Financial Management and Analysis (MBA)
7BSM2002-0509-2021
Individual Written Report
Hamza Ali
20074770
Financial Analysis of DeltaWorld PLC
Abstract
Delta world plc is an international chemical group that has core competencies in polymer
technology and surface science. This is a global company which supplies coatings, sealants,
packaging, films, chemicals and fibres to multinational customers and the customers of the
company are other companies that belong to different categories. The customers of the
company are the companies of textile, automotive, construction companies, electronics,
foods, pharmaceuticals etc. A company has a huge business all over the globe so based on
that it has divided its activities into several areas. There are major three areas that are
coatings and sealants, polymer products, fibres and chemicals. The major objective of this
report is to perform an analysis of the financial state of the company and examine if the
organization is profitable or not. In the report, an attempt is carried out to develop an
understanding of the financial stability of the company and the opportunities that this
company has in the future. In order to apply the financial management principle to the
company, it is considered essential to pay attention to the strategies made by the company
to manage its finances. Financial management is used to apply the current strategy and it
includes everything from budgeting to resource allocation and draws a comparison between
the previous and current ways of working. It gives an idea about how the company is going to
handle its operations in difficult times. It is considered a valuable asset for the company
because it includes the ratio analysis and several evaluation models that can be helpful
([Link], n.d.). This report includes a detailed ratio analysis of the chosen company
based on which conclusions will be drawn in the end.
Table of Contents
Abstract ................................................................................................................................................... 1
Introduction ............................................................................................................................................ 3
Context .................................................................................................................................................... 3
Overview ................................................................................................................................................. 3
Ratios ...................................................................................................................................................... 4
Profitability Ratios............................................................................................................................... 4
Gearing ratios...................................................................................................................................... 5
Investment ratios ................................................................................................................................ 7
Liquidity ratios .................................................................................................................................... 7
Efficiency ratios ................................................................................................................................... 7
Evaluation ............................................................................................................................................... 8
Altman Z-score .................................................................................................................................... 8
Dupont analysis ................................................................................................................................... 9
Financial analysis................................................................................................................................. 9
Corporate and Government and CSR.................................................................................................... 10
Conclusion ............................................................................................................................................. 10
References ............................................................................................................................................ 11
Introduction
Delta PLC is a global company that is present in the market for more than 2 decades and the
company has a wide network of supply chain as it supplies products to many companies and
companies of different sectors all over the globe. This company is considered beneficial for
companies from pharmaceuticals to food companies when it comes to products and required
chemicals hence it is considered essential for the company to take care of its finances. To
assess the performance of the company, it is also important to compare the company’s
previous financial reports and perform an analysis.
A financial analyst or investor may, for example, compare the return on assets of multiple
firms to determine which company is making the most efficient use of its resources.
(Zwillinger 2002) Financial ratios are utlised by both external and internal stakeholders, that
includes people such as investors and employees. As well as customers outside of the
company that include financial analysts, retail investors, debtors and creditors, tax
authorities, regulatory bodies, and industry watchdogs. Management, staff, and owners are
examples of internal users (Henke 2020) . A company's present and long-term assets and
liabilities are listed on its balance sheet. Long-term assets can't be sold for cash within a
year of their acquisition. Short and long-term duties must be completed within one year of
the start date of the project (Perry, B. pp 83, 84). It is possible to get a sense of a company's
financial health by looking at its balance sheet.
Context
The assets of the company regarding its management are divided into three major business
areas that totally align with the goals of the company. These three important areas include
coatings & sealants, polymer products, fibres and chemicals. Out of these all of them equally
count in the substantial growth of the company. This report includes a comparison of the
annual report of the company in the year 2020 and the year 2021.
Overview
In the macro analysis, positive momentum can be observed from the overall details. The
revenue of the company was 923£M in the year 2020 and it has increased by 1028£M in 2021.
The cost of sales which is the form of costs utilised to produce and sell products in the market,
as a part of business activity (Analysis of Financial Ratios to Measure the Company’s
Performance in the Sectors of Consumer Goods at Pt. Nippon Indosari Corpindo, Tbk and Pt.
Mayora Indah, Tbk, 2017) has increased by 540 in 2021 from 438 in 2020. Furthermore the
gross profit of the company did not show much increase in comparison to 2020 as it was 485
in 2020 which was increased by 488 in 2021. The net operating expenses of the company
showed a huge decline in 2021 in comparison to 2020 as it was 335 in 2020 which was reduced
to 49. Whereas the operating profit of the company has shown a huge increase in 2021
because it was 150 in 2020 and in 2021 it was [Link] it can be said that the company
has shown a huge profit in the year 2021 in comparison to 2020.
