Discuss the Financial Analysis and Comparisons Between
Manchester and Sussex Universities
Introduction
Financial analysis in management accounting involves the complete evaluations of financial
statements for the respective organizations.
Manchester University has continued to make huge strides in its financial performance and
expansion activities. The success of its bond issue to modernize and expand its research activities
has also demonstrated the confidence that the university continues to draw from investors.
Ratio Analysis
Profitability
The Gross surplus for Manchester in 2014 was £43,072 million in 2014 compared to Sussex
Gross surplus that amounted to £12,902 during the same period. The Gross surplus increased by
12.4% in 2014 but decreased by 22% in 2014 and 2013 respectively for Manchester while
Sussex performance for the same period amounted to a decrease of 5% and an increase of 2% for
Exam 2
2014 and 2013 respectively. The revenues for Manchester increased by 7.2 and 2.4 % in 2014
and 2013 respectively while for Sussex University the group revenues increased by 8.5 and 10.8
respectively for the same period. The interest coverage ratio
Efficiency
The inventory turnover for Manchester University, that is the total cost of services offered
divided by the average inventory amounted to about 10% and 11% for Sussex University while
for Manchester it amounted to 65% and 7% for 2014 and 2013 respectively. The total assets
turnover for the Manchester for the same period amounted to 7.2 and 2.4% respectively while
Sussex registered 8.6 and 10.77 for the same period. The average collection period for
Manchester in 2014 was 37 days while for Sussex it was 29 days in 2014 while the days in
inventory for both universities amounted to 0.7 and 0.3 for Manchester and Sussex respectively
in 2014.
Liquidity
Liquid assets refer to those assets that the company can quickly convert to cash when and if
required. The current ratio for Manchester in the year 2014 was 1.98 compared to Sussex 1.63
for the same year. In 2013 and 2012 the ratios for Manchester for current ratio were still higher
than those of Sussex University. It indicates that Manchester University has a higher and more
favorable liquidity than Sussex University. However, Sussex liquidity ratio has been growing
faster than that of Manchester. The quick ratio for Manchester in 2014 was 1.98 compared to
Sussex that had a quick ratio of 1.63 for the same period. The differences in stock between the
two liquidity ratios were almost similar as the stock levels were very low compared to the total
current assets (Ross, Westerfield & Jaffe, 2013).
Solvency
Exam 3
The solvency ratio as known as the leverage shows the level of debts in business financing and
investments. Manchester debts compared to its total assets in 2014 were 47% while Sussex was
21.6%. The debts for Sussex increased by 4.5% in 2014 while in 2013 the debt increased by less
than 1%. For Manchester the debts increased by 72% in 2014 while in 2013 it increased by 92%.
The reason for the high increase in debts for Manchester must be the bond issue that is meant to
facilitate the expansion of the new research facility for the university. The debt to equity ratio for
Sussex decreased to 40% in 2014 as compared to the previous year where it was 49.91%.
Manchester had a debt to equity ratio of 88.53% in 2014 compared to 52.13 and 24.35 in 2013
and 2012. From the solvency ratios it is clear that Manchester is more leverage than Sussex
University.
Limitations of Financial ratios, vertical and horizontal analysis
The ratio are subjective to industry ratio and do not provide the right value for what should be
counted as favorable or unfavorable. Ratio analysis cannot be utilized to compare different firms
as different organizations have different accounting practices and also accounting periods. Good
ratios do not provide conclusive evidence that a company’s performance is at par.
Ratio analyses are mostly based on historical figures hence there accuracy is not very reliable
unless the projections are based on predictable future values. Ratios cannot be used to evaluate or
value the performance of the management or the expertise of the employees.
Directors Statement
The director’s statement lauds the efforts of the Management of Manchester University towards
the issue of the university bond that is meant to fund the construction of the research facility at
the university premises which is also meant to consolidate very campuses together.
Exam 4
The director of Sussex announced a 4.7% increase in surplus income which almost equals to the
calculations for profit margin on sales (4.86%). The calculations for EBITDA for 2013 and 2014
defer from the calculations which amounted to 4.6 and 6.1% compared to the directors 7.7 and
7.5% respectively.
Audit Report
The liquidity status of the two universities are above average given that their current ratios are
almost the same as the recommended 2:1 ratio which means that the current assets are at least
twice the current liabilities. The quick acid test ratio is even better as both companies have
surpassed the 1:1 ratio. The solvency ratios are bit worrying as Manchester is highly levered
while Sussex is better off between the two Universities.
