Corporate Finance Concepts - 888 Holdings Plc Inc - Case Study Example

Table of Contents Introduction 2 About 888 Holdings 2 Financial Analysis 2 Critical Reflection 6 Corporate Governance 7 Investment or not investing options 7 Conclusion 8 References 9 Appendix 10 Introduction This report looks at analyzing the financials of 888 Holdings Plc Inc by looking towards analyzing the profitability ratios, liquidity ratios, solvency ratios and market performance ratios. This will provide useful inputs through which the different decision makers will be better placed to take different decisions which have an impact on business performance. This will be followed by a recommendations section which will highlight the different aspects which needs to be worked on and the manner in which a complete change and turnaround can be ensured so that the overall performance of the business further improves. About 888 Holdings 888 Holdings Plc is an organization which deals in high profile gambling website and was founded in 1997 and is a part of FTSE 250 index. The organization works under the gambling license which has been provided by Gibraltar. To deal with its business 888 Holdings Plc operates a number of different gaming sites like 888.com, Casino-on-net, Reef Club Casino, 888Poker, 888 Ladies and so on. Having a presence in a large number of gaming website has provided an opportunity through which 888 Holdings Plc Inc has been able to develop its business and develop the gaming business accordingly. Financial Analysis Analyzing the financial statement of organization provides useful input and information regarding the manner in which the business has performed and provides direction based on which useful decisions can be made. The decisions which are taken based on financial evaluation reduce risk and ensure that the overall process improves and business is developed. The detailed analysis for 888 Holdings for the period 2009 to 2013 is as Liquidity Ratio: This ratio helps to understand the short term financial liquidity and determines the ability of the business to pay off their short term debts from short term assets. The liquidity position especially the current ratio shows that the ratio stood at 1.42 in 2009 which dipped in 2010 to 0.57 and have then slowly risen to 0.99 in 2013. The liquidity position shows limited soundness as the present current assets are just sufficient to pay the short term debts which raises concerns and could lead towards financial instability in the short run. 888 Holdings have to look at raising the overall liquidity position over 2 so that better liquidity can be maintained. A breakdown of the same while looking to analyze the quick ratio which is calculated after removing inventories and receivables as it takes time to convert inventories and receivable into liquid position shows a much poor condition (Deloof, 2003). The quick ratio shows the liquidity position to be 1.15 in 2009 which dipped considerably in 2010 to 0.41 and has slightly improved to 0.78 in 2013. 888 Holdings have improved their ration from 2010 to 2013 but is still low and need to improve it so that the business has sufficient liquidity to pay off their short term debts. This will also save the business from the required liquidity crunch and develop a parameter through which the different functioning of the business will be better carried out. Profitability Ratios: This ratio helps to find out the manner in which the business has been able to make profits from carrying out their daily operations. This ratio helps to understand whether the business was able to use the different resources properly and determines the manner in which the business performed. The gross profit ratio shows that from 2009 where the ratio stood at 11.08% the profits dipped in 2010 to 4.38% showing the inconsistency and inability to use the different resources. The performance after 2010 has improved and the profits have increased as it reached to 14.03% in 2013 highlighting the fact that the overall efficiency improved and the business was able to use the resources properly. This is a good sign and shows that the business is able to generate adequate profits for its stakeholders. The net profit margins depict the same and shows that the business has little indirect cost which is a good sign and has thereby resulted in the profits that is attributed to the shareholders to stand at 12.48% in 2013. The return in assets and equity also depicts the same and shows that the best performance was in the year 2013 which was due to lower equity and assets along with improvements in profits. This is a good sign and shows that the productivity is improving and will provide an opportunity through which the overall factors having a relevance on business proceedings is controlled and the business is able to garner better opportunities of growth. Asset Performance Ratio: This ratio helps to analyze the manner in which the business is able to use its different assets and helps to determine whether the business has more assets than required or not. A look at the accounts receivable which highlights the time money is collected from the market shows consistency. The ratio stood at 11.63 in 2009 and then dipped to 10.77 in 2010 and has again improved and is at 12.36 in 2013 showing that the business is able to collect its dues quickly and revolved the due for more than 12 times in an accounting year. This is a good sign and will reduce the chances of bad debts thereby helping to consolidate the position so that the overall framework through which business decisions