Hira Javaid

 Financial Management Executive summary: The report applies performance evaluation of fund Management Company listed in London Stock Exchange. It means to evaluate how well the company performs. For this purpose, the Jupiter Fund management company plc has taken to analyse the financial performance based on the annual report of the year 2019. For analysing trend, financial ratios are calculated for 2018 and 2019 simultaneously to measure Company’s performance and its trend over the year. The Jupiter fund management plc with M&G fund management plc. performance has been compared through the examination of their financial ratio. The report consists of the specialized content and the basic objective of the report. The focus is on the results obtained from the financial ratio and horizontal and vertical analysis that shows a decline in revenue and profit as compared to the previous year. The company share price analysis also shows an increasing trend that reflects the company’s position in the market. Table of Contents Executive summary:1 Introduction:4 Profile Description:4 Background:4 Product and services:4 Position in the industry:5 Analysis of recent financial statements5 Financial ratio analysis and trend:5 Liquidity ratio5 Leverage Ratio5 Profitability Ratio6 Activity Ratio6 Market Ratio7 Cash Flows Ratio7 Interpretation of financial ratio:7 Comparison with M&G plc:11 Horizontal analysis of Consolidated Income Statement:13 1-year stock price Chart of Jupiter fund Management PLC14 Evaluation:15 Industry and Competitor Comparison:16 Issues to be considered:17 Conclusion & Recommendations:17 References:19 Introduction: The report is about the financial analysis of Jupiter Fund Management plc that reflects the company’s strength and performance in 2019. The document highlights the product and services provided by the company and the position in the industry. All the analyses based on the financial ratios determine from the data obtained from the company’s annual report. This report includes vertical and horizontal analysis. The paper also shows the stock price trend with a relevant benchmark. The Company manages various investment trusts, unit trusts, and overseas funds. These products and services are offered by the company through different organisations channel. After all the discussion the recommendation regarding sell and purchase will also present. Background: Jupiter Fund Management plc initially established in 1985 as a specialist investment boutique and sold by John Duffield to a German bank named Commerzbank in 1995. From 2000 to 2007, it was headed by two joint groups. Jupiter bought itself out from Commerzbank in a management buyout (MBO) in June 2007. In June 2010; Jupiter listed on the London stock exchange and is a constituent of the FTSE 250 Index.[ CITATION ann19 \l 1033 ] Product and services: Jupiters fund management (JFM) company performs as a holding company under the group of Jupiter Investment Management Group Limited (JIMG). The primary focus of the company is to manage across the range of equity investment funds on behalf of retail, institutional, and private client including the UK and offshore mutual funds, segregated mandates, and investment trust. The company offers to manage several unit trust, investment trust, and overseas funds. The Company manages various investment trusts, unit trusts, and overseas funds. These products and services are offered by the company through different organisations channel. The company provides online services to guide advisors and individuals for the investment of selected funds and the facility of accessing consolidated reporting and analytic tools.[ CITATION BLB17 \l 1033 ] Position in the industry: The organisation as a group is in one of the fund management companies in the United Kingdom as of November 2019, by the value of retail funds management in billion GBP. Jupiter stands in the industry at seventh position with a retail fund value of 28.35 billion.[CITATION ann19 \l 1033 ] Literature review methodology: Data collection: Main data for our thesis are the annual financial reports on Jupiter fund management company and M&G fund Management Company 2019. The four main financial statements are used for ratio analysis of pharmaceutical company such as; balance sheets, an income statement, cash flow statement; statement of shareholder’s equity. Data Analysis: The model used for data analysis is as under: Sources of corporate financing: The principal source of corporate financing based on retained earnings, debt capital, and equity capital. The company uses retain earnings to expand their business operation or distribute dividends to shareholders. The company borrowing involve lease liabilities, trade and othe payable and financial liabilities of FVTPL and majority of them are repayable within one year or on demand. Capital structure: The Jupiter’s objectives when managing its capital and funding structure are to safeguard the its ability to continue as a going concern, maintain appropriate financial resources, maximise shareholder value, maintain an optimal capital structure to decrease the cost of capital and to meet working capital requirements. The annual report for the year 2019 shows company’s equity stand on 16.9 million which include share capital, own share reserve and other reserve. Retained earnings and foreign currency translation reserve were 594.8 m Analysis of recent financial statements Financial ratio and trend analysis: Type Formula- Liquidity ratio Current Ratio =2.138 = 2.137 Asset test Ratio =1.2 = 0.75 Working capital ratio Current Asset - Current liabilities- =- =272.5 Leverage Ratio Debt-equity ratio = 0.52 =0.41 A fixed asset to equity ratio =0.67 =0.58 Profitability Ratio Net profit margin  = 32.39%  = 34.65% Return on asset  =13.22%  = 16.26% Sales to fix asset  = 91.15%  = 112.30% Gross Profit margin  = 40.33%  =43.44% Activity Ratio Total asset turnover = 0.45 = 0.52 Fixed asset turnover = 1.01 = 1.14 Market Ratio Earnings per share Basic diluted =27.5 =26.8 =31.8 =31.1 Cash Flows Ratio Operating CF per Share = 0.41 = 0.47 Operating cash flow/Debt =58.04% 83.58% Interpretation of financial ratio: Current ratio: Current ratio depicts the relationship between the current asset and current liabilities.