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Net cash generated was 220.2m from their operating activities compared with the last
year of 192.8m.
Earnings per share increased to 11.85pfor financial year 2007.
Introduction
Sage group is one of the most leading suppliers of business management software to 5.8
million customers worldwide. It found in 1981; the core business of software group sage
is the development and distribution of accounting, salary check management software
for different type of businesses. From small setup to large the organisations, the
company is giving opportunity to makes it easier to handle their business processes.
Methods of Analysis
The basic and common methods of analysis of a company about its financial position are
as follows;
Investor analysis;
Trend (vertical analysis);
Horizontal Analysis; &
Ratios Analysis.
Horizontal Analysis
This method is a comparison of an entity's performance over a particular period of time
to that of a similar entity. Comparisons are only effective, if the companies operate at
same level and in same market. Even if the companies are similar, Competitor Company
might have not performed to its full capacity.
Ratio Analysis
The ratio analysis is classified into four categories;
Liquidity Ratios
Liquidity means a "liquid asset" is one which can be easily converted into cash at a
market value. It helps in financing and investing decisions of the company. It actually
measures the short term solvency of a company, it includes following;
Current ratio is current assets/current liabilities. Ideally it is thought that it should be
between 1.0 - 1.5, but it can vary depending upon the sector.
Quick ratio expresses the proportion of current asset minus(less) stock to current
liabilities. This is expected to be Parity so that liabilities (short-term) can be met.
Debtor's days is the number of days taken by trade debtors to make a payment
Creditor's day is the numbers of days given by creditors to give them payment.
Investment Ratios:
Price earning (PE) is highly used investor ratio. It is the ratio of current share price to
the EPS. High price ratio indicates strong confidence in the company.
Dividend yield is "the yield a company pays out to its shareholders in form of
dividends". This ratio is more useful for investors who are looking for a steady dividend
income rather than just capital growth.
Profits
Gross profit of the company is nearly the same compared to last year. In FY2006, it was
91.41% and this year it is nearly the same figure as the last year. i.e. 91.04%. it has
increased by 23.23% from FY2007 (855.20m) to FY2008 (1053.90m).
The pre-tax profit has grown from FY2005 (193.60m) to FY2006 (221.20m)
by14.26% and a further increase of just around by 1%from FY2006 to FY2007.
The highest operating profit came from the Region of Mainland Europe showing a
percentage increase of 20.89% over FY2006 giving a net increased figure of 12.3m.
Gearing
Gearing of the group for YR2006 was 35.45%, which dropped to 30.70% in FY2007. The
low gearing ratio shows that the company is enrich in its funds to meet its long-term
liabilities. The company is in less financial risk. Furthermore decrease in the gearing
and an increase in the profit shows that company is in strong financial position.
LIQUIDITY RATIOS
Current Ratio
Current ratio of the company for the current year was 0.524. For the FY2007, it was
0.543. It is because of slight decrease in cash & cash equivalents from 81.4m to 64.3m
& payables were increased by 9.9m over the previous year. As compared to the
threshold of 1:1, it is well behind the standard which means the company might be
unable to pay its debt on time. In, practice the comfortably in excess of 1 should be
expected but it can be varied depending on the types of businesses.
Debtors Days
Receivable conversion period for the current period is 61 days (60.81 days), compared to
the last year of 72 days (72.21 days). It shows the improvement of cash collections over
the last year to increase the liquidity.
Creditors Days
Payable conversion period for the current period is 352 days compared to the last year of
432 days. Once again the longer the period of creditor's days, the longer will be the
liquidity resources availability.
INVESTMENT RATIOS
Earnings Per Share (EPS)
EPS have slightly increased by 0.04p from 11.81p to 11.85p which shows the increased
profits over the previous period. It can also be seen through increased payment of
dividends to shareholders worth 49.0m compared to last year of 39.1m.
Price Earnings
Price Earnings ratio for the current year is 18.7 compared to last year which was 21.3.
The higher the P/E ratio suggests the investors expect high earning growth in future.
P/E Ratio can't itself give the whole picture until compared with the other company in
the market or industry average.
Dividend cover of the company for the current period is 1.693X for the current period
compared to the last year of 3.2X. A ratio of 2X is considered to be safe in industry as
the company can well afford the dividend.
Gearing
Gearing of the group for YR2006 was 35.45%, which dropped to 30.70% in FY2007. The
low gearing ratio shows that the company has sufficient funds to meet its long-term
liabilities. The company is in less financial risk. Furthermore decrease in the gearing
and an increase in the profit shows that company is in strong financial position.
Interest Cover
Interest Cover for the current period is 7.98X compared to the last year of 13.77X which
is still quite high to cover its interest costs.
CONCLUSION
The group has shown growth in all the sectors of economy. It has been producing
consistent results over the years. The revenue has increased significantly over the last
few years. The company has healthy operating profits for the current period. Compared
to the last periods, its progress is not as good as it was in the past few periods.
Overall the group has performed well against the benchmarks set by the company and
was in line with the group's forecasts set. Another key thing observed the customer
satisfaction & renewal level for the group was above 80% for the year 2007.
It has low gearing which represents the low financial risk and group's ability to meet its
obligations in case of emergency. Its ROCE has increased which again is good from
investor's perspective. The group is paying dividends consistently over the past few
years which again attract the shareholders & investors. Debt ratio of the company is
0.52 which indicates that the assets of the company are nearly doubled to its liabilities
which once again are an indication of low financial risk.
APPENDIX
1475.70
Current Assets
301.40
303.30
Total Assets
2207.80
2210.90
Current Liabilities
575.50
558.40
Trade Receivables Net
200.70
185.10
Trade Payables
105.0
95.10
RATIO ANALYSIS
PROFITABILITY & RETURN
Operating profit
255.30
235.80
Operating Margin
22.05%
25.20%
Net Margin
13.31%
16.31%
Interest Cover
7.98X
13.77X
ROCE
17.35%
15.09%
Debt Ratio
0.5241
0.5578
ROSF
14.67%
15.61%
Gearing
30.79%
35.45%
MARKET RATIOS
EPS
11.85p
11.81p
Dividend Per Share
7.00p
3.59p
Dividend Cover
1.693
3.29
Dividend Yield
2.8
1.4
PE Ratio
18.7p
21.3p
LIQUIDITY
Current Ratio
0.524
0.543
Acid test Ratio
0.514
0.553
Efficiency Ratios
Average Collection Period
60.81 days
72.21 days
Payable Conversion Period
352.15 days
431.74 days
Inventory Conversion Period
19.36 days
25.42 days
Segmental Revenue
Segment 2007 2006 %age Increase
UK 224.1m 205.2m 9.21%
Mainland Europe 349.1m 299.8m 16.44%
North America 508.1m 361.5m 40.55%