This Financial Assessment of Spirax Group Corporate Finance Assignment Sample, prepared by Rapid Assignment Help, offers an in-depth evaluation of Spirax Group’s financial performance, capital structure, dividend policies, and strategic position.
Spirax Group (SG) has been selected for this corporate finance evaluation due to its established presence in the industrial engineering sector and its relevance as a FTSE 100 organisation. This report provides an integrated assessment of the company’s financial performance, dividend policies, capital structure, and potential acquisition prospects. Such comprehensive analysis reflects the level of detail typically expected in academic finance research, especially for students seeking help with assignments online to better understand real-world corporate financial dynamics.
This report is intended to offer substantive coverage about corporate finance in which the company chosen is Spirax Group (SG). The primary part of this report will discover performance evaluation of SG in terms of measuring financial indicators and metrics. The second objective of this report is intended to offer coverage about dividend policy of the company selected where key highlights would factor dividend payment patterns and the policy applicable for SG. The third objective of this report will evaluate capital structure and working capital for SG in which key highlights would include computation of capital structure ratios and determination of differences between current assets and current liabilities. Potential acquisition will be the fourth and perhaps the most important objective of this report in which key highlights will include quantitative and qualitative examination of acquisition based on multiple valuation methods and risk factors applicable.
9 Years | MSc
Spirax Group (SG) is identified as a renowned FTSE 100 constituent native to the industrial engineering industry of the UK whose business is currently headquartered from Cheltenham. The main products and services offered by SG include oil and gas solutions, electrical heating products, steam and fluids processing infrastructure and electrical process equipment. The background of SG can be further determined in terms of its strong employee concentration which is numerically expressed as 10,400 as of 2024 (spiraxgroup.com, 2024). The financial background of the company can be determined in terms of net profits generated from business operations which is measured as GBP 184 million as of 2023 (spiraxgroup.com, 2023).
The performance evaluation of SG will be considered through ratio analysis which would include the period of assessment from 2023 to 2019. The ratio analysis will further dissect financial performance examination across four categories including profitability, liquidity, efficiency and solvency respectively. Following is the individual demarcation of financial results of SG demonstrating prospective financial growth and decline transpiring.
According to the above figure of profitability analysis, the net profit margin for SG from 2023 to 2019 has been calculated as 10.94%, 13.97%, 17.47%, 14.57% and 13.44% respectively. Based on the above analysis, it can be precisely determined that a significant decline in net profit margin is noticeable for SG in 2023 and in 2022 when compared to figures of 2021. However, an increasing trend of net profit margin is noticeable for SG in 2021 when compared to performances of 2020 and 2019. As per critical opinions and expressions of Siahaan et al. (2023), a decrease in net profit margin is a conflicting proposition for an organisation due to which future business continuity might be impacted.
Similarly, from the above figure of profitability analysis, return on capital employed for SG has been calculated as 12.62%, 14.85%, 21.66%, 16.45% and 16.97% from 2023 to 2019. Hence, it is witnessed that return on capital employed in 2023 and 2022 has decreased significantly in comparison to 2021 while a marginal increase is noticeable in 2021 when measured alongside figures of 2020. However, a fractional decline in return on capital employed figures can be further detected in 2020 as compared to 2019 figures. Sihombing, Maffett & Ilham (2022), critically illustrated and stated that a decline in return on capital employed is a concerning factor for a company due to which future operational reliability and participation of stakeholders might reduce.
Likewise, the operating profit margin from the above figure expresses numerical values of 16.90%, 19.79%, 23.87%, 20.86% and 19.72% respectively. Therefore, it can be identified that operating profit margin in 2023 and 2022 has declined drastically in comparison to 2021 figures, while a growth trend is witnessed during 2021 and 2020 when compared to 2019 figures. As Tsiouni et al. (2023), critically idealised and narrated that a decline in operating profit margin is bound to reduce operational flexibility and excellence of a company due to which cost escalations might be witnessed. The overall profitability positioning of SG in 2023 is therefore classified as adversely feasible due to decreasing trends of all ratios in comparison to previous year figures.
