Comparative Financial Analysis of Helibeb and Scylace plc

This report presents a detailed financial analysis of Helibeb plc and Scylace plc, focusing on key financial ratios such as return on capital employed, return on equity, gross profit margin, and various turnover ratios. The analysis includes the computation and interpretation of these ratios for both companies, comparing their performance to assess their financial health and suitability for acquisition. The report evaluates the companies' performance in the context of Expanding Business plc, a chemical manufacturing organization, and explores different financing options. The findings suggest that Scylace plc generally demonstrates stronger financial performance compared to Helibeb plc, making it a potentially more attractive acquisition target. The report concludes with recommendations for Expanding Business plc based on the comparative financial analysis.

Sustaining Organisational
Performance

TABLE OF CONTENTS
(A) INTRODUCTION....................................................................................................................1
(B) Computation of twelve ratios for Helibeb plc and Scylace plc........................................1
(C) Interpretation of financial performance of Helibeb plc and Scylace plc ........................4
(D) Evaluating of performance and stock market of companies with other organisations ...7
(E) Analysis of suitability of companies by ratios, comparisons with other organisation for
evaluating benefits to Expanding business plc.......................................................................9
(F) Different financing options and its advantages and disadvantages to organisation.......10
RECOMMENDATION.................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

(A) INTRODUCTION
Acquisition is an important element in organisation as wrong decisions may be hazardous
to firm as it may ruin the proficiency and growth in adverse way. Organisation should make
better decisions so that it may be beneficial and may provides ample of growth in long run in the
market. This report deals with the Expanding business plc which is a manufacturing organisation
in chemical undertaking and wants to acquire two companies such as Scylace plc and Helibeb
plc which will provide it with more enhanced growth and much development and growth will be
made by it (Lee, 2017). This decision is a worthwhile essential for Expanding business as if
wrong decision may be devastating for its operations and working in the market. The
performance of both companies are required top b e critically evaluated so that correct decision
may be made and no loophole may be observed. As a result, organisation will flourish in its
functioning in effectual manner.
(B) Computation of twelve ratios for Helibeb plc and Scylace plc
The calculation of different ratios for both the companies are as follows:
For Helibeb plc
1. Return on capital employed-
Formula- Profit before interest and tax/ Total Assets - Current Liabilities
= 3.9 / 44.4 - 6.3 * 100
= 10.24 %
2. Return on Equity-
Formula- Net profit after tax / Shareholder's Equity
= 2.1 / 17.9 * 100
=11.73 %
3. Gross profit margin-
Formula- Gross profit / Sales income
= 7.9 / 24 * 100
= 32.92 %
4. Net profit margin-
Formula- Net profit after tax / Sales income
= 2.1 / 24 * 100
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= 8.75 %
5. Inventory turnover ratio-
Formula- Inventory / Cost of sales * 365
= 2.3 / 16.1 * 365
= 52.14 days
6. Receivables turnover ratio-
Formula- Accounts receivables / Sales income * 365
= 3.2 / 24 * 365
= 48.67 days
7. Current ratio-
Formula- Current Assets / Current Liabilities
= 5.6 / 6.3
= 0.89 : 1
8. Quick ratio-
Formula- Current assets - inventory / Current liabilities
= 5.6 - 2.3 / 6.3
= 0.52 : 1
9. Gearing ratio-
Formula- Total liabilities / Total assets
= 6.3 + 20.2 / 38.8 + 5.6
= 59.68 %
10. Interest coverage ratio-
Formula- Profit before interest and tax / Finance expenses
= 3.9 / 1.3
= 3
11. Price to Earnings ratio-
Formula- Market capitalisation / Net profit after tax
= 12.1 / 2.1
= 5.76
12. Book to market ratio-
Formula- Net assets / Market capitalisation
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= 17.9 / 12.1
= 1.48
For Scylace plc
1. Return on capital employed-
Formula- Profit before interest and tax/ Total Assets - Current Liabilities
= 5.5 / 32.6 - 4 * 100
= 19.23 %
2. Return on Equity-
Formula- Net profit after tax / Shareholder's Equity
= 4.4 / 24.6 * 100
= 17.89 %
3. Gross profit margin-
Formula- Gross profit / Sales income
= 20 / 26.8 * 100
= 74.63 %
4. Net profit margin-
Formula- Net profit after tax / Sales income
