The paper aims to do a comparative financial statement analysis based on the vertical and horizontal analysis based on the performance, financial position, corporate responsibility, and valuation of two companies that have been listed on the London Stock Exchange and the Euronext Stock exchange and the companies belong to the media industry. The study constitutes a survey done based on online resources and the literature reviews gathered from various authentic sources and this is even accompanied by the SWOT analysis of the companies. The main crux of the report is to identify the purpose for which the two companies are existing and also to help in making decisions that which company tends to suit for making decisions about future investment in the company. The report has tried to determine the strengths and the weaknesses of both companies. After the analysis, it is found that the company WPP seems to be a better investment option as compared to the other one.
The main purpose of any business is to increase the return which is received on the wealth of the stakeholders. Various tools are available that help in making such a decision easy for the investors and to judge the facts about the performance of the companies. The best tool out of all is the financial analysis of the statements of the companies which includes the evaluation of the information from the annual reports published by the company this helps in understanding the improvement of the performance of the company over previous years and this also facilitates the comparisons with that of the competitors. This helps to determine the future goals, market position, and objectives of the company in a better way. (Zeitun and Tian, 2014) This kind of financial analysis is also vital for the business itself for helping it to make decisions about the financing options to be explored by the business and the dividends which must be paid by the company. Then another tool that exists is the SWOT analysis. The SWOT analysis is an acronym and this helps in evaluating the internal and external environment of the organizations in a better way. This tool or technique is regarded as an important tool for strategic planning and understanding the right opportunities which must be explored by the companies so that they may be able to increase their market share in the market. The two techniques if used together help in getting better results as this would help in getting a detailed comprehension of the financial position of a business and also about its growth prospects.
The main intention of the report is to do a comparative appraisal of two companies that are working in the same industry and the analysis is done by taking into account the performance, financial position, cash flow position, and share price movements of the companies. One company is WPP Plc and the other one is Publicis Group. WPP Plc is a multinational public relations and advertising company which is headquartered in London and the executive office of the vampy is also located in Ireland. WPP is a correspondence administration’s concern. Its contributions incorporate publicizing; media venture administration, services of medicinal correspondences; computerized, immediate, relationship and advancement and promoting, and many more. The organization serves Dow Jones 30, Fortune Global 500, NASDAQ 100, and different organizations across parts of Europe, Asia, and America. WPP is stationed in London, UK, and England’s other one is Publicis Groupe which is in the same industry but is a French company and company besides this is also one of the largest and oldest communications and marketing companies in the world in terms of its revenue and is based in Paris. It is considered one of the four big companies in the world alongside the companies like Interpublic, WPP, and Omnicom.
The report is structured in the following steps. The major component of the report is the literature review as through this all the concepts have tried to be explained in the best manner so that the purpose and reasons behind all the components carried on in the report could be understood. The discussion is also made about the media industry in which both companies exist so that the readers may get knowledge about what services makeup up part of the media industry. The study then performed a detailed financial analysis of the companies and also other aspects have been explored like how they are fulfilling their CSR responsibilities towards society. Then the report progressed to the discussion of the SWOT analysis of the companies and towards the end, some conclusions are issued so that the maximum interest of the stakeholders can be protected (Analytical Network Process in the Framework of SWOT Analysis for Strategic Decision Making (Case Study: 2015).
This review would comprise different types of analysis that would be used in the study. The review would commence with a discussion of the uses of the SWOT analysis. CSR responsibilities and how the financial analysis is conducted and what are the main purposes which are solved by the financial analysis. The review has also highlighted the issue of optimum capital structure which has to be maintained by the companies as this has a huge potential to alter the profit-making capability of the companies. The main component of this is also focused on understanding the working and the descriptions made about the companies being studied.
