Financial Management Concepts and Analysis

This assignment delves into essential financial management concepts such as Net Present Value (NPV), Internal Rate of Return (IRR), and the Cost of Capital. It emphasizes the use of these tools in Investment Appraisal, outlining decision-making rules based on comparing project returns to the cost of capital. The document also briefly touches upon accounting conservatism and its influence on managerial risk-taking within corporate acquisitions.

Running head: ACCOUNTING AND FINANCE FOR MANAGERS
Accounting and finance for managers
Name of the University
Name of the student
Authors note

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ACCOUNTING AND FINANCE FOR MANAGERS
Table of Contents
Question 1:.......................................................................................................................................2
Requirement a).................................................................................................................................2
Requirement b)..............................................................................................................................12
Requirement c)...............................................................................................................................12
Question 2:.....................................................................................................................................13
Requirement a)...............................................................................................................................13
Requirement b)..............................................................................................................................15
References list and Bibliography:..................................................................................................18

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ACCOUNTING AND FINANCE FOR MANAGERS
Question 1:
Requirement a)
The analysis of performance and financial position of all three companies provided is
done by using the tool of ratio analysis. Ten financial ratios that are selected for the purpose of
analysis are return on asset using net income, return on capital employed, cash flow as a
percentage of operating income, net asset turnover, interest coverage ratio, current ratio, liquidity
ratio, gearing ratio, operating revenue per employee and cost of employees. Non-financial ratios
that will be for the purpose of analysis are staff retention ratios and customer retention ratio
(Baber et al. 2013). Three gambling companies from UK gambling industry for identifying
performance analysis are William hill Plc, Landbrokers coral group Plc and Paddy power Betfair
public limited company limited Plc.
Financial ratios:
Profitability ratio:
2016 2015 2014
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
RoA
William Hill Plc. Ladbrokers Coral Group Paddy Power Betfair

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ACCOUNTING AND FINANCE FOR MANAGERS
Return on asset (ROA) as a percentage of net income for William hill Plc has witnessed
substantial decline from 8.67 in year 2014 to 6.73 in year 2016 respectively. ROA for
Landbrokers coral group Plc in year 2014 stood at 3.52 that declined to 0.45 in year 2015 and
ratio further declined and became negative -6.02% in year 2016 respectively. Now, looking at
figures of Paddy power, ratio stood at 22.87 in year 2014 as against 26.41 in year 2015. There
was considerable decline in figure in year 2016 to -0.11. Therefore, one common thing that has
been identified for all three companies is declining trend of return on assets. Ratio stood at
significantly higher value for Paddy power compared to other companies. Average return on
assets for Paddy power is 16.39% compared to 7.83% and .68% for William and land broker.
Therefore, paddy power is more efficient in generating income from assets.
2016 2015 2014
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
ROCE
William Hill Plc. Ladbrokers Coral Group Paddy Power Betfair
ROCE figures as a percentage of net income for William hill declined from 12.69 in year
2014 to 10.51 in year 2016. However, ratio increased to 13.41 in year 2015. On other hand,
ROCE for Landbrokers coral group Plc declined considerably from 7.39 in year 2014 to 3.79 in
year 2015 and further it became negative and stood at -6.80. ROCE for paddy power was
reported to be at 36.52 in year 2014 that reduced to 54.66 in year 2015 and value became

