Financial Decision Making

Assignment (1)

“WS Atkins PLC”

Mutasem Mohammed Sulieman Amro

Student ID: 16402752

Program: MBA

Northampton University

July 25, 2016

 Section A: WS Atkins PLC

Introduction

WS Atkins PLC, known as simply Atkins, is a British multinational

organization, offering engineering, design, planning, architectural design,

project management, and consulting services to those interested (Atkins

Global, 2016). The organization has locations in Europe, the Middle East,

North America, the Asia Pacific, and South America (Atkins Global, 2016b).

Founded in 1938, the company originally specialized in the provision of both

civil and structural design and engineering; following World War II, the

company started expanding, taking off in a host of different fields (Atkins

Global, 2016c). For the first 60 years of its life, the company was privately

held; following the death of its founder in 1989, the company started

purchasing other organizations within the industry, and became publically

traded in 1996 (Atkins Global 2016c).

In 2009, the company was tasked with the job of the “official

engineering design services provider for the” Olympic Games held in 2012 in

London, and has continued its acquisitions of other, smaller organizations

since that time; as of 2013, the company celebrated its 75 th anniversary

(Atkins Global, 2016c). It is this company that serves as the primary focal

point for the exploration contained within these pages. By working to

analyze Atkins, it will be possible to determine whether or not such an

organization serves as a good investment, or as a poor one, and a

determination may then be made regarding whether it should be invested in.

Profits

In order to start an exploration of the organization, it is first necessary

to look at the company profits. According to the annual income statement,

which spans between 2011 and 2015, the gross profits of the organization

continue to rise (see Table 1, below).

Table 1: Gross Profits 2011-2015

Year: 2015 2014 2013 2012 2011

Profits: (GBP 707400 685100 616600 614000 589100

Thousands)

(Source: WS Atkins PLC Annual Income Statement, 2016).

As profits continue to rise for Atkins, the company, in order to increase

the benefits received by shareholders, the company opted to increase the

interim dividends in 2015 (Pooler, 2015). This decision came on the heels of

a restructuring of the organization that allowed them to boost their half year

profits by 38% (Pooler, 2015). If that was not enough, as of earlier this

year, the company had a repeat performance; due to increases in profits at

the close of the last fiscal year (FY), the company opted to increase the

dividends paid to shareholders for the first quarter of 2016 (Ficenec, 2016).
Earnings

The corporate earnings of an organization reflect the amount of money

that the organization has made within a set period of time; depending on the

organization, they may be calculated either yearly or monthly (Financial

Dictionary, 2016). In order to determine the corporate earnings for a given

organization, it is necessary to subtract the totality of the company’s

expenses from their revenue, enabling a determination of exactly what was

made by the company during that time period. Table 1, above, indicates the

gross profits of the organization for the years 2011-2015. This information

was calculated by subtracting the total costs from the total revenue in order

to obtain the gross profit (WS Atkins PLC Annual Income Statement, 2016).

The profits, in this case, are in keeping with the earnings of the firm

(Francis, Michas, & Seavey, 2012).

Five Year Trend

In order to determine whether or not an individual should invest in a

given organization, it is necessary to review the five year trends for the

organization. Businesses are able to continue to advance, or continue to

decline, as a result of previous trends already present within the

organization (DeAngelis, 2010). If those trends are overlooked, the

individual may not invest in the appropriate company, but if the individual

pays attention to past trends, he or she can gain insight into the likelihood of
the success or failure of the organization in the future (DeAngelis, 2010). By

analyzing the business over a period of five years, the potential investor is

able to understand, not only how the business has performed in the past,

but may assist the individual in predicting the potential success of the

business in the future, while at the same time identifying potential future

market trends based on the aspects of the organization that have been met

with success (Queensland Government, 2016). Based on the five year trends

that may be identified for Atkins (Table 1, above), research indicates that

the organization is on the continued track for success, and, in light of the

continued expansion and diversification of the organization, the likelihood

that these trends will continue over the course of the next five years is high

(Atkins Global, 2016; 2016b; 2016c; WS Atkins PLC Annual Income

Statement, 2016).

