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FINM036 - FINANCIAL DECISION MAKING: CASE STUDY OF KIER GROUP PLC.

November 12, 2018
Author : Celina

Solution Code: 1EIBE

Question: FINM036 - FINANCIAL DECISION MAKING: KIER GROUP CASE STUDY

This assignment is related to “financial decision making - case study of kier group PLC.” and experts at My Assignment Services AU successfully delivered HD quality work within the given deadline.

CASE STUDY OF KIER GROUP PLC.

Task

Section A:

  1. Analyse the performance of your chosen company using relevant financial and non-financial ratios (5 years). Your analysis should include profits, investment returns, liquidity, KPIs, net asset value, share price and risk.

Section

  1. Critically evaluate the companies corporate governance compliance and its impact on the brand and reputation as reported in the press (print, online and social media)
  2. Discuss the proposed medium term financial strategies for your selected company to become a FTSE100 company.

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FINANCIAL DECISION MAKING: CASE STUDY OF KIER GROUP PLC Solution

Executive Summary

The current study is been conducted for the purpose of financial decision making process for which Kier Group Plc has been chosen. This company is the fourth largest construction and property management UK based company use to focus on providing customer satisfying service. It becomes a renowned company in the construction and material sector of the UK. In this study the background of the Kier group has been discussed along with its current financial and market status. For this current report financial ratios of the Kier group Plc for past five years is been calculated and analysed to represent its present financial status. Some recommendations are been made after the analysis of financial data to help the company to meet its aim to be a FTSE 100 company along with a conclusion.

Section A:

The current report is conducted on the Kier Group Plc of the United Kingdom, the fourth largest construction contractor company having FTSE 250 Index for the purpose of financial decision making. This report consists with findings those are drawn on the financial and non-financial ratios of the chosen company followed by a brief analysis. After analysing financial position through the ratios a set of recommendations are been drawn which will help the company to become the FTSE 100 Index company in coming future along with an overall conclusion. Kier Group Plc was established by Olaf Kier and Jorgen Lotz in the year 1928 having headquarters in Tempsford Hall, Bedfordshire and Sandy. This company is use to provide construction services for building private and public housing, land development, civil engineering and also acts as a Private Finance Initiative. The Board of the company is comprised of the Chairman as well as executive and non-executive directors having diverse skills and expertise. The management of Kier Group and its governance framework has been designed and implemented to support the long-term objective of the company for bringing growth and reputation. During 2016, the company has 20,685 numbers of employees and in 2017 the company has earned £4.1 billion with an underlying profit before tax of £126.1 million. The reported profit before tax is £25.8 million and the underlying EPS (Earnings per Share) stands at 106.8p in the 2017 financial year. In the financial year 2017, dividend per share of the company stands at 67.5p and the company become able to earn a net profit of £11.8 million whereas the company has faced a huge loss of £16.8 million in 2016.

Financial ratios and its analysis

Profitability Ratio:

  1. Net profit margin ratio
  2. Net profit margin ratio

  3. Operating profit margin ratio

Operating profit margin ratio

Profitability ratio is the most important and vastly used financial ratio to evaluate and measure company’s financial status and performance over a certain financial year as it deals with the net profit or income, revenue and gross profit generated from regular business activities (ArAs, 2016). From the above calculated profitability ratios such as net profit margin ratio and operating profit margin ratio it is very evident to include here that Kier Group Plc has recovered its last year’s business loss by securing a healthy amount of net profit in 2017. Kier group Plc has able to earn £4128.8 million revenue in 2017 which is increased by £137.4 million than the revenue of 2016. From the above financial data regarding earned revenue it is clearly seen that the company has able to earn revenue (showing an increasing trend) in each year from 2013 to 2017. In 2017 the company has earned operating profit of £48.2 million with an increment of £55.6 million than 2016 (kier.co.uk, 2017).

Liquidity Ratio:

  1. Current ratio
  2. Current ratio

  3. Quick ratio

Quick ratio

Liquidity ratio is one of the most valuable ratios to compute a company’s financial strength and capacity to meet financial obligations those are arises from regular business activities and it helps to make a comparative analysis with the previous year’s capability to pay as well as with other competitors company (Noor and Lodhi, 2015). Liquidity ratio of Kier group Plc is the representative of the company’s capability to pay financial obligations arises from debts and borrowings. The ratio includes current ratio, quick ratio and more. As per the above calculated current ratio and quick ratio it is seen that Kier Group become more able to pay its financial obligations in 2017 in comparison to 2016. In the financial year 2017, the company is holding more assets than its liabilities due to which its ability to meet its financial liabilities increased (kier.co.uk, 2017).

Non-financial ratios and its analysis

Non financial ratios or metrics are some quantitative measures which are not represented in monetary values like financial ratios. Non -financial metrics consists with measures like customer satisfaction, rate and degree of adopting new product or services, market share. According to the current market position of Kier group Plc, it is the leading regional builder of the UK having an influential status in frameworks related with health, education and public sector services. Due to the non-speculative focus Kier Group Plc is become the top three trader developer company of the country (Kärkinen and Laitinen, 2015). Through the excessive client oriented strategy the company has made their focus on providing specialised requirements for constructing safe and secure buildings for its customers and become able to satisfy its existing customers. Their focus on client security and safety has grabbed attention of potential customers which has help the company to expand their business by providing optimum customer satisfaction (Grinblatt and Titman, 2016).