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ACCOUNTING AND FINANCE FOR MANAGERS
negative -0.02 respectively. It can be seen from above figures that ROCE is highest for Paddy
power, however value decreased to negative in year 2016 unlike William hill whose value was
reported at 10.51. Therefore, it can be seen that William hill has highest ROCE as percentage of
net income in year 2016 compared to other two companies. Now, looking at average value, it can
be seen that paddy perform return on capital employed stood at 35.03% as against William Plc
and landbrokers at 12.94%and 0.61%. Therefore, paddy powers have been more efficient in
generating return on assets compared to other companies.
2016 2015 2014
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Cash Flow/Operating Income
William Hill Plc. Ladbrokers Coral Group Paddy Power Betfair
Cash flow as a percentage of operating revenue for William hill remained more or less
same for year 2014 and 2015 at 20.12 and 20.76 respectively. However, figure declined to 15.51
in year 2016. Ratio for Landbrokers coral group Plc stood at 13.89 in year 20114 that reduced to
11.74 in year 2015 and further declined to 6.04. Furthermore, looking at figures of paddy power
was reported at 21.88 in year 2014 and declined to 18.46 and 16.18 in year 2015 and 2016
respectively. It can be seen from comparing above figures for all three companies that declining
trend was witnessed in flow of cash as a percentage of operating revenue. However, Paddy

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ACCOUNTING AND FINANCE FOR MANAGERS
power is generating higher cash flow compared to William hill and Landbrokers. The average
value of cash flow as a percentage of operating revenue for paddy stood at 18.84% as against
18.8% and 10.56% for William and landbroker.
Operational ratios:
1 2 3
0
0.5
1
1.5
2
2.5
3
3.5
4
Net Asset Turnover
William Hill Plc.
Ladbrokes Coral Group Plc.
Paddy Power Betfair Public Limited Company Plc.
Net asset turnover for William hill stood at 0.81 that increased to 0.95 in year 2015. Ratio
witnessed an increase in value to 0.80 in year 2016 respectively. Ratio initially increased and
decreased subsequently. Landbrokers coral group Plc recorded net asset turnover of 1.25 in year
2014 that increased to 1.36 in year 2015. However, value declined to 0.64 in year 2016
respectively. Ratio for Paddy power stood at 2.22 in year 2014 and 3.94 in years 2015
respectively. There was fall in ratio to 0.33 in year 2016. Net asset turnover for paddy power was
more than rest of companies for two years. However, in year 2016, net asset turnover for
William Hill was highest compared to other two companies. Average value of net asset turnover
for paddy power is more compared to other two companies at 2.16. Hence, paddy power is more
efficient.

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ACCOUNTING AND FINANCE FOR MANAGERS
2016 2015 2014
-200
0
200
400
600
800
1000
Interest Coverage Ratio
William Hill Plc. Ladbrokes Coral Group Plc.
Paddy Power Betfair Public Limited Company Plc.
Interest cover ratio for William hill witnessed a considerable decline from 5.76 in year
2014 to 5.47 in year 2015 respectively. Ratio further decline to 4.51 in year 2016. Landbrokers
coral group Plc recorded interest cover ratio of 2.76 in year 2014 and thereafter it declined
considerably to -0.08 and -0.19 in year 2015 and 2016 respectively. Now, looking at figures of
Paddy power, interest cover ratio stood at 978.34 in year 2014 and it reduced significantly in
year 2015 to 61.7 and further to 2.64 in year 2016 respectively. Interest cover ratio was highest
for paddy power but in present year, William hill has better position in terms of interest coverage
with value higher than other two companies do. Average value of interest cover ratio for paddy
power is significantly higher at 347.56 as against William plc at 5.25. Therefore, paddy power is
more efficient compared to other two companies.
Structure ratio:

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ACCOUNTING AND FINANCE FOR MANAGERS
2016 2015 2014
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Current Ratio
William Hill Plc.
Ladbrokes Coral Group Plc.
Paddy Power Betfair Public Limited Company Plc.
Looking at figures of current ratio for William hill, it stood at 0.76 in year 2014 and value
reduced to 0.52 in 2015. However, there was increase in value to 0.71 in year 2016. Landbrokers
coral group Plc recorded current ratio of 0.59 in year 2014 and value increased to 0.65 in year
2015. However, there was a fall in ratio to 0.33 in year 2016 respectively. Furthermore, paddy
power reported current ratio of 1.34 in year 2014 that declined to 0.82 in year 2015 and in year
2016, ratio increased to 0.99. Comparing above figures for all three companies, it is noted that
current ratio is highest for paddy power. Therefore, paddy power is more efficient in meeting
their short-term obligations using their current assets. Average value of current ratio of paddy
power is 1.05 as against 0.66 and 0.52 for William plc and landbrokers.
Credit period:

