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Company Overview

Discuss About The Financial Accounting Tools Business Making.

This report contains an overall analysis of the financial performance of Britvic Plc., which is a British based company engaged in the production of soft drinks. The report deals with a brief introduction about the company’s history, its principal activities, key products and market condition along with the financial results. It also noted the percentage change in the figures of accounts and company’s annual report. The later part of the report contains the ratio analysis on the basis of which, performance of Britvic is been analysed. The purpose of writing this report is to give advice to the friend regarding its investment in Britvic’s shares. She is thinking of purchasing 5000 shares of the company for which, a proper analysis is required. The report provides the recommendations on the same followed by the conclusion.

Britvic Plc., was founded in 1845, mid – nineteenth century in Chelmsford and was known as British Vitamin Products Company. In 1938, the enterprise was acquired by James MacPherson & Co Ltd and started the business of producing soft drinks as a source of vitamin that is affordable to the people of UK. The British Vitamin Company formally changes its name to Britvic in year 1971 and post that a Britvic brand of original mixtures was introduced. In its history, the company acquired many other companies and became the leading producer of soft drinks in United Kingdom (Britvic. 2018).

The headquarters of Britvic are situated at Hemel Hempstead and the company is listed on London Stock Exchange with a ticker symbol of LSE: BVIC. It is also a component of FTSE 250 Index. The key products of the firm include Robinsons, Britvic 55, Tango and license of PepsiCo products for UK and Ireland (Bloomberg. 2018). Apart from this, products like drench, Teisseire, Fruité, MiWadi, Maguary, Ballygowan and DaFruta are also the part of company’s iconic brand portfolio. The British firm is known as the largest supplier of the soft drinks and stand at number two in supplying carbonated soft drinks in Great Britain. In addition to that, company is an industry leader in countries like France and Ireland. The management of Britvic has clear organizational strategies which has led to the successive development of the business and its expansion in the international markets, based on designing or creating scalable brands (Britvic. 2018).

Talking about the market size, the company operates in Great Britain, Ireland and France. It also trade globally, making exports to more than 502 countries across the world. It has a desirable portfolio of brands among which Robinsons is the most famous squash in UK and J20 is the premium juice brand ranking first in the list. In France, the firm is the leader in supplying syrup brands like Teisseire, and Teisseire Fruit Shoot, which are most favourite among kids (Reuters. 2018). As far as the financial results of the company are concerned, the revenue of Britvic has increased to £1,540.8million in 2017 along with the slightest decrease in its profits from £114.5m to £111.6million. In addition to that dividend per share of the company has increased to 26.5 pence (Britvic. 2018).

Current year

Previous year

% movement

£m

£m

Revenue    

1540.8

1431.3

8%

Operating profit / loss    

163

176.4

-8%

Capital employed

995.2

855

16%

Total assets    

1613

1634.4

-1%

Net cash generated / used in operating activities  

198

132.8

49%

Number of employees    

4848

4358

11%

Earnings per share    

42.4

43.8

-3%

Total dividend paid per ordinary share

19.3

17.5

10%

Year-end share price    

730.47

518.03

41%

Year-end market capitalisation

192113.61

135568.451

42%

  1. Capital employed is calculated as follows:

Percentage Change in the Annual Report

Total Assets – Current Liabilities = Capital employed

For 2017, £1613 - £617.8 = £995.2 million

For 2016, £1634.4 - £779.4 = £855 million

  1. Calculation for market cap

Year-end market capitalization = Current market price of the share x number of outstanding shares

For 2017, £730.47 x 263m = £192113.61 million

For 2016, £518.03 x 261.7m = £135568.451 million

Current ratio

2016 (£m)

2017 (£m)

Current Assets (A)

722.6

572

Current Liabilities (B)

779.4

617.8

CR (A/B)

            0.93

              0.93

Operating Profit Margin

2016 (£m)

2017 (£m)

Operating Income (A)

176.4

163

Sales (B)

1431.3

1540.8

OPR (A/B)

12%

11%

Debtor Turnover Ratio

2016 (£m)

2017 (£m)

Sales (A)

1431.3

1540.8

Average Accounts Receivables (B)

381.95

319.5

DTR (A/B)

            3.75

              4.82

Average Collection Period

               97

                 76

Gearing ratio

2016 (£m)

2017 (£m)

Long term debt (A)

491.7

582.7

Shareholders' equity (B)

281

339.3

GR (A/B)

        1.75

        1.72

Return on Capital employed

2016 (£m)

2017 (£m)

EBIT (A)

176.4

163

Capital Employed (B)

995.2

855

ROCE (A/B)

18%

19%

The above calculated ratios and percentage change shows the overall financial position of Britvic during the year 2016-2017. It can be observed that there has been an increase of 8% in company’s total revenue whereas its operating profit is reduced by the same percentage. Also there is 1% reduction in Britvic’s total assets and 3% decrease in its earnings per share. Apart from this, company’s capital employed increases by 16% and the cash flow from operating activities has shown a significant increase of 49%. In addition to that, as per the company’s annual report, the number of employees has also risen by 11% along with the overall upsurge of 10% in the year end share price. The marker cap of Britvic has also significantly risen up by 42%, reflecting a good performance of the company.

