Managing Financial Performance: A Report on ARM Holdings Plc

This report provides a comprehensive financial performance analysis of ARM Holdings Plc, evaluating its performance from 2013 to 2015. The analysis employs various financial ratios, including profitability, liquidity, efficiency, and solvency ratios, to assess the company's financial health. The report includes detailed calculations and interpretations of these ratios, comparing them across the specified years. Furthermore, it incorporates horizontal and vertical analyses of the income statement and balance sheet to identify trends and significant changes in financial metrics. The case study also explores potential business expansion strategies for a restaurant chain, Tuesday, evaluating different scenarios and their financial implications. The report's findings offer insights into ARM Holdings Plc's financial management and provide a framework for strategic decision-making, highlighting areas of strength and potential improvement.

Managing Financial performance

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
QUESTION 1..................................................................................................................................3
Preparing a business report for the Board of directors of ARM holdings Ltd by making
analysis of key ratios...................................................................................................................3
QUESTION 2................................................................................................................................17
QUESTION 3................................................................................................................................19
a. Issue more debentures............................................................................................................19
b. Sell their investment..............................................................................................................20
c. Company is allowed to make all sales on credit or not..........................................................20
d. Issue more ordinary shares....................................................................................................20
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22

INTRODUCTION
Financial performance management is the process which is highly concerned with taking
strategic actions or decisions which directly help in growth as well as enhancing performance of
the firm. In this regard, ratio analysis technique is significant which in turn aids in evaluating the
financial performance and thereby assists in assessing causes of deviations (Ratio analysis,
2017). In this, measure of financial analysis helps in framing highly competent strategic and
policy framework for the near future. The present report is based on different case situations
which in turn develops understanding about several financial tools and techniques that help in
managing the monetary aspects.
QUESTION 1
Preparing a business report for the Board of directors of ARM holdings Ltd by analyzing the
key ratios
To,
Board of Directors,
ARM Holdings Plc
Date: 22nd February, 2017
Subject: Financial performance analysis
It has been reported to the higher management team that ratio analysis has been conducted with
the aim to extract appropriate information from the financial statements of Arms Holding Plc.
Such financial tool is effectual which in turn provides deeper insight about financial health,
position and performance of the concerned business unit.
Profitability ratios
Particulars 2015 2014 2013
Sales revenue 968.3 795.2 714.6
Gross profit 929 757 675

Net profit 339.7 255.4 104.8
operating profit 406.1 309 153.5
GP ratio
Gross
profit /
net sales
* 100 96% 95% 94%
Operating profit ratio
Operatin
g profit /
net sales
* 100 42% 39% 21%
NP ratio
Net
profit /
net sales
* 100 35% 32% 15%
2015 2014 2013
0%
20%
40%
60%
80%
100%
120%
GP ratio
Operating profit ratio
NP ratio
From profitability ratio analysis, it has been assessed that GP ratio of ARM Holdings Plc
increased from 94% to 96% at the end of 2016. It shows that business unit has made proper
control on the direct expenses. Besides this, in 2015 operating profit ratio also increased from

21% to 42%. Hence, operating profit margin of the firm inclined in 2015 with higher rate as
compared to previous years. Along with this, NP margin of the company was 15% in 2013
whereas it accounted for 35% at the end of 2015. By considering such aspect, it can be stated that
firm had generated enough profit over indirect expenses. Thus, from overall evaluation, it is
reported to the team of higher management that profitability aspect and performance of business unit was
sound during such period (Chwieroth, 2015).
Liquidity ratios
Particulars 2015 2014 2013
Current assets 948.3 870.9 780.1
Inventory 1.8 2.7 3
prepaid expenses 28.7 23.9 21.7
Current liabilities 262.5 260.3 280.3
Quick assets 917.8 844.3 755.4
Current ratio
Current
assets/
current
liabilitie
s 3.61 3.35 2.78
Quick ratio
Quick
assets /
current
liabilitie
s 3.50 3.24 2.69

2015 2014 2013
0
0.5
1
1.5
2
2.5
3
3.5
4
Current ratio
Quick ratio
Tabular presentation clearly entails that the output of both current and quick ratio exceeded ideal
measure. Moreover, according to ideal ratio current and quick ratio must be 2:1and .5:1 (Mateen
and More, 2013). From financial statement analysis, it has been found that company‘s asset level
increased significantly and thereby capability in relation to making payment of financial obligations
from 2.78 to 3.61. On the other side, quick ratio of the firm also increased from 2.69 to 3.50 which
mean that business unit had more current assets which can easily be convertible into cash for
fulfilling the monetary obligations. Hence, liquidity aspect of the concerned business
organization was sound from the year 2013 to 2015. However, for enhancing the return and
thereby financial performance, company is required to invest money in other profitable
investment opportunities rather than keeping with itself.
Efficiency ratios
Particulars 2015 2014 2013
Inventory 1.8 2.7 3
Cost of goods sold 39.3 37.8 39.3
Net sales 968.3 795.2 714.6
Total assets 2120.2 1837.2 1638.4
Inventory turnover
ratio
COGS /
inventor
21.83 14.00 13.10

