It Is important that managers understand how to examine financial and accounting Information. A manager does not necessarily need to be an accountant, but having a good understanding of financial and accounting information enables the manager to work more efficiently and effectively. (Tyson, 2001 pa) With a good understanding of accounts a manager can use them in decision making and planning strategy of which direction they want to take the company for a period, and then use the accounts to check back and ensure that the business Is heading In the right direction.
Managers deed to know their legal requirements when It comes to accounting Information. Whilst preparing the accounts may be down to an accountant, It Is the manager’s responsibility to make sure they comply with the laws. Some companies are required by law to disclose publicly Information about their costless. (Tyson, 2001 pa) It Is beneficial that a manager also knows a range of financial ratios. A manager can use ratios to work out how well the business Is doing, what It owes, and how much Is owed to it.
So the manager can then relay the information on to the company directors, or any shareholders that would be interested. Tyson, 2001 IPPP) A manager can also use a range of financial ratios to compare position and performance with previous years, but must take in to account any conditions or inflation levels that could take effect. (Trill and McAllen, 2011 IPPP) In the case of limited companies where there is a legal obligation to make their financial statement available to the public, a manager can you financial ratios to compare its performance to business in the same industry. Trill and McAllen, 2011 p 190) This paper will look to examine how financial and accounting information can illustrate the nature of competition and performance between two public limited companies, and how the information extracted can support decision making. The first company is J D Weatherperson PL who own and operate pubs in the ELK. The second company is Marathon’s PL who own and operate pubs in the K, and also brew products that are sold in the UK on-trade and off-trade, and to 53 countries worldwide.
This paper will identify five accounting ratios used to evaluate the relative performance of J D Weatherperson and Marathon’s over four years from 2007 – 2011, evaluating what each ratio is used for, and what It reveals about each company. It will then provide an analysis of the performance of each organization, linking the results of the ratios to the events that have affected them. Return on Shareholders funds ratio The return on shareholders funds ratio is a profitability ratio which compares the amount of profit to that of the shareholders funds. It reveals how profitable a business is to its shareholders funds.
Marathon’s have a much high mark-up ratio that has declined each year, with a large decline in 2009. The mark up may be reduced to stimulate extra sales, but this will have the effect of reducing gross profit. If extra goods are sold there may be a rise is the number of sales which will help to insensate for the reduction in the mark up of each sale. The mark-up ratio may show how much discounting needs to be done by the business to attract customers. Current ratio current liabilities. The current ratio is used to measure the liquidity of the business. Current assets / Current liabilities = Current ratio 0. :1 0. MM 0. MM 0. MM Using the current ratio reveals that Weatherperson has a low ratio showing that it has fast moving inventories of finished goods and all of its sales are made for cash with no credit sales. Marathon’s is slightly higher, with the brewing side of the business hey will have a credit element to the people they supply to, but a lot of their sales are made for cash. In 2009 the two companies moved in opposite directions with Weatherperson having less credit and Marathon’s having more. Trade creditor payment period The Trade creditor payment period is an efficiency ratio.
It is used to calculate the average time it takes for a business to pay its creditors. (Tyson. 2001. IPPP) Trade creditors / credit purchases x 365 = Trade creditor payment period 41 days 36 days 26 days 90 days 73 days 87 days Using the Trade credit payment period ratio it reveals that Weatherperson have extended the amount of time taken to pay their creditors, this could mean that Weatherperson were not taking full advantage of the credit facilities allowed by the creditors in 2008 or new arrangements have been put in to place on a yearly basis for credit payments.
Marathon’s have a much longer time to pay their creditors than Weatherperson, this relates to the current ratio and the time it takes them to get the cash to pay its own creditors. For amounts input to the ratios for each year view the company reports for Weatherperson and Marathon’s. (See appendices) Task 3 When performing an analysis on the performance of J D Weatherperson something that comes clear using the profitability ratios is the dip in profitability in 2009. This co- insides with the start of the economic recession in the ELK.
From 2007-2009 the hospitality industry was one of the worst hit by the recession. (Monthly labor review, 2011. POP) With people having less disposable income commodities like going to the pub, eating and drinking out were the one of the first that people cut back on if their finances were tight. The industry has also been hit by people choosing to buy cheap alcohol from deals in supermarkets and drink at home with friends. A risk that is up against the industry is the yearly increase in tax on alcohol that the government have increase at every budget.
