Financial Statement Analysis of Halfords Group PLC

The assignment involves analyzing the financial statements of Halfords Group PLC, including the income statement and cash flow analysis. It also includes a comparison with Dunelm Plc. The report provides an in-depth evaluation of the company's financial performance, highlighting its strengths and weaknesses. The analysis is conducted using various techniques such as ratio analysis and cash flow analysis. The assignment aims to provide a comprehensive understanding of the company's financial situation and future prospects.

Financial Statement
Analysis

Table of Contents
INTRODUCTION: .........................................................................................................................1
TASK...............................................................................................................................................1
Overview of Halfords Group PLC:............................................................................................1
Overview about Dunelm Plc: .....................................................................................................2
Analysis and interpretation of financial statement of Halfords Group PLC:..............................2
Analysis and interpretation of financial statement of Dunelm Plc: .......................................3
Significance of cash flow, ratio and trends:................................................................................4
Factors affecting cash flow,ratio and trends of companies:........................................................4
Ratio Analysis and Interpretation of Halfords group PLC:........................................................4
Ratio Analysis and Interpretation of Dunelm Plc: .....................................................................7
Cash flow analysis of Halfords group PLC................................................................................9
Cash flow analysis of Dunelm Plc: ..........................................................................................10
CONCLUSION:.............................................................................................................................10
REFERENCES..............................................................................................................................12
Appendix:.......................................................................................................................................13

INTRODUCTION:
The financial statement analysis is significant as it supplies purposeful curriculum to the
shareholders and user of financial statement to help in decision making. Such analysis is
important to them because they can take out useful information for their investment and other
decision making purposes. In this report an in depth analysis and interpretation of Halfords
Group PLC and Dunelm PLC from same sector,along with their strengths and adaptabilities
levels with the help of comparison of company's most recent financial statements, cash flows and
ratio analysis. This report also contains existing internal and external factors majorly affecting
these company's future prospects.
TASK
Overview of Halfords Group PLC:
Halfords Group PLC retailer of car parts, car enhancement, camping and touring
equipment and bicycles and also leading operator in vehicle, servicing, maintenance and repairs
in UK. It operates in two segments: First is Halfords Retail, which operates in both the United
Kingdom and Republic of Ireland, and second is Halfords Autocentres, which operates in the
United Kingdom. The Halfords Retail segment includes large product range that are available
online, and at stores all over country selling motoring and cycling products. The Halfords
Autocentres segment provides car service, repair and covering customers throughout the United
Kingdom and operating hundreds of centres across the United Kingdom.

Overview about Dunelm Plc:
It is a UK based consumer retail company which provides home-wares and furniture.
This company has record growth in last 39 consecutive years by increased sales year to year.
Dunelm Plc is number 1 in the £13bn home-wares market with 8.1% share, thus it has capability
to take leadership position in a fragmented sector. There is a opportunity to speed up the
expansion of our online business with an enlarged range, and better delivery options, appealing
new customers and transform our model for the future. There is a notable growth possibilities in
furniture where our share is less than 1% in an £11bn market. Our innovative & liberal
distribution policy has increased dividend per share each year since coming on the London Stock
Exchange in 2006. It is a multichannel retailer with 169 superstores, three high street stores. It
has a website, Dunelm.com that featuring extended ranges and delivery facility (Home Delivery)
Analysis and interpretation of financial statement of Halfords Group PLC:
This report focuses on major three key area while analysing and interpreting the financial
statements of Halfords Group PLC: the structure of financial statements, the economic features
of the industry in which the company is operating and theories the firm pursues to differentiate
itself from its competitors. For better analysis and interpretation of financial statement of
Halfords Group PLC the following criteria is considered:
 Strategy followed by company: Halfords plc operates under the corporate strategy of
concentric diversification by doing expansion into related businesses and market
activities such as Halfords was shifted from spare parts of cycles to the sports clothing
business. Reason for such diversification is to reduce the failure risk in one segment
(Doxey, 2014). Analysing strategy assists in identification of the significant steps taken
by company through which Halfords developing and enhancing competitive position in
the marketplace.
 Standards and policies adopted by company: Every company is required to disclose
standards and policies adopted by company in preparation of financial statement for
relevant period. In this context Halfords prepares financial statements based on IAS and
IFRS such as IAS 1 ,IAS 16,IAS 27, IFRS 11 although some standards are yet to be
adopted by company.

