Financial Statement Analysis of Barratt Developments Plc Assignment Sample

Discussions on liquidity and cash-related issues and overall business prospects.

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Introduction of Financial Statement Report of Barratt Developments Plc 

Overview of Report

This report shall discuss the important aspects of financial statement analysis with respect to a selected company. The selected company for this report is considered to be Barratt Developments Plc, while this report shall also discuss the company overview, report objectives and report issues. Further discussion on this report shall be catered for financial statement analysis by calculating and analysing various ratios for a period of three years. Cash flow analysis shall also be calculated and analysed in brief, while discussion relating to seriousness in issues pertaining to liquidity and cash shall also be discussed.

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Company Overview of Barratt Developments Plc

The selected company Barratt Developments Plc is considered to be an influential and affluent organisation involved in the construction and real estate industry. The headquarters of the company are situated in Coalville, UK while the total number of employees as on 2022 is numerically expressed as 6422 employees (barrattdevelopments.com, 2022). The revenue generated as of 2021 by the company is also measured as GBP 4811.7 million, while the organisation's renowned market aesthetics complement healthy determination of business competitiveness.

Report Objectives

  • To establish financial statement analysis by conducting ratio calculations.
  • To analyse and calculate cash flow ratios.
  • To ascertain main areas of complexities associated with cash and liquidity.

Report Issues to be analysed

The main report issues that are going to be analysed within this report are considered to be associated with identifying the financial parity of Barratts Developments Plc with respect to conducting ratio analysis for a period of three years ending 2021. Moreover, the issues that are going to be addressed in this report are considered to be associated with ascertaining the proportion of cash optimisation and the potential difficulties prevailing in the liquidity prospects of the company.

Financial Statement Analysis of Barratt Developments Plc

Liquidity

The liquidity ratios for the company have been calculated for the years concerned 2021, 2020 and 2019 respectively. The current ratios suggest numerical figures of 4.27:1, 3.91:1 and 3.56:1 as the ratio metrics for 2021, 2020 and 2019 respectively. Thus, it can be considered that the current ratios for the company have increased substantially in 2021 as compared to previous years. As per quick ratio calculations, it can be ascertained that the quick ratios for 2021, 2020 and 2019 have been calculated as 1.14 times, 0.48 times and 1.02 times respectively [Refer to Appendix 1]. Thus, the observed trend for calculating quick ratios is considered to be related with an increasing one. As per narrations and explanations of Sidorova et al. (2018), the increasing prospects of liquidity ratios is considered to be a boon for organisations as short-term optimisation of assets and liabilities can be catered fruitfully.

Efficiency

In addition to liquidity ratios, the efficiency ratios have been further substantiated based on fixed assets turnover and assets turnover ratios. As per calculations of fixed assets turnover ratios, it can be considered that the numerical expressions of ratios calculated are 4.26, 3.02 and 4.04 times respectively. Moreover, the asset turnover ratios have been calculated as 0.64 times, 0.50 times and 0.66 times respectively [Refer to Appendix 2]. Thus, the observed trend for efficiency ratios is considered to be an increasing one which further assures that the company is able to manage and optimise its operations in a fruitful manner.

Efficiency Ratios

Figure 1: Efficiency Ratios

(Source: Created by Learner)

Investment

Investment ratios for Barratts Development Plc has been considered by calculating the debt equity ratio and debt to total assets ratio. As per calculations of debt to equity ratios numerical expressions consist of 0.37, 0.42 and 0.48 times respectively. Debt to total assets ratio for the same period has been calculated as 0.27, 29 and 0.32 times respectively [Refer to Appendix 3]. Thus, it can be ascertained that a decreasing trend and pattern has been observed for investment ratios. According to Ali and Faisal (2020), lower investment propositions are considered to be an adverse prospect as it could potentially lead to low investor attraction to facilitate business expansion.

