A Financial Statement Analysis asignmnet.

Financial Statement analysis, also otherwise known as financial analysis is a process that refers to analyzing the financial statements of an organization with the objective of ascertaining the financial situation of a business and thereafter making informed decisions regarding the business based on sound financial information.

Task requirements:

1. Choose two or more companies from same industry from FTSE 100. https://www.londonstockexchange.com/indices/ftse-100/constituents/table
2. Compare two or more years of their financial statements.
3. The analysis should be presented in tables and graphs such as pie, line and bars chart.
4. The analysis should be critically review and the consequences of historical data.

Professional experts conduct it in the field by assessing financial reports prepared for a financial year. So, what is financial statement analysis? It studies accounting ratios involved in financial transactions mentioned in a balance sheet.

The following ratios are included in a financial statement analysis:

Asset utilization ratio

Leverage ratio

Valuation ratio

Profitability ratio

Liquidity ratio

Market Prospect Ratios

Market benchmarks

Layout of the Report
SUMMARY – A 150-100-words summary of your findings (This will not count towards your 2,500 words)
INTRODUCTION – Here you provide an introduction to the financial statement and the steps are involve.
(250-150 words)
THEORETICAL BACKGROUND– Here you provide a critical review of the different technical analysis of
preparing statements such as direct and indirect methods. (700-500 words)
CRITICALLY APPLY VARIOUS RATIOS – The determination of how the financial statement is important for
investors decision making what is purpose of analyzing financial statements is to achieve. (700-500
words)
CONCLUSION – Based on your literature review and your finding in this section of the topic summaries
your opinion regarding assignment. (250-200 words)
REFERENCES – The reference list should combined of diverse sources that you read. Hence, it is vital to
focus on the diverse perspectives.
Note: Harvard referencing is required – all questions must be accompanied by enough research and
reference to published work.
Word limit: 2500 Words (+/-10%).
Where the submission exceeds the stipulated word limit by more than 10%, the submission will only be
marked up to and including the additional 10%. Anything over this will not be included in the final grade
for the assessment item. summary, bibliographies, reference lists, appendices and footnotes are
excluded from any word limit requirements.
Assignment Brief
Financial Statement analysis, also otherwise known as financial analysis is a process that refers to
analyzing the financial statements of an organization with the objective of ascertaining the financial
situation of a business and thereafter making informed decisions regarding the business based on sound
financial information.
Task requirements:
1. Choose two or more companies from same industry from FTSE 100.
https://www.londonstockexchange.com/indices/ftse-100/constituents/table
2. Compare two or more years of their financial statements.
3. The analysis should be presented in tables and graphs such as pie, line and bars chart.
4. The analysis should be critically review and the consequences of historical data.
Professional experts conduct it in the field by assessing financial reports prepared for a financial year.
So, what is financial statement analysis? It studies accounting ratios involved in financial transactions
mentioned in a balance sheet.
The following ratios are included in a financial statement analysis:
Asset utilization ratio
Leverage ratio
Valuation ratio
Profitability ratio
Liquidity ratio
Market Prospect Ratios
Market benchmarks
Global Journal of Management and Business Research: C
Finance
Volume 16 Issue 2 Version 1.0 Year 2016
Type: Double Blind Peer Reviewed International Research Journal
Publisher: Global Journals Inc. (USA)
Online ISSN: 2249-4588 & Print ISSN: 0975-5853
Financial Statement Analysis for Kier Group PLC
By Aso Ahmed Abdullah
Cihan University, Iraq
Abstract- The aim of this report to analysis critical evaluation of the history of development,
analysis of the financial performance in last two years and critical evaluation of “Balanced
Scorecard” to analyse Kier Group plc’s performance. This study closely calculate financial
performance for Kier group and compared with comparative company Barratt Plc during 2010 to
2011. As well as the report evaluate Balanced Scorecard. The report for Kier group plc is that the
share price, revenue and dividend per share increased in the past two years resulting in
increasing revenue from the construction division. Kier increased profit in the last two years and
increased a dividend which is a good indication for growth in market share. However the credit
crunch, current financial crisis and falling house prices have affected both the property division
and have hit their competitor company Barratt plc very hard. Revenue has not increased in last
two years plus stock turnover increased sharply. However Barratt Developments can’t survive
according to the Z analysis results from appendix 11, but Kier Group is in a better financial
position, because Kier has specialised in building and civil engineering, support services, public
and private house building property developments and the private finance initiative.
GJMBR – C Classification : JEL Code : E44
FinancialStatementAnalysisforKierGroupPLC
Strictly as per the compliance and regulations of:
© 2016. Aso Ahmed Abdullah. This is a research/review paper, distributed under the terms of the Creative Commons AttributionNoncommercial 3.0 Unported License http://creativecommons.org/licenses/by-nc/3.0/), permitting all non-commercial use,
distribution, and reproduction in any medium, provided the original work is properly cited.
Financial Statement Analysis for Kier Group PLC
T
I.
Introduction
he main principle of this report is to prepare a
critical evaluation of the history of the development
of Kier Group plc and perform an analysis of the
financial performance in the last two years and analyse
the extent to which a balanced scorecard could be used
to analyse Kier Group’s performance. The report will be
compared to a competitor company in same industry
namely Barratt developments Plc.
The report will identify any trends in share
prices, dividends, revenue, debts, inventory, finance
costs, gearing ratio, etc. The movements over the past
two years for the main company will then be compared
to the competitor company and the general economy.
The report will consider how much the current
global financial crisis (especially in the Eurozone) has
affected both companies, in which way the companies
have been affected such as currency downgrading,
customer’s confidence and marketing demand. In
addition the tasks will analyse benchmarking.
a) History and Development
Kier Group Plc was founded in 1928. “A civil
engineer from Denmark, Olaf Kier joined along with
another engineer to create the contracting firm J Lotz
and Kier becoming one of the earliest pioneers in
Author: Department of Accounting Cihan University 100 Street, Musil
Road Erbil, Kurdistan-Iraq P. O. Box: 0383-23.
e-mail: aso.abdullah82@gmail.com
reinforced concrete design and construction”
(insiteatkier, 2011). During second the world war Kier
had an enormous role, to engage with defence projects.
By 1949 J L Kier started working overseas including
major projects such as nuclear power stations and
dams in Mauritius, Seychelles, Bahamas and Spain. In
1972 Marriott joined Kier, expanding the Group’s
commercial and building activities. This was shortly
followed by the merge of J L Kier and W & C French in
1973 to become French Kier Holdings Ltd.
Then in 1992 the following takeover by Hanson
plc triggered a buyout by management at Beazer,
leading to the forming of the Kier Group, creating
Britain’s first major contractor to be employee-owned,
reinforcing Kier’s status as a true ‘people’ company (ft,
1992). After continuing long success in the past the
group had one major task left, namely floatation, an in
1996 the group entered the London stock exchange as
FTSE 250 company.
Kier Group plc’s market is based in the UK, but
also operates overseas including in China, the
Caribbean and the Middle East. The most important
activities include construction services, a property group
specialising in building and civil engineering, support
services, residential and commercial property
development and infrastructure project investment. The
Group employs 10,700 people worldwide and has
annual revenue of £2.2bn (Annual Report 2011). The
main revenue for year end 2011 is coming from
construction which is counting about 66%.
