In-depth Financial Analysis of Smith & Nephew: A Company Study Report

This report presents a critical analysis of Smith & Nephew's financial performance, covering the period from 2013 to 2017. It examines revenue trends, operating profit, and key financial highlights, including return on investment and dividend payouts. The analysis delves into the company's market position, successful acquisitions, and risk management strategies. The report highlights the growth in revenue and trading profit, capital allocation framework, and the company's presence in major markets. It also discusses the impact of the Accelerating Performance and Execution (APEX) Programme and provides an overview of the company's stock performance. The conclusion summarizes the investment rating changes and strategic initiatives, emphasizing the company's strong market position and global approach.

Company Study: Smith and
Nephew

TABLE OF CONTENTS
CRITICAL ANALYSIS......................................................................................................................3
Description.......................................................................................................................................3
Financial Highlights.........................................................................................................................3
The reasons are following................................................................................................................3
The output of Smith and Nephew Company....................................................................................4
CONCLUSION...................................................................................................................................5
REFERENCES...................................................................................................................................6

CRITICAL ANALYSIS
Description
In financial year 2017 Smith & nephew”s revenue of $4.77bn and trading profit of $1048m
are marginally underact unison estimates despite a solid Q4, which represent a reported 5% year
over year growth. Earnings per share surmount unison estimates. S&N”S marketing business
activity and courses of actions secured the star billing of succession in all across the geographical
boundary.
Income Statement: 31/12/2017 31/12/2016 31/12/2015 31/12/2014 31/12/2013
$ (Millions) $ (Millions) $ (Millions) $ (Millions) $ (Millions)
Revenue: 4,765.00 4,669.00 4,634.00 4,617.00 4,351.00
Operating Profit / (Loss): 934.00 801.00 628.00 749.00 810.00
Net Interest: (61.00) (46.00) (38.00) (22.00) 4.00
Profit Before Tax: 879.00 1,062.00 559.00 714.00 802.00
Profit after tax from continuing
operations: 767.00 784 410.00 501.00 556
According the income statement of Smith and nephew company revenue are increasing year
over year from financial year 2013 to financial year 2017 revenue increase from 4351.00 $ to
4765.00$ that shows emerging growth of the company. After deducting the operating expenses from
the gross profit the operating profit increase year over year (Brochet, Jagolinzer and Riedl, 2013).
Financial Highlights
1. In ending of the financial year 2017 company recorded $4765m Revenue as compare to
previous financial year 2016 that shows $4669m.
2. 14.3% Return on investment (ROI) capital that reflects betterment in operating profit.
3. In 2017 full year dividend of 35.0$ per share shows the solid growth in adjusted earnings
per share.
Yes investment rating has changed year over year by following the financial statement of the
company.
The reasons are following
1. Market size: - Smith and Nephew Company are leaders in the market for example
Reconstruction, Advanced wound management, sports medicine, orthopaedics and trauma care.
2. Successful Acquisition: - In Oct 23, 2017 Smith and Nephew successfully acquired Rotationa

medical Inc. For $125m and up to a further 85$ over the next five years.
3. Smith and nephew works in widespread operations and solid goodwill in the European market.
4. Smith and nephew Company faces less competition from Johnson & Johnson, Stryker
Corporation, Zimmer holdings.
5. Reform position into the market and deliver excellence performance
6. Risk management recycling process such as risk identification, gross risk assessment, current
control identification, net (residual) risk, risk response planning, risk reporting and monitoring and
Review all of this process reduce the impact of risk which make competitive advantage in chaotic
environment (Grant, 2016).
7. Smith and Nephew Company have opportunity to acquisitive the supplement organic growth.
8. Emphasizes on Emerging market for example Smith and nephew emphasizes on outside the
established market that include China, Brazil, Russia and India.
9. Role of chief financial officer supporting and developing at the group financial activity and
ensuring the financial reporting and processes.
The output of Smith and Nephew Company
1.Financial Performance- Aiming the better revenue growth and a better trading profit margin
for example-In financial year 2017 revenue of smith and nephew is $4765m Revenue and
Operating profit are $934m.
2. Capital allocation framework- Trading profit of the company in financial year 2017 was
$1048m and dividend of $269m was prioritising to the use of cash.
3.14.3% Return on investment (ROI) capital that reflects betterment in operating profit. A
better return on investment indicates the shareholders and stakeholder wealth that focusing on
future prospects of shareholder.
4.United States is the single largest market representing 48% of the global revenue of Smith
and Nephew.
In financial year 2017 group revenue was $4765 million, a raising of 2% in on a reported basis
and 3% on underlying basis1. Trading profit in financial year 2017 was $1048 million. The trading
profit margin from year 2016 to 2017 increases from 20% to 22%.The operating profit for 2017 was
$934 million as compare from 2016 year the operating profit was $801 that shows year over year
increase in the marketplace (Higgins, 2012). Adjusted earnings per share was raise up to 14% at
94.5$ as a result. As per the company report the trading cash flow in 2017 was $940million, up
raising from $765 million in 2016.
In october23, 2017 Smith and Nephew Company acquired Rotation Medical Inc. For an
opening cash of $125million and for next 5 years company liable to pay further $85 million.
In opening month (January) of financial year 2018 smith and nephew share price listed on 1245

