Financial Performance Evaluation of Alumasc Group Plc

Introduction

In the context of contemporary investment planning, the evaluation of financial statement provides a great support in evaluating the overall financial. This report is going to carry out a detailed assessment of the financial statement of a United-Kingdom based suppliers of building and engineering products named the Alumasc Group Plc. The company was found in 1945 and it is listed on the FTSE Fledgling Index of the London Stock Exchange. It offers various innovative solutions to support energy efficient building construction. The selected organisation has maintained the strong distribution network with a highly efficient workforce (The Alumasc Group plc (ALU.L), 2021). When seeking valuable insights into financial performance, individuals and entities get the benefit of seeking professional assistance, like UK dissertation help, in place to ensure deep analysis. When seeking valuable insights into financial performance, individuals and entities get the benefit of seeking professional assistance, like UK dissertation help, in place to ensure deep analysis. The company’s Go to Market Strategy has provided a great support to management for maximising the customer satisfaction level. It has established a great relationship supplier. However, the management of Alumasc Group Plc is facing several challenges in attainment of business goals such as low level of investment in R&D activities in comparison of its competitors, improper consideration of different marketing tools, inappropriate supply of innovative products, and other financial issues. This report is going to evaluate the financial performance of the Alumasc Group Plc with consideration of financial ratios, and it also evaluates the financial results in comparison of financial data of the competitor named Volution Group Plc which is also offering similar products. The comparison of the financial performance of both companies would support the investors while taking investment decisions in the selected organisation (Delen, Kuzey and Uyar, 2013).

Part A

Ratio Analysis of Alumasc Group Plc

In the context of contemporary financial planning and investment decision, the ratio analysis is being emerged as the most appropriate tool that would support the management and investors in evaluating the financial performance an organisation by determining the relationship among different variables of financial statements (Faello, 2015). It assists in carrying out a systematic comparison of the financial performance with reference to financial outcomes of previous years or financial results of other competitor organisation so as investors would be able take appropriate investment decisions. In the context of present, the calculation of financial ratio of Alumasc Group Plc for the period of 2019 and 2020 is carried out below:

Current ratio: The current ratio determines the proportion of current assets in relations to current liabilities (Kanapickienė and Grundienė, 2015). It assists companies in analysing the liquidity position of business entity. As per the above table, the current ratio of the Alumasc Group Plc is being reduced to 1.56 in 2020 in comparison of 1.67 of 2019 that shows the reduction in the organisational liquidity. It presents that the Alumasc Group Plc do not have appropriate amount in the current assets to manage the current liabilities of business entity. The main reason behind reduction in the current ratio is the decrease in the current assets in higher proportion as compared to current liabilities. In addition to that, the company has not achieved the ideal current ratio of 2:1 in both years. Therefore, the management of Alumasc Group Plc should have to pay a significant attention in improving the overall business capabilities.

Quick ratio: The quick ratio presents the availability of cash and cash equitant current assets with reference to total current liabilities of an organisation. It may leave direct impact on the requirements of cash with reference to distinct business requirements to manage the payment of short-term dues (Halkos and Tzeremes, 2012). In the context of present case of Alumasc Group Plc, the quick ratio of the company has been reduced to 1.09 in 2020 as compared to 1.22 of 2019 so as it can be perceived that the selected organisation finds the reductions in value of cash and cash equitant current assets. However, the organisation has achieved the ideal quick ratio of 1:1 in both years that show that the Alumasc Group Plc has appropriate amount of quick assets or cash with reference to current liabilities of business entity.

Gross profit margin: The gross profit margin presents the percentage of gross earnings of an organisation with reference total revenue of business entity. In the context of present case, the management of Alumasc Group Plc has faced the slight reduction in the gross profit margin in 2020 as compared to gross profit margin of 2019. The gross profit margin of the Alumasc Group Plc for the period of 2019 and 2020 is 29.80% and 29.71% respectively (The Alumasc Group plc (ALU.L), 2021). It shows that company has not found any kind of significant change in the cost of goods sold even after the reduction in the sales of business entity.

Net profit margin: The net profit margin ratio determines the relationship between the net earnings and total sales of business entity. As per the above table, the net profit margin of the Alumasc Group Plc has been reduced to 2.97% in 2020 with reference to 4.04% of 2019. Therefore, the company has recorded as significant downfall in the net profit margin that the management of Alumasc Group Plc has found increase in the operating business expenditure that have played a critical in lowering the net profit margin.

