Description
FINANCIAL ANALYSIS OF BRITISH LAND COMPANY
BRITISH LAND COMPANY
By POPA ANGELA, NATHALIE SCHROLL, SZASZ ILIE and NICOLE MACHULA.
FINANCIAL ANALYSIS
Financial analysis is a process by which the analyst, by means of transformations, graphic representations, ratios, and other calculations, forms an opinion from the financial statements and other complementary information, evaluating the liquidity, solvency and profitability of the company. This opinion usually takes the form of an analysis report.
FINANCIAL ANALYSIS
In the following slides we are going to present the financial analysis of the real estate: BRITISH LAND COMPANY. We are going to talk about: ?Liquidity ?Solvency ?Profitability ?Investor’s perspective
LIQUIDITY
Liquidity refers to the capacity of the company to satisfy its short-term liabilities. From an external perspective, liquidity analysis can be performed using two different methodologies: ?Liquidity analysis based on cash flows ?Liquidity analysis based on the operating working capital
LIQUIDITY: Cash Flow analysis
The objective of the cash flow analysis is to state if the company can satisfy its short-term debts using its operating cash flow, net and its liquidity reserves. The ideal situation is when the company can pay its short-term debts using only the operating cash flow, but it is also good if they can pay the debts using the operating cash flow and the liquidity reserves.
LIQUIDITY: Cash Flow analysis
2005 2006 2007 2008 Operating Cash Flow, -358 267 1.217 -137 Net Liquidity Reserves 11.978 13.196 15.874 12.179 Current Liabilities (non-operating) 759 546 800 561
LIQUIDITY: Cash Flow analysis
Cash Flow Analysis
16000 14000 12000 10000 8000 6000 4000 2000 0 -2000 2005 2006 2007 2008
Operating Cash Flow, Net Liquidity Reserves Current Liabilities (nonoperating)
LIQUIDITY: Operating Working Capital Analysis
The operating working capital (excess of operating current assets over operating current liabilities) is a good measure to represent the capacity of the current assets related to the company’s operating activities to generate enough cash so as to satisfy the current liabilities related to the company’s operating activities. Generally, a positive OWC is good for the company because it means that the company is able to pay off its short-term liabilities.
LIQUIDITY: Operating Working Capital Analysis
Operating Working Capital Analysis in Mio
Operating Working Capital
300 200 100 0 2005 2006 Year 2007 2008 76 118 208 133
The operating working capital is positive for all the four years because either they don’t have, or they don’t report separately any operating current liabilities. For that reason we were unable to calculate the operating current ratio and the quick ratio.
SOLVENCY
Solvency means the company’s ability to make its agreed payments over the long term.
The analysis can be based on two perspectives: ?Cash Flow – company’s capacity to generate from treasury and its cash reserves; ?Guarantee – how far can the company pay off its liabilities via the liquidation of company shares.
SOLVENCY: Cash Flow analysis
NET DEBT < 0 NET DEBT < 0 NET DEBT NET < 0DEBT < 0
For each of the 4 years, the net debt is lower than 0, which means that liquidity reserves are bigger than the non-current liabilities. This means that the company can pay off its long-term debts using the liquidity reserves.
SOLVENCY: Cash Flow analysis
Cash Flow Analysis
2000,00 40,38 0,00 49,15 322,00 157,75
-2000,00 Net Debt Operating Coverage -6246,00 -6882,00 -8000,00 -9041,00 2005 2006 Year 2007 2008
Amount
-4000,00 -5242,00
-6000,00
-10000,00
SOLVENCY: Cash Flow analysis
>>>1 >>>1 >>>1 >>>1
Operating coverage indicates whether operating expenses can be covered by operating income or not. That is to say, the superiority of operating inflows over outflows. This ratio is expected to show values that are above the unit. In our case, the value is much bigger than the unit which means that our company has no problem of solvency.
SOLVENCY: Guarantee analysis
The Guarantee ratio is greater than the unit, which means that the company, in a state of liquidation, could pay off the external capital it has been financed with. Debt ratio is the opposite of the previous one. It is interpreted as a measure of the debt taken on by the company to finance its assets. This ratio usually varies between 0.4 and 0.6, and its value must be compared to sector references. Our company is situated between the limits.
SOLVENCY: Guarantee analysis
Guarantee Analysis
250% 215% 200% 164% 150% 100% 61% 50% 0% 2005 2006 Year 2007 2008 55% 47% 46% Guarantee Ratio Debt Ratio 180% 216%
Amount
PROFITABILITY
Profitability measures how a company, after performing its basic activity of sales and services rendered, and paying all the production factors concerned, is able to generate a profit to be distributed among shareholders that can be compared to the total of resources invested in the activity, as a measure of the efficiency achieved.
