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Financial Reporting

Table of Contents

Introduction.

Profile: The Berkeley Group Holdings plc.

Rationale for Report

The Berkeley Group Holdings PLC: Current Financial Performance and Ratio Analysis (2015-2019)

Liquidity Ratios.

Profitability Ratios.

Efficiency Ratios.

Financial Gearing Ratio.

Conclusion.

References.

Introduction to Financial Reporting

Profile: The Berkeley Group Holdings plc

The Berkeley Group Holdings (BKG) PLC is a Britain based holding company that is located in Cobham, Surrey. BKG along with its subsidiaries are primarily engaged in the business of real estate and they develop residential-led properties. The company mainly focuses on regeneration development and mixed-use property projects. The real estate portfolio of the BKG consists of developments majorly located in London, Birmingham and the South of England. The company is the owner of various reputed brands and its key brands include Berkeley, St George, St James, St Joseph, St Edward, and St William. The company indulges in development projects at both large and medium scales in towns, cities, and the countryside. The company is specialized in the development of executive homes, mixed-use schemes, riverside apartments, refurbished historic buildings, and urban loft spaces (Berkeley Group, 2020).

Rationale for Report

The Berkeley Group Holdings plc is an FTSE 100 constituent and was founded in 1976, since then it has achieved significant success especially over the past few years. During 2015, BKG won the “Large Developer of the Year” award at the annually organized RESI awards by the Property Week, which recognize the residential property sector and the successful companies in the past financial year.

In this report, the overall financial health of the BKG the financial performance of the company, both qualitatively and quantitatively, will be analyzed to achieve LT business goals. There will be an evaluation of the key concepts of financial management. The report will primarily conduct a ratio analysis to determine aspects like the company’s profitability, liquidity, efficiency, etc. Overall, the report will summarize the health of the company and its current financial position and make an evaluation of future projects.

The Berkeley Group Holdings PLC: Current Financial Performance and Ratio Analysis (2015-2019)

The analysis of ratios of a business is considered to be a primitive quantitative method to identify the insights of the financial position of that business or entity; it determines the following key measures:

  • liquidity position,
  • profitability measures,
  • operational efficiency, and
  • Capital Structure

The ratio analysis is a regressive study of the financial reports of a company and makes an investor or analyst to read what is written between the lines of the financial statements. It is a very important component of the fundamental analysis. The fundamental analysis is conducted to check the financial health of an entity and to make decisions about whether to make investments in the proposed company (or the stocks). The methods of ratio analysis are typically used by investors and analysts to scrutinize both past and current financial statements to measure the financial health of a business (Indexmundi, 2020).

Professional analysts and investors collect comparative data to demonstrate the company’s performance as compared to its competitors or its financial standing with that of industry averages and the company’s individual performance. The analysis helps the investors and analysts to forecast and predict the possible future performance.

Ratio Name

Formula

2019

2018

2017

2016

2015

Liquidity Ratios

Current Ratio

Current Assets / Current Liabilities

2.83

2.51

2.16

1.92

2.05

Quick Ratio

Cash Equivalents + ST Invest + Accounts Receivables / Current Liabilities

0.85

0.59

0.30

0.17

0.37

             

Profitability Ratios

Net Profit Margin

NP / Net sales

21%

28%

24%

20%

20%

Return on Assets

Net income/ Total Assets

12.71%

16.76%

14.43%

10.53%

12.43%

Return on Equity

Net income/ Shareholder's Equity

21.17%

30.70%

31.09%

22.29%

25.86%

             

Efficiency Ratios

Asset Turnover Ratio

Net Sales / Total Assets

0.599

0.598

0.609

0.533

0.622

A/R Turnover Ratio

Net Sales / Accounts Receivable Balance

49.96

88.78

878.55

10.02

14.56

             

Financial Gearing Ratio

Debt to Equity

Total Debt / Total Equity

10.1%

11.6%

14.5%

0.0%

0.0%

Table 1: Key Financial Ratios for the Berkeley Group Holdings plc

Liquidity Ratios

The liquidity ratio is used to measure the capability of a business to pay-off its short term debts obligations (STDO) as and when they become due by incorporating the quick assets and current assets of the company in use. For the liquidity analysis of the BKG, two major ratios including the quick ratio and the current ratio are going to be calculated and will be analyzed critically.

  • Current ratio (CR): The ratio is used to determine the capability of a business to pay-off its STDO using its short term assets. A CR of 2:1 is considered to be an ideal ratio; it indicates that a business firm at all times must have current assets, 2 times the size of its current liabilities. The CR of the BKG during the financial year 2015 was 2.05, a value closer to 2; the CR levels continuously rose till 2019 on an annual basis and were 2.83 in FY 2019, levels higher than 3 might not be acceptable (Cook, Frisch & Novak, 2019).
  • Quick Ratio: This ratio determines the capability of the business firm to meet its STDO with its most liquid assets mainly including the cash and equivalents. A QR of 1 is considered to be an ideal ratio and levels below 1 are considered as liquidity issues for the company. The QR levels of BKG continuously remained less than 1, it indicates that the company is not able to pay off its STDO using its quick assets.
  • However, there will not be any overall liquidity issues as its current ratio is quite high (as shown in graph 1), which indicates that BKG might have a low cash pool but have high reserves of unsold inventories, which can be sold against cash.

