Financial analysis Case Study Example | Topics and Well Written Essays - 3250 words

Financial analysis - Case Study Example The report concludes with the summary of the EMI Group's financial performance in 2005. EMI Group PLC is a large company specializing on the music industry. The firm has a long history dating back to 1887. Since that time EMI Group has developed from a small recording enterprise into a major player of both music recording and music publishing markets. It is divided in to two divisions: EMI Music operates in the recording industry, while EMI Music Publishing is among the largest and the most successful music publishers. EMI Group operates directly in more than 50 countries with licensees in additional 20 and employs more than 6,600 people (EMI Group 2005a). EMI Music has about 6,000 employees worldwide, and EMI Music Publishing employs 630 staff. The strategy of the company is to deliver music - the main product of EMI Group - "in any form [including compact discs, tapes, and digital formats], at any time, and any place" (EMI Group 2005a). In line with this formula it is important to stress that EMI Group rapidly develops its departments focused on digital music sales. "By the middle of 2005 digital revenues accounted for just under 5 per cent EMI Group's total revenues, with that figure expected to reach 25 per cent in five years" (EMI Group 2005a). The catalogue of music published by EMI contains over 1.5 million titles of both classic and contemporary genres. The company offers songs of every genre to customers. Profit and Loss Account Profit and loss account of the company provides a record of all revenues and expenditures and totals the profit or loss over a given period of time (in our case the financial year ending March 31, 2005). To analyze the profit and loss account of EMI Group we will look into the following types of profit: gross profit (revenues from sales minus costs of goods sold), net profit (gross profit minus overheads), pre-tax profits (net profit plus one-off items), and profits after tax (pre-tax profits minus tax). The analysis of the profit and loss account is made in order to identify trends in sales, gross profit, expenses, stability of income, and growth in earnings per share. Group turnover for EMI Group is 1,942.8 m in 2005, while in 2004 it was 2,120.7 m (EMI Group Annual Report 2005b, p. 69). However these figures cannot give us enough information about the changes in profitability of the company. Cost of sales indicated in 2005 were 1,225.3 m in compare with 1,404.7 m in 2004 (EMI Group Annual Report 2005b, p. 69). Therefore, EMI Group sold fewer goods in 2005 than in 2004. The gross profit in 2005 was 717.5 m, while in 2004 it was 716 m. This gives us the notion that the profit from sales is slightly rising in compare to previous year. Analyzing the net or operating profits one can see that group net profit was 182.2 m in 2005 and 60.1 m in 2004 (EMI Group Annual Report 2005b, p. 69) - the net profit has risen significantly in 2005. Pre-tax profit aggregates 91.8 m, and profit after tax is 60.6 m in 2005, while it was a loss of 52.8 m and 72.5 m correspondingly in 2004. However absolute numbers can give us only partial information. Deeper analysis re quires examining relative figures, such as profit margin (pre-tax profit divided by sales). According to the information from FAME (2005) the average profit margin was 6.49 for EMI Group in the past ten years. In 2005 it was 4.73, while in 2004 profit margin was -2.50, and in 2003 it was 14.68. Thus