Table of content

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 EXECUTIVE SUMMARY

The Concept of this report is to analyse Financial performance of SSE plc. It’s a UK
based energy company involved mainly in the generation, transmission and
distribution of electricity and also in the supply of energy and related services to
customers. They are mainly operates in UK as well as Ireland.

The report contains analysis of trend performance of SSE for the year between 2016 to
2018 and 2019 to 2020. Here we use vertical and horizontal analysis for highlighting
trends in the performance of SSE. And we had also used various types of ratios and
analysis techniques to diagnose the financial health of SSE plc. Some of the ratios
used in this analysis include liquidity ratio, profitability ratio, efficiency ratio,
Shareholders investment ratio, and long term solvency and stability ratios.

The results of data analysis shows that all ratios

In this report we are analysing the financial performance for the year between 2016 to
2020

The report contains an analysis of the results of the organisation highlighting trends
in performance using appropriate and relevant ratios and analysis techniques.

led in supplies energy resources like

In this report we are providing a succinct(short). and detailed business report on the
competitive environment in which the company(SSE) operates , in which the internal ,external
and legal environment is analysed.

This report evaluates the corporate strategy being pursued by the company. Followed by the
financial performance of the company using ratio analysis.

Financial performance has been analysed with the help of Performance, Operational and
Structural ratio, accounting techniques to critically analyse financial data in a variety of business
decision making scenarios.

Competitive analysis has been done with the help of Swot and Porter’s Five Forces.

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Future strategic direction has been given with the help of techniques like BCG matrix, Ansoff
Matrix.

Balance scorecard have been made for future strategy of SSE

We have conclude the future recommendations in the end followed by the references and
appendix

REPORT

To: Directors, SSE PLC

From: Financial Analyst
Subject: Trends in performance using appropriate and relevant ratios and
analysis techniques.

Introduction
This report is intended for use in planning SSE PLC. The report contains an analysis
of the results of the organisation highlighting trends in performance using appropriate

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and relevant ratios and analysis techniques. It also gives financial and non-financial
performance indicators by designing a balanced scorecard covering four (4)
perspectives - analysing the four balance score cards and evaluating the technique
used, and also come up with a strategy map.
1. analyse the results of the organisation highlighting trends in performance
using appropriate and relevant ratios and analysis techniques.
The analyses of results of SSE Plc is grouped into two section. The first section
concerns the highlight of trends in the performance of the company and the second
section concerns the use of rations and other relevant techniques.

Trends in the performance of the company

In showing the trends, both horizontal and vertical analysis were employed.
According to Grant (2020), horizontal analysis concerns making analysis based on
changes in amounts in a firm’s financial statements over a given period of time, while
vertical analysis gives analysis on line items as a percentage of a given base figure
within that current given time.
Vertical analysis 
From the view of Grant (2020), vertical analysis makes it easy to realise the
correlation of a bottom line item and its individual line items on a financial statement
emphasized in a percentage form. It is expressed as
“Percentage of base = (Amount of individual item/Amount of base item) × 100”
It is used to have a good idea of whether or not the performance metrics are
deteriorating or improving. Vertical analysis is made for the period 2018-2020.
From the vertical analysis table in Appendix A, it is noted that although total revenue
has been reducing from the year 2018 to 2020, the company’s gross profit is
comparatively increasing, from 10.19% in 2018 to 19.04% in 2019 and to 29.64% in
2020. This is as a result of decreasing cost of sales percentages. However, it is
noted that operating cost increased over the period from 6.3% to 14.3% and to
18.5% for the year 2018,2019 and 2020 respective. Additionally, finance cost
increased from 1.2% to 5.4% and to 6.7% in the period under review and also tax
increased from 0.5% to 0.135% to 1.786% in 2018, 2019 and 2020 respectively. In
applying vertical analysis method, it is noticed that costs did not increase uniformly to
the increase in revenue and net profits in the period under consideration.

