Financial Ratio Analysis and Profitability: BSkyB Plc Case Study

This case study analyzes the financial performance of BSkyB Plc, a British company, using ratio analysis. The study calculates and interprets gross profit margin, operating profit margin, and net profit margin for the years 2013 and 2014. It provides a descriptive analysis of the trends, highlighting a decline in profitability during this period. The analysis includes graphical representations of the ratios. The case study also explores strategies to improve profits, such as removing unprofitable services and finding new customers. The conclusion summarizes the importance of ratio analysis and suggests various methods for enhancing profitability within the organization.

Case Study

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Calculation of ratios:................................................................................................................1
2. Descriptive analysis.................................................................................................................3
3. Options to improve profits.......................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Finance can be defined as the monetary resources which are used by an organisations to
execute operational activities. While planning to analyse the financial performance managers can
use ratio analysis as it guides to evaluate actual position (Griffith and Wollenhaupt, 2018). This
project is based upon BSkyB Plc which is a British company established in UK. Present report
will cover different elements such as calculations of ratios and recommendations to increase
profits.
MAIN BODY
1. Calculation of ratios:
(A). Gross profit- This reflect part of profit which corporation earned after providing all
expenses related to development and sales of its different products. Sum of Gross profit
generally stated in corporation's income statement as difference sales and COGS (Cucchiella,
D’Adamo and Gastaldi, 2015). In this regard here is gross profits of two year of respective
corporation and computation of GP margin, as follows:
Particulars 2014 2013
Revenue 7632 7235
Less- Cost of sales 4616 4329
Gross profit 3016 2906
(I) Gross profit margin: Gross profit/Net sales*100
2014 £M 2013 £M
Gross profit 3016 2906
Net sales 7632 7235
Calculation 3016/7632*100 2906/7235*100
Gross profit margin 39.52% 40.17%
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(B) Operating profit: this sum of profit which is earned by corporation through its core
commercial/business operations. Also here notable aspect is that interest paid and tax paid
amount are specifically excluded in assessing operating profit. Following are the operating profit
figures and margin ratio of British Sky, as follows:
Particulars 2014 2013
Gross profit 3016 2906
Less- Expenses 1741 1576
Operating profit 1275 1330
(ii) Operating profit margin: Operating profit/net sales*100
2014 2013
Operating profit 1275 1330
Net sales 7632 7235
Calculation 1275/7632*100 1330/7235*100
Operating profit margin 16.70% 18.38%
(C) Profit earned during the year: It is termed as net profit which corporation has gained after
providing all its expenses/costs during a specific period (Bellos and Tzivanidis, 2017). It shows
net profitability status of corporation during particular period, here below table consists of net
profits for two years and NP margin of corporation:
Particulars 2014 2013
Operating profit 1275 1330
Less- Tax 410 351
Profit 865 979
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(iii) Net profit margin: Net profit/Net sales * 100
2014 2013
Profit 865 979
Net sales 7632 7235
Calculation 865/7632*100 979/7235*100
Net profit margin 11.33% 13.53%
2. Descriptive analysis
Here under this section of study-report, comprehensive descriptive analysis to assess the
financial performance in different context of British Sky is conducted in following manner:
 Gross profit margin-
2013 2014
39
39.2
39.4
39.6
39.8
40
40.2
40.4
40.17
39.52
Gross profit margin
Analysis: From above computations and graph of GP margin of corporation, this has been
analysed that GP margin in 2013 was 40.17% that declined to 39.52% such decline is reported
because during such period gross profit reported increase of only £110 million while revenue
increased by large figure.
 Operating profit margin-
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2013 2014
15.5
16
16.5
17
17.5
18
18.5
19
18.38
16.7 Operating profit margin
Analysis: Above chart and figures of operating-profit margin reflects that in year 2014 this
margin is 16.7 percent which was 18.38 percent in year 2013 indicating a declining trend due to
decrease in operating profit over the period. Analysis shows that company's capacity to generate
operating-profit has been declined.
 Net profit margin
2013 2014
10
10.5
11
11.5
12
12.5
13
13.5
14
13.53
11.33 Net profit margin
Analysis- As per presented chart and net profit margins of corporation British Sky it is analyzed
that overall net profitability margin of corporation has been declined from 13.53 percent to 11.33
percent during the period 2013 to 2014. This declining trend in net-profit margin indicates that
corporation's net profit generating capabilities has been declined over the period.
Overall analysis indicates that corporation's financial performance from 2013 to 2014 has
been declined and currently is not so much good but all the profitability percentages are two
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digit. In perspective of stakeholders/shareholders performance is still good as company is
capable to distribute dividends.
3. Options to improve profits
From the ratio analysis of BSkyB Plc it has been analysed that profitability of the
company is not very good it is very important for the top management to take appropriate actions
so that it could be increased (Strategies to improve profits, 2019). For this purpose they may pay
attention towards following suggestions:
Removing unprofitable services: BSkyB Plc can remove all those services which are
not able to provide it profits. This suggestion is made because with the help of it monetary
resources could be saved for further operations. It may work for the organisation because with
the help of it possibility of lower profits will be decreased. There is a possibility of that it might
not work because removing the services may result in lower interest of customers.
Finding new customers: The organisation can use this strategy to improve its profits
because with the help of new customers the enterprise can attain higher profits. This
recommendation is provided to BSkyB Plc because it can help to target new clients and enhance
profits. This strategy will work for the entity because if new customers will be attracted towards
the business then they may help to improve profitability. This might not work in future because it
is very difficult to convince new patronages to trust on such services which are not used by them
earlier (Mehra, Kumar and Raju, 2018).
It has been recommended to the managers of BSkyB Plc to select the strategy of finding
new customers because with the help of it the company can expand its business and increase its
profits. This option will also help to enhance interest of shareholders within the organisation so
that business could be operated properly.
CONCLUSION
From the above discussion it has been concluded that organisations can calculate
different ratios such as gross, operating and net profit for the purpose of analysing actual
financial position of business. In order to increase profitability business entities can adopt
different strategies. Some of them are finding new customers and removing unprofitable
products and services.
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REFERENCES
Books and Journals:
Cucchiella, F., D’Adamo, I. and Gastaldi, M., 2015. Financial analysis for investment and policy
decisions in the renewable energy sector. Clean Technologies and Environmental
Policy. 17(4). pp. 887-904.
Bellos, E. and Tzivanidis, C., 2017. Energetic and financial analysis of solar cooling systems
with single effect absorption chiller in various climates. Applied Thermal Engineering.
126. pp. 809-821.
Mehra, A., Kumar, S. and Raju, J. S., 2018. Competitive strategies for brick-and-mortar stores to
counter “showrooming”. Management Science .64(7). pp.3076-3090.
Griffith, D. R. and Wollenhaupt, N. C., 2018. Crop residue management strategies for the
Midwest. In Crops residue management (pp. 15-36). CRC Press.
Online
Strategies to improve profits. 2019. [Online]. Available through:
<https://www.altitudeadvisory.com.au/resources/business-improvement/top-7-
strategies-to-improve-profit/>
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