Finance and Accounting of Carillion Plc - Research Paper Example

Finance and Accounting of Carillion Plc 1) AMEC Company is a company that deals with management portfolios of the public and private partnership projects. The company has been experiencing a substantial decline in profitability over span of years. This mainly because of exigent market conditions and completion of rescaling its constructions activities, restructuring energy services aligned in the size of markets, developing and strengthening of the position in new markets. The financial information that can be used by outside users like financial statements reveals the trend in the financial health. 2) Basing an argument on the financial information (income statement) there is a decrease in the general performance of the firm. The vital item in the income statement that outstands is a decrease in the revenue of the firm. In the 2011 fiscal year, the total revenue was £4.9 billion which declined to £4.4billion by the end of year 2012 then downscaled to £ 4.1 in the year 2013. From the analysis, this shows a decrease of 10.2% and 6.9% from 2011 to 2013 respectively. The main cause of the decline from the financial report was the issue of rescaling the UK construction activities so that they make sure that they are associated in the size of their chosen market sectors (Annual Report 136). Such decrease in the revenue was anticipated as the company was trying to restructure and consequently fit the competitive advantage. However, the risk profile and overall quality improved as they remained selective in choosing contracts that they tried to bid. Secondly, from the income statement it is clearly shown that the firm experienced a significant decrease in the expenses. The total expense in the year 2012 was £ 11.5 million which decreased to £ 9.5 million. From the computation, this is 17.4% reduction in the expenses. Other interest payable included private placement financing interest (£14.3), finance lease of £1.2 million and discount associated with lease provisions (£1.4 million). From the investment point of view, this good sign for investors as the company has a future growth due to decreasing in the costs of operation. The underlying profit of operations declined to £214 million leading to a decrease in the overall revenue. This reduced from (2012: £ 227.9) however; the operating margin remained at 5.6% and so investors should be concerned with the firm’s ability to generate profits. 3)Carillion’s balance sheet for the year 2013 shows that they had £14.6 million in cash and cash equivalent which is a decrease by 68.67% from £46.6million previous year (Carillion company 114). This indicates that investors in this company have no hedge over the unforeseen expenses in the future hence may not able to reinvest in the same company. Carillion Company uses most of its financial derivatives such as securities for trade. From the balance sheet of Carillion Company, the issue of insolvency and bankruptcy is addressed. The assets and liabilities decreased in the amount from 2012 to 2013. From the computation, the debt to asset ratio shows 76.07% in 2012 and 30.63% for 2013. This clearly indicates the firm inability to meet the financial responsibilities as and when they fall due hence a large risk. Thirdly, the notable item in the Carillion’s balance sheet is the shares and the share capital accounts that had an insignificant variation from the year 2012 to 2013. The company issued shares to the existing shareholders at two rights (0.24 per share) owned by the existing shareholders. The company was able to generate earnings from the shareholders who invested. 4) The main investment activity for the company is equity investments that were reported to be £ 44.6 million in 2013 as compared to £13.2 million in 2012 giving a rise of £31.4 million. This shows that the company is gaining money from its investments. Additionally, the loan of their capital and consequent management of it, led to the generation of interest on the principal amount. Another source of cash for the company is from the constructions in UK that generated £37.5 million.With the above analysis, I can ascertain that the company can generate more capital from its operations and investments. 5) In making a decision whether to invest in the Carillion Company, one should bear in mind the fact that the company is trying to rescale itself and therefore requires more time before it stabilizes. The UK constructions by the company and subsequent restructuring of the energy services were due to challenges in the market conditions. From the chairman’s statement, the chairman said that Carillion had continued to respond to market challenges by developing and strengthening its existing and new markets that offer new opportunities for growth(Carillion plc company 114). When investing in such managing industry, the investors should be aware of new implemented rules and regulations as ignorance is a no defense in the eyes of the law. An example of such regulations includes social responsibility, carrying out legal business activities, registration of the company by the registrar of companies and tax responsibilities. By adhering of these regulations hedge the company from risks of closure of the company. Willing and potential investors should feel happy as such regulations promises stability in the industry and helps to reduce their worries. 6) One highly competitive company to Carillion that investors should keep watching is AMEC plc Company. The total revenue from 2013 was Carillion £ 3.97 billion from Carillion £ 4.08 billion. This shows a reduction of 2.7% that is fair as compared to Carillion Company that had a reduction of 6.9% from 2012 to 2013. The earnings per share of AMEC plc Company are 87.2 pence while that of Carillion is 34.7 pence. AMEC plc Company reported an asset of £2496 million (-5%) while Carillion plc company reported asset of £3639.9 million (-6%). In 2013, AMEC plc Company reported debt to asset ratio of 75.96% while Carillion was 76.07% (AMEC company 81). These results show that the two companies are almost operating in the same situation of insolvency. From the analysis of the two companies, I would like to advice investors to choose AMEC plc Company as Opposed to Carillion. This is because AMEC reports a relatively small decrease in the revenue and assets. The restructuring of the Carillion Company to suit its market conditions should pose a worrying reason to investors. The investment in Carillion would only benefit the existing shareholders even though the company is confident to restructure successfully and maintain its stability in the future. Figure 1income settlement of Carillion Company Figure 2 Income statement of AMEC plc Company Figure 3Carillion balance sheet Figure 4AMEC Plc Company balance sheet Works Cited AMEC company. "AMEC archive | Archived reports | Amec Foster Wheeler." Amec Foster Wheeler | International engineering and project management services. N.p., 24 Nov. 2014. Web. 24 Nov. 2014. Annual Report. 3rd ed. Canberra: Australian Govt. Pub. Service, 2013. Print. Carillion plc company. Carillion - Annual Report and Accounts 2013. N.p., 24 Nov. 2014. Web. 24 Nov. 2014. Read More