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Financial Position of STV Group

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 5372 words Published: 1st Dec 2020

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The main objective of this study is to analyse the financial position of the company STV group. Financial statement analysis is a study of the relationship among various financial facts and figures given in a set of financial statements. The details regarding the historical data have been obtained from Bloomberg terminal, yahoo finance, and the London stock exchange. The secondary data are based on the annual reports published by the company from 2014-2018.

The various tools used for the analysis and interpretations of the group are ratio analysis, valuation of the company and the financial management policy. Graphs and tables have been used for better visual understanding. The various ratios analysed are based on profitability, liquidity and efficiency of the company’s financial statements.

STV group if following negative shareholders equity and also increasing dividends over the past 3 years. On the other hand the company’s turnover is not sufficient to fund the increasing dividend payments. This study recommends reduce accumulated looses and provide security to the shareholders and to increase profits for overall improvement.


UK economy

The UK economy, part of one of the developed countries is highly mark orientated. Raking fifth largest national economy in terms of GDP, the UK contributes 3.5% towards the world economy. According to the report submitted by PWC, the UK economy is anticipated to grow at average rate of 1.4%in 2019 and 1.3% in 2020. This report was however based on the assumption that there will be an agreement on Brexit deal with risks being weighted on downside, in case of disorderly Brexit. (PwC, 2019)

STV Group plc.

Based on Glasgow, STV was incorporated in 2000 and is an essential part of the FTSE small cap index . Originally STV was formed as Scottish television , the ITV licence holder for central Scotland. The company was retitled to Scottish Media Group in 1996 and acquired the licence for Northern Scotland Grampian television, in 1997. The Scottish and Grampian channels were rebranded as STV in 2006. (STV plc, 2019)

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STV group along with its subsidiaries produce and broadcast television programmes in the United Kingdom. The company also operates in broadcast, digital, production and external lottery management subdivisions. It provides wide range of options from news, sports, entertainment, weather, competitions, and video on demand and other STV programmes. The STV provides its content through air on TV, website and through video on demand through the STV player. Other than media and TV services sSTV group also provides Internet services, lottery management and sells advertising airtime through space in its media.

STV’s business model is based on delivering unique and high quality content to attract audience, which is sold to advertisers to generate revenues. The content is delivered through multiple media The STV channel is accessible free to air on all the main TV platforms across Scotland. As per the company annual report for the year ended 2018, STV group had the best share of viewing in over a decade with a peak time viewing share of 22.1%. The company also increased its traffic on website by 40% in 2018. (STV plc, 2019)

The median industry in the UK comprises of television, radio, newspapers, magazine and websites. The UK has a wide range of media providers, the most prominent being the BBC, which is publicly owned service broadcaster. The combined revenues of the 100 largest media and entertainment companies in the UK increased to £96.3bn in the last financial year, according to a report from Deloitte. (Deloitte United Kingdom, 2019)

As per the reports from PWC the entertainment and media in the UK is expected to grow towards £80.5 billion by the year 2023. (PwC, 2019)

Audiences, endowed in the digital era, can now consume media content on demand, and attend gigs, sporting events remotely thanks to digital technology. Deloitte forecasts that half of the adults in developed countries will have at least two online subscriptions, doubling to four by 2020. Video on demand is expected to generate the most revenue of about 40% through Internet advertising and Internet access. Virtual reality, over-the-top Video and e-sports are predicted to be the fastest-growing segments in the UK media and entertainment industry over the next five years. (Deloitte United Kingdom, 2019)

Deloitte predicted a decline in the traditional TV viewing activity by the 18-24 year old by 10%-15% in 2018 and 2019 and improbable decline thereafter. The changing climate in how the newer generation watches television has put weight on broadcasters, advertisers and distributors to rethink the traditional approach and react to the changing consumer habits. In the UK, Deloitte estimates there are about 26 million online only subscription .The faster broadband speeds are making media ever more compelling than traditional alternatives, which   gives a clear indication of consumers showing willingness to pay for online content. (Deloitte United Kingdom, 2019)

STV Productions

The STV production is the UK’s leading content business with records of success across range of genres. Highlights include entertainment show catchphrase for ITV, ratings winner Antiques Road Trip for BBC and documentaries Britain’s Polar Bear Cub for Channel 4, Ross Kemp Behind Bars – Inside Barlinnie for ITV and Prison: First & Last 24 Hours for Sky1

The STV’S most viewed show like Britain’s Got Talent, Dancing on ice and dramas including trauma, unforgotten and Vera increased the audience viewership by 16%. The FIFA World Cup led STV to reach viewership to 3.55 million viewers.

