Merging Fundamental and Technical Analysis - MyAssignmenthelp.com

Question: Discuss about the Merging Fundamental and Technical Analysis. Answer: Introduction: Financial analysis is a procedure to examine the financial information of an organization to reach over a conclusion. This financial analysis mainly offers an outcome through reallocating the resources to the internal process and the operations of the company. Financial analysis is usually done by the organization and the management of the business to evaluate the financial performance of the business so that the alternations could be done in the strategies and the policies of the company (Zabarankin, Pavlikov and Uryasev, 2014). Further, financial analyst does the financial analysis to estimate the financial position and financial performance of the business so that they could make the conclusion about the investment and divestment from the company. Moreover, investors do the financial analysis to evaluate the financial position and performance of the business so that they could make the decision about the investment and divestment from the company. Thus, financial analysis is done by the stakeholders of the business to make various conclusions according to their nature. This process assists them to make better decisions about the companys performance. Financial analysis could be done through various bases. Ratio analysis, vertical analysis, horizontal analysis etc are the most common way to analyze the performance of the company through evaluating the financial statements of the business. In this description, ratio analysis has been done to evaluate the position of the Spirax- SARCO Engineering plc and the engineering sector of United Kingdom. Case overview: This report has been presented to the stakeholders of the Spirax- SARCO Engineering plc and the engineering sector or the stakeholders of the industrial engineering sector of the United Kingdom. For evaluating the performance and the position of the industrial engineering sector and the Spirax- SARCO Engineering plc, financial reports of the company has been analyzed and a study of ratio analysis has been performed over the company to reach over a conclusion. For this report, industrial engineering sector has been taken into the concern and the financial performance of the industry has been analyzed. Basically, in the context of this assessment, three well-known, and London Stock Exchange listed public companies from the United Kingdom who are strong competitors have been identified for comparing and assessing their financial performance. These companies are winnowed based on their share prices and market capitalization: Spirax - Sarco Engineering Plc - 4,129.28 listed on 03 June 2013 Hills Smith Holdings Plc - 1,041.79 Market Capitalization listed on 26 March 1969 IMI Plc - 3,598.24 Market Capitalization listed on 09 March 1966 Further, the financial performance of Spirax- SARCO Engineering plc has been analyzed in context with the financial performance and position of Hills and Smith and IMI PLC. Further, for analyzing the performance and the position of the company, ratio analysis study has been done. This report briefs about the various position of the company and the industry such as liquidity, efficiency, solvency, capital structure and profitability position. Industrial engineering sector: The Industrial Engineering Sector, also known as the manufacturing industry of the United Kingdom, has a long standing history from the late eighteenth century. During the early years of its establishment, the Industrial Engineering sector was having a great period of prosperity which highly contributed to Britains early economic growth. Further, the various reports and the statistics reports expresses that the Industrial Engineering sector contribution is around 6.7 trillion to the global economy. United Kingdom is ranked the ninth largest industrial nation contributing to ten percent of Gross Value Added (GVA) and forty-five percent of United Kingdoms exportation. In addition to this long standing industrial revolution, the Industrial Engineering sector represents sixty-eight percent of Business Research and Development and provides fourteen percent of business investments. In general, this revolutionary industry contributed approximately 455.6 billion of United Kingdoms POUND1,683 billion GDP in 2014 (27.1 percent) (Ward, 2012). Thus, the industrial engineering sector of the United Kingdom expresses about a great position in the international market. The performance of the industry is growing up rapidly and the future trends are also in the favor of the industry and expresses about a huge growth about the company. Company overview: For analyzing the performance of the industrial engineering sector of UK, Spirax- SARCO Engineering plc has been analyzed. This company is the leading manufacturing company of steam management system, associated fluid path technologies and peristaltic pumps. Head office of the company is in Cheltenham. This company is registered in FTSE 250. Following is the key financial figures of the company in last 5 years: (Morningstar, 2018) The changes into the financial