[ CITATION AHu19 \l 1033 ] The company’s ability to pay back its current liabilities by utilizing its current asset is recognised with the current ratio. The current ratio of JFM plc was 2.137 times that slightly increase in 2019. The figures shows that the company is performing well. Asset test Ratio: The Company’s capacity to repay its current liability in a short period is measured through an asset test ratio[ CITATION MSc19 \l 1033 ]. The asset test ratio of Jupiter’s fund management plc was 0.75 in 2018 that increase in 2019 to 1.2 that has worth full for the company. Working capital: The term working capital is used for the amount obtained from the difference between the current asset and current liabilities that are used for routine operation.[ CITATION GAA16 \l 1033 ] In 2018 the company’s financial records show 272.5 working capital while in 2019 it was increased to 273. This minor increase is usual but the company should take necessary measures to use the appropriate level of current asset. Debt - Equity Ratio: This ratio demonstrates the relationship between long term debt and total equity of the organisation[ CITATION DKu19 \l 1033 ]. The increase in the ratio is not favourable in the account of the company’s growth as in 2019 it is 0.52 which was lower than the ratio in 2018. Fixed Asset to Equity Ratio: The ratio displays the relationship between fixed assets of the company with the equity detained by the company[ CITATION BHL18 \l 1033 ]. The fixed asset to equity ratio is 0.67 time of the equity in 2019 while in 2018 it was 0.58 times from the equity Net profit margin: The ratio interprets the net profit as a percentage of net sales.[ CITATION DKu18 \l 1033 ] In 2018, the ratio was 34.65 that went to 32.39 there is a visible decline that requires improvement, as a higher ratio shows the higher market position of the company. Return on the asset: The relation between net profit and total assets is to figure out through this ratio. [CITATION SAmam \t \l 1033 ]Return on assets was 16.26 that was decreased to 13,22 in 2019 which is not in favour of the company. Sales to fix asset: The table depicts a decline in the ratio, which was 91.15 shifts down to 112.30 in 2019. This decline shows that the company is not utilizing properly its fix asset to earn interest. To improve the efficiency of the organisation it must be improved. Gross Profit margin: The ratio shows the gross profit as a percentage of the net sale.[ CITATION SRM18 \l 1033 ] In 2018 the ratio was 43.44 that is decrease in 40.33 that indicates reduce in revenue Total asset turnover: The total asset turnover uses to analyse the utilization of the total asset.[CITATION SAm17 \t \l 1033 ] The analyses of the financial records determines that the company is not utilizing its total asset for the earning interest as in 2019 the ratio show decline to 0.45 which was 0.52 in 2018. Earnings per share: The ratio determines how many pounds the company earns per share.[ CITATION PKu17 \l 1033 ] The company has a basic and diluted share that shows the ratio of 27.5% and 26% respectively and lower than the previous year ratio Operating CF per Share: The ratio shows the relation between incoming and outflowing through the operation of the company.[ CITATION MAn16 \l 1033 ] A positive balance of the ratio will be favourable for the company as the higher the operating cash flow, the stronger the organisation. The ratio in 2019 shows the operating CF is much lesser than in 2018 that means less divided is expected in 2019. Operating cash flow/Debt: The relationship between operating cash flow with the debt taken is an analysis by the organisation.[ CITATION CFl16 \l 1033 ] In 2019 the operating cash flow is generated through operating of the company is positive. This shows that if JUM plans to dedicate all the cash earned from operating activities toward repaying its debt, it would able to pay off around 58% of the total. Comparison with M&G plc: The following table shows the comparative analysis of the JUM plc and M&G plc Financial Ratio JUM plc. M&G plc. Current Raito- Debt-equity ratio- Net profit margin- Return on asset- Total asset turnover 0.45 0.15 Earnings per share •Basic •diluted 27.5 26.8 0.41 0.41 [CITATION WSJ \l 1033 ] In comparison of current ratio analysis M&G is performing well The Debt – equity ratio of M&G plc is higher than our principal company. A high debt/equity ratio is often associated with high risk; it means that a company has been aggressive in financing its growth with debt. However, the D/E ratio is difficult to compare across industry groups where ideal amounts of debt will vary. The JUM plc and M&G plc are in the same sector with profit margins of 32.39 and 3.25 respectively. It conclude that JUM converted around 32% of its revenues into profits, while M&G only converted 3.25.There is an enormous difference in Earning per share of both the companies with respect of their basic and diluted share. The JUM earn around £26.8 to £27.5 against per share while M&G earns only £0.41 against each share. Vertical Analysis of Income Statement: (in millions) Year ended 31 December Year ended 31st December 2019 £m 2018 £m - Revenue- 100% 100% Fee and commission expenses (40.2) (47.8) -9.58% -10.38% Net revenue- 90.41% 89.46% Administrative expenses (228.5) (225.1) -54.49% -48.88% Other gains/(losses) 4.1 (6.5) 0.98% -1.41% Amortisation of intangible assets (1.8) (1.8) -0.43% -0.43% Operating profit- 36.46% 38.93% Finance income 0.1 0.1 0.02% 0.02% Finance costs (0.2) (0.2) -0.047% -0.047% Profit before taxation 151.0 179.2 36.01% 38.91% Income tax expense (28.2) (36.2) -6.72% -7.86%5 