Introduction
Every business tries to enhance its productivity from different standpoints and angle and every standpoint deems extremely important from the viewpoint of an organization in total. Analysts analyze an organization from different angles and with the help of different methods and tools. All of these tools are essential to analyze and assess the level of financial based initiation from different angles in total.
Among number of methods and tools to analyze the financial based competitiveness of an organization, the name of different amount of ratios is one of them. Different sorts of ratios are profitability ratios, liquidity ratio, efficiency based ratios and others. Each type of ratios is important to assess the financial competitiveness of an organization in total (Charles H., 2012, pp.152-164). Financial Ratio Analysis is one of the most important and widely used tools, used to assess the financial capability of a company in total. There are number of analysts and researchers which are currently using the same thing in total merely to value the things effectively. Comparative Financial Analysis is one of the most effective tools that used to compare the financial belongings of a company as a whole. The main objective of this assignment is to analyze the financial competitiveness of two similar organizations.
The companies which have been selected for the same analysis are, BSKYB and ITV. In the next section, a small description about the company would be described followed by the ratio analysis framework which is the main objective of this particular assignment.
Companies Overview: BSKYB and ITV
British Sky Broadcasting Group Plc (BCKYB), commonly known as Sky is basically a British satellite broadcasting and telephone Service Company, with its headquartering located in London, UK. Apart from London, the company has its active operations in Ireland as well. It was formed in the year 1990 with a merger of Sky Television and British Satellite Broadcasting. It is the largest pay-TV broadcaster in the UK with over 10 million subscribers.
The shares of the company listed on the London Stock Exchange (LSE) and it is a constitute of the Financial Times Stock Exchange (FTSE-100) index. The company has a total market capitalization of £14.32 billion (US$23 billion). The company earned net revenue of £6.791 billion in the year with net income of £970 million in the year 2012.
ITV is basically a commercial public service TV network have its recognition in the market of the United Kingdom (UK), launched in the year 1955 as an independent TV channel. ITV is basically a network of the television channels that operate regional television based services as well as the sharing based programs to be displayed on the same network. The name of ITV found in some of the largest TV channels of the United Kingdom, as this TV channel is governmental based. The approx worth in terms of market capitalization is not as the same as BSKYB, but the company has a great financial potential which is more than essential for them to stay in the business for a long span of time.
Profitability Analysis
Profitability is an important from the viewpoint of a company and no organization can increase its financial belongings without effective and perfect profitability analysis. There are two different types of ratios, which used for the same purpose like NPM and GPM.
Net Profit Margin (NPM) Analysis
In the field of finance, the net income refers to all other expenses (including direct and indirect) has been completely subtract in numbers. Net profit margin is a major proportion of profitability. From a company's point of view is very important, whereas the better exploitation of net profit margin is also vital phases for any company in total (ALEXANDER & Britton, 2004, pp. 198-212). It is obvious that with high net profit margin, the company would get high rate of return on assets or is considered to be superior in relation with the company whose profit margin is low. Net profit margin is a major proportion of profitability. It is also a significant component to assess the effectiveness of companies in similar industry. Higher net profit margin refers to transform the entire sale of company to real profit effectively
The computed NPM of the selected companies are mentioned below,
Gross Profit Margin (GPM)
Similarly, the gross profit margin (GPM) is also practiced to analyze a financial stability of an entity company as a whole, which is another significant financial ratio. The main difference between the gross and net income margins is that the GPM mainly analyze the income including direct and indirect expenses and conversely, the net profit margin primarily reveals the actual profit of company
The computed GPM of the selected company is mentioned below,
Efficiency Ratio Analysis
Efficiency based analysis would be extremely effective for an organization in total. Efficiency based analysis could be quite effective in total. The activity ratio is another foremost and widely taken ratio usually referred as efficiency ratio whose major function is to analyze the efficiency of an organization (Hennie van, 2011, pp. 142-159). These ratios are important management decisions whether a company is making good knot in generating revenue from available resources like cash, machinery and etc. Certainly, there are numerous ratios which are aimed for the same purpose but the rate of return on assets (ROA) is used and among one of them. There are two different ratios, which have been used in this scenario, predominantly are, Return on Assets (ROA) and Return on Equity (ROE).