SWOT examination is a strategy used to dismember the characteristics, weaknesses, openings, and risks of associations. It is a device that causes business managers to evaluate the characteristics, inadequacies, others, and what’s more, the risks related to any business wander (Kawai, 2017). A SWOT examination can empower them to get bits of information into the past and think about possible responses for existing or potential issues, either for a present business or for another meander. Specifically, SWOT is a central and genuine model that assesses what a business can and can’t do, and in addition its potential openings and threats. The procedure for the SWOT examination is to take the information from a characteristic examination and separate it into inward (characteristics and weaknesses) and outside issues (openings and perils). At the point when this is done, a SWOT examination makes sense of what may help the firm in accomplishing its objectives, and what obstacles must be survived or constrained to achieve the pined for results. The internal examination recognizes resources, capacities, focus abilities, and high grounds, using a useful method to manage review subsidize, organization, establishment, acquisition, age, movement, advancing, reputational factors, and progression. The inward examination is essential in recognizing the wellspring of high ground. It pinpoints the advantages that ought to be made with a particular true objective to remain forceful. The external examination recognizes and promotes openings and risks by looking at the various conditions of the industry. The contenders’ condition is an examination of the assets and elements of each opponent firm. The business condition is inspected through the five powers structure of aggressive contention, new contestants, providers, purchasers, and item substitution (Mande, Park, and Son, 2011). The outer condition is examined as far as political, financial, sociocultural, mechanical, biological, statistical, moral, and administrative ramifications. The goal of a SWOT examination is to utilize the information an association has about its surroundings and to figure out its methodology in a like manner.
Corporate social responsibility is how the stakeholders of a firm are treated most ethically and responsibly. This is the ethical behavior that is expected from businesses toward their stakeholders (Bhandari and Javakhadze, 2017). CSR is a wide topic and this includes many other areas such responsibilities aim to create higher living standards and at the same time, this intends to preserve the profitability of the corporation. Corporate social responsibility has become a perspective or a language that is extremely important to the stakeholders as people have increasingly held this view that people are expected to perform their duties to a great extent and they must do more than just make money and follow the legal rules. So such types of firms that are socially responsible try to make efforts to integrate the stakeholder’s concerns in their decisions, policies, and operations. Some other areas which are part of this CSR are corporate citizenship, sustainability, business ethics, and stakeholder management. All these terms are an integral part of CSR and they have acted as the centerpiece and a benchmark of the socially conscious business movement. Businesses of all sizes have come forward to assume CSR responsibilities. So overall it can be expected that this CSR is expected to have an upbeat future and a robust past.
The media industry mainly consists of the cable TV and broadcasting market, advertising, the publishing sector, and the entertainment and movies markets. The growth of this industry has been increased by the development in the BRIC countries and many emerging markets. The expansion of markets like Europe has slowed down which has increased the potential for Asian markets as they are now growing at stronger rates. Then besides this digital media is also playing an important role to play in the media industry’s growth but still, this has to face many problems along the way. As per research, the global media industry is expected to cross the figure of 2000 billion with US markets and Asia Pacific markets would account for over half of the value forecasts, the endeavor is specialty cross-examination stated figure (Publicisgroupe.com, 2018).
(Growth rate of the global media and entertainment market from 2009 to 2017, 2018)
The timeline has represented the values of the media market and that of global entertainment from the year 2011 to 2015 and also forecasts are being made. As per the forecast, the media industry would touch a figure of about 2.2 trillion US dollars by the year 2021.
Investigation means building up an important relationship in different money-related proclamations with each other such that a conclusion is drawn (Velez-Pareja, 2012). The term money-related examination is otherwise called examination and elucidation of money-related proclamations. It alludes to setting up a significant relationship between them. It hints at the positive points and shortcomings of the firm. Investigation of money-related explanations is an attempt to review the productivity and implementation of an endeavor. Accordingly, the investigation and understanding of budgetary proclamations are extremely basic to gauge the productivity, benefit, budgetary soundness, and prospects of the specialty units. Budgetary proclamations give finished data about resources, holds, liabilities, value, and costs along with the success and failure of the business. They are most certainly not sharply admissible to the individuals like lenders, investors, speculators, and so on. Along these lines, different strategies are utilized for examining and deciphering monetary explanations.
It is also referred to as firm cross-examination. This examination helps in analyzing and identifying the monetary potentials of a venture with budgetary characteristics of another comparable endeavor in that bookkeeping period. For instance, if organization D has earned a 15% benefit on capital contributed. This does not state whether it is sufficient or not. If we investigate further also, find that a comparable organization has earned 16% during the same period, at that point no one but we can conclude that organization B is better. In this manner, it transforms into an important examination.
Time examination arrangement
It is commonly known as intra-firm examination. By this technique, the connection between various substances of money-related explanation is set up, correlations are made, and come about acquired. The principle of examination might be:
Evaluation of the money-related explanations of various long periods of the same specialty unit.
Comparison of money-related explanation of an explicit year of various subject units.
Combination of cross and time investigation
This examination is expected to think about the commercial attributes of two or then again more endeavors for a categorized bookkeeping era. It is believable to broaden such an association through the year. This approach is best for breaking down monetary articulations. The examination and translation of monetary explanations are utilized to decide the monetary position. Various apparatuses or techniques or gadgets are utilized to contemplate the connection between monetary articulations.
