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British Gas PLC Financial Statement Analysis and Appraisal
Essay Instructions:
I would like to request the writer who did order 00012178 if possible and if they\'re not busy.
Please use each of the investment appraisal methods using examples from British Gas projects in compliance with USO. Analyse results and comment on suitability of projects.
Conclusion and recommendation for section 3 and also for the final report
Please analyse and critically evaluate each option, so it is not just descriptive. Disregard fiber optics, just concentrate on USO.
Pls explain clearly, using an example from published information concerning BG Group plc, the decision rule underlying each of the appraisal methods used above and how BG Group plc might apply each of these rules in making a long-term financial and strategic investment.
BG Group plc as a public limited company is accountable to its shareholders in law. In addition to this accountability that it shares with all public limited companies, historical events around its formation have left it with a Universal Service Obligation (USO) to provide certain services to all sectors of the population regardless of ability to pay.
(b) Identify, describe and explain investment appraisal methods that would be appropriate to include in BG's decision-making process when seeking to comply with the USO.
Use the balanced scorecard you developed to suggest how the directors of BG could conduct an appraisal of the success of a project they have initiated some time (say 5 years) after the project was implemented.
The choice of ratios should show the interdependence of the ratios in making correct judgements.
Use the appraisal methods to analyse competing investment projects in the public and private sector and make justifiable decisions. as i dont see in the instructions
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British Gas PLC Financial Statement Analysis and Appraisal
[Name]
[Course Title]
[University]
[Instructor Name]
[Date]
British Gas PLC is one of the biggest gas suppliers in the world. It is a public limited company based in the UK and it has operations in 25 countries in the five continents and it has business across the gas chain all around the world (BG-Group.com). The company has gone through a number of restructurings in the past due to the legal changes in the country. Following is the analysis and appraisal of the financial information of the company for the year ended 31 December 2011.
SECTION ONE
This section includes analysis of the published financial information of the British Gas Group for the year ended 2010. This section includes comparison of results with the previous year and the ratio analysis of the financial information.
Comparison of 2010 Results with 2009 Results
British Gas Group`s financial information shows a growth in the overall revenue of the group in the year 2010 as compared to the previous year. According to the consolidated income statement of the group, the total revenue of the group in the year 2010 was $17,166 million which is a significant growth as compared to the total revenue of $15,441 at the end of the year 2009. The increase in overall revenue is $1725 million which is a significant increase. The major business sectors that account for the overall revenue of the group are; exploration and production, liquefied natural gas, and transmission and distribution. A significant growth was observed in all the sectors in the year 2010 as compared to the year 2009.
The increase in revenue does not hold much interest for shareholders if the operating cost also increases, in this case, a decrease in the operating profit was observed. For the year 2010, the operating profit of the group was $5,562 million, while the operating profit in the year 2009 was $5,889 million. This decrease may be because of a significant increase in the operating costs and an increase in the losses on disposals of non-current assets and impairments.
The profit for the year 2010 was $3,500 million and the same was $3,470 million in the year 2009. Therefore it can be inferred that the increase was not much as compared to the proportion of the increase in the revenue. According to the Consolidated Statement of Comprehensive Income, the total comprehensive income for the year 2010 was $4,094 which is much lower the total comprehensive income for the year 2009 which was $5,206 million. The difference may be because of the difference in currency translation adjustments which were $1,180 in the year 2010 and $2,455 in the year 2009.
Ratio Analysis of Years 2010 and 2009
Ratio Analysis is conducted on the financial information of a company in order to infer whether the company is feasible for investment. Ratio analysis is highly important for shareholders and investors because it brings out the underlying relationships in the financial information of an entity. Ratio analysis can also help an investor in determining whether the investment in the company would be profitable or not. Following is the ratio analysis of the financial information of British Gas Group.
