Telecity Group Plc Financal Statement Analysis

Submitted in fulfillment of assignment 1 of Financial and Management Accounting course Telecity assemblage plc Background Founded in 1998 with the establishing of the first entropy centre in Manchester, Telecity Group plc is operating a carrier-neutral selective information centre in Europe to support digital economy. It is a combination of TeleCity Limited, Redbus Interhouse Limited and Globix Holdings (UK) Limited. As a leading provider of info centre services, Telecity Group plc is listed in London Stock Exchange.In the meanwhile, it is is a theatrical role of the FTSE 250, FTSE techMARK 100 and FTSE4 Good indices. Driven by the rapidly increasing of digital economy, Telecity Group has been targeting to build secure, resilient and mellowedly-connected colocation environments for the IT and telecoms equipment, to which customers can outsource their telecoms, web and IT infrastructures. For this purpose, Telecity Goup has launched the demand-driven data intricacy chopineme, w hich is expanding its data center efficacy through Europe.This European-based programme is anticipate to get customer power capacity, which will in turn assume phoner economic of scale. Further more(prenominal), as an Information Technology Company, Telecity Group has been super relying on high and rude(a) technology to attract new customers and increase make headways. Thus, much effort has been put into companys ability to inaugu order new products and services in hurt of data accessibility, security and specialty. pore on evaluating the implementation of its come about strategy, this paper will analyse it is pecuniary statement base on the basic financial ratios.Ratios Analysis mental home This section will value Telecity Group plcs financial ratios in detail. Other than looking at the past and present capital punishment trends of the Group, this adjudicate will also dis pe displacerate the companys financial surgical operation in comparison to Datacenter indu stry everyplaceall. Consequently, company management team will be able to determine the short term forecast of forthcoming performance. Furthermore, the analysis in this section can give guidance to investors by providing data and giving realistic view of Telecity Groups inancial frame and comparison to the industry. advantageousness Ratios Given the important role pull in plays as financing both dividends to sh beholders and retained earnings, it is the main measure of financial performance. get wind 1 earningsability Ratios (GPM- Gross sugar margin, OPM- Operational lucre margin) As can be seen from figure 2, the gross profit was dramatically increase from 52% to 56 % through course 2010, and at that place was impressively advancement for year 2011.This can be explained by companys successfully implementation of its growth strategy. On one side, driven by the high demanding of digital economy, the company has been focusing on increasing earnings by expanding data cent re capacity and adopting new technology. On the other hand, along with the growth there is high cost. However, the even high revenue growth still made the growth of gross profit margin. Operation profit was slightly come in year 2011, which implies high administrative be in 2011. This is chiefly because of a total amount of ? ,510,000 provisions enjoy of certain leases and the acquisition with Data Electronics and UK Grid, the be of which were accounted in operational exceptional items in consolidated income statement. radiation pattern 2 Profitability Ratios (PreTPM- Pre-tax profit margin, PostTPM- Post-tax profit margin) The pre-tax profit margin has also significantly improved from near 23. 5 % to about 25 % in 2011. One of reasons of this improvement is the gains on unusual exchange. The most important reason should be the write off of costs incurred on refinancing, which was an ? 00m five-year financing agreement with Barclays, HSBC, Lloyds Banking Group and RBS from l ast year. Unlike PreTMP, post-tax profit margin has dropped impressively to about 17. 6 %. This may be mainly because of the dramatically increment in both menstruation tax and deferred tax. soma 3 Profitability Ratios (ROCE- Returns on capital employed, ROE- Returns on blondness) Figure 3 shows that The Telecity Groups average ROE is comparable to industry ratio which is 7. 