Fundamentals of finance Essay Example | Topics and Well Written Essays - 2000 words

Fundamentals of finance - Essay Example ITV broadcasting operates a group of channels which include ITV1 and also delivers content across a number of platforms like ITV player and itv.com. Its studios produce and sell formats and programmes both in UK and globally. WPP Plc operates a communications services group. The operations of the company encompass media, information and consultancy, public affairs, public relations, identity services, branding, investment management and advertising. WPP is a global leader in the marketing of communication services, and it comprises of public relation and public affairs companies, advertising companies and promotion and relationship marketing companies. The history of WPP dates back in 1985 when Martin Sorrel builds a worldwide marketing services company after a search on public entity. 2. Company strengths and weaknesses Analysis of the financial performance of each company WPP Plc Current ratio The current ratio for WPP Plc in 2011 was 0.94:1. Current ratio measures the ability of a firm to cater for its short term obligations using its short term assets. The current ratio is lower than 1, and this means that WPP Plc was not in a better financial position to cater for its obligations. Gearing ratios 1. Debt to equity ratio The debt to equity ratio for WPP Plc during the 2011 financial year was 2.67. This ratio is obtained by dividing total liabilities by shareholders equity and this ratio means that the total liabilities are more than the shareholders equity. This high ratio is an indication of how aggressive WPP plc has been when it comes to using debts to finance its growth. A lot of debt was used to finance the 2011 growth and this ahs led to increased operations and hence the company was able to generate increased earnings using this financing than it would have done without these finances. 2. Debt ratio The debt ratio for WPP plc in 2011 was 0.72. The debt ratio is less than 1, and this indicates that the company has less debts than assets or has more ass ets that the debts. As a result, the company faces fewer risks when it comes to debt loads. Profitability ratios 1. Profit margin Profit margin for WPP plc in the 2011 financial years was 9.14%. This ratio measures how much a company generates from each dollar of sales (Bull 2007). This means that the company keeps $0.914 of each dollar of revenue collected. The profit margin ratio for the company in 2011 was low which indicates a high risk that any decline in sales will erase or do way with the profit and lead to a net loss. 2. Return on assets WPP plc return on assets ratio for the 2011 financial year was 3.7%. The low ratio is an indicator of how inefficient the company was in managing its assets in order to generate income. In simple terms, the ratio shows how less profitable the company was relative to its total assets. 3. Return on equity The return on equity for WPP for the 2011 was 13.6%. This low percentage is an indication the company did not generate much profit from the shareholders funds invested in the company. Dividend payout ratio Dividend payout ratio for WPP plc was 33% during the 2011 financial year. The high dividend ratio for the company is an indication the earnings of the company highly support the payment of