SBLC5005: Financial Analysis Report on John Lewis of Hungerford PLC

This report provides a comprehensive financial analysis of John Lewis of Hungerford PLC, evaluating its performance from 2014 to 2018. The analysis utilizes various financial ratios, including profitability (net profit margin, return on equity), liquidity (current ratio, quick ratio), efficiency, and solvency (debt-to-equity ratio, times interest earned). The report examines trends in these ratios to assess the company's financial health and working capital management. Furthermore, the report considers the stock market performance of the company's shares. The analysis incorporates theoretical frameworks, practical applications of ratio calculations, and a detailed assessment of the company's financial statements, including income statements, cash flow statements, and balance sheets. The report concludes with an assessment of the company's overall financial position, providing insights for potential investors and stakeholders. This report offers valuable insights into the company's financial strengths and weaknesses over the period, providing a detailed understanding of its performance.

Running head: REPORT 1
ACCOUNTING FINANCIAL ANALYSIS REPORT
Student details:
12/25/2018

REPORT 2
Introduction
The accounting regulating organisations of various nations cast a duty of the management of the
company to make and state the financial statements of the company, which show the true and fair
sight of affairs of the corporation. The fair and transparent representation assists the stakeholders
and experts to arrive at meaningful business and other decisions. This report has been made to
evaluate financial performance of John Lewis of Hungerford PLC. The assessment of financial
performance is critical for the stockholder as it assists them to select the great protection from the
marketplace. The economic performance of the corporation can be influenced by numerous inner
factors and outer factors. It is required by the investors to look above inner elements and outer
elements before creating the long-term venture in corporation. In lieu of the internal
examination, entity can assess final statements of corporation and the annual report of
corporation. For external factors, entity can assess report of industries or relate company’s act in
any other entity that is also making performance under the similar industry.
The report will make use of the various ratios to evaluate the financial performance of company
over the time of five years such as the financial years starting from year 2014 to 2018. This
report is further targeted at evaluating the trends in the stock market of the share prices of the
said corporation. This would be followed by the conclusion as to whether it is vital to invest in
the entity based on the wealth of the entity.
Company overview
The company was incorporated in year 1977. The company is based in Wantage, the United
Kingdom. John Lewis of Hungerford PLC creates, produces, trades, and fits bedroom, kitchen,
freestanding furniture, and architectural elements in the UK. The company runs the direct mail
order business in the name of Just Doors to replace the kitchen cabinet door. It trades and sells
the goods by the showrooms in addition to online.
Analysis of Financial Statements: Theoretical Framework
As prescribed in US GAAP framework made by the controllers, financial statements are made
with the purpose to serve the numerous shareholders. It is required further be reported that the
statements should be in the comparative layout to assess the financial performance of the
company in the detailed way. Additionally, it is important to analyse that, as there are various
shareholders, there is no particular objective for the research and representation of the financial
statement of the entity. It means that financial statement serves as the foundation for the various
decisions like lending, purchasing, and controlling and various more (Mazow, 2016). While the
investors are keen to know the complete financial wealth of the corporation, the controllers have
the main purpose of making sure that the financial statements comply with the needs of the
corporate governance and applicable accounting structure. In this way, in order to take the

REPORT 3
decisions, the shareholders should assess the financial statements in respect of the essential
requirements. Further, the financial statements render the competitive study of the financial
performance in respect of the performance of the competitors belonging to the similar company
(Alexander, 2016).
There have been prescribed a number of tools for evaluating the financial vivacity of the
company. These tools are useful for the relevant and specific data from financial statements and
marketplace in respect of the company. These significant tools are the ratio analysis. The
comparative ratio analysis helps the person to achieve an insight regarding the profitability,
efficiency, liquidity, and solvency positions of the company. These ratios are very useful when
compared with the company average and the relative data of the competitor. Additionally, the
ratios help in further trend analysis and therefore complete financial vitality of the company may
be evaluated (Kohli, 2018).
The other way of assessing the latest performance and the worth of the company is by making
use of the price of stock, as resulting from the live market or the stock exchange where the shares
of the public company are traded. This is important to note that the evaluation of the price of
stock in the light of the historical performance of an enterprise would yield limited results. The
said evaluation must be done in conjunction with future prospects of the entity and the latest
information regarding the present agreements entered into by the corporation. An industry
evaluation should also be shared. The evaluation on the above lines would provide the close at
the inclusive level of the company’s position. For that reason, the shareholders may do
investment and the authoritarian decisions (Shaxson and Christensen, 2016).
Analysis of Financial Statements: Practical Application
Calculation of ratios:
The ratios analysis is to assess financial entity’s performance in respect of the various bases like
profitability, working capital management, capital structure and stock market performance. The
ratio analysis provides the brief concept to the investors in respect of the financial performance
and place of the corporation (Van Horne and Wachowicz, 2008). Additionally, with the help of
the ratio analysis past year data could also be compared from the data of latest year as well as the
ratio analysis data can be compared to the company data to assess financial presentation and the
effectiveness of corporation. The study of ratio analysis has made over the corporations. The
calculation of ratios are provided in the appendix (Shapiro, 2008). The net profit and margin and
return on equity depict in respect of the profitability position of the corporation. The average
receivable collection period, return on equity, total asset turnover, times interest earned ratio,
return on total assets etc. show regarding competence position of the entity (Morningstar, 2017).
Furthermore, the debt ratio and earnings yield show regarding the solvency situation of
corporation.

