IMI plc Financial Analysis

FINANCIAL
DECISION MAKING
IMI PLC
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TABLE OF CONTENTS
Section A.................................................................................. 1
Introduction.............................................................................1
State of the Industrial Engineering Industry...............................2
Financial Analysis.....................................................................2
Profitability Ratios....................................................................................3
Efficiency Ratios.......................................................................................4
Liquidity Ratios.........................................................................................5
Solvency Ratios........................................................................................6
Market Ratios...........................................................................................7
Section B.................................................................................. 8
Critical Reflection...................................................................... 8
Corporate Governance Mechanism.............................................9
Valuation................................................................................ 10
Conclusion.............................................................................. 11
References.............................................................................12
Section A
Introduction
IMI PLC is a engineering company with headquarters in Birmingham. It
was formerly known as Imperial Metals Industries due in the 1990’s, the

FINANCIAL DECISION MAKING
company disposed the metal founding and metal smelting businesses. The
company currently has three major divisions namely critical engineering,
hydroponic engineering and precision engineering. Only a small portion of
the revenues of the company is derived from UK (about 5%) while Europe,
Emerging Markets and US account for more than 85% of the company’s
revenues. The products and services of the companies particularly deal
with fluid control in various industrial applications found useful in oil &
gas, power, actuation along with petrochemicals. The company embarked
on a decade long transformation process which enabled the company to
divest the non-core beverage and business intelligence businesses and
hence focus solely on the core businesses (IMI, 2016). The objective of the
given report is to carry a critical analysis of the financials of the company
in order from the perspective of making an investment.
State of the Industrial Engineering Industry
The ongoing time for the industry is challenging primarily on account of
fall in crude oil prices which has resulted in major projects being
postponed indefinitely. The traction from the petrochemical industry
continues to be lacklustre. Besides, the decline in prices of crude oil has
also adversely impacted the economics of shale extraction. Further, the
growth in the power industry in the USA in 2016 was quite lacklustre,
however, the demand in this sector from emerging sector continues to be
robust (IMI, 2017). It is quite possible that in the near to medium term, the

FINANCIAL DECISION MAKING
crude oil prices could stabilise at moderately higher levels which would be
positive for the industry and especially for iMI.
Financial Analysis
The primary financial analysis tool that has been deployed is ratio analysis
which tends to focus on performance of the company in various aspects
thus considers not only profitability but also capital structure, liquidity
along with market performance. A time period of 5 years has been
considered for the ratio analysis.
Profitability Ratios
The profitability ratios for the company over the last five years is
summarised in the table indicated below (IMI, 2013; 2014; 2015; 2016;
2017).
According to Damadoran (2008), the profitability margins are significantly
as the businesses with higher profit margins tend to command higher P/E
which creates wealth for the shareholders. Additionally, consistency is
also essential. The gross profit of the company has continued to stay
within 42% to 46%. It is critical to note that considering that majority of
the revenues of the company are derived from outside UK in foreign
currency, hence there are fluctuations in revenue owing to foreign