Introduction

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

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

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

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

Performance Ratios

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

Liquidity Ratio

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

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

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

2007

2008

2009

2010

2012

Current Assets

134,720.00

114,982.00

96,048.00

103,929.00

88,254.00

Current Liabilities

58,947.00

32,918.00

24,157.00

29,136.00

32,451.00

Current Ratio

2.29

3.49

3.98

3.57

2.72

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

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

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

Quick Ratio

2007

2008

2009

2010

2012

Current Assets

134,720.00

114,982.00

96,048.00

103,929.00

88,254.00

Current Liabilities

58,947.00

32,918.00

24,157.00

29,136.00

32,451.00

Inventories

14,406.00

16,589.00

16,350.00

18,334.00

20,184.00

Quick Ratio

2.04

2.99

3.30

2.94

2.10

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

Profitability Ratio

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

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

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

Where EBIT = Net Income + Interest Expenses + Taxes  

Return on Total Assets

2007

2008

2009

2010

2012

Total Net Assets

159,618.00

148,617.00

139,519.00

143,718.00

146,373.00

EBIT

16,476

8,498

6,158

5,833

10,469

Return on Total Assets

10.32%

5.72%

4.41%

4.06%

7.15%

Bloomsbury Publishing PLC return on total assets was slightly above the industry. This return showed that Bloomsbury Publishing PLC had a high return on assets compared to the industry average, therefore, outperformed the market  and efficient on it use of its assets.  In addition, ROTA declined in 2008, 2009 and 2010 this could be attributed to the financial recession of 2007 and later a recovery in 2012 which ROTA improved to 7.15 signalling a recovery in profitability.  

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

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

2007

2008

2009

2010

2012

Net Income

11,804.00

7,840.00

4,981.00

3,595.70

7,097.00

Total Share Holder Equity

100,069.00

113,672.00

112,684.00

111,844.00

109,180.00

Return on Equity

11.80%

6.90%

4.42%

3.21%

6.50%

Bloomsbury Publishing PLC return on equity showed a similar part to return on total assets. The ROE was above the industry average, therefore outperformed the market and was efficient on it utilisation of it resources. Moreover, ROE declined after the global financial crisis in 2007 in 2008 2009 and 2010 and later recovered in 2012 to 6.5% showing a recovery in the company.

Financial Leverage Ratio

Ratio used to calculate the financial leverage of company is used to assess the firm’s ability to meet it financing obligation. There are several ratios used that include debt, equity gearing and interest expense

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

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

Gearing Ratio

2007

2008

2009

2010

2012

Total Liabilities

59,549.00

34,945.00

26,835.00

31,874.00

37,193.00

Current Liabilities

58,947.00

32,918.00

24,157.00

29,136.00

32,451.00

Long Term Liabilities

602.00

2,027.00

2,678.00

2,738.00

4,742.00

Total Share Holder Equity

100,069.00

113,672.00

112,684.00

111,844.00

109,180.00

Gearing Ratio

0.60%

1.78%

2.38%

2.45%

4.34%

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

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

 Formula of Interest Coverage Ratio = EBIT/ Interest Expenses

2007

2008

2009

2010

2012

EBIT

16,476

8,498

6,158

5,833

10,469

Interest Expenses

69

19

6

0

7

 Interest Coverage Ratio

238.78

447.26

1026.33

-

1495.57

Bloomsbury Publishing PLC has a high interest cover ratio. This is an indicator that Bloomsbury Publishing PLC in financially sound and is able to meet it interest payment obligations. 

Dividends ratio measures how a firm pays out in dividends in comparison to its share price. 

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

Dividends Yield

2007

2008

2009

2010

2012

Dividends Yield

4.49

4.49

4.49

4.49

4.49

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

2007

2008

2009

2010

2012

Dividends Yield

4.49

4.49

4.49

4.49

4.49

Dividends Paid

4

4.2

4.4

0

5

Dividends Cover

4.343

2.631

1.592

0.479

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