Financial And Operating Analysis Of British Multinational Publishing Education Company

Discussion

The British Multinational Publishing Education Company located in the United Kingdom is the largest education and book publishing company in the world. The primary focus of the company is on the education sector. The company is primarily listed in the London Stock Exchange and is also a part of the FTSE 100 Index. The company provides a range of products and services so that the consumers can access to different stages of learning and mark the progress of exploring and researching more into the line of education (Uechi et al. 2015). The financial analysis of the company was conducted using the ratio analysis during the trend period of the five year. The financial analysis of the company covered using the profitability ratio, efficiency ratio, liquidity ratio, solvency ratio and the investment ratios for the company. The ratio analysis of the competitor with the company and the performance of the same in the form of the graphical analysis was compared for the company. The financial analysis of the company will help us analyse, evaluate the performance of the company, and help us analyse the areas where the performance of the companies can be improved (Luo et al. 2015).

The ratio analysis of the company was conducted for the five-year trend period where the financial performance of the company was assessed for the period. The financial performance helped us review the key analytical data about the company (Keshavarz-Ghorabaee et al. 2018).

The profitability ratio of the Pearson Company was assessed for the five-year trend using the financial statement of the company in order to assess the profitability of the company. The profitability of the company was assessed by using the gross profit margin, net profit margin and the operating profit of the company (Frick, Schuessler and Blanckenburg 2016). The profitability ratio of the company was determined using the five-year trend analysis.

Profitability Ratio	Pearson Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
2017	2016	2015	2014	2013
Gross Profit	54.22%	54.02%	55.66%	55.48%	54.39%
Operating Profit	9.99%	-54.86%	-9.04%	7.67%	9.04%
Net Profit	9.04%	-51.30%	18.42%	10.35%	10.63%

The gross profit margin for the company had remained the same from the trend period analysed. The company has maintained the 54% gross profit margin for the company where the profitability of the company has remained the same due to the revenue of the company and the cost of goods sold for the company growing at the same equal(Luo et al. 2016).

The net profit margin ratio for the company had remained well in line with the rising revenue of company. The net profit margin of the company fell slightly from 10.63% in the year 2013 to 9.04% due to rising cost of goods sold for the company and the falling revenue of the company. The net profit margin for the company during the trend period analysed for the company showing a declining profitability for the company (Zolfani, Yazdani and Zavadskas 2018).

The Operating Profit for the company shows the potential for the company to generate the profitability from the business while keeping the company profit sustainable. The operating profitability for the company grew from 9.04% to 9.99% in the trend period analysed for the company. The operating profit of the company has remained sustainable and remained in line well showing the sustainability in the profitability of the company (Gyulai and Sz?cs 2017).

Profitability Ratio

The profitability of the company was well compared with the key competitors of the company McGraw-Hill Education on of the key competitor of the Pearson Limited operating in the same sector providing similar products and services. The profitability analysis for both the company was analysed for the trend period 2013-2017 and the analysis was done for both company using the key profitability ratios. The profitability ratio for the competitor McGraw-Hill Company has been more stable and rising then the Pearson limited company (Vogel 2014). The key factor, which helped the McGraw Company for the rising profitability, was the rising revenue of the company and the simultaneous operating margin of the company. The Company also enjoys a dispersed product portfolio distribution, which helped them diversify the revenue base of the company. Profitability in a business is essential and the growth of the same helps in the creation of wealth for the shareholders of the company. The measurement of the profitability marks the long-term growth of the company (Omar et al. 2014). 

The efficiency ratios for the company shows the efficiency of the company in the utilisation of the assets and the capital employed in the company. The efficiency ratio shows the efficiency of the management of company in making the growth of the company sustainable in the long-term (Lakshmi, Martin and Venkatesan 2016).

Efficiency Ratio	Pearson
2017	2016	2015	2014	2013
Receivable Days	89.77	108.81	104.89	105.32	84.46
Payable Days	237.09	284.08	256.11	289.15	237.60

The receivable period for the company shows the average time taken by the company for receiving the due amount from the debtors of the company. The lower the period the better is the debtor’s management of the company. The receivable period for the company was 84.46 days in the year 2013 however, the same increased in the year 2017 to 89.77 days, which shows that the company may not be managing the debtors of the company efficiently.

