacity to obtain advantage of growth in service sector. However, with the decline in overall industry condition, returns on net operating assets also decreased until it recovered in 2014 due to economic growth. Crisis in 2013 resulted in many firm’s facing loss and many firm’s left the market. Asset turnover of the UK educational sector is very higher as compared to the other industries. Five year average of industry was around 523% which is higher than any other industry. This is due to the fact that service sector assets are mostly comprised of intangible assets which produce higher turnover as compared to tangible assets. In 2014, asset turnover was highest in five year with average of 557% which reflected the growth in UK economy. UK is the largest global financial and educational service provider which is partly due to the skills and experience of the people in the industry. Overall education sector contributed $97 billion in 2011 in national income and firms in the industry had a lucrative profit. In 2011, both operating profit and net profit margins were higher at 7.81% and 6.55% respectively. Small difference between operating and net profit margin indicates that operating expenses of the industry were very small compared to the manufacturing industries. This was due to the low percentage of corporation tax expense and rebates available to service sector. Average net profit margin registered a loss of 0.81% in 2013 which was soon recovered to 2.12% in 2014, because of the new investments in the sector. Financial liability leverage was higher in 2011 and 2012 because majority of firms were relying on debt financing to finance their capital requirements. Capital requirements were higher in 2011 and 2012 time due to the increased need of the firms to invest in assets and to inject cash to manage working capital and liquidity requirements. With the downfall in educational sector, firm’s started to rely more on equity financing to reduce their financial costs and as a result financial liability leverage declined to 75.9% in 2014. Operating liability leverage remained almost consistent with an approximate five year average of 85.5% which indicates that firm’s had a consistent approach in financing their operational expenses. Progility PLC Comparison with the Industry: Profit margins of the Progility had been lower than the industry average in past five years. Industry average profit margins were at their peak in 2011 with 6.55%, Progility reported a loss of 73.31%, which indicates its high operating expenses, and inefficiency of the management in cost control. Subsequent losses of -11.33% and -0.77% were seen in 2013 and 2014 respectively although the directors have announced the tight cost control policy in 2013. Financial leverage of the Progility is lower than the industry average, which reflects the company policy to raise its capital through equity financing rather than more risky approach of debt financing. Additionally, company paid purchase consideration of its recent acquisitions through cash and hence no borrowing was made which decreased its financial costs to large extent as compared to the industry. Operating liability leverage of the company is also below the industry average throughout the five year since the company is more inclined to finance its operations through equity financing. Return on net operating assets of the company was negative till 2013 and much lower than industry average but it rose significantly after the company acquired Starkstorm Group in 2014. The company acquired this group for $9.68 million and made significant profit as a result of this acquisition. The company’s net asset generated a higher profit and returns on net operating assets increased to 6.43%. Asset turnover of the company remained well below the industry average in past five years, which reveals the fact of poor asset management of the company relative to their rival companies. However, acquisition of Starkstorm and diversification of the services by the company resulted in increased clientage both in UK and Australia sector and asset turnover almost doubled in 2014, reaching at 383%. Return on capital employed also performed better in 2014, although still below the average. To raise the performance of the company above industry benchmark, directors had announced that no dividend will be proposed and company decided to reinvest its profits to follow the growth strategy and to achieve expansion goals. Graphical Analysis: RNOA: NBC: PM: NPM: OLLEV: FLEV: SPREAD: ATO: ROCE: Conclusion: After the analysis of portfolio of servicing industry, Wilmington PLC proves to be the most consistent in its performance and show the reasonable growth in both revenue and profitability. The company is providing lucrative returns on the capital invested and investment in the long run in the Wilmington by the investors will prove to be the less risky and profitable. List of References Penna Consulting PLC - Annual Report. 2012. London: Penna Consulting PLC. Progility PLC - Annual Report. 2012. London: Progility PLC. RTC Group PLC - Annual Report. 2012. Derby: RTC Group PLC. Servoca PLC - Annual Report. 2012. London: Servoca PLC. Wilmington PLC - Annual Report. 2012. London: Wilmington PLC. Penna Consulting PLC - Annual Report. 2014. London: Penna Consulting PLC. Progility PLC - Annual Report. 2014. London: Progility PLC. RTC Group PLC - Annual Report. 2014. Derby: RTC Group PLC. Servoca PLC - Annual Report. 2014. London: Servoca PLC. Wilmington PLC - Annual Report. 2014. London: Wilmingotn PLC. About Penna. [Online] Available at: [Accessed 11 April 2015]. About Progility. [Online] Available at: < https://www.progility.com/about-us > [Accessed 11 April 2015]. About RTC Group PLC. [Online] Available at: < http://www.rtcgroupplc.co.uk/about-group/> [Accessed 11 aPRIL 2015]. About Servoca. [Online] Available at: [Accessed 11 April 2015]. Our Perspective. [Online] Available at: [Accessed 11 April 2015]. Bragg, S.M., 2010. Business Ratios and Formulas. Hoboken: John Wiley & Sons. Morley, M.F., 1984. Ratio analysis. Michigan: Gee & Co. Thomsett, M.C., 2006. Getting Started in Fundamental Analysis. Hoboken: John Wiley & Sons. Tracy, A., 2012. Ratio Analysis Fundamentals. Sydney: RatioAnalysis.net. Vandyck, C.k., 2006. Financial Ratio Analysis: A Handy Guidebook. Indiana: Trafford Publishing. Read More