Budgetary investigation alludes to an appraisal of the practicality, steadiness, and gainfulness of a business, sub-business, or venture (Attaoui and Poncet, 2015). It can in like manner be described as the route toward recognizing cash-related characteristics and inadequacies of the firm by fittingly setting up an association between the things of the money-related record and the advantage and adversity account. It is the examination of a business from a variety of perspectives remembering the true objective to fathom the more significant cash-related condition and choose how best to brace the business and it besides looks at parts of a business from its advantage. It is a procedure of examining the Financial Statements for assessing the connection between the things as unveiled in them.
Financial Statement Analysis includes a methodical and basic examination of the data contained in the Financial Statements to give viable and more significant data to its distinctive clients. It is an astoundingly extreme mechanical assembly for a variety of customers of money-related verbalizations, each one having various objectives in getting some answers concerning the financial status of the substance.
The second methodology for separating cash-related verbalizations is the use of various sorts of extents. You use extents to process the relative size of one number in association with another (Bloomberg.com, 2018). After figuring out an extent, one would then have the capacity to balance it with a comparable extent registered for a before period, or that relies upon an industry typical, to analyze whether the association is executing according to wants. In an average cash-related declaration examination, most extents will inside want, while an unobtrusive number will flag potential issues that will attract the thought of the analyst.
The strategies to be chosen for the examination rely on the conditions and the client’s needs. The client or the expert should utilize proper techniques to determine the expected data to satisfy their requirements.
The theme of ideal capital structure has been the subject of numerous examinations. It has been considered that successful firms were loather to depend upon commitment in their capital structure than less gainful ones. It has moreover been fought that associations with a high advancement rate have a high commitment to esteem extent. A firm boss who can perceive the perfect capital structure is remunerated by constraining an organization’s cost of store thusly boosting the organization’s pay. In case an affiliation’s capital structure impacts an organization’s execution, by then it is sensible to expect that the affiliation’s capital structure would impact the organization’s prosperity and its likelihood of failure to pay. From a loan boss’ point see, it is conceivable that the obligation to value proportion helps in understanding banks’ hazard administration systems and how banks decide the probability of default related to fiscally upset firms (Antoci, Dei, and Galeotti, 2009). To put it basically, the issue concerning the capital structure and the execution by the firm is imperative for the study by the specialists. The study has tried to examine the capital structure’s effect on corporate performance by using the data generated from about 167 Jordan companies. The results have shown that the capital structure of a company impacts the performance measures of the firm in terms of market measures and accounting. Then the level or percentage of short-term debts to that of total assets also causes a positive impact on the performance measure of the market. This paper conquers any hindrance in the applicable writing as state and provincial advancement shifts from one nation to another and this improvement could influence the legitimacy of the speculations as to the condition changes (Arnaboldi and Claeys, 2008). This examination attempted to fill the hole in this field by examining the impact of capital structure on corporate execution by taking Jordan as a case contemplation. Moreover, this paper utilized distinctive measures of capital structure, for example, short-term obligation, long haul obligation, and aggregate obligation to add up to resources by taking care of the end goal to examine the impact of the obligation structure on corporate execution. Researching the impact of capital structure on corporate execution utilizing business sector and bookkeeping measures could be profitable as it gives confirmation examination of stated value forecasts money markets are proficient or not.
Outer components are macroeconomic factors, for example, assess strategy, capital market, or inflation rate conditions. Interior scale factors are identified with individual firm attributes. The capital structure hypotheses have identified an extensive variety of inside factors conceivably influencing capital structure decisions. Mazur (2007) states that these variables also, their effect on the capital structure can be arranged as per the hypotheses, they allude to. Landa and Martinovičová (2010) divide the elements into two classes. The first classification is identified with the expenses of capital. The second class concerns the benefits structure and profitability and is essentially the subject of enthusiasm of the present investigation. The study has tried to find out the determinants of the structure of capital which has an impact on the capital structure in medium and large-sized firms in the automobile industry in the Check Republic. The study by making use of quantitative research has found that the various determinants of the capital structure appear to be the liquidity, size, profitability, and tangibility of the capital structure.
The consequences of the examination uncover that the character of the relationship is profoundly subject to the decision of financial use. Bigger organizations favor value finance and will probably utilize long-haul obligations to here now an obligation. Organizations with more substantial resources watch out for obligation financing. More fluid organizations are inclined toward value financing. More profitable organizations are inclined to raise the value and here-and-now obligations. Neither the request hypothesis nor the exchange-off hypothesis has been convincingly demonstrated.