 Market trends and company's performance: Car and bicycle retailer Halfords has reported
a slight increase in annual profits after gaining market share in the motoring and cycling
segment. This can be seen as favourable growth for company as pre-tax profits before
restructuring costs pushed up approx 0.5 per cent to approx £81.5 million. Revenues
increased approximately 1.7 per cent to about £1 billion. Also a favourable growth in car
maintenance and car accessories can be see as well. However day to day sales in cycling
were down approx 0.9 per cent over the previous three year that shows weaker market
condition.
 Income statement of Halfords group PLC – It shows profitability condition of company.
This statement contains items operating expenses, operating income and other incomes
(Vogel, 2014). . Net profit from this report is 55 million in 2018 and decreases from last
years due to changes in tax policy.
 Balance sheet of Halfords group PLC – This shows company's assets and liabilities
conditions at a particular date. . If there is assets side and liabilities side are equal and
matching so it will good for company because it means all items are recorded not
missing. In this statement of this particular company shows current assets is 279 million
in 2018 and comparative to last years it will increasing that are shows good position of
the company (Zeff, 2016). In non current assets total amount is 503 million, so there is
total amount of assets side is 782 million that are continuously increase from previous
years. In liabilities side current liabilities total amount is 228 million.
Analysis and interpretation of financial statement of Dunelm Plc:
Financial statements analysis is often reported to senior management and board of
directors. They used it as input in decision making of company. It is also helpful for external
parties such as investors and regulatory bodies etc. to know more about organisation. There are
various methods for this which are as:
Income statement of Dunelm Plc: These statements are present net profit and gross profit carry
forward from trading account. In 2018, operating income (68) million and operating expenses
317 million. After all adjustments net income is (64) million due to decreases operating income.
Balance sheet of Dunelm Plc: In this statement including two heads that are assets and liabilities.
It provides position of total assets and total liabilities, it is divided into two sub-part that are
current & non current assets and liabilities. In current assets, those items which are converted in

cash within 12 months and those items which are taken long time they are called as non current
items (Fazzini, 2018).
This statement shows that total current assets 196 million during 2018 and it will
decrease from 2017. total non current assets 229 in 2018 so here is total assets is 425 million,
that are less than the previous year. Reason of decreasing in liabilities section current liabilities
110 million and non current liabilities 180 million, so total liabilities 290 million that are
decreases to past year.
Significance of cash flow, ratio and trends:
This report demonstrates key dynamic factors whether external or internal that affets the
company's ratio, cash flow analysis or trends. Financial statements of a company shows
performance of the company on the basis of ratios, cash flow analysis, general financial data and
share price movements. Analysis of ratios on the basis of efficiency, liquidity, solvency and
investment profitability that are shows company's ability to face these factors and how much
companies are affected by these factors described as below: (DeFusco and et.al., 2015).
Factors affecting cash flow,ratio and trends of companies:
These are the following external or internal factors affecting the cash flow,ratios or trends:
1. Factors affecting Cash Flow: Accounts receivable, Credit terms set for your customers,
credit policy regarding extension credit to a customer, Inventory, Accounts payable,
Average collection period measurement are the internal and external factors affecting
cash flows of a company.
2. Factors affecting ratios: Source of accounting data, ignorance of qualitative factors,
different accounting practices, lack of adequate standards, window dressing etc. are the
main factors affecting ratio of a company.
3. Factors affecting ratios: Trends for a company or industry is mostly affected by factors
like government policies, International Exchange of Goods and Finance policies ,
Investment Behaviour of major investors and demand and supply etc. (Cooper, 2017).
Ratio Analysis and Interpretation of Halfords group PLC:
Ratio analysis assists management to analysis of the capabilities, performance and some
times shows danger level for company's life. By using liquidity, solvency and profitability ratio