performance of the company expresses about the positive chnages into the company. the growth of the company is continuouslly increasing. Further, the subsisiry companies of Spirax- SARCO Engineering plc are also performing well in the market (Ft, 2018). This company has its presence in international market as well and it is recognized for its quality by its customers. The main mission of this company is to enhance the market in the international level and it is also focusing over the customers loyalty of the company. Competitors overview: Further, the competitors of Spirax- SARCO Engineering plc has been analyzed which are Hills and Smith PLC and IMI PLC. Hill and Smith PLC is the manufacturing company of safety barrier system. This company also supplies the products into the international market. Head office of the company is in United Kingdom. This company is registered in FTSE 250. Following is the key financial figures of the company in last 5 years: (Morningstar, 2018) Further, the IMI PLC has been analyzed. This is the manufacturing company of engineering products of the company. This company has its online presence and it also supplies the products into the international market. Head office of the company is in United Kingdom (FT, 2018). This company is registered in FTSE 250. Following is the key financial figures of the company in last 5 years: (Morningstar, 2018) Thus, through the analysis over the 3 companies of Industrial engineering sector of the company, it has been analyzed that the performance of the industry is quite good in current scenario (Ft, 2018). Further, the financial analysis have been done over the companies to recah over a conclusion. Literature review: According to Weygandt, Kimmel and Kieso, (2009), financial reports of an organization contains balance sheet, income statement, changes in equity and cash flow statement of an organization. Further, it has been added by Weston and Brigham, (2015) that preparation of financial reports is quite mandatory for an organization. Moreover, it has also been added by Besley and Brigham, (2008) that financial reports assist the organization and its stakeholders to make various decisions about the policies, strategies, performance, investment etc. Bornholt (2013) has depicted into their study that all the financial reports express about the different financial position of the company. Income statement is relevant to analyze the profitability position of the company whereas the balance sheet expresses about the stability position of the company and the liquidity position is analyzed through the liquidity position of the company. Further, the financial reports could be easily analyzed through con ducting the various methods of financial analysis of the company. Moreover, it has been explained by Bierman (2010) that financial analysis is a procedure to examine the financial information of an organization to reach over a conclusion. Further, Fulin, (2011) has added that the process of financial analysis mainly offers an outcome through reallocating the resources to the internal process and the operations of the company. Moreover, the Elton et al, (2009) has explained that the financial analysis is usually done by the organization and the management of the company to evaluate the financial performance of the company so that the alternations could be done in the strategies and the policies of the company. Further, Barlow, (2006) has added in the study of financial analysis that financial analyst does the financial analysis to evaluate the financial position and performance of the company so that they could make the decision about the investment and divestment from the company. Moreover, it has also been added by Higgins (2012) that investors do the financial analysis to evaluate the financial position and performance of the company so that they could make the decision about the investment and divestment from the company. Further, it has also been added by Hillier, Grinblatt and Titman, (2011) that financial accounting is an area which analyzes and evaluates the financial transaction and the financial reports of the company (Lumby and Jones, 2007). Mainly, financial accounting takes the concern of collecting, analyzing and recording the data whereas the financial analysis takes the concern of evaluating those financial accounting reports to reach over a conclusion (Moles, Parrino and Kidwekk, 2011). Further, it has been added by Madhura (2011) that financial analysis is done by the stakeholders of the business to make various conclusions according to their nature. Moreover, this process assists them to make better decisions about the companys performance. In addition to this, it has also been added by Madhura (2014) that financial analysis could be done through various bases. Ratio analysis, vertical analysis, horizontal analysis etc are the most common way to examine the companys performance through evaluating the financial statements of the company (Nobes and Parker, 2008). Though, various contemporary methods are also there which evaluates about the financial performance of the company such as capital asset pricing method, dividend