PEARSON PLC

Pearson Plc



Pearson Plc - Financial Analysis

Overview of the company

Pearson Plc is one of the largest learning companies established in 1844 by Samuel Pearson. Company headquartered in London having and there operation has been widespread in 70 countries. Pearson Plc is also largest book publishers across the globe. Company has been listed in London Stock Exchange and also a part of FTSE 100 Index and it is secondary listed in New York Stock Exchange (Pearson Plc website).

Business Units

Pearson Plc lc has three business divisions, which are Pearson Education, Financial Times Group and Penguin Group.

Financial Highlights

Pearson Plc main aim in 2012 was to accomplish sustainable growth in earnings, cash and return on invested capital and cash returns i.e. dividends. During 2012, through the market were not up to the market, Perrson Plc was able to meet market expectation, nevertheless, earnings and cash were less than last year. As far as return on invested capital is concern, it was levelled at 9.1% while dividends increase with 7%. Sales were 4% more than last year while company has negative profit in 2012 (Pearson Plc annual report, 2012, p. 2).

Financial Analysis

In order to do financial analysis of Pearson Plc, Ratio Analysis has been selected since it shows better company's financial performance and better trend.

Profitability Ratios

Profitability ratios determine overall company's efficiency and performance throughout the years. In order words, it measures company's ability to produce profit with respect to their sales, assets and their equity (Tracy, 2012, p. 12).

Source: Annual Report

Pearson Plc (NYS: PSO)

Profitability Ratios

 

2011

2012

ROA % (Net)

8.73

2.88

ROE % (Net)

16.67

5.59

Profit Margin %

20.27

9.88

Return on equity indicates profitability of the company i.e. how much profit company has generated from the investors investment. A higher this ratio signifies that shareholders would be receiving better and higher return on their investment. Pearson Plc ROE is showing a downward trend i.e. in 2011 it was 16.67 while in 2012 it was 5.59. This means that investors would be getting 5.59% from the revenue that is generated in 2012 while in 2011; they were getting 16.67%. A decreasing trend is not attractive to customer since this show that shareholders funds have not been efficiently utilized by company (Pearson Plc annual report, 2012, p. 96-98).

As far as Return on assets is concern, this shows how efficiently management has been employing assets for revenue generation. According to finance theory, higher this ratio the more efficient management has been employing their asset base. Since this ratio is also reducing, this shows that company has not been using their assets for generating revenue. In 2011, ROA was 8.73 while it reduced to 2.88. The reason for this is the reduction in the revenue that company faced during 2012. Perrson was unable to generate net profit in 2012 i.e. 2011 net 956 while in 2012 it was 329 (Pearson Plc annual report, 2012, p. 96-98).

Profit margin indicates how much net Income Company has generated with its total revenue. Pearson Plc Net profit margin ratio has been reducing ...