a company identifies dynamic factors affecting companies directly or indirectly. Main use of
these ratios or trends for management is for decision-making activities.
Liquidity ratio
1.Current Ratio:
Particulars 2016 2017 2018
Current assets 235 271 279
Current liabilities 223 247 228
Current ratio 1.05 1.09 1.22
The current ratio indicates the ability of the company to pay its short-term and long-term
obligations. As per the above table current ratio increase from 2016 to 2018 due to increase in
cash. And shows pay out ability of the company.
2.Quick Ratio:
Particulars 2016 2017 2018
Quick assets 74 75 82
Current liabilities 223 247 228
Quick ratio 0.33 0.3 0.36
It indicates the company's short-term liquidity positions and how fast it can meet its
short-term obligations by using the liquid assets. There is increase in ratio from 2018 shows
company have met its short-term obligation more quickly. .
Solvency Ratios -
1.Debt-to-Worth ratio:
Particulars 2016 2017 2018
Total debt 36 90 104
Total equity 405 408 422
Debt to equity 0.09 0.22 0.25
It shows the relationship of debt to equity i.e. total liabilities to shareholders equity. It is
used to assess the financial leverage a company. A high debt to equity ratio is too risky.
Company has increase in this ratio shows unfavourable condition.
Total assets to equity ratio:
Particulars 2016 2017 2018
Total assets 705 776 782

Total equity 405 408 422
Total assets to equity 1.7 1.9 1.85
Companies finance their operations with equity or debt, so a higher equity multiplier indicates
that a larger portion of asset financing is attributed to debt. Over the past three year this shows
unstable trend.
Efficiency Ratio -
Accounts receivable turnover:
Particulars 2016 2017 2018
Revenue 1022 1095 1135
Average Accounts Receivable 16.46 18.5 14.9
Accounts receivable turn over 62.1 59.19 76.18
Accounts receivable turnover shows the number of times in a year a business collects its
average accounts receivable. The ratio is intended to evaluate the ability of a company to
efficiently issue credit to its customers and collect funds from them in a timely manner. There is
most favourable for this.
Particulars 2016 2017 2018
Sales 1022 1095 1135
Average total Assets 700 739.86 777.4
Total assets turnover 1.46 1.48 1.46
From the above table total assets turn over decrease because of sale of assets of the
company and that is shows of 2017 to 2018.
Particulars 2016 2017 2018
Sales 1022 1095 1135
Average Fixed assets 105.58 105.08 102.07
Fixed assets turnover 9.68 10.42 11.12
As per the above table fixed assets turn over increase from 201 to 2018 due to increase
fixed assets.
Particulars 2016 2017 2018
EBIT 7.81 6.52 5.91
Interest expenses 0.16 0.17 0.18
Interest coverage ratio 47.94 38.58 32.95

From the above information interest coverage ratio shows that after interest expenses how
much interest cover that is shows decrease in ratio.
Particulars 2016 2017 2018
Cost of goods sold 478 563 565
Average inventory 158 191 196
Inventory turnover 3.02 3.07 2.92
As per the above information cost of goods sold including purchase, closing inventory
and sales. Inventory turn over shows changes in inventory due to market situations.
Investment and profitability Ratio -
Particulars 2016 2017 2018
Gross profit 543 559 570
Sales 1022 1095 1135
Gross profit 0.53 0.51 0.5
From the above table gross profit also based on sales that are fluctuated time to time from
2016 to 2018.
Particulars 2016 2017 2018
Net profit 64 56 55
Sales 1022 1095 1135
Net profit 0.06 0.05 0.04
As per the above information that are giving in table represent that net profit ratio
basically based on sales. Net profit decrease due to changes in sales from 2016 to 2018.
Particulars 2016 2017 2018
Net profit 64 56 55
Total Assets 705 776 782
Return on assets 0.09 0.07 0.07
As per the above table return on assets shows that how to assets help to achieve profit
with the help of net profit and total assets.
Particulars 2016 2017 2018
Profit after tax 64 56 55
Net worth 405 408 422
Return on equity 0.16 0.14 0.13

