Compass Group plc
Compass Group plc is a multinational company dealing with contract food service, support management, cleaning management and property management. It is a British multinational company with headquarter located in the compass house along Chertsey Surrey. Compass Group Company is the largest contract food service organization in the world. The company operates in more than fifty countries across the entire world. The company offers different food services in different locations and institutions such as the hospitals, cultural venues, offshore oil platforms, major sports, schools, offices, mining camps and various universities. The company has several shares and is very active in the London stock Exchange. Compass Group Company was founded in the year 1941 by Jack Bateman (Zeff, 2015). It then operated as a factory canteens limited until 1987 when the compass group company was formed. The company has since opened introduced its operations in different countries in the world. This has enabled the Compass group company to grow faster and is considered the largest catering and contract foodservice company in the entire world. The company has ensured this by employing specialists in the company to help in the effective operations of the company. Food and catering services are very sensitive aspects of the business and deserve much professionalism to succeed in the market. The Compass group company, therefore, made a decision to purchase the Morrison Management Specialists to ensure the management of the company is conducted in the best effective way possible. The company also merged with the Granada plc in the later years. This has enabled the company to offer services that are significantly accepted in the market by the various consumers in the market. This also enabled the company to ensure the media and catering interests of the company are significantly separated. The company has ensured the sale of some of its assets in the market as a way of finding the required cash and capital in the company (Huisman, 2013). The company has then sold different assets such as the roadside and catering business, different motorway service areas and the compass's select service travel commission to both the private and public corporations (Zeff, 2015).
The Company, therefore, had to make some other acquisitions in the form of Kimco and Lackmans in the United States and some other acquisitions in both Germany and Britain to ensure the operations of the company was much stronger. The company has operated as the registered food vendor for the UN Armed forces for many years. The company supplies the UN peacekeepers in different countries across the world such as Sudan, Syria, Liberia, Lebanon, Burundi, East Timor and Eritrea. Compass group index is the holding organization that directly owns the compass group company. Compass group has been the very success in the recent years because it owns different other business. Lackmann Culinary services are one of the businesses owned by the company. The company also has a hospitality facility called All leisure hospitality and the Keith Prowse corporate hospitality. Omega security services and the Levy Restaurant are very important assets to the company. The company also does other different services apart from the Catering services. The company has specialized in the provision of different services. Cleaning services is one of the major services the company’s offers. The company has also been successful in the provision of outdoor and housekeeping services. Compass Group Company also provides building operations and maintenance services. These services are very critical in the profit formation process of the company. The company is recognized as the Eurest Dining Services in North America. It provides different staff restaurants and also supplies various vending machines in the region. This enables the company to specialize in the large-scale food and catering services. The company operates various cleaning management and provide retail service
The company ensures adequate service delivery by employing enough qualified professionals. The company has therefore ensured the number of employees is more than 470, 000 individuals. This has ensured the various services in the company are conducted with a lot of flexibility in the company. The company has also ensured acquisition of different other organizations and firms dealing in the same line of business. The Compass group company has also formed mergers with other recognized food and catering service industries to ensure the cost of production in the firm is reduced and the Company captures a greater market easily. The company has been offering a different portfolio of international and national brands (Bénétrix, 2015). The primary markets for the Compass group plc are located in Europe and North America. The company is, however, registering a continuous growth and is currently accessing the South America and Asian markets at a steady speed. The company has been growing positively in the recent years. The company recorded approximately 15.8 billion Euros in the financial year ended September 2011. This was a 9.4% growth as compared to the financial year ended 2010. The Compass group company also registered an operating profit of approximately 1,091 million Euros in the financial year ended September 2011. This was also recorded as a 9% upsurge in the profits with respect to the financial year ended September 2010. The company, therefore, registered approximately 958 million Euros in profit the subtraction of the tax obligations of the company. The company, therefore, recorded a 5% increase with respect to the financial year ended September 2010 (Zeff, 2015).
