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Whitebread's Strategic and Financial Analysis : Report

   

Added on  2020-01-07

14 Pages5032 Words163 Views
Financial Analysis1

Table of ContentsINTRODUCTION ...............................................................................................................................31. Summary page of the report and recommendation......................................................................32. (a) Whitebread's strategic and accounting analysis.....................................................................3(b) Whitebread's recent financial performance analysis on the basis of value based ratio analysis4(c) Intrinsic value of the equity using earning -based valuation......................................................5(d) Advantage and limitations of cash flow and enterprise-based valuation models.......................7CONCLUSION....................................................................................................................................7REFERENCES.....................................................................................................................................8APPENDIX........................................................................................................................................102

INTRODUCTION Financial analysis is the process through which firms can examine their financialperformance and thereby, take effective and strategic decisions. Whitebread PLC is a public limitedcompany that was established in the year 1742 and has multinational hotel, coffee shop as well asrestaurant. It is headquartered in Dunstable, United Kingdom. It operates in the leisure hospitalityindustry, listed on London Stock Exchange. Present project report will address Whitebread'sstrategic and financial analysis on the basis of value oriented ratios. Moreover, intrinsic value ofequity will be determined by using enterprise based value like abnormal operating profit and freecash flow (FCF). At the end, the report will discuss advantages and limitations of cash flow as wellas earning based valuation models.1. Summary page of the report and recommendationIn summary of the report, it can be recommended that Whitebread needs to enhance its netoperating profit margin by maintaining effective control over operating expenses and enlargingrevenues. It will help to improve RNOA and ROE to increase its operational performance. While,valuation model reveals that company's equity share is overvalued because its intrinsic value is£22.38 while its market price is £52.55 which has arisen a difference of £30.17 each share. 2. (a) Whitebread's strategic and accounting analysisWhitebread Plc's vision is to provide exceptional hospitality and leisure services each andevery time. Its mission is to enhance its customer facility whereas its strategy is to deliver excellentcustomer services by its motivated, trained and experienced workforce. It is based on customerheartbeat business model in which it regularly focuses on customer needs and tries to create the bestvalue by satisfying their expectations (Park and Jang, 2013). Company's strategic analysis can beconducted by SWOT analysis which helps to identify business position relatively to theircompetitors. StrengthsWeaknessesLarge customer base. Increased market share.Innovative services.Strong brand image.Better supplier relationship.International operations.Difficult to launch new product.Political upheaval.Lack of brand awareness.Changing customer taste andpreferences. Excessive prices of Costa products.3

Opportunity ThreatsIt can maximize profitability byimplementing dynamic pricing model inPremier Inn.International expansion.Maximizing hotel occupancy rates. Control on product cost.Fierce level of competition fromStarbucks, ACCOR and The RestaurantGroup Plc. Market uncertainty may create adverseimpact on expansion program.Accounting analysis: It is the process to analyse each and every item reported in thefinancial statement. In the year 2015, its premier Inn's revenue has been increased by 15.3% whilerestaurant's sales has been enhanced by 3.2%. Moreover, its occupancy rate has achieved the targetof 81.3% which is a sign of exceptional growth (Lyle, Callen and Elliott, 2013). Overall, its saleshas been increased from £2294.3m to £2608.1m and its net earning has been improved from£323.4m to £366.1m in 2015. 13.7% growth in turnover and 1.09% growth in RNOA are a goodsign ofts performance and indicates that Whitbread is performing well in the market by renderingthe best services to its customers. (b) Whitebread's recent financial performance analysis on the basis of value based ratio analysisRatio expresses relationship between two elements of financial statement. There aredifferent kinds of value based ratio which can be used to evaluate Whitebread's performance overthe period. It is a quantitative analysis that helps to examine business performance by comparingratios. Here, financial performance of Whitebread Plc has been examined on the basis of valued-oriented ratios such as ROE, RNOA, NIR, operating spread and financial leverage (FLEV). Return on equity (ROE): Shareholders often use ROW to measure Whitebread’sperformance. It can be calculated by determining return from both the operating and non-operatingratios such as RNOA and FLEV*spread (Analysing and interpreting financial statement, n.d.).Whitebread's ROE has risen from 18.9% to 19.5% in the year 2015 which is a good sign ofoperational performance. Reasons behind this behaviour of ROE is given below:Return on net operating assets (RNOA): Operating functions are the core activities ofWhitebread Plc. which are conducted to deliver exceptional services to the customers. It comprisesresearch and development, supply chain, selling products, marketing, promotion and after salesservices as well. It can be determined by dividing net operating profit after tax to the average netoperating assets. In 2013, RNOA was 15.9% that enhanced to 16.9% in 2014 while, in 2015, it has4

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