To Provide An Opportunity To Apply The Skills And Insights Gained: Financial Information Analysis Report, UOL, Ireland

The purposes of the project are:

To provide an opportunity to apply the skills and insights gained during the module to a real-life situation;

To make aware of the huge range of financial data available on the Internet and to encourage reflection on the implications of this;

To encourage the reflect upon and investigate some of the macro issues which impinge upon and inform accounting information.

Activity and Liquidity.

The cash cycle for Sky decreased from -3.57 days in 2017 to -6.76 days in 2018. Debtor days went from 11.67 in 2017 to 10.75 days in 2018, Creditor days increased from 49.23 to 55.46 days and stock days also increased from 33.99 to 37.95 days. Creditor days are reasonably high which is beneficial for Sky, this is higher than Debtor days which allows them more time to raise revenue for them to pay back their trade payables. These cash cycle decrease can be indicated by the escalation of growth and activity by Sky through acquisitions between their creditors and debtors. Inventory days plus the length of time operations must be funded minus the length of time operations funded by others gives Sky their cash cycle ratio. This ratio assesses the extent to which cash is tied up in the trading activity of an entity, Sky has the ambition to reduce its cash cycle ratio to as low as possible, as it describes the business’s active resources that are impacted directly by its trading activities.

A quick ratio is a more conventional method of examining the ability of Sky to pay its short term payments as they fall due, the quick ratio for Sky in 2018 is 0.65, wherein 2017 it was 0.76, this indicates that Sky can’t quite pay off all current liabilities with their quick assets, and their quick ratio has fallen from 2017 to 2018 which means that their current asset management is not up to par.

The current ratio for Sky in 2018 is 0.89 whereas in 2017 it was 0.96, this figure has also fallen which means Sky will have to raise funds from non-trading sources to cover short-term payments. Both of these ratios show that Sky will need to generate more funds from trading to cover liabilities such as creditors, dividends, and short-term debts. Financing. The most commonly used measure of funding is the Gearing Ratio, which quantifies the relationship between debt and equity. The gearing ratio for Sky in 2018 is 77.67% whereas in 2017 it was 79.14%, this shows that Sky is incredible “highly geared”.

The more highly geared a company is the more vulnerable the company is perceived to be since there is a more, fixed call on its profits before equity can be satisfied. From looking at the financial statements we can see that Sky has a high proportion of debt, making the company more vulnerable if the interest rate changes. If this was to happen, they may find it difficult to raise finance than companies that are Slowly geared, about this Sky has diversified which means it has reduced the risk of them facing liquidity problems if they were to occur.

Financial ratios show a company’s capital structure and its ability to pay its debts. The interest cover ratio of Sky shows their ability to meet interest payments due out of their operating profits. Sky’s interest cover ratio for 2018 is 3.62 and for 2017 it was 4.73 which shows a negative shift in the ability for them to meet their interest payments. Although it is a healthy interest cover ratio, it is still relatively low and maybe because of the shortage of cash available in Sky, Sky has £2 million cash and cash equivalents and £174m of retained earnings. About financing, Sky is reasonably well set up due to them being highly diversified across multiple countries.

Profitability. Profitability is the main aim of all businesses as it shows the firm’s ability to generate profit compared to its purchases. The more profitable a company is, the more money shareholders and stakeholders get. The most basic sign of the profitability of a company, Sky’s sales revenue has increased from £12,916m in 2017 to £13,585 in 2018. That is an increase of £669m in sales which is a massive improvement. Along with increased revenues, Sky has also increased in their profit margins. Sky’s gross profit margin has increased slightly from 6.22% in 2017 to 6.36% in 2018, this signifies a high market return on services and products provided by Sky. Operating profit margins have also increased from 7.46% in 2017 to 7.61% in 2018, this shows that Sky and well able to manage their operating costs sufficiently and also their overheads.

This is a great indicator of comparison for the company’s performance against that of other competitors in the industry. The rise in margins would suggest solid performance and efficient cost control of Sky. The final profitability ratio I will examine is Return on Capital Employed (ROCE), this ratio looks at the link between profits and the required investment to generate them, and it quantifies returns to investors in terms of the profit before interest and tax as a function of total capital employed. Sky’s ROCE has increased from 2.92% in 2017 to 3.23% in 2018. This emphasizes Sky’s expansion through purchases and sales is producing efficient returns on capital for the firm.