Further more in 2003 the groups agreed with
Sheffield City Council to provide services including
repairs and general maintenance for the council houses
and in 2004 Kier were nominated as one of the key
partners for the government (Pesola, 2004). Then in
2009 Kier started work on a £600m outsourcing contract
for North Tyneside Council. The Kier groups practices
SWOT and focusing on Corporate Social Responsibility
(CSR) including producing greener construction,
environmental friendly and low carbon emissions. The
group’s visions are to build, maintain, protect and
enhance the reputation among their employees,
customers, supply chain and partners and investor. The
group publish a CSR report annually and they have set
up a target to achieve and it is boosting its status.
The group’s strategic development is included
in the business model supporting all four divisions,
construction, support service, partnership homes and
developments. Massoudi (2011) said Kier are
concerned over eurozone uncertainty and its sensitivity
© 20 16 Global Journals Inc. (US)
1
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
Abstract- The aim of this report to analysis critical evaluation of
the history of development, analysis of the financial
performance in last two years and critical evaluation of
“Balanced Scorecard” to analyse Kier Group plc’s
performance. This study closely calculate financial
performance for Kier group and compared with comparative
company Barratt Plc during 2010 to 2011. As well as the report
evaluate Balanced Scorecard. The report for Kier group plc is
that the share price, revenue and dividend per share increased
in the past two years resulting in increasing revenue from the
construction division. Kier increased profit in the last two years
and increased a dividend which is a good indication for growth
in market share. However the credit crunch, current financial
crisis and falling house prices have affected both the property
division and have hit their competitor company Barratt plc very
hard. Revenue has not increased in last two years plus stock
turnover increased sharply. However Barratt Developments
can’t survive according to the Z analysis results from appendix
11, but Kier Group is in a better financial position, because
Kier has specialised in building and civil engineering, support
services, public and private house building property
developments and the private finance initiative.
Year 2016
Aso Ahmed Abdullah
Financial Statement Analysis for Kier Group PLC
to confidence in the UK. Kier decided to keep operating
abroad such as in Middle East and China because the
regions have not been affected by the current economic
crisis and thus generating a better return.
Year 2016
II.
Financial Statement Analysis
The aim of the financial statement analysis is to
determine the financial position, and therefore the long
term investment potential of the company. To be able to
execute the report the six main financial ratios will be
applied, namely profitability, efficiency, liquidity, cash
flow, gearing and investor’s ratios to the financial
statements for the year ended 30/06/2010 to 30/06/2011
of the main company and compare it to a competitor
company. The Z-analysis ratio will be applied to the
accounts (Please see appendix 1 for more details).
a) Profitability Ratio
i. Return on Capital Employed (ROCE)
Atrill and McLaney (2008) described ROCE ratio
as a “fundamental measure of business performance”.
This ratio expresses the relationship between the
operating profit generated by the business and the longterm capital invested in the business. ROCE is
calculated as follow:
Return on capital employed
2011
21.76
3.41
Kier
Barratt
2010
19.56
1.75
Return on capital employed
25.00
20.00
Ratio %
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
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15.00
Kier
Barratt
10.00
5.00
0.00
2011
Year
The ROCE for Kier has increased in the past
two years by 11%, despite operating profit increasing by
24% in 2011. This is due to an increase in trade creditors
which affected ROCE and the share holders may not be
convinced with the result. Nevertheless the competitor
company Barratt’s ROCE has increased sharply by 95%
and this is due to operating profit increasing by 41% in
2011 and also non-current liabilities have reduced in
2011 by 29% due to paying off long term loans and
2010
borrowing. Overall Kier is doing much better and is
more secure in terms of liquidity problems because noncurrent liabilities are much smaller than equity.
ii. Operating profit margin (OPM)
Atrill and McLaney (2008) examined OPM by
evaluating the cost of sales or revenue, and measuring
net profit before interest and tax (please see appendix 2
for more details). OPM is calculated as follow:
Operating profit margin
Kier
Barratt
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1 Global Journals Inc. (US)
2011
3.44
6.25
2010
2.86
3.65
Financial Statement Analysis for Kier Group PLC
Operating profit margin
5.00
4.00
3.00
2.00
Year 2016
Kier
Barratt
1.00
0.00
3
2011
Year
The OPM for Kier has increased by 20% in 2011
total revenue by 3.25%. This is due to reducing cost of
sales and disruptions costs. (Please see appendix 2 for
more details). However OPM for Barratt increased
sharply by 71% in 2011 this is due to reducing cost of
sales.
2010
iii. Asset turnover
Asset turnover measures a firm’s efficiency at
using its assets in generating sales or revenue – the
higher the number the better (please see appendix 3 for
more details). Assets turnover is calculated as follow:
Asset Turnover
2011
6.33
0.54
Kier
Barratt
2010
6.85
0.48
Times
Asset Turnover
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Kier
Barratt
2011
Despite increasing in revenue by 3.25% in 2011
asset turnover declined by 0.08 times because the value
of equity has increased rapidly by 37% in 2011, and
non-current liabilities has decreased by 14% in same
period (please see appendix 3 for more details).
Year
2010
However the Barratt plc asset turnover
increased by 0.12 time in 2011, it’s not as good as Kier
because the revenue has increased only by 0.0001% in
2011 and the equity value has declined by 2%, this
would cause uncertainty amongst shareholders and
© 20 16 Global Journals Inc. (US)
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
Ratio %
7.00
6.00
Financial Statement Analysis for Kier Group PLC
investors. Overall Kier plc is in a better position than
Barratt plc.
iv. Gross profit margin (GPM)
The gross profit margin is a measurement of a
company’s manufacturing and distribution efficiency
during the production process (please see appendix 4
for more details). GPM is calculated as follow:
Year 2016
Gross profit margin
4
2010
10.17
8.84
Gross profit margin
12.00
10.00
Ratio %
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
2011
8.38
11.19
Kier
Barratt
8.00
Kier
Barratt
6.00
4.00
2.00
0.00
2011
The GPM for Kier plc has decreased in 2011 by
18% despite revenue increasing by 3% in 2011, but cost
of sales increased by 5% which is more than the
increase in revenue (please see appendix 4 for more
details). But the competitor company Barratt somehow
managed to increase GPM by 27% in 2011 despite no
increase in revenue, instead they managed to reduce
cost of sales.
Year
2010
v. Return on equity
ROE is viewed as one of the most important
financial ratios. (please see appendix 5 for more details).