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Horizontal Analysis
According to Tuovila (2020), horizontal analysis is used to show the percentage
growth over a period on the same line item with focus on a base year. It is employed
to easily spot growth patterns and trend over a period depicting a percentage change
in the line item. It is computed by the formula below.

Source: Tuovila (2020),

In getting a clearer picture on the horizontal analysis, the period of 2016-2020 was
analysed. Using 2016 as the base year, it was seen that there was a marginal rise of
total revenue by 0.89 in 2017 compared to 2016 total revenue. A percentage change
of 7.5% on total revenue was recorded in 2018 but a 76.6% fall in revenue was
recorded in 2019 on 2018 total revenue. However, SSE Plc recorded a -6.86%
change in 2020. This indicates a falling trend in revenue of SSE Plc (figure 1 below)

Figure 1 Falling trend in Revenue

Source: SSE Plc Financial statement

It was found that in 2017 percentage change of gross profit was 52.6%, this fell by
-8.42% in 2018 and there was a further percentage change of -56.3% in 2019. In
2020, SSE Plc recorded a positive percentage change of 44.9 in gross profit. This
indicates a decreasing trend gross profit over the period under review.

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With respect to operations profit after tax for the years under review, year 2017 had
a percentage change of 193.7% over the base year, 2018 recorded a percentage
change of -46.46%, 2019 a percentage change of 42.39% and 2020 has a
percentage change of -64.4%. This indicates a decreasing trend in operations Profit
after tax for the period 2016-2020.
Considering the balance sheet of the firm, it is noticed that there is a decreasing
trend in total assets values. The year 2017 recorded a percentage rise of 7.79% over
2016, but 2018 had a fall by 2.93%, a fall by 3.2% in 2019 and a further percentage
change by -6.3% in 2020 over 2019. It is noticed that the decreasing trend in total
assets values are largely caused by the falling trend in current assets (such as
inventory, Trade and other receivables). Additionally, it was noticed that total
liabilities of the firm also fell comparatively, this was largely due to the fall in current
liabilities.

Figure 2 Current liabilities

Source: SSE Plc Financial statement

Retained earnings was also found to have witnessed a decreasing trend over the
period under review given a percentage change of 62.29% in 2017 to 0.0616% in
2018, to 26.65% in 2019 and finally to -26.7883% in 2020. This is largely due to the
falling trend in the profit after tax and might be a cause to worry to shareholders and
management of SSE Plc.

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 2. Relevant ratios and analysis techniques.
Ratios are basically instruments to diagnose the financial health of a company.
According to Nuhu (2014), ratio aid management in discharging the basic function of
planning and controlling activities. Ratios used in this analysis include liquidity ratios
profitability ratios, efficiency ratios, shareholders’ investment ratios and long term
solvency and stability ratios.
Profitability
These ratios measure the competence of an organisation to generate profits (Nuhu
2014). Profitability ratios considered in this review include Gross profit ratio, Net
profit ratio, and Return on Capital Employed (ROCE).
Table 1 Profitability ratios
2016 2017 2018 2019 2020
 Gross profit ratio 7.91% 11.97% 10.19% 19.05% 29.65%
Net profit ratio 2.03% 5.92% 2.95% 17.94% 6.85%
4.012
Return on Capital Employed (ROCE) % 10.23% 6.71% 7.58% 3.71%

Table above shows the profitability rations for SSE Plc. Gross profit ratio basically
shows how a firm manages its cost of sales relative to revenue or sales. A high ratio
indicates that the firms has more cash to pay its cost of sales and indirect cost. From
the table above, it is noted that the gross profit ratio for the period 2016-2020 is
steadily rising from 7.91% in 2016 to 11.97% in 2017, dipped marginally in 2018 but
rose to 19.05% in 2019 and further to 29.65% in 2020. This suggests that SSE PLC
is continuously incurring lower cost of sales giving her higher gross profit over the
period 2016-2020. This suggests that the company is more efficient in her core
business.