growth model etc. According to Lee and Lee, (2006), ratio analysis is the most used method of financial analysis as it is quite easier to calculate and depicts about the financial performance of the company. Lord, (2007) has depicted into his study that ratio analysis is one of the methods of financial statement analysis which is usually used by the management, CFO (chief financial officer) and the stock investors to evaluate and get the quick conclusion about the financial position and the performance of the company on various levels. Further, it has been added by Brealey, Myers and Marcus, (2007) that ratios could be categorized into various bases such as debt management ratios, solvency position ratios, asset management ratios, market value ratios, liquidity ratios and profitability ratios. Further, it has also been added by De Haan and Amtenbrink, (2011) that ratio analysis is a tool process which contains several features. Ratio analysis makes it easy for the organization and the investors to compare the financial performance with the competitive companies which are quite different in the size. Further, ratio analysis offers a quick outcome to the analyst about the financial performance and the position of the company (Krantz, 2016). Through the ratios study could also be done by the company in form of trend analysis to evaluate the various areas which could be deteriorated or improved by the company in a particular period of time. Though, it has been added by Kruth (2013) into his study that ratio analysis is a manipulative method to analyze the financial performance of a company. Ratio analysis does not take the concern of external factors and the non financial factors of the company. Financial statement contains various notes which are not studied by the investors and the analyst while investigating the financial statements of the company. Further, it has also been added by Kinsky (2011) that ratio analysis makes it confusing for the related parties to make a better decision about the investment, improvement, changes etc in the organization. Moreover, the study over ratio analysis expresses that the formulas of ratio analysis are slightly different is the studies and books of various financial analysts. It has been added by Horngren (2009) that contemporary methods are more relevant than the traditional financial analysis method. More, it has also been added by Kaplan and Atkinson, (2015) that ratio analysis and its outcome is not appropriate for a better decision. Further, the study of ratio analysis does not fit in the methods of financial analysis because it does not evaluate the financial position of the company in a good way. Application of theory: This report paper has been presented to evaluate the financial position and the performance of Spirax- SARCO Engineering plc. Financial performance of the business has been evaluated to analyze the position of the corporation in the industrial engineering sector of United Kingdom. For this report, study of ratio analysis has been done. This report explains that the ratio analysis study is quite important for all the related parties to evaluate and investigate the financial performance and the position of the company (Oliver and Schoff, 2017). This study assists all the related parties to make a quick and better conclusion about the situation and the recital of the company. For a better study and a better evaluation report, both the competitors have also been evaluated and the study of ratio analysis has also been done over both the companies: Description Formula SPIRAX-SARCO ENGINEERING PLC (1LNB) HILL SMITH HOLDINGS PLC (HILS) IMI PLC ADR (IMIAY) 2016 2016 2016 Profitability Net margin Net profit/revenues 0.160153156 0.062581 0.078937839 Return on equity Net profit/Equity 0.231753917 0.1455642 0.240795287 Gross Profit Gross profit/ revenues 0.76353314 0.369376 0.137417019 Return on assets Net income/ Total assets 0.140393519 0.0653266 0.0793208 Investment Ratios Price earnings ratio Market value price per share/ earnings per share 58.60502885 109.96967 39.66764526 Earnings per share ratio Net income/ weighted average share outstanding 1.652588556 0.4305732 0.966026588 Liquidity Absolute liquid ratios Absolute liquid assets/ current liabilities (Palicka, 2011) 2.081381011 1.0872483 0.994264959 Current ratio Current assets/current liabilities 2.774969174 1.6879195 1.482125789 Quick Ratio Current assets-Inventory/current liabilities 2.081381011 1.0872483 0.994264959 Efficiency Inventory turnover ratio Cost of goods sold/ average inventory 0.436825007 1.317092 1.462947799 Current asset turnover ratio Total sales/ total average current asset 0.459395592 0.7286832 0.547081352 Asset turnover ratio Total sales/ Average Total assets 0.243431621 0.2865556 0.259783018 Debtor's turnover ratio Net credit sales/ Average accounting receivables (Peterson and Fabozzi, 2002) 1.121801518 1.3820368 1.318637594 Assumption: It has been assumed that entire sales were on credit basis. Gearing Ratios Gearing % Long term liabilities / capital employed -0.156027358 0.2109493 0.293542943 Capital employed Total assets - current liabilities 701800 398200 1125900 The above