Introduction
Accounting is a process of managing and operating with keeping records and management in adequate manner. Concept of accounting and management of financial resources is defined in organisational context (Zadek, Evans and Pruzan, 2013). This project is prepared to examine communication skills together with the ability to analyse and interpret financial reports of organisations. This report is bifurcated in two section such as section A and section B.
Section A contains analysis of financial ratios in order to determine financial performance of organisation. Rank is given to all these companies as per their financial performance. Poor and best performer companies are defined in this context. Section B contains key stages in the capital investment decision making process is defined with the use of investment appraisal techniques and process. Main methods of investment appraisal used in practice with practical based example also defined.
SECTION A
(a) Analysis of financial performance of companies by ratio analysis
Performance of organisation in terms of financial perspective depends upon effective structure of financial management and utilisation of financial resources in effective manner. Gambling industries are becoming legalised and growing fast in the UK's organisational context. This is one of the essential aspect subject to financial performance and growth of organisation. Liquidity analysis, financial position and measurement of solvency are considered main key financial indicators subject to analyse financial performance of organisation (Smith, 2017). There are three gambling industries are given in above context subject to determine the financial performance. Competitive market and tuff business situations are discussed in this context.
Gambling industries are emerging in UK's culture day by day. This is becoming main source of generating financial income and returns form gambling business. Bingo and casinos, gambling on sports, scratch cards, lotteries, national lottery are the main activities through which gambling industries operates and run their business (Libby, 2017). Remote gambling and licensed promises are main aspects which are considered in gambling. There is an analysis done both qualitative and quantitative subject to analyse financial data performance of all three companies. A statistical report is prepared for better understanding and effectiveness of financial factors with in the organisation. Liquidity, solvency, profitability and efficiency of gambling industries are determined as follows:
Non financial ratios: these are the ratios used to analyse the non financial performance of organisation. Various type of non financial ratios are used in organisation subject to analyse non financial performance of organisation such as production ratio, customer reorder ration, absenteeism ratio, days lost to injury ratio and business plan KPIs ratio (Scott, 2015).
Non-financial Ratio of William Hill plc.
|
Ratios type |
Formula |
Result |
|
Staff turnover ratio |
(Staff members left during the year ÷ total number of staff during the year) x 100 |
3500 / 16000*100 = 21.88% |
|
Absenteeism ratio |
(Total Number of worker - Days lost through job absence/Average number of employees)* number of workdays*100 |
=(240-22) /16000*100 1.36%
|
Non-financial Ratio of (PADDY POWER BETFAIR PUBLIC LIMITED COMPANY)
|
Ratios type |
Formula |
Result |
|
Staff turnover ratio |
(Staff members left during the year ÷ total number of staff during the year) x 100 |
357 / 7557*100 = 4.72%
|
|
Absenteeism ratio |
(Total Number of worker - Days lost through job absence/Average number of employees)* number of workdays*100 |
(240-22) /7557 *100 = 2.88%
|
Non-financial Ratio LADBROKES CORAL GROUP PLC
|
Ratios type |
Formula |
Result |
|
Staff turnover ratio |
(Staff members left during the year ÷ total number of staff during the year) x 100 |
16141/26141*100 = 61.75%
|
|
Absenteeism ratio |
(Total Number of worker - Days lost through job absence/Average number of employees)* number of workdays*100 |
(240- 22) / 26141*100) = .833%
|
Analysis of financial position of all the three companies with the help of financial ratios
|
Particular |
William Hill plc. |
Ladbrokes Coral Group plc. |
Paddy Power Bet-Fair Public Limited |
|
Profitability position |
To know the profitability position of organisation gross profit margin and net profit margin is calculated for the year ended 2016. gross profit margin is computed as 81% which was less then last year. Net profit margin is calculated as 11.20% which was at same position in last year. |
In this particular section there are some essential aspects are covered in this context to analyse the profitability of organisation. Gross profit margin is calculated as 85% which shows more better gross profitability position of organisation. Net profit margin is calculated as -14.15 % which is showing loss for the year. |
There are some essential aspects and measures come across in respect of profitability of PPBDPL company. Gross profitability of organisation is calculated as 76% of total gross profit ratio and net profitability of organisation is considered as .79%. both the results are unfavourable in comparison to last year's profitability
