Discuss about the Financial Statement Analysis for GlanbiaPlc.
The present study will cover the critical analysis of profitability of three companies from different industries i.e. Glanbia Plc, UDG Healthcare Plc and Paddy Power Betfair Plc. The analysis is done by evaluating the ROE and P/E ratio by comparing the same with its industry. The profitability measures and evaluation has been done so that appropriate decision can be taken.
GlanbiaPlc is a global nutrition group whose objective is to provide better nutrition for every level of life’s journey. Around 6000 people are employed across 32 countries under it. A strong performance has been presented in the year 2015 as the EBITA margin was 8.5% as compared to 7% of the year 2014. In the same manner, improvement has been observed in other areas also.
Table 1: Profitability ratios of Glambia Plc
|
Glanbia Plc |
Industrial average |
||
|
2015 |
2014 |
||
|
ROE |
21.31% |
5.13% |
16.55% |
|
P/E |
25.89% |
27.61% |
26.64% |
(Source: Glanbia Plc. Valuation Ratios, 2016)
ROE of Glanbia Plc is higher than the previous year as well as compared to industrial average. The high margin level of group accounts strong profit. Revenues of joint ventures and associates decreased 17.3% in 2015. The disposal of group’s interest in Nutricima resulted in a decrease of 2.5%. The return on capital employed in 2015 has increased majorly from 5.13% to 21.31% as compared to results of 2014 (Glanbia plc Annual Report and Accounts, 2015). The increase was led by growth in EBITA, including the effect of currency and it was diluted to somewhat extent due to current acquisitions. The target has been established by the company to maintain a minimum return of 12% on capital employed.
The price earnings ratio represents the amount market is willing to pay for the stock, and it is based on its current earning (Allen, Larson and Sloan, 2013). It is also used for estimating future earnings. The P/E ratio of the business has not only decreased from last year, but the decline is increased in comparison to industrial average also. As the ratio is used in analysing the amount that should be paid for stock; due to decline in ratio, the same might affect the market share price.
The profit margin of the company is 6.98% which is a sign of executing its competitive strategies and also representing that it is having a good control over its expenditure. The percentage is comparably high, and it presents operating margin of 9.14% which means for every 100 dollars of sales a net operating income of 0.09 dollar is generated.
Table 2: PPE as % of total asset ratio of three companies
|
Company |
2015 |
2014 |
|
Glanbia |
22.11 |
23.27 |
|
UDG Healthcare Plc |
0.05 |
4.66 |
|
Paddy Power Betfair Plc |
22.46 |
20.00 |
According to Brigham and Ehrhardt (2013), the ratio represents the portion related to property, plant and equipment of total assets. As the companies belong to different industries; the comparison will not provide vital information for the investor. A decrease in PPE ratio of Glanbia can be assessed in comparison to previous year.
The company operates in three divisions: Ashfield, Sharp and Aquilani. Each division is strengthened and assisted by UDG Plc which empowers them to accomplish their objectives of work and deliver success for shareholders.
Table 3: Profitability ratios of UDG Healthcare Plc
|
Ratios |
UDG Healthcare Plc |
Industrial average |
|
|
2015 |
2014 |
||
|
ROE |
27.10% |
26.17% |
11.97% |
|
P/E |
13.89% |
28.53% |
36.53% |
(Source: UDG Healthcare PLC (UDG.L). Valuation Ratios, 2016)
An increase can be observed in ROE of UDG Healthcare in comparison to its previous year performance, the same is higher in comparison to industrial average. A strong underlying growth has been observed by the company, and same includes the benefits from currency movements. An increase from 21% of adjusted EPS of 2014 to 24% of adjusted EPS of 2015 has been achieved during the year (UDG Health Care Plc. Share Chart, 2014).According to Brigham and Houston (2012), as the ratio measures the ability of the firm to generate profit for its shareholders; an increase in same can attract more investors.
P/E ratio of the company has decreased from 28.53% to13.89%; as it is a major decline, the same will affect the views of investors. The future amount of the stock will be predicted according to the analysis of this ratio (Broche, Jagolinzer and Riedl, 2013). Therefore, it is expected that the value would be lower than the previous estimation.
Trading performance of the group has been good with group revenues and adjusting operating profits in comparison to previous years. An increase in adjusted EPS is expected to 7% to 9% for next year. Though, the net income of the company has reduced from 193.27m to 54.85m (UDG Healthcare plc Annual Report and Accounts, 2015). The main reason behind the decrease in net income is the rise in selling and distribution expenses from 188,368 in 2014 to 231,076 in 2015.
Elements of the financial statement are analysed by the outsiders as investors, forecasters, etc. as well as by the shareholders of the company (Grant, 2016). The decision regarding investment is taken only after taking an overview of financial statements. Plant, property and equipment consist a major part of the balance sheet. Thus a major change in it can have an impact on the decision of investor.
Table 4: PPE as % of total asset ratio of three companies
|
Company |
2015 |
2014 |
|
Glanbia |
22.11 |
23.27 |
|
UDG Healthcare Plc |
0.05 |
4.66 |
|
Paddy Power Betfair Plc |
22.46 |
20.00 |
A major decline can be observed in UDG Healthcare Plc as compared to other two companies. The reason behind the same is the sale of asset related to disposal of United Drug Supply Chain Services. Therefore, the effect of same should be removed for equalised comparison.
