Financial Accounting Report: JD Wetherspoon and Marston's PLC Analysis

This report provides a comparative financial accounting analysis of Wetherspoon JD and Marston's PLC. The introduction defines financial accounting and financial reporting, highlighting their importance in understanding a company's financial position. Task 1 compares the companies based on ordinary and preference shares, redeemable and non-redeemable bonds, and statutory and non-statutory reserves. Task 2 delves into ratio analysis, examining working capital ratios (debtor and creditor turnover), liquidity ratios (current and acid test), profitability ratios (return on capital employed and net profit), and investor ratios (dividend pay-out and earnings per share). The analysis uses data from the companies' annual reports to assess their financial performance and efficiency, providing a detailed overview of their financial health and investment potential.

Financial Accounting
and
Reporting

Table of Contents
INTRODUCTION..............................................................................................................3
TASK 1.............................................................................................................................3
Compare and contrast the following in relation to limited liability company:.................3
TASK 2.............................................................................................................................5
Ratio Analysis:..............................................................................................................5
CONCLUSION............................................................................................................... 11
REFERENCES...............................................................................................................13

INTRODUCTION
The process of summarizing and recording of transactions which takes place in
the business is known as the financial accounting. After recording of these transaction
the transactions are summarized in the form of the income statements, balance sheet
and cash flow systems, which shows the financial position of the company at the end of
every year. Financial reporting is the reporting of the financial transactions, after the
completion of the financial accounting the report is submitted to the top level
management (Ball, Jayaraman and Shivakumar, 2012). Top level management checks
the report to know the actual financial condition of the company. In this context this
report provides a comparison performance of two companies Wetherspoon JD and
Marston's PLC along with ratio analysis.
TASK 1
Compare and contrast the following in relation to limited liability company:
Comparison of two company's annual report provides a framework to take
appropriate decision for investors. Such deep comparison combines various methods
and criteria however most widely used method is ratio analysis. But in this report
comparison is made while covering different aspects including Ordinary shares and
preference shares, Redeemable and Non-Redeemable bonds and Statutory and Non-
statutory Reserve (Norwani, Zam and Chek, 2011). Selected companies are
Wetherspoon JD and Marston's PLC. Both companies are UK based pub and hotel
operators. Following are the various factors which helps to make comparison of these
companies:
Ordinary shares and preference shares: Ordinary shares are share which do not
encompasses any predetermined dividend benefits and preference shares are those
share which provide a preferential right to receive dividend.
In this context Wetherspoon JD has reported ordinary share of 105,501,000 @2p
i.e. £211.002 million where as Marston’s PLC 's ordinary shares are 660,400,000
@7.375p i.e. £4870.45 million comparison of ordinary shares of both companies
indicates that Marston’s PLC's net worth is more than of Wetherspoon JD in year 2018.

On other hand Marston’s preference share capital is .1 million and having 75000
preference shares in year 2018 whereas Wetherspoon JD has no preference shares.
Redeemable and Non-Redeemable Bonds: Redeemable bonds are kind of bonds that
can be paid off or towards which payment is made by issuer before the date of maturity
of bonds. Where as non-redeemable bonds are just opposite to redeemable bonds in
which payment is made by issuer after the date of maturity, generally it is considered as
unattractive proposal. Both company has not reported any Redeemable and Non-
Redeemable Bonds in their financial statement so comparison is not possible (Brown,
2011).
Statutory and Non-statutory Reserve: Statutory reserves are state controlled reserve
prerequisites. For example insurance agencies require to hold a part of their various
assets as either as cash or cash equivalents. These are sum of high liquid resources
that organizations are required to hold to survive. Whereas non statutory reserves are
those reserves that are self created by organisations to met any future obligation. Non
statutory reserves includes general reserve, Capital redemption reserve, hedging
reserve, securities premium reserve etc. Following are the various Statutory and Non-
statutory Reserve of both companies, as follows:
Wetherspoon JD
2018 2017
Share premium account 143.294 143.294
Capital redemption reserve 2.321 2.251
Hedging reserve (200.10) (322.84)
Currency translation reserve 4.767 4.899
(Source: Annual Report of JD Wetherspoon Plc, 2018)
Marston's PLC
2018 2017
Share premium account 334.0 334.0
Revaluation reserve 627.2 624.2
Merger reserve 23.7 71.2

