UMAD47-15-M Managing Finance Assignment Sample

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This report solely and completely involves a proper understanding about the company Reckitt Benckiser. The profitability index and calculations of various ratios are also shown further in this report. Various trends that lead to the profitability and some changes in the past and future trends have also been discussed. By using the ratio analysis the problems are also tried to figure out so that there is no problem for the company in future. Various suggestions are also being given so that they can improve their profitability in the future nearby. The report also consists of the organisation behaviour and what all initiatives it has taken in this pandemic.

Ratio Analysis

Current Ratio

2019-2020

2020-2021

in £m

in £m

Current Assets

5,033

5,314

Current Liabilities

8,931

6,938

Current Ratio

0.563542716

0.76592678

In this Current ratio has been calculated for both the periods that are for the year 2020 and 2019.The formula of this ratio is Current Assets/Current Liabilities and it is one of the most important ratio which is being used while analyzing any company. In 2019 the ratio is 0.5 approximately which is less than this year. This also shows that now the company is also increasing its worthiness to pay its obligations because now the company has a large proportion of short term asset value when compared to the short term liabilities value (‌the Guardian, 2010). The reduction in the value of the current and the long term liability is the sole purpose of the organization to earn the maximum profit. It is always ideal to increase its Current assets and decrease its current liabilities which are done by this company ideally. Though the company has not increased its assets to that much level but it has been closely monitoring the environment and the works to increase that. Here, the graph clearly depicts what all has been discussed above here.

Quick Ratio

2019-2020

2020-2021

in £m

in £m

Quick Assets

3,719

3722

Current Liabilities

8,931

6,938

Quick Assets

0.416414735

0.53646584

The second ratio is the quick ratio which is also considered to be the important one and it is calculated with the help of Quick Assets and Current liabilities. Reckitt Benckiser has also been increasing the quick assets with the current assets being increased and it has also been seen that the ratio has also increased from the last financial year to this financial year which indicates that with the previous ratio increasing it is also increasing simultaneously (‌the Guardian, 2010). It also states that the liquidity of the company is increasing which could be also said as the company now has more liquid funds to carry its daily operations. In the financial year, 2021an an ideal ratio has been maintained by the company when compared to the last financial year that was 2019. Here also the graph clearly shows what does the company do to increase its assets. With the help of graph, there is a proper understanding of it (Reckitt.com, 2020).

Debt-Equity Ratio

2019-2020

2020-2021

in £m

in £m

Debt

22,732

22,133

Equity

9,407

9,159

Debt Ratio

2.416498352

2.41653019

The third ratio that has been found is the most important one which is the Debt Equity. Here the ratio is same for the two financial years and there has been no increase and decrease in this ratio. The debt ratio is slightly high than what is the ideal one but being a multinational company it has been taking various measure to reduce the Debt in the long term view (‌the Guardian, 2010). It has also been seen that the company has tried to reduce the debt up to some extent and maintain the equity value. It is also seen that the company has consistently reducing its debt and meeting its obligations to clear dues because of lesser interest rates in short term debt when compared to long term debt. The formula to this ratio also clearly states that how much money does it have to clear the dues in the unforeseen situation. But it should also keep on mind that while reducing the value of the debt it should try to keep the value of equity intact or try to increase that (Reckitt.com, 2020).

Gross Profit Ratio

2019-2020

2020-2021

in £m

in £m

Gross profit

7,778

8,435

Sales

12,846

13,993

 Ratio

60.54803052

60.2801401

Another ratio that has been calculated in this is the gross profit ratio which states that how much gross profit the company is earning in the both financial years. It has also been observed that the sales have been increased from the last year by some extent and so is the Gross profit. In this case due to various forces the ratio has not increased, which is increased cost in this case, So, the inflation is the root cause here by which the company cannot increase the GPR.Through this ratio we have come to know about the total income and then the amount of taxes and interest are being deducted to come to the net income (Reckitt.com, 2020).

Working Capital Turnover Ratio

2019-2020

2020-2021

in £m

in £m

Sales

12,846

13,993

Working Capital

3,898

1624

 Working Capital Turnover Ratio

3.295536172

8.61637931

(Ontario Securities Commission, 2014)

The important ratio in this report is the Working capital Turnover Ratio which states the money that is being used by the company in its daily basis. Here, we can clearly observe that it has increased drastically over the year. The increase in the working capital ratio is very high which means that the company seems to require more working capital rather than investing its funds either in the long term assets or the current assets. Another thing which is seen her is that the sales value has not much difference in these two financial years (Chowdhury et al, 2016). From having Working capital from 3.5 approximately it has jumped to 8.5approximately which is a huge rise but when it comes to the working capital it has been decreased in this time. So, it has been clearly observed that in spite of investing it could work more in its working capital so that the value could be increased here. These two years clearly shows the difference and previously also from last two years the company has been reducing its working capital amount and focusing on the assets for profit.The graph also clearly depicts the changes in these two financial year (‌the Guardian, 2010).

