Ratio Analysis - First Group Company

In order to measure First Group’s efficiency and its short-term financial health, a ratio analysis capital exercise is performed for the years 2010 and 2011. Having a look at the balance sheet of First Group Plc Company (see below), it can conclude that there is not much significant change in the current ratio of the company. In the year 2010, current ratio of the company was 0.78:1 and for the year 2011, current ratio of the company was 0.77:1.   

Current Ratio (2010) = Current Assets/ Current Liabilities

            Current Ratio (2010) = 1066.2/ 1350.0

            Current Ratio (2010) = 0.78

Current Ratio (2011) = Current Assets/ Current Liabilities

            Current Ratio (2011) = 110.6/ 1427.0

            Current Ratio (2011) = 0.77

Although there is an increase in the current assets of the company, this increase is also supported by the increase in the current liabilities of the organization hence there is no significant changed observed in the current ratio of the company.

According to Moles (2011) the quick Ratio is similar to the current ratio except that inventories are subtracted from current assets in the numerator. 

The quick ratios of 0,72 and 0.71 times means, if we exclude inventories, First Group Company had for the year 2010 £ 0.72 and for 2011 £0.71 of current assets for each £ of current liabilities, cited by Moles (2011).

According to ABE (2009) working capital is defined as current assets less current liabilities, and its represents a measure of the ability of the company to pay its way.

Working Capital = Current Assets – Current Liabilities

Working Capital (2010) = Current Assets – Current Liabilities

Working Capital (2010)  = 1,066.2 – 1,350.0

Working Capital (2010) =  -283.8

Working Capital (2011) = Current Assets – Current Liabilities

Working Capital (2011)  = 1,104.6 – 1.427.0

Working Capital (2011) =  - 322.4

For the years 2010 and 2011 First Group plc Company had a negative working capital, means that during these years First Group was unable to meet its short-term liabilities with its current assets.

Source: First Group Company (2012)

BIBLIOGRAPHY

BOOK:

• Moles, P. (2011) “ Corporate Finance”.  First Edition. John Wiley and Sons Ltd. England.

• The Association of Business Executive ABE (2009) "Introduction to Business" . First Edition. ABE Publishing. England.

WEBSITE:

• First Group Company (2012), “Latest News”, [online] Available at: http://www.firstgroup.com/corporate/latest_news/ Accessed ( April 14, 2012).