Comparative Financial Analysis: Redrow Plc and Bellway Plc Performance

This report presents a financial analysis of Redrow Plc and Bellway Plc, two prominent companies in the UK house building sector. The analysis employs a CORE approach, covering context, overview, ratio analysis, and evaluation. The report assesses the financial performance of both companies, using their 2017 and 2018 annual reports. It examines liquidity, profitability, solvency, efficiency, and market value ratios to determine their financial strengths and weaknesses. The analysis concludes with a recommendation for Persimmon Plc regarding a potential acquisition, suggesting Bellway Plc is the more favorable choice based on its superior performance in 2017. The report highlights key financial metrics such as turnover, operating profit, and net profit, along with SWOT analyses for both companies.

RUNNING HEAD: FINANCIAL AND MANAGEMENT ACCOUNTING
Financial accounting

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Case A: Redrow v Bellway
Executive summary
The report provides insights about the overall finanicla position of two companies operating in
the house building sector of United Kingdom. The report attempts the assessment of yearly
report of Redrow Plc for the year 2018 and Bellway Plc for the year 2017. It has applied a CORE
approach which covers the entire examination of both the organizations.
It starts with a concise introduction and later on clarifies the context of the case. The segment
incorporates the outline of both the organizations including their SWOT examination separately.
After that an overview of the case has been given which covers the issues saw amid the
examination. A ratio analysis has been led based on yearly reports gathered for both the
organizations and it has been assessed that Bellway Plc has performed well than Redrow Plc
amid the year 2017. Hence, it is recommended to Persimmon Plc that it should go with the
acquisition of Bellway over Redrow.

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Contents
Section A.....................................................................................................................................................4
Introduction.................................................................................................................................................4
Context........................................................................................................................................................4
Redrow Plc..............................................................................................................................................4
Bellway Plc.............................................................................................................................................6
Overview.....................................................................................................................................................8
Ratios..........................................................................................................................................................9
Liquidity ratios........................................................................................................................................9
Profitability ratios..................................................................................................................................10
Solvency ratios......................................................................................................................................12
Efficiency ratios....................................................................................................................................13
Market value ratios................................................................................................................................15
Evaluation.................................................................................................................................................16
Section B...................................................................................................................................................17
Case B1.....................................................................................................................................................17
Introduction...........................................................................................................................................17
Capital budgeting techniques.................................................................................................................18
Payback period..................................................................................................................................18
Net present value...............................................................................................................................19
Internal rate of return.........................................................................................................................20
Recommendation and Conclusion.........................................................................................................20
References.................................................................................................................................................22

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Section A
Introduction
Financial performance analysis is a strategy of assessing and measuring the perdormance and
position of the organization from each financial angle. It determines the strengths and
weaknesses of the firm by estimating the every last thing of income statement and balance sheet.
Monetary investigation can be performed by utilizing numerous methods, for example, ratio
analysis, horizontal and vertical analysis, trend analysis and others. The fundamental target of
leading the investigation is to assess the money related circumstances of the firm in order to
know about its solvency, profitability, liquidity and. The information is gathered from the
distributed yearly reports of the organization on its official site and is legitimately assessed for
taking suitable decisions (Gibson, 2011).
The report manages the monetary investigation of Redrow Plc and Bellway Plc for the year 2017
and 2018. It has embraced a CORE approach which gives context, overview, ratios and
evaluation of both the organizations' execution amid the years. The report features the issues
emerged which influenced the position and performance of the organizations in general. CORE
methodology gives the general blueprint of the analysis and is most appropriate for upgrading the
understanding of the reader.

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Context
Redrow Plc
It is the United Kingdom based organization occupied with the residential housing development.
The firm is one of the biggest British house manufacturers having 15 operational divisions across
the country. The core exercises of the organization include development of private houses all
through England and Wales. The product range is centred on the idea of conventional family
lodging in its local business. The properties possessed by Redrow include Heritage Collection,
Regent Collection, Abode Collection and Bespoke Collection. The organization is listed on
London Stock Exchange and is exchanged with a ticker RDW: LSE. The SWOT examination of
Redrow Plc is as per the following (FT.com. 2018).
Strengths
 Redrow Plc has a wide system of distribution which ensures that its items are effectively
open and accessible to its clients in auspicious way.
 The organization has constructed a solid dealer network by setting up a connection
between the dealer and distributer.
 Redrow has strong free cash flow position which empowers it to grow its business in new
markets.
Weaknesses
 The organization fizzled at confronting the difficulties given by new contestants in the
segment and should centre on enhancing the criticism component internally from the
sales team to counter the difficulties.

