Copplice Plc Is a Good Investment Avenue for Manchester Money Universal Plc - Case Study Example

Executive Summary Copplice Plc which is into hotel chain business has spread its network over UK. The company has relied on the business model of being a low cost hotel provider and has ensured growth. Manchester Money Universal Plc which is looking towards investment into Copplice Plc is looking towards investing by acquiring 20% of the company’s share. The financial analysis shows that Manchester Money Universal Plc can look towards acquiring 20% shares of Copplice Plc as the company has shown growth as seen from the growth in profit. The financial stability also shows growing investor confidence which has resulted in the share prices moving up. The only concern for Copplice Plc is the liquidity part which shows certain concern. On the overall basis Copplice Plc is a good investment avenue for Manchester Money Universal Plc and investing in the shares of the company will prove beneficial in the long run. Table of Contents Introduction 3 Financial Analysis 3 Profitability Ratios 3 Liquidity Ratios 5 Efficiency Ratios 6 Financial Stability Ratios 7 Recommendations 9 Conclusion 9 References 10 Appendix 11 Introduction Copplice Plc is a UK based hotel chain which provides low cost hotels to people and has developed numerous stores all around UK. The company has also adopted the slogan of “No Frills Nice Bills” to match their business model and has ensured the customer satisfaction enhances. The report thereby looks to present the financial analysis of Copplice Plc by looking into ratios from 2009 to 2011 so that Manchester Money Universal Plc which is an investment bank can decide whether acquiring 20% of the company’s share is beneficial or not. Financial Analysis Financial information by them doesn’t highlight anything but evaluated against different parameters helps businesses to decide the future course of action as it helps to understand whether investing in the company is profitable or not (Financial Ratios, 2011). Following is the financial analysis for Copplice Plc Profitability Ratios This ratios help to understand whether the business has been able to generate profits from its daily operations and helps investors and stakeholders to understand the future earning capacity. The ratios are as Return on Total Assets: This ratio helps to determine the manner in which assets have been used in generating profits. The ratio is as RATIOS FORMULAS 2011 2010 2009 ROTA PBIT / (TOTAL ASSETS-INTANGIBLE)* 100 126 / (1111 - 100) * 100 = 12.46% 123 / (1182-100) * 100 = 11.37% 98 / (1022-100) * 100 = 10.63% The ratio shows that Copplice Plc has been able to use its assets better in 2011 as compared in 2010 and 2009 thereby showing efficiency in the use of assets. Along with it Copplice Plc has been able to ensure that profits also increase which is matched by an increase in asset base. Net Profit Margin: This ratio helps the shareholders to understand the final profit that attributes to them and is calculated after all the expenses associated with the normal functioning of the business have been met. The ratio is as RATIOS FORMULAS 2011 2010 2009 NET PROFIT MARGIN PBIT / SALES * 100 126 / 354 * 100 = 35.59% 123/366 * 100 = 33.61% 98 / 320 * 100 = 30.63% The ratio shows that Copplice Plc has been able to control cost so that the bottom line grows. The financial figure shows that sales have decreased in 2011 but Copplice Plc has been able to reduce its expenses which have increased profits and ensured better returns for the shareholders. Gross Profit Margin: This ratio helps to identify the profits after the direct expenses has been met and helps business to make changes in the production process so that profits increases. The ratio is as RATIOS FORMULAS 2011 2010 2009 GROSS PROFIT MARGIN GROSS PROFIT / SALES * 100 207 / 354 * 100 = 58.48% 216 / 366 * 100 = 59.02% 192 / 320 * 100 = 60% The ratio shows