Company Overview
The accounting regulating organisations of various nations cast a duty of the management of the company to make and state the financial statements of the company, which show the true and fair sight of affairs of the corporation. The fair and transparent representation assists the stakeholders and experts to arrive at meaningful business and other decisions. This report has been made to evaluate financial performance of John Lewis of Hungerford PLC. The assessment of financial performance is critical for the stockholder as it assists them to select the great protection from the marketplace. The economic performance of the corporation can be influenced by numerous inner factors and outer factors. It is required by the investors to look above inner elements and outer elements before creating the long-term venture in corporation. In lieu of the internal examination, entity can assess final statements of corporation and the annual report of corporation. For external factors, entity can assess report of industries or relate company’s act in any other entity that is also making performance under the similar industry.
The report will make use of the various ratios to evaluate the financial performance of company over the time of five years such as the financial years starting from year 2014 to 2018. This report is further targeted at evaluating the trends in the stock market of the share prices of the said corporation. This would be followed by the conclusion as to whether it is vital to invest in the entity based on the wealth of the entity.
The company was incorporated in year 1977. The company is based in Wantage, the United Kingdom. John Lewis of Hungerford PLC creates, produces, trades, and fits bedroom, kitchen, freestanding furniture, and architectural elements in the UK. The company runs the direct mail order business in the name of Just Doors to replace the kitchen cabinet door. It trades and sells the goods by the showrooms in addition to online.
As prescribed in US GAAP framework made by the controllers, financial statements are made with the purpose to serve the numerous shareholders. It is required further be reported that the statements should be in the comparative layout to assess the financial performance of the company in the detailed way. Additionally, it is important to analyse that, as there are various shareholders, there is no particular objective for the research and representation of the financial statement of the entity. It means that financial statement serves as the foundation for the various decisions like lending, purchasing, and controlling and various more (Mazow, 2016). While the investors are keen to know the complete financial wealth of the corporation, the controllers have the main purpose of making sure that the financial statements comply with the needs of the corporate governance and applicable accounting structure. In this way, in order to take the decisions, the shareholders should assess the financial statements in respect of the essential requirements. Further, the financial statements render the competitive study of the financial performance in respect of the performance of the competitors belonging to the similar company (Alexander, 2016).
Analysis of Financial Statements: Theoretical Framework
There have been prescribed a number of tools for evaluating the financial vivacity of the company. These tools are useful for the relevant and specific data from financial statements and marketplace in respect of the company. These significant tools are the ratio analysis. The comparative ratio analysis helps the person to achieve an insight regarding the profitability, efficiency, liquidity, and solvency positions of the company. These ratios are very useful when compared with the company average and the relative data of the competitor. Additionally, the ratios help in further trend analysis and therefore complete financial vitality of the company may be evaluated (Kohli, 2018).
The other way of assessing the latest performance and the worth of the company is by making use of the price of stock, as resulting from the live market or the stock exchange where the shares of the public company are traded. This is important to note that the evaluation of the price of stock in the light of the historical performance of an enterprise would yield limited results. The said evaluation must be done in conjunction with future prospects of the entity and the latest information regarding the present agreements entered into by the corporation. An industry evaluation should also be shared. The evaluation on the above lines would provide the close at the inclusive level of the company’s position. For that reason, the shareholders may do investment and the authoritarian decisions (Shaxson and Christensen, 2016).
The ratios analysis is to assess financial entity’s performance in respect of the various bases like profitability, working capital management, capital structure and stock market performance. The ratio analysis provides the brief concept to the investors in respect of the financial performance and place of the corporation (Van Horne and Wachowicz, 2008). Additionally, with the help of the ratio analysis past year data could also be compared from the data of latest year as well as the ratio analysis data can be compared to the company data to assess financial presentation and the effectiveness of corporation. The study of ratio analysis has made over the corporations. The calculation of ratios are provided in the appendix (Shapiro, 2008). The net profit and margin and return on equity depict in respect of the profitability position of the corporation. The average receivable collection period, return on equity, total asset turnover, times interest earned ratio, return on total assets etc. show regarding competence position of the entity (Morningstar, 2017). Furthermore, the debt ratio and earnings yield show regarding the solvency situation of corporation.
Analysis of Financial Statements: Practical Application
The financial performance of the corporation can be assess by evaluating over final financial statements of corporation, in this report, final financial statements which are income statement, cash flow statement, balance sheet have assessed of John Lewis of Hungerford PLC (Brammer, Brooks and Pavelin, 2016). The final financial data of John Lewis of Hungerford PLC has assessed to examine presentation of corporation in respect of numerous financial data. The assessment over financial analysis of corporation is as follows:
The profitability position of the company could be primarily evaluated with the help of two major ratios. These two major ratios are the return on equity and the net margin ratio (net profit ratio). Even as the net profit ratio is measured as the percentage of profit to the revenue of the company, the return on equity is calculated as the percentage of profit on the company’s total shareholders. As per the calculation, net margins have been consistently falling since the year 2013. While the net profit margin for the year 2013 was 2.21 percent, it fell down to .60 percent in the year 2014, -1.78 percent in year 2015, and – 4.89% in year 2016. Further, in year 2017 net profit margin was increased. It was 1.28% in year 2017. However, it is significant to note that the net margin in the year 2013 are extraordinary high. The amount for the same had accounted for about £ 144,845 in the year 2013. The effect of the high net margin in the year is evident in the return on equity as well. Otherwise, the return on equity for the shareholders has remained more or less the same in the years 2013 to 2017. The flat trend depicts the no change in the structure of the equity as well as the operating structure of the company (Bartram, Brown and Fehle, 2009).