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 Despite making tremendous interest in Research and Development, Redrow can't contend
with the main players in the business on the part of advancement.
 The organization isn't great at foreseeing the demand for its products as contrast with its
rivals.
Opportunities
 Increase in purchaser spending and moderate growth rate gives a chance to Redrow to
expand its client base and piece of the pie.
 The advancement of market will lessen the contender's leeway and empower the
organization to enhance its intensity.
Threats
 One of the dangers to the organization is expanded rivalry in the market which can affect
the development of its benefits.
 New participants in the market are picking up pieces of the pie and are a risk to Redrow
as it can lose its clients to the new players.
Bellway Plc
It is a residential property designer in Uk which depends on Newcastle upon Tyne. The
organization deals in constructing and selling the homes having a range from one bed room lofts
to five rooms’ family homes. Likewise, it additionally gives social lodging to-lodging
affiliations. It works through 19 exchanging divisions including England, Manchester, Kent,
North London and numerous others. Different business contributions of the firm incorporate
electrical, kitchens, gardens, washrooms, flooring, fire encompass and fire, fired tiling and

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others. The organization is listed on London stock trade with a symbol BWY: LSE and was
established in 1946 (FT.com. 2018).
Strengths
 The organization has a solid distribution network. It has a wide system which enables the
firm to reach to the potential market effectively.
 It is has a strong base of dependable providers which empowers the organization to
conquer the supply chain bottlenecks.
 Bellway has a solid portfolio and is centred around building the equivalent in order to
extend its business.
Weaknesses
 It has confronted issues in moving to other product segments and has a constrained
accomplishment outside its centre business.
 The high current and quick ratio recommended that the firm could have utilized its
money and fluid assets more productively and viably.
 Not exceedingly good while converging with huge organizations and with the individuals
who have distinctive work culture.
Opportunities
 New inclines in consumer spending and conduct can bring about opening up new market
for Bellway Plc.
 Encouragement given by the legislature to manufacture more rapidly is required to
support growth.

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 Strong interest in housing market by the administration can make an open door for
Bellway to appreciate achievement and development in future (IBIS World. 2018).
Threats
 Price inflation and uncertain housing prices can have an adverse impact on the
company’s profits.
 Cut throat rivalry winning in the housing business can be a risk to the survival of Bellway
Plc.
 Entry of new players and utilization of trend setting innovations by the contender is
likewise a genuine risk to the organization.
Overview
The turnover of Bellway was higher than of Redrow amid the year 2017. Likewise, the operating
profit of the organization was higher alongside the cash flow from operations. The net benefit of
Bellway was £454 million which was higher than Redrow's benefit worth £253 million. In any
case, the firm should focus on paying off its obligation part in order to bring down the level of its
financial risk. Notwithstanding that, it needs to improve its liquidity position as a lot of cash in
hand can prompt some major issues in the business. Bellway needs to strategize legitimately to
make the best use of its fluid assets in setting of organization's development and achievement.
Overview Redrow Bellway
2017 2017
Turnover 1,235.0 2,191.30
Operating profit 322 571.55
Operating cash flow from 128 153.1

