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Financial Management-Smith & Nephew

Critical Analysis

Description

In financial year 2017 Smith & nephew”s revenue of $4.77bn and trading profit of $1048m are marginally underact unison estimates despite a solid Q4, which represent a reported 5% year over year growth. Earnings per share surmount unison estimates. S&N”S marketing business activity and courses of actions secured the star billing of succession in all across the geographical

Income Statement:

31/12/2017

31/12/2016

31/12/2015

31/12/2014

31/12/2013

 

$ (Millions)

$ (Millions)

$ (Millions)

$ (Millions)

$ (Millions)

Revenue:

4,765.00

4,669.00

4,634.00

4,617.00

4,351.00

Operating Profit / (Loss):

934.00

801.00

628.00

749.00

810.00

Net Interest:

(61.00)

(46.00)

(38.00)

(22.00)

4.00

Profit Before Tax:

879.00

1,062.00

559.00

714.00

802.00

Profit after tax from continuing operations:

767.00

784

410.00

501.00

556

According the income statement of Smith and nephew company revenue are increasing year over year from financial year 2013 to financial year 2017 revenue increase from 4351.00 $ to 4765.00$ that shows emerging growth of the company. After deducting the operating expenses from the gross profit the operating profit increase year over year (Brochet, Jagolinzer and Riedl, 2013).

Financial Highlights

  1. In ending of the financial year 2017 company recorded $4765m Revenue as compare to previous financial year 2016 that shows $4669m.
  2. 3% Return on investment (ROI) capital that reflects betterment in operating profit.
  3. In 2017 full year dividend of 35.0$ per share shows the solid growth in adjusted earnings per share.

Yes investment rating has changed year over year by following the financial statement of the company.

The reasons are following

  1. Market size: - Smith and Nephew Company are leaders in the market for example Reconstruction, Advanced wound management, sports medicine, orthopaedics and trauma care.
  2. Successful Acquisition: - In Oct 23, 2017 Smith and Nephew successfully acquired Rotationa medical Inc. For $125m and up to a further 85$ over the next five years.
  3. Smith and nephew works in widespread operations and solid goodwill in the European market.
  4. Smith and nephew Company faces less competition from Johnson & Johnson, Stryker Corporation, Zimmer holdings.
  5. Reform position into the market and deliver excellence performance
  6. Risk management recycling process such as risk identification, gross risk assessment, current control identification, net (residual) risk, risk response planning, risk reporting and monitoring and Review all of this process reduce the impact of risk which make competitive advantage in chaotic environment (Grant, 2016).
  7. Smith and Nephew Company have opportunity to acquisitive the supplement organic growth.
  8. Emphasizes on Emerging market for example Smith and nephew emphasizes on outside the established market that include China, Brazil, Russia and India.
  9. Role of chief financial officer supporting and developing at the group financial activity and ensuring the financial reporting and processes.

The output of Smith and Nephew Company

Financial Performance- Aiming the better revenue growth and a better trading profit margin for example-In financial year 2017 revenue of smith and nephew is $4765m Revenue and Operating profit are $934m.

Capital allocation framework- Trading profit of the company in financial year 2017 was $1048m and dividend of $269m was prioritising to the use of cash.

14.3% Return on investment (ROI) capital that reflects betterment in operating profit. A better return on investment indicates the shareholders and stakeholder wealth that focusing on future prospects of shareholder.

United States is the single largest market representing 48% of the global revenue of Smith and Nephew.

In financial year 2017 group revenue was $4765 million, a raising of 2% in on a reported basis and 3% on underlying basis1. Trading profit in financial year 2017 was $1048 million. The trading profit margin from year 2016 to 2017 increases from 20% to 22%.The operating profit for 2017 was $934 million as compare from 2016 year the operating profit was $801 that shows year over year increase in the marketplace (Higgins, 2012). Adjusted earnings per share was raise up to 14% at 94.5$ as a result. As per the company report the trading cash flow in 2017 was $940million, up raising from $765 million in 2016.

In october23, 2017 Smith and Nephew Company acquired Rotation Medical Inc. For an opening cash of $125million and for next 5 years company liable to pay further $85 million.

In opening month (January) of financial year 2018 smith and nephew share price listed on 1245 GBP and in 9th of April 2018 share price increase from 1245 GBP to 1324 GBP that shows better movement of the stock. In comparison to 52 week high share price noted on 1442.00Gbp and 52 week lower noted on 1173.00 that shows vary changes in share price to be manipulate. Group revenue in year 2017 was $4765 million as compared to year 2016 revenue $4669 million that shows increase of 3% on the underlying basis of the assets (Kadous, Koonce and Thayer, 2012). 

Accelerating Performance and Execution (APEX) Programme is started for the annualised profit of $160 million by 2022 throughout by the better execution and management. Revenues are expected to increase 3%-4%. Scope of global operation contains manufacturing, direct procurement, supply chain logistic, engineering development, quality assurance, global regulatory affairs.

Trading cash flow upwards from $765 million to $940 million in 2016, with higher trading profit ratio. Smith and Nephew share listed on both of exchange that is New York Stock Exchange and London Stock Exchange (LSE: SN, NYSE:SNN).

Conclusion

After reading all that financial rating points Smith and Nephew we can say that the investment rating of the company has changed. Full year reported of financial year 2017 reported revenues of $4.77bn were hike by up to 2%. Recent acquisition are strategically working with current environment of the company with the divestment of its gynaecology from which stakeholder and shareholder gets benefited. Smith and nephew are the major medical device maker in European market which have wide range of product and approach in the global market.

Capital allocation framework of smith and nephew:

  • Reinvest for organic growth.
  • Progressive of Dividend Policy.
  • Acquisation in line with strategy.
  • Return excess of shareholders.
  • Maintain strong balance sheet to ensure solid investment grade credit metrics.

References

  • Brochet, F., Jagolinzer, A. D. and Riedl, E. J., 2013. Mandatory IFRS adoption and financial statement comparability. Contemporary Accounting Research. 30(4). pp.1373-1400.
  • Grant, R. M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
  • Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
  • Kadous, K., Koonce, L. and Thayer, J. M., 2012. Do financial statement users judge relevance based on properties of reliability?. The Accounting Review. 87(4). pp.1335-1356.
  • Louis, H., Lys, T. Z. and Sun, A. X., 2014. Conservatism, analyst ability, and forecast error: evidence on financial statement users' ability to account for conservatism.
  • Moher, D. and et.al., 2015. Preferred reporting items for systematic review and meta-analysis protocols (PRISMA-P) 2015 statement. Systematic reviews. 4(1). p.1.
  • Ongore, V. O. and Kusa, G. B., 2013. Determinants of financial performance of commercial banks in Kenya. International Journal of Economics and Financial Issues. 3(1). p.237.
  • Tukdeo, R., 2015. Analysis of financial statements.
  • Vasarhelyi, M. A., Chan, D. Y. and Krahel, J. P., 2012. Consequences of XBRL standardization on financial statement data. Journal of Information Systems. 26(1). pp.155-167.
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