Financial_reporting Ratio Analysis

8/13/2019 Financial_reporting Ratio Analysis

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HUBS Coursework Submission 1

Introduction

Pace is a leading supply of consumer electronics specialized in set-top box and advance residential

gateway to 160 service providers around the world. This report will focus in analyzing the financial

reports for the period of 2011 and 2012 in comparison with other competitor in the industry. The ratios

results will be compare with that of Samsung Europe plc. At the end of the analysis recommendation

will be provided to potential investors about PACE performances in relation to its direct rival and the

electronic industry as a whole.

Analysis of Pace Plc Ratios

Profitability Ratios Pace plc AlternateNetwork plc

Formula 2012 2011 Different /

%Changes

20

12

2011 Different /

%Changes

ROE

+ 100 12.6

9%9.53%

3.16 33% 26%

21% 5 24%

NetProfitMargin

100

2.43%

1.68%

0.75 45% 8.6%

6% 2.6 43%

GrossProfit

Margin

100 18% 19% -1 -5% 39

%38% 1 3%

Returnon totalassets

100 3.92

%2.89%

1.03 36% 14%

10% 4 40%

Interpretation of analysis figures

As shown on from the analysis table, Pace PLC experienced significant increase on Return on

Equity (ROE) ratio from 2011 to 2012. ROE has percentage increase of 33.2%, the growth

indicated the ability of Pace to be able to generate cash internally within the organization which

implies low interest rate in servicing debt from external source such as bank loan. Often,


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Investors are concern about business going concern and continuity, thus, the 3.16 increased on

ROE for 2012, portrayed a company whose future operability is not a doubt. In comparison to

Alternate Network pcl who registered 24% increased on same period with a higher annual

ROE, this indicated that Pace would have to improve its sales figure and reduces on itexpenditure to derive a better ROE.

The net profit margin seen some slight increase in 2012; in comparative to Pace rivals

(Alternative Network plc.), pace NPM average 2.01% while alternative network plc average

7.3%. From an investors point of view, the 0.75 increase indicated a healthy return on net

profit margin, however, investors are often interested in higher returns which relies heavily on

company profitability. Therefore, Pace need to improve in this area to catchup with her maincompetitor by increasing sales revenue, cutting down on COS and lowering expenses.

The Gross profit margin showed a negative figure of (-1) meaning falls in gross profit margin

by 5% compare to alternate network whose increase margin was (1) with 3% increases in same

period. This is not a disaster for pace, however it does shows a company with a low level of

sales revenue and higher COS. Investors want a quick return, thus, Pace must address this

issue.


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Interpretation of analysis figures

The inventory turnover period for Pace in the analysis period average 31.5 days and up by 17%

between 2011 and 2012; looking at it solitarily, seems to not be quick turns on inventory,

although, we do not know the average for the industry; however, comparing this figure with her

closest rival (Alternative Network plc) which has average inventory turns of 2 days during

same period. This indicated that Pace is holding down on valuable liquidity in stock.

Alternative network plc is turning over its stocks quicker, this may be due to the Just -in-time

strategy in the organisation. Whereby Pace relies on warehousing and distributors to reach to

the customers. Pace response to inventory turns are as follows:

Inventory controls have been strengthened; inventory is now tightly aligned toconfirm future revenues and the mix of stock is improved with componentstock reduced and faster turning finished goods increased. During the year,stock turns improved by 19.2% from 2011."

Efficiency Ratios Pace plc AlternateNetwork plc

Formula 2012 2011 Different /%Changes

2012 2011 Different /%Changes

Fixed AssetsTurns

3.6 x 3.1 x 0.5 16% 3.7x 3.7x 0 0

Stocksturnover

periods

365

34days

29days

5days

17% 2days

2days

0 0

Settlementsperiod for

tradereceivables

365 85days

73days

12day

16% 60days

64days

-4days

-6

%

Settlementsperiod fortrade

payables

365

117days

73days

44days

60% 145days

137days

8days

6%


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The settlement period for trade receivable seems very high, this may be due to the nature of the

business; although, her competitor seems to be doing better in managing it credit control during

same period by averaging 62 days to get their money from trading. Higher settlement periods

for trade receivable might be the reason why Pace is paying such a high interest to service her

borrowing cost. This suggests that some tightening on credit control procedures may be

required to enhance Investors confidence in the company.

On settlement period for trade payable, it appears that Pace plc is taking approximately 117

days (4 months) to pay back money owed to his creditors. This seems to be a good strategy as it

allows for more cash in running the business, however, this is not a good credit control practice

as it could have a damaging effect on how trading partner perceive Pace Plc. Her competitor onthe other hand seems to take shorter time in paying back money owed, however, settlement

time for trade payable seems to be on the rise for both companies. Is this going to be a

continuing trend?


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Liquidity Ratio

The ability for any business to quickly turn it stock over and generate cash is very important. Looking

at the figures on Acid test from the table above, it appear that Pace Plc has improved slightly on it

stocks turn and current asset acquisitions. Over this period, the stock has increased by 21%, this is very

good for people who are interested in investing in the company because the company has assets that

can be quickly converted into liquid cash. However, in comparison to her direct rival figures, is shows

that the liquidity level is relatively small compared to what is generated by Samsung in the same

period whose average was 2.04. Overall, because of the improvement in it figures,

shareholder/potential investors needs not worry, as it is possible Pace plc is holding less stock because

of anticipated price decrease or for further keeping its cash for further investment on tangible assets.

