BE167-7-AU Accounting and Finance for Managers
BE167-7-AU Accounting and Finance for Managers
I. Introduction
The current report reflects the proper evaluation of the financial performance of senior plc. Hence, it is a public limited company with a primary listing on the London Stock Exchange. However, the company operates in more than 12 countries, produces over 26 operating businesses of senior design and manufacturers of high technology components’ and principle of 5664 employees worldwide. The report is incorporated into three main categories or sections. Firstly, the overview of oil and manufacturing in the UK has been done by implementing a pestle analysis. Similarly, the second section deals with the three financial ratios of Profitability, efficiency and investment for further identifying the position of the company. Lastly, the report evaluates the business contexts by providing an alternative approach to reduce the challenges faced while computing financial ratios.
2. Senior Plc
Considering the company, Senior Plc is a British engineering company located in the United Kingdom. Senior plc is a publicly listed company with a primary listing on the London Stock Exchange the firm is the second largest investor-owned engineered products manufacturing in the world. The company actively engaged in the manufacturing of machine components and assemblies for off-road land and vehicles (Seniorplc.com, 2023). However, the downstream operation of Senior PLC consists of composite structure and tooling. It also bought thermal engineering of high-temperature lightweight aerospace components. Like many other energy companies, senior plc also operates in the aerospace, and defence sectors, and provides engineered products and solutions.
UK Pestle Analysis of Senior Plc
A pestle analysis and framework is an important framework and strategic tool that helps organizations understand and evaluate the external and internal government factors to impact business operations (Shabbir, 2020). The analysis covers the six major sectors and key areas of political, economic, social, technological, legal and environmental.
Political factors: The UK has a stable political environment but changes in the government can bring about policy shifts that affect the businesses. In the context of the company, senior plc operates in numerous countries and political stability is crucial for its operations. However, energy tax, policies and regulations significantly impact engineered production.
Economic factors: the GDP rate of the UK has stood at 0.5% revised down from the previous year’s 0.2%. Hence, it generates a huge impact on the company, as the company influences its business activities that affect the cost of borrowing and consumer purchase power.
Social factors: a country like the UK, determines its demography rate as 0.83% of the total world which influences the cultural factors to enhance consumer behaviour and market demand (ons.gov.uk, 2023). The company can change its social attitudes, values and lifestyle to impact the businesses.
Technology factor: the level of technological innovation in the UK affects competitiveness and industry growth. The growth of digital technology impacts the various industries consisting of e-commerce and digital services. However, Senior PLC invests hugely in data analytics and digital technologies to enhance operational efficiency.
Legal factors: The UK operates their large-scale industries through compelling regulations and complaints, which can impact both local and international business. In the context of Seniors Plc, Brexit-related laws affect the trade relationships and business operations of Seniors Plc.
Environmental factors: The commitment of the UK to environmental sustainability and climate change initiatives affects businesses, particularly in the energy and manufacturing sectors. senior’s involvement in renewable energy projects and initiatives aligns with global efforts to address climate change.
3. Overall profitability of Senior Plc
The current section of the study derived the overall profitability of Seniors PLC consisting of gross profit, operating profit, and net profit margins based on highlighting the profitability performance of Seniors PLC by taking the base year 2022-20.
3.1 Gross profit margin
Gross profit margin is a financial indicator that depicts the percentage of revenue that exceeds the COGS. The formula for calculating the gross profit margins is: “GP = (GP/revenue) *100”. It is the key indicator of company profitability in producing and selling goods.
| profitability | 2022 £(m) | 2021 £(m) | 2020 £(m) | ||
| Gross profit margins | 17% | 14% | 1% | ||
| Sales | 3,00,074 | 1,90,178 | 1,32,546 | ||
| GP | 49,547 | 27,573 | 1,326 | ||
| (GP margin /Total revenue *100) | (49547/300074) *100 | (27573/190178) *100 | (1326/132546) *100 | ||
(self-developed)
The above computation depicts the GP margins of Seniors plc as 17% in the current FY2022 as compared to the last year 2021. This is because the company can generate huge gains and operating benefits. The company has been able to generate huge access to further return on investment and profit benefits (Jihadi et al., 2021). A high-profit margin is generally viewed as a positive indicator for business.
