ANALYTICAL REVIEW OF TESWAY PLC FOR THE YEAR 2001 TO 2002In this paper, the Tesway plc’s financial performance for the year 2001 to 2002 was analytically reviewed. Comprehensive auditing process was used to test the horizontal and vertical relationships among the various accounts and identify the material changes. That is, significant ratios and trends for the unusual changes and questionable items were analyzed. These ratios were used to judge the comparative performance of the Tesway Group and the Tesway Company in 2001 and 2002 in terms of profitability, asset utilization, liquidity and debt utilization.
The relative success or failure of this company was evaluated through these financial ratios. The financial statements of the Tesway plc are the main materials that will serve as the springboard into a comprehensive financial analysis of the Tesway Group and the Tesway Company. The results of the analysis are demonstrated and explained fully. 1. Tesway’s Rate of Return on Assets =Net Income / Total AssetsGroupCompanyYear 20022001% Increase/ DecreaseYear 20022001% Increase/ DecreaseNet Income58.00 188.00 -69.15%153.00 350.00 -56.29%Total Assets12747.00 11618.00 9.72%9801.00 9670.00 1.35%Rate of Return on total assets0.46%1.62% 1.56%3.62% Analysis: The rate of return concept was employed to evaluate the earning power of the Tesway Group and the Company.
The earning power of the Group's total assets is only 0.46% during the year 2002. From a rate of return of 1.62% in 2001, the earning power of Tesway Group was further reduced by 1.16%. It was affected by the significant decrease (69.15%) of the Group's income earnings and minimal increase (9.72%) of the asset base. This decrease illustrates that there has been a less effective use of company assets in 2002 compared to 2001.
This reflects that the Tesway plc has not been successful at earning income on its assets and investments. That is, the Tesway plc’s assets are not effectively used to generate profit. Comparatively, the earning performance of the Company is more discouraging than the Group. It attained only 1.56% rate of return on total assets in 2002, but the decrease in its performance (2.06%) from 2001 is much higher than the Tesway Group. Analysis also showed a significant decrease in net income during the year 2002.2. Tesway’s Current RatioGroup CompanyYear 20022001% Increase/ DecreaseYear 20022001% Increase/ Decrease Current Assets3820290131.68%5613202-82.48% Current Liabilities48105036-4.49%5355280890.71% Current Ratio0.790.58 0.101.14 Analysis: The current ratios of Tesway Group and the Company are both less than 1 in year 2002.
The figures showed signs that both business units are already in trouble or might be facing trouble meeting their obligations because of their liquidity problems on both business units. Failure to meet any financial obligations will endanger the position of the Tesway plc. The Company is more liquid towards the end of 2001 than during the year 2002. From a good showing in 2001, the current ratio of the Company significantly decreased from 1.14 in year 2001 to just 0.10 in year 2000.
It only means that every pound of liability is supported only by 0.30 pound. This decrease can be linked to low management ability, depress economic conditions for that year such as the foreign exchange decline which has increased cash outlays on costs. There has also been a less efficient cash flow. 3. Tesway’s Rate of Return on Shareholders' EquityGroupCompanyYear 20022001% Increase/ DecreaseYear 20022001% Increase/ Decrease Net Income58 188 -69.15%153 350 -56.29% Shareholders' Equity38864027-3.50%363136240.19% Rate of Return on Equity1.49%4.67% 4.21%9.66% Analysis: During the year 2002, the rate of return on shareholders' equity of the company (4.21%) is better than the returns realized by the Tesway Group during the same period (1.49%).
However, the rate of returns of both the Group and the Company showed decreasing trend in net income realized respectively by the Group (69.15% decrease) and the Company (56.29% decrease). This means that the Tesway Group and the Company has decreased its capacity to earn profit on the capital owned by investors.
The reason for the decrease on the rate of return on shareholders funds is due to the decrease in Net profit.