The report pertains to the discussion of two companies that are operating in the Media industry in the world. The company WPP Plc is listed on London Stock Exchange and is also part of the FTSE 100 index besides that, it is also listed on NASDAQ. The company commenced its operations way back in 1971 as a manufacturer of wire shopping baskets. The founder of the company retired only in April 2018 after serving the company for more than 33 years and the company owns many numbers of public relations, advertising, and media networks, public relations which include Grey, Ogilvy and Mather, Hill and Knowlton, and much more. The company also did many acquisitions during its tenure and these included acquiring AKQA for $540 US million, a healthcare agency named ABS Creative, and many of the latest acquisition of the company is of acquiring a major stake in the company Esswhich is a global digital agency. The Publicis group on the other hand is organized into four hubs of solutions so that they can provide better integration and connectivity to the people. They are as follows:
The company was started in 1926 by Marcel Bleustein and it possesses many full-service groups of advertising which undertake many activities of media like television, online communications, cinema, magazines, television, and many more (Publicisgroupe.com, 2018). In the year 2011, the company Publicis was also named to make itself the third-largest marketing group after it defeated Interpublic by increasing its revenues. It was also announced that Publicis Groupe and Omnicon Group would merge and would form Publicis Omnicon Group but this deal didn’t come across and didn’t get executed. The group its operations have been scattered to about 202 cities in about 105 countries. The company also introduced some changes in the year 2015 in which they divided the concern into four divisions and this was done exclusively to provide better client services to the people. Some of the acquisitions which were done by the Group include the acquisition of Sapient Corporation and formed Publicis Sapient. The report would concentrate on analyzing the financial position of both companies in detail to help readers to get an insight about that into which direction the financial progress of the companies is progressing. Publicis is the third-largest company in communications in the world. Through the powerful alchemy of technology and creativity, we are driving business transformation across the value chain. They have reinvented themselves for the connected age by switching from a holding company to a connecting group (Ft.com, 2018). They have been able to deliver the power of One as they remain to bind each other by the one common purpose and also this possesses great character.
The company Publicis is also planning to tap heavily into three strategic changers of the game by the year 2020 and this would bring the one-to-one consumer engagement at scale to their clients, offering People cloud which would help it to identify the growth level of the clients, and consulting and technology of the company would be driven by the transformations in the business so that maximum customer engagement could be achieved (Bloomberg.com, 2018).
Even in the media industry, spending has drastically shifted from traditional to digital products at a fast pace. It is also believed that by the year 2019 digital spending made by people would constitute about 50% of total spending on media. Digital video spending’s would increase the amount which is spent on physical spending by the year 2018 and digital which would consist of mobile and internet advertising would also become the largest contributor in the year 2017 such kind of rapidly increased digital shift has been driven increasingly by the increased use of mobile telephony, connected consumers and more adoption of the mobile broadband (Growth rate of the global media and entertainment market from 2009 to 2017, 2018). This is bound to increase the digital share of the wallets of media and would also have a structural impact on subsectors of media and overall would impact the entire business model. In the next five, the mobile and the fixed broadband bases of subscribers would increase and many new subscribers of broadband would shift from print to digital spaces this would also reduce the print markets to a great extent. The growth in the universe of broadband would be moderate in the next five years and this implied that less incremental impact would be found in past.
In the next chapter the financial analysis of the two companies operating in the media industry is discussed (Chen and Kieschnick, 2018). The analysis is done by taking the aid of various ratios which includes liquidity, profitability, leverage, and efficiency is being studied, and also the various types of vertical and horizontal analysis are being taken not a consideration. The strategies of CSR have also been considered in the following analysis.
In this part, the study of the two companies, WPP, and Publicis Group, will be conducted and this all is done using the annual reports of the companies for the years 2016 and 2017. This has also been done by taking into account the trading news and the trading data to evaluate the performance and financial position of the companies. The data has tried to be presented most comprehensively so that the best analysis can be made. For the comparisons over the last five years, the data of the years.
The profitability of any company can be checked by making use of many ratios which may include the net profit ratio, gross profit ratio, return on assets, or return on equity.