consistency in the manufacturing process and highligths that 40% cost is incurred to provide services thereby highlighting efficiency in the process and the ability of the business to ensure reduced direct cost for all the years. Liquidity Ratios This ratio helps to understand the ability of the business to meet its short expenses out of the short term incomes thereby ensuring that the business is not engulfed in a liquidity trap. The ratio is as Current Ratio: This ratio is of prime importance to lenders as it helps to understand the safety of funds and the ability of a business to meet its daily expenses (Gandy, 2011). The ratio is as RATIOS FORMULAS 2011 2010 2009 CURRENT RATIO CURRENT ASSETS / CURRENT LIABILITIES 46 / 157 = 0.29 times 42 / 161 = 0.26 times 42 / 122 = 0.34 times The ratio shows low liquidity for Copplice Plc thereby increasing the risk for the short term lenders as the chances of the firm being unable to meet its daily expenses is high. Copplice Plc has 4 times short term liabilities compared to assets thereby increasing the likelihood of being entangled in a liquidity trap. Quick Ratio: This ratio helps investor to understand the liquidity position and is calculated after inventories have been removed. The ratio is as RATIOS FORMULAS 2011 2010 2009 QUICK RATIO CURRENT ASSETS - STOCK / CURRENT LIABILITIES 46 - 2 / 157 = 0.28 times 42 - 2/ 161 = 0.25 times 42 - 2 / 122 = 0.33 times The ratio highlights similarity to the current ratio and shows little inventories. This makes the investor look at the company to be slightly risky as paying the short term obligations is difficult for Copplice Plc. Efficiency Ratios This ratio helps stakeholders to understand the manner in which the assets have been used by a business and helps to understand whether the business has more assets than required or not. Following is the ratios for Copplice Plc Stock Turnover Ratio: This ratio helps to identify the manner in which inventories are rotated by the business and helps to understand whether the chances of inventories becoming obsolete are high or not. The ratio is as RATIOS FORMULAS 2011 2010 2009 STOCK TURNOVER COST OF SALES / STOCK 147 / 2 = 73.5 150 / 2 = 75 128 / 2 = 64 The ratio shows that Copplice Plc revolves its inventories very quickly which reduces the likelihood of the inventories becoming obsolete. This is a phenomenon that should be present in the hotel industry but the only thing to watch out here for Copplice Plc is that inventories shouldn’t fall to a level where they find it difficult to supply goods. Debtors Week: This ratio helps to identify the chances of bad debts as having a sound debtor’s turnover reduces the likelihood of bad debts. The ratio is as RATIOS FORMULAS 2011 2010 2009 DEBTOR WEEKS DEBTORS / SALES * NO OF WEEKS 30 / 354 * 52 = 4.41 weeks 25 / 366 * 52 =3.42 Weeks 28 / 320 * 52 = 4.55 Weeks The ratio shows that Copplice Plc collects its money from the market in 1 month which is sound. The ratio has decreased in 2011 which is an area of concern and being able to revolve their debtors better will help them to improve liquidity in the business. Financial Stability Ratios This ratio is of prime importance to the shareholders as it helps them to identify the financial soundness and determines whether investing in the company will be beneficial or not (Peel & Wilson, 1996). The ratios for Copplice Plc is as Earnings per Share: This ratio helps investor to understand the earnings they receive on their invested money. The ratio is as RATIOS FORMULAS 2011 2010 2009 EARNING PER SHARE BASIC BASIC 33p 42 P 34.5 P The ratio shows that the earnings has decreased for the investor in 2011 as compared to 2010 and highlights the fact that the company hasn’t been able to generate sufficient profits to be able to ensure high returns for the shareholders. Price Earning Ratio: This ratio highlights the investors’ confidence in the shares of the company and a high P/E