Financial Reporting for Business

This study critically analyzes the financial performance of Millennium and Copthorne Hotels plc using ratio analysis technique and evaluates the company's reporting of pension schemes in regards to the IAS 19 Employee Benefits.

Financial Reporting for Business

Table of Contents
Introduction......................................................................................................................................3
Calculation of Ratios.......................................................................................................................3
Performance and Position analysis................................................................................................11
Reporting of IAS 19 Employee Benefit.........................................................................................14
The requirement of reporting of pension schemes as per IAS 19..............................................14
Conclusion.....................................................................................................................................17
References......................................................................................................................................18

INTRODUCTION
The present study is based on the company, named as Millennium and Copthorne Hotels plc,
headquarter at London, United Kingdom (Millennium and Copthorne Hotels plc, 2019). The
present study aims to critically analyse the financial performance of the company with the help
of ratio analysis technique. Along with this it will also evaluate MC reporting of Pension
schemes in regards to the IAS 19 Employee Benefits.
CALCULATION OF RATIOS
Computation of ratios for profitability, liquidity, efficiency and gearing for the years 2017 and
2016
Table 1 Calculation of Ratios
Amount In
Million £
% of change
in Ratio
Particulars Formula 2017 2016
Profitability Ratio
Gross profit ratio gross profit/sales*100
Sales 1008 926
gross profit 577 531
gross profit ratio
57.24
%
57.34
% 0.18%
Net profit Ratio net profit/sales*100
net profit 159 98
net profit ratio
15.77
%
10.58
% -49.05%
Return on capital
Employed
Profit before interest and tax /Equity
+ Long term debt
Profit before interest and tax
178.0
0
140.0
0

Equity
3249.
00
3170.
00
Long term debt
1020.
00
1218.
00
Equity + Long term debt
4269.
00
4388.
00
Ratio 0.04 0.03 -30.69%
Return on Equity
Profit after interest before tax
/Equity
Profit after interest before tax
147.0
0
108.0
0
Equity
3249.
00
3170.
00
Ratio 0.05 0.03 -32.80%
Operating Profit
Margin Operating Profit/Sales*100
Operating Profit
145.0
0
107.0
0
Sales
1008.
00
926.0
0
Ratio
14.38
%
11.56
% -24.49 %
Asset Turnover Ratio Sales/Equity+ Long Term debt
Sales
1008.
00
926.0
0
Equity
3249.
00
3170.
00
Long term debt
1020.
00
1218.
00
Equity+ Long term debt
4269.
00
4388.
00
Ratio 0.24 0.21 -11.89%
Liquidity ratio
current ratio current assets/current liabilities
current assets 582 532
current liabilities 446 343
current ratio 1.30 1.55 15.87%
Quick ratio
current assets-inventory/current
liabilities
current assets-inventory 578 527

Quick ratio 1.30 1.54 15.65%
Efficiency ratio
inventory turnover
ratio cost of sales/ Closing inventory
cost of sales 431 395
closing inventory 4 5
inventory turnover ratio
107.7
5 79.00
In days 3.39 4.62 26.68%
receivable turnover
ratio credit sales/ Closing receivables
credit sales 1008 926
closing trade receivables 88 95
receivable turnover ratio 11.45 9.75
In days 31.87 37.45 14.90%
Payable Turnover
ratio (in days)
Average Trade payables*365/Credit
purchase
Average Trade payables
208.0
0
214.0
0
Credit Purchase
431.0
0
395.0
0
Ratio
176.1
5
197.7
5 10.92%
Gearing ratio
Gearing ratio
Long Term Debt/ shareholder's
Equity
Long Term Debt
1020.
00
1218.
00
Shareholder's Equity
3249.
00
3170.
00
Gearing ratio
31.39
%
38.42
% 18.29%
*% of change in Ratio = 2016-2017/2016*100
Workings
Gross Profit Ratio = Gross Profit/Sales*100
For the year 2017 = 577/1008*100