The gross profit ratio tells about the ratio of the gross profit or operating profit divided by the sales of the company. The information on the gross profit ratios of both companies for the last two years is calculated as follows:
The figures are telling that the gross margins for both the companies Publicis and WPP have remained almost stable and the averages of the figures or data from the year 2013 to 2017 have come out to be 15.27% and 14.8% respectively. The revenues which have been earned by the companies have almost remained the same and there has been a slight increase in the case of WPP. The gross profits ratios can also be seen through the graphic reorientation of the figures and this would tell about the level or the direction in which the figures of both the companies are moving.
Figure 1: Gross profits of two companies for the last five years
The figure is indicating that in the year 2017 the gross profit of both companies almost stabilized but, WPP was able to increase its operating merging levels in the year 2015 by achieving economies of scale by having more revenue figures.
Another parameter for measuring the profitability of the companies is the net profit ratio. The ratio is calculated by dividing the net profits by the sales achieved by the companies. The net profits are arrived at after deducting the amount of taxes and interest from the gross profits earned by the companies. The figures for the net profits of both companies are as follows:
The net profitability of Publicis has seen a major change in the last five years especially since the company recorded a loss in the year 2016. The net profitability position of WPP on other hand has almost remained constant. The company suffered these losses as it had to lose many of its US accounts due to the presence of economic and political instability in the market. But the company Publicis has tried to pick up again and it has been able to deal with the trouble times and in the year 2017 has been able to achieve a net profit percentage of 8.9%. While WPP’s stable net profits are indicating the consistency of the operations and consistency in the company. http://www.rfcmascarenhas.com/rfcm/images/RAYMOND_FC_MASCARENHAS.jpg
Figure 2: Net profits of two companies for the last five years
The graph is also trying to explain the same picture and this is somehow also indicating the instability in the performance of Publicis.
The return on the capital employed highlights the return that a company would earn on the capital invested in the company. This ratio is of vital importance to the shareholders as they want to know how much return they would get when they would invest in a company. The return on capital employed is calculated by dividing the net profits of the company by the capital employees in the company. In this case, the return would be considered only on the equity invested in the company.
Figure 3: Return on equity of two companies for the last five years
Figure 3 tells about the return on equity which is earned on the share capital invested in the companies and this is calculated by the stated formula. This is quite evident from the graph that there is a huge degree of consistency in the operations and the returns which have been generated by WPP and the situation seems to be unpredictable in the case of Publicis. Overall also the company WPP is making use of a high amount of equity but the stable returns of the company are increasing the ability of the company to attract more investors towards the company. The returns which have been generated by Publicis, especially in the last two years seem to wither away from the interest in investing in the company (Financials.morningstar.com, 2018).
Return on assets is another indicator that indicates the return which is earned by the companies on the assets which are invested in the company. This is calculated by dividing the net profits by the assets invested in the company and tells about the profits generated over the assets which are used in the business.
Figure 4: Return of two companies for the last five years
Figure 4 demonstrates the rate of return which is earned by the companies on the assets which are being invested in the company. Again in this context, it is seen that the rate of return which is earned by the company WPP has shown signs of consistency and they have indicated that the company has provided stable returns on the assets invested in the company. Whereas the situation is not the same with Publicis. It is a risky source of investment for investors.
Solvency is a concern for a business as this tells about the ability of the business to pay off its debts when they become due especially those which become due in the short-term time frame. The business has to maintain these ratios as the inability of the anatine of sufficient balances may affect the profitability capability of the companies. Some of the ratios which can be used to analyze this position of the companies are the acid test ratio, current ratio, and cash ratio. This tells how many times the existing assets can pay to or meet the short-term liabilities. The difference between the current ratio and the acid ratio is the inventory component as in the acid test ratio the inventories are not included while calculating the ratios. Generally, the current ratio of the companies must be greater than 1 and this ratio tells that the company has maintained their current assets in a sufficient range so that they would be able to meet their current liabilities.
Figure 5: Liquidity ratios of two companies for the last five years
Figure 5 tells at a glance about the liquidity position of both companies. Only in the year 2013 the current and the acid ratio of the company Publicis was less and this was maintained at about .85 but over the last three years, both the companies have tried to keep their current ratio and the acid ratios within the range. But still, in the case of both companies the ratios are less than 1 and the companies must try their best to improve this position and bring them at least near 1 so that they face no problem when they have to meet with any of their short-term liabilities. Overall it is found that the current ratios and the acid ratios of both companies are kept within the safe range.
The efficiency ratios as the name indicate tell about the efficiency with which the assets can be used by the companies and this efficiency tells about that whether the companies are making the best use of the assets which are used in the business. Many assets are used in the business but the efficiency ratios are generally calculated for the assets and the receivables being used by the businesses. The better the ratios the beer it tells about the performance of the companies. They have been calculated by dividing the sales by the respective assets and this has given the total turnover of that assets.