Return on Assets (ROA)
The analysis of how effectively the company's operating assets as the ratio of net income generated is called Return on assets (ROA). It is also widely exercising ratio from an investor's perspective. ROA figure gives investors a hint of how effectively the company makes investment to generate net income. The higher the number of ROA, the better, because the company make more money with a smaller amount investment
The return on assets of the selected company is mentioned below accordingly, with table and graph
Return on Equity (ROE)
ROE is yet another important measure used to assess the financial competitiveness of an organization in total. It analyzes that how effectively a company is utilizing its investment in generating net income.
Liquidity Analysis
In finance, the name of liquidity lies with the fact that how liquid is an asset of a company. There is an important ratio that comes under the umbrella of Liquidity ratio which is Current Ratio and it is used in this analysis as well. In the financial sector, liquidity is meant to anything in return and able to transform into cash without encountering any difficulty (SANDRETTO, 2011, pp. 219-222). Organizations typically have securities and preferred shares that can be easily converted into ready cash. There are basically two different ratios may be used for the same, but the use of a single one will meet the wants correspondingly. The ratio which is being utilized is current ratio.
Current Ratio
The current ratio is a branch of liquidity ratio or can be termed as working capital ratio, shows a company's current assets to current liabilities ratio. The current ratio is one of the most frequent and vastly applied ratios that come under the sphere of liquidity ratio. By this ratio, analysts give the company as much as possible to meet the concerns with the idea of perfect short-term financial obligations.
The computed Current Ratios of the selected companies are mentioned below,
Solvency Ratio
Solvency Ratio analyzes the long term debt stance of a company in total. The ratio which has been used for the same analysis is Debt to Equity Ratio.
Debt to Equity
Debt to equity ratio is another financial ratio indicates the relative proportion of corporate equity and the balance of funding for entities. This ratio is often expressed as financial leverage. Debt to equity is a core ratio comes under financial modeling and is used as a benchmark to determine the financial position as a company (ROSENFIELD, Paul, 2006, pp. 312-320). It also measures a company's ability to repay its debt
The computed debt to equity is,
Trend Analysis
Forecasting is the most effective things from the viewpoint of an organization. In this particular section, sales and net income for the next two years would be analyzed and the table is mentioning the same,
Conclusion
Organizations always work hard for their economic based prosperity and it is important to undertake effective and timely decisions to accomplish the same. An organization is basically referred to a place wherein people belong to different mindset and departments work together merely for the achievement of a single and pre-specified goal in total. There are number of a concept that specifically counts under the name of financial management and every concept has its own recognition and importance lies in a broad nutshell. The main objective of this assignment is to analyze the financial competitiveness of two similar organizations. The companies which have been selected for the same analysis are, BSKYB and ITV. From the analysis, it is clear that the financial position of BSKYB is comparatively higher than that of ITV in almost every slant which is again a positive sign from the viewpoint of the company in its future.
Reference list
BHAT, Sudhindra. 2008. Financial Management. New York: McGraw Hill.
BRIGHAM, Eugene F. 2013. Financial Management: Theory & Practice. Chicago: Adventure Works.
DAVID ALEXANDER, Anne Britton. 2004. Financial Reporting. London: Cengage Learning EMEA.
GIBSON, Charles H. 2012. Financial Reporting and Analysis, 13th ed. New York: Cengage Learning.
GREUNING, Hennie van. 2011. International Financial Reporting Standards: A Practical Guide. Chicago: World Bank Publications.
ROSENFIELD, Paul. 2006. Contemporary Issues in Financial Reporting: A User-Oriented Approach. Perth: Routledge.
SANDRETTO, Michael J. 2011. Cases in Financial Reporting. New York: Cengage Learning.
STALCUP, George H. 1998. Financial Management: Profile of Army Financial Managers. New York: Saga.