|
|
Liquidity position |
Current ratios and acid test ratios are the main ratios which are calculated for calculating profitability of organisation. Cash and liquid assets are compared subject to repay of short term liabilities of organisation. Current ratio is calculated as 0.71% which shows less optimum current position of organisation. |
Liquidity position of organisation is not as good in compare to other two companies. Short term assets are not enough capable to relay of short term debts of organisation. Both the Current ratio and liquidity are calculated as 0.33:1 which is not optimum position. |
As per analysis of current and liquid position of organisation it is seen that Paddy Power Bet-Fair Public Limited is considered more effective and optimum position. Current and liquid ratio is calculated as 0.99:1 which is optimum and ideal for liquid and current position. |
|
Operational ratios |
These are the ratios which are calculated to analyse the operating performance of organisation. Assets turn over ratio is calculated as 0.80% which is higher then two companies. Internal coverage rate is computed as 4.51% for the year. |
Net assets turnover is calculated as 0.62% which is down form last year. This is one of the essential aspect in terms of profitability of organisation. Coverage ratio is calculated as -0.19. stock turn over ratio is computed in total 942 days to take to rotate during the year. |
Net assets of organisation is computed for the year ended 2016 is .33 and moreover the calculation for the year in respect of interest coverage ratio is calculated as 2.64 and the data for stock turnover is computed. |
|
Performance in last three year |
As per above analysis of financial ratios there are some essential aspects are such profitability condition is much better for in comparison to all other companies. Fluctuating figures are found in respect of dependent and independent factors which are related to financial growth of the organisation. |
Financial position of this company is not in adequate condition subject to evaluate generate profitability and revenues. Organisation is getting negative returns form last two years. it is required to pay attention towards the profitability of organisation in order to improve financial position. In other two companies the financial performance is not well. |
Financial position of this company is not so poor in comparison to Ladbrokes Coral Group plc. Collection period for making recovery of total payments which are taken inly for 2 times. Financial position of company for last three years in other aspects are considered effective and optimum. |
|
Ranking |
First position |
Third position |
Second position |
Paddy Power Betfair Public Limited Company
|
Financial performance |
2016 |
|
Sales |
706500 |
|
Gross profit |
551300 |
|
Net profit |
102500 |
There are some profit figures are presented above in order to determine net profit of organisation. Organisation gained 551300 gross profit with the sales of 706500 and net profitability of company is calculated as 102500. this was the major aspect subject to analysing financial performance of PADDY POWER BETFAIR PUBLIC LIMITED COMPANY. Financial performance of company is much better in comparison to other gambling industries.
Ladbrokes Coral Group PLC
|
Financial performance |
2016 |
|
Sales |
308400 |
|
Gross profit |
1287800 |
|
Net profit |
-199200 |
As per above analysis there are some essential aspect in order to determine profitability of organisation. LADBROKES Coral group made sales worth £308400 and earned gross profitability of 1287800 and loss of -199220. it does not present the favourable and healthy financial position of organisation. Total net profitability of organisation shows negative at a particular time. Company is loosing its financial position since last three years
William Hill PLC
Profitability analysis of company is presented in table and in the form of graphical representation. Sale of the organisation for the year 2016 was 12900 and gained loss of -41100 and net loss of worth -25400. negative gross loss indicates towards unhealthy financial position of organisation. Average financial position of the organisation is not in adequate position as per above analysis of profitability of organisation.
|
Financial performance |
2016 |
|
Sales |
12900 |
|
Gross profit |
-41100 |
|
Net profit |
-25400 |
Justification:
As per above given information and analysis of financial position of three gambling companies, there are some favourable aspects are took place in respect of profitability of organisation. All other companies such as William Hill plc is considered as more effective and financial stability of organisation is also in favourable condition and position. Relevant aspects are considered in decision making process (Staff turnover ratio. 2018). From the last three year's analysis it is seen that the William Hill Plc is in adequate position which need to maintain the profitability and financial stability for subsiding years.
