Business Finance: T Plc Performance Analysis - BMS512 Report

This report provides a comprehensive analysis of T Plc's business performance, evaluating its profitability, liquidity, working capital, and stock market performance using financial ratios from 2018 to 2020 and comparing them against industry averages. The analysis covers key metrics such as gross profit margin, net profit margin, return on shareholders' funds, current ratio, quick ratio, inventory holding days, receivables days, earnings per share, price-earnings ratio, and dividend yield. While T Plc demonstrates strong profitability with increasing gross and net profit margins and a favorable return on shareholders' funds, its liquidity ratios (current and quick ratios) are below industry standards. The report concludes with a recommendation for potential investors, highlighting the company's growth potential and strong profitability, while acknowledging the need for improvements in liquidity management. Desklib offers a range of study tools and solved assignments for students.

BUSINESS PERFORMANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Evaluating performance of T Plc by taking into consideration of industry averages..................1
REFERENCE...................................................................................................................................4

INTRODUCTION
Business performance depicts capacity of business in generating profits. If business is
generating more profits than its performance is good and if profit is less than compared to what
is expected then business performance is bad. This report will evaluate the performance of T Plc
on the basis of industry average. Further will also suggest that investors should invest in this
company or not.
MAIN BODY
Evaluating performance of T Plc by taking into consideration of industry averages.
By seeing the ratios of T Plc it can be said that gross profit margin of company is
increasing which is good as back in 2018 it was 39 then in the year 2019 and 2020 it has reached
to 40 (Rashid, 2018). by observing industry averages which is 37 it can be said that T plc is
ahead because its competitors are making 37 gross profit, but they have reached to 40. this
shows that managers of the company are efficiently managing the business operations. Net profit
margin of company is also increasing in 2018 it was 5.8, in 2019 it was 5.9 and in 2020 it was
6.05. So by seeing this it can be said that company is growing because industry average is 4 and
net profit margin of T plc is more. It will also attract more investors because company is
generating enough profit. Return on shareholder's funds which is the profitability ratio is also
increasing from 15 to 16% whereas the ratio of their competitors is only 12%. ROE which range
between 15-20% is good and T Plc ranges under this percentage range only. The ideal current
ratio is 2:1 but the current ratio of T Plc is decreasing and does not comes in range of ideal ratio
(Brown, 2018).
In 2018 it was 1.1:1, in 2019 it was 0.95:1 and in 2020 it comes to 0.8:1. whereas
industry average is 1.05:1 which also not falls under ideal current ratio but it is better than what
T Plc is performing. It shows that liquidity of company is poor. Ideal quick ratio of the company
is 1:1. In case of T plc it has always less than 1 quick ratio which means that company is not
efficient to pay to its current liabilities. In 2018 it was 0.65:1 then in 2019 it was 0.55:1 and then
in 2020 it has decreased to 0.4:1. Quick ratio of T plc is continuously decreasing which is not the
right thing for the company. Inventory holding days of T Plc in 2018 was 13, in 2019 was 12
and in 2020 it again came to 13 whereas industry average is 19 days. Here T plc is at winning
situation because if company hold inventory for long time then it is required shows that money
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of business is involved in unnecessary inventory. In the year 2018 receivable days of company
was 8 then in 2019 and 2020 it decreases to 6. Whereas industry average of receivable days is 2.
This shows that effectiveness of T Plc credit and collection efforts are low as compares to its
competitors (Winn and Martindale, 2020). Although T plc has put efforts of decreasing it but
company should have put more efforts and brings receivable days to 2. Earning per share of T
plc in 2018 was 23p, 2019 it was also 23p and in 2015 it rises to 25p. In earning per share the
rating 99 is considered the best. If it reaches to 99 it means that profit growth of the organisation
has increased 99% as compared to all public companies.
Although earning per share of company is low but it can be said that company is putting
efforts to improve. Price earning ratio is that ratio which does value of the company which
measures current share price of the company as compared to the earning per share. Price earning
ratio of T Plc in 2018 was 20, in 2019 it was 22 and in 2020 it was 25. Whereas industry average
price earning ratio was 22. it has observed that price earning of company is increasing, it can be
said that it is fastest growing company according to the investors. Dividend yield means that
how much company is paying as divided to their investors. In 2018 dividend yield percentage
was 3, in 2019 it was 4 and in 2020 it again came to 3. Whereas industry average was also 3. so
it can be said that T Plc is performing as per average industry norm (Chen and Bellavitis, 2020).
Dividend will be given to the investors against their investment. Yield will update or increase
when price of shares will decrease and it will also fall when the stock price rises.
As the potential investor yes I would definitely like to invest in T Plc because its gross
profit margin and net profit margin both are good. It can be said that T plc is making good
profits and also generating good revenue. It means that company have more growth
opportunities in the future as well. Investors also attract towards those company's whose profit
margin percentage is high. If company will earn more profit it means that they will pay more
dividends to their investors. Although current ratio and quick ratio of the company is less as
compared to industry average but it company will make certain strategies to improve it then they
can definitely make some improvements. Inventory holding days of T plc is also less as
compared to their competitors which means that company is not holding unnecessary inventory
and not blocking their money.
Assumptions-
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Other companies in the same industry are performing on the basis of industry average. And also
industry average is taken as base when comparing T Plc.
CONCLUSION
Through this report it can be concluded that report has discussed profitability, liquidity,
working capital and stock market performance of the company. Investor should invest in this
company because gross profit and net profit margin of the company is better than industry
average and also have potential of growth in the future.
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REFERENCE
Books and Journals
Brown, S., 2018. Looking beyond the usual ratios-financial reporting. finweek, 2018(24), pp.18-
18.
Chen, Y. and Bellavitis, C., 2020. Blockchain disruption and decentralized finance: The rise of
decentralized business models. Journal of Business Venturing Insights. 13. p.e00151.
Rashid, C.A., 2018. Efficiency of financial ratios analysis for evaluating companies’
liquidity. International Journal of Social Sciences & Educational Studies. 4(4). p.110.
Winn, T.L. and Martindale, T., 2020. Key Business Ratios. Journal of Business & Finance
Librarianship. 25(1-2). pp.92-97.
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