PROFITABILITY
Profitability can be measured from a double perspective, relative to the total investment or to the invested resources themselves. ?Return on assets (ROA) calculates the relationship between EBIT and total assets, as a measure of the investment necessary to obtain this profit. ?Return on equity (ROE) determines the relationship between EBT and equity, as a measure of the resources the shareholders have invested in the company.
PROFITABILITY: ROA
The higher the ROA percentage, the better, because the company is earning more money on less investment. Comparing to Unibail Rodamco, our ROA ratios are lower, which means we are not as good as Unibail Rodamco at using our assets in order to generate money.
PROFITABILITY: ROA
Return on Assets in %
25% 21% 20% 16% 15% 10% 8% 5% 5% 0% -5% -10% -15% -15% -20% 2005 2006 Companies 2007 2008 -8% 2% British Land Company Unibail Rodamco 4%
Percentage
PROFITABILITY: ROA
Our company chose a differentiation strategy, based on quality – it seeks to sell exclusive products at a high price even though the number of units sold is low. Thus the profit margin is high but the turnover is low.
PROFITABILITY: ROA
Return on Assets in %
300% 200% 100% 0% Profit Margin Assets Turnover 187% 147% 45% 4% 4% 3% 4%
Percentage
-100% -200% -300% -339% -400% 2005 2006 Year 2007 2008
PROFITABILITY: ROE
Return on equity represents the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Our ROE is much lower comparing it to the industry (4.52), but comparing it to our competitor Unibail Rodamco we have similar ratios, which means we can interpret it as a positive value.
PROFITABILITY: ROE
Return on Equity in %
30% 26% 20% 16%
15%
10%
Percentage
0% Return on Equity
-10%
-20% -24% -30% 2005 2006 Year 2007 2008
INVESTOR’S PERSPECTIVE
Investors buy shares in a company to make profit. This profit derives from the increase in the value of the share on the stock market and from dividends the company pays out. Now we are going to analyse the company from an investor’s perspective calculating: ?Market yield ?Book Value ?Payout ratio ?Earnings per share ?Dividends per share ?Price to earnings ratio ?Market to book ratio ?Earning yield ?Dividend yield
INVESTOR’S PERSPECTIVE
The book value is the accounting value of a firm. It has two main uses: 1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated. 2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced. In 2007, the stock was overpriced, compared to the rest of the years when the stocks were underpriced.
INVESTOR’S PERSPECTIVE
Book value
1200 1012,38 1000 785,88 696,3
800
Amount
600
553,59 Book value
400
200
0 2005 2006 Year 2007 2008
INVESTOR’S PERSPECTIVE
Regarding the earnings per share from 2005 to 2007, British Land Company had a annual raise of its earnings. Considering the dividends per share, it has also rose from 8.91 in 2005 to 19.21 in 2008. From all this it can be seen that the company fulfills the obligations towards the investors by paying annual dividends even in 2008 when the earnings per share were zero.
INVESTOR’S PERSPECTIVE
Earnings & Dividends per Share
300 283,91 250
200
Amount
150
144,56
Earnings per Share Dividends per Share
100 75,69 50 8,91 2005 9,72 2006 Year 10,53 2007 19,21 0 2008
0
INVESTOR’S PERSPECTIVE
Payout ratio: ? The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to determine what companies are doing with their earnings. ? The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend because smaller dividends are easier to pay out than larger dividends. British Land Company has a very small payout ratio which means that they are able to pay dividends.
INVESTOR’S PERSPECTIVE
Payout Ratio
14% 12% 12% 10%
Percentage
8% 6%
7% Payout Ratio 4%
4% 2% 0% 0% 2005 2006 Year 2007 2008
INVESTOR’S PERSPECTIVE
2005 2006 2007 2008
Market to book ratio 1.93 2.46 0.92 0.71 Market to book ratio: Is used to measure how much a corporation is worthy at present in comparison to the amount of money invested by the investors. It is commonly used by investors to look for a company that is believed to be undervalued. When the company’s market to book ratio is less than 1, it is said that the company is undervalued.
INVESTOR’S PERSPECTIVE
Market to book Ratio
300% 246%
250% 193%
200%
Percentage
150% Market to book Ratio 100% 92% 71% 50%
0% 2005 2006 Year 2007 2008
CONCLUSION
Finally, the ratios show us a very good situated company in the real estate industry. Even if the company was affected by the financial crisis like the rest of the companies in the real estate industry, our personal opinion is that at this moment it is good to invest in the British Land Company because the share price is low at the moment but with very good chances to rise in the near future.
