Investment Analysis of Bovis Plc. and Carillion Plc.

Running head: INVESTMENT ANALYSIS
INVESTMENT ANALYSIS
Name of the student:
Name of the university:
Author Note:

INVESTMENT ANALYSIS 1
Executive Summary:
The project is about the investment analysis of the Bovis Plc. and Carillion Plc. through use
of financial ratios. In this assignment, deep appraisal has been made for the investing decision
that the investor will take into consideration for investment purpose. The assignment is
prepared to show the finding of financial performance analysis based on which portfolio
restructuring consisting of shares of both the company is made. The assignment is also
evaluated reasons for the collapse of the Carillion Plc., which was one of the major
liquidation in UK in the year 2018.
The finding of the collapse has been interpreted in such a way that it will help the strategy of
portfolio restructuring. The major collapse has singled major insights and failure of financial
statement to report financial distress.

INVESTMENT ANALYSIS 2
Table of Contents
1. Introduction:...........................................................................................................................4
2. Analysis of financial data for investment purpose:................................................................5
2.1 Current ratio:....................................................................................................................5
2.2 Quick Ratio:.....................................................................................................................6
2.3 Operating cash flow:........................................................................................................6
2.4 Net profit margin:.............................................................................................................6
2.5 Gross profit margin:.........................................................................................................6
2.6 Operating Profit Margin...................................................................................................7
2.7 Working Capital Cycle.....................................................................................................7
2.7 Return on Capital Employed............................................................................................8
2.8 Return on Total Assets.....................................................................................................8
2.9 Debt to equity ratio:.........................................................................................................8
2.11 Return on equity:............................................................................................................9
3. Justification of decision taken above:..................................................................................10
4. SWOT Analysis...............................................................................................................11
5. Liquidation of Carillion Plc. :..............................................................................................12
6. Conclusion:..........................................................................................................................13
7. References:...........................................................................................................................14
7. Appendix:.............................................................................................................................17

INVESTMENT ANALYSIS 3

INVESTMENT ANALYSIS 4
1. Introduction:
The whole assignment is prepared to show the strategic portfolio management
consisting of shares of two companies namely Bovis Plc. and Carillion Plc. with the
calculation of ratios from the data derived from the financial statements of both the company.
Portfolio restructuring plays a vital role in mitigating risk and assuring optimal rate of return
to the portfolio. The portfolio restructuring involves continuous analysis of performance of
the company whether from financial point of view or market perception point of view. Both
the company namely Bovis Plc. and Carillion Plc. is engaged in the business of construction
and the person has acquired shares of both the company. The Bovis Plc. is the one of the
largest company of the United Kingdom whereas the Carillion Plc. is ranked 2nd in terms of
market share holding. Since, the investor has made investment in both the companies. Now
the investor is considering to divestment from one of the company. The divestment process
can be done with the deep analysis of key financial ratios such as Gross profit margin, Net
profit margin and Return on equity. (Brown, and Panibratov 2016.)

INVESTMENT ANALYSIS 5
2. Analysis of financial data for investment purpose:
The reliability of investment decision is the result of deep analysis of the financial
statement using different techniques such as ratio analysis, growth factors and dividend
policy adopted by the company. The more efficient the analysis is the more effective decision
can be made. These all factors are more dependent on the company performance and effected
by the relevant market forces, which leads investor to restructure their portfolio as to
maximize return (Acosta-González, Fernández-Rodríguez, and Ganga 2019). The decision to
choose any company for divestment purpose is mainly dependent on the ratios of the
company. The following ratios are the main indicator of financial health of the company
based on which portfolio restructuring decision can be made:
2.1 Current ratio:
It shows the capacity of the company to pay its debt obligation within a short span of
time i.e. within an accounting period. It is the major indicator of the debt paying capacity of
the company. Through use of current ratio, investor analyze whether the company has healthy
cash operating cycle or not. A low ratio indicates company’s inability to pay its short-term
debt obligation unless there is appropriate additional cash flow. A high ratio indicates that the
company has more cash & cash equivalent holdings but it fails to invest the same in
innovation and growth.
The current ratio of Bovis Plc. is 3.54 and Carillion Plc. is 0.82, which shows that the
Bovis Plc. has enough funds to pay its short-term obligations whereas the Carillion Plc. has
running short of fund. Based on current ratio, it is advisable to sell the shares of Carillion Plc.
(See Appendix)