Profitability Ratios

These ratios determine the capability of a company to generate revenues and earn profits through its operations. Profitability analysis includes ratios like net profit (NP) margin, return on equity (ROE) and return on assets (ROA), and to analyze BKG's profitability, these ratios will be used.

  • Net Profit Margin: The NP margin determines how much profit a company is able to generate using every single dollar of revenue. The NP margin of Berkeley is following an increasing trend. It was 20% in 2015 and rise to 28 % YOY till 2018, however, a sharp fall can be witnessed (in Figure 2) in the FY 2019 to 21%.
  • Return on Assets (ROA): ROA measures the profitability of a business firm as compared to its employed total assets. It determines the efficiency of the management of the company to use its assets for generating revenues and earnings. For BKG, the ROA remains approx. 13 percent during 2019; it is a fall of 4 % YOY. The figure states that BKG was able to generate profits of GBP 1.3 using its net assets worth GBP 10. ROA was 17 % in FY 2018 (Sukmaningsih, 2018).
  • Return on Equity (ROE): ROE determines the management’s efficiency in employing the shareholder’s equity funds to generate revenues and earnings. The ROE remains 21.17% in FY 2019, which is a drop of 10 percent as compared to the previous FY.

Efficiency Ratios

The efficiency ratio measures the efficiency of a business firm to employ its assets in order to generate revenues and maximize the profit levels.

  • Asset Turnover Ratio (ATO): ATO of BKG remains constant at 0.60 for the past few years. It indicates that BKG remain able to generate revenues 0.60 times using the company's asset worth one dollar. The historical levels seems to be satisfactory as shown in fig 3:

Financial Gearing Ratio

Gearing ratios are typically used by investors and analysts to determine the capital structure of a company and also to determine the risk exposure of the company with the chosen structure (Riahi-Belkaoui, 2019).

  • Debt to Equity ratio: BKG was debt free in earlier years of the analysis, it initially raised debt during 2017, and thus the DE ratio becomes 14.5%. However, later the company continuously decreased its reliance on debt financing, which resulted in DE ratio to fall down to 10% in 2019 as shown in Figure 4:-

Conclusion on Financial Reporting

From the above report, it can be stated that The Berkeley Group Holdings plc is a real estate company and is highly risky due to the nature of the business, but it is also highly profitable at the same time. The company is an FTSE 100 constituent and is highly reputable in the specific sector. The report has analyzed the overall financial health of the BKG and conducted an analysis of the financial performance of the company both qualitatively and quantitatively. It also made an evaluation of the key concepts of financial management. The report conducts a ratio analysis to determine the financial health of the company and it can be concluded that BKG is in good financial health.

References for Financial Reporting

Anesten, S., Möller, N., Skogsvik, K., & Skogsvik, S. (2020). The pricing accuracy of alternative equity valuation models: Scandinavian evidence. Journal of International Financial Management & Accounting, 31(1), 5-34.

Berkeley Group. 2020. Annual Report 2016. https://www.berkeleygroup.co.uk/media/pdf/4/m/berkeley-annual-report-2016-v2-spreads_v3.pdf

Betina, S. I., Harrat, A., & Petit, D. (2017). Analysis grasshopper diversity and associated factors involved in grasshopper diversity in arid Aurès mountains (Batna, Algeria).

Bloomberg. 2020. Berkeley Group Holdings PLC. https://www.bloomberg.com/profile/company/BKGFY:US

Cook, C., Frisch, S., & Novak, V. (2019). Recent Developments in EU Merger Remedies (2018). Journal of European Competition Law & Practice, 10(6), 394-410.

Financial Times. 2020. Equities. https://markets.ft.com/data/equities/tearsheet/profile?s=BKG:LSE

Indexmundi. 2020. United Kingdom Commercial bonk prime lending rate. https ://www.indexmundi.com/united_ kingdom/commercial_b ank_ prime_l ending_ rate.html

O'daly, C., & Pozo, V. D. (2019). A Review of 2018 Eu Merger Control. Competition Law & Policy Debate, 5(1), 4-22.

Pinkley, R. L., Conlon, D. E., Sawyer, J. E., Sleesman, D. J., Vandewalle, D., & Kuenzi, M. (2017). Unpacking BATNA availability: How probability can impact power in negotiation. In Academy of Management Proceedings (Vol. 2017, No. 1, p. 16888). Briarcliff Manor, NY 10510: Academy of Management.

Riahi-Belkaoui, A. (2019). The substitution of net value added for earnings in equity valuation. Available at SSRN 3333409.

Santos, V. P., Gomes, A., Gasparello, I., Vilela, P. A., Zopa, A. L. V., Lucas, S. R. R., ... & Angelo, B. J. (2017). Experiência de médicos-veterinários residentes e aprimorandos atuando com equipe multiprofissional em ações de educação em saúde e atenção primária. Revista de Educação Continuada em Medicina Veterinária e Zootecnia do CRMV-SP, 15(1), 70-70.

Sukmaningsih, D. W. (2018). A model for lender-borrower trust in peer-to-peer lending. ComTech: Computer, Mathematics and Engineering Applications, 9(1), 15-24.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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