(b) Identify best performer company
As per the above analysis, financial performance of the company can easily be interpreted throughout the year. Such statements are usually undertake by company's in order to determine their profit and loss for the current financial year. Both financial stability and profitability situation provides certain rank to the company on the basis of their performance. Such statements depict where company actually stands in the market. It can easily be done by analysing UK's current market position in gambling sector. This seems to be biggest growing trend that needs to be assessed properly. Customers are continuously gathering information or data from investors to not emphasize more on their financial return but to take into consideration all other factors such as social and environment situation as well (Lennox,Francis and Wang, 2011.). By considering these factors company can easily formulate an effective portfolio. On the basis of ranking provided to all three gambling companies it can figured out that profitability ratio of William Hills plc. Is high as compared to others.
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It is mainly because financial condition of William Hills Plc is much better as compared to others two entities. The return they are getting over their total investment is near about 14% on equity funds and in case of capital employed, company is getting 11% return in the year 2016. This proves out to be sufficient for investors in terms of making and formulating their upcoming planning. Their return on assets proves out to be more effective as they are getting 7.42
% return on total assets. Majority of their investors takes decision on the basis of outcomes of financial statement (Johnson and Noguera, 2012). In addition to that, liquidity position of William Hills plc. Is more effective from other two companies and it represents that the company is having sufficient amount of capital in order to meet out its short term debt obligations that has been arises during a particular accounting year. Moreover, company's future investment opportunities can only identified by collecting the information related with investing adequate capital amount in William Hills Plc. business operations projects. Also they can yield higher maximum return at the end because of higher rate of return margin.
(c) Identify poor performing company
There is an analysis done in order to determine the financial performance of gambling organisations are defined in this context. Proper analysis of gambling industries are defined in various segments such as liquidity position, profitability position and solvency ratio (Hilton and Platt, 2013). Three years financial analysis done subject to analyse the profitability and current liability position of organisation. William Plc and paddy power company is enough capable with their capital structure with sufficient amount of capital and return. Both the companies are able to manage and settle their losses for upcoming years and duration. Return or net profitability for the last years in respect of Ladbrokes coral group is not stable and in strong position of organisation. These are the main aspects which are considered in this context.
Investors overviewed the return on equity and portion which was needed to know the performance of last three years. Subject to analyse the continuously decreasing and increasing results in financial growth of companies also determined in this context.
Recover outstanding debts obligations: this is one of the major aspect in order to improve financial performance of organisation. Company need to analyse the sales agreements and credit limits which are prided to debtors are also need to monitor and supervise (Hall, 2012).
Reduce and arrangement of expenditures: allocation and arrangement of financial resources is one of the essential aspect for better and effective financial management. Modifications are done for better management (DRURY, 2013).
Sell assets: managers need to identify the idle assets and components which are ineffective subject to financial growth and development of organisation (Flamholtz, 2012).
