Financial Analysis of a Company

This assignment presents a detailed financial analysis of a company, utilizing various financial ratios to assess its performance and health. The analysis includes calculations for key ratios such as gross profit margin, operating profit margin, return on capital employed (ROCE), liquidity ratios, solvency ratios, and profitability ratios. The results are then interpreted to provide insights into the company's strengths and weaknesses, highlighting areas of concern and potential improvement.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors note:

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Table of Contents
Introduction......................................................................................................................................2
Profitability ratio..............................................................................................................................2
Operating profit ratio...................................................................................................................3
Return On capital.........................................................................................................................3
Liquidity ratio..................................................................................................................................4
Current ratio.................................................................................................................................4
Quick ratio...................................................................................................................................5
Investment related ratio...................................................................................................................5
Interest Coverage ratio.................................................................................................................6
Gearing ratio................................................................................................................................6
Earnings per share........................................................................................................................6
Dividend payout ratio..................................................................................................................6
Price earnings ratio......................................................................................................................7
Conclusion.......................................................................................................................................7
Reference.........................................................................................................................................9
Appendix........................................................................................................................................11

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Introduction
The analysis of ratio is used for evaluating several aspects of a
particular company’s financial and operating structure. They help in
maintaining the solvency, profitability, liquidity and efficiency of the
company on a whole. Ratios are compared in various companies working on
same sector for seeing their annual performance and getting an idea on their
comparative valuations.
The use of analyzing ratio in the business management sector is that
they help in summarizing financial data by providing with easier
interpretation of the financial statements (Bodie 2013). They are also
enabling for making qualitative judgment on the financial performance of a
business firm drastically. In this report, an attempt is made to analyze the
financial ratios of BTG Plc for analysing the performance of the company.
Profitability ratio
The financial metrics that are used for accessing the ability of a business in generating
earnings by comparing relevant costs and expenses incurred over a certain time is known as
profitability ratio.
The ratios are helpful in the analysis of the company’s performance that includes
operating margin, profit margin, and return on equity, return on assets, return on investment and
return on sales (Uechi et al. 2015).

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Another aspect of this profitability ratio is that it deals with the overall performance and
efficiency of a company. The ratios are divided in two kinds: Returns and Margins. Ratios
showing margins determine the company’s ability in translating the sales dollar in profit during
various steps of measurement. The returns ratio represents the ability of the company in
measuring overall efficiency and helping in the process of generating returns for their
shareholders.
Gross Profit Ratio
In the year 2016 the Gross profit ratio was 68.54% which marginally decreased to
68.47% in the year 2017. This was because there was increase in the amount of cost of sales and
marginal increase in financial expenses as well.
Operating profit ratio
Another major aspect for a company to run properly is its operating profit margin. It can
be seen that the Operating Profit Ratio of the company has fallen significantly. The operating
profit ratio for the year 2016 was 12.63% which dropped down to 10.08% in 2017. The reason
for such decrease is that the profit after tax for the year 2017 had decreased almost by 50%. The
net profit after tax in 2016 was 60.5 million which decreased to 33.6 million in 2017.
(Damodaran 2016).
Return On capital
Whether the particular company is running at profit or loss can be found by reviewing on
its capital return. The return on capital employed of the company in 2016 was 5.52% which
decreased to 5.02% in 2017. This indicates that the capital resources was not utilized efficiently
by the company.

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GPR OPR ROCE
0
10
20
30
40
50
60
70
80
2016
2017
Loss
Liquidity ratio
The company’s ability to meet the financial obligations is termed as
liquidity. The computation used for measuring the ability of the company to
fulfill its payment of short term debt is termed as liquidity ratio (Babalola and
Abiola 2013). They can be measured in three ways out of which current ratio
is most liberal, followed with acid and cash ratio. The ratios are grouped by
the financial analysts for measuring the company’s liquidity accurately.
Current ratio
The current ration must be calculated to measure the liquidity position
of the company. In this case it is seen that the current ratio has gradually

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fallen in 2017 than 2016. In 2016 the current ratio of the company was 2.38
which fell down to 2.07 in 2017. This is due to decrease in the amount of
other current assets and increase in the amount of deferred tax liabilities.
Quick ratio
The quick ratio is calculated based on the assets provided by the company. It shows the
growth or loss of the company over a certain time. In this case it is seen that in 2016 the quick
asset ratio was 2.01% which decreased considerably to 1.72% in 2017. The primary reason
behind such decrease is the increase in the amount of current liabilities. Moreover it can also be
observed that the proportionate amount of increase in the amount of cash and equivalents is less
than the proportionate amount of increase in the amount of total current ratio which resulted in
such figures of the quick ratio.
Current Ratio Quick Ratio
0
0.5
1
1.5
2
2.5
2016
2017
Loss

