Evaluation and Monitoring of Business Performance

This assignment is a comprehensive report on the evaluation and monitoring of business performance, specifically focusing on financial management principles, risk management, and corporate governance. It includes a detailed analysis of Debenhams' performance, highlighting the importance of transparency in financial reporting and the need to disclose potential losses but not anticipated gains. The report also discusses the impact of economic issues on business performance and provides recommendations for improving financial management strategies. The assignment is based on various academic sources, including books and journals, and is intended for students studying finance or related fields.

An Analysis and
Evaluation of
Financial
Performance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
1. Identify and evaluate the impact the economy has on Debenhams business organisations:3
2. Evaluate financial information in a range of organisational contexts of Debenhams:.......5
3.Interpretation of key financial information for decision-making and performance monitoring
of Debenhams:........................................................................................................................6
4. Appraise and propose courses of action informed by accounting tools and concepts:....12
REFERENCES..............................................................................................................................15

INTRODUCTION
Economics is field of knowledge includes different ways to utilize and allocate the scare
resources in order to generate optimum efficiency. Financial management refers to management
of financial resources with an objective of maximization of wealth. Economics and financial
management is interlinked and closely associated with each other. Objective of both Economics
and financial management is to utilisation of financial resources and to achieve efficiency. A
deep analysis and evaluation of financial performance is necessary in order to take decisions
regarding economics and financial management (Aebi, Sabato and Schmid, 2012). This report
exhibits impact of economy, evaluation of financial information through ratio analysis,
interpretation of key ratios and significant trends, appraise and purpose courses of action
informed by accounting tools and concepts in the context of Debenhams. It is an UK based
multinational retail company and engaged in selling of clothing, household items and furniture
items.\
TASK
1. Identify and evaluate the impact the economy has on Debenhams business organisations:
Overview of company: Debenhams is public limited company and mainly associated
with activity of selling a range of clothing’s for men, women and kids, furniture items and
household items. It has approx. 240 stores and providing unique range, exclusive mix and
differentiated own brands and accessories across 22 countries (Brigham and Houston, 2012).
Directors Introductory Report: In Debenhams, board or directors have direct
monitoring on performance of the business and every board meeting must include operational
reports obtained from members of the Executive Committee regarding current status of execution
of the strategy. In board meeting presentations are called by the board on an adhoc basis from
trading divisions and other business areas such as investor relations, treasury, taxation, health
and safety and human resources. Board of directors using regular updates on governance and on
key risk factors ensuring that risk management framework and profile are compatible with
business strategy. Directors also consider and approve, as the case may be, significant company
decisions, and major changes, approval of annual and interim reports of the Company and all

preliminary announcements of results, approval of the dividend policy, determination of the
interim dividend and the recommendation of the final dividend and approval regarding opening
of new store.
Stakeholders of Debenhams:
 Customer: These are said to be one the crucial stakeholder of the company that a
business can get impacts through the quality of services and their value.
 Employees: This seems to be basically related with the income and safety aspect that is
provided by the company to their staffs. It depends up the type of business a company is
running.
 Investors: It consists of both shareholders and debtholders. It has been seen that
shareholder usually invest capital in their business and expect to earn a certain rate of
return on the capital.
Shareholder:
Common shareholder: These are those that own a Debenhams common stock. They are
more reliable and prevalent types of shareholder. They do have voting right in any kind of
matters.
Preferred shareholder: These are unlike common shareholder as they own a share of
Debenhams preferred stock and have no voting rights.
Identification and evaluation of impact of economic environment on Debenhams:
Being an UK based company has great impact of economic environment of UK. In recent time
UK as well as other countries has been highly affected by recession. In recession period retail
sector majorly influenced by credit crisis, low purchasing power of customers, scarcity of funds
and investor risk aversion. First adverse impact of recession on Debenhams was decrease in
investor’s confidence due to increase in large debt to obtain fund however company is trying to
pay out debts through regular instalments. This can be seen as major impact of economy on
company. Due to credit crunch in UK purchasing power of individuals has decreased. Now
people prefers to spend money in low cost products and avoiding purchase of luxurious products
therefore Debenhams is trying to switch existing pricing structure to retain customers. In coming
years Economy is estimated to grow out of this problem but in order to maintain growth,
Debenhams is required to evaluate strategies and modify their existing structure of business. In
order to recover from current economic crisis Debenhams is trying to expand business into the

