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Financial Resources Management Planning

University: Brunel University London

  • Unit No: 4
  • Level: High school
  • Pages: 19 / Words 4740
  • Paper Type: Assignment
  • Course Code: MG5556
  • Downloads: 129
Question :

This sample will let you know about:

  • Discuss about the Overall performance and position of the business.
  • Discuss about the Advantages & Disadvtange of dividend growth model.
Answer :
Organization Selected : Balfour Beatty

INTRODUCTION

Financial resource management implies to systematised planning, effective managing, providing directions and establishing controlling over enterprise's financial resources like collection and arrangement of funds as well as efficient utilisation of fiscal resources within enterprise (Gibbert, Hoegl and Valikangas, 2014). This involves throughout and detailed analysis or evaluation of financial resources to manage financial resources.

This study consists of evaluation of performance and current status of corporations named Balfour Beatty PLC and Polypipe Group PLC. Both companies belongs to construction sector in UK. Study analyse these companies performance for last five consecutive years by applying ratio analysis and vertical/horizontal analysis.

Overview of Companies:

Balfour Beatty PLC:

Balfour Beatty is top multinational group of transportation firms. Company finance, create, build and sustain creative and productive infrastructure underpinning daily life, strengthening communities and promoting economic growth. With nearly 110 years of expertise in providing extremely complicated infrastructure mechanisms via projects at heart of regional communities, company operate with highest standards of quality, security and technological competence, embed with clients and domestic supply chains, as well as supporting local groups. Get Assignment Examples.Talk to our Experts!

Poly-pipe Group PLC:

Polypipe Plc is top manufacturer and construction company of UK. Company is engaged in manufacture of plastic piping structures for residential, industrial, and infrastructure industry. Company is engaged in developing piping systems that are primarily utilized and applied in drainage system, water supply, plumbing, water management, heating, cable management and ventilation. Company is leading supplier of piping systems in construction sector.

PART 1

An evaluation of profitability:

Gross Profit Ratio:

Balfour Beatty PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Gross Profit

371.00

311.00

284

157

131

Revenues

6634.00

6916.00

6923

6955

7264

Gross Profit Margin

5.59%

4.50%

4.10%

2.26%

1.80%

Polypipe Group PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Gross Profit

181.00

173.00

180

143

125

Revenues

433.00

412.00

437

353

327

Gross Profit Margin

41.80%

41.99%

41.19%

40.51%

38.23%

Net Profit Ratio:

Balfour Beatty PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Net Profits

135

162

24

-206

-60

Revenues

6634

6916

6923

6955

7264

Net Profit Margin

2.03%

2.34%

0.35%

-2.96%

-0.83%

Polypipe Group PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Net Profits

49

34

44

34

14

Revenues

433

412

437

353

327

Net Profit Margin

11.32%

8.25%

10.07%

9.63%

4.28%

From the above calculated gross profit and net profit ratio it has been determined that both companies have shown a positive growth in last 5 years. Net profit margin ratio suggests that if the percentage is high then company is capable of generating greater profits than the other (Khalo, 2014). This also represents the company's sound financial status. This ratio helps to define the net profitability situation of an organization in specific time frame. Such as the Balfour Beatty PLC was able to increase gross profit and net profit by controlling operating cost and other additional expenses which reduce the profitability. In the context of Polypipe Group PLC company was already in a good situation in 2014 and they keep on delivering best services to customer which increase the overall profit margin throughout these years. Moreover these ratio are always beneficial for the investor to make a valid investment decision. Order assignment help from our experts!

