Document 1
Document 1
Document 1
24/03/2023
The report presents a comprehensive overview of the company’s financial health and provides
insights into its strengths and weaknesses.
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Introduction:
Barratt Developments PLC is one of the leading British housebuilding and construction companies. It is listed on
the London Stock Exchange and is a constituent of the FTSE 100 Index.
The company operates in several countries across the world and has a focus on residential property development.
This report is an analysis of the financial performance of Barratt Developments.
BACKGROUND:
Barratt Developments plc is a British housebuilding company, headquartered in Coalville, Leicestershire. It is
listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. It is the largest residential
property developer in the UK by volume. The company was founded by Lawrence Barratt in 1958 and floated on
the London Stock Exchange in 1968. In 1995, it merged with Wilson Bowden and was taken over by George
Wimpey in 2007. In 2013, the company demerged from George Wimpey, resulting in Barratt Developments
being listed as a standalone company on the London Stock Exchange once again. The company has been led by
Chief Executive David Thomas since 2013 to David Thomas Currently.
Design excellence lies at the core of all our projects which comply with the Building for Life 12 design criteria.
In the last fiscal year, we constructed 17,243 dwellings, from private to affordable housing. Our private homes
outside of London offer a price range from approximately £70,000 to over £1m, with a wide array of options
from 1 bedroom flats to 6 bedroom family homes. We look to satisfy the demands of the local population, and
our broad geographic coverage and varied product portfolio help us optimise development opportunities across
the UK, creating a balanced development selection.
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FINANCIAL ANALYSIS – Group Reporting
Analysed financial statements can be used to assess the financial health of a company. This is useful for both
investors and business owners, as it helps them understand the company's cash flow, liquidity, and ability to
meet financial obligations. Financial analysis can also help detect potential fraud, identify opportunities for cost-
cutting and identify areas for improvement. By using analysed financial statements, investors and business
owners can gain valuable insight into the performance of their investments or businesses and make informed
decisions.
9%
10%
23% 59%
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Common ratios used in financial ratio analysis include profitability ratios, liquidity ratios and debt ratios.
Profitability Ratios
1. Gross Margin: They are a key component of financial analysis and can be used to assess a company's
overall financial performance. Common profitability ratios include gross margin, operating margin, net
margin, return on assets (ROA), and return on equity (ROE).
Figure 2 :
Gross margin is the ratio of gross profit to total revenue and is a measure of how much of every pound of
revenue a company retains after paying for the cost of goods sold.
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2. Operating Margin: Operating margin is the ratio of operating income to total revenue and is a measure
of how efficient a company is at turning revenue into operating income.
Figure 3 :
3. Net Profit: Net margin is the ratio of net income to total revenue and is a measure of how much of every
dollar of revenue a company retains after accounting for all expenses.
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Figure 5: Return on Capital Employed (5-Year analysis)
Higher ROCE values in year 2022 compared to the previous year, indicate that a company is more efficient in
generating profits from its capital and is more likely to generate higher returns for its shareholder.
Liquidity Ratios:
Liquidity ratios measure a company’s ability to meet its short-term obligations. These ratios
are used to assess a company’s financial health and provide insight into its ability to pay off
debt and meet current liabilities with available assets. Common liquidity ratios include the
current ratio, quick ratio, and cash ratio.
Liquidity Ratios:
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Liquidity ratios measure a company’s ability to meet its short-term obligations. These ratios
are used to assess a company’s financial health and provide insight into its ability to pay off
debt and meet current liabilities with available assets. Common liquidity ratios include the
current ratio, quick ratio, and cash ratio.
Figure 6 :
The year-end net cash/debt ratio is a financial metric used to measure the solvency of a business. It is calculated
by taking the net cash position of a company (cash and cash equivalents minus total debt) and dividing it by
total debt. This ratio helps investors and creditors assess the company's ability to pay off its debt obligations and
its overall financial health. A higher net cash/debt ratio indicates that Barratt Developments has more cash on
hand than debt, and a lower ratio suggests that the company has more debt than cash.