Return on equity: This ratio presents the relationship between the net earnings of an organisation and total value of equity capital so as investors or shareholder can evaluate the profitability of shareholder’s equity (MUSALLAM, 2018). In the present case, the reduction in the net profit margin has been addressed by the organisation so as the return on equity of the Alumasc Group Plc has decreased to 8.87% in 2020 with reference to 14.91% of 2019. It may leave impact on the perception of shareholder.

Assets turnover ratio: This ratio is mainly applied to determine the proportion of net sales in relation to total assets of business entity. The concept of assets turnover ratio assists management in determining the organisational capabilities to generate the sales (Arkan, 2016). In the context of present case, the assets turnover ratio is reduced to 1.07 in 2020 with reference to 1.21 of 2019. It shows the reduction in the revenue margin in consideration of total assets employed by business entity. It determines the reduction in operational efficiency of business entity.

Accounts receivable turnover ratio: The ratio evaluates the time duration in which an organisation manages the recovery of all due amount from the debtors (Delen, Kuzey and Uyar, 2013). The above determines that the accounts receivable turnover ratio of the selected company for the period of 2019 and 2020 is respectively 5.93 and 4.70 that shows that the management has to provide extra attention to debtors that would enhance the requirements of working capital for managing the delay in the payment of all debtors.

Accounts payable turnover ratio: This ratio assists management of an organisation in determining the average time duration in which the organisation manages the recovery of funds from creditors (Lassala, Apetrei and Sapena, 2017). As per the above table, the accounts payable turnover ratio is reduced to 3.45 in 2020 in comparison of 3.77 of 2019 that shows that the management of Alumasc Group Plc would find the extra time from creditors for managing their payment. This thing would reduce the requirements of the working capital in the context of contemporary business planning.

Debt-equity ratio: The debt-equity ratio determines the relationship between the debt and equity capital of firm. The high proportion of debt capital shows that business entity has maintained the higher proportion of debt capital in relation to equity capital of an organisation. In the present case, the debt-equity ratio is reduced to 0.31 in 2020 as compared to 0.39 of 2019. It determines that the management of Alumasc Group Plc would find the low risk of organisational solvency due to reduction in debt capital (Faello, 2015). This ratio provides a great support to management for carrying out the long term financial and investment planning. Moreover, this ratio assists lenders and investors in determining the capabilities of an organisation associated with the raising funds for distinct business requirements.

Earnings per share: This ratio determines the earnings per share that would address the investors about the organisational capabilities for providing appropriate returns to shareholder (Kanapickienė and Grundienė, 2015). The above table of ratio analysis that the reduction in the net earnings of Alumasc Group Plc leaves the negative impact on the earnings per share that is reduced to 0.06 per share in 2020 as compared to 0.10 of 2019. The low earning per share would create problems for the business entity while attracting the investment from the individual new investors.

Part B

For evaluating the efficiency of business operation and decision-making process, the financial statements provide a great support to management or investors in which different variables of financial statements are being emerged as important indicators of organisational performance. This data also creates the basis for conducting a systematic comparison of financial performance of two and more companies. In the context of present case, the evaluation of financial performance of Alumasc Group Plc and Volution Group Plc is carried out below:

As per the above table, the current assets of Alumasc Group Plc have been reduced by10.13% in 2020 with reference to previous year. However, the Volution Group Plc has recorded the improvement in the current ratio. Therefore, it can be stated that the management of Alumasc Group Plc is facing some problems in maintaining an appropriate amount of working capital because of reduction in the current assets (Waworuntu, Wantah and Rusmanto, 2014). Further assessment of current market trends has disclosed that the outbreak of covid-19 has incorporated several market challenges that have played critical role in lowering the sales and market share of the companies associated with different industries. As per the above table, the revenue of Alumasc Group Plc and Volution Group Plc has been reduced by 15.66% and 8.09% respectively in 2020 (Volution Group plc (FAN.L), 2021). Therefore, it can be stated that both companies are facing similar market challenges related to reduction in the market demand due to pandemic that may leave adverse impact on the revenue generation capabilities of business entity. As a result of the reduction in the revenue of company, both companies have found the decrease in gross margin in which Alumasc Group Plc has found 15.90% and Volution Group Plc has recorded 10.58% in the gross profit margin. Therefore, it can be stated the cost of goods sold in each organisation is significantly aligned with the revenue trends.