Financial Performance - Ratios

The ratios for the organization enable the potential investor to

determine exactly where the company is spending its money, what

percentages of expenditures, returns, and profit are present, and enable the

potential investor to determine what type of return on his or her investment

that she or he can expect (NetMBA, 2012). Table 2, below, serves to indicate

the financial ratios for Atkins, presented based on year and identified by

type of ratio being explored.

Table 2: Atkins Financial Ratios (GBP Millions)

Financials
2011-03 2012-03 2013-03 2014-03 2015-03 2016-03 TTM
Revenue GBP Mil 1,564 1,711 1,705 1,750 1,756 1,862 1,862
Gross Margin % 37.7 35.9 36.2 39.1 40.3 40.4 40.4
Operating Income GBP Mil 107 137 104 114 119 143 143
Operating Margin % 6.8 8 6.1 6.5 6.7 7.7 7.7
Net Income GBP Mil 72 107 89 96 86 103 103
Earnings Per Share GBP 0.72 1.07 0.89 0.95 0.85 1.03 1.03
Dividends GBP 0.29 0.33 0.34 0.36 0.34 0.37 0.37
Payout Ratio % 39.6 41.3 29.8 37 43.8 37.4 36.1
Shares Mil 100 100 100 100 100 100 100
Book Value Per Share EUR 0.19 0.83 0.94 1.22 2.15 2.69 3.23
Operating Cash Flow GBP Mil 53 55 75 82 116 79 79
Cap Spending GBP Mil -16 -20 -24 -18 -25 -20 -20
Free Cash Flow GBP Mil 38 35 50 64 91 59 59
Free Cash Flow Per Share EUR 0.43 0.52 0.08 0.86 0.86 1.1
Working Capital GBP Mil -22 3 92 144 133 414

Key Ratios -> Profitability

Margins % of Sales 2011-03 2012-03 2013-03 2014-03 2015-03 2016-03 TTM
Revenue 100 100 100 100 100 100 100
COGS 62.34 64.12 63.85 60.85 59.73 59.57 59.57
Gross Margin 37.66 35.88 36.15 39.15 40.27 40.43 40.43
SG&A 32.65 33.52 32.72 32.72
R&D
Other 32.01 28.57 30.05
Operating Margin 6.84 8.02 6.1 6.5 6.75 7.7 7.7
Net Int Inc & Other -1.02 -0.1 -0.05 0.03 -0.67 -0.66 -0.66
EBT Margin 5.82 7.92 6.06 6.53 6.07 7.04 7.04

Profitability 2011-03 2012-03 2013-03 2014-03 2015-03 2016-03 TTM

Tax Rate % 20.22 21.18 14.42 15.67 19.68 21.13 21.13
Net Margin % 4.64 6.24 5.2 5.49 4.88 5.54 5.54
Asset Turnover (Average) 1.65 1.63 1.56 1.59 1.54 1.44 1.44
Return on Assets % 7.65 10.19 8.12 8.75 7.51 7.97 7.97
Financial Leverage (Average) 62.76 8.98 7.74 8.31 5.87 4.8 4.8
Return on Equity % 157.37 67.38 70.07 51.19 41.8 41.8
Return on Invested Capital % 71.01 36.76 39.39 31.08 23.25 23.25
Interest Coverage 61.67 59.91 30.51 34.59 33.33 41.97 41.97

Key Ratios -> Growth

Latest
2011-03 2012-03 2013-03 2014-03 2015-03 2016-03 Qtr
Revenue %
Year over Year 12.71 9.38 -0.34 2.63 0.37 5.99
3-Year Average 6 4.79 7.1 3.81 0.88 2.97
5-Year Average 8.25 7.72 5.36 3.31 4.82 3.54
10-Year Average 8.79 7.81 6.19 5.84 6.28 5.87
Operating Income %
Year over Year -5.31 28.22 -24.13 9.22 4.22 21.01
3-Year Average 7.26 9.99 -2.7 2.05 -4.77 11.27
5-Year Average 11.21 16.59 3.73 1.98 0.96 6.03
10-Year Average 14.81 25.73 12.31 10.67 8.59
Net Income %
Year over Year -29.03 46.97 -16.87 8.23 -10.73 20.42
3-Year Average -10.12 8.21 -4.64 9.76 -7.05 5.18
5-Year Average 4.99 -2.37 2.66 -3.48 7.29
10-Year Average 13.93 24.63 9.89 8.22 6.13
EPS %
Year over Year -29.49 46.63 -16.7 7.88 -10.86 20.61
3-Year Average -9.23 7.92 -4.86 9.63 -7.12 5.07
5-Year Average 5.4 -1.79 2.47 -3.7 7.22
10-Year Average 13.11 23.61 9.6 8.24 6.3

