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1.2 P/E Ratio or Price / Earnings Ratio 1.3 Dividend Yield. 1.4 Dividend Cover. 2.0 PRIMARY OPERATING RATIOS MEASURES OF EFFICIENCY. 2.1 Return on Capital Employed 2.2 Debtors Turnover Ratio 2.3 Creditors Turnover Ratio 2.4 Return on Shareholders Fund 3.0 PRIMARY FINANCIAL RATIOS GEARING AND LIQUITY. 3.1 Gearing Ratio 3.2 Liquidity Ratio 3.2.1 Current Ratio 3.2.2 Quick or Acid Ratio 4.0 CASH FLOW CONCLUSION RECOMMENDATIONS APPENDICES BIBLIOGRAPHY REFERENCES INTRODUCTION It can be suggested that accounting consists of identifying, measuring and communicating business information to facilitate judgements and decision making for the further future.

This specific report is pointed at investigate National Grid Group Plcs report and accounts in order to decide whether someone should invest or not in this company. Someone, who is able to analyse this company, must have its Annual Report for at least two years, which will help the person, because it contains basic components like the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement and the Directors Report. PROCEDURE In order to guide you to understand about this specific company, I have used the Annual Review by following some steps: 1) To summarise the size, the structure and the profit of the company I have first check the balance sheet and the profit and loss accounts. 2) I have read very carefully the chairmans statement and the directors report, which helped me to understand better things about the company. 3) I have also calculated the trends and ratios. The performance data, P&L A/C, Balance Sheet, Ratios and Trends were obtain from the following sources: - Annual Review of National Grid Group of 1997-98. - Articles from Financial Times newspaper.

- Books related to the subject. FINDINGS. 1.0 INVESTMENT RATIOS MEASURES OF EFFICIENCY. Investment ratios are the ratios used by the investors when deciding whether a share should be bought, sold or held. 1.1 Earnings per Share. Earnings per share (EPS) indicate the amount of profit after tax, interest and preference shares earned for each ordinary share.

It is also more reliable for comparing the performance of any company because it can not be affected by the policy of the directors. Profit after tax + interest EPS = No. Of Ordinary shares The earnings per share of National Grid Group, excluding the exceptional profit relating to Energis, were 19.8 pence, compared with 24.3 pence in 1996/97. This reduction resulted from lower transmission profits following the implementation of the new price control. 1.2 Price Earnings Ratio.

The Price Earnings Ratio (PE ratio) is a measure of market confidence in the shares of a company. Also the PER play a significant role not only in the company itself, but on the industry in which it operates and, of course, on the level of the stock market, which tends to rise more than reported profits when the business cycle swings up and to fall more than profits in a downturn. Arithmetically, the ratio measures the number of years it would take to repay the shares current value in earnings. It can be define like this: Market price per share Price Earnings Ratio = Earnings per share At 31 March 1998, NGGs share price was 353 pence compared with 209 pence at the start of the year, an increase of 68 per cent. The shares traded during the year within the range 206 pence to 353 pence. The market capitalisation of the Company at year-end was $5.2 billion.

(The National Grid Group plc Annual Review 1997-98) 1.3 Dividend Yield. Dividend Yield expenses dividends as a proportion of the market value of total shares. They are also based on gross dividends per share, that is, on the dividends actually paid plus the associated tax credit. It can be defined like this: Dividend per share Dividend Yield = x 100 Market value per share On the 25th of November 1997, NGG announced that it was taking steps to improve the financial efficiency of the Group by returning excess capital to shareholders by way of a special dividend of 44.7 pence net per ordinary share. The special dividend, which represented approximately 15 per cent of the Groups market capitalisation at the close of business on the 24th of November 1997, amounted to 786.6 million and was paid on the 17th of February of1998.

On 5th of February 1998, the shareholders approved a share consolidation to reflect this return of value. As a consequence, 1,718 billion new ordinary shares of 11 pence each, a reduction of 15 per cent in the total number of ordinary shares in issue. 1.4 Dividend Cover. Dividend Cover compares net profit with dividends to show how many times over the dividends could be paid and how safe this annual yield is. With other words, the dividend cover shows how many times a dividend covered by earnings after tax profit.

Earnings per share Dividend Cover = Net dividend per share The recommenced final divided of 7.24 pence net per ordinary share, with the interim dividend of 4,83 pence net paid on 17th of February 1998, brings the total ordinary dividend for the year to 12.07 pence net per ordinary share. This represents an increase of 8.4 per cent over 1996/97. Dividend cover, excluding the exceptional profit relating to Energis was 1.6 times. 2.0 PRIMARY OPERATING RATIOS MEASURES OF EFFICIENCY. 2.1 Return on Capital Employed (ROCE).

The ROCE is a fundamental measure of the profitability of a company. The ratio is a popular indicator of management efficiency because it contrasts the net profit d by the company with the total value of fixed and current assets, which are presumed to be under management control. Therefore, the ROCE demonstrates how well the management has utilised total assets. It can be argued that ROCE is the most important measure of the profitability of any specific company. Mathematically can be measured by this: Net Operating Profit before tax, interest and dividends ROCE = Capital Employed Operating profit from continuing operations (Group undertakings) fell from $716.1 million to 570.6 million as a result of the significantly reduced contribution from transmission following the implementation of the new price control.

The operating profit contribution from the associate and joint ventures amounted to 1.3 million (1996/97- nil). 2.2 Debtors Turnover Ratio. The DTR measures the length of time it takes the debtors to pay the company for purchases. It can be either expressed in days, months or as a percentage. (The Annual Review 1997/98 of the National Grid Group Plc doesnt show exactly how much is the amount of the debtors) 2.3 Creditors Turnover Ratio.

The CTR gives some indication of the amount of credit a company is allowed by its suppliers, and quite a good indication, provided stock levels and profit margins and reasonably steady and the business is not highly seasonal. This can be measured like this: Average Creditors Creditors Turnover Ratio = x 365 (days) Purchases 937.7(million) The ratio for 1997 was: = 1.499 x 365 = 547.17 625.5(million) 1105300 The ratio for 1998 is: = 1.578 x 365 = 576.06 700350 2.4 Return on Shareholders Fund. The Return on Shareholders Fund represents the net profit of a company as a percentage. It can be expressed by the following ratio: Profit after tax and dividends Return On Shareholders Fund = Shareholders Funds 224,5(million) The ratio for 1997 was: = 16.16% 1388.9 (million) For the year 1998 because the company has given more dividends that the Profit of Ordinary activities after Taxation, thus it has Retained Loss instead of Retained Profit. 3.0 PRIM ...

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