Accounting and Financial Management: John Lewis Partnership Report

This report presents a comprehensive financial analysis of the John Lewis Partnership, a major player in the retail sector. It begins with an overview of the company's operations, including product management, supply chain, and quality control, alongside its strategic and operating policies such as IFRS 15 and IFRS 9, and how these impact financial analysis. The report then delves into the relevant economic and market context, followed by an identification of accounting quality issues that could affect the accuracy of financial statements, such as key figures, accounting policies, and annual report changes. Horizontal and trend analyses are conducted on the financial statements, along with a detailed ratio analysis to assess profitability, liquidity, and other key financial metrics. The report compares these ratios with industry data and critically analyzes the company's narrative reporting. Furthermore, the report explores an investment appraisal, evaluating the viability of a project based on financial and non-financial factors, its consistency with company strategy, and the economic environment. The report concludes with a recommendation regarding the project, supported by the preceding financial analyses.

Accounting and
Financial
Management

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
SECTION A: FINANCIAL ANALYSIS........................................................................................1
Outlining of operations and strategic and operating policies and consideration of the way in
which that may impact the financial analysis..............................................................................1
Discussion of the relevant economy, market or other contextual information............................2
Identification of accounting quality issues..................................................................................2
Horizontal and trend of the financial statements.........................................................................3
Ratio analysis of the financial statements....................................................................................4
Use of information provided in the notes to the accounts...........................................................7
Comparison of the ratios with industry wide data.......................................................................7
Critical analysis of the company’s own narrative reporting on its financial performance and
position........................................................................................................................................8
SECTION 2: INVESTMENT APPRAISAL...................................................................................9
1. Discussion of the viability of the project based on the financial information.........................9
2. Evaluation of non financial factors which may influence the decision to undertake the
investment....................................................................................................................................9
3. Consistency with the strategy of the company........................................................................9
4. Consideration of the economic environment.........................................................................10
5. Consideration of linkage with the financial analysis that have undertaken for Section A....10
6. Recommendation to the organisation regarding the project..................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
Books and Journals:...................................................................................................................12

INTRODUCTION
Accounting can be defined as the process of recording information of all the business
transactions in appropriate books so that actual spending and incomes could eb determined.
Financial management is the process of managing and maintaining performance of business by
formulating different statements (Arredondo, 2014). These are trading, P&L account, balance
sheet and cash flow statement. With the help of all of them, it could be determined that the
company is performing well or not. In order to determine profitability, liquidity etc, all of them
could also be used. If an organisation is not able to generate then then it may result in lack of
interest of investors and other stakeholders. Present report is based upon financial management
of John Lewis Partnership which is one of the largest entities in retail sector and operating
business all around the world. This assignment is segregated in two parts first is a financial
analysis report and second is report on investment appraisal opportunity. This project covers
various topics such as operations, strategies and operating policies, accounting quality issues,
horizontal and trend of financial statements, ratio analysis, comparison with a competitor,
analysis of narrating reporting etc. Additionally, discussion of the viability of the project,
evaluation of non-financial factors, consistency with strategy of company, economic
environment recommendation to the entity are also covered in this report.
SECTION A: FINANCIAL ANALYSIS
Outlining of operations and strategic and operating policies and consideration of the way in
which that may impact the financial analysis
All the business entities perform different types of operations for the purpose of executing
all the planned activities. Some of them that are performed by John Lewis Partnership are as
follows:
Product management: It is the main operation of John Lewis Partnership in which the
managers make policies for managing the products that are sold to the customers. Main purpose
of it is to meet future goals and objectives.
Supply chain: It is related to the distribution of different products that are sold by John
Lewis Partnership all around the world. It is focused by the entity so that it can supply all the
ordered items in different items on time to meet long term business goals (Bay, Catasús and
Johed, 2014).

Quality: It is also an operation of John Lewis Partnership which is highly focused with the
maintenance of quality of all the products that are sold by it. Main purpose of it is to meet the
expectation of customers and generate higher profits and revenues.
There are various types of operating and strategic policies that are followed by John
Lewis Partnership so that it can operate business successfully and meet the financial goals. All of
them are as follows:
IFRS 15: It is focused by the organisation for the purpose of recording all the revenues
and contracts and customers.
IFRS 9: It is also a part of operating and strategic policies of John Lewis Partnership in
which the organisation keeps detailed information of all its financial instruments (Chan, 2015).
All the above described operations and policies may impact the financial analysis when
the organisation fails to record accurate information of all of them. If these policies will not be
followed appropriately then it may affect the level of accuracy of financial analysis.
Discussion of the relevant economy, market or other contextual information
John Lewis Partnership is currently operating business at global, multinational and
international level. It is one of the biggest fashion retailers of United Kingdom and also
contributing a huge amount in the total GDP. Total employee strength of it is more than 76000
and it is creating employment for the region so that its economy can grow. The main markets that
are targeted by it are banking, financial services and retail. Major focus of it is upon retail but it
also focuses upon the finance and banking sector so that it can establish itself as a successful
entity in that industry.
Identification of accounting quality issues
In order to assure the accuracy of all the financial statements it is very important for all the
organisations to make sure that they are keeping the quality of all the accounts very high. For
John Lewis Partnership it is also essential to make sure that it is formulating all the financial
statements properly so that possibility of accounting quality issues could be ignored (Finkler,
Smith and Calabrese, 2018). Some of the quality issues that are mentioned in the final accounts
of John Lewis Partnership are as follows:
Key figures in the financial statements: It is one of the biggest quality issue in the
financial statements that may impact upon the financial analysis. Some of the key figures in the
income statement and balance sheet of John Lewis Partnership are revenues, net profits, equities,

