Introduction:
Background of Hays Company:
Hays plc is a British company providing recruitment and human resources services. It is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index. The Company operates in three geographical segments: United Kingdom and Ireland, Continental Europe and Rest of World, and Asia Pacific. The Company provides recruitment services across a range of 17 industry sectors from accounting and finance, construction and property, and information technology (IT) to oil and gas, pharmaceutical, and resources and mining. It has operations across 28 countries with approximately 50% of its total business from outside of the United Kingdom and Ireland. Hays plc is the leading global specialist recruitment group. In 2009, Hays placed approximately 50,000 people into permanent jobs and found temporary assignments for approximately 270,000 people. (Hays, 2009)
The Company was first listed on the London Stock Exchange in 1958, and expanded into related activities in transport, storage and warehousing in the 1960s. The importance of the Port of London declined, and the Company’s last wharf in the Pool of London closed in 1969. After few years, following a strategic review, the management decided in 2003 to become a specialist recruitment and human resources services business and dispose of all its other businesses.
Aims of Hays Company in 2009
The aim of Hays is to build the pre-eminent global business in specialist recruitment. Hays dealt with the toughest recruitment market on record and still delivered good levels of profitability and continued its record of excellent cash flow performance in 2009. (Hays, 2009)
10 Accounting Ratios and Analysis
In Hays Company Public Website, the annual report includes Financial statement, Directors’ Report, Auditors’ Report and Remuneration report. Compare the different data in the end of the year 30 June of 2008 and 2009 to evaluate Hays’ performance in these 2 years.
1. Current Assets Ratio:
Current Assets Ratio= Current Assets
Current Liabilities
Current Assets Ratio of 2009 is 407.4/328.8=1.24
Current Assets Ratio of 2008 is 496.3/336.2=1.48
The current assets ratio measures a company’s ability to pay the liabilities that it is most likely to have to pay soon with that assets that should yield cash the quickest. Low values for the current or quick ratios (values less than 1) indicate that a firm may have difficulty meeting current obligations. The higher the ratio, the more liquid the company is. Current assets ratio of 2008 is higher than 2009, it shows company in 2008 is more liquid than 2009.
2. Acid Test Ratio (or) Quick Ratio:
Acid Test Ratio =Current Assets -Inventories
Current Liabilities
Acid Test Ratio of year 2009 is (407.4-0)/328.8=1.24
Acid Test Ratio of year 2008 is (496.3-0)/336.2=1.48
Acid Test Ratio is an indicator of a company’s short-term liquidity.Itmeasuresa company’sability to meetits short-term obligations withits most liquid assets. The higher the acid test ratio,thebetter the position of thecompany. The higher the ratio is, the higher business’ level of liquidity have, which usually corresponds to its financial health. Due to there is no inventory in Hays Company in 2008 and 2009, the result of this ratio is same as current asset ratio; the ratio in 2008 higher than 2009, so liquidity level of 2008 higher than 2009.
3. Gross Profit Ratio= Gross Profit x 100
Total Sales (or) Revenue
The gross profit ratio of 2009 is 158*100/1169=13.5
The gross profit ratio of 2008 is 253.8*100/1278.7=19.8
The gross profit ratio indicates how much of each sales dollar is available to meet expenses and profits after merely paying for the goods that were sold. This interactive tutorial explains the gross profit ratio by walking you through the steps, including where Sales and Cost of Goods Sold are on the Income Statement. It is an idea shows how much gross profit per �1 of turnover our business is earning. The higher gross profit ratio, the more profit company gain. The ratio in 2008 is higher than 2009, the better performance in 2008 than 2009.
4. Net Profit Ratio= Net Profit before Tax x 100
Total Sales (or) Revenue
The net profit ratio of 2009 is 151*100/ 2447.7=6.17
The net profit ratio of 2008 is 264.4*100/2540= 10.41
Net Profit ratio is used to measure the overall profitability and hence it is very useful to proprietors. This ratio indicates the firm’s capacity to face adverse economic conditions such as price competition, low demand, etc. Obviously, higher the ratio the better is the profitability. The performance of profits also be seen in relation to investments or capital of the firm and not only in relation to sales. NP ratio in 2008 is higher than 2009, so the company gain more profit in 2008 than 2009.