Corporate Social Responsibility
Corporate Social Responsibility also known as CSR refers to the responsibility that organizations
assume in a society based on their business activities in a particular environment or society. CSR
defines the relationship between all the stakeholders in a community and the company
shareholders including the management (European Commission, 2015). Manchester University
has struggled to achieve a first class rating in its social responsibility activities. One of the most
outstanding undertakings of CSR activities by Manchester University is the construction of the
One Central Park Ltd that is located along the Oldham Rd in Manchester. It has been developed
with the sole intention of developing business enterprises among the local community. The
university has already sold its 20% stake in the firm to Manchester City Council to ensure it is
fully integrated and managed as per the wishes of the community living around the university
premises. The other CSR activity is known as the Corridor Manchester and it refers to the
Exam 5
establishment of a research and development center for Manchester hospital in partnership with
NHS Foundation Trust and Bruntwood.
University of Sussex engages the public through its regular academic programs that it offers
through scholarships and also working with other organizations to advance research work and
other philanthropic activities.
Sussex University has a strict policy that ensures that public interest is protected hence all its
rewards schemes and other benefits to the community are funded through an external fund that is
independently managed. The University also sponsors the Sussex’s First-Generation Scheme for
scholars through engagement with the local community and other partners to offer job
placement, career advice and other student assistance programs.
Both universities offer assistance to the public through various programs but Sussex provides
more of its CSR services to students than Manchester which provides more services to the public
as compared to Sussex University.
Ratios
Current Ratio Total Current Assets/Total current liabilities
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities
Inventory Turnover Cost of Services/Average inventory
Asset turnover Sales/Average total assets %
Net assets turnover Net assets / total sales %
Times interest earned EBIT/Annual Interest Expense
Debt to total Asset Debt/Assets %
Interest cover EBIT/Annual Interest Expense
Profit margin on sale GP/Group revenue %
Return on Total Assets EAT/Total Assets %
Return on Equity Profit after taxes/Shareholders equity %
Return on average assets Return on average Assets %
Debt to equity ratio Debt/equity %
Net cash flow coverage Net cash flow / interest expense
Sussex Consolidated a/c Manchester
Exam 6
2014 2013 2012 2014 2013 2012
Current Ratio 1.63 1.62 0.65 1.98 2.00 1.14
Quick Ratio 1.63 1.62 0.65 1.98 1.99 1.14
Inventory Turnover 1138.64 1038.03 931.23 565.11 528.59 508.15
Asset turnover % 83.41 76.78 69.31 58.60 54.67 53.37
Net assets turnover % 57.76 61.11 55.00 100.57 99.71 92.43
Times interest earned 2.37 2.41 2.78 2.21 4.14 4.91
Debt to total Asset % 21.63 20.69 20.68 46.96 27.27 14.18
Interest cover 2.37 2.41 2.78 2.21 4.14 4.91
Profit margin on sale % 6.21 7.11 7.69 4.86 4.63 6.09
Return on Total Assets % 6.23 5.11 5.65 2.58 2.44 3.80
Return on Equity 11.70 12.62 14.49 4.87 4.67 6.52
Return on average assets % 5.63 5.92 5.52 2.87 2.55 3.21
Debt to equity ratio % 40.03 49.91 52.97 88.53 52.13 24.35
Net cash flow coverage 4.42 3.43 3.67 3.08 5.81 5.64
Sussex Consolidated a/c Manchester
Financial Performance 2014 2013 2014 2013
Horizontal Growth
Trend
£ 000′ £ 000′ £ 000′
GP -5.06 2.40 12.42 -22.06
Total Surplus (NP) -4.82 7.17 12.71 -20.79
EAT -4.02 4.85 12.62 -20.79
Share holders Equity 2.70 23.08 8.12 10.49
Total Assets -21.21 15.91 6.62 23.05
Total Liabilities 0.93 11.45 4.98 40.58
Inventories -75.79 -31.41 -1.47 -0.93
Group Expenditure 9.69 11.47 6.93 4.02
Average inventory 0.00 0.00 0.02 0.00
Debt -17.63 15.98 83.60 136.58
EBIT -4.02 4.85 12.42 -22.06
Group Revenue 8.64 10.77 7.19 2.44
TT Assets- Inventories -1.17 132.95 -0.84 84.31
Interest Expense -2.56 20.93 110.82 -7.58
Average Receivables 0.00 0.00 0.00 0.00
Current Assets -1.38 131.39 -0.84 83.86
Current Liabilities -1.68 -6.91 -0.08 5.12
Average total assets 0.00 0.00 0.00 0.00
Receivables -19.69 16.26 6.67 -4.28
Payables 226.99 -6.91 -0.79 61.98
Net Cash flows 25.75 12.80 11.70 -4.86
Net Assets 2.70 23.08 8.12 10.49
Exam 7
Exam 8
References
European Commission (2015) Enterprise and Industry
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013) Corporate finance (10th ed.) New York, NY:
McGraw-Hill Irwin.
