Sky 2011 and 2012

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Ratio Analysis, Chairman’s Statement & Share Price Review

Module Code: PAA207 – Financial Management
Student Name: Umme Haani
Student Code: 120898
Submission Date: 14th December 2012

Table of Content

Introduction

Ratio Analysis

1. PROFITABILITY RATIOS
1.1 Return on Capital
1.2 Return on Equity
1.3 Revenue growth
1.4 Operating Expense Ratio
1.5 Net Profit Margin

2. EFFICIENCY RATIOS
2.1 Fixed Asset Turnover
2.2 Current Asset Turnover
2.3 Total Asset Turnover

3. “Short-term Liquidity
3.1 Current Ratio
3.2 Acid Test Ratio

4. WORKING CAPITAL RATIOS
4.1 Inventory Days
4.2 Trade Receivables Days
4.3 Trade Payables Days

5. LONG TERM SOLVENCY
5.1 Interest Cover
5.2 Gearing

6. Investor ratios
6.1 Dividend Cover Ratio
6.2 Dividend Pay-out Ratio
6.3 Dividend Yield
6.4 Earnings Per Share Ratio
6.5 P/E Ratio”

Chairman’s statement Review

Share price movement over the two years period Review
Annexure
Bibliography

Introduction
British Sky Broadcasting Group PLC was incorporated in 1988, (hereafter referred to as BSY, its trading symbol) is a leading and ever growing retailer of TV, HD, Multi-room, Broadband, Telephony and Line rental services in the United Kingdom & Ireland. BSY derives its revenue from wholesale fees, retail subscription, advertising and hardware, installation, and servicing. British Sky Broadcasting Group PLC is know by Sky in every household and is most dominant in the market for its movies, entertainment, sports & news channels, and interactive services through its remote control.

BSY continues to expand its income generating capabilities by investing in products and expansion of customer base each year. BSY has witnessed an increase of £10 in ARPU (Average Revenue Per User) indicating that the existing customer base has rewarded sky with more business.

Despite the growth in revenue due to the above-mentioned reasons, the total shareholder return from BSY grossly underperformed FTSE100 in 2012, whereas in 2011 the TSR was at least3x higher than FTSE100. We explore the reasons for this underperformance in 2012 in the report.

Ratio Analysis

1. Profitability Ratios

Profitability| 2012| 2011|
Return on Capital| 36.44%| 31.17%|
Return on Equity| 95.97%| 78.26%|
Revenue Growth| 2.94%| 15.55%|
Operating Expense Ratio| 81.70%| 83.74%|
Net Profit Margin| 13.34%| 11.49%|

1.1 Return on Capital
ROC increased by 5% in 2012 to 36.44% due to a hike in operating earnings by 16% and a decrease in capital employed by 1% due to shares buy back and eventual decrease in share capital.

1.2 Return on Equity
A substantial growth was witnessed in ROE due to a 12% increase in net profit in 2012 over its previous year and a slight decline in equity shareholding. The large jump in ROE from 78% to 96% was a signal of strength for the company.

1.3 Revenue growth
Revenue growth was present in 2012 but as compared to the 15.55% growth in the year 2011, a 3% growth in 2012 seems meagre at best. Despite the company’s efforts to increase its product and customer base in the recessionary times that exist, the jump in revenue growth has not been sustainable.

1.4 Operating Expense Ratio
Operating expense as a percentage of sales has reduced in 2012 from 83.7% to 81.7%. BSY managed to raise its revenue by 3% while keeping its operating costs in line with those experienced in the year 2011 hence registering a small increase in operating margin.

1.5 Net Profit Margin
Net profit gained a mighty 20% in the year 2012 over its previous year. The company was able to control its operating, financial and taxation expense in order to allow a recognizable gain in net profit margin to 13.3% from the 2011 11.5%.

2. EFFICIENCY RATIOS

Efficiency| 2012| 2011|
Fixed Asset Turnover| 12.98 | 14.28 |
Current Asset Turnover| 2.99 | 2.83 |
Total Asset Turnover| 1.23 | 1.23 |...
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