IMPORTANCE OF FINANCIAL REPORTING 2022

Running head: FINANCIAL REPORTING
Financial Reporting
Name of the Student:
Name of the University:
Author’s Note:

FINANCIAL REPORTING1
Abstract:
This report is prepared to understand the importance and application of financial reporting
with the practical example of Burberry Company. Financial reporting is the means of
communicating financial information of a company to its stakeholders. It is the final outcome
of the whole of the accounting and reporting process. Analysis an interpretation of the
financial reports are important for understanding the financial performance and financial
position of the company, based on which various important business decisions can be taken
by the stakeholders. In this report, the financial performance and financial position of the
Burberry Company have been analysed and presented based on the information available in
their annual reports.

FINANCIAL REPORTING2
Table of Contents
Introduction:...............................................................................................................................3
Background to the company:.....................................................................................................3
Financial performance analysis:.................................................................................................4
Profitability analysis:.............................................................................................................4
Liquidity analysis:..................................................................................................................6
Management efficiency analysis:...........................................................................................7
Solvency analysis:..................................................................................................................8
Investor ratios.............................................................................................................................8
Analysis of the share price movement:......................................................................................9
Cash flow analysis:..................................................................................................................10
Analysis of the financial reports:.............................................................................................12
Conclusion:..............................................................................................................................13
References and bibliography:...................................................................................................14
Appendices:..............................................................................................................................17

FINANCIAL REPORTING3
Introduction:
Financial reporting is the process of communicating all the information relating to the
financial performance and financial position of a company for a particular period of time. It is
the final outcome of the financial accounting process. The main objective of the financial
reporting is to provide meaningful information about the financial performance and financial
position of the company to its stakeholders. It may not be easy for an individual to interpret
and understand the information conveyed through the financial reports and financial
statements so that an important decision relating to the company could be made. Therefore,
analysis and interpretation of the financial statements and financial reports are important. In
this report, financial statements and financial reports of the Burberry Company has been
analysed with the help of various financial statement analysis tools and techniques. Based on
such analysis, the financial performance and financial position of the company has been
interpreted so that it can help the investors and various other stakeholders in their decision
making process (PLC 2020).
Background to the company:
Burberry Company PLC is well known global fashion and luxury brand. The
company is operating globally based on their headquarter in London. The main operation of
the company is to retail luxurious fashion products through their shopping retail outlets. They
also introduced the online retailing in recent years to gain wide reach out to the customers
and to capture a wide market share. The company was established in the year 1856 by
Thomas Burberry with the aim of development and retailing of outdoor fashion wears.
Through the innovation in their products and attractive designs they have successfully
become a well-known global fashion brand within a few years of their establishment. The
product line of the company includes, outdoor fashion wears, fashion accessories, sunglasses,

FINANCIAL REPORTING4
fragrances and cosmetics. Having a global presence and high end quality on their products,
the company have been performing financially and operationally very well for the last few
years. In the following parts of this report, various financial statement analysis tools and
techniques have been applied to analyse their annual reports and to interpret their financial
performance and financial position (PLC 2020).
Financial performance analysis:
Every company is established with the objective of earning revenue through its
operating activities and to have a significant profitability towards achieving the objective of
the shareholders wealth maximisation. As a modern and customer oriented company, the
company has always focused on the quality of their products and building customer
relationship. Financial performance of a company can be measured by the profitability and its
management efficiency in utilising the resources of the company. From the annual report of
the company various profitability and efficiency ratios have been computed for understanding
and interpreting the financial performance of the company as below (PLC 2020).
Profitability analysis:
Profitability is the earning capacity of the company. From the annual report and
financial statement of the company the profitability of the company can be understood and
analysed. Various ratios such as net profit margin, EBITDA margin, operating margin and so
on, the profitability of the company and its trend for the last few years can be analysed as
follows (Wang 2014).

FINANCIAL REPORTING5
It can be observed from the above analysis that the company is having a significant
gross profit margin and there is a sustainability in the gross profit margin. It can be observed
from the above ratio analysis that, the gross profit margin of the company has been remained
same in around 68% to 69% for the last three years (finance.yahoo.com 2020).
Operating profit margin is the measure of profitability based on the operating profit as
compared to the turnover of the company. It can be observed that the operating profit margin
has been increasing since the year 2017. It was 14.26% in the year 2017 and it became
15.01% in the year 2018 and finally it reached to 16.07% in the year 2018. Hence, there is a
good increasing trend in the operating margin, which implies better management and better
operating efficiency of the company (Wang 2014).
Return on capital employed is another measure of profitability compared to the capital
employed of the company. It can be observed that the Burberry Company was having a return
on capital employed of 21.33% in the year 2017 and it reached to 25.84% in the year 2019.
Hence, a clear increasing trend in the return on capital employed margin can be observed. It
implies the company is efficient in utilising their capital and finances to earn a significant
amount of profit and to achieve the objective of the business.
Return on equity can also be used for understanding and interpreting the financial
performance of the company. It can be observed from the above ratio analysis, that the
Burberry Company was having a return on equity of 23.22% in the year 2017 and it has been