Figure 6: Receivables turnover of two companies for the last five years
Figure 6 has told about the turnover which is received from the receivables used for the business. The ratio is better for WPP and this is less for Publicis comparatively. Though there is no major change in the figures and the growth rate is able but still, this tells that better performance is seen at WPP.
Figure7: Assets turnover of two companies for the last five years
Figure 7 tells about the efficiency with which assets are used by the companies. The graph represents that the assets are being converted to sales by WPP in a better way when it is studied in comparison with its competitor in the industry. The company Publicis must learn ways so that it is also able to make improvements to its assets turnover ratio (Harvey, 2004).
The dividend yield ratio of the companies is being studied with the respect to the industry so that comprehension can be obtained that how the company is performing in contrast to the average of the entire industry. The five-year average of the dividend yield of the company WPP has come to be around 3.14 and that of Publicis is 2.23 and the industry average is .58. Overall both the companies have performed very well as compared to the market. The dividend yield is calculated by dividing the dividends given by the company by the market price of the share of the company. The dividend growth rate of both companies stands at 16.05 and 7.23 respectively and this growth rate is again much higher than the growth rate of dividends in the industry. But still, if we compare the performance of both the companies with each other then the company WPP has excelled the Publicis in this area also.
The price-to-earnings ratio is arrived at by dividing the market price of the share by the earnings which are made per share from the company. The P/E ratios of both companies for the last five years are 18.87 for Publicis and 19.82 for WPP. The companies have provided their shareholders to earn a reasonable rate of return on the investment made by them.
The decision of the capital structure is very crucial for the companies and the companies are also required to keep this structure within an optimum range as this helps them to increase their profitability in the long run. Two ratios have been considered for understanding the debts used by the companies. The financial leverage of the companies is calculated by dividing the debt components in the company by the total capital and the debt-to-equity ratio has also been used in which debt is divided by the equity used in the company.
Figure 8: Financial leverage of two companies for the last five years
It has told about the leverage which is being used by the companies. This graph is telling that almost both companies have maintained the same amount of debt component in their capital structure which means that not much impact would be caused to the profitability positions of both companies.
Figure 9: Debt equity of two companies for the last five years
This has helped in explaining the components of debt used against the equity used by the companies. More debt is being used by WPP and this is more than 60% and the debt component is less than 50% in the case of Publicis. The company WPP must keep a watch over the debt used by it and must make sure that it doesn’t increase too much as the high debt has many times a negative impact on the profitability position of the companies (Paligorova and Xu, 2012). The capital structure of both companies in the existing situation seems to be under control.
The study of share prices of the two companies is being studied for the last 5 years from July 2014 to July 2018. The graph stated below represents the comparative movements of the share prices of both companies.
Figure 10: Stock Prices of two companies for the last five years
In the last 2 years, the performance of the stock of Publicis has decreased and the main problem emerged in the year 2016 when the company incurred losses. The stock of WPP on the other hand has increased but the stocks of WPP also have shown a dip in the year 2018. The volatility in the share prices tells about the risk attached to the investment made in the shares. The volatility in the share prices of Publicis is less and this is indicated by the Beta of Publicis group which is stated at .80. Beta is an important measure to guide the riskiness of a stock. The Beta on the other hand of WPP is 1.18 which tells that the movements in the share prices have been more than the movement of the market (Editorial, 2018). So there is a degree of risk attached to the shares of WPP. This analysis suggests that at present the share prices of WPP are more volatile as compared to the stocks of Publicis. They suit the ability of the investors who can take more risk.
Figure 11: Assets turnover of two companies for the last year
This graph presents the movements in the share prices of both companies in the last year. The graphical movement of both is almost the same and both stocks are showing signs of recovery and their stock prices are witnessing an upward trend (Editorial, 2018).
Figure 12 has shown the main sources of cash generation for both companies relating to operating, financing, and investing activities. The comparison is being studied based on the last two years. These tell that in the year 2017 more investing activities have been done by the Publicis Groupe and fewer investments have been done by WPP in the year 2017. Even the operating cash flows were also higher for this Publicis Groupe in the year 2017 as compared to the year 2016.
