Event Management Companys Financial Performance - Case Study Example

Financial Strategies Inserts His/Her Inserts Grade Inserts 31 March Financial Strategies Compare, analyze and evaluate financial performance of two Organisations you have chosen in your specialist field of Event Management: Introduction: The two Event Management companies that are chosen are Informa Plc. that is actively engaged in “conferences and courses in the world” (Unaudited interim report for the six months ended 30 June 2009 2009, p.2). The second company whose event management financial status would be reviewed in this Study is the Company called “AoC Management Services Limited” (AoC management services limited: Directors report and financial statements for the year ended 31st March 2009 2009, p.1). This event management company has successfully conducted around 40 major events during this financial year and is poised to hold much more in future due to the tremendous encouragement and support it has been receiving for its events, both large and small. AoC Management Services conference and events team focus on arranging conferences and meets of all shapes and hues, right from small workshops for 10 delegates to major residential events for up to 1500 delegates. It is seen that 50% of these events are run on an annual basis, such as the AoCs Annual Meets and the AoC Human Resources Conference. The team also organizes a variety of national events based on current issues faced by the educational institutions in this sector. There are events that range between one to three days, and regularly include entertainment, gala dinners, awards ceremonies and special activities for delegates. On the other hand; Informa Plc has nearly 49% of their business from event management programs while the rest of the business is from training and general management consultancy services. Background of both companies: For Informa Plc, Revenues for the first half year 2009 was £636.3m, which is 1.4% higher than the corresponding period in 2008. Similarly, adjusted profits were higher at 4.6% reaching £146m. It is believed that the relative strengthening of US $ and Euro € has been the major reasons for the improved performance during the first half of the year 2009. Its real effect, however, has been in terms of contributing dramatically or staging recoveries, to a certain extent. Thus the losses caused by strengthening of Pound Sterling during earlier periods were balanced. However, it is seen that its operating profits have declined in the year under reference, coming down from £77.7m in the first half of 2008 to just £61.1m during the corresponding period in the year 2009, showing a fall of £16.6M. There are several factors which could explain this decline in profits, including £10.8m of business restructuring costs and yet another £ 50m towards one time professional fees incurred for relocation of holding company. Coming to the second company, AoC Management Services Limited, it is believed that a large part of their activities are related to educational field, especially college event management, and it is dependent upon the enthusiasm and verve shown by both the college authorities and the students themselves on how such event management programs are well identified, organized and executed. On their part AoC tries its best to perform well in the event, but it is often seen that these event management exercise may fall short due to lack of robust leadership, motivation, enthusiasm and the need for the whole team to contribute efficiently and effectively towards the event and its ultimate success. Coming to the performance of AoC Management Services, it is seen that its turnover is £3.8m during 2009 as compared to £2.3m during 2008. That is, there has been an increase in the turnover of nearly 65%. Coming to GP, it is seen that while the turn over was at a high of £1786,809 during 2008, this was just 941,549 during 2009.That is, there has been a reduction of £845,260 during the second year or in terms of percentage, a decrease of 47% has occurred over the previous year. Next, when operating profits are considered, it is seen that there has been marginal improvements in this, climbing from £189,234 during 2008 to £ 425,187 during 2009, which is an increase of £235,953 within a period of just 12 months or so. Finally; coming to the main aspect, which is of retained profits, it is seen that while in the year 2008 this has been £109,327, and has leapt to £335,961 during the year 2009. Thus an increase of £ 235, 953, or more than twice this amount has occurred. However, coming to