international market, developing a new customers group by introducing new brands with new
attractive prices (Brooks and Mukherjee, 2013).
In UK's economy interference of online retail market is significant issue for company.
Now customers want to buy product using new technologies and advertising strategy is also
changed due to this. Debenhams is also providing services through online platforms but this also
affects their selling structure and refund polices. By use of latest technologies now, company is
under pressure to convert their existing business format into online retailing business format.
Company is continuously enhancing quality of contents on web site by adding features like
social networking competence, videos and catwalk or outfit projection, an online platform that
spreads current offers and promotions, feature that enables customers to by product by size,
product reviews and feedbacks (Burtonshaw, 2017). Due to Inflation in economy, Debenhams is
facing problems, such as increase in opportunity cost, decreasing purchase power of customers,
discourage investment by investors. Due to inflation, confidence of investors has decreased
which results in withdrawal of support by key investors and may lead to unfavourable debt
equity ratio.
2. Evaluate financial information in a range of organisational contexts of Debenhams:
The best to evaluate financial information of an business organisation is ratio analysis.
Through ratio analysis, a complete comparative performance of business organisation can be
obtained to track a performance during one or more period (Dudin, 2014). Following are the
major financial ratios of Debenhams, as follows:
Ratios 2018 2017 2016
Total Revenue 2277 2335 2341.7
Gross Profit 15.1 264.8 193.4
Gross Profit Ratio 0.663% 11.340% 8.258%
Net profit -481.3 71.3 118.6
Net Profit Ratio -21.137% 3.053% 5.064%
Total Assets 489.4 917.6 883.9
Asset Turnover Ratio 4.652 2.544 2.649
Return on Capital Employed -98.344 7.770 13.42
Current Ratio -0.654 -0.689 -0.731

Acid test ratio/Quick Ratio -0.164 -0.175 -0.256
Receivable Turnover Ratio 4.392 4.471 4.349
Payable Turnover Ratio -77.159 -68.338 -59.587
Inventory Turnover Ratio -0.472 -0.749 1.929
3.Interpretation of key financial information for decision-making and performance monitoring of
Debenhams:
Interpretation of financial ratio assists management to take vital decision and for tracking
performance of organisation while covering different financial aspects. A brief interpretation of
different key financial ratios is discussed below:
Gross Profit Ratio = (Gross profit / Revenue) x100
Gross profit ratio of the year 2018 :
(15.1 / 2277) x 100 = 0.663
Gross profit ratio of the year 2017:
(264.8 / 2335) x 100 = 11.340
Gross profit ratio of the year 2016:
(193.4 / 2341.7) x 100 = 8.258
Interpretation of Trading: According to be trending calculation, it has been found that
there is downward trend determine in the year 2016 that is around 8.258%, whereas in 2017 the
trading gets increased with drastic increment of 11.3%. In the year 2018, again the trading goes
on decline with only 0.663%. It means that profitability position is more fluctuating in these
three years (Hastings, Madrian and Skimmyhorn, 2013).
Net Profit Ratio = (Profit from operation / revenue) x 100
Net Profit Ratio of the year 2018:
(-481.3 / 2277) x 100 = -21.137
Net Profit Ratio of the year 2017:
(71.3 / 2335) x 100 = 3.053

