Report on The Financial Position of Sutton Plc
This preliminary report aims to present a comprehensive financial analysis of Sutton plc based on the provided financial statements. In this sense, Sutton plc does not offer financial services thus most likely listed under FTSE, a subsidiary group of the London Stock Exchange in relation to the price index. McMillan (2010) notes that the choice of a company based on the criteria is fundamental when performing financial analysis. On that note, this report is written in a way that can be resourceful to the Board Directors, particularly when making decisions regarding the purchase and acquisition of Sutton plc. Arguably, it is important for such a report to explore several operations and financial perspectives of the company. Towards that end, this report is substantially based on the calculation of ratios followed by a reflection on what the findings infer about the company.
Financial Analysis of Sutton Plc
Sutton is a harbour holding company that has invested in real estate, providing various range of services such as car parking facilities. It is one of the most famous companies in the UK. The most import objective of the company is to offer the best services by realizing high possible profit margins. This section tends to focus on the financial perspective of Sutton plc through computation and comparison of the accounting ratios to the years 2014-2015, which is within Palmer’s (2003) limit on the maximum extent of years recommended for this purpose. Liquidity, efficiency, and profitability are of significance in the analysis of the company’s financial performance since they can adequately reflect the impacts based on the ratios (Dyson 2001). According to the Financial Times, the Sutton plc as among the major leaders in the provision of real estate services in the UK with approximately 40 percent holdings in the market. The services include but are not limited to car parking facilities at a strategic location at the Sutton harbour. Therefore, the financial performance and standings of Sutton plc are easily determined by splitting the various accounting ratios of the company into efficiency, profitability, and liquidity. Apart from other relevant sources, evidence in the financial statements of the company in table 1.1 support this analysis.
Table 1.1 Sutton plc Accounting Ratios
Return on Capital Employed 22.8% 18.8%
Gross Profit 50.2% 44.8%
Mark-Up 90.9% 84.4%
Net Profit 12.6% 9.0%
Current Assets 1.9 to 1 1.3 to 1
Acid Test 1.5 to 1 1.2 to 1
Stock Turnover 6.0 times 4.0 times
Fixed Assets Turnover 2.9 times 2.7 times
Trade Debtor’s Collection Period 37 days 51 days
Trade Creditors’ Payment Period 20 days 35 days
Dividend Per share 21.6p 21.6p
Earnings Per Share 61.86p 40.90p
Price/ Earnings Ratio 7.5 12.6
Yang and Ma (2013) assert that the reason for these ratios is to gauge the gainfulness of the organization where the benefits earned by the company are upheld to make the installments to the capital consumptions, profits. Therefore, these ratios are a lot of essential to make this examination.
Profit per Share (EPS)- this proportion is significant for the investors as they figure the profit accessible in regard to each offer held in the organization. They are in a position to decide the accessible earning from them based on any chance that they possess shares in the organization. The correlation can be made with the profits to decide about the payout ratios. It is very significant for the investors to accumulate information that the organization is utilizing its wages to sort off the capital consumptions or paying profits (Dyson 2001; Weygandt 2009). On the off chance that they found that the profits are low, at that point they expect higher capital use which can boost the future estimation of the business alongside it expands the offer costs and capital increases.
Gross Profit Margin and Net Profit Margin- overall net revenue demonstrates the derivation of the expense of products sold from the incomes. The effectiveness of the creative dimension of the organization is resolved by means of gross net revenue. The organization with a higher measure of overall gross revenue from its rivals in the market is known to be increasingly proficient and furthermore liked (Shim et al., 2012). On the opposite side, overall net revenue demonstrates the net gain of the organization once all the related expenses are being deducted. The assurance of the components like increasing expenses or rivalry should be possible with it. The computation with respect to the over three chose proportions can be demonstrated as follows:
Return on Asset- Profit for the resource is expanding with the expansion in the year, which connotes that the organization is making benefit with the expansion in a financial year.
Return on Equity- Profit for value is considered as one of the essential ratios of gainfulness of the organization higher estimation of profit for value demonstrates to be vital and productive for the organization. The arrival on value is fluctuating, which demonstrate that the organization is not effective in producing salary on a new venture.
Return on Invested capital- Return on invested capital has reduced in the year 2015 to 18 percent as opposed to 2014 where it stayed at when contrasted and the year 2012. Increment in the return on invested capital shows that the organization is creating more winning per dollar of capital utilized. Robinson (2012) notes that as indicated by the calculation, in view of the position of the organization considering the edge, the organization of Sutton plc is getting a charge out of the great position that different rivals in the market. The organization accomplishes the more prominent edge contrasted with the market contenders for giving the inclination to the assortments of the brand sold by the organization for conducting the business and furthermore keeping up the development. Additionally, Plummer (2010) notes that the online nearness of an organization gives it the benefit of bringing down the overheads engaged with the operation. Considering the most recent situation, the organization has taken a charge of £1.2 billion for energizing its US business. This had a favouring sway on the organization’s profitability edge and EPS.
