Financial Resources Management in Construction Industry: A Comparative Analysis of Balfour Beatty PLC and Polypipe Group PLC

This report provides a comprehensive analysis of the financial performance and position of Balfour Beatty PLC and Polypipe Group PLC, two companies in the UK construction industry. The report includes a ratio analysis, evaluation of profitability, assessment of liquidity, and examination of equity shareholder's performance. The findings highlight the strengths and weaknesses of each company and offer insights for potential investors.

Financial Resources
Management
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INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
PART A...........................................................................................................................................3
Evaluation of profitability............................................................................................................3
Financial position of the company in terms of short term or long term liquidity........................5
Evaluation of performance in respect of Equity shareholder’s...................................................6
Overall evaluation of performance and position of the business.................................................7
PART B...........................................................................................................................................9
Forecast dividend growth model.................................................................................................9
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14
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INTRODUCTION
Financial resources management of every organisation is a critical task to achieve
organizational goals and objectives. It is the method of preparing, coordinating, managing and
tracking financial resources (Abdelhak, Grostick and Hanken, 2014). It is an excellent method
for monitoring an organization's financial operations such as acquisition of funds, allocation of
funds, accounting, transactions, risk assessment and any other. This report evaluates the
performance and current position of the company. This assignment classified in two parts where
they select two organization such as Balfour Beatty PLC and Polypipe Group PLC. Both
companies are part of UK construction industry. They implement ratio analysis and vertical or
horizontal analysis for the past five consecutive years.
MAIN BODY
Overview of the organizations:
Balfour Beatty PLC:
Balfour Beatty is the largest global group of transport companies. Business finances,
develops and manages innovative, efficient infrastructure that underpins daily life, enhances
communities and fosters economic development. With almost 110 years of experience in
delivering highly complex infrastructure structures across projects at the heart of national
societies, the organization works with the highest levels of efficiency, health, and technical
competence. Integrating with consumers and domestic supply chains as well as helping local
organizations.
Poly-pipe Group PLC:
Polypipe Plc is UK's largest construction and manufacturing firm. Company engaged in
the manufacture of private, commercial and transportation piping systems for plastics. The
company is interested in the development of piping systems mainly used and implemented in
ventilation, drinking water, plumbing, power control, insulation, cable control, and heating
systems. Business is leading manufacturer of building industry piping systems.
PART A
Evaluation of profitability
Ratio analysis:
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Balfour Beatty PLC:
Year 2018 2017 2016 2015 2014
Gross Profit 371 311 284 157 131
Revenues 6634 6916 6923 6955 7264
Gross Profit Margin 5.59 % 4.50 % 4.10 % 2.26 % 1.80 %
Year 2018 2017 2016 2015 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 %
Poly-pipe Group PLC:
Years 2018 2017 2016 2015 2014
Gross Profit 181 173.00 180 143 125
Revenues 433 412.00 437 353 327
Gross Profit Margin 41.80 % 41.99 % 41.19 % 40.51 % 38.23 %
Years 2018 2017 2016 2015 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 %
It was estimated from the gross profit and net profit ratio stated above that over the last 5
years both companies have shown positive growth. The net profit margin ratio implies that when
the percentage is small, the company will produce higher profits than the other. It often reflects
the good financial position of the company. This ratio determines an organization's net
productivity condition in a given period of time. Through managing operating costs and other
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external expenditures that reduce productivity, such as the Balfour Beatty PLC are able to
increase gross income and net profit. In 2014, Polypipe Group PLC was still in a strong position
and they continue to provide the best services to customers, raising the overall revenue margin
over the years. Moreover, these ratios are also useful in making a sound investment decision for
the investor.