It is calculated as follow:
Return on ordinary shareholders’ funds
Kier
Barratt
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1 Global Journals Inc. (US)
2011
37.94
-0.47
2010
38.87
-4.08
Financial Statement Analysis for Kier Group PLC
Return on equity
50.00
40.00
Ratios
30.00
Kier
20.00
Barratt
Year 2016
10.00
0.00
2011
-10.00
2010
Year
The above figure shows ROE for Kier has been
reduced by 2% in 2011 regardless of net profit in 2011
increasing by 35%. Also the ordinary share capital and
reserves have increased in 2011 by 37% and for that
reason actually ROE decreased in 2011. However the
competitor company Barratt improved significantly and
ROE increased by 88% this is due to reducing loss for
the year from £118m to £14m.
notice.” (Please see appendix 6 for more details). It is
very worthwhile to use the following ratios:
i. Current ratio
The ratio is mainly used to give an idea of the
company’s ability to pay back its short-term liabilities
with its short-term assets. The higher the current ratio,
the more capable the company is of paying its
obligations. Current ratio is calculated as follow.
b) Liquidity Ratio
Brealey et al (2010, p.45) defined liquidity as
“the ability to sell or exchange as for cash on short
Current Ratio
2011
1.19
3.30
Times
Kier
Barratt
2010
1.15
3.81
Current Ratio
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Kier
Barratt
2011
Year
2010
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Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
5
Financial Statement Analysis for Kier Group PLC
ii. Acid test ratio
A stringent test that indicates whether a firm has
enough short-term assets to cover its immediate
liabilities without selling inventory. The acid-test ratio is
far more strenuous than the working capital ratio,
primarily because the working capital ratio allows for the
inclusion of inventory assets. The ratio expressed as:
Acid Test Ratio
Times
6
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
Year 2016
We can see the Kier current ratio has increased
in the past two years by only 0.04 due to an increase in
assets which indicates that the company can pay all its
liabilities. Barratt’s has decreased by 0.51 in the past
two years and they are not in a good position financially.
Moreover the company may be facing a shortage of
cash in the future. Also if they are not able to pay off
their trade creditors then the finance cost may increase
in the future, which will threaten Barratt’s liquidity.
2011
2010
Kier
0.653
0.655
Barratt
0.13
0.59
Acid test ratio
0.700
0.600
0.500
0.400
0.300
0.200
0.100
0.000
Kier
Barratt
2011
Year
As per current ratio, this graph shows that Kier’s
ability to meet short-term obligations has reduced by
0.002 in the past two years due to increasing inventory
in 2011. As long as current assets meet current liabilities
then it ensures the business can keep running without
going into liquidity problems. Although the Barratt acid
test ratio decreased sharply by almost 4 times in 2011,
it’s due to a decrease in current liabilities in 2011 by 65%
because they paid back loans and borrowings of £513m
and this will improve balance sheet and profit in the
future.
c) Efficiency Analysis
For every business regardless of the size they
must monitor the ways in which different resources of
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2010
the business are managed.. Dyson (2007) said
Efficiency ratios measure how successfully the business
operates these assets, in addition to how well it
manages its liabilities. The most important ratios are as
follows:
i. Stock turnover
This ratio shows how well inventory is managed
by calculating the number of times that a business
turnover (or sell) inventory during an accounting period.
It is calculated as follow:
Financial Statement Analysis for Kier Group PLC
Stock turnover
2011
4.51
0.55
Kier
Barratt
2010
4.54
0.56
Kier
Barratt
2011
2010
Year
Here it can be seen that Kier inventory turnover
falls by very small margin in 2011 by 0.006. The group’s
turnover improved in 2011 which indicates good stock
management to keep stock levels under control. The
quicker a business turns over its stocks, the better. But
it is more important to do that profitably rather than sell
stocks at a low gross profit margin or worse at a loss.
However Barratt inventory turnover has seen a slight
reduction in 2011.
7
ii. Stock days
This measures the amount of days it takes to
sell a stock item once on the company’s inventory. A low
figure represents greater efficiency (please see
appendix 7 for more details). Stock days are calculated
as follow:
Stock days
2011
81
666
Kier
Barratt
2010
80
658
Stock days
700
600
Days
500
400
Kier
300
Barratt
200
100
0
2011
Year 2016
5.00
4.00
3.00
2.00
1.00
0.00
2010
Year
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Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
Times
Stock turnover
Financial Statement Analysis for Kier Group PLC
The above representations show that Kier
increased by 1 day in 2011 to sell stocks. The longer the
inventory period the more it will cost and opportunities to
fund new projects it may be delayed and be tied up
(please appendix 7 for more details).
iii. Settlement period for trade receivable
This ratio actually measures the amount of days
it takes to convert your trade receivable to cash (please
see appendix 8 for more details). It is calculated as
follow:
Year 2016
Settlement period for trade receivable
2010
59
12
Settlement period for trade receivable
8
70
60
50
Days
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
2011
57
11
Kier
Barratt
40
Kier
Barratt
30
20
10
0
2011
2010
Year
The trade receivable for Kier has fallen from 59
days to 57 days in 2011 which is a good indication for
the business and it means they can meet their targets
and it is good efficiency. Also the competitor company
fell from 12 days to 11 days in 2011, this is much better
than Kier they are able to convert trade receivable to
cash in 11 days, it may be related to the company
policy.
iv. Settlement period for trade payable
This ratio actually measures how long the
business takes to pay those who supplied goods and
service (please appendix 9 for more details). It is
calculated as follow:
Settlement period for trade payable
Kier
Barratt
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2011
150
207
2010
160
199
Financial Statement Analysis for Kier Group PLC
Settlement period for trade payable
250
150
Kier
Barratt
50
Year 2016
100
0
9
2011
The trade payable for Kier plc has fallen from
160 to 150 days in 2011 and it shows signs of
improvement, also the period of trade receivables is
actually much less than the period of creditors and that
will ensure the business can survive from liquidity
problems. However Barratt plc the trade payable has
increased by 8 days in 2011 which means it takes 207
days to pay suppliers and this is not good for the
business. This is because they may increase finance
costs which will reduce net profit. The main reason for
the increase in trade payables is due to holding stock
materials for long and also due to the current economic
and property market causing a slowdown in sales.
Year
2010
d) Cash Flow Ratios
This ratio is very important in terms of avoiding
lack of liquidity and it helps the finance manager be
aware of shortage of cash in short-period to meet
liabilities (please see appendix 10 for more details). The
following ratios consider some of the more important
features of resource management:
i. Cash flow to maturing obligations
This ratio applies to establish how well a
company can meet current liabilities with operational
cash flows. Cash flow to maturing obligations is
calculated as follow:
Cash flow to maturing obligations
Kier
Barratt
2011
1518
1036
2010
711
356
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Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
Days
200
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
10
1600
1400
1200
1000
800
600
400
200
0
Cash flow to maturing obligations
Kier
Barratt
2011
Year
The above presentations shows Kier are in
serous problems to meet their current liabilities and they
do not have enough cash to pay off some of their trade
creditors, this may create a shortage of cash in due
course (please see Z-Analysis in appendix 11).
Nevertheless Barratt are also struggling with shortage of
cash and both companies may face liquidity problems
(please see appendix 7 for more details).
2010
ii. Free cash flow
Free cash flows to a company measure of
possible cash flows that can be circulated to capital
providers without affecting the production capacity of
the company. Free cash flow to calculate as follow:
Free cash flow
2011
1
5
Kier
Barratt
2010
10
37
Free cash flow
Ratio
Year 2016
Ratio %
Financial Statement Analysis for Kier Group PLC
40
35
30
25
20
15
10
5
0
Kier
Barratt
2011
Year
The above figures show Kier plc’s free cash flow
reduced sharply in 2011 by 90 due to an increase in
capital expenditure (please see note 28b and 14 from
Kier annual report) and reducing operating activities.
However the competitor company’s free cash flow has
been reduced in 2011 because the operating activities
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2010
have not increased and capital expenditure has
increased (please see note 13 from Barratt annual
report).