= 57.24%
For the year 2016 = 531/ 926*100
= 57.34%
Net Profit Ratio = Net Profit/Sales*100
For the year 2017 = 159/1008*100
= 15.77%
For the year 2016 = 98/926*100
= 10.58%
Return on capital Employed = Profit before interest and tax /Equity+ Long term debt
Profit before interest and tax = Profit before tax + Interest
For 2017 = 147+31 = 178
For 2016 = 108+32 = 140
Ratio
For 2017 = 178/4269
= 0.04
For 2016 = 140/4388
= 0.03

Return on Equity = Profit after interest before tax /Equity
For the year 2017 = 147/3249
= 0.05
For the year 2016 = 108/3170
= 0.03
Operating Profit Margin Ratio = Operating Profit/sales *100
For the year 2017 = 145/1008
= 14.38%
For the year 2016 = 107/926
= 11.56%
Assets turnover ratio = Sales / Equity+ Long term debt
For the year 2017 = 1008/4269
= .24
For the year 2016 = 926/4388
= .21
Current Ratio = Current Assets/ Current Liabilities

For the year 2017 = 582/446
= 1.30 times
For the year 2016 = 532/343
= 1.55 times
Quick ratio = current assets-inventory/current liabilities
For the year 2017
Current Asset = 582
Inventory = 4
Current assets-inventory = 582-4
= 578
Current Liabilities = 446
Quick ratio = 578/446
= 1.30 times
For the year 2016
Current Asset = 532
Inventory = 5
Current assets-inventory = 532-5

= 527
Current Liabilities = 343
Quick ratio = 527/343
= 1.54 times
Inventory Turnover Ratio = cost of sales/ Closing inventory
*for the computation of this, ratio closing inventory is considered.
For the year 2017
= 431/4
= 107.75
In days = 365/107.75
= 3.39 days
For the year 2016
= 395/5
= 79
In days = 365/79
= 4.62 Days
Receivable Turnover Ratio = credit sales/ Closing receivables

*for the computation of this ratio, closing receivables is considered.
*it has been assumed that the given sale is credit sales.
For the year 2017
= 1008/88
= 11.45
In days = 365/11.45
= 31.87 days
For the year 2016
= 926/95
= 9.75
In days = 365/9.75
= 37.45 days
Payable Turnover ratio = Closing trade payable*365/Credit Purchase
For the year 2017 = 208*365/431
= 176.15 days
For the year 2016 = 214*365/395
= 197.75 days

Gearing ratio = Long term debt/ shareholder's Equity*100
For the year 2017
= 1020/3249
= 31.39%
For the year 2016
= 1218/3170
= 38.42%
PERFORMANCE AND POSITION ANALYSIS
The financial performance of the company can be easily evaluated by the ratio analysis technique
(Melville, 2015).
Profitability ratio measures the ability of the company to produce the income. If it reflects the
manner in which the company utilize its resources for the generation of profit and value to the
shareholders of the company (Elliott, and Elliot 2015). Gross profit ratio measures the
operational performance of the company. On the basis of the above data, it has been seen that
there is a slight difference in the gross profit ratio in the year 2017 as compared with the year
2016. The operational performance of the company not improvised, even it is slightly reduced.
The reason behind the same is, that company may purchase the goods at a higher price, or for
enhancement of the sale, the company reduced its profit margin. Further, net profit ratio
measures the overall profitability of the company. On the basis of the net profit ratio of both