= 4.4 / 26.8 * 100
= 16.42 %
5. Inventory turnover ratio-
Formula- Inventory / Cost of sales * 365
= 2.3 / 6.8 * 365
= 123.46 days
6. Receivables turnover ratio-
Formula- Accounts receivables / Sales income * 365
= 3.8 / 26.8 * 365
= 51.75 days
7. Current ratio-
Formula- Current Assets / Current Liabilities
= 7.2 / 4
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= 1.8 : 1
8. Quick ratio-
Formula- Current assets - inventory / Current liabilities
= 7.2 - 2.3 / 4
= 1.23 : 1
9. Gearing ratio-
Formula- Total liabilities / Total assets
= 4+ 4 / 25.4 + 7.2
= 24 %
10. Interest coverage ratio-
Formula- Profit before interest and tax / Finance expenses
= 5.5 / 0.1
= 55
11. Price to Earnings ratio-
Formula- Market capitalisation / Net profit after tax
= 93.4 / 4.4
= 21.23
12. Book to market ratio-
Formula- Net assets / Market capitalisation
= 24.6 / 93.4
= 0.26
(C) Interpretation of financial performance of Helibeb plc and Scylace plc
The financial performance of both the companies are beneficial for Expanding business
plc as it has the advantage to took both large companies in acquisition so that it may be powerful
in manufacturing chemicals at large basis which will provide it with more profits (Barrick and
et.al, 2015). The financial performance evaluation is essential for Expanding business plc so that
it may earn good amount of revenue by acquiring both high profile businesses. The comparison
of ratios of two organisations is described below:
1. Return on capital employed-
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The return on capital employed of Helibeb organisation is 10.24 % in the year 2017
which is not as good as compared to other organisation as earning return on capital employed in
the business. While, Scylace company has 19.23 % which is better as its earning good return on
capital invested in the organisation. Other organisation should focus on gaining return capital
employed so that Expanding business may be able to acquire it.
2. Return on Equity-
The return on equity of Helibeb plc is 11.73 % in the financial year 2017. However,
Scylace plc has 19.23 %. Higher the Return on equity, much beneficial for the organisation as it
is conveyed by market analysts (Hogan and Coote, 2014). Return on equity of Scylace plc is
much better as compared to other organisation and it implies that it is generating more revenue
without investing more capital in the business which shows it high efficiency. But Helibeb is
way behind and it should focus on business operations so that return on equity may be
maximised.
3. Gross profit margin-
Hereby it may be interpreted that gross profit margin of Helibeb organisation is 32.92 %
in the year 2017 is not good. However, Scylace organisation has 74.63 % in the year 2017 which
is remarkable as it is generating and producing more revenue in the future as well. The gross
profit margin of Helibeb is not better than it should focus on functioning effectively so that gross
profit may be earned by it. This will help Expanding business plc to acquire it and it will result in
more profit advantage.
4. Net profit margin-
According to net profit margin ratio, it may be conveyed that higher the net profit, better
for the company to flourish in its working. The Helibeb firm has net profit in 2017 as 8.75 %
which is poor according to the market analysts. It should be 25 % or more than that but is less
than the ideal ratio as provided by researchers. The other company Scylace has 16.42 % which is
good and as compared to other company, it is better (Cruickshank, Collins and Minten, 2014).
The Scylace company should be able to perform better so that it may cross the mark of 25 % and
so applies to Helibeb organisation which needs more improvement.
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5. Inventory turnover ratio-
From this ratio, it may be interpreted that Helibeb organisation has 52.14 days in the
financial year 2017 which is good as it is selling its stock in fast manner and has better inventory
management in organisation. While, Scylace company has 123 days in the year 2017 which is
not good for the company as improvement is needed in inventory management.
6. Receivables turnover ratio-
The receivables turnover ratio of Helibeb plc is 48.67 days in the financial year 2017 and
Scylace organisation has 51.75 days in the same year and it can be interpreted that both
companies are able to collect payments from customers and has effective credit policies by
which no delays are occurred in collecting timely payments from customers (Leal-Rodríguez and
et.al, 2015). High ratio implies better credit policies of organisation and vice-versa.
