THE APPLICATION OF FINANCIAL RATIOS

Michael E. Morrison

Finance and Law

Faculty of Development & Society

Name: Michael Morrison

ID #: 13023968
Group: MSc Project Management
Module Title: Finance and Law
Module Code: 26-7030-00S
Module Leader: G. Workman
Semester: One
Assignment #: One
Date: 08th November 2005
CONTENTS PAGE

PREFACE.............................................................................................................II
LIST OF FIGURES................................................................................................III
LIST OF TABLES..................................................................................................IV
INTRODUCTION...................................................................................................1
THE IMPORTANCE OF FINANTIAL RATIO...............................................................2
BALANCE SHEET ANALYSIS...................................................................................3
FORMULAS FOR CALCULATING RATIOS.................................................................4
Liquidity Ratio........................................................................................................................4
Activity Ratios........................................................................................................................4
Solvency Ratios.....................................................................................................................4
Profitability Ratio...................................................................................................................4
Ratios selected for comparison..........................................................................................4
SELECTED COMPANIES PROFILE...........................................................................5
Taylor Woodrow....................................................................................................................5
Kier Group..............................................................................................................................6
FINANCIAL RATIOS FOR TAYLOR WOODROW........................................................7
COMPARISON BETWEEN COMPANIES..................................................................11
TAYLOR WOODROWS PERFORMANCE IN THE 21ST CENTURY...............................16
PERSONAL STATEMENT.......................................................................................17
CONCLUSION......................................................................................................18
REFERENCE / BIBLOGRAPHY...............................................................................19
APPENDECIES.....................................................................................................20
Appendix: 1.0......................................................................................................................20
Appendix: 2.0......................................................................................................................23
Appendix: 3.0......................................................................................................................27

I
PREFACE

The purpose of this paper is to highlight the usefulness of financial ratios as a

predictor of a companys insolvency. This paper also discusses the basic principles for
the reading and understanding of financial statement/reports in a companys annual
report, using financial ratios. This will be done through the analysis of two major
construction companies in the UK. Taylor Woodrow Plc., Kier Plc., have an annual
turnover in excess of Five Hundred Million pounds and employ over 3000 persons
world wide. This data was obtained from the Finance Made Easy (FAME) and
Corporate Watch data base. A comparison will also be made of their relative financial
performances over past six year 1999 to 2004.

A personal statement is also attached at the end outlining the experience that I have
gained from completing this exercise.

II
LIST OF FIGURES

Figure 1: Current Ratio........................................................................................11

Figure 2: Net Working Capital..............................................................................12
Figure 3: Asset Turnover.....................................................................................13
Figure 4: Total Debt Ratio....................................................................................14
Figure 5: Net Profit Margin...................................................................................15

III
LIST OF TABLES

Table 1: Current Ratio (Taylor Woodrow)...............................................................7

Table 2: Net Working Capital Ratio (Taylor Woodrow).............................................7
Table 3: Asset Turnover (Taylor Woodrow).............................................................8
Table 4: Total Debt Ratio (Taylor Woodrow)...........................................................9
Table 5: Debt to Equity Ratio (Taylor Woodrow)...................................................10
Table 6: Net Profit Margin (Taylor Woodrow)..........................................................9
Table 7: Net Return on Assets (Taylor Woodrow)..................................................10
Table 8: Current Ratio (Kier Group)......................................................................20
Table 9: Net Working Capital Ratio (Kier Group)...................................................20
Table 10: Asset Turnover (Kier Group).................................................................21
Table 11: Total Debt Ratio (Kier Group)................................................................21
Table 12: Net Profit Margin (Kier Group)...............................................................22

IV
INTRODUCTION

All businesses, Construction and otherwise, must operate as economically as possible

if they are to survive and prosper in todays global environment. A successful
business operation depends greatly on managerial attitudes towards planning.
However, since planning involves the consideration of an uncertain future, even the
best management plans has been known to go astray. Therefore, the management
team requires a continuous reading of the companys progress. Furthermore, many
businesses have been known to fail simply because management discovered too late
that plans were going astray. To maintain operating efficiency, management must
make use of each and every tool of analysis. Financial ratio analysis is recognized as
such a tool regardless of the nature of the business construction or other wise.

Financial ratio analysis is the calculation and comparison of ratios which are derived
from the information in a company's financial statements. The level and historical
trends of these ratios can be used to make inferences about a company's financial
condition, its operations and attractiveness as an investment (Anon, 2005).

Financial ratios are calculated from one or more pieces of information from a
company's financial statements. For example, the "gross margin" is the gross profit
from operations divided by the total sales or revenues of a company, expressed in
percentage terms. In isolation, a financial ratio is a useless piece of information
(Anon, 2005). In context, however, a financial ratio can give a financial analyst an
excellent picture of a company's situation and the trends that are developing.

1
THE IMPORTANCE OF FINANTIAL RATIO

Financial statement analysis has long traditions. Through the decades practitioners
and researchers have come up with a vast number of financial ratios to be used in
the evaluation of the performance and financial status of company or as diagnostic
tools to point up potential problem areas. Careful financial statement analysis usually
means the extraction of meaningful ratios from the statements, hence for this
analysis; several key ratios under the following classification were selected:

Liquidity ratio: This is a measure of a companys ability to meet short-term

obligations. An asset is deemed liquid if it can be readily converted into cash. Liquid
assets are current assets such as cash, marketable securities, accounts receivable,
and so on.

