The price earnings are one of the most widely used tools for making the selection of stock. The price earnings are derived by dividing the current market price of the stock by its earnings per share (Scott 2015). The price earnings represent the amount of money an individual is ready to pay for each of the unit of worth earnings of the firm. As evident from the computation, it is noticed that the price earnings of AG Barr Plc stood 1630.929 whereas the Britvic on the other hand reported some price earnings of 1104.915 respectively.
Taking into the considerations the earnings per share of AG Barr Plc it is noted that the earnings per share reported by the company stood 30.78p while the earnings per share of Britvic Plc stood 52.9p. On the other hand, the full year dividend paid by AG Barr Plc stood 14.40p while the full year dividend per share of Britvic stood 26.5p per share. Overall, the differences in the stock price between the AG Barr Plc and Britvic is higher amount of current market price reported by Barr Plc over Britvic (Schaltegger and Burritt 2017).
An organization with higher amount of earnings per share ratio is capable of producing significant amount of dividend for the investors or it may return the funds back into the business for generating more amount of growth (Williams 2014). An assertion can be bought forward by stating that the stock price of Barr plc is overprice since the price earnings ratio reported by the company stood higher at 1630.929. The stock with higher price earnings can be overprice and the dividend yield generated by Barr Plc is relatively lower as the company reported the dividend yield of 0.029%. On the other hand, price earnings for Britvic in comparison to Barr Plc stood relatively higher and it can be inferred that the dividend yield for Britvic is comparatively higher than Barr Plc.
In either of the case, a higher amount of ratio reflects a worthwhile investment based on the market price of the stock (Warren and Jones 2018). Similarly, in the event of Barr Plc the higher amount of price earnings can be a reflector of producing higher dividend for its investors however with lower earnings per share reported the dividend yield that has been reported stood 0.029%. Making a long term investment in Britvic is more suitable than making an investment in Barr Plc. This is because the dividend yield is higher for Britvic since the company is worth for long term return to its shareholders than Barr Plc.
Dividend coverage ratio can be defined as the ratio that measures the earnings of the organizations over the dividend paid to the shareholders (Henderson et al. 205). The dividend coverage ratio derived for Barr Plc stood 2.13 while the Britvic dividend coverage stood 1.99. For an individual shareholder they would be required to pay a higher amount for a respective share to derive a dividend of 1.99. On the other hand, Barr plc stock price of 502 is viewed as overpriced since the dividend coverage reported stood relatively higher of 2.13. An organization with higher amount of dividend coverage ratio reflects a situation where the company has little difficulty in paying off its preferred dividend requirements. Similarly, Barr Plc has reported a higher dividend coverage ratio in comparison to Britvic. With higher amount of dividend coverage, it is understood that Barr Plc might be facing little difficulty in paying off its shareholders the preferred dividend requirements.
The dividend yield or in other words is the dividend price ratio of the share is the dividend per share divided by the price for each share (Weygandt, Kimmel and Kieso 2015). The dividend yield represents the organizations total amount of yearly dividend payments divided by the present market capitalization based on the assumption that the number of share is constant.
The dividend yield reported by Barr Plc is relatively lower than Britvic representing a lower return to the shareholder. This considers the sign of clear financial health and confidence for the organization to pay out its dividends. Gauging into the dividend yield Barr Plc and Britvic it is understood that Britvic total yearly dividend payments in respect of its market capitalization is constant based on the total number of shares reported by it. The overall assessment of both the firms provides that the differences in the price is largely because of the overvalued stock price of Barr Plc in comparison to Britvic.
Britvic plc. is the British Producer of soft drinks having its base on Hempstead. The company is listed on the London stock exchange and it is one of the constituent of the FTSE 250 Index (Britvic.com 2018). A large part of its operations is concentrated in the United Kingdom and Ireland the organizations overseas operations have expanded and exports its products to more than 50 countries. On the other hand, AG Barr Plc is Scottish manufacturer of soft drink having its base on Cumbernauld, North Lanarkshire (Agbarr.co.uk 2018). The company manufactures the popular Scottish drink and it is listed on the London stock exchange with the constituent of FTSE 250 Index.