Short-term Liquidity Position and Long term Liquidity Position:

Current Ratio

Balfour Beatty PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Current Assets

2032

2361

2325

2079

2499

Current Liabilities

2124

2567

2568

2364

2513

Current Ratio

0.96

0.92

0.91

0.88

0.99

Polypipe Group PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Current Assets

142

148

120

100

104

Current Liabilities

109

109

105

87

70

Current Ratio

1.3

1.36

1.14

1.15

1.49

Quick Ratio

Balfour Beatty PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Quick Assets

1869

2219

2188

1865

2211

Current Liabilities

2124

2567

2568

2364

2513

Current Ratio

0.88

0.86

0.85

0.79

0.88

Polypipe Group PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Quick Assets

77

71

67

52

64

Current Liabilities

109

109

105

87

70

Current Ratio

0.71

0.65

0.64

0.6

0.91

The above calculated long term and short term liquidity ratio clearly defines that Balfour Beatty PLC have weaker liquidity as compared to Polypipe Group PLC. Current and quick ratio leaves effects on ratio tests that are not reliable as the adjustments are overlooked because of no of flexibility (Karltorp, 2016). This is because BBY used to hold most of its amount in fixed assets that help to meet the future need of business but sometime business also need cash equivalent in short term. On the other side PLP have higher current assets than liabilities which enables them to meet any future sudden contingency. In year 2014 Polypipe Group PLC have the highest proportion of current assets such as 1.49 and quick assets that is 0.91 on its liabilities which enables to meet the increasing level of contingency in nearby future.

Performance from an equity shareholders perspective.

Debt Equity Ratio:

Balfour Beatty PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Debt

570

662

726

833

938

Equity

1231

1056

757

826

1227

Debt Equity Ratio

0.46

0.63

0.96

1.01

0.76

Polypipe Group PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Debt

210

184

191

216

118

Equity

331

302

287

261

238

Debt Equity Ratio

0.63

0.61

0.67

0.83

0.5

This proportion basically calculated by comparing the overall liabilities of a company by equities of shareholder. The respective ratio is calculated to determine the company financial leverage and is consider to one of the valuable metric that also measure the level at which operation are operated through debt as compared to own funds (Hasan and Habib, 2017). From the above calculation it is determined that debt to equity ratio for Balfour Beatty PLC is decreasing year by year which means that they are using more debts in order to operate the internal and external operation. On the other side it is identified that level of debt to equity is increasing for Polypipe Group PLC that defines that operation and business task are more depended upon self resources and level of debts are reducing.

Return on Equity:

Balfour Beatty PLC:

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Shareholder's Equity

1231

1056

757

826

1227

Net Profits

135

162

24

-206

-60

Return on Equity

10.97%

15.34%

3.17%

-24.94%

-4.89%

 

Polypipe Group PLC

 

Year 2018

Year 2017

Year 2016

Year 2015

Year 2014

Shareholder's Equity

331

302

287

261

238

Net Profits

49

34

44

34

14

Return on Equity

14.80%

11.26%

15.33%

13.03%

5.88%

The above described ratio help to describe the actual return on equity, the higher the percentage the better are the results in a respective time period. Such as in case of Balfour Beatty PLC there is positive results in last few years as company have invested in right equity that support to provide value return in present time (Abdelhak, Grostick and Hanken, 2014). Such as in year 2014 and 2015 the rate of return on equity was -4.89% and -24.94% that means that results are not favourable and company is not getting equivalent amount to the investment made in these year. In context to Polypipe Group PLC there have been positive return on equity from last 5 years. The main reason for good return is because of investment made in the appropriate portfolio. Return on equity shows uneven trend as sometime there might be chances of other variable affective the return on investment made in different market.

Overall performance and position of the business

Form the different financial statements statements actual proficiency and performance of companies are be identified. These financial document gives authentic and clear picture about the overall growth, sales, revenue, equity, cash inflows and outflows during a year.

Balance sheet: This is a useful report that clearly define the overall financial position of a business in particular year (Daley, 2012). Balance sheet describe the assets, liabilities, equity and long term loans of a business in accounting year and make easier to manager to form better policies. Form the balance sheet of Polypipe Group PLC, it is determined that value of current assets have increased year by year and in 2018 the value was 662 GBP in Million. The main factor of increase in figure of assets is due to expansion of company in these year and value of gross property, plant and other equipment is 226 GBP in Million. Similarly the liability side shows increase in shareholder equity as in year 2014 it was 238 GBP in Million which increases to 331 GBP in Million in year 2018. this states that external parties have shown a good interest in the performance of PLP in last few years and they are continuously investing suitable amount to get better return in accounting period (About Polypipe Group PLC, 2020).

