Accounting Case Study BTG Plc - Click to Solution

Question: Discuss about the Accounting Case Study for BTG Plc. Answer: Introduction: The overall report mainly helps in evaluating the current financial strength of BTG Plc for past five years. In addition, the novice with the help of effective ratios is able to provide relevant information, which might help in depicting the accurate financial position of the company. Moreover, the overall implementation of profitability and liquidity ratio in the study mainly helps in evaluating the financial performance of BTG Plc. In addition, with the help of liquidity ratio the novice is able to depict the overall ability of BTG Plc to fulfil its short-term obligations. Ratio analysis of BTG Plc: Particulars 2012 2013 2014 2015 2016 RATIOS Profitability Ratios Gross Profit Margin (3) 71.42% 71.25% 67.30% 68.81% 68.54% Operating Profit Margin 8.78% 9.67% 11.12% 7.67% 11.64% Return on capital Employed (ROCE) 3.26% 3.46% 3.89% 3.61% 5.91% Profit Margin ratio 7.41% 7.02% 8.36% 9.14% 13.52% Liquidity Ratios Current Ratio 2.990 3.611 1.665 1.796 2.380 Quick Ratio 2.340 2.817 0.933 1.077 1.588 Financial Gearing Debt ratio 0.197 0.201 0.255 0.275 0.262 Inventory turnover ratio 2.694 2.980 3.777 3.399 3.237 Asset turnover ratio 0.396 0.447 0.464 0.419 0.408 Investment Ratios Price/Earnings 74.11 114.51 116.21 75.39 39.97 Earnings Per Share (pence) 0.045 0.050 0.068 0.091 0.158 Earnings Per Share Growth 31.76% 11.99% 36.37% 33.50% 73.14% NAVPS 1.246 1.318 1.493 2.062 2.216 Retained Earnings (128,600,000) (108,400,000) (80,000,000) (40,600,000) 28,700,000 Outstanding Shares 325,900,000 326,900,000 355,200,000 367,900,000 382,600,000 Market Share price 332 574.5 795 688.5 632 Table 1: Depicting the ration for BTG Plc from 2012 to 2016 (Source: Morningstar.com 2016)) The overall table 1, mainly helps in evaluating the overall ratio, which could be used in depicting the financial position of the company. In addition, with the help of liquidity, profitability and financial ratio the overall financial stability of BTG Plc could be effectively evaluated. In this context, Lartey et al. (2013) stated that ratios mainly help investors to decode the financial statement of the companies and effectively make adequate investment decision. Moreover, BTG Company has not been paying any divided to its shareholders over the period of five year. In addition, the negatively retained earnings from 2012 have been declining from 2012 to 2016. Moreover, the current retained earnings of the company are at around 28,700,000, which might help the investors to make adequate investment decisions. Profitability ratio: Figure 1: Showing the profitability ratio of BTG Plc from 2012 to 2016 (Source: Morningstar.com 2016)) With the help of profitability ratio, like gross profit margin, operating profit margin, return on capital employed, and profit margin ratio, the overall performance of the company could be effectively evaluated. In addition, figure 1 mainly helps in depicting the performance of the company from 2012 to 2016, which might help investors to make adequate investment decisions. In addition, the overall gross profit of the company mainly declined from 2012 to 2016, which mainly indicates the rising cost of revenue incurred by the company. Parsian and Koloukhi (2014) stated that gross profit margin investors are able to detect the efficiency of the companys management in which they are willing to invest. Moreover, return on capital employed of BTG Plc mainly increased from 2012 to 2016 indicating an efficient management system, which is focused in improving its profitability. In addition, the rising ROCE mainly helps in depicting the increasing capacity of the company to generate more income from the same capital. However, 2015, the capital employed of the company declined from previous year. In addition, in 2016 the ROCE of the company increased exponentially, which in turn might help investors to make adequate investment decisions. On the contrary, Fito et al. (2013) mentioned that ratios do not help the investors to make future prediction, which might in turn increase investment risk. In this context, Brou and Krueger (2016) further stated that ratios are not able to accommodate changing price rate due to inflation, which might be crucial to analyse actual increase in revenue of the company. In addition, with the help of figure 1, the overall operating profit margin increased from 2012 to 2013. Moreover, a steep decline in 2015 could be seen, which might be incurred due to decline in sudden revenue generation capacity of the company. However, stable growth in operating margin resumed in 2016 after decline in 2015. On the other hand, Bentley et al. (2013) criticises that some companies use unethical measure in inflating their financial statement, which helps in depicting an affect financial position to potential investors. In addition, comparison of ROCE and operating profit margin mainly helps in indicating the capital employed during 2015, was more or less adequate to generate the required operating profit for BTG Plc. Moreover, figure 1 also helps in evaluating the profit margin of BTG