Talking about the ratios calculated, the current ratio of the firm remains same in last two years because of the equal or proportionate change in its current assets and liabilities. It means that the firm is efficient enough to make its liquidity position stable for years. Its operating profit ratio has also reduced from 12% to 11% due to the slightest decrease in company’s operating income (Higgins, 2012). As far as the collection days of trade debtors is concerned, Britvic has shown a high level of efficiency in this regard. The receivable collection period of the company has reduced from 97 days to 76 days in 2017. Moreover, its debtor turnover ratio has also increased. Furthermore, the gearing ratio shows the degree of financial leverage taken by the company. It compares the long term debt of the firm with its capital employed or accounting of its equity (Jenter & Lewellen, 2015). In case of Britvic Plc., the gearing ratio is been reduced to 1.75 to 1.72 during the year. This was due to the slightest increase in the long term financial obligations of the company from £491.7 million to £582.7 million. In contrast to it, the change in company’s equity is more as in 2016, the equity was reported at £281 million which increases significantly and was reported at £339.3 million in year 2017 (Kimmel, Weygandt & Kieso, 2010). 

Working Notes

Talking about return on capital employed, it is a financial ratio used for measuring the profitability and efficiency of the company in accordance with the capital invested or employed in it. The ROCE of Britvic has increased by 1% only which indicates that company is efficient enough to maintain its profitability position in the market. A high return means high profits which is basically favourable for all the companies (Krantz & Johnson, 2014). Apart from these calculated ratios, there are many other categorized ratios which measures each and every aspect of a firm’s position and performance in financial terms. One of the profitability ratio is net profit margin. It shows the amount of net profit earned by the company as a portion of its total revenue (Lee, Lee & Lee, 2009). In 2017, the company’s NPR was 15.03% which was lower than that of in 2016 that is 16.26%. Similarly, return on equity is another ratio which also reflects enterprise’s profitability. Britvic’s ROE was 4.23% in 2016 which increase to 4.97% in 2017. This means that though company’s profits have slightly reduced which impacted its NPR and OPR but Britvic is efficient enough to maintain its profitability situation and position. It is able to offer high and increased returns to the shareholders. Also it has stable liquidity position and is efficient to generate sales from its assets (Nikolai, Bazley & Jones, 2009). 

So overall it can be said that Britvic Plc., has performed well last year and is offering high returns to its key investors and potential shareholders. Though the profits of the firm has slightly reduced but it is able to maintain its profitability and liquidity. So, it will be recommended to the friend that she can purchase 5000 share of Britvic Plc., as it will give high returns to her.

Conclusion 

From the above report it is concluded that it is very important for an investor to critically evaluate the performance of the company before making any investment in it. There are various methods which are used in performance measurement but the most simple and popular technique is ratio analysis. It covers all the aspects of a company in financial term and gives more accurate and concise results to the investors (Vogel, 2014). So, shareholders must review firm’s performance before purchasing its shares.

References 

Bloomberg. (2018). BVIC: LN Britvic PLC. Retrieved from https://www.bloomberg.com/quote/BVIC:LN 

Britvic. (2018). who we are. Retrieved from https://www.britvic.com/about-us/who-we-are 

Higgins, R. C. (2012). Analysis for financial management. New York: McGraw-Hill/Irwin.

Jenter, D. & Lewellen, K. (2015). CEO preferences and acquisitions. The Journal of Finance, 70(6), pp.2813-2852.

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2010). Financial accounting: tools for business decision making. New Jersy: John Wiley & Sons.

Krantz, M., & Johnson, R. R. (2014). Investment Banking for Dummies. New Jersy: John Wiley & Sons.

Lee, A. C., Lee, J. C., & Lee, C. F. (2009). Financial analysis, planning and forecasting: Theory and application. Singapore: World Scientific Publishing Co Inc.

Nikolai, L. A., Bazley, J. D., & Jones, J. P. (2009). Intermediate Accounting. USA: Cengage Learning.

Reuters. (2018). Britvic PLC (BVIC.L). Retrieved from https://www.reuters.com/finance/stocks/overview/BVIC.L 

Vogel, H.L. (2014). Entertainment industry economics: A guide for financial analysis. New York: Cambridge University Press.

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