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Business Analysis Assignment Report

   

Added on  2020-01-28

32 Pages11511 Words144 Views
Business AnalysisReport

TABLE OF CONTENTSINTRODUCTION ..........................................................................................................................3Background of the study..............................................................................................................3Problem statement.......................................................................................................................4Aims and objectives.....................................................................................................................4Research questions.......................................................................................................................5Significance of the study..............................................................................................................5LITERATURE REVIEW................................................................................................................5Theories of ownership structure and firm value .........................................................................5Financing......................................................................................................................................7Types of corporate finance...........................................................................................................8Difference between internal and external financing....................................................................9Impact of ownership structure on financial performance..........................................................10METHODOLOGY .......................................................................................................................11Method and model.....................................................................................................................11Data............................................................................................................................................14FINANCIAL STATEMENT ANALYSIS....................................................................................15Ownership concentration...........................................................................................................18Leverage analysis.......................................................................................................................19Liquidity ratio analysis..............................................................................................................20Profitability ratio analysis..........................................................................................................21Investor Ratios...........................................................................................................................22CONCLUSION .............................................................................................................................23Discussion..................................................................................................................................23Limitations.................................................................................................................................24Conclusion ................................................................................................................................24REFERENCES..............................................................................................................................262

INTRODUCTION Background of the studyThis business analysis report includes comparative appraisal of the two organizations thatare operating in similar sector. The organizations selected for comparative study are Kier Groupplc Group plc (LSE: KIE) and Tyman plc (LSE: TYMN). Kier Group plc Group plc is listed inConstruction and Materials sector. Both firms are operate in sectors such as - construction, civilengineering, support services and property management sector (Brealey et.al, 2012). Kier Groupplc is regarded as one of the major construction, services as well as property group that isengaged in building as well as civil engineering, support services, development of land, publicand private house building as well as Private Finance Initiatives and is headquartered inTempsford Hall, Sandy, Bedfordshire. The company is also constituent of FTSE 250 Index. KierGroup plc has four specialized divisions, these are called Kier Group plc construction, KierGroup plc services, Kier Group plc Residential and Kier Group plc property (Coles, Lemmonand Meschke, 2012). It was founded in the year 1928. It is regarded as the fourth largest UKconstruction company after Balfour Beatty, Carillion and Laing O' Rourke. The company iscarrying out its operations in wide range of sectors like defense, education, health, housing,transport, industrial and utilities. The group provides employment to 24000 individuals within itsoperations spread over UK, the Caribbean, the Middle East, Hong Kong as well as Australia. It isa listed company that made a net profit of £29.5 million in the year 2015. Its operating incomefor the year 2015 was £103.7 million. The vision of the firm is to “become world class, customerfocused organization which makes investment in, builds, maintains as well as makes renewal ofthe places where people reside, play and work”. Kier Group plc possesses multiple corecompetencies (Embrechts, Klüppelberg and Mikosch, 2013). It has competencies in assetmanagement, structured finance, affordable housing, project development, partnerships and jointventures. The other organization used for comparative analysis is Tyman plc. This company is one of theinternational suppliers of the engineered components to the doors and windows manufacturingindustry. As on December 31, 2015 the group had 20 manufacturing facilities across eightcountries. The products of the firm can be seen in homes as well as buildings across the globe3

(Tyman plc Plc, 2016). The company has worldwide manufacturing as well as distributionoperations covering North America, Europe, Asia as well as Australasia. The manufacturingdecision making is based on the differentiation of its product offerings from the competition.This is achieved through offering customers with higher quality of products at economical price(Engel, Fischer and Galetovic, 2013). Further it is delivered in accordance with the desiredspecification within specified time in an effective manner. The group manufactures higherquality supplies of the wider range. Further it has established itself within the developed marketsas one stop shop for its clients. It offers the manufacturers with the components that is requiredby them for making doors or windows (Tanzi, 2016). The board of directors of the company are entrusted with the responsibility of overall leadership,strategy development as well as control over the group for the purpose of attaining its strategicobjectives (Esty, 2014). The group is carrying out operations through three divisions. These areAmesbury Truth (North America), ERA (UK and Ireland) as well as Schlegel International. This study is focused on making comparative analysis of both the companies so that investorscan make informed decisions in terms of picking the company that provides them with betterreturns. In order to develop better understanding of the underlying companies we have performedfinancial statement analysis for both the businesses so that a better picture emerges regarding themost profitable retail organization in UK. Industry overviewThe construction, civil engineering, support services and property management sector forthe UK economy is considered as greater boon. It is regarded as one of the largest sector of theUK economy. It creates, builds and maintains the workplace wherein the organization operatesand flourish (Gaunt, 2014). The industry had been significantly hit hard across the world sincethe recession in 2008, it was a declining sector in several developing economies. The industry isshowing promising improvement which has favourably influenced companies operating withinthis particular sector. Effect on share price of both companies4