years, it has been observed that the overall profitability of the company gets improvised in the
year 2017 as compared with the year 2016 (Millennium and Copthorne Hotels plc, 2017). The
reason behind the improvement in the performance was increased in the operating income, and
an increase in the financial income of the company (Helfert, 2011). Further, the unnecessary
expenses also cut down by the company, by which the profitability of the company improved.
Return on capital employed shows the profitability of company, by considering the amount of
capital used by company (Fridson, and Alvarez, 2011). The reason behind the same, was,
payment of debt, improved sales, or reduction in cost. Return on equity shows the wellness of the
company for using investment to generate profit. In the year 2017, company acquire some
investment, by which the profitability of the company improvised. Operating profit margin
shows, profit from operational activities. The company through geographical diversification of
its activities such as UK acquisition, gain benefit and enhanced its operational performance.
Asset turnover ratio shows company’s revenue relative to its total assets. The improvement in
management of inventory is the reason for improved asset turnover ratio.
Further, the liquidity ratio measures the liquidity position of the company for the payment of its
obligation (Bauer, O’Brien, and Umar, 2014. The current ratio measures the capability of the
company to meet its short term obligation by utilization of its short term asset. The company
should have twice its current asset as compared with its current liabilities (Williams, and
Dobelman, 2017). The high current ratio indicates that not effective utilization of current asset of
the company and low indication indicates that the company may face difficulty in payment of
short term obligation (Chandra, 2017). On the basis of the above calculation, it has been
evaluated that the liquidity position of the company is not as better as in the year 2017 as
compared with the year 2016. The reason for the decrease in current ratio is because of the

reduction in current asset or enhancement in short term obligation. In the given case, it has been
observed that there is reduction is a current asset, such as inventories, trade and other receivables
in the year 2017 (Millennium and Copthorne Hotels plc, 2017). Further the current liabilities of
the company also increased; therefore the liquidity position of the company was not as good as
compared with the year 2016.Further, the quick ratio measures the liquidity position of the
company by its quick asset. The quick asset is that asset, which is readily available for the
payment of short term obligation, since, the investor may take time to convert in cash. Therefore
it should be reduced from the current assets (Kanapickienė, and Grundienė, 2015). By
considering the quick ratio of both year, it has been determined that the current ratio and quick
ratio of both the year was similar. Therefore, it can be said that there is no significant amount
blocked in the inventory of the company.
Efficiency ratio measures the internal effectiveness of the company. It shows the efficiency of
the company for the utilization of its assets and liabilities (Banerjee, and Mio, 2018). Inventory
turnover ratio measures, how effectively the company manages its inventory as compared with
the cost of sales. In the year 2016, the company takes around 5 days to sell an inventory, and in
the year 2017, company take around 4 days to sell an inventory. Therefore is no significant
change in the year 2017 (Millennium and Copthorne Hotels plc, 2017). Although the reason
behind the same may be because of the close connection with the supplier or customers,
forecasting may improve. Further, the receivable turnover ratio measures the effectiveness of the
company with regards to the extension of credit and collection of its debt. In the year 2016,
receivable turnover ratio is around 37 days, and in the year 2017, it is around 32 days. It means,
in 2016 the customer of the MC Company take 37 days to pay their receivable and in the year
2017, they take 32 days for the payment of their receivables. The reason behind the same is that

the company may reduce its period of credit granted to its customers. It may also be possible that
the discount is granted by the company to the customer who pays their debt early. It is very
important to ascertain about the receivable turnover ratio, as it assists in determining the
availability of cash in the company, by which it can pay their short term liabilities. Payable
turnover ratio shows the days in which company make payment to supplier. From the above
calculations, it has been seen that, the period of credit received by the company from supplier has
been decreased. The reason behind the same is, company has negotiated with distinct payment
arrangement with its suppliers.
Further, the gearing ratio of the company measures the proportion of debt and equity applied to
finance asset of the company (Andreou, Louca, and Panayides, 2016). On the basis of the above
calculations, it has been seen that there is a reduction in the gearing ratio of the company in the
year 2017 as compared with the year 2016. It indicates that, in the capital structure of the
company, the proportion of the debt has been reduced (Millennium and Copthorne Hotels plc,
2017). The reason behind the same may be that the company wants to reduce its financial risk,
because excessive debt may lead to financial difficulties.
REPORTING OF IAS 19 EMPLOYEE BENEFIT
The requirement of reporting of pension schemes as per IAS 19
IAS 19 Employee Benefits (amended 2011) states the accounting requirements meant for the
benefits of employee inclusive of short-term benefits (i.e. wages and salaries) post-employment
benefits like retirement benefits and other related long-term benefits (i.e. long service leave) and
termination benefits. IAS 19 makes use of principle wherein the cost of offering employee

