Financial Reporting and Analysis of Dixons Carphone

The assignment report concludes that financial reporting is essential for organizations to record their financial information accurately. Companies like Dixons Carphone are required to adhere to IFRS and IAS standards to ensure transparency in financial statements. Shareholders analyze these reports using ratios and interpretation to make informed investment decisions.

FINANCIAL
REPORTING

Table of Contents
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1: Analysis of context of financial reporting including regulatory frameworks and
governance of financial reporting...............................................................................................1
P2: Analysis of purpose of the financial reporting for meeting organisational objectives,
development and growth.............................................................................................................2
LO2..................................................................................................................................................3
P3: Interpretation of profit and loss, cash flow and balance sheet..............................................3
P4: Financial ratios for organisational performance and investments........................................4
LO3..................................................................................................................................................6
P5: Benefits of International Accounting Standards (IAS) and International Financial
Reporting and Standards (IFRS) ................................................................................................6
P6: Evaluation of models of financial reporting and auditing....................................................7
LO4..................................................................................................................................................8
P7: Differences and importance of financial reporting across different countries:.....................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial reporting means disclosure of the financial results and other relating
information of management and the external stakeholders like investors, customers etc. relating
to the company's performance over a specific period of time. Financial reports include statement
of financial position, income statement, statement of change in equity and cash flow statement.
The primary motive of financial reporting is to provide information which are relating to the
financial position and changes in the financial position in the business of organisation like
“Dixons Carphone” that is useful in making effective economic decisions. This report is divided
into four tasks. First task contain analysis of context of financial reporting framework and its
purpose for meeting organisational objectives. Second task contains interpretation of financial
statements, third task defines the financial reporting standards and its theoretical models and
standards. Last task contains evaluation of international differences in financial reporting.
LO1
P1: Analysis of context of financial reporting including regulatory frameworks and governance
of financial reporting
Financial reporting is the process in which financial statements of the organisation are
disclosed for management, investors and the government. Regulatory framework provides rules
and regulations for the purpose of accounting(Alyousif and Kalenkoski, 2017). The International
Accounting Standards Broad (IASB) provides a regularity frameworks for accounting in form of
international accounting standards(Feng, 2018). Regulatory framework combines the legal
obligations and regulations which are set by the UK higher authority for accounting which are
used by companies like Dixons Carphone. Regulations of IABS which are helpful for
stakeholder which are imposed in specific format of IFRS are as follows:
International Financial Reporting Standard(IFRS): These are introduced through
IASB. This body is responsible for formulating the principles and regulatory norms. Some of the
principles are:
IFRS 1: It is used in initial implementation of IFRS, on which companies IFRS will be
adopted. It would have related to the Dixons Carphone for preparation and presentation of
financial statements.
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IFRS 3: It is used in merger and acquisition. It would assist organisation to sell or
transfer assets and liabilities in case of amalgamation and merger.
Regulatory frameworks and governance of financial reporting:
It is a responsible for guiding organisation and helps in attaining overall aims and
objectives of Dixons Carphone during future time. The main purpose of these framework is to
examine business performance, which helps the stakeholders to take decisions regarding
company (Hung and Chuang, 2012). The objectives of regulatory frameworks and governance
related to international regulations are:
Quality of financial statements: This means specific features of the financial statements
and information that assist to make reliable decision.
Relevance: Actual and correct data are recorded by the organisation helps the
organisation to achieve its goal.
Faithful representation: The financial information used in preparation and presentation
of financial statements helps in making financial decisions for stakeholders.
Effect of financial reporting on government, investors and directors:
Government: Financial reporting includes financial statements that discloses financial
results and related information to management and stakeholders. Government being an external
stakeholder gain true and fair information regarding financial position of Dixons Carphone.
Calculation of tax imposed by government is calculated on this information and this serves as
main source of revenue for government.
Investors: Financial information of an organisation provides real situation and condition
of the Dixons Carphone. This gives a fair chance to investors to analyse different investment
options and select most productive. For this analysis financial statements are used that gives
correct information required in decision making.
