The main aim of this assignment is to analyses the financial performance and positioning of Legg Mason INC, and compare it performance with its peers. Legg Mason INC is basically an American based Investment Management firm with a sheer focus on the asset management activities and functions. The company is currently offering products in Fixed Income and Equities with domestic and international focus. The company was founded in the year 1970 due to a merger, and has been delivering exceptional values for the end users. In the year 2016, the company managed to generate net revenue amounted to US$ 2.66 Billion.
Findings and Analysis
ROE and ROA
There are two major efficiency based rations which are likely to examine in this part of the analysis. For a better review, the researcher has selected a datasheet covering a period of 5 years (Chinchilla, D’Adamo&Gastaldi, 2015). Theoretically, Return on Equity (ROE) and Return on Assets (ROA) analyses the tendency of a company in utilizing its equity and operational assets respectively. Appendix-1 is showing the computation of ROA and ROE of the company, along with their respective graph. From the ROA graph, it is clearly found that ROA of the company is in the negative node from the year 2013. It was -4.47%, which moved to the positive node such as 3.96% and 3.25% for the years 2014 and 2015 respectively. The average ROA Of the company is 1.03%, showing that the company is able to generate income of $ 1.03 from its operational assets amounted to $ 100.From the ROE graph, it is clearly found that ROE of the company is in the negative node from the year 2013. It was -6.73%, which moved to the positive node such as 5.97% and 5.01% for the years 2014 and 2015 respectively. The average ROE Of the company is 1.79%, showing that the company is able to generate income of $ 1.79 from its equity amounted to $ 100.
The computation along with the graph of Equity Multiplier of Legg Mason INC can be found in Appendix-2 of the report. It is found from Appendix-2 that the equity multiplier scenario of the company is not efficient (Vogel, 2014). From the equity multiplier analysis of the company, it is clearly found that the assets of the company are financed more with the debt in almost every financial year selected. The average equity multiplier is showing an option of 1.69%, showing that the debt factor is almost 70% in the buying of the assets, which is not a perfect sign for them.
Two important ratios that come under the umbrella of profit margin are net profit margin (NPM) and gross profit margin (GPM). Appendix-3 is showing the computation of NPM and GPM for the company in the selected financial period. Likewise other rations, the NPM and GPM of the company is having a Zigzag formation in the selected years. The average NPM of the company is 2.3%, showing that the company is only able to generate net income of $ 2.3 from its net sales amounted to $ 100, which is quite low. Contrary, they are able to generate 6.66$ of gross profit from their net sales of $ 100.
From the average, it is found that the average asset turnover of the company is locating on a lower scale, as compared to their major competitors. Morgan Stanley is one of the closest competitors of Legg Mason, whose financial figures and outcome are way higher than any other perspective in the market, which is indeed not an efficient and perfect sign for the company. Hence, Legg Mason INC has to work extremely hard in order to maximize their positioning in the market.
From this entire analysis, it is found that the financial performance and positioning of the company is not efficient comparing to its competitors, and they have to work hard to compete accordingly.
Cucchiella, F., D’Adamo, I., &Gastaldi, M. (2015). Financial analysis for investment and policy decisions in the renewable energy sector. Clean Technologies and Environmental Policy, 17(4), 887-904.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis. Cambridge University Press.