Financial Analysis of Britvic Plc: Performance and Investment Advice

This report provides a comprehensive financial analysis of Britvic Plc, a British soft drink producer, evaluating its performance over a recent trading period. The analysis focuses on various financial ratios, including operating profit, capital employed, gearing ratio, current ratio, return on capital employed, and others, to assess the company's financial health. The report calculates and interprets these ratios for the years 2017 and 2018, highlighting trends and changes in key metrics. It discusses the implications of these findings, such as decreasing operating profit, capital employed, and ROCE. The analysis also covers the total assets ratio and trade receivable collection period. Based on the ratio analysis, the report offers investment recommendations, concluding with advice on whether or not a potential investor should invest in the company. The report uses the UK English and is based on the provided financial statements of Britvic Plc.

Managerial Finance

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Managing finance is more appropriate for assessing payment is made as opposed to the
monetary methodologies themselves (Berezuk and et.al., 2018). It varies from the philosophical
model, which basically concerned itself just with calculation and whether money has been
allocated to the diagnostic accuracy. Finance strategies evaluation to evaluate how they are
influencing the company inner and external. Making payments needs to take into account how
financial technologies can be improved to strengthen the organization, but where changes were
made to ensure safety. This method is a combination of overall business and organizational
finance. The managerial approach is aimed at determining the meaning of information, statistics,
and percentages. This report based on the Britvic Plc. It is a British producer of soft drinks and
situated in England. In this report analysis the financial performance of business and for this
calculate different financial ratios.
MAIN BODY
Ratio Analysis: Ratio analysis is a study of budget items in a company's balance sheet. This
analysis is used to assess a multitude of challenges with an organization, including such cash
flow, operating efficiency, and profitability. Accounting ratios can be characterized as the
method of determining the accounting reports used to indicate a company's long - term business
results with few forms of ratio, including such liquidity, productivity, operation, equity, business,
solvency, output and distribution ratios. These are calculated various types of ratios to provide
right suggestion to best friend.
Operating profit:
It is the profitability ratio which indicates the profitable performance of the company
throughout the year (Langemeier and Yeager, 2018). It is calculated by dividing operating profit
with net sales, higher the ratio is beneficial and lower ratio needs the improvement. Its
calculation and formula mentioned below:
Formula:
Operating profit ratio = Operating profit / net sales * 100
Ratio 2017 (‘£) 2018 (‘£)
Operating profit 163 166.1
Net Sales 1430.5 1503.6
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Operating profit ratio 11.39% 11.04 %
It has been observed that, operating performance of Britvic Plc is decreases from 0.35%
in the current year in comparison to previous year. In the previous year, operating ratio was
11.39% and in current year it is 11.04%. Management need to maximise their revenue as well as
minimise their operating expenses.
Capital employed:
That is the financial term used for the acquiring of profits by a company or a project
(Lewis and Perry, 2019). Capital employed is useful since it's combined with many other
profitability measures to assess the recovery on a company's assets as well as how successful
control is at utilizing money.
Formula:
Capital employed ratio = Total assets / current liability
Ratio 2017 (‘£) 2018 (‘£)
Total assets 1613 1760
current liability 617.8 698.9
Capital employed ratio 2.61 2.51
From the above calculation, it has been observed that capital employed also decreases by
0.10 million. High the capital employed is beneficial for shareholders because it provide high
profitability. Manager of Britvic Plc should focus on maximising capital employed because it is
beneficial for organization as well as for potential investors who interested to invest in this
company.
Gearing ratio:
It is a financial ratio that contrasts the equity or debt or the funds lent by the firm
(Valogo, Shafiwu and Adabuge, 2018). The gearing ratio is an indicator of financial leverage
that shows the level to which the company's operations are financed by debt financing versus
equity financing.
Formula:
Gearing ratio = Total debt / Total equity
Ratio 2017 (‘£) 2018 (‘£)
2

