Financial Ratios Calculation essay

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Financial ratios calculation is habitually employed under the umbrella of fiscal analysis. There are several categories of financial ratios. These include: solvency ratios, profitability ratios, stability ratios and liquidity ratios (Leopard and Bernstein, 1999). When investors and analysts examine the financial strength of an organization through its fiscal report, they generally work out on the terminal value of the firm’s share. This final value corresponds with the authentic market value of the company’s reserve to check any disparity between these values. This is founded on the basis that different investment decisions are institutionalized. The main essence of this assignment is to identify a United Kingdom based corporation which must be listed in FTSE-100 index and then study its financial performance along with other indicators. The company selected for this case is the Informa plc.

Company Overview

Informa Plc is a cosmopolitan publishing and conference corporation. Its headquarters is in Zug, Switzerland while its registered office is in St. Helier, New Jersey. Furthermore, it has offices in more than forty three countries and more than eight thousand employees. It boasts of various brands including: AchieveGlobal, Routledge, Data monitor, ESI International, CRC Press, Lloyd's List, and Taylor & Francis. Infoma's oldest business commenced in the year 1734 when Lloyd's List, currently among the world's oldest continuously-running journals, instigated the covering of London shipping news (Siliciano, 2003). The company is acknowledged for its financial might as it has annual revenue of one thousand two hundred and twenty six million dollars while its Net Income is ninety eight million dollars. This was recorded in the year 2010.

Profitability analysis

Industry

Informa Plc

Thomson Reuters Corporation

Reed Elsevier Group plc

1999

62.74

79.47

79.03

46.00

2000

63.47

82.94

81.07

44.00

2001

84.92

86.83

81.28

83.00

2002

84.76

87.51

80.35

82.00

2003

74.39

78.24

78.74

81.00

               

For Informa Plc, each component of the equation is computed below:

• Vd = book value of debt = $6,353,400,000

• Ve = (Price per share) * (shares outstanding) = (51.19)*(1,132,884,801) = $61,526,973,542

• Vf = Vd +Ve

• Kd = weighted average cost of long term debt: 3.50%

• Tax = average tax rate from income statement = 38.5%

From this equation we can estimate the WACC if we have a cost of equity, and vice versa

WACC = (6,353,400,000/67,880,373,542) * (.035) * (1−.385) +

(61,526,973,542/67,880,373,542) * (.06399)

WACC after tax= 7.81% WACC before tax = 6.13%

After calculation, it is realized that the receivable collection period of Informa Plc is good since the company charges the money at the opening stage. This implies that the company receives funds from its debt holders very early as compared to its competitors. The volume of the sales and receivable account plays a decisive role when based on comparison. From the table, it is revealed that the average account receivable and sales revenue of Informa Plc is far higher than that of its competitors. This, at the end of the day, affects the receivable period.

Ratio analysis is one of the most significant accounting procedures in the company as it allows the company to compare the company’s ratios and financials with that of the other key players in the industry. This helps the company asses the key strengths and weaknesses.

Current Ratio Industry

Informa Plc

Thomson Reuters Corporation

Reed Elsevier Group plc

1999

2.17

1.37

1.79

3.71

2000

2.31

1.43

1.60

3.78

2001

1.91

1.35

1.33

2.70

2002

1.33

1.34

1.54

1.16

2003

1.76

1.26

1.58

1.20

 

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