Financial Statement Analysis of Aggreko

FINANCE

Part 1.
Historical trends for the adjustment entries
AA company
The most important component of analysing a company is the revenue figure. On analysing
the trends from 2012 to 2016 we can see that the revenue figures are 973.9, 968, 973.6, 984
and 973( in millions of pounds). So we can say that the company’s revenue is fluctuating
over the years but there is not a very high volatility. Now, lets see the profitability trend of
the company. In the year 2016, the profit is only 6 million of pounds whereas in the previous
year it was 69. This reflects the adverse performance of the company in the present year. The
profit for the previous years was very high which means that either the company is spending
a lot on selling and distribution expense. The reason for the fall in the current year profit is
the huge amount of finance cost (Loughran, 2011).
Now, in order to examine the financial position of the company let us take into consideration
some balance sheet items. The most important thing which the analyst first analyses is the
non current liabilities of the company. In the year 2016 the amount is 3248 but in the
previous year it was 3707 which shows that the company has paid off certain amount of
liabilities. On analysing the equity portion of the balance sheet we see that the figure has
fallen, this may be due to the fall in profits which has resulted to less transfer in retained
earnings (Harrison, Horngren & Thomas, n.d.).
Now let us taken into consideration the cash flow statement of the company, the company has
a huge and an increasing cash flow from operating activity in the current year. The cash
outflow figure from investing activity is quite high which shows that the company has made a
lot of investments in the current year but it was seen in the past that the investments made
were considerably low (Libby, Libby & Short, 2014). The company has also taken part in a
lot of financing activities which has impacted the cash balance. The cash and cash equivalent
was increasing from 2012 to 2015 but suddenly due to major investment and financing
activities, there is a fall in the cash balance (Ittelson, 2009).
Aggreko
We are making an analysis from 2012 to 2016. In the year 2012, there was a profit for 276
millions whereas currently the company earned a profit of 158 million which shows that there
is a decline in the profits over the years. This means there is a change in the performance of
the company. Now let us consider the sales figure to understand the performance more
precisely. There is not a huge change but still there is a decline in the sales figure. In the year
2012 it was 1583 and it kept on falling over the years and reached 1515 in the year 2016.
Now let us look the financial position of the company which would give us a rough idea
about the asset, liabilities and equity of the company on a particular date. The non current
liabilities of the company has drastically increased over the years. Initially it was just 498 but
with the passing years it has increased tremendously and reached 723. This is not considered
favourable by the investors (Warren, Reeve & Duchac, n.d.).

Lastly, let us take into consideration the cash flow statement. There is a fall in the cash inflow
from the operating activities which is the most negative sign that can be seen in a company’s
financial statement. The company has made several investment this year and therefore, the
cash outflow has risen to 267. This shows that the company is trying to grow and improve.
However, there is a decline in the cash flows from financing activities when compared to the
previous years (Piper, 2015).
Part 2.
Historical trends of financial ratios
There are two companies that we are going to consider in this project. The name of the first
company is AA and the name of the second company is Aggreko. We are going to carry out a
trend analysis for 5 years for both the companies I.e. from 2012 to 2016.
Trend analysis of Aggreko.
We all know that a company survives in order to earn huge profits. So, if the profitability of
the company is falling then there may be some fault or inefficiency in the management or any
other factors (Atrill & McLaney, 2009). The profitability of the company gives us the clear
view of its financial performance. It has been observed that the gross profit as well as the net
profit margin of the company has been falling over the years which are very unfavourable.
The net asset turnover of the company has fallen from 1.02 to 0.72 which is an indication that
the company is not able to use the assets of the company in an optimum manner. Return on
capital employed is the return earned by the company on the investment that has been made,
it has also shown a falling trend from 0.25 to 0.095. All these ratios which have been
discussed falls under the profitability ratio and is considered higher the better (Hart, Wilson
& Keers, 2001).
It is important for the company to have a favourable liquidity ratio so that it can pay off the
short term liabilities of the company. The two ratios that has been computed are the current
ratio and the quick ratio. The current ratio of the company is considered favourable when it is
equal or greater to 1. It is seen in the calculation that the current ratio in the year 2012 was
1.11 and has increased over the years and reached 2.3 which is very good (Shim, Siegel &
Shim, 2013). However, the quick ratio is similar to current ratio but it excludes the value of
inventories because inventories are not very easily converted into cash. The quick ratio has
also shown a growing trend so it reflects an extremely good liquidity position.
Gearing ratio is calculated to know the presence of debt in comparison to the owner fund.
Huge proportion of debt in the balance sheet is usually not preferred by the investors as it
indicates a high credit risk (Loganathan, 1997). The debt equity ratio is considered lower the
better, however there is a very less fluctuation in the ratio but the ratio is not very high. The
interest coverage ratio is the most important gearing ratio as it helps the investors to know
whether the company is being able to pay the interest without any default. The higher the
interest coverage ratio, the better it is. The ratio is falling drastically and has declined from