Plc, which has been relatively increasing from 2012 to 2016. In addition, the evaluations of net profit margin ratio mainly help investors to depict the overall percentage increase in profit acquired by the company. In addition, with the help of gross profit ratio and net profit ratio of BTG Plc, investors could derive its overall administrative expenses over the period. Lartey et al. (2013) mentioned that decrease in administrative expenses mainly help the company to retain more income, which could be used in future investment scope. On the other hand, Parsian and Shams (2014) criticises that reduction in administrative expenses might reduce capability of the company to advertise its products and attain higher sales figure, which might in turn help in obtaining sustainable growth. Moreover, the investors with the help of gross and profit margin ratio are able to determine the overall administrative expense conducte d by the company to support its revenue generation capacity. Liquidity Ratio: Figure 2: Showing the Liquidity ratio of BTG Plc from 2012 to 2016 (Source: Morningstar.com 2016)) Figure 2, mainly helps in evaluating the overall liquidity ratio of BTG plc from 2012 to 2016. In addition, the overall current ratio of the company has been mainly close to 2.5, which depicts its inefficiency to utilise assigned assets and liabilities. However, during 2014 and 2015 the current ratio of the company was below 2 indicating a volatile state, which might have increased risk for the investors. However, currently in 2016 the current ratio of the company is around 2.38, which mainly states adequate financial stability. Fito et al. (2013) argued that due to the inappropriate assumption of current ratio investors are not able to detect the adequate financial condition of the company. Furthermore, the overall quick ratio of BTG Plc could also be evaluated from figure 2. In addition, during 2012 to 2013 the company quick assets mainly increased from 2.340 and 2.817. However, drastic decline in quick ratio of the company could be seen in 2014, which might negatively affect its capability to support short-term obligations. However, from 2015 the quick ratio of the company mainly increased indicating a higher current assets accumulation conducted by the company. Brou and Krueger (2016) stated that quick ratio allows investors to analyse ability of the company to pay its short-term obligations by not selling its long-term, assets. On the other hand, Bentley et al. (2013) criticises that decrease in current ration mainly indicates the inability of the company to support its endeavours with attained sales revenue. Financial Ratio: Figure 3: Showing the Financial ratio of BTG Plc from 2012 to 2016 (Source: Morningstar.com 2016)) In addition, with the help of figure 3, the overall financial ratio of BTG Plc from 2012 to 2016 could be effectively evaluated. Moreover, the debt ration of the company has been increasing from 2012 to 2015 indicating a low financial stability of BTG Plc. However, the debt ratio of the company is less than 0.50, which mainly depicts a low risky stock for the investors. Lartey et al. (2013) argued that increased debt ratio mainly indicates a volatile stock, which might increase risk of the investors. Moreover, the inventory turnover ratio of the company is also increasing from 2012 to 2016, which mainly depicts the higher inventory blockage conducted by the company over the past fiscal year. On the other hand, Parsian and Shams (2014) criticises that increased inventory blockage mainly reduce vital working capital of the company, which in turn might also affect its productivity. In addition, the figure 3 mainly helps in evaluating the assets turn ratio of BTG Plc. Moreover, the rising asset turnover ratio of the company from 2012 to 2014 mainly helps in depicting the effective use of its assets. However, from 2014 to 2016 the overall asset turnover ratio of the company mainly declined, which indicates its inefficiency to manage its assets. However, the current asset turnover ratio of the company is 0.408, which might be used by the investors to make adequate investment decisions. Fito et al. (2013) argued that during an economic crisis the value generated from ratio loses its friction and might depict a wrong valuation for the company. Evaluating the critical reflection portrayed journalist for BTG Plc: BTG group has currently acquired Galil Medical for e consideration amount of $84.5 Million and 25.5 Million in future mile stone payments (Prnewswire.com 2016). Moreover, the acquisition of Galil has mainly helped the BTG group to increase its service quality. In addition, the Galil Medical has been a portrayed as the global leader in innovative cryoablation solution, which might help patients with their treatments (hl.co.uk 2016). Furthermore, the addition, of Galil in the BTG family has mainly helped the company to increase its overall efficiency and technology to support its future endeavours in satisfying their service users. Moreover, BTG plc could make effective treatment in areas such as bone, kidney, liver, lung, and prostate. Analysing the Corporate governance of BTG Plc: The