Net profit margin

This ratios simply indicates the percentage of sales revenue translating into net
profit. This is to say that in the year 2016 only 2.03% of sales translated into net
profit. This rose to 5.92% in 2017 but fell to 2.95% in 2018. In the year 2019, 17.94%
of sales translated to net profit but this dropped to 6.85% in 2020. This suggests a
seemingly rising operating cost and other related finance cost to the firm which
reduces the net profit of the firm. However, it is noted that over the period 2016-2020
net profit margin have had a marginal rise in value.

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Figure 3 Net Profit ratio
Source: SSE Plc Financial statement

Return on Capital Employed (ROCE)

This looks at the amount of profit a firm generates per £1 of capital employed. This is
to say that in 2016, SSE Plc had 4.012% of profit generated from £1 of capital
employed. This rose to 10.23% in 2017 but feel to 6.71% in 2018. The ROCE rose to
7.58% in 2019 but drastically fell to 3.71% in 2020 This indicates a falling trend in
ROCE hence implies that SSE PLC is continuously incurring lower percentage of
profits generated from £1 of capital employed over the period 2016-2020.
Liquidity ratios
Generally, the liquidity ratios gives information on the ability of an organisation to pay
or cover all her financial obligations in the short term (Chandra, 2008). Liquidity ratio
considered in the analysis is the current ratio. The current ratio gives indication to
know if a firm has available resources to pay her current debt or not in the short term
(Thachappilly, 2009).
Current assets
Current ratio = :1
Current liabilities
According to Thachappilly (2009), a higher current ratio (preferably 2;1 or 1;1)
indicates that the firm can pay its short terms debt easily.
Table 2 Current ratio

2016 2017 2018 2019 2020

Ratio 0.824 1.124 0.915 1.028 0.67

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From the table above, it is noted that 2016 had a current ratio of 0.824:1, 2017 had
1.124:1, 2018 had 0.915:1 current ratio, 2019 recorded 1.028:1 and 2020 had 0.67:1
current ratio. This indicates a falling trend in current ratio. This suggests that the
company, SSE Plc over the period 2016-2020 had difficulties meeting its current
liabilities or debts. Now, if SSE Plc consistently has trouble meeting its short-term
debt then it is at a higher risk of bankruptcy.

Efficiency ratios:
Efficiency ratios measure the level of a firm’s operating performance or efficiency in
which assets of the firm are managed. Ratios considered include receivable
collection period and payable payment period.
Receivable collection period:
This ratio gives details of the average length of time a firm takes for her customers to
pay what they owe her. Short collection period (less than 36 days) is usually
preferred and a high period indicates a weak asset management by the firm (Kenton,
2021).
Trade receivables
Accounts receivable collection period= x 365days
Sales∨credit sales
Analysis of SSE Plc accounts reveals accounts receivable collection period of 41.5
days in 2016, 47.2 days in 2017, 47.6 days in 2018, 91.8 days in 2016 and 94.5 days
in 2020. This indicates a rise period in debt collection period. This indicates a weak
asset management and possible of its cash in debt.

Payable payment period

This ratio is employed to determine a firm’s liquidity level. It gives indication of the
rate at which funds are paid to creditors (Murphy, 2020) . A decreasing rate implies
the firms is in distress or has negotiated varying payment schedules with her
suppliers. Contrarily, an increasing ratio suggests that the firm has enough cash to
settle her short term debts or has managed her cash flow effectively (Murphy, 2020).
Trade account payable
Accounts payable payment period= x 365days
Purchase∨cost of sales
It was found that 2016 had an accounts payable payment period of 6.23 days, 2017
had a period of 6.24 days, 2018 recorded 5.01 days and 2019 had 21.9 days where