Ever-popular STV series, Coronation Street and Emmerdale, continue to grow viewership share since 2017, while the newest series of I'm a Celebrity - Get Me Out Of Here! Were the most popular in Scotland and the most -watched programme across the year, with a 45% share and an average audience of nearly 980,000. The figures are based on consolidated data from BARB, covering 1st January - 6th December 2018, 1900-2230. (Barb.co.uk, 2019)


Ofcom regulates the UK communications industry, which consists of television, radio and video on demand sectors, fixed line telecoms, mobiles and postal services. Ofcom functions under the communications act 2003, the main duty of regulator is to broaden the interest of the citizens and of consumers by promoting appropriate competition where crucial.  Ofcom The regulator ensures people are protected from offensive material, to prevent consumers from unfair treatment and protection of their privacy. (Ofcom, 2019)

Relationship with ITV plc.

The United Kingdom has a diverse range of media providers, the most important being the BBC or the British broadcasting corporation. ITV was launched in 1955 to provide competition to BBC. The legal name for ITV has been changed from channel 3 since the passing of the Broadcasting Act 1990 with the aim to distinguish it from other channels such as BBC 1, BBC 2 and channel 4.  The channel 3 was assigned to regional ITV station to be on the third button with other channels being allotted o the number with the channel’s name.

ITV is operated by a number of licensees, which provide regional services. Since 2016, the fifteen licences are held by two companies, with the majority held by ITV Broadcasting Limited, part of ITV plc. All companies holding a licence were part of the non-profit body ITV Limited, which authorized and scheduled network programs. This changed after the amalgamation of several companies it has been replaced by affiliation system. With approval from Ofcom, the new system allows ITV plc. To commission and fun network schedule with STV and ITV paying a fee to broadcast it. STV Group was previously in dispute with ITV but this was resolved in 2011 and STV now pays a flat fee to ITV


The competitors selected for STV g analysis are ITV, DCD media, catalyst media group, Channel4 and BBC. The earnings of STVg are compared to that of BBC, Channel4 and ITV’s, whereas the ratios are analysed in comparison to ITV, DCD and Catalyst media group. The strategic report of STVG was used to determine BBC, ITV and channel 4 as its competitor. (STV plc, 2019)

However STVg, a FTSE Small Cap company along with ITV plc; are part of the London stock exchange, whereas the BBC and Channel4 are not. To enable comparison with companies within in the London stock exchange, DCD media and catalyst media group were selected. The selection process involved the filtration of all the companies on the London stock exchange on the basis of media and subcategory broadcasting and TV industry. The companies were selected based on the region of headquarters being United Kingdom with a market capital of over 2 million (Londonstockexchange.com, 2019). This enabled us to measure the performance of STV group beside other media and broadcasting firms based on United Kingdom.

The BBC founded in 1922,is one nations oldest broadcaster in the world with a turnover of £4.96 billion (Bbc.com, 2019). ITV plc. On the other hand was founded in 2004 and has total revenue of £3,211 millions as of 2018. Channel4 was formed in 1982 and has around 11 sister channels, with a total turnover of  £975m (Itvplc.com, 2019). Channel 4 with turnover of £975m was established to provide a fourth television service in addition to the license funded BBC one, BBC Two and the single broadcasting network ITV (Annualreport.channel4.com, 2019). All of the above channels have competed with each other to become the United Kingdom’s most watched television. Further financial analyses of STV along with its peers have been explained down the report.

How diverse is STV?

