Ratio Analysis Report on Capita, Serco, and Carillion Plc UK

This report conducts a ratio analysis of Capita Plc, Serco Plc, and Carillion Plc, focusing on liquidity, profitability, working capital, and debt management to assess their financial stability. It investigates the factors leading to Carillion's liquidation, including unethical practices and excessive debt, while comparing its financial health with that of Capita and Serco. The analysis covers key financial ratios such as current ratio, quick ratio, net profit margin, return on assets, return on equity, accounts receivable days, debt ratio, and interest coverage ratio. The report evaluates how these companies manage their assets, liabilities, and overall financial risks, providing insights into their ability to meet financial obligations and maintain sustainable business operations. This document is available on Desklib, a platform offering a wide range of academic resources and study tools for students.

Running Head: Report on the Ratio Analysis for three major Companies
Report on the Ratio Analysis for three major Companies
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1
Report on the Ratio Analysis for three major Companies
Executive Summary
This project analysis the major concern and cause for the liquidation of Big major company
Carillion. What has affected the company to be under governmental scrutiny. The unethical
activities that the company was following which went unrecognized. To understand the
reason ratio analysis is done.
Other big companies taken into consideration is Serco Plc and Capita Plc. The company takes
huge debt to manage the operation. How the company is managing the loan and the income
so that it is in the safe side of any financial risk. Financial risk plays major role to avoid any
risks the management and the stakeholder are the major equity holder who should measure
keep an eye on any unethical movement in the company.
This project has used all the measures to understand the condition why it Carillion faced such
a liquation and what the company take care to stop itself from any such disaster. The study is
has analyzed many other factors of financial management.

2
Report on the Ratio Analysis for three major Companies
Table of Contents
Introduction................................................................................................................................4
Evidence based decision to ensure value for money..................................................................5
Appreciation of counterparty risk in the procurement function:............................................6
Ratio Analysis Capita Plc:.........................................................................................................6
Ratio Analyse of Serco Plc:.....................................................................................................10
Demise of Carillion..................................................................................................................13
Financial Risk...........................................................................................................................13
Explanation of the financial risk:.........................................................................................14
Ratio analysis to understand the collapse of the company...................................................16
The Internal analysis of the company along with the Ratio:....................................................16
Debt and Equity Factor for realizing Financial risk.................................................................19
The Funding:............................................................................................................................22
Ethical Conduct:.......................................................................................................................22
Conclusion................................................................................................................................23

3
Report on the Ratio Analysis for three major Companies
Introduction
The project is about analyzing the financial stability of the companies. These
companies are Capita Plc, Serco Plc and Carillion Plc. The company is a big of public service
providers. The Carillion is a multinational Facility company and construction company.
Capita Plc is business process outsourcing and professional service company. It is one of the
biggest companies in UK. Serco plc is a British company that provides public service. It
operates in 6 major Health, Transport, Justice, Immigration, Defense, and Citizens Services
(Capita, 2019).
The Carillion Plc was in cash management distress which lead to its liquidation. The
company was not able to repay the debt of the lenders and was under constant scurrility by
the UK law to measure the risk that its stakeholder will face once the company defaults. This
was one of the biggest defaulting case in Uk. The loan amount was bigger than the amount of
profit it earned in all the years. There was deal for Serco Plc with the Carillion to buy a unit
for cash liquidation (Serco, 2019).
Major of the work is to understand how the company mis-managed its resources that
ultimately the liquidation happened. The Two other big companies are very big industries and
it’s very important for them to understand the situation of handling the assets and debts.

4
Report on the Ratio Analysis for three major Companies
Evidence based decision to ensure value for money.
It is a process when a government body makes any investment for buying any goods
or services. Before purchasing the government body issues contract notice or a tender notice.
The private companies then start their bidding for the contract. Public procurement is a
crucial function in the public sector and it involves major decision taking. The process of
evidence based management was formulated by Pfeffer & Sutton (2006). The research
question needs to be formulated, and then the relevant research findings and types of
evidence should be acquired. The after work is to validity, quality and applicability of the
evidence should be performed. The evidence needs to be made in such way that it can used to
make decision based process. This helps the company to make the proper utilization of the
resources. The evaluation of the contractor, suppliers performance over a time, the quality of
the purchasing process and relationship and also the supply chain needs to be evaluated
before giving the contract.
The NHS is a medical service providing system the procedure to omit the risk in
procurement system. The commissioning of the project is followed with all the procedure.
This eliminates the risk of any mis-management or cash handling. This makes the work more
accurate (nhs.uk,
2019).

