Ratio Analysis and Comparison of the Two Companies Paper Example

Published: 2021-08-10 23:20:44
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According to Wikipedia and Stagecoach website, Stagecoach Group PLC is an international based in Scotland with subsidiaries in the US, UK, and Canada. It specializes in public transport. Its main markets are:

Over 90 town and cities in the UK.

US and Canada.

The main revenue sources for the two companies are:

Amounts received from an individual for transport services offered to them.

Receipts from government bodies and corporations as compensation for services offered to senior citizens, persons living with disabilities, transport services under contract.

Commissions for selling other operators transport services.

RATIO ANALYSIS AND COMPARISON OF THE TWO COMPANIES

Return on capital employed: It is a ratio between earnings before tax and interest to capital employed. It depicts companys efficiency in generating profits from its capital employed. Capital employed is the difference between total assets and current liabilities.

The return on capital in the 2017 year of income for National Express Group plc and Stagecoach Group plc is 5% and 3.9% respectively (Troy, 2012).

National Express Group plc efficiently generated more profits with its capital employed when compared to Stagecoach Group plc in 2017 financial year. This shows that National Express Group Plc is more efficient in generating profits from the capital employed. This will attracts investors to the company.

Return on equity. This is the amount of net income as a percentage of shareholders equity. It depicts profit generated with stockholders investment in the company.

During the financial year 2017, National Express Group plcs return on equity is 15% while that of Stagecoach Group plc is 26.4%.

Stagecoach Group plc seems to have done better during the year. Stagecoach Group Plc generates more profits with stockholders investment thereby attracting investors.

Operating profit margin. A measure of percentage proportion of revenue left after paying direct costs of production or cost of sales. It shows the efficiency of controlling the cost of sales and expenses associated with business operations/variable costs.

National Express Group plc margin of 9% means it is managing direct costs better than Stagecoach Group plc with a margin of 1.2%. This will attract investors to the National Express Group Plc.

Net profit margin. This is a percentage ratio of revenue left after all expenses (operating expenses, interest, taxes and preferred stock dividends) have been deducted from revenue. It shows profit generated from total sales  (Muro, 1998).

2017 ratios of the National Express Group plc and Stagecoach Group plc of 6% and 0.5% respectively shows that National Express Group Plc is doing better. National Express Group Plc is generating more profit rom its revenue when compared to Stagecoach Group Plc. National Express Group Plc will thereore attract investors due to better profits generated.

Current ratio. This is current assets relative to current liabilities. It is used to examine if a company is able to meet its short term and long term obligations as and when they fall due.

With a current ratio of 0.75 in 2017, Stagecoach Group plc is able to meet its obligations better than National Express Group plc with a ratio of 0.62.

Quick/acid test ratio. This is a ratio between current assets fewer inventories to quick assets (current assets which can be converted to cash in the short term, normally ninety days). It measures a company able to pay its immediate liabilities from its quick assets.

National Express Group plc quick ratio is 0.6 and that of Stagecoach Group plc is 0.73 during the 2017 year of income. This leads to a conclusion that Stagecoach Group plc is more liquid than National Express Group Plc.

Assets turnover ratio. A ratio of sales generated to the value of assets. It indicates whether a business uses its assets to generate revenue. It compares revenue with average total assets.

National Express Group plc ratio is 0.9% while Stagecoach Group plc is 3.2, which implies Stagecoach Group plc generated more sales in relation to its assets during 2017 financial year.

Inventory turnover. Its the cost of goods sold (cost of production) divided by average inventory (Sum of opening inventory and closing inventory divided by two). It measures how many times inventory is sold or used for a duration of time (year). It is the number of days a business takes to sells inventories on hand.

National Express Group plc and Stagecoach Group plc inventory turnover are 75 and 156 respectively. This shows that National Express Group makes revenue faster than Stagecoach Group Plc.

Inventory days. It is the number of days in a period divided by the inventory turnover ratio. It measures the average number of days a firm hold its inventory.

National Express Group plc has 4.8 days while Stagecoach Group plc has 2.3 days. Stagecoach is doing better on this front.

Receivables days. A ratio of accounts receivables to average sales per day. It shows how many days a company takes to collect its payments from customers. When it is low, it shows better debtors management (O'Regan, 2001).

In 2017, National Express Group plc was taking 29 days to collect its debts while Stagecoach Group plc took 24 days. Stagecoach Group plc managed its debts collection better.

Payables days. A ratio between ending accounts payables to cost of sales divided by a number of days in a period. It shows how long it takes a company to pay its invoices from suppliers. The higher the better.

