Finance and Accounting for Decision-Making: CRH PLC Analysis

This report provides a comprehensive financial analysis of CRH PLC, an international construction materials company. It examines CRH's financial performance over a five-year period (2014-2018) using income statements, balance sheets, and cash flow statements. The analysis includes interpretations of key financial metrics, such as revenue, gross profit, and stockholder's equity, highlighting trends and company's financial health. Furthermore, the report compares CRH's performance with its competitor, Persimmon Plc, using liquidity, efficiency, and profitability ratios to assess their relative strengths and weaknesses. The report also explores the business from an investor's point of view, discussing share price trends and investor ratios. It also considers the impact of changes in accounting policies on CRH's financial reporting. The report concludes with a discussion of the limitations of the analysis and provides references to relevant sources.

FINANCE AND ACCOUNTING
FOR DECISION-MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Financial performance over 5 years.............................................................................................1
Comparison of last 2 years between CRH and Persimmon plc...................................................2
Business from investor's point of view........................................................................................6
Changes in accounting policies and its impact on CRH..............................................................7
Limitations of analysis. ...............................................................................................................7
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Financial decision making is defined as the process dealing with all the decision related
to the financial structure of company. These financial decisions are of great importance to the
organisation. They are taken analysing the financial position and health of organisations using
the financial statements and tools like ratio analysis. Present report is about the use of financial
statements of company in making informed decisions for the company. Study is done on CRH
Group which is an company dealing in manufacturing and distribution of building materials.
The report covers the analysis over 5 years and comparison with its competitor Persimmon Plc
MAIN BODY
CRH PLC
It is an international group dealing in diversified construction materials that manufactures
as well as supply various products for construction industry. It was incorporated and established
and is domiciled in Ireland currently. It is known as biggest Irish company and is having
primary listing on London Stock exchange. It is having headquarters in Dublin, Ireland and is
constituent of FTSE 100 Index. Company is performing excellently well total revenues of
€29790 million, net income of €2521 million in 2018. It is having employees around 85000 till
2019. Company is constantly growing and is earning handsome returns over its business.
Financial performance over 5 years
Income Statement
2014 2015 2016 2017 2018
Revenue 18912 23635 27104 25220 26790
COGS 13427 16394 18267 16903 18152
Gross Profit 5485 7241 8837 8317 8638
Balance Sheet
Assets
Non current assets 13290 22610 22200 21862 25662
Current Assets 8727 9397 9394 9771 9511
Total Assets 22017 32007 31594 31633 35173
Current Liabilities 3867 6369 5898 6031 6079
Non Current 7973 12623 11801 11111 13065
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Liabilities
Total Liabilities 11840 18992 17699 17142 19144
Stock holders equity 10177 13015 13895 14491 16029
Total Liabilities &
stockholders equity 22017 32007 31594 31633 35173
Cash Flow
Operating activities 1237 2247 2340 2189 1899
Investing activities -232 -7306 -735 -2685 -1592
Financing activities 380 -4162 -1732 343 -113
Cash at beginning 2540 3295 2518 2449 2135
Cash at end 3295 2518 2449 2135 2346
Interpretations :
The above analysis shows that the company is performing with excellence in the industry.
It has constantly increased the revenues adopting new strategies and policies. Analysis shows
that there has been constant increase in its gross profits during the years. Position of the company
could be judged from the balance sheet. Wealth of the company has increased to great extent in
the five years primary in non-current assets. As against the assets company strongly managed to
have control over its liabilities (Subalakshmi, Grahalakshmi and Manikandan, 2018). The
stockholder’s equity has increased with issue of new shares and rise in the valuation of common
stocks of company. The cash flow of company is healthy and the maintaining its funds after
repayment of loans and investment is strong factor of the company. It has not gone out of cash
even after some of the major outflows in financing and investing activities.
Comparison of last 2 years between CRH and Persimmon plc.