1% up to year 2010. However, in terms of growth, the trend is dramatically going down from 2009, which is despite the fact that both total equity and profit after(prenominal) tax have been improved.However, the growth of profit was non in pace with the equity. In fact, this makes sense when take into account the companys expansion strategy, which has been being successfully implemented by ground up new data centres across Europe. A well-favored coin has been invested in this expansion program, which in turn provided the company high authorization turn-oer. In general, financial analysts consider return on equity ratios in the 15-20% range as representing attractive levels of investment quality. In this sense, the companys performance is florid with regards to efficiency of profitability.ROCE is one of Telecity Group key performance indicator, which is added to evaluate companys strategy of focusing earnings return from investment. ROCE was decreased during year 2011, which was cod to the companys capacity expansion programme and acquisitions effect. Even though, the companys performance in terms of generating returns is healthy in comparison with industry average rate at about 8%. fluidness Rations Liquidity ratios ar to measure a companys ability to pay off its short-term financial obligations (Atrill and McLaney, 2011).Figure 4 Liquidity Ratios In theory, the higher current ratio is better as it intelligibly identifies the companys ability to pay off short debts origin its on-going operations. (Investpedia, 2009) In the case of Telecity Group, its average current ratio sho ws that the current assets are not able to pinnacle its current liabilities. This is mainly because the company has invested a big money into companys capacity expansion program and acquisition, which are holding most of companys capital. However, the average rate is comparable to the industry as a whole at 0. 8. quite a little receivable days are healthy between 25 and 40 days over the year from 2009 to 2011, there is even a decrease from 40 days to 35 days in year 2011. This is payable to the demanding digital economy commercialize. Financial Gearing Financial gearing happens when short letter is financed in a way of borrowing (Atrill and McLaney, 2011). The analysis of gearing ratios is to evaluate the businesss level of gearing, which is the key factor of assessing risk. Figure 5 Gearing Rations (D/E- Debts to equity, ND/E- dismiss debt to equity)Figure 5 shows that gross debt to equity has increase from about 30% to over 60% in year 2011 after a slightly decreasing in yea r 2010, which indicates Telecity Group is highly geared in 2011. This is because the significantly increase of non-current borrowing for companys capacity expansion program and the two acquisitions. Net debt to equity is refer with company notes to repay the borrowings. It has impressively increased to more than 60% as well demonstrating that risk exists at Telecity Groups failure. Figure 6 Gearing Ratios (IC- Interest covre, NIC- Net intimacy cover) Interest cover ratio measures the amount of operating profit available to cover interest payable(Atrill and McLaney, 2011). As can be seen from figure 6, gross interest cover has fallen from 11 % to 10. 4 % in 2011. In terms of net interest cover which takes into account finance income, the cover ratios were slightly increased. Overall, the figures are showing that Telecity Group has the strong ability to service its debt. exchange mix analysis CFPS is concerned with the company ability of generating cash. Therefore, it is commonly referred by analysts for more accurate measure of a companys financial situation.Figure 7 Cash watercourse ratios (EPS- recompense per share) The CFPS has increased from 37 pence in 2009 to 60 pence in 2011. The EPS is averagely higher then CFPS as we would commonly expected. Both EPS and CFPS have increased over the two years. The main reasons for the increase and the difference between CFPS and EP as follows 1. move in foreigner exchange 2. Movement in deal out receivables and trade payables 3. Depreciation charge 4. exist of exceptional items To sum up, the net cash flow from operating activities has significantly improved by 25 % to over ? 120million. Over ? 