Comparative Business Analysis Report: Kier Group vs Tyman plc

This business analysis report presents a comparative appraisal of Kier Group plc and Tyman plc, both operating in the construction and materials sector. The report begins with an introduction providing background information on both companies, their operations, and industry overview. The study examines the impact of stock prices, and the potential effects of Brexit on the industry. The core of the analysis focuses on financial statement analysis, including ownership concentration, leverage, liquidity, profitability, and investor ratios. The report also delves into the theoretical underpinnings of ownership structure, agency theory, and their impact on firm value and financial performance. The methodology section outlines the data and models used, followed by a detailed financial analysis of both companies. The report concludes with a discussion of findings, limitations, and recommendations, aiming to provide investors with insights for informed decision-making.

Business Analysis
Report

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
Background of the study..............................................................................................................3
Problem statement.......................................................................................................................4
Aims and objectives.....................................................................................................................4
Research questions.......................................................................................................................5
Significance of the study..............................................................................................................5
LITERATURE REVIEW................................................................................................................5
Theories of ownership structure and firm value .........................................................................5
Financing......................................................................................................................................7
Types of corporate finance...........................................................................................................8
Difference between internal and external financing....................................................................9
Impact of ownership structure on financial performance..........................................................10
METHODOLOGY .......................................................................................................................11
Method and model.....................................................................................................................11
Data............................................................................................................................................14
FINANCIAL STATEMENT ANALYSIS....................................................................................15
Ownership concentration...........................................................................................................18
Leverage analysis.......................................................................................................................19
Liquidity ratio analysis..............................................................................................................20
Profitability ratio analysis..........................................................................................................21
Investor Ratios...........................................................................................................................22
CONCLUSION .............................................................................................................................23
Discussion..................................................................................................................................23
Limitations.................................................................................................................................24
Conclusion ................................................................................................................................24
REFERENCES..............................................................................................................................26
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INTRODUCTION
Background of the study
This business analysis report includes comparative appraisal of the two organizations that
are operating in similar sector. The organizations selected for comparative study are Kier Group
plc Group plc (LSE: KIE) and Tyman plc (LSE: TYMN). Kier Group plc Group plc is listed in
Construction and Materials sector. Both firms are operate in sectors such as - construction, civil
engineering, support services and property management sector (Brealey et.al, 2012). Kier Group
plc is regarded as one of the major construction, services as well as property group that is
engaged in building as well as civil engineering, support services, development of land, public
and private house building as well as Private Finance Initiatives and is headquartered in
Tempsford Hall, Sandy, Bedfordshire. The company is also constituent of FTSE 250 Index. Kier
Group plc has four specialized divisions, these are called Kier Group plc construction, Kier
Group plc services, Kier Group plc Residential and Kier Group plc property (Coles, Lemmon
and Meschke, 2012). It was founded in the year 1928. It is regarded as the fourth largest UK
construction company after Balfour Beatty, Carillion and Laing O' Rourke. The company is
carrying out its operations in wide range of sectors like defense, education, health, housing,
transport, industrial and utilities. The group provides employment to 24000 individuals within its
operations spread over UK, the Caribbean, the Middle East, Hong Kong as well as Australia. It is
a listed company that made a net profit of £29.5 million in the year 2015. Its operating income
for the year 2015 was £103.7 million. The vision of the firm is to “become world class, customer
focused organization which makes investment in, builds, maintains as well as makes renewal of
the places where people reside, play and work”. Kier Group plc possesses multiple core
competencies (Embrechts, Klüppelberg and Mikosch, 2013). It has competencies in asset
management, structured finance, affordable housing, project development, partnerships and joint
ventures.
The other organization used for comparative analysis is Tyman plc. This company is one of the
international suppliers of the engineered components to the doors and windows manufacturing
industry. As on December 31, 2015 the group had 20 manufacturing facilities across eight
countries. The products of the firm can be seen in homes as well as buildings across the globe
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(Tyman plc Plc, 2016). The company has worldwide manufacturing as well as distribution
operations covering North America, Europe, Asia as well as Australasia. The manufacturing
decision making is based on the differentiation of its product offerings from the competition.
This is achieved through offering customers with higher quality of products at economical price
(Engel, Fischer and Galetovic, 2013). Further it is delivered in accordance with the desired
specification within specified time in an effective manner. The group manufactures higher
quality supplies of the wider range. Further it has established itself within the developed markets
as one stop shop for its clients. It offers the manufacturers with the components that is required
by them for making doors or windows (Tanzi, 2016).
The board of directors of the company are entrusted with the responsibility of overall leadership,
strategy development as well as control over the group for the purpose of attaining its strategic
objectives (Esty, 2014). The group is carrying out operations through three divisions. These are
Amesbury Truth (North America), ERA (UK and Ireland) as well as Schlegel International.