The business strategy for Britvic is understanding the needs of consumer by increasing the retail partners in order to increase the sale of soft drinks. Britvic undertakes the international approach of sourcing the required raw materials to manufacture the soft drinks. The business strategy for Barr Plc is based on placing focus on strongly differentiated brands. The business strategy of Barr Plc is focussed on growing the driven partnerships and leveraging its strength with team.
The profitability ratio are regarded as the financial metrics which is used to determine the ability of the business to derive earnings in respect of the earnings and other important costs that is occurred during the particular period of time (Narayanaswamy 2017). Under the profitability ratio the gross profit ratio is the profitability ratio that represents the association between the gross profit and the total net sales reported by the firm. As evident from the gross profit ratio for AG Barr Plc the company reported a gross profit ratio of 46.95 while the Britvic reported a gross profit ratio of 53.94%. Britvic reported a strong growth in revenue of £1,540.8m in spite of the challenging market conditions while AG Barr reported a mere 0.6% rise in revenue to £257.1 million.
The net profit ratio is computed to determine the percentage of net profit ratio after tax in respect to net sales for both Britvic and Barr Plc. The net profit margin for Barr plc stood 13.85% while the net profit margin for Britvic stood 8%. The lower net profit of Britvic is largely because of the decline in the statutory profit after tax of 2.5%. The lower amount of net profit is because of the cost incurred by the business that is associated to the three-year business capability programme that commenced in the year 2016 (Gitman, Juchau and Flanagan 2015). The lower net profit of Britvic is largely attributable to the cost incurred in the capability programme as the company has installed new lines of production, new site for warehousing and undertook major groundworks for final phase.
The rise in net profit margin for Barr Plc is largely because of the underlying basis of growth delivered by the business of 1.5%. Furthermore, the company reported an expansion of profit before tax and exceptional items of 7.1% with improved free cash flow. Barr Plc have successfully maintained the market share under the challenging market environment with the company’s core carbonates business has delivered better performance (Marshall 2016). The international business has delivered double-digit revenue with the help of brand development in its core markets.
The return on asset is computed for both Britvic and Barr Plc in order to measure the efficiency of the organizations ability to generate the sales revenue from the total asset to provide the management with an understanding of how well it is making use of the asset (Caplan 2016). The return on assets for AG Barr Plc stood 12.92% whereas on the other hand Britvic reported a return on assets of 7.01%. A higher return on assets of Barr Plc is largely because of more than £12 million investment in the long term assets. Furthermore, the non-current assets have increased slightly to £195.4 million after several years of sustained investment in assets and infrastructure. The investment in asset have resulted Barr Plc in maintaining a favourable position with the well-invested base of asset that are capable of accommodating growth have increased by £1.7 million. However, the company has reported an 8% return on assets but the company has reported 86% of revenue from their assets.
The return on equity represents the profitability ratio, which measures the ability of the organization to produce profits from the shareholders’ investment in the company (Appelbaum et al. 2017). The return on equity for Barr Plc stood 46.95% whereas for Britvic the return on equity stood 40.75%. Britvic profit before taxation that are attributable to the equity shareholders stood £138.8m while Barr Plc’s profit before taxation attributable to the shareholder stood £35.6 million. With the increasing return on equity for Britvic, it can be understood that the company is increasing ability of generating profit without requiring much amount of capital.
Liquidity ratio can be defined as the ratio that is used to gauge into the performance of the organization in determining the ability of the organization to pay off its debts. The liquidity ratio determines the ability of the organization to meet the both its current liabilities and long-term liabilities become due (Kravet 2014). Under the liquidity ratio the current ratio is largely used to provide an idea of the organizations to pay its liabilities from its assets. The current ratio helps in determining the rough estimation of the organization health. The current ratio for AG Barr Plc stood 1.414 whereas on the other hand the current ratio for Britvic stood 0.927. The current ratio for AG Barr Plc indicates that liabilities that are due within the span of a year are met by the company from its current assets. This represents that AG Barr Plc has £1.50 of current assets for each of the £1 current liabilities and presumably, the current assets is sufficient to meet its current liabilities that fall due within the span of one year. On the other hand, Britvic reported a lower current ratio of 0.927 and it can be stated that the firm may have trouble in meeting of its debt.