The upcoming project of Broadmoor Hospital (in Berkshire) redevelopment with an investment of £242 million, the Kier group Plc will be able to transform a 150 years old highly secure mental hospital into a upgraded and modern hospital that will accommodate 210 patients. This company is the leading player of providing infrastructure services and one of the top three infrastructure player of the UK. It has secured the number one position in the strategic highways of UK. The company has accredited with ‘ISO 44001 certification’ is for making collaborating with the supply chain (kier.co.uk, 2017). It has enabled its operational safety by working with the Highway England, emergency services and suppliers. It has used tested and tried technologies from different countries to bring modification and innovation in the market of UK. The use of this innovation the company become able to minimise traffic delays and reduced the workforce risk. The aim to deliver critical infrastructure as well as supporting services to the private and public organisation the company optimised their customer satisfaction (Rao and Tilt, 2016).

The market position of Kier Group in terms of housing projects the company has aimed to bring growth in the UK by replicating an innovative multi-tenure model. The customers of Kier Group are provided by top class services with a maintainable cost for the installation of smart and predictive technologies in their homes (Vernimmen et al. 2014). The target of this company is to deliver four thousands new homes to its existing and potential customers all around the region in each year up to the year 2020. In UK the segment of Kier Group named Kier Living is the house builder which is committed for planting 45000 trees within next three years for offsetting the usage of carbon. The company is keeping their focus on their energy usage, waste disposal mechanism and usage of equipments and it has conducted educational programs to save energy on regular basis to preserve non-renewable resources as well as to reduce the presence of greenhouse gas in the environment (kier.co.uk, 2017).

The vision of Kier Group is to become a world class construction and property management company which is fully focused towards the customer satisfaction by investing in building, maintaining and renewing the place people use to live, play and work. In the UK market Kier Group has already made their own statement and presence in terms of delivering satisfying services in terms of constructing building, infrastructure and housing by customer focused service and internal measures for providing operational safety to its workers. The current share price of Kier Group is 1019.00p with a market capitalisation of £993.12 million. Share price of the company is been decreased from June 2017 where it was stands at 1250.00p. In 28th July 2017, the share price of Kier Group stands at the highest point of 1300.00p for the year 2017. The company has successfully adopted new technologies in respect of using rapid set for concrete repairing on the North East Spur and M6 Rushall Canal way through which is become able to conduct critical repair to bring structural modification (kier.co.uk, 2017).

Section B:

Critical evaluation of corporate governance compliance of Kier Group Plc and its impact on company's brand and reputation

The governance structure of Kier Group Plc is divided into five distinct departments such as Nomination Committee, Risk Management and Audit Committee, Safety, Health and Environmental Committee, Remuneration Committee and Executive Committee. As commented by Beekes et al. (2015), to comply with the corporate governance the company has formed these above mentioned departments to run each aspect related with business, its stakeholders as well as environment separately, accurately and hassle free. On the contrary as argued by Schultz et al. (2013), the company has made this governance structure to make proper compliances with the prevailing corporate rules and regulation formulated by the UK government. In terms of delivering and developing its business strategy, establishing framework regarding prudent as well as effective controls in assessing, and managing business risks, the Board of Kier Group is jointly responsible. The Board is also collectively responsible for the performance and success of the group in long-term for implementing its strategy. The business related matters which are subjects to get approval from the Board includes the followings,

  • Acquisition, merger and disposal of material used in construction sites
  • Dividend payments to the shareholders
  • Approval regarding policies related with material group
  • Strategic plan of Kier as well as changes in the company’s capital and internal structure.

Proposed medium term financial strategies for becoming a FTSE 100 company

The Kier Group Plc has already made their mark in the construction, property and service market of the UK for which it becomes the fourth largest construction company of the country. Here, some recommendations are required to be made for fulfilling the company’s aspiration to become a FTSE 100 company of the UK. These recommendations are,

  1. The company needs to hire more skilled and highly creative engineers for preparing and designing upgraded as well as improved designs for building, housing and intrusion to beat the competitors.
  2. For grabbing public attention and trust in terms of serving environment friendly service, the company has to conduct environmental awareness programmes for its employees as well as the customers.
  3. The company should invest more capital to improve its research and development department through which it can able to invent new technologies for infrastructure and building that could eliminate environmental degradation during the construction process.

Conclusion

At the end of the report it is very evident to conclude that the Kier Group Plc has successfully conducted its business activities throughout the financial year 2017 by which it become able to generate a healthy net profit. The company has efficiently managed its business risks and has captured fruitful market share. Before making financial decisions the annual report of the company which is consists with thorough declaration of the company’s directors and auditors in respect of financial data and information provided in such annual report is been examined. The financial report of the Kier Group for the year 2017 is the reflection of the company’s financial performance throughout the year in comparison with the previous financial year. With the increased earnings per share (EPS) in 2017 the interest of the shareholders becomes secured as the company has faced huge loss in 2016 for which EPS stands at negative value. Increased assets, revenue and net profit (after tax) of the company is representing the financial growth of the company. It is expected that the company will meet its aspiration of becoming the largest construction company of the UK in coming years.

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