G4S

Faculty of Business 2013
Financial Analysis G4S For the Year 2013-2012 Page 1

FINANCIAL ANALYSIS
G4S
For the Year 2013-2012


Table of Contents

1. Executive summary .................................................................................. 3
2. Short-term liquidity ................................................................................ 4
2.1. Current Ratio ........................................................................................................ 4
2.2. Quick acid-test ratio ............................................................................................. 5
3. Profitability Ratio .................................................................................... 5
3.1. Operating profit margin ratio ............................................................................. 5
3.2. Net profit Margin Ratio ....................................................................................... 6
4. Capital structure ....................................................................................... 7
4.1. Gearing ratio ......................................................................................................... 7
4.2. Debt to equity ....................................................................................................... 8
5. Operating Efficiency ............................................................................... 8
5.1. Assets Turnover ................................................................................................... 8
5.2. ROE ....................................................................................................................... 9
6. Companys Statement of Cash Flows Analysis ................................. 10
6.1. CFO TO Revenue ............................................................................................... 10
6.2. Cash return on equity ........................................................................................ 10
6.3. Cash-to-income................................................................................................... 11
6.4. Additional Cash flow analysis (Cash flow Statement) ................................... 12
7. References ............................................................................................... 13
8. Appendices ............................................................................................. 14


1.Executive summary

G4S PLC is Multinational British Security Services Company. G4S established as a result of
merger between Securicor Plc. And 4 FALCK which is a Denmark based group. Its based
in Crawley, United Kingdom from where it operates controls and manages its business
around the world in approximately 125 Countries. G4S is one of the largest and leading
security companies and specialized in the provision of security products, services and
solutions. Primarily, G4S is listed on the London Stock exchange and is a constituent of the
FTSE 100 Index.

G4S strategy is market led, G4S is serving the customers by understanding their strategic
objectives for security and according to those specifications, G4S design and deliver
innovative solutions which could resolve the concerns of customers and support their goals.
In addition to that, the aim of G4S is to create sustainable shareholder value over and done
with excellent customer service, operations and financial management.

As it is stated in the begging that G4S operates globally and provides their services in
different parts of the world to customers has played a major role in the companys growth in
sales of 5.8% for the year 2013 as in this sales growth, 16% growth arises from start
providing their services in emerging markets. In addition to that, the compet itive position of
G4S is further strengthened by establishing major restructuring programmes. For these
restructuring programmes, G4S planned to inject 68 Million over 2013 and 2014 which has
started now and in the pipeline. Upon the successful completion of these restructuring
programmes, G4S is expecting an economic and financial growth in their performance which
could be realized over a period of 12 to 36 months (G4S, Annual Report 2013).



2.Short-term liquidity
2.1. Current Ratio
Current Ratio measures the firms ability to meet their short term obligations with
current assets (Foster G, 1986). The Current ratio of G4S is 1.4 in 2013, that is
significantly lower than 1.7 (2012), this decrease indicates that in 2013, the liquidity of
the firm declined and deteriorated although G4S has still higher liquid assets to meet
their short term obligation (Appendix 1). The decrease in Current ratio is the result of a
decrease in current assets and an increase in current liabilities in 2013 as compare to
2012. The major contributors towards a decline in current assets are trade and other
receivables, investment and inventories while cash and cash equivalents increased. It
can also be inferred that although, the current ratio declined in 2013, but still, company
cash and cash equivalents increased. Upon the facts and figures, it can also be stated
that the decrease in inventory might be because of higher sales and a decrease in trade
receivables might be because of quick collection from debtors, which finally contributed
towards an increase in cash and cash equivalents. Current liabilities increased by almost
20% in 2013. Increase mainly occurred because of significant increase in provision,
liabilities associated with assets classified as held for sale and loan notes while trade
and other payables slightly decreased as compare to last year.

1.4
1.7
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2013 2012
Current ratio
2013
2012

2.2. Quick acid-test ratio
Further liquidity is tested with Quick ratio. Quick ratio declined to 1.33 in 2013 from
1.60 in 2012 (Appendix 1). Again, with quick acid test ratio, the liquidity declined and
company has lower liquid current assets in 2013 to meet current obligations however
still company have sufficient most liquid assets to meet short term obligations.