Investment Ratios

Figure 2: Investment Ratios

(Source: Created by Learner)

Financing

Financing ratios have been further calculated by considering the interest coverage ratio calculations for the three year period. As per calculations, the numerical expressions have been further calculated as 31.19 times, 15.09 times and 27.22 times respectively [Refer to Appendix 4]. Thus, significant increase in the investment ratio parameters have been observed for Barratts Development Plc, which further boosts its investment prospects. As idealised and narrated by Wijaya and Yustina (2019), increasing pattern in the financing ratios is deemed to be an influential aspect where an organisation can implement robust expansion prospects with a high number of investors onboard.

Growth

In addition to the calculation and analysis of financing ratios, growth ratios are also considered to be important aspects and parameters for ascertaining the financial superiority of Barratts Development Plc with respect to its competitors. In order to facilitate proper growth metrics, the return on equity ratios have been calculated for 2021, 2020 and 2019 respectively. The numerical expressions of return on equity have been calculated as 1.23 times, 1.23 times and 1.22 times respectively [Refer to Appendix 5]. Thus, the observed trend in growth ratios is considered to be stagnated which is deemed to be a precarious situation for Barratts Development Plc.

Cash Flow Analysis of Barratt Developments Plc

Cash Flow Ratios

The cash flow ratios are also deemed to be important parameters for ascertaining how Barratt’s development Plc is managing its cash utilisation on a daily and regular basis. As per calculations of cash flow analysis, it can be ascertained that the ratios for 2021, 2020 and 2019 have been calculated as 1.02, 0.42 and 0.57 times respectively [Refer to Appendix 6]. Thus, the associated trends observed for cash flow analysis is considered to be an increasing one and is also deemed to be a favourable prospect for the company.

Discussions relating to seriousness in issues relating to liquidity and cash

The calculations of liquidity and cash are deemed to be mostly favourable in terms of measuring and comparing the performance of 2021 with 2020. However, the only issue prevailing is considered to be related to stagnated growth prospects. As stated and opined by Son and Park (2019), stagnated growth metrics further leads to narrowing of liquidity and cash generation propositions in future, which could further impact potential future investments. The impact on potential future investments could be further measured based on availing lower fund influx from external stakeholders which could impact the company’s finances and market dominance parameters.

Conclusion

This report has discussed the important facets of financial reporting for Barratt’s development Plc, where emphasis is being laid for calculation of financial ratios. Majority of the parameters under the financial ratios determine strong growth and increasing trends however growth ratios are deemed to be stagnated, while investment ratios have decreased marginally in 2021. Cash flow ratios have also been conducted in this report where it is observed to be reasonably positioned. However, impacts on investments caused by issues in liquidity can be linked with stagnated profitability prospects which encourages low investment offers from external stakeholders. Hence, the overall prospects of business for the organisation are considered to be favourably positioned and further amendments can be made to the identified complex areas.

References

Journals

Ali, A. and Faisal, S., 2020. Capital structure and financial performance: A case of Saudi petrochemical industry. The Journal of Asian Finance, Economics and Business, 7(7), pp.105-112.

Sidorova, E.Y., Kalinsky, O.I., Molchanov, G.A. and Shmeleva, N.V., 2018. Metallurgical enterprises goodwill management on the basis of a rating evaluation using the optimal financial ratios. International Journal of Mechanical Engineering and Technology, 9(1129-1140), pp.1129-1140.

Son, J. and Park, J., 2019. Effects of financial education on sound personal finance in Korea: Conceptualization of mediation effects of financial literacy across income classes. International journal of consumer studies, 43(1), pp.77-86.

Wijaya, M. and Yustina, A.I., 2019. The impact of financial ratio toward stock price: evidence from banking companies. JAAF (Journal of Applied Accounting and Finance), 1(1), pp.27-44.

Websites

Barrattdevelopments.com, 2022, About Us [online], Available at: https://www.barrattdevelopments.co.uk/about-us [Accessed on: 29.11.2022]

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