Financial Accounting Report

This report analyzes the financial performance of Whitbread Plc and Greene King Plc, two UK companies, using financial ratios and exploring factors influencing their business operations. It provides insights into their financial health and the impact of various economic and non-economic factors.

FINANCIAL ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
ANALYSES.....................................................................................................................................1
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7
Books and Journals.....................................................................................................................7
Online:.........................................................................................................................................7

INTRODUCTION
Financial Accounting means the accounting for financial purpose and it is the process of
recording, summarising, classifying and reporting the transactions which are of financial
character and interpreting the results of an accounting period. The transactions are classified in
preparation of financial statements, including balance sheet, income statement and cash flow
statement, are the consolidate financial reporting statements which depicts the company's overall
performance(Edwards, 2013). Overall, under the financial accounting several consolidate
financial statements are prepared in order to report the financial position of the company to its
users, both internal users and external users.
This study pertain the information about the financial accounting and to define it briefly ,
it comprises with the evaluation of financial ratios of two companies namely Whitbread Plc
(U.K) and Greene King Plc (U.K), on year-on-year basis. Also the financial and non-financial
factors that influences the workings of these two companies.
ANALYSES
Financial analyses of two companies, Whitbread Plc (U.K) and Greene King Plc (U.K)
with the help of their financial ratios in order to present a comparative analysis on the basis of
financial ratios namely; Management efficiency ratios, Valuation and growth ratios and
operating ratios.
Financial Ratios (2018) Whitbread Plc(U.K) Greene King Plc(U.K)
Operating ratios
Return on Equity 16.43 8.12
Return on Assets 9.14 3.01
Day sales outstanding 19.65 12.06
Day inventory ratios 45.97 12.73
Management efficiency ratios 7.94 28.68
Inventory turnover ratio 18.58 30.27
Total assets turnover ratios 0.69 0.4
1

Receivable turnover ratios
Valuation & Growth Ratios
Price/Earning ratios 18.22 9.79
Dividend yield ratios 2.33 1.32
Dividend payout ratios 4.35 2.29
Profitability Ratios:
 Return on equity: The Return on equity ratios or return on stockholder's equity, shows
the return or interest earned on the equity fund invested by the equity stockholders or the
owners of the company. The return on equity of Whitbread Plc is (16.43) and ROE of
Greene king Plc is (8.12) of year 2018. the return on equity of Whitbread Plc is higher
than the Greene King Plc as may be due to More Equity Capital employed by the
Whitbread Plc and may be due to Positive investment or earning growth of company.
Calculated by (Net Income/ Average equity)
 Return on Assets: The Return on Assets Ratio In financial analysis it is measure of the
return on Investment. The ROA of Whitbread Plc (9.14) and ROA of Greene King Plc
(3.01), the ROA of Whitbread Plc is higher than the ROA of Greene King Plc.
Whitbread Plc has more efficient management. ROA is used to evaluating the efficiency
of the management. It is calculated by (Net Income / Average total assets).
 Day Sales Outstanding: It is also known as “Receivable Turnover in days” or
“collection period”. It measures the average number of days that a company takes in
order to collect its receivables. The DSO of Whitbread(19.65) and the DSO of Greene
King Plc (12.06). it means that Greene King plc takes Less receivable collection period
then Whitbread plc and it is better to have the shorter DSO.
Management Efficiency ratios:
 Day Inventory Outstanding: It is also known as “Inventory turnover in days” . This
ratio shows the number of days inventory held in warehouse. Moreover, it measures the
2

number of days from purchase of inventory to sales of inventory. The DIO of Whitbread
Plc (45.97) and DIO of Greene King Plc (12.73). the DIO of Greene King is less and
better than the DIO of Whitbread Plc as same as DSO.
 Inventory turnover ratios: It represent the number of times inventory being sold and
then replaced. The Inventory turnover ratios of Whitbread plc (7.94) and Inventory
turnover ratio of Greene King Plc (28.68). the higher Inventory turnover ratios is better
as it indicates that company is efficient in managing its inventories.
 Receivable turnover ratios: it measures the efficiency of extending credit or
creditability and collecting the same. It indicates the average number of time in year that
a company takes in collecting its open accounts. The receivable turnover ratio of
Whitbread Plc (18.58) and of Greene King Plc (30.27). the Greene King has high
receivable Turnover ratio and it is better because it indicates the good creditability and
credit worthiness of company.( Weil, Schipper and Francis, 2013)
 Total Assets Turnover: It is crucial to measure the total efficiency of company in
generating sales using its own assets capital. The assets turnover ratio of Whitbread Plc
is(0.69) and of Greene King Plc is (0.40). the assets turnover ratio of Whitbread Plc is
higher, and it is better as it shows the good efficiency of management.
Valuation and Growth ratios:
 Price/ earning ratios: it is used to indicate that either the stock is over priced or under
priced. The P/E ratio of Whitbread Plc (18.22) and of Greene King Plc(9.19). The P/E
ratio of Whitbread Plc is higher, as it indicates that the company is over priced. It is
helpful in gaining the attention of investors as investors can expect high growth rate from
companies having high P/E ratio.
 Dividend yield ratio: It is used to measure the percentage of return through dividends
when compared to the price paid for stock. The DY ratio of Whitbread Plc is (2.33)and of
Greene King Plc is (1.32), the DY ratio of Whitbread Plc is higher as it attracts the
potential investors who wants long term capital appreciation. It is calculated by
(Dividend per share/ market price per share)
 Dividend Payout ratio: It is used to measure the portion of net income that is to be
distributed among owners of the company. The DP ratio of the Whitbread Plc is (4.56)
and of Greene King Plc is (2.29). the Dividend payout ratio of Whitbread is higher as it is
3

