Comprehensive Financial and Economic Analysis of G4S Plc Performance

This report presents a comprehensive financial and economic analysis of G4S Plc, examining its performance through various financial ratios, including profitability, liquidity, gearing, and asset utilization. The analysis compares G4S's performance with its competitors, Mitie and Securitas, highlighting strengths, weaknesses, opportunities, and threats. The report also delves into market perception, stock price performance, and the macroeconomic environment, including factors like inflation, interest rates, and GDP growth. Furthermore, it assesses consumer demand, market structure, and competition within the security services industry, providing a detailed overview of G4S's financial health and strategic positioning. The report concludes with a summary of findings and recommendations for future business operations.

Running head: ACCOUNTING AND ECONOMICS
Accounting and Economics
Name of the Student
Name of the University
Author’s Note

1ACCOUNTING AND ECONOMICS
Table of Contents
Executive Summary...................................................................................................................2
Part a: Financial Performance Analysis-....................................................................................3
Financial Performance Comparison with Previous Year.......................................................3
Financial Performance Comparison with the Competitors..................................................10
Financial Reporting..............................................................................................................18
Market Perception of the Company.....................................................................................19
Part b: Economic Analysis.......................................................................................................21
Macroeconomic Environment Analysis...............................................................................21
Current and Planned Operations..........................................................................................25
Microeconomic Environment Analysis................................................................................26
Consumer Demand for Products and Services.................................................................26
Market Structure...............................................................................................................27
Competition......................................................................................................................27
Part c: Conclusion....................................................................................................................29
References................................................................................................................................32

2ACCOUNTING AND ECONOMICS
Executive Summary
The analysis of the financial performance of G4S Plc. (G4S) shows that the overall
profitability of the company is good, but the company has lack of sufficient current assets to
pay off their current obligations. This findings also shows that the company uses more
amount of equity capital as compared to the debt capital and it increases the ability of the
company to pay off their interest expenses in efficient manner. Efficiency of the company can
be seen utilizing their assets for the making of sales and profits. The findings also shows that
the company needs to take into consideration the effects of the macroeconomic variables like
inflation rate, interest rate, GDP growth and others at the time of their business operations.
The following discussion shows the SWOT analysis of G4S:
Strengths Weaknesses
 Improved profitability, gearing
position and asset utilization
 Effective financial performance
 Lack of current assets to pay off the
obligations
 Inferior performance in certain areas
when compared to competitors
Opportunities Threats
 Increased demand of products is
creating more business opportunities
 International business expansion
 Presence of intense competition
 Negative impact of certain
macroeconomic factors like inflation
rate and interest rate

3ACCOUNTING AND ECONOMICS
Part a: Financial Performance Analysis-
Financial Performance Comparison with Previous Year
The below discussion shows the analysis of major ratios of G4S for analysing their
financial performance.
Profitability Ratios
Gross Profit Margin Ratio
2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
18.16%
17.83%
Figure 1: Gross Profit Margin Ratio of G4S
(Source: g4s.com 2019)

4ACCOUNTING AND ECONOMICS
There is a decrease in the gross profit ratio of G4S from the year 2016 to 2017. It
indicates towards the bad performance of the company in the current year (Delen, Kuzey and
Uyar 2013).
Operating Profit Margin Ratio
2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
5.30%
6.40%
Figure 2: Operating Profit Margin Ratio of G4S
(Source: g4s.com 2019)
G4S has been able in increasing their operating profit margin in 2017 as compared to
2016. It is a good aspect for the company as it shows the efficiency of the company in
managing their operating expenses relating to the sales (Heikal, Khaddafi and Ummah 2014).
Liquidity Ratios
Current Ratio

5ACCOUNTING AND ECONOMICS
2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
1.12
1.06
Figure 3: Current Ratio of G4S
(Source: g4s.com 2019)
Decrease in current ratio is evident in 2017 as compared to 2016 and it indicates
towards the decrease in the capability of G4S to pay off their current business obligation with
their current assets. It is a negative aspect for the financial performance of G4S (Ehiedu
2014).
Acid Test Ratio