According to the report “UK broadcasting industry report” by OFCOM on diversity and equal opportunities, STV’S viewership reaches 3.5 million people per month. STVs workforce consists of 51% male consistently since 2016, which is 3pp lower than the industry average. The company also reported a mean gender pay gap of 22.8% and a median gender pay gay of 17.3%. STVg also has taken measures to train its employees in partnership with the Scottish Association for Mental Health to help employees. (Ofcom.org.uk, 2019)


Ratio analysis is crucial for investment decisions. It not only helps in knowing how the company has been performing but also makes it easy for investors to compare companies in the same industry and zero in on the best investment option. The data for the purpose of calculation of various ratios have been obtained from the annual reports of the company, London stock exchange (Londonstockexchange.com, 2019) the financial times (Markets.ft.com, 2019) and yahoo finance (Uk.finance.yahoo.com, 2019)


The OPM demonstrates the operational efficiency and pricing power of the company. A higher OPM indicates the company’s efficiency in procuring raw material and converting them into finished products without wastage. STV group has maintained the OPM at the similar levels of 16% however a higher margin is a better sign for investors. The ratio measures the proportion of revenue that is left after meeting variable costs such as raw material and wages. The OPM indicates that the company is failing to increase the OPM over the period.



The ROE helps investors to compare the profitability of a company with its peers in the industry. This ratio highlights the management capability of the company. The benefits come when the ROE is higher when earnings are revisited, which produces a higher growth rate.  With that being said a higher ROE could also be higher by increasing the debt of the company

One would expect leveraged companies to exhibit inflated ROEs as a major part of capital on which they generate returns is accounted for by debt. While the company started of with decent return to the equity investors in the year 2014 and 2015 the company has since then been a landslide with a negative equity share capital accounted by the accumulated looses in the past years. The lack of equity share is an indicative of the company’s failure to manage its return efficiently.



It indicates how solvent a business is and gives knowledge about the number of interest payments the business can service solely from operations. The ratio can be calculated using EBITDA in place of EBIT to compare companies in sectors whose depreciation and amortisation expenses differ a lot. Or, by the use of earnings before interest but after tax if one wants a more accurate idea about a company's solvency.

While measuring the company’s ability an interest cover ratio of 1.5 or higher is expected. Although the company has had an interest cover higher than the desirable ratio, the company has not been able to maintain it stably over the years. The company also had its lowest interest cover ratio in over 5 years with 2.73 in 2018, leading us to question the company’s ability to pay it debts in the future.


This shows the liquidity position, that is, how prepared the company is in meeting its short-term obligations with short-term assets. A higher figure signals that working capital issues will not affect the company’s everyday functions. A current ratio of less than one is a matter of concern.

Sometimes companies find it difficult to convert inventory into sales or receivables into cash. This may hit its ability to meet obligations. In such a case, the investor may calculate the acid-test ratio. However, the company has maintained a ratio above 1 in over the years. While ratio of 3.11 in2014 and 3.07 in 2016, indicates the company can cover its current liabilities three times, it may indicate that it's not using its current assets efficiently.


The quick ratio is the company’s ability to meets its short-term obligations with its most liquid assets. It indicates the company’s ability to use its near cash assets to meet its immediate obligations.  A result of 1 is considered to be the typical quick ratio, as it signifies that the company is fully prepared with precisely enough assets to be rapidly liquidated to pay off its current liabilities. The company has maintained the quick ratio above the desirable amount of 1 in over the years. For example, a ratio of 1.25 in 2018 indicates that the company has £1.25 of liquid asset to cover each £1 of current liabilities. The higher the ratio, the better the company is performing, however STV g has had a declining ratio since 2014, indicating the company many be stressed to pay its debts. 


Receivable turnover ratio

The ratio is an accounting measure used to quantify a company’s effectiveness in collecting the money owed by the customers. It indicates how well the company collects the credit extended to the customer and the short-term debt owed to them. Accounts receivable is money owed without interest and hence the ratio can be interpreted as company extending interest free loans to their customer. A high ratio indicates the company is collecting receivables more often throughout the year. For instance the company had a receivable turnover ratio of 6 during the year 2018, meaning the company collected its average receivable 6 times during the year. The ratio although has shown an improvement since the previous year, it is still twice less compared to its consistent performance since 2014.

Total asset turnover

Asset turnover ratio is an efficiency ratio that measures company’s ability to generate sales from its assets by comparing net sales to total assets. The ratio measures the efficiency of company to use its assets to generate sales.it represents how many sales would be generated form each dollar of company assets.  A higher ratio is preferable, for instance the company generated an asset turnover ratio of 1.43 in the year 2018, meaning the company is generating £1.43 of sales for every £1 invested.