Activity ratio: These ratios indicate how effectively a company is managing its
assets. A construction company will normally have millions of pounds in assets held
be a plant department.

Solvency ratios: Solvency Ratios attempt to measure the ability of a company to

meet its short-term financial obligations. In other words, these ratios seek to
determine the ability of a firm to avoid financial distress in the short-run. I.e. if the
net worth of the business becomes negative, that is the total liabilities exceed total
assets, then the business has become insolvent.

Profit ratios: This measures the efficiency with which the company uses its
resources. The more efficient the company, the greater is its profitability. It is useful
to compare a company's profitability against that of its competitors.

2
These ratios will be calculated and compared with Taylor Woodrows prior years of
performance during the period 1999 to 2004. Following this a comparison will also be
made with the Kier Group for the same period 1999 to 2004. Both companies have
similar turnover and number of employees, this is called benchmarking.
Benchmarking is simply about making comparisons with other organisations in a
similar field (Anon, 2005). It should be noted, however, that deviation from the
average is not necessarily bad; it simply warrants further investigation.

BALANCE SHEET ANALYSIS

All ratios are calculated using the information provided on a companys balance
sheet. A balance sheet is a documented report of a company's assets and
obligations. It is a cumulative record that reflects the result of all recorded
accounting transactions since the company was formed. By analysing a companys
balance sheet, managers, investors, creditors and others can assess your ability to
meet short-term obligations and solvency, as well as your ability to pay all current
and long-term debts as they come due. The analysis of a balance sheet can also
identify potential liquidity problems. The balance sheet also shows the composition of
assets and liabilities, the relative proportions of debt and equity financing and the
amount of earnings that you have had to retain.

An investor could also spot the degree to which a company is leveraged, or indebted.
These are just a few of the danger signs that can be detected with careful analysis of
a balance sheet.

3
FORMULAS FOR CALCULATING RATIOS

Liquidity Ratio
Current Ratio = Current Assets / Current Liabilities
Net Working Capital = Current assets - current liabilities / Total Assets

Activity Ratios
Asset Turnover = Total Revenue / Total Assets

Solvency Ratios
Total Debt Ratio = Total Liabilities / Total Assets

Debt to Equity Ratio = Total Liabilities / Total Shareholders Equity

Profitability Ratio
Net Profit Margin = Net Income After Taxes / Total Sales
Net Return on Assets = Net Income After Taxes / Total Assets
Ratios selected for comparison

Current Ratio
Net Working Capital
Asset Turnover
Total Debt Ratio
Net Profit Margin

4
SELECTED COMPANIES PROFILE

The companies selected for this analysis are Plc. companies i.e. they are required by
to submit and publish their annual financial statement as prescribed by the
Companies Act 1981. They are typically characterised by; at least two members, a
limit by share and a share capital, a memorandum that includes a statement that the
company is a public company, a name which ends with Ltd or PLC and allotted share
capital with a nominal value less than 50,000.00. Taylor Woodrow is the main
company of focus and the Kier Group will only be for comparison.

Taylor Woodrow
Taylor Woodrow was founded 90 years ago by Thomas Wilson. It employs over 7000
people worldwide. Its primary business is house building, with 90% of operating
profit coming from developing new homes in the UK, and selected markets in North
America, Spain and Gibraltar.

In 2000, the firm made 201.5 million profit. In 2002, it reported a 15% rise in pre-
tax profits to 233.1m on turnover of 2.22bn. This led to the announcement that it
would buy back 50m of its shares.

However in that same year, a scandal in Ghana erupted over the mysterious
payment of 10 billion cedis to Taylor Woodrow subsidiary, Taysec, for 'refurbishment'
on the Golden Beach Hotels that were nearly or already completed. The initial quote
of 3.1 billion cedis as what was needed to finish all works was terminated and re-
awarded to Taysec at 10 billion cedis. (http://www.corporatewatch.org/).

In their Interim Report and Accounts 2005, they stated that, their strategy is to
create sustainable shareholder value and to maintain a balanced portfolio of
businesses and to invest where they can get the best profit growth and risk-adjusted
returns; at the time of preparing (18/10/05) report Taylor Woodrows share price
stood at 314.75 (http://www.taylorwoodrow.com/).

5
Kier Group
The Kier Group has increased profits each year since joining the stock market in
1996. In the financial year to June 2002, pre-tax profits were 27.3m, with earnings
per share of 58.3p. Kier's main business is its construction division, whose projects
include working on the Channel Tunnel rail link. The Group employs 8300 people
worldwide and has an annual turnover in excess of 1.62bn.

Other divisions include its construction services business, which manages and
maintains buildings for large commercial clients and local authorities and is involved
in PFI projects, and its homes and property division (http://www.kier.co.uk/).

As part of the Highlands Water Venture Consortium, Kier is alleged to have paid a
bribe of $733,404 to gain the contract to build the Katse dam in South Africa. So far,
none of the multinationals involved in the Highlands Water Project have been
prosecuted for paying bribes. Other divisions include its construction services
business, which manages and maintains buildings for large commercial clients and
local authorities and is involved in PFI projects, and its homes and property division.
Kier is the main civil contractor involved in the UK's main nuclear dockyard in Devon
port, Plymouth (http://www.corporatewatch.org/).

