FINANCIAL REPORT

Financial Report: Atkins PLC Group

Financial Report: Atkins PLC Group

Task 1

Analysis with Commentary

Atkins PLC experienced significant changes in the company's capital structure (equity, debt and assets) during the period 2008-2009. The company made additions of around $1.9 million in its assets, represented by increase in debt ($ 1.5 million) and equity ($ 0.4 million). For the same period, the company's turnover has declined; with $ 3.5 million for 2008 and $ 3.0 million for 2009. This shows that the company has not been able to capitalize from its borrowings during the year 2009. The picture for net income also got worse, with $ 1.3 million for 2008, and $ 0.8 million for 2009. In all, the company's financial standing got worse.

Items

Year

Year

 

2008

2009

 

(000s)

(000s)

Total Assets

4800

6700

Total Debt

2600

4100

Total Equity

2200

2600

Turnover

3500

3000

Net Income

1300000

800000

Relevant Ratios for 2008 and 2009

 

2008

2009

Current Ratio

1.25

0.904348

Quick Ratio

0.5

0.304348

Debt to Equity Ratio

1.181818

1.576923

Debt Ratio

0.541667

0.61194

Equity Ratio

0.458333

0.38806

Assets Turnover

0.729167

0.447761

The poor performance of Atkins PLC has reflected in changes in its liquidity and profitability ratios. The current ratio, which was 1.25 for 2008, reached 0.90 for the current year (2009). This means that the short term liquidity position of Atkins PLC has declined. The same goes for the quick ratio, which has got down to a mere 0.30.

The poor current and quick ratios of the company show that the company's operating cash inflows are poorer than its operating cash outflows (Choi 2003 92). The basic indicator for this poor performance is the excessive investment in inventories, which went up to $ 1380000 from the previous year's level of $ 600000. Due to a high inventory pile up, a company's cash is trapped until sales occur, or, where sales turn into cash. While Atkins PLC turnover for the period declined by $500000, the inventory kept on increasing, contributing to poor performance with respect to operative efficiency.

As we can see in the above table, the company's debt to equity ratio has increased. In other words, company is now heavily financed from creditors and debentures. In all, 0.61 or 61 % of the company's assets are financed by creditors (liabilities or debt). Seen on the other way, the company's equity (own investment) is a mere 39% of the assets ending 2009. The asset to turnover ratio, which computes the assets efficiency with respect to sales, has also deteriorated (Ocampo & Jones 2007 83).

 

2007

2008

2009

Operating Margin

0.621622

0.414286

0.366667

Net Margin

0.594595

0.371429

0.266667

Return on Assets

 

0.27

0.52

Return on Equity

 

0.59

1.25

The above table presents the operating margin, net margin, return on assets (ROA) and the return on equity (ROE) trends of Atkins PLC for the periods 2007-2009. The operating margins and net margins have steadily worsened over the period. At the same time, the company's return on equity is reducing, both because of poorer turnovers during 2008-2009, and because of constant or poorer increase of equity or shares.

Suggestions for improvements; future strategies

For the first, the company must establish appropriate inventory management on immediate basis. Atkins PLC has had significant inventory pile up for no obvious reason. As a result, the company's trade creditors are high, its bank balance is on ...