6ACCOUNTING AND ECONOMICS
2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
1.07
1.02
Figure 4: Acid Test Ratio of G4S
(Source: g4s.com 2019)
The acid test ratio of G4S decreases in 2017 as compared to 2016. It is not good for
G4S as it indicates towards the decreased ability of the firm to pay off their current liabilities
with their quick assets (Priya and Nimalathasan 2013).
Gearing Ratios
Gearing Ratio

7ACCOUNTING AND ECONOMICS
2016 2017
G4S
0.67
0.64
Figure 5: Gearing Ratio of G4S
(Source: g4s.com 2019)
Gearing ratio of G4S decreases in 2017 from 2016. It indicates that G4S has increased
the use of debt capital in the recent year for fulfilling the capital requirement. It makes the
business highly leveraged and risky due to huge interest payment (Omar et al. 2014).
Interest Cover Ratio

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2016 2017
G4S
2.89
3.82
Figure 6: Interest Cover Ratio of G4S
(Source: g4s.com 2019)
As per the above table and figure, there is an increase in the interest cover ratio of
G4S in 2017 as compared to 2016. This is a good sign for the company as it indicates towards
the increased capacity of the company to make the required interest payments (Ibiamke and
Ateboh-Briggs 2014).
Asset Utilization Ratios
Asset Turnover Ratio

9ACCOUNTING AND ECONOMICS
2016 2017
G4S
1.45
1.42
Figure 7: Asset Turnover Ratio of G4S
(Source: g4s.com 2019)
Asset turnover ratio decreases in the year 2017 from 2016. It shows negative
performance of G4S as the ability of the company has decreased in 2017 to generate net sales
by using their assets (Alipour, Mohammadi and Derakhshan 2015).
Return on Assets Ratios

10ACCOUNTING AND ECONOMICS
2016 2017
G4S
3.78%
4.28%
Figure 8: Return on Assets Ratio of G4S
(Source: g4s.com 2019)
It can be seen from the above table and figure that there is an increase in the return on
asset of G4S in 2017 as compared to 2016. It is a positive sign for G4S as it implies that G4S
has used their assets in more effective manner with the aim to generate profit (Warrad and Al
Omari 2015).
Financial Performance Comparison with the Competitors
Gross Profit Margin Ratio

11ACCOUNTING AND ECONOMICS
2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
18.16% 17.83%
13.84%
10.81%
17.55% 17.62%
Figure 9: Comparison of Gross Profit Margin Ratio
(Source: As created by author)
G4S obtains the strongest gross profit margin position as competed to its competitor
that is Mitie Securities (Mitie) and Securitas Securities (Securitas). There is not huge margin
between the gross profit ratios of G4S with Securitas, but the performance of Mitie in relation
to gross profit is way lower than the other two.
Operating Profit Margin Ratio

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2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
5.30%
6.40%
5.01%
-2.02%
4.71% 4.74%
Figure 10: Comparison of Operating Profit Margin Ratio
(Source: As created by author)
The same aspect can be seen in case of operating margin ratio as the operating profit
margin of G4S is superior to the other two competitors. The situation is worse for Mitie as the
company has registered operating loss in the recent year where Securitas has performed well.
Current Ratio

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2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.12 1.06 1.05
0.63
1.18
1.27
Figure 11: Comparison of Current Ratio
(Source: As created by author)
Securitas has the healthiest current ratio among these three companies and G4S is
holding the second position after Securitas’s position; both of these companies have the
current ratio more than 1. However, major decrease in current ratio Mitie can be seen in
2017.
Acid Test Ratio

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2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.07 1.02 1.03
0.63
1.16
1.25
Figure 12: Comparison of Acid Test Ratio
(Source: As created by author)
The repetition of the same aspect can be seen in case of acid test ratio as Securitas has
the best acid test ratio among these three companies. Acid test ratio more than 1 can be seen
for both G4S and Mitie. However, Mities has registered acid test ratio of less than 1 in 2017.
Gearing Ratio

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2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
0.67 0.64
0.44
0.78
0.47 0.47
Figure 13: Comparison of Gearing Ratio
(Source: As created by author)
It can be seen from the above comparison that G4S has the reputation of using majority
amount of equity capital for their capital requirements as compared to the debt capital.
However, it can also be seen that Mitie has used high amount of equity capital in 2017 as
compared to the other two companies.
Interest Cover Ratio

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2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
2.89
3.82
6.81
-2.80
9.62 10.19
Figure 14: Comparison of Interest Cover Ratio
(Source: As created by author)
According to the above comparison, Securitas has the superior position in terms of
interest coverage ratio as compared to the other two companies. In case of G4S, increase in
this ratio can be seen. Due to the presence of operating loss, Mitie’s ability to pay off their
interest expenses has decreased dramatically in 2017 as compared to other two companies.
Asset Turnover Ratio

17ACCOUNTING AND ECONOMICS
2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
0.00
0.50
1.00
1.50
2.00
2.50
1.45 1.42
1.79 1.88 1.98 1.89
Figure 15: Comparison of Asset Turnover Ratio
(Source: As created by author)
As per the above comparison, Securitas has the highest asset turnover ratios in both
years as compared to G4S and Mitie. The area of concern is that G4S has the lowest asset
turnover among these three companies and it shows the decreased efficiency of G4S in
managing their assets as compared to the other two companies.
Return on Assets Ratio

18ACCOUNTING AND ECONOMICS
2016 2017 2016 2017 2016 2017
G4S Mittie Securitas
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
3.78% 4.28%
-15.29%
3.06%
5.94% 5.61%
Figure 16: Comparison of Return on Assets Ratio
(Source: As created by author)
According to the above comparison, Securitas has been able in fetching highest
percentage of return on assets in both the years as compared to G4S and Mitie. However,
G4S has better return on assets as compared to Mitie due to the presence of net loss for Mitie
in 2016.
Financial Reporting
It can be seen from the 2017 Annual Report of G4S that the company is incorporated
in the United Kingdom (UK). It can also be seen from the provided information in the 2017
Annual Report that the company has developed their consolidated financial statements in
accordance with the Companies Act 2006 (g4s.com 2019). The company has also complied
with the regulations and standards of International Financial Reporting Standards adopted by
the European Union along with the necessary interpretation issued by the IFRS
Interpretations Committee (IFRS IC). At the same time, it can also be seen from the 2017
Annual Report of G4S that the financial statements of the parent company of G4S have been
prepared in accordance with FRS 101 – Reduced Disclosure Framework, as per the UK

19ACCOUNTING AND ECONOMICS
Generally Accepted Accounting Practice (UK GAAP) (g4s.com 2019). Hence, it can be seen
from the above discussion that G4S has adhered to all the needed standards and principles in
the process of their financial reporting. It shows the efficiency of the company in the aspects
of financial reporting.
Market Perception of the Company
For the analysis of the financial performance, it is needed to review the market
perception of G4S in terms of the stock price performance such as EPS, Dividend Yield and
others. The discussion is shown below:
(Source: londonstockexchange.com 2019)
It can be seen from the above table that there is an increase in the EPS of G4S in 2017
as compared to 2016. This particular aspect indiscreet toward the fact that G4S has been able
in improvising their profitability on the basis of the shareholders. Moreover, it shows that
G4S has been able to increase their earnings per share of stock outstanding in the year 2017
(londonstockexchange.com 2019).
At the same time, it can be seen from the above table that the PE ratio of G4S has
decreased in 2017 from 2016 and it shows the good share performance of the company due to

20ACCOUNTING AND ECONOMICS
the increase in the total earnings. The above table indicates towards the fact that the growth in
EPS for G4S in 2017 is not as much as in 2016 (londonstockexchange.com 2019).
It can also be seen from the above table that there is an increase in the dividend cover
of G4S in 2017 from 2016; and it can be considered as a good aspect for the investors as it
shows that increased amount of dividend payment by the company in the recent year. The
above table shows the decrease in dividend yield for G4S in 2017 as compared to 2016; and it
implies that G4S has distributed less amount of cash dividend in the year 2017 as compared
to 2016.

