Management Finance & Science-financial analysis: Group accounts of Balfour Beatty plc.

and Interserve
Plc.

Balfour Beatty plc company overview

Balfour Beatty plc is one of the global multinational infrastructure groups that is based in the UK, having
capabilities in the construction services, support as well as infrastructure investments. The company
works across the UK, United States, Ireland, south Asia and Canada. In the context of their turnover,
Balfour Beatty plc was deemed in September of 2018 to be the biggest construction contractor in the
UK. The company boasts of more than 28,000 employees, focusing on the provision of innovative as well
as efficient infrastructure that tends to underpin their daily lives, supporting communities and enabling
economic development. The company additionally focuses on the financing, developing, building as well
as maintaining complex infrastructure as transportation, utility and power systems, social and
commercial buildings.

Interserve plc

Interserve plc on the other hand is also a multinational group of support services along with
comnstruction companies that is based in the UK, having revenue of 2.7 billion pounds in the year 2018,
with a workforce of 68,000 people globally. The compant was started in the year 1884, at the time
known as the London and Tibury lighterage company ltd, retaining the Tibury name till 2001. It however
follows that the financial issues that encompasses challenges contracts in intersave’s energy from waste
business resulted in the company issuing profit warnings in the year 2017. The company was compelled
to restructure as well as refinance in March 2018. It follows that the company’s financial situation
worsened in the late 2018, with debt holders stating to discussing additional financial restructuring of
the company. The company’s debt for equity arrangement was rejected in one of the annual general
meetings that was held in march 2019, leading to the parent company going into administration owing
creditors more than 100 million pounds.

Ratio analysis

Ratio analysis has been used as a management tool that seeks to compare the connection of the diverse
statement accounts as a way of offering a working knowledge of a company’s situation in the context of
the strengths and weaknesses of their financial performance. The calculated ratios are to be indicated
as numerical values. The section of the analysis presents information on the five classes of ratio
comparison targeting two companies, Interserve plc and Balfour Beatty plc as a way of determining the
financial health of the two companies with the view of determining the one that needs to be divested.
The analysis is going to target the main or most useful ratios from each of the categories that are to be
calculated and interpreted from the potential investors’ point of view as well as the desire to decide on
the company to close down. Through this analysis, the management of the two companies will be able
to make a decision on the strategies they will be adapting to enhance the overall business performance
of the companies under consideration.

Company performance

Ratio/ company Interserve plc Balfour Beatty plc

Gross profit 9.96 4.98
Management Finance & Science-financial analysis: Group accounts of Balfour Beatty plc. and Interserve
Plc.

Quick ratio 1.08 0.9337

Current ratio 1.13 0.8908
Debt to equity - 0.503
Asset turnover 1.59 1.36
Divided yield - 1.90
ROA -4.31 2.83
ROE -844.73 10.0
Net profit margin -4.78 1.82
Operating margin 2.17

Profitability ratios

A company’s profitability as well as the continued profitability trend is one of the most integral aspects
that are taken into consideration when it comes to decisions made by possible investors and
management especially in deciding when a company should continue operating. The two companies
under consideration have been in the UK construction industry for a long time and have mastered the
art of making profits. This is an attribute that has made investors to continually expect their companies
to be profitable and earn them healthy dividends in the long run. It follows that even on the instances
whereby a company has been performing well and making profit, it is imperative that management
determines the areas that the company has been performing well and those that it has been struggling
to figure out the necessary steps.

Profit margins

The profit margin is used to examine a company’s ease of converting revenue into profits at the diverse
phases of measurement.

Interserve

Gross margin

The Gross margin demonstrates the proportion of the company’s revenue that has been retained as
income after tax and determined the net income to net revenue. It is computed via the division of gross
profit by the revenue.

Gross Margin % = Gross Profit / Revenue

= 366.2 / 3675.96709

= (Revenue - Cost of Goods Sold) / Revenue

= (3675.9609 - 3309.744) / 3675.949

= 9.96 %

Operating profit
Management Finance & Science-financial analysis: Group accounts of Balfour Beatty plc. and Interserve
Plc.

The operating profit margin is used to assess the overall amount of revenue that has remained once the
fixed costs in the context of operating costs as well as the variable costs have been addressed and is
indicated as a percentage.

The returns ratio

The returns ratios are used to measure the company’s efficiency when it comes to the generation of
returns for the shareholders. The three core rations that are examined in this case include the return on
assets, return on equity as well as the return on capital employed.

Return on asset

It is also known as the returns on investment and is used on measuring the efficiency that the company
manages their investment in terms of the assets and employing them to generate profit.

Asset Turnover

= Revenue / Average Total Assets

= Revenue / ((Total Assets) + Total Assets / count)

= 9384.73132 / ((5781.0126582 + 6344.69200524) / 2)

= 9004.73132 /6582.8574

= 1.36