Aston Martin Financial Analysis

This report analyzes the financial performance of Aston Martin using key ratios covering profitability, efficiency, and liquidity. It examines the positive and negative outcomes of these ratios, highlighting their impact on the company's growth. The report also identifies stakeholders interested in Aston Martin's published financial reports and their motivations. Desklib provides past papers and solved assignments for students.

Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
a) To calculate the key ratios covering profitability, efficiency and liquidity and also explain
the ratios ......................................................................................................................................1
b) Importance of the positive and negative outcomes of ratio ....................................................4
c) Group of stakeholders .............................................................................................................5
d) Identifying the stakeholders which are interested in published financial reports....................6
CONCLUSION................................................................................................................................6
REFERANCES ...............................................................................................................................7
Appendix .........................................................................................................................................8
Balance Sheet of Aston Martin ...................................................................................................8
Income Statement.......................................................................................................................10

INTRODUCTION
A business is defined as an corporation or enterprising entity which involves in
commercial, industrial or professional activities. It is organised efforts and activities of
individuals to produce & sell goods in order to gain profit. As the main motive of business is to
earn profit by satisfying the needs of consumers and it is helpful for the purpose of growth. To
better understand this concept Aston Martin has been chosen which is a British Independent
manufacturer of luxury sports cars. In this report, there are various topics has covered such as: to
select 6-8 key ratios covering profitability, efficiency and also explain them, to analyse positive
and negative nature of the ratios incorporating discussion on the movement in the ratios across
years. Apart from this, reports also discuss about to identifying the stakeholders who are
interested in published financial ratios (Weske, 2012).
MAIN BODY
a) To calculate the key ratios covering profitability, efficiency and liquidity and also explain the
ratios
Ratio Formula 2017 2018
Return on Equity Net income/
shareholder's equity
81.94 -22.09
Assets Turnover ratio Net sales/ Average
total assets
0.6 0.5
Current ratio Current ratio/ Current
liabilities
0.79 0.68
Debt to equity ratio Total liabilities/ Total
shareholders' equity
4.45 1.38
Earning per share ratio Net income- preferred
dividends/ Weighted
average common
shares outstanding
0.33 -0.28
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Quick ratio Total current assets-
inventory- prepaid
expenses/ current
liabilities
0.51 0.42
Interest coverage ratio Earning before interest
and tax/ Interest
expenses
1.87 0.12
As ratio is a numerical comparison of two or more quantities that indicates their relative
size and it is analysed as a way of comparing numbers by division (Schmitt‐Grohé and Uribe,
2012). With the help of ratio financial performance of Aston Martin can be identified. It is
helpful to analyse profitability, liquidity, efficiency and stability within the organisation. There
are various types of ratios which are describe as below:
Liquidity:
Return on Equity: This ratio is used to identified the financial performance which is
calculated by dividing net income by shareholders equity. Return on equity ratio provide help to
understand how effectively management is using corporations assets in order to make profits.
Before giving the dividends to shareholders net income is calculated. With the help of this ratio
Aston Martin can know that assets of company is useful to generate sufficient profits or not.
As from the above table it is has been identified that return on equity ratio is 81.94 in the
year 2017 and -22.09 in the financial year 2018. It shows that it in the year 2018 it is decreasing
which is not good for the growth of company and it is the reason which shows that assets are not
properly utilizes by the firm in order to generate profits.
Assets Turnover ratio: This ratio evaluate the value of a corporation's sales or revenue
in context to the value of assets. By using this ratio Aston Martin can know how efficiently
organisation is using the assets in order to earn profits. If the assets turnover ratio is more than it
can be analysed that organisation is efficient. Assets turnover ratio is 0.6 in the year 2017 and in
the financial year 2018 it becomes 0.5 which means it is decreasing and it reflects that assets are
not properly utilized and it is not good for the organisation. As the reason behind is that sales of
company is reducing in context to the value of assets (Schaltegger and Hansen, 2012).
