Financial Performance Analysis of Redrow Plc and Bellway Plc

RUNNING HEAD: MANAGEMENT ACCOUNTING
Management accounting

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Case A: Redrow v Bellway
Executive summary
The report deals with the overall analysis of the financial performance of two UK based
companies operating in the House building sector. The report undertakes the evaluation of annual
report of Redrow Plc for the year 2018 and Bellway Plc for the year 2017. It has adopted a
CORE approach which covers the whole analysis of both the companies.
It commences with a brief introduction and then later on explains the context of the case. The
section includes the description of both the firms including their SWOT analysis respectively.
After that an overview of the case has been provided which covers the issues observed during the
analysis. A ratio analysis has been conducted on the basis of annual reports collected for both the
firms and it has been evaluated that Bellway Plc has performed pretty much well than Redrow
Plc during the year 2017. Therefore, it is recommended to Persimmon Plc that it should acquire
Bellway over Redrow.

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Contents
Section A.....................................................................................................................................................4
Introduction.................................................................................................................................................4
Context........................................................................................................................................................4
Redrow Plc..............................................................................................................................................4
Bellway Plc.............................................................................................................................................6
Overview.....................................................................................................................................................8
Ratio analysis..............................................................................................................................................9
Liquidity ratios........................................................................................................................................9
Profitability ratios..................................................................................................................................10
Solvency ratios......................................................................................................................................12
Efficiency ratios....................................................................................................................................13
Market value ratios................................................................................................................................15
Evaluation and conclusion.........................................................................................................................16
Section B...................................................................................................................................................17
Case B1.....................................................................................................................................................17
Introduction...........................................................................................................................................17
Capital budgeting techniques.................................................................................................................17
Payback period..................................................................................................................................18
Net present value...............................................................................................................................18
Internal rate of return.........................................................................................................................19
Recommendation and Conclusion.........................................................................................................20
References.................................................................................................................................................21

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Section A
Introduction
Financial performance analysis is a procedure of evaluating and analyzing the performance and
position of the company from every financial aspect. It identifies the strengths and weaknesses of
the firm by measuring the each and every item of balance sheet and profit and loss account.
Financial analysis can be performed by using many techniques such as ratio analysis, horizontal
and vertical analysis, trend analysis and others. The main objective of conducting the analysis is
to evaluate the financial situation of the firm in terms of solvency, profitability, liquidity and
others. The data is collected from the published annual reports of the company on its official
website and is properly evaluated for making suitable decisions (Gibson, 2011).
The report deals with the financial analysis of Redrow Plc and Bellway Plc for the year 2017 and
2018. It has adopted a CORE approach which provides context, overview, ratios and evaluation
of both the companies’ performance during the years. The report highlights the issues arose
which affected the position and performance of the firms as a whole. CORE approach provides
the overall outline of the analysis and is best suited for enhancing the understanding of the
reader.
Context
Redrow Plc
It is the United Kingdom based company engaged in the residential housing development. The
firm is one of the largest British house builders having 15 operational divisions across the

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country. The core activities of the company involve construction of residential houses throughout
England and Wales. The product range is focused on the concept of traditional family housing in
its regional business. The properties owned by Redrow involve Heritage Collection, Regent
Collection, Abode Collection and Bespoke Collection. The company is listed on London Stock
Exchange and is traded with a ticker RDW: LSE. The SWOT analysis of Redrow Plc is as
follows (FT.com. 2018).
Strengths
 Redrow Plc has a wide network of distribution across the country which makes sure that
its products are easily accessible and available to its customers in timely manner.
 The company has built a strong dealer community by establishing a relationship between
the dealer and distributer. The dealers not only promote the products but also invest in the
training program of sales team.
 Redrow has strong free cash flow position which enables it to expand its business in new
markets.
Weaknesses
 The company failed at facing the challenges given by new entrants in the sector and
should focus on improving the feedback mechanism internally from the sales team to
counter the challenges.
 Despite making huge investment in Research and Development, Redrow is not able to
compete with the leading players in the industry from the aspect of innovation.

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 The company is not good at predicting the demand for its products as compare to its
competitors.
Opportunities
 Increase in consumer spending and slow growth rate provides an opportunity to Redrow
to increase its customer base and market share.
 The development of market will reduce the competitor’s advantage and enable the
company to improve its competitiveness.
Threats
 One of the threats to the company is increased competition in the market which can
impact the growth of its profits.
 New entrants in the market are gaining market shares and are a threat to Redrow as it can
lose its customers to the new players.
Bellway Plc
It is a residential property developer in Uk which is based on Newcastle upon Tyne. The
company deals in constructing and selling the homes having a range from one bed room
apartments to five bedrooms family homes. In addition, it also provides social housing-to-
housing associations. It operates through 19 trading divisions including England, Manchester,
Kent, North London and many others. Other business offerings of the firm include electrical,
kitchens, gardens, bathrooms, flooring, fire surround and fire, ceramic tiling and others. The
company is listed on London stock exchange with a symbol BWY: LSE and was founded in
1946 (FT.com. 2018).