Figure 12: Cash flows of two companies for the last five years
Figure 13 Cash flows of two companies for the last two years
Cash flows to net sales
Figure 14 Cash ratio to net sales of two companies for the last two years
This figure tells about the cash flows from operations to the net sales. The cash flows from operations as compared to the sales in the case of Publicis are showing positive signs in the year 2017 as its improving and a downfall trend is being noticed in the case of WPP. Overall the companies have distinct cash flows and the variations are caused by the operating cash flows in the various years to them.
The most vital ingredient for any business is profitability. The main factor which attracts the attention of investors is how much earning it can make. Figure 15 illustrates the different types of income that are earned by the companies from the total returns. The gross profit of both companies is less than 40% but still, it seems that the company WPP has better management of its operations. This is seen by considering the net profit ratio of the companies as even after paying all the taxes the net profits of WPP are better as compared to Publicis. This indicates its better operational organization. The ROE and ROA of Publicis are also less than WPP.
Figure 15: Returns of two companies for the last five years
The components of the non-current assets are shown in figure 16. The main components of the non-current assets are the property, intangibles, and other long-term assets.
Figure 16 Non-current assets of two companies for the last five years
The value of intangibles increased for Publicis in the year 2015 in the total current assets but at present, the percentage of the assets in the PP case has almost remained constant over the last years. The main component in both companies is played by the value of intangibles and the value of property among all is the lowest.
Figure 17: Current assets of two companies for the last five years
This represents the current asset composition of both companies over the last five years. In the case of WPP, the ratio of the cash and the short-term investments maintained are high as they almost constitute about 10% of the current assets. The other assets are also about 25% in the case of WPP whereas they are less than 5% in the case of Publicis. The accounts receivables are highest in the case of Publicis and they have almost remained the same.
Figure 18: Current liabilities of two companies for the last five years
The figures depict the components of the current liabilities of both companies. In Publicis, the least component is of the other short-term liabilities and these are high in the case of WPP. In WPP the accounts receivables are much high and comprise about 60% of the current liabilities whereas this is just 50% in the case of Publicis in the year 2017.
CSR strategies are becoming very famous these days as the say of various kinds of shareholders available in the market has become important. All the concerns must have to consider the environmental and social impacts of the business o that they keep adding profitability to the companies so that the support of the customers can be taken care of and also better corporate and social values could be achieved (Bhandari and Javakhadze, 2017). Both companies have been very active in this area and they have also stated in their annual reports to what extent have they tried to reduce the carbon intensity in the market. They have also made many social investments as they support many charities and social causes through donations and volunteering. The social investments made but WPP are stated by it in figure 19 and their support helps various charities and NGOs so that they can carry out work to improve the education and health of others. Even at Publicis, the involvement of women is proof that the company is involved in CSR. They are also working in having a positive impact on society as a whole. They aim to be a responsible and sustainable business that takes care of its employees, and customers and also try to work so that they cause minimal harm to the environment with its main focus on the environment, propel, community and customers. The CSR framework is stated in a detailed manner in the case of WPP but still, both companies save come forward to support the national; local, and international communities (Harjoto, 2017). The employees play a vital role in making the company successful so they have made a framework so that they can support the emotional, physical, financial, and social issues of the employees. The companies are into philanthropic contributions so that they leave a positive impact.
The next chapter would explain the financial position of the companies which includes the financial statements, financial ratios, and the stock market analysis of the companies.
The study has indicated that the performance of WPP is much better than that of its competitor Publicis especially when the company Publicis suffered losses in the year 2016. Maximum ratios are supporting that the company WPP has performed better than the other company. Even the profitability of WPP is better structured and is higher. The liquidity ratios in both companies are less than 1 but are almost maintained in the same proportion. The two efficiency indices are showing that the company WPP is making use of its assets in a better way. The turnover ratio of Publicis is also good but that of WPP is so much higher than theirs. The financial leverage which is used by both companies is also almost the same. The company WPP is, however, showing its more dependency upon the usage of debt in their capital structure, and this way they are making the operations of the company riskier. This kind of strategy may not be good in the long run as this would dilute the ownership percentage of the equity shareholders and also they would have to pay the high interest attached to the debts. The companies, however, seem to have enough assets to pay their debts. The share price movement, however, has shown that the share price movements of WPP are much more than the other company Publicis. In other words, it can be said that less risk is attached to investing in the stocks of the company. The performance of the stock so both companies have fallen in the last year and they are showing some signs of making improvements.
The next area would throw some light on the SWOT analysis of both companies and also finally a conclusion is being made about how the companies would have an impact on the interest of various stakeholders.
