Introduction

Pace is a leading supply of consumer electronics specialized in set-top box and advance residential gateway to 160 service providers around the world. This report will focus in analyzing the financial reports for the period of 2011 and 2012 in comparison with other competitor in the industry. The ratios results will be compare with that of Samsung Europe plc. At the end of the analysis recommendation will be provided to potential investors about PACE performances in relation to its direct rival and the electronic industry as a whole.

Analysis of Pace Plc Ratios

Profitability Ratios
Formula 100 + Pace plc 2012 2011 Different / %Changes Alternate Network plc 20 2011 12

Different / %Changes

ROE

12.6 9%

9.53 %

3.16

33%

26 %

21%

24%

Net Profit Margin Gross Profit Margin Return on total assets

100
100

2.43 %

1.68 %

0.75

45%

8.6 %

6%

2.6

43%

18%

19%

-1

-5%

39 %

38%

3%

100

3.92 %

2.89 %

1.03

36%

14 %

10%

40%

Interpretation of analysis figures As shown on from the analysis table, Pace PLC experienced significant increase on Return on Equity (ROE) ratio from 2011 to 2012. ROE has percentage increase of 33.2%, the growth

indicated the ability of Pace to be able to generate cash internally within the organization which implies low interest rate in servicing debt from external source such as bank loan. Often, HUBS Coursework Submission 1

Investors are concern about business going concern and continuity, thus, the 3.16 increased on ROE for 2012, portrayed a company whose future operability is not a doubt. In comparison to Alternate Network pcl who registered 24% increased on same period with a higher annual ROE, this indicated that Pace would have to improve its sales figure and reduces on it expenditure to derive a better ROE.

The net profit margin seen some slight increase in 2012; in comparative to Pace rivals (Alternative Network plc.), pace NPM average 2.01% while alternative network plc average 7.3%. From an investors point of view, the 0.75 increase indicated a healthy return on net profit margin, however, investors are often interested in higher returns which relies heavily on company profitability. Therefore, Pace need to improve in this area to catchup with her main competitor by increasing sales revenue, cutting down on COS and lowering expenses.

The Gross profit margin showed a negative figure of (-1) meaning falls in gross profit margin by 5% compare to alternate network whose increase margin was (1) with 3% increases in same period. This is not a disaster for pace, however it does shows a company with a low level of sales revenue and higher COS. Investors want a quick return, thus, Pace must address this issue.

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Efficiency Ratios
Formula

Pace plc 2012 2011 Different / %Changes

Alternate Network plc 2012 2011

Different / %Changes

Fixed Assets Turns

3.6 x

3.1 x

0.5

16%

3.7x

3.7x

Stocks turnover periods Settlements period for trade receivables Settlements period for trade payables

365

34 days

29 days

5 days

17%

2 days

2 days

365

85 days

73 days

12 day

16%

60 days

64 days

-4 days

6 %

365

117 days

73 days

44 days

60%

145 days

137 days

8 days

6 %

Interpretation of analysis figures The inventory turnover period for Pace in the analysis period average 31.5 days and up by 17% between 2011 and 2012; looking at it solitarily, seems to not be quick turns on inventory, although, we do not know the average for the industry; however, comparing this figure with her closest rival (Alternative Network plc) which has average inventory turns of 2 days during same period. This indicated that Pace is holding down on valuable liquidity in stock. Alternative network plc is turning over its stocks quicker, this may be due to the Just-in-time strategy in the organisation. Whereby Pace relies on warehousing and distributors to reach to the customers. Pace response to inventory turns are as follows: Inventory controls have been strengthened; inventory is now tightly aligned to confirm future revenues and the mix of stock is improved with component stock reduced and faster turning finished goods increased. During the year, stock turns improved by 19.2% from 2011."

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The settlement period for trade receivable seems very high, this may be due to the nature of the business; although, her competitor seems to be doing better in managing it credit control during same period by averaging 62 days to get their money from trading. Higher settlement periods for trade receivable might be the reason why Pace is paying such a high interest to service her borrowing cost. This suggests that some tightening on credit control procedures may be required to enhance Investors confidence in the company.

On settlement period for trade payable, it appears that Pace plc is taking approximately 117 days (4 months) to pay back money owed to his creditors. This seems to be a good strategy as it allows for more cash in running the business, however, this is not a good credit control practice as it could have a damaging effect on how trading partner perceive Pace Plc. Her competitor on the other hand seems to take shorter time in paying back money owed, however, settlement time for trade payable seems to be on the rise for both companies. Is this going to be a continuing trend?

