Stakeholder Analysis of Halfords Group Plc

This assignment requires a stakeholder analysis of Halfords Group Plc. Students must examine various stakeholders (e.g., customers, suppliers, employees, investors) and their influence on the company's operations and financial performance. The analysis should utilize information from Halfords' annual reports, accounts, and industry research to assess the relationships and potential impacts between the company and its stakeholders.

Introduction to financial accounting

Table of Contents
Essay Writing.............................................................................................................................1
REFERENCES...........................................................................................................................9

ESSAY WRITING
Each and every business organization has to keep a detailed record of all the business
transaction. Financial accounting is the process of maintaining the record of organization's
financial transactions that aim at determining the business performance. There are different
kinds of stakeholders in every organization that include both internal and external. Internal
stakeholders are the part of organization such as manager, employees and directors.
However, external stakeholders are the outsiders that have some kind of interest in the
organization such as customers, suppliers, government and competitors (De Chernatony and
Harris, 2000). Halford Group plc is a public retail organization established in the year 1892.
Headquarter of the company was established in Redditch, England, United Kingdom. It
produces cycling and other automotive products as well as provides repairing services to its
customers. Vision of the company is to help and inspire their customers with their life on
move. The present report will help in identifying the importance of financial accounting in
the respect of its external stakeholders. It explains that how produced financial statements
satisfy stakeholders through providing information. Moreover, the role of corporate
governance in the respect of stakeholders will also discuss in this report. It is the composition
of organization's directive and controlling rules, regulations and policies. The governing rules
are designed in such a way that is used to reduce conflicts between stakeholders.
Financial statements: Two statements are prepared in the financial statements that
include income statement and balance sheet that are described below:
Income statement: It is the summary of Halford’s expenses and revenues. It helps to
determine the net operation result in terms of gross and net profitability.
Revenue: Halford has two operating division that are retail and Autocentres in the UK
and Ireland. The company mainly operates in two markets that are motoring and cycling. Car
parts, accessories, technology, consumables and car services are the parts of motoring
operations. Halford includes the income from selling its motoring and cycling products,
online retail revenue and service income. Its retail segment incomes are to be reported at fair
value of sales of goods and service, rebates, promotion and returns. It is recognised when the
risk and ownership of goods are transferred to the buyer. However, income from providing
services will be shown at the time when services are rendered to the customers (Henderson
and et. al., 2013). Further, any returns that are made by consumers to the organization will be
termed as sales returned. It will be deducted from total sales so as to determine net revenue.
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In addition to it, other income also will be shown in the income statement such as finance
income. It is the interest income that is earned by the organization on their investment. This
information is useful for the distinct external stakeholders. For instance, suppliers can detect
organization sales to formulate their terms of conditions and take qualified decisions.
However, investors can determine the organization earning capacity and its stability. Further,
government determines the organization's contribution in the economy on the basis of total
sales. On contrary, customers can identify the sales with the discount and rebates offered.
Thus, it has become clear that such information helps stakeholders to take effective decisions.
Expenditures: Under the expenditures, two head cost of goods sold and other indirect
expenditures will be shown. Cost of goods sold is the total of purchase and the efforts that are
made to bring goods in sale able position. Retail division comprises expenditures for
purchasing the motoring and cycling products. Moreover, it also includes the expenditures
that are incurred for purchasing accessories and other equipment (Halford Group plc annual
reports and accounts, 2015). Further, marketing and finance expenditures are also involved
in the total expenditure. For instance, under the finance expenditure, payment that are made
by Halford on the taken amount of borrowings will be shown. It helps lenders to assess the
financial liability of company and determine that organization is making regular payment or
not. It helps them to take effective lending decisions. In addition to it, dividend payment to
shareholders helps investors to determine their income. They can assess that organization is
providing better return or not on their investment on the basis of total revenue and profits. On
Contrary, Halford's tax payment helps government to assess that company is paying regular
tax on the total income or not. Government also can identify the business operating activities
that are legal or not. Government can determine that organization is following the framed
rules or regulations or not.
Profit: Gross profit is the excess of total sales over the cost of goods sold. However,
net profit is the excess of gross profit plus indirect income over the indirect expenditures. It
helps investors to detect business profit margin. Moreover, suppliers and creditors provide
credit to the business, therefore they are mainly concern for the credit security. Hence, they
analyse profits earning capacity of the company and take good decisions. On contrary,
government determines Halford's tax liability on the basis of business profits. Competitors
also analyse business profitability for the comparative study. They can determine
organization operating policies and technology. Further, investors assess Halford's return on
equity and capital employed.
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Balance sheet: It is the summarized statement of Halford’s assets, equity and liabilities in
order to determine the financial status.