00 million was spent on investment activities, which include capacity expansion program and acquisition activities. Investment analysis Investment ratios are designed to help shareholder to assess the returns on their investment (Atrill and McLaney, 2011). Earnings per share have rise from 19p to 21p in 2011, which is basically because of the increasing profit margin over the year. Conclusion As can be seen from above, the Telecity Group plc has gone through a stable healthy financial year with regards the implementation of its growth strategy. Telecity Groups profitability stayed stable and healthy in the near two years.The low profit increment was due to the companys expansion and acquisition strategy. Given the fact that data centre services is demanding in digital economy, Teleicty Groups successfully expansion and acquisition will in turn make big returns. Liquidity is poor in terms of ability to cover its current liabilities. However, given the industry ratio being 0. 58, it is comparable healthy in the market. Furthermore, the short trade receivable days imply the high market demands in the data centre industry. Companys gearing has risen to extremely high level due to its growth strategy.From investors perspective, there would be risk of investing in the case of companys failure. However, take into the consideration of the characters of data centre industry, which are demanding the high capacity, connectivity and malleable services, Telecity group are in no way to failure as it has achieved successful implementation of its business across Europe and gained the potential of attracting new contract with exiting as well as new customers. Overall, the Telecity has been seeking the ruff practise within the data centre industry as a leading provider of premium carrier-neutral data centres.As the result of its successful capacity expansion and acquisitions, the further high turnover is inevitably. Appendix 1 Profitability Gross Profit mete = Gross Profit/ tax revenue% ? ? 2009 = 88,727 / 169,383 % = 52. 4% 2010 = 109,773 / 196,397 % = 55. 9% 2011 = 134,701 / 239,818 % = 56. 2% ? operate Profit Margin = Operating profit/Revenue% ? 2009 ? 39,102 / 169,383 % = 23. 1% 2010 = 55,173 / 196,397 % = 28. 1% 2011 = 65,359 / 239,818 % = 27. 3% ? Pre-tax profit Margin = Profi t before tax/Revenue% ? ? 2009 = 38120 / 169,383 % = 22. % 2010 = 45,941 / 196,397 % = 23. 4% 2011 = 59,438 / 239,818 % = 24. 8% ? ? ? ? ? ? ? ? Post-tax profit Margin = Profit after tax/Revenue%? ? 2009 = 34722 / 169,383 % = 20. 5% 2010 = 38,031 / 196,397 % = 19. 4% 2011 = 42,641 / 239,818 % = 17. 8% Return on Capital Employed = Operating Profit/ conglomeration Capital employed ? ? 2009 = 39,102 / (80,467+218,931) % = 13. 1% 2010 = 55,173 / (80654+257,545) % = 16. 3% 2011 = 65,359 / (183,451+298,027) % = 13. 6% Return on Equity = Profit after Tax / Equity % ? ? 2009 = 34722 / 218,931 % = 15. 9% 2010 = 38,031 / 257,545 % = 14. 8% 2011 = 42,641 / 298,027 % = 14. 3% Liquidity Current Ratio = current Assets/Current Liabilities 2009 = 51,623 / 82,961 = 0. 6 ? ? 2010 = 46,501 / 82,474 = 0. 6 ? ? 2011 = 48,398 / 103,283 = 0. 5 ? ? ? Trade payable days = Trade payables/Cost of Revenue*365 2009 = 47,089 / 80,656 * 365 = 213days 2010 = 47,085 / 86,624 * 365 = 198da ys 2011 = 57,935 / 105,117 * 365 = 201days ? Trade receivable days = Trade receivable /Revenue? 009 = (19,483-6,975) / 169,383 * 365 = 27days 2010 = (22,139-746) / 196,397 * 365 = 40days 2011 = (26,365-3,560) / 239,818 * 365 = 35days Gearing Debt to equity = Non-current borrowings/Equity% 2009 = 80,467 / 218,931 % = 36. 8% 2010 = 80,654 / 257,545 % = 31. 3% 2011 = 183,451 / 298,027 % = 61. 6% ? Net debt to equity = Borrowings less cash/Total Equity%? 2009 = (80,467-32,140) / 218,931 % = 22. 1% 2010 = (80,654-24,362) / 257,545 % = 21. 9% 2011 = (183,451-22,033) / 298,027 % = 54. 2% Interest Cover = Operating profit/Interest spending ? 2009 = 39,102 / 3788 = 10. 3 ? 2010 = 55,173 / 5,017 = 11 ? 2011 = 65,359 / 6,300 = 10. 4 ? ? ? ? ? ? ? ? ? Net Interest cover = Operating profit/Net Interest outlay *Net interest expense= pay expense-interest? 2009 = 39,102 / (3788-117) = 10. 7 ? 2010 = 55,173 / (5017-11) = 11. 0 ? 2011 ? 65,359 / (6300-103) = 10. 5 ? Cash Flow Cash flow per share = Net cash flow from operating activities/ follow of equity share issued 2009 = 74,017 / 198,092 = 0. 37365 = 37. 4p 2010 = 96,380 / 198,092 = 0. 86542 = 48. 7p 2011 = 120,554 / 198,892 = 0. 606128 = 60. 6p Investment Earnings Per Share ? ? 2010 = 19. 0p 2011 = 21. 1p References Atrill, P. and McLaney,P. (2011) Accounting and Finance for Non-Specialists. 7th. ed. Essex Pearson Education Limited. Telecity Group plc Annual report and accounts 2011 Data centres at the bosom of the digital economy, 2011 TelecityGroup. Telecity Group plc Annual report and accounts 2010 Data centres at the nub of the digital economy, 2010 TelecityGroup. http//www. investopedia. com/terms/c/currentratio. asp, Investopedia.