Financial Statement Analysis for Kier Group PLC
iii. Free exhaustion ratio
This ratio allows finance managers to analyse
how many days the company can afford to pay its shortterm liabilities from cash at bank. This ratio is important
for those organisations that rely on the funds. The
calculation is as follows:
Cash exhaustion ratio
Year 2016
2010
92
192
Cash exhaustion ratio
11
250
Days
200
150
Kier
Barratt
100
50
0
2011
Year
Kier plc are holding cash at a lower level due to
the company’s structure, the cash exhaustion in 2011
has been reduced by 4%, they may consider investing
to get a better return. However Barratt plc also reduced
their cash in hand sharply due to the Bank of England
keep interest rates at a minimum rate of 0.05%. (Please
see note 21 from Barratt annual report).
2010
borrowing to operate (please see appendix 12). Two
ratios are widely used to assess gearing:
i. Interest cover ratio
This ratio indicates that the levels of operating
profits are significantly higher than the level of interest
payable (please see appendix 13). The calculation is as
follows:
e) Financial gearing ratio
At rill and McLaney (2008) explained financial
gearing happens when a business is financed by
Kier
Barratt
Interest cover ratio
2011
17
0.8
2010
14
0.3
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Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
2011
88
26
Kier
Barratt
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
12
Interest cover ratio
20
18
16
14
12
10
8
6
4
2
0
Kier
Barratt
2011
Year
The Gearing Ratio for the Kier has increased by
21% times in 2011, the level of finance cost has not
been reduced in 2011 despite that operating profit has
increased from 58m to 73 m in 21011. However the
competitor company adopted a different strategy. The
operating profit has increased by 42% in 2011 and they
reduced finance costs by 58%; this is really a huge
2010
improvement and it will boost operating profits in future
(please see appendix 14 for more details).
ii. Gearing ratio
The gearing ratio evaluates the input of longterm lenders to the long-term capital structure of a firm.
The gearing ratio is calculated as follow:
Gearing ratio
2011
51
22
Kier
Barratt
Ratio
Year 2016
Times
Financial Statement Analysis for Kier Group PLC
Gearing ratio
70
60
50
40
30
20
10
0
Kier
Barratt
2011
2010
Year
The gearing level for Kier plc has been reduced
by 22% in 2011, this is due to paying off long-term
borrowing, (please see note 23 from Kier annual report).
Also Barratt managed to reduce long-term borrowings in
2011 by more than 50%. A high gearing ratio will create
liquidity problems (please see appendix 14 for more
details) and have a impact on finance costs.
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2010
65
32
f)
Investment ratios
These ratios indicate the relationships of the
companies’ share prices to dividends and earnings
(please see appendix 15 for more details). The following
ratios are designed to help investors to have a better
understanding of their returns.
Financial Statement Analysis for Kier Group PLC
i. Dividend yield
The dividend yield ratio indicates the return that
investors are obtaining on their investment in the form of
dividends. This yield is usually fairly low as the investors
are also receiving capital growth on their investment in
the form of an increased share price. The ratio is
calculated as follows:
Dividend yield
2010
5.99
0.00
Year 2016
2011
4.71
0.00
Kier
Barratt
Dividend yield
7.00
Ratio
5.00
Kier
Barratt
4.00
3.00
2.00
1.00
0.00
2011
Year
The dividend yield for Kier has been reduced by
21% in 2011 as the market value per share increased
from 967.50p at 30/06/2010 to 1360p at 30/06/2011
(please see appendix 6 for more details). This is a good
significant result and the company also increased its
dividend payments from 58p to 64p in 2011. However
the Directors of Barratt plc decided not pay dividends
for the second year, which ended 30 June 2011, despite
increasing market value per share (please see appendix
2010
16 for more details). The Board is committed to
reinstating the payment of dividends and will, when it
becomes appropriate to do so.
ii. Dividend cover ratio
This ratio measures the extent of earnings that
are being paid out in the form of dividends. This means,
how many times will the dividends paid be covered by
earnings. The ratio is calculated as follows:
Dividend cover ratio
Kier
Barratt
2011
2.82
0.00
2010
1.99
0.00
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13
6.00
Financial Statement Analysis for Kier Group PLC
Dividend cover ratio
3.00
Times
2.50
2.00
Kier
Barratt
1.50
1.00
Year 2016
0.50
0.00
2011
Year
The dividend cover for the Kier plc has
increased 0.83 times in 2011. This is good as the profit
after tax increased by 54% in 2011, but the company
only increased the final dividend payment by 10%. The
board of directors may have a different strategy to
investing returns elsewhere which gives the company
higher returns. The competitor company have not paid
any dividend due to making a loss at the end of the
financial year.
2010
iii. Earning per share (EPS)
EPS is the relationship of the profit after tax
attributable to each share in issue. It is how much of the
after tax earnings shareholders will obtain for each share
they hold in the company. EPS is calculated as follow:
Earning per share
2011
148.4
0.00
Kier
Barratt
2010
117.7
0.00
Earning per share
200
150
Pence
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
14
100
Kier
50
Barratt
0
2011
2010
Year
The EPS for the Kier plc has increased by 26%
in the past two years due to increasing profit after tax by
53%. The company is in a good profitable position.
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Nonetheless the number of ordinary share increased
sharply from 38m to 42m in 2011.
Financial Statement Analysis for Kier Group PLC
iv. Price earnings ratio (PE)
PE ratio is a useful indicator of what premium or
discount investors are prepared to pay or receive for the
investment. PE ratio calculated as follow:
Price earnings ratio
Year 2016
2010
5.40
0.00
Times
Price earnings ratio
15
10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Kier
Barratt
2011
2010
Year
The PE for Kier has increased by 70% in 2011
due to a sharp increase in the market price in the past
two years. However PE is not relevant for Barratt
because they did not pay a dividend in 2011 and 2010.
Atrill and MacLaney (2008) said the greater PE, the more
confidence in the future earnings and it is gives more
certainty to investors.
product is above the cost of producing and distributing
it. It can also be used as a measure of market power
across firms, industries, or economies. It is calculated
as follow:
g) Two extra Ratios
1. Mark up ratio (MUR)
The aim of using MUP is to explore the price to
marginal cost. It indicates how much the price of a
Mark up ratio
Kier
Barratt
2011
9.15
12.60
2010
11.32
9.70
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Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
2011
9.16
0.00
Kier
Barratt
Financial Statement Analysis for Kier Group PLC
Mark up ratio
14.00
12.00
Ratio
10.00
8.00
Kier
6.00
Barratt
Year 2016
4.00
2.00
0.00
2011
2010
Year
The above figure representing MUP for Kier plc
has fallen in 2011 by 23% due to a decrease in gross
profits by 15% in 2011 and the cost of sales increased
by 5% in the same period. This is not a good indicator
for Kier as it shows that extra sales have been cancelled
by increased cost of sales; the finance directors must
investigate the reasons and factors for the increased
cost of sales. However the competitor company Barratt
managed to increase MUR in 2011 by 23% due to a
30.00
reduction in cost of sales by 3% in 2011. This is
important for every business to meet targets and not
over spend. The higher MUR the better profitability for
the business.
2. Fixed assets turnover
The purpose of this ratio is to evaluate how Kier
plc used their fixed assets to generate the revenue
(please see appendix 17). It is calculated as follows:
Fixed assets turnover
2011
22.11
2.55
Kier
Barratt
2010
24.36
2.55
Fixed assets turnover
25.00
20.00
Times
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15.00
Kier
10.00
Barratt
5.00
0.00
2011
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Year
2010
Financial Statement Analysis for Kier Group PLC
Benchmarking
a) What are the purposes of Benchmarking?