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ACCOUNTING AND FINANCE FOR MANAGERS
2016 2015 2014
0
5
10
15
20
25
30
Credit Period
William Hill Plc.
Ladbrokes Coral Group Plc.
Paddy Power Betfair Public Limited Company Plc.
The above graph shows that credit period for William plc is highest for all three years.
Liquidity ratio of William Hill for year 2014 stood at same value as that of current ratio.
Liquidity ratio in year 2016 was recorded at 0.71. Landbrokers coral group Plc recorded liquidity
ration of same value as that of current ratio. Paddy power also has same ratio as that of current
value. Therefore, in terms of liquidity position, paddy power is more efficient as compared to
other two companies. The average value of credit period of power paddy stood at 4 as against
25.67 and 18.67 for William plc and landbrokers. Therefore, paddy power is more efficient
compared to other two companies.

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ACCOUNTING AND FINANCE FOR MANAGERS
2016 2015 2014
0
50
100
150
200
250
300
Gearing Ratio
William Hill Plc.
Ladbrokes Coral Group Plc.
Paddy Power Betfair Public Limited Company Plc.
Gearing ratio for William Hill in year 2014 stood at 73.30 and the value fell down to
63.07 in year 2015. However, there was increase in value to 65.86 in year 2016. Gearing ratio
initially declined and it increased subsequently. Landbrokers has comparatively higher gearing
ratio recorded at 140.90 in year 2014 that declined considerably to 93.19 in year 2015. However,
ratio increased to 96.75 in year 2016. Now, looking at the figures of paddy power, it can be seen
that gearing ratio in year 2014 was extremely low at 2.66. Value increased significantly to
296.46 in year 2015.This significant increase in ratio witnessed a substantial decline in year 2016
at 7.02. Therefore, ratio increased significantly in initial years of analysis and it declined
subsequently in later year. When looking at figures of ratio in year 2016, gearing ratio for
Landbrokers is highest compared to William hill and paddy power. A gearing ratio is indicative
of the fact that company has high debt proportion it its equity. A high gearing ratio is not
regarded as desirable as in event of downturn; such companies will face trouble in repaying their
obligations. Now, looking at average value of gearing ratio, landbroker records value at 110.3
compared to paddy power at 102.
Per employee ratios:

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ACCOUNTING AND FINANCE FOR MANAGERS
2016 2015 2014
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Operating Revenue per Employee
William Hill Plc. Ladbrokes Coral Group Plc.
Paddy Power Betfair Public Limited Company Plc.
Operating revenue per employee depicts the efficiency of organization in utilizing their
employees in generating revenue. Operating revenue per employee for William hill stood at 101
and the value increased fewer to 102 in year 2015. However, there was a subsequent decline in
value to 99 in year 2016. For Landbrokers plc, operating revenue per employee remained
constant at 84 for two consecutive years. Figure declined to 58 in year 2016. Looking at figures
of Paddy power, operating revenue per employee stood at 141 in year 2014 and the value
increased to 157 and 199 in year 2015 and 2016 respectively. Average value of operating
revenue for paddy power is 165.67 that is higher than William and landbroker. There was a
continuous increase in revenue per employee and value is highest compared to other companies.
This is indicative of the fact that paddy power is efficient in generating revenue from sales by
utilizing their employees compared to other companies.

