Accounting and Finance Report: Bellway PLC Financial Analysis

This report presents a comprehensive financial analysis of Bellway PLC, examining its corporate objectives over a three-year period (2016-2018), identifying key opportunities and challenges. It includes an interpretation of financial statements, covering key ratios like gross profit margin, current ratio, and return on assets. Furthermore, the report discusses the company's performance in comparison to its competitors, utilizing common-size statements for comparative analysis of the income statement. The analysis provides insights into Bellway PLC's financial health, strategic decisions, and market position, offering a detailed assessment of its performance within the housing market. The report also touches upon the issues the company faced during the period.

ACCOUNTING AND FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Discussing corporate objectives of company over past 3 years along with key opportunities
and issues organization faced......................................................................................................1
2. Interpretation of Financial Statement......................................................................................2
3. Discussing the performance of listed company with its competitor with the help of
Common......................................................................................................................................6
size statement..............................................................................................................................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Accounting lays emphasis on regular flow of money in and out of organization or
institution as finance is broad term for management of assets and liabilities and planning of
growth of future. Accounting is very accurate reporting money which has already happened by
compliance with standards and laws. Finance looks forward along with growth of money and
mitigates loss. The present report will demonstrate critical understanding and broad knowledge
of financial statements along with concepts of corporate finance and investment appraisal in
order for evaluating management decisions against strategic corporate objectives.
Simultaneously, it will analyse financial statements and evaluate management decisions via
application of relevant financial tools and techniques with context to assess validity in attaining
strategic corporate objectives. It is about to embark on new joint venture with Bellway plc which
as approx 70 years of home building experience and attained growth from local north east of
England family owned business.
1. Discussing corporate objectives of company over past 3 years along with key opportunities
and issues organization faced
Objectives of 2018
Maintaining the current disciplined growth strategy of strong demand of consumer and
mindful for market conditions. Task of newer divisions with delivering ambitious plans for long
term perspective and seek to purchase land with possible benefits of DPP consent and subject to
consent granted before acquisition (Annual report of Bellway plc, 2018). Simultaneously, special
focus on buying sites which suits smaller and lower average selling price homes and opening of
further divisions during the year.
Objectives of 2017
Ensuring plots owned and unconditionally contracted land bank with DPP at ending of
year which is sufficient to attain growth target of following year and to progress land via
planning system for contributing towards subsequent growth target. Acquiring land which meet
or exceed criteria of acquisition and continuation to lay emphasis on land purchasing areas of
high demand along with sustainable locations above or at minimum gross margin and ROCE
hurdle rates (Annual report of Bellway plc, 2017). In the same series, its objective is to invest in
sufficient pipeline land to give plots which could be progressed reliability via procedure of
planning and replenish land beind developed actively with absence of lying up excess capital.
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Further, objective is to raise number of strategic option sites for complementing the other sites of
land bank.
Objectives of 2016
Enhancing and expanding geographic coverage through opening new divisions
principally in conurbations with high demands and investing in existing operational divisional
structure. Their aim was to continuous invest in land in areas of high demand that attain or
exceed the minimum hurdle rates. In the similar context, attaining detailed planning permission
on land along with management of pro active balance sheet (Annual report of Bellway plc,
2016). Apart from this, it had laid emphasis on building right product and focusing on training,
recruitment and retention of people. Although consistently excellent customer experience and
ensure about sufficient resources available in specialist head office team along with robust group
wide systems in place for supporting and expanding divisional network to deliver growth
strategy.
Issues
The shortage in UK's housing and buoyant demand for starter home has directly
contributed for brisk trading at housebuilder Bellway. It has low priced home business which is
strongly supported through government with help of buy scheme for buyers of first time. It had
given growth in volume of sales as housebuilders come under intense pressure through
government for purpose of tackling low housing supply with releasing more land with context of
construction. However, Bellway had made sizeable contribution to supply of much needed
homes. The pockets of housing market of UK is faltering with sellers of Prime London properties
with discounts which are wider compared to 2008 – 2009 financial crisis. The issues at top end
of property market has attained failure for dent confidence at Bellway. The developments in
London are in cheaper areas of the capital where majority of business performed in other regions.