Ratios
The evaluation of the financial performance is based on several aspects of the business. In
this report, the ratio analysis has been performed in order to examine the financial health of
the company and examine if the company is getting a profit etc. In this research, important
business areas are investigated in detail regarding the current situation of the company and
the future growth of the company. A general analysis of the ratio of the company is
considered in this research. The two years 2020 and 2021 are chosen in this research. The
year 2020 has shown a trend that shows low revenue and low growth whereas the growth of
the company increased in the year 2021 and shows a huge improvement that can be
considered the success of the company. Another aspect behind the decline in the revenue
was the pandemic of the covid 19 which has caused hurdles all over the globe. Due to the
pandemic, the performance of the company has declined and due to the difference seen in
the year 2021, it is observed that the company was back on the track to success (Cfi, 2022).
Profitability Ratios
The profitability ratio is composed of various financial elements. It includes, returns on
shareholder funds, return on investment, operating profit margin, and last gross profit margin
(Osburn 2019). The profitability ratio analysis includes the return on capital employed, the
return on the stakeholders’ fund, the margin achieved in profit and the gross income of the
company are some ratios that are considered as the signs of profitability in the company.
According to the reports the rate of the return on shares has considered the measure of the
profit in the case of this company. It can also be observed by calculating the ratios of the
company such as that the company is showing profit and is showing a rise for the year 2021
in comparison to the decline that has been observed in the previous year. The analysis shows
that the profit margin is followed by the increased profit margin. The ratio of the profitability
requires a depth analysis in order to examine what is actually happening inside the company.
The return on the capital investment is obtained from the division of the profit of operating
with the sum of the shared capital, the reserves of the company and the liabilities of the
company. After obtaining these values comes the return on the ordinary stakeholder funds in
the company which is gained through the division of the whole year’s profit and the total
amount of the organizational share and the reserves the company has. After performing all
the analyses it can be seen clearly that the company is going into profit and is making a good
amount of money in the current time which means it can grow in recent years because the
taxes are lowered and the revenue is increasing (Valogo, 2018). The figure 1 below shows
profitability ratios of Delta in the years 2020 and 2021.
Fig.1
Gearing ratios
The bigger a company's gearing ratio, the more exposed it is to economic and business cycle
downturns. As a result of their larger debt-to-equity ratio, companies with higher levels of
leverage are more likely to default. (Fisher 1995) The higher the gearing ratio, the more
expensive it is to service the debt, whereas the lower the gearing ratio, the more secure a
company's financial position.
For both internal and exterior purposes, gearing ratios are an invaluable tool. Calculations of
gearing ratios are used by financial organizations to determine whether or not to offer
loans. Companies may also be required to follow certain rules for acceptable gearing ratio
estimates, as part of loan agreements. Internal management, on the other hand, analyses
future cash flows and leverage using gearing ratios. However, a high gearing ratio doesn't
always mean that a company's financial health is in jeopardy.(Putra, Kanca, and Wijaya
2019) If the corporation has a high gearing percentage, the finance structure of the
company is much riskier.
The gearing ratio is referred to as the ratio that provides information about the amount that
the company has borrowed and it shows how much lending the company is doing in the
current time in order to meet its objectives. The total assets of the company are increased
in comparison to those in the year 2020 and the amount of loan the company lent in 2020 is
lesser than that of what the company took in the year 2021. The gearing ratio of the
company can be obtained by dividing the long-term liabilities of the company by the sum of
the capital share, the reserve of the company and the long-term liabilities are greater in
comparison to those in the previous year (Valogo, 2018). The below graph in figure 2 shows
a sharp increase in gearing ratios from 10.71 in 2020 to 29.26 in 2021.
Fig.2
Investment ratios
In order to calculate the investment ratios of the company, several things are considered such
as the dividend payment ratio, the dividend cover ratio and the yield ratio of the company
according to the data are given in the company it is seen that these ratios have shown an
increase in comparison to the last year and it can be considered as a positive thing for the
long term investors of the company that they can invest in this company to obtain the
ultimate benefits. In the case of this company, the liability of the company has increased in
comparison to the previous year as previously the total number of liabilities was 359 which
has increased by 379. The dividend yield of the company is 3.5% (Cfi, 2022).
Liquidity ratios
The current ratio and the test ratio are considered the most important components of the
liquidity ratio. As these both provide information about the ability of the company to the debt
paying off. This analysis is considered the most important part of the overall ratio analysis.
The ratios in the case of Delta show that there is a steep rise and the company has the ability
to pay off its bills. In spite of the fact that Delta is in this division, it is fundamental that this
large number of proportions in the examination are considered in light of the fact that in
different proportions the organization is doing fairly well and it can beat the odds by paying
liquidity proportions with its solid places. Current proportion is obtained by separating
current resources from current liabilities while resource test proportion is acquired by
separating current resources barring inventories and current liabilities (Barton, 2002).