Moreover, both organisations have faced the huge increment in operating and other business expenditures that have led the direct impact on the net earnings. This is because the emergence of global lockdowns and other market challenges due to outbreak of pandemic along with company’s investment in maximising the efficiency of business operation that have reduced the net profit of both companies (Sarlin, 2015). In 2020, the net profit margin has been reduced by respectively 38.04% in the Alumasc Group Plc and 46.97% in the Volution Group Plc. The comparison of change in net earnings two companies shows that Volution Group Plc has addressed higher downfall in comparison to Alumasc Group Plc. However, the appropriate financial planning has assisted the management in maintaining the stable growth in equality capital so as it can be stated that both companies have determined similar trends in terms of shareholder equity that shows the optimum management of the organisation’s capital in an efficient manner. As a result of increase in debt capital, both companies have reduced the proportion of debt capital. In the context of Alumasc Group Plc, the total value of debt capital has been reduced by 17.02% as compared to previous years (The Alumasc Group plc (ALU.L), 2021). On the other hand, the Volution Group Plc has recorded the 9.74% reduction in debt capital. Therefore, the reduction in debt capital and increase in the equity capital of both companies would provide an opportunity to the management companies for raising the funds through debt capital to support the long-term investment and strategic plans (Sarlin and Eklund, 2013). It would support both companies in stimulate the overall business growth or financial performance. In addition to that, the management of Alumasc Group Plc has faced the reduction in the total assets by 17.02%. However, Volution Group Plc has maintained the stability in the total assets. Therefore, the management of Alumasc Group Plc should have to pay huge attention on the strategic planning process (de Burgos‐Jiménez and Dijkshoorn, 2013). In this context, the market development with consideration of a variety of assets will lead to dilution of competitor’s advantage and it would enable Alumasc Group Plc to increase its competitiveness as compared to the other competitors.

Conclusion

The above assessment concludes that the financial ratios provide a great support to investors in evaluating the overall financial performance (profitability, efficiency, liquidity, solvency and other) of an organisation with consideration of different variables of financial statement. The above evaluation concludes that an individual should consider the stock of Alumasc Group Plc for attainment of investment goals. This is because the Alumasc Group Plc has maintained the appropriate financial position so as an individual would find appropriate returns in long duration. However, the comparison of financial results of Alumasc Group Plc with the Volution Group Plc concludes that both companies are facing similar market challenges that have leaved negative impact on the financial outcomes and similar opportunities would support the management in stimulating the business growth.

Reference

Arkan, T. (2016). The importance of financial ratios in predicting stock price trends: A case study in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia, (79), 13-26.

de Burgos‐Jiménez, J., Vázquez‐Brust, D., Plaza‐Úbeda, J. A., and Dijkshoorn, J. (2013). Environmental protection and financial performance: An empirical analysis in Wales. International Journal of Operations and Production Management.

Delen, D., Kuzey, C., and Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert systems with applications, 40(10), 3970-3983.

Faello, J. (2015). Understanding the limitations of financial ratios. Academy of Accounting and Financial Studies Journal, 19(3), 75.

Halkos, G. E., and Tzeremes, N. G. (2012). Industry performance evaluation with the use of financial ratios: An application of bootstrapped DEA. Expert Systems with Applications, 39(5), 5872-5880.

Kanapickienė, R., and Grundienė, Ž. (2015). The model of fraud detection in financial statements by means of financial ratios. Procedia-Social and Behavioral Sciences, 213, 321-327.

Lassala, C., Apetrei, A., and Sapena, J. (2017). Sustainability matter and financial performance of companies. Sustainability, 9(9), 1498.

MUSALLAM, S. R. (2018). Exploring the relationship between financial ratios and market stock returns. Eurasian Journal of Business and Economics, 11(21), 101-116.

Sarlin, P. (2015). Data and dimension reduction for visual financial performance analysis. Information Visualization, 14(2), 148-167.

Sarlin, P., and Eklund, T. (2013). Financial performance analysis of European banks using a fuzzified self-organizing map. International Journal of Knowledge-Based and Intelligent Engineering Systems, 17(3), 223-234.

The Alumasc Group plc (ALU.L). (2021). [Online]. Accessed through:. [Accessed on 29th April 2021].

Volution Group plc (FAN.L). (2021). [Online]. Accessed through:< https://uk.finance.yahoo.com/quote/FAN.L/balance-sheet?p=FAN.L>. [Accessed on 29th April 2021].

Waworuntu, S. R., Wantah, M. D., and Rusmanto, T. (2014). CSR and financial performance analysis: evidence from top ASEAN listed companies. Procedia-Social and Behavioral Sciences, 164, 493-500.

Continue your exploration of Financial Institutions and Economic Growth with our related content.