Business Report Template
Table of Contents
Literature Review 3
Financial Statements Analysis 3
Capital Policy 6
Internal vs External Financing 6
Capital Structure and Market Value 7
SWOT Analysis 9
Methodology 9
Methods 9
Data 11
Study 11
Financial Statements Analysis of First Derivatives Plc and Servelec Group 11
Vertical (Common-size) Analysis of Financial Statements 12
Horizontal Analysis of Financial Statements 14
Ratio Analysis 17
Liquidity Analysis 17
Operating Efficiency Analysis 20
Financial Solvency Analysis 22
Profitability Assessment 25
Investor Assessment 28
DuPont Analysis 29
Altman’s Z-score model 30
SWOT Analysis 31
SWOT for First Derivatives 32
SWOT Analysis for Servelec Group 33
Conclusions 34
Discussion 34
Limitations of Ratio Analysis 35
Recommendations 36
Reference List 37
Appendix A: Financial Statements of First Derivatives Plc. 40
Appendix B: Financial statements of Servelec Group 43
Appendix C: Spreadsheet Used 45
Literature Review
This part discusses existing literature on financial analysis and capital structure. The part also considers strategic analysis using the SWOT approach. The key of the literature review is to consider different theoretical approaches to financial management and analysis. The primary focus is on capital structure and its financial implications. The part covers horizontal, vertical analyses of financial statements and trend analysis. In addition, literature review also discusses ratio analysis. This part also mentions financial risk analysis and the DuPont model to link capital structure and financial performance. Literature review also covers capital structure and two different approaches – irrelevance of the capital structure proposed by Modigliani and Miller and the optimal capital structure.
Financial Statements Analysis
Financial statements analysis is based on the key financial statements – balance sheet, income statement and statement of cash flows. The paper considers four different methods of the financial statement analysis – vertical (common-size), horizontal and trend analysis and ratio analysis.
Vertical (Common-size) Analysis
Vertical analysis allows for structural analysis of a company’s financial statements. Common-sized statements evaluate the structure of the statements. As Gitman and Zutter (2012) suggest, the vertical analysis is useful for comparison of the financial statements across different years. The method shows how a company’s financial position changed throughout a period. According to Reilly and Brown (2012), common size statements normalize different items of the financial statements. For a balance sheet, all items are presented as a percentage of total assets, for a common size income statement normalization is based on sales (Reilly and Brown, 2012). The analysis helps to consider the changes in capital structure from a year to year just by looking at the common size statements. The vertical analysis of income statement enables users of financial statements to consider the changes in a company’s profitability. Therefore, common-size help to analyze the structure of the key financial statements.
Horizontal Analysis
Horizontal analysis is used to evaluate the changes in financial statements throughout a particular period. As mentioned by Horngren, Harrison and Oliver (2012) and Elliott and Elliott (2011), the method a compares a company’s financial statement from different periods. This enables users …