overall corporate governance of BTG Plc mainly depicts the fundamental belief of the company to maintain successful operations. In addition, the company has specifically designed there corporate governance code as per the defined UK Corporate Governance Code. Moreover, the company also complies with the rules laid down by FRC (Financial Reporting Council), which might help in depicting an effective financial statement of the company (Btgplc.com 2016). In addition, the corporate governance of the company mainly includes sections, which might be used in describing the overall structure, responsibilities, and roles of the board. In addition, effectively displays high standard of ethical and professional practise in their operations. Moreover, the code of conduct implemented by the company mainly helps in reducing unethical measures to increase their revenues. In addition, the code of conduct mainly helps in depicting the principles, policies and procedures, which might help in maint aining the required level of authority in its operations. Depicting adequate investment opportunity by evaluating the asset value per share and current share price of BTG Plc: Figure 4: Showing the Earning per share of BTG Plc from 2012 to 2016 (Source: Morningstar.com 2016) With the help of figure 4, the overall increase in Earnings per share of BTG Plc could be effectively evaluated. In addition, it could be seen in the above figure that EPS of the company mainly decreased in 2013 compared to 2012, indicating a lower income generated by the company during that fiscal year. In addition, the overall increase in EPS of BTG Plc could be seen from 20s13 to 2016, which mainly indicates the overall profits generated by the company for previous three fiscal year. Parsian and Shams (2014) stated that investors with the help of EPS valuation are able to determine the status of the company and how much return it could provide in a year. Figure 5: Showing the Share price of BTG Plc from 2012 to 2016 (Source: uk.finance.yahoo.com 2016) Moreover, with the help of figure 5, the overall revenue generated from BTG plc shares in five-year horizon could be effectively evaluated. Moreover, the share price of the company started from as low as 320 in 2012 and reached 800 in 2015. This rapid growth in share price mainly indicates the higher trust of investors in the company. In addition, the overall NAVPS of BTG Plc as depicted in table 1, has been effectively rising from 2012 to 2016. Moreover, the rising NAVPS mainly indicates the investors interest in the overall shares of the company. However, the ideal NAVPS is mainly 1, which indicates the shares of the company is not at discounted rate. Thus, it could be conducted that NAVPS indicates that it is not the ideal time for investment and the investors might wait until the NAVPS comes closer to 1 or below to purchase BTG Plc stocks. Figure 6: Showing the investment strategy for BTG Plc from 2012 to 2016 (Source: Tradingview.com 2016) Based on the current price patters of BTG Plc short-term trade could be conducted by the investors, by buying the stock at current level with tight stopples of 552 and target of 796. This trading strategy mainly has 12.63% of risk and income opportunity of 25.90%., which might help investors to get a 50-50 risk to opportunity ratio from investment. Conclusion: The overall study mainly helps in depicting the current financial position o BTG Plc from 2012 to 2016. In addition, the novice with the help of ratio analysis has depicted the overall financial performs of BTG Plc during its five year tenure. In addition, with the help of NAPVS and EPS ratio the novice is able to detect adequate investment opportunity for investors. Moreover, the overall corporate governance implemented by BTG plc is effectively described in the assignment. Lastly, the novice with the help of effective evaluation is able to portray adequate investment opportunity, which might be used in improving overall return from investment in short-term period. Reference: Bentley, K.A., Omer, T.C. and Sharp, N.Y., 2013. Business strategy, financial reporting irregularities, and audit effort.Contemporary Accounting Research,30(2), pp.780-817. Brou, F.B. and Krueger, T.M., 2016. Continental and National Differences in the Financial Ratios of Investment Banking Companies: An Application of the Altman Z Model.Journal of Accounting and Finance,16(3), p.37. Btgplc.com. 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A study on the effect of free cash flow and profitability current ratio on dividend payout ratio: evidence from Tehran Stock Exchange.Management Science Letters,4, pp.63-70. Prnewswire.com. (2016).Galil Medical Announces Agreement To Acquisition By BTG plc. [online] Available at: https://www.prnewswire.com/news-releases/galil-medical-announces-agreement-to-acquisition-by-btg-plc-300264295.html [Accessed 24 Aug. 2016]. Tradingview.com. (2016).TradingView: Free Stock Charts and Forex Charts Online.. [online] Available at: https://www.tradingview.com/ [Accessed 24 Aug. 2016]. uk.finance.yahoo.com (2016).BTG plc. [online] Available at: https://uk.finance.yahoo.com/q?s=BTG.L [Accessed 24 Aug. 2016].