Compass Group Financial Statement for the financial year 2014-2015
Revenue
Underlying at constant currency £17,843m £16,891m 5.6%
Underlying at reported rates £17,843m £17,058m 4.6%
Reported £17,590m £16,854m 4.4%
Organic growth 5.8% 4.1%
Total operating profit
Underlying, before EM & OR restructuring, at constant currency £1,322m £1,239m 6.7% Underlying at constant currency £1,296m £1,239m 4.6%
Underlying at reported rates £1,296m £1,245m 4.1%
Reported £1,261m £1,214m 3.9%
Organic growth, before EM & OR restructuring 6.5% 5.5%
Operating margin underlying, before EM & OR, at reported rates 7.3% 7.2% +10bps
Underlying at reported rates 7.2% 7.2% –
Reported 7.1% 7.1% –
Profit before tax Underlying at constant currency £1,192m £1,153m 3.4%
Underlying at reported rates £1.192m £1,159m 2.8%
Reported £1,159m £1,144m 1.3%
Basic earnings per share Underlying at constant currency 53.7p 48.4p 11.0%
Underlying at reported rates 53.7p 48.7p 10.3%
Reported 52.3p 48.8p 7.2%
Free cash flow Underlying £722m £737m (2.0) %
Reported £686m £679m 1.0%
TOTAL GROUP INCLUDING DISCONTINUED OPERATIONS
Basic earnings per share 52.3p 49.0p 6.7%
Full year dividend per ordinary share 29.4p 26.5p 10.9%
Report Objectives
The primary objective of reports is to help comprehend the development of the various financial ratios depicted in the annual reports of the Compass Group Company. This enables the study to clearly analyze the mode of finance used by the Compass Group Company. This will also simplify the process of financial analysis and thus enables the study determine whether the finance used by the Compass Group Company has increased or diminished in the recent years. Various non-financial and financial potential factors affect the operations of a company. This report will enable the study to significantly cover all these factors in the company and ensure the factors are critically analyzed in the process. The report assists in making conclusive comparisons for both the present financial ratios and the previous financial ratios of the Compass Group Company. This will ensure the financial status and position of the Compass group Company is significantly determined. This is useful to the company as it will enable the company to compete favorably with the other companies in the international market.
Method, Source, and Structure of report
The report is captured from the company's website. The Company's website elaborates the different financial statements for the Compass Group for the recent years. This enables the study to conduct the various financial ratio analyses effectively (Bénétrix, 2015).Different catalogues such as the Pro Quest and EBSCO also provide the financial statements of different multinational companies. These secondary reference materials are very important to the functioning of a research as the make the various financial statements for various companies available for use. The report can also be retrieved from the various articles and journals from the website. The report is to cover different samples of the financial ratios of the Compass Group Company. These include the liquidity ratio, profitability ratio, activity ratio, financial leverage ratio and the shareholder's ratio. This will enable the study to also analyze the finance used by the Compass group plc. The various non-financial and potential factors threatening the future operations of the Compass Group Company are significantly analyzed.
Compass Group Financial Ratios
Financial analysis is the method of employing the accounting and commercial statistics of a company to form a definite structure and determine the company's strengths and weaknesses in the market. This is very important to the operations of the Compass Group Company in the different countries across the world. The analysis of the financial statements of the Compass group is also of significant importance to the various stakeholders of the Compass Group Company. The income statement is the most commonly used financial statement in this analysis. This helps to determine the financial interpretation of the Compass Group Company both in the local and international market. There are five different factors of financial condition and operating performance that are analyzed from the ratios (Huisman, 2013). These ratios include the liquidity ratio, profitability ratio, activity ratio, financial leverage ratio and the shareholder's ratio. Liquidity ratio illustrates how a company can accomplish its short term aims which are considered more important. Profitability ratios of a company stipulate the amount of cash derived from the significant sales the company makes in the market. Activity ratio elucidates the ability of the Compass Group Company to manage the various resources that it owns. The financial leverage ratio stipulates the ability of the Compass Group Company to fix its various financial responsibilities and how the company satisfies these financial obligations. The shareholder's ratio postulates the amount of share each stakeholder is entitled to in the Compass Group Company.