According to the above figure of liquidity analysis, the current ratio has been calculated as 2.26, 1.65, 2.11, 3.04 and 1.94:1 for SG from 2023 to 2019. On the basis of the above figures identified, a growing trend can be witnessed in 2023 as compared to 2020 figures while a growth trend is also noticeable during 2020 when compared to 2019 figures. However, the figures in 2022 and 2021 have witnessed a decreasing growth trend in comparison to figures of 2021 and 2020 respectively for SG. As per explanations and statements of Fitriani, Minanurohman & Firmansah (2022), growth in current ratio is identified as a positive attribute for a company due to which operational stability can be incentivised to channel organisational growth.
Likewise, the quick ratio for SG from 2023 to 2019 has been calculated as 1.63, 1.20, 1.58, 2.25 and 1.49:1. Based on the above figures identified, it can be determined that a significant growth is observed in 2023 and 2020 when compared to 2022 and 2019 figures. However, a regressive growth trend is noticed during 2022 and 2021 when compared to previous year figures of 2021 and 2020 respectively. As expressed and narrated by Istanti (2022), a growth in quick ratio for a company is identified as a favourable characteristic due to which high absolute liquidity reserves can be held to suffice organisational mobility.
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In addition to the current and quick ratios, the cash ratios for SG have been measured as 0.79, 0.52, 0.72, 1.08 and 0.80:1 from 2023 to 2019. Based on the above analysis, a significant cash ratio growth trend is identified for SG in 2023 and 2020 as compared to 2022 and 2019 figures. However, a decreasing growth trend is observed in 2022 and 2021 when measured alongside 2021 and 2020 figures. The growth in cash ratio is deemed to be a favourable prospect for a company to hold high cash and bank balances and facilitate business continuity if business becomes volatile during a certain period (Haralayya, 2022). Based on the above three ratios and their trends in 2023, the liquidity positioning of SG is deemed strong and sustainable.
As per the above figure of efficiency analysis, fixed assets turnover ratio has been numerically evaluated as 1, 0.93, 1.27, 1.14 and 1.18 times for SG from 2023 to 2019. Hence, it can be observed that a fractional growth in 2023 and 2021 figures is obtained when compared to 2022 and 2020 figures. However, a decreasing growth pattern in 2022 and 2020 as observed for fixed asset turnover ratios when compared to figures of 2021 and 2019. Anita & Siregar (2023), narrated and idealised that growth in fixed asset turnover ratio is beneficial from an organisational perspective to monetise operations by effective utilisation of current and fixed assets.
In addition to the fixed assets turnover ratio, receivable turnover ratio has been numerically expressed as 5.61, 4.72, 4.94, 5.27 and 5.16 times from 2023 to 2019 for SG. The above analysis illustrates that a significant and progressive growth trend is witnessed during 2023 and 2020 if compared to figures of 2022 and 2019 respectively. On the other hand, a regression growth trend is observed in 2022 and 2021 when measured alongside figures of 2021 and 2020 respectively. As explained and viewed by Ziling (2023), growth in receivable turnover ratio is favourable from a company’s perspective to initiate faster accumulation of customer credits existing in the market.
Likewise, the cash flow turnover ratio for SG from 2023 to 2019 has been calculated as 4.68, 4.90, 4.90, 4.85 and 3.76 times respectively. Based on the above analysis, it can be identified that a fractional growth is witnessed during 2021 while a significant growth is observed in 2020. On the other hand, a regressive growth trend of cash flow turnover ratios is noticeable during 2023 when compared to figures of 2022, while no growth is established in 2022 when compared to figures of 2021. As per critical illustrations and observations of Kinanti & Muhyarsyah (2023), a regressive cash flow turnover growth can impact operational sustainability due to which cash shortage or deficit might be witnessed during an operational period. The overall efficiency positioning of SG is identified to be strong and dominant and is backed due to growth trends observed for fixed assets and receivable turnover ratios in 2023.