2. Interpretation of Financial Statement.
2018 2017 2016
Gross profit margin 0.25 0.26 0.26
Operating Profit Margin 0.22 0.22 0.22
Net Profit Margin 0.18 0.18 0.18
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Current ratio 3.86 3.7 3.55
Acid test ratio 0.24 0.16 0.19
Stock days 0.71 0.69 0.71
Debtor days 14.18 12.15 13.06
Creditor days 139.28 144.2 147.81
Return on Assets 0.15 0.14 0.15
Return on Capital Employed 0.2 0.2 0.21
Gearing 0 0.01 0.02
Interest coverage 45.8 46.7 41.5
P/E Ratio 7.2 7.2 6
Earnings per Share 4.22 3.69 3.28
(Source: Annual Report of Bellway Plc, 2017)
Interpretation:
Gross profit margin – It determines the amount of revenue or money which is left or
remaining out of sales after subtracting the cost incurred for making sales. It provides the clear
picture of company's financial health and position. The gross profit of Bellway is decreasing
from 0.26 to 0.25 in the year 2018 which means that company's cost of goods sold is increasing.
Operating Profit Margin – It helps in determining the amount of profit which the
company has been making after paying all the variable costs related to the production functions
such as wages, raw materials, etc. The operating profit margin of Bellway is stable i.e. 0.22 from
last 3 years which depicts the efficiency of company in controlling its costs and expenses related
to business operations.
Net Profit Margin – It is the percentage of revenue amount which is left after subtracting
all the business expenses from sales. The net profit margin is 0.18 for the last 3 years which
measure the amount of profit which Bellway Plc is making from its total sales.
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Current ratio – The current ratio helps in assessing the liquidity position by measuring
the ability of company in fulfilling its short-term obligations with the available amount of current
assets. Bellway Plc is having increasing current ratio from 3.55 to 3.6 in the year 2018 which
indicates that company is having sound short term financial strength (Annual Report of Bellway
Plc, 2017).
Acid test ratio – The acid test ratio is considered as one of the most important indicator
that whether the company is having sufficient amount of short term assets to meet its immediate
liabilities. The ratio of Bellway plc is 0.24 in the year 2018 as compared to the last 2 year ratio
viz. 0.16 and 0.19 in the year 2017 and 2016 respectively. It means the company is growing and
can easily convert all its receivables into cash for meeting its financial obligations.
Stock days – It defines the average number of days in which inventory or goods will
remain stock before the sales is made. It indicates the average time in which Bellway plc will
turn its inventory into sales. The stock day of company has increased from 0.69 to 0.71 in the
year 2018 which implies that products or services of the company is having more demand in the
market. High inventory turnover also depicts insufficient inventory level with the company
which can lead to business loss.
Debtor days – The Debtor days is the average number of days or time period in which a
company is going to receive payment or cash amount from its customers to whom credit sales
had been made. It determines the day in which company is going to get back its money for
invoices issued to customers. The average number of days in which Bellway plc is going to
receive its payment back is increasing from 12.15 to 14.18 in the year 2018. It means company is
focusing on collection of debt amount for meeting its cash requirement or working capital needs.
Creditor days – The Creditor day defines the average time period or number of days
which the business organisation or a company is going to take or is taking in making payment or
settle its debts with trade suppliers, vendors. The creditor days of Bellway Plc is decreasing from
147.81 to 139.28 within 3 years. This shows that company is making payment early and not
having cash with itself for conducting business opertaions.
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Return on Assets – By calculating the return on asset, Bellway plc can measures the
effectiveness of company in earning return by making investment in the assets. With this ratio,
company can evaluate that how effectively it can convert the amount of money invested in
purchasing of assets into profitability term. The company is earning a return of 0.15 in the year
2018 on the amount invested in assets which is considered good as it is effectively utilizing its
assets.
Return on Capital Employed – This ratio is used for assessing the profitability situation
of company or the market position of company as compared to other companies. Bellway plc is
having a constant or stable return of 0.2 from 2016 to 2018 on the amount of capital employed.
This means that company is neither having large amount of profit or cash with itself remaining
idle nor having shortage of cash.
Gearing – The gearing ratio of company depicts the amount of funds which the company
has borrowed against equity. With the help of this ratio, company can measure the proportion of
debt to equity. In this case, Bellway Plc is having 0 gearing ratios in 2018 which means that
company has totally relying on the equity source of funding as compared to the year 2016 and
2017(Annual Report of Bellway Plc, 2017). This means company is making use of less amount
of debt as it is having a stronger equity position.