Bendell et al. (1998) said the purpose of
benchmarking is to evaluate a current position of the
organisations. It permits evaluation against another
industry in the same sector. Benchmarking allows
companies to recognising strengths and weaknesses
and learns how to get better. Benchmarking is a way of
finding and adopting best practices. Benchmarking may
be practiced through number of different applications
(please see appendix 18).
Bramham (1997) said it’s important to set out
clear objectives of the exercise such as investigating,
b) Benchmarking for Kier Group plc
Kier group plc comprises four divisions:
Construction, Services, Property and Homes. 67% of the
group’s revenue was dominated by the construction
division in 2011 according to annual report account
2011. This task will focus at benchmarking for the
Construction division and how to measure four main
activities; financial, market share, internal business
perspective and innovation and enterprise and how
often to appraise it.
Activities
Key Performance Indicator (KPI)
Financial
Balance sheet, Income statements, Liquidity
Debt/coverage, Profitability, Asset-management
and investor ratios
Revenue level and Dividend
Current ratio, Cash flow, liquidity and stock days
Market share
Internal business
perspective
Innovation and enterprise
New product, Production times, Speed of
response to customer complaints
i. Financial
The financial performance measures and
benchmarks for construction division are to examinee
their production competitiveness every six months. It
examines if the division spends above group average for
rent and utilities. How does the cost of materials
compare within the group? Are employee salaries and
benefits competitive with the rest of the group?
Decision-making involves using financial information
and analysis to manage a business effectively. These
techniques allow operators to:
• set appropriate prices for products and services;
• improve profitability by accelerating the cash
conversion cycle;
• establish an effective credit policy;
• maintain an appropriate inventory;
• assess the financial viability of capital investments
such as new projects, expansions and renovations;
and
• identify appropriate sources of financing.
In addition, financial ratios are helpful when
reviewing divisions for effectiveness. Ratios should be
tracked regularly to determine where fluctuations occur
and what drives these differences.
ii. Improve market share.
The improvement of market share is based on
the increase level of revenue and net profits; and every
six months the division manager can measure market
share through financial ratios such as profitability ratios.
Kier plc can achieve better results than their competitors
by changing the price or offer special incentives for
buyers. Alternatively, Kier can find new methods to
distribute products so people can buy it in more places.
Finally, Kier can advertise and promote new products.
Using these techniques in any combination may
improve market share.
Increased market share is not always the best
solution for businesses. It might not be profitable if it is
associated with expensive advertising or a big price
decrease. A company may not be able to meet the
© 20 16 Global Journals Inc. (US)
Year 2016
III.
analysing, planning and action; it is significant to ensure
there are resources available to support your decisions.
There is no point in collecting data and information if you
do not have support or resources to make use of them.
As with all perfect performances, it is better to begin with
an identified problem area that is able to be defined or
an activity where improvement will provide maximum
benefit. You may not be able to see the need for
improvement by looking internally. Look for
opportunities in the widest context, e.g. what are your
customers expecting now, what are your competitors
achieving?
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Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
The above ratio shows Kier plc’s declined in
2011 by 10%, despite turnover increasing by 3% in
2011; but the fixed assets increased by 12% in same
period. According to above explanation Kier may over
invest, however Kier is in the construction industry and
they require high quality machines and they also need
plants for future development. Fixed assets vary greatly
among companies. Nevertheless fixed assets turnover
for Barratt has changed because turnover has not
increased in 2011 and they don’t invest in fixed assets.
Year 2016
Financial Statement Analysis for Kier Group PLC
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
18
demand of an increased market share without huge
investments in new equipment and employees. In some
cases it can be to a company’s advantage to decrease
market share, if the lower costs of lower market share
can improve profitability. Managing market share,
therefore, is a very important aspect of managing a
business.
iii. Internal business perspective
This activity is based on good management
skills such as reducing cost of sales and controlling the
cash a company has on hand. The internal measure
shows how long the company can maintain operations
without additional revenue or financing (please see
appendix 6). This perspective refers to internal business
processes. This activity could be exercised through
liquidity ratios every six months. Harris et al. (2006). Said
this perspective allows the managers to know how well
their business is running, and whether its products and
services conform to customer requirements (the
mission). These metrics have to be carefully designed
by those who know these processes most intimately;
with their unique missions this is not something that can
be developed by outside consultants.
iv. Innovation and enterprise
Innovation and enterprise is pushing Kier’s
construction division to grow sharply especially from
2004 when they entered into partnerships with the local
government and city councils. It is important for Kier to
have the latest technology to deliver outstanding and
complex projects. Since the current financial crisis and
housing market bubble the competition among
construction industries has become very difficult.
Besides the fallen housing market, Kier needs to focus
on their construction division with the latest technology
and it needs to measure how it is going to improve
revenue and long term profits.
The business structure is mainly local – to a very
fragmented sustainable construction market. Many
technical solutions are already available, but demand is
highly fragmented. 40% of demand for Kier’s
construction work comes from the public sector. The
introduction of machinery could improve Kier’s
construction division revenue further and speed up the
delivery time for projects.
IV.
Conclusion
The conclusion of this report for Kier group plc
is that the share price, revenue and dividend per share
increased in the past two years resulting in increasing
revenue from the construction division. Kier increased
profit in the last two years and increased a dividend
which is a good indication for growth in market share.
However the credit crunch, current financial crisis and
falling house prices have affected both the property
division and have hit their competitor company Barratt
plc very hard. Revenue has not increased in last two
© 2016
1 Global Journals Inc. (US)
years plus stock turnover increased sharply. The future
of the market share for Barratt is uncertain, as they have
not paid dividends in the last two years due to making a
loss and it’s possible that they are facing more losses in
the future.
However Barratt Developments can’t survive
according to the Z analysis results from appendix 11,
but Kier Group is in a better financial position, because
Kier has specialised in building and civil engineering,
support services, public and private house building
property developments and the private finance initiative.
The recent eurozone crisis and credit squeeze has
further affected customer attitude and pressure on
lending institutions has led to a tightening of lending
criteria and mortgage availability, said Mark Clare,
Barratt’s chief executive. It is not yet clear how quickly
the market will recover but Barratt has to assume that
there will be downward pressure on volumes and price
inflation in the short-term according to (BBC 2007).
Kier Group predicted a boom in construction in
the next few years as the big builders form stronger
relationships with local council’s contractors ahead of
the 2012 Olympics. John Dodd, chief executive said “he
was comfortable with the prospects for the housing
division and optimistic about winning a series of council
maintenance contracts in the second half of the year.”
V.
Acknowledgement
The author thanks Sindiswa Dube and Mark
Newey for useful discussions, proof reading and
comments.
References Références Referencias
1. Atrill, P. and McLaney, E. (2008) Financial
Accounting for Decision Makers. 5th ed. Essex:
Pearson Limitation.
2. Atrill, P. (2009) Financial Management for Decision
Makers. 5th ed. Essex: Pearson Limitation.
3. BBC. (2011). Barratt warns of housing slowdown.
[online].[Accessed 03 March 2012]. Available at: < http://news.bbc.co.uk/1/hi/business/7013661.stm>.
4. Bendell, T., Boulter, L. and Goodstadt, P. (1998)
Benchmarking for competitive advantage. 2nd ed.
Essex: Pearson Limitation.
