Advantages and Disadvantages of Valuation Methods - Doc
Added on 2020-01-28
11 Pages3199 Words98 Views
INTERNATIONALFINANCE
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1 Financial ratios of FTSE 100 company............................................................................1TASK 2............................................................................................................................................4A) Advantages and disadvantages of three valuation methods..............................................4B) Different valuation methods..............................................................................................5C) How valuation method help a firm....................................................................................6D) Risk Exposures..................................................................................................................7E) Impacts of acquisition on selection of valuation method..................................................7TASK 3............................................................................................................................................83.1 Recommendation to Barclays bank on the basis of the financial position of Admiralinsurance group Plc................................................................................................................8CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9
INTRODUCTIONFinance is very important component of business, without this business can not exist inthe market. In present case the Barclays bank wants to acquire the FTSE 100 company on thebasis of financial performance. For this the Admiral insurance group is selected which is listed inFTSE 100 constituent of London Stock Exchange Group. In the report on the basis of ratioanalysis answer of the question is identified whether the Barclays bank should acquire thetargeting firm or not.TASK 11.1 Financial ratios of FTSE 100 companyFTSE 100 is a component of London Stock Exchange Group. For this report the AdmiralInsurance group is selected which is UK based company and operating in the financial serviceindustry. Main product of the company is insurance where it provides all insurance to theconsumers (Frisari and Stadelmann, 2015). Under this report the Barclays bank wants to acquireFTSE 100 company on the basis of financial performance.Table 1: Financial ratios of Barclays bank & Admiral insurance group RatiosFormulaBarclaysBank PlcAdmiral insurancegroup Plc Profitability RatiosNet sales17201904Gross profit12558525Net profit 623300Operating profit4777380Gross profit ratio GP/ net sales * 10073.01%58.08%Net profit ratio Net profit / net sales * 1004.96%33.19%Operating profit ratioOperating profit / net sales*10027.77%42.04%Liquidity ratiosCurrent ratio current assets / current liabilities 1.240.46Quick ratioCurrent assets – (stock + prepaid1.240.461
expenses) / current liabilitiesEfficiency ratio Fixed asset turnover 7.3526.93Asset turnover ratio 0.020.22Profitability Ratios: Profitability ratios indicates that company is up to which extent performingbetter in terms of profit (Shim and Constas, 2016). It includes different ratios some of them arecalculated here to analyse about company's performance such as net profit ratio, operating profitratio and gross profit ratio.Gross Profit Ratio: Gross profit is company's net sales minus cost of goods sold. Otherexpenses are not considers at this profit. In above case in the financial year 2015, thegross profit ratio of Barclays bank is 73.01% and the ratio of Admiral group is 58.08%.From this it can be interpreted that cost of goods sold is high of admiral group incomparison to Barclays bank.Net Profit Ratio: Net profit shows company's profit after deducting all direct and indirectexpenses. It is the profit available in company after all expenses, interests and taxes(Porter and Williams, 2016). In the year 2015 the net profit ratio of Barclays bank andAdmiral group is 4.96% and 33.19% respectively. It shows that the insurance company isgenerating more profit and manage expense level of production effectively andefficiently.Operating Profit Ratio: Operating profit indicates company operating expenses are inwhich order managed. In above case the Barclays bank is not performing better incomparison to another relevant firm. So, it can be said that operating expenses to producethe product are high in Barclays bank and low in the insurance company.Liquidity Ratios: Liquidity ratios measures company's ability to meet the short term and longterm obligations with help of current assets. These ratios are calculated by current assets andliabilities. Liquidity ratios are current and quick ratio which given as below:Current Ratio: Current ratio shows company's ability to meet long term obligations(Black, 2016). In the financial year 2015, the current ratios of Barclays bank andinsurance company are 1.24 and 0.46 respectively. The ideal ratio of current ratio is 2:12
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