Financial position of the company in terms of short term or long term liquidity
Poly-pipe Group PLC:
Year 2018 2017 2016 2015 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
Year 2018 2017 2016 2015 2014
Quick Assets 77 71 67 52 64
Current Liabilities 109 109 105 87 70
Quick Ratio 0.71 0.65 0.64 0.6 0.91
Balfour Beatty PLC:
Year 2018 2017 2016 2015 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
Year 2018 2017 2016 2015 2014
Quick Assets 1869 2219 2188 1865 2211
Current Liabilities 2124 2567 2568 2364 2513
Quick Ratio 0.88 0.86 0.85 0.79 0.88
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The above estimated long-term and short-term liquidity ratio clearly shows that Balfour
Beatty PLC (BBY) has lower liquidity relative to Polypipe Group PLC. Current and quick ratio
effects on non-reliable ratio tests as the changes are ignored due to no versatility. That is because
BBY used to keep much of its sum of fixed assets that help meet business needs in the future but
often company needs cash equivalent in the short term as well (Ayob, Ramlee and Rahman,
2015). On the other hand, PLP has high current assets than liabilities which help them to face
any unexpected future possibility. In 2014, Polypipe Group PLC will have the largest share of
current assets such as 1.49 and rapid assets, which are 0.91 on its liabilities, allowing it to reach
the rising contingency level in the future. Polypipe Group PLC is more sufficient to meet their
short term obligations in competition to BBY Company because available data are in favour. But
still, they need to improve their position or manage enough current assets to meet their
obligations.
Evaluation of performance in respect of Equity shareholder’s
Balfour Beatty PLC:
Year 2018 2017 2016 2015 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
Year 2018 2017 2016 2015 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 2017 2016 2015 2014
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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
Year 2018 2017 2016 2015 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 %
From the above calculation of ratios, helps to explain the overall return on equity, greater
the percentage is more better outcomes over a given time period (Daley, 2012). As in the case of
Balfour Beatty PLC, there have been good outcomes in the past couple of years as the firm has
engaged in the right resources to sustain the current value return. As in 2014 and 2015, equity
return rate was 4.89 percent and -24.94 percent, which means that outcomes are negative and that
the corporation will not earn the equal amount of the capital invested in this year. Positive return
on equity from the last 5 years has been in the sense of Polypipe Group PLC. The primary
explanation for good return is due to investments made in the corresponding portfolio. Return on
equity indicates inconsistent pattern because there could be other variable-affective chances of
returns on investment in various markets.
Overall evaluation of performance and position of the business
With the help of financial statements, companies able to evacuate the performance and
profitability of the operations. In addition, it is required for the investors to make effective
decisions on the basis of financial documents which organization public for the analysis of
stakeholders. These financial statements shows accurate picture of company’s position in terms
of wealth (Gibbert, Hoegl and Valikangas, 2014). These documents includes the information
about total sales, revenue, growth, net profit, debt, equity, cash inflow, outflow etc. during the
financial period. There are some statements which are used to evacuate the performance and
position of the organizations is mentioned below:
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Income Statement: It is considered as one of the significant document that describes a
company's cumulative net profit and losses in a given accounting year. Income statements
display the gross profits and the total costs incurred by the company on different activities in
order to determine the real net income. From Polypipe Group PLC's annual cash flow statements
it is known that net revenue is rising year - to-year as it was 327 Pound in Million in 2014 which
is growing to 446 Pound in Million in 2018. It is also noted that in this year, net income for the
company has also improved as there are various measures taken to manage the operating
expenses. Such as sales income in 2018 is 433 GBP per million, strong selling costs 252 GBP
per million and gross profit margin is 181. The operating expenses during the year were GBP
113 per million and operating profits was GBP 68 per million, income before taxes was GBP 58
and net profit after income tax available to shareholder was GBP 49 per million. Balfour Beatty
PLC's income statements explicitly indicate that sales revenues in recent times decline year by
year due in which gross profit indicates declining results (Hasan and Habib, 2017). In 2014 and
2015, the net profit available to the shareholder after tax and depreciation is 60 and 206
respectively. It means that company is not in a position to manage operating expenses for both
the period.
Balance Sheet: This is a helpful document which specifically describes a specific year's
overall financial status of a company. Balance sheet defines a company's assets, liabilities, equity
and long-term loans in the accounting year and makes it easier for executives to devise effective
policies. From the Polypipe Group PLC balance sheet, it is estimated that current asset value has
risen year by year and in 2018 the valuation was 662 GBP in million.
The key factor of growth in asset figure is related to company expansion in this year and
gross land, plant and other equipment value is GBP 226 per million. Liability side has done an
improvement in shareholder equity as it was 238 GBP in million in 2014, which grows to 331
GBP in million in 2018. It suggests that stakeholders have shown a keen interest in PLP results
over the past couple of years and are constantly investing sufficient amounts in order to generate
better returns in the financial period.