Capital redemption reserve 6.8 6.8
Hedging reserve (118.1) (127.2)
(Source: Annual Report of Marston, 2018)
Wetherspoon JD has no statutory reserve but having Share premium account
Capital redemption reserve, Hedging reserve and Currency translation reserve. On
other hand Marston's PLC has non statutory reserves: Share premium
account,Revaluation reserve, Capital redemption reserve, Hedging reserve and Merger
reserve but no statutory reserve. Overall reserves of Marston's PLC is more than as
compare to reserves amount of Wetherspoon.
TASK 2
Ratio Analysis:
I. Working Capitals Ratios: Working capital ratios are used to asses liquidity position
of a business organisation and its efficiency to pay liabilities and obligation. These ratio
are mainly concerned with organisation's current assets and current liabilities by
showing relative proportion between them to measure ability of organisation with
regards to payment of current obligations and liabilities using current assets (Glancy
and Yadav, 2011). Following are the major working capital ratios in the context of
selected companies:
(a) Debtors Turn over: This ratio point out towards company's efficiency to receive or
collect amount from debtors or trade receivables. Higher ratio indicates that company is
efficient to collect amount of trade receivables.
Marston's PLC Wetherspoon JD
2016 2017 2018 2016 2017 2018
Debtor turnover ratio 22.78 18.4 16.83 186.16 200.56 211.52
Marston's PLC has debtor turnover ratio of 16.83 where as Wetherspoon JD 's
debtor turnover ratio is 211.52 which indicates that company is efficiency to collect
amount from debtor is poor.
(b) Creditors Turn over: It is also known as account payable turnover ratio which
simply provides average number of times company takes to pay its creditors or trade

payable. It exhibits average duration an organisation take to pay its creditors and a
higher ratio indicates that company is not able to pay its creditors on timely basis.
Marston's PLC Wetherspoon JD
2016 2017 2018 2016 2017 2018
Creditor turnover ratio 64.15 97.3 63.92 34.34 36.74 40.74
Marston's PLC has creditor turnover ratio of 63.92 days where as Wetherspoon
JD 40.74 days in year 2018. Which indicates that Wetherspoon JD has better creditor
turnover ratio.
II. Liquidity Ratios: These ratios point out towards company's efficiency to meet its
current liabilities and obligations using their current assets. It clearly indicates
company's liquidity position. Most widely used liquidity ratio are current ratio and acid
test ratio that assist in analysing liquidity position of business organisation effectively
(Kaya and Koch, 2015).
(a) Current Ratio: It is most popular liquidity ratio that provides a measure to analyse
an organisation's efficiency with regards to use of its current assets to meet its current
liabilities or obligation. A perfect ideal current ratio is 2:1 and ratio below ideal ratio is
considered as unfavourable which means that an entity's current assets should be
minimum two times of its current liabilities.
Marston's PLC Wetherspoon JD
2016 2017 2018 2016 2017 2018
Current Ratio 0.72 0.73 0.7 0.28 0.27 0.35

Marston's PLC:
Current ratio
0.68
0.69
0.7
0.71
0.72
0.73
0.74
2016
2017
2018

Wetherspoon JD
Current ratio of Marston's PLC is .70 and of Wetherspoon JD is .35 in the year
2018. Both of these companies have current ratio below the standard but Wetherspoon
JD has reported an improvement in current ratio where as Marston's PLC 's current ratio
is decreased over three-year.
(b) Acid Test Quick ratio: It is also known as quick asset ratio and almost similar to
current ratio however it provide more clarity about organisation's liquidity position. While
calculating quick assets or highly liquid assets are considered which enhance its
importance (Laux, 2012). Quick assets includes trade receivables, marketable
securities, cash or cash equivalents but excludes inventories amount. 1:1 is a standard
or ideal ratio. Ratio below this indicates that company's inefficient to pay its current
obligations using its quick assets.
Marston's PLC Wetherspoon JD
2016 2017 2018 2016 2017 2018
Acid Test Ratio 0.65 0.37 0.33 0.12 0.15 0.21
Current ratio
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
2016
2017
2018

Marston's PLC
Wetherspoon JD
Acid Test Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2016
2017
2018
Acid Test Ratio
0
0.05
0.1
0.15
0.2
0.25
2016
2017
2018