5
Report on the Ratio Analysis for three major Companies
Appreciation of counterparty risk in the procurement function:
Procurement risk is a factor when the chances of the failure of a procurement process
designed of purchasing the services, product or resources, or procurement activities. The
maximum credit risk quality should be evaluated both on basis of time of aging of the
receivables and also on the basis of customer specific analysis. The counterparty risk can be
raised from transactional and financial factors also. The risk need to be managed by the
carefully
By measuring the financial credit risk exposure and also by analysing all open
exposures such as cash at bank accounts, investments, deposits and other financial
transactions. The issue with financial counterparty is the limits to an extent that needs to be
monitored by the management.
Ratio Analysis Capita Plc:
Capita Plc is an outsourcing business process which deals in governmental and private
contract procurement. The head quarter is in London. It is one of the largest business process
outsourcing company is UK. It has overall market share at 29%. The turnover comes from
private and the public sector. The company was started in 1987 with only 33 staff and today
the company is having staff strength of 70000. The analysis will be done to understand the
risk that the company is taking to do the operation.
Liquidity ratio: It’s a ratio that measures the ability of the firm to pay back the debt as and
when they become due. It also measure how quickly the firm can convert its current asset to

6
Report on the Ratio Analysis for three major Companies
cash to pay off the liabilities. The ratio above one is considered as safe measure for the
company (SAHIN, 2019).
The graph gives a clear picture that the company is maintaining a perfect ratio trend.
The company is converting its asset easily to pay off eth debt of the suppliers. The ratio is not
more than one but the balancing is good in service industry. The Group has a centralised
Treasury function whose principal role is to ensure that enough liquidity is kept available to
meet the Group’s funding requirements to mitigate the financial risk.

7
Report on the Ratio Analysis for three major Companies
Profitability Ratios: This ratio is used to evaluate the company’s ability to make income
from the asset and equity it is the most important ratio that determines the company’s
profitability standards.
2015 2016 2017
Net profit margin Net Profit 55.6 -51.7 -110.7
Sales 4,836.90 4,368.60 4,234.60
0.011 -0.012 -0.026
1% -1% -3%
ROA Operating profit 206.6 -16.1 -420.1
(Return on Asset) Total asset 5,343.50 5,498.50 4,421.20
0.04 0.00 -0.10
4% 0% -10%
Return On equity Profit/loss after tax 55.6 -51.7 -110.7
Equity capital 679.3 -255.4 -999
0.082 0.202 0.111
8% 20% 11%
The ratio is not at the
best of performance. The company is having more of obsolete asset than the profit is made.
The rate is in percentage and is low. The return on equity is method to understand how the
company is managing its profit. The return on equity is low and the effect is due to the profit.

8
Report on the Ratio Analysis for three major Companies
The decision was to focus on being a B2G business was in 2014, and was a change from the
previous strategy which had been to serve both private and public sector customers. The
company faced loss then due to the diversification
Working capital ratios: this ratio is important from point of creditors because it shows the
liquidity of the company. Accounts receivable is ratio that measures the average days to
collect its average accounts receivable.
The ratio is shows the days for which the company is getting the payment. The
repayment days are less than 6 months which makes its safe as the company will be having
liquidity available on time.
Debt management ratio: The leverage of the company is measured by this ratio and ratio is
calculated by total debt to total asset.
Working capital ratios
2015 2016 2017
Accounts receivable days Accounts receivable X Number of years in a year1,144.00 873 755.2
Annual revenue 4,836.90 4,368.60 4,234.60
86.33 72.94 65.09

9
Report on the Ratio Analysis for three major Companies
The ratio for capita is less than 1 that is a good sign that the company is maintaining
the liability to the total asset. But the ratio is in danger state when seen in the year 2016 and
2017.
Ratio Analyse of Serco Plc:
The Company is a leading Provider of public services. The customer of the company
is government and other subsidiary of the public sector. The sector diversification is in
Defence, Justice Justice & Immigration, Transport, Health and Citizen Services and delivered
in countries like UK & Europe, North America, Asia Pacific and the Middle East. The
company started in 1929 and in 1988 was listed on the London stock exchange. There is a
total staff of 50000 as of now. One of the biggest UK company has many responsibilities to
take the business operation safely throughout the year without any major mismanagement.

10
Report on the Ratio Analysis for three major Companies
The liquidity ratio for Serco Plc is in positive the trend is very common if the
company is using its assets properly to meet the liability. In all year the ratio was close to
one maintaining company standard ratio.
Liquidity Ratio
2015 2016 2017
current ratio current asset 925.5 759.6 657.5
current liability 914.5 745.3 678.1
1.012 1.019 0.970
Quick ratio Liquid asset 859.3 737.2 640.1
current liability 914.5 745.3 678.1
0.940 0.989 0.944
Profitability
Ratio: The ratio is very low all are negative the ratio is in danger state. The net profit for
2017 is in negative which is because the company is making less profit to the sales amount.
The ratio has improved in year 2017 for the return on asset as the company was doing new
investments and the return from the investment was also improving.
Profitability ratio 2015 2016 2017
Net profit margin -4.8% 0.0% 0.0%
ROA -0.2% 2.4% 2.0%
Return On equity -54.6% 0.0% -0.4%

11
Report on the Ratio Analysis for three major Companies
Working capital ratio: The Company is having stable receivable payment days the average
days taken by the company to get the amount payment form the debtors are less than half
month. This is good for the company to maintain the liquidity.
Debt Ratio: the ratio for Serco Plc is performing well by keeping the debt under control. The
ratio tells the amount of liability the company is having for every single asset. The ratio is
stable throughout 3 years making it a stable company for the stakeholders.
Working capital ratios
2015 2016 2017
Accounts receivable days Accounts receivable X Number of years in a year 519.7 543.5 506.5
Annual revenue 3,177.00 3,011.00 2,953.60
59.71 65.88 62.59
2015 2016 2017
Debt ratio Total Liability 1,557.40 1,365.80 1,205.60
Total Asset 1,839.50 1,764.60 1,512.80
0.847 0.774 0.797