The payable period for the company shows the average time taken by the company for paying off with the creditors of the company. The payable period for the company was around 237 days and had remained the same for the trend period analysed in the five-year time. The company had maintained the same payable period days. 

The efficiency comparison for the company was shown in order to assess the efficiency of the company. The efficiency of the competitor company receivable period was analysed for the competitor company and the efficiency of the McGraw-Hill Company was much better. The receivable period for the McGraw-Hill Company had reduced in the five-year trend period and the payable period for the company had increased for the company. The efficiency shown by the management of the McGraw Company was much better than the Pearson Company. 

Efficiency Ratio	Pearson	Mc-Graw Hill
2017	2016	2015	2014	2013	2017	2016	2015	2014	2013
Receivable Days	89.77	108.81	104.89	105.32	84.46	58.34	55.75	41.79	57.72	66.25
Payable Days	237.09	284.08	256.11	289.15	237.60	97.45	110.58	98.86	132.74	92.77

The liquidity ratio of a company shows the ability of the company in meeting the short-term obligation or the current obligations of the company. The liquidity ratio for the company was assessed by analysing the current ratio and the quick or acid test ratio for the company (Almamy, Aston and Ngwa 2016).

Liquidity Ratio	Pearson
2017	2016	2015	2014	2013
Current Ratio	1.56	2.12	2.15	1.34	0.92
Acid Test Ratio	1.47	2.00	2.04	1.23	0.85

The current ratio for the company shows the ability of the company in paying off with the current obligations of the company buy using the current assets of the company. The current ratio for the company was around 0.92 times which had consistently increased for the company from the trend period analysed in the five-year time to about 1.56 times in the year 2017. 

Efficiency Ratio

The Acid-Test Ratio for the company shows the efficiency of the company in paying off with the current obligations of the company using the liquid assets of the company. The quick ratio does not include the inventory while evaluating the liquidity position of the company. The quick ratio for the company increased from 0.85 times in the year 2013 to 1.47 in the year 2017.

The liquidity of the Pearson Company was analysed to be more efficient than the Mc-Graw Hill Company in the trend period analysed for the company. The liquidity position for the Pearson Company shows that the management of the company is better managing the financial current assets of the company in order to pay off with the current obligations of the company. The quick ratio for the Pearson Company in the trend period analysed increased however, the quick ratio for the McGraw-Hill Company however decreased at the same time which says that the management of the company may face some crisis in the management of the operations of the company. Thus, the companies should manage the current assets of the company efficiently and simultaneously maintain the liquidity of the company.  

The solvency ratio for the company shows the solvency of the company in the long term. The Solvency ratio of the company was determined using the debt to equity ratio of the company and the relevant analysis was done. The excess of debt in a capital structure of the company increase the financial risk of the company. Companies should try to maintain an optimal debt structure within the company so that the overall effect of debt does not influence the financials and the operations of the company (Enekwe 2015).

Solvency Ratio	Pearson
2017	2016	2015	2014	2013
Debt to Equity	96.17%	131.51%	81.29%	90.43%	91.57%

The debt to equity ratio for the company has significantly shown a rise in the trend period analysed for the company. The debt to equity ratio for the company has remained almost in the ratio of 50:50 ratio for the company. The company has increased the debt level from 91.57% in the year 2013 to 96.17% in the year 2017. The increasing debt for the company’s funding may not be optimal which in turn will increase the financial risk of the company (Altman et al. 2017).

The solvency ratio for the companies should be adequate for maintain the proper amount of debt in the financials of the company. The companies should also look into the financial risk of the company by looking at the optimal amount of debt in the company. The solvency of the McGraw- Hill Limited Company has been very volatile and risky as compared to the Pearson Limited Company.

Particulars	Pearson	Mc-Graw Hill
2017	2016	2015	2014	2013	2017	2016	2015	2014	2013
Debt to Equity	96.17%	131.51%	81.29%	90.43%	91.57%	-310.03%	-324.16%	822.15%	773.17%	960.25%

The investment ratio of a company shows the performance of the company with respect to the capital employed by the stakeholders of the company. The investment ratio for the company will show the overall return generated for the stakeholders of the company. The Earning per Share of the company was the key ratio analysed for the company (Sujan et al. 2017). 