table expresses about the financial performance and the various position of the company such as profitability ratios, investment ratios, liquidity ratios, efficiency ratios and gearing ratios. The above study expresses about the financial position of all the three companies and it also expresses that how the changes have taken place into the position of industrial engineering sector of United Kingdom. Profitability ratios: Profitability ratios express about the profit position of an organization. It is calculated to measure the success of the firm in earning and generating the firm. Further, these ratios express about the combined effects of debts and assets of the company (Phillips and Stawarski, 2016). Profitability ratios contain net margin, return on equity, gross profit and return on assets etc. all the profitability ratios express about the different position and the profits of the company. Net margin ratio measures the net profit of the company against the total revenues of the company. The net profit ratios of all the three companies express that the net profit of 2016 was 16.02%, 6.29% and 7.9% which expresses that all the three companies are earning the profits but the net profit margin of Spirax- SARCO Engineering plc is quite higher than the profit margin of other competitive companies (Ward, 2012). Further, return on equity ratio measures the net profit of the company against the total equity of the company. The return on equity ratios of all the three companies express that the return on equity of 2016 was 23.17%, 14.55% and 24.07% which expresses that all the three companies are earning great profits but the return on equity of IMI plc is quite higher than the profit margin of other companies. More, the gross profit and the return on assets of the company has also been analyzed to evaluate the profitability position of the company and it has been analyzed that the position of Spirax- SARCO Engineering plc is quite higher than the profit margin of other competitive companies. Investment ratios: Investment ratios express about the investment position of an organization. It is calculated to measure the investment opportunity in the firm. Further, these ratios express about the combined effects of debts and assets of the company. Investment ratios contain price earnings ratios, earnings per share ratios etc. all the investment ratios express about the different position and the opportunity of the investment in the company (Radebaugh, Gray and Black, 2006). Price earnings ratio measures the market value per share of the company against the earnings per share of the company. The price earnings ratios of all the three companies express that the price earnings ratio of 2016 was 58.60, 109.97 and 39.67 which expresses that all the three companies are earning the profits but the price earnings position of Hill and Smith is quite higher than the price earnings ratio of other competitive companies. Further, the earnings per share have also been analyzed to evaluate the investment position of all the three companies (Ross et al, 2008). The earnings per share ratios of all the three companies express that the earnings per share ratio of 2016 was 1.65, 0.43 and 0.97 which expresses that all the three companies are earning the profits but the price earnings position of Spirax- SARCO Engineering plc is quite higher than the profit margin of other competitive companies. Liquidity ratios: Liquidity ratios express about the short term debt obligation position of an organization. It is calculated to measure the position of the company to pay all the short term liabilities. Further, these ratios express about the combined effects of short term assets and short term liabilities of the company. Liquidity ratios include current ratio, quick ratio, absolute liquid ratios etc. (Ross et al, 2007). All the liquidity ratios express about the different position of the company in terms of paying the current liabilities (Voelkl and Fritz, 2017). Current ratio and quick ratios measures the current assets, quick assets in context of current liabilities of the company. The current ratios of all the three companies express that the current ratio of 2016 was 2.77, 1.68 and 1.48 which expresses that IMI PLC is managing the assets in a proper way, rest all the companies are paying extra cost to maintain the liquid position (Schlichting, 2013). Further, the quick ratios also express about the better performance of IMI PLC and explains that an organization should manage the current assets and current liabilities in such a manner that cost could be controlled by the company. Efficiency ratios: Efficiency ratios express about the working capital management position of an organization. It is calculated to measure the position of the company to manage the working capital of the company. Further, these ratios express about the combined effects of assets and the revenues of the company. Efficiency ratios includes inventory turnover ratios, asset turnover ratios, current asset turnover ratios, debtors turnover ratios etc. all the efficiency ratios express about the different position of the company in terms of managing the working