Interest coverage – With the help of interest coverage ratio, Bellway Plc can determine
that how easily and smoothly it can make payment of interest amount to its debenture holders on
the debt value due. The Interest coverage ratio of Bellway plc is having fluctuating trend. It is
41.5 in the year 2016 which has increased to 45.8 in 2018 which means that company is having
enough cash profit amount with itself to meet its debt obligations when arise.
P/E Ratio – The P/E ratio stands for price to earning ratio which measures the current
share price in relation with its earning per share or per share earnings. With the help of this ratio,
investor can easily evaluate whether they had made correct investment decision by observing the
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growth or per share value. From the above the table it can be interpreted that slow growth takes
place in the P/E ratio of firm.
Earnings per Share – The earning per share of company defines the proportion of the
profit of company which has been used for allocating to each share. It determines how much the
share is earning profit with changes in the market trends. Bellway Plc is having increasing trend
of Earning per share from 3.28 to 4.22 from the year 2016 to 2018. This increase in the per share
earnings depicts that company is earning more profit and business is growing and achieving
success.
3. Discussing the performance of listed company with its competitor with the help of Common
size statement.
Common size analysis
Income statement
Bellway PLC
Particulars 2016
% of
2016 2017
% of
2017 2018
% of
2018
Revenue 2,241 100.0% 2,559 100.0% 2,958 100.0%
Cost of revenue 1,666 74.3% 1,897 74.1% 2,204 74.5%
Gross profit 575 25.7% 662 25.9% 753 25.5%
Sales, General and adm... 83 3.7% 90 3.5% 101 3.4%
Other operating expens... 0 0.0% 0 0.0% 0 0.0%
Total operating expens... 83 3.7% 90 3.5% 101 3.4%
Operating income 492 22.0% 572 22.4% 653 22.1%
Interest Expense 12 0.5% 12 0.5% 14 0.5%
Other income (expense) 18 0.8% 2 0.1% 2 0.1%
Income before taxes 498 22.2% 561 21.9% 641 21.7%
Provision for income t... 95 4.2% 107 4.2% 121 4.1%
Net income 403 18.0% 454 17.7% 520 17.6%
(Source: Financial statements of Bellway Plc, 2018)
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Redrow Plc
Particulars 2016
% of
2016 2017
% of
2017 2018
% of
2018
Revenue 1,382 100.0% 1,660 100.0% 1,920 100.0%
Cost of revenue 1,048 75.8% 1,255 75.6% 1,451 75.6%
Gross profit 334 24.2% 405 24.4% 469 24.4%
Sales, General and adm... 73 5.3% 83 5.0% 87 4.5%
Operating income 261 18.9% 322 19.4% 382 19.9%
Interest Expense 14 1.0% 12 0.7% 10 0.5%
Other income (expense) 3 0.2% 5 0.3% 8 0.4%
Income before taxes 250 18.1% 315 19.0% 380 19.8%
Provision for income t... 50 3.6% 62 3.7% 72 3.8%
Net income 200 14.5% 253 15.2% 308 16.0%
Bellway PLC: Balance sheet
Particulars 2016
% of
2016 2017
% of
2017 2018
% of
2018
Assets
Current assets
Cash and cash equivale... 59 2.17% 46 1.46% 99 2.79%
Receivables 24 0.88% 34 1.08% 39 1.10%
Inventories 2,548 93.64% 2,968 94.31% 3,272 92.33%
Other current assets 56 2.06% 51 1.62% 75 2.12%
Total current assets 2,687 98.75% 3,099 98.47% 3,486 98.36%
Non-current assets 0.00% 0.00% 0.00%
Gross property, plant ... 29 1.07% 23 0.73% 25 0.71%
Accumulated Depreciati... -14 -0.51% -12 -0.38% -12 -0.34%
Net property, plant an... 15 0.55% 11 0.35% 13 0.37%
Deferred income taxes 2 0.07% 2 0.06% 1 0.03%
Prepaid pension benefi... 0 0.00% 0 0.00% 1 0.03%
Other long-term assets 16 0.59% 34 1.08% 43 1.21%
Total non-current asse... 33 1.21% 48 1.53% 59 1.66%
Total assets 2,721 100.00
% 3,147 100.00
% 3,544 100.00
%
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Liabilities
Current liabilities
Short-term debt 33 30 0
Accounts payable 438 528 586
Taxes payable 55 64 69
Other current liabilit... 233 216 247
Total current liabilit... 758 838 903
Non-current liabilitie...