Under the liquidity ratio, the quick ratio is computed for both the Britvic Plc and Barr Plc. The quick ratio is used to measure how the company is able to meet its short-term financial liabilities (Otley 2016). As evident the quick ratio for Barr Plc stood 1.109 whereas Britvic reported a quick ratio of 0.783. The quick ratio of Barr Plc is relatively higher than the Britvic representing that the company possess the ability of using its cash or quick ratio to extinguish or meet its current liabilities quickly. The higher quick ratio is primarily because of adjusted free cash flow for Britvic stood £54.5 million with an improvement of £43.6millioin improvement over the figures reported last year.
Times interest, earned ratio represents the coverage ratio that measures the ability of the organization in meeting its debt payment (Chenhall and Moers 2015). As evident from the computation the times interest earned ratio for Barr Plc stood 62.571 while Britvic reported a times interest earned ratio of 6.558. Evidently a higher times interest ratio for Barr represents that the company is better able to meet its debt from the operating revenue generated from its operations. Despite the amount of debt reported by Barr Plc the company has the better ability of meeting its interest payment on debt. On the other hand, a lower times interest earned ratio presumably represents lower ability of meeting its interest payment on its debt.
Cash ratio represents the ratio of the organizations total amount of cash and cash equivalent in respects to its current liabilities (Eldenburg et al. 2016). Evidently the cash ratio for Barr Plc stood 0.178 whereas for Britvic the cash ratio stood 0.264. The cash and cash equivalent for Barr Plc stood 10.1 during the year 2017 while the cash and cash equivalent for Britvic stood 82.5. The cash ratio for Britvic represents a more conservative look to cover its liabilities than the Barr Plc.
The solvency ratio represents the measure of the various ratio, which is used to measure the ability of the organization in meeting its long-term debts. Furthermore, the solvency ratio quantifies the size of the organization after tax profit (Dashtbayaz, Mohammadi and Mohammadi 2014). Under the solvency ratio the debt ratio is computed to determine the extent of organizations leverage. The debt ratio for Barr Plc stood 0.340 whereas the debt ratio for Britvic stood 0.828. The lower amount of debt ratio for Barr plc is primarily because of the constant fall in the debt interest which ultimately reflects the improved debt profile. Barr plc have been successful in paying off its debt that enabled the firm to transitioned towards an effective net cash position. The higher debt ratio for Britvic is because of overall increase in net debt by £86.5million because of the acquisition of Bela Ischia and East Coach. The net debt leverage for Britvic also increased two times from previous year figure of 1.8 times.
Debt to equity ratio represents the relative proportion of shareholder’s equity and the amount of debt that is used to finance the asset of the organization (Smith 2017). The debt to equity ratio for Barr Plc stood 0.516 whereas the debt to equity ratio for Britvic stood 4.816. The higher amount of debt ratio for Britvic represents that the company has higher amount of debt to equity which may not be sufficient for the organization to generate sufficient amount of cash to meet its debt obligations. On the other hand, the debt equity ratio for Barr Plc stood relatively lower representing that a higher proportion of cash and cash equivalent is generated to meet its debt obligations.
The equity ratio is derived by dividing the organizations total liabilities from the stakeholder’s equity (Oboh and Ajibolade 2017). As evident the equity ratio for Barr Plc stood 0.660 whereas the equity ratio for Britvic 0.172. With lower amount of equity ratio reported by Britvic represents that the total proportion of total assets which is financed by stockholders in respect to the interest paid to the creditors. Consequently, the higher equity ratio for Barr Plc is presumed that the company requires higher amount of equity from its stockholders to finance its total assets.
The efficiency ratio is used to determine how well an organization make use of its assets and liabilities (Theriou 2015). The days to sales inventory ratio represents the average number of days taken by the company to sell of its average inventory that is held during the particular accounting period. The day’s sales in inventory for Barr plc stood 46.294 while Britvic reported days’ sales in inventory of 62.393. The valuation of inventory for Barr Plc is judgemental due to the volatile nature of the raw materials commodity. A higher sale in inventory reported by Britvic is primarily because of the reduced distribution.
