AAF044-6 Accounting and Finance
AAF044-6 Accounting and Finance
Introduction
Accounting and Finance is the main pillar of any business entity which increases transparency and effectiveness in overall business operations either financial or non-financial. The current report has been prepared to present the overall financial performance and features of FirstGroup Plc and compare it with its four competitors National Express. The financial performance of the last 3 years of the company has been presented by considering financial data from the income statement balance sheet along with different financial ratios such as liquidity and solvency. After that, the overall financial health and position of FirstGroup Plc compared with National Express both operate in the UK transport industry. The aim of this report has provided a clear and specific reason for financial health and the role of accounting and Finance in the future growth and sustainability of the organisation.
Section (i)
Overview of FirstGroup Plc
The company is a UK-based MNC transportation company that has operated in two countries such as “The United Kingdom and the Republic of Ireland”. Currently, the company is one of the largest rail and bus operators in the UK for many years. Nearly 887,000 passengers are engaged in the bus service of the company each day as the company has operated 4,900 buses. Besides that,13,500 employees and 53 depots and outstations assist the company to perform its entire project across the UK. 550,000 passengers take benefits from the rail operations of the company as the company has deployed 3,800 rail vehicles in operations. 17,500 employees operate rail vehicles around 419 stations (FirstGroup, 2023). These are the main strengths of the company which makes it the UK’s largest rail and bus operator (FirstGroup, 2023). The company also provides 12.9 jobs around different locations where the company has operated its rails and buses. The total revenue of the company fluctuated at 4,591 million which increased from 4,319 million in 2022, due to implementation of digital initiatives. As a result, the net income of the company at 636 million increased from 78 million (FirstGroup, 2023).On the other hand, the Covid-19 pandemic also creates some barriers as well as opportunities for the company. As the company has faced issues to attract consumers in the first stage of the pandemic. After that, the company launched some digital apps and initiatives such as generating 70% of total US revenue from online booking (FirstGroup, 2023).
The problems of multiple
The problems related to the multiples are faced by the organization which has multiple subsidies or parameters of observed values. The simultaneous inference regarding the issues in the business enterprises has been found to be persistent in the organization. The variances in the parameters ascertain that the business may face challenges in identifying the exact issue in the organization as the firm continuously faces issues relating to the adoption of various parameters. The parameters ascertain that the business has been functioning in proper terms including the EPS evaluation and the WACC estimation which may assist organizations like FirstGroup plc to determine the percentage of recovery of the profit and the future scoop in maintaining the profitability status. The “dispersion in the multiple parameters” has been faced by this particular organization has resulted in the business making several scattered results in the decision making and the business might face losses in this regard. The various parameters may provide different results which may result in the dispersed view of the organizational status in the real world. Thus, the true context of adopting the parameters becomes worthless and inappropriate.
Overview of National Express Group
National Express also operates its business in more than 35 countries in different transportation such as rail and bus. At the current time, the company has generated total revenue of 2.8 billion which is an increase of 29% due to increments driven by sustained and continued to underline demand growth. The operating profit of the company is also fluctuating at 197.3 million which is nearly double compared with last year’s total operating profit.Cash conversion of the company has also increased by 81% indicating that the company has maintained a better liquidity level and acquired better financial and non-financial health at the global level. The company has also achieved optimum growth in all strategies in 35 contracts by its work of 150 million revenue pa. Dividends per share of the company are also provided at 5.0 Pence which is a 3X coverage ratio enough to attract investors to invest for future growth and development of the company.
Section (ii)
The financial performance and health of any business entity are influenced by different internal and external factors. Internal factors refer to existing workforce innovation strategy and strategic locations of the company which directly influenced the overall performance and financial health of a company (Rudianto, 2022, p.05). In opposition to external factors such as economic activity, country environmental aspects such as Covid-19 and political factors such as the war crisis between Ukraine and Russia. The financial health and position of FirstGroup Plc are present in the below 4 categories which need to be considered by FirstGroup Plc to develop strategy and decisions for future courses of action in the organisation.
Profitability in the last three years
The profitability level of any business entity is directly influenced by overall business review and operating and manufacturing costs (Istanti, 2022, p.14). It has been noted that the gross margin of First Group fluctuated at 38.79% in 2020 which has increased to 47.33% in 2021 and 46.20% in 2022. In addition, the net margin of the company will exist at the negative value in 2020 of – 7.04% which has increased to a positive net margin of 1.81% and 13.85% in the last 2 years (FirstGroup, 2023). Based on this ratio it has been observed that the company was able to increase its profitability in the last 3 years after the pandemic situation by implementing different innovations and digital approaches to attract consumers and perform transportation activity across the UK and other countries. The company suffered from negative profitability in 2020 due to not being prepared for environmental challenges like pandemic situations and being trapped in a critical situation due to restrictions for operating transportation activity during the high peak of the pandemic situation (Khadafi et al. 2021, p.18).