Liquidity
Shareholders and investors conduct liquidity analysis in order to ensure that the entity is eligible to pay off its short term debts. If the ratio is high, it can be inferred that the entity can easily cover its short term debts, however the conclusion would be opposite if the ratio is low. In case of British Gas Group, current ratio for the year 2010 is 1.121. Current ratio is the ratio of the entity`s current assets and current liabilities at the end of a given year. This ratio shows whether the current assets of an entity are enough to set off the current liabilities of the entity. If the ratio is 1, it would mean that the entity has an equal amount of current assets as current liabilities. If the ratio is more than 1, it is considered to be good for the entity because it suggests that the current assets of the entity are more than the current liabilities. As mentioned above, the current ratio for the year 2010 is 1.121 which is higher than 1. It means that the current assets of the entity are enough to cover up the current liabilities of the entity. In the year ended 2009, the current ratio of the entity was 1.012 which is lower than that of the year ended 2010. Therefore, from the results of this ratio it can be inferred that the entity has enough current assets to cover current liabilities and the current ratio has increased as compared to the previous year which means that the entity has improved position of current assets as compared to the previous year (Loth, 2011).
Next ratio to analyze the liquidity of the entity is Cash Ratio. Cash is the most liquid form of the assets of an entity and it is used for setting off obligations in real time. Any other types of assets take some time to be converted into a liquid state but cash is the most liquid form therefore it does not require any conversion. A proportionately significant amount of cash with an entity is considered to be good because it would be able to set off its liabilities in real time. According to ratio analysis conducted; the cash ratio of British Gas Group for the year ended 2010 is 0.285. It means that this proportion of the current liabilities of the entity can be paid off with cash at any time. This ratio is good as compared to the relative figures in the industry. The same ratio was 0.135 in the year ended 2009. Thus, from this ratio analysis, it can be inferred that a significant proportion of the company`s current liabilities can be paid off in real time and the entity has an improved amount of cash at the end of year 2010 as compared to the year 2009.
Next ratio in the liquidity analysis of the entity is Quick Ratio. Quick ratio is very much like cash ratio only with the addition of accounts receivable and inventories as they are also considered to be liquid as compared to other assets. This is also an important ratio to analyze the liquidity of an entity. According to the analysis, the quick ratio of the entity for the year ended 2010 was 1.048. It is considered to be a very healthy ratio as the whole of current liabilities of the entity can be paid off by the cash and cash equivalents, accounts receivable and inventory of the entity. However, for the year ended 2009, the same ratio was 0.92. It is a comparatively lower ratio but it is also good as a large proportion of the current liabilities can be paid off.
Solvency
Solvency is financial soundness of a business. It is the ability of an entity to meet its short and long term debt obligations. The main goal of solvency ratios is to ensure that the entity is financially sound and whether there are any chances of the entity being bankrupt. It is very important for the shareholders to ensure the solvency of an entity. Investors also ensure the solvency before making any investment in the company (Loth, 2011).
The ratios used to ensure the liquidity of an entity are also used to determine the solvency of an entity. There are certain additional ratios as well. The first ratio that was analyzed for solvency was Debt Ratio. It is the ratio of total liabilities of an entity to the total assets of an entity. It provides a view of the dependency of the entity upon its liabilities. In this case; the debt ratio for the year ended 2010 was 0.47. As the figure is significantly less than 1, it can be inferred that the entity has more assets as compared to the liabilities. The same ratio for the year ended 2009 was 0.453 which is slightly less than that in the year 2010. Thus, it can be said that the entity is solvent in accordance with the results of the debt ratio.
The next ratio to be analyzed is debt equity ratio. It is the representation of the nature of financing of the entity. The ratio shows whether the company depends upon its debt or its equity to finance its operations. A moderate ratio is considered to be healthy. In this case, for the year 2010, the ratio was 0.531. This ratio can be considered good because it is moderate; however the amount of debt is more as compared to the equity. In the year 2009, the same ratio was 0.449 which is also moderate. Thus, it can be inferred from solvency analysis that British Gas Group is a solvent entity.
Working Capital Management
Working Capital Management represents the ability of an entity to carry out day to day operations. It is the management of inventories, accounts receivable, accounts payable and cash and cash equivalents. Net working capital of the entity for the year ended 2010 was $1079 million which is considered to be good. The same was $104 million in the previous year. Thus, it can be said that the company has significantly improved the position of its working capital in the year 2010 as compared to the previous year. Net Working Capital Ratio was 0.0215 and 0.00245 for the years 2010 and 2009 respectively. The ratio is the year 2010 is much higher than that of 2009, therefore it can be concluded that the entity has a better management of working capital in the later year (Loth, 2011).