GBP and in 9th of April 2018 share price increase from 1245 GBP to 1324 GBP that shows better
movement of the stock. In comparison to 52 week high share price noted on 1442.00Gbp and 52
week lower noted on 1173.00 that shows vary changes in share price to be manipulate. Group
revenue in year 2017 was $4765 million as compared to year 2016 revenue $4669 million that
shows increase of 3% on the underlying basis of the assets (Kadous, Koonce and Thayer, 2012).
Accelerating Performance and Execution (APEX) Programme is started for the annualised
profit of $160 million by 2022 throughout by the better execution and management. Revenues are
expected to increase 3%-4%. Scope of global operation contains manufacturing, direct procurement,
supply chain logistic, engineering development, quality assurance, global regulatory affairs.
Trading cash flow upwards from $765 million to $940 million in 2016, with higher trading
profit ratio. Smith and Nephew share listed on both of exchange that is New York Stock Exchange
and London Stock Exchange (LSE: SN, NYSE:SNN).
CONCLUSION
After reading all that financial rating points Smith and Nephew we can say that the
investment rating of the company has changed. Full year reported of financial year 2017 reported
revenues of $4.77bn were hike by up to 2%. Recent acquisition are strategically working with
current environment of the company with the divestment of its gynaecology from which stakeholder
and shareholder gets benefited. Smith and nephew are the major medical device maker in European
market which have wide range of product and approach in the global market.
Capital allocation framework of smith and nephew:
1. Reinvest for organic growth.
2. Progressive of Dividend Policy.
3Acquisation in line with strategy.
4. Return excess of shareholders.
5. Maintain strong balance sheet to ensure solid investment grade credit metrics.

REFERENCES
Books and Journals
Brochet, F., Jagolinzer, A. D. and Riedl, E. J., 2013. Mandatory IFRS adoption and financial
statement comparability. Contemporary Accounting Research. 30(4). pp.1373-1400.
Grant, R. M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Kadous, K., Koonce, L. and Thayer, J. M., 2012. Do financial statement users judge relevance
based on properties of reliability?. The Accounting Review. 87(4). pp.1335-1356.
Louis, H., Lys, T. Z. and Sun, A. X., 2014. Conservatism, analyst ability, and forecast error:
evidence on financial statement users' ability to account for conservatism.
Moher, D. and et.al., 2015. Preferred reporting items for systematic review and meta-analysis
protocols (PRISMA-P) 2015 statement. Systematic reviews. 4(1). p.1.
Ongore, V. O. and Kusa, G. B., 2013. Determinants of financial performance of commercial banks
in Kenya. International Journal of Economics and Financial Issues. 3(1). p.237.
Tukdeo, R., 2015. Analysis of financial statements.
Vasarhelyi, M. A., Chan, D. Y. and Krahel, J. P., 2012. Consequences of XBRL standardization on
financial statement data. Journal of Information Systems. 26(1). pp.155-167.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Financial & managerial accounting. John
Wiley & Sons.
Online
Company details, 2017. Financials. Available through<
http://www.smith-nephew.com/global/images/investor-relations/financial%20review
%20charts_annual%20report%202017.png >.

APPENDIX
Figure 1: Financial Statements of Company

(Source: Company details, 2017)
Figure 2: Share price chart of Smith and Nephew Company
(Source: Company details, 2017)