Assets: Halford is consolidated financial position statement that includes fixed assets
and current assets. Under the fixed assets, company's intangible assets, property, plant,
equipment and other deferred tax assets are shown. Intangible assets are such assets that
cannot be seen but they are valuable for the company (Scott, 2014). For instance, Halford's
goodwill, computer software, brand names, trademark and patent. All the business
organizations want necessarily to know the market image of the other companies that are
operating in the same line of industry. Therefore, competitors of Halford make analyse the
goodwill of company and compare it with their own goodwill. Moreover, they can analyse
about the technology that is used by the company for the respective improvements. Before
lending and investing in the company, lenders, investors and suppliers want to know the
company's corporate image. For instance, such businesses that have good market position and
goodwill will easily attract new investors and lenders. However, current asset comprises
inventories, trade receivables, derivative financial instruments as well as cash and cash
equivalents. It helps customers to analyse the credit terms offered by company from the trade
receivables. On contrary, it helps to determine the business ability to use its assets.
Liability: Financial liability of Halford's involves bank borrowings, trade payables
and provisions. Difference between current liability and current assets is known as working
capital. Therefore, through this information, competitors can determine Halford's working
capital that is retained for the operational purpose. Moreover, suppliers determine the
liquidity position of company. Investors and long term fund providers assess the solvency
position of company in order to determine their funds security. Suppliers can identify the
available trade payables and determine the business efficiency to pay them on right time
(Halford Group plc annual reports and accounts, 2015). Before providing any loan, financial
institutions such as banks determine the financial position of company. They provide loans to
such business organizations that are financially strong.
Equity: It comprises shareholders’ funds, retained earnings and other kind of reserves.
Investors want to know the proportion of total funds that are invested by shareholders.
Further, investors can assess that company is paying satisfying return or not out of business
profits and determine the reserved profits for the future period. However, lenders or loan
providers also determine the equity capital in order to determine the debt to equity ratio. It
helps to determine the security of their holdings. In addition to it, competitors also analyse
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Halford's composition of capital structure and track changes. They can assess that how
additional capital requirements are fulfilled by Halford.
Thus, on the basis of above discussion it is cleared that all the external stakeholders
can attain useful and required information from the prepared financial statements. Income
statement provides information regarding business revenue and profitability that helps to
determine future earning capacity. However, balance sheet provides information about
Halford's financial status. It helps investors, lenders and suppliers to determine safety and
security of their holdings. While, competitors analyse its position for improving their own
business position in the market. Thus, they can formulate necessary policies that are helped to
get competitive advantage.
Cost of goods sold: The amount of cost of goods sold is appeared in the income
statement so as to calculate gross profit through deducting it from total business revenues
(Fox, 2013). Halford has a unique market position so, it can create value for customers on the
basis of price, quality and expert services. It is operating through two operating divisions that
are retail and Autocenres. Retail division provides automotive, cycling and leisure products to
the customers. However, Autocentres division is UK's leading car service and repairing
operator. Therefore, both the division's product and services cost are included while
calculating the cost of goods sold. Material cost, labour cost and other overheads are the part
of cost of sales. Halford calculates the amount of cost of goods sold or merchandise through
adding the beginning inventory value to the total business purchase and subtracting the
closing inventory value. According to the Matching concept, every business sales is affected
the cost of goods sold and the inventory balance. Increasing in sales will lead to increase the
cost of goods sold and reduce the closing inventory balance (Astrini and Adam, 2015). To
determine that amount reported in the Halford's financial statement is correct or not, initially
the value of beginning inventory should be determined correctly. Then, after purchase cost
involves the expenditures that are incurred for purchasing the cycling products and labour
expenditure that are paid for making the automotive and cycling products and other
manufacturing overhead. It excludes all the administrative expenses and marketing
expenditures that are incurred for selling products and rendering services. Moreover, an
effective inventory tracking system in the organization also helps to determine correct
amount of cost of goods sold.
Corporate governance: It is a composition of structured policies and rules that are
used to direct and control the Halford's operations. Governance structure classifies the rights
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and responsibilities among different participants in the company. It includes the operating
practices, principles, actions, policies and corporate decisions that affect stakeholders to a
great extent. Under the corporate governance, Halford recognizes legal, social, contractual
and other social liabilities towards their external stakeholders (Council, 2003). In context to
Halford , the chairman of company said that my primary role is to lead the management
board efficiently in order to ensure good corporate governance and create value for the
shareholders. Good corporate governance greatly contributes to the business success and long
term sustainability. Halford is maintaining high governance standards, values and behaviour
for satisfying their stakeholder’s interests (Acharya and et. al., 2013). It helps to attain
integrity and investor’s trust to a great extent. Cited company is following UK Corporate
Governance Code provisions.
Responsibilities of the board members: Halfords' chairman is responsible for leading
the overall business operations and governance. It sets out the business mission and prepares
an agenda that accomplish these targets. Moreover, it creates an effective communication
between all the stakeholders. Halford’s mission is to become largest car retailer organization.
