Financial Management for Decision Maker

Element 2

[Date]

SIG PLC Company

Abstract
This report is prepared by consultation and on the basis of the annual report of SIG PLC

Limited for the years 2019 and 2020. The performance of the company is measured through

ratio analysis which takes up data from the financial statements of a company and

calculates them for profitability, return, and other indicators of performance. Some

common ratios include profitability ratios, efficiency ratios, liquidity ratios, leverage ratios,

and market value ratios. The profitability ratios indicate a firms’ performance in terms of

generating return and profit like return on assets or return on equity and gross profit or net

profit. Liquidity is measured via current and quick ratios and cash ratio as well. Efficiency

suggests how rapidly important functions are performed like collecting money so it is

measured through turnover ratios. A higher ratio shows better collection of uncollected

revenue, etc. Leverage ratios will tell how much of the company is made from debt. A lower

ratio is usually better.

Introduction & Background

SIG PLC Company is one of the largest private foremost comprehensive providers of
Insulation, roofing, and commercial interior products. Currently, it operates with the presence
of more than 400 distribution centre around the world. The insulation department of the
company operates the three main areas such as thermal barriers, sound insulation, and smoke
and fire fences. SIG Plc Company started their journey in1957 in Sheffield, UK and it has
grown from a single division insulation supply venture into an international high-quality
supplier business which is functioning in two dissimilar market segments. Currently active in
many countries such as the United Kingdom, Ireland, France, the United State, Poland and
Germany with 7000 Employees SIG PLC company's insulation operation activities hold three
primary areas such as thermal barriers, sound insulation, and smoke and fire fences. The
company provides a full range of roofing material and accessory under the roofing segment.
And under the commercial interior products division includes ceiling, wall systems,
partitions, another office furnishing, and lighting storage systems with full combined interior
packages. SIG has grown rapidly during the early 2000s and incorporated in 1956 as
Sheffield Insulation Limited Company. It has also listed on the London Stock Exchange and
SLG posted sales of nearly £1.39 billion to £2.4 billion and revenue earned approximately
£1.4 billion in 2004.

Financial comparison of the company using trend and ratio analysis

Ratio and trend analysis is the measures of the financial analysis in order to perceive and

have debt knowledge about the financial performances of the organization. It’s helps in

comparison between two company or more, or differentiate with its previous performances

of its own company. Among various ratio analysis some of the significant ratios are as

follows:

 Liquidity or solvency measurement ratio

  Asset efficiency or activity ratio

 Financial leverage or debt ratio

 Profitability ratio

 Market value or investor ratio

1. Liquidity ratio helps to assess the organization ability to pay its debt obligation and its

margin of safety through analysis of, quick assets ratio, and current ratio. Liquidity

depicts the ability of company to convert all its assets into cash quickly and cheaply

("Using ratios in your business.

2. Asset efficiency or the activity ratio helps to measure the current performance or short-

term analysis of the company. It enhances the organization ability to generate income

by the use of its assets. Receivable turnover ratio, Asset turnover ratio, inventory

turnover ratio, are some of its types.

3. Financial leverage or debt ratio helps to measure the long-term analysis of the company.

It indicates the ability to repay the principal amount of the debt along with the interest.

Debt to asset, debt to equity, debt to capital is some of its types.

4. Profitability is one of most popular financial measurement tools that are used to

evaluate the ability of the company to generate earnings relative to its revenues, assets,

equity capital and expenses of the company using data for a specific period of time.

5. Higher profitability ratio is favourable and it is compared with company’s historical

performance as well as industry average to assess the performance of the company.

Profitability can be measured in many ways but the popular methods are Profit Margin,

Return on Equity and Return on Assets.

Market value or investor ratio helps to evaluate the market or share price of the publicly

held company.

Source: Financial Performance Statement of SIG PLC

Ratio analysis of the SIG PLC in comparison 2018- and 2019-year performance.
 Debt Ratio – Debt ratio termed that how many assets of the company is backed by debt.
If more the debt ratio more the company is leveraged and here as we can easily analysis
the company is leveraged as it has a higher debt ratio.

