Financial Analysis of Balfour Beatty Plc and Interserve Plc - MAN7MFI

This report presents a detailed financial analysis of Balfour Beatty Plc and Interserve Plc, evaluating their financial health and performance through various financial ratios. The analysis encompasses liquidity, activity, debt, profitability, and market ratios, utilizing financial statements from 2017 and 2018. Furthermore, the report includes ethical considerations, SMART analysis, and a SWOT analysis for both companies. The findings indicate that Balfour Beatty's financial condition is better than Interserve's. The report concludes with recommendations for MFI Ltd, suggesting divestment of Interserve Plc shares and offering strategic advice for both companies to improve their financial positions, focusing on profitability, revenue, and liability management.

Running head: FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND
INTERSERVE PLC
FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
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2FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
Executive summary
The primary aim of this study is to analyse the financial condition of Balfour Beatty Plc and
Interserve Plc through detailed ratio analysis, which includes liquidity, profitability, activity,
debt, and market value ratios. From the study, it can be observed that the financial condition
of Balfour Beatty is better than Interserve Plc. The notable impact of ratio in financial
analysis can be perceived from the study. The SMART and SWOT analysis facilitated the
management to understand the strategies of the organisations along with their weaknesses.
From the study, it has been found that Interserve Plc is in poor financial condition, and
therefore it is recommended that MFI should divest the shares of Interserve Plc.

3FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
Table of Contents
Executive summary....................................................................................................................2
Introduction................................................................................................................................4
Financial Analysis......................................................................................................................5
Ratio analysis.............................................................................................................................5
Liquidity ratio.........................................................................................................................5
Activity ratio..........................................................................................................................5
Debt ratio....................................................................................................................................6
Profitability ratio........................................................................................................................6
Gross profit margin................................................................................................................6
Return on assets......................................................................................................................6
Return on equity.....................................................................................................................6
Market ratios..............................................................................................................................7
Book value per share..............................................................................................................7
Dividend yield........................................................................................................................7
Earnings per share..................................................................................................................7
Price/earnings ratio.................................................................................................................7
Ethical analysis...........................................................................................................................7
SMART analysis........................................................................................................................8
Balfour Beatty Plc..................................................................................................................8
Interserve Plc..........................................................................................................................8
SWOT Analysis.....................................................................................................................9

4FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
Balfour Beatty Plc................................................................................................................10
Interserve Plc........................................................................................................................10
Advice to MFI Ltd...................................................................................................................11
Recommendations....................................................................................................................12
Appendix..................................................................................................................................13
Reflective report.......................................................................................................................14
References................................................................................................................................18

5FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
Introduction
This case study will analyse the financial condition of Balfour Beatty Plc and
Interserve Plc by using different financial ratio analysis. The financial advisor of MFI will
evaluate the financial statement to observe the financial condition of both of the companies.
The financial statements of 2017 and 2018 will be used to evaluate the ratios of these
companies, which will aid to identify the financial performance of the company during the
year. The ethical analysis will also be done based on financial and other reports. The analysis
will advise the investment committee about which company’s shares should they divest.

6FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
Financial Analysis
The following financial analysis will aid to recognize the financial situation of these
companies. The ratio analysis is given below, which will aid to understand the financial
position of both of the firm and help the directors in decision-making (Andjielic and Vesic
2017).
Ratio analysis
The ratio analysis will assist the board of directors by providing a clear picture of their
business and operations (Jamaluddin, Husin and Omar 2018). Liquidity, activity, debt,
profitability and market ratios will be evaluated below, which will help the management to
evaluate the financial position of these companies (Dyson and Franklin 2017). Along with the
annual reports, the balance sheet, income statements and statement of cash flows will be used
to evaluate these ratios.
Liquidity ratio
The liquidity ratio helps the firm to estimate its ability to pay off short term
obligations without increasing its external capitals (Sari, Nurlaela and Titisari 2018). The
common liquidity ratios are current and quick ratios.
Current ratio
Current ratio assists the business to evaluate its liquidity. The investors can measure
how a company can maximize its assets to satisfy their debts and other payables by assessing
the information of current ratio (Singh 2017). Current ratio helps the management to
understand the overall financial health of a company.
Quick ratio

7FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
The quick or acid test ratio indicates that how can the firm meet their short-term liabilities.
The acid test ratio provides an effective assessment of companies’ ability to pay off their
debts. Quick ratio excludes the inventory in the evaluation providing better cash management
(Van Schalkwyk 2016).
Activity ratio
The activity or efficiency ratio evaluates the operational efficiency and profitability of
a firm. Activity ratio involves account receivable turnover ratio and total assets turnover ratio
(Sinaga and Fachrurrozie 2017).
Account receivable turnover ratio
Accounting receivable turnover aids the management to understand the efficiency of
its company. The lower AR ratio suggests the deficiency in cash collection process (Lee and
Lee 2018).
Total assets turnover ratio
The total assets turnover ratio helps the management to understand their company’s
ability to generate sales from its assets, which increases profitability (Puspasari, Suseno and
Sriwidodo 2017).
Debt ratio
The debt ratio measures the company’s leverage. A ratio lower than one indicates decent
position of the company (Yazdanfar and Ohman 2015). Debt ratio is essential in determining
financial risks of a company.

8FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
Profitability ratio
The profitability ratios are used to evaluate the earnings of the business related to its
revenue. The investors can access this information to determine whether the company can
generate profit during the year or not. (Rani, Yadav and Jain 2015).
Gross profit margin
Gross profit margin is a ratio, which indicates the performance of a company related
to its sales and production. Gross profit margin generally increases with the size of the firm
(Hoppe 2015).
Return on assets
The return on assets ratio shows a percentage of profitability of the firm in generating
revenue. Return on assets aids the management to understand the profitability of its company
related to its total assets.
Return on equity
The return on equity ratio is used to evaluate the profitability of the company. This ratio
measures how effectively the management is using their assets to generate profitability of the
company (Ichsani and Suhardi 2015).
Market ratios
There are different types of market ratios, which are used to evaluate the financial
health of a company.
Book value per share
Book value per share provides information about the valuation of stock of a company.
Book value per share aids the management to predict the market price of the shares in the
upcoming years.

9FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
Dividend yield
The dividend yield evaluates the amount of income received by the company relating
to the stock. Most of the time, small companies pay lower dividend than mature companies.
Earnings per share
The earning per share supports the management to indicate the profitability of the
company.
Price/earnings ratio
The P/E ratio is used to evaluate the earning of the company. This ratio aid the
company to estimate whether they are overvalued or undervalued (Sha 2017).
Ethical analysis
Both of the company follows proper environmental and ethical business practices.
The SMART analysis and SWOT analysis will help in understanding their strategy related to
community and business.
SMART analysis
The smart analysis includes specific, measurable, attainable, relevant and time-bound
analysis of a company. The SMART analysis of Balfour and Interserve is given below.
Balfour Beatty Plc
The primary objective of the company is to enhance the infrastructure of the business
through an innovative framework. Balfour Beatty creates infrastructure, which supports the
community and enables growth for the future (Balfourbeatty.com, 2020).

10FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
The framework of Balfour Beatty is involved with four built to last strategies.
From the annual report, it can be perceived that, Balfour Beatty Plc follows
achievable and precise strategies for their business. These strategies aids in the growth of the
business.
Interserve Plc
The primary strategy of Interserve Plc is to provide constructions to the people and
community as well as capturing new growth market internationally. Interserve Plc is focused
on creating a safe and healthy environment for its employees. Interserve Plc is focused on
maintaining their environmental sustainability through certain sustainability plan
(Interserve.com, 2020).
The measurable strategies of Interserve plc include

11FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
From the analysis, it can be observed that, Interserve Plc diversifies and reduces the
risk of the market by operating in a huge market. The large market aids Interserve to generate
massive amount of revenues during its operations.
SWOT Analysis
A SWOT analysis includes strength, weakness, opportunities and threats of a
company (Gürel and Tat 2017). The SWOT analysis of these two companies is discussed
below.
Balfour Beatty Plc
STRENGTH
 Successful tracking of an integrated
firm through mergers & acquisition.
WEAKNESS
 Not highly successful at integrating
different work cultures.

12FINANCIAL ANALYSIS OF BALFOUR BEATTY PLC AND INTERSERVE PLC
 Strong dealer community and supply
chain.
 Highly skilled workforce through
training programs.
 Limited success in other businesses.
 Lack of investment for new
technologies.
OPPORTUNITY
 Entering a new market by following
technology standards.
 Stable cash flow provides an
opportunity in investing in new
technology.
 Economic rise and increase in
customer aid in capturing new
customers and market.
THREATS
 Non-regular supply on innovative
products.
 Seasonal demand for high
profitability products.
 New technologies by competitors
can be a serious threat.
Interserve Plc
STRENGTH
 Good return on capital expenditure
helps to generate more capital
towards business.
 Excellent and exceptional
performance in the new market.
WEAKNESS
 The organisational structure is not
compatible with the present business
model.
 Poor product demand forecasting.
 Day’s inventory is higher than the