Profitability
Profitability of an entity is one of the most important factors for shareholders and investors. An investor would invest his capital only when there is assurance of some decent returns. The profitability ratios that were analyzed here were profit margin, return on assets and return on equity. Profit margin of British Gas Group for the year 2010 was 0.204 which was lower than that of the year 2009 which was 0.225. As compared to the industry standards, this is a good margin; however it is lower when compared to the profit margin of the previous year. The ratio of return on assets was 0.0696 and 0.0818 in the year 2010 and 2009 respectively. This ratio also suggests a decline in the return on overall assets of the company. Ratio of return on equity was 0.133 and 0.151 in the year 2010 and 2009 respectively (Loth, 2011).
The overall profitability analysis of the British Gas Group suggests that the entity has good profitability ratios as compared to the standards of the industry but the trend of the profitability of the entity is declining. It is evident from the fact that the ratios in the year 2010...
[Name]
[Course Title]
[University]
[Instructor Name]
[Date]
British Gas PLC is one of the biggest gas suppliers in the world. It is a public limited company based in the UK and it has operations in 25 countries in the five continents and it has business across the gas chain all around the world (BG-Group.com). The company has gone through a number of restructurings in the past due to the legal changes in the country. Following is the analysis and appraisal of the financial information of the company for the year ended 31 December 2011.
SECTION ONE
This section includes analysis of the published financial information of the British Gas Group for the year ended 2010. This section includes comparison of results with the previous year and the ratio analysis of the financial information.
Comparison of 2010 Results with 2009 Results
British Gas Group`s financial information shows a growth in the overall revenue of the group in the year 2010 as compared to the previous year. According to the consolidated income statement of the group, the total revenue of the group in the year 2010 was $17,166 million which is a significant growth as compared to the total revenue of $15,441 at the end of the year 2009. The increase in overall revenue is $1725 million which is a significant increase. The major business sectors that account for the overall revenue of the group are; exploration and production, liquefied natural gas, and transmission and distribution. A significant growth was observed in all the sectors in the year 2010 as compared to the year 2009.
The increase in revenue does not hold much interest for shareholders if the operating cost also increases, in this case, a decrease in the operating profit was observed. For the year 2010, the operating profit of the group was $5,562 million, while the operating profit in the year 2009 was $5,889 million. This decrease may be because of a significant increase in the operating costs and an increase in the losses on disposals of non-current assets and impairments.
The profit for the year 2010 was $3,500 million and the same was $3,470 million in the year 2009. Therefore it can be inferred that the increase was not much as compared to the proportion of the increase in the revenue. According to the Consolidated Statement of Comprehensive Income, the total comprehensive income for the year 2010 was $4,094 which is much lower the total comprehensive income for the year 2009 which was $5,206 million. The difference may be because of the difference in currency translation adjustments which were $1,180 in the year 2010 and $2,455 in the year 2009.
Ratio Analysis of Years 2010 and 2009
Ratio Analysis is conducted on the financial information of a company in order to infer whether the company is feasible for investment. Ratio analysis is highly important for shareholders and investors because it brings out the underlying relationships in the financial information of an entity. Ratio analysis can also help an investor in determining whether the investment in the company would be profitable or not. Following is the ratio analysis of the financial information of British Gas Group.
Liquidity
Shareholders and investors conduct liquidity analysis in order to ensure that the entity is eligible to pay off its short term debts. If the ratio is high, it can be inferred that the entity can easily cover its short term debts, however the conclusion would be opposite if the ratio is low. In case of British Gas Group, current ratio for the year 2010 is 1.121. Current ratio is the ratio of the entity`s current assets and current liabilities at the end of a given year. This ratio shows whether the current assets of an entity are enough to set off the current liabilities of the entity. If the ratio is 1, it would mean that the entity has an equal amount of current assets as current liabilities. If the ratio is more than 1, it is considered to be good for the entity because it suggests that the current assets of the entity are more than the current liabilities. As mentioned above, the current ratio for the year 2010 is 1.121 which is higher than 1. It means that the current assets of the entity are enough to cover up the current liabilities of the entity. In the year ended 2009, the current ratio of the entity was 1.012 which is lower than that of the year ended 2010. Therefore, from the results of this ratio it can be inferred that the entity has enough current assets to cover current liabilities and the current ratio has increased as compared to the previous year which means that the entity has improved position of current assets as compared to the previous year (Loth, 2011).