beneficial for the owners of this company, but not the full income is to be distributed,
some part is to transferred for retained earnings which is to be used in future business
operation.
In above comparative statement, comparison of two companies; Whitbread plc and
Greene King Plc the comparative analysation is done on the basis of financial ratios that is
Profitability ratios, Management Efficiency ratios and Valuation and Growth ratios and by the
comparative statement it is clear that the financial condition of company Whitbread Plc is good
in comparison with Greene King Plc and it is good as it attracts the investors which is beneficial
for the company as it leads to more funds and easy for company to expands the business and
investments.
PERFORMANCE FACTORS
With the help of the effective and efficient management the company try to avoid or
minimise the affect from the factors may be financial and non financial. There are some factors
that can influences the workings of the company. There are some financial and non financial
factors that influences the business of the company. (May, 2013)
Financial factors that influence the business: The financial factors are those which are
related to the financial character and can be expressed in financial terms, that affects the
operations of the business.
 Interest rates: All companies tend to borrow the the funds from the financial institutions
either governmental or non governmental for their business operations. It is essential to
maximise the profits of the business for growth(Henderson and et. al. , 2015.). Hence,
due to increment in interest rates the cost of borrowing funds goes up and it affects the
earnings of company as expenses increases. As may be in case of Greene King Plc (U.K)
the financial position of the company is not so good as may be due to high interest rates
it affects the choice of funds borrowing and leads to either more debt or more equity.
More debts in form of issuance of debentures and bonds it affects the company's debt
equity ratio as well as financial performance of the company. (Schaltegger and Burritt,
2017)
4

 Exchange rates: Exchange rates also affects the business operations as in some cases
that if the company purchase the goods from the other country the cost of goods is
affected by the changes in exchange rates. Another direct impact of exchange rates may
be if the company sales the goods in foreign country then the sale price or profit margin
also affected by the changes in exchange rates. Not only this, if the company borrowed
money from the foreign financial institution then the amount to be repaid will changed
due to the change in exchange or interest rates and it affects the company's performance
as in case of Whitbread plc the receivable turnover ratio is high and borrowing from
foreign financial institution are also high then , if increases in exchange or interest rate it
will affect the business of Whitbread Plc. (Socea, 2012)
 Recession: Recession badly affects the business performance as revenues and profits
decreases and hiring of new employees freezes by the organisations , production of new
products stopped and of existing products decline in large amount. This will affect the
business of companies like Whitbread Plc and Greene King Plc as well as destructs the
businesses of small industries.(Bazley and et. al. , 2013 )
 Inflation: Not only recession, inflation also affects badly the performance of the
organisation as it affects the business performance. As due to inflation prices of every
thing goes up and the employees of the organisation will demand for increment in their
salaries and bonuses. This may leads to workers or employers strikes and can stop the
production. Not only inflation damages company's earnings or profitability, as long as
company raise its prices by inflation its earnings remains same and strikes may leads to
winding up of company. (Otley and Emmanuel, 2013)
 Taxes: Taxes also affects the earnings of companies like Whitbread Plc and Greene
King Plc as in case of inflation prices goes up, due to this earnings remains constant but
tax rates increases, this will affect the company's performance.
Non financial factors that affect the performance of the business: Besides the
financial factors, the non-financial factors are also affects the business performance.
 Safety of employees and public: Safety of employees and public is essential for long
survival and growth of the companies like Whitbread plc and Greene King Plc. As safety
of employees is essential as it is the manpower asset of the organisation and safety of
5

public is also crucial for social responsibility accounting and for long growth.
(Narayanaswamy, 2017)
 Necessity of maintaining existing product line: It is essential to continuing the
production of company's existing product as most of company is popularly known by the
names of their old popular products. So it is essential to maintain the production of
existing product line because company Like Whitbread plc gets surety of good earnings
from their existing product lines. But if company quit the existing product line it affects
the earnings of company.
 Entry into new product line or customer market: In order to expand the business, it is
essential to produce the new products for the growth of business and increment in
earnings. But sometimes, company fails in get success in new product line and it affects
the earnings of the business and also its performance. (Openshaw, 2013)
CONCLUSION
Above study comprises with the comparative analysation of two companies of united
Kingdom, comparison done on the basis of several financial situation indicating ratios which
shows the liquidity, profitability, growth and efficiency of the management of both companies.
These financial data is essential for the company as well as for the potential investors. Not only
this, the analysation of various factors both the financial and non financial factors which affects
the performance of the business. Analysation and evaluation by company about all financial data
and factors affecting the business helps in avoiding the affecting factors and helps in developing
the financial condition of organisation.
6

REFERENCES
Books and Journals
Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting). Routledge.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts,
methods and uses. Cengage Learning.
May, G.O., 2013. Financial accounting. Read Books Ltd.
Henderson, S. and et. al., , 2015. Issues in financial accounting. Pearson Higher Education AU.
Bazley, M. and et. al., , 2013. Financial Accounting: An Integrated. Thomson Pty Ltd, South
Melbourne.
Socea, A.D., 2012. Managerial decision-making and financial accounting information. Procedia-
Social and Behavioral Sciences, 58, pp.47-55.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.
Openshaw, K., 2013. Cost and financial accounting in forestry: a practical manual. Elsevier.
Narayanaswamy, R., 2017. Financial Accounting: A Managerial Perspective. PHI Learning Pvt.
Ltd..
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.
Online:
Annual reports of Whitbreadplc. 2018.[online]. Available through:
<https://www.whitbread.co.uk/~/media/Files/W/Whitbread/report-and%20presentations/2018/
Whitbread%20Interactive%202018.>
Annual report of Greene King plc. 2018.[online]. Available
through:<http://www.greenekingreports.com/ar18/#home>
7