Financial Performance Analysis of Royal Mail Plc.

23 December 2018

REPORT 1
Table of Contents
Introduction................................................................................................................................2
Analysis of Financial Statements: Theoretical Framework.......................................................2
Analysis of Financial Statements: Practical Application...........................................................3
Ratio Analysis........................................................................................................................3
Profitability........................................................................................................................3
Liquidity.............................................................................................................................5
Efficiency or the Working Capital Management...............................................................6
Solvency.............................................................................................................................7
General Financial Data and Stock Price Analysis..................................................................8
Conclusion..................................................................................................................................9
References................................................................................................................................10

REPORT 2
Introduction
The accounting regulating organisations of various nations cast a duty of the management of
an entity to prepare and present the financial statements of an entity, which represent a true
and fair view of the affairs of the entity. The fair and transparent representation assists the
stakeholders and experts to arrive at meaningful business and other decisions (Fabozzi and
Drake, 2009). The following report is aimed at analysing the financial performance of the
entity Royal Mail Plc. The company Royal Mail Plc. is engaged in the business of postal
services and courier services in the UK. The shares of the entity are listed on the London
Stock Exchange. The company belongs to the Integrated Shipping & Logistics industry. The
company operates its business through a number of subsidiaries such as Royal Mail Group
Limited and the General Logistics Systems. The report will make use of the various ratios to
analyse the financial performance of the entity over the period of five years, i.e. the financial
years starting from year 20145 to 2018. The report is further aimed at analysing the trends in
the stock market of the share prices of the said entity. This would be followed by the
conclusion as to whether it is vital to invest in the entity on the basis of the financial health of
the company.
Analysis of Financial Statements: Theoretical Framework
As prescribed in the US GAAP framework formulated by the regulators, financial statements
are prepared with the intention to serve the various stakeholders. It must further be noted that
these statements must be in the comparative format in order to evaluate the performances in a
detailed manner. In addition, it is significant to note that, as there exist a number of
stakeholders, there is no specific purpose for the preparation and presentation of the financial
statements. This means that financial statement serves as the base for a number of decisions,
such as lending, buying, and regulating and many more (Delen, Kuzey and Uyar, 2013).
While the investors are keen to know the overall financial health of the company, the
regulators have the prime objective of ensuring that the statements comply with the corporate
governance requirements and applicable accounting framework (Robinson et. al, 2015). Thus,
in order to make the decisions, stakeholders must analyse the statements according to their
needs. Further, the statements provide a competitive analysis of the performance with respect
to the performance of the competitors belonging to the same industry.

REPORT 3
There have been prescribed a number of techniques for analysing the financial vitality of an
enterprise. These techniques make use of the relevant and specific data from the financial
statements and the market, about the enterprise (Stickney et al., 2009). One such technique is
ratio analysis. A comparative ratio analysis aids an individual to gain an insight about the
profitability, efficiency, liquidity, and solvency positions of an entity. The ratios are further
useful when compared with the industry average and the relative data of the competitors
(Bragg, 2012). In addition, the ratios aid in further trend analysis and thus overall financial
vitality of a company can be assessed.
Another way of evaluating the current performance and the worth of an entity is by making
use of the stock’s price, as derived from the live market or the stock exchange where the
shares of a public company are traded. It is significant to note that the analysis of the stock
price in the light of the historical performance of an enterprise would yield limited results
(Hillier, Grinblatt and Titman, 2011). The said evaluation must be done in conjunction with
the company’s future prospects and the current news in relation to recent agreements entered
into by an entity. An industry analysis must also be combined. The evaluation on the above
lines will give an overall insight at a macro level of the position of an enterprise.
Accordingly, the stakeholders can make investment and regulatory decisions.
Analysis of Financial Statements: Practical Application
Ratio Analysis
Profitability
The profitability position of an entity can be primarily assessed with the help of three key
ratios namely the return on equity, the gross profit margin, and the net margin (profit) ratio.
While the net profit ratio is calculated as the percentage of profits to the revenues, the return
on equity is computed as the percentage of profit on the total shareholder’s equity. The gross
profit is calculated taking the percentage of gross profit on the revenue. These ratios aid in
the evaluation of the company’s ability to generate income against the expenses and other
incidental costs incurred towards the income generation (Gill, Biger and Mathur, 2010). The
following graph depicts the net profit ratio in respect of the Royal Mail Plc. over the last five
years.