According to the above figure of solvency analysis, debt ratio from 2023 to 2019 has been calculated as 0.40, 0.35, 0.25, 0.38 and 0.33 times for SG. Therefore, it can be identified that a fractional increase in 2023, 2022 and 2020 is observed for debt ratios of SG in comparison to figures of 2022, 2021 and 2019 respectively. However, on the flip side, a decreasing performance trend is recognised during 2021 when compared to figures of 2020. The increase in debt ratio is considered as a beneficial proposition for a company due to which more investment opportunities could be explored for facilitating organisational empowerment (Tsiouni et al. 2022).
Similarly, the equity ratio for SG has been numerically measured as 0.43, 0.42, 0.54, 0.49 and 0.45 times from 2023 to 2019. Hence it can be determined that a marginal performance growth is recognised during 2023 and 2020 when compared to figures of 2022 and 2019 respectively. However, on the flip side, a performance decrease is noticeable for 2022 and 2021 when compared to previous year figures of 2021 and 2020 respectively. As per opinions and views of Sarah & Athanase (2023), an increase in equity ratio is considered beneficial from a company's perspective to entice volume and flow of future equitable investments and stakeholder participation.
In addition to debt and equity ratios, the interest cover ratio corresponds to numerical values of 5.55, 19.56, 32.74, 24.65 and 24.75 times from 2023 to 2019 for SG. Based on the above analysis, it can be identified that a significant growth is only noticeable during 2021 when compared to the figures of 2020. However, the remaining financial years of 2023, 2022 and 2020 demonstrate regressive growth patterns of interest cover ratio in comparison to previous year performances. Purwaningtyas, Gunawan & Sugiawan (2023), critically explained and stated that a regressive growth trend in interest cover ratio can create difficulties for a company to facilitate timely repayments of principal and interest amount on loans and borrowings. The overall solvency ratio positioning of SG in 2023 is identified to be growing and fractionally strong and this is justified in terms of determining respective growth in debt and equity ratios.
The dividend policy for SG will be determined in terms of its payment patterns and theoretical policies applicable which are individually evaluated as follows.
According to the above figure of dividend payment frequency of SG, it can be identified that a half-yearly pattern is being followed to offer dividends in favour of investors and shareholders. The dividend payments are mostly facilitated in the month of October and April by SG in which the higher proportion is paid off during April. The total dividends paid in 2023 are expressed as GBP 155.50 while total dividends paid in 2022 are numerically expressed as GBP 140 per share. The corresponding total dividends paid in 2021, 2020 and 2019 are numerically expressed as GBP 77, 111.50 and GBP 103 per share (finance.yahoo.com, 2023). Hence, an incremental trend of dividends paid can be identified in recent times by SG. The increment in dividends paid by a company further elaborates superior profit generation attributes due to which higher priority on investor harmony is being empowered (Ed-Dafali, Patel & Iqbal, 2023).
The dividend policy applicable is the stable dividend policy where a linear timeline of dividend payments is identified and a percentage of profits are allocated in favour of dividends distributed to investors and shareholders. As per opinions and views of Das Mohapatra & Panda (2022), the facilitation of a stable dividend policy by a company also characterises proportional allocation of profits in order to encourage business sustainability and future growth. The stable dividend policy is also beneficial from an investor’s perspective since a stable and a guaranteed stream of returns or income can be always assured despite prevailing challenges and complexities in the associated company. The critical advantages of implementing a stable dividend policy also involves the ability to encapsulate higher stakeholder and investor confidence as well as it also allows SG to limit capital market volatilities.
The capital structure and working capital of SG will be determined primarily through computation of gearing ratios and total liability to equity and by determining the difference between current assets and current liabilities. The following is the 5-year individual analysis of capital structure and working capital for SG.