The chief executive is responsible for setting the organization’s objectives and building
strategies to achieve these targets. On the other hand, non-executive directors are responsible
for appraising the performance of directors and senior management. They visit to the retail
stores, Autocentres and other distribution centres and meet regularly with the senior
management. On contrary, company secretary gives advice on the legal and regulatory issues
as well as corporate governance and rules compliances (Margin, Share and Share, 2014). In
order to fulfil these responsibilities, management board delegates authorities also. The board
is highly committed to maintain an effective relationships with the shareholders.
Responsibilities of Committees: There are three committees that are operated in
Halford with distinct objectives and responsibilities. It includes Nomination Committee,
Audit Committee and Remuneration Committee. Nomination Committee is responsible to use
board skills, experience and knowledge in order to discharge organization responsibilities.
Audit Committee has an objective to ensure effective governance in the financial reporting
process. It helps to provide correct information to the stakeholders through using financial
statements. It maintains internal control system, internal audit, risk management operations
and external audit functions (Harford, Mansi and Maxwell, 2012). The committee focuses
that financial statements are prepared in compliance with the legal requirements and
provisions of all the standards. The committee assesses that how risk is assessed and
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managed in the business. However, the committee implemented an internal control system
through defining lines of responsibilities and giving authorities. Remuneration Committee
has an objective to create a policy for remuneration of CEO, Chairman and other board
members. The committee is therefore responsible for designing a remuneration and incentive
plans along with approving awards to the directors on the basis of their performance
(Bebchuk and Weisbach, 2012).
Under the corporate governance, Halford's chairman has designed a director’s training
induction programme. Under such programme, all the new directors will receive an induction
initially with the briefing of Group activities. They meet with the other directors and board
members. They provide the operational goals and the organizational structure that assist them
to understand the company operations. Senior management team continuously visit to the
retail, Autocentres and distribution centres as well as it arranges meetings to meet colleagues.
It helps to understand any governance issues and mitigate it. Training and development
programme provide equal opportunities to all the directors. Further, effective communication
system and strong investor relationships help to establish better relationship with the
shareholders. Halford maintains a good relationship with the investors through
announcements, giving regularly information regarding company's performance and financial
position as well as corporate governance information (Nini, Smith and Sufi, 2012). On
contrary, Whistleblowing policy enables colleagues to report about the matters that affect the
level of employment without any fear. Policies are reviewed and approved by the Audit
Committee in order to make solutions. Further, Anti bribery and corruption policy make sure
that all the operating activities and business affairs do not engage in any form of corruption
toward the stakeholders. It maintains ethical trading and prohibits illegal and unfair business
practices in the organization. On contrary, performance share plan (PSP), save as you earn
scheme (SAYE) and incentive plans are structured so as to motivate and encourage all the
individuals in the organization (Erkens, Hung and Matos, 2012). Further, company develops
a code of conduct for the directors and executives that creates responsible decision making.
Thus, it can be concluded that all the members and the committees at Halford are following
the rules and structured policies in order to ensure effective corporate governance. Company
has created a framework that helps to achieve business objectives through meeting the
stakeholder’s interests. Satisfactory corporate governance helps business to achieve
organization objectives and organizational goals.
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External stakeholders: There are distinct types of external stakeholders of Halford that
critically involve investors, suppliers, lenders, creditors, customers and community. The
financial statements provide useful information to the company's stakeholders that help to
take better and qualified decisions. The three important external stakeholders that are
determined through the company's financial statements are described below:
Investors: Halford's existing and potential investors need information regarding
buying and selling of securities. These information requirements can be fulfilled by the
financial statements of the company. Balance sheet and cash flow statement provide detailed
information about the company's financing activities. Moreover, profitability statements that
measure business revenue and profits help investors to determine company's future earning
capacity through analysing the past business performance. All the investors are major
concern about the return on their investment (Chhaochharia, Kumar and Niessen-Ruenzi,
2012). Shareholders want dividend and lender needs timely payment of interest and
repayment of capital on the maturity date. Therefore, they want information regarding
business revenue and profit margin in order to determine future earning capacity. Halford
requires to pay interest to the lenders over a specified time duration, therefore it becomes
necessary for company to become financially strong. Before giving any credit to the
company, lenders assess solvency position of the company (Mori, 2009). An organization
that is financially sound has good track records and good solvency position that will attract to
higher the investors. Further, investors can assess funds security through determining
operational as well as financial risk. Investors can assess business resources and manager’s
ability to use that resources in an effective manner.