From the above table after tax profit calculating and shows that return on equity that are
decrease to rather than 2017. Reason of behind that profit changes from 2016 to 2018.
Ratio Analysis and Interpretation of Dunelm Plc:
It helps the Dunelm Plc to find out the performance of company that are presented in
current financial statements. Ratio is only useful when it compares with other figures either
company's previous figure or industry figure(competitors). Ratio is effected by the internal and
external factors. It provides information about a particular area of business so that according
corrected action can be taken in that area only without any interruption. Dunelm Plc's financial
statements can analysed through calculating following ratios:
Liquidity ratio: It is calculated to show the liquidity position of the company (Dunelm Plc) i.e.
capability of company to pay off its short term liabilities. This ratio includes the current ratio
and quick ratio. These ratios for Dunelm Plc are as follows:
Particulars 2015-16 2016-17 2017-18
Current Assets 157.5 210.2 196.4
Quick Assets 40.9 44.9 41.7
Current Liabilities 108.2 140.5 110.3
Current ratio 1.46 1.5 1.78
Quick ratio 0.38 0.32 0.39
Note 1: Current Ratio = Current assets/Current liabilities
Quick Ratio = Quick assets/Current liabilities
Note 2: These figures are taken from actual financial statements of Dunelm Plc.
Note 3: Quick assets is calculated after deducting closing inventories from current assets.
 Efficiency Ratio: It is calculated to analysis the company's efficiency in relation to its
business so that company can observe profitability trend and it is also important for
investors & creditors. By the help of this ratio investors wants to know whether it is
suitable to invest in this company (Libby, 2017). It includes various terms which are as
follows:

Particulars 2015-16 2016.17 2017-18
Accounts receivable turnover
ratio
47.36 41.91 41.75
Inventory turnover ratio 3.54 3.47 3.42
Interest coverage ratio 80.81 36.46 35.48
Working capital turnover ratio 15.21 16.06 13.48
Fixed assets turnover ratio 2.43 2.32 2.32
Total assets turnover ratio 2.56 2.45 2.45
Note 1: Accounts receivable turn over = Revenue/Average receivable
Inventory Turn Over = Cost of goods sold/Average inventory
Interest coverage ratio = EBIT/Interest expenses
Working capital turn over = Sales/Average working capital
Fixed assets turn over = Sales/Average fixed assets
Total assets turn over = Sales/Average total assets
 Solvency Ratio: The solvency ratio is used to analyse to examine the quality of a
business to achieve it's long term facultative. The ratio is mostly using by prospective and
current lenders to traced from the information declared by balance sheet and income
statement of the company. This ratio may not describe proper situation of the company
but giving idea for contingency liabilities (McKinney, 2015).
Particulars 2015-16 2016.17 2017-18
Debt to equity 1.39 1.66 1.33
Financial leverage 3.46 3.94 3.15
Note 1: Debt to equity = Total debt/ Total equity
Financial leverage = Total assets/Total equity
 Investment and profitability ratio:
Particulars 2015-16 2016.17 2017-18