Directors: Directors are the one who operates business functions in Dixons Carphone
organisation. Before performing multi-pal business activities planes and policies are designed
that gives basis to set objects for business that will be achieved in long run. Directors by
analysing the financial statements decides that company is performing as per plans or not and
corrective action are taken.
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Customer: In recent time, customer before making any major contract focuses to review
the financial statements of supplier that helps them to determine overall financial ability in long
run so that goods and services can be mandated in the contract.
Employee: Nowadays company may select to give detail financial reports to employees
which help in increasing their involvement in different operation making them more profitable to
attain the desired result of company.
P2: Analysis of purpose of the financial reporting for meeting organisational objectives,
development and growth
In every organisation like Dixons Carphone, it is important to use reliable reporting
system which lead to make profits in future. This is an effective process of producing statements
for disclosure of financial data of the organisation like Dixons Carphone to owners, investors
and government(Jayasinghe, 2014). Financial reports include preparation and presentation of
statement of financial position, income statement, statement of change in equity and cash flow
statement. It is used in providing idea of integrity and worth of the company to the stakeholders.
Crucial and reliable business decisions are also made through this reporting.
As per IASB, “ Dixons Carphone” have to formulate its financial records to present the
financial outcomes of the company to their shareholders. It need transparency of the data which
help the business entity in operating business effectively. It is very crucial for Dixons Carphone
to follow all the rules and regulations and principles related to preparation and presentation of
financial statements. Dixons Carphone is preparing their financial reports for operating the
business at international level.
Purpose:
The primary objective of the financial reporting is to give financial information of the
Dixons Carphone regarding its performance, financial position and change in financial position
of the organisation that helps the organisation to achieve its long term goals. The purpose of
financial reporting is to assist the management of Dixons Carphone to frame the financial
strategies and decide the way it can increase its market share and revenue(Khanzhyn, 2012).
Some of the main objective or purpose of financial reporting which support in overall growth
and development of organisation in specific time frame such as:
 Provide meaningful information to valuable investors: All investor wants to have a
detail knowledge about how cash is being reinvested in the business and capital must be
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effectively utilised in business operation. So these reports aid investor to check that
company have place their money is good place this satisfy them most and they keep
investing on regular basis. Appropriate investment from investors enable an organisation
to perform different operation in meaningful manner so that profit can be increase and
goals can be attained.
 Track Cash Flow: It is essential for company to maintain a record of every transaction
related with cash, such as they must have a knowledge about source of money and proper
place to investment. This help in better recognizing the actual performance of business so
that company can recover the outstanding debts and keep focus on continuous growing.
Limitations of Accounting & Financial Reporting
 The main disadvantage of financial reports is that it does not discuss any non-financial
problem of company due to which efficiency of operation reduces.
 Sometime, financial reports are not verified which means that concept, policies, pattern
of accounting have not been evaluated due to which there are can be many problem for
investors.
 Not always comparable across companies as companies uses various pattern of
accounting due to which comparison is not easy to make any decision.
LO2
P3: Interpretation of profit and loss, cash flow and balance sheet
Interpretation of cash flow statements:
Cash Flow of Dixons Carphone for the year ended 25th March, 2016
Particulars 25th March, 2016
(£’000)
Operating activities
Cash Sales 3450
Received from debtors 2653
Income tax paid 1581
Net cash flow from operating activities 4522
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Investing activities:
Acquisition of property, plant and equipment -10044
Acquisition of intangible assets -27
Acquisition of investments -281
Cash flow from acquisition of subsidiaries -
Net cash flow used in investing activities -10352
Financing activities:
Proceeds from issuance of new ordinary shares (net of expenses) -
Capital received from bank borrowings 6350
Interest received 2
Interest paid -254
Net cash flow from financing activities 6098
Net increase in cash and cash equivalents 268
Cash and cash equivalents at the beginning of the year 91
Cash and cash equivalents at the end of the year 359
Interpretation: Dixons Carphone have a good cash inflows from operating activities
which clearly state that company have done well in performing its operating activities. On the
other hand it had made a huge investment in property, plant and equipment which make its net
cash flow from investing activities negative with a huge amount. Company had received a bank
borrowing that makes its net cash flow from financing activities better. Therefore, it is concluded
that cash flow statement of the company shows a overall good performance except the investing
activities.