Net Profit Ratio of the year 2016:
(118.6 / 2341.7) x 100 = 5.064
How well the expenses are controlled: From the above calculation of ratio, it has been
found that Debenhams is not able to manager its expenses as in 2016 the expenses is 5.053 %,
whereas in 2017 the total net income generated was around 3.5053% that shown downward
trend. While in the year 2018, total expenses of the company go in negative as they are
investment maximum amount of expenses during the production process. This the overall
performance of the Debenhams is not so effective.
Asset Turnover Ratio = Revenue / Asset
Asset Turnover Ratio for the year 2018:
2277 / 489.4 = 4.652
Asset Turnover Ratio for the year 2017:
2335 / 917.6 = 2.544
Asset Turnover Ratio for the year 2016:
2341.7 / 883.9 = 2.649
How hard is the asset working: From the above ratio, it has been analysed that assets of
Debenhams are very much hard to manage because in the year 2016 it was just around 2.649.
Whereas in the next year assets are reduce to 2.5. However, in 2018 the company is comfortably
able to manage its assets as they generate a total little maximum amount of assets with 4.652
which is more safe for the company to plan their resources.
Return on Capital Employed = (Profit from operation / Assets) X 100
ROCE for the year 2018:
(-481.3 / 489.4) x 100 = -98.344
ROCE for the year 2017:
(71.3 / 917.6) x 100 = 7.770
ROCE for the year 2016:

(118.6 / 883.9) x 100 = 13.417
The return on investment compare with the bank interest: According to the above
calculation, it has been seen that Debenhams is able to get a valuable amount or return on its
total capital investment with 13.417% in 2016, Whereas the company has to suffer with a low as
interest rate goes on little high side. In 2017, only 7.7% of return they are able to generate.
However, in 2018 Debenhams have to bear a heavy loss of about that directly made impacts on
the financial position during the same year.
Current Ratio = Current assets / Current Liabilities
Current Ratio for the year 2018:
(528.1 / -807) = -0.654
Current Ratio for the year 2017:
(501.8 / -728) = -0.689
Current Ratio for the year 2016:
(502.8 / -688.2) = -0.731
The ability of the company to meet short term debt: From the above calculation, it has
been seen that the liquidity position of the Debenhams is very low as in the year 2016 it is only
0.73, whereas in the very next year 2017 it goes down with 0.68. The current ratios of the
company go on declining with every coming year. It means that the debts of Debenhams are
much more as compare to total assets of the company.
Acid test ratio/Quick Ratio = (Current assets - inventory) / Current liabilities
Quick Ratio for the year 2018:
(528.1 - 396)/ -807 = -0.164
Quick Ratio for the year 2017:
(501.8 - 374.1)/ -728 = -0.175
Quick Ratio for the year 2016:
(502.8 - 326.3)/ -688.2 = -0.256

How quick you can pay this debt: According to the above liquid ratio calculation, it has
been seen that Debenhams company is not being able to pay its debts obligation as they are
having low amount of cash availability. In the year 2016, it is only around 0.2, whereas 0.12 has
been recorded in 2017 and in 2018 this would be more close to 0.164. The overall status of the
company is not so effective that will directly affect the profitability position.
Receivable Turnover Ratio = (Trade receivables / revenue) * 365
Receivable Turnover Ratio for the year 2018:
(27.4 / 2277) * 365 = 4.392
Receivable Turnover Ratio for the year 2017:
(28.6 / 2335) * 365 = 4.471
Receivable Turnover Ratio for the year 2016:
(27.9 / 2341.7) * 365 = 4.349
Debtors-how quickly collecting the debts: As per the ratio calculation, it has been
analysed that Debenhams debtors are collecting their invested amount in only 4-time period
during a company in each year. It means that Debenhams is able to provide sufficient amount per
year that a business collects its average accounts receivable.
Payable Turnover Ratio = (Trade payables / cost of sales) * 365
Payable Turnover Ratio for the year 2018:
(433 / -2048.3) * 365 = -77.159
Payable Turnover Ratio for the year 2017:
(387.6 / -2070.2) * 365 = -68.338
Payable Turnover Ratio for the year 2016:
(338.3 / -2072.2) * 365 = -59.587
Creditor-how long do we take to pay: As per the above calculation, it has been seen that
the company is not able to pay creditors amount on time. It usually takes around 59 days in 2016,
Whereas 68days in the year 2017 and 77-day time in 2018 to meet the creditors value. It will