21ACCOUNTING AND ECONOMICS
Part b: Economic Analysis
Macroeconomic Environment Analysis
Analysis of the Macroeconomic Environmental of a business is considered as a
crucial aspect as it provides the managements of the companies with a clear understanding of
the various economic factors along with the impact of these crucial economic factors on the
business operations such as Gross Domestic Product (GDP), inflation, unemployment and
others. Hence, the assessment of the effects of macroeconomic factors on the businesses is a
crucial job for the management of the firms. The below discussion shows the impact of
various macroeconomic factors on the business operations of G4S.
Growth in Gross Domestic Product (GDP): GDP is regarded as a major macroeconomic
indicator as to shape of the national economy and it is considered as a most regular used
measure to measure the economic fitness of the companies. The GDP of UK is shown below:

22ACCOUNTING AND ECONOMICS
(Source: data.worldbank.org 2019)
It can be seen from the above figure that the GDP of UK for the year 2017 is 1.8. In
the year 2018, the quarterly economic growth of UK is 0.6% in the three months to
September 2018; and it is the strongest expansion in the GDP of UK since 2016’s last
quarter. It is believed that household spending and exports are the main drivers of the growth
of GDP in UK that has been missing in the UK economy after the economic crisis of 2008 of
Brexit. In the average basis, the GDP growth rate of UK from 1955 to 2018 is 0.60%. This
growth can be considered as a major positive aspect for G4S (tradingeconomics.com 2019).

23ACCOUNTING AND ECONOMICS
(Source: tradingeconomics.com 2019)
Unemployment: The rate of unemployment is considered as a major aspect in the
macroeconomic environment and the unemployment rate of UK is shown below:
(Source: tradingeconomics.com 2019)
It can be seen from the above figure that the unemployment rate of UK was 4.1% in
the three months of October 2018 and it is matching the market expectations. The number of
unemployment increases by 20,000 from the month May to July. It is a negative aspect for
G4S as increase in unemployment indicates towards the negative performance of the
country’s economy. It can affect the demand and supply of the products and services of the
company (tradingeconomics.com 2019).

24ACCOUNTING AND ECONOMICS
Inflation: Inflation is considered as a qualitative measure of the rate at which the average
price level of the products and services increases.
(Source: tradingeconomics.com 2019)
It can be seen from the above figure there is a fall in the annual rate of inflation of UK
to 2.3% in November 2018 and it was 2.4% in the previous months and it is matching the line
of expectations. This lowest inflation rate is due to the slowdown in transportation cost, food
and non-alcohol beverages and others. It needs to be mentioned that 2% is the ideal rate of
inflation where the rates of UK can be considered as near to perfect. Thus, G4S can be
beneficial from this inflation rate (tradingeconomics.com 2019).
Interest Rate: Interest rate is considered as another major aspect in macroeconomic and the
lower the rate of interest, the more eager people are in borrowing money for making big
purchase.

25ACCOUNTING AND ECONOMICS
(Source: tradingeconomics.com 2019)
It can be observed from the above table that the Bank of England chosen universally
to hold the rate of interest at 0.75% on 20 December due to the presence of the uncertainty of
Brexit. The average rate of interest in UK from 1971 to 2018 is 7.55%; and it can be
considered as the all-time high of 17%. It is needed for G4S to take into consideration the
effects of this interest rate as the increase in interest rate can decrease the purchasing power
of the customers (tradingeconomics.com 2019).
Current and Planned Operations
It needs to be mentioned that the main business operations of G4S can be seen in
providing the security services to their customers along with other services; they are security
services, care and justice services, cash solutions, facilities management, health services and
employment services (g4s.uk.com 2019). The main operations of G4S can be seen around
these six sectors. One major aim of the company is to provide secure, safe, reliable and
efficient operations. The global footprint and operations of G4S across the range of products
and services help the company in making their business attractive to their customers. In
addition, G4S has implemented value-based operations for increasing their business
efficiency. In addition, the Care & Justice operations of G4S helps in developing innovative