REPORT 4
Analyze financial performance:
The financial performance of the corporation can be assess by evaluating over final financial
statements of corporation, in this report, final financial statements which are income statement,
cash flow statement, balance sheet have assessed of John Lewis of Hungerford PLC (Brammer,
Brooks and Pavelin, 2016). The final financial data of John Lewis of Hungerford PLC has
assessed to examine presentation of corporation in respect of numerous financial data. The
assessment over financial analysis of corporation is as follows:
Profitability
The profitability position of the company could be primarily evaluated with the help of two
major ratios. These two major ratios are the return on equity and the net margin ratio (net profit
ratio). Even as the net profit ratio is measured as the percentage of profit to the revenue of the
company, the return on equity is calculated as the percentage of profit on the company’s total
shareholders. As per the calculation, net margins have been consistently falling since the year
2013. While the net profit margin for the year 2013 was 2.21 percent, it fell down to .60 percent
in the year 2014, -1.78 percent in year 2015, and – 4.89% in year 2016. Further, in year 2017 net
profit margin was increased. It was 1.28% in year 2017. However, it is significant to note that the
net margin in the year 2013 are extraordinary high. The amount for the same had accounted for
about £ 144,845 in the year 2013. The effect of the high net margin in the year is evident in the
return on equity as well. Otherwise, the return on equity for the shareholders has remained more
or less the same in the years 2013 to 2017. The flat trend depicts the no change in the structure of
the equity as well as the operating structure of the company (Bartram, Brown and Fehle, 2009).
Liquidity or the Working Capital Management
The liquidity position of the company is one of the most basic features of the business. It renders
the insight of the capacity of the business to pay off the short term business debts. The current
ratio and the quick ratios are considered as the prime ratios to assess the liquidity situation of the
company. The comparative position of the liquidity of the John Lewis Hungerford PLC has been
stated as below, with the help of the information and data relating to the previous five years
(Stickney, et. al, 2009).
The financial information and data of the company state the comparatives for five years, the data
of which is given in the appendix below. The cash and cash equivalents, amounting to around £
1502802, own the major portion of the current assets of the year 2017 for the company John
Lewis Hungerford PLC . The cash and the cash equivalents of the year 2017 are more than that
of the year 2016, depicting the good liquidity position of the company (Anderson, et. al, 2015).
Additionally, the other current assets are at the good situation than the last years, together