In the last financial year ending June 2005, the group made a pre tax profit of
24.3% the figure up to 53.7m and a 20.9% earning per share at 105.4p; at the
time of preparing report (18/10/05) Kier group share price stood at 1089p
(http://www.kier.co.uk/).

6
FINANCIAL RATIOS FOR TAYLOR WOODROW

Taylor Woodrow

Table 1: Current Ratio (Taylor Woodrow)

Financial Current Ratio = Current Assets / Current Liabilities Ratio
Year
30/06/2004 3,019,400 / 901,500 3.3493067
30/06/2003 3,048,100 / 1,001,200 3.0444467
30/06/2002 2,112,700 / 632,300 3.3412937
30/06/2001 1,751,700 / 756,100 2.316757
30/06/2000 1,223,300 / 498,200 2.4554396
30/06/1999 1,078,800 / 482,800 2.2344656

Comment: Based on the results the company has managed to maintain a steady
cash flow between 1999 & 2004 as it is always prudent to have a current ratio above
1.00 and more ideal for a construction company above 1.1 to 1.5. This also indicates
the companys ability to meet its short term commitments.

Table 2: Net Working Capital Ratio (Taylor Woodrow)

Financial Net working capital Ratio = Current assets current Ratio
Year liabilities / Total assets
30/06/2004 (3,019,400 - 901,500) / 3,390,000 0.6247492
30/06/2003 (3,048,100 - 1,001,200) / 3,589,500 1.1280958
30/06/2002 (2,112,700 - 632,300) / 2,562,300 1.0713031
30/06/2001 (1,751,700 - 756,100) / 2,330,800 1.0759396
30/06/2000 (1,223,300 - 498,200) / 1,646,900 1.0452972
30/06/1999 (1,078,800 - 482,800) / 1,562,600 0.9993600

7
Comment: The Companys working capital has increased constantly over 1999 to
2003 but fell during 2004. This is not a good sign as the higher the ratio the better.
If this continues it may affect the companys ability to meet its short-term obligations
such as accounts payable and buying inventory which is very critical to construction
type businesses, where payment is generally a month behind.

Table 3: Asset Turnover (Taylor Woodrow)

Financial Asset Turnover = Total Revenue / Total Assets Ratio
Year
30/06/2004 3,358,600 / 3,390,000 0.99073
30/06/2003 2,669,400 / 3,589,500 0.74366
30/06/2002 2,208,600 / 2,562,300 0.86195
30/06/2001 2,138,400 / 2,330,800 0.91745
30/06/2000 1,539,700 /1,646,900 0.93490
30/06/1999 1,504,000 / 1,562,600 0.09624

Comment: The asset turnover indicates how effectively a company utilizes its
investment in assets. It is a measure of how efficient the company has been in
generating revenue from the assets at its disposal. Taylor Woodrows asset turnover
fluctuated between 1999 and 2001 and continued trending downward through to
2003 and recovered slightly in 2004 This low figure would suggest either poor
trading performance or an over investment in costly fixed assets. The construction
industry shows a mean asset turnover ratio of 1.6, with the poorer performers
averaging 0.6.

8
Table 4: Total Debt Ratio (Taylor Woodrow)
Financial Total Debt Ratio = Current Liability+ Long term Debt/ Ratio
Year Total Assets
30/06/2004 (901,500 + 618,900) / 3,390,000 0.4484955
30/06/2003 (1,001,200 + 739,500) / 3,589,500 0.4849422
30/06/2002 (632,300 + 424,900) / 2,562,300 0.4125981
30/06/2001 (756,100 + 199,300) / 2,330,800 0.4099022
30/06/2000 (498,200 + 229,500) / 1,646,900 0.4418605
30/06/1999 (482,800 + 228,800) / 1,562,600 0.4553949

Comment: Taylor Woodrow has maintained a reasonable well dept ratio for the
chosen period 1999 to 2004 i.e. below 1.0 and less than 0.5. I the company where to
have any financial difficulties it could easily dispose of some of its assets and still
manage to remain competitive.

Table 5: Net Profit Margin (Taylor Woodrow)

Financial Net Profit Margin = Net Income After Taxes / Total Ratio
Year Sales
30/06/2004 265,400 / 3,358,600 0.0790210
30/06/2003 202,500 / 2,669,400 0.0758597
30/06/2002 156,200 / 2,208,600 0.0707235
30/06/2001 135,500 / 2,138,400 0.0633651
30/06/2000 147,100 / 1,539,700 0.0955380
30/06/1999 90,600 / 1,504,000 0.0602393

Comment: The Company showed a steady rise in profit during 1999 to 2000. Profit
declined by 32% in 2001 but rose marginally the following year and remains
constant through to 2004. This can be attributed to the fact that the company chose
to focus on house building.