3.2 operating profit margins
| Operating profit margins | 13% | 10% | -5% |
| Operating profit margins | 38,300 | 18,743 | -7,086 |
| Net sales | 3,00,074 | 1,90,178 | 1,32,546 |
| (OP/net sales) | (38300/300074) | (18743/190178) | (-7086/132546) |
(self-developed)
The operating profit margin refers to income generated from a company’s normal business operations excluding interest and taxes. It has been formulated as “operating profit = revenue – operating expenses”. The above computation depicts the higher OP margin in FY2022 as compared to last year. This is because of managing operational costs more efficiently relative to its revenue. It generates a huge impact on the business that is generally considered a favourable profit benefit.
3.3 Net profit margins
| Net profit margins | 11% | 8% | -13% |
| net profit | 34,348 | 14,616 | -16,906 |
| Revenue | 3,00,074 | 1,90,178 | 1,32,546 |
| (Net income/revenue) | (34348/300074) | (14161/190178) | (-16906/132546) |
(self-developed)
Net profit margin is profitability that measures the percentage of revenue that remains as net income after all expenses, taxes, and interests that have been deducted. The net profit margin has been calculated as = (NP/Revenue)/100. The above computation depicts the higher net profit in FY2022 by 11% as compared to the last year 2021. This is because the company represents the portion of revenue that translates into profit (Cho et al., 2019). Hence, it generates a huge impact, as senior plc is more efficient in converting its revenue into profit which is generally seen as positive.
4 Overall Efficiency of Seniors Plc
The present section identifies the proper evaluation of efficiency based on managing resource utilization of Seniors Plc. The ratio has been computed by considering accounts receivable turnover, Inventory turnover, and capital turnover ratio of the base year 2022-20.
4.1 Assets turnover ratio
| Efficiency | 2022 £(m) | 2021 £(m) | 2020 £(m) |
| Asset Turnover Ratio | 1.1 | 1.5 | 2.2 |
| Net Sales | 3,00,074 | 1,90,178 | 1,32,546 |
| Average Total Assets | 333426.5 | 288006 | 291336.5 |
| (Net sale/average total assets) | (300074/333426.5) *365 | (190178/288006) *365 | (132546/291336.5)*365 |
(self-developed)
The assets turnover ratio is mainly important to measure the operational efficiency in utilizing the assets to generate sales or revenue. It has been computed by following the formula as “ATR = (net sales/average total assets)”. The above computation depicts the goods as 1.1 days in FY2022 as compared to the last year 2021. This is because of the more efficient use of assets to generate sales (Duho et al., 2020). However, the company has been able to lead higher profit margins and easily convert its assets into revenue.
4.2 Inventory turnover ratio
| Inventory turnover ratio | 0.09 | 0.10 | 0.12 | ||
| Cost of Goods Sold | 2,50,527 | 1,62,606 | 1,31,220 | ||
| Average Inventory | 22581 | 16441 | 16202 | ||
| (COGS/Average inventory) | (22581/250527) | (16441/162606) | (16202/131220) | ||
(self-developed)
The inventory turnover ratio is mainly an important indicator that has been used to identify inventory efficiency. The formula for computing the Inventory turnover ratio is “ ITR = COGS/Average inventory “. The above computation depicts the good efficiency in managing or utilizing the inventory benefits into revenue as 0.09 days in FY2022 as compared to the last year 2021. Thus, the company generates a huge impact on quick selling and replacing inventory (Belussi et al., 2019).
4.3 Capital Turnover Ratio
| Capital Turnover Ratio | 0.5 | 0.7 | 0.9 | ||
| Total Sales | 3,00,074 | 1,90,178 | 1,32,546 | ||
| Shareholder’s Equity | 1,58,344 | 1,26,964 | 1,13,618 | ||
| (Total sale/shareholder equity) | (158344/300074) | (126964/190178) | (113618/132546) | ||
(self-developed)
The capital turnover ratio is an important financial metric that measures a company’s ability to generate sales revenue from its capital assets. The formula for calculating the capital turnover ratio is as follows “Capital Turnover ratio = Net sales/Average total capital employed”. The above computation depicts the good efficiency of the company as 0.5 days in FY2022 as compared to the last year 2021 by 0.7 days. This is because the company is efficiently using its capital to generate sales (Chen et al., 2021). However, it generates a huge impact on senior’s plc benchmarks, the business can compare the historical data in a meaningful analysis.
5. Overall investment of Seniors plc
The present scenario depicts the investment performance of seniors plc, as it consists of return on assets, return on equity, and EPS by considering the base year as 2022-20.