Liquidity Ratios Pace plc AlternateNetwork plc

Formula 2012 2011 Different &%Changes

2012 2011 Different &%Changes

Acid testratio

0.78:1

0.70:1

0.08 11% 1.32 1.11 0.21 19%

Currentratio

0.995:1

0.93:1

0.07 7% 1.34 1.12 0.22 20%

Networkingcapital on

sales ratio

0.002:1

0.020:1

-0.02-90% 0.09 0.03 0.06 200%

Marketsecuritization ratio

1008.98% 7.47% 1.51 20% 70.1

%40.3%

30 74%


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The current ratio figures also showed an improvement, the 2012 figure indicated that Pace plc has

0.995 times value of its current liabilities. This is very good as it indicated the ability of the company

to be able to services its short term debt. Thus, investor should be pleased with this figure at it implies

continuity of the business. However, her competitor has a higher figures during this period.

The net working capital on sales ratio shows a worrying trend as the figure indicated the extent to

which networking capital could offset borrowing cost. From the calculation the figure has reduced

from that of 2011. This is a concern as the business need to be able to pay the charges incurred from it

liabilities.


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Gearing Ratios Pace plc AlternateNetwork plc



Interestcoverratio

100 6.61 x 3.95 x

Debt toassetsratio

0.16:1 0.28:1

Networkingcapital onsales ratio

0.52:1 0.91:1

Debtequitycoverratio

10043% %


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Investment Ratios Pace plc AlternateNetwork plc



Earningsper shareratio

. .

19.4 13.2

Dividendyield ratio

100

4.25%

3.79%

Retentionratio

79.7%

73.5%

Dividendpayout

20.3%

26.5%

Price/Earnings ratioP/E

4.77%

6.99%


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Horizontal Analysis of Consolidated Income statement and Balance sheet

Pace PLCFinancial Statement for the year ended 31 December 2012Consolidated income statement

2012 2011 Change(+/-) % Changes

$m $m

Revenue 2403.4 2309.3 94.1 4%

Cost of sales -1970.4 -1866 -104.4 6%

Gross profit

Administrative expenses:

Research and development expenditure -155.4 -160.6 5.2 -3%

Other administrative expenses:

Before exceptional costs -119.5 -141.3 21.8 -15%

Exceptional costs -12.5 -12.7 0.2 -2%

Amortisation of intangibles -51.8 -55.7 3.9 -7%

Total administrative expenses

Operating profit

Finance incomeinterest receivable 0.5 0.2 0.3 150%

Finance expensesinterest payable -14.2 -18.5 4.3 -23%

Profit before tax

Tax charge -21.7 -15.9 -5.8 36%Profit for the year

Profit attributable to:

Equity holders of the Company 58.4 38.8 19.6 51%

Earnings per ordinary share

Basic earnings per ordinary share (cents) 19.4 13.2 6.2 47%

Diluted earnings per ordinary share (cents) 18.5 12.5 6 48%


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Pace PLC, Financial Statements for year ended 31 December 2012. Consolidate Balance sheet

2012 2011 Change(+/-) % Changes

$m $m

ASSETSNon-current assets

Property, plant and equipment 62.8 63 - 0.20 0%

Intangible assetsgoodwill 337.9 355.6 -17.70 -5%

Intangible assetsother intangibles 166.2 218 - 51.80 -24%

Intangible assetsdevelopment expenditure 56.3 53.9 2.40 4%

Deferred tax assets 37.4 67.2 -29.80 -44%

Total non-current assets 660.6 757.7 -97.10 -13%

Current assets -

Inventories 182.1 150 32.10 21%

Trade and other receivables 558.7 402.3 156.40 39%

Cash and cash equivalents 74.7 48.7 26.00 53%

Current tax assets 12 4.6 7.40 161%

Total current assets 827.5 605.6 221.90 37%

Total assets -

EQUITY -

Issued capital 28.7 28.3 0.40 1%

Share premium 79 73.1 5.90 8%

Merger reserve 109.9 109.9 - 0%

Hedging reserve -1.7 2.9 -4.60 -159%

Translation reserve -54.8 -52.1 -2.70 5%

Retained earnings 299 245 54.00 22%

Total equity 460.1 407.1 53.00 13%

LIABILITIES -

Non-current liabilities -

Deferred tax liabilities 70.3 95.7 -25.40 -27%

Provisions 51.5 41.6 9.90 24%

Borrowings 74.7 147.3 -72.60 -49%

Total non-current liabilities 196.5 284.6 -88.10 -31%

Current liabilities -Trade and other payables 631.8 373.5 258.30 69%

Current tax liabilities 10.7 9.6 1.10 11%

Provisions 25.7 45.4 -19.70 -43%

Borrowings 163.6 223.1 -59.50 -27%

Total current liabilities 831.8 651.6 180.2 28%

Total liabilities 1028.3 936.2 102.1 11%

Total equity and liabilities 1488.4 1343.3 155.1 12%

Financial_reporting Ratio Analysis

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