Portfolio Restructuring and Investment Analysis

Running head: PORTFOLIO RESTRUCTURING AND INVESTMENT ANALYSIS
Portfolio restructuring and Investment analysis.
Name of the student:
Name of the university:
Author Note:

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Executive Summary:
The assignment is prepared to show the investment analysis of the Bolvis plc and Carillion
plc through use of major key performance indicators. In this report, deep analysis is
performed for the investment decision that the investor should take into consideration for
securing expected return from investment. This assignment also explains the concept of
portfolio restructuring and the factors based on which portfolio restructuring is made. The
portfolio restructuring has been done based on the finding of financial analysis of both the
company. The assignment is also explained the reasons behind the collapse of the Carillion
plc, which was one of the major liquidation in UK in the year 2018.
The finding of the collapse is explained and interpreted in such a manner that the result can
be termed as a lesson for investment purpose. The collapse and financial distress of the
carillion plc has resulted into some warning signs for those who only upon the financial
statement of the company. It also questioned the reliability of the financial statement of the
company.

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Table of Contents
1. Introduction:...........................................................................................................................3
2. Analysis of financial statement for portfolio restructuring:...................................................4
2.1 Current ratio:....................................................................................................................4
2.2 Operating cash flow:........................................................................................................5
2.3 Net profit margin:.............................................................................................................6
2.4 Gross profit margin:.........................................................................................................6
2.5 Return on equity:..............................................................................................................7
3. Justification:...........................................................................................................................9
4. Reasons and findings from liquidation of Carillion plc:......................................................11
5. Conclusion:..........................................................................................................................14
7. References:...........................................................................................................................15
7. Appendix:.............................................................................................................................18

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1. Introduction:
The whole assignment is prepared to show the portfolio management consisting of
shares of two companies namely Bolvis 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 Bolvis plc and Carillion plc is engaged in the business of construction and
the person has acquired shares of both the company. The Bolvis 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.

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2. Analysis of financial statement for portfolio restructuring:
The investment or divestment strategy under portfolio management is mainly
dependent upon the financial statement of the company. The financial statement helps in the
portfolio restructuring to reduce overall risk up to acceptable level insuring optimum return
from the portfolio. Financial statement of any company is the information based on which
financial health of the company can be determined and it can be analyzed to predict the status
going concern concept of the company. The investment strategy is mostly dependent upon the
major financial ratios and the financial health of the company. It also predicts the expected
growth rate of the company.
The reliability of investment decision is mainly dependent upon the analysis of the financial
statement using different accounting techniques such as ratio analysis, growth factors and
dividend policy of the company. The more accurate the analysis is the more efficient decision
can be made based on it.
The process divestment is generally dependent upon no. of factors such as investor’s
perception regarding expected return, and growth of investment made. These all factors are
related to an analysis of such factors, which is done based on the company performance and it
will be influenced by the relevant market forces, which leads investor to reallocate their
investment in the portfolio as to maximize return and diversification of risk associated with it.
Financial ratios are the major indicator of financial performance of the company and it can be
analyzed to evaluate the major portfolio restructuring decision such as investment and
divestment. The following ratio can be used in investment decision purpose:

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2.1 Current ratio:
It shows debt paying capacity of the company in short period of notice i.e. within an
accounting period. This financial ratio is the comparison between current liabilities as well as
the current assets of the organization. It is the signal of the health of the company in terms of
fulfilling its capacity debt repayment. Investors generally uses this ratio to ascertain whether
the company has a healthy operating cash cycle or not. A low current ratio indicates that
company is not able to pay its short-term debt and it requires additional working capital to
pay its debt obligations. A high ratio is the indicator of high working capital holding of the
company. It indicates that the company has generated more cash & cash equivalent through
its operational activities. A high ratio sometimes perceived as a failure of company to
reinvest excess working capital holding by the company.
Through calculation of current ratio, the Bovis plc has current ratio of 3.54 whereas
carillion plc has 0.82, which indicates that the Bovis plc is financial healthy in terms of
fulfilling their short term requirements of cash & cash equivalents to pay its debts. Based on
the analysis of current ratio, divestment through selling the shares of Carillion Plc is
advisable. (See Appendix)
2.2 Operating cash flow:
It is analyzed to show the company’s performance in terms of generating cash from its
operating. The financial experts generally uses operating cash flow data to get the idea
whether the company is able to pay its expenses through cash flows from operating activities
or whether it needs external source of funding to finance its expenses. The operating cash
flow of Carillion plc is £ 73.30 million whereas Bolvis Plc. has operating cash flow of £
61.80 million, which indicate that the Bolvis plc has generated less operating cash flow in
comparison with later. Therefore, based on above analysis the shares of the Carillion plc may