This study is focused on making comparative analysis of both the companies so that investors
can make informed decisions in terms of picking the company that provides them with better
returns. In order to develop better understanding of the underlying companies we have performed
financial statement analysis for both the businesses so that a better picture emerges regarding the
most profitable retail organization in UK.
Industry overview
The construction, civil engineering, support services and property management sector for
the UK economy is considered as greater boon. It is regarded as one of the largest sector of the
UK economy. It creates, builds and maintains the workplace wherein the organization operates
and flourish (Gaunt, 2014). The industry had been significantly hit hard across the world since
the recession in 2008, it was a declining sector in several developing economies. The industry is
showing promising improvement which has favourably influenced companies operating within
this particular sector. Effect on share price of both companies
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Stock prices fluctuate primarily as a function of market force i.e. demand and supply for
a particular stock. Demand is generated by investors perception of an underlying company’s
value increase in future and earnings is most important factor in building this perception. Other
factors like investors’ sentiment, attitude and expectation also affect the stock price. Tyman plc
and Kier Group plc to a significant level are influenced by the changes in the prices of the stock
(Gitman and Zutter, 2012). This reflects that in case the company has declining stock prices that
it would be able to make lesser investment in new assets. Increase in stock price will tends to
enhance the reputation of the company for its ability to be profitable over a long course of time
and will enhance the value of the company. One way that the lenders and financiers makes
judgment regarding the health of the organization is by means of its stock price.
There is potentially a huge impact of Brexit in the future on the industry as well as these
companies. The companies would not be able to carry out free trade and this could significantly
impact revenue of these companies.
Problem statement:
The major issue that we will address in this report is “need of investors”. This envisages
analyzing the market sector (retailers), the outcome of analysis will help investors to make
investment decisions to maximize their returns. We will evaluate two companies by carrying out
comparative analysis of Kier and Tyman plc, which are operating in retail sector (Letourneau,
2015). The study will portray the strengths as well as weaknesses as well as evaluate the
financial position of both the businesses. This can be regarded as an effective measure that can
determine the position of the organizations within the industry. The financial position will be
analyzed from both the profitability and liquidity aspects so investors may determine investment
suitability for long and short time horizons.
Aims and objectives
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The aim of the present study is: To carry out comparative analysis between two
companies i.e. Kier Group plc and Tyman plc.
Objectives:
 To compare financial performance of the two organizations
◦ analyze the ownership structure as well as value of the companies i.e. Kier Group plc
as well as Tyman plc
 To assess the impact of ownership structure on financial performance
 To identify the areas where improvement can be made
Research questions
 What is the ownership structure as well as value of the firms for both Kier Group plc and
Tyman plc?
 How ownership structure affects financial performance of the organizations?
 What can be alternative ways of improving performance of businesses?
Significance of the study
The present study entails to make comparison of the two organizations is significant in
terms of assisting the investors in making decision regarding the choice of the company that
would yield greater profits in return for investment. (Pickard, 2012). The present study may also
help scholars who wants to carry out in depth investigation for their own sake. On the other hand
this report can be used by some engineering firms in gaining knowledge regarding the trends that
are emerging within the particular sector (Rasinger, 2008). Along with this, it can be used for the
purpose of making analysis of the areas where its competitors can bring improvement. This study
can assist in conducting comparative analysis in an effective manner.
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LITERATURE REVIEW
Ownership structure is one of the aspects of this analysis therefore it was considered worthwhile
to review some theories on ownership structure.
Theories of ownership structure and firm value
Ownership structure possesses value for corporate governance as it can influence the
incentives of the managers and also the efficiency of the organization to a greater extent. The
ownership structure is defined by the means of distributing equity in relation to the votes as well
as capital but also through the identity of the equity owners. In accordance with the views of
Embrechts, Klüppelberg and Mikosch, (2013) it has been indicated that there are several theories
relating to ownership structure. If we consider agency theory, it highlights that potentially three
can be a wider gap between the ownership and control of the larger organizations that arises from
the decline in the equity ownership. Some specific situations may provide incentive to the
executives for pursuing their own interests rather than maximizing the shareholders return.
Within the theory the shareholders of the owners as well as the responsibility of the higher level
authority needs to solely for the purpose of making sure that the interest of shareholders are
being met in an effective manner (The theory emphasizes that the shareholders; who are the
owners and management both have the responsibility to ensure that that shareholders’ interest are
met effectively). The management has the responsibility of managing the organization in a
manner r that results in maximizing the shareholder's return. These collective efforts can result in
improving the profitability figures as well as cash flows. As per the views of Brealey and etal.
(2012) it has been argued that executives do not carry out business operations for increasing the
returns to the shareholders. The theory of agency was designed to explain the principal agent
relationship. As such this was regarded as the key factor that makes determination of the
organizational performance in an effective way. An agency relationship is regarded as the
agreement wherein one or more individuals (i.e. shareholders) engages another person or persons
( e.g. management) for performing some services on their behalf that includes delegation of
certain decision making authority to the agent. The major problem the conflicting interests of the
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managers and shareholders. In some situations the manager run the business operations for
achievement of his personal goals instead of increasing the returns for the shareholders (Kumar
and Phrommathed, 2005). It implies that the executive available excess free cash flow for
fulfilling the personal interests rather that enhancing the shareholders return. The major
challenge faced by the shareholders is ensuring that such excess cash flow is not invested in
projects that are unprofitable or possess negative net present value. According to Millet-Reyes,
(2013) such cash flows are required to be returned to the shareholders in the interest of the
shareholders, when these cash flows are diverted in other projects this is regarded as Agency
costs. Higher agency cost occur because the executive has more information of the operations
and their activities cannot be monitored closely. Enterprise value is considered as the total value
of the organization; which is the economic measure demonstrating the market value of the
organization. It is referred to as the sum of claims by all the claimants, creditors as well as
shareholders.
Impact of ownership structure on financial performance
There is greater impact of ownership structure on the financial performance of the business. The
separation between ownership and control impacts the efficiency of the operations. Several types
of ownership structure Exist. In accordance with the views of Shiller, (2013) it includes a sole
proprietorship where the entity owned as well as managed by a single person. The major
advantage of this form of organization is speed of decision making while the disadvantage s will
include sustaining the loss individually and the ability to raise additional capital.. As per the
views of Coles, Lemmon and Meschke, (2012) the ownership structure such as partnership can
also assist the business in enhancing its performance to a greater extent. Under partnership f two
or more persons carryout operations of the business jointly in order to attain common goal. As
compared to sole proprietorship in partnership business activities can be carried out with much
more effectiveness. It has benefit in terms that losses of the entity are shared between/among the
individuals in accordance with the proportion in which they have invested capital.. Major
disadvantage with a partnership is that the partners’ personal wealth is exposed towards
settlement of business liabilities. In partnerships not every partner takes an active role in
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management and such are called sleeping partners. But all partners are able to participate in the
profit and losses of the entity.. This is considered inappropriate on the part of the individual who
are actively carrying out activities within the business, therefore those are compensated by way
of salaries for the extra work that they are putting in. Another form of organization is limited
company and as per the views of Engel, Fischer and Galetovic, (2013) limited company has
certain other pros and cons that affects the operations of the business.. In case of limited
company the operations of organization are usually carried out on larger scale.. Major benefit of
limited company is that though profits are shared and losses are restricted to the extent of their
shareholdings. Shareholders are owners of the company whose money is being used by the
company for carry out operations and to make further investment. This is the cheapest form of
financing and has least distress during hard times for the company.
Financing
Financing refers to the act of offering funds by individuals or institutions for facilitating
the activities of business, helping them make purchases or making investment. In financial
statement analysis the impact of debt and equity form part of our analysis. Financing activity is
pivotal in any economic system as it provides access to organizations that are not able make
purchases of raw materials, trading products or incur capital expenses from their own capital.
Businesses are usually financed through equity or debt. In accordance with the views of Gaunt,
(2014) Debt is required to be paid back at the same time it is cheaper because of tax
considerations, can be acquired with less hassle than increasing capital. In contrast to debt
equity is not required to be paid back periodically as it provides ownership to the shareholders
and claims on future earnings. In hard times periodic payment on debts can add to the distress of
a company while in worst case scenario equity holders are entitled to residual value of the
company. Our debt to equity ratios will analyze the reliance of each of the company on debt /
equity and what is the likely financial impact.
Corporate Finance and its significance for the two companies:
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Short term survival and an entity’s ability to meet its working capital needs are assessed by
reviewing the liquidity ratios while effects of long term financial health, financing and
investment are dependent on sources of the funds that a company resorts to, and gearing ratios
and its ability to generate interest and profit determine the related impact.
