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Bloomsbury Publishing PLC

Buy custom Bloomsbury Publishing PLC essay

According to annual report and accounts 2012 released by Bloomsbury Publishing Plc, Bloomsbury Publishing is an independent publisher that is listed on the London Stock Exchange (Bloomsbury Publishing Plc, 2012). One of the great significance that has been noted of the company in the past 25 years can be attributed to a reputation of excellence and originality. The board of management have recently acknowledged that 2012 has been a successful year that has been characterized with a strong performance across the Group (Bloomsbury Publishing Plc, 2012). In addition, the Global Bloomsburg strategy has played a great role in ensuring that the transformational year 2011/12 has achieved tremendous success (Bloomsbury Publishing Plc, 2012). The paper seeks to highlight this fundamental success owning o the focus on a robust renewable revenue stream. It is worth noting that a company may have a good management but without a stable financial structure, revenue collection may not achieve much (Bloomsbury Publishing Plc, 2012). There are various divisions of Bloomsburg Publishing PLC that will be evaluated.

The report focuses on share valuation, the risk free return on government securities, the risk premium for shares above the risk free state and Beta analysis of Bloomsbury Publishing Plc (Hill and Jones 2012). In order to critically understand this concept, the report will calculate and later interpret a number of accounting ratios for Bloomsbury Publishing Plc and this will be made possible using the data and figures noted from the annual report and accounts 2012 released by the company. In calculating each of the group ratios such as performance, liquidity, gearing, investors and efficiency, the ratios that will be used include ROCE, Current or Quick, Gearing, Interest Cover and Dividend yield (Hill and Jones 2012). While the ratios may apply, it is worth reiterating that the enormous success in the company has been made possible by the balanced business between trade and academic publishing that highlights some of the progress made within the company.

The perspective noted from the annual report indicates that Bloomsbury Publishing Plc had a total turnover of up 11.5% to 103.2 million pounds (Bloomsbury Publishing Plc, 2012). The 11.5% increase was rated based on 92.6 million pounds which was the total turnover in 2011. In 2011, there was a total continuing turnover 0f 83.3 million pounds, which increased by 16.9% in 2012 (This was 97.4 million pounds) (Bloomsbury Publishing Plc, 2012). The same success witnessed through total turnover and total continuing turnover was also witnessed in pre-tax profit that went up 25.2% and this was before highlighted terms while total dividends increased by 5.2% per share index, indicating that that there was 10.2% increase. The financial and operating highlights will be highlighted by the ratios which will be calculated below(Bloomsbury Publishing Plc, 2012). However, the global recession that been witnessed across the globe has been one of the greatest challenges that Bloomsbury Publishing Plc has faced as well as proving hard for the innovation process to be uplifted.

Section A

Share Valuation

It is important to carry out the share valuation of Bloomsbury Publishing due to the fact the share value tends to trade lower price than the fundamental pricing of the company. Thus, it can be considered undervalued by potential investors (Reuters, 2012).  . Common characteristic of such companies are stocks that have high dividend, low price-to- book ratio and low-price-to earnings ratio. In addition, while examining the share valuation of Bloomsbury Publishing PLC risk-free return should be above the government security that is currently at 2 % and for a premium return it should be above 3.5%.  According to Reuters Financial website the free risk return was calculated to be 3. 1 % is above the government securities but below the market premium (Reuters, 2012).  Even thorough, free risk return was below the market premium Bloomsbury Publishing PLC gave a good return to its shareholders.

Performance Ratios

Financial ratio or accounting ratio is obtained through an examination of the company’s financial statements. They are used to evaluate the over financial condition of an organisation (Kieso, et al , 2006). Therefore, illustrates the strength and weakness of the business. Moreover, the ratio over period helps the users understand unusual fluctuations and the performance of the business over time.  Ratios are also tools for forecasting; therefore allow the business set goals that they can easily track over the years. It also necessary for the users to choose ratios that apply o the firm due to the fact they are several financial ratios that are industry specific.  Performance, liquidity, gearing, investors and efficiency ratios were used to determine the financial strength of Bloomsbury Publishing PLC.

Liquidity Ratio

Liquidity ratios are used to determine the firm position in meeting both short-term and long-term debt obligations (Kieso, et al, 2006). The following liquidity ratios were used to determine Bloomsbury Publishing PLC ability to meet its debt obligation over the next year.

Current Ratio is used to measure the short term solvency of Bloomsbury Publishing PLC due to the fact it provided the extent to which the firm can cover it short term claim for its creditors by using assets that are likely to be liquidated quickly (Kieso, et al , 2006).