are taken can be improved (Lyroudi & Lazaridis, 2000). Market Performance Ratio: This ratio helps to determine the manner in which the organization is performing in relation to the market and determine the point through which better effectiveness and efficiency can be achieved. A look at the earnings per share shows that EPS stood at 5.69 in 2009 which has improved to 10.07 in 2013 showing the fact that the business performance has improved which has provided the opportunity to compensate the stakeholders with better opportunities or earnings. In a similar fashion the dividend per share shows that the business didn’t declare dividend in 2011 as no profits was made but in the other years dividend has been declared based on the profits which the organization has been able to make showing the manner in which the business cares for its shareholders and provides them adequate returns. The maximum dividend has been paid in 2013 which is 5.85 and is due to higher and better profits which have provided the opportunity to compensate the stakeholders appropriately (Padachi, 2006). Debt Ratio: This ratio helps to understand the debt and equity composition and identifies the different direction through which long term loans can be availed by the organization. A look at the debt ratio shows that it stood at 0.40 in 2009 which increased to 0.57 in 2010 and has then decreased to 0.47 in 2013. This implies that the debt component is less than half of the asset base providing an opportunity in which if the business faces certain issues the debt holders will be paid off easily through the assets (Antony, 2004). The same is depicted in the asset multiplier which shows the asset to be twice the equity signifying that the business has been able to maintain the correct structure in terms of debt and equity and reflects on the long term performance and provides direction through which the business will be able to ensure better decisions. The overall analysis highlights that 888 holdings have improved their performance over the years and continuing the same way would ensure better results in the future. Still better findings could have been found out if the analysis involved looking at other players in the market and comparing the performance with others as it will guide and create the required momentum through which business efficiency and effectiveness will be achieved. The overall phenomenon thereby highlights the different areas which needs to be slightly worked on so that better performance is achieved and will thereby translate into better financial decisions and growth for the business. Critical Reflection The performance of 888 holdings shows improvement and highlights the manner in which improving profits along with financial liquidity created an opportunity through which overall performance has improved. The business has been able to work on the different fundamentals and has been able to achieve the required growth rate as when compared to the performance of the economy and other players in the market performance has been shaped up (Filbeck & Krueger, 2005). An important learning from it is that 888 Holdings while looking to improve their performance has also been able to bring a complete change and transformation in the manner different business decisions are taken and has been able to generate the required synergy which has been reflected in the overall performance of the organization. Different proponents and scholars have also highlighted that the fundamentals based on which 888 Holdings has worked is one which has evolved over a longer period of time and will thereby ensure that the business is able to grow and improve their performance. The fact that 888 Holdings have evolved their performance over a period of time has thereby helped to bring about a complete change and transform the performance (Eljelly, 2004). Improving the overall performance by working on the different dimensions and then gradually developing the business process has provided the opportunity to be able to generate better returns and ensure that the overall business productivity has improved. The different proponents also highlighted that improving the financial liquidity backed by improvement in the bottom line has lead towards better control and has provided the opportunity through which business development has become possible. The different dimensions has thereby ensured that the business works on strengthening the mechanism through which the different activities are carried out and has thereby been able to bring about a complete change and transformation which has evolved the business and provided an opportunity through which business fundamentals have improved. Corporate Governance 888 Holdings has abided to the corporate governance requirements as the financials clearly highlights the different steps which have been taken by the business with regard to corporate governance needs and requirements. The business has clearly highlighted in their financial statements the different steps which has been taken to abide with the different needs and requirements and has been thereby able to ensure that the ethical needs and requirements are properly met. 888 Holdings has clearly highlighted the different accounting treatments and mechanism which has been adopted for recording the different transactions. This has been matched by the fact that the business has further looked at clearly bringing forward the different steps which has been taken to record the different assets and liabilities and the different accounting treatment which is carried out. The