Types of corporate finance
McLean and Pontiff, (2016) have argued that corporate finance differs considerably
around the globe. Corporate finance envisages transactions that results in creating new equity
structure or the shareholder base as well cover the related issues, underwriting, purchase or
exchange of the equity as well as debt. Many types of corporate finance exist. (Wilmott, 2013)
its classification to a greater extent is dependent on the time frame for which organization
requires the finance. This includes short term finance which involves bank overdraft. Under this
the firm can make withdrawal of the greater amount than what actually is present in the bank
account. The role of bank overdraft is effective in assisting the organization to meet its short
term obligations with greater effectiveness.. Corporate finance is effective in addressing the
financial decisions which the firm takes and the tool as well as analytical devices which can be
employed for taking those decisions (Zopounidis and et.al, 2015). Corporate finance is regarded
as the key segment of finance associated with maximization of the corporate value and at the
same point of time decreasing the financial risk factors of the organization. As per the views of
Gippel, (2015) corporate finance does not possess similarity to managerial finance that makes
analysis of the financial decisions of every organization rather than corporation solely. Corporate
finance is the area of finance that deals with the sources of funds as well as capital structure of
the corporation. In addition to this it also involves the actions that are being taken by the
manager for the purpose of increasing the organizational value to the shareholders. Moreover it
involves the tools as well as analysis that is utilized for the purpose of allocating financial
resources (Zopounidis and et.al, 2015). The term corporate finance as well as corporate financier
are interrelated with investment banking. This implies that it has major role towards evaluating
the financial requirements of the organizations and raise suitable kind of capital that matches the
needs of the firm. In accordance with the views of Wilmott, (2013) it has been observed that the
common sources of finance that can be used by the organizations in order to raise its capital
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includes debt capital, equity capital as well as preferred stock. The corporations depends on
borrowed funds as an investment source that can assist in survival of the ongoing business
operations as well as assist in bringing long term growth of the organization. Debt can be in
various forms. This includes loan from bank, notes payable, or corporate bonds that are being
issued to the public. Bonds result in the firms making payment of coupons (interest) on regular
intervals on the amount of capital borrowed till the debt reaches its maturity (Rasinger, 2008).
The firms can also make use of equity capital for the purpose of raising capital. The firm can
make sale of its shares to the investors of the organization (private equity) in order raise its
capital.
Difference between internal and external financing
Internal and external finance relates to the firm engaging in activities from the funds generated
from within the company and getting funds from outside. According to Gitman and Zutter,
(2012) such is regarded as the key as well as an essential difference among both the two options
of funding. When the firm makes utilization of the internal finance that it has the advantage of
existing supplies of capital from profits and other sources (Letourneau, 2015). However external
finance includes usage of finance that is new to the organization. This is from outside sources
that can assist in funding the activities that have been planned out but cannot be carried out
through the internal revenue generation and reserves. Internal and external financing approaches
have their own merits as well as demerits. Many organizations take into account internal as well
as external finance but they start by first exploring the internal options. One of the major issues
of using internal funds is that decrease in reserves renders the company vulnerable in situations
requiring immediate cash. On the other hand relying on external finance may mean going for
debt or giving up the control. The firm can obtain funds in variety of manner, one way is through
issue of shares to the general public so that adequate amount of funds can be acquired which
could then be invested in future growth.
Looking at the differences between the two approaches we may find that in internal financing the
firm does not require to make payment of any cost in obtaining funds. The existing are utilized
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for meeting the financial needs of the firm. However in accordance with the views of Esty,
(2014) there can be higher cost in acquiring funds from external sources. This involves direct
costs as well as reputational costs resulting from lawsuits that may negatively impact the
corporate credit rating of the company. External financing sources involves loan from bank,
leasing, hire purchase, issue of shares, bank overdraft as well as other. It includes greater amount
of cost that can be in form of rent, dividend as well as interest. This adds to the overall cost of
the running the business leading to significant reduction in the profitability of the organization..
The major advantage of external source financing is assisting the firm in satisfying its long term
obligations and achieving its goals by capturing opportunities for growth and development over
longer time horizon.
METHODOLOGY
Methodology is referred as the manner in which related issues are investigated and
appropriately resolved. Many tools can be employed in order to get evidence and devise analysis
in order to respond to the research questions. Several tools have been used collect and analyze
the data. Method and model
Research philosophy
It is regarded as predominant concept that relates with knowledge development. Research
philosophy is comprised of knowledge which relates with the study and results in development
of background for investigation. Together these aspects lead researchers to look at things in
unique way. There are two types of Research philosophies i.e. Interpretivism and positivism.
The former can be defined as the one that assist in providing suitable justification relating with
the issue under investigation (Kumar and Phrommathed, 2005). With the assistance of such the
researcher can reflect the information which is relating with the problem under research. The
philosophy of Interpretivism is considered as the tool that focus on fruitful natures of the
individual participation with cultural as well as social life. On the other hand positivism is one
that makes generation of hypothesis which can be measured against the data. The present report
aims at making comparative analysis therefore the use of positivism philosophy is associated
with qualitative analysis.
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