On the other hand, Balfour Beatty PLC's balance sheet reveals that there are significant
quantities of overall assets and liabilities that, for several reasons, tend to fall year after year.
These total assets in 2014 amounted to 5244 GBP in a million that continues to decrease and the
value in 2018 was 4567 GBP in a million (Karltorp, 2016). There are many factors to decrease
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interest, such as land sales, plant sales and other fixed assets, increased tax payments, deferred
income taxes. In addition, BBY's liabilities side also decreases due to higher deferred tax
liabilities and, more significantly, increasing stockholder equity. The key explanation for the
shareholder interest reduction is a drop in return on investment, which causes stakeholders to get
their money out and move to another alternative that can yield better results.
Through the above argument, Polypipe Group PLC is clearly mentioned to be a better
investment choice for potential investors. That can help to increase the overall profit
margin because they can get better returns on their investment. For this reason, there may be
various types of investment appraisal approaches which are useful in identifying the most
promising alternative in future return. That helps a shareholder to recover the extensive and
correct details on projects such as period of time and actual number.
PART B
Forecast dividend growth model
The valuation formula used to measure the real value of the shares in the accounting term,
claiming that the dividend growth is either at a constant rate in permanence or even at the varied
rate over the particular time. This method is useful for defining the environment under which a
stock is underestimated or overvalued on the assumption that the projected dividend (G) would
rise at a particular point required to be minutes of RRR. The main aim of evaluating the method
of earnings growth would be to calculate fair market value for an investor. It allows the business
to easily conduct valuable operation to achieve the desirable performance.
This process help manager is responsible for efficiently managing the funds needed to
conduct different tasks and removing any uncertainty (Khalo, 2014) (Purce, 2014). When
calculating the market value, stakeholders may compare the fair market value with the present
share or expense per unit to determine whether a particular debt was under-priced or oversold.
Investors can decide which stocks to buy or dispose of to maximize the annual returns on their
investments, based on this calculation. Moreover, the acceptable rate of return measures the
overall yield required by shareholders for the level of risk associated with a specific investment.
Business financing uses the measurement of returns needed for identifying viable projects and
financial investments. Similarly, the appropriate return rate has a variety of important uses and
the lower return rate indicates the minimum amount earned from an investment that a
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stakeholder takes on a particular equity situation. Basic formula shown below is used for
calculating the equity value with the aid of dividend growth model:
P = D1 / ( k-g )
P = Price per share of the equity
D = Expected dividend per share (From one year to the present time)
G = Expected dividend growth rate
k = required rate of return
Advantage of Dividend Growth Model (DGM):
Possibility of increasing stock value: Best way to make an investment is calculated by
endorsing this approach because a company knows how to preserve the value (Sahi, Arora and
Dhameja, 2013). In addition, this also tends to increase the valuation of the whole portfolio
through the dividend income earned. Therefore more sums can be spent in separate stocks of
different companies working in different industries.
Rational valuation model: the dividend growth rate measured for various stocks could
not be higher than the return, or else the results will not be beneficial. Specific model is being
used to predict the potential dividend value taking into account the existing dividend values.
Margin of safety: It is the most essential advantage of using this model for valuation as
it provides safety margin from the start. Thus, dividend growth model allows manager to define
the price at which stock falls in order to assign proper place of investment according to the
budget. This gives real investment interest and the cumulative return that will be received in the
future.
Disadvantage of Dividend Growth Model (DGM):
Identify non-dividend factors: different variables such as consumer loyalty, customer
loyalty and even unrealized gain ownership have existed that can influence the valuation of the
stock over a particular amount of time (Steiss and Nwagwu, 2019). Thus, the company's value
will vary if the rate of dividend growth is set and determined than the non-dividend factor.
Consequently, it is mentioned that results determined using valuation approach can not be
sufficient.
Focus on stock which pays dividend: Comparison of small cap and large cap stocks in
long periods of time is easy to do in small business. Because many small businesses are not in
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the position to pay dividend, they are unable to use the dividend growth model to consider real
stock value. When investors concentrate on this approach then they would miss several other
valuable advantages that could create value to their portfolio of stocks.