On the other side the balance sheet of Balfour Beatty PLC demonstrate that there have large amount of total assets and liabilities which keeps on decreasing year by year due to many reasons. Such the worth of total assets in 2014 was 5244 GBP in Million that tends to diminish and in year 2018 the value was 4567 GBP in Million. There are several reason for reducing value such as sale of property, plant and other fixed assets, increasing tax payments, deferred income taxes. Moreover the liabilities side of BBY also gets diminish because of increasing deferred taxes liabilities and more importantly decreasing stockholder equity. Main reason for reduction on the shareholder equity is diminishing return on investment which forces stakeholders to make out their money and move to other option that can deliver satisfactory results.

Income statements: This is consider as one of the important document which define the overall net income and losses for a company in a particular accounting year (Zafar, Ko and Osei-Bryson, 2012). Income statements shows the total revenues and total expenses made by company on various operation so that actual net profit can be calculated. From the annual cash flow statements of Polypipe Group PLC it is determined that net revenue is increasing year to year like in year 2014 it was 327 GBP in Million which increase up to 446 GBP in Million in year 2018. It is also observed that net profit for company has also increases in these year as there are various steps are taken to control the operating expenses. Such as in year 2018 the sales revenue is 433 GBP in Million, cost of good sold 252 GBP in Million and the value of gross profit is 181. The total operating expenses for the year was 113 GBP in Million and operating income was 68 GBP in Million, income before taxes was 58 and net profit after income tax which is available for shareholder was 49 GBP in Million.

The income statements of Balfour Beatty PLC clearly states that revenues from sales in decreasing year to year in recent time due to which gross profit shows the diminishing results. In year 2014 and 2015 the net income available after tax and depreciation for the shareholder is (60) and (206) which means that company is not able to control operating expenses for the period.

Form the above discussion it is clearly stated that Polypipe Group PLC is a better option for investment for potential investors (About Balfour Beatty PLC,2020). As they can get better results on their investment that can help to increase the overall profit margin. There can be various types of investment assessment methods can be used for this intent, that are useful in identifying the most successful option in future return. That enables a investor is able to get the detailed and accurate information about proposals such as time period and actual amount recovered.

PART 2

Valuation for a company using Forecast dividend growth model.

In accounting term, the valuation model which is used to calculate the actual value of stock pretending that the growth of dividend is at always on a stable rate in permanency or even at the assorted rate during the specific period (Dividend growth model, 2020). This framework is valuable to identify weather a stock is undervalued or overvalued assuming that anticipated dividend grow (G) at specific point that is needed to be mins from RRR. The clear purpose of analysis of the earnings growth method would be to measure an investor's fair market value. It help company valuable operation being easily executed in order to gain the favourable output. This process aid manager to properly distribute the required funds to run specific task and remove any kind of complexities. When that market value is measured, stakeholders can equate the fair market value with the present share or cost per unit to evaluate if a specific debt is under-priced or overvalued. Depending on this measure, investors will determine which stocks to purchase or dispose to maximize the annual returns of their investments. In addition, the appropriate rate of return calculates the total yield expected by shareholders for the degree of risk involved with a given investment. Business financing utilizes the return calculation needed to define viable ventures and business investments. Likewise the required rate of return have number of crucial uses, thus the lower rate of return shows the minimum sum which is received from an investment which a stakeholders take a situation in a specific equity (Sahi, Arora and Dhameja, 2013). For ascertaining the equity value with the help of dividend growth model specific formula is used that is shown below:

P = D1 / ( k-g )