Key Ratios -> Cash Flow

Cash Flow Ratios 2011-03 2012-03 2013-03 2014-03 2015-03 2016-03 TTM
Operating Cash Flow Growth %
YOY -49.91 2.42 36.48 9.84 40.68 -32.01
Free Cash Flow Growth % YOY -60.52 -7.16 45.14 27.56 40.28 -34.87
Cap Ex as a % of Sales 1.03 1.17 1.43 1.02 1.44 1.06 1.06
Free Cash Flow/Sales % 2.41 2.05 2.98 3.7 5.17 3.18 3.18
Free Cash Flow/Net Income 0.52 0.33 0.57 0.68 1.06 0.57 0.57

Key Ratios -> Financial Health

Latest
Balance Sheet Items (in %) 2011-03 2012-03 2013-03 2014-03 2015-03 2016-03 Qtr
Cash & Short-Term Investments 15.29 18.9 21.35 24.92 22.48 32.69 32.69
Accounts Receivable 27.67 26.74 28.26 26.1 25.45 20.57 20.57
Inventory 0.08 0.1 0.02
Other Current Assets 14.71 15.42 12.05 12.61 14.21 14.03 14.03
Total Current Assets 57.75 61.16 61.67 63.63 62.14 67.29 67.29
Net PP&E 5.16 4.81 4.55 4.32 4.46 3.74 3.74
Intangibles 23.69 23.47 22.52 22.16 24.86 21.62 21.62
Other Long-Term Assets 13.4 10.56 11.25 9.89 8.53 7.35 7.35
Total Assets 100 100 100 100 100 100 100
Accounts Payable 9.47 8.2 6.67 5.84 5.52 5.41 5.41
Short-Term Debt 4.73 9.87 5.37 5.11 5.08 0.5 0.5
Taxes Payable 3.54 3.2 7.34 2.93 6.89 5.13 5.13
Accrued Liabilities
Other Short-Term Liabilities 42.17 39.57 34.03 36.44 33.58 26.43 26.43
Total Current Liabilities 59.91 60.84 53.4 50.31 51.07 37.48 37.48
Long-Term Debt 0.45 0.46 4.42 4.21 4.18 19.71 19.71
Other Long-Term Liabilities 38.04 27.56 29.25 33.44 27.71 21.98 21.98
Total Liabilities 98.41 88.86 87.08 87.97 82.95 79.17 79.17
Total Stockholders' Equity 1.59 11.14 12.92 12.03 17.05 20.83 20.83
Total Liabilities & Equity 100 100 100 100 100 100 100

Latest
Liquidity/Financial Health 2011-03 2012-03 2013-03 2014-03 2015-03 2016-03 Qtr
Current Ratio 0.96 1.01 1.15 1.26 1.22 1.8 1.8
Quick Ratio 0.93 0.97 1.13 1.23 1.17 1.73 1.73
Financial Leverage 62.76 8.98 7.74 8.31 5.87 4.8 4.8
Debt/Equity 0.28 0.04 0.34 0.35 0.25 0.95 0.95

Key Ratios -> Efficiency Ratios

Efficiency 2011-03 2012-03 2013-03 2014-03 2015-03 2016-03 TTM
Days Sales Outstanding 59.85 60.73 64.34 62.23 61.06 57.94 57.94
Days Inventory 0.32 0.32 0.22 0.03
Payables Period 27.6 30.72 27.17 23.55 22.51 23.27 23.27
Cash Conversion Cycle 32.56 30.32 37.39 38.72
Receivables Turnover 6.1 6.01 5.67 5.86 5.98 6.3 6.3
Inventory Turnover 1147.29 1154.84 1674.92 10650
Fixed Assets Turnover 34.12 32.81 33.37 35.94 35.03 35.3 35.3
Asset Turnover 1.65 1.63 1.56 1.59 1.54 1.44 1.44
(Source: Morningstar, 2016).
 A ratio analysis enables the potential investor to determine the

efficiency, liquidity, profitability, and solvency of an organization, among

other things (Business Finance Online, 2016). Reviewing the different ratios

presented above (Table 2), it becomes possible to see that not only is the

company increasing its efficiencies, as was indicated in previous reports on

and by the organization, but it is also working to enhance its overall

profitability, present in a return on dividends to shareholders (Atkins Global,

2016d; 2016e; Ficenec, 2016; Pooler, 2015).