Next ratio to analyze the liquidity of the entity is Cash Ratio. Cash is the most liquid form of the assets of an entity and it is used for setting off obligations in real time. Any other types of assets take some time to be converted into a liquid state but cash is the most liquid form therefore it does not require any conversion. A proportionately significant amount of cash with an entity is considered to be good because it would be able to set off its liabilities in real time. According to ratio analysis conducted; the cash ratio of British Gas Group for the year ended 2010 is 0.285. It means that this proportion of the current liabilities of the entity can be paid off with cash at any time. This ratio is good as compared to the relative figures in the industry. The same ratio was 0.135 in the year ended 2009. Thus, from this ratio analysis, it can be inferred that a significant proportion of the company`s current liabilities can be paid off in real time and the entity has an improved amount of cash at the end of year 2010 as compared to the year 2009.
Next ratio in the liquidity analysis of the entity is Quick Ratio. Quick ratio is very much like cash ratio only with the addition of accounts receivable and inventories as they are also considered to be liquid as compared to other assets. This is also an important ratio to analyze the liquidity of an entity. According to the analysis, the quick ratio of the entity for the year ended 2010 was 1.048. It is considered to be a very healthy ratio as the whole of current liabilities of the entity can be paid off by the cash and cash equivalents, accounts receivable and inventory of the entity. However, for the year ended 2009, the same ratio was 0.92. It is a comparatively lower ratio but it is also good as a large proportion of the current liabilities can be paid off.
Solvency
Solvency is financial soundness of a business. It is the ability of an entity to meet its short and long term debt obligations. The main goal of solvency ratios is to ensure that the entity is financially sound and whether there are any chances of the entity being bankrupt. It is very important for the shareholders to ensure the solvency of an entity. Investors also ensure the solvency before making any investment in the company (Loth, 2011).
The ratios used to ensure the liquidity of an entity are also used to determine the solvency of an entity. There are certain additional ratios as well. The first ratio that was analyzed for solvency was Debt Ratio. It is the ratio of total liabilities of an entity to the total assets of an entity. It provides a view of the dependency of the entity upon its liabilities. In this case; the debt ratio for the year ended 2010 was 0.47. As the figure is significantly less than 1, it can be inferred that the entity has more assets as compared to the liabilities. The same ratio for the year ended 2009 was 0.453 which is slightly less than that in the year 2010. Thus, it can be said that the entity is solvent in accordance with the results of the debt ratio.
The next ratio to be analyzed is debt equity ratio. It is the representation of the nature of financing of the entity. The ratio shows whether the company depends upon its debt or its equity to finance its operations. A moderate ratio is considered to be healthy. In this case, for the year 2010, the ratio was 0.531. This ratio can be considered good because it is moderate; however the amount of debt is more as compared to the equity. In the year 2009, the same ratio was 0.449 which is also moderate. Thus, it can be inferred from solvency analysis that British Gas Group is a solvent entity.
Working Capital Management
Working Capital Management represents the ability of an entity to carry out day to day operations. It is the management of inventories, accounts receivable, accounts payable and cash and cash equivalents. Net working capital of the entity for the year ended 2010 was $1079 million which is considered to be good. The same was $104 million in the previous year. Thus, it can be said that the company has significantly improved the position of its working capital in the year 2010 as compared to the previous year. Net Working Capital Ratio was 0.0215 and 0.00245 for the years 2010 and 2009 respectively. The ratio is the year 2010 is much higher than that of 2009, therefore it can be concluded that the entity has a better management of working capital in the later year (Loth, 2011).
Profitability
Profitability of an entity is one of the most important factors for shareholders and investors. An investor would invest his capital only when there is assurance of some decent returns. The profitability ratios that were analyzed here were profit margin, return on assets and return on equity. Profit margin of British Gas Group for the year 2010 was 0.204 which was lower than that of the year 2009 which was 0.225. As compared to the industry standards, this is a good margin; however it is lower when compared to the profit margin of the previous year. The ratio of return on assets was 0.0696 and 0.0818 in the year 2010 and 2009 respectively. This ratio also suggests a decline in the return on overall assets of the company. Ratio of return on equity was 0.133 and 0.151 in the year 2010 and 2009 respectively (Loth, 2011).
The overall profitability analysis of the British Gas Group suggests that the entity has good profitability ratios as compared to the standards of the industry but the trend of the profitability of the entity is declining. It is evident from the fact that the ratios in the year 2010...
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