Analysis of a FTSE 100 Company

INTRODUCTION

To start with, the primary aim of carrying out the project is to come up with an analysis and account of the performance of the company named below. The project is all about collecting, recording, processing, analyzing and storage of transaction data which leads to the generation of the final data or information in the form of statements of finance which will, in turn, reveal the financial position of the company and might also give room for proper auditing.

The other aim of the project is to deeply reveal the importance of accounting since the accounting department is the most crucial in any business, company or organization. As everyone is aware, the staff keeps track of all profits, credits, losses and debts. Accounting provides the most important and crucial information needed to comprehend the growth of the business.

My company is the Whitbread Company, which is a multinational hotel, coffee shop and restaurant company. It is an industry that bases mostly on the leisure hospitality and has been in operation for so long. The business was formed in 1742 by Samuel Whitbread, and so it deserves to be called a multinational company.

The accounting methodology intended for use is the cost accounting method although other accounting methods can be applied as the need arises or the situation might demand. The accounting methodology functions merely to bring out the type of process used to carry out the accounting and analysis process. The rest of the project structure will entail the financial position or the financial performance of the Whitbread Company which will help to organize the report and to signpost the reader to significant matters.

The structure will also contain the primary narrative structure which will function to introduce the area of analysis ,provide some sort of accurate benchmark for discussing the ratios, identification and definition of the key rates, identifying the key trends as analyzed ,suggesting the strategic reasons as to the occurrence and explaining the potential benefits of the direction to the company.

The rest of the structure will also contain the conclusion which will entail a very brief analysis of the findings, the evaluation of the implications of the study and lastly the appendices.

Financial performance.

Profitability

According to Whitbread’s consolidated accounts of the year 2016/2017, the following information can be derived from it. According to the consolidated income statement. Year ended 2nd March 2017, here is how the profitability can arrive:

Return on capital employed is reached at by taking the operating profit (552.7) divided by the capital employed (3799.5) multiplied by 100% which gives 14.57. Gross profit margin is arrived at by taking the gross profit (515.4) divided by the sales revenue (3106.0) multiplied by 100% which gives 16.60. Operating profit margin is reached at by merely taking the operating profit (552.9) divided by the sales revenue (3106.0) multiplied by 100% which gives 17.80  Quality of earnings is calculated by taking the Net cash flow from operating activities (626.1) divided by the Net profit for the year (415.9) which gives out 1.51 . Capital employed is calculated by taking the non-current assets (4351.2) added by the current assets (287.1) then subtract the current liabilities (838.8) which gives 3799.5. Operating expenses to sales is calculated by taking the operating costs (2557.2) divided by the sales revenue (3106.0) multiplied by 100% which gives 82.33.

Liquidity

A company’s liquidity is its ability to meet its short-term financial obligations. It is calculated as a company’s total current assets. With the Whitbread Company, it has a present ratio of 0.59.This indicates that this group might have a problem in meeting its current obligations. Low values do not indicate that a problem might arise, but if the company has prospects which are of long-term effect, it might be in a position to borrow against the prospects to meet its current obligations effectively.

With liquidity, when calculating the current ratios can be used to give the direction of the ability of the company to repay its liabilities with its liabilities. The current ratio can give an idea of the efficiency of the cycle of the company. Because some companies may not be in a position to alleviate their obligations, problems arise when the time comes to the firm to on its receivables which in turn make them ditched into liquidity problems.

Ratios which are currently accepted do have a variation from industry to industry and mostly appear between one and three for a very productive business. When the ratio is high, the company is in a good position to pay its obligations. When the ratio appears to be under one, then this suggests that the company might not be able to pay off its debts if they duly came at that point.

This will evidently show that the company is not in a stable financial position, but it does not mean that the company will go bankrupt. There are several ways of finance access, but definitely, it’s a bad sign. High current ratios frequently indicate that is likely to pay off its liabilities which might fall in a year to come. During the past 13 years, Whitbread’s current lowest ratio was 0.22.the median 0.46 and the highest hitting at 2.64. The ratios for this company seem to be at an average level.

With liquidity, the following can be derived:

The current ratio is calculated by taking the current assets (287.1) divided by the current liabilities (838.8) which give 0.34

Quick ratio is calculated by taking the current assets (287.1) subtract the inventory (48.2) divided by the current liabilities (838.8) which offers 0.28

Operating cash flow ratio is arrived at by taking the cash generated by operations (626.1) divided by the current liabilities (838.8) which offers 0.75

Efficiency

The Whitbread Company has a need and opportunity to foster ability through the business. The consumer sector for the United Kingdom currently faces an uncertainty mixture of macroeconomic issues. A non-negotiable part of the Whitbread story is the high returns. The company, therefore, plans to efficiency savings which to help out in mitigating the cost sector pressure. Efficiency is all about the growth of business and success on more fronts.