26ACCOUNTING AND ECONOMICS
programs for rehabilitation and it also helps in providing the required skills and
encouragements to help the employees. It also needs to be mentioned that the operations of
G4S include planning, organizing, coordinating and controlling the essential resources that
are needed for the primary business operations of the company (g4s.com 2019).
In this context, it also needs to be mentioned that G4S is also planning for the
additional operations of their business. It can be observed that G4S is planning to move into
the operations of the bank branches. More precisely, G4S is planning for providing cash
handling and depositing services for different lenders in Europe. For this very purpose, the
company is in the discussion of some of the biggest banks in UK, Netherlands, Greece,
Cyprus, Belgium and Ireland with for the launch of the high street branches (ft.com 2019).
Apart from this, G4S is planning to segregate their cash business from their core division. It
indicates towards the intention of the company to divide their cash and secure solution
businesses that are the two principle business units of the company (ft.com 2019).
Microeconomic Environment Analysis
Consumer Demand for Products and Services
Demand is considered as an essential aspect in economics and demand can be
considered as an economic principle that refers to the desire and enthusiasm of the consumers
to pay price for a specific good and service. The concept of demand is also applicable in case
of G4S. It needs to be mentioned that G4S operates in the security system services industry of
UK where the main operations of the operators in this industry are to install, maintain and
monitor security and fire alarms along with the surveillance equipment. Hence, this particular
nature of this industry indicates towards the fact that the demand for the products of this
industry tends to be comparatively protected from the economic volatile of UK and the
essential nature of security can also be considered for this. In UK, over the last five years, the
concerns of common people over terrorism and crime have increased and this aspect supports

27ACCOUNTING AND ECONOMICS
the demand of the products and services in this particular industry in UK (ibisworld.co.uk
2019). With the aim to ease the concern of the public related to the increased security
efficiency, the government authority of UK has been subcontracting the security services to
the specialist contractors like G4S, Securitas, Mitie and others (export.gov 2019). Hence, it
can be said in the presence of all these aspects that the products and services of G4S have
major demand in the market due to the nature of the business.
Market Structure
In economics, market structure can be defined as the number of companies creating
the same goods and services in the market. Three types of market structure can be seen in
economy; they are perfect competition, oligopoly and monopoly (Baldwin and Scott 2013).
Monopolistic competition is considered as the specific type of market structure where the
combination of both monopoly and perfect competition can be seen. More precisely, a
monopolistic competitive market is the one company with freedom of entry and exit, and
there is differentiation in the products of the firms. For this reason, they have inelastic
demand curve for setting price. Some of the major features of a monopolistic market structure
are the presence of many companies, entry or exit freedom, production of different products,
normal profit making in the long run and others (Nikaido 2015). Similarity of this market
structure can be seen with the security market of UK due to the fact that there are many
companies in this market of UK. At the same time, all the companies provide the same
services with the help of different products. In the presence of all these aspect, it can be seen
that the market structure of G4S is monopolistic competition in nature.
Competition
G4S operates in such industry of UK where the intense competition among the
existing companies can be seen in the presence of large number of firms providing the same
services. Some of the major competitions of G4S are Mitie Total Security Management,

28ACCOUNTING AND ECONOMICS
Securitas Security Services Ltd, Vision Security Group Ltd (VSG)(Compass), Interserve Plc
(First Security (Guards) & Knightsbridge) and others. It needs to be mentioned in this regard
that the presence of intense competition leads to the decrease in prices of the products along
with affecting the overall profitability of the industry. However, this intense rivalry does not
create any effect on the long-term profitability of the companies (Bertoletti and Etro 2016).