Interpretation of profit and loss account:
Company have a sales turnover of £250000 with a gross profit of £120000 which shows a
very good performance since the gross profit is 48% of its sales. Companies net profit after tax is
amounting to £46900 which is 18.76% of sales turnover, which equates to average net profit
ratio. Therefore, Total Inc's overall performance of the profit and loss account is good.
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Interpretation of profit and loss account:
Company have non current assets of £411750 with current assets of £103250 and current
liabilities of £35000. Therefore its working capital will amount to £68250. Long term debt of the
company is £125000 and equity shareholders capital is amounting to £200000 and 10% non
redeemable preference share capital is half of its equity share capital that is £100000.
P4: Financial ratios for organisational performance and investments
Ratio Analysis:
(1) Liquidity Ratio: These ratios are calculated to assess the actual liquid strength of the
company. It includes following ratios:
 Current Ratio: Current Assets / Current Liabilities
103250 / 35000
2.95
Current ratio defines the relationship between the current assets and liabilities. It is also
known as working capital ratio. The ideal current ratio is 2:1. Company had a current ratio of
2.95:1, which is considered as very good since it is above the ideal current ratio of 2:1.
 Quick Ratio: Quick Assets / Current Liabilities
57750 / 35000
1.65
Quick ratio is more rigorous than current ratio to test the liquidity. The ideal quick ratio is
1:1. Company had a quick ratio of 1.65:1, which is above the ideal quick ratio of 1:1.
(2) Return on investment: Net Profit for equity shareholders / Total Investment * 100
(46900-10000) / 255000 * 100
14.47%
Return on investment means percentage of earning of equity shareholder to total amount
invested by them. Company have a 14.47% of return on investment which is good return since
there is ideal ratio for it but 15% or above ROI is considered as good.
(3) Return on Capital employed: Earning before interest and tax / Capital employed * 100
75000 / 480000 * 100
15.63 %
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Return on capital employed means percentage of operating profit earned by the company.
Company earns return on capital employed of 15.63% which is considered as average return as
per the market to attract investors.
(4) Capital Gearing Ratio: Fixed income bearing securities / Equity shareholders fund
18000 / 255000 * 100
7.06%
It measures the company's borrowed fund's proportion to its equity. Ideal capital gearing
ratio is approx 50%. Presently company had a very low capital gearing ratio of 7.06%, which is
very poor and therefore company have to improve this ratio by reducing its fixed income bearing
securities or increasing its equity fund.
(5) Debtor Collection Period: Accounts receivables / Credit sales * 365
52500 / 187500 * 365
102.2 or 103 days
It means average collection period from the debtors. Ideally 30 days or less is considered
as better. Presently company had a debtor collection period of 103 days, which is much higher
than the standard. Therefore company have to improve its debtor collection period by reducing it.
Theories and models for existing and potential financial problems:
While running business, organisation like Dixons Carphone faces many financial
problems like liquidity, profitability etc. and for responding these problems, organisation have to
use appropriate theories and models like: Decision Making: Management make many financial decisions like investment,
operational strategies etc. Therefore for making this decisions management uses ratios
and interpretation of financial statements so that financial problems are resolved
(Kimbro and Xu, 2016). Marginal Costing: Marginal costing is a technique in which variable manufacturing
cost are considered and decision is taken that whether to accept the particular project or
not. Absorption Costing: In this all manufacturing costs are considered for reporting
purpose, in this decision for the proposal is taken by considering all the cost except
fixed overhead cost of goods sold.
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 Variances: In this variances are calculated with the help of actual and budgeted cost
and this difference between actual and budgeted is known as variance. If this variance
is negative then management will try to improve its actual performance as compare to
budgeted performance of cost.