the core differences between Informa Plc. and AoC Management Services Ltd, it could be seen that there are apparently different goals and objectives between both these companies. While Informa Plc is a full fledged event management company engaged in this business and is a dividend paying company, the scope of activities of the latter is restricted to a special kinds of event management like holding of seminars, workshops, etc and their primary objective is not profit making and neither is it a profit-generating company. Besides, it is seen that the aim of Informa’s business is in all types of business concerned with event management and AoC has to do with event management within the education field and that too of college and its allied activities. Thus, the genre and scope of event management business between Informa and AoC is quite different. Again, the former has around 150 offices in more than 40 countries and is employing roughly 8,500 staff around the world. However, the best that AoC could offer would be local, or regional event sponsorship on a lower scale. It is proposed to evaluate the financial ratios of both these companies in order to arrive at consensus on these matters. Financial ratios of Informa Plc: First Event Management Company chosen for the study Liquidity Ratios: Current Ratio: Current assets/current liabilities X 100 = 296,008/581,002 x 100= 50.94% Debtors ratio: Debtors /turnover X 365 = 756 days Creditors ratio: Creditors/ Cost of sales X 365 = 581,002/575,000 = 368 days Profitability ratios: Gross profit margin = Turnover – Cost of sales/ turnover x100 = 61.6/636.3 x 100= 9.86% Return on Equity = Profit after taxes/ equity x 100 = 22,999,000/1228,728,000 x 100= 1.87% Basic earnings power = Earnings before interest and taxes/ total assets x 100= 10.28% Return on total assets = Net income available for stockholders/ total assets x 100= 61.1/3163 X 100 = 1.93% Gearing ratios: Debt to equity = outside debts/equity x 100 = 1007895/1228, 728 x 100= 82.01% Earnings per share: 4.41 Asset management: Fixed asset turnover = Sales/ Net fixed assets = 4.50times Total asset turnover = Sales / Total assets = 2867,941/3163,949 = 0.90 Accounting ratios of the second Event Management Company, AoC Management, Liquidity Ratios: Current Ratio: Current assets/current liabilities X 100 = 1180,890/630,028 x100 = 78.84 Debtors’ ratio: Debtors /turnover X 365 = 831,890/ 3851,207 x 365 days = 79 days Creditors’ ratio: Creditors/ Cost of sales X 365 = 630,028/ 2909,658 x 365 = 79 days Profitability ratios: Gross profit margin = Turnover – Cost of sales/ turnover x100 = 941,549/3851, 207x100 = 24.44% Return on Equity = Profit after taxes/ equity x 100 = 335,961/ 591311 x 100 = 56.81% Basic earnings power = Earnings before interest and taxes/ total assets x 100= 443,823/1221, 339 x 100 = 36.33% Return on total assets = Net income available for stockholders/ total assets x 100= 335,961/1221, 339 x 100 = 27.50% Gearing ratios: Debt to equity = outside debts/equity x 100 = 630,028/ 591,311 = 1.06 Asset management: Fixed asset turnover = Sales/ Net fixed assets = 3851, 207/ 40,449 = 95 times Total asset turnover = Sales / Total assets = 3851, 207/ 1221,339 = 3.15 times. From a comparative assessment of these two companies it is seen that from the investor’s point of view, the fist company is better than the second because of higher liquidity (current ratio 78%) and profitability (higher GP and RoE). From the investors’ point of view, there are high risks also since debt gearing is higher at 82%. The quick ratios of Informa and AoP are being considered. Quick ratio is the value arrived at while considering excess of Current assets – inventories/ current liabilities. In Informa’s case it is 296,008 – 39,035 (inv)/581,002 = 0.44 or 44%. In case of AoP, there being no inventories, the question of any quick ratio does not arise. Inventories tend to slow current ratios and thus their values are reduced while calculating quick ratios. “Operating profit margins are a good indicator of the financial health of businesses. In the case of Informa Event Management Co., this is 3.61% (23/636.3 x 100)” (United interim report for the six months ended 30 June 2009 2009, p.4). However, coming to operating profit margin ratios of AoC Management Services Ltd, it is evidenced that this is 8.72% for 2009. Thus, in terms of profitability, AoC scores over Informa. Price/Earnings ratios are an important indicator of any for- profit company’s financial position.”Historically, the average P/E ratio in the market has been around 15-25. This fluctuates significantly