Liquidity Ratio
This is the ability of the Compass Group Company to change all the short term assets and properties in the company into cash to enable the company to cover the various debts. The most common liquidity ratios used are the current ratio, the operating cash flow ratio and the quick ratio. Various assets are very significant in the calculation process of the liquidity ratio. The most liquid assets in the Compass Group Company are used to estimate the liquidity ratio of the Compass Group Company (Bénétrix, 2015). The liquidity ratio of the Compass Group Company helps to determine whether the company will continue moving as a concern in the market. The liquidity ratio of the Compass Group Company is calculated by the use current ratio, quick ratio and the company’s net working capital ratio.
Current Ratio= Current Assets
Current Liabilities
= 3475 million =0.87
3990 million
The current ratio above shows how the Compass group is able to accomplish its current liabilities by the use of its current assets at a rate of 0.87
Quick Ratio= (Current Assets- the Inventory)/Current Liabilities
3475 million-270 million = 0.8
3990 million
The Compass Group Company ensures the current liabilities in the company are accomplished by the use of the available liquid assets at a rate of 0.8.
Net Working Capital to Sales ratio = Current Assets – Current Liabilities
Sales
= 3475 million – 3990 million
15883 million
= -0.03
This stipulates the extent to which the Compass Group Company is able to accomplish its comparative needs by the use of its liquid assets.
Profitability Ratio
This is the ratio that stipulates whether the Compass Group Company is able to draw profits from its operations in the market. It shows the focus that the Compass Group Company puts on the various investments and assets. The profitability ratio of the Compass group has therefore attracted different investors as they are sure the investments in the Company are subject to profit making. The profitability ratio has clearly stipulated how the Compass Group Company employs its various assets in the market to generate profit (Zeff, 2015).This has ensured the constant growth and development of the company as the investments have boomed in the company in the recent years. The high profits the company makes in the Britain and North America shows how high the profitability ratio of the Compass group company is in the market.
Gross profit margin = Gross Income
Sales
= 1016 million = 0.06
15833 million
Operating Profit Margin = Operating Income/ Sales
= 958 million / 15833 = 0.06
Net Profit margin = Net Income / Sales of the company
= 694 / 15833
= 0.04
Activity ratio
This stipulates how the Compass Group Company has been able to convert the various accounts in the company's balance sheet into aspects of cash and sales. It stipulates the efficiency level of the Compass Group Company in the market. This is stipulated in the way in which the Compass Group Company uses its assets. The Compass Group Company has ensured the employment of more qualified and flexible management that ensures the revenue generation in the company is efficient. The management ensures the resources available in the company generate maximum revenue to the company. The management of the Compass Group Company has ensured the production within the company is turned into cash or sales with the immediate effect to ensure the company generate higher revenue in the market.
Inventory Turnover = Cost of Goods/ Inventory
14823 million/ 270 million
54.9
Total Assets Turnover = Sales of company/ Total Assets
= 15833 million/ 9410 million
= 21.68
Fixed Assets Turnover = Sales/Fixed Assets
= 15833/5935
= 2.67
Financial Leverage Ratio
The Compass group company has developed a policy that ensures the debt ratio in the company is not very high. High debts in the company are very dangerous to its operations in the market. The Compass Group Company has therefore taken this initiative to ensure the Company remains more attractive to the investors in the market. The management ensures the company generates higher returns than the interest rates on its subsequent loans. This has enabled the company to ensure that the debt fuel growth in profits of the company. The company also ensures it is not too reluctant to borrow (Huisman, 2013). The company does this to ensure the investors may not doubt the operating margins of the company. Different factors in the Compass Group Company such as the interest expenses, debts, assets and the equity in the company are significantly analyzed to illustrate the leverage ratio. The fixed and operating costs of the company have been greatly set in the company to ensure the solvency and capital structure in the company are stable.