7. Current ratio-
By analysing current ratio, it may be interpreted that Helibeb plc has 0.89 : 1 ratio in
2017 financial year which means that it will be able to pay off its obligations on time. On the
other hand, Scylace fashion plc has current ratio in 2016 as 1.8 : 1 which shows that it has
effective current ratio and will be able to pay off its liabilities as they accrue. Expanding business
will be benefited by such better financial performance.
8. Quick ratio-
It can be analysed that quick ratio of Helibeb international plc is 0.52 : 1 in the year 2017
which means that it will be unable to pay meet its current liabilities with much ease. However,
other company which is Scylace plc has 1.23 in the financial year 2017 which is good as it will
be able to meet its extreme short term obligations. The ideal quick ratio is 1 : 1 and Helibeb
organisation has to make improvement in it to meet liquid liabilities.
9. Gearing ratio-
Gearing ratio, it can be analysed that Helibeb company has 59.68 % gearing ratio in the
financial year 2016 which is not ideal as more gearing ratio implies bad financial position of
company as it has much debt. While, Scylace company has 24.54 % in the year 2017 which is
remarkable as it will be able to pay its debt with much ease. Lower the gearing ratio, better for
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the company (Baihaqi and Sohal, 2013). Helibeb organisation has to make certain improvement
and it should take blend or mix of debt and equity.
10. Interest coverage ratio-
The interest coverage may be interpreted that Helibeb plc has 3 in the financial year and
Scylace plc has 55 in the same year. The interest coverage ratio of Helibeb organisation is not
good as it will be inefficient to meet interest obligations (Miller, 2016). While, other firm has 55
interest coverage ratio which is more remarkable as it will pay off its interest liabilities with
much ease. As prescribed by professional bodies in financial performance, 1.5 or lower than that
is considered as bad for the company as it will be in serious debt to pay its obligations within
stipulated time.
11. Price to Earnings ratio-
The price earning ratio is share current price in the market and as such, more price of
shares in the market, better will be for the company as growth and maximum efficiency will be
made by it in effective manner. From the above computation of price to earnings ratio. It can be
said that Helibeb plc has 5.76 in the year 2017 which is lower than Scylace plc has 21.23 in the
same year. It shows that market share price of Scylace is much better as it is earning good
amount on shares. While, Helibeb plc has to make certain improvement so that share price in the
market may be increased in effective manner.
12. Book to market ratio-
Book to Market ratio is computing the value of organisation with its book value which is
at historical cost and this is compared with market value of firm. The ideal book to market ratio
is considered below 3 by investors. Helibeb plc has 1.48 in 2017 and Scylace has 0.26 in the
same financial year which shows that both firms have good market value with reference to book
value (Akgün, Ali and et.al, 2015).
By comparing financial performance of both companies, it may be said that Expanding
business plc will be benefited by acquisition of two companies.
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(D) Evaluating of performance and stock market of companies with other organisations
The comparison with of Helibeb plc with Cobham plc is not bad as it has 0.67 of book
market value and stock market value is not much deviated. The market price to earnings ratio of
Interserve plc is 2.99 which is not higher than Helibeb plc as it has 5.76 which is better than
compared to Interserve which may be said that Helibeb company is well performing in the stock
market as it has good price earnings ratio. The book to market value of Helibeb is 1.48 and as
compared to Mitie Group plc, it is not deviated as market value is 0.75 and it may be evaluated
that Helibeb is performing good in the market and as a result, it has good market value.
The price earnings ratio of Mitie group is - 0.52 and of Helibeb is 5.76 which may be
interpreted that performance of Helibeb organisation is much better. The acquisition of this firm
will be beneficial for Expanding business plc and it will be advantageous to it by acquiring this
organisation for its better working and more power (Forés and Camisón, 2016). The performance
of Servo is not better than Helibeb plc and earnings per share of Servo plc is nil and that of
Helibeb is 5.76 which marks its high growth and good performance in the stock market. Hence,
Helibeb acquisition by Expanding business plc will be not a bad step and it may gain more
efficiency in the market.
The comparison of Scylace plc with Mcbride plc is also worth mentioning as share price
of Mcbride is 224 which is quite tremendous. As such, book to market ratio of this organisation
is 0.46 which is also good as compared to Scylace plc has 1.48 market value of it. The price
earnings ratio of Scylace plc is 21.23 which is much better than other company as it has only
0.05 price earning ratio. This may be critically evaluated that Scylace plc is much better and it
should be acquired by Expanding business to gain more market share. The performance of
Mulberry plc in book to market ratio is 1.35 which is good and Scylace plc has 1.48 which shows
that organisation has sound market value. While, price to earnings ratio of Scylace organisation
is 21.23 which is much better than Mulberry organisation.