9
Table 6: Debt to Equity Ratio (Taylor Woodrow)

Financial Debt to Equity Ratio = Current Liability+ Long term Ratio

Year Debt / Total Shareholders Equity
30/06/2004 (901,500 + 618,900) / 1,637,800 0.9283184
30/06/2003 (1,001,200 + 739,500) / 1,693,500 1.3070563
30/06/2002 (632,300 + 424,900) / 1,405,900 1.0679991
30/06/2001 (756,100 + 199,300) / 1,335,100 0.9409033
30/06/2000 (498,200 + 229,500) / 887,700 0.8611017
30/06/1999 (482,800 + 228,800) / 750,300 0.8859123

Comment: This ratio compares total liabilities to shareholders funds. The results
indicate that the company debt to equity ratio was constant between 1999 and 2001;
however it increased during 2002 and 2003. This could be due to the acquisition of
Wilson Connolly for 499 million in 2003. However in 2004 they showed signs of
recovery.

The construction industry averages around 1.5, with the upper quartile averaging
around 0.25. Hence it would appear from table: 5 that Taylor Woodrow has managed
to maintain a reasonable debt to equity ratio.

Table 7: Net Return on Assets (Taylor Woodrow)

Financial Net Return on Assets = Net Income After Taxes / Ratio
Year Total Assets
30/06/2004 265,400 / 3,390,000 0.0782890
30/06/2003 202,500 / 3,589,500 0.0564145
30/06/2002 156,200 / 2,562,300 0.0609608
30/06/2001 135,500 / 2,330,800 0.0581345
30/06/2000 147,100 / 1,646,900 0.0893193
30/06/1999 90,600 / 1,562,600 0.0579802

Comment: For the period 1999 to 2004 the companys profit margin was constant.
However in 2000 profit rose by 32% with a correspondent decrease the following
year. One can easily deduce that profit has been fluctuating over the six year period.

10
COMPARISON BETWEEN COMPANIES

A comparison between Taylor Woodrow and Kier Group financial performances over
the period 1999 2004 is presented below using the following ratios; current, net
working capital, asset turnover, total debt and asset turnover. The ratios for the Kier
Group can be found in appendix 1.0.

Current Ratio:

Figure 1: Current Ratio

Comment: From the graph it can be seen that the Kier Group had a stronger
liquidity base but it has not been constant it started declining after 2003 and
continued through to 2004. However, Taylor Woodrow remained constant with slight
only a slight fluctuation during to period 2002 to 2003, and had grown passed the
Kier Group by approximately two points.

11
This is a good sign as they will need to have a stronger liquid base to take advantage
of the new housing policy in relation to stamp duty cost for first time buyers
announced last March by the Chancellor of the Exchequer in his budget presentation.
This will definitely stimulate demand within the housing sector.

Net Working Capital:

Figure 2: Net Working Capital

Comment: Taylor Woodrows working capital remained fairly constant during the
period 1999 to 2003 and rose sharply during 2004. However, the Kier Group had a
higher working capital for the correspondent period and fell sharply during 2004.

12
Asset Turnover

Figure 3: Asset Turnover

Comment: In 1998 Taylor Woodrow made record profits from its home building
division. This led to the group to strategically acquisition of prime real-estate. Hence
the apparent decrease in asset turnover in 1999 but this was only temporary as the
group returned to its previous position the following year. However after 2000 asset
turnover fell constantly up to 2003. This could be attributed to the boards decision
to concentrate on the housing market which triggered a massive land acquisition.
Since residential housing is now their niche market. On the other hand the Costain
group saw a sharp increase in asset turnover. However they recovered it recovered
during 2004. The Kier Group on the other hand has a higher assets turnover for the
correspondent period but has been falling constantly.

13
Total Dept Ratio:

Figure 4: Total Debt Ratio

Comment: The Kier Group has a lower dept patio than that of Taylor Woodrow
which has remained some what constant over the selected period 1999 to 2004. In
2001, the Kier group had a dramatic increase in their debt ratio but it did not go over
the 0.5 margin. However in 2004 it rose to just under 0.7. For a further analysis of
Kiers performance (see appendix 1.0).

14
Net Profit Margin:

Figure 5: Net Profit Margin

Comment: Taylor Woodrow has the highest net profit margin of the two companies,
even though it has fluctuated over the six year period. This may be as a result of the
companys directors controlling the level of profitability. The Kier Group on the other
hand net profit margin has remained constant.

15
TAYLOR WOODROWS PERFORMANCE IN THE 21ST CENTURY

Taylor Woodrow has proven to be a true leader in its field and has refused to be out
classed by any of its competitors throughout its 90 years existence.

This has been reflected within their strategic planning in order to ensure the
companys survival in the modern world. This is demonstrated by the group by not
only taking control of the local housing but also has a significant portion in North
America and Asia / Pacific. Despite reports in the Guardian dated 3 rd December 2004,
that Taylor Woodrow would reduce its sales forecast by 6%, they still met their profit
margin. This is a further sign of the group strength as they can easily adapt to
market changes both internal and external.

Further to this, the analysis carried out over the six (6) year period provided
sufficient information that the companys management team is highly skilled in
making decisions about the companies feature. Their is no doubt that one could
argue that six (6) years is too short a period but if one should take a look at the
global economy over the corresponding period it would be observed that the level of
growth was marginal in comparison to previous years.

It is in my opinion that Taylor Woodrow is a true 21 st century company and will

continue unto the 22nd Century. This will be achieved through their rich organisation
heritage and a culture of growth even in bad economic times.

16
PERSONAL STATEMENT

General Approach: My first approach to this topic was very casual and laid-back as
I have always been a good math student. I was all geared up to do some simple
arithmetic. However once the picture became clear I quickly realised that this was
not the case as this assignment required a lot more than that.