P= fair value price per share of the equity

D= expected dividend per share one year from the present time

g= expected dividend growth rate

k= required rate of return

Advantages of dividend growth model

  • Constructive model of valuation: The dividend rate of growth for different stock that is calculated cannot be greater than the return, otherwise the results would no be favourable. As the particular model is used to estimate the future dividend value considering the present values of dividend.
  • Provides option to expand value of stock: With the support of this method best place to make an investment is determined as company know to maintain the value. Moreover, this also help to grow the entire portfolio value by the income received through dividends. So more amount can be invested in various stock in different companies operating in various industries (Steiss and Nwagwu, 2019.).
  • Includes margin of safety: This is the main benefit of using this model for valuation because it includes margin of safety from the beginning. Thus, dividend growth model make manager to identify the value at which stock stand so that proper place of investment can be assigned according to the budget. This gives actual worth of investment and the total return which is going to be earned in the future.

Disadvantages of dividend growth model

Work on stock which pay dividend: In smaller business it is easy to perform comparison of small cap and large cap stock in long period of time. As many small companies are not in the condition to pay dividend so they can not use dividend growth model to recognise actual value of stock. In case if investor focus on this method then they are going to miss various other important opportunities that can add value to their stock portfolio (Purce, 2014).

Does not consider non dividend factors: There have been various variables like Customer retention, brand loyalty, and even intangible asset ownership which can impact the value of stock in specific time period. Thus, if rate of dividend growth is fixed and determined than non dividend factor can vary the valuation of company. Therefore, it is stated that results calculated under valuation method may are not appropriate.

Ignore the effect of a stock buybacks: The buyback of stock might have a large impact on the stock value to stock holder at the time of return. There have been different actions that can impact the last value of stock within a specific time frame. Under this method investor make assumption that buyback of share would not effect any history of the business that leads to wrong results.

As discussed in the above part that Polypipe Group PLC is a better option for investors because in the last four year company have shown a successful growth. In the context of dividend forecasted growth model effective comparison have been made with the estimated value and the current market value (Ayob, Ramlee and Rahman, 2015). Ask for Academic Writing Service from our experts!

Forecasted Dividend Growth Model:

Quarter Ending

Dividend Per Share

Growth

2018-09-30

£0.11

5.7%

2018-12-31

0.11

5.7%

2019-03-31

0.12

4.5%

2019-06-30

0.12

4.5%

The tables below summarizes Polypipe’s performance over the last four quarters:

Quarter Ending

Dividend Per Share

Growth

2018-09-30

£0.11

5.7%

2018-12-31

0.11

5.7%

2019-03-31

0.12

4.5%

2019-06-30

0.12

4.5%

 

Dividend Payout Ratio

=

Dividends per Share ( Jun. 2019 )

/

EPS without NRI (Jun. 2019 )

 

=

0.079

/

0.127

 

=

0.62

 

 

Polypipe Group Recent Full-Year Dividend History:

Amount

Ex-date

Record Date

Pay Date

Type

Frequency

Forex Rate

GBP 0.040

29/08/19

30/08/19

20/09/19

Cash Dividend

semi-annually

GBP:GBP 1.0000

GBP 0.079

18/04/19

23/04/19

29/05/19

Cash Dividend

semi-annually

GBP:GBP 1.0000

 

Dividend Yield %

=

Most Recent Full Year Dividend

/

Current Share Price

 

=

0.119

/

5.87

 

=

2.03%

 

 

  • Polypipe's recent 12 months dividend growth is 4.5%.
  • Polypipe's dividend growth declined in 2017 (23.3%, -91.5%) and in year 2018 (5.7%, -75.7%).

Current Share Price is = £5.87.

Polypipe Group's Dividends per Share for trailing-twelve months ended is = £0.119.

CONCLUSION

In the end of report, it is concluded that financial management is valuable techniques which support in managing the different available resources within an organisation to maximise the overall profitability. Different sort of ratios are calculated to detect the actual liquidity, efficiency etc. in respective year.

Read more - Business Environment Report

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