Financial Analysis and Performance of Royal Mail

This report provides a financial analysis and performance review of Royal Mail, a shipping services provider headquartered in London. It includes a literature review on ratio analysis and principle agent problem, analysis of stock price chart trend, evaluation of competitors, and consideration of the issue faced by the organization. The report concludes with recommendations.

Report- Royal Mail
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Executive summary
The report has highlighted the various financial analysis and performance of Royal Mail. The
headquarters of Royal Mail have been established at London. The organisation aims at
providing the broking services to the owners of ships and charters along with dry cargo,
containers, tankers, liquefied natural gases as well as specialised products. The report has
highlighted the financial performance along with the literature review in aspect of the various
concepts in the report. The report has analysed the performance of the organisation on the basis
of the ratio-analysis. The literature review has been discussed in contest of ratio analysis as well
as principle agent problem.
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Table of content
Table of Contents
Executive summary..........................................................................................................................2
Introduction......................................................................................................................................4
Analysis of stock price chart trend ..................................................................................................4
Literature Review.............................................................................................................................5
Performance ....................................................................................................................................6
Evaluation........................................................................................................................................8
Consideration of the issue................................................................................................................9
Conclusions and Recommendations................................................................................................9
REFERENCES..............................................................................................................................10
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Introduction
Royal Mail plc is simply referred as Royal Mail that aims to provide shipping services.
The headquarters of Royal Mail have been established at London. The organisation was founded
in the year 1516 by Henry VIII. The organisation aims at providing the leading integrated
shipping services in order to bring connections and experience to the various international client
base. The organisation has been described as the provider of undisputed heavyweight ship
broking in the market under the Lloyd's list in the year 2011. The organisation aims at providing
the broking services to the owners of ships and charters along with dry cargo, containers, tankers,
liquefied natural gases as well as specialised products (Bajaj, Kashiramka, & Singh (2020)).
Analysis of stock price chart trend
The revenue of Royal Mail plc has increased at the rate of 5.38% also the net income of the
organisation has increased by 25.32%. This can be analysed as a positive and growth stage of the
organisation. Also, the Diluted Earnings per share has been at rise with 28%. The net profit
margins and Operating incomes have also been at rise by 18.85% and 22.94% respectively. The
net change in cash of the organisation has decreased by 22.02% along with the cash in hand
which has decreased by 3.78% whereas the cost of revenue has increased by 27.42%. This shows
that the organisation has been performing well but the liquidity of the organisation has decreased
(Cerpentier & Bringmann (2021)).
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Literature Review
Principle agent theory
As per the article published in The Economic Times, The principle agent problem has
arisen due to one party that agrees upon working in favour of the another party in exchange of
various incentives. The two parties that are involved in the process are agent as well as principle.
These kinds of agreements tend to incur huge costs for the agent which may lead to various
problems in context of the moral hazards as well as conflict of these interests. In context of the
costs incurred, the agent might not pursue his or her own agendas and further ignore the
principles of best interest which may cause a problem for the principal agent as well. The cost to
the agent along with the subsequent conflict may arise due the skewed symmetry in formation
and the risk of failure might be faced by the individual [The Economic Times, 2021].
Ratio Analysis
As per the article published by Vineeth on clear tax, Ratio analysis is referred as the quantitative
procedure of obtaining the look into the efficiency of the organisation, liquidity, revenues along
with the profitability in order to analyse the financial records as well as statements. The ratio
analysis is considered as an important factor that help in analysing the fundamentals of equity.
Analysts and investors tend to make use of the various methods that are used for ratio analysis in
order top study and evaluate the well being of the business by examining the historical
performance as well as monetary statement by examining closely[Clear tax, 2021].
Clientele effect
As per the article published on capital.com, Clientele effect is referred as the notion wherein
certain types of investors are interested in the various kinds of security that will have an impact
over the price when the circumstances are turned. Most of the organisations tend to experience
the clientele effect in various way. The effect can be experienced in the way when an investor is
interested in a certain variety of dividend and the organisation tends to change its policy and then
the investor is likely to sell the security due the change that has occurred at the
organisation[Capital.com, 2021].
Performance
Capital structure
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Capital structure is basically referred as the blend of debt as well as equity in order to finance the
assets and operations of the organisation. The capital structure is basically the result of various
factors such as size of the organisation as well as maturity of the tenure that tends to influence
the financing options that may be possessed by the organisation. The capital structure used by
Royal Mail is both equity as well as debt financing (Demirgüç-Kunt, Peria & Tressel (2020)).
Clarkson's Capital Structure
2020 2019
Short Term Loans & Overdrafts 8,400,000 9,900,000
Long Term Debt 47,800,000 53,800,000
DF 56,200,000 63,700,000
Shareholders Funds 324,100,000 377,500,000
Value = DF + EF 380,300,000 441,200,000
Capital Structure in DF 15% 14%
Capital Structure in EF 85% 86%
Sources of corporate financing
The sources of finance that is used by Royal Mail are short term financing, long term financing
as well as equity. The various sources of finance for Royal Mail have been discussed below.
 Short term financing- Short term financing sources are used by Royal Mail in order to
fulfil the demand of the short term. The short term financing is helpful in fulfilling the
financial requirements for the inventory, raw material, finished goods, minimum cash,
debtors as well as cash balance. The tenure of short term finances is mostly less than an
year and it is also referred as working capital financing. Royal Mail can adapt to various
short term financing like trade credits, advances received from customers, etc (Jiang &
Chen (2021)).
 Long term financing- The long term financing is basically referred to the acquisition of
funds from the various resources that have a tenure of more than 5 years. The capital
expenditures in terms of fixed assets such as land, building, plant and machinery etc. are
funded through the long term sources of finance. The part of working capital of Royal
Mail is also financed through long term financing. The various long term financing that
can be used by Royal Mail are share capital, debentures, venture funding, retained
earnings, etc.
 Equity financing- The self owned capital of an organisation is called as equity capital.
The equity financing is basically sourced from the promoters of the organisation or from
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the public in general with the help of new equity shares. In order to raise capital from the
owned capital, Royal Mail uses Equity, Preference, Retained earnings, convertible
debentures as well as venture funds (Le & Phan (2017)).
Long term financing + Short term financing vs Equity financing shares
The long term financing are together termed as debt financing whereas equity financing
is referred as the self owned finance. The difference between the concept of long term financing
as well as short term and equity financing have been discussed below.
Equity financing Debt financing
 Equity financing is referred to the
process wherein stocks are issued in
order to finance the business.
 The estimation of potential gain in
various asset transaction along with the
use of purchasing power. The equity
finances can be used for trading debt
and other advantages by the various
organisation.
 The various types of equity finances
include contributed capital, revenue as
well as gained capital.
 Equity is determined after deducting
value of debt from the asset.
 The debt financing is basically issuance
of bonds in order to finance the
business.
 The equity is used for purchasing
various assets that are valuable than the
capacity of the of various other people.
 The various types of equity funds are
secured or unsecured, private or public
loan as well as bond.
 The amount of debt is ascertained by
deducting the value of asset from the
amount of equity (Perszyk & Traynelis
(2021)).
Ratio and trend analysis
2014 2015 2016 2017 2018
Gross profit
margin
96.42% 96.87% 94.41% 96.59% 97.09%
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Operating
profit margin
12.54% 11.06% 10.38% 10.57% 15.09%
Net profit
margin
9.19% 7.73% 7.23% 7.39% 12.38%
Return on
assets
7.59% 14.96% 7.33% 4.06% 6.30%
Return on
equity
12.86% 11.11% 10.28% 6.54% 9.32%
The net profit margins and Operating incomes have also been at rise by 18.85% and 22.94%
respectively. The net change in cash of the organisation has decreased by 22.02% along with the
cash in hand which has decreased by 3.78% whereas the cost of revenue has increased by
27.42%. This shows that the organisation has been performing well but the liquidity of the
organisation has decreased (Sutarno & Dewi (2019)).
Evaluation
The evaluation has been made in context of the various competitors of Royal Mail in the
industry. The various competitors include A.P. Moller Maersk AS, CMA CGM SA, Hapag
Lloyd AG and Braemar Shipping Services plc. The competitor analysis has been performed
below (Walmsley & Klemeš (2018)).