Things Included in the Submission and why: I started out this assignment by
giving a brief history and the make up of my chosen companies so as to give the
reader a snap of the company and the kind of persons in charge with running the
company. I then went on to talk about the different category of ratios and the
importance of each as it relates to the financial health of the company. All the
calculation where included even those for the Kier Group where included in the
appendix so the reader could have a detailed look at the figures. I opted to use
graphs rather than tables to when doing the comparison between the two companies
as this would be easily understood in one glance without the reader flipping through
several tables.

Problems I Encountered Undertaking this Assignment: The major problems

that I had while undertaking this assignment was trying to find two companies which
where major players within the UKs construction industry who had already submitted
their 2004 annual report in order to be as current as possible. Finally trying to figure
out what the value of each ratio meant.

Learning outcome and Benefits: I can now take up the Financial Times and look
at a companys results and make a fear assessment of their performance. As for my
professional career, I will be able to better address financial matters using a scientific
approach that has been tried and tested for a number of years.

17
CONCLUSION

Financial ratios are vital tools for checking the financial health of any organisation
irrespective of its size or the nature of its business. Practitioners and researchers
have come up with a vast number of financial ratios to be used in the evaluation of
the performance and financial status of business firms. Hence over time they have
been well developed and are used world wide by both government and private
investors.

18
REFERENCE / BIBLOGRAPHY

ANON., (2005). Financial ratio analysis [online].Last accessed on the 18 th October

2005 at URL: http://www.finpipe.com/equity/finratan.htm

Analysing Company Reports (2005) Balance Sheet Analysis [online]. Last accessed on
the 18th October 2005 at URL: http://www.ameritrade.com/

Corporate Watch (2005) Company Profile [online]. Last accessed on the 2 nd

November 2005 at URL: http://www.corporatewatch.org/.

Finance Made Easy (2005) FAME [online]. Last accessed on the 6 th November 2005
at URL: http://www.fame.bvdep.com/.

Guardian Unlimited (2005) Money News [online]. Last accessed on the 5 th November
2005 at URL: http://money.guardian.co.uk/.

Kier Group (2005) About Kier Group plc [online]. Last accessed on the 18th October
2005 at URL: http://www.kier.co.uk/about/about.asp.

PR Newswire for Journalists (2005) News Release [online]. Last accessed on the 3 rd
November 2005 at URL: http://www.prnewswire.co.uk/.

Taylor Woodrow (2005) Chairmans Statement [online]. Last accessed on the 3 rd

October 2005 at URL: http://www.taylorwoodrow.com/.

Tampa Bay Business Journal (2005) Latest News [online]. Last accessed on the 5 th
October 2005 at URL: http://tampabay.bizjournals.com/.

19
APPENDECIES
Appendix: 1.0

Financial Ratios for the Kier Group

Table 8: Current Ratio (Kier Group)

Financial Current Ratio = Current Assets / Current Liabilities Ratio
Year
30/06/2004 601,200 / 530,700 1.1328434
30/06/2003 559,000 / 496,100 1.1267889
30/06/2002 509,700 / 488,200 1.0440393
30/06/2001 438,400 / 416,800 1.0518234
30/06/2000 384,800 / 373,400 1.0305303
30/06/1999 327,700 / 332,800 0.9846755

Table 9: Net Working Capital Ratio (Kier Group)

Financial Net working capital Ratio = Current assets current Ratio
Year liabilities / Total assets
30/06/2004 (601,200 530,700)/ 720,900 0.0977
30/06/2003 (559,000 - 496,100)/ 665,300 0.0945
30/06/2002 (509,700 - 488,200)/ 587,700 0.3658
30/06/2001 (438,400 - 416,800)/ 493,100 0.0438
30/06/2000 (384,800 - 373,400)/ 431,600 0.0264
30/06/1999 (327,700 - 332,800)/ 377,100 0.0135

20
Table 10: Asset Turnover (Kier Group)
Financial Asset Turnover = Total Revenue / Total Assets Ratio
Year
30/06/2004 1,444,100 / 720,900 2.0031
30/06/2003 1,417,700 / 665,300 2.1309

30/06/2002 1,369,400 / 587,700 2.3301

30/06/2001 1,232,400 / 493,100 2.4992

30/06/2000 1,026,500 / 431,600 2.3783

30/06/1999 954,500 / 377,100 2.5311

Table 11: Total Debt Ratio (Kier Group)

Financial Total Debt Ratio = Current Liability+ Long term Debt/ Ratio
Year Total Assets
30/06/2004 (530,700+30,100)/ 720,900 0.7779

30/06/2003 (496,100+30,100)/ 665,300 0.7909

30/06/2002 488,200/587,700 0.8306

30/06/2001 416,800/493,100 0.8452

30/06/2000 373,400/431,600 0.8651

30/06/1999 332,800/377,100 0.8825

21
Table 12: Net Profit Margin (Kier Group)
Financial Net Profit Margin = Net Income After Taxes / Total Ratio
Year Sales
30/06/2004 28,600 / 1,444,100 0.0198
30/06/2003 23,800 / 1,417,700 0.0167
30/06/2002 20,300 / 1,369,400 0.0148
30/06/2001 16,000 / 1,232,400 0.0129
30/06/2000 13,100 / 1,026,500 0.0127
30/06/1999 9,900 / 954,500 0.0103

Comment: From the set of ratios calculated, it can be seen that Kier Group Current
Ratio is inline with the industry average along with their Asset Turnover. However
Net Working Capital, Total Debt Ratio and Net Profit Margin are not in line with
industry average.