5. Benedict, A. and Alliott, B. (2011) Financial
Accounting: An introduction. 2nd ed. Essex:
Pearson Limitation.
6. Bramham, J. (1997) Benchmarking for people
managers. 1st ed. London: Institute of personnel
and development
7. Brealey, R.A., Myers, S.C. and Marcus, A.J. (2010)
Fundamentals of Corporate Finance. 6th ed. New
York: McGraw-Hill/Irwin
8. Dyson, J.R. (2007) Accounting for Non-Accounting
Students. 7th ed. Essex: Pearson Limitation.
Financial Statement Analysis for Kier Group PLC
Appendices
1. Financial statement Analysis
Elliott and Elliott (2006) describe ratio analysis
as the relationship between different items in the
financial statements such as (Income Statements,
Statement of Financial position and Cash flow
statements). They also added that the expertise lies in
knowing which ratios provide useful information.
According to Melville (1999) ratio analysis on a single
set of accounts is usually a pointless exercise. He
further stated that most ratios mean very little in absolute
terms and only become meaningful when used as a
basis for comparison. There are two methods that for
comparison.
2. Operating profit margin (OPM)
This is the most suitable calculation of
operational presentation. This ratio compares one
output of the company such as operation profit with
another output such as cost of sales; sometimes actual
sales increase but at the same time cost of sales
increase, so in this situation the operating profit is
actually not increasing because increasing cost of sales
cover the proportion of increase in operating profit.
Benedict and Elliott (2011) suggested when the
OPM increased compare it to previous financial year
and this is usually achieved in identical circumstances,
such as good management and economy e.g. maximise
sales and minimums costing.
From the finance directors point of view they
may think they are doing well, but from the shareholders
point of view Kier are actually not operating very well
compared to Barratt plc because their OP has increased
sharply by almost 42% and its pushed OPM to rise by
41%. Nevertheless we have to be cautious they may
have different targets such as increasing revenue by
providing long term credit and it may causes liquidity
problems in long term.
3. Asset turnover
When assets turnover increase then it is good
for investors because when equity increases then the
share price increases as well and the value of the
company also increases. This is good for the long-term
period and it is secure of liquidity problems. It also
indicates pricing strategy: companies with low profit
margins tend to have high asset turnover, while those
with high profit margins have low asset turnover. Atrill
(2009) explained asset turnover in different ways he said
the higher ratios indicate that assets are being used
more proactively to generate higher revenue and the
financial manger should take careful consideration by
using assets to generate higher profits. E.g. if you
purchase a new machine and the machine actually
creates more than expected (overtrading) this is good in
the short term but if you are expecting to use the
machine for long periods then it’s not a very beneficial
decision because when the machine get old it’s
impossible to use it as a new machine so the age of the
assets should be taken to consideration.
© 20 16 Global Journals Inc. (US)
Year 2016
a) Comparing one year with another for the same
company. By doing so, any trends might be
extrapolated into the future and used for making
economic forecasts.
b) The second method is comparing one business with
another. Melville stressed that the two companies
or businesses must be in the same sector or
industry (which I will apply for this report) for the
comparison to be valid. And this is also supported
by Elliott and Elliott (2006) where they use the term
‘’Compare like with like.’’
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Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
9. Elliott, B. and Elliott, J. (2006) Financial Accounting,
Reporting and Analysis, 2nd ed, Essex: Pearson
Limitation.
10. Harris, F., McCaffer., and Edum-Fotwe, F.(2006)
Modern construction management. 6th ed. Oxford:
Blackwell Publishing.
11. Insite Kier. (2011). [online].[Accessed 11 February
2012]. Available at: < http://www.insiteatkier.co .uk/>.
12. Kier Group Plc. (2011). (Annual Report 2011).
[online].[Accessed 11 February 2012]. Available at:
< http://www.kier.co.uk/ar2011/>.
13. Mathiason, N. (2008). Barratt’s borrowing causes
concern. Guardian [online].[Accessed 29 February
2012]. Available at: < http://www.guardian.co.uk/ . business/2008/feb/17/construction.creditcrunch>
14. Melville, A. (1999) Financial Accounting, 2nd ed,
Essex: Pearson Limitation.
15. Mills, J.R. and Yamamura, J.H. (2011) The Power of
Cash Flow Ratios. [online].[Accessed 19 February
2012]. Available at: < http://www.rbcpa.com/The _Power_Of_Cash_Flow_Ratios.html>.
16. Orr, R. and Hume, N. (2008). ENRC leads London
index lower. The Times [online].[Accessed 05 March
2012]. Available at: < http://www.ft.com/cms/s/0/ 14f75d3e-11c7-11dd-9b49-0000779fd2ac.html#ax zz1oBarx0CM>.
17. Pesola, M. (2004). Hospitals and schools lift Kier
above forecasts. The Times [online].[Accessed 29
February 2012]. Available at: < http://www.ft.com/ cms/s/0/ea9f0af2-0845-11d9-9d00-00000e2511c8. html#axzz1o0R9cgC2>.
18. Teather, D. (2008). Barratt says new homes sales
have fallen 15%. Guardian [online].[Accessed 29
February 2012]. Available at: < http://www.guar. dian.co.uk/business/2008/feb/27/barrattdevelopmen tsbusiness.housingmarket>
19. Wild, J. J, Subramanyam, K.R. and Halsey, R. F.
(2007) Financial Statement Analysis. 9th ed. New
York: McGraw Hill
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Financial Statement Analysis for Kier Group PLC
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
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4. Gross profit margin (GPM)
The gross profit tells an investor the percentage
of revenue / sales left after subtracting the cost of goods
sold. Melville (1999) further stated that the comparison
between two companies in the same sector is very
important as it might shed some light on the pricing
policies adopted by each of the companies concerned.
This is a clear indication of both companies’ ability to
use investments to generate earnings.
There are many factors can have an effect on
increasing cost of sales e.g. currency deflation,
economic down turn or unexpected costs which are not
under control and for sure they have an impact on the
GPM. Nevertheless the competitor company’s GPM has
increased by 22% in 2011, which sounds good but in
reality it’s not good because their revenue only
increased by 0.001% and at the same time Barratt plc
managed to reduce cost of sales by 3% in 2011. Usually
when revenue increases then cost of sales increase too,
but if we looking at Barratt the opposite happened.
5. Return on equity
ROE shows the profit attributable to the amount
invested by the owners of the business and it measures
a firm’s efficiency at generating profits from every pound
of net assets, and shows how well a company uses
investment pound to generate earnings growth.
6. Liquidity Ratios
Wild et al (2007) said the significance of liquidity
makes company percussions about failure to meet their
requirement in short-term. Liquidity raises issues of a
high level degree of risk. Occasionally companies offer
discounts as a means of raising cash and the best way
to prevent a shortage of cash they need to be careful
that trade payables and receivables balance and that
they have enough cash for any emergency matters.
More extreme liquidity problems can lead to company to
instability, bankruptcy or sale of assets at lower prices.
Also liquidity can lead to a delay of products from
suppliers and hence a loss of reputation amongst
customers and suppliers.
7. Stock days
This ratio shows how well inventory is managed
by calculating the number of times that a business
turnover (or sell) inventory during an accounting period.
Atrill and McLaney (2008) state that inventories are very
much important for some types of businesses such as
manufactures and inventories could account for a
significant amount of the total assets held.