REPORT 5
leading to the increase in the overall current assets of the enterprise and the current ratio.
Another major contributory towards the good current ratio in the year 2017 is the reduction in the
amount of the short-term debt. The quick ratio changes are at the same velocity as that of the
current ratio change because of the constancy in the amount of the inventories over the period, as
showed in the data in the appendix (Robinson, et. al, 2015).
Efficiency
The efficiency ratio assesses the capacity of the company to create use of the numerous assets
and capital. The efficiency ratios make use of the comparison of the assets own by the company
with that of the revenues or the margin performance. In this way, these groups of ratios notify the
investors regarding the capacity of the company to utilise what it has possessed to make the most
profit possible for owner and stakeholders. There are the many types of the efficiency ratios like
the asset turnover ratio, the inventory turnover ratio, fixed asset turnover ratio, and more. The
ratios are showed in either number of times, or the number of days (Brigham and Houston,
2012).
The inventory days means the average number of days, goods or the inventory stay before being
traded by company. In this way, the low ratio states that the corporation is quickly changing the
inventory into the sale. The company John Lewis Hungerford PLC has been showing the
consistent low inventory holding days. The reason is that the nature of the inventory is included.
Likewise, the accounts receivable days refers to the number of days a bill was due before being
taken form the company’s debtors (Fridson and Alvarez, 2011). The data of efficiency as
depicted above showed the decreasing trend until the year 2016, with the increment for the year
2017. The change is attributed to a marginal increase in sale with a more change in the receivable
outstanding (Gunn, 2016).
Solvency
The long-term shareholders like the owners, government lenders, personal lenders, controllers
and even the societies are keen to have the knowledge of the solvency feature of the business
from long term vivacity from point of view of company. The two key ratios that drop the light on
structure of debt and the influence of the similar in the company are the debt equity ratio and
Interest Times ratio. The debt equity ratio is very useful for the evaluation of the financial
leverage of company. This is also known as the gearing ratio. The data as states in the appendix
regarding the corporation in problem state that there is the almost enhancing trend in debt equity
ratio for company since year 2013 (Fletcher and Growing, 2018). Generally, the high debt-to-
equity ratio shows that the corporation cannot be capable to make enough cash to satisfy
its debt obligations. An evidence that the entity is reducing its dependence over the debt for
running the business of the company. The year 2017 shows the increment in the entity’s other

REPORT 6
liabilities. On the lines of the same, it should be noted that the interest time’s ratio has not been
changed from the financial year 2013 to the financial year 2017 (Fabozzi and Drake, 2009).
Stock market performance
The most common approach to evaluating the stock market performance of the company is to
calculate the dividend yield. The dividend yield is financial ratio, which assesses quantum of
cash dividends paid to stakeholders comparative to market value per share. The Corporations
allocate the part of the margins or profits as the dividends, as retaining the remaining part to
invest again in the business of the company. The dividends are paid out to the stakeholders of the
corporation. The dividend yield evaluates quantum of income by the manner of total dividends,
which investors create by making investment in entity. This is generally stated as the %. John
Lewis of Hungerford PLC had not paid dividend in any year so the dividend yield of the
company is zero.
Conclusion
As per the above discussion in the previous parts, it can be concluded that the preparation and the
representation of the financial statements creates the key part of the businesses. These are
important not only in respect of the fair presentation of the dealings and actions to the numerous
stakeholders, but also creates the company liable towards the controllers of the accounting and
the compliance regulations. It should further be noted that the evaluation of these financial
statements help the shareholders in getting the important data regarding the business venture on
the line of investments, financial wealth and the general competitiveness in the industry to which
the company belongs. The report was an attempt to assess the financial information of company
John Lewis of Hungerford PLC which is a popular name in the courier and postal service
industry. The ratio analysis technique was adopted for the evaluation. These various ratios
provided the insight of the numerous aspects like the capital structure, the efficiency of the
utilisation of the assets, the capacity to pay off the debt and various more. Additionally, the brief
assessment of the market vitals was done. In this way, it can be showed that the financial
analysis serves the various objectives or the purposes for various shareholders (Ocal, et. al,
2007).

REPORT 7
References
Alexander, A. L. (2016) The commercial functions of a trade mark, unconventional trade marks
and modern technology. Fields: journal of Huddersfield student research, 2(1), p. e20.
Anderson, J., Cavanagh, D., Charity, T., Cooper, L., McKay, G.M., Martin, G., Martin, P.,
Mueller, A., O’Connell, S., Staunton, F.S. and Thomson, G. (2015) Feedback returns next
month... Marketing, 20(3148), p. 3636.

REPORT 8
Bartram, S. M., Brown, G. W., and Fehle, F. R. (2009) International evidence on financial
derivatives usage. Financial management, 38(1), pp. 185-206.
Brammer, S., Brooks, C., and Pavelin, S. (2016) Corporate social performance and stock
returns: UK evidence from disaggregate measures. Financial management, 35(3), pp. 97-116.
Brigham, E. F., and Houston, J. F. (2012) Fundamentals of financial management. USA:
Cengage Learning.
Fabozzi, F.J., and Drake, P.P. (2009) Finance: Capital Markets, Financial Management, and
Investment Management. UK: John Wiley & Sons.
Fletcher, J., and Growing, D. (2018) Effective writing for accountants, The Institute of Chartered
Accountants in England and Wales, London. . UK: John Wiley & Sons.
Fridson, M. S., and Alvarez, F. (2011) Financial statement analysis: a practitioner's guide (Vol.
597). UK: John Wiley & Sons.
Gunn, S. (2016) Henry VII's New Men and the Making of Tudor England. Oxford: Oxford
University Press.
Kohli, R. (2018) Foreign Corrupt Practices Act. Am. Crim. L. Rev., 55, p. 1269.
Mazow, L.G. (2016) Edward Hopper, Hotel Management, and the Work of Art. Design and
Culture, 8(1), pp. 7-25.
Öcal, M. E., Oral, E. L., Erdis, E., and Vural, G. (2007) Industry financial ratios—application of
factor analysis in Turkish construction industry. Building and Environment, 42(1), pp. 385-392.
Robinson, T.R., Henry, E., Pirie, W.L., and Broihahn, M.A. (2015) International Financial
Statement Analysis Workbook. UK: John Wiley & Sons.
Shapiro, A. C. (2008) Multinational financial management. UK: John Wiley & Sons.
Shaxson, N., and Christensen, J. (2016) Tax competitiveness–A dangerous obsession. Global tax
fairness, p. 265.
Stickney, C.P., Weil, R.L., Schipper, K., and Francis, J. (2009) Financial Accounting: An
Introduction to Concepts, Methods and Uses. Boston MA: Cengage Learning.
Van Horne, J. C., and Wachowicz, J. M. (2008) Fundamentals of financial management.
London: Pearson Education.

REPORT 9
Appendix
Financial
Data
Description John Lewis of Hungerford PLC
2013 2014 2015 2016 2017
Revenue 6,557,481.00
7,416,441.0
0
7,798,821.0
0
8,180,135.0
0
8,314,976.0
0
Cost of goods
sold 3,103,122.00
3,530,279.0
0
3,744,065.0
0
4,113,599.0
0
4,109,576.0
0
Gross profit 3,454,359.00
3,886,162.0
0
4,054,756.0
0
4,066,536.0
0
4,205,400.0
0
Operating
profit 195,616.00 94,171.00
-
102,068.00
-
182,180.00 148,695.00
Net profit 144,845.00 44,363.00
-
138,551.00
-
400,404.00 106,279.00
Inventory 192,320.00 183,111.00 190,209.00 212,414.00 177,837.00
Current assets 1,608,330.00
1,966,977.0
0
1,703,204.0
0
1,681,587.0
0
2,077,523.0
0
Receivables 58,886.00 17,680.00 10,368.00 6,820.00 251,840.00
Current
liabilities 1,523,363.00
1,904,585.0
0
1,906,564.0
0
2,182,368.0
0
2,297,437.0
0
Payables 453,625.00 526,148.00 636,260.00 628,690.00 588,288.00
Equity 2,022,490.00
2,109,992.0
0
1,928,302.0
0
1,527,898.0
0
1,552,299.0
0
Total
liabilities 2,053,983.00
2,712,922.0
0
2,708,326.0
0
2,875,380.0
0
3,017,106.0
0
Total assets 4,076,473.00
4,822,914.0
0
4,636,628.0
0
4,403,278.0
0
4,569,405.0
0
Interest
Expenses 32,656.00 36,895.00 53,958.00 33,693.00 41,490.00
Description Formula
2013 2014 2015 2016 2017
Profitability
Net margin Net profit/revenues 2.21% 0.60% -1.78% -4.89% 1.28%
Return on equity Net profit/Equity 7.16% 2.10% -7.19%
-
26.21
% 6.85%
Liquidity
Current ratio Current assets/current liabilities 1.06 1.03 0.89 0.77 0.9
Quick Ratio
Current assets-Inventory/current
liabilities 0.93 0.94 0.79 0.67 0.83

REPORT 10
Efficiency
Average receivables
collection period Receivables/ Total sales*365 3.28 0.87 0.49 0.3 11.05
Times interest earned ratio EBIT/ Interest expenses -0.02 -0.02 -0.02 -0.02 -0.02
Asset turnover ratio Total sales/ Total assets 1.61 1.54 1.68 1.86 1.82
Return on total assets EBIT/ Net assets
0.047986
6
0.01952574
7
-
0.02201
3
-
0.0413
7
0.03254
1
Solvency
Debt to Equity Ratio Debt/ Equity 1.02 1.29 1.4 1.88 1.94
debt to total assets ratio Debt/ total assets 0.5 0.56 0.58 0.65 0.66
Stock market performance
dividend yield market price per share/ DPS 0 0 0 0 0