22
Appendix: 2.0
Taylor Woodrow
PROFIT & LOSS 12/31/200 12/31/200 12/31/200 12/31/200 12/31/200 12/31/199
ACCOUNT 4 3 2 1 0 9
12 months 12 months 12 months 12 months 12 months 12 months
th GBP th GBP th GBP th GBP th GBP th GBP
Cons. Cons. Cons. Cons. Cons. Cons.

Turnover 3,358,600 2,669,400 2,208,600 2,138,400 1,539,700 1,504,000

UK Turnover 2,371,100 1,864,500 1,565,800 1,393,000 806,100 912,800
Overseas Turnover 987,500 804,900 642,800 745,400 733,600 591,200
Cost of Sales -2,682,500 -2,154,000 -1,797,900 -1,772,500 -1,226,700 -1,210,100
Gross Profit 676,100 515,400 410,700 365,900 313,000 293,900
Other Expenses -201,600 -177,600 -153,000 -141,700 -147,300 -154,600
Total Expenses -2,884,100 -2,331,600 -1,950,900 -1,914,200 -1,374,000 -1,364,700
Operating Profit 474,500 337,800 257,700 224,200 165,700 139,300
Other Income 41,200 5,100 3,200 4,500 9,800 7,100
Exceptional Items -18,000 6,300 8,100 7,900 50,300 3,600
Profit (Loss) before
Interest 497,700 349,200 269,000 236,600 225,800 150,000
Interest Paid -107,300 -45,200 -35,900 -34,300 -24,300 -25,000
Profit (Loss) before
Tax 390,400 304,000 233,100 202,300 201,500 125,000
Taxation -125,000 -101,500 -76,900 -66,800 -54,400 -34,400
Profit (Loss) after
Tax 265,400 202,500 156,200 135,500 147,100 90,600
Extraordinary Items 1,100
Minority Interests -600 -400 -1,100 -2,500 -7,300 -6,000
Profit (Loss) for
Period 265,900 202,100 155,100 133,000 139,800 84,600
Dividends -64,400 -51,500 -40,600 -37,200 -31,700 -20,900
Retained
Profit(Loss) 201,500 150,600 114,500 95,800 108,100 63,700

23
 12/31/200 12/31/200 12/31/200 12/31/200 12/31/200 12/31/199
BALANCE SHEET 4 3 2 1 0 9
12 months 12 months 12 months 12 months 12 months 12 months
th GBP th GBP th GBP th GBP th GBP th GBP
Cons. Cons. Cons. Cons. Cons. Cons.

Fixed Assets
Tangible Assets 24,400 190,500 205,000 331,800 422,400 480,100
Land & Building 7,500 170,000 193,500 312,200 390,900 378,500
Fixtures & Fittings
Plant & Vehicles 16,900 20,500 11,500 19,600 31,500
Other Fixed Assets 101,600
Intangible Assets 342,800 347,600 241,400 247,000
Investments 3,400 3,300 3,200 300 1,200 3,700
Fixed Assets 370,600 541,400 449,600 579,100 423,600 483,800

Current Assets
Stock & W.I.P. 2,618,900 2,596,700 1,707,000 1,441,400 880,100 781,300
Stock 2,618,900 2,596,700 1,707,000 781,300
W.I.P. 0 0 0 0
Trade Debtors 83,300 89,900 58,000 22,900 25,500 58,500
Bank & Deposits 118,400 146,500 180,600 116,500 204,400 138,600
Other Current
Assets 198,800 215,000 167,100 170,900 113,300 100,400
Group Loans (asset) 300 200 1,000 500
Directors Loans
(asset) 0 0
Other Debtors 198,500 214,800 154,500 165,600 106,100 39,600
Investm. & Other
Cur. Assets 12,600 4,300 7,200 60,300
Current Assets 3,019,400 3,048,100 2,112,700 1,751,700 1,223,300 1,078,800

Current Liabilities
Trade Creditors -391,600 -473,100 -263,500 -208,100 -141,200 -175,100
Short Term Loans &
Overdrafts -57,700 -150,500 -22,100 -224,700 -30,500 -28,900
Bank Overdrafts -40,300 -25,100 -7,900 -11,300
Group Loans (short
t.) -500 -600 -6,000 -5,600 -4,500 -800
Director Loans
(short t.)
Hire Purch. & Leas.
(short t.)
Hire Purchase (short
t.)
Leasing (short t.)
Other Short Term
Loans -16,900 -124,800 -16,100 -211,200 -14,700 -28,100
Total Other Current
Liabilities -452,200 -377,600 -346,700 -323,300 -326,500 -278,800
Corporation Tax -67,800 -39,800 -34,100 -46,400 -30,700 -33,300
Dividends -45,500 -37,400 -28,400 -25,600 -24,800 -14,300

