Financial Reporting And Analysis Sample

Introduction: Financial Reporting And Analysis

1: Executive Summary

The overall investment prospect identified from this report by considering financial evaluation of Bunzl Plc for 2022 and 2021 indicates lower rewards available for an investor to contemplate prolonged investment strategies. The usage of ratio analysis as a tool to predict share price movements is also beneficial since proportion of risks and rewards and positioning of investment can be aptly decided by an investor.

2: Introduction of company

The company selected is Bunzl Plc which is identified as a major market and industry player belonging to the distribution and outsourcing sector and industry of the UK. The company predominantly operates to provide daycare services and products which offer provision of groceries, non-food items and generic cosmetic products (bunzldistribution.com, 2023). The financial prospects of the company are further determined based on net profit realised from continued business operations that amount to GBP 474.40 million.

3: Financial Ratio Analysis

The calculations and analysis of financial ratios applicable for Bunzl Plc will emphasise towards parameters including profitability, liquidity, turnover, solvency financial and investment respectively. The computation and analysis of financial ratios will also include numerical aspects obtained for 2022 and 2021 respectively. Ratio analysis is predominantly contemplated through financial facts presented as per the income statement, statement of financial position, share market prices as on 2022 and 2021 as well as statement of cash flows [ Refer to Appendix 1 to 5].

3.1: Profitability

The profitability ratio calculations for Bunzl Plc primarily include computation of net profit margin that is identified as the proportion between net profit and sales revenues. Ratios calculated for 2022 and 2021 3.94% and 4.31% respectively. The identified industry average is considered to be 9% for net profit margin in the UK. Therefore, net profit margin performance of the company is comparatively lower in accordance to industry numbers. The second ratio calculated under profitability parameter is identified as return on equity that resembles numerical expressions of 17.44% and 20.09% respectively while industry average is 17%. Comparative performance assessment with industry numbers of return on equity marginally indicate superior figures for Bunzl Plc. Hence, the overall comparative assessment of profitability established is mostly identified to be moderate. Baraja and Yosya (2019), moderate profitability performance of a company is likely to reduce future investor attraction that can lead to operational and functional difficulties.

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3.2: Liquidity

The calculation of liquidity ratios predominantly includes current and quick ratio where industry average determined for each is 2:1 and 1:1 respectively. Current ratio calculated for Bunzl Plc in 2022 and 2021 indicates numerical figures of 1.40:1 and 1.43:1, while quick ratios calculated include figures of 0.89:1 and 0.80:1. The internal assessment of liquidity indicates marginal improvement in performance for Bunzl Plc in 2022 when compared alongside 2021. However, the comparative performance assessment with industry averages indicates marginally lower performance metrics for both financial years. As per critical illustrations and views of Jihadi et al. (2021), lower liquidity performance for a company is likely to induce difficulties to manage supplier and customer relationships. Additionally, lack of adequate availability of cash and marketable securities could distort contingency planning which can lead to potential unsustainability while also impacting the competitive dynamics of Bunzl Plc in the outsourcing and distribution industry.

3.3: Turnover

The computation of turnover ratios predominantly includes calculations for receivable turnover and payables turnover that includes respective industry averages of 12 and 8 times. The receivable turnover ratio calculated for Bunzl Plc in 2022 and 2021 includes numerical expressions of 7.73 and 7.19 times indicating a marginal improvement in recent year performance. Subsequently, payables turnover ratio has been calculated as 5.04 and 4.99 times also indicating a marginal improvement in performance of 2022. However, on the contrary, the external performance comparison with respect to industry averages indicate significantly lower financial credibility where potential lag in collection and facilitation of payments are pertinent for Bunzl Plc. As critically narrated and idealised by Irman and Purwati (2020), significant lags in collection of customer credits could induce shortage of liquid funds to carry out daily business activities. The delay in facilitation of payments in favour of creditors can tarnish vendor and supplier relations causing challenges to procure materials.