For the amount of inventories to carried, the
business must consider demand for the inventories and
supply shortage. But the main factors for the increasing
stock turnover period for Kier are purely based on the
current economic and financial crisis because Kier a
construction and property provider and the downturn of
property market had a direct impact.
© 2016
1 Global Journals Inc. (US)
Overall Kier plc is much better compared to
Barratt because 66% of the revenue is coming from
construction contracts. Barratt plc are struggling with the
amount of stock they hold and 95% of their stocks are
property and the revenue only increased by 0.001% in
2011; again the housing market and uncertainty among
first time buyers are the main causes for increasing
stock days.
8. Settlement period for trade receivable
A low figure represents greater efficiency but
the higher the period to collecting receivables then this
will result in an increased risk. The risk of trade
receivables is actually much higher than the profit, for
example you are selling your products on promises,
what happens if promises are not delivered? Then there
are other costs involved such as administration and
agency costs which may damage relations with
customers. The settlement period for the trade
receivable ratio analyse how long credit customers take
to pay the amounts that they owe to the business.
9. Settlement period for trade payable
The terms and options should be considering
by the finance manger. It’s not necessary to pay back
your credit before the expiry date but it must be in
correlation between your receivables and payables to
ensure the business is collecting trade receivables
before paying suppliers. In addition the finance manger
should not use the saving account to pay creditors
unless it is urgent.
10. Cash flow ratio
Operational cash flows represent all money
brought into the business through producing and selling
various goods or services. If the ratio is greater than
14% the companies is doing well, however any
companies with less than 5% ratio indicate shortage of
cash. Mills and Yamamura (2011) said when it comes to
liquidity analysis; cash flow information is more reliable
than balance sheet or income statement information.
Balance sheet data are static measuring a single point
in time while the income statement contains many
random noncash allocations e.g. pension contributions
and depreciation and paying off. In contrast, the cash
flow statement records the changes in the other
statements and nets out the bookkeeping artifice,
focusing on what shareholders really care about: cash
available for operations and investments.
The cash flows derived from the operations of a
company after subtracting working capital, investment,
and taxes and represent the funds available for
distribution to the capital contributors i.e. shareholders
and debt providers.
11. Z-score analysis
The Z-Score is a measure of a company’s
health and utilizes several key ratios for its formulation.
The two best known Z-scores are Altman’s.
Altman’s Z-score
Financial Statement Analysis for Kier Group PLC
Developed in the 1960’s this model uses
financial ratios to predict bankruptcy.
The formula is:
Z= 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
Where:
X1 = Working Capital / Total Assets
X2 = Retained Earnings / Total Assets
X3 = Profit before interest and Tax / Total Assets
Altman’s Z-score for Kier Group Plc:
X4 = Market Value of Equity / Total Liabilities
X5 = Sales / Total assets
A score above 2.7 indicates the company
should be able to continue trading, at least in short to
medium term; however a score below 1.8 indicates
potentially serious problems.
financial figure in the annual report ended 30/06/2011
and they can avoid bankruptcy.
Z = 1.2(2393/4775.3) + 1.4(1542.6/4775.3) + 3.3(127.3/4775.3) + 0.6(303.1/1845.2) + 1.0(2035.4/4775.3) = 1.7
The company is considered ‘unsafe’ based on
the financial figures in the annual report ended
30/06/2011 and they may go to bankruptcy unless the
housing market recovers soon.
12. Financial gearing ratios
Financial gearing happens when a business is
financed by borrowing to operate. For example
Manchester United Football Club has been bought by
borrowing rather than by owners such as Liverpool
Football Club. When a business has high levels of
borrowing then they have to pay interest, and this has a
direct impact on the income statement. Therefore a
higher level of gearing causes shareholders and
investors to hesitate investing in the company.
13. Interest cover ratio
If the level of operating profits can’t cover
interest payable then the firms in serious financial
difficulties and there is risk to the shareholder that the
lender may take action against the firm to recover the
interest by taking some assets instead of the interest.
14. Loan and borrowing
When a company has a large amount of loans,
they are in a risky position, because they have to pay
interest, and if they are not able pay the interest then it
will be a problem.
The loan and borrowing for Kier Plc has not
changed in the past two years. Profit for the year
increased from 40m to 62m in 2011 but they did not pay
back the loan this is due to some strategic issues such
as low interest rates or increase in the dividend payment
which they did it in 2011. There are strong suggestions
the company is not paying back the loan and
borrowings because they may have borrowed on a fixed
rate as the finance cost has not changed from 2010 to
2011.
The
comparative
company
Barratt
Developments Company has borrowing huge amounts
of money, because they bought rival builder Wilson
Bowden for £2.2bn in 2006, before the credit crunch
precipitated a fall in house prices. By end of June 2011
Barratt reduced the loans and borrowing from 918m to
405m, also they reduced level the of finance cost from
249m to 156m. For sure in 2012 the company will
reduce the finance cost further and it can bring
confidence to the business and it will improve share
price.
The firm’s shares have fallen alarmingly and
some City insiders believe the company will have to go
cap-in-hand to the City and raise money via a rights
issue. (Guardian, 2008). Barratt forecasts increasing
house sales during the coming years, by cutting the
cost of houses, and making a better offer for first time
buyers, but this is not guaranteed as the current housing
market is uncertain.
15. Investment ratio
It is important to pay suppliers on time before
the expiry date and to ensure there is no damage to the
relationship with suppliers and the reputation of the
business. Also the delay in paying creditors may result
in a loss of creditor discounts by not paying on time.
Settlement period for the trade payable ratio estimate by
how long it takes to pay those who supplied goods and
services on credit.
Note that when we refer to the share price, we
are talking about the Market value and not the Nominal
value as indicated by the par value. For this reason, it is
difficult to perform these ratios on unlisted companies
as the market price for their shares is not freely
available. One would first have to value the shares of the
business before calculating the ratios. Market value
ratios are strong indicators of what investors think of the
firm’s past performance and future prospects.
16. Movement in share price
The share price for Kier Plc in the past two years
has increased sharply, and shareholders invested in the
company because of higher returned dividends and
increase in the value of shares. When the companies
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Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
The company indicated a positive result and
should be able to continue trading based on the
Altman’s Z-score for Barratt Developments Plc:
Year 2016
Z = 1.2(149.9/1144.7) + 1.4(120.7/1144.7) + 3.3(73/1144.7) + 0.6(47.3/980.5) + 1.0(2123/1144.7) = 2.4
Year 2016
Financial Statement Analysis for Kier Group PLC
are in a good profit position, then share price might go
up, because it’s attractive for buyers. The share price
for Kier group plc increased from 9680p in 30 June 2010
to 1360p in 30 June 2011.
However the share price for the comparative
company Barratt Development Plc has decreased
extraordinarily from 9500p in 30 June 2010 to 1140p in
30 June 2011, because of the company’s net loss after
tax for 2011 of 13m and in 2010 of 118m. If property
markets recover then the share price will go up very
quickly so there is a very strong correlation between the
housing market and Barratt.
The share prices are determined by supply and
demand, which in turn is determined by a whole range
of factors. Many of these relate to the performance of
the company, for example if a company undertakes an
attractive investment, investors will be keen to buy
shares, demand will exceed supply, and the share price
will tend to increase.
Alternatively, if the sales and profits of a
company decline, investors will be unenthusiastic about
the company, and they will tend to sell their shares.