The liquidity position of the company is one of the most basic features of the business. It renders the insight of the capacity of the business to pay off the short term business debts. The current ratio and the quick ratios are considered as the prime ratios to assess the liquidity situation of the company. The comparative position of the liquidity of the John Lewis Hungerford PLC has been stated as below, with the help of the information and data relating to the previous five years (Stickney, et. al, 2009).
The financial information and data of the company state the comparatives for five years, the data of which is given in the appendix below. The cash and cash equivalents, amounting to around £ 1502802, own the major portion of the current assets of the year 2017 for the company John Lewis Hungerford PLC . The cash and the cash equivalents of the year 2017 are more than that of the year 2016, depicting the good liquidity position of the company (Anderson, et. al, 2015). Additionally, the other current assets are at the good situation than the last years, together leading to the increase in the overall current assets of the enterprise and the current ratio. Another major contributory towards the good current ratio in the year 2017 is the reduction in the amount of the short-term debt. The quick ratio changes are at the same velocity as that of the current ratio change because of the constancy in the amount of the inventories over the period, as showed in the data in the appendix (Robinson, et. al, 2015).
Conclusion
The efficiency ratio assesses the capacity of the company to create use of the numerous assets and capital. The efficiency ratios make use of the comparison of the assets own by the company with that of the revenues or the margin performance. In this way, these groups of ratios notify the investors regarding the capacity of the company to utilise what it has possessed to make the most profit possible for owner and stakeholders. There are the many types of the efficiency ratios like the asset turnover ratio, the inventory turnover ratio, fixed asset turnover ratio, and more. The ratios are showed in either number of times, or the number of days (Brigham and Houston, 2012).
The inventory days means the average number of days, goods or the inventory stay before being traded by company. In this way, the low ratio states that the corporation is quickly changing the inventory into the sale. The company John Lewis Hungerford PLC has been showing the consistent low inventory holding days. The reason is that the nature of the inventory is included. Likewise, the accounts receivable days refers to the number of days a bill was due before being taken form the company’s debtors (Fridson and Alvarez, 2011). The data of efficiency as depicted above showed the decreasing trend until the year 2016, with the increment for the year 2017. The change is attributed to a marginal increase in sale with a more change in the receivable outstanding (Gunn, 2016).
The long-term shareholders like the owners, government lenders, personal lenders, controllers and even the societies are keen to have the knowledge of the solvency feature of the business from long term vivacity from point of view of company. The two key ratios that drop the light on structure of debt and the influence of the similar in the company are the debt equity ratio and Interest Times ratio. The debt equity ratio is very useful for the evaluation of the financial leverage of company. This is also known as the gearing ratio. The data as states in the appendix regarding the corporation in problem state that there is the almost enhancing trend in debt equity ratio for company since year 2013 (Fletcher and Growing, 2018). Generally, the high debt-to-equity ratio shows that the corporation cannot be capable to make enough cash to satisfy its debt obligations. An evidence that the entity is reducing its dependence over the debt for running the business of the company. The year 2017 shows the increment in the entity’s other liabilities. On the lines of the same, it should be noted that the interest time’s ratio has not been changed from the financial year 2013 to the financial year 2017 (Fabozzi and Drake, 2009).
The most common approach to evaluating the stock market performance of the company is to calculate the dividend yield. The dividend yield is financial ratio, which assesses quantum of cash dividends paid to stakeholders comparative to market value per share. The Corporations allocate the part of the margins or profits as the dividends, as retaining the remaining part to invest again in the business of the company. The dividends are paid out to the stakeholders of the corporation. The dividend yield evaluates quantum of income by the manner of total dividends, which investors create by making investment in entity. This is generally stated as the %. John Lewis of Hungerford PLC had not paid dividend in any year so the dividend yield of the company is zero.
Conclusion
As per the above discussion in the previous parts, it can be concluded that the preparation and the representation of the financial statements creates the key part of the businesses. These are important not only in respect of the fair presentation of the dealings and actions to the numerous stakeholders, but also creates the company liable towards the controllers of the accounting and the compliance regulations. It should further be noted that the evaluation of these financial statements help the shareholders in getting the important data regarding the business venture on the line of investments, financial wealth and the general competitiveness in the industry to which the company belongs. The report was an attempt to assess the financial information of company John Lewis of Hungerford PLC which is a popular name in the courier and postal service industry. The ratio analysis technique was adopted for the evaluation. These various ratios provided the insight of the numerous aspects like the capital structure, the efficiency of the utilisation of the assets, the capacity to pay off the debt and various more. Additionally, the brief assessment of the market vitals was done. In this way, it can be showed that the financial analysis serves the various objectives or the purposes for various shareholders (Ocal, et. al, 2007).
References
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