assets and other liabilities. Small mistake in them may result in inaccurate results. In order to get
actual information of the performance of business it is essential for the management to make sure
that these key figures are take in to consideration. Slight changes in them may result in negative
impact upon the financial analysis.
Key accounting policies: All the business entities have some specific accounting
policies that are followed by them so that they can formulate the financial statements
appropriately. These accounting policies include partnership policies, financial instruments,
offsetting, foreign currencies etc. All of them are focused by John Lewis Partnership according
to its annual report. Changes in them may result in modification in the figures of balance sheet
and it will leave negative impact upon the financial analysis because of changes in the amount of
transactions (García, 2014).
Changes mentioned in the annual report: It is considered as the biggest quality issue
because when all the changes that are mentioned in the final account are not accurate then it will
leave adverse impact upon the financial analysis. When all the modifications that are reflected in
the annual report of John Lewis Partnership will be biased by the managers then it will leave the
unfavourable impact upon the analysis of financial position. Due to this, inaccurate result will be
generated by the organisation.
Horizontal and trend of the financial statements
Horizonal analysis: It can be defined as a technique which is used by companies for the
purpose of analysing changes in the number of corresponding items of final accounts over the
year. It is mainly used for balance sheet so that the managers can determine the percentage
changed of different assets and liabilities. Main purpose of it is to determine the trend situation
of the business (Holm, 2018). While conducting it the organisations are required to use two or
more years for comparison. In order to analyse actual performance of John Lewis Partnership it
is being used by the managers so that they can determine that company is progressing or not.
With the help of it, strategic decisions for future are also formulated which helps to attain growth
in future. The horizontal analysis of the balance sheet of the entity is as follows:
Assets and
liabilities
2018 2019 Increase or
decrease
Percentage of
changes

Total non-current
assets
4563.1 4383.1 180 (D) -3.94%
Total current
assets
1690.6 1929 238.4 (I) 14.10%
Total assets 6253.7 6312.1 58.4 (I) 0.93%
Current liabilities 1945.1 2055.9 110.8 (I) 5.70%
Non-current
liabilities
2006.9 1636.2 370 (D) -18.47%
Equities 2301.7 2620 319 (I) 13.86%
Total equities
and liabilities
6253.7 6312.1 58.4 (I) 0.93%
From the above horizonal and trend analysis it has been determined that the financial
statements of John Lewis Partnership are following increasing trends. Total assets of the
organisation are being increased by 0.93% as compare to previous year and liabilities are also
increased in same trend. Total non-current assets of the entity are decreased by 180 million
pounds and the percentage of changes is -3.94%. Total current assets of the organisation are
being increased by 238.4 million pounds and the percentage changes is 14.10%. Current
liabilities are increased by 110.8 million pounds and its percent of increment is 5.70%. The
percentage changes of non-current liabilities is -18.47% which have taken place due to
decrement of 370 million pounds. Total equities are being increased by 319 million pounds and
its percentage is 13.86% (Annual report of John Lewis Partnership, 2019).
Ratio analysis of the financial statements
Ratio analysis: It can be defined as the process of analysing financial stability of an
organisation so that actual performance of business could be determined. In order to analyse
financial statements of John Lewis Partnership this technique is being used. There are various
types of ratios that are calculated for the organisation. Calculation of all of them is as follows:
 Profitability ratios:
Particulars 2018 2019
Return on equity Profit after tax / equity *100
Profit after tax 77 77.3
Equity 2301 2620
Result 3.35 2.95

Return on capital employed
Operating profit / capital employed *
100
Operating profit 253.1 229.1
Capital employed 4308.6 4256.2
Result 5.87 5.38
Gross profit margin Gross profit / sales revenues * 100
Gross profit 3368.1 3385.7
Sales revenues 10215.8 10316.7
Result 32.97 32.82
Operating profit margin
Operating profit / sales revenues
*100
Operating profit 253.1 229.1
Sales revenues 10215.8 10316.7
Result 2.48 2.22
Operating expenses to sales
Operating profit / sales revenues *
100
Operating expenses 3115 3270.8
Sales revenues 10215.8 10316.7
Result 30.49 31.70
Working notes: Calculation of capital employed: