Accounting

Financial Analysis of HAYS plc

Hay plc is a recruitment services company. According to its 2004 annual report ‘Hays provides specialist recruitment services for clients and candidates requiring permanent and temporary, professional and technical staff’ (Hays, 2004).

For the year ended 30 June, 2004, Hays had £530.2m of assets on its balance sheet, made up of £137.9m of fixed assets and £392.3m of current assets. Appendix 1 gives a summary of Hays consolidated balance sheet. Hays has £323.5m of current liabilities and hence £68.8m of net current assets. Total assets less current liabilities of £206.7m are being financed through long-term creditors, provisions and shareholders funds.

The company has only £0.1m of long-term bank loan. The company has long term other creditors of £6.7m which represents the amount due for the acquisitions made by it. The company has also £125.4m of provision for liabilities and charges relating mainly due to pensions (£10.6m), deferred taxation (£17.1m), property (£34.9m) and other (£42.3m).

These provisions are being financed through internal accruals. The company has taken money out of profit and loss account and put it into provisions for items that it think it may have to pay in future.

The book value of shareholders funds is £74.5m. If Hays doesn’t have provisions that shareholders funds would increase by £125.4m and would instead be £199.9m.

Hays has £79.4m of cash at bank and in hand. The total short and long term bank borrowings and overdraft are only £2m, less than 0.4% of total assets. The company as net debt of -£77.4m and so the gearing ratio is zero.

Cash flow statement shows that Hays financing moved away from debt towards equity and internal accruals. Hays plc almost completely reduced its debt in 2004. During the year ended 30 June 2004, the company reduced its borrowings from £400.4m (£196.7m + £203.7m) to £2m only, a reduction of £398.4m. This was achieved by repaying £306m of long term borrowings and £39.9m...