Financial Ratio Analysis and Investment Appraisal: A Case Study of Gambling Companies in the UK

ACCOUNTING AND FINANCE FOR MANAGERS

Table of contents
Section A.......................................................................................................................................3
1.a Financial ratio analysis............................................................................................................3
1.b Identifying the best performing company...............................................................................11
1.c Identifying the poor performing company..............................................................................11
Section B.....................................................................................................................................12
2.a Identifying and explaining the key stages in the capital investment decision making process
.....................................................................................................................................................12
2.b Identifying and explaining the key methods of investment appraisal....................................14
Reference list...............................................................................................................................17

Section A
1.a Financial ratio analysis
Financial ratios can be considered as one of the best performance indicators of the companies.
Considering the growth scenario of the Gambling industry in the United Kingdom, it can be
stated that analyzing the financial performances of the companies is very important. Here, the
performances of the three Gambling companies in UK have been analyzed using the financial
ratios:
Financial ratios of William Hill:
Financial ratios 2016 2015 2014
Profitability ratios:
Gross profit margin 81.74 85.27 88.57
EBIT margin 13.72 14.01 17.41
ROE using the net income 13.42 15.62 17.78
Liquidity ratios:
Current ratio 0.71 0.52 0.76
Quick ratios 0.71 0.52 0.76
Operational ratios:
Net assets turnover 0.80 0.95 0.81
Interest cover 4.51 5.47 5.76
Collection period (days) 5 1 2
Credit period (days) 29 24 24
Gearing ratio:
Gearing 65.86 63.07 73.30
(Source: Sports.williamhill.com 2018)
Financial ratios of Ladbrokes:

Financial ratios 2016 2015 2014
Profitability ratios:
Gross profit margin -14.15 -3.60 3.21
EBIT margin -0.50 -0.19 6.72
ROE using the net income -14.24 1.12 10.47
Liquidity ratios:
Current ratio 0.33 0.65 0.59
Quick ratios 0.33 0.65 0.59
Operational ratios:
Net assets turnover 0.62 1.36 1.25
Interest cover -0.19 -0.08 2.76
Collection period (days) 1 2 2
Credit period (days) 25 15 16
Gearing ratio:
Gearing 96.75 93.19 140.90
(Source: Ladbrokes.com 2018)
Financial ratios of Paddy Power:
Financial ratios 2016 2015 2014
Profitability ratios:
Gross profit margin 76.91 75.92 80.97
EBIT margin 0.88 15.54 18.42
ROE using the net income -0.13 212.57 37.45
Liquidity ratios:
Current ratio 0.99 0.82 1.34
Quick ratios 0.99 0.82 1.34
Operational ratios:
Net assets turnover 0.33 3.94 2.22