Another cost imposed on licensed premises is a late night levy, introduced by the government to raise money to fund policing and other authorities where there budgets have been cut with the economic crisis. The ratios show that Weatherperson did manage to bring there profitability back up after 2009. With the recession causing lots of pubs to close, because Weatherperson is a large chain it uses its buying power to buy in cheaper than smaller independent pubs, allowing them to discount their products and entice customers back in.
Weatherperson also offered deals on food with selected promotions where customers can get a free drink with a meal or two meals for a discount. This again entices customers in to eat at Weatherperson and away from more expensive restaurants. Weatherperson business concentrates on key ingredients of standards, service, staff training and incentives. The company has an apprenticeship program that has a general range of courses for staff and managers. They also have a specialist Catering academy where kitchen staff benefits from offset training.
The company offers its staff incentives such as bonus schemes and free shares in the company in order to promote motivation. Weatherperson became the first pub to sign a skills pledge and paid out 12. 8 million in staff bonuses in 2009. (Crush, Peter. Human Resources (09648380). Jejunum, pop-38. Up. ) The industry has inflationary pressures that pose a risk to margins. This can be arrangements with its suppliers in both good and bad economic climates. This enables them to keep offering competitive and appealing prices to their customers without affecting their margins too much.
There is a reputation risk to a business in he industry like Weatherperson where it has built up over many years but can be damaged in a significantly shorter timeshare. Weatherperson corporate social responsibly report outlines the aims it goes to in making sure they stay socially responsible to build their reputation. Four main areas the company look at are people, responsible retailing, community and charity, the environment. The company is highly regarded for its investment in training and development, polices on equality and encouragement of employees to participate actively in business strategy.
The coursed offered by the company are nationally recognized qualifications. The company is committed to equal opportunities and elimination of discrimination, harassment and visitation of employees. All these improve staff motivation and performance. Weatherperson has been recognized by the Corporate Research Foundation to be one of ‘Britain’s Top Employers’. With the bad press of binge drinking culture that appears to have got worse in the recession as pubs try and entice customers in with discounted drinks. Weatherperson promotes responsible drinks retailing and has established a code of practice outlining its approach in this area.
The company works in partnership with the local authorities and police, coming members of local potlatch schemes that help promote a safe and responsible drinking environment. Weatherperson financially supports the drink aware trust and the British institute of Innkeeper which both promote good practice in responsible drinking. The company endeavourers to ensure strict specifications for all its products so that high standards of quality are met. The company uses dolphin friendly sustainable fisheries, free range eggs, and cooks with virtually trans-fat free oil. All the company’s food suppliers are accredited by the British Retail Consortium.
So that customers can enjoy a diverse range of real ales, Weatherperson supports brewers of all sizes and offers at least four real ales in each pub, at least two of which will be locally sourced. The company runs promotional events such as real ale festivals and meet the brewer events. CAMERA Good beer guide has more Weatherperson pubs listed in it than any other company. Weatherperson understands that historically pubs have always been a focal point of any community, they aim to continue this by building relationships through employment and the provision of services and investment in the local area.
Weatherperson is the largest single reporter fundraiser for the CLICK Sergeant charity, which cares for children with cancer and their families. Good environmental management is a key part of Weatherpersons business. The company invests in new equipment and processes to reduce its energy consumption. Weatherperson aims to reduce its amount of waste produced through a combination of packaging reduction, reuse packaging and the recycling of waste products. In 2010 the company was awarded ‘Recycling Performance of the Year’ in recognition of their waste minimization progress.
The I-J Corporate Governance code was bought in to safeguard shareholders interests and cake sure directors were acting in the best interests of the company and not themselves. Companies listed on the London Stock Exchange must comply with the the company’s shares being suspended from listing. The Code sets out a number of principles relating to the role of the directors, what they are accountable for and their relations with the shareholders. (Trill and McAllen, 2011.
IPPP) Weatherpersons has an established Corporate Governance framework which outlines the board of directors responsibilities and is answerable to the company’s shareholders. The chairman is given a range of responsibilities such as ensuring the board runs monthly and directors are fully informed of matters relevant to their roles, making sure the directors are aware of any shareholders concerns, ensuring the compliance with the London Stock Exchange, legal and regulatory requirements. With a establish Corporate Governance Framework in place it will make shares more appealing to investors and will help the share price rise.