LO3
P5: Benefits of International Accounting Standards (IAS) and International Financial Reporting
and Standards (IFRS)
IFRS (International Financial Reporting Standards): It is a set of accounting
standards which are developed by International Accounting Standards Board(IASB). It contains
the framework which is used globally for preparation and presentation of financial statements of
the companies like Dixons Carphone. Using IFRS for financial reporting gives benefits of
contributing the economy by providing the opportunities to the investors. It direct the
organisations in recording the appropriate information in the financial statement, which is used
by shareholders for analysing their money is used effectively or not(.Lemieux , 2012). It aslo
helps in setting benchmark for companies for attaining competitive advantage in the industry.
Together with this it set the global language for preparation and presentation of financial
statements so that investor from anywhere in the world can understand it. For example- Using
international financial reporting by Dixons Carphone will make all the financial information
relevand all over the world.
IAS (International Accounting Standards): These are the oldest accounting standards
which are now replaced by IFRS in 2001. The Standards in IAS are introduced by International
Accounting Standards Committee (IASC) in which organisations follows accounting standards in
their accounting of financial information. It focuses to record financial information appropriately
in the books of accounts(Lu and Fang , 2013). Several benefits of implementing IAS in business
organisation is that it facilitate the ethical compliance in preparation and presentation of financial
statements and also give suggestions from accounting professionals throughout the world. IAS
helps in improving the international investment since it make it easier and cheaper for the
company in raising the capital for the business from the investors globally. Together with this it
encourages the international trade where companies can seek strategic partners, suppliers or
customers in other countries also. For example- Using international accounting standards all the
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accounting of the organisation will be prepared as per rules and regulations athat are accepted
internationally.
P6: Evaluation of models of financial reporting and auditing
Models of financial reporting:
The financial reporting model is the set of structure and content of financial reports
issued by the government (local and state). This model includes the basic financial statements
and its supporting notes and information. In this review of existing standards to ensure that
whether they are meeting the objectives of the company in the present financial reporting
environment(Mir, 2013). The GASB's research gathers the input to help the Board to decide the
financial reporting model projects in the current environment. In this model include the
following issues in the project of GASB:
 Management's Discussion and Analysis
 Government Wide Financial Statements
 Major Funds
 Governmental Fund Financial Statements
 Proprietary Fund and Business- Type Activity Financial Statements
 Budgetary Comparision
Auditing Model:
It is a model performed for a tasks while conducting due diligence on a model of finance.
The scope of model audit are:
 A model's logic review
 A contractual and financial documentation model review
 Local GAAP and tax model review
 A sensitivity review
The purpose of model audit:
The main purpose of this model is to provide assurance for the reliable results. If any
error or omission is detected in this model due to negligence of the auditor's part, then the
organisation depending upon this report may opt model auditor to recover the loss(Russo,
Mitschow and Schinski, 2015).
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Every organisation that prepares financial statements tell a story about the value of
business. Financial statements are the starting point in any appraisal of a business. As financial
statement includes income statement that reflects about activities that are beneficial for Dixons
Carphone. Together with this it matches expenditure and income and shows difference amount as
profits. Balance sheet describes about assets and liabilities in the business. Together with this it
helps in calculating value of the organisation. Ratio analysis in financial statements creates value
of the business by reflecting efficiency of the organisation. Financial statements that are prepared
in business are quite effective to reflect the financial position of Dixons Carphone. Need of
improvement in the financial satement keeps on going with change in budsiness environment on
an on going process.
Consolidation Model: This kind of accounting model basically involve large number of
business unit that are added to individual model. In each kind of business there is one tab that
also contain consolidation tab that mainly sum all the other business unit which support to create
consolidation worksheet. This worksheet help in making more descriptive decision so that
improvement can be made in attainment of goals.
Budget Model: In present time, budget model is used by the professional and finance
manager to make effective financial planning and analysis so that any future business situation
can be resolved in appropriate manner. Budget models are typically designed to be based on
monthly or quarterly figures and focus heavily on the income statement.
LO4
P7: Differences and importance of financial reporting across different countries:
There are many accounting standards in the world, because each country is using its own
version of generally accepted accounting principles (GAAP). These is necessary to maintain
same standard for all companies incorporated in the a country. There are differences in each
country's GAAP with others country due specific conditions and situations which lies within the
boundary of each country. For understanding its differences and importance, financial reporting
standards of two country should be taken which is as follows:
 International Financial Reporting Standards (IFRS)
 US GAAP
Differences between IFRS and US GAAP:
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 In the United States, companies are governed by its generally accepted accounting
principles, which is considered a "rules-based" approach But IFRS is used by nations
around the globe and it uses more "principle-based" approach than US GAAP, but the
only disadvantages of IFRS is that it is less adaptable(Singh, 2015).