This ratio measures the degree of company’s leverage. It cans also be interpreted as the proportion of company assets that are financed by debt. A ratio greater than 1 shows that majority of the assets is financed by debt. In the case of STVG, except in the years 2014 and 2015 the company has had a ratio greater than 1. The company may be putting itself in danger by financing major portion of its assets through debt, risking the possibility of interest rate to rise.


The debt to equity is calculated to evaluate the company’s financial leverage. The D/E is important to measure the extent to which a company is financing its operations through debt vs. wholly equity funds. A higher leverage ratio indicates a company with higher shareholder risk. A debt ratio of .5 means that there are half as many liabilities than there is equity. Since a lower D/E ratio is preferred, the STVg with a ratio of 2.41 is a high risk to the equity holders. With that being said, the company has been recovering from the high D/E of 24.17 in 2014, decreasing it to 6.09 in 2015 to a further 3.42 in 2017.

Debt to Capital Ratio

The debt to equity ratio is the liquidity ratio that calculates a company’s use of financial leverage by comparing the total obligation to total capital. Typically the higher the ratio the greater the risk to lenders and shareholders, a ratio greater than 1 means the company has more debts than capital. The Stage ratio has remained greater than 1 except in the year 2014 and 2015. There is a possibility that if any more liabilities are acquired without an increase in earnings, the company might go bankrupt.


Ratios - based on IFRS





4 imprint group

PE Ratio












Earnings per Share Growth 






Dividend Cover






Revenue Per Share 






Pre-Tax Profit per Share 



(2.28) p

(0.44) p


Operating Margin 






Return on Capital Employed 






Industries have different profitability due to inherent differences in their business models; as a result, price-to-earnings ratio is more of an industry specific measure. According to the P/E either STVG is losing out to other companies or the market has mispriced the company. The PEG growth rate is negative compared to its number one peer the ITV along wit 4 imprint, which has a positive growth rate. The positive side of the company was its ability to pay high dividends despite its low earnings per share, however the dividend cover is below in comparison to ITV and 4Imprint. Over all the company fall 3rd in terms of its performance comparison with ITV and 4Imprint.


STVg is a part of the FTSE small cap, FTSE small cap is an index of small market capitalisation companies comprising of the 351st to the 619th largest-listed companies on the London Stock Exchange main market. The FTSE index has been indicated by the blue graph, the media industry with orange and STVG with black. As the graph shows, while the media industry index and FTSE index have had a somewhat steady growth over the past 3 years, the STVG has had a volatile trend. The graph of STV consists of extreme highs during the year of 2016 when the FTSE small cap and media index performed low and extreme low in mid of 2018 along with the media index, while the FTSE performed well. The STVG is following a volatile of trend comprising of highs and lows and the trend seem to converge in may 2019.


While the ratio analysis is widely used measure of company’s performance there are various drawbacks attached to it. The essential factor for ratio analysis is the availability of comparative information, the lack of availability of information about the benchmark or industry average limits the reach of ratio analysis. Much of the accounting information available is based on the past performance of the company subjects to the limitation of historical costs. The richness of the picture that the information helps to build is based on the quality of the data available. Even with the availability of quality data, the past information may not be the best estimate for future performance. (Accaglobal.com, 2019)

Buy-and-hold abnormal return approach (BHAR)

The early return based event studies were formulated by fama, fisher Jensen and roll in 1969 capturing the short-term effects of events on stock price. A related methodology was developed to capture the long-term and persistent effect of events on the stock price (Fama et al., 2003). Buy and hold is an investment strategy where investors buy and hold stocks on a long-term basis. The goal is that the investors buy stocks with the approach that the share price will increase in value in the long run. The BHAR is based on the principle that investors hold the stock for long time and calculates return by deducting the normal buy and hold return from the realised buy and hold return.


The ABHR has been calculated over a period of 3 years (2016-2018), the data has been derived from the London stock exchange (Londonstockexchange.com, 2019). The analysis takes into account the daily stock price of STVg against the FTSE Small Cap. STVg forms part of the FTSE small cap index of small market capitalisation companies consisting of 351to 619 largest companies in the London stock exchange. STVg with revenue of 117million is in better comparison with the companies in the FTSE small cap hence it has been used the benchmark to evaluate the BHAR.

