Compass Group Plc financial forecast
Issues to consider when preparing projected financial statements for the compass Group Plc. First, the forecasting needs to be based on the existing financial records and performances. These factors help the planner in evaluating the possible path to be taken by the projected financial needs. Second, the forecasting is done on short term basis. For the processes to be more accurate the planners are required to avoid long term planning where the forecast fails to consider unforeseen situations which may affect the financial statements (SIEGEL & SHIM: 2007).
Third, the forecasters needs to considers the major variables such as external variables like economic conditions, control variables like levels of debts and the policy variables like the company’s goals and set objectives. Finally, the life cycles of the business together with the competitive situations in the industry will impacts a lot in the forecasting in an attempt of the firm to remain more profitable even during the forecast period. For the interest of this paper the base year financial statements to be used will refer to the 2008 fiscal financial statements.
Both the financial analysis ratios to be forecasted will be based on the previous year performance. The firm is a well known provider of support and food services. The company activities have spread to about 55 countries and by the end of 2008 fiscal year, the company acquired 50% Brazilian joint venture ownership. It the same year the company sold its shares relating to Radhakrishna Hospitality Services seeing the Company to the announcement of new KIMCO Corporation acquisition this year (2009). Results analysis The NP of $ 305,807 indicated in the forecast is a bit lower than 2008 fiscal year profits of $ 450m.
The most likely reason as to why this happens is because the new acquisitions for the KIMCO Corporation will increase the firms operating costs at bout 13% from the previous operating costs of $10,785m to about $12,178m in the forecasted period. This also affects the firm’s EPS for the year projected (FRANSES: 1998). In order to verify the company’s Gross profit the following calculation which indicates 2009 forecasts indicates the GP as a percentage of sales will be worked out as shown below where the GP and the firm’s sales are given in million $;
The gross profit is taken as a fraction of the sales multiplied by 100 to make it a percentage I. e. GP = $$ 354,263, Sales= $303,549 will give; GP = $354,263 100 = 116. 707% Sales $303, 549 Compass Group plc forecasts net profits as a percentage of the annual sales is given by talking the net profit expected divide it by the total annual sales for the first year multiple by 100, to make it in percentages(KOORNHOF: 2005). This calculated as follows; Net profit *1000 = $ 305,807 = 100. 7443% Sales $303,549
This indicates that for the one year that the business will be running it will be profitable enough, being able to meet all it expenses and be guaranteed to make an annual returns for a considerable margin (KOORNHOF: 2005). Company sales margin Company Group plc 2009, sales margin will be direct reflection on the business profitability. The following is our sales margin calculation meant for our first year operations. Our accountings will use the financial performance from the projected one year income and loss statement as indicated in the firm’s accounting policies in 2008 annual report.
In 2009 the company shall base the services pricing on the market factors in order to ensure that our considerations for demand and services supply are adhered to. Gross Sales revenue = $303,549; this includes the first and second quarter for gross revenue for the first year. These figures indicates the value in million $. Sales labor = $344; this basically for couriers operating in the designated regions in a given country. Sales Net Profit = $303,549 – $ 344 = $303,205 Net profit = Net sales profit = $303,205 = 0.
99887; Gross sales gross sales $303,549 This value represents the firms forecast sales margin for the first year. The figures given are in million US $ . By analyzing the above forecast balance sheet compass Group plc current ratios, Return on Capital Employed (ROCE) and gearing ratio will be accounted to as follows; Current ratio = Currents asset Current liability The company current asset value stands at $302,400,000 while the same period current liabilities remain at a value of $ 98,000,000.
Thus our current ratio will calculated as the fraction of the two as; Current ratio = Currents asset = $302,400,000 = 3. 0857 Current liability $98,000,000 Our current ratio will protectively stand at 3. 0857 which a strong ratio for the business to set its pace with. By considering this current Ratio will shall be able to meet or expenses and at the same time be able to remain profitable and competitive enough in the market. Return on Capital Employed (ROCE) = Pre tax profit
(Long term debts + Share holder’s equity) = $ 354,263 = 2. 8004 $6,500+120,000 Compass Group plc ROCE forecasts stands at a strong value of 2. 8004 which s a good indication that the investor’s money will not go waste even after funding is guaranteed. This figure assures safe capital managements moves by the analyst such that the company will always have some return to the investors (FRIDSON: 2002). Gearing = long term debts = $6,500 = 1:2 Shareholders equity $120,000
Compass Group plc gearing ratio is high such that the business borrowing capacity from debtor funding is controlled.
References
- FRIDSON, Martin. 2002. Financial Statement Analysis: A Practitioner’s Guide. New Jersey, US: John Wiley and Sons publishers. KOORNHOF, Flynn . 2005.
- Fundamental Accounting. Pretoria, SA: Juta and Company Limited, Press. SIEGEL, J. ; SHIM, J. 2007.
- Handbook for financial analysis, forecasting, and modeling. Sudbury, CA: CCH publishers. FRANSES, Philip. 1998.
- Time series models for Business and economic Forecasting. London, UK: Cambridge University Press.