It is a betting and gaming company and provides online betting and gaming products. It serves a customer at the global level. The business was formed by the merger of Paddy Power and Betfair in 2016. Presently it is split into four divisions: Online, which leads online sports gaming brands and betting; Australia which is a market leader under Sports brand; US which combines TVG, the leading horse racing TV and two Betfair operations in New Jersy and Retail which operates 600 Paddy Power betting shop across UK and Ireland.
Table 5: Profitability ratios of Paddy Power Betfair Plc
|
Ratios |
Paddy Power Betfair Plc |
Industrial average |
|
|
2015 |
2014 |
||
|
ROE |
224.68% |
39.15% |
12.89% |
|
P/E |
21.49% |
37.73% |
96.11% |
(Source : Paddy Power Betfair Plc, Valuation Ratios, 2016)
The ROE of Paddy Power Betfair Plc has been improvised as performed in a previous year. The margin return of the company is included in the topmost range of stock exchange list. The reason behind the same is the sound financial situation and significant leeway for investment. According to Healy and Palepu (2012), the ratio represents the amount of return available for shareholder and the same is increasing with an appropriate growth. Thus, the same will boost the confidence of investors in the company.
Profit earning ratio is the ratio which measures the current share price relative to its pre-share earnings. The core of P/E ratio indicates the amount of dollar an investor can invest in a company in comparison with the earning of the company. The ratio has decreased, and it is lower in comparison to industrial average as well (Paddy Power Betfair plc Annual Report, 2015). As it is decreased from the previous year, the expectation of investor will be affected due to same.
The revenue of the first group has increased up with to 24% which is double-digit growth around all online and retail divisions (Market Price. Paddy Power Betfair plc, 2014.). The valuation of the company in terms of earning multiples is higher, as it is receiving approximately 69.76 times of its estimated earning per share. The prospective growth is expected among the main assets in upcoming fiscal years.
Table 6: PPE as % of total asset ratio of three companies
|
Company |
2015 |
2014 |
|
Glanbia |
22.11 |
23.27 |
|
UDG Healthcare Plc |
0.05 |
4.66 |
|
Paddy Power Betfair Plc |
22.46 |
20.00 |
Plant, property and equipment are one of the key element of the financial statement as it covers a major portion of the asset side of balance sheet. It plays a crucial role in company’s business. Therefore investor is interested in analysis. An increase can be observed in the PPE ratio of Paddy Power Betfair Plc as compared to other two companies. The companies belong to different industries, but it could be said that out of the three companies the ratio of Paddy Power Betfair Plc is most efficient in accordance with increasing percentage. The main objective of this ratio to emphasise the importance of change in the ratio; i.e. whether it is because company has sold its essential portion of assets or any other reason behind major decline
References
Books and Journals
Allen, E.J., Larson, C.R. and Sloan, R.G. 2013. Accrual reversals, earnings and stock returns. Journal of Accounting and Economics. 56(1). Pp.113-129.
Brigham, E.F. and Ehrhardt, M.C. 2013. Financial management: Theory & practice. Cengage Learning.
Brigham, E.F. and Houston, J.F. 2012. Fundamentals of financial management. Cengage Learning.
Brochet, F., Jagolinzer, A.D. and Riedl, E.J. 2013. Mandatory IFRS adoption and financial statement comparability. Contemporary Accounting Research. 30(4). Pp.1373-1400.
Grant, R.M. 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Healy, P.M. and Palepu, K.G. 2012. Business Analysis Valuation: Using Financial Statements. Cengage Learning.
Online
Glanbia plc Annual Report and Accounts. 2015. [Pdf]. Available through <www.glanbia.com>. [Accessed on 20th December 2016].
Glanbia plc. Valuation Ratios.2016. [Online]. Available through < https://www.reuters.com/finance/stocks/financialHighlights. Glanbia plc>. [Accessed on 20th December 2016].
Market Price. Glanbia plc. 2014. [Online]. Available through < https://www.ise.ie/Market-Data-Announcements/Companies/Equity-Details>. [Accessed on 20th December 2016].
Market Price. Paddy Power Betfair plc. 2014. [Online]. Available through < https://www.ise.ie/Market-Data-Announcements/Companies/Equity-Details>. [Accessed on 20th December 2016].
Paddy Power Betfair plc Annual Report. 2015. [Pdf]. Available through <https://www.paddypowerbetfair.com/investor-relations/annual-reports> [Accessed on 20th December 2016].
Paddy Power Betfair plc. Valuation Ratios.2016. [Online]. Available through < https://www.reuters.com/finance/stocks/financialHighlights?symbol=PPB > [Accessed on 20th December 2016]..
UDG Health Care Plc. Share Chart. 2014. [Online]. Available through < https://www.udghealthcare.com/investors/share-price-tools/share-chart/>. [Accessed on 20th December 2016].
UDG Healthcare plc Annual Report and Accounts. 2015. [Pdf]. Available through <www.udghealthcare.com >. [Accessed on 20th December 2016].
UDG Healthcare plc. Valuation Ratios.2016. [Online]. Available through < https://www.reuters.com/finance/stocks/financialHighlights?symbol=UDG.L >. [Accessed on 20th December 2016].
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