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The 3-year period analysis consists of   a total 759 daily observation of stock price. The data has been downloaded for the period 01.01.2016 to 01.01.2019 from Yahoo finance for STVG and from the London stock exchange historical data of FTSE small cap. The daily return for company and market is calculated by using, Return = stock price on day 2/ da1 -1 for 759 observation of market and company.  The analysis further proceeds by calculating the (1+ daily company return / market return) for all the observations. The analyses concluded by calculating the ABHR, which is the product of sum of all the company return minus the product of sum of all the market return. The final results is -0.304664 signifies a potential deviation of market return from the benchmark. The return on individual stock depends on the volatility relative to the market. The deviation could also be a result of the amount of risk the investor is willing to take; the higher the risk the greater is the reward.

The deviation is the result of volatility, for example the volatility of Nasdaq is greater than the volatility of S&P 500. Volatility is defined as the annualised standards deviation of return, in the theoretical framework volatility not only measures risk but also affects the long-term return of the investor. High volatility corrodes the long-term return while also providing the opportunity to make huge gains.

The idea of investing in FTSE stock through buys and hold strategy, rather than short term is a wise decision, given the returns is more rewarding. Placing your money into the market index like S&P500, FTSE 100 are safe bet, according to S&P Dow jones indices, the chances of a market index outperforming is 86%. However buy and hold has certain downside to, while certain well-selected stocks perform well and bounce back after markets crash not the same can be said about all stocks and can be apocalyptic to the portfolio.



‘‘The nearly universal policy of paying substantial dividends is the primary puzzle in the economics of corporate finance.’’- Feldstein and Green (1983), following Black (1976)

The organized time series conduct of corporate dividend policy suggests that firm specific, theoretical explanations of dividend policy, signalling and agency theories cannot explain the practice of paying decreased dividend (Marsh and Merton, 1987)

In the case of STVG looks impressive to dividend investors with its 5.65% dividend yield and a five-year repayment period.  STV is a dividend company with abundant net income to cover its dividend payout ratio however if a company is paying more than it earns, the dividend may need to be cut back. Majority of empirical works support the hypothesis that investors expect a higher return on shares of dividend paying stocks. The implication of tax liability increases the shareholder’s pre-tax return. However In the year 2018 the company paid out a dividend of staggering 478% of its profits to investors. A dividend payout of such a ratio raises red flags to investors, unless there are extenuating circumstances. STV group paid out nearly 71% of its cash flow in the previous year which although high is still within the range for a corporate.

Under capital asset pricing theory, investors will offer less for shares due to future tax liability of the dividend payment. On the other hand the preference of shareholders expecting a dividend can be explained by factors like risk aversion level, the cost of liquidation of holdings, agency costs and the information availability (Evans et al., 1971). An argument proposed in the works of (Miller and Modigliani, 1961) explained the consequence of tax-adjusted model as the division of investors into dividend tax clientless. In later works, Modigliani 1982 explains that clientele effect will result in only minimal alteration in the portfolio while compares to miller 1977 who predicted a major difference

It is disappointing that the company did not generate enough profits to cover its dividend payment. Although few companies can persistently pay dividends greater than their profits, in the case of STV it is a warning sign.


A number of theories have been proposed to explain the choice of debt ratios. While some theories suggest that firms structure their capital based on the various cost and benefits associated with debt and equity financing. The other suggests that the type of assets owned by firms in a way affect the choice of capital structure. By selling secured debt, firms increase the value of their equity by expropriating wealth from their existing unsecured creditor. Stockholders of leveraged firms have an incentive to invest sub optimally to expropriate wealth from the firm's bondholder, (Galai and Masulis, 1976) and (Jensen and Meckling, 1976)

The capital structure of stvg consists of debt, which includes bank loans, cash and cash equivalent and equity attributable to equity holders of the parent, comprising issued share capital, reserves and accumulated loss

The group monitors its capital on the basis of gearing ratio. This ratio is calculated by the total capital. . Gearing ratio is statistically significant to corporate governance. Financial theory suggest that the presence of optimality of debt ratio in firms’ capital structure beyond which this the presence of optimality of debt ratio in firms’ capital structure beyond which this ratio shows negative impact on firms’ financial performance. CONCERN shows negative impact on firms’ financial performance with a negative relationship with firms’ financial performance. As debt holders, control financial performance. The gearing ratios were as follows


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Total borrowings




Cash and cash equivalents




Net debt




Total equity