Liquidity in the last three years
The liquidity level of any business entity is a core factor to establish sustainable relationships with different levels of stakeholders. As discussed by Syarifah, (2021, p.5), any organisation needs to pay off its all debt and obligation to different stakeholders such as creditor suppliers within the due period which is possible with better liquidity performance. The liquidity performance of the company is measured by using the current ratio which fluctuates at 0.76 times in 2020 and 2022 which is fluctuating to 0.78 times in 2021 (FirstGroup, 2023). Besides these quick ratios of the company are also collective in a similar pattern as the company not having too many inventories and stocks. It has been noted that the liquidity health of the company has not improved in the last 3 years as it is fluctuating below 1 indicating that the company has much liability and obligation as compared with acids and worth to pay off those obligations.
Solvency in the last three years
FirstGroup Plc needs to measure its solvent position by considering different ratios like debt ratio and debt ratio to measure the sustainability of its overall capital structure in future. Depresso of the company fluctuated at 0.86 times in 2020 which declined to a value of 0.76 times indicating that the company has suffered from low potential and capability in the terms of assets to manage the long-term debt it needs to pay off on demand of creditors and investors (FirstGroup, 2023). Besides that, the debt ratio of the company is also highly fluctuating with a value of 6.17 times indicating that the gift capital of the company is 6 times more as compared with capital which indicates this balance capital structure may create risk and sustainability capital resources. After that it has been noted that the debt-equity ratio of the company will decline to a value of 3.33 times in 2022 nevertheless the company needs to minimise the equity ratio around one time to maintain a balanced capital structure to make it more solvent for its overall business help for future (Bint et al. 2020).
Market performance in the last three years
The market performance of any business entity is more important than its internal performance. As any business becomes a global leader in the industry with better market performance and attracts investors to invest in the business (Keerthi and Eswari, 2020, p.13). The market performance of FirstGroup Plc is presented by using two ratios such as return on equity and return on assets. The return on equity of the company is highly flirting with the negative value of 0.28 times in 2020 which has been increased to the value of 0.07 times in 2020 and 0.72 times in 2022 indicating that the company can enhance its market performance by optimising its overall business profitability and business revenue (FirstGroup, 2023). Besides that returns on asset of the company is fluctuating in a similar pattern to the value of-0.04 times in 2020 and 0.17 times in 2020 to indicate the company has not had efficient market performance. However the company maintains a positive performance at present time compare with the last 3 years for market performance that indicates the overall strength of the company (FirstGroup, 2023). Nevertheless, based on this overview it can conclude that a company needs to maintain an ideal market performance by maintaining a return on equity and return on asset ratio greater than 20%.
Section (iii)
Any business to compare its overall business health and profitability with competitors in the industry to take steps and decisions for future sustainability and market performance. In the current scenario, FirstGroup Plc has better market performance at present time compared with computers nevertheless needs to compare with computers to maintain sustainability in this performance level. As suggested by Maisharoh and Riyanto, (2020, p.4), the financial health and performance of FirstGroup Plc have been compared with its competitor National Express by using some significant ratios such as profitability, liquidity solvency and market performance ratio for the period of the last 3 years.
Market multiples are one of the common methods of the process of corporate evaluation in the business process. The opinions related to the fairness of the investment process of the banker are to be evaluated in the process. “. A simple analysis of the stock prices of the firms in the peer group leads to a certain ratio which will then be used as a multiplier of the target firm’s value driver”. Asper the analysis of the equity valuations in the consistency analysis of the multiples tends to be effective in treating certain issues in the capital structure formation or the evaluation of the level of debt in the business. The different cost of financial distress as well as the different capital structures in the business organization may effect the equity value multiples.
Profitability comparison
The profitability health of a business is more important compared with existing efficiency performance as profitability level assists in better profitability and growth in future along with ensuring better growth and sustainability in future. Based on the gross margin and net margin ratio of both organisations it has been noted that FirstGroup Plc has maintained a better profitability level as compared with its competition (FirstGroup, 2023). There are different parameter searches as the gross margin of FirstGroup Plc is better as compared with National Express. The gross margin of FirstGroup Plc fluctuated at 46.20% in 2022 higher as compared with National Express’s gross margin of 38.68%. In addition, the net margin of National Expression fell to a negative value in the last 3 years (National, 2023). However, FirstGroup Plc has maintained a positive net margin in the last 2 years to the value of 13.25% in 2022. These are the main aspects which indicate that FirstGroup Plc has better financial profitability compared with its competitor (Purba, 2021, p.24).
Liquidity comparison
The liquidity health of any business entity is assisted to take advantage of different short-term market opportunities in the industry. Therefore, each business organisation must have better liquidity health to take advantage of market opportunities to expand rapidly in the global market (Ichsani, 2021). The liquidity health of both organisations is below one indicating that not having better liquidity health neighbour the lace in 2022 FirstGroup Plc has better liquidity performance compared with its competitor as the current ratio of FirstGroup Placing at 0.76 times whereas National Express suffer from a current ratio of 0.58 times(National, 2023).
