Financial Analysis Assignment on Ratio Analysis Virgin Media - Free Essay Example

The company formerly known as NTL Group Limited is a cable and telecommunication firm. It was established in 1996 from the acquisition of National Tran communications limited by international cable tel. It conduct business from its registered head office which is located i London, United Kingdom. The company telecommunications services include a national digital telecoms network end to end residential and business telecommunication, internet services, mobile radio communication, visual communications, internet services, internet satellite links and turnkey systems. The company holds several cable TV franchises for Dublin, Galway and Waterford, and all of Northern Ireland. In addition the company holds MMDS franchises for mobile telecommunication covering counties Dublin, Galway, Waterford and Mayo. The company has home businesses such as NTL UK and Ireland cable networks, ITV/C4 transmission network, and NTL Business UK and Ireland. Further the company has international business in Australia, Switzerland, France and Singapore. Background Virgin Media Inc. is an UK based media and communications company. The company is a residential broadband and mobile virtual network operator and also engaged in providing a pay television and fixed-line telephone services in the UK. Virgin Media conducts its business operations through three reportable segments, namely, Cable, Mobile and Content. The company is head quartered at New York, the US. In April 2009, sit-up Ltd., UKs most innovative home shopping retailer and a subsidiary of Virgin Media was acquired by Munich-based industrial holding named AURELIUS AG. Wondering who we are? Well, were the first people in the UK to offer you TV, Broadband, Phone and Mobile all from one place. The future is bursting with fresh entertainment and communication possibilities. Thats why were here to bring all the excitement to you and make your digital place the brilliant place it should be. Suddenly, everythings coming together, and were the first people to provide you with a unique combina tion of: TV that puts you in control Superfast and reliable broadband Phone packages that fit around you Mobile service that gives you just what you want Whatever you choose with Virgin Media, were aiming to make the whole experience as effortless as the award-winning service our Virgin Mobile customers have enjoyed for years. RATIO ANALYSIS Financial statement analysis is a judgmental process. One of the primary objectives is identification of major changes in trends, and relationships and the investigation of the reasons underlying those changes. The judgment process can be improved by experience and the use of analytical tools. Probably the most widely used financial analysis technique is ratio analysis, the analysis of relationships between two or more line items on the financial statement. Financial ratios are usually expressed in percentage or times. Generally, financial ratios are calculated for the purpose of evaluating aspects of a companys operations and fall into the following categories: Liquidity ratios measure a firms ability to meet its current obligations. Profitability ratios measure managements ability to control expenses and to earn a return on the resources committed to the business. Leverage ratios measure the degree of protection of suppliers of long-term funds and can also aid in judging a firms ability to raise additional debt and its capacity to pay its liabilities on time. LIQUIDITY RATIOS Working Capital: Working capital compares current assets to current liabilities, and serves as the liquid reserve available to satisfy contingencies and uncertainties. A high working capital balance is mandated if the entity is unable to borrow on short notice. The ratio indicates the short-term solvency of a business and in determining if a firm can pay its current liabilities when due. Current Assets Current Liabilities Acid Test or Quick Ratio: A measurement of the liquidity position of the business. The quick ratio compares the cash plus cash equivalents and accounts receivable to the current liabilities. The primary difference between the current ratio and the quick ratio is the quick ratio does not include inventory and prepaid expenses in the calculation. Consequently, a businesss quick ratio will be lower than its current ratio. It is a stringent test of liquidity. Securities + Cash + Marketable Accounts Receivable Current Liabilities Current Ratio: Provides an indication of the liquidity of the business by comparing the amount of current Assets to current liabilities. A businesss current assets generally consist of cash, marketable securities, accounts receivable, and inventories. Current liabilities include accounts payable, current maturities of long-term debt, accrued income taxes, and other accrued expenses that are due within one year. Current Assets Current Liabilities PROFITABILITY RATIOS This ratio reflects the overall profitability of the business. It is calculated by comparing the profit earned and the capital employed to earn it. Return on Capital Employed = Profit before Interest, Tax and dividend *100 Capital Employed Return on shareholders funds This ratio reveals how profitably the proprietors funds have been utilized by the firm. Net profit after interest tax Total shareholders funds Net profit ratio This ratio shows the relationship between net profit and sales. Net Profit Ratio = Net Profit * 100 Net Sales Earnings per Share This ratio measures the profit available to the equity shareholders on a per share basis. All profits left after payment of tax and preference dividend are available to equity shareholders. EPS = Net Profit Dividend on Preference Shares No of equity shares Dividend per Share DPS is the dividend distributed to equity shareholders divided by the no. of equity shares. DPS = Dividend paid to Equity Shareholder No. of Equity Shares Earnings and Dividend Yield This ratio is closely related to EPS and DPS. While the EPS and DPS are calculated on the basis of the book value of shares, this ratio is calculated on the basis of the market value of shares. Earnings Yield = EPS * 100 Market value per share Dividend Yield = DPS * 100 Market value per share Price Earnings Ratio It is computed by dividing the market price of a share by the EPS. PE Ratio = Market Price of the share EPS SOLVENCY RATIOS Debt Equity Ratio This ratio explains the relationship between the long term debts and share holders funds. Debt Equity Ratio = Debt Equity Debt to Total Fund Ratio This ratio is a variation of the Debt Equity Ratio and gives the same indication as the debt equity ratio. In this ratio, debt is expressed in relation to total funds. Debt Total Funds Ratio = Debt Equity + Debt EFFICIENCY RATIOS Sales to Working Capital (Net Working Capital Turnover) Indicates the turnover in working capital per year. A low ratio indicates inefficiency, while a high level implies that the companys working capital is working too hard. Net Sales Average Working Capital Financial Statement: Profit and Loss A/c: Particular 2008( millions) 2009( millions) Turnover 3776.8 3663.9 Operating Profit -271.8 132 Net interest -473.3 -448.9 Profit Before Tax -860.2 -352.8 Profit after Tax -853.4 350.3 Balance Sheet: Particular 2008( millions) 2009( millions) Intangible Assets 2592.6 2283.7 Tangible Assets 5342.1 5045.8 Fixed Investment 353.5 359.9 Total Fixed Assets 8877.8 8087.5 Cash at Bank or in Hand 181.6 430.5 Total Assets 9933.3 9190.5 Creditor Amount 1475.1 1352.2 Creditor Amount after 1 year 192.7 288.8 Total Liability 7917.1 7698.7 Net Assets 2016.2 1491.3 Ratio of Virgin Media: Items 2009 2008 Current Ratio 1.23 1.42 Liquidity Ratio 1.23 1.42 Shareholder liquidity ratio -0.53 0.67 Solvency Ratio 18.63 -41.68 Assets Cover 4.11 1.31 Gearing (%) 361.03 n.s Return on Capital Employed 130.88 -40.30 Return on Total Assets 60.67 -14.92 Ratio Analysis of Virgin Media: In the analysis I got the ratios from profit and loss, balance sheet. There has different ratios like current ratio, liquidity ratio, shareholder liquidity ratio, solvency ratio, assets cover, Gearing Ratio, return on capital employed, return on total assets. So the analyses of this ratio are as follows: In the current ratio the ratio in 2008 is 1.42 whereas in the year 2009 ratio is 1.23. So its slightly decrease from 2008. In the liquidity ratio also it has the same position in both the year. Like as the current ratio. With 1.42 in 2008 and 1.23 in 2009 In shareholder liquidity ratio, in 2008 it has 0.67 and in 2009 it has negative position as -0.53. So, it has also decrease from 2008. In Solvency ratio, in the year 2008 the ratio is -41.68 and in 2009 it has 18.63. So we can say that it has increase as comparison to 2008. In Assets covering ratio, in the year 2008 1.31 value and in 2009 it has 4.11 values. And it is also good for the company. In the return on capital employed, in the year 2008 value is -40.30 has negative value. And in 2009 it has 130.88. It is also good for the company. In the return on total assets, ratio in the year of 2008 has -14.92 which is not good for company. But in the year 2009 it has good value as comparison to 2008 and got 60.67 values. Conclusion: Provide key company information for business intelligence needs The company strengths and weakness and area of development or decline are analyzed. The opportunity open to the company are considered and its growth potential assessed. Competitive or technological threats are highlighted. The report contains critical company information business structure and operations, the company history, major products and services, key competitors, key employees and executive biographies, different locations and important subsidiaries. The report provides detailed financial ratio for the past years as well as interim ratio for the last four quarters. Financial ratio includes profitability, margins and return, liquidity and leverage, financial position and efficiency ratio.