Market Values\" UK Listed Companies Evaluate Companies

¶ … market values" UK Listed Companies evaluate companies Investor Ratios Profitability Ratios. With reference statement: require critically appraise importance market balance sheet UK listed companies critical assess a relevant range investor profitability ratios measuring performance.

Market value

Market value and balance sheet value

A British firm listed on the market is generally traded at its market value, regardless of its balance sheet value. At a simplistic level, the balance sheet value represents the value of the firm as it is computed within the organization and in terms of the company's resources, revenues and other internal values. The market value on the other hand is the value of the company as it is assigned by the multitude of players in the market, and which is often computed based on elements intrinsic to the market, such as profitability of the company, risks and so on.

At a more specific level, the two concepts can be defined as follows:

Market value: "(1) The current quoted price at which investors buy or sell a share of common stock or a bond at a given time. Also known as "market price." (2) The market capitalization plus the market value of debt. Sometimes referred to as "total market value" (Investopedia, 2010).

Balance sheet value, more commonly know as book value: "(1) The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation. (2) The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities" (Investopedia, 2010).

The difference between the market value and the balance sheet value is mostly observable at the level of securities -- such as bonds and stocks. In this case, the investor will be introduced to the market value of a company's stock, and will then have to conduct individual research in order to identify the correlation between that value and the balance sheet value. In this endeavor, he would use various measures, such as the net assets and the final result would be that of revealing whether the two values match, or whether the stock is undervalued or overvalued, when compared to the book value.

Finally, the last thing which should be mentioned about balance sheet value and market value for an economic agent listed on the United Kingdom stock market is that the two would differ as a result of one particular element -- future potential. In this order of ideas, while the book value is be computed based on present elements, the market value also integrates the future potential the company reveals for growth (Investopedia, 2010).

2. Investor ratios and profitability ratios

Whenever an individual or a group of investors is looking to invest in a UK listed organization, it has to conduct thorough analyses. "One aspect of smart investing is being able to determine whether or not a company is a healthy company in general and not just this past year. You also want to know if a stock is really a bargain or not. Stock price and dividends are good to know, but not the only pieces of information you need to make sound, long-term investment decisions" (Essortment).

Two specific means of conducting these analyses on firms are represented by the investor ratios and the profitability ratios. The investor ratios are a rather complex category of ratios, but they have the advantage of being rather easy to compute. Additionally, once calculated, they can be used in further analyses, through correlation with other rations, and lead to more complex findings.

The main investor ratios used to appraise shares refer to the following:

Earnings per share (EPS), which is computed by dividing the profit available to equity shareholders by the average number of issued equity shares

Dividends per share, which are computed through the division of the dividends paid to equity owners by the average number of issued equity shares

The dividend yield, which is computed through the division of the latest annual dividends by the current market share price

The dividend cover, computed by dividing the net profit available to equity owners by the dividends paid to equity shareholders

Last, the price / earning ratio (P/E ratio), which is computed through the division of the current market share price by the earnings per share (Bized, 2010).

The profitability ratios are more common ratios which are used in various analyses, and they include the following:

The gross margin, which is computed by dividing the gross profit by sales

The operating margin, which is the result of dividing the operating income or loss by the sales

The net margin, which is obtained through the division of the free cash flows by the sales

The return on assets, which is the division of the net income by the total assets, and finally

The return on equity, which is computed through the division of the net income by the average shareholder's equity (Morning Star, 2010).

3. Vodafone Plc. And Premier Foods

Vodafone is an undisputable leader of the mobile telephone services industry and it disputes the position of ultimate leader with Orange. Vodafone emerged within the European markets after Orange, but has managed to exponentially increase its market share. A general trend which has been observed is that of specific regions being loyal to either one of the two providers.

Premier Foods is not only a leading foods organization in the United Kingdom, but also a leading firm in the country and evidence in this direction is constituted by the fact that the company is considered in the construction of the FTSE 250 Index. From a financial standpoint, the highlights of the two firms indicate the following:

1. With a total of 84,990 employees, and assets without liabilities in the amount of 90.381 million GBP, the Vodafone Group PLC has generated a turnover of 44,472 million GBP. The ascendant trend in turnover and assets has been maintained throughout the past four years. In the case of Premier Foods, the company has realized a 2,661 million turnover, with the aid of 16,099 employees and assets less liabilities in the amount of 1,064 million GBP. The superior results of Vodafone are obvious.

2. The profit margin for Vodafone is of 19.50%, whereas the profit margin for Premier Foods is of 1.75%, which could indicate that Vodafone is more profitable that Premier Foods.

3. The return on equity for Premier Foods is of 4.39 and the same ratio in the case of Vodafone is of 9.60, meaning as such that Vodafone generates more income from the money invested by the shareowners.

The comparisons above are mere exemplifications of the means in which investor and profitability ratios can be used to conduct analyses of organizations. They are nevertheless mostly relevant in cases when the compared companies operate in the same industry, and lose relevance when they look at companies from different industries.

At a general level, it can be observed that the financial results of Vodafone are superior to those of Premier Foods. At a more particular level nevertheless, the differences are explained by various elements, aside form financial performances and organizational capabilities. These elements are industry and company specific are include the following: