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An investigation into the financial statements of PEARSON COMPANY from the period of 2005 2007

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TABLE OF CONTENTS
ACKNOWLEDGEMENT ............................................................................................................. 3 INTRODUCTION ......................................................................................................................... 4 AIMS AND OBJECTIVES ............................................................................................................ 6 METHODOLOGY ........................................................................................................................ 7 DATA COLLECTION AND ANALYSIS ..................................................................................... 8 LIQUIDITY RATIO .................................................................................................................. 8 PROFITABILITY RATIO ....................................................................................................... 11 SOLVENCY RATIO ............................................................................................................... 13 ACTIVITY RATIO .................................................................................................................. 15 EVALUATION ........................................................................................................................... 17 RECOMMENDATION ............................................................................................................... 18 CONCLUSION ........................................................................................................................... 19 APPENDIX ................................................................................................................................. 20 CONSOLIDATED BALANCE SHEET year ended 31 December 2005 ................................... 20 CONSOLIDATED INCOME STATEMENT year ended 31 December 2005 ........................... 22 CONCOLIDATED CASH FLOW STATEMENT year ended 31 December 2005 .................... 23 ACCOUNTING RATIOS FOR 2005 ....................................................................................... 24 CONCOLIDATED BALANCE SHEET as at 31 December 2006 ............................................ 29 CONSOLIDATED INCOME STATEMENT year ended 31 December 2006 ........................... 30 CONSOLIDATED CASH FLOW STATEMENT year ended 31 December ............................. 31 ACCOUNTING RATIOS FOR 2006 ....................................................................................... 32 CONSOLIDATED BALANCE SHEET as at 31 December 2007 ............................................. 36 CONSOLIDATED INCOME STATEMENT year ended 31 December 2007 ........................... 38 CONSOLIDATED CASH FLOW STATEMENT year ended 31 December 2007 .................... 39 ACCOUNTING RATIOS FOR 2007 ....................................................................................... 40

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ACKNOWLEDGEMENT
Firstly, I would like to thank the Lord God for giving me the knowledge, understanding and patience to cope with this project. In addition, I am deeply grateful to my teacher Mr. Gooljarsingh for this guidance and attention throughout the project. His contribution was invaluable and I appreciate it.

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INTRODUCTION
Pearson is a global media and education company headquartered in London, United Kingdom. It is both the largest education company and the largest book publisher in the world, with consumer imprints including Penguin, Dorling Kindersley and Ladybird. It also owns the Financial Times Group, which is the publisher of the Financial Times. The Company was founded by Samuel Pearson in 1844 as a building and engineering concern operating under the name of S. Pearson & Son. In 1880, control passed to his grandson Weetman, an engineer, who in 1890 moved the business to London and turned it into one of the world's largest construction companies. In 1919 the firm acquired a 45% stake in the London branch of merchant bankers Lazard Brothers, an interest which would be increased to 80% in 1932 during the depression years. Pearson continued to hold a 50% stake until 1999. In 1921 Pearson purchased a number of local newspapers in the United Kingdom, which it combined to form the Westminster Press. In 1957, it bought the Financial Times and acquired a 50% stake in The Economist. It purchased the publisher Longman in 1968. The Company was first listed on the London Stock Exchange in 1969. It went on to acquire the Penguin Group in 1970. In 1986, Pearson participated in the British Satellite Broadcasting consortium. (BSB), choosing expensive methods and technology, was out-maneuvered by Rupert Murdoch's Sky Television, which used proven and simpler technology, and leased transponders on Astra satellites. Sky gained an important foothold in the multichannel market and the eventual "merger" was effectively a takeover of BSB by Sky, the new company being renamed British Sky Broadcasting (BSkyB) a few years later. During the 1990s, Pearson acquired a number of TV production and broadcasting assets and rid itself of most of its non-media assets.
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Pearson acquired the education division of Simon & Schuster in 1998. In September 2000, Pearson acquired National Computer Systems (NCS, Inc.) and entered the educational assessment and school management systems market in the United States. In January 2003, Pearson sold their 22% stake in RTL Group, the largest commercial television and radio broadcaster in the EU. Also in 2003 it secured control of EDEXCEL, the Testing and Assessment Company. Pearson subsequently purchased a series of other testing and assessment businesses, beginning with Knowledge Technologies in 2004, AGS in 2005, and National Evaluation Systems and Promissor in 2006. The combination of acquisitions and organic growth have made Pearson the largest assessment and testing provider in the United States. Pearson sold its international government services (Pearson Government Solutions) division to VERITAS Capital in March 2007. The new stand-alone company, Vangent Inc, has its international headquarters in Arlington, VA, with offices in London, Rotherham, Yorkshire, and Canada.[16] In May 2007 Pearson announced that it had agreed to acquire Harcourt Assessment and Harcourt Education International from Reed Elsevier for $950m in cash. Due to Pearson's market-leading position in the US textbook market they were not interested in the main Harcourt business on account of regulatory concerns. Pearson completed the acquisition of Harcourt Assessment on January 30, 2008, merging the acquired businesses into Pearson Assessment & Information. In February 2008 Pearson announced the sale of its Pearson Data Management Division (formerly the scanner manufacturing and servicing division of NCS Inc.) to Scantron Corporation (part of M & F Worldwide) which had been its main competitor.

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AIMS AND OBJECTIVES

The overall aim of this project is to:  Arrive at a better understanding of financial statements as they are used in the reporting of accounting information

The overall objectives of this project are to:  Compute ratios to test solvency, liquidity, profitability and activity  Explain the significance and limitations of financial statements

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METHODOLOGY
In order to complete this report, the researcher relied exclusively on audited financial statements which are sourced on the internet. The main attribute of such statements is their reliability. Having the auditors seal of approval signifies to the user that for the most part some identified financial reporting framework has been adhered to. A major limitation of financial statements however is that they are based on accounting principles, concepts and conventions which may not apply to the particular situation at hand.

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DATA COLLECTION AND ANALYSIS

LIQUIDITY RATIO Liquidity refers to the entitys ability to meet its short-term obligations (accounts payable, overdrafts, short-term loans payable). Liquidity ratios provide the basis for answering the question; does the firm have sufficient cash and near cash assets to pay its maturing obligations? There are two (2) basic liquidity ratios:  Current asset  Acid test ratio or quick ratio

a) Current ratio Current assets are cash or assets expected to be turned into cash within the next twelve months (1 year) and the current liabilities are those obligations that should be paid in the next twelve months. This ratio measures the entitys ability to meet its short-term obligations with the current assets. = Current Assets Current Liabilities

b) Acid Test Ratio or Quick Ratio The acid test ratio provides a more rigorous test of an entitys ability to meet its short-term obligation. Since certain current assets cannot be readily converted to cash, they are excluded from the calculation.

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