Total debt 655.9 684.3
Total equity 339.3 377.3
Gearing ratio 1.93 1.81
Accordingly to above calculation, gearing ratio decreases but it has minor changes and it
indicates that financial leverage of the company that means company’s debt is higher than
company’s equity. Management should focus on minimising debt because it is the obligation for
the business to pay off.
Current ratio:
It is the liquidity ratio which helps the organization to evaluate company’s liquidity in
term of assets (Srivastava and Trehan, 2018). Ideal ratio is 2:1 which means current assets should
be two time of current liability. Its formula and calculation mentioned below:
Formula:
Current ratio = current assets / current liability
Ratio 2017 (‘£) 2018 (‘£)
Current assets 572 651
Current liability 617.8 698.9
Current ratio 0.92 times 0.93 times
As per above table, it is analysed that current ratio of 2017 was 0.92 times and in 2018 it
is 0.93 times. Both are not meet the idea condition of current ratio but there is slightly
improvement in the ratio. Management of Britvic plc should focus on improving company’s
liquidity through increasing current assets 2 times in comparison to current liabilities.
Return on capital employed:
It is the value of return on capital employed, higher the return is beneficial for
organization as well as for shareholders which make them able to make investment decision
accordingly. Its formula and calculation mentioned below:
Formula:
Return on capital employed = Operating profit / capital employed * 100
Ratio 2017 (‘£) 2018 (‘£)
Operating profit 163 166.1
3

Capital employed
(Total asset –Current liability )
995.2 1061.1
Return on capital employed 16.37 % 15.65 %
From the above calculation it has been observed that ROCE for the period of 2017 was
16.37% and in 2018 it is 1565%. Higher the ROCE is more beneficial as well as profitable for
the organization. But in this case, ROCE decreases in comparison to previous year, so managers
should focus on this and improve it. Otherwise shareholders will not invest in Britvic Plc in the
future if performance reduces over the period.
Total assets ratio:
The asset turnover ratio measures the efficiency of the sales growth rate of a business
connect to the book value of assets (Golway, 2019). The turnover ratio of assets may be used as a
measure of the measures how well a company uses its assets to produce profit.
Formula:
Total assets ratio = Net sales/Total assets
Ratio 2017 (‘£) 2018 (‘£)
Net sales 1503 1430
Total Assets 1613 1760
0.93 0.81
From the computation of this ratio it has been analysed that the turnover ratio identified
0.93 in 2017 and 0.81 in 2018. It is decreased in the year of 2018 as compare of 2017 which is
not good for the company.
Trade receivable collection period ratio:
The recovery duration ratio of accounts receivable reflects the time interval between a
credit transaction and the company requiring compensation. This ratio is commonly measured in
the amount of months a company must take to grab money from accounts receivable from of the
commerce.
Formula:
Trade receivable collection period = Average receivables/total net credit sales*365
4

Ratio 2017 (‘£) 2018 (‘£)
Average Receivables 160.55 178.4
Net credit sales 1503 1430
38.98 days 44.41 days
As per the above calculation it has been analysed that in the year the debtor collection
period taken by company 38.98 days in 2017 whether in 2018 taken 44.41 days that shows
negative performance of business. When it increases days to company get late amount from the
clients and reflect on the liquidity position.
Recommendations
As per the above ratio analysis it is recommended that do not invest share in the business
because of company performance decrease year by yea which is not good as investment purpose.
CONCLUSION
As per the above report it has been concluded that managerial finance explores how to
evaluate the management strategies where improvements can be made to help avoid errors and
maximize the profit margins. Administrative finance is also a blend of both investment banking
and financial reporting. The method is multidisciplinary. It helps to execute strategic plans and
track their success when it comes to achieving corporate objectives. Once the finances are
handled correctly, money is generated and the finite resources of an organization are adequately
distributed.
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REFERENCES
Books & Journals
Berezuk, C. & et.al., (2018). Managing money matters: managing finances is associated with
functional independence in MCI. International journal of geriatric psychiatry, 33(3),
517-522.
Golway, M. (2019). Managing fiscal resources. Journal for Nurses in Professional
Development. 35(1). 39-40..
Langemeier, M., & Yeager, E. (2018). Operating Profit Margin Benchmarks. farmdoc daily, 8.
Lewis, M., & Perry, M. (2019). Follow the money: Managing personal finance digitally.
In Proceedings of the 2019 CHI Conference on Human Factors in Computing
Systems (pp. 1-14).
Srivastava, D. K., & Trehan, R. (2018). Managing Central Government Finances: Asymmetric
Seasonality in Receipts and Expenditures. Global Business Review. 19(5). 1322-1344.
Valogo, M. K., Shafiwu, A. B., & Adabuge, J. (2018). Analysis of the Relationship between
Interest Rates and Gearing Ratios of Banks Listed on the Ghana Stock Exchange. Asian
Journal of Economics, Business and Accounting, 1-8.
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