THE END
Thank you for your attention!
doc_810030821.ppt
FINANCIAL ANALYSIS OF BRITISH LAND COMPANY
BRITISH LAND COMPANY
By POPA ANGELA, NATHALIE SCHROLL, SZASZ ILIE and NICOLE MACHULA.
FINANCIAL ANALYSIS
Financial analysis is a process by which the analyst, by means of transformations, graphic representations, ratios, and other calculations, forms an opinion from the financial statements and other complementary information, evaluating the liquidity, solvency and profitability of the company. This opinion usually takes the form of an analysis report.
FINANCIAL ANALYSIS
In the following slides we are going to present the financial analysis of the real estate: BRITISH LAND COMPANY. We are going to talk about: ?Liquidity ?Solvency ?Profitability ?Investor’s perspective
LIQUIDITY
Liquidity refers to the capacity of the company to satisfy its short-term liabilities. From an external perspective, liquidity analysis can be performed using two different methodologies: ?Liquidity analysis based on cash flows ?Liquidity analysis based on the operating working capital
LIQUIDITY: Cash Flow analysis
The objective of the cash flow analysis is to state if the company can satisfy its short-term debts using its operating cash flow, net and its liquidity reserves. The ideal situation is when the company can pay its short-term debts using only the operating cash flow, but it is also good if they can pay the debts using the operating cash flow and the liquidity reserves.
LIQUIDITY: Cash Flow analysis
2005 2006 2007 2008 Operating Cash Flow, -358 267 1.217 -137 Net Liquidity Reserves 11.978 13.196 15.874 12.179 Current Liabilities (non-operating) 759 546 800 561
LIQUIDITY: Cash Flow analysis
Cash Flow Analysis
16000 14000 12000 10000 8000 6000 4000 2000 0 -2000 2005 2006 2007 2008
Operating Cash Flow, Net Liquidity Reserves Current Liabilities (nonoperating)
LIQUIDITY: Operating Working Capital Analysis
The operating working capital (excess of operating current assets over operating current liabilities) is a good measure to represent the capacity of the current assets related to the company’s operating activities to generate enough cash so as to satisfy the current liabilities related to the company’s operating activities. Generally, a positive OWC is good for the company because it means that the company is able to pay off its short-term liabilities.
LIQUIDITY: Operating Working Capital Analysis
Operating Working Capital Analysis in Mio
Operating Working Capital
300 200 100 0 2005 2006 Year 2007 2008 76 118 208 133
The operating working capital is positive for all the four years because either they don’t have, or they don’t report separately any operating current liabilities. For that reason we were unable to calculate the operating current ratio and the quick ratio.
SOLVENCY
Solvency means the company’s ability to make its agreed payments over the long term.
The analysis can be based on two perspectives: ?Cash Flow – company’s capacity to generate from treasury and its cash reserves; ?Guarantee – how far can the company pay off its liabilities via the liquidation of company shares.
SOLVENCY: Cash Flow analysis
NET DEBT < 0 NET DEBT < 0 NET DEBT NET < 0DEBT < 0
For each of the 4 years, the net debt is lower than 0, which means that liquidity reserves are bigger than the non-current liabilities. This means that the company can pay off its long-term debts using the liquidity reserves.
SOLVENCY: Cash Flow analysis
Cash Flow Analysis
2000,00 40,38 0,00 49,15 322,00 157,75
-2000,00 Net Debt Operating Coverage -6246,00 -6882,00 -8000,00 -9041,00 2005 2006 Year 2007 2008
Amount
-4000,00 -5242,00
-6000,00
-10000,00
SOLVENCY: Cash Flow analysis
>>>1 >>>1 >>>1 >>>1
Operating coverage indicates whether operating expenses can be covered by operating income or not. That is to say, the superiority of operating inflows over outflows. This ratio is expected to show values that are above the unit. In our case, the value is much bigger than the unit which means that our company has no problem of solvency.
SOLVENCY: Guarantee analysis
The Guarantee ratio is greater than the unit, which means that the company, in a state of liquidation, could pay off the external capital it has been financed with. Debt ratio is the opposite of the previous one. It is interpreted as a measure of the debt taken on by the company to finance its assets. This ratio usually varies between 0.4 and 0.6, and its value must be compared to sector references. Our company is situated between the limits.
SOLVENCY: Guarantee analysis
Guarantee Analysis
250% 215% 200% 164% 150% 100% 61% 50% 0% 2005 2006 Year 2007 2008 55% 47% 46% Guarantee Ratio Debt Ratio 180% 216%
Amount
PROFITABILITY
Profitability measures how a company, after performing its basic activity of sales and services rendered, and paying all the production factors concerned, is able to generate a profit to be distributed among shareholders that can be compared to the total of resources invested in the activity, as a measure of the efficiency achieved.
