The Berkeley Group Holdings Public Limited Company - Essay Example

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Financial ment Analysis: The Berkeley Group Holdings PLC Financial ment Analysis: The Berkeley Group Holdings PL The Berkeley Group UK 2013   2012   2011   Consolidate Income Statement         In ? million   Revenue 1,372 100.00% 1,041 100.00% 742 100.00% Cost of Sales 969 70.63% 745 71.57% 533 71.83% Gross Profit 403 29.37% 295 28.34% 209 28.17% Administrative Expenses 123 8.97% 99 9.51% 73 9.84% Profits/losses arising on property 0 0.00% 30 2.88% 0 0.00% Operating Profit 280 20.41% 226 21.71% 135 18.19% Post-tax of Joint ventures -1 -0.07% 2 0.19% 2 0.27% Finance income 1 0.07% 2 0.19% 10 1.35% Finance cost 9 0.66% 11 1.06% 11 1.48% Profit before tax 270 19.68% 214 20.56% 136 18.33% Taxation 61 4.45% 56 5.38% 41 5.53% Profit for the year 209 15.23% 158 15.18% 94 12.67% The Berkley Group UK         Common Size Balance Sheet         As at April, 30 2013 2012 2011 Assets             Non-current assets             Intangible assets 17 0.68% 17 0.79% 17 0.81% Property, plant and equipment 16 0.64% 11 0.51% 10 0.48% Investment properties 26 1.04% 83 3.86% 28 1.34% Investment accounted for using the equity method 44 1.76% 46 2.14% 38 1.82% deferred tax assets 56 2.24% 25 1.16% 18 0.86% Total non-current assets 160 6.41% 183 8.50% 113 5.41% Current assets             Inventories 2066 82.77% 1851 85.97% 1613 77.18% Trade and other receivables 126 5.05% 115 5.34% 96 4.59% cash and cash equivalents 66 2.64% 2 0.09% 266 12.73% Total Current assets 2260 90.54% 1969 91.45% 1976 94.55% Total assets 2496 100.00% 2153 100.00% 2090 100.00% Liabilities             Non-current Liabilities             Borrowing 0 0.00% 12 0.56% 24 1.15% Trade and other payables 115 4.61% 30 1.39% 51 2.44% Provisions for the other liabilities 27 1.08% 0 0.00%   0.00% Total non-current liabilities 143 5.73% 42 1.95% 75 3.59% Current Liabilities             Borrowing 22 0.88% 48 2.23% 200 9.57% Trade and other payables 905 36.26% 862 40.04% 787 37.66% Current tax liabilities 102 4.09% 99 4.60% 93 4.45% Total Liabilities 1174 47.04% 1053 48.91% 1156 55.31% Equities             Share Capital 6 0.24% 6 0.28% 6 0.29% Share Premium 49 1.96% 49 2.28% 49 2.34% Capital redemption reserve 24 0.96% 24 1.11% 24 1.15% Other reserve -961 -38.50% -961 -44.64% -961 -45.98% Revaluation reserve 4 0.16% 3 0.14% 3 0.14% Retained earnings 2199 88.10% 1977 91.83% 1806 86.41% Total liabilities and shareholder's equities 2496 100.00% 2153 100.00% 2090 100.00% The Berkley Group UK Liquidity Ratios   2013 2012 2011         In ? million Current Ratio Current Assets/Current Liabilities 2.19 1.95 1.83 Current Assets 2,260 1,969 1,976 Current Liabilities 1,031 1,010 1,081 Quick Ratio Current Assets-Inventory/Current Liabilities 0.19 0.12 0.34 Current Assets 2,260 1,969 1,976 Inventory 2,066 1,851 1,613 Current Liabilities 1,031 1,010 1,081 Net Working Capital to Assets Net Working Capital/Assets 0.49 0.45 0.43 Net Working Capital 1,229 959 895 Total Assets 2,496 2,153 2,090 Cash Ratio Cash and Cash Equivalents/Current Liabilities 0.06 0.00 0.25 Cash and Cash Equivalents 66 3 266 Current Liabilities 1,031 1,010 1,081     The Berkley Group UK Efficiency Measures   2013 2012 2011         In ? million Receivables Turnover Sales/Accounts Receivables 10.89 9.05 7.68 Sales 1,372 1,041 743 Accounts Receivables 126 115 97 Inventory Turnover Cost of Sales/Inventory 0.47 0.40 0.33 Cost of Sales 969 745 533 Inventory 2,066 1,851 1,613 Asset Turnover Sales/ Total Assets 0.55 0.48 0.36 Sales 1,372 1,041 742 Total Assets 2,496 2,153 2,090 Fixed Asset Turnover Sales/ Total Fixed Assets 5.81 5.66 6.50 Sales 1,372 1,041 742 Total Fixed Assets 236 184 114     The Berkley Group UK Leverage Measures   2013 2012 2011 Long Term Debt Ratio       In ? million   0.06 0.02 0.04 Long Term Debt 143 46 75 Total Assets 2,496 2,153 2,090 Long Term Debt to Equity Ratio Long Term Debt/ Total Equity 0.11 0.04 0.08 Long Term Debt 143 46 75 Total Equity 1,322 1,099 934 Total Debt Ratio Total Debt/Total Equity 0.89 0.96 1.24 Total Debt 1,174 1,053 1,156 Total Equity 1,322 1,099 934 Times Interest Earned Operating Profit/Interest Expense 4.59 19.32 11.70 Operating Profit 280 226 135 Interest Expense 61 12 12 Cash Coverage Ratio Cash From Operating Activities/Total Debt 0.16 0.10 0.20 Cash From Operating Activities 189 109 233 Total Debt 1,174 1,053 1,156     The Berkley Group UK Profitability Ratios   2013 2012 2011 Operating Profit Margin Operating Profit/Sales 20.41% 21.71% 18.14% Operating Profit 280 226 135 Sales 1,372 1,041 742 Net Profit Margin Net Profit / Sales 15.28% 15.19% 12.67% Net Profit 210 158 94 Sales 1,372 1,041 742 Return on Assets