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Figure 7 :
Debt-Equity Ratio:
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The debt-equity ratio is a financial ratio that measures the relative
proportions of a company's debt and equity. It is calculated by dividing a
company's total liabilities by its shareholder equity. A high debt-equity
ratio typically indicates that a company has been aggressive in financing
its growth with debt. This can result in volatile earnings as a result of the
additional interest expense. A company can use the debt-equity ratio to
analyze its financials in order to assess its capital structure and to gauge
whether the company is taking on too much debt. A higher debt-equity
ratio indicates that the company is more highly leveraged, which means
more risk for the company. If the ratio is too high, it may indicate that the
company is taking on too much debt and should consider decreasing its
debt load. Similarly, if the ratio is too low, it may suggest that the
company is not taking advantage of the potential benefits of debt
financing, such as lower interest rates and tax benefits. By assessing its
debt-equity ratio, a company can make informed decisions on how to
adjust its capital structure in order to optimize its financials.
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Assessing Financial performance
The company’s income statement for the fiscal year ended [2021-22] shows:
Barratt Developments has taken steps to improve its marketing and advertising efforts which could have led
to an increase in sales.
It has introduced new products or services like sustainable homes, virtual viewing and home automation etc
that proved to be popular with customers, thus increasing overall revenue.
Implemented cost-saving measures, such as streamlining operations or reducing overhead costs, which could
have helped to boost profits.
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Assessing Financial Position:
Accordingly, the Board revised the Group’s ordinary dividend policy, implementing a
phased reduction in a dividend cover of 0.25x per year from 2.5x in FY21 to 1.75x in
FY24. The Board declared an interim dividend for FY22 of 11.2 pence per share
(interim FY21 dividend: 7.5 pence per share) and is pleased to recommend a final
FY22 dividend of 25.7 pence per share (final FY21 dividend: 21.9 pence per share).
Subject to shareholder approval, the final dividend will be paid on 4 November 2022
to shareholders on the register at the close of business on 30 September 2022.
Shareholders who wish to elect for the Dividend Reinvestment Plan should do so by
14 October 2022. The total proposed ordinary dividend for FY22, including the
interim dividend of 11.2 pence per share paid in May, is 36.9 pence per share (FY21:
29.4 pence per share) reflecting the revised ordinary dividend cover of 2.25x adjusted
earnings per share.
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Group Financial Highlights:
Share-price information:
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Disbursements STEADY with W3 impact:
The impact of the pandemic has been felt across all industries, including Barratt Developments plc. Despite the
challenges of the pandemic, Baratt Developments plc has managed to maintain its disbursements relatively
steady. The company has implemented a range of strategies to ensure cash flow is stable, including increasing
collections, reducing costs, managing debtors, and optimizing investment opportunities. In particular, Baratt
Developments plc has focused on liquidity management and has taken steps to ensure that the company’s cash
flow is not affected by the pandemic. It has implemented a range of measures to help it manage its
disbursements, such as increasing loan collections, cutting costs, and focusing on receivables. The company has
also taken steps to reduce its reliance on external financing, and it has optimized its investments to ensure that it
is able to make the most of the opportunities available in the current market. Baratt Developments plc has also
taken steps to ensure that its employees and customers are able to continue to access its services. The company
has implemented a range of measures to protect its staff, such as providing additional paid sick leave and
flexible working arrangements. It has also taken steps to ensure that its customers are able to access its services,
such as providing virtual consultations and offering additional payment options. Overall, Baratt Developments
plc has been able to maintain its disbursements relatively steady in light of the pandemic. The company has
implemented a range of measures to protect its cash flow and ensure that its customers and employees are able
to continue to access its services.
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Conclusion:
The overall financial performance of Barratt Developments plc UK in year
2022 has been positive and the company has made considerable progress
in its financial position. The company’s assets increased significantly
compared to the previous year, and its net income also increased. The
company’s liquidity ratios improved, and its debt position was
significantly reduced. These results show that the company is in a strong
financial position and is well-positioned for future growth.
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Overall, the introduction of the IFRS and IFRIC has been instrumental in
bringing about much-needed change to the global housing industry. It has
enabled companies, investors, and governments to make better decisions
and ensure that housing investments i.e., Barratt Development plc’s
investments are secure and reliable. This has resulted in improved
financial reporting and decision-making and has allowed governments to
better regulate the market.
References:
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