Total Asset Turnover Ratio

2019-2020

2020-2021

in £m

in £m

Sales

12,846

13,993

Total Asset

31,292

32,139

 Total Asset Turnover Ratio

0.410520261

0.435390025

The next ratio which is being calculated in this report is total asset turnover ratio which clearly determines the value of asset the company has been investing in. Another thing which has been seen here is that the company is efficiently using the assets to produce revenue. This multinational company has been setting up example to other company how efficiently the assets can be used to earn profitability in the nearby future. Here, it has also been observed that the company is investing in the assets but the total asset is not able to generate that much amount of profit which it should have been at the end of the year. There is a slight increase in the ratio over this two financial year but it has been clearly seen in the graph also that sales figures need to be improvised and improved using various techniques that the company was using efficiently previously (‌the Guardian, 2010).

Fixed Asset Turnover Ratio

2019-2020

2020-2021

in £m

in £m

Sales

12,846

13,993

Fixed Asset

25,978

27,106

 Fixed Asset Turnover Ratio

0.494495342

0.516232568

The final ratio that has been calculated in this report is Fixed Asset Turnover Ratio. We can clearly see that the value of sales has not increased much but has increased up to an extent and the value of fixed asset has been increased. In other words it can be said that it is always good for a company to invest in the fixed asset so that in the future it can earn a good profit. It has been seen that the company has been running various campaigns and also investing in the fixed asset. The profit has been used in the proper ways by the company in a way of investing in the Fixed Asset. But it can also be said that at the end of the year the fixed assets are not able to contribute as much in the profit, so the company should either increase the ratio or mend it ways so that the profitability could be increased in the future.

8.

2019-2020

2020-2021

in £m

in £m

Net Profit

1,873

2107

Sales

12,846

13,993

 Ratio

14.58041414

15.05752876

Here, the last ratio that has been found out and which is of utmost importance is the net profit ratio. It has been clearly observed that the net profit has been increased during these two financial years there has been increase in the profit margin. The net profit in terms of percentage in the financial year 2019 was 14 %approx and it went high till 15% app in the financial year 2020.An increased net profit is a good sign of any business especially when it comes to the multinational company like this. Reckitt Benckiser is continuously making efforts to increase its profitability which has been clearly seen in this report. This chart also clearly depicts the increase in the net profit ratio. If it need to increase the net profit in the next financial year it should focus on increasing the number of sale (‌Business Information Point., 2018).

Suggestions and Recommendations

  • The company should look into its sales value because it should increase that by what is it now.
  • The group interest rates could be decreased to save the interest distributed
  • A part of charity and social activities should be spent from the dividend distributed this year and not from the reserves
  • A part of investing in fixed asset could be reduced and can be utilized in the working capital
  • It should have a close view on the expense and try to minimize it so that the profit could be increased
  • It has also been observed that the company is paying a great amount of interest by using debt so it should try to minimize it and focus on the short term debt.
  • Reckitt Benckiser should look into its internal matters closely
  • It should increase its liquidity so that more profit could be earned
  • It should also try to increase the net profit more as it is the case with gross profit
  • It should look into the interest rates and try to minimize up to the finest level

CONCLUSION

It has been clearly seen that the company is a multinational company which has spread its tentacles all over. It has being giving proper dividends and remuneration to its all employees. The company is earning good amount of profit in all the times and has been investing in various opportunities to earn profit in the future. It has been also observed that various suggestions has been given in the report. A proper analysis of the ratio has also been drawn in this report to carry out a proper understanding how all this works and what all measures does company take in the unforeseen situation. This report also consists of the brief of the Reckitt Benckiser.

REFERENCES

‌Business Information Point., 2018. How to Understand Company Accounts & Financial Ratios. [online] Available at: https://businessinfopoint.co.uk/company-accounts-and-financial-ratios/ [Accessed 18 May 2021].

Chowdhury, M.A., Simu, T.H. and Uddin, M.B., 2016. Performance Evaluation of LeadingFMCG Company in Sylhet Metro City: a Case Study on Selected Products of Reckitt Benckiser Group PLC (RB) in Sylhet Region. Journal of Governance and Innovation2(2).

Ontario Securities Commission, 2014. Reckitt Benckiser Group PLC and Indivior PLC.

Reckitt.com, 2020. Investor news | reckitt.com. [online] Available at: https://www.reckitt.com/investors/investor-news/ [Accessed 18 May 2021]. 

‌Reckitt.com, 2020. Reckitt | Protect, heal and nurture. [online] Available at: https://www.reckitt.com/ [Accessed 18 May 2021].

‌The Guardian, 2010. Reckitt Benckiser’s best-known brands. [online] Available at: https://www.theguardian.com/business/gallery/2010/jul/21/reckitt-benckiser-ssl-brands [Accessed 18 May 2021].

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