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as 2020 recorded a period of 48.7 days. This indicates a rising trend over the period
2016-2020 hence indicates that SSE has enough cash to settle her short term debts
or has managed her cash flow effectively.
Shareholders’ investment ratios
These ratios help the equity shareholders assess the value and quality of their
investments. Ratio used in this respect is the Earning per share (EPS). This
measures the return on each ordinary share for a year.
PAT −Preference dividend
o EPS = or
No . of odinary shares issued

Net profit after interest , tax∧ preference dividend

No . of odinary shares issued
According to Jason (2021) a high EPS indicates strong earnings and hence a good
investment prospect. In that instance, a rising EPS over a period suggests
continuous progress in earning power of a firm.

Figure 3 Earning per share

Source: SSE Plc Financial statement

It is noted that year 2016 had a EPS od 46.1. This rose to 158.4 in 2017 but fell to
81.3 in 2018. Again, the EPS rose to 123.7 in 2019 but fell in 40.6. It is found at EPS
of SSE Plc is undulating(up and down). This could suggest a probable massive
investment in the lower years which gives higher earnings in the high EPS years.
However, this indicates a decreasing trend and a cause to possible suggest the
earning power of SSE Plc is reducing.

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Long term solvency and stability:
In knowing the long-term solvency of SSE Plc, a debt ratio was employed. This ratio
assesses a firm’s debt capital to its total assets
Total debt ( Noncurrent liability +current liability)
Debt ratio= =
Total assets
According to Hayes (2020), a debt ratio greater than 1 indicates that a firm has more
debt than assets and that which is lesser than 1 indicates that the firm has more
assets than debt.

Table 3 Debt ratio

2016 2017 2018 2019 2020
0.76485 0.73773 0.77470 0.74221 0.76606
Ratio 9 2 6 3 3

It is found that year 2016 had a debt ratio of 0.764, 2017 has a ratio of 0.73, 2018
had that of 0.774 and 2019 had a debt ratio of 0.742. Year 2020 recorded a debt
ratio of 0.766. inference from these ratios is that SSE has more asset than debts
hence can meet her long tern debts since larger share of SSE Plc’s assets is funded
by equity.

2. Balanced scorecard (BSC)

Balanced scorecard as per Kaplan and Norton (1996), transforms a firm’s mission as
well as strategy into established and understandable indicators or measures for a
strategy to be well measured communicated and understood. In responding to a
company’s vision as well as strategy, BSC employs four business perspectives.
These include
Financial perspective – establishing financial objectives which must be attained to
satisfy shareholders’ interests.
customer perspective - that establishing objectives which meets customer’‟ needs
so as meet established financial aims.
Internal processes perspective – establishing the means in which excellence is to
be attained to satisfy customers.
Learning and growth perspective –establishing the means in which a firm learns
and innovates to accomplish all goals proposed in the other perspectives

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Conclusion

2. How to define a KPI

Defining key performance indicators can be tricky business. The operative word in
KPI is “key” because every KPI should related to a specific business outcome with a
performance measure. KPIs are often confused with business metrics. Although
often used in the same spirit, KPIs need to be defined according to critical or core
business objectives. Follow these steps when defining a KPI:

 What is your desired outcome?

 Why does this outcome matter?
 How are you going to measure progress?
 How can you influence the outcome?

 Who is responsible for the business outcome?

 How will you know you’ve achieved your outcome?
 How often will you review progress towards the outcome?

As an example, let’s say your objective is to increase sales revenue this year. You’re
going to call this your Sales Growth KPI. Here’s how you might define the KPI:

 To increase sales revenue by 20% this year

 Achieving this target will allow the business to become profitable
 Progress will be measured as an increase in revenue measured in dollars
spent
 By hiring additional sales staff, by promoting existing customers to buy more
product

 The Chief Sales Officer is responsible for this metric

 Revenue will have increased by 20% this year
 Will be reviewed on a monthly basis

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LIST OF REFERENCES

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APPENDIX

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