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activities
Profit for the year 253 454
Total debt 966.0 956
Ratios
It is a system used to quantify the money related information of the organization with the
assistance of its yearly reports. It assesses the things of money related explanations from every
last angle and gives bits of knowledge about the execution and position of the firm to
administration and investors (Bragg, 2012). The investigation considers the quantitative
information introduced in the yearly reports for the years. Money related proportion investigation
of Redrow Plc and Bellway Plc has been finished by utilizing the yearly report of 2017 and 2018.
Liquidity ratios
These measurements help in understanding the money related quality of the organization by
estimating its competency in satisfying its current budgetary commitments with its present
resources (Bragg, 2012).
 Current ratio: The underneath table demonstrates that the CR of both the organization
has expanded throughout the years. For Redrow, the proportion was 3.21 in 2017 which
expanded to 3.23 in 2018. Also, if there should be an occurrence of Bellway, the
proportion was 3.59 in 2016 that ended up being 3.76 in 2017. Both the organizations
have high proportions however relatively; Redrow Plc has bring down proportion than
Bellway. It very well may be deciphered that the liabilities of Redrow are less and
furthermore it has high measure of CA which improves it proportion. Notwithstanding,

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both the organizations has proportion more than the standard one which mirrored that
they don't use its assets effectively.
Redrow Bellway
Current ratio 2017 (£m) 2018 (£m) 2017 (£m) 2016(£m)
Current assets (A) 2140.0 2350.0 3,147.30 2,720.84
Current liabilities
(B) 666.0 727.0 837.60 757.61
CR (A/B) 3.21 3.23 3.76 3.59
 Quick Ratio: When assessed, it has been seen that the QR of Redrow and Bellway was
not exactly the perfect benchmark of 1:1. Redrow has low proportion of 0.15 in 2017
while on the opposite side Bellway announced a proportion of 0.21 amid that year. This
was because of the way that Bellway has nearly more fluid resources utilized for
reimbursing the liabilities.
Redrow Bellway
Quick ratio 2017 (£m) 2018 (£m) 2017 (£m) 2016(£m)
Quick Assets (A) 97.0 132.0
179.2
0 172.54
Current Liabilities
(B) 666.0 727.0
837.6
0 757.61
QR (A/B) 0.15 0.18 0.2 0.23

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1
Profitability ratios
These budgetary measurements are utilized for estimating the general gainfulness of the
organization. The proportions are especially helpful for the financial specialists as to settle on
reasonable choices with respect to their interest in a specific firm (Gibson, 2011).
 Net profit ratio: it tends to be seen that Bellway has high NPR as contrast with Redrow.
Amid 2017, the organization detailed a net edge of 17.74% while its rival Redrow
reflected NPR of 15.24%. Reason being, the firm has made high net benefits because of
the solid interest of new lodging the nation over.
Redrow Bellway
Net profit
margin 2017 (£m)
2018
(£m) 2017 (£m) 2016(£m)
Net profit (A) 253.0 308.0 454.00 385.50
Total revenue (B) 1,660.0 1,920.0 2,558.50 2,240.65
NPR (A/B) 15.24% 16.04% 17.74% 17.20%
 Return on Equity: Due to the solid base of benefits, Bellway has given exceptional
yields to its investors as contrast with Redrow Plc. It has been seen that the ROE of
Bellway was 20.86% in 2017 while amid that year, Redrow detailed the proportion of
19.92%. Nearly, the measure of value of Bellway was likewise more than its rival.

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Redrow Bellway
Return on equity 2017 (£m) 2018 (£m) 2017 (£m) 2016(£m)
Net income (A) 246.0 326.0 457.1 400.9
Shareholders' equity (B) 1,235.0 1,483.0 2,191.3 1,867.0
ROE (A/B) 19.92% 21.98% 20.86% 21.47%
 Return on capital employed: Due to high working benefit or profit before intrigue and
assessment, Bellway has high ROCE as contrast with Redrow in both the years. Be that
as it may, as contrast with 2016 the proportion has been decreased because of the upsurge
in Bellway's present liabilities. It shows that Bellway is more fit for making adequate
usage of its capital utilized in the business.
Redrow Bellway
Return on capital employed 2017 (£m) 2018 (£m) 2017 (£m) 2016(£m)
EBIT (A) 322.0 382.0 571.50 492.00
Capital employed (B) 1,535.0 1,680.0 2,309.7 1,963.2
ROCE (A/B) 20.98% 22.74% 24.74% 25.06%
Solvency ratios
They measure the long haul dissolvability of the organization by assessing its obligation and
value component. The measurements utilized aides in understanding the capital structure of the
firm and assessing the degree of monetary hazard taken by it (Godwin and Alderman, 2012).