Overlook the impact of stock buybacks: the stock buyback will have a significant
impact on the stock value to the stock holder at the time of return. Different activities have taken
place that will influence the stock's final value within a particular time frame. Under this
approach investor hypothesize that dividend of share does not impact any company history that
leads to incorrect results.
As mentioned in the section above, Polypipe Group PLC is a better choice for
stakeholders as the company has shown good growth in the last four years (Zafar and Osei-
Bryson, 2012). Good contrast with the expected value and the actual market value has been made
in the form of dividend forecasted growth model.
Forecast Dividend Growth Model:
Below mention table represent the last four quarter performance of Polypipe’s Group PLC
Quarter Ending Dividend Per Share Growth
30/09/2018 £0.11 5.7%
31/12/2018 £ 0.11 5.7%
31/03/2019 £ 0.12 4.5%
30/06/2019 £ 0.12 4.5%
Particulars Details
Dividends per Share 0.079
EPS without NRI 0.127
Dividend Payout Ratio (DPS/EPS) 0.62
Dividend history of Polypipe Group:
Amount (£) Ex-date
Record
Date Pay Date Type Frequency Forex Rate (£)
0.040 29/08/19 30/08/19 20/09/19 Cash semi- GBP 1.0000
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Dividend annually
0.079 18/04/19 23/04/19 29/05/19
Cash
Dividend
semi-
annually GBP 1.0000
Particulars Details
Most Recent Full Year Dividend 0.119
Current Share Price 5.87
Dividend Yield % (Most Recent Full Year
Dividend/ Current Share Price )
2.03%
Notes:
 Dividend growth rate is 4.5% of Polypipe's from last 12 months.
 In 2017, Polypipe's dividend growth declined (23.3%, -91.5%) and in year 2018 (5.7%, -
75.7%).
Current Share Price is = £ 5.87.
Polypipe Group's DPS for trailing-twelve months ended is = £0.119.
CONCLUSION
From the above discussion it has been concluded that financial management is useful
tools that help to improve overall productivity by controlling the numerous available resources
within an enterprise. Different kinds of ratios are measured to measure the real liquidity, output
etc. throughout the years. Ratio analysis help the investors to evaluate financial position of the
company and further making investment related decisions. Dividend growth model is one of the
most used methods of valuation that is used to evaluate the value of investment in terms of
dividend rate.
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REFERENCES
Books & Journals
Abdelhak, M., Grostick, S. and Hanken, M. A., 2014. Health information-e-book: Management
of a strategic resource. Elsevier Health Sciences.
Ayob, A. H., Ramlee, S. and Rahman, A. A., 2015. Financial factors and export behavior of
small and medium-sized enterprises in an emerging economy. Journal of International
Entrepreneurship. 13(1). pp.49-66.
Daley, D. M., 2012. Strategic human resources management. Public Personnel Management,
pp.120-125.
Gibbert, M., Hoegl, M. and Valikangas, L., 2014. Introduction to the special issue: Financial
resource constraints and innovation. Journal of Product Innovation Management. 31(2).
pp.197-201.
Hasan, M. M. and Habib, A., 2017. Corporate life cycle, organizational financial resources and
corporate social responsibility. Journal of Contemporary Accounting & Economics.
13(1). pp.20-36.
Karltorp, K., 2016. Challenges in mobilising financial resources for renewable energy—The
cases of biomass gasification and offshore wind power. Environmental Innovation and
Societal Transitions. 19. pp.96-110.
Khalo, T., 2014. Municipal financial management. Municipal management: Serving the people,
pp.226-250.
Purce, J., 2014. The impact of corporate strategy on human resource management. New
Perspectives on Human Resource Management (Routledge Revivals), 67.
Sahi, S. K., Arora, A. P. and Dhameja, N., 2013. An exploratory inquiry into the psychological
biases in financial investment behavior. Journal of behavioral finance. 14(2). pp.94-
103.
Steiss, A. W. and Nwagwu, E. O., 2019. Financial planning and management in public
organizations. Routledge.
Zafar, H., Ko, M. and Osei-Bryson, K. M., 2012. Financial impact of information security
breaches on breached firms and their non-breached competitors. Information Resources
Management Journal (IRMJ). 25(1). pp.21-37.
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