Government: Government also plays a major role in the organization as an external
stakeholder. It prepares reports about economic statistics and other economic information. In
context to Halford, government can determine the revenue and profitability in order to
determine the organization tax liabilities. Government can determine the organization
operating activities and determine that the company is following levied rules or not. Further,
every business organization is requite to trade in an ethical manner (Fransen, 2012). They has
to follow the governmental rules and regulations such environmental law and labour law. In
addition to it, government determine that all the business organizations meet their business
responsibility or not. On contrary, they can determine the unethical business practices and
make rules in order to eliminate it. Moreover, in case of any illegal work government can
charge penalty, fines or other form of law suits to the business. They can make policies for
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making effective business environment that helps to economic growth and development
(Rosa and Teixeira, 2014).
Competitors: Present age is age of throat cut competition as market is highly
competitive. Therefore, all the business require to compete effectively so as to achieve their
business targets. Thus, competitors of Halford have to make analyse its profits and financial
position. Competitors require to assess Halford in oider to operate and manage policies.
Moreover, they have to determine the technological changes and improvements that have
taken place by company (Stensaker, Persson and Pinheiro, 2015). It helps competitors to
track changes according to the changes that have been done by the leading business. They can
make policies to grab larger the market share that helps to increase business revenues. This in
turn, organization can earn high amount of profitability and strengthen its financial position.
On the basis of above report, it can be concluded that financial statement gains
significance importance for both the internal and external stakeholders. It provides useful and
important information that satisfy stakeholders to a great extent. This in turn helps to create
effective relationship with the stakeholders.
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REFERENCES
Books and Journals
Acharya, V.V. and et. al., 2013. Corporate governance and value creation: Evidence from
private equity. Review of Financial Studies. 26(2). pp. 368-402.
Astrini, H.A. and Adam, H., 2015. The Implementation of Activity Based Costing to
Determine Cost of Service Sold (Case Study at X Guesthouse Malang). Jurnal Ilmiah
Mahasiswa FEB. 4(1).
Bebchuk, L.A. and Weisbach, M.S., 2012. The state of corporate governance research. In
Corporate Governance (pp. 325-346). Springer Berlin Heidelberg.
Chhaochharia, V., Kumar, A. and Niessen-Ruenzi, A., 2012. Local investors and corporate
governance. Journal of Accounting and Economics. 54(1). pp. 42-67.
Council, A.C.G., 2003. Principles of good corporate governance and best practice
recommendations. Australian Stock Exchange Limited.
De Chernatony, L. and Harris, F., 2000. Developing corporate brands through considering
internal and external stakeholders. Corporate Reputation Review. 3(3). pp. 268-274.
Erkens, D.H., Hung, M. and Matos, P., 2012. Corporate governance in the 2007–2008
financial crisis: Evidence from financial institutions worldwide. Journal of Corporate
Finance. 18(2). pp. 389-411.
Fox, R., 2013. Cost of Goods Sold. In Tax Strategies for the Small Business Owner (pp. 53-
61). Apress.
Fransen, L., 2012. Multi-stakeholder governance and voluntary programme interactions:
legitimation politics in the institutional design of Corporate Social Responsibility.
Socio-Economic Review. 10(1). pp. 163-192.
Harford, J., Mansi, S.A. and Maxwell, W.F., 2012. Corporate governance and firm cash
holdings in the US. In Corporate Governance (pp. 107-138). Springer Berlin
Heidelberg.
Henderson, S. and et. al., 2013. Issues in financial accounting. Pearson Higher Education
AU.
Lebas, M. and Stolowy, H., 2006. Financial Accounting and Reporting: A Global
Perspective. Cengage Learning.
Margin, G., Share, P.F.D.P. and Share, P.F.Y.D.P., 2014. Halfords Group plc. Change. 1.
p.Q3.
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Nini, G., Smith, D.C. and Sufi, A., 2012. Creditor control rights, corporate governance, and
firm value. Review of Financial Studies. 25(6). pp. 1713-1761.
Rosa, M.J. and Teixeira, P., 2014. Policy reforms, Trojan horses, and imaginary friends: The
role of external stakeholders in Internal Quality Assurance Systems. Higher
Education Policy. 27(2). pp. 219-237.
Scott, W.R., 2014. Financial accounting theory. Pearson Education Canada.
Stensaker, B., Persson, M. and Pinheiro, R., 2015. When mergers fail: A case study on the
critical role of external stakeholders in merger initiatives. European Journal of Higher
Education. pp. 1-15.
Online
Halford Group plc annual reports and accounts, 2015. [Pdf]. Available through:
<http://www.halfordscompany.com/media/322784/Halfords-Annual-Report-
2015.pdf>. [Accessed on 29th December, 2015].
Mori, I., 2009. Understanding your stakeholders. [PDF]. Available through:
<http://www.ipsos.com/public-affairs/sites/www.ipsos.com.public-affairs/files/
documents/understanding-stakeholders.pdf>. [Accessed on 29th December, 2015].
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