SECTION B
|
MEMO To: Employees and investors From: Accounting departments Date: April 18, 2018 Topic: “ Investment appraisal†|
Key stages in capital investment decision-making process and role of investment appraisal
|
Capital investment: It is refer as amount which invest within the organisation for the purpose of earning large number of revenue. The management have the aim is to recover the amount of investment through the business operations over several years. It can be recognised as the capital expenditure which is not used regarding performance of day to day operations. Such amount is used for the purchase of fixed assets such as manufacturing plans, land and buildings etc. for the purpose of accomplishment of their business objectives. It becomes the responsibility upon management is to effectively use the funds to ascertain best results. In this regard, need to oversee many aspect which helps to make effective decisions which provides optimum results in return. There are many modes through which funds are raised called as financial institutions, Angel investors, venture capital etc. Different stages of capital investment decision making · Recognition of work · Definition of work and screening · Evaluating and adoption · Effective execution · Continuous observation · Post audit Role of investment appraisal Investment appraisal is the important technique which helps in identification of the most profitable project out of various alternative choices. This includes the application of different tools and techniques regarding ascertainment of the profitability which is associated with particular projects. It provides the opportunity regarding determination of effectiveness of their investment. There are also many other aspects which are associated with projects and need to oversee for improvement of decision-making about their investment are mentioned below: · Financial: This is related to the return which is associated with the performance of project within stipulated period of time. · Legal: This refers about the legislations which are attached with the completion of project · Risk: This will include about the identification of the different risks which are associated with various projects. |
Techniques of investment appraisal used in DCF
|
Discounted cash flow is one of the effective method which provides the opportunity about estimation of the attractiveness of the different investment opportunities. It helps in determination about the amount of future cash-flows and providence of sufficient amount of discounts. The different method of DCF are used by the investors regarding identification of net terminal value approach and internal rate of return. Such different tools and techniques are selected by the management of organisation on the basis of their nature and capital investment decisions for improvement of their overall brand image. Discounting is important concept which includes about reduction in the amount of estimated cash-flows and returns which has direct impact upon real value. The rate up to which estimate cash-flows are reduced is known as discount rate. There are many investment appraisal techniques which helps in determination of the most appropriate outcomes in future period of time. But the main two techniques which are used in this regard are known as NPV and IRR which are defined below: NPV: It is important technique which helps in identification of the time period which is required to recover their investment amount amount from project. The result shows the difference between present value of cash inflows and outflows. NPV is capital budgeting technique used further for evaluation of profitability associated with project. Advantages · It considered both timing and size of cash flows through investment in project · It is allowed to change rate of discounts · It helps in ascertainment of risks · Provide emphasis on whole life of project Disadvantages · It is difficult to calculate NPV and gathering the information regarding profitability · It is easy to compare NPV with other projects IRR: One of the important technique of capital budgeting which helps in estimation of profitability out of their potential investments. IRR is considered as discount rate which bring NPV of all cash-flows of from any particular project is equal to zero. Advantages · It is easiest method which cab be understood by managers · It considers time value of money Disadvantages · Need to have estimate about the cost to make their decisions |
Conclusion
This report is prepared to analyse the accounting concept with the analysation of financial performance of organisation. This project contains the brief analysis of financial accounts for three gambling industries. For this purpose data are analysed and computed with the help of financial and non financial ratios. Over all report is based upon the dimensions of capital budgeting. Evaluation was calculated on the basis of investment appraisal techniques and methods of DCF using data evaluation is being done with the recommendations and justification for further growth and development of organisation.
References
- Zadek, S., Evans, R. and Pruzan, P., 2013. Building corporate accountability: Emerging practice in social and ethical accounting and auditing. Routledge.
- Smith, M., 2017. Research methods in accounting. Sage.
- Scott, W. R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
- Libby, R., 2017. Accounting and human information processing. In The Routledge Companion to Behavioural Accounting Research (pp. 42-54). Routledge.
- Lennox, C. S., Francis, J. R. and Wang, Z., 2011. Selection models in accounting research. The Accounting Review. 87(2). pp.589-616.
- Johnson, R. C. and Noguera, G., 2012. Accounting for intermediates: Production sharing and trade in value added. Journal of international Economics. 86(2). pp.224-236.
- Hilton, R. W. and Platt, D. E., 2013. Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education.
- Hall, J. A., 2012. Accounting information systems. Cengage Learning.
- Flamholtz, E. G., 2012. Human resource accounting: Advances in concepts, methods and applications. Springer Science & Business Media.
- DRURY, C. M., 2013. Management and cost accounting. Springer.
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