The Earning per share for the company shows the amount earned by the shareholders of the company in respect to per share held by the shareholders of the company. The Earnings per Share for stakeholders of the company had fallen consistently for the trend period analysed for the company (Andrzejewsk and Dunal 2016). The earnings per share for the company had fallen significantly from the year 2013-2017 from 0.66 pound per share to 0.499 per share the fall in the EPS was due to the falling revenue of the company and the falling profitability ratio of the company making the Earning per share of the company fall. The five year trend for the EPS shows a downward graph reflecting that the management is not efficiently utilizing the shareholders wealth (Mousa 2015).

Liquidity Ratio

The Market price per share for the company had fallen significantly from the trend period analysed for the company in the five year trend. The falling profitability and the earning per share of the company was the keen reason for such falling share price.

The price to earnings ratio for the company has been significantly volatile and the same was dependent on the net earnings of the company and the relevant market price per share of the company. The volatility in the net earnings and the share price of the company had led to the rising and volatile Price to Earnings Ratio (Kou, Peng and Wang 2014).

The investment ratio for the companies is a key ratio that should be analysed and the same was analysed for both the companies in order to assess the return generated for the investments done in the company. The earnings per share for the Pearson Plc. Company was quite stable than the McGraw Limited Company (Lin et al. 2015).

Particulars	Pearson	Industry Average	S&P 500	PSO 5Y Average
Price/Earnings	12.2	21.5	18.8	37.2
Price/Book	1.8	4.3	3.1	1.5
Price/Sales	1.7	0.9	2.1	1.7
Price/Cash Flow	24.3	13.9	12.8	21.7
Dividend Yield %	2	2.6	2	5.4
Price/Fair Value	Premium	—	—

Profitability plays an important role in an organisation and the same should be assessed in order to determine the overall success of the company. The Pearson Plc. Company in order to increase the profitability of the company should increase the revenue base of the company by increasing the product portfolio of the company. The increased products and services of the company will help the company create a larger customer base and simultaneously will affect the financial of the company in a positive manner. The cost of goods sold or the rising debt of the company should also be taken into consideration as the same is hurting the profitability of the company. The financial risk of the company in the form of increased debt financing will increase the interest payment paid by the company and will simultaneously affect the profitability of the company. The competitive environment of the Pearson Company is quite high and the demand of the products and services offered by the company is also falling. The company needs to come up with new technological and software’s related programmes and tools at the same time to increase the product portfolio and match up with requirements of the consumers (Mitrovic, Knezevic and Velickovic 2015).

The future prospect of a company is heavily dependent on the financial performance of the company. Analysts all over the globe asses the financial performance and the current valuation of the stock in order to assess the true value of the share. The analysis includes forecasting the financials of the company given the business environments and macroeconomic environment under which the business will be operating.

The estimates of analyst in order to see the market verdict and the same were done by using the different analyst estimate given on the particular stock.

Analyst Ratings
Pearson Plc. Limited
Five-Year Growth Forecast		Industry Avg
2.40%		—
Average Rating for Company	Last Month	Industry Average
2.3	—	—
Rating Scale: 5=Buy, 1=Sell
Total Number of Analysts:
Buy	0
Outperform	0
Hold	2
Underperform	0
Sell	1

The analyst estimates and expectations regarding the company was also analysed and incorporated. Further from an investment perspective the performance of the company had not been good when the same was compared with the competitors of the company. Hence the company should look on various stages and factors where it can improve and create wealth for the shareholders of the company. There were various analyst ratings and reviews collected and the same has been incorporated to get the market verdict for the stock.

Conclusion

The financial analysis of the company was conducted in order to assess the performance of the company. The financial analysis of the company was conducted using the ratio analysis during the trend period of the five year. The financial analysis of the company covered using the profitability ratio, efficiency ratio, liquidity ratio, solvency ratio and the investment ratios for the company. The financial analysis of the company will helped us analyse, evaluate the performance of the company, and help us analyse the areas where the performance of the companies can be improved. . The performance of the company and the performance of key competitors McGraw Hill Limited Company was taken into account. The factors and the conditions where the profitability of the company could be improved was taken into account for the company. The analyst estimates and expectations regarding the company was also analysed and incorporated. Further from an investment perspective the performance of the company had not been good when the same was compared with the competitors of the company. Hence the company should look on various stages and factors where it can improve and create wealth for the shareholders of the company.

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