We can see by looking at the ratios that the Net profit ratio and the Return on Shareholders funds ratio share a similar pattern. Meaning even in a time of economic recession the share price has not decreased a great amount. When performing an analysis on the performance of Marathon’s is becomes clear that they have similar trends to Weatherperson with the economic recession hitting the industry hard. Being in the same industry Marathon’s are subject to all the affects and risks against the industry mentioned earlier with Weatherperson.
This is visible by Marathon’s dip in its profitability ratio in 2009. Marathon’s was dip was slightly larger than Weatherpersons possibly caused by the brewery side of the business affected by amount of the pubs closing in the I-J. In 2008 the British Beer and Pub Association said that 1,973 pubs shut up shop, 40 per .NET higher than the 1,409 closures in 2007. (The Telegraph. 2009) Marathon’s recognizes the economic pressure that affects its customers with disposable income being driven down. Marathon’s strategy is to offers its customer’s value for money meals, with great service.
The company has the ‘F-Plan’ a focus on Food, Families, Females and Forty/Fifty something. The plan is aimed at anticipating customer trends in the developing eating out market, social and demographic changes such as higher female employment and a maturing UK population, and for pubs to offer a far better experience for families. Looking at the Mark up ratio which has declined for Marathon’s year on year, this could be affected by inflation and the governments rise on alcohol tax, but due to the recession and the need to keep products affordable, the price rise cannot be put on to the customer.
Marathon’s have developed a range of pub formats which are appropriate for local markets. They offer ‘Destination food pubs’ which offer high quality food and drink in a relaxing pub environment at affordable prices. The ‘Taverns’ range is designed to offer traditional pub entertainment and every day value food and drink in a traditional community led pub environment. And finally its ‘Premium pubs’ which offer a more independent style in terms of design, food and drink and service. The brewery side to Marathon’s business has the company operating in the beer market through a strategy of ‘locales’ and premium ale.
They offer a range of local ales in the on-trade and focuses on the premium bottled ale for the off-trade. With ownership of publications such as ‘The Cask Ale Report’ and ‘The Premium Bottled Ale Report’ Marathon’s has obtained a market leadership. The company has also developed the innovative fastback system which has enabled them to market their cask ales into venues which historically is about focusing on the development of their employees, how they relate to their customers, suppliers and the local community and environment. Achieving the Investors in people award in 1995 and been accredited with it ever since.
Marathon’s has a training centre that has been accredited by both the Chartered Management Institute and the British Institute of Innkeeper, where they run programmer that offer a wide range of supervisory, managerial and operational qualifications. Community involvement is important to Marathon’s business. Where appropriate they source and recruit locally. They seek to be their customer’s local choice. Running open days at their breweries and supporting local charity event through their breweries and pubs, and sponsoring local events.
As a member of the member of the British Beer and Pub Association Marathon’s is a signatory to the Portray Group Code which promotes responsible attitudes toward drinking alcohol and the Drinkable Trust. Marathon’s has made an investment in e-learning which all pub staff must complete, which aids with the identification of potential under-age drinkers. Marathon’s runs its own test purchase programmer to further reinforce the compliance message. Marathon’s has a commitment to offer healthier and more sustainable food choices without compromising quality of values for the customer.
None of the meals contain artificial trans fats or hydrogenated fats and oils. Marathon’s are committed to reducing the impact its activities has on the environment by reducing the use of raw materials and reducing energy consumption and emissions through responsible disposal of waste. Having fine regional breweries helps to minimize the carbon footprint generated in distributing and producing. Marathon’s complies fully with Corporate Governance following the principles set out by the I-J Corporate Governance Code.
The company outlines people’s roles and responsibilities, and what people are accountable for. The company believes that good conduct is the basis of good performance . With the good business practices in place and the economy slowly improving, Marathon’s and Weatherperson both look set to continue to make profits in the future. Ratios offer a quick and useful method of analyzing the position and performance of the business but are not without their limitations. Having good corporate governance in place makes the financial statements of the companies reliable, so the ratios for the companies are reliable.
But ratios can give a restricted vision and could sometimes mislead due to the snapshot nature, and if you don’t have the right business to compare them with. Things like inflation if not taken in to account can distort the information. (Trill and McAllen. 2011 IPPP) To improve the analysis further investigation could go in to finding out the market share of the companies over the period to see how much of an impact it has, and to see if the industry is rowing or whether the costumers are coming from closure of other pubs.