Total debt to assets rates = Total debts/ Total assets
= (5907/9410) million
= 0.63
Long term debt assets ratio = long term debt/ total assets
= (1917/ 9410) million
= 0.20
Debt to equity ratio = Total debt/ Total shareholder’s equity
= (5907/ 3505) million
= 1.69
Shareholder's Ratio
This indicates how much the shareholders in the Compass Group company will receive if the company would undergo liquidation. This is determined by the Compass Group Company by dividing the total shareholders’ equity by the company's total assets. This stipulates a number of assets that the various shareholders have right over. The shareholders ratio at the Compass Group Company is significantly high as registered in the financial statements. This has registered an increase in the number of shareholders in the company. The securities of the company are registered on the London Stock Exchange making it very safe for the shareholders of the company.
Price to earnings ratio = Market price per share/ company’s earnings per share
= 5.52/ 0.39
= 14.15
Financial and non-financial factors affecting the future of the company
Every activity and operation conducted in the Compass group company are to ensure the future of the company is bright. The financial analysis carried out is to give the appropriate recommendation for the planning process of the company's future. Different factors affect the future of the company. These factors comprise of both the financial and non-financial factors in the company.
Financial Factors
Financial factors such as the interests in the various countries, changes in the stock prices, inflation changes, and changes in the deflation rate, changes in the economic policy and the expected changes in the value of the currency have often affected the operations of the Compass Group Company in the various countries it operates in. These changes significantly affect the future performance of the company. The Compass Group Company used around 425 million on acquisitions of different other assets in various other countries.
Non- financial factors
Non-financial factors also affect the operations of the Compass Group Company. Non-financial factors such as the changes in the laws of a country, variations in industry standards, staff behavior and morale, the nature of the relationship between the suppliers and the customers affect the future operations of the Compass group in the different countries of operation (Bénétrix, 2015). The company should, therefore, ensure these factors are significantly controlled in the various countries of operations. This will ensure the company maximizes profits in the market and is attractive to various stakeholders in the market. The global food sector of the company is expected to have an increase in rate to around $991.7 billion in the Compass Group Company. The management has therefore, developed policies to mainly concentrate on the growth of the company. This is to increase the revenue amount in the company and ensure increase in profit formation.
Economic Exposure of the Company
Economic exposure is a phenomenon caused by the unexpected changes in the currency of a country and its significant effects on the future cash flow of a company. It greatly affects the market value of the company in the country. This affects the long-term future of the company in the market. Compass Group Company operates in more than fifty countries. These countries use different currencies that are subject to changes. The fluctuation in the economic strength of a currency affects the operations of a company greatly. This for example affected the operations of the Alhambra plc. The depreciation of the Argentina peso resulted in the low competition ability in the African market by the products of t Alhambra plc. The depreciation of the Argentine peso indicates that the cost of production in the Argentine market is very high. The African currency is expected to be stable in respect with the dollar. Acquisitions of loans from the Argentine banks will only increase the cost of operations of the company with regard to the interest rate. This unfavorably affects the operations of the company in the market. Economic exposure has also affected the operations of different companies such as the Carlton ltd and Palmer ltd. The fluctuation in the currency of the different countries of operation unfavorably affects the profit formation process of these companies. This has affected the operations of the Compass Group Company. Alhambra plc, therefore, has a higher degree of economic exposure. The degree of economic exposure, therefore, depends on how the company specifically deals with these changes in the currency. This phenomenon has also significantly affected the operations of the Compass Group Company. It is, therefore, recommended that the company carries out an extensive research and has a flexible policy that ensures it is not exposed by the fluctuation in the currency rates (Zeff, 2015). The Compass group company has ensured the development of a more flexible mode of operation that has facilitated its operations in different countries.
Reference
Bénétrix, A.S., Lane, P.R. and Shambaugh, J.C., 2015. International currency exposures, valuation effects and the global financial crisis. Journal of International Economics, 96, pp.S98-S109.
Huisman, M., 2013. The influence of the global financial crisis on the capital structure of English stock-listed firms.
Zeff, S.A., 2015. The Trueblood Study Group on the Objectives of Financial Statements (1971–73): A historical study. Journal of Accounting and Public Policy.