3.4: Solvency Financial

The solvency financial ratios include computation of gearing ratio as well as interest cover ratio which contains industry average numericals as 2 and 8 times respectively. The gearing ratio for Bunzl Plc includes values of 0.48 and 0.49 times, while interest cover has been calculated as 10.33 and 12.85 times respectively. The solvency financial position for the company can be determined as a favourable entity where adequate profits and funding is available to pay interests on loans and borrowings. As per statements and opinions of Syarifah (2021), higher solvency financial position for a company also encourages generation of investment growth opportunities where future business expansion can be strategically phased out.

3.5: Investment Ratios

Investment ratio calculations include computation of earnings per share as well as price sending ratio that contain industrial average values as 0.25 and 20 times. The earnings per share for 2022 and 2021 has been calculated as 140.70 times, while try sending ratio has been calculated as 19.74 times. This indicates that investment ratio calculations and position for Bunzl Plc is mainly in line with industry standards and possesses superior opportunities to gather higher investment bundling from investors.

4: Discussion on ratio analysis considered as a good tool to predict share price movements

The application of ratio analysis for predicting share price movements is considered to be a favourable tool since it helps an investor identify potential risks and rewards available for a particular stock in which investment is to be made. The most suitable ratio analysis parameter is identified as the financial solvency parameter where initial assessment of risks relating to investments can be identified by an investor (Firnanti and Karmudiandri, 2020). The price earnings ratio is further considered as a good indicator to identify prospective returns that can be fetched from a particular investment to contemplate investor financial growth.

5: Conclusion

This report predominantly indicates superior performance of Bunzl Plc for financial solvability and investment ratio parameters while performance of profitability, liquidity and turnover is deemed to be regressive in 2022. Prospective investment opportunities available for the company are deemed moderate due to availability of a lower financial and capital risk profile while the corresponding profitability composition is fairly limited.

References

• Baraja, L. and Yosya, E.A., 2019. Analysis the impact of liquidity, profitability, activity and solvency ratio on change in earnings. Indonesian Management and Accounting Research, 17(1), pp.1-17. Available from: https://scholar.archive.org/work/ulnxyxeoczeuhcnx4vvjgd3v7y/access/wayback/https://www.trijurnal.lemlit.trisakti.ac.id/imar/article/download/4663/pdf_1 [Accessed on: 13.11.2023]
• bunzldistribution.com, 2023, About Us [online], Available from: https://bunzldistribution.com/ [Accessed on: 13.11.2023]
• Firnanti, F. and Karmudiandri, A., 2020. Corporate governance and financial ratios effect on audit report lag. Firnanti, F, pp.15-21.Available from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3556485 [Accessed on: 13.11.2023]
• Irman, M. and Purwati, A.A., 2020. Analysis on the influence of current ratio, debt to equity ratio and total asset turnover toward return on assets on the otomotive and component company that has been registered in Indonesia Stock Exchange Within 2011-2017. International Journal of Economics Development Research (IJEDR), 1(1), pp.36-44. Available from: https://www.yrpipku.com/journal/index.php/ijedr/article/view/26 [Accessed on: 13.11.2023]
• Jihadi, M., Vilantika, E., Hashemi, S.M., Arifin, Z., Bachtiar, Y. and Sholichah, F., 2021. The effect of liquidity, leverage, and profitability on firm value: Empirical evidence from Indonesia. The Journal of Asian Finance, Economics and Business, 8(3), pp.423-431. Available from: https://koreascience.kr/article/JAKO202106438543370.page [Accessed on: 13.11.2023]
• Syarifah, S., 2021. Effect of Earnings Management, Liquidity Ratio, Solvency Ratio and Ratio Profitability of Bond Ratings in Manufacturing:(Case Study Sub-Sector Property and Real Estate Sector Companies listed on the Indonesia Stock Exchange (IDX)). International Journal of Business, Economics, and Social Development, 2(2), pp.89-97.Available from: http://journal.rescollacomm.com/index.php/ijbesd/article/view/144 [Accessed on: 13.11.2023]