Debt Ratio = Total Liabilities/Total Assets

 2019 2018

Total Liabilities 781.80 512.30

Total Assets 822.20 778.20

Debt Ratio 0.95 0.66

the company is leveraged as it has higher debt ratio.

 Gross Profit Margin - Gross profit margin is a logical measurement expressed as an

organization's net deals short the expense of merchandise sold. The gross profit margin
shows (Han, Song and Whang, 2020). the measure of benefit made prior to deducting
selling, general, and operating expenses, which is the association's gross profit margin.

Gross Profit Margin Ratio = Gross Profit/Sales *100

2019 2018
Net Sales 2,160.60 2,431.80
Less: Cost of Sales 1,601.50 1,813.20
Gross Profit 559.10 618.60
Net Sales 2,160.60 2,431.80
25.88 25.44

Gross Profit Margin ratio: it is % of profit with respect to sales.

 Time Interest Ratio –

Times interest earned ratio= EBIT/interest expense

2019 2018
EBIT -87.40 26.70
Interest Expense -
net 25.30 16.40
-3.45 1.63

The company’s interest earned ratio is weaker. The company has average
ratio last year but there is increase in interest expenses as well as the
company has incurred losses so this is an exception due to which the ratio has
turned negative.

 Account Receivable Turnover – he receivables turnover ratio measures

the efficiency with which a company collects on its receivables or the
credit it extends to customers. The ratio also measures how many times a
company's receivables are converted to cash in a period.

Accounts Receivable = Net Credit Sales/Average accounts receivable

2019 2018

Net Credit Sales 2,160.60 2,431.80

Average accounts receivable 386.20 479.05

5.59 5.08

Higher ratio reflect that the company will get generate higher cash flow
from its operating activities. The company has good account receivable
ratio.

 Inventory Turnover – Inventory turnover is a financial ratio

showing how many times a company has sold and replaced
inventory during a given period. A company can then divide the
days in the period by the inventory turnover formula to calculate
the days it takes to sell the inventory on hand.

Inventory Turnover= Cost of Goods Sold/Average

 inventory

2019 2018
Cost of Goods Sold

Net Sales 2,160.60 2,431.80

Cost of Sales 1,601.50 1,813.20

Cost of Goods Sold 559.10 618.60

Average Inventory 181.85 225.35

3.07 2.75

 Return on sales – Return on sales (ROS) is a ratio used to evaluate a company's

operational efficiency. This measure provides insight into how much profit is being

produced per dollar of sales. An increasing ROS indicates that a company is growing

more efficiently.

Return on Sales = Operating Profit/ Net

Sales

2019 2018

Gross Profit 559.10 618.60

Net Sales 2,160.60 2,431.80

Return on Sales 25.88 25.44

 Assets Turnover –

Asset Turnover Ratio = Net Sales/Average total sales

2019 2018

Net Sales 2,161 2,432

Average total
asset 1,33,625 1,17,359

Asset Turnover 0.02 0.02

The company had utilised the assets efficiently last year as compared to
current year this may be one of the reasons for the company to incur losses.

 Return on Assets – it is a profitability ratio that give a statement

of how much profit company is able to generate from its company
assets.
 2019 2018
Consolidated net income -124.50 17.90
Average total asset 1,294.35 1,291.15
ROA -9.62 1.39

Even though the company have good on sales it is not able to generate
good return on its assets, this means the management is not able to
perform better.

 Financial Leverage –

2019 2018

Long Term Debt 271.80 265.70

Equity 294.20 462.90

Debt Equity Ratio 92.39 57.40

The company has very high debt equity ratio in fact the negative debt
ratio in the current ratio shows that the company is totally financed
by long debt and is more volatile.

 Return on Equity – it is a measure of a company’s annual return

dividend by the value of its total shareholder’s equity expressed
as a percentage.