Marston's PLC and Wetherspoon JD has reported quick asset ratio of .33 and .21
respectively, which is lower than ideal ratio. However Wetherspoon JD's acid test ratio
is improved during three year.
III. Profitability ratios:These ratio are helps to evaluate company's efficiency to provide
income during an accounting or financial year. These ratio exhibits overall profitability
situation and financial performance of a company (Li and Yang, 2015). Following are
the key profitability ratios that represents a comparison of performance of selected
companies:
(a) Return on Capital employ ROCE: it is most considered and appropriate ratio to
measure viability of company in terms of return or profits. This ratio helps to assess an
organisation's efficiency to provide return on capital engaged in business. It simply
describes how much someone earn on capital invested in company. Higher ratio points
out that company is more efferent to provide rerun on funds invested in it.
Marston's PLC Wetherspoon JD
2016 2017 2018 2016 2017 2018
Return on Capital Employ 6.06 6.35 4.51 8.6 7.99 8.59
From above table it is clear that Wetherspoon JD with ROCE of 8.59% is better
and more efficient to provide return on its capital as compare to ROCE of 4.51% of
Marston's PLC in year 2018.
Marston's PLC
Return on Capital Employed
0
1
2
3
4
5
6
7
2016
2017
2018

Wetherspoon JD
(b) Net profit Ratio: This ratio simply defines profit earning capacity of company. This
ratio is used to measure a business organisation's efficiency to generate net income
after providing of all expenses during a specific period. All companies try to maximise
this ratio to achieve growth and expand their business (Mohd Nasir, 2012).
Marston's PLC Wetherspoon JD
2016 2017 2018 2016 2017 2018
Net Profit Ratio 7.79 8.38 3.94 3.21 3.38 3.94
In 2018 net profit ratio of both Marston's PLC and Wetherspoon JD is same i.e.
3.94% . But notable thing is their overall positive or negative growth. Marston's PLC has
reported negative growth in net profit where as Wetherspoon JD's net profit is increased
slightly during three year. So overall profitability condition of Wetherspoon JD is batter
as compare to Marston's PLC.
IV Investor Ratio: These ratios helps to analyse efficiency of a company to generate
income or return for its stakeholders or investors. These are major ratios that are
primarily considered by investor and stakeholders while taking any investment decision.
Return on Capital Employed
7.6
7.8
8
8.2
8.4
8.6
8.8
2016
2017
2018

These are some significant investor ratios used by stakeholders, owners and
shareholder, as follows:
(a) Dividend pay ratio: It is a the proportion of the aggregate sum of profits paid out to
investors with respect to the net gain of the organization. It is the level of profit paid to
investors in profits. The sum that isn't paid to investors is held by the organization to
satisfy obligation or to reinvest in key activities. This ratio point out towards how a lot of
cash an organization is returning to investors versus the amount it is retain or keeping
available to reinvest in achieving targets, pay off obligation, or transfer to reserves. It
can be determined as the yearly profit per share partitioned or divided by the profit per
share, or equally, the profits are separated by overall gain (Norwani, Zam and Chek,
2011).
Marston's PLC Wetherspoon JD
2016 2017 2018 2016 2017 2018
Dividend pay ratio 7.3 7.5 7.5 43.4 50.4 63.2
Marston's PLC has reported dividend payout ratio £ 7.5 in 2018 and
Wetherspoon JD has reported reported dividend payout ratio £63.2 in 2018 which
describes that Wetherspoon has a better dividend pay ratio as compare to Marston's
PLC.
(b) Earning per share: It is the part of an organization's benefit apportioned to each
share of ordinary share capital or common stock. EPS point out towards an
organisation's profitability also. Usually for an organization to report EPS that is
provided after adjustment of remarkable extraordinary things and dilution in potential
share.
Marston's PLC Wetherspoon JD
2016 2017 2018 2016 2017 2018
Earning per share 13.9 14.2 13.9 43.4 50.4 63.2
Wetherspoon JD with EPS of £ 63.2 in year 2018 is better than EPS of Marston's
PLC i.e. £ 13.9. Wetherspoon is more efficient to provide earning per share to its
investors.

CONCLUSION
From the above report it can be concluded that the company should use the
financial accounting and reporting to check their financial positions. In above report it is
has been analysed that using the various ratios for comparison of two companies
provide a framework for assessment of their financial position. A systematic comparison
assist shareholder to take vital investment decision. It also helps organisations to
compare their performance with others and gain competitive advantages.