3.Profitability Ratio
3.1. Operating profit margin ratio
Operating profit margin ratio declined to -.57% in 2013 from 3.85% (2012) out of total
sales (Appendix 1). It shows that the profitability of G4S not only declined while G4S
incurred losses in 2013 while in 2012, although, the operating profit was not very high
but still the company made profit.
In addition to that, it can be observed from the financial statements of the G4S that
although sales increased in 2013 as compare to 2012 but on the other hand, operating
expenditure increased by a higher percentage in 2013 as compare to increase in sales. It
also shows that G4S is not efficient in cost management in 2013, In addition to this; it
can be inferred on the basis of Income statement the G4S losses are approximately
doubled from discontinued operations in 2013 as compare to 2012.
1.33
1.6
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2013 2012
Quick Acid Test Ratio
2013
2012


3.2. Net profit Margin Ratio
The important indicator of the performance of a company is Net Profit margin ratio
which shows the percentage of net profit (the return to the owners) in total sales
(Alexander, D., Britton, A., Jorissen, A., 2005). Net profit margin ratio is -4.60% which
shows that G4S made losses in 2013 while in 2012, the Net profit margin was 0.86%
which although is not that high NPM but still higher than 2013 (Appendix 1). Upon
these facts, it can be stated that company performance and profitability declined and
apart from increase in sales, operating profit and net profit boss resulted in losses.

-0.57%
3.85%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
2013 2012
Operating Profit Marin
2013
2012
-4.60%
0.86%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
2013 2012
Net profit margin
2013
2012

Year over year, G4S PLC has experienced a decline in net income from a gain of 40.0M
GBP in 2012 to a loss of 362.0M GBP in 2013, although sales slightly increased in 2013.
The major contributors to these losses in 2013 are an increase in the percentage of sales
devoted to cost of goods sold, selling, general and administrative expenses and income
tax expenses (G4S, Annual Report 2013).
4.Capital structure
4.1. Gearing ratio
The percentage and proportion of debt in the total capital structure is measured by
gearing ratio (Foster G, 1986). It can be stated on the results of Gearing Ratio of G4S that
long term debt comprised approximately 3% of the total capital employed in 2013 while
in 2012, its 1.40% (Appendix 1). In 2013, G4S enhanced the debt level as compare to
2012 which shows that in 2013, G4S enhanced their reliance on the external sources of
funds. However, its still a very small fraction of the total capital structure and thats
why does not affect or increase the risk level of the G4S.

Comparatively higher level of debt causes insolvency and exposes company to financial
distress and financial complication (Alexander, D., Britton, A., Jorissen, A., 2005). It can
be inferred that G4S is heavily financed with equity and thats why as a result, the
default chances are very low and finally the credit risk is very low.
0.0285
0.0144
0
0.005
0.01
0.015
0.02
0.025
0.03
2013 2012
Gearing ratio
2013
2012

4.2. Debt to equity
In 2013, Debt to equity ratio is 0.0294 which is higher from 2012 debt to equity ratio of
0.0146 (Appendix 1). Although, the debt level is very low at G4S however, its slightly
higher than the last year. On the basis of Gearing ratio and Debt to equity ratio, it can be
stated that G4S capital structure is mainly comprised of Equity while the reliance on
debt is very low.

5.Operating Efficiency
5.1. Assets Turnover

Assets turnover ratio measures the efficiency of a firms asset in terms of generating
revenue. G4S sales are 1.35 times of their assets in 2013 while in 2012, it was 1.29
(Appendix 1). It shows that G4S is more efficiently utilizing their assets in order to
generate sales in 2013 as compare to 2012. There are two reasons, because of which,
this ratio increased. The sales are slightly increased while on the other hand, total assets
declined.
0.0294
0.0146
0
0.005
0.01
0.015
0.02
0.025
0.03
0.035
2013 2012
Debt to Equity Ratio
2013
2012


5.2. ROE
Return on Equity estimates and measures a firms ability in producing a return to
shareholders. (Alexander, D., Britton, A., Jorissen, A., 2005). G4S ROE is -37.21% which
states that company had losses in 2013 while in 2012, company made a profit of 5.04%
(Appendix 1). In 2013, the owners equity declined which itself a reason of a very higher
ROE loss. it shows that G4S is not efficiently utilizing and investing the wealth of
shareholders and incurred losses because of which, the shareholders have lost the value
of their invest in G4S.

