Financial Analysis

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financial analysis
By: andreas ioannides

TABLE OF CONTENTS. INTRODUCTION. PROCEDURE. FINDINGS. 1.0 INVESTMENT RATIOS - MEASURES OF EFFICIENCY. 1.1 Earnings per Share. 1.2 P/E Ratio or Price / Earnings Ratio 1.3 Dividend Yield. 1.4 Dividend Cover. 2.0 PRIMARY OPERATING RATIOS - MEASURES OF EFFICIENCY. 2.1 Return on Capital Employed 2.2 Debtors Turnover Ratio 2.3 Creditors Turnover Ratio 2.4 Return on Shareholders' Fund 3.0 PRIMARY FINANCIAL RATIOS - GEARING AND LIQUITY. 3.1 Gearing Ratio 3.2 Liquidity Ratio 3.2.1 Current Ratio 3.2.2 Quick or Acid Ratio 4.0 CASH FLOW CONCLUSION RECOMMENDATIONS APPENDICES BIBLIOGRAPHY - REFERENCES INTRODUCTION It can be suggested that accounting consists of identifying, measuring and communicating business information to facilitate judgements and decision making for the further future. This specific report is pointed at investigate National Grid Group Plc's report and accounts in order to decide whether someone should invest or not in this company. Someone, who is able to analyse this company, must have its Annual Report for at least two years, which will help the person, because it contains basic components like the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement and the Director's Report. PROCEDURE In order to guide you to understand about this specific company, I have used the Annual Review by following some steps: 1) To summarise the size, the structure and the profit of the company I have first check the balance sheet and the profit and loss accounts. 2) I have read very carefully the chairman's statement and the director's report, which helped me to understand better things about the company. 3) I have also calculated the trends and ratios. The performance data, P&L A/C, Balance Sheet, Ratios and Trends were obtain from the following sources: - Annual Review of National Grid Group of 1997-98. - Articles from Financial Times newspaper. - Books related to the subject. FINDINGS. 1.0 INVESTMENT RATIOS - MEASURES OF EFFICIENCY. Investment ratios are the ratios used by the investors when deciding whether a share should be bought, sold or held. 1.1 Earnings per Share. Earnings per share (EPS) indicate the amount of profit after tax, interest and preference shares earned for each ordinary share. It is also more reliable for comparing the performance of any company because it can not be affected by the policy of the directors. Profit after tax + interest EPS = No. Of Ordinary shares The earnings per share of National Grid Group, excluding the exceptional profit relating to Energis, were 19.8 pence, compared with 24.3 pence in 1996/97. This reduction resulted from lower transmission profits following the implementation of the new price control. 1.2 Price Earnings Ratio. The Price Earnings Ratio (PE ratio) is a measure of market confidence in the shares of a company. Also the PER play a significant role not only in the company itself, but on the industry in which it operates and, of course, on the level of the stock market, which tends to rise more than reported profits when the business cycle swings up and to fall more than...
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