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Current ratio: This ratio is helpful to analyse the ability of an organisation to meet the
short term obligations related to a specific period of time. By using it Aston Martin can know
how much assets held by company in order to make short term payment. The ideal current ratio
is 2:1. As it has been analysed that in the year 2017 current ratio is 0.79 where as in the year
2018 it was 0.68 which shows that this ratio is reducing and it is not beneficial for the company.
It shows that current assets are not properly managed in order to fulfil the obligations. The
reason behind is that company does not have sufficient current assets as compare to the current
liability.
Debt to equity ratio: It is a financial liquidity ratio which compares corporation's total
debt to total equity. By using this ratio Aston Martin can measure the financial leverage of
organisation. It shows that ability of shareholder equity to cover all outstanding debts in the
event of a business downturn. In the financial year 2017 debt to equity ratio was 4.45 which
becomes 1.38 in the financial year 2018 which shows that it is decreasing and it is good for the
company because debts is reducing which is the main reason behind it (Kiyotaki and Moore,
2012).
Quick ratio: This ratio identifies that in how much time a company can pay short term
obligation by having assets which are readily convertible into cash and it involves marketable
securities, accounts receivable & cash. By using this ratio Aston Martin can know in how much
time its quick assets can be converted into cash. It has been analysed that quick ratio was 0.51 in
the year 2017 which becomes 0.42 in the year 2018 which is not good because it can minimize
the liquidity.
Efficiency and stability:
Earning per share ratio: EPS is the net earnings of the organisation earned on one
share. With the help of this ratio Aston Martin can measure the amount of net income earned per
share of stock outstanding. It has been analysed that in the year 2017 earning per share was 0.33
which becomes -0.28 in the financial year 2018. It shows that the earning per share of
organisation is reducing that is not good in context to the growth of business.
Interest coverage ratio: This ratio analyse the ability of firm to meet its interest
payments. With the help of it Aston Marin can know how easily it can pay interest expenses on
outstanding debt. As from the above table, it has been analysed that in the year 2017 the interest
coverage ratio was 1.87 where as in the financial year 2018 it is 0.12 which shows that it is
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decreasing and it is not good for the firm because it can not make payment of interest to the
creditors (Kastalli and Van Looy, 2013).
b) Importance of the positive and negative outcomes of ratio
With the help of ratio analysis an organisation can know the financial performance of its
business over a period of time. It is beneficial to know stability, liquidity and efficiency of the
firm. The positive outcomes shows that Aston Martin is earning is earning good profits and
business is performing well where as negative outcomes shows that organisation is not
performing well and it is not earning sufficient profits. The importance of positive and negative
outcomes of ratio is describes as below:
Return on Equity: This ratio was positive in the year 2017 and that was 81.94 but it
becomes negative (-22.09) in the year 2018. It shows that Aston Martin is not utilizing the assets
for generating profit so it is important for the firm to increase this ratio so that assets can be used
properly in order to earn more revenue (Gilchrist and Zakrajšek, 2012).
Assets Turnover ratio: This ratio was positive in the year 2017 and it was 0.6 but in the
financial year 2018 it reduce and become 0.5 which is a negative sign for the Aston Martin
because it shows that assets are not properly utilized by the organisation that's why it is not
earning profits form the assets. So it is important for the company to properly used the assets as a
result it can get maximum returns.
Current ratio: In the year 2017 this ratio was positive and it was 0.79 where as in the
year 2018 it minimize & becomes 0.68 which is negative in context to the growth of Aston
Martin. It reflects that current liabilities of firm is increasing as compare to the current assets. So
it is important for the organisation to make it positive so that current assets can be increase and
liabilities can be decrease.
Debt to equity ratio: This ratio was 4.45 in the financial year 2017 which is get reduced
and become1.38 in the year 2018 which is a positive sign for Aston Martin because it is
important for an organisation to reduce the liability so that profits can be maximize.
Earning per share ratio: In the year 2017 this ratio was positive (0.33) where as in the
year 2017 it becomes negative (-0.28) which is not good for Aston Martin. So it is important for
organisation to make better strategies so that earning per share can be increase which is
beneficial for the growth of firm (DaSilva and Trkman, 2014).
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Quick ratio: This ratio was 0.51 in the year 2017 that it get minimise in the year 2018
and becomes 0.42 which does not good for Aston Martin. For that purpose it is important for
company to make better plans so that quick assets can be converted in cash in very short period.
