Finance Case Study Paper sample on Thomas cook group plc

Thomas cook group plc

            This company is among the leading European companies in leisure and travel industry. The company specializes in offering a wide range of services in tourism and travel. This essay evaluates the company’s performance as well as position in the industry with an aim of considering the way macro-economic and PEST factors affect the company’s strategy. 

FINANCIAL RATIOS

For liquidity ratios, there are strong indications that the company is able to remain in business for quite some time, and push its business practices to the next financial period. This is supported by current ratios with an upward trend, OCFMO with an upward trend as well as quick ratio with an upward trend. This indicates that the company is able to meet its maturity obligations.  

: Current ratio for 2015

: Current ratio for 2014

: OCFMO for 2015

: OCFMO for 2014

: Quick ratio for 2015

Quick ratio for 2014

For profitability ratios, there are strong indications that the company is performing exemplary well. This is supported by the following calculations: a gross profit margin that has an upward trend, a PBIT margin that has an upward trend as well as a ROCE that is between 12 and 18 percent. This indicates that the company is performing exemplary well in utilizing its capital base.   

 : GPM for 2015

: GPM for 2014

: PBTIM for 2015

: PBTIM for 2014

 With regard to efficiency, there are indications that the company is efficient in employing long-term capital into producing sales. This is supported by high SCE and a relatively high TAT.  

: SCE for 2015

: SCE for 2014

: TAT for 2015

: TAT for 2014

However, as for gearing ratios, there are strong indications that the company relies heavily on external claimholders. This claim is supported by too high debt equity ratio, too high borrowing ratio and too high gearing ratios.

: Borrowing ratio for 2015

: Borrowing ratio for 2014

: Gearing ratio for 2015

: Gearing ratio for 2014

Finally, with regard to investment, there are strong indications that it would be advisable to invest in this company. This argument is supported by high price-earnings ratio for the two years in question.

: Price-earnings ratio for 2015

: Price-earnings ratio for 2014

Based on the above calculations, it can be said that the company is in a good position and performing exemplary well. The data used in these calculations is attached at the appendix.  

MACRO-ECONOMIC ANALYSIS

Despite the fact that the company occupies a good position in the market and performs exemplary well, there are a number of macro-economic environment factors that can affect it significantly. First, the company relies heavily on the way consumers spend their money. Accordingly, if consumers spend more money on tour and travel, the company is likely to benefit significantly. Conversely, if consumers borrow a lot of money, but spend less on tour and travel, the company is unlikely to make a lot of profit. Second, investment spending has a significant effect on the company. On one hand, it can improve the company’s performance and position if consumers opt to travel rather than invest. On the other hand, it can affect the company’s position and performance negatively if consumers opt to invest rather than travel.

 Third, given that the company operates from different regions and countries, but reports its profit in pounds, exchange rates are likely to affect the company’s position and performance. For example, if the exchange rate for this year will be higher than it was last year and consumer spending be lower too, then the company is unlikely to declare high profit as it did last year, and vice versa. This will definitely affect the company’s performance and position for this year. Other factors that are likely to affect the company’s position and performance include business sentiments, interest rates and economic growth. In spite of this fact, exchange rates, business sentiments together with consumer spending and borrowing have significant effects on the company’s position and performance than other factors. This is because these factors have direct impact on business and the way consumers behave.

 PEST ANALYSIS

Once again, given that the company operates from different countries and regions, changes in taxations in each of these countries and regions affect the company’s performance and position significantly. For example, if tax will be higher this year than last year, the company is unlikely to declare high profit as it did last year. In addition, political stabilities and instabilities in these regions and countries also affect the company’s performance and position. This means that if there will be political instabilities in any of the regions or countries the company has businesses, its performance will be affected negatively. As for economic factors, the major ones that affect the company are the exchange rates, economic growth as well as interest rates. The exchange rate affects the amount of money customers pay for the services. It also affects the company’s profitability as argued earlier on. Socially, demographics as well as class structures in the countries the company operates in also affect the company because of the way people spend and borrow money. Lastly, technology affects the way the company conducts its business. Of late, technological advancements have affected the company as well as the industry.

INDUSTRY ANALYSIS

            With regard to Porter’s five forces, the tour and travel industry has many players. Many service providers give buyers power to control the market by selecting services from different companies. In relation to this fact, the industry is very competitive (Palepu et al 58). For this reason, unless a company devises strategies that can sustain it in the industry, it is likely to exit the industry easily. With regard to life cycle, the industry can be regarded to be in the growth cycle because that majority of the companies in the industry make profit. As for the business cycle, the industry is in recovery stage after it was hit by the 2008 economic recession. In this regard, majority of the companies in the tour and travel industry tend to create value by engaging in different businesses. In terms of corporate strategy analysis, this reduces cost while increasing revenue.

 ANALYSIS OF THE FIRM  

As a way of ensuring that the company remains competitive, the company has a group strategy founded on product differentiation and quality services (Palepu et al 58). This strategy together with the company’s competitive advantage founded on its strong brand name enables it to dominate the European market. As a way of attracting more customers, the company has computerized most of its services. It also offers financial protection to its customers by reimbursing travel cost in case its affiliate tour operators run bankrupt.

Work cited

Palepu, Krishna et alBusiness Analysis and Valuation: Ifrs Edition, Text Only. London: Thomson Learning, 2007. Print.

Appendix

20152014
Operating cash flows474000000335000000
Current liabilities37020000003894000000
Current assets20350000001829000000
Inventories (average stocks)3200000034000000
Sales78340000008588000000
Trade receivables585000000705000000
Trade payables1700000049000000
Cost of goods sold60600000006672000000
Long-term debt1038000000715000000
Total equity368000000285000000
Short-term debt219000000449000000
Non-current liabilities18880000001615000000
Profit before interest and taxation170000000182000000
Finance costs151000000153000000
Total assets59580000005794000000
Gross profit17740000001916000000
Market price of each share1838
Earnings per share8.911.3
Gross profit margin22.60%21.70%