Meggitt Plc financial performance in 2018-19

Introduction

The UK based company Meggitt Plc is famous for its design and manufacturing units. The company manufactures and also designs the airmail frames, Engine system, energy equipment, and service support regarding the manufacturing items. In the current situation, the company is delivering its manufacturing products to different countries and challenging other countries' businesses for its technical competence. In this assignment, the discussion is based on the financial statement of Meggitt Plc, in the last two years' analysis. The study of this assignment is mainly focused on the profit ratio, Liquid ratio, and working capital management ratio, which can deliver various analyses of this company regarding its annual financial report.

Findings and analysis

Profitability Ratio

Profitability	2019	2018
Return on Equity	0.090605666	0.071818328
Earnings Per Share	0.000323526	0.000855289
Dividend Per Share	0.000323526	0.000260369
Price Earnings Ratio	23.18727915	16.43109541
Return on Capital Employed	13.24080104	10.29529771
Return on Assets	0.046923417	0.121052415
Gross Profit	14.2913628	12.33298087
Net Profit	9.77945699	28.26107854

Table 1: Profitability Ratio

(Source: Excel)

This part of the result shows the profitability ratio of the two financial years of Meggitt Plc. This ratio is used to determine and understand the generation of profit of Meggitt Company in the consecutive two years. The return on the equity ratio of the Meggitt Plc Company is 0.09 in the fiscal year 2019, whereas it was 0.07 in the year 2018 (Gupta and Gupta, 2019). The EPS of the company is based on the share price in the market to provide a decrease in the present financial year than the previous year. The EPS of the company in 2018 was 0.00085, whereas it decreased to 0.00032. This also observes to increase the dividend per share ratio. The DPS of Meggitt was 0.002 in the financial the year 2018, which increased to be 0.00032 in the year 2019. The ratio of price-earnings is 23.18 in the year 2019, whereas it was 16.43 in the year 2018. In the above profitability ratio results, it can be observed that the company is having an increase in the operating ratio, but it results in decreasing net profit (Trinh et al. 2016). This can also be assumed that the administration or distribution expense of Meggitt Company is more in the current year than the prior year. This shows that the gross profit ratio of the company is 14.29% in 2019, whereas it was lower, around 12.33% in the prior year.

Liquidity Ratio      

Liquidity	2019	2018
Current Ratio	1.249802282	1.797087379
Quick Ratio	0.728844198	1.008252427
Absolute Liquidity Ratio	0.1754604	0.919093851
Basic Defense Ratio	0.006575986	0.003542277

            Table 2: Liquidity Ratio

(Source: Excel)

In the above results, it shows the ratio measurements of liquidity of the Meggitt company. These ratios are used for determining and analyzing the nature of current assets and liabilities are convertible to cash within a year. The current the ratio of Meggitt Company was 1.797 in the year 2018, whereas it is 1.24 in the year 2019 (Meini, 2016). The result of this ratio shows that the Meggitt company capability has decreased in the present year than the prior year. This also shows that the liability of the company in the present year has been increased. This can be due to the new investments on the project or credit purchases (Woschkowiak, 2018). This also observed that the capability for paying the Meggitt obligations has been decreased by 8% in the present year.

Figure 1: Liquidity vs. Profitability

(Source: https://www.accaglobal.com/hk/en/student/exam-support-resources/fundamentals-exams-study-resources/f9/technical-articles/wcm.html)

Working capital management Ratio       

Working capital management
	2019	2018
working capital turnover ratio	9.110521407	3.737797
current ratio	1.249802282	1.797087
accounts receivable turnover ratio	0.166900975	0.165385
inventory turnover ratio	1.006329114	1.142112

            Table 3: Working capital management Ratio

(Source: Excel)

Meggitt company working capital ratios are provided in the above results. This shows the value difference in the current liabilities and current assets. The investment of the Meggitt company in the operations of the business is € 282,322 in the year 2019, whereas € 629,000 in the year 2018 (Godswill et al. 2018). This company is generating annual revenue € 2,572,106 in the year 2019 whereas it was € 2,351,078 in the year 2018. The accounts receivable of the Meggitt Company is 0.1669 in the year 2019 whereas it was 0.165 in the year 2018. This information shows that the income of the company increased in the present year than the prior year. The accounts receivable period of the company has been increased in the present year with a small proportion. This shows that the company collection of credit sales has been increased from the prior year (Verma, 2019). The ratio of “working capital management” identifies the long term and short term loans and investments of the company.

