Financial Performance Analysis of Intertek Group Plc - AC4410

This report provides a financial analysis of Intertek Group Plc, a multinational product testing, inspection, and certification company, using ratio analysis. The analysis covers profitability, liquidity, efficiency, and debt ratios based on the company's financial statements. The report identifies both positive ...Read More

Running head: ACCOUNTING AND FINANCE
Accounting and Finance
Name of the student
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Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
Analysis of Ratios............................................................................................................................2
Strategic Recommendations............................................................................................................5
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

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Introduction
The main aim of this report is to analyze and evaluate the financial performance of one of
the major companies of United Kingdom, Intertek Group Plc. Intertek Group Plc is a
multinational product testing, inspection and certification company. The company was
established in 1888 and it is headquartered at London, United Kingdom (UK) (intertek.com
2018). For the purpose of financial analysis, Ratio Analysis tool is used. Financial analysis on
Intertek Group will be majorly helpful to identify the financial trend of the company along with
current financial issues related to financial performance.
Analysis of Ratios
Profitability Ratios
From the above table, it can be observed that there is an increase in both operating profit
margin and net profit margin that indicates good financial performance of Intertek Group. In
2017, operating profit margin of 15.26% implies that Intertek Group has made £0.152 before
interest and taxes for every pound of sales (intertek.com 2018). In addition, net profit ratio of
11.06% states that the company has become able to convert 11.06 percent of sales into profit. It
can be noticed that Intertek Group has been able to increase their sales; and the increase in sales

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provided large assistance to the company to increase their operating margin and net profit
margin. Thus, from this part, it can be observed that the company is on the way to uplift their
profitability position by boosting their sales (Scott 2015).
Liquidity Ratios
From the above table, it can be seen that there is a decrease in both current ratio and
quick ratio of Intertek Group (intertek.com 2018). A current ratio more than 1 implies that
Intertek Group has enough current asset to pay all of their current liabilities and will still has
some current asset left over. It is a good sign for the company. This same trend can be seen in
case of acid test ratio as acid test ratio more than 1 states that Intertek Group has enough amount
of liquid assets to pay off their current liabilities and will have left with more liquid assets. This
aspect is also a good sign for the financial condition of the company. However, decrease in
current assets and increase in current liability is a worry for the company as it can affect its
liquidity position (Edwards 2013). Thus, Intertek Group is required to formulate effective
strategies to revive this situation.

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Efficiency Ratios
The analysis of asset turnover ratio shows the ability of the firms to use their assets for
the generation of higher sales and thus, higher asset turnover ratio is favorable for the companies.
From the above, it can be seen that there is an increase in asset turnover ratio of Intertek Group.
It implies that the company is using their assets effectively for generating sales and increase in
sales is a reflection of their strategies. In case of accounts receivable turnover ratio, an increase
can be seen in 2017 as compared to 2016 (intertek.com 2018). The analysis of this ratio shows
the efficiency of the companies in collecting all credit sales from their customers. From the
above table, it can be seen that Intertek Group is able to collect their dues from customers for
almost 4.5 times in a years. All these aspects shows the overall financial efficiency of Intertek
Group (Weil, Schipper and Francis 2013).

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Debt Ratios
Debt ratio is a major solvency ratio helping the firms in measuring firm’s total liabilities
as a percentage of their total assets. From the above table, it can be observed that Intertek Group
has debt ratio more than 0.50 in both 2017 and 2016 (intertek.com 2018). It implies that the
company has more amount of debt as compared to their total assists. It implies that Intertek
Group will face difficulties in paying backs their loans and other liabilities. On the other hand,
the analysis of debt-to-equity ratio shows the percentage of company is financing coming from
creditor and investors. Both in 2017 and in 2016, this particular ratio is high for Intertek Group.
It means the company largely depends on term loans for capital (Beatty and Liao 2014). This
particular aspect makes Intertek Group risky and highly leveraged. Moreover, Intertek Group
needs to incur high amount of interest expenses for these long-term liabilities.
Strategic Recommendations
Based on the above analysis, some strategic recommendations are provided below:
 Intertek Group should put more emphasis on increasing the revenue for improving the
profitability position. For this reason, Intertek Group needs to target the high margin
products. In addition, they need to review their expenses for the scope to reduce them.

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All these aspects will increase the revenue of the company that will eventually increase
the profitability position (May 2013).
 Intertek Group is required to adopt the strategy of using equity shares for the purpose of
raising capital as there are many advantages of equity capital. First, Intertek Group will
not have to incur high amount of interest expenses. After that, it will reduce the risk of
the business. This strategy will boost the financial performance of Intertek Group
(Henderson et al. 2015).
 It is recommended to Intertek Group to develop strategies for increasing the amount of
assets. From the above analysis, it can be seen that Intertek Group does not have enough
assets to cover the liabilities. For this reason, Intertek Group needs to increase their
income so that they can be able to pay off their liabilities. In addition, Intertek Group is
required to buy more assets so that they can be utilized for generating higher amount of
revenue (Henderson et al. 2015).
Conclusion
From the above discussion, it can be observed that Intertek Group has a mixed financial
condition. There is not any problem in the profitability and liquidity position of Intertek Group as
the company is doing well in these areas. However, Intertek Group is required to increase their
efficiency by inserting more assets in the system so that they can be well utilized. In addition,
Intertek Group is also needs to improve their debt position by reducing the amount of liabilities
and to issues more equity shares for raising capital. All these strategies will help in reviving the
financial performance of Intertek Group.

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References
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
Edwards, J.R., 2013. A history of financial accounting (RLE Accounting) (Vol. 29). Routledge.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Intertek.com. (2018). About Us . [online] Available at: http://www.intertek.com/about/
[Accessed 5 Apr. 2018].
Intertek.com. (2018). Reports & Publications . [online] Available at:
http://www.intertek.com/investors/reports/ [Accessed 5 Apr. 2018].
May, G.O., 2013. Financial accounting. Read Books Ltd.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.

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