PROFITABILITY
Profitability can be measured from a double perspective, relative to the total investment or to the invested resources themselves. ?Return on assets (ROA) calculates the relationship between EBIT and total assets, as a measure of the investment necessary to obtain this profit. ?Return on equity (ROE) determines the relationship between EBT and equity, as a measure of the resources the shareholders have invested in the company.
PROFITABILITY: ROA
The higher the ROA percentage, the better, because the company is earning more money on less investment. Comparing to Unibail Rodamco, our ROA ratios are lower, which means we are not as good as Unibail Rodamco at using our assets in order to generate money.
PROFITABILITY: ROA
Return on Assets in %
25% 21% 20% 16% 15% 10% 8% 5% 5% 0% -5% -10% -15% -15% -20% 2005 2006 Companies 2007 2008 -8% 2% British Land Company Unibail Rodamco 4%
Percentage
PROFITABILITY: ROA
Our company chose a differentiation strategy, based on quality – it seeks to sell exclusive products at a high price even though the number of units sold is low. Thus the profit margin is high but the turnover is low.
PROFITABILITY: ROA
Return on Assets in %
300% 200% 100% 0% Profit Margin Assets Turnover 187% 147% 45% 4% 4% 3% 4%
Percentage
-100% -200% -300% -339% -400% 2005 2006 Year 2007 2008
PROFITABILITY: ROE
Return on equity represents the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Our ROE is much lower comparing it to the industry (4.52), but comparing it to our competitor Unibail Rodamco we have similar ratios, which means we can interpret it as a positive value.
PROFITABILITY: ROE
Return on Equity in %
30% 26% 20% 16%
15%
10%
Percentage
0% Return on Equity
-10%
-20% -24% -30% 2005 2006 Year 2007 2008
INVESTOR’S PERSPECTIVE
Investors buy shares in a company to make profit. This profit derives from the increase in the value of the share on the stock market and from dividends the company pays out. Now we are going to analyse the company from an investor’s perspective calculating: ?Market yield ?Book Value ?Payout ratio ?Earnings per share ?Dividends per share ?Price to earnings ratio ?Market to book ratio ?Earning yield ?Dividend yield
INVESTOR’S PERSPECTIVE
The book value is the accounting value of a firm. It has two main uses: 1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated. 2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced. In 2007, the stock was overpriced, compared to the rest of the years when the stocks were underpriced.
INVESTOR’S PERSPECTIVE
Book value
1200 1012,38 1000 785,88 696,3
800
Amount
600
553,59 Book value
400
200
0 2005 2006 Year 2007 2008
INVESTOR’S PERSPECTIVE
Regarding the earnings per share from 2005 to 2007, British Land Company had a annual raise of its earnings. Considering the dividends per share, it has also rose from 8.91 in 2005 to 19.21 in 2008. From all this it can be seen that the company fulfills the obligations towards the investors by paying annual dividends even in 2008 when the earnings per share were zero.
INVESTOR’S PERSPECTIVE
Earnings & Dividends per Share
300 283,91 250
200
Amount
150
144,56
Earnings per Share Dividends per Share
100 75,69 50 8,91 2005 9,72 2006 Year 10,53 2007 19,21 0 2008
0
INVESTOR’S PERSPECTIVE
Payout ratio: ? The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to determine what companies are doing with their earnings. ? The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend because smaller dividends are easier to pay out than larger dividends. British Land Company has a very small payout ratio which means that they are able to pay dividends.
INVESTOR’S PERSPECTIVE
Payout Ratio
14% 12% 12% 10%
Percentage
8% 6%
7% Payout Ratio 4%
4% 2% 0% 0% 2005 2006 Year 2007 2008
INVESTOR’S PERSPECTIVE
2005 2006 2007 2008
Market to book ratio 1.93 2.46 0.92 0.71 Market to book ratio: Is used to measure how much a corporation is worthy at present in comparison to the amount of money invested by the investors. It is commonly used by investors to look for a company that is believed to be undervalued. When the company’s market to book ratio is less than 1, it is said that the company is undervalued.
INVESTOR’S PERSPECTIVE
Market to book Ratio
300% 246%
250% 193%
200%
Percentage
150% Market to book Ratio 100% 92% 71% 50%
0% 2005 2006 Year 2007 2008
CONCLUSION
Finally, the ratios show us a very good situated company in the real estate industry. Even if the company was affected by the financial crisis like the rest of the companies in the real estate industry, our personal opinion is that at this moment it is good to invest in the British Land Company because the share price is low at the moment but with very good chances to rise in the near future.
THE END
Thank you for your attention!
doc_810030821.ppt