Solvency & risk Ratio          

Solvency & risk	2019	2018
debt to equity ratio	0.930926408	0.948885
equity ratio	0.517886127	0.513114
debt ratio	0.482113873	0.486886

Table 4: Solvency & risk

(Source: Excel)

The above result shows the risk consisted of the activities of the Meggitt company. The debt to equity ratio was 0.94 for the year 2018, whereas it is 0.93 in the year 2019. The equity the ratio of the company was 0.51 in the prior year, which increased to be 0.517 in the present year. The debt ratio is 0.4821 in the present year, which was 0.4868 in the year 2018. This shows that there is a decrease in the capability of the Meggitt Company for paying its debt and obligations using assets and equity (Prasad et al. 2019).

Shareholder return Ratio   

Shareholder return	2019	2018
return on shareholders’ equity ratio	0.090605666	0.071818

Table 5: Shareholder returns Ratio

(Source: Excel)

The shareholder return on equity the ratio is 0.07 in the year 2018, which is 0.09 in the year 2019. This shows the increase in the efficiency of company investments. This shows that the company is providing a better return on the shareholder's investments than the prior year.

Overall financial performance   

From the above results of the ratio, it can be observed that the Meggitt Company’s performance is on average level. This is going through changes in the current financial year with an increase in expenses and its debt liability. This can be stated that the company is generating better returns than the prior-year, but it is losing its capability to pay off its debt. This shows that a company can use several plans and strategies to control its expenses on the operations of the company.

Recommendation

From the above results and discussion on the ratio analysis, it can be observed that the company needs better strategies and control plans for financial statements.

Recommendation 1

The financial managers and human resource management teams are advised to provide proper guidelines for the maintenance of the company resources according to availability and usage. There should be appropriate investment strategies for companies to operate in various projects. This should have strategies and plans for debtors and creditors of the company. Therefore, Meggitt is suggested to have better control and accounting guidelines for the company statements.

Conclusion

In this report, the Meggitt Company is analyzed using financial information in the current market environment. The above result of the ratio analysis shows the better market position of the company. This also observed fluctuations in the ratio of the company. This has been observed to decrease in the capability of the company for paying its liabilities. This is observed from the prior year in comparison to the present year. This also provided information about the increase in the payment of the shareholder return. This increase was in their investments of the Meggitt Company. The ratio analysis of the profitability or liquidity is used to determine and analyze the profit generation of the company. This analysis helped to collect and analyze the financial performance of Meggitt Company in two years.

 

Reference List

Book

Gupta, R.K. and Gupta, H., 2019. Working Capital Management & Finance: A HAND BOOK FOR BANKERS AND FINANCE MANAGERS. Notion Press.

Journal

Trinh, V.Q., Karki, D. and Ghimire, B., 2016. Systematic risk determinants of stock returns after financial crisis: Evidence from United Kingdom. Journal of Finance and Investment Analysis, 5(1), pp.1-28.

Meini, C., 2016. Industrial plan and voluntary disclosure. Empirical analysis of financial data communication models.

Woschkowiak, A., 2018. Board Diversity and Firm Financial Performance: Gender, Nationality and Age Diversity in European Boardrooms.

Godswill, O., Ailemen, I., Osabohien, R., Chisom, N. and Pascal, N., 2018. Working capital management and bank performance: Empirical research of ten deposit money banks in Nigeria. Banks & bank systems, (13, Iss. 2), pp.49-61.

Verma, P., 2019. The influence of working capital management on the performance of Indian companies’ stock market value.

Prasad, P., Narayanasamy, S., Paul, S., Chattopadhyay, S. and Saravanan, P., 2019. Review of literature on working capital management and future research agenda. Journal of Economic Surveys, 33(3), pp.827-861.