Based on the research, SWOT analysis for both companies have been conducted and they have been shown in a tabular manner.
|1. Solid dispersion everywhere throughout the world
2. 3000 workplaces in around 110 nations
3. Solid workforce of around 1,60,000+ representatives
4. High-quality work for corporates
5. High number of mergers and acquisitions for development
6. Solid market notoriety and critical tasks
|1. Increased market presence
Good business model
2. Solid nearness in Digital and Interactive Communication
3. High notoriety for quality work to corporates
4. High number of mergers and acquisitions for development
5. Market notoriety solid with an assorted offering for customers
|1. Piece of the overall industry is constrained because of numerous contenders
2. Geographic entrance is likewise constrained
|1Geographically it is very less common.
2Market share is very limited.
|1. Online publicizing is another wellspring of income
2. Adapting new techniques for statistical surveying gets more incomes
3. Decentralised basic leadership is useful as neighborhood showcasing needs differ starting with one district and then onto the next
The main purpose of the report is to study the performance of both the companies which are operating in the media industry, WPP, and Publicis so that the determination of the company for making a better investment can be done. The analysis has been done based on the comparative evaluation of the performance, financial position, valuations, vertical and horizontal analysis, and also a SWOT analysis has been employed to make the analysis. Many types of financial ratios have been used in the study to help the readers to get an insight into the performance of the stocks and some of them have been related to profitability(net profits ratio, gross profits ratio, return on asset, return on equity), efficiency ratios( receivables and asset turnover, liquidity(acid test ratios and current ratios), solvency ratios(leverage ratio, debt to equity ratios) and the various shareholder ratios( price to earnings ratios, dividend yield ) have been used. A deep analysis of the financial statements has been done using which includes the trend, horizontal and vertical analysis was conducted and also the study of the stock market for both the companies was considered. Then the study results have been concluded by the discussion of the findings and also with the support of the SWOT analysis.
After conducting the discussion and the study it can be ascertained that both companies have their pros and cons. But overall more pros are attached to making investments in the company WPP as a maximum of the financial ratios of the companies are indicating that the performance of WPP is doing better not only in the current year but also in the last five years. The companies also seem to have different positions about the components of their current assets and liabilities. The company Publicis suffered a huge loss in the year 2016 but the company was able to handle the situation and again recorded high profits in the year 2017. This kind of graph is very difficult to interpret as at this time the company didn’t provide something different to customers so that it could sustain its profit position in the market. The current payables of WPP have almost remained the same but that of Publicis has increased to a great extent also that the acid and the current ratio of the company is less than 1 so this may put the company in the unstable bracket as compared to their competitors and this is going to put huge pressure on the company as they would have to meet with these current liabilities in the short-term period. The company must learn to manage the creditors of the company and it can also be expected that as the company works very closely with the retailer so the situation may get better for it if it would be able to generate more sales in the future.
WPP is a more profitable company than Publicis and this is evident from the analysis of the profit and loss statement and the ratio analysis of both companies this tells about the efficiency of the operation of the company and tells about more profits for the investors and shareholders. The shares prices of Publicis are less than that of WPP but at the same time, its Beta is high which is a clear indicator of the high risk attached to investing in the company. But overall analysis of the last five years indicates that investments can be made in the stock of Publicis. The financial statement analysis indicates that in the future the stock prices of the company WPP would increase so investors which are ready to take a little bit of risk based on sound financial statements can decide to invest in WPP company. The companies have increased the payments of dividends and the rankings per share in these the last years and the increase is much more than the industry averages. They have also employed almost the same amount of leverage in their capital structure but WPP is hinting that towards the end of the year 2017 it has increased the debt component. The company is but still has maintained the optimum amount of capital structure. The company may be planning to put itself in a risk situation in which it would be required to make more repayments and this also has the power or affect the future earnings in the future of the company. Publicis seems to be a less desirable stock for investors as the net profits of the company have shown inconsistent performance. The main motive of any shareholder is to earn profits after investing in the company which seems to be uncertain in the case of Publicis. Overall both companies are in a good position and have maintained optimum debt commonest, liquidity ratios but the major difference that can be found is in the profitability ratios of the companies. There is also a growth difference in the non-current assets of the companies as in WPP the major component of this is that of intangibles. So the stock of Publicis would suit the needs of short-term investors who are looking for a return in the short-term period with less risk. At present they have Bet less than 1. For those who can take a little bit and are planning to invest for a long period with more returns then they must go in for buying the stock of WPP as the company has in the past also provided their investors with a reasonable rate of return.
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