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Investment related ratio
The Investment ratio helps in comparing between a bad and a good
company. They make sure of the investment made in the company to turn
out fruitful. Some investment ratios are cited commonly for determine the
company’s growth. They help to know the process of interpreting the
numbers, making it crucial for the investors (Delen et al. 2013).
Interest Coverage ratio
The main loss of the company is seen by calculating its Interest coverage ratio. This ratio
determines the easy way in which a company will be able to pay the interest on its debts that are
outstanding. It can be found out that it was 16.62% in 2016. This drastically came down to
1.97% within 2 years. The reason is that in the income statement, it can be observed that the
financial cost have increase in 2017 to 29.2 million which was just 3.4 million in 2016. Thus
such rise in financial expenses resulted in the occurrence of such circumstances. (Almamy et al.
2016).
Gearing ratio
The influence of the company’s investment lies on its gearing ratio analysis. In this
respect it can be seen that the ratio has come down a lot. Gearing ratio can be termed as financial
ratio that compares the funds that are borrowed by particular company with the Owner’s capital
or equity. In 2016 the gearing ratio was 17.20% but in the year 2017 it dropped down to 14.46%.
This indicates that the company is employing more debt than equity which is really an essential
issue for the company and requires immediate attention to solve the same.(Baños-Caballero et al.
2014).

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Earnings per share
The Per share earnings is another important factor for running a
company. It shows the financial position of the company. In this regard it can
be seen that in 2016 the company’s earnings per share was 15.81p which
reduced to a large margin in 2017 almost half at 8.74p. This is due to the
fact that there is a significant decrease in the net profit of the company by a
large margin in the year 2017 as compared to the year 2016.
Dividend payout ratio
It is essential to measure and calculate the dividend payout by every
company as it helps in determining the total income earned by the company.
In case of this company as it is evident from the financial statements of the
annual report that there was no dividend paid on the shares to the
shareholders of the company neither in the year 2016 not in 2017. Thus the
dividend payout ratio was found to be nil in both the cases.
Price earnings ratio
The price earnings ratio help the company’s share of the present market price to be
divided by the per share earnings of the particular company. It is seen in regard to this particular
company that the ratio of price earning has rose from 39.18% in 2016 to 67.10% in 2017 itself.

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Interest
Coverage Ratio Gearing Ratio Earnings Per
Share Divident Payout
Ratio Price Earnings
Ratio
-40
-20
0
20
40
60
80
2016
2017
Loss
Conclusion
In this report, it is hoped that some lime light have been shed on the company’s ratio
analysis. The information may help in wise investment decision.
The things that needed to be looked in to about the company already mentioned above
can be recapped as that the publication of Financial reports are done annually or quarterly. It is
also seen that ratios are not the only factor but they are helpful as they compares reports of other
company, previous year’s economy and averages of the Industry with the current status. It is also
found out that there is variation in every ratio analysis.
A basic tool for knowing the financial status of a company is termed as Ratio Analysis. It
is the important portion for planning the business process. SWOT analysis is not complete
without the financial position of the company being analyzed. The Ratio Analysis is an
important part for the strategic planning of the business that is done by the company itself.

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Another aspect is the solvency ratio that shows a relationship among the total assets and total
liability of the company on a whole, enabling to know whether it is running at a profit or loss.
Reference
Al Karim, R. and Alam, T., 2013. An evaluation of financial performance of private commercial
banks in Bangladesh: ratio analysis. Journal of Business Studies Quarterly, 5(2), p.65.

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Almamy, J., Aston, J. and Ngwa, L.N., 2016. An evaluation of Altman's Z-score using cash flow
ratio to predict corporate failure amid the recent financial crisis: Evidence from the UK. Journal
of Corporate Finance, 36, pp.278-285.
Babalola, Y.A. and Abiola, F.R., 2013. Financial ratio analysis of firms: A tool for decision
making. International journal of management sciences, 1(4), pp.132-137.
Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital
management, corporate performance, and financial constraints. Journal of Business
Research, 67(3), pp.332-338.
Bodie, Z., 2013. Investments. McGraw-Hill.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate
finance (Vol. 324). John Wiley & Sons.
Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios: A
decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Evans, J.R. and Mathur, A., 2014. Retailing and the period leading up to the Great Recession: a
model and a 25-year financial ratio analysis of US retailing. The International Review of Retail,
Distribution and Consumer Research, 24(1), pp.30-58.
Ibn-Homaid, N.T. and Tijani, I.A., 2015. Financial Analysis of a Construction Company in Saudi
Arabia. International Journal of Construction Engineering and Management, 4(3), pp.80-86.
Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y., 2015. Sector dominance
ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421,
pp.488-509.

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Appendix
Ratios 2017 2016
Gross profit margin 68.47% 68.54%
Operating profit margin 10.08% 12.63%
Return on Capital employed (ROCE) 5.02% 5.52%
Current ratio 2.07 2.38
Quick asset ratio 1.72 2.01
Interest cover 1.97 16.62
Gearing 14.46% 17.20%
Earnings per share (EPS) 8.74p 15.81p
Dividend pay-out ratio 0 0
Price Earning (EP) ratio 67.10 39.18
Ratios