directly affect the relationships amount each creditor. Henceforth, the data can lead to affect the
overall goodwill of Debenhams in relation to other competitors.
Inventory Turnover Ratio= (Average inventory / cost of sales) * 365
Inventory Turnover Ratio for the year 2018:
(2.65 / -2048.3) * 365 = -0.472
Inventory Turnover Ratio for the year 2017:
(4.25 / -2070.2) * 365 = -0.749
Inventory Turnover Ratio for the year 2016:
(-10.95 / -2072.2) *365 = 1.929
How quickly am I turnover the stock: As per the above calculation, it is seen that
companies total stock is rotating in just 1-month time in 2016, Whereas 0.7 months in 2017 and
0.4 months in 2018. The stock turnover ratio is an efficiency ratio that would indicate that how
effectively inventory Debenhams company is able to manage the cost of goods sold with average
stock for a period of time.
Recommendation for improvement in different areas of Debenhams:
 In Debenhams profitability ratios such as gross profit ratio and net profit ratios are
unfavourable which results in reduction in trust of shareholders. In order to improve
profitability ratios company should develop brand value by using efficient marketing
strategies in order to persuade clients or customers to pay more for products, even while
acquisition costs stay the same.
 Company should improve their liquidity and cash flow position through early Invoice
Submission to major customers, Using long-term debt to finance business instead of
short-term debt, disposal of non value added assets, controlling their overhead expenses
and Negotiating for longer payment cycles.
 To improve current and acid test ratio company should delay any capital purchases that
would require any cash payments, any term loans should be re-amortized, minimise
personal draw on the business and sell any capital assets that are not generating a return
to the business.

 By Distribute monthly aging reports to your sales manager, the business owner and the
head of accounting for review, Reviewing credit terms and reducing payment term to 10
days or two week, Offer Incentives for early payment and discontinuing selling on credit
to customers who regularly pay late company can improve their payable and receivable
turnover ratio.
 It is recommended to company for improvement in inventory turnover ratio that company
should focus on forecasting techniques, increasing sales, Contact vendors to reduce the
quoted price for inventory items and improvement in inventory management structure.
 Some economic factors such as interest rates, demand and supply, recession, inflation,
decreasing consumer confidence etc. are main causes of failing of Debenhams and
affecting company and its shareholders. Due to inflations and reduction in investors’
confidence company is facing adverse condition and moving towards liquidation
position. Company should implement strategy and change in organisational or
management structure to avoid these factors.
 In Company cash flow situation is adverse and in order to improve cash flow company
should focus on acceleration of Depreciation and Amortization, Lower Interest Expense,
Lower Investment in Receivables, Stretch Payables and Lower Capital Investment.
Strategic decisions organisation should take from analysis:
 In Debenhams revenues from UK and international markets has been decline in recent
years, and net profit and gross profit ratios showing decrease trends due to recession
effects and its turnaround strategy so company should change their business structure and
strategies already implemented (Lusardi and Mitchell, 2014). As a strategy, cost-cutting
strategy is most helpful in this situation to reduce net loss but in long term, company
should take some major decision like modification in high cost producing process, out
sourcing of any costly business function.
 Current ratio below the standard is red alert for Debenhams because it points pout
towards need of improvement in liquidity situation of company. In order to improve
liquidity Ratio Company should use sweep accounts by allocating and retain funds into
higher interest rate accounts until the period these funds are not desirable and transfer
back to suitable accounts as the case may be.