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ACCOUNTING AND FINANCE FOR MANAGERS
2016 2015 2014
0
50
100
150
200
250
300
Cost of employee/OR
William Hill Plc.
Ladbrokes Coral Group Plc.
Paddy Power Betfair Public Limited Company Plc.
An organization is desirable to have lower cost of employees as a percentage of operating
revenue. Cost of employee/operating revenue for William hill increased year on year with 19.34
in year 2014 and 21.01 in year 2015. Moreover, value increased to 22.66 in year 2016
respectively. Landbroker recorded higher cost of employees with value of 23.70 in both year that
is 2014 and 2015 respectively. However, this value decreased by fewer amount to 23.31 in year
2016. Now, looking at figures of paddy power comparatively higher cost of employees with
value of 29.18 in year 2014 as against 26.75 in year 2015 respectively. There was a further
decline in cost of employees in year 2016 at 23.47. Therefore, from the above figures, it can be
inferred that William hill has the lowest cost of employees as a percentage of operating revenue.
However, year on year it experienced increasing employee costs. Hence, William hill is more
efficient in utilizing their employees to generate sales and thereby revenue.
Non-financial ratios:
Staff turnover ratio:
The staff turnover ratio for William hill stood at 0.02 in year 2014 and it increased to
0.03 in year 2015 and in year 2016, ratio declined to 0.01. Looking at figure of Landbroker, staff

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ACCOUNTING AND FINANCE FOR MANAGERS
turnover ratio declined from .01 in year 2014 to .006 in year 2015 and further to 0.008 in year
2016 respectively. Paddy power has witnessed continuous decline from 0.06 and 0.05 in year
2014 and 2015 to 0.02 in year 2016 respectively. Therefore, William hill has lower staff turnover
ratio compared to other two companies.
Customer retention ratio:
Customer retention ratio for William hill stood at 0.009 in year 2014 and value increased
to 0.01 in year 2015. There was further increase in ratio to 0.9 in year 2016. Now, looking at
figures for Landbrokers, ratio stood at 0.1 for two consecutive years that is 2014 and 2015
respectively. However, ratio increased to 0.2 in year 2016 respectively. Customer retention ratio
for paddy power increased from 0.04 in 2014 to 0.2 in year 2015 respectively. However, value
decline by fewer point to 0.1 in year 2016. From above figures, William plc has performed better
than paddy power.
Requirement b)
Particulars
Pro
fit
Mar
gin
R
O
E
EBI
T
Mar
gin
Net
Asse
t
Turn
over
Colle
ction
Perio
d
Cre
dit
Per
iod
Cost per
Employee/
Operating
Revenue
Solv
ency
Rati
o
Gea
ring
Rati
o
Curr
ent
Rati
o
To
tal
Final
Ran
king
William
Hill Plc. 2 2 2 3 2 1 1 2 2 3 20 2
Ladbrokes
Coral
Group Plc. 3 3 3 2 3 2 2 3 3 1 25 3
Paddy
Power
Betfair
Public
Limited
Company
Plc. 1 1 1 1 1 3 3 1 1 2 15 1

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ACCOUNTING AND FINANCE FOR MANAGERS
The best performing company is paddy power followed by William plc. Landbroker is
the worst performer. Cash flow from operating income is higher in these two companies
compared to landbroker and thereby it provides positive investment opportunities for investors to
make investment. When looking at current performance of paddy power that is the best
performer, it can be seen that performance of company in current year has deteriorated as
compared to previous years. It is clearly indicated from figures that there has been drastic decline
in return on capital employed and return assets in current year. Fall in profit margin was
significant in current year. Revenue generated from net assets also declined in current year.
However, when comparing the average value of paddy power with its competitors, its
performance is outperforming other competitors such as William plc. Paddy power is
outperforming in terms of profit margin, return on assets, net asset turnover, solvency ratio,
collection period and gearing ratio. Although, the performance has not been impressive in
current year, it has outperformed its competitors. However, there exist opportunities to improve
their performance if they are able to utilize their employees efficiently for generating revenue
and reducing employee costs in current year.
Requirement c)
Based on above ranking, it is seen that landbrokers has performed badly and there is a
requirement for company to improve their financial performance. Financial performance can be
improved by increasing their cash flow and by increasing operating revenue by utilizing their
employees. Proportion of debt in their total equity value should be reduced. The profit margin of
Landbroker is lower compared to its competitors. Return generated form assets and equity is also
lower. It is indicative of the fat that organization is not efficient in utilizing their assets and