ratio ensures high confidence. The ratio is as RATIOS FORMULAS 2011 2010 2009 PRICE EARNING RATIO MP PER SHARE / EPS 600 / 33 = 18.18 times 740 / 42 = 17.62 times 670 / 34.5 = 19.42 times The ratio shows increasing investor confidence thereby stating bright prospect for Copplice Plc and increases the likelihood of more investment flowing in the company. This also throws light on new developments that Copplice Plc has thereby making the company to receive investment easily Dividend per Share: This ratio shows the dividend that the investors earn based on the earnings of the business from their normal operations. The ratio is as RATIOS FORMULAS 2011 2010 2009 DIVIDENDS PER SHARE DIVIDENDS / NO OF SHARES 18 p 14 P 13 P The ratio shows increased dividend for the shareholders thereby highlighting increased profits and bright prospects for the investors. The ratio shows that investors are able to get good returns on their investment and will look towards the company for investment opportunities Dividend Cover: This ratio throws light on the ability of the business to declare dividend from its earnings and has special relevance for investors. The ratio is as RATIOS FORMULAS 2011 2010 2009 DIVIDEND COVER EPS / DPS 33 / 18 = 1.83 times 42 / 14 = 3 times 34.5 / 13 = 2.65 times The ratio highlights a substantial decrease highlighting that the profits have not grown substantially as the dividend declared thereby making the company to look towards reducing cost so that they become more effective in their operations. Recommendations Manchester Money Universal Plc can look towards investing in Copplice Plc as the hotel chain has been able to increase its bottom line and ensure efficiency in asset utilization. The financial stability ratios also shows that Copplice Plc has been able to ensure adequate return for the investor which has thereby increased investor confidence and presents a bright prospect for Manchester Money Universal Plc to invest in. Conclusion The analysis of the financial statement for Copplice Plc highlights growing efficiency in operations and increasing bottom lines which will thereby ensures a bright prospect for the hotel chain. The ability of the company to control cost and use its assets efficiently has ensured that the business for Copplice Plc grows. References Financial Ratios. 2011. Financial Ratios. Retrieved on November 17, 2011 from http://www.zeromillion.com/business/financial/financial-ratio.html Gandy, M. 2011. Is a low current ratio bad? Retrieved on November 17, 2011 from http://www.markgandycfo.com/2011/03/is-a-low-current-ratio-bad/ Peel, M. L. & Wilson, N. 1996. Working capital and financial management practises in small firm sector. International Small and Business Journal, 14(2), 52-68. Appendix Ratio of Copplic Plc RATIOS FORMULAS 2011 2010 2009 ROTA PBIT / (TOTAL ASSETS-INTANGIBLE)* 100 126 / (1111 - 100) * 100 = 12.46% 123 / (1182-100) * 100 = 11.37% 98 / (1022-100) * 100 = 10.63% NET PROFIT MARGIN PBIT / SALES * 100 126 / 354 * 100 = 35.59% 123/366 * 100 = 33.61% 98 / 320 * 100 = 30.63% GROSS PROFIT MARGIN GROSS PROFIT / SALES * 100 207 / 354 * 100 = 58.48% 216 / 366 * 100 = 59.02% 192 / 320 * 100 = 60% CURRENT RATIO CURRENT ASSETS / CURRENT LIABILITIES 46 / 157 = 0.29 times 42 / 161 = 0.26 times 42 / 122 = 0.34 times QUICK RATIO CURRENT ASSETS - STOCK / CURRENT LIABILITIES 46 - 2 / 157 = 0.28 times 42 - 2/ 161 = 0.25 times 42 - 2 / 122 = 0.33 times STOCK TURNOVER COST OF SALES / STOCK 147 / 2 = 73.5 150 / 2 = 75 128 / 2 = 64 DEBTOR WEEKS DEBTORS / SALES * NO OF WEEKS 30 / 354 * 52 = 4.41 weeks 25 / 366 * 52 =3.42 Weeks 28 / 320 * 52 = 4.55 Weeks EARNING PER SHARE BASIC BASIC 33p 42 P 34.5 P PRICE EARNING RATIO MP PER SHARE / EPS 600 / 33 = 18.18 times 740 / 42 = 17.62 times 670 / 34.5 = 19.42 times DIVIDENDS PER SHARE DIVIDENDS / NO OF SHARES 18 p 14 P 13 P DIVIDEND COVER EPS / DPS 33 / 18 = 1.83 times 42 / 14 = 3 times 34.5 / 13 = 2.65 times Read More