Severn Trent

Table of Contents

Introduction3

Overview of United Kingdom Construction Industry3

Severn Trent5

Financial Performance5

Ratio Analysis7

Return on Assets7

Liquidity Ratio7

Interest Coverage Ratio8

Conclusion and Recommendations8

References9

Appendix10

Severn Trent

Introduction

Headquartered in Birmingham, UK, Severn Trent is in the business providing environmental services; it focuses on the supply or water and treating the waste water and discarding of sewage throughout the world. The company has an extended customer base of 3.7 Mn households and businesses just in Midlands and Mid Wales. It has its presence not only in the UK, but extends to United States as well as other European Countries.

According to the figures of year end March 2011, the company reported revenues amounting to $2720 Mn with 3.8 percent increase relative to previous year. It has a total strength of 8780 employees (Company Financials, 1-2).

Severn Trent is betrothed with supply of water. It has global operations in providing water and waste water solutions. The company expands its revenue base by its wide portfolio and broadened scope of business. High regulation in the domestic market may negatively affect the company's operations and future growth. However, a highly regulated domestic market may adversely affect the company's operations and growth plans in future.

Overview of United Kingdom Construction Industry

About 504% of the gross domestic product of United Kingdom is attributed to construction industry. Europe has issued long-term objectives that will require huge adaptations of the industry. In 1992, the Census of Construction Industries reported that there were nearly 2 M businesses operating in the U.K. construction industry. Of them 1.3 M are proprietorship and partnerships without any payroll. Among the firms with payroll 50 percent of them are firms with fewer than five employees. The rest of them contribute to about 80 Percent of the value of construction industry. In I 993 there were 598,255 construction shops employing a total of 4 M people. Of these shops about 83 percent of them had fewer than ten employees. This industry has grown very slowly. Construction firms vary in size. There are many small “morn and pop” firms with very low capital, which primarily participate in alterations and small scale projects. In these firms, the owner and his family members play all roles, including estimator, installers and book keepers. Market entry for such firms is relatively easy as it involves low capital investments required- Licensing and performance bonds are the only type of entry barriers which exist (Lowe, 101-03).

The profitability of most firms is pretty low. Only if a firm is able to cross a particular threshold size the returns are substantial firms tend to specializing in few aspects of the construction process. For instance firms may specialize in road building, residential complexes, stadiums etc. The firm specialization is independent of firm size. Firms can be roughly divided into three categories: private residential, private commercial and public construction. Firms or projects may not always strictly fall into one of the above categories. The types of projects undertaken by the construction industry are mostly residential. The construction industry therefore is extremely sensitive to variables liking ...