According to the above calculations of capital structure ratios, the gearing ratio for SG from 2023 to 2019 has been calculated as 0.486, 0.455, 0.318, 0.437 and 0.428 times respectively. Similarly, the total liabilities to equity ratio have been calculated as 1.339, 1.381, 0.845, 1.043 and 1.247 times respectively. Based on the above analysis, it is demonstrated that gearing ratio has fractionally increased in 2023 while total liabilities to equity has fractionally decreased in 2023.
As per critical illustrations and expressions of Brusov & Filatova (2023), the increase in gearing ratio can be a challenging proposition for a company due to which higher financial risks might be incurred from future potential investments. The decrease in total liabilities to equity also signals SG’s intend to maximise equity infusion in order to balance the existing capital structure. The identified capital structure ratios are further related to the net operating income approach of the capital structure theory in which the gearing ratio is considered as a benchmark where a low proportion of debt is identified in comparison to equity.
From the above figure of working capital calculations for SG numerical expressions of GBP 570.80, 416, 422, 464.50 and 388.20 are identified from 2023 to 2019. Hence, it can be identified that the working capital positioning for SG has increased significantly in recent times which is mainly caused due to decrease in value of current liabilities. As per views and illustrations of Mohanty et al. (2023), the increase in working capital position for a company is considered beneficial since better operational mobility and flexibility can be incorporated to achieve daily business targets. The increase in working capital position for SG is also deemed beneficial since sufficient short-term funds are made available in order to pay off short-term financial obligations and liabilities arising from creditors.
The target company intended to be acquired by SG is IMI which is also classified as an influential market player native to the industrial engineering industry of the UK. The profile of IMI can be primarily determined in terms of its operational headquarters being situated in Birmingham and key products and services offered are native to the process automation and industrial equipment segments. The company mainly offers products to its wide bouquet of global customers for various industries and sectors including food and beverage, pharmaceuticals, power, marine and process industries. The total employee strength as of 2024 is identified as 10,000 while the financial background in terms of net profit illustrates a numerical figure of GBP 237.30 million (imiplc.com, 2024).
The rationale associated with choosing IMI as the target company is predominantly justified for SG in order to expand industrial engineering business across the globe. Moreover, the additional rationale associated with choosing IMI as the target company by SG is intended to explore more investment opportunities particularly in overseas markets due to which wealth maximisation can be achieved. The acquisition of IMI is expected to offer beneficial returns for SG in the future by bringing onboard more investors and customers due to which sufficient financing can be obtained for stabilising current operational dynamics.
The proposed deal value and financing for acquiring IMI will be measured in terms of the cost that must be borne by SG to fund the acquisition process. The assessment of deal value and finance of the acquisition will be determined in terms of applying the following methods which would consider figures of IMI from 2023 to 2019.
According to the above figure of book valuation method, the book value of IMI from 2023 to 2019 has been calculated as GBP 1,030.20, 905.60, 779.10, 799.50 and 709.50 million respectively. Based on the above analysis, it can be identified that a recent increase in book value is noticeable for the target company due to which a higher financing or acquisition cost is needed to be borne by SG. According to Sukenti (2023), an increase in book value of a company is deemed beneficial to magnify net worth prospects in order to attract more future investors.
According to the above figure, the market value of IMI is calculated as GBP 436,735.74, 332,733.33, 463,641.90, 316,240.83 and 319,517.19 from 2023 to 2019 respectively. Therefore, it can be identified that the market value of IMI’s shares has increased significantly in recent times due to which a higher acquisition financing cost might be needed to be borne by SG. The increase in market valuation of a target company is a beneficial feature for the parent company due to which higher capital market dominance and influence can be injected (Hartoyo & Abdullah, 2023).
The cash valuation method for determining the acquisition prospect of IMI will be evaluated in terms of dividend, free cash flow and residual earnings methods which are individually evaluated as follows.
Dividend Valuation
According to the above figure, the dividend valuation of IMI from 2023 to 2019 has been calculated as GBP 6,872.62, 6,225.83, 6,116.01, 9,147.91 and 11,084.18 million respectively. Therefore, it can be observed that the recent trend of dividend valuation is increasing significantly for the target company due to which the parent company SG can enhance investor attribution to propel organisational growth.