Solvency comparison
Solvency health is a business entity that is quite important to expand for long-term business growth and sustainability. In the current section solvency health of both entities is highlighted by using Debt and debt-equity ratio (Ichsani, 2021, p.52). The debt ratio of FirstGroup Plc fluctuated at 0.77 times in 2022 whereas its competitor had a debt ratio of 0.67 times indicating that FirstGroup Plc has the potential and capability to manage its long-term debt. In opposition, National Express had a debt-equity ratio of 1.99 times in 2022 whereas FirstGroup Plc has suffered from a debt-equity ratio of 3.33 times indicating that National Express has a nearly balanced capital structure compared with its competitor (National, 2023).
Market performance comparison
The market performance of the overall UK transport industry was not good in the last 3 years due to the pandemic and war crisis between Ukraine and Russia. As opined by Kulsum and Fauziah, (2022, p.4), due to pandemic issues, business organisations are suffering from low consumer engagement and war crises between two countries are also increasing the cost and price of overall raw materials such as fuel and other equipment due to global inflation. However, it is indicated from the below figure that FirstGroup Plc has maintained a positive market performance in 2022 as compared with its competitor National Express (National, 2023).
Section (iv)
The joint venture is one of the effective steps and expansion strategies considered by different business entities to acquire better market share capability, strength and workforce around the global level. FirstGroup also needs to consider different benefits and advantages to expanding business by considering a joint venture strategy. The company needs to consider its impact on stakeholders.
Internal stakeholders: different district holders such as a board of director manager employees play important roles in joint ventures by suggesting and taking different decisions regarding potential locations consumers and stakeholders for expansion in another country and location. As suggested by Healey(2023, p.13), without the support of internal stakeholders such as the board of directors and managers, business entities may face different types of issues such as the need to identify potential consumers and locations for established new branches and manufacturing plants. FirstGroup needs to consider the ideas and decisions of internal stakeholders while wanting to expand their business under a joint venture expansion strategy.
External stakeholders: any business expands its business operations based on the demand and expectations of external stakeholders. Among different stakeholders, consumers are mainly responsible for influencing overall Business expansion strategies on a global level. As opined by Chanet al. (2022, p.17), a business entity needs to consider the needs, expectations and requirements of external sources such as consumers and consider regulations and rules of government authorities to avoid legal steps. Therefore, joint venture steps also influence a business entity due to the manufacturing and product features of the company. FirstGroup needs to identify potential external stakeholders and consumers and properly implement all operational rules and regulations for transport activity in another country or location where it wants to expand in future (Dwyer, 2022, p.12). After that, the expansion strategies of an entity also influence overall business steps such as customer relationship management and relationship with suppliers. As any entity must have an effective supplier approach to expand in the global market.
Conclusion
Based on the above financial performance of both entities, it has been noted that FirstGroup Plc has sustainable performance compared with National Express Group. There are different aspects such as Profitability, solvency and market performance are better compared with competitors’ financial health. After that, FirstGroup Plc significantly optimises overall financial health by introducing a digital approach in different areas such as Consumer relations and employee management.The aim of this report has been achieved by discussing the overall financial position and health of both companies by using a ratio analysis framework. After that, the impact of business expansion strategy under a joint venture has been discussed from both stakeholder’s points of view.
Reference
Journals
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Dwyer, L., (2022). Productivity, Destination Performance, and Stakeholder Well-Being. Tourism and Hospitality, 3(3), pp.618-633.
Healey, N.M., (2023). Transnational education: The importance of aligning stakeholders’ motivations with the form of cross‐border educational service delivery. Higher Education Quarterly, 77(1), pp.83-101.
Ichsani, S., (2021). The Effect of Financial Ratio on Agriculture Companies’ Solvency. Turkish Journal of Computer and Mathematics Education (TURCOMAT), 12(8), pp.711-718.
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Syarifah, S., (2021). Effect of Earnings Management, Liquidity Ratio, Solvency Ratio and Ratio Profitability of Bond Ratings in Manufacturing:(Case Study Sub-Sector Property and Real Estate Sector Companies listed on the Indonesia Stock Exchange (IDX)). International Journal of Business, Economics, and Social Development, 2(2), pp.89-97.
Websites
FirstGroup, 2023: Annual report of FirstGroup Plc 2022 Available at: https://www.firstgroupplc.com/~/media/Files/F/Firstgroup-Plc/reports-and-presentations/reports/firstgroup-annual-report-2022.pdf [Accessed on April 24, 2023]
National, 2023: Annual report of National Express Group Plc of 2022 Available at: https://www.nationalexpressgroup.com/investors/results-reports-and-presentations/2023/ [Accessed on April 24, 2023]
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