Supply will exceed demand and the share price will tend
to fall. However it’s important to understand that
investors buy and sell the shares for reasons that have
nothing to do with the performance of the company.
(Arnold, 2003)
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
22
Sources: Hemscott
The above figures show how the current
financial crisis has had an effect on the company’s
share prices, the share prices for Barratt was 1700p in
August 2009 and the share price decreased to 3500p in
January 2011. This completed the blow for shareholders
because the shares are hugely declining. However the
shares for the main company Kier Plc have not been
affected as much as Barratt due to having won many
contracts from the 2012 Olympic Games and continuing
to operate overseas.
Barratt Developments has seen its share price
fall to around the 475p mark from a year-high of nearly
1,300p and has warned the market that it has suffered a
14% fall in private house sales this autumn. Kingfisher is
one of a number of shares that usually perform badly
when the US economy slows downs, according to
quantitative analysts at JP Morgan. The analysts said
other shares likely to suffer in the future included Barratt
Developments. (the business, 2007).
© 2016
1 Global Journals Inc. (US)
The company can keep stockholders happy by
returning a dividend, fundamentally when the
companies make a profit they can pay a dividend to a
shareholder, but when the company doesn’t have a
profit, then they can but they have to use other paid
resources. Nonetheless Kier Plc also increased the
dividend in the past two years, the dividend has
increased from 58p in 2010 to 64p in 2011 and these
kinds of returns are impressive to the shareholder. This
makes them have the confidence to buy more shares in
the company because the shareholder thinks about the
increasing value of the shares and hence an increase in
the return of the dividend as well.
Nonetheless Barratt Developments has not paid
a dividend in the past two years because of making a
loss in both years. This will have created uncertainty
among the shareholder to buying more shares in the
company, because the shareholders and new investors
will think it is not worth it to invest in the business.
However the erouzone crisis will have an effect on both
companies until it ends ( guardian, 2008).
Once more British people can’t afford to buy
property, because lack of “Confidence is a very
important factor in the housing market and much of this
confidence is determined by expectations of the future
path of house prices, said Earley, Nationwide’s chief
economist” (ft, 2008). However, economists expect
consumer spending to slow during 2008-2011 in
response to tighter credit conditions, rising food and
energy bills and greater economic uncertainty.
Kier Group Plc
2010
Index
2011
Index
2 years +/-
Revenue ( £m)
2056
100
2123
103.26
3.26
23
Cost of Sales ( £m)
1847
100
1945
105.31
5.31
Gross Profit ( £m)
209
100
178
85.17
-14.83
Operating Profit ( £m)
58.7
100
73
124.36
24.36
Finance cost
4.1
100
4.2
102.44
2.44
Profit before tax ( £m)
57.7
100
72.5
125.65
25.65
Profit after tax ( £m)
40.5
100
62.3
153.83
53.83
Non-current assets ( £m)
175.7
100
185.6
105.63
5.63
Fixed assets ( £m)
84.4
100
96
113.74
13.74
Current assets ( £m)
942.4
100
959.1
101.77
1.77
Inventories ( £m)
406.8
100
430.9
105.92
5.92
Trade receivable ( £m)
330.1
100
329.9
99.94
-0.06
Cash in hands ( £m)
205.5
100
195.1
94.94
-5.06
Current liabilities ( £m)
818
100
809.2
98.92
-1.08
Trade payable ( £m)
811.5
100
799.2
98.48
-1.52
long-term borrowings ( £m)
30.3
100
30.3
100.00
0.00
Non-current liabilities ( £m)
195.9
100
171.3
87.44
-12.56
Equity ( £m)
104.2
100
164.2
157.58
57.58
Capital expenditure ( £m)
11.6
100
45.8
394.83
294.83
ROCE (%)
19.56
100
21.76
111.24
11.24
OPM (%)
2.86
100
3.44
120.44
20.44
GPM (%)
10.17
100
8.38
82.48
-17.52
Assets Turnover (%)
6.85
100
6.33
92.36
-7.64
ROE (%)
38.87
100
37.94
97.62
-2.38
Current Ratio (times)
1.15
100
1.19
103.29
3.29
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
17. Fixed assets turnover
Melville (1999) said fixed assets turnover
indicates how well your business is using its fixed assets
to generate sales. Generally speaking, the higher the
ratio, the better because a high ratio indicates your
business has less money tied up in fixed assets for each
pound of sales revenue. A decaling ratio may indicate
that you’ve over-invested in plant, equipment.
18. Trade analysis
The purpose of trade analysis is to evaluate an
entity’s profit and loss accounts and balance sheets for
a specified period, requiring one period’s results to be
given a base of 100 and the other period results for
each line in the accounts to be then converted into
factors that relate to that base period of 100 Melville
(1999).
Year 2016
Financial Statement Analysis for Kier Group PLC
Acid Test Ratio (times)
0.65
100
0.65
99.69
-0.31
Inventory Turnover (times)
4.54
100
4.51
99.42
-0.58
Inventory days
80
100
81
101.25
1.25
Trade receivable period ( days)
59
100
57
96.61
-3.39
Trade payable period (days)
160
100
150
93.75
-6.25
© 20 16 Global Journals Inc. (US)
Year 2016
Financial Statement Analysis for Kier Group PLC
Global Journal of Management and Business Research ( C ) Volume XVI Issue II Version I
24
Cash flow maturing (%)
711
100
1518
213.50
113.50
Free cash flow (times)
10
100
1
10.00
-90.00
Cash exhaustion ratio (days)
92
100
88
95.65
-4.35
Interest cover ratio (times)
14
100
17
121.43
21.43
Gearing ratio (%)
65
100
51
78.46
-21.54
Dividend yield (%)
5.99
100
4.71
78.63
-21.37
Dividend cover ratio (times)
1.99
100
2.82
141.71
41.71
EPS (pence)
179
100
148.4
82.91
-17.09
PE/ratio (times)
5.4
100
9.16
169.63
69.63
Mark up ratio
11.32
100
9.15
80.88
-19.12
Fixed assets turnover
24.36
100
22.11
90.78
-9.22
It can be seen that the revenue has increased
by 3.26% over the past two year period and net profit for
the year increased by 35% in 2011. It is also useful to
look at contributing factors such as sales marketing
expenses and cost of sales. Also it is interesting to note
the dividend per share has increased in the past two
years by 10%, which is more attractive for shareholders
and is a contributing factor towards the increasing
profits. Finally you can see in the analysis that Kier is in
a more profitable position invest and hence more suited
to attract investors to investing in the company.
19. Limitations of research
This report was produced by numerical analysis
of figures presented in the company reports for the last
2 years. Therefore it must be noted that some figures
may have been presented in a manner that looks
favorably on performance or contains some bias.
It also must be noted that there was a change in
Accounting Standards during the period that this report
looks at. From 2005 all European Union companies
must prepare their consolidated reports using IFRS
(International Financial Reporting Standards). Prior to
this, both Kier and Barratt prepared their reports using
UK GAAP (General Accepted Accounting Principle). This
has meant that there has been a change in the
construction of some figures.
Therefore, wherever possible, the 2 year
summary of the Annual Reports 2010 and 2011 has
been used as it presents the data in both IFRS and UK
GAAP formats, although some figures do vary when
looking at individual reports for data which is not
included in the 2 year summary.
© 2016
1 Global Journals Inc. (US)