Stock prices fluctuate primarily as a function of market force i.e. demand and supply fora particular stock. Demand is generated by investors perception of an underlying company’svalue increase in future and earnings is most important factor in building this perception. Otherfactors like investors’ sentiment, attitude and expectation also affect the stock price. Tyman plcand Kier Group plc to a significant level are influenced by the changes in the prices of the stock(Gitman and Zutter, 2012). This reflects that in case the company has declining stock prices thatit would be able to make lesser investment in new assets. Increase in stock price will tends toenhance the reputation of the company for its ability to be profitable over a long course of timeand will enhance the value of the company. One way that the lenders and financiers makesjudgment regarding the health of the organization is by means of its stock price. There is potentially a huge impact of Brexit in the future on the industry as well as thesecompanies. The companies would not be able to carry out free trade and this could significantlyimpact revenue of these companies.Problem statement:The major issue that we will address in this report is “need of investors”. This envisagesanalyzing the market sector (retailers), the outcome of analysis will help investors to makeinvestment decisions to maximize their returns. We will evaluate two companies by carrying outcomparative analysis of Kier and Tyman plc, which are operating in retail sector (Letourneau,2015). The study will portray the strengths as well as weaknesses as well as evaluate thefinancial position of both the businesses. This can be regarded as an effective measure that candetermine the position of the organizations within the industry. The financial position will beanalyzed from both the profitability and liquidity aspects so investors may determine investmentsuitability for long and short time horizons. Aims and objectives5

The aim of the present study is: To carry out comparative analysis between twocompanies i.e. Kier Group plc and Tyman plc.Objectives: To compare financial performance of the two organizations◦analyze the ownership structure as well as value of the companies i.e. Kier Group plcas well as Tyman plcTo assess the impact of ownership structure on financial performanceTo identify the areas where improvement can be madeResearch questionsWhat is the ownership structure as well as value of the firms for both Kier Group plc andTyman plc?How ownership structure affects financial performance of the organizations?What can be alternative ways of improving performance of businesses? Significance of the studyThe present study entails to make comparison of the two organizations is significant interms of assisting the investors in making decision regarding the choice of the company thatwould yield greater profits in return for investment. (Pickard, 2012). The present study may alsohelp scholars who wants to carry out in depth investigation for their own sake. On the other handthis report can be used by some engineering firms in gaining knowledge regarding the trends thatare emerging within the particular sector (Rasinger, 2008). Along with this, it can be used for thepurpose of making analysis of the areas where its competitors can bring improvement. This studycan assist in conducting comparative analysis in an effective manner. 6

LITERATURE REVIEWOwnership structure is one of the aspects of this analysis therefore it was considered worthwhileto review some theories on ownership structure.Theories of ownership structure and firm value Ownership structure possesses value for corporate governance as it can influence theincentives of the managers and also the efficiency of the organization to a greater extent. Theownership structure is defined by the means of distributing equity in relation to the votes as wellas capital but also through the identity of the equity owners. In accordance with the views ofEmbrechts, Klüppelberg and Mikosch, (2013) it has been indicated that there are several theoriesrelating to ownership structure. If we consider agency theory, it highlights that potentially threecan be a wider gap between the ownership and control of the larger organizations that arises fromthe decline in the equity ownership. Some specific situations may provide incentive to theexecutives for pursuing their own interests rather than maximizing the shareholders return.Within the theory the shareholders of the owners as well as the responsibility of the higher levelauthority needs to solely for the purpose of making sure that the interest of shareholders arebeing met in an effective manner (The theory emphasizes that the shareholders; who are theowners and management both have the responsibility to ensure that that shareholders’ interest aremet effectively). The management has the responsibility of managing the organization in amanner r that results in maximizing the shareholder's return. These collective efforts can result inimproving the profitability figures as well as cash flows. As per the views of Brealey and etal.(2012) it has been argued that executives do not carry out business operations for increasing thereturns to the shareholders. The theory of agency was designed to explain the principal agentrelationship. As such this was regarded as the key factor that makes determination of theorganizational performance in an effective way. An agency relationship is regarded as theagreement wherein one or more individuals (i.e. shareholders) engages another person or persons( e.g. management) for performing some services on their behalf that includes delegation ofcertain decision making authority to the agent. The major problem the conflicting interests of the7

managers and shareholders. In some situations the manager run the business operations forachievement of his personal goals instead of increasing the returns for the shareholders (Kumarand Phrommathed, 2005). It implies that the executive available excess free cash flow forfulfilling the personal interests rather that enhancing the shareholders return. The majorchallenge faced by the shareholders is ensuring that such excess cash flow is not invested inprojects that are unprofitable or possess negative net present value. According to Millet-Reyes,(2013) such cash flows are required to be returned to the shareholders in the interest of theshareholders, when these cash flows are diverted in other projects this is regarded as Agencycosts. Higher agency cost occur because the executive has more information of the operationsand their activities cannot be monitored closely. Enterprise value is considered as the total valueof the organization; which is the economic measure demonstrating the market value of theorganization. It is referred to as the sum of claims by all the claimants, creditors as well asshareholders. Impact of ownership structure on financial performanceThere is greater impact of ownership structure on the financial performance of the business. Theseparation between ownership and control impacts the efficiency of the operations. Several typesof ownership structure Exist. In accordance with the views of Shiller, (2013) it includes a soleproprietorship where the entity owned as well as managed by a single person. The majoradvantage of this form of organization is speed of decision making while the disadvantage s willinclude sustaining the loss individually and the ability to raise additional capital.. As per theviews of Coles, Lemmon and Meschke, (2012) the ownership structure such as partnership canalso assist the business in enhancing its performance to a greater extent. Under partnership f twoor more persons carryout operations of the business jointly in order to attain common goal. Ascompared to sole proprietorship in partnership business activities can be carried out with muchmore effectiveness. It has benefit in terms that losses of the entity are shared between/among theindividuals in accordance with the proportion in which they have invested capital.. Majordisadvantage with a partnership is that the partners’ personal wealth is exposed towardssettlement of business liabilities. In partnerships not every partner takes an active role in8

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