Trends and Ratio analysis of HBOS Group:
Performance of the HBOS group over the last year is pretty poor because of the recession, assets amortization and high level of impairments.
PROFITABILITY AND RETURN
Revenue of the group has increased from FY2007 (£35,012m) to FY2008 (£37,411m) by a margin of 6.85%. This increase was mainly because of the increase in advances to the customers over the previous year.
Gross profit for the FY2008 was 21.84% compared to the FY2007 of 20.86% which shows a slight increase of 4.70% which shows the interest expenses were in line with the previous year.
The group made an operating loss before tax of (£10,825m) representing (28.94%) of sale compared to FY2007 when the company made a profit of £5,474m representing 15.63% of sales.
This loss was mainly the result of heavy impairment losses on loans & advances of £9,807m and investment securities of £2,193m & increased goodwill impairment of £153m over the previous year. Other factors include share of loss of associates & sale of business.
Return on Equity & Net Assets:
Return on equity deteriorated from FY2007 of 18.50% to a negative figure of 54.94% for FY2008 which again was the result of operating losses because of the recession.
Return on net assets decreased to a negative figure of 0.032X for FY2008 compared to FY2007 of 0.016X for the same reason.
Gearing represents long term debt in relation to shareholders funds. Gearing of the group increased from 10.38X (FY2007)to 16.19X for FY2008, which represents the more financial riskiness of the business from investor point of view. Increase in gearing and decrease in profits show that the company will be unable to meet its long term commitments.
Total Debt to total Assets Ratio:
Total assets to total debt ratio is nearly the same for the current year i.e. for 0.98 FY2008 compared with 0.97 for FY2007. This ratio should be at least 1:1 for the reason, if the group has to be dissolved, all of its assets will be able to pay off all of its liabilities.
Current ratio of the company has decreased from 1.59 for FY2007 to 1.39 for the FY2008. It is because of the decrease in current assets and increase in current liabilities over the previous year. This ratio should be 1:1, which the group has maintained. In banking practice it must be at least more than 1 as the customers & institutions can demand for their cash at anytime.
Earnings per Share (EPS):
Earnings Per Share decreased from 86.77p (FY2007) to a loss per share of 48.98p (FY2008) as per calculations.
Basic EPS as per Financial Statements decreased from 103.4p (FY2007) to a loss per share of 167.8p (2008). Diluted EPS decreased from 102.8p (FY2007)to 167.8p (FY2008)loss per share.
This massive decrease was because of the issue of ordinary shares of 7500m & right issue of 2 shares of every 5 shares held in HBOS and the issue and buyback of preference shares. This resulted in an increase of ordinary share from 4740m (FY2007) to 15,140m (FY2008). Complete details of shares issue and buyback are in note 41 of Financial Statements.
Price Earnings Ratio (P/E RATIO):
Price earnings ratio for the company for the current year was in negative to a figure of 3.71X which is because of the heavy losses during the year (As per accounts PE of the group was a negative figure of 1.08). But only one company ratio cannot give a full picture of until compared with the market. The higher is the ratio represents strong confidence in the company.
Dividend per Share (DPS):
No ordinary dividends were announced for the financial year 2008. Dividends of 1,205m for FY2007 and Equity dividends of £81m paid during the year on preference shares were charged to finance cost.
The group suffered badly because of the economic downturn, cuts in interest rates and impairment of debts for the financial year 2008. Impairment losses on loans & deposits and investment securities amounted to £12,050m, which resulted in serious decline in profitability. It was taken over by Lloyds Banking group for £12bn on Sept. 18, 2008. "On 13th Feb. 2009, Lloyds Banking Group revealed a loss of £10bn at HBOS, which was £1.6bn higher than the company anticipated because of the deterioration in housing market."