Financial Analysis - Assignment PDF

TABLE OF CONTENT
Contents
TABLE OF CONTENT.........................................................................................................................1
1. Introduction...................................................................................................................................2
2. Financial Analysis.........................................................................................................................2
2.1 Profitability Ratio.......................................................................................................................2
2.2 Liquidity Ratio............................................................................................................................3
2.3 Capital Structure Ratio...............................................................................................................4
2.4 Asset Efficiency Ratio.................................................................................................................5
2.5 Drawback of Ratio......................................................................................................................5
3. Project Appraisal...........................................................................................................................6
3.1 Part A.........................................................................................................................................6
3.2 Part B.........................................................................................................................................6
3.3 Part C.........................................................................................................................................7
4. Company Valuation.......................................................................................................................7
4.1 Part A.........................................................................................................................................7
4.2 PART B.....................................................................................................................................8
4.3 Project Appraisal........................................................................................................................8
Net Present Value..............................................................................................................................9
4.4 Other technique........................................................................................................................9
5. Conclusion.....................................................................................................................................9
References:..........................................................................................................................................10

1. Introduction
Smith Group Plc is a Multinational Enterprise with its headquarter in London, United
Kingdom. The company has a diversified business and has operations in more than 50
countries. The employee strength of the company is 23,550 with a net revenue of Sterling
3,280 Million in 2017. The company excels in five divisions namely John Crane, Smiths
Medical. Smiths Detection, Smiths interconnect and Flex-Tek. Further, Smiths detection is
the world’s largest manufacturer of detection of explosives, weapons, chemicals etc.
The company is listed on London Stock Exchange and is a part of FTSE 100 index.
Financial Performance of the company Vis-à-vis Employee Benefit Expense cum
Employee Pension Fund
The Financial performance of Smith Group Plc for past 2 years has been presented here-in-
below for analysing the growth in profit and revenue of company:
Sl. No Particular 2017 2016
1 Revenues 3280 2949
2 Operating Profit 674 387
3 % of Revenue 20.55% 13.12%
4 Net Profit 564 261
5 % of Revenue 17.20% 8.85%
6 Basic EPS 144.1 65.6
7 Dividend Paid 167 167
2. Financial Analysis
The financial analysis of Smiths Group Plc with that of its competitor Emerson Electric Co.
has been carried out based on following parameters:
(a)Profitability Ratio
(b)Liquidity Ratio;
(c)Capital Structure Ratio;
(d)Asset Efficiency Ratio
Data used is for 2017
2.1 Profitability Ratio
The following two ratios have been computed for the purpose of analyzing the profitability:
(a) Net Profit margin: The ratio has been computed on the basis of considering the net
profit earned by the company divided by sales. Thus, it shows the portion of sales that
is left after meeting expense and tax liability of the company. The formula has been
presented here-in-below:

Net Profit Margin = (Net Profit / Sales)
Further, the higher the margin, the better the company is performing
Emerson Electric Co
Sl. No. Particulars Net Profit Sales
Rati
o
1
Net Profit
Ratio 15,18,000 1,52,64,000 9.94
Smith Group Plc.
l. No Particulars Net Sales Net Profit Ratio
1
Net profit
Ratio 32,80,000 5,62,000 17.13%
On the basis of above, it can be seen that Smith Group Plc is performing better
compared to Emerson Electric Co.
(b) Return on Capital Employed: The ratio has been computed on the basis of Earning
before Interest and Tax as divided by capital employed by the company. Further, the
higher the margin, the better the company is performing.
Emerson Electric Co
Sl. No. Particulars EBIT
Capital
Employed Ratio
1
Return On Capital
Employed 26,91,000 1,45,44,000 18.50%
Smith Group Plc.
Sl. No Particulars EBIT
Capital
Employed Ratio
1
Return on Capital
Employed 5,69,000 42,90,000 13.26%
On the basis of above, it can be seen that Return on Capital Employed is better for
Emerson Electric Co.

2.2 Liquidity Ratio
The following ratio has been analysed for the purpose of computing of liquidity of the
company:
(a) Current Ratio: The same is computed by dividing the current asset of the company
with current liability. The ideal ratio is 2:1. The ratio is used for analyzing whether
the company has sufficient working capital and shall be able to meet its current
liability.
Emerson Electric Co
Sl.
No. Particulars Current Assets Current Liabilities
Rati
o
1 Current Ratio 82,52,000 50,45,000 1.64
Smith Group Plc.
Sl.
No Particulars Current Asset
Current
Liabilities Ratio
1 Current Ratio
20,31,00
0 8,67,000 2.34
On the basis of above, it can be seen that Current Ratio is better for Smith Group Plc
and has cross the ideal mark.
(b) Quick Ratio: The quick ratio is computed by reducing current asset by prepaid
expense and inventory and then the resulting figure is divided by current liability for
the purpose of computation of ratio. Further, the ratio measure whether the company
shall be able to meet its short term liabilities. The idle ratio is 1. There is an
assumption that other asset of the company does not contain any prepaid expense.
Emerson Electric Co
Sl.
No. Particulars Quick Assets Current Liabilities Rati
o
1 Quick Ratio 65,56,000 50,45,000 1.30
Smith Group Plc.
Sl.
No Particulars Quick Asset
Current
Liabilites Ratio