Financial Performance Analysis of Royal Mail Plc : Report

FINANCE

Table of Contents
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
Financial performance analysis.............................................................................................3
QUESTION 2.............................................................................................................................9
a) Highlands Wind Farm.......................................................................................................9
b) Outsourcing production of bolts......................................................................................12
QUESTION 3...........................................................................................................................14
Balanced scorecards............................................................................................................14
CONCLUSION........................................................................................................................16
REFERENCES.........................................................................................................................17

TASK 1
To: Board of Director of Royal Mail Plc
From: Royal Mail Plc's accountant
Date: 21st April, 2016
Subject: Analysis of company performance for the consecutive three years 2013, 2014
and 2015
Introduction
Royal mail plc is UK postal service company which was established in the year 1516.
It provides mail collection and delivery services to the large number of consumers throughout
UK. Financial performance of Royal Mail Plc's has been analysed and attached here with the
present report.
Financial performance analysis
Consolidated financial statements represent Royal Mail Plc's financial performance
for the respective financial years. Income statement summarized all the revenues and
expenditures helps to determine profitability while balance sheet combines all the assets as
well as liabilities shows financial position (Islam, Alam and Hossain, 2014). Ratio analysis is
an effective way to analyse each and every aspects of company's performance such as
profitability, liquidity, efficiency and gearing ratio, described below:
Analysis of Profitability ratios
Royal Mail Plc is a profit making organization who aims at maximizing profits
through its daily operations. It is the excess or surplus of firm's revenues over its total
expenses. It measure Royal Mail Plc's profit generating ability through its market operations
(Hasani, and Fathi, 2012). Increasing trend is considered good as it indicates that business is
performing well continuously while declining trend is a negative sign of business
performance. ROE, ROA, operating profit margin and assets turnover ratio are the type of
profitability ratios.
From the ratio analysis, it can be seen that in 2014, ROCE, ROA and operating
margin ratio has been improved to 38.30%, 30.35% and 7.15%. It is because of higher
turnover, high PBIT and high operating profit to £9357m, £1662m and £669m. It indicates
that Royal Mail plc performed well in 2014. On contrary to this, in 2015, ROCE, ROA and
operating profit has been significantly reduced to 12.35%, 8.64% and 6.84%. Huge decrease
in profitability has been caused because of lower PBIT and operating profit to £399m and

£635m (Kaur, 2014). While, company's sales revenue has been reduced to £9328. However,
increasing operating cost to £8717m is the reasons for adverse performance in 2015. Hence, it
can be said that Royal Mail Plc's do not performed well in 2015.
Analysis of Liquidity ratios
It measure that how much Royal Mail Plc is able to pay their short-term business
obligations. It indicates that firm has enough resources or not to meet out its short-term
financial obligations such as creditors and bank overdraft etc (Hoskin, Fizzell and Cherry,
2014). Current ratio and liquid ratio are the ratios that helps to analyse business liquidity.
CR determines that Royal Mail Plc has adequate current assets or not to discharge
their current liabilities whilst acid test ratio determines liquidity position without having
business inventory. With reference to Royal Mail Plc, its CR has been declining from 0.76:1
to 0.68:1 and 0.67:1. Similarly, acid test ratio also has been reduced from 0.75:1 to 0.67:1 and
0.66:1. In 2015, both the liquidity ratio shows a very little decrease by only 0.01. Declined
CA and Higher CL are the reasons behind such decline. However, in 2015, Royal Mail Plc
maintained its CA to 1317m. Moreover, it is far away from the idle current ratio which is 2:1
says that Royal Mail Plc's CA should be 2 times higher than CL. Henceforth, decline ratio is
not a good sign of short-term business ability and it exhibits that Royal Mail Plc is not able to
pay off their current liabilities, not more than 12 effectively and timely.
Analysis of efficiency ratios
This type of ratios helps to evaluate Royal Mail Plc's managerial efficiency to use business
assets. Accounts receivable days and payable days are the type of efficiency ratios. Accounts
receivable ratio measure the number of days in which Royal Mail Plc receive cash funds from
their debtors while payable days indicates the time which it take to pay their suppliers
(Bohušová and Svoboda, 2014). Declined receivable days and high payable days are
considered good as it helps to generate high cash flows and operate successfully.
Accounts receivable days has been decreased from 39.49 days to 36.12 while in 2015,
it has been improved to 37.13 days. In 2014, t is favourable because it indicates that Royal
Mail Plc is receiving its debtors promptly within 36.12 days. It will helps to enhance cash
flow so that firm will not face short-term financing difficulties. While, in 2015, it is
unfavourable because it is entails that Royal Mail Plc is receiving delayed payments from
their debtors. However, payable day consistently shows a rising trend as it has been increased
from 68.03 days to 69.84 respectively. It is a favourable change because it exhibited that