1.35
1.29
1.26
1.27
1.28
1.29
1.3
1.31
1.32
1.33
1.34
1.35
1.36
2013 2012
Assets Turnover
2013
2012
-37.21%
5.04%
-40.00%
-35.00%
-30.00%
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
2013 2012
ROE
2013
2012

6.Companys Statement of Cash Flows Analysis
6.1. CFO TO Revenue

The cash flow-to-revenue ratio estimates the amount of operating cash flow generated
for each dollar of revenue. As compare to total sales, G4S collects 0.0539 in cash from
operating activities in 2013 while in 2012, it was 0.0397 (Appendix 1). It shows that
operating cash flow in comparison to sales in 2013 are higher as compare to 2012 but
still its significantly lower. There could be two possible reasons for this lower CFO to
Revenue, first, cash sales might be lower or secondly, the cash expenditure might be
very higher, as a result of which, it produces very low operating cash flow as compare to
sales. Although, in 2013, the cash collection from operating activities is higher but the
company made severe losses in 2013, which cause a decline in cash but still, G4S
operating cash flow is higher than 2012.

6.2. Cash return on equity
The cash return-on-equity ratio measures the return of operating cash flow attributed
to shareholders. G4S cash return-on-equity ratio is 44% in 2013 while in 2012, it was
23% (Appendix 1). It states that the operating cash flow as a percentage of total equity
enhanced in 2013 and G4S is able to receive higher operating cash in 2013. It also says
that company have more cash to distribute it to shareholders in form of dividend or
5.39%
3.97%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2013 2012
CFO TO Revenue
2013
2012

share repurchase, or can utilise the cash for further expansion and growth. More
operating cash flow as compare to last year also infers that in 2013, the liquidity of the
company enhanced and financially G4S is significantly better than 2012 and generates
more cash from their operations. This might be one of the reasons for higher cash and
cash equivalents and higher liquidity ratios in 2013.

6.3. Cash-to-income
The cash-to-income ratio measures the ability to generate cash from firm operations. In
both the years, G4S income is negative which infers that G4S incurred losses while as
compare to losses, the operating cash flow is 0.8016 times of losses in 2013 while in
2012, it is 1.64 times (Appendix 1). The performance of the G4S in terms of profitability
is not good and incurs losses while still the G4S is able to generate positive cash flow
from their operations. It shows that G4S is performing better in terms of generating
cash from their operations but in terms of profit, G4S is not efficient.

44%
23%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2013 2012
Cash return on equity
2013
2012


6.4. Additional Cash flow analysis (Cash
flow Statement)
G4S generated cash from continuing operations increased by 36% in 2013 as compare to
2012. Further to meet financial requirements of the G4S, company generated approximately
343 million through issuance of shares (G4S, Annual Report 2013), caused a decrease in
Debt to Equity ratio (Appendix 1).

Net cash used in investing activities declined to 165m in 2013 as compare to 195m in 2012.
Although the purchase of non-current assets is higher in 2013 but on the other hand, cash
used for Acquisition of subsidiaries is not only significantly declined in 2013 while the
Disposal of subsidiaries increased in 2013 which caused an overall decrease in cash used for
investing activities.

Net cash consumed in financing activities is approximately 95m in 2013 as compare to 2012,
in which cash generated from financing activities was 46m. Although, G4S issued new shares
of 343m in 2013 which generates higher cash for G4S however, cash is consumed for
dividend payments, retiring some of the debts and interest payments which are higher as
compare to 2012 as well caused a declined in the overall financing cash flow and resulted a
negative cash flow of 95m.
0.8016
1.64
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2013 2012
CASH-TO-INCOME
2013
2012

7.References
Alexander, D., Britton, A., Jorissen, A., (2005) "International Financial Reporting and
Analysis", Second Edition,
G4S, (2013-12), Annual Report 2013, G4S UK,
Foster G, (1986) Financial Statement Analysis, Prentice Hall,


8.Appendices
1.
Ratio Expression 2013 2012 2013
Result
2012
Result

Operating
Profit Marin

* 100
X 100
X 100 -.57% 3.85%

Net profit
margin

* 100
X 100
X 100 -4.60% 0.86%

ROE

X 100
X 100 -37.21% 5.04%

Current ratio

1.40 1.70
Quick Acid
Test Ratio

1.33 1.60
Gearing ratio

0.0285 0.0144
Debt to Equity
Ratio
0.0294 0.0146
Assets
Turnover
1.35 1.29
CFO TO
Revenue
5.39% 3.97%
Cash return
on equity
44% 23%
Cash to
income
-0.8016 -1.64

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Faculty of Business 2013

Financial Analysis G4S For the Year 2013-2012 Page 1

X 100 -.57% 3.85%

X 100 -4.60% 0.86%

X 100 -37.21% 5.04%

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