Liquidity ratios, such as the current ratio, quick ratio, and operational cash flow ratio, are
used to gauge a company's capacity to satisfy its financial obligations and maintain a safety
buffer (Osburn 2019). The current ratio for the company sees a small increase from 2.54 to
2.80 from 2020 to 2021 whereas the quick ratio shows a similar decrease from 1.6 to 1.4
during these years. Lastly, the cash ratio also shows a decrease from 0.83 to 0.50 because
the liabilities have increased and the cash has decreased.
Efficiency ratios
This section includes a detailed look at the obtained ratios and examines if the company is
able to generate benefits in the coming years. In a research article by Santuossuo, he has
highlighted that proxies of effeciencies as well as profitability in any organisation is linked to
its operating activities (Santuossuo, 2014). It is observed that the company can deal with the
obstacles because the financials look quite efficient and the turnover period also shows it will
only take a short period of time for the company to deal with its problems and can get back
on track to success. The revenue comparison of the company provided a piece of information
regarding how the company has made progress after the time of the crisis. As shown below
we see a healthy percentage of categories under the efficiency rations for the company in
2021.
Categories Efficiency for 2020 Efficiency for 2021
Gross profit margin 79% 89%
Operating profit margin 21.85% 39.5%
Net profit margin 35.5% 45.5%
No pat Margin 16% 11%
Return on total Assets 12% 19%
Roa Model 10% 6%
Return on equity 5% 8%
Evaluation
Delta is referred to as a market leader in its sector as it has reached a global audience because
of the products and the services it provides to its customers all over the globe. The future
growth of the company can be analyzed by following a specific model such as the usage of
the Atman analysis which determines the future bankruptcy of the company. Secondly, the
usage of the Dupont analysis can be very helpful for the company and for its competitors.
Altman Z-score
It is referred to as the tool that is used for the efficient prediction of the bankruptcy of Delta
and it is based on the usage of liquidity, efficiency, indebtedness, profitability and productivity
in order to make the predictions regarding the probability of the company to become
bankrupt in the coming years. Based on the discussion and the analysis of the data provided
by the company it is observed that the company will not get bankrupt in the coming years
because of the amount of progress it has made since it started working and based on the fact
that how it made progress in the past years and how it continues to go an upward trend All
these ratios are multiplied by the constant numbers in order to get the calculation of the
Altman (Viciwati, 2020). The formula of Altman Z-score is given below :
Altman Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Where:
Dupont analysis
DuPont analysis is done by dividing the return on equity into three equal parts. The name of
the analysis is derived from DuPont company which was the first company that started using
this method of analysis to determine internal efficiency of the organisation (Soliman, 2007).
The equity ratio of the company is calculated to be 30% and the return on the stakeholder’s
equity is 22%. This analysis is considered useful because it allows the investors to examine if
the company is doing better in comparison to the competitor companies. According to the
analysis, the equity ratio of the company is presently 30% which is quite better than the
previous years and the company is making progress in comparison to the competitors.
Financial analysis
It includes the analysis of the company as a whole regarding its finances. It simply compares
the ratios of the company with the previously obtained ones and in the case of Delta, it is
observed that the current financial condition of the company is a lot better than what it was
in the last year but the company still have loans and does not have most reliable equity levels
that are very catching but at the least the company is making progress (Ji Hyung Park, 2021).
Corporate Governanace and CSR
Corporate social responsibility is a sort of company self-regulation with the purpose of social
accountability and creating a beneficial influence on society. Some ways that a firm might
adopt CSR include being environmentally friendly and eco-conscious; fostering equality,
diversity, and inclusion in the workplace; treating workers with respect; giving back to the
community, and ensuring business choices are ethical (Katrin Hansen and Seierstad, 2017)
There is no one method a company may adopt CSR, but one thing is clear - to be viewed as
authentic, the firm’s activities need to be interwoven into its culture and business processes.
In today’s socially aware world, workers and consumers put a premium on working for and
spending their money on organizations that promote CSR (Reckmann, n.d.).
Conclusion
Based on the overall analysis and the research carried out it is observed that the company
Delta PLC is making progress after dealing with the issues caused by the pandemic. The assets
of the company are spread all over the globe and the company has a huge audience because
of the variety of the products it creates. Based on the overall analysis it is observed that the
company is making progress in comparison to the previous years and it can be considered a
positive sign for the investors to invest in this company as it provides variety in its product
lines as well as a strong cash flow and liquidity standing. Lastly it can be seen that returm on
capital employed is 29% which is better than the industry standard of 20% hence it can be
concluded that the company is worthy of investment and should be a good catch for investors
looking for investment opportunities.
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