depending on economic conditions. The P/E can also vary widely between different companies and industries” (P/E ratio: What is it? 2010). In the case of Informa Event Management Co., it is seen that its price earnings ratio is 3.21% -(0.27/ 8.41 x100 ) Coming to AoP, it is 0.03% (1/3000 X 100) mainly because it is a closely held company, and does not have a wide equity base. It is believed that AoP could be defined as “A company in which a small group of shareholders controls the majority of the shares” (Closely held company 2010). Next it is necessary to consider the market capitalisation of both companies, which, in simple terms means “The total value of all of a firms outstanding shares, calculated by multiplying the market price per share times the total number of shares outstanding” (Market capitalization 2010). In the case of Informa, its market capitalisation could be seen as follows: Authorised Cap- 750,000,000 shares of 0.27p each = £ 202,500,000 Issued, subscribed Cap. 595,340,740 shares of 0.27p each = £160, 742,000 Market capitalisation = 154,659,260 shares of 0.27p each valued at 41,758,000. In the case of AoP of the total number of Authorised 1000 shares of £1 each, only 100 shares have been fully called, subscribed and paid up. Thus, remaining 900 x1 = £900 is its market capitalisation. Crt. ratio quick ratio GP ratio np ratio drs ratio Crs ratio ROE BEP RTA debt equity Pe mrk cap eps fat tat 1 2. 51 44 9.68 3.61 756 79 1.87 10.2 1.9 82 3 41m 4. 4 .9 79 - 24.4 8.72 79 79 56.8 33.3 27.5 1 .03 900 95 3 Conclusions and recommendations: This study has sought to consider the comparative positions of two event management companies in terms of their financial backgrounds. Event management companies, both large and small are in great demand all over the world, since they undertake the all major process involved from the beginning to the end of an event. This helps the organizers to save a great deal of efforts since they could undertake more critical aspects of business and leave the event management to professional event management companies. However, recession and credit crunch, especially in Europe and the Middle East have led to restrictive use of event management programs. However since new product launches, business meetings and Annual General Meetings are in great demand, event managers are on demand and it is expected that once the shadows of recession diminish, event management and sponsorship would receive a good fillip, not only in European destinations but all over the world. It is necessary that major event Management Company organize themselves and pool their resources together to gain better market share on a global basis. In this way, it is ensured that even small event management firms are able to stay in business and contribute even in a smaller way to the cause of event management. Again, large global event management firms could sub-contract part of their business to smaller firms that could be beneficial for all. With better understanding, sensitivity and appreciation of the business and its various ramifications, risks, and challenges; it is believed that the scope and growth of event management companies could be enlarged and they could be in a better position to offer specialized professional services to a wide cross section of clients, small and big. Mutual understanding of event management companies between themselves and in marketplace could definitely usher in more effective and efficient use of their services to the public and the clients. It could also help in cost cutting, increase efficiencies and make events more successful and memorable. Reference List AoC management services limited: Directors report and financial statements for the year ended 31st March 2009, 2009. [Online]. Available at: http://www.aoc.co.uk/download.cfm?docid=B2554CFB-A76C-4994-855D79E944D4ED4C [Accessed 15 March 2010]. Closely held company, 2010. [Online] The Free Dictionary. Available at: http://financial-dictionary.thefreedictionary.com/Closely+Held+Company [Accessed 31 March 2010]. Market capitalization, 2010. [Online] The Free Dictionary. Available at: http://financial-dictionary.thefreedictionary.com/market+capitalisation [Accessed 31 March 2010]. P/E ratio: What is it?, 2010. [Online] Investopedia. Available at: http://www.investopedia.com/university/peratio/peratio1.asp [Accessed 31 March 2010]. Unaudited interim report for the six months ended 30 June 2009, 2009. [Online] Informa. Com. Available at: http://www.informa.com/__data/assets/pdf_file/0004/155821/09_Interim_Report_LR.pdf [Accessed 15 March 2010]. Read More