5.1 Return on Assets
| Investment ratio | 2022 £(m) | 2021 £(m) | 2020 £(m) | ||
| Return on assets | 0.10 | 0.05 | -0.06 | ||
| Net income | 34,348 | 14,616 | -16,906 | ||
| Average total Assets | 333426.5 | 288006 | 291336.5 | ||
| (net income/avg total assets) | (34348/333426.5) | (14616/288006) | (-16906/291336.5) | ||
(self-developed)
Return on assets is an important metric that measures a company’s ability to generate earnings from its assets. It provides insights into the way the company efficiently utilizes its assets to generate profits. The formula for computing return on assets is as follows, “ ROA = (Net income/Average total assets) *100”. The computation of ROA depicts the higher performance as 0.10 times in 2022 as compared to last year 2021 which shows as 0.05. This is because the company is more efficient in using its assets to generate profit (Setiawan, 2020). Thus, the company generates huge impacts such as identifying better asset utilizations.
5.2 Return on equity
| Return on equity | 0.22 | 0.12 | -0.15 | ||
| Return on equity | 0.22 | 0.12 | -0.15 | ||
| Net income | 34,348 | 14,616 | -16,906 | ||
| (net income/equity) | (34348/158344) | (14616/126964) | (-16906/113618) | ||
(self-developed)
Return on equity is an important metric that helps to measure the company’s profitability and efficiency in generating return. It has been formulated through “ROE = Net income/Average shareholder equity *100”. The above computation depicts a good return on investment such as 0.22 times in 2022 as compared to the last year 2021. However, senior Plc has been able to effectively utilize shareholder equity to generate profits to maximize the returns.
5.3 EPS
| EPS | 0.21 | 0.53 | -0.46 | ||
| Net income | 34,348 | 14,616 | -16,906 | ||
| Outstanding shares | 7,348 | 7,762 | 7,796 | ||
| (net income/outstanding share) | (7348/34348) | (7762/14616) | (7796/16906) | ||
(self-developed)
The earnings per share is an important metric that helps the company measure the portion of company profits allocated to each outstanding share of common stock. The basic formula for calculating earnings per share is “ EPS = Net income/outstanding shares”. The above computation depicts the lower performance considered by the company as 0.21 times in 2022 as compared to 0.53 times. This is because the company is generating low earnings per share of common stock (Daugaard, 2020). However, it’s important to consider EPS in conjunction with other financial metrics and industry benchmarks for a comprehensive analysis.
6. Significance of Business Contexts
6.1 Intense competition
Considering the significance of business, creative accounting involves the use of techniques that go beyond the norm to present fiscal information in such a way that may not appropriately reflect the better financial position of the business. Hence, it is important to identify creative accounting with legal implications. Based on intense rivalry, GKN Aerospace has been considered the huge competitor of Seniors plc. The market capitalisation of a competitor is £ 8.32b, as compared to the concerned company seniors PLC which reflects its market capitalisation as £708.82 million. This is because competitors provide a huge range of services including engineering projects and maintenance in the UK (Rosa, 2023). it generates huge sales and operating benefits in energy manufacturing sectors across the world rather than in the UK.
6.2 Revenue recognition
It has been identified that Senior PLC recognizes its revenue, especially in complex areas such as long-term contracts or the sale of non-traditional products. This is because of ensuring the revenue recognitions align with the accounting standards (Danza et al., 2019). Based on real-life examples, the company has contributed its huge efforts to achieving the net zeros target by 2040 verified and approved by SBTi in 2020 (Globaldata.com, 2023). Moreover, seniors, like many others, are major emitters of greenhouse gases. Particularly carbon dioxide and consumption of energy contribute to climate change. seniors plc has made a huge commitment to reduce its carbon footprints by investing in cleaner technologies and transitioning towards renewable energy sources.
7. Summary
The overall study reflects the significant performance and analysis of the engineering and aerospace sector as Seniors plc of the UK. However, it has been found that the company depicts its good financial performance by considering the profitability, efficiency and investment. It has been identified throughout the study that the company invests hugely in renewable projects such as wind and solar power projects to enhance engineered services and production. Therefore, it has been found that seniors’ financial performance might be influenced by global economic conditions, and oil, and gas geopolitical factors. This is because it provides a clear insight into the revenue, profitability and cash flows which are the key indicators of overall health and resilience.
References
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Seniorplc.com, 2023. Investors. [Online] Available at: https://www.seniorplc.com/investors.aspx [Accessed on: 22-11-2023]
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