Gross profit ratio 49.83 48.85 48
Net profit ratio 14.64 9.62 8.86
Note 1: Net profit ratio = Net profit/Sales*100
Gross profit ratio = Gross profit/Sales*100
Cash flow analysis of Halfords group PLC
Cash flow analysis – Halfords group PLC prepares cash flow from indirect . Cash flow
statement includes three sources of cash flow respectively :cash flow from operating
activities,cash flow from investing activities and cash flow from financing activities. In the
context of Halfords group PLC these activities are described as follows:
Cash flow from Operating activities – In the indirect method of cash flow statement ,
cash flow from operating activities are calculated by adjusting non cash items from net profit of
company. In 2018 Halfords group PLC has 79 million from these activities and shows an
increasing trend in net cash flows from past years.
Cash flow from Investing activities – Cash flow from these activities are generated from
items such as investment in property, purchase of investment and intangible assets. Halfords
group PLC has negative cash flow of 46 millions in 2018 from this activities and in past two
year having negative trend with negative cash flow.
Cash flow from Financing activities – Cash flow from these activities are generated from
items like cash received from raising of long term debts and common stock, cash dividend paid,
repurchase of treasury stock and other financing activities. Halfords group PLC has negative
cash flow of 24 millions in 2018 from this activities and in past two year having negative trend
with negative cash flow.
This analysis shows that cash flow from operating activities is favourable aspect for
company whereas increasing cash out flow from financing and investing is unfavourable.
Cash flow analysis of Dunelm Plc:
In this analysis, cash flow is prepared using indirect method. In this method, cash flow
statements is created through three activities which is operating, investing and financing. These
activities is effected by internal and external factors that are responsible of changes in the
company situation.

 Operating activities: In this activities, items which is in the core business of the company
is taken and items such as working capital, inventory. Adjustment for non cash items is
also require in this activity. In 2018. they have 99 million from these activities and it will
increasing from last year (Schmidlin, 2014).
 Investing activities: This activities included items such as investment in property,
purchase of investment and intangible assets. In 2018, (46) is total from this activities and
from last years its continue going negative.
 Financing activities: In this activities that items included that are issued of debt and
common stock, cash dividend paid, repurchase of treasury stock and also including other
financing activities. The total of this activities (55) during period of 2018 and continue in
negative way.
After analysis of three activities getting that in operating activities company will in good
position but remain two activities not showing good activities of the business. It means company
is doing good operating business but not so good in other aspects such as financing sector,
investing areas etc.
CONCLUSION:
From the above report, it is concluded that financial statement is important part of any
organisation to evaluate the present situation. This evaluation is necessary for future planning of
companies. On the basis of these information company taking economic decisions. For statement
analysis using cash flow analysis, ratio analysis and final report analysis of the company. It will
helping to strength and adaptability of each business that better managed company and comment
on the future prospects

REFERENCES
Books and Journals
Cooper, S., 2017. Corporate social performance: A stakeholder approach. Routledge.
DeFusco, R. A., and et.al., 2015. Quantitative investment analysis. John Wiley & Sons.
Doxey, M., 2014. The effects of auditor disclosures regarding management estimates on
financial statement users’ perceptions and investments.
Fazzini, M., 2018. Financial Statement Analysis. In Business Valuation (pp. 39-76). Palgrave
Macmillan, Cham.
Griffin, P. A., 2015. Financial Statement Analysis. Finding Alphas: A Quantitative Approach to
Building Trading Strategies. pp.119-125.
Grimm, S. D. and Blazovich, J. L., 2016. Developing student competencies: An integrated
approach to a financial statement analysis project. Journal of Accounting Education. 35.
pp.69-101.
Lee, T. A. and Parker, R. H., 2014. Company financial statements: an essay in business history
1830–1950. In Evolution of Corporate Financial Reporting (RLE Accounting)(pp. 27-
51). Routledge.
Libby, R., 2017. Accounting and human information processing. In The Routledge Companion to
Behavioural Accounting Research (pp. 42-54). Routledge.
McKinney, J. B., 2015. Effective financial management in public and nonprofit agencies. ABC-
CLIO.
Schmidlin, N., 2014. The art of company valuation and financial statement analysis: a value
investor's guide with real-life case studies. John Wiley & Sons.
Vogel, H. L., 2014. Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.
Zeff, S. A., 2016. Forging accounting principles in five countries: A history and an analysis of
trends. Routledge.
Online
Dunelm Plc. 2018. [Online]. Available through:
<https://corporate.dunelm.com/investors/reports-and-presentations>
Halfords group PLC. 2018. [Online]. Available through:
<https://www.halfordscompany.com/investors/reports-and-accounts/>

Appendix:
Financial Statement, Income Statement and Cash flow of Halfords group PLC:

Financial Statement, Income Statement and Cash flow of Dunelm Plc:

Financial Statement: