BUSINESS FINANCE

Business Finance

Financial Analysis - Compass Group Plc

Introduction

Compass Group is a British a foodservice organization listed on FTSE 100, Dow Jones Sustainability Index and FTSE4. Compass Group is the world leader in contract catering; it got active in approximately 62 countries in 2008. Compass is headquartered in Surrey, the UK and employs more than 470,000 people. The Group assumes its operations in five markets, each with its own brands (sometimes in joint venture).

Businesses and industries

Fine Dining

Specific markets: Education

Health and nursing homes

Sports and Recreation

Vending

In 2011, company has recorded revenues of £15,833 million which is equal to approximately $25,429.4 million that is 9.4% increase from FY2010. Compass operating profit in 2011 was £1,016 million which was approximately $1,631.8 million that is 2.7% increase from FY2010.

Financial Position and Performance of the Compass Group Plc

Compass Group PLC (NBB: CMPG Y)

Profitability Ratios

2011

2010

2009

2008

ROA % (Net)

8.24

8.49

8.05

6.62

ROE % (Net)

22.18

24.09

24.81

20.38

ROI % (Operating)

20.47

22.99

21.98

17.34

EBITDA Margin %

8.21

8.45

8.17

7.61

Calculated Tax Rate %

27.73

27.12

28.85

30.07

 

 

Liquidity Ratios

2011

2010

2009

2008

Quick Ratio

0.76

0.73

0.7

0.7

Current Ratio

0.87

0.85

0.82

0.8

Net Current Assets % TA

(5.47)

(5.9)

(7.18)

(8.37)

 

 

Debt Management

2011

2010

2009

2008

LT Debt to Equity

0.36

0.39

0.5

0.55

Total Debt to Equity

0.56

0.44

0.63

0.73

Interest Coverage

18.04

15.12

10

8.73

 

 

Asset Management

2011

2010

2009

2008

Total Asset Turnover

1.79

1.82

1.85

1.71

Receivables Turnover

8.63

8.72

8.75

8.07

Inventory Turnover

62.33

61.83

60.7

58.21

Accounts Payable Turnover

13.2

13.95

14.75

15.05

Accrued Expenses Turnover

13.04

12.63

12.76

18.81

Property Plant & Equip Turnover

25.62

26.05

27.08

21.96

Cash & Equivalents Turnover

18.06

23.51

23.04

16.09

 

 

Per Share

2011

2010

2009

2008

Cash Flow per Share

0.51

0.56

0.45

0.35

Book Value per Share

1.84

1.63

1.37

1.19

return on SH

3.43

0.96

4.99

3.99

EPS

0.4

0.125

0.75

0.625

P/E

37.5

120

20

24

DPS

0.2

0.25

0.1875

0.125

earning yield

0.03

0.01

0.05

0.04

DY

26.67

33.33

25.00

16.67

DC

0.1

0.025

0.2

0.25

The liquidity of the Compass Group Plc has been increasing. The current ratio and Acid test ratio demonstrate the short-term liquidity picture of the company which is doing well comparing from the last year. The acid test ratio is below the lower median for the industry average which is weakness for a company and unattractive for the investors. The current ratio is between the lower and medium quartile and hence, a weakness for a company.

To sum, the short term liquidity picture implies that the company has a weak short term liquidity situation. However, the liquidity should be above 1 which express that company is liquid and can overcome their short term obligations. This can be an attractive to the investors as the company has ability to pay off their debt is not so much strong. Hence, the company is not showing the absolute solvency and not showing a constant equality between assets and liabilities on the total amount and time of onset (ww.compass-group.com).

Leverage is a financial instrument used to improve profitability of the company. The Debt Ratio measures the intensity of the entire debt of the company in relation to its funds, measures the percentage of total funds provided by creditors. The Dedt ratio of the Compass Group Plcis decreasing which might be due to the decrease in borrowing from the bank or other finance resources. Comparing this with the industry, their trend is reducing from last 5 years and hence they did not borrow any amount form the bank in 2010. This shows that company is equity based that is the money invested in the operation is entirely of the owners. During times of economic stress or rising interest rates, Compass Group Plc company with a high debt ratio can experience financial problems. However, in good times, debt can enhance profitability by financing growth at a ...