benefits must be recognised in the period by which benefit is derived by the employee, instead of
the period when it is payable (McNally, Garvey and O’Connor, 2019).
The standard determines various elements of employee benefits inclusive of short-term
employee benefits, for example, sick pay, post-employment benefits for example pensions,
termination benefits, and related other long-term employee benefits comprising long service
leave (Anantharaman and Chuk, 2017).
Furthermore, the recognition of the amount in balance sheet could be an asset or a liability. The
recognized amount will be the present value of the described benefit obligation, plus any
actuarial gains minus losses which are not recognized yet, subtracted with any unrecognized past
service cost and minus the plan asset’s fair value.
In a situation where the outcome is positive, then the liability has emerged, and recording of the
same is done fully in the balance sheet. If there is a negative impact, then it an asset which is
imposed on a recoverability test. The recognized asset is the lower of the negative amount in the
calculation or the net total of not recognized actuarial losses and past service costs, as well the
PV of benefits accessible in terms of refunds or reductions in employee contributions to the plan
in future. Moreover, plan assets and liabilities from the distinct plans are usually represented on
the balance sheet on a separate basis (ACCA, 2010). Further, a company is required to recognize
a part of its actuarial gains and losses as income or expenditure if the unrecognized actuarial
gains and losses in the past reporting period end surpasses the greater of 10% of the PV of the
defined benefit requirement at the year beginning and the 10% of the plan asset’s fair value at the
similar data.

On the other hand, a business entity can implement any other method that leads to fast
recognition of actuarial gains and losses with the constant application. In addition, there is an
alternate of recognising actuarial gains and losses in full during their occurrence, external of
P&L, in a recognised income and expense statement.
According to the annual report of the company, the Group operates several funded pension
schemes which are developed as per the local practices and conditions in the concerned counties.
The pension arrangements in the UK has operations as per the ’Millennium &Copthorne Pension
Plan’, established in 1993. This plan has a funded defined benefit arrangement along with a
defined contribution plan, with different membership. The closing of the section of the defined
benefit section of the plan has done to new entrants in the year 2001 and simultaneously rights to
a guaranteed minimum pension as per the defined contribution scheme were closed.
Furthermore, the plan allows a retired employee to gain an annual pension payment. The
required contributions are identified by a qualified actuary based on triennial valuations by
making use of the proposed unit credit method (Millennium and Copthorne Hotels plc, 2017). In
accordance with the company’s annual report, the most recent actuarial valuation of this scheme
was conducted by a qualified independent actuary as on 5 April 2017, and the same has been
updated on approximately 31 December 2017. The Group contributions in the year 2016 were
held at 24% of pensionable salary. Given that, there is the closing of defined benefit section to
new entrants, the service cost, as a proportionate of pensionable payroll is expected to rise with
the ageing of membership, ye it will be applicable to a falling pensionable payroll. The most
considerable impact has been provided by the assumptions on the valuation results which are
those regarded to discount rates and increasing rates of salaries and pensions (Millennium &
Copthorne Hotels plc, 2016).

However, recognition delays of gains and losses can increase misleading figures in the financial
position statement. Additionally, several alternatives to recognizing gains and losses can result in
poor comparability.
The company had provided appropriate disclosures related to the pension schemes supported by
the actuarial assumption taken and calculations associated with it. This has been provided under
the 23rd note to the consolidated financial statements. Therefore, this shows appropriate
compliance of standards applicable to the company.
CONCLUSION
By considering the above analysis, it has been observed that ratio analysis plays a significant role
in measuring the financial performance of the companyOverall the performance of the MC
Company, in the year 2017 improvised as compared with the year 2016 .(Millennium and
Copthorne Hotels plc, 2019) Along with this, By considering provisions described under IAS 19
and practices adopted by the company, it can be noticed that has appropriately maintained
disclosures and considered compliance with the given standards.

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