The current ratio formula:  Current Ratio= Current Assets/ Current Liabilities

 

2007

2008

2009

2010

2012

Current Assets

134,720.00

114,982.00

96,048.00

103,929.00

88,254.00

Current Liabilities

58,947.00

32,918.00

24,157.00

29,136.00

32,451.00

Current Ratio

2.29

3.49

3.98

3.57

2.72

(Bloomsbury Publishing PLC, 2012)

The current ratio matches the current assets in relation with current liabilities and inform if the current assets are able to settle the current liabilities. In cases where the current ratio is below 1 it reveals that the firm has liquidity problems because the total current liabilities are above the total current asset (Weygandtet al, 2005).  In the case of Bloomsbury Publishing PLC the current ratio is above 2.5 in 2012 which shows that the organization is able to meet its debt obligations. However, such a high current is also an indicator that Bloomsbury Publishing PLC has existence of idle underutilized resources within the firm (Weygandtet al 2005).

Quick Ratio measures the ability of the firm to liquidate its current assets like cash and accounts receivables to pay off its current liabilities (Weygandtet al 2005).

Formula Quick Ratio is calculated: Quick Ratio = (Current Assets - Inventories) / Current Liabilities  

     

Quick Ratio

   
 

2007

2008

2009

2010

2012

Current Assets

134,720.00

114,982.00

96,048.00

103,929.00

88,254.00

Current Liabilities

58,947.00

32,918.00

24,157.00

29,136.00

32,451.00

Inventories

14,406.00

16,589.00

16,350.00

18,334.00

20,184.00

Quick Ratio

2.04

2.99

3.30

2.94

2.10

(Bloomsbury Publishing PLC, 2012)

Ideally, the quick ratio of a firm should be 1. The quick ratio above 1 indicates that the firm is able to meet current financial obligation to cover its current liabilities (Weygandtet al 2005). However, if the quick ratio is high, this is an indicator that the business may be keeping too much cash or able having a problem with it account receivables. Bloomsbury Publishing PLC has a quick ratio that is above 1 which is an indicator that it’s able to meet it current short-term debt obligation (Weygandtet al 2005). However, the quick ratio obtained were high, showing that they could be a possibility that Bloomsbury Publishing PLC maybe keeping to much cash on hand or having a problem with collecting  its accounts receivables.

Profitability Ratio

Profitability ratio is a form of financial metrics that is used to assess the business ability to generate earning as compared to its expenses and other cost during specific period. Such ratios are compared with a competitor’s ratio or its previous period to determine if the firm is doing well (Weygandtet al 2005). Some of the common examples of profitability ratios are profit margin, return on assets and return on equity (Weygandtet al 2005). When performing such comparisons on must have knowledge in order to perform the comparison and analytics. For examples some industries experience strong sales in their operation during the last quarter such as the retail industry. Thus, it would wrong to compare the first quarter with the last quarter it would less informative.

Return on Total Assets (ROTA): This measures the return on the net income on total income after deduction interest and taxed (Weygandtet al 2005). Therefore, providing measure of how well the firm is performing by using its assets to generate revenues. 

To calculate Return on Total Asset:  Return on Total Asset= EBIT/ Total Net Assets

Where EBIT = Net Income + Interest Expenses + Taxes  

     

Return on Total Assets

   
 

2007

2008

2009

2010

2012

Total Net Assets

159,618.00

148,617.00

139,519.00

143,718.00

146,373.00

EBIT

16,476

8,498

6,158

5,833

10,469

Return on Total Assets

10.32%

5.72%

4.41%

4.06%

7.15%

(Bloomsbury Publishing PLC, 2012)

Bloomsbury Publishing PLC return on total assets was slightly above the industry. This return showed that Bloomsbury Publishing PLC had a high return on assets compared to the industry average, therefore, outperformed the market  and efficient on it use of its assets(Kieso, et al, 2006).  In addition, ROTA declined in 2008, 2009 and 2010 this could be attributed to the financial recession of 2008 and later a recovery in 2012 which ROTA improved to 7.15 signaling a recovery in profitability (Yahoo Finance, 2012).  

Return on Equity was another profitability ratio used. It measures a company’s profitability by determining how much profit a company generates relative to equity.