Net Profit / Total Assets 8.40% 7.34% 4.50% Net Profit 210 158 94 Total Assets 2,496 2,153 2,090 Return on Equity Net Profit / Total Equity 15.86% 14.39% 10.07% Net Profit 210 158 94 Total Equity 1,322 1,099 934 Common size financial statement analysis According to the common financial statement of the Berkeley Group Holdings 2011-2013, it can be noted that the company held a great amount of inventories. This may be because of the poor economic conditions that have suppressed the sales of the company or inability of the company to manage its inventory. However, the receivable of the company have increased during the period, this reflects that the company has increased its sales on credit in order to boost its sales. This may create problems for the company in times to come if the company is not able to realize cash for the receivables. A significant increase in cash and cash equivalents have been observed, this reflects that cash has been realized from company’s pervious investments or projects. Determining the liabilities of the company it can be observed that the company has long term and short-term obligation. The company has increased its credit purchases (short and long term debts) in order to increase it assets or to provide a short-term boost to earnings. On the equities side, the retained earning of the company has increased this may allow the company to invest in its expansion plans. As mentioned in the managerial report, it can be noted that there has been an increase in the revaluation of reserves; this may because of the increase in the value of its pervious investments and projects (2009). In the sustaining market and economic conditions, the company is more inclined to expand its business in the European markets. Analyzing the common size financial statement, it can be determined that the company’s annual taxations, costs of goods and administration expenses of the company have significantly increased during the period. This reflects that the direct costs and the purchases have gone up, therefore the company should try to find material at lower costs to increases it net profits. Furthermore, the operational profits of the company have relatively declined in the current year; this reflects that the operational activities of the company have declined due to poor market condition or low consumer’s purchasing power. The company should take considerable measures to increase sales of its products and improve its operational strategies. It also reflects that the administration and selling expenses of the company have rose due to purchases of fixed assets or hiring of new personals. The increase in interest and taxations expenses show that the company has acquired assets, this may affect the company’s financial position in times to come because the company made an investment while the cost of goods was rising. Therefore, the company shall take strict measures to control its costs of goods, administration and selling expenses to maintain its profit margins in times to come. Ratio analysis Profitability Analyzing the profitability of the Berkeley during the period (2011-2013) it can be determined that company has higher profit margins in 2012 (The Berkeley Group, 2012). This is because of the reason that the sales of the company have remained efficient during the period, on the other hand, poor sales have affected operating profit margin of the company in the current year. The rising cost of goods and administrative expenses have influenced the operating and gross profit margin to decline. The company has remained effective on generating profit on through equities more than its assets. The company shall focus to make an effective use of its assets, as much of the total assets of the company remains utilize, this may contribute to generate high profits. Efficiency The efficiency indicators of The Berkeley Group illustrate that the company’s overall efficiency has increased but the strategies of the company to utilize its assets have remained static in the period (The Berkeley Group, 2013). The company had the highest fixed assets turnover whereas the inventory turnover of the company has relatively fallen, this shows that despite of the decrease in the sales of the company has declined and the return on assets of the company has relatively increased (The Berkeley Group, 2013). However, the company’s sales on credits have relatively than its cash sales; this reflects the company has remained more effective on its credit sales. Comparing efficiency measures indicates that Berkeley Group has remained most efficient to utilize its fixed assets. The turnover on the inventory and assets has remained lowest in the current year (Gibso, 2012). Similar trends have been