Dividends

Dividends are sums of money that are paid regularly by a company to

its shareholders; such payments may occur quarterly, annually, or both

(CNN, 2016). While the dividends appear to have decreased somewhat

within the past year (Table 2), research shows that this was due to the

company restructuring that took place, and furthermore, that the company

has actually made individual increases in payments of dividends for the past

two quarters to shareholders due to the added profits that such restructuring

has brought to the organization (Atkins Global, 2016d; 2016e; Ficenec,

2016; Pooler, 2015).

Stability and Liquidity

Market liquidity refers to the ability to buy or sell large amounts of a

given asset, in this case a share or a stock, with little to no impact on the
price; the concern with market liquidity is not its presence, but rather what

happens when that liquidity goes away (Money & Banking, 2015). In terms

of a specific organization, liquidity refers to the ability of the company to buy

and sell assets, and the ease in which such a task can be accomplished

(Money & Banking, 2016). Financial stability can refer to either the stability

of the system or of the organization in question (Money & Banking, 2015).

In this case, both of these terms are being applied within the context of the

organization itself. Thus, in reviewing the ratios for the organization (Table

2), it becomes possible to see that the organization has a relatively fluid

amount of liquidity; it is able to buy and sell assets, including smaller

organizations, with minimal impact on the ultimate net profits (Table 1). This

serves to indicate a strong stability for the organization, as its ability to

improve itself, to expand and to change, is not adversely affected by those

changes.

Section B: WS Atkins PLC

Company Performance

The company performance for Atkins is divided into segments,

depending on the location of the particular branch office, before being

combined into the overall totals, which were used in the determination of the

figures in Table 1 and Table 2 (Atkins, 2016f). When looking at the

segmented performance of the organization, research shows that the

European offices are continuing to improve and expand (Atkins, 2016f). The

North America offices are going through the current period of restructuring,

the process that was undertaken by the European offices last year, placing

certain limitations on the improvements that could be made in terms of

performance, though those numbers are expected to improve within the

next quarter (Atkins, 2016f). The offices in the Middle East are doing almost

as well as the European offices, though the offices in the Asian Pacific

experienced certain negative impacts due to delays in the start of projects as

a result of issues within the region; as those situations continue to improve,

it is expected that there will not be any future delays as a result (Atkins,

2016f).

Reflection on Journalist Presentation

The presentation of the company, its actions, and its practices, from a

journalistic perspective is one that is highly positive. The information on the

company is reported fairly, and enough information is present to ensure that

an individual may make an accurate determination as to whether or not he

or she would like to invest in the company and whether that is a good value

(Ficenec, 2016; Pooler, 2015).

Corporate Governance

Corporate governance is strong, and the company appears to only

have gained momentum since it went public, increasing and expanding all
the while maintaining high standards of corporate accountability and

displaying appropriate attention to corporate social responsibility practices

(Atkins, 2016; 2016b; 2016c; 2016d).

Share Pricing and Asset Value

The current share pricing is slightly lower than it was at the end of

June, however, in spite of this, trends are relatively stable, holding between

1600.0 and 1200.0 GBP over the course of the past six months (Atkins

Global, 2016g). The below figure serves to indicate the trends in share

pricing over the course of the past six months in 2016.

Figure 1: Share Pricing

(Source: Atkins, 2016g).

Today, there has been a 0% change in the stock prices, and during this

period of uncertainty within Great Britain, there is a current market cap,

making this number unlikely to change until such sociopolitical factors are

stabilized (Atkins, 2016g).

Investment Opportunity

All in all, in spite of the uncertainties in Britain at this time, and in

spite of the uncertainties in Europe, from a political standpoint, Atkins

appears to be a strong organization, one that shows continued growth, and

one that has not experienced any issues since the company went public. It

may be recommended that this would be a perfect company to purchase

stock in if one wanted stability.

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