24
Accruals & Def. Inc.
(sh. t.) -208,100 -188,700 -183,200 -141,000 -169,000 -122,800
Social Securities &
V.A.T. -6,300 -11,100 -5,600 -5,500 -9,300 -8,200
Other Current
Liabilities -124,500 -100,600 -95,400 -104,800 -92,700 -100,200
Current Liabilities -901,500 -1,001,200 -632,300 -756,100 -498,200 -482,800

Net Current Assets

(Liab.) 2,117,900 2,046,900 1,480,400 995,600 725,100 596,000
Net Tangible Assets
(Liab.) 2,145,700 2,240,700 1,688,600 1,327,700 1,148,700 1,079,800
Working Capital 2,310,600 2,213,500 1,501,500 1,256,200 764,400 664,700
Total Assets 3,390,000 3,589,500 2,562,300 2,330,800 1,646,900 1,562,600
Total Assets less
Cur. Liab. 2,488,500 2,588,300 1,930,000 1,574,700 1,148,700 1,079,800

Long Term Liabilities

Long Term Debt -618,900 -739,500 -424,900 -199,300 -229,500 -228,800
Group Loans (long
t.) 0 0 0 0 0 0
Director Loans (long
t.) 0 0 0 0 0 0
Hire Purch. & Leas.
(long t.) 0 0 0 0 0 0
Hire Purchase (long
t.)
Leasing (long t.)
Other Long Term
Loans -618,900 -739,500 -424,900 -199,300 -229,500 -228,800
Total Other Long
Term Liab. -230,800 -154,200 -99,200 -39,700 -28,400 -21,200
Accruals & Def. Inc.
(l. t.) -2,500 -4,000 -4,200 -4,400 -4,800 -5,400
Other Long Term
Liab. -190,900 -105,900 -68,300 -7,900 -2,800 -1,400
Provisions for Other
Liab. -37,400 -44,300 -26,700 -27,400 -20,800 -14,400
Deferred Tax -6,800 -4,200 -1,500 -1,600 -7,500
Other Provisions -30,600 -40,100 -25,200 -25,800 -13,300 -14,400
Balance Sheet
Minorities -1,000 -1,100 -600 -3,100 -79,500
Long Term Liabilities -850,700 -894,800 -524,100 -239,600 -261,000 -329,500

Total Assets less

Liabilities 1,637,800 1,693,500 1,405,900 1,335,100 887,700 750,300

25
Shareholders Funds
Issued Capital 146,700 156,100 138,200 137,900 95,800 95,300
Total Reserves 1,491,100 1,537,400 1,267,700 1,197,200 791,900 655,000
Share Premium
Account 748,100 745,700 591,200 590,500 233,700 232,200
Revaluation
Reserves 0 38,400 63,400 134,200 142,500 125,000
Profit (Loss)
Account 769,900 745,400 591,600 451,000 401,500 283,600
Other Reserves -26,900 7,900 21,500 21,500 14,200 14,200
Shareholders Funds 1,637,800 1,693,500 1,405,900 1,335,100 887,700 750,300

26
Appendix: 3.0
Kier Group
PROFIT & LOSS
ACCOUNT 6/30/2004 6/30/2003 6/30/2002 6/30/2001 6/30/2000 6/30/1999
12 months 12 months 12 months 12 months 12 months 12 months
th GBP th GBP th GBP th GBP th GBP th GBP
Cons. Cons. Cons. Cons. Cons. Cons.

Turnover 1,444,100 1,417,700 1,369,400 1,232,400 1,026,500 954,500

UK Turnover
Overseas Turnover
Cost of Sales -1,315,100 -1,307,200 -1,276,200 -1,156,300 -966,400 -904,400
Gross Profit 129,000 110,500 93,200 76,100 60,100 50,100
Other Expenses -89,600 -77,400 -68,400 -56,200 -44,900 -39,200
Total Expenses -1,404,700 -1,384,600 -1,344,600 -1,212,500 -1,011,300 -943,600
Operating Profit 39,400 33,100 24,800 19,900 15,200 10,900
Other Income 4,400 1,700 2,900 2,900 2,600 1,400
Exceptional Items 700 500 1,700
Profit (Loss) before
Interest 43,800 34,800 28,400 22,800 18,300 14,000
Interest Paid -3,200 -1,500 -400 -900 -600 -200
Profit (Loss) before Tax 40,600 33,300 28,000 21,900 17,700 13,800
Taxation -12,000 -9,500 -7,700 -5,900 -4,600 -3,900
Profit (Loss) after Tax 28,600 23,800 20,300 16,000 13,100 9,900
Extraordinary Items
Minority Interests
Profit (Loss) for Period 28,600 23,800 20,300 16,000 13,100 9,900
Dividends -6,800 -5,600 -4,800 -4,100 -3,500 -3,000
Retained Profit(Loss) 21,800 18,200 15,500 11,900 9,600 6,900

Discontinued Operations
Depreciation 8,100 8,100 7,300 7,600 7,800 6,700
Audit Fee 600 700 600 500 500 600
Non-Audit Fee 100 400 500 200 100 200
Amortisation of
Intangibles 2,600 900
Remuneration 231,800 213,800 179,700 152,100 132,500 124,700
Wages & Salaries 197,400 185,100 155,900
Social Security Costs 17,100 14,500 11,600
Pension Costs 17,300 14,200 12,200
Directors' Remuneration 1,858 1,683 1,598 1,237 1,116 1,023
Directors' Fees 1,626
Pension Contribution 57
Other Emoluments
Highest Paid Director 406 371 335 308 283 259
Number of Employees 8,329 8,421 7,025 6,683 6,351 6,553

27
BALANCE SHEET 6/30/2004 6/30/2003 6/30/2002 6/30/2001 6/30/2000 6/30/1999
12 months 12 months 12 months 12 months 12 months 12 months
th GBP th GBP th GBP th GBP th GBP th GBP
Cons. Cons. Cons. Cons. Cons. Cons.

