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Alumasc Group Plc Financial Analysis

Alumasc Group Plc Financial Analysis Sample Essay

Introduction to Alumasc Plc Group

Alumasc Group Plc is one of the leading companies in the United Kingdom that manufactures, designs and markets construction and building products. The company was established in 1984 and is located in Kettering, the United Kingdom. Further, Alumasc conducts its operations across Europe, the United States, the United Kingdom and the Far East. Moreover, the company manufactures and designs precision components and engineering products for the industrial customers, and manufactures, designs and markets the products for construction and building industries. Thus, Alumasc operates its businesses through two key divisions: precision engineering and building products. Alumasc building products division provides waterproofing, solar shading, exterior wall insulation services, roofing services support systems, as well as green roofing.

On the other hand, the company’s precision engineering division is responsible for supplying zinc and aluminium die cast elements to the original apparatus manufacturers in industrial and automotive sectors. Alumasc main concern remains to provide safe working place for its staff and safety and health rests as the group key agenda. In addition, the group is focused on providing operative solutions to the community enhancing sustainable environment. This report will aim at giving some financial analysis of the group previous financial statements, its markets and products, the group growth in the previous five years, ratio analysis and its financial arrangement.

Markets and Products

Alumasc key brands include Gatic, Levolux as well as Blackdown Greenroofs. To achieve a great level of effectiveness in the market, Alumasc fosters entrepreneurial and achievement oriented culture that enhances empowerment of businesses to innovate and react rapidly to the local market requirements in a cohesive group’s management and strategic framework. Moreover, the company benefits from access to capital and its financial strength.

To sustain the stable positioning of the company, Alumasc ensures that quality products are offered to its customers. In addition, Alumasc Group is vigorously seeking opportunities in order to broaden the company’s international market spread, with its primary focus being on Europe, the Middle East and the United States. The company has further invested in marketing and sales resources in order to support its market development in its construction and Solar Shading products businesses.

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Some of the major markets for Alumasc are the Far East for Levolux, North America for Gatic and Levolux, and South East Asia for numerous group organisations. Moreover, Alumasc has grown its markets by expanding its European export sales to clients in Central Europe and Germany. Further, markets for Alumasc products continue to be extremely competitive and challenging, especially for the group Roof-pro, Blackdown as well as smaller roofing brands, this leads to the reorganisation of the markets to abundant countries. For instance, Alumasc has set up some strategies to supply about £0.7 million to Blackdown project in Scottish National Arena in order to expand its products markets.

Growth in the Past Five Years

Alumasc Group Plc. has recovered strongly for the last five years, growing profits, cash generations and revenues. This has resulted in the increase in the company final dividend of around 2.5 pence per share. The improved results of Alumasc reflect excellent performance of the group building products organisations in the previous five years, where the group core operational profit rose to 91% in the year 2013 above 2012 to around £8.4 million, yielding about 9.5 per cent return on sales and by 18% on revenue at around £88.3 million in the same year above 2012. This improvement in performance of Alumasc enables it to continue mounting management teams vital to its imminent attainment, while investing in marketing initiatives and extra resources. The development of international markets requires both patience and resources. Thus, Alumasc exports for its building products increased from around 13% in the financial years 2011 to around 20% of divisional totals in the financial year.

In addition, Alumasc shows a tremendous improvement in its revenues over the past five years, where the group revenue grew by around £6.2 million in the year 2012 to around £116.8 million in the years 2013. The underlying profit before tax also shows a tremendous increase from £1.2 million in the financial years 2011/2012 to around £5.1 million in the financial year 2012/2013; that is, 229% increase. The building products division’s revenues increase by 18% from £13.4 million in the financial year 2011/2012 to around £88.3 million in the fiscal year 2012/2013.

In the Alumasc engineering product division, the net financing costs increased to around £1.5 million in the fiscal year 2012/ 2013 from around £1.0 million in the fiscal year 2011/2012. In addition, the group net cash inflow shows an increasing tendency in the previous five years, recording about £5.5 million in the year-end 2013. Consequently, Alumasc net debt shows a reducing trend over the past five years with the group registering about £7.7 million in the fiscal year 2012/2013 which is one of the lowest figures for the last five years. Moreover, Alumasc profit before tax for engineering products division increases tremendously from £0.4 million in the fiscal years 2011/2012 to around £3.4 million in financial year 2012/2013.