y
Total assets turnover
ratio
Net sales
/ total
assets 0.46 0.43 0.44
2015 2014 2013
0
5
10
15
20
25
Inventory turnover ratio
Total assets turnover ratio
By conducting ratio analysis, it has been identified that total asset turnover ratio was 0.44, 0.43
& 0.46 respectively from 2013-2015. Such increasing trend or pattern shows that Arms Holding
Plc made optimum use of assets while carry out business activities. However, management team is
required to conduct training and programs for employee motivation. This in turn helps the
business unit in enhancing efficiency and thereby profitability aspect of personnel (Lam, 2010).
Further, movement of inventory turnover ratio from 13.10 to 21.83 shows that stock was sold and
replaced by Arms Holding Plc in 2015 more quickly. In this, by employing inventory control and
management techniques, company can enhance its efficiency level or performance.
Solvency ratios
Particulars 2015 2014 2013
Long term debt 11.3 6.5 4.2
Shareholders’ equity 27.9 25.6 18.8
Debt-equity ratio Long term 0.41 0.25 0.22

debt /
shareholde
rs equity
2015 2014 2013
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
Debt-equity ratio
Debt-equity ratio
Graphical presentation clearly states that in the period of 2015, solvency position of Arms
Holdings Plc was sound as compared to previous years. In the accounting year 2015, debt-equity
ratio of business unit was 0 .41 which was highly near to the ideal measure such as .5:1 (Landi
and et.al., 2013). In contrast to this, in 2013 and 2014 such measure was 0.22 & 0.25. It presents
that during such period; most of the funds were raised by the organization through equity rather
than debt instruments. Thus, solvency position of organization was sound in the year 2015 and
indicates that highly balanced or optimal capital structure had been maintained by Arms
Holdings Plc.

Horizontal analysis of P&L
Particulars
Change
s 2015 Changes 2014
Change
s 2013
Sales revenue 22% 968.3 11% 795.2 100% 714.6
Cost of sales 4% 39.3 -4% 37.8 100% 39.3
Gross profit 23% 929 12% 757 100% 675
General Administrative 14% 146.9 5% 129.3 100% 123
Sales and marketing 14% 98 5% 86.2 100% 82
Research &
development 19% 278 -26% 232.9 100% 316.8
Operating income 31% 406.1 50% 309 100% 153.5
Finance expenses 0% 0.3 50% 0.3 100% 0.2
Finance income 15% 9 -16% 7.8 100% 9.3
Net income before tax 31% 414.8 49% 316.5 100% 162.6
taxation 23% 75.1 6% 61.1 100% 57.8
Net profit 33% 339.7 59% 255.4 100% 104.8
Horizontal balance sheet analysis
Particulars
Change
s 2015
Change
s 2014
Change
s 2013

Sales revenue 100% 968.3 100% 795.2 100% 714.6
Cost of sales 4% 39.3 5% 37.8 5% 39.3
Gross profit 96% 929 95% 757 94% 675
General Administrative 15% 146.9 16% 129.3 17% 123
Sales and marketing 10% 98 11% 86.2 11% 82
Research &
development 29% 278 29% 232.9 44% 316.8
Operating income 42% 406.1 39% 309 21% 153.5
Finance expenses 0% 0.3 0% 0.3 0% 0.2
Finance income 1% 9 1% 7.8 1% 9.3
Net income before tax 43% 414.8 40% 316.5 23% 162.6
taxation 8% 75.1 8% 61.1 8% 57.8
Net profit 35% 339.7 32% 255.4 15% 104.8
Horizontal analysis of balance sheet
Current Assets
In %
2015
In %
2014
In %
2013
Cash and Short Term
Investments
1% 681.4 13% 674.9
100%
589.1
Trade Receivables 38% 229.5 3% 166.8
100%
161.2
Inventory -33% 1.8 -10% 2.7
100%
3
Prepaid Expenses
20%
28.7 10% 23.9
100%
21.7

Other Current Assets 165% 6.9 -49% 2.6
100%
5.1
Total Current Assets Non-
Current Assets
948.3 870.9
100%
780.1
100%
Property/Plant/
Equipment
42% 61.6 29% 43.4
100%
33.6
Goodwill
15%
650.7 8% 567
100%
525.9
Intangibles
19%
92 -7% 77.2
100%
82.9
Long Term
Investments
-47%
14.2 31% 26.7
100%
20.4
Other Long Term
Assets
40% 353.4 29% 252
100%
195.5
Total Non-Current Assets 21% 1,171.90 13% 966.3
100%
858.3
Total Assets 15% 2,120.20 12% 1,837.20
100%
1,638.40

Current Liabilities
Trade Payable 9% 12.7 67% 11.7 100% 7
Accrued Expenses 45% 100.7 -21% 69.4 100% 88.1
Notes Payable/Short
Term Debt
0 0 100% 0
Current Port. of LT
Debt/Capital Leases
33% 5.2 44% 3.9 100% 2.7
Other Current
liabilities
-18%
143.9 -4% 175.3 100% 182.5
Total Current Liabilities
Non-Current Liabilities
1% 262.5 -7% 260.3
100%
280.3
Provisions
135%
6.1 73% 2.6
100%
1.5