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ACCOUNTING AND FINANCE FOR MANAGERS
equity. Landbroker has higher proportion of debts in its value of total equity. Moreover, they are
not able to pay off their obligations and they have difficulties paying their loans. However, the
only favorable position of organization is the availability of current assets to meet their short-
term obligations. Therefore, the liquidity as well as profitability position of company is not
favorable. Profits of organization can be maximized through adopting the strategies that will help
in enhancing sales. Such products having higher demand should be stocked and priced in such a
way that will drive major revenue. Organization should adopt careful cost control measures that
will help in offsetting increased expenditures. Profit margin of organization can be increased by
sourcing from low cost suppliers that will help in reducing overall cost of products acquisition.
Question 2:
Requirement a)
Decisions of capital investment are mostly regulated by identifying capital investments of
organization and there are few steps involved in making allocation decision. Identification of
project is first step in capital investment decision. Screening and definition of project is done in
second step followed by acceptance and analyzing. Monitoring and implementation of project
related to capital investment decision is done in next step. Under monitoring, actual results are
compared with projected ones. Post audit also forms the part of investment decision of capital
allocation. Any systematic errors in forecasting process of cash flow are recognized by cash flow
and are regarded as an important part of capital budgeting process (Bekaert and Hodrick 2017).

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ACCOUNTING AND FINANCE FOR MANAGERS
Capital budgeting has another name of capital investment appraisal that is primarily a
process of planning through which the determination of concerned firm’s investment is
facilitated. Some of component of capital investment appraisal involved in decision process are
new plants, machinery, advertising campaign, property, equipment and research and
development projects. Budgeting of investment and capital to expenditure of company is done by
capital investment appraisal. Investment appraisals that are done carefully assist in figuring out
which projects would be feasible to undertake and which one should be avoided. Risks
associated with undertaking any capital decision are evaluated by methods of investment

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ACCOUNTING AND FINANCE FOR MANAGERS
appraisal (Edwards 2013). Furthermore, investment appraisal methods help in assessment of
level of expected return that is made for expected level of expenditure made. General feasibility
of project is reflected by capital investment appraisal that comprise of projected annual profits
and cash flow (Brigham and Ehrhardt 2013). Feasibility of investment is determined by capital
resources and this is assessed by capital appraisal method.
Requirement b)
Various methods of investment appraisal are used in practice such as discounted payback,
internal rate of return, net present value and average rate of return.
Payback period- It is the time taken by project to recover initial amount of money that
has been invested and helps in providing measure of liquidity. It can be explained with the help
of example.
Year Cash flow
($000)
Cumulative cash flow
($000)
0 (2,500) (2,500)
1 500 (1,500)
2 1000 (500)
3 400 (500)
4 600 0
5 300 300
6 200 500

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ACCOUNTING AND FINANCE FOR MANAGERS
The payback period is four years.
Net present value- It is a technique of discounted cash flow that is the difference
between present values of future cash flow minus initial investment. Decision rule using this
method is that if the value of net present value is positive then project should be accepted or less
it should be rejected.
Internal rate of return- It is the rate of return where future outflow of cash present value
equals initial investment. The decision rule using this method of investment appraisal is that

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ACCOUNTING AND FINANCE FOR MANAGERS
project should be accepted if the cost of capital is lower than internal rate of return.

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ACCOUNTING AND FINANCE FOR MANAGERS
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governance and municipal debt financing. Journal of Accounting and Economics, 56(2), pp.212-
227.
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Press.
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Div American Mgmt Assn.

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ACCOUNTING AND FINANCE FOR MANAGERS
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