Free Cash Flow Model
According to the above figure, the free cash flow valuation for IMI in 2023 and 2022 has been calculated as GBP -71.80 and -160 million respectively. The corresponding figures of free cash flow from 2021 to 2019 are calculated as GBP -79.20, -98.80 and -47.60 million respectively. Therefore, it can be identified that the free cash flow proposition available to IMI is adverse since lump sum capital expenditures and working capital finances have been secured recently. Radović et al. (2023), critically opined that a negative value of free cash flow for a target company can increase financial obligations and risks for the target company which might create more challenges and difficulties in the long run.
Residual Earnings
The above figure of computations demonstrates that residual earnings valuation for IMI in 2023 and 2022 has been numerically expressed as GBP 173.32 and 159.04 million. Subsequently, the numerical expressions identified from 2021 to 2019 are GBP 155.83, 124.38 and 113.16 respectively. Therefore, from the above figures a uniform growth pattern can be established in terms of residual earnings of IMI which should encourage SG to enhance long-term financial prosperity.
Based on the outcomes and analysis derived from the residual earnings method, a positive decision on acquiring IMI by SG is recommended. This decision is justified in terms of determining strong residual earning growth prospects for the target company which could help SG to boost financial credentials in order to extend market presence. The residual earnings method has been further chosen for decision making, since internal and external risk and reward factors can be assessed briefly by the parent company to execute the acquisition process.
The implications of acquiring IMI by SG on SG’s firm performance is likely to remain adverse during the initial stages. As per critical opinions of Zhou, Liu & Luo (2022), initial productivity and operational losses might be witnessed by the parent company due to which minor losses due to implications of acquisitions could be suffered. The challenges and risks of the acquisition process further involve volatile market metrics and changes in organisational dynamics due to which accommodation of acquired company in regular business could be distorted by the parent company.
The required financing for acquiring IMI by SG is deemed to be a high number which is likely to reap long-term benefits if appropriate strategic alignment is created. As per critical opinions of Nenkov (2023), financing for merger and acquisition can be subject to high time considerations since bulk formalities are needed to be completed and a thorough examination of the target company profile must be studied. Alternatively, the main channels or sources of financing the acquisition process are also critical parts of decision making for SG which requires extensive planning and validation from top-level management.
6: Conclusion
This report has demonstrated corporate finance elements for Spirax Group (SG) in which the primary area of study has covered financial performance evaluation through ratio analysis. The financial performance evaluation section of this report illustrates strong and dominating liquidity, efficiency and solvency ratio trends obtained by SG during recent times. However, the performance of profitability ratio is identified to be decreasing during recent times as compared to performances of previous financial years. The dividend policy section in this report illustrates that a stable dividend policy is followed by SG in which a half-yearly frequency of dividend distribution is catered to investors and shareholders. The capital structure of SG in this report is relatable with the net operating income approach or the capital structure irrelevance theory since proportion of depth is comparatively lower to the proportion of equity. Moreover, a strong working capital positioning is established for SG in recent times since current liabilities have been efficiently managed by the company.
The potential acquisition section of this report primarily addresses the profile of the target company where IMI is also a leading industrial engineering company that offers automation and industrial equipment products to leading business industries. The book valuation and market valuation methods of proposed deal value symbolise incremental growth trends for IMI in recent times due to which financial prosperity could be obtained by SG in future. The market valuation method and the dividend valuation method also demonstrate incremental trends and patterns during 2023 as compared to previous years which also solidifies the intent of SG to acquire IMI. A similar increasing trend is also obtained in the residual earnings method however the free cash flow method demonstrates negative values due to high capital expenditures and working capital financing conducted by IMI during recent times. The implications and challenges associated with acquisition mainly include changes in organisational dynamics and lack of coordination due to which accommodation of the acquired company can be distorted towards regular business activities.
References
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