Persimmon Plc CRH
Liquidity ratio 2018 2017 2018 2017
Current assets 4215.7 4228.8 11232 11044
Current liability 1123.9 1198.6 7179 6816
Current ratio 3.75 3.53 1.56 1.62
Current assets /
current liabilities
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Current assets 4215.7 4228.8 11232 11044
Inventory 3059.5 2825.9 3615 3068
Current liability 1123.9 1198.6 7179 6816
Liquid ratio 1.029 1.17 1.06 1.17
Current assets -
(stock + prepaid
expenses)
Efficiency Ratios
Sales 3737.6 3597.8 31639 28506
Net Assets 3194.5 3201.6 19550 16928
Asset turnover
ratio 117.00% 112.38% 161.84% 168.40%
Sales / Net assets
Profitability ratio
Employed Capital 3527.8 3558.2 34360 28938
Net operating
profit 1090.8 966.1 2542 2431
Return on capital
employed 30.92% 27.15% 7.40% 8.40%
Net operating
profit/Employed
Capital
Net Income 1090.8 966.1 2972 2142
Shareholder's
Equity 3194.5 3201.6 19550 16928
Return on Equity 34.15% 41.10% 15.20% 12.65%
Net Income /
Shareholder's
Equity
Cost of Sales 2557.7 2526.1 21437 19105
Sales 3737.6 3597.8 31639 28506
Gross Margin 31.57% 29.79% 32.25% 32.98%
Total Sales –
COGS/Total Sales
Operating profit 1090.8 966.1 2542 2431
Sales 3737.6 3597.8 31639 28506
Operating profit
ratio 29.18% 26.85% 8.03% 8.53%
Operating Income/
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Net Sales
Debt
Debt 333.3 356.6 10272 8658
Equity 3194.4 3201.6 19550 16928
Debt equity ratio 10.43% 11.14% 52.54% 51.15%
Debt/ Equity
EPS
Net Income 895 797 2972 2142
Shares
Outstanding 312.9 308.6 832 836
EPS 2.860 2.583 3.572 2.562
(Net Income/
Shares
Outstanding)
Interpretation :
The above analysis of the financial performance of company represents the financial
performance of the companies during the past 2 years. The financial analysis is used by the
organisations and experts for reviewing the positioning of company so that corrective measures
and decisions can be taken.
Current ratio of the company represents that the liquidity position of CRH is not strong.
The ratio is below the standard mark up of 2:1. Where the ratio has never been above or up to 2
in the last four years after 2014. This could also be seen that company is having high current
assets but the liquidity position is not good (Bunker, Cagle and Harris, 2019). CRH is required
to take effective steps for the business enterprise for improving its liquidity positioning.
Persimmon is having strong liquidity position with ratio of 3.75 that is also a growth.
Quick ratio of CRH is also below the standard of 1.5 and it is low in Persimmon plc too.
This is seen that last four years the liquidity of CRH is showing a fluctuating trend. For
strengthening its liquidity position company is also required to take effective corrective steps like
reducing its short term loans instead having long term loans with lower interest’s rates. CRH is
much bigger group but on comparing its efficiency persimmon is having strong liquidity position
as per its business.
Efficiency can be judged by asset turnover ratio of company. The ratio is showing
fluctuating trend in last 2 years. However it is declining below 187.67% from 2016. CRH is
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working strongly for increasing its revenues. It represents the sales generated by company
against its revenues (Chiaramonte and Casu, 2017). The available resources should be used
efficiently gaining maximum sales. The asset turnover ratio is low in persimmon plc that it is not
able to generate sales as CRH on its assets.
Return on capital employed is a profitability ratio used by experts and analysts for
assessing the efficiency of company in running its operations using the available resources. CRH
is showing constant growth in ROC however it declined to 7.40% in 2018 from the last year.
ROC of persimmon plc is 30.92% that is much higher in comparison to CRH. (Rashid, 2018).
ROE of CRH is 15.20 % with increase from last year and that of persimmon plc is
34.15% in 2018 which was 41.10 % in previous year. Return is declined in Persimmon and
raised in CRH which shows that performance of CRH has improved from last year.