Deferred taxes liabili... 0 0.0% 1 0.03% 3 0.08%
Accrued liabilities 0 0.0% 0 0.00% 0 0.00%
Pensions and other ben... 8 0.3% 4 0.13% 0 0.00%
Minority interest 0 0.0% 0 0.00% 0 0.00%
Other long-term liabil... 88 3.2% 114 3.62% 82 2.31%
Total non-current liab... 96 3.5% 118 3.75% 85 2.40%
Total liabilities 854 31.4% 956 30.38% 987 27.85%
Stockholders' equity 0.0% 0.00% 0.00%
Common stock 15 0.6% 15 0.48% 15 0.42%
Additional paid-in cap.. 190 7.0% 191 6.07% 194 5.47%
Retained earnings 1,660 61.0% 1,983 63.01% 2,347 66.22%
Accumulated other comp... 1 0.0% 1 0.03% 1 0.03%
Total stockholders' eq... 1,867 68.6% 2,191 69.62% 2,557 72.15%
Total liabilities and ... 2,721 100.0% 3,147 100.00
% 3,544 100.00
%
Redrow plc: Balance sheet analysis
Particulars 2016
% of
2016 2017 % of 2017 2018
% of
2018
Assets
Total Current assets 2,687 98.8% 3,099 98.47% 3,486 98.4%
Total non-current assets. 33 1.2% 48 1.53% 59 1.7%
Total assets 2,721 100.0% 3,147 100.00% 3,544 100.0%
Liabilities and
stockholders’ equity
Total current liabilities 758 88.8% 838 87.66% 903 91.5%
Total non-current
liabilities 96 11.2% 118 12.34% 85 8.6%
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Total liabilities 854 100.0% 956 100.00% 987 100.0%
When the comparison between Bellway Plc and Redrow plc is made, it has been
concluded that:
1. Cost of revenue for both the companies is having stability from last 3 years and is not
much fluctuated which means that companies are not having much cost expenditure in
conducting its sales.
2. The Net income of Redrow Plc is increasing from 14.5% to 16% in 3 years which
indicates that company is having more profit after meeting it's all deductions related to
the interest payment, tax expenses and other operating expenses. Whereas the net income
of Bellway Plc for last 3 year is having a fluctuating change in it.
3. The current asset and current liabilities is increasing in both the company which means
both the companies will have better liquidity measures.
4. Also, the short term debt of Bellway plc has come to 0 in the year 2018 which shows that
company is having zero leverage in its capital.
CONCLUSION
On basis of above report it had been concluded that accounting and finance plays major
role in corporate scenario whether it is big, large or medium. It has shown critical understanding
of Bellway's aims and objective for past three years as they have defined approach to attain
business goals in ethical aspect and benefited the people it works, environment in which it
operates and communities to develop along with stakeholders they serve. It had reflected to
improve standards with aim to ensure about development this creates sustainable new
communities and environment where it enhances and operate. Moreover, there is development of
employees via training and education and in same series, economic, social and environmental
risk are determined along with mitigation as well. Therefore, there is development of sustainable
practice which is promoted and developed as it is directly reflected in increment in there revenue
with high proportion.
It has also shown that organization faced issues with shortage in housing of UK along
with buoyant demand for starter home and brisk trading at housebuilder Bellway. In every year,
there is planned strategy as in 2016, there aim was to enhance and expand geographic coverage
via opening new divisions with conurbation of high demands and invest in operation division. In
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the same series, in year 2017 it aimed to ensure plots owned and unconditionally contracted and
increase in strategic option sites to complement other sites of land bank. However, in 2018 it
maintained current disciplined growth strategy of strong demand of customer and market
conditions.
While analysing ratios, profitability is acceptable as it is similar to constant over past
three years and liquidity is more than idle ratio. So, in this context it must appropriately utilise
the current assets as to balance quick ratio as well. Simultaneously, gearing shows that it has 0
debt so in this context it must develop proper balance on debt equity to mitigate risk. With
context to comparative financial statements from its competitors Redrow plc cost of revenue has
stability from last 3 years and fluctuates which means that organization does not have huge cost
expenditure to conduct sales. Thus, short term debt has become nil in 2018 which reflects about
zero leverage in capital.
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