 In order to enhance profit Debenhams should conduct analysis like SWOT analysis,
Porters 5 model, cost volume analysis to identify main reason for decreasing sale and
increasing expenditures. After identification of main reason, company should create
internal policies and guidelines to short out current problem and to avoid any same issue
in future.
 To increase their sales Debenhams should choose expansion strategy to expand its
business in potential markets and unproductive or loss-making units of company should
be disposed to generate and improve cash flow. Improvement in cash flow is necessary to
recover existing losses and to maintain profits because in net loss situation organisation
would not be able to meet requirement of working capital so cash flow can used to fulfil
working capital requirement (Mills and Broughton, 2016).
4. Appraise and propose courses of action informed by accounting tools and concepts:
Accounting tools and concepts adopted by Debenhams helps their management to
provide framework for decision-making. Such tools and concepts creates boundaries and sets
limitations under which all decisions of company framed by management in order to avoid any
misinterpretation and fraud. Following are the Appraise and propose courses of action informed
by accounting tools and concepts in the context of Debenhams, as follows:
Economic Entity
Under this concept, Debenhams and its owner are two separate legal entities. Therefore, it
is the duty of company's accountant to separate the account of Debenhams from its owner. Like
drawings are the liability of business owner. Moreover, they are considered as single entity only
for legal purpose.
Monetary measurement
In money measurement, concept accountant of Debenhams will record only that
transaction that can be expressed in term of money like purchase of machinery, sales of goods
etc. There are non-monetary transaction, which are important for organisation like goodwill, but
it cannot be recorded and become the part of financial transaction (Postmus, 2001).
Time period assumption
According to time period assumption all, the financial statements (balance sheet, profit
and loss) are prepared for a specific period. Hence, Debenhams prepare financial statement in
order to disclose the position of the company for that specific duration.

Historical cost principle
This principle state that the value of assets keeps on changing with the change in time.
Moreover, it is the duty of Debenhams accountant to update only that price on which the assets
were taken or brought into the company. Company do not have to do anything with the current
value of the asset. Their further valuation on asset takes place based on historical prices.
Full disclosure of account
Full disclosure principle states that any relevant information for the stakeholder must be
displayed in the books of account. Furthermore, Debenhams make sure any other side party or
stakeholders don't get any manipulative or misleading data as well as it ensure company don't
hide any relevant entry. In addition, it is the responsibility of Debenhams to disclose all
anticipated loss.
Going concern principles
This principle assumes that the motive of Debenhams is to operate with lifelong running
prospective. Asset of Debenhams are valued based on original cost not on market value and
assume that it will be used for indefinite purpose. In case if the accountant of company comes to
know that the company cannot continue, any more then this information must also be disclosed
in financial statement.
Matching concept
Under matching concept, the expenditures of the Debenhams must match with the
revenue of the company. All the expenses must be recorded on the day they were incurred like
advertisement expense, sales expense, bonus expense etc.
Revenue Recognition principles
Under revenue recognition all the income, revenue or profit of Debenhams must be
recorded on the date they were received. Hence, once company receives receipt then only they
will add that amount in their financial statement.
Materiality
Materiality principle means all the transaction of Debenhams should be recorded and
disclose properly. This brings transparency and attract outside party. Suppose if the liability or
expenses of company are more than asset or income it must be clearly stated in its final account.
Hence, all the petty information should not be hide from the outside party (Raudla and Kattel,
2013).

Conservatism
Principle of conservatism state that the accountant of Debenhams must disclose all the
potential or anticipated losses but should not disclose potential or anticipate gain. Disclosing
anticipated losses makes easier for the outside party to make right choice.
CONCLUSION
From above report, it has been concluded that evaluation and monitoring of performance
of business organisation plays a major role in decision-making process. Ratio analysis is major
tool to evaluate and analyse the performance and accordingly management to improve
performance of business organisation frames strategies. Some economic issues also have direct
or indirect impact on organisation's performance but analysis of this factor using some numerical
data can avoid any financial disaster. Furthermore, actions of management and business should
be compatible with accounting tools and concepts.