Gross margin and operating margin of both the companies range from 30% - 33%. Both
are performing good on this factor but on net profit Persimmon is performing much with margins
of 27% -30% where the CRH have between 8% - 9%. However the level of profits are much
higher in monetary terms than persimmon but the performance management of company is
considerable.
Debt equity ratio represents the capital structure of company. Persimmon plc is having
debt ratio between 10% - 12% that is not high and is not having high financial risk but high cost
of capital. CRH is having debt equity of 50% - 52% That shows it has half of debt against its
equity for having an adequate structure with low cost of capital.
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Business from investor's point of view.
The above analysis is based on the performance of company as per previous closing
prices of company. There has been a fluctuating trend in the share prices of company in the last
five years. However, the overall analysis for the last 5 years shows that the prices have shown a
rise of 47.08%. This is a remarkable performance, company has shown growth that every
investor wants to have on their investments (Sayari and Mugan, 2017). Company has efficiently
managed to come up with the market challenges and achieved the positioning. Investor ratios as
given in above table shows that CRH is also providing adequate earnings over their shares.
Investors also are concerned with the profitability of company that is also up to to the industry
average. Company is providing return over equity of around 15%. The investors invest with the
motive of earning high returns with their wealth maximisation. Increasing trend of share prices
shows that it is also performing well in maximising the wealth of its investors.
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Changes in accounting policies and its impact on CRH.
Changes in the accounting policies do have impact over the performance of company.
Accounting policies refers to the method in which transaction and records will be recorded by
company. The changes adopted by the company due to introduction of International accounting
standards has helped in better performance of company. The adoption is reflected in growth of
business during the years after its adoption. Company is making more accurate records of the
business transactions that is followed by the international accounting standards which allows it to
have uniform accounting records (Zainudin and Hashim, 2016). This helps the business in
making comparison between the corporations which are operating globally. It helps it in
identifying the factors that are affecting the performance of company and are required to be
considered by the business. This impacts every operational activity of business as the process are
carried out in manner that is more adequate and presentable.
Limitations of analysis.
The limitation of the analysis is that the analysis is based on past events that have
happened (Farfan and et.al., 2017). The improvements that will be reached due to adoption of the
new policies and strategies are not reflected. Ratio analysis do not consider the time factor that
do not presents the actual growth of company during the years. The analysis of share prices
cannot be taken as the basis for investments as the markets are prone to several risks that are
unpredictable at the current stage.
CONCLUSION
The above study shows that financial performance of CRH plc is remarkable in the
industry. Its effective management of the financial factors have helped company to achieve
growth and success. Company has managed to maintain its position by effectively and efficiently
facing all the challenges of business environment.
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REFERENCES
Books and Journals
Bunker, R.B., Cagle, C. and Harris, D., 2019. A Liquidity Ratio Analysis of Lean vs. Not-Lean
Operations. Management Accounting Quarterly, 20(2), p.10.
Chiaramonte, L. and Casu, B., 2017. Capital and liquidity ratios and financial distress. Evidence
from the European banking industry. The British Accounting Review, 49(2), pp.138-161.
Rashid, C.A., 2018. Efficiency of Financial Ratios Analysis for Evaluating Companies’
Liquidity. International Journal of Social Sciences & Educational Studies, 4(4), pp.110-
123.
Subalakshmi, S., Grahalakshmi, S. and Manikandan, M., 2018. Financial Ratio Analysis of SBI
[2009-2016]. ICTACT Journal on Management Studies.4(01). pp.2395-1664.
Sayari, N. and Mugan, C.S., 2017. Industry specific financial distress modeling. BRQ Business
Research Quarterly, 20(1), pp.45-62.
Zainudin, E.F. and Hashim, H.A., 2016. Detecting fraudulent financial reporting using financial
ratio. Journal of Financial Reporting and Accounting.
Farfan, K.B. and et.al., 2017. Financial ratio method peruvian listed companies.
Online
Annual Report. 2019. [Online]. Available through :
<https://www.macrotrends.net/stocks/charts/CRH/crh/financial-statements>.
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