National Express Group plc was paying creditors after 11 days while Stagecoach Group plc was taking 25 days. Stagecoach Group plc managed its cash outflows better than National Express Group Plc.

Gearing ratio. This is owners equity as compared to borrowed funds it indicates if the company is using debt to pay for its continuing operations.

National Express Group plc gearing ratio is 50% while Stagecoach Group plc is 94% this means that national express is better off than Stagecoach Group plc. With lower gearing ratio, National Express Group plc will be preferred by investors.

Interest cover. This is delight by dividing earnings before interest and expense by interest expenses for that period it shows how history a business can pay its interest expense on borrowed funds.

National Express Group plc interest cover is 3% while stage coach interest expenses is 1.5% for the 2017 year of income this implies that national express can easily pay its interest expense while compared to Stagecoach Group plc in that year. With better interest coverage, investors will be attracted to National Express Group Plc if compared to Stagecoach Group Plc.

Dividend per share. It is the total dividend paid out during the year divided by the number of outstanding ordinary stock issued. It measures the dividend payout per share of common stock

As depicted on page 5 of the national express financial statement and page 98 of Stagecoach Group plc financial statement, their dividend per share is 0.12 % each. However, from the coursework calculation, National Express Group plc and Stagecoach Group plc dividend per share is 0.12% and 0.11 % respectively. National express is doing better. This will make National Express Group Plc investment option based on this ratio

Dividend cover it is net profit as expressed as a ratio of the total sum allotted in the dividend in ordinary share. Shows whether a business has sufficient earning to pay dividend by how many times of the present dividend pay-out during the period

National Express Group plc with 2 as dividend cover is doing better than Stagecoach Group plc with 0.29 in 2017. National Express Group Plc stock is a preferable investment option. This will attract more investors.

Earnings per share. Difference between net income and divided on preferred stock divided by average outstanding stock

National Express Group plc financial statement page 5 shows EPS of 0.12 and Stagecoach Group plc statement page 74 shows 0.06 national express is doing better. National Express Group Plc stock is better investment than that of Stagecoach Group Plc Stock. More investors will thus be attracted to National Express Group Plc.

Dividend Yield. Dividend per share divided by price per share expressed as a percentage it tells what percentage return a company pays out in form of dividend.

National Express Group plc 3% while stagecoach 5.1% dividend yield implies that Stagecoach Group plc is better off in term of returns to investors. This will make investors prefer National Express Group Plc stock.

Price/earnings issue. It is a ratio of company stock price to company earnings per share it indicate the dollar amount an investor can expect to invest to a company in order to receive one dollar of that company earning

National Express Group plc price/earnings ratio of 15.08 while stagecoach P/E ratio is 66.71 National Express Group plc is doing better on this front. National Express Group Plc will be attract more investors to the company.

From the ratio analysis above, as more investors are attracted to a company, the Stock price of that company will increase. I this goes on, the price will become unaffordable to many investors. Those who bought the stock when its price is low, will make capital gains and the investment networth will be high.However, to make the shares afordable again, the management of that company will have to split the shares.

This shows that National Express Group Plc will be a bull market as it will attract more investors. There is a possibility of a share split in future for National Express Group Plc if all other factors are held constant.

There is a risk of the share becoming unaffordable in the near future due to price increase. This may lead to the company being removed from the market segment it is currently trading in the stock market.

Share prices are driven by perceptions and this might not happen because the public might not have same perceptions as ours.

Reappraisal of group financial performance based on contextual information in the strategic report of the annual report.

National express group PLC pages 1, 3 and 5 of the strategic report

Revenue has been increasing in the last 3 years. Return on capital employed improved in 2016 but in 2017 remained the same as 2016.

Dividend per share has been improving in the last 3 years

Free cash flow declined in 2014 but improved in 2017

Operating margin slightly declined in 2017

Operating profit has been improving in the last 3 years

Spain and Morocco bus and coach(ALSA ) revenue and operating cost increased in 2016

North America bus revenue had operating improved during the year

UK bus revenue fairly constant but declined in operating market

UK couch slight improvement in revenue and operating profit

Rail (Germany) revenue increased drastically and the operating cost increased drastically throughout the year. This mainly due to the disposal of the franchise which had been discontinued in 2016. Having been awarded two contracts which will start in 2019 and 2020 we expect revenue to increase therefore reducing losses in the coming years

Operating margin for the subsidiary during the year range between 9.6 and 14.2& the group margin is 14.2%

The management has put new strategies which have enabled...

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