5. Return on Capital Employed= Net Profit Before Tax x 100
Shareholders’ Funds
The return on capital employed of 2009 is 151*100/809.3=18.66
The return on capital employed of 2008 is 264.4*100/802.3=33
ROCE is used in finance as a measure of the returns that a company is realizing from its capital employed. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital. The higher ratio is, the better performance company has. ROCE of 2008 is higher than 2009, so the efficiency and profitability of a company’s capital investments in 2008 is better than 2009.
6. Fixed Asset Turnover Ratio= Total Sales (or) Revenue
Fixed Assets (net book value)
The fixed asset turnover ratio of 2009 is 2447.7/67.7=36.16
The fixed asset turnover ratio of 2008 is 2540/37.6=67.56
Fixed Asset Turnover Ratio indicates how well the business is using its fixed assets to generate sales. The higher the ratio, the better, because a high ratio indicates the business has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets. Ratio in 2008 is higher than 2009, it reflect company in 2008 use fixed assets more efficiency than 2009.
7. Dividend Cover Ratio= NPAT (or) Net Profit After Tax – Preference Dividend
Ordinary Dividend for the year (paid and payable)
The dividend cover ratio of 2009 is (105.8-0)/79.3=1.33
The dividend cover ratio of 2008 is (187.8-0)/80.2=2.34
Dividend cover expresses a company’s ability to pay ordinary dividends to shareholders out of profits earned. It shows how many times the ordinary dividend is covered by the profit available. A dividend cover of at least 2 suggests that a company has sufficient funds to pay for the dividend. The higher dividend cover ratio, the better performance. Ratio in 2008 is higher than 2009, which means company in 2008 have more confident to against future downturn.
8. EPS= NPAT – Dividends and other Appropriations for non-Equity Shares
Total number of Ordinary Shares
The earnings per share of 2009 is=0.077
The earnings per share of 2008 is=0.134
Earnings per share is calculated as profit before exceptional items for the year, attributable to the equity shareholders of the Group, divided by the weighted average number of shares in issue during the year. This is a measure of the profit performance of the Group. Earnings per share decreased by 39% in 2009 which reflecting the fall in the underlying profitability of the Group.
9. Capital Gearing Ratio= Loan x 100
Equity (or) Ordinary Shareholders’ Funds
The capital gearing ratio of 2009 is 54.3*100/154.4=35.17
The capital gearing ratio of 2008 is 135.1*100/123=10.98
Capital gearing ratio is important to the company and the prospective investors. It must be carefully planned as it affects the company’s capacity to maintain a uniform dividend policy during difficult trading periods. It reveals the suitability of company’s capitalization. The higher a company’sdegree of leverage, the more thecompany is considered risky. Ratio in 2008 is lower than 2009, which means the company in 2008 is more safe than 2009.
10. Interest Cover Ratio= PBIT (or) Profit Before Interest & Tax
Interest for the year (paid & payable)
The interest cover ratio of 2009 is 151/27.1=5.57
The interest cover ratio of 2008 is 264.4/25.3=10.45
Theinterest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt. The ratio shows the safety margin that the business has in terms of being able to meet its interest obligations. That is, a high interest cover ratio means that the business is easily able to meet its interest obligations from profits. Similarly, a low value for the interest cover ratio means that the business is potentially in danger of not being able to meet its interest obligations. Ratio is 2008 is higher than 2009, which means company in 2008 more safe than 2009 in interest obligations.
Conclusion:
Compared 10 ratios of Hays plc in 2008 and 2009, all of these ratios show that Hays company performance better in 2008 than 2009. It is can be show that different data in each ratio affect company’s performance.
Bibliography:
1. Hays Available at: http://www.haysplc.com/hays/
(accessed 23t November 2009)
2. Reuters Available at: http://www.reuters.com/
(accessed 23 November 2009)