A Report on Johnson Matthey PLC - Free Essay Example

It is the manufacturer of autocatalysts, heavy duty diesel catalysts and pollution control systems, catalysts and components for fuel cells, catalysts and technologies for chemical processes, fine chemicals, chemical catalysts and active pharmaceutical ingredients and the marketing, refining, and fabrication of precious metals. Further, for 200 years, it has continued to develop its technology, representing the companys ability to keep world leadership by adapting constantly to changing customer needs. As this company is concerned in its own environmental policies many of the products of this company have a major beneficial effect on the environment and develop the quality of life for millions globally. Furthermore, it has branches in more than 30 countries and has employed to around 8, 500 people. The products of it are sold in a wide range of countries that are further advanced in technology and industrialized (Web 1) 1.2. Ratio analysis The objective of preparing financial statements is to present information to the interested users of the company. Potential investors, stockholders, bankers and credit using companies and government offices can be included in the list of users. Outside parties use the financial statements depends on their role and to get the answers for the questions that they are having in mind. Financial statements are generally used to prepare ratios as a part of the analysis. To take some of the values on the statements and to correlate them to other values and then to make comparisons, these ratio analyses are involved. Since they relate various elements of financial details, they are very useful to the business world. The relationships provide a incredible amount of information and allow for both easy tracking of trends over time and simple comparisons among companies. Moreover, ratios also have the skills to make the date for smaller companies and business institutions similar to that for larger companies (Wendy 2003) Here are some of the most important ratios used in business: 4. Return on Capital Employed Ratio: ROCE explains what return management has made on the resources and has made available to them before making any distribution of those returns. Return on capital employed = (Operating profit / Average capital employed) x 100% = =16.086% Liquidity Ratios These ratios indicate the ease of turning assets into cash. They include the Current Ratio, Quick Ratio, and Working Capital. Current Ratios. The Current Ratio is one of the best known measures of financial strength. It is figured as shown below. Current Ratio = Total Current Assets/ Total Current Liabilities In 2009 entity has downgrade the level of liquidity decrease by 2.42% So is in the bad conditions when meeting in the financial obligations. Quick Ratios. The Quick Ratio is sometimes called the acid-test ratio and is one of the best measures of liquidity. It is figured as shown below: Acid or quick test ratio = (Current assets stock) / Current Liabilities 2009 2008 = = =1.03 =1.111 In 2009 Johnson Matthey has bad liquidity position than 2008 and liquidity position in 2009 decrease by 7.20 Working Capital. Working Capital is more a measure of cash flow than a ratio. The result of this calculation must be a positive number. It is calculated as shown below. Working Capital = Total Current Assets Total Current Liabilities 2009 2008 =1042.2-648.7 =1172.2-712.3 =393.5 =459.9 In 2009 Johnson Matthey working capital decreased by 14.43% than 2008. Earnings per Share The earnings per share are a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased Earnings per share = Net profit (after tax and preference dividend) / Number of ordinary shares Earnings yield = (Earnings per share / Share Price) x 100% Price/earnings ratio = Market price of share / Earnings per share =21.66 Dividend yield = (Dividend per share / Market price of share) x 100% Dividend cover = Net profit / Dividend =-13.22   Rate of Return Return of total assets = debt + current liabilities / Total assets 2009 2008 =43.9% =51.0% Debtor turn over = average debtors / sales Stock turn over = average stock/ cost of goods sold Return on ordinary shareholders funds = (Net profit before tax / Average Equity) x 100% Leverage Ratio This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owners equity): Debt/Worth Ratio= Total Liabilities/ Net Worth Conclusion In the financial year to 31st March 2009, Johnson Mattheys revenue rose by 5% to £7.8 billion and sales excluding the value of precious metals increased by 3% to £1.8 billion. Underlying profit before tax was up 1% at  £267.9 million. Original earnings per share increased by 0.1 pence to 89.6 pence. Market conditions changed significantly during the year. However, Johnson Mattheys 2009 financial performance less than 2008 financial performance.