29ACCOUNTING AND ECONOMICS
Part c: Conclusion
It can be seen from the above discussion that the study has considered both the
financial performance and the effects of various economic aspects on the business operations
of G4S. It can be observed from the above that the report has used ratio analysis as a tool to
analyse the information from the annual report of the selected companies and to ascertain the
financial strengths as well as weaknesses of G4S. The result of the ratio analysis indicate
towards a mix performance of G4S in the financial year 2017 where both the good and bad
performance of the company can be seen.
According to the results of the profitability ratio analysis of G4S, it can be seen that
the gross profit margin of the company has decreased in 2017 where increase in the operating
profit margin can be seen in the current year. It indicates the strength of G4S in effective
management of operating expenses for improving profitability, but the weakness of the
company in effectively managing the labour and other direct expenses for profit making
cannot be ignored. According to the result of liquidity ratios, major strength of G4S can be
found as they acquire the required quick assets for paying off their current obligations.
However, the area of concern is the lack of sufficient current assets to pay off the current
liabilities twice. On the overall basis, G4S has good liquidity position. In the current year,
G4S has increased their dependency on debt capital for a small margin and it cannot be
considered as a weakness of the company as the company uses majority portion of equity
capital that makes their business less risky. This aspect has strengthen the ability of G4S to
make increased payment of their interest expenses on the long-term debts. It can also be seen
from the result of the asset utilization ratios that G4S has weakness in the current year to use
their assets for the purpose of making sales. On the other hand, G4S has efficiently used their
assets to make net income. Hence, on the overall basis, strength of G4S can be seen in using
their assets for profitability purpose.

30ACCOUNTING AND ECONOMICS
The above discussion also helps in showing the financial strengths and weaknesses of
G4S when comparing its financial performance with Mities and Securitas. The above
discussion shows the superiority of G4S over the two competitors in the area of profitability.
It is because G4S has high gross profit margin and operating profit margin from the other two
companies; and it is a major strength of the company. When the discussion is on liquidity
position, G4S is inferior to Securitas but superior to Mitie; and it is because G4S has less
amount of current liabilities than Securitas to pay off the current liabilities. Thus, liquidity
can be considered as an area of weakness for G4S when compared to Securitas. Strength of
G4S can be seen in using more equity capital than debt capital on constant basis. However,
when comparing G4S with the other two companies, weakness of G4S can be seen as it has
less capability to make interest payment as compared to other two companies. The same
aspect can be seen in case of the asset utilization ratios as it is the weakness of G4S not to use
their assets as efficiently as the other companies. The above discussion also shows the
strength of G4S in the presence of the good performance of the shares; and it is evident from
the increase in EPS and PE. In addition, it is a major financial strength of G4S to the
investors as the company has distributed increased amount of dividends to their shareholders.
According to the above discussion, in case of the economic aspects, G4S needs to take
into consideration certain macroeconomic variable while operating in the UK economy; they
are GDP growth rate, unemployment, inflation and interest rate as these aspects have impact
on the business operations of G4S. The above discussion indicates towards the strength of the
UK economy due to impressive growth rate in GDP, employment and others. At the same
time, it is needed for the management of G4S to take into account the negative impacts of
interest rate growth and inflation with the aim to develop effective business strategies. In this
context, it needs to be mentioned these economic aspects have impact on the financial
performance of G4S increase in interest rate and inflation affects the ability of the company

31ACCOUNTING AND ECONOMICS
to make more revenues. The above discussion also provides the overview of the major
business operations of G4S along with the intention of the company to enter into the business
of providing cash handling and depositing services.
The above discussion also sheds light on the consumer demand of the products and
service of G4S in the market. It can be seen from the above discussion that the nature of the
products and services of G4S keep the demand high of the products. This demand is directly
related to the sales of the company as increased demand leads to the increased sales of G4S.
It can be considered as another major influencers of the good financial performance of G4S.
Hence, it can be said that the continues demand of G4S is a major reason for good financial
situation of the firm.
When analysing the market structure of the company, it can be said that the presence
of large number of companies in the industry and this particular aspect has made the industry
a monopolistic competition where the presence of many companies can be seen selling the
same product. This particular aspect affects the pricing of the products in the presence of
many companies. However, it does not affect the long-term profitability of these companies.
It can also be seen from the above discussion that G4S has to face some major competition in
the industry due to the presence of some major competitors. This particular aspect affects the
financial performance of G4S due to the decrease in sales.

32ACCOUNTING AND ECONOMICS
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