Brainjuicer and TNS Global, Research Paper Example

Introduction

This financial analysis will focus on the performance of two companies: Brainjuicer and TNS Global.  Brainjuicer is a unique market consultancy: The market consultancy focuses on providing tailored behavioral economics market research solutions to firms. Rather than using traditional market research methods, the firm offers research-based solutions that incorporate behavioral economics insights and concepts. TNS Global, on the other hand, is a more traditional provider of market research services.  Indeed, rather than using emerging tools under the rubric of behavioral economics, the firm offers a range of solutions related to traditionally used methods.

Analysis

Brainjuiceris currently listed on the London Stock Exchange under the abbreviation “BJU.” A brief table of the company’s major financial results are below:

Table 1: Brainjuicer’s Financial Ratios as of 1/1/2014

While Brainjuicer is an independently-listed company, TNS Global is part of a larger media conglomerate; this means that the financial comparison between the two companies will not be apples-to-apples.  Indeed, TNS Global is a constituent firm of a larger media group known as  the Kantar Group. WPP, one of the world’s major advertising groups, is the owner of the Kantar Group.  Thus, the financial comparison in this paper will be between a relatively small, independent firm (Brainjuicer) and a major global advertising conglomerate that includes many firms and business lines besides Kantar. The major financial ratios for WPP are listed below:

Table 2: WPP’s Financial Ratios as of 1/1/2014

The first thing to notice is that because neither firms is related to manufacturing, there are no ratios related to inventory: both firms rely on human capital and consulting services in order to survive.  Based on a cursory analysis of the firms’ balance sheets, Brainjuicer’s management may be a more efficient user of assets. Brainjuiver’s total asset turnover, which measures how much revenue is produced per dollar of assets, is more than four times that of WPP. Brainjuicer also has a higher current ratio, which means the firm has more liquidity, at least at that point in time.  Brainjuicer has a current assets ratio of 2.45 versus that of .9 for WPP.  Of course, WPP’s capital structure is also much different with not only more firms to account for, but also more debt-laden businesses that may translate into a worse current assets ratio. The cash ratio is the same for both firms meaning that they have an equivalent cash level.

The other major area of analysis is the margins of both firms. Margins are an important indicator for a number of reasons.  First, margins are a proxy for a firm’s tradeoff between revenues and costs, or efficient a firm is. From this perspective, WPP is a much stronger company.  The firm has higher gross margins, which measures total revenues minus the cost of producing goods (or in this case consulting services) of 91.64 versus 75.67; the firm also has higher operating margins of 17.05 versus 7.27.  This means that WPP is more efficient at producing the consulting services than Brainjuicer, with the caveat that WPP’s financials are capturing more than just TNS Global’s results.

Recommendation

Overall, as mentioned earlier, it is difficult to perform an apples-to-apples comparison of the two companies. The financial information for Brainjuicer represents the financial results for the firm; the financial results for WPP, on the other hand, represents the financial results for nearly 30 firms, some with profoundly different lines of business than Brainjuicer.  Having said that, one would probably look at investment in WPP over investment in Brainjuicer for a number of reasons.

First, WPP has more robust gross and operating margins; this is prima facie evidence that WPP (and its constituent companies) is a more efficient provider of services than Brainjuicer.  Indeed, WPP has gross margins of 91.66; Brainjuicer’s gross margins are 75.67. There is also substantial difference in the two companies operating margin: WPP boasts an operating margin of 17.05 versus Brainjuicer’s operating margin of 7.27.  This means that WPP is a more efficient producer of marketing research services, and has either a lower cost of labor or a more efficient structure. This is important for an industry that is focused on selling consulting services rather than on selling manufactured goods.

Second, WPP should be selected for the reason of risk.  That is, the difference in potential risk between the two companies.  TNS Global is part of a global conglomerate that is more diversified than Brainjuicer.  Indeed, Brainjuicer is a small company with a short history that is entirely dependent on market research for all of its revenues. TNS Global, on the other hand, is part of the WPP Group that has more resources and is better able to survive the global downturn.  Thus, if one was an investor looking for a more diversified bet than merely taking a punt on Brainjuicer’s innovative market research delivery services, TNS Global would be a good place to start.

Finally, TNS Global’s business model may ultimately be more stable than that of Brainjuicer. While Brainjuicer offers more innovative market research services, including an emphasis on behavioral economics research, it is not clear how large market demand is for that segment.  On the other hand, TNS Global offers a recognized stable of market research products that are based on traditional methods. This may actually be an advantage over the long-term as the industry faces increased competition and recognized players such as TNS Global benefit from the lack of competition.