Key
parameters
Clarksons plc AP Moller
Maersk AS
CMA CGM
SA
Hapag Lloyd
AG
Braemar
Shipping
Services Plc
Headquarters United
Kingdom
Denmark France Germany United
Kingdom
City London Copenhagen Marseille Hamburg London
State - - Provence-
Alpes- Cote d'
Azur
- -
No. of 1700 83600 110000 13400 500
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employees
Entity type Public Public Private Public Public
Consideration of the issue
The consideration of the issue faced by Royal Mail plc is “Executives Warn of growing
container ship”. The issue faced by orders for new vessels is surging but the availability of the
ships have been hindering the organisation to keep the pace with demand in the global logistics.
The world's largest shipping groups have been dealing with the shortage of the containers in the
last few months along with the lack of berths on the ports. Also, the pandemic has been heaping
pressure upon the global logistics. Another shortage that has been attracting the attention of the
industry is ships themselves (Zavadskas & Prentkovskis, (2018)). The executives have warned
that despite surges in order of new vessels, the accessibility towards the new vessels is likely to
remain strained due to the soaring demands of the services along with the complex retooling
fleets for the various environmental reasons. It has been stated that the tight supply of vessels
have been a major threat for the organisation. Also, the organisation has been hesitating to place
order for new capacities as the old ones are still due for scrapping. The shipping groups have
ordered various vessels that are capable of 3.2m 20 foot containers which are so far the most in
the year 2021. But still the concern of the organisation is that it will not be able to meet the
demand of the market (Zolfani, Yazdani & Zavadskas (2018)).
Conclusions and Recommendations
It can be concluded from the report that Royal Mail plc is a marine industry organisation
that has been through various issues during the pandemic regarding the ships. It can be analysed
from the stock price analysis that the organisation has been performing well but the liquidity of
the organisation has decreased. The evaluation of competitors has been made in context of the
various competitors of Royal Mail in the industry. The various competitors include A.P. Moller
Maersk AS, CMA CGM SA, Hapag Lloyd AG and Braemar Shipping Services plc.
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REFERENCES
Books and journals
Bajaj, Y., Kashiramka, S., & Singh, S. (2020). Application of capital structure theories: a
systematic review. Journal of Advances in Management Research.
Cerpentier, M. & Bringmann, K. (2021). Equity crowdfunding, market timing, and firm capital
structure. The Journal of Technology Transfer, 1-28.
Demirgüç-Kunt, A., Peria, M. S. M., & Tressel, T. (2020). The global financial crisis and the
capital structure of firms: Was the impact more severe among SMEs and non-listed
firms?. Journal of Corporate Finance, 60, 101514.
Jiang, X. & Chen, C. (2021). Supply-side structural reform and dynamic capital structure
adjustment: Evidence from Chinese-listed firms. Pacific-Basin Finance Journal, 65,
101482.
Le, T. P. V., & Phan, T. B. N. (2017). Capital structure and firm performance: Empirical
evidence from a small transition country. Research in international business and
finance, 42, 710-726.
Perszyk, R. E. & Traynelis, S. F. (2021). Three-dimensional missense tolerance ratio
analysis. Genome Research, 31(8), 1447-1461.
Sutarno, S. & Dewi, A. (2019, December). Implementation of Multi-Objective Optimazation on
the Base of Ratio Analysis (MOORA) in Improving Support for Decision on Sales
Location Determination. In Journal of Physics: Conference Series (Vol. 1424, No. 1, p.
012019). IOP Publishing.
Walmsley, T. G. & Klemeš, J. J. (2018). Energy Ratio analysis and accounting for renewable and
non-renewable electricity generation: A review. Renewable and Sustainable Energy
Reviews, 98, 328-345.
Zavadskas, E. K. & Prentkovskis, O. (2018). A novel multicriteria approach–rough step-wise
weight assessment ratio analysis method (R-SWARA) and its application in
logistics. Studies in Informatics and Control, 27(1), 97-106.
Zolfani, S. H., Yazdani, M., & Zavadskas, E. K. (2018). An extended stepwise weight
assessment ratio analysis (SWARA) method for improving criteria prioritization
process. Soft Computing, 22(22), 7399-7405.
Online-
The Economic Times, 2021. Link available at
<https://economictimes.indiatimes.com/definition/principle-agent-problem>
Clear tax, 2021. Link available at <https://cleartax.in/g/terms/ratio-analysis>
Link available at Capital.com, 2021. <https://capital.com/clientele-effect-definition>
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