results have been audited and a copy certifying that the information provided is true and correct has further been provided. The overall fundamentals and dimensions has thereby been aimed towards improving the overall phenomenon through which the different business fundamentals are controlled and has looked towards ensuring that all information which is passes is correct and fair. The overall impact thereby has been increased and has ensured that the business looks to work according to the corporate governance principles and guidelines. Investment or not investing options The share price of 888 Holdings on April 24, 2014 is 148.90 and has improved the performance of the organization on a continuous basis. This has resulted in the share prices to improve on a continuous basis and has thereby reflected on the positive impact on the share prices which has thereby resulted in shaping the overall performance of the organization. The share prices further reflects the manner in which better performance has been achieved and creates an opportunity for investing in the organization as it implies that the organization based on it will be able to bring a complete change and transformation in the manner different business activities are carried out. A look at financial performance and share value highlights an opportunity to invest in the organization as it has thereby created an opportunity through which the overall performance has grown. 888 Holding is an organization where they look at investing in the organization so that a complete change and transformation can be made based on which the overall performance will be shaped up. This has thereby helped to bring about a change in the working and creates an opportunity through which the overall relevance and growth opportunity. This thereby looks like an organization to invest and thereby aims towards maximizing the overall gains so that business effectiveness is achieved (Saleem & Rehman, 2011). Conclusion This report analyzes the financials of 888 Holdings Plc Inc by looking towards analyzing the profitability ratios, liquidity ratios, solvency ratios and market performance ratios. This provides useful inputs through which the different decision makers will be better placed to take different decisions which have an impact on business performance. This will be followed by a critical review section which will highlight the different aspects which needs to be worked on and the manner in which a complete change and turnaround can be ensured so that the overall performance of the business further improves. This is supported by a look at corporate governance and the manner in which investing in the organization will be beneficial in the long run. References Antony, T. 2004. Thin Capitalization: Issues on the Gearing Ratio. Journal on Australian Taxation, 7 (1), 39-57 Deloof, M. 2003. Does Working Capital Management Affect Profitability of Belgian Firms? Journal of Business Finance & Accounting, 30(3&4), 573-587. Eljelly, A. 2004. “Liquidity-Profitability Tradeoff: An empirical Investigation in an Emerging Market”, International Journal of Commerce & Management, 14(2), 48 - 61 Filbeck, G., & Krueger, T. M. 2005. An analysis of working capital management results across industries. Mid-American Journal of Business, 20(2), 10-17. Lyroudi, K., & Lazaridis, Y. 2000. The Cash Conversion Cycle and Liquidity Analysis of the Food Industry in Greece [Electronic Version]. EFMA 2000 Athens Padachi, K. 2006. Trends in working capital management and its impact on firms’ performance: an analysis of Mauritian small manufacturing firms. International Review of Business Research Papers, 2(2), 45-58. Saleem, Q. & Rehman, R. 2011. Impacts of Liquidity Ratios on Profitability. Interdisciplinary Journal of Research in Business, 1 (7), 95-98 Appendix Calculation of Ratios Ratios Formula 2013 2012 2011 2010 2009 Current Ratio Current Assets / Current Liabilities 92.24 / 93.63 = 0.99 72.59 / 83.52 = 0.87 69.69 / 95.1 = 0.73 54.84 / 96.17 = 0.57 67.24 / 47.26 = 1.42 Quick Ratio (Current Assets – Inventories) / Current Liabilities (92.24 - 19.65) / 93.63 = 0.78 (72.59 -18.27) / 83.52 = 0.65 (69.69 -16.99) / 95.1 = 0.55 (54.84 - 15.55 / 96.17 = 0.41 (67.24 - 13.12) / 47.26 = 1.15 Gross Profit Margin Gross Profit / Sales * 100 34.08 /242.87* 100 = 14.03 22.7 / 231.9 *100 = 9.79 9.40 / 213.11* 100 = 4.41 7.34 / 167.41 *100 = 4.38 16.91 / 152.58 *100 = 11.08 Net Profit Margin Net Profit / Sales * 100 30.32 /242.87* 100 = 12.48 21.78 / 231.9 *100 = 9.39 1.22 / 213.11* 100 = 0.57 5.02 / 167.41 *100 = 2.30 15.36 / 152.58 *100 = 10.07 Return on Assets Net Income / Total Assets * 100 30.32 /201.46* 100 = 15.05 21.78 / 175.08 *100 = 12.44 1.22 / 173.16* 100 = 0.70 5.02 / 173.57 *100 = 2.89 15.36 / 124.52 *100 = 12.33 Return on Equity Net Income / Equity * 100 30.32 /105.94* 100 = 28.62 21.78 / 91.17 *100 = 23.89 1.22 / 78.05* 100 = 1.56 5.02 / 74.69 *100 = 6.72 15.36 / 74.90 *100 = 20.51 Acounts Receivable Sales / Average Receivable 242.87 / 19.65 = 12.36 231.9 / 18.27= 12.69 213.11 / 16.99 = 12.54 167.41 / 15.55 = 10.77 152.58 / 13.12 = 11.63 Earning per Share Net Income / Outstanding shares 10.07 8.55 0.39 2.3 5.69 Dividend Per Share Dividend / Outstanding Share 5.85 1.55 0 1.86 2.6 Total debt ratio Total asset - total equity / total assets 95.52 / 201.46 = 0.47 83.91 / 175.08 = 0.48 95.11 / 173.16 = 0.55 98.88 / 173.57 = 0.57 49.62 / 124.52 = 0.40 Equity Multiplier Total Asset / Total Equity 201.46 / 105.94 = 1.90 175.08 / 91.17 = 1.92 173.16 / 78.05 = 2.22 173.57 / 74.69 = 2.32 124.52 / 74.9 = 1.66 Read More