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Liquidity Ratios
Formula

Pace plc 2012 2011 Different & %Changes 0.08 11%

Alternate Network plc 2012 2011

Different & %Changes 0.21 19%

Acid test ratio

0.78 :1

0.70 :1

1.32

1.11

Current ratio Net working capital on sales ratio Market securitizat ion ratio

0.995 :1

0.93 :1 0.020 :1

0.07

7% 90%

1.34

1.12

0.22

20%

0.002 :1

-0.02

0.09

0.03

0.06

200%

100

8.98%

7.47%

1.51

20%

70.1 %

40.3 %

30

74%

Liquidity Ratio The ability for any business to quickly turn it stock over and generate cash is very important. Looking at the figures on Acid test from the table above, it appear that Pace Plc has improved slightly on it stocks turn and current asset acquisitions. Over this period, the stock has increased by 21%, this is very good for people who are interested in investing in the company because the company has assets that can be quickly converted into liquid cash. However, in comparison to her direct rival figures, is shows that the liquidity level is relatively small compared to what is generated by Samsung in the same period whose average was 2.04. Overall, because of the improvement in it figures, shareholder/potential investors needs not worry, as it is possible Pace plc is holding less stock because of anticipated price decrease or for further keeping its cash for further investment on tangible assets.

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The current ratio figures also showed an improvement, the 2012 figure indicated that Pace plc has 0.995 times value of its current liabilities. This is very good as it indicated the ability of the company to be able to services its short term debt. Thus, investor should be pleased with this figure at it implies continuity of the business. However, her competitor has a higher figures during this period.

The net working capital on sales ratio shows a worrying trend as the figure indicated the extent to which networking capital could offset borrowing cost. From the calculation the figure has reduced from that of 2011. This is a concern as the business need to be able to pay the charges incurred from it liabilities.

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Gearing Ratios
Formula 100

Pace plc 2012 2011 Different / %Changes

Alternate Network plc 2012 2011

Different / %Changes

Interest cover ratio Debt to assets ratio Net working capital on sales ratio Debt equity cover ratio

6.61 x

3.95 x

0.16:1

0.28:1

0.52:1

0.91:1

100

43%

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Investment Ratios
Formula . .

Pace plc 2012 2011 Different / %Changes

Alternate Network plc 2012 2011

Different / %Changes

Earnings per share ratio Dividend yield ratio

19.4

13.2

100

4.25 %

3.79 %

Retention ratio

79.7 %

73.5 %

Dividend payout

20.3 %

26.5 %

Price/Earni ngs ratio P/E

4.77 %

6.99 %

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Horizontal Analysis of Consolidated Income statement and Balance sheet

Pace PLC Financial Statement for the year ended 31 December 2012 Consolidated income statement
2012 $m Revenue Cost of sales Gross prot Administrative expenses: Research and development expenditure Other administrative expenses: Before exceptional costs Exceptional costs Amortisation of intangibles Total administrative expenses Operating prot Finance income interest receivable Finance expenses interest payable Prot before tax Tax charge Prot for the year Prot attributable to: Equity holders of the Company Earnings per ordinary share Basic earnings per ordinary share (cents) Diluted earnings per ordinary share (cents) 19.4 18.5 13.2 12.5 6.2 6 47% 48% 58.4 38.8 19.6 51% -21.7 -15.9 -5.8 36% 0.5 -14.2 0.2 -18.5 0.3 4.3 150% -23% -119.5 -12.5 -51.8 -141.3 -12.7 -55.7 21.8 0.2 3.9 -15% -2% -7% -155.4 -160.6 5.2 -3% 2403.4 -1970.4 2011 $m 2309.3 -1866 94.1 -104.4 4% 6% Change(+/-) % Changes

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Pace PLC, Financial Statements for year ended 31 December 2012. Consolidate Balance sheet
2012 $m ASSETS Non-current assets Property, plant and equipment Intangible assets goodwill Intangible assets other intangibles Intangible assets development expenditure Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Current tax assets Total current assets Total assets EQUITY Issued capital Share premium Merger reserve Hedging reserve Translation reserve Retained earnings Total equity LIABILITIES Non-current liabilities Deferred tax liabilities Provisions Borrowings Total non-current liabilities Current liabilities Trade and other payables Current tax liabilities Provisions Borrowings Total current liabilities Total liabilities Total equity and liabilities 631.8 10.7 25.7 163.6 831.8 1028.3 1488.4 373.5 9.6 45.4 223.1 651.6 936.2 1343.3 70.3 51.5 74.7 196.5 95.7 41.6 147.3 284.6 28.7 79 109.9 -1.7 -54.8 299 460.1 28.3 73.1 109.9 2.9 -52.1 245 407.1 182.1 558.7 74.7 12 827.5 150 402.3 48.7 4.6 605.6 62.8 337.9 166.2 56.3 37.4 660.6 63 355.6 218 53.9 67.2 757.7 - 0.20 -17.70 - 51.80 2.40 -29.80 -97.10 32.10 156.40 26.00 7.40 221.90 0.40 5.90 -4.60 -2.70 54.00 53.00 -25.40 9.90 -72.60 -88.10 258.30 1.10 -19.70 -59.50 180.2 102.1 155.1 69% 11% -43% -27% 28% 11% 12% -27% 24% -49% -31% 1% 8% 0% -159% 5% 22% 13% 21% 39% 53% 161% 37% 0% -5% -24% 4% -44% -13% 2011 $m Change(+/-) % Changes

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