Formula of ROE Return on Equity = Net Income/Shareholder's Equity

 

2007

2008

2009

2010

2012

Net Income

11,804.00

7,840.00

4,981.00

3,595.70

7,097.00

Total Share Holder Equity

100,069.00

113,672.00

112,684.00

111,844.00

109,180.00

Return on Equity

11.80%

6.90%

4.42%

3.21%

6.50%

(Bloomsbury Publishing Plc, 2012)

Bloomsbury Publishing PLC return on equity showed a similar pattern to return on total assets (Kieso, et al, 2006). The ROE was above the industry average, therefore outperformed the market and was efficient on it utilization of it resources. Moreover, ROE declined after the global financial crisis in 2008, 2009 and 2010 and later recovered in 2012 to 6.5% showing a recovery in the company (Financial Times, 2012).

Financial Leverage Ratio

Ratio used to calculate the financial leverage of company is used to assess the firm’s ability to meet it financing obligation (Williams et al, 2005). There are several ratios used that include debt, equity gearing and interest expense. However, in our case gearing ratio was used.

Gearing ratio compares equity to funds borrowed by the company. The higher the degree of leverage the more the risk, therefore, company that have high gearing are vulnerable to downturns in the business due to the fact that they have to continue to service their debts regardless with outcome in sales (Williams et al, 2005).  Large sum in equity provides a means of protection as it is seen as a measure of financial strength.

Formula Gearing Ratio: Gearing Ratio = Long Term Debt/ Share Holder Equity

Gearing Ratio

 

2007

2008

2009

2010

2012

Total Liabilities

59,549.00

34,945.00

26,835.00

31,874.00

37,193.00

Current Liabilities

58,947.00

32,918.00

24,157.00

29,136.00

32,451.00

Long Term Liabilities

602.00

2,027.00

2,678.00

2,738.00

4,742.00

Total Share Holder Equity

100,069.00

113,672.00

112,684.00

111,844.00

109,180.00

Gearing Ratio

0.60%

1.78%

2.38%

2.45%

4.34%

(Bloomsbury Publishing Plc, 2012)

Bloomsbury Publishing PLC has a low gearing ratio which indicated that the company is financially sound and there is low risk for the company to undergo possible liquidation (Weygandtet al 2005). However, Bloomsbury Publishing PLC cannot expand it operation without having long term debt or creditor funding. Consequently, it can be said that Bloomsbury Publishing PLC is ineffectively in using it sources of finances to expand its operation.

Interest Cover is another ratio used to determine how Bloomsbury Publishing PLC is meeting its interest payment on outstanding debt. It is obtained by dividing the company’s earnings before interest and taxes (EBIT) during a financial period (Williams et al, 2005).  Cases where the interest coverage ratio is low the company is burdened by debt.  When the interest ratio in below 1 it shows that the company is not generating sufficient revenues to meet it interest payment obligation

Formula of Interest Coverage Ratio = EBIT/ Interest Expenses 

 

2007

2008

2009

2010

2012

EBIT

16,476

8,498

6,158

5,833

10,469

Interest Expenses

69

19

6

0

7

 Interest Coverage Ratio

238.78

447.26

1026.33

-

1495.57

(Bloomsbury Publishing Plc, 2012)

Bloomsbury Publishing PLC has a high interest cover ratio. This is an indicator that Bloomsbury Publishing PLC in financially sound and is able to meet it interest payment obligations (Weygandtet al 2005)..  Dividends ratio measures how a firm pays out in dividends in comparison to its share price. 

Formula Dividend Yield:  Dividend Yield = Annual Dividends per Share/ Price per Share.

Dividends Yield

 

2007

2008

2009

2010

2012

Dividends Yield

2.60%

3.50%

3.80%

25.80%

4.30%

(Bloomsbury Publishing Plc, 2012)

Bloomsbury Publishing PLC has paid dividends from 2007 to 2012 at good return of 4.49% of the share price.

Section B

The following information was obtained from Dividends Investor and Reuters’s website (2012) it included the following dividends of the last 5 years on Bloomsbury Publishing PLC which was increased from 2007 which was at $ 4 to $ 5 in 2012. This showed a continued increase in return over the years (Williams et al, 2005). A good indicate of the company financial strength. In addition the market cap of 2012 was $ 141.04; the share price was $ 186 and Equity beta value of 0.31 showing a strong financial position for Bloomsbury Publishing PLC (Dividends Investor, 2012 and Reuters, 2012).

Dividends Yield

 

2007

2008

2009

2010

2012

Dividends Yield

4.49

4.49

4.49

4.49

4.49

Dividends Paid

4

4.2

4.4

0

5

Dividends Cover

4.343

2.631

1.592

 

0.479

(Bloomsbury Publishing Plc, 2012)

 An Overview of Bloomsbury Publishing PLC

 

2012

Market Cap in USD

141.04

Share Price in USD

186

Beta

0.31

(Bloomsbury Publishing Plc, 2012)

Net Asset Value (NAV)

The dynamics of business entails borrowing and buying. The value of an organization is pegged on its assets value. The Net Asset Value (NAV) of an organization is the total value of its assets less the total amount of its liabilities. In the context of companies, NAV in most instances is always used by investors in evaluating the mutual funds(Williams et al, 2005).

Formula: Net asset value = Total assets – Intangible assets – Total liabilities

Net Asset Value

 

2007

2008

2009

2010

2012

Total Net Assets

159,618.00

148,617.00

139,519.00

143,718.00

146,373.00

Intangible assets

17,716.00

27,543.00

37,598.00

37,241.00

52,763.00

Total Liabilities

59,549.00

34,945.00

26,835.00

31,874.00

37,193.00

Net Asset Value

82,353.00

86,129.00

75,086.00

74,603.00

56,417.00

(Bloomsbury Publishing Plc, 2012)

Dividend Valuation Model (DVM).

The performance of a business can be based on the available facts with regards to how a business is performing in the markets or based on the expectations with regards to returns based on the investments (Williams et al, 2005). Dividend Valuation Model is a system that values stock shares for example of a business based on expectations with regards to returns and likely risks to be incurred by the business while in operation. One of the strong points of the model is that it offers an insight into the business with regards to the nature of the stocks. In business context it’s advisable for an organization to buy cheap stock, sell the expensive ones and hold stock that is considered to be of fair value.

Dividend Growth Formula: Present Stock Value = Dividend Share / (R Discount – R Dividend Growth)

 

  Dividend valuation model (DVM).

 

2012

 Dividend Share

4

Rdiscount

0.07

RDividend Growth

0.05

Present Stock Value

200

(Bloomsbury Publishing Plc, 2012)

The price to dividends model indicated that the share price was undervalued from its current price which was found to be $ 186 (Bloomsbury Publishing Plc, 2012).

Historic Price-Earnings ratio (PER)

This is a ration that’s used in determining the relative value of a share stock. Among the investors, it helps in determining the relationship that exists between the price share and the earning share (Kieso, et al , 2006).. Market forces with regards to daily fluctuations affects price earning ration.

 

Company

Sector

Market

Price-earnings ratio PER

9.19

12.67

12.43

Price Earning Growth (E)

1.66

1.42

1.21

(Bloomsbury Publishing Plc, 2012)

Bloomsbury Publishing PLC price –earning ration PER was 9.19 which was below the industry average which was 12.67 and below the market 12.43 (Bloomsbury Publishing Plc, 2012). Therefore, the Bloomsbury Publishing PLC return was lower indicating they were inefficiencies in the company. In addition the price earnings growth ration was above the industry average and the market which was found to be 1.66. This indicated that Bloomsbury Publishing PLC was gaining market share over it competitors in the market.

Conclusion

Following a thorough ratio analysis of Bloomsbury Publishing PLC financials statement (2008 to 2012), as a potential shareholder I am not confident for the long-term growth projections of Bloomsbury Publishing PLC. Even through Bloomsbury Publishing PLC faced challenges during the global financial recession that begun in 2008, the stock remained strong for existing shareholder and has continuously given a return to its shareholders and had some good financial  ratios . Going forward Bloomsbury Publishing PLC, facing a number of challenges due to number of risk factors which include unfavourable economic climate both domestic and globally. Publishing companies are facing a number of challenges due to an increasing distribution cost. a cultural deficit as copyrights are being imported at double at what they are exported. The move from conventional book publishing has changed to embrace an electronic format which is less profitable to publisher reducing their revenue. In addition, Bloomsbury Publishing PLC current low growth rate projection necessitates my decision. 

Recommendation

Looking at Bloomsbury Publishing PLC ratio analysis I would recommend the following. Bloomsbury Publishing PLC should increase its leverage by accessing lines of credit that are focused on acquisitions of companies that strong in electronic publishing therefore, improving the company’s future outlook.  It should focus on reducing it distribution cost in order to remain competitive in market.   Bloomsbury Publishing PLC is withholding cash due to its high liquidity ratio. It should use the cash to finance its activities such as acquisition of profitable publishing companies increasing it bottom line.

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