Analysis of 2013 Results

Alumasc gross profit for the financial year 2012/2013 shows a tremendous increase compared to the financial year 2011/2012; that is, an increase from                  £ 26,118,000 million in the year 2012 to about £30,682,000 million in the year 2013. Nonetheless, the operating profit for 2013 was about £4.94 million compared to  £1.41 million in the year 2012. This shows a vast increase in the group operating profits which is an encouraging trend to all the group stakeholders and investors. The net profit for Alumasc in the year 2013 was about £2.4 million whilst net profit for the year 2012 was about £0.41 million. This tendency is a good signal of how Alumasc is improving its enactment as well as how the business is successfully expanding its market abroad.  Alumasc aggregate assets for the year 2013 are around £79.7 million compared to about £84.7 million in 2012 . This indicates how the business has tremendously increased its level of sales from 2012 to 2013 leading to a decrease in its aggregate assets. Consequently, Alumasc total liabilities for the year 2013 are about £57.3 million whilst those of the year 2012 were about £65.7 million. The decline in the total liabilities for 2013 compared to 2012 is a good indication of how effective the group is in managing its debts level.

Alumasc current asset for the financial year 2013 is about £45 million and current asset for financial year 2012 was about £47.7 million. On the contrary, the group’s current liabilities for the year 2013 are about £28.3 million, and its current liabilities for the year 2012 were about £29.3 million. The decrease of both the current assets and current liabilities of the groups yield a decline in the working capital. The more working capital an organisation has in hand, the less financial stress the organisation experiences. Therefore, it means that Alumasc might be experiencing some financial difficulties in operating its businesses successfully.

Financing

Alumasc Group financial structure encompasses the framework of numerous types of financing employed by the group in order to support and acquire the resources essential for its operations. This comprises the groups equity capital or shareholders’ investment, short-term loans, long-term loans, as well as short-term liabilities. From 2013 balance sheet, it is clear that Alumasc dependence on equity capital as a source of its finance has continued to increase over the year with a vast increase from £18.9 million in the financial year 2011/2012 to about 22.4 million in the financial year 2012/2013.

Financial Analysis

Financial analysis of a firm or a business venture is a crucial instrument in comparing the firm’s current performance with its past years performance. Furthermore, financial analysis of a business helps in pinpointing some issues which require to be fixed by the firm. Moreover, financial analysis of business provides some directives on probable issues that a firm can avoid. This includes evaluation of the business ratios such as profitability, efficiency, liquidity as well as operating cycle. 

Profitability Ratios

Profitability ratios in the industry provide appropriate information concerning the amount of returns or profits a firm gets from every item or product sold. Moreover, these ratios offer the business stakeholders ideas of what is encompassed in the firm’s income. These ratios comprise the gross profit margin, return on assets, as well as net profit margin.

Return on Assets

This ratio indicates the fundamental relationship that exists between the profits of the business and its total assets. Moreover, the return on assets helps in measuring or evaluating how resourcefully the firm makes use of all its assets in producing revenue.

ROA=

2012 == 0.48%

2013 =  x 100%= 2.37%

From the calculations, it is evident that Alumasc Group has experienced a tremendous increase in its return on assets over the last two years (2012 to 2013). This is a good indication on how Alumasc is resourcefully making use of all its assets in producing revenue.

Liquidity Ratio

Liquidity ratios of a business or a firm mainly provide information on the firm’s ability to pay up its immediate obligations by utilising assets which can be easily changed to cash. The assets that can be easily changed to cash are denoted as the liquid assets. Liquid ratios comprise acid test ratio and current ratio.