For efficiency, an organization needs competent and dynamic leadership that can ensure accountability and customer focus by only making right decisions. It also entails right technology, technology functions to touch all the stages of a customer’s journey and across all the networks. It functions to bridge the digital gap and to have the customers attracted at a higher rate.

With efficiency, the following can be derived:

Sales revenue to capital is calculated by taking the sales revenue (3106) divided by the capital employed (3799.5), and the result comes to 0.81

Sales revenue to current assets, it’s arrived at by taking the sale revenue (3106.0) divided by the non-current assets (4351.2) which give 0.71

Sales revenue to working capital which is calculated by taking the sales revenue (3106.0) divided by the working capital (1125.9) which is equal to 2.76

Working capital

Working capital is calculated by adding the current assets (287.1) and the current liabilities (838.8) which gives negative 551.7.

Under the working capital are other factors like:

One has to come up with the inventory turnover period which is arrived at by taking the inventory (48.2) divided by the cost of sales (1717.2) multiplied by 365 days which gives 10.24

Settlement period for trade receivables is calculated by taking the trade receivables (92.6) divided by the sales revenue (3106.0) then multiplied by 365 days which gives 10.88

Settlement period for trade payables is calculated by taking the trade payables (162.1) divided by the cost of sales (1717.2) multiplied by 365 days which gives 34.45

The working capital cycles is calculated by taking the inventory turnover period (10.24) added by the settlement period for receivables (10.88) and then subtract the settlement period for payables (34.45) which answers negative 13.33

Gearing

Gearing refers to the debt level of a company, and it’s related to its capital equity. Usually, gearing is always expressed in a percentage form. It is used to measure the financial leverage of a company and also reveals to what extent the operations of a firm are funded by the shareholders versus the lenders. A gearing ratio is also useful in that it is used to compare the equity of the owner to the funds that have been borrowed. Sometimes, investors find it he helpful tool to assess the survival rate of a company in case it faces an economic downturn.

Understanding gearing is of great importance. A company which is highly geared is one that the most substantial proportion of its capital is contained in the dividend producing debt or fixed interests. When a company loses a significant customer or faces an economic downturn, the company might have problems in making its investments, and if it’s a highly geared company, it might also find it difficult to pay the principal payments. When profits and the rate at which cash flows are also reduced, ability to back up the massive debts and the sizable fixed interest payments which are associated with high gearing ratios are reduced.

The gearing ratio has its benefits to accompany in that it is mostly used to indicate the financial risk of the company. For the private companies, their borrowing practices usually provide apparent examples of the downside and upside of high gearing ratios.

The gearing ratio can be calculated by taking the debt (890.0) divided by the debt plus equity (1951.3) then multiplied by 100% since it has to be expressed in percentage form which brings the answer to 31.32%

Total debt ratio is calculated by taking the cash generated by operations (626.1) divided by the total liabilities (2000.6) which gives 0.31

Investor

An investor is a person that carries out an allocation of capital with an anticipation of financial returns at a future time. Investment types include currency, commodity, equity, debt securities and real estates. There are two types of investors the retail investor and the institutional investor. Retail investors include individuals gambling in games of chance while the institutional investor includes private equity funds and the venture capital which act as a collective investment on behalf of individuals, insurance reserves, companies and pension plans.

The dividend cover is calculated by taking the profit after tax (415.9) divided by the dividend for the year (120.1) which gives 3.46

The dividend yield is provided by making the dividend per share (65.90) divided by the market value per share (150.2) multiplied by 100% which arrives at 43.87

Price or the earnings ratio is calculated by taking the market value per share (150.2) divided by the earnings per share (38.66) which gives 3.89

CONCLUSION

To sum up, according to the findings most of the ratios appear to move from bottom to the top, therefore forming a standard curve as it might be expected.According to the evaluation, the implications of the case study is significant as all the areas analyzed appear to be of great importance and have a positive impact of instilling some knowledge into the scholar. On the other hand, the project is not that easy to carry out as there are some limitations or problems faced: since Whitbread is a very big company, analysing the ratios becomes a bit difficult and tedious for an ordinary scholar.

On the other hand I think a face to face interaction or interviews with some of the workers of the different sections of the company would provide more detailed and more accurate information but this is not possible since not everyone can have access to the company, and so the internet has to be relied on to provide the necessary details.

To do a more thorough analysis, I think the project can be carried out by a group of scholars who can later combine their ideas to come up with a more comprehensive analysis of the project.