Fixed Assets
Tangible Assets 68,900 53,000 48,900 46,300 43,600 46,300
Land & Building 22,300 25,100 21,700 21,200 18,800 19,100
Fixtures & Fittings
Plant & Vehicles
Other Fixed Assets 46,600 27,900 27,200 25,100 24,800 27,200
Intangible Assets 18,600 21,100
Investments 32,200 32,200 29,100 8,400 3,200 3,100
Fixed Assets 119,700 106,300 78,000 54,700 46,800 49,400

Current Assets
Stock & W.I.P. 328,600 261,300 251,300 164,400 149,500 115,700
Stock 2,500 1,700 800 1,500 700 15,700
W.I.P. 326,100 259,600 250,500 162,900 148,800 100,000
Trade Debtors 175,800 161,000 160,800 170,100 145,300 135,300
Bank & Deposits 41,400 92,500 49,200 60,900 47,400 44,100
Other Current Assets 55,400 44,200 48,400 43,000 42,600 32,600
Group Loans (asset) 2,500 1,300 1,200 0
Directors Loans (asset) 0
Other Debtors 52,900 42,900 47,200 43,000 41,800 32,000
Investm. & Other Cur.
Assets 0 800 600
Current Assets 601,200 559,000 509,700 438,400 384,800 327,700

Current Liabilities
Trade Creditors -360,000 -312,900 -345,000 -278,800 -266,700 -226,600
Short Term Loans &
Overdrafts -3,700 -400 -2,800 -2,800 -7,800 -2,500
Bank Overdrafts -3,700 -400 -2,800 -2,800 -7,800 -2,500
Group Loans (short t.) 0 0 0 0 0 0
Director Loans (short t.) 0 0 0 0 0 0
Hire Purch. & Leas. (short
t.) 0 0 0 0 0 0
Hire Purchase (short t.)
Leasing (short t.)
Other Short Term Loans 0 0 0 0 0 0
Total Other Current
Liabilities -167,000 -182,800 -140,400 -135,200 -98,900 -103,700
Corporation Tax -5,100 -4,500 -4,000 -3,500 -2,600 -2,200
Dividends -4,600 -3,800 -3,300 -2,800 -2,400 -2,000
Accruals & Def. Inc. (sh.
t.) -123,500 -112,200 -108,800 -97,200 -70,100 -77,700
Social Securities & V.A.T. -13,500 -17,500 -10,700 -14,100 -10,200 -9,200
Other Current Liabilities -20,300 -44,800 -13,600 -17,600 -13,600 -12,600
Current Liabilities -530,700 -496,100 -488,200 -416,800 -373,400 -332,800

28
Net Current Assets (Liab.) 70,500 62,900 21,500 21,600 11,400 -5,100
Net Tangible Assets
(Liab.) 171,600 148,100 99,500 76,300 58,200 44,300
Working Capital 144,400 109,400 67,100 55,700 28,100 24,400
Total Assets 720,900 665,300 587,700 493,100 431,600 377,100
Total Assets less Cur.
Liab. 190,200 169,200 99,500 76,300 58,200 44,300

Long Term Liabilities

Long Term Debt -30,100 -30,100
Group Loans (long t.) 0 0
Director Loans (long t.) 0 0
Hire Purch. & Leas. (long
t.) 0 0
Hire Purchase (long t.)
Leasing (long t.)
Other Long Term Loans -30,100 -30,100
Total Other Long Term
Liab. -43,700 -45,700 -25,000 -18,500 -13,700 -10,800
Accruals & Def. Inc. (l. t.) -1,800 -11,800 -4,800 -5,000 -500 -400
Other Long Term Liab. -26,600 -20,800 -13,200 -7,800 -8,100 -4,900
Provisions for Other Liab. -15,300 -13,100 -7,000 -5,700 -5,100 -5,500
Deferred Tax -400 -100 -2,000 -1,900 -1,900 -1,800
Other Provisions -14,900 -13,000 -5,000 -3,800 -3,200 -3,700
Balance Sheet Minorities
Long Term Liabilities -73,800 -75,800 -25,000 -18,500 -13,700 -10,800

Total Assets less

Liabilities 116,400 93,400 74,500 57,800 44,500 33,500

Shareholders Funds
Issued Capital 400 300 300 300 300 300
Total Reserves 116,000 93,100 74,200 57,500 44,200 33,200
Share Premium Account 17,100 15,200 13,700 12,000 10,800 9,400
Revaluation Reserves 0 0 0 0 0 0
Profit (Loss) Account 96,600 75,200 57,800 42,800 30,700 21,100
Other Reserves 2,300 2,700 2,700 2,700 2,700 2,700
Shareholders Funds 116,400 93,400 74,500 57,800 44,500 33,500

29