determined in 2011 and 2012 reflecting that the company has made no change in its strategies. Liquidity Liquidity measure allows determining the potential of the company to meet its current liabilities. According to the financial information of Berkeley, it can be observed that the company’s liquidity measures have increased in the current year. There has been a gradual increase in the liquidity measures of the company. This is because of the reason that the company has acquired more assets. According to liquidity ratios, it can be observed that the company has the highest liquidity measure in 2013 and lowest in 2011(The Berkeley Group, 2013). This is because of the reason that there has been a significant change in cash and cash equivalents and assets of the company due to the return of its past investments (Whiteside et al., 2011). On the other hand, the liabilities of the company have increased due to purchases on credits. According to the financials of 2013, it can be determined that the company has been more inclined to ensure availability of cash and cash equivalents and current assets to increase its liquidity (Bragg, 2012). Leverage Leverage Ratios (indicators) allow determining the long-term potential of the business to meet its long-term obligations (Whiteside et al., 2011). Through this investors are able to forecast future prospectus and potential of the company meet its long-term obligations. Analyzing the financial information of The Berkeley Group (2011-2013), it can be determined that the company has been more inclined to increase it leverage measures. On the other hand, the company’s long-term liabilities have significantly increased. During the period 2011-2012, the company had the lowest leverage measure because company had paid of much of its long-term debts due to which have also decrease company’s cash and cash equivalents. In 2013, company has acquired more long term debts due to which the interest expense of the company have increased, this has suppressed the potential of the company to pay off its interest (The Berkeley Group, 2013). Conclusion Analyzing the financial information of The Berkeley Group Holdings (2011-2013), the profit margin of the company has gradually increased during the period. Operational efficiency of the company have declined, but the company’s pervious investment have increased the over all profitability. Furthermore, sales of the company have relatively decline. The Berkeley Group has acquired more assets; this has also increased the liabilities and total assets of the company. It has increased the leverage measures of the company and boosted its share value. Financial information of The Berkeley Group reflects that the company’s is charging high prices to its customer that has affected both sales and inventory turnover of the company. It can be observed that the company has remained ineffective to utilize its assets therefore, the company is losing its investing potential (The Berkeley Group, 2012). This shows that the economic conditions have influenced the sales of the company; therefore the company may introduce low housing schemes to increase its sales. Furthermore, the leverage measure of the company has increased during the period; this is because of the reason that the liabilities of the company are very less as compared to its assets (The Berkeley Group, 2011). This reflects that the company is more concerned about investing and acquiring assets. Analyzing the overall performance of the company it can be determined that the company’s net profit margin has increased in 2011. In order to increase its sales volume, the company shall improve its operational strategies (Whiteside et al., 2011). Increasing assets have boosted the market value of the company for a very short span of time therefore, the company should concentrate on its strategies to sustain its market position at a long run. List f References Bragg, S.M., 2012. Financial Analysis: A Controller's Guide. New Jersey: John Wiley & Sons. Gibso, C.H., 2012. Fiancial Reporting and Analysis. 13th ed. Mason: Cengage Learning. Lee, A.C., 2009. Financial Analysis, Planning & Forecasting: Theory and Application. llustrated ed. London: World Scientific. Porter, M.E., 2008. Competitive Strategy: Techniques for Analyzing Industries and Competitors. NY: Simon and Schuster. The Berkeley Group, 2011. Annual Report. Finance. London: The Berkeley Group. The Berkeley Group, 2012. Annual Report. Finance. London: The Berkeley Group. The Berkeley Group, 2013. The Berkeley Goup: Annual Report. Finance. London: The Berkeley Group. Whiteside, G., Wilson, K. & Tyldsley, L., 2011. Major Companies of Europe. Illustrated ed. 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