Day’s receivables outstanding represents how well the organization is managing its accounts receivables. The figures of days’ sales outstanding represent an index of the relationship between the outstanding receivables and credit accounts sales attained over the given time period (Liu and Liu 2015). The days receivable outstanding for Barr Plc stood 72.97 whereas the day’s sales outstanding for Britvic stood 81.069. The estimated amount of total receivable outstanding or the average collection period for Barr Plc stood relatively lower than Britvic Plc. Noticeably, Barr Plc has been successful in managing its accounts receivables than Britvic who has higher collection period of 81 days to recover the outstanding amount of sales receivables.
The days payable outstanding measures the organizations average payable period or the time taken by the company to pay its invoices from the trade creditors (Reid and Myddelton 2017). The days payable outstanding for Barr Plc stood 139.95 whereas the days payable outstanding for Britvic stood 242.042. Evidently, the computations made represents Britvic takes approximately 242 days to pay its outstanding invoices from the trade creditors whereas Barr Plc relatively takes 139 days to pay its outstanding liabilities.
Asset turnover ratio represents the efficiency ratio to determine an organization ability to generate the sales from its assets by comparing the net sales with the average total assets (Theriou 2015). The asset turnover for Barr plc is higher than Britvic. For Barr Plc the asset turnover ratio stood 0.933 while Britvic reported an asset turnover of 0.876. Compare to Britvic, Barr Plc has been relatively efficient in generating higher proportion of sales from its assets.
Overall, measuring the performance in terms of gross profit Britvic has though reported a higher proportion of gross profit ratio. Additionally, the company has better market performance with higher dividend yield ratio. Barr Plc has simultaneously reported better after tax profit than Barr Plc. Barr plc has successful in managing its both short and long term debt whereas Britvic has reported increasingly higher amount of debt ratio. On the possible mergers and acquisition an assertion can be bought forward by stating that Britvic can merge with Barr Plc as the company will be able to reduce its debt burden with Barr Plc having reported a higher free cash flow in the previous accounting year.
On undertaking, the decision regarding making an investment in plant 2 it is feasible for the directors of Graham to make an investment. Taking into the considerations the sales volume of 60,000 units over the period of five years it can be stated that a stable amount of cash inflow can be derived for each year of the five-year period. The selling price per unit is stated to be around £70 per unit. On the other hand, the initial investment for the directors of Graham stood £40,00,000 with direct material being £4,80,000. The direct labour and the direct labour approximately standing £420,000 and £300,000 respectively. The variable overhead for the project stood £180,000 and the total amount of cash outflow being £109, 90,000 over the period of the five year.
The net cash flow from the operations for each of the five-year period stood £28, 20,000. The cost of capital for the project stood 12%. In the process of capital budgeting payback period can be defined as the period of time that is needed to recoup the funds expanded in the investment in order to reach the break-even point. As evident from the current investment scheme the payback period in years stood 1.42 for investment scheme. Therefore, on making an initial investment of £40,00,000 on the new plant the company would be able to get the return from the amount invested in project within the span of 1.5 years.
The net present value or in other words the net present worth represents the measure of profit computed following the subtraction of present values of cash outflows that also included the initial cost of the present value of cash inflow over the period of time. As evident from the computations carried out in respect to the new investment project of investing in machine, the net present value of the machine stood £61,65,469. The net present value computed for the new project is derived by subtracting the present value of the cash outflow of the project along with the initial amount of £40,00,000.
The internal rate of return can be defined as the metric that is used in the determination of the profitability relating to the probable investments in the project (Liu and Liu 2015). Internal rate of return represents the discount rate to determine the net present value of the cash flow from the particular project. The internal rate of return on investment represents the annualized effective compound rate of return of the project. As evident, the internal rate of return for the new plant stood 65%.
On the basis of the evaluation performed an assertion can be bought forward by stating that making an investment in the new project or in other words making an investment in new plant would be feasible. This is because the payback period in years for the new plant is 1.42 years. similarly, the net present value of the plant stood £61,65,469 with the internal rate of return for the project standing 65%. As the advice to the management in important assertion can be bought, forward by stating that making an investment in the new project would be provide directors with better amount of cash inflow and relatively lower cash outflow.
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