Profit for the year - 29.28% 31.05% The vertical analysis shows that in the year the company generates 29.28% profit from its revenue although it was 31.05% in 2018. The fee and commission expense is also reduced which reflect in the form of acceleration in net revenue instead of decrease. Administration cost is also higher than the previous year. It's mean the amount utilising for the administrative cost is failed to generate higher revenue. The contributing factor that affects the profit is 6% increase in administrative cost in the year. There is also a reduction in the income tax expenses but the percentage of profit for the year 29.28% to the revenue which was 31.05% to revenue in 2018 Horizontal analysis of Consolidated Income Statement: (in millions) Year ended 31 December Year ended 31st December 2019 £m 2018 £m 2019 % 2018 Revenue- -8.94% N/A Fee and commission expenses (40.2) (47.8) -15.9% N/A Net revenue- -8.14% N/A Administrative expenses (228.5) (225.1) 1.51% N/A Other gains/(losses) 4.1 (6.5) 158% N/A Amortisation of intangible assets (1.8) (1.8) 0% N/A Operating profit- -14.72% N/A Finance income 0.1 0.1 0% N/A Finance costs (0.2) (0.2) 0% N/A Profit before taxation - -15.64% N/A Income tax expense (28.2) (36.2) -22.09% N/A Profit for the year - -14.12% N/A The horizontal analysis shows the decline in profit for the year is 14.12%. Consider these two factors and their contribution to lower profit The decline in revenue of around 9% The increase in administrative cost is 1.52% The decline in revenue has a great impact on the profit for the year and it shows that the rise in administrative cost is not contributing to generating revenue. 1-year stock price Chart of Jupiter fund Management PLC The share price chart shows an increasing trend in the first six months of the year 2019 but starts decreasing from August to October and again the trend moves upward at the share price. October saw a meaningful relative underperformance.Relative to their target benchmark, the FTSE World Europe ex UK Index; they recovered the relative underperformance of October during November and December and expected to arise in the future. The reason behind the drop in share price is the number of senior management changes focusing on reinvestment in the area of growth that has resulted in restructuring cost. Restructuring of cost and change of management requires time to build trust in the market. [ CITATION ann19 \l 1033 ] Evaluation: Month-Year Jupiter Fund Management Plc. Price (€) M&G Plc. Price (€) Jan- Apr- Jul- Oct- Dec- 1-year stock price Chart of Jupiter fund Management V/S M&G Industry and Competitor Comparison: M&G plc is one of the top competitors of JUM plc. It offers retirement, savings, and investment management solutions to its retail and institutional customers. The company also provides individual and corporate pensions, annuities, life, savings, and investment products. It serves individual savers and investors, financial advisers, and institutional investors. Although its share price is relatively lower than Jupiter fund management plc M&G shows an increasing trend throughout the period. The data shows that M&G share price was increasing with the same ratio over the period but after October 2019 the graph shows a slow or minor increase which is the recovery period of Jupiter fund management plc.[ CITATION MG19 \l 1033 ] Issues to be considered: The decline in profits was largely due to lower management fees as a result of lower average assets under management and lower performance fees, partially offset by a reduction in administrative expenses before exceptional items Due to the acquisition of Merian the company has used the last year to devote more of their resources on marketing and promoting their range of funds via client events. The diversion of primary focus reflects in the income statement in form of a reduction in revenue and profit for the year. Acquisition of Marine affects the company’s business for the year but in the future; it will help in generating more revenue for the company and ultimately accelerate the company’s profit. The company’s position is stable to continue its operation but it is recommended to avoid more acquisition or merger till then the company’s profit ratio increased by its benchmark. Conclusion & Recommendations: After analysis of financial statements and financial ratios, it is concluded that at the end of year Company’s profit is lower than the previous year the main cause behind this decline is a decrease in revenue and an increase in administrative cost. The largest component of its revenue is net management fee and demonstrates their ability to earn attractive fees by designing and successfully distributing products that deliver value to clients. . The financial ratios analysis shows the company’s strength as the debt ratio shows the positive balance that determines the company’s strength to repay its debt. The share price analysis defines the increasing trend in the share price of the company although from July to October 2019, there is a decline that shows the company’s underperformance. After October the company has succeeded to recover her position. The above analysis shows that despite the company’s revenue and profit is relative low as compared to the previous year the company has manage to pay divided at the end of the year except for any special dividend. We do necessary research, study and analysis before making any investment decision. For investment purpose it’s a best time to buy company’s share for future perspective as the company has recovered its underperformance in the last three month that reflect from the analysis of one year share price. References: A Husna, I. S. (2019). Effects of Return on Asset, Debt to Asset Ratio, Current Ratio, Firm Size, and Dividend Payout Ratio on Firm Value. Journal of Economics and Financial Issues. Afrifa, G. (2016). 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