ROE = Net Income/Shareholder's

Equity*100

2019 2018
-
Net Income 124.50 17.90

Shareholders’ Equity 294.20 462.90

-
ROE 42.32 3.87

The above ratio can be summarised and evaluated as under:

Some of the techniques to measure the performance of the management adopted by the SIG

are Key Performance indicator, Balance Scorecard, Peer reviews. In the terms of Financial,

internal business, growth and customer perspectives lead to develop the performance of the

company to sustain in the competitive market. SIG encourage the flexibility of its operations

by enhancing the oracle retail planning solution which helps to tune with the solutions in

order to address the needs of the business with advanced forecasting capabilities and perform

profitability and effectively in the organization. SIG has simplified and redesigned its

operating process that resulted in reduction in operating expenses by almost 42% and made

investment in the field of innovations, leadership and capabilities. Both the economic and

financial approaches are key components of any organization. SIG continuously focus to

increase the awareness about the scarce resources and use of eco-friendly products.

Financial analyst focusses on the financial viability of the project and economic can be

regarded as the extension of the financial perceptive. The economic lays importance on the

improvement of the society, economy as the whole.

SIG PLC should focus on boosting its sales, which will indirectly increase the market value

of the company. Attractive offers should be launched so that customer get engages to it and if

satisfied with product even buy it. Further it is important that the SIG identify the gaps and

full fill them with the areas of improvement by logical framework and strategy which will

help them to increase the value of the company. The financial analysis of multiple financial

tools and techniques indicates that SIG PLC could perform better in the industry if they can

gain new customers, enhance its offerings and improve its profitability. The analysis of cash
flows all contracts with help of various financial measurement tools indicates great

development of all the company and it may also help SIG PLC to become one of the top

FTSE 100 companies.

In profitability, we analyse the ability of the company to convert revenue into profit and

efficiency of company in making profit out of its sales. Profitability ratio is used to

determine the overall success of the company and compare the profit with primary

activities of the business.

The EPS paid by the company is more than the industry average. Dividend on shares is

increasing every year but the dividend growth rate is lower in comparison with industry

average. The above shown ratios also help company to identify the area in which

improvement is required to improve the overall profitability of the company.

Liquidity ratio is a crucial aspect to consider in determination of debt repayment ability of

the company. With the help of liquidity ratio, management work towards betterment of

working capital requirement. SIG PLC needs to improve the dividend growth rate. It

needs to inject more current assets to maintain the liquidity of the company. There is need

to pay off debt of the company in order to reduce the expenditure and increase gross

profit margin. Further it needs to makes acquisition in order to increase its market share

and increase corporate value.

Limitation of ratio and trend analysis

Some of the limitation of ratio and trend analysis are as follows: -

Ratio analysis is based on past information; hence it is also called historical informative

system, which always not predict the future performance of the company effectively. There

has been no effect or change if there is inflation. Hence it is ignored, which does not depict
the real price and efficiency of the performance of the company. If there is any change in the

accounting policy or the financial change the company may be misled by following the data

of the previous year.

Trend analysis is not very informative or analytical as it only represents the percentage

change, perhaps fails to give the proper data from which it is derived. As it is even based on

historical data which is not absolute in the future, so it cannot be predicted for the future

performance of the company.

References

Cashwell, K., Copley, P. and Dugan, M., 2019. Using ratio analysis to manage not-for-profit
organizations. The CPA Journal, 89(5), pp.52-57.
Chowdhury, M., 2018. Performance Measures through Financial Ratio Analysis of (Doctoral
dissertation, Daffodil International University).
Daryanto, W.M. and Samidi, S., 2018. A Financial Ratio Analysis of Oil and Gas Private
Company in Indonesia: Before and After Declining the Oil Production. International
Journal of Business Studies, 2(2), pp.74-83.
Han, S., Song, K. and Whang, E., 2020. Financial ratio analysis of law firm's strategy and job
satisfaction. International Journal of Organization Theory & Behavior.
Kalaiselvi, S. and Sangeetha, C., 2018. Ratio analysis of the selected stock broking
companies. Asian Journal of Multidimensional Research (AJMR), 7(7), pp.195-199.
Kourtis, E., Kourtis, G. and Curtis, P., 2019. Αn Integrated Financial Ratio Analysis as a
Navigation Compass through the Fraudulent Reporting Conundrum: Α Case Study.
International Journal of Finance, Insurance and Risk Management, 9(1-2), pp.3-20.