Current Ratio

Current ratio gives a reflection of the business financial strength. Moreover, it measures the number of times the business short-term assets exceed its short-term obligations. This helps in evaluating the solvency of the firm. Alumasc current ratio from 2009 to 2013 is calculated in this way:

Current ratio= =

2012 =  = 1.62

2013= = 1.59

It is clear from the calculation that Alumasc current asset declines over the two years. This is a good signal of how Alumasc Group is struggling to pay up its short-term debts using the limited group’s current assets.

Acid Test Ratio

Acid test helps in evaluating aptitude of a business for paying up its immediate loans using its ultimate liquid assets. Alumasc acid test for the past five years is as follows:

Acid test=

2012 =  = 1.14

2013= = 1.16

From the calculations, it is evident that Alumasc acid test ratio is increasing with time. Thus, it is clear that Alumasc has no difficulties wiyh paying up its short-term debts using the group’s most liquid assets.

Efficiency Ratio

Efficiency ratios help in evaluating how well a firm utilises its liabilities and assets internally. This can be estimated by using total turnover ratio.

Total Turnover Ratio

This ratio is very important since it helps in measuring the ability of a firm to utilise its assets to perform effective sales.

Total assets turnover = 

2012 =  = 1.31

2013= = 1.47

The lower the total assets turnover of the firm is, the more lethargically the group sells its products. From the calculation above, it is evident that the total assets turnover of Alumasc increased from 1.31 in the financial year 2011/2012 to around 1.47 in the financial year 2012/2013. This means that the group sells its products successfully.

Return on Equity

This ratio is very important for the business since it helps in measuring its ability to obtain profits from the shareholders' investments. Alumasc return on equity for the past five years is the following;

Return on Equity=  x100%

Shareholder equity=Total assets-Total liability

2012: x 100%= 2.17%

2013: x 100%= 8.42%

As seen in the calculation, Alumasc return on equity increased tremendously, from 2.17% in 2012 to around 8.42% in 2013. A high return on equity indicates how well the firm utilises its shareholders funds for producing revenue. Therefore, Alumasc seems to be utilising its shareholders funds efficiently to produce the group revenue.

Gearing Ratio

Gearing ratio helps in comparing some events of the firm’s equity to the hired capitals. Moreover, the gearing ratio helps in measuring the firm financial leverage signifying the stage to which an organisation’s major undertakings are financed by the owner’s resources against the creditor’s resources.

Gearing ratio =

2012: x 100%= 65.84%

2013: x100%= 55.28%

The increase in the gearing ratio is quite risky since it indicates whether the firm has difficulties in settling its debts. Thus, from calculations of gearing ratio of Alumasc, it is quite clear that the group runs its business effectively, and there are no risks in paying up its debts linked to the group.

Operating Cycle Ratios

Operating cycle shows the efficiency of the management as well as the firm’s operations in using its capital. Moreover, operating cycle ratio helps Alumasc management to estimate the total number of days the group takes to convert its inventories into cash. Further, operating cycle of Alumasc Group is the measure of the group operating efficiency and its working capital management.

Operating Cycle = Days’ Sales Outstanding + Days' Sales of Inventory,

where day sales of the inventory represent the average amount of days that the group sells all its inventories, whilst days sales outstanding represent the period where receivables of the group are converted into cash.

Operating Cycle =  x Average Inventories +  x Average accounts receivables

2012 =   x 14.14 +  x 26.45 = 21675.17

2013=   x 12.13 +  x 23.59 = 18367.15

Shorter operating cycle of any group is better since it indicates that the group’s capital is mainly tied up for shorter period. Therefore, from the results obtained for Alumasc operating cycle, it is evident that the group is at a stronger stage as compared to the year 2012.

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Conclusion

Alumasc is one of the leading companies in the United Kingdom that manufactures designs,  markets construction and building products. Moreover, the majority of Alumasc businesses is mainly in the region of sustainable building products that facilitate customers to control water and energy use in built environment. The group financial performance remains strong, and its balance sheet for the past five years continues to grow. Thus, Alumasc is well placed in managing through current economic uncertainties and stiff market competition taking advantage of the opportunities. Moreover, Alumasc management needs to take necessary action to ensure that the group's profitability remains high.

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