The Plimsoll Model Explained.

Every company included in the brand new Plimsoll Portfolio Analysis - Healthcare is analysed using the Plimsoll Model. The Model affords 2000 companies an individual, single page analysis. The graphs on the Plimsoll Model add to the simplicity of company analysis. A rising line is good. A falling line is bad. It's as simple as that!!

Every company in the UK Healthcare industry has an individual, full paged analysis like this example.

.pdf','','scrollbars=yes,resizable=yes')"> Below is a more in depth analysis of each chart and how reading them to perform a company analysis for each of the Top 2000 companies in the UK Healthcare industry could not be simpler. Sales Growth This is a measure of whether the company is growing. Taken in context against the industry average and the competition it is easy to form an opinion on the company's growth. The standardised format of the Plimsoll Model allows instant comparison. Trading Stability Are total sales in line with investments. This chart is designed to sharpen response to a change in trading stability. A falling graph indicates sales falling relative to assets and unless reversed this will cause problems for the company. Look for a decline in the market appeal of the main products of the company or an over-ambitious investment programme not being realised in extra sales. These areas are key when targetting acquisitions. Profitability Are profits being maintained? If the graph is falling look either for a decline in sales relative to assets, or of trading margins due to lower prices or higher costs. Also look for signs of increased borrowing in an attempt to expand rapidly or to cover past poor profitability. This can of course develop into a vicious downward spiral. Companies with poor profitability can be very good acquisitions. A reduction of debt can often increase profitability dramatically thus instantly increasing company value and health. Working Capital Can the company pay off it's debts? The chart uses a new ratio, rather than the traditional (Current Assets / Current Liabilities) one. This new ratio requires that long-term debt is also deducted from current assets. It measures the ability of a company to pay its way without selling fixed assets. If a company is failing it does not matter whether its debt is long- or short-term. It is the total amount of debt that matters. Failing companies have difficulty maintaining current assets, while total debt remains constant or even increases. Hence the ability of the company to do business is impaired. Gearing This chart indicates how much of the company is "owned" by its shareholders relative to the providers of its borrowings. The term "highly geared" is in common use. A highly geared company would have a line low on the Y axis. High gearing or a low line on this chart means a high proportion of debt and therefore high risk. Failing companies experience a drop in equity, through a combination of losses in operations and reorganisation/extraordinary costs, as borrowings tend to increase. Immediate Liquidity This chart shows the immediate cover for trade creditors. Banks are the best informed providers of credit to a company and can impose conditions of preferential treatment for their loans. Trade creditors anxious to obtain sales are often ill-informed about the company and are also often unsecured creditors. This chart shows the cover for these creditors. The Plimsoll Chart This chart is the weighted culmination of the preceding charts. Any movements in this chart should be investigated; low or falling lines indicate a company of weakening financial strength, a high or rising line shows a company of improving financial strength. An explanation for the movements can often be found in one or more of the above charts. Common wisdom suggests that a 30% fall in this chart for two years running indicates a serious deterioration in a company's financial health. In essence this chart is an instant company health check. Check every company in your industry by simply looking at their Plimsoll Chart. .pdf','','scrollbars=yes,resizable=yes')">Click here for printable, industry specific example. Requires Adobe Acrobat "Failure to appreciate the relevance of the Plimsoll Model is to the detriment of those that do not use it".