Interest coverage ratio: As from the above table it has been analysed that in the year
2017 this ratio was 1.87 but in the financial year 2018 it was reduced and becomes 0.12 that is
not good. In this regard, it is important for Aston Martin to formulate better strategies so that it
can pay the interest to the creditors (Boons and Wagner, 2013).
So as a conclusion it can be said that if ratio is positive it means organisation is
performing well and if these are negative than it reflects that company does not performing well
and further improvements are needed for the growth of business.
c) Group of stakeholders
Stakeholders are the persons which are directly or indirectly related to the business of
firm and have some interest in the business of company. Group of stakeholders in context to
Aston Martin are shareholders, owners, investors, financial institutions etc.
As from the above graph it is been analysed that in the year 2014 the stakeholders equity
was 244 which has been reduced in the year 2016 but in the year 2017 it increase and becomes
129. As it can be seen that it has tremendous growth in the financial year 2018 and in this year
stakeholders equity is 439 which shows that they are investing in the business of Aston Martin
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which is good for the growth of company. Stakeholders Group are investing in the organisation
which is helpful to expand the business and earn more profits (Bilbiie and Melitz, 2012).
d) Identifying the stakeholders which are interested in published financial reports
An organisation have different types of stakeholders which are interested in the published
financial reports and in this context Aston Martin has different stakeholders which are as
mention below:
Shareholders or investors: These are those persons who invest in the business of firm in
order to get higher returns. Before making investment they analyse the recent financial report
which is published by Aston Martin. They are interest in published financial reports because on
the basis of it they can take investment decision whether they have to invest in the shares or not.
As because financial reports provide the financial position of company and for investors it is
helpful to take investment decision.
Financial institutions: These are the big corporations which provide loan to the Aston
Martin. They are interested in financial reports so that they can decide how much loan should be
given and if financial position of firm is not good as per the information of financial reports than
financial institutions will not provide loan (Bell and Harley, 2018).
Government: It is also interested in published financial report of Aston Martin so that
government can determine the tax liability of the company.
CONCLUSION
As from the above report, it has been analysed that with the help of ratio analysis
company can determine stability, efficiency, profitability and liquidity of business. It is
important to know the positive and negative nature of ratios so that movement of ratios can be
analysed over the years. There are various stakeholders which are interested in financial reports
so that they can take better decisions in context to the investment.
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REFERANCES
Books and Journals
Bell, E., Bryman, A. and Harley, B., 2018. Business research methods. Oxford university press.
Bilbiie, F. O., Ghironi, F. and Melitz, M. J., 2012. Endogenous entry, product variety, and
business cycles. Journal of Political Economy.120(2). pp.304-345.
Boons, F., Montalvo, C., Quist, J. and Wagner, M., 2013. Sustainable innovation, business
models and economic performance: an overview. Journal of Cleaner Production.45.
pp.1-8.
DaSilva, C. M. and Trkman, P., 2014. Business model: What it is and what it is not. Long range
planning.47(6). pp.379-389.
Gilchrist, S. and Zakrajšek, E., 2012. Credit spreads and business cycle fluctuations. American
Economic Review.102(4). pp.1692-1720.
Kastalli, I. V. and Van Looy, B., 2013. Servitization: Disentangling the impact of service
business model innovation on manufacturing firm performance. Journal of Operations
Management.31(4). pp.169-180.
Kiyotaki, N. and Moore, J., 2012. Liquidity, business cycles, and monetary policy.
Schaltegger, S., Lüdeke-Freund, F. and Hansen, E. G., 2012. Business cases for sustainability:
the role of business model innovation for corporate sustainability. International Journal
of Innovation and Sustainable Development.6(2). pp.95-119.
Schmitt‐Grohé, S. and Uribe, M., 2012. What's news in business cycles. Econometrica.80(6).
pp.2733-2764.
Weske, M., 2012. Business process management architectures. In Business Process Management
(pp. 333-371). Springer, Berlin, Heidelberg.
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Appendix
Balance Sheet of Aston Martin
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9

Income Statement
10