capital (Seitzinger et al, 2010). Inventory turnover ratios, asset turnover ratios, current asset turnover ratios and debtors turnover ratios measures the total sales, cost f goods sold, inventory, assets of the company. The efficiency ratios of the company express about the better performance of Spirax- SARCO Engineering plc. This company has managed its cost and the working capital management in a better way. Gearing ratios: Further, gearing ratios express about the capital structure management position of an organization. It is calculated to measure the debt and assets of the company to manage the capital structure of the company. Further, these ratios express about the combined effects of assets and the debt of the company. Gearing ratios includes capital employed, gearing percentage etc. all the gearing ratios express about the capital structure position of the company in terms of managing the assets, debts and equity in a better way. Gearing percentage and capital employed measures the total assets, total liabilities and total equity of the company. The gearing ratios of the company express about the better performance of IMI plc. This company has managed its debt, equity and assets in a better way. Interpretation, conclusion and recommendation: Through the above evaluation, it has been found that the Spirax- SARCO Engineering plc, Hill and smith plc and IMI plc are performing better in the market due to a great growth in the industry and various innovations in the industry. Further, the interpretation, recommendation and conclusion of the report are as follows: Interpretation: Through the report and the analysis, it has been found that the profitability ratios express about the profit position of an organization. It is calculated to measure the success of the firm in earning and generating the firm. Through the study over all the three companies and its financial statement, it has been analyzed that the profitability position of an organization must be higher. The more, the profitability position of an organization would be, the more the comapny would be able to earn more. Through the analysis over all the 3 companies of industrial engineering sector, it has been found that the position of Spirax- SARCO Engineering plc is way better than the performance of other companies. Further, through this report, it has been found that the investment ratios express about the investment position of an organization. It is calculated to measure the success of the firm in terms of enhancing the investment in the companies. Through the study over all the three companies and its financial statement, it has been analyzed that the investment position of an organization must be higher. The more, the investment position of an organization would be, the more the investors would prefer the company. Through the analysis over all the 3 companies of industrial engineering sector, it has been found that the position of Hill and Smith plc is way better than the performance of other companies. Further, liquidity position of the company express about the current asset and current liability management of the company. Through the analysis over the liquid position, it has been analyzed that position of IMI plc is way better than any other companies due to better policies of the company to manage the performance. Further, the efficiency position of the company expresses the the Spirax- SARCO Engineering plc has managed the working capital in a better way than any other companies. Lastly, the gearing ratios express that the IMI plc has been managed the capitals structure in a better way. Recommendation and conclusion: Through the above study, it is recommended to the Spirax- SARCO Engineering plc to enhance the revenues and manage the expenditure of the company so that the investment position of the company could be better. Further, the company is also suggested to improve the market price through making few positive changes into the policies of the company and enhance the dividend of the companies. Moreover, the liquid position of the comapny is also required to be better. The company should reduce the level of the current asset to make a better and competitive liquid position as well as it also assists the company to reduce the level of the extra cost of the company. More, the efficiency position of the company has been analyzed and it is suggested to the company to make new polices for the turnover of debtors, current assets, total assets, debtors etc. so that the working capital of the company could be managed and the cost of the company could also be controlled. Moreover, the capital structure of the company has also been analyzed and comapny is suggested to make few changes into its structure to make an optimal capital structure. Thus, it is recommended to the company to make few positive changes into the financial performance, financial strategies ad policies of the company to manage the performance of the company in the industry. Further, the company must analyze the competitive policies and make few changes according to them to make a competitive environment. 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