The performance of PZ Cussons plc is also better than compared to Scylace organisation.
PZ Cussons has price to earnings ratio of 0.15 and Scylace has 21.23 which is better and book to
market ratio is 1.48 which is same as compared to PZ Cussons as it has 1.11 of market value.
The financial performance of Swallowfield plc is effective as it has price earning ratio of 22.30
which is remarkable as compared to Scylace plc as it has 21.26 which is also good and not much
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deviated (Appelbaum, 2014). As a result, Expanding business plc should acquire two companies
as both are performing well enough in the market.
(E) Analysis of suitability of companies by ratios, comparisons with other organisation for
evaluating benefits to Expanding business plc
The current ratio of companies is ideal as it will be able to pay off its current
liabilities with much ease in year 2017. It is recommended that it should sell its unproductive
assets as it gains nothing but increases the interest cost to the company. The quick ratio of
Helibeb is better than compared to other company (Ishida, 2015). It is recommended that
companies should pay off its liabilities within stipulated time.
Gross profit margin should be increased by companies by taking cash discounts from the
suppliers. Taking discount will result in improve in gross profit margin and companies will be
able to make more money. The net profit margin may be improved by analysing the expenses
and companies should cut down unwanted expenses which reduces its net profit. Gearing ratios
should be lower by companies which is analysed from above finding that both the companies
have low gearing ratio. It may use mix of equity and debt which is better option.
Return on capital is better of both companies. Return on equity of Helibeb plc is not good
and it should be improved by it so that more return may be obtained by it. Inventory and
receivables turnover ratios of both companies are good enough and they are able to make certain
improvements so that it may be more efficient. Interest coverage ratio of Helibeb plc is not good
as it will be unable to meet its interest obligations. Price earning ratio of Scylace plc is good as it
is earning good price on shares in the market. Another which is book to market ratio which is
god of both the companies and it may be evaluated that Expanding business will be benefited by
acquisition.
The comparison of Helibeb company with other companies such as Cobham plc,
Interserve plc, Mitie group plc, Serco plc is that Helibeb is performing good in the market and as
a result, Expanding business will be highly benefited by acquiring it. This will provide it with
more power and as such, it will perform and function well in the market (Ortiz and et.al, 2017). It
will attain maximum efficiency which is required to achieve goals and objectives in effectual
manner. The price earning ratio and book to market ratio of Helibeb company is good and
effective.
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The comparison of Scylace company with other organisations like Mulberry, PZ
Cussons, Swallowfield and Mcbride is also better and Scylace plc may be acquired by
Expanding business as it will provide more grwoth to it in effective way. The price to earnings
ratio is good which shows efficiency in the market as shares of it are efficient and earning quite
nicely in the stock market. The book to market value is also good and company is having good
market value as well (Treadway and et.al, 2013). As such, both companies are highly effective
and Expanding business will gain much needed growth after acquisition.
Helibeb plc is engaged in managing buildings and facilities for industrial organisations.
They are also involved in research and development in environmental technology. It is concerned
with disposal of waste. It also has provision of maintaining services and security. It has market
capitalisation of 12.1 billion in British pounds. This will be more beneficial to Expanding
business plc and it will grow and maximise its efficiency. While, other company which is
Scylace is engaged in manufacturing cosmetic products which are then delivered to hairdressers
and hair salons. It also sells its products to various retail outlets and departmental stores and has
market capitalisation of 93.4 billion in British pounds. As a result, Expanding business will
manufacture chemicals products with much ease by acquiring Scylace plc. Both the companies
will impart better results to Expanding business in future operations.
(F) Different financing options and its advantages and disadvantages to organisation
The different financing options available to organisation are as follows:
1. Online lenders-
Online lender is financing option for organisation which includes accounts receivable,
lines of credit financing etc. It is helpful for small business to start good going in the market.
Advantages-
1. It is useful as it saves time of organisation in a better way as it is difficult in taking
traditional loans as it consumes lot of time (Liang, Lu, Tsai and Shih, 2016).
2. Online loan is useful because of the availability of internet which makes fast loan
disbursed in business.
Disadvantages-
10