The estimation of liquidity ratios is done based on scratching the capacity of the organization to satisfy its momentary obligations. This kind of proportions estimates the momentary remaining of the organization. Here the present moment is engaged as the obligations that are expected for the organization and to be paid inside one-year time duration. For this concern, the ideal outcome from the Sutton plc accounting liquidity ratios are required to be higher as the more higher the value may be, the more the organization is skilled to pay its debts. Concerning the precedents, the investors or the shareholders will search for the higher estimation of current assets and current liabilities that the all-out estimation of the ratios as it shows the way that the organization can reimburse all its momentary obligations inside a brief period if essential. Higher esteem ought not to be normal as it proposes that the organization is not using its present resources appropriately amid the running of the business.
Current Ratio- current ratio is one remarkable piece of the liquidity ratio as it proposes the capacity of the organization to reimburse it momentary debts which may be the records payables and others with help of current assets, for example, money, accounts receivables, and inventories. The ratios intend to mirror the company has satisfactory money assets or not, or it will confront the income issue in not so distant future. Contingent upon the income and kinds of enterprises, the aftereffect of the current ratio can differ, yet an ideal consequence of 2:1 is constantly considered as the benchmark for investigation. Then again, the ratio which speaks to the outcome under 1 are viewed as that the organization will not be ready to pay its transient debts adequately. In the case of Sutton plc, the current ratio seems to have decreased within the two year period but falls on 1 in 2014 and 2015. This implies well for the company since it can easily be able to pay its short-term debts.
Quick Ratio- this ratio is a traditionalist option as stock is expelled from current resources. The explanation for this, the stock is viewed as that it very well may be changed over into money in all respects eagerly. Giving a precedent, the organization may enable limits to the clients to complete their inventories quick and produce money from the action. So the changing estimation of the inventories can be frequently found as it could be lower in sum that the recorded an incentive in the budget reports. Considering the benchmark, the ratios from three years are low. Lewis (2009) takes note of this could be the reason as the exchange receivables are lower than the exchange payables request to maintain the business productively. The company has an abnormal state of turnover, and from that, it can create money effectively and can be used for reimbursement of obligations. Then again, the investors or the shareholders cannot be in a position to confront a worry about the lower ratios for this sort of business as they will anticipate a higher incentive from the other private companies. Hence, considering the angle, it very well may be said that Sutton plc has a fantastic measure of receivables, and it is because of the more noteworthy focal point of the organization to the non-wearing things. On the same note, it is obvious that there is a drawback in regard to the higher receivables thus might be sort of risky for the business considering the inability of some of the customers to clear their debts within the given time frames.
The primary reason for these ratios is to demonstrate the capacity of the organization on how effectively it is using its advantages just as liabilities to deliver more incomes for the business operation.
Sales to Inventory- sales to inventory ratio is considered for this situation to make an unmistakable comprehension of the effectiveness of the proposed organization when contrasted with the friends of the business. Based on the company’s return stock capital employed, it can be projected that it has the capability to turn its inventory in relation to its overall sales throughout the two fiscal years. Subsequently, the results are not efficient as anticipated for such a company inferring as a slower pace for the business. Therefore, a recommendation for Sutton plc would be to focus more on its efficiency levels regarding reduction to wastes in its operations for it to maintain a higher ratio in this case.
Dividends per Share- Dividend yield of the organization Sutton plc is 21.6p for the two monetary years. Dividend per share gives a reasonable and exact thought regarding a company’s income age and their required dispersion among the diverse partner (Dyson 2001). The dividend yield of the organization is multiple and is considered as a determinant of investment returns.
Conclusion and Recommendation
Overall, a critical analysis of Sutton plc financial statement makes it clear that the company is currently in an admirable position. In this sense, it places investors in a comfortable level for investment in the company, and as such, the board of directors at Methods plc can make a move to acquire the company as it so fits. Despite the few notable limitations, the analysis reveals that Sutton plc has been consistent in terms of maintaining a higher level of margin. As a result, this has had a great impact on the business by positively influencing decision making within the real estate industry. Moreover, it is also evident that the company is successful due to the fact that it takes advantage of the economic stability of the UK. Sutton plc’s dividend per share returns options, and profit growth can be a critical investment factor for Methods plc, considering that they are comparable between the two fiscal years.
The high working population in the UK has favoured the growth of the company. Henceforth, Methods plc is recommended to explore such opportunities to strengthen its financial base. Additionally, the board of directors is recommended to collaborate further with the current management of Sutton plc to facilitate the effective planning of the acquisition process and amalgamation of the business in its operations.
Dyson, J. R. (2001). Accounting for Non-accounting Students. Upper Saddle River: Financial Times/Prentice Hall.
Lewis, M. (2009). Panic. 1st ed. New York: W.W. Norton & Co.
McMillan, E. (2010). Not-for-Profit Budgeting and Financial Management. Hoboken: John
Wiley & Sons, Inc
Palmer, J. (2003). Financial ratio analysis. New York, N.Y.: American Institute of Certified
Plummer, T. (2010). Forecasting financial markets. London: Kogan Page.
Robinson, T. (2012). International financial statement analysis. 1st ed. Hoboken, N.J.: John
Wiley & Sons.
Shim, J., Siegel, J., Shim, A., & Shim, J. (2012). CFO fundamentals. Hoboken, N.J.: Wiley.
Weygandt, J. (2009). Hospitality financial accounting. Hoboken, N.J.: John Wiley & Sons
Yang, Y., & Ma, M. (2013). Proceedings of the 2nd International Conference on Green
Communications and Networks 2012 (GCN 2012). Berlin: Springer.