 One of the difference between them is related to revenue recognition. In US GAAP,
revenue recognition literature is extensive and full of unique, while IFRS can qualify all
revenue transactions in one of four categories: sale of goods, construction contracts,
rendering of services or others' use of an entity's assets.
 Using GAAP in preparation of financial statements gives chance to use LIFO (Last-In -
First Out) method for valuation of inventory in US. On the contrary countries like India
using IFRS for financial statement preparations can not use LIFO Method for calculation
of inventory value.
 Extraordinary items defined by U.S. GAAP as gain and losses that are both unusual and
infrequent in nature. This allows for extraordinary items to be broken out and displayed
as net income. IFRS don not allow this treatment and includes extraordinary items above
the net income figure in the statement of income.
Importance of Financial reporting:
Financial reporting across different countries is necessary because of this, an investor can
evaluate the performance of various companies with each other so as to know which company is
beneficial to them. From the above elaborated benefit, it has been evaluated that financial
reporting help an organisation to maintain a systematic and detail record each financial
transaction within company. This aid different stakeholder to critically evaluate the overall
performance and profitability of respective company and make investment decision. There are
various accounting patterns, methods that support to prepare valid and authentic report which
represent the actual financial status and position of company during an accounting year.
CONCLUSION
From the above project report, it has been concluded that financial reporting is a method
which is used by organizations to record all the financial information in the financial statements
of the company like Dixons Carphone so that financial performance can be measured.
Companies are required to opt all the standards as per IFRS and IAS so that all the financial
information are recorded in such a way that users of financial statement can easily understand it
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and investor can take the decision of investment in the company. Shareholders analyse the
financial statement on the basis of ratios and interpretation of financial statements.
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REFERENCES
Books and Journals:
Alyousif, M. and Kalenkoski, C. M., 2017. Who seeks financial advice?.
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US Mortgage and Labor Markets. International Monetary Fund.
Hung, C. T. and Chuang, F. C., 2012. The Influence of Global Economic Crisis towards the
Financial Performance of the Shipping Industry. In Applied Mechanics and
Materials (Vol. 145. pp. 480-484). Trans Tech Publications.
Jayasinghe, P., 2014. Incorporating Exchange Rate Exposure Asymmetries: A Firm Level Study.
Khanzhyn, V., 2012. Three essays on the role of financial development. The University of
Nebraska-Lincoln.
Kimbro, M. B. and Xu, D., 2016. Shareholders have a say in executive compensation: Evidence
from say-on-pay in the United States. Journal of Accounting and Public Policy. 35(1).
pp.19-42.
Lemieux, V. ed., 2012. Financial analysis and risk management: Data governance, analytics
and life cycle management. Springer Science & Business Media.
Lu, T. and Fang, S., 2013. Sovereign Debt, Real Interest Rate and Gold Pricing.
Lu, T. and Fang, S., 2013. The Value of Gold as a Super-Sovereign Zero-Coupon Bond.
Mir, M.A., 2013. GLOBAL FINANCIAL CRISIS AND INDIAN ECONOMY: CAUSES &
CONSEQUENCES. Annamalai International Journal of Business Studies & Research.
5(1).
Russo, N., Mitschow, M. and Schinski, M., 2015. FOR WANT OF A NAIL: A CONCISE
EXPLANATION FOR THE ONGOING FINANCIAL CRISIS. Journal of Theoretical
Accounting Research, 10(2).
Singh, S. P., 2015. STATUS AND SCOPE OF FUTURE COMMODITY TRADING IN
INDIA (Doctoral dissertation, Institute of Agricultural Sciences, Banaras Hindu
University, Varanasi).
Online
Benefits of IFRS. 2017. [Online]. Available through:
<https://blog.trginternational.com/bid/152116/key-benefits-of-ifrs>
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