FINM008 - Corporate Reporting Analysis: Travis Perkins Annual Report

This report provides a detailed analysis of Travis Perkins' 2018 annual report, focusing on several key areas. It begins by examining the company's compliance with International Financial Reporting Standards (IFRS), specifically IFRS 9, IFRS 15, and IFRS 16, detailing their impact on the financial statements. The report then assesses Travis Perkins' financial performance and health, utilizing ratio analysis to evaluate liquidity, leverage, and profitability, comparing figures from 2017 and 2018 to identify trends and draw conclusions. A critical discussion of accounting standards, including Generally Accepted Accounting Principles (GAAP) and IFRS, is presented, emphasizing their roles in financial reporting. Finally, the report explores the significance of segmental analysis in providing insights into the financial results of Travis Perkins' operating units, highlighting its importance for stakeholders. The report concludes with an overall assessment of the company's financial position and performance based on the analysis conducted.

Running head: CORPORATE REPORTING 1
Corporate reporting 1
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Introduction......................................................................................................................................2
1. Compliance with IFRS.............................................................................................................2
2. Comment on financial performance and financial health........................................................5
3. Accounting standards for financial reporting...........................................................................8
4. Significance of segmental analysis...........................................................................................9
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11

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Introduction
Travis Perkins is largest distributor in UK for building materials for construction of
building as well as home improvement market. It operates through various segments namely
plumbing and heating, general merchanting, consumers and contracts. Various items the entity
deals with are timber, doors, joinery and windows, building materials, plumbing, gardens and
landscaping, heating, tool hire, clearance, electrical and lighting and trade offers. Purpose of the
task is conducting detailed analysis that focuses on how financial statement of the entity
demonstrates the compliance with IFRSs (Travis Perkins | Builders Merchants, Building
Supplies & Material 2020). The report will further use the analytical techniques and tools for
providing comments on the financial health as well as financial performance of the entity as
against the previous year. In addition, it will critically discuss the requirement and role for
national as well as IAS while preparing the corporate financial reporting. Finally, the report will
discuss significance of data delivered under segmental analysis of financial report and the reason
why the same disclosure is required for the entity.
1. Compliance with IFRS
IFRS 9 – Financial instruments
Reclassifications as well as adjustments on account of new impairment rules are not
reported under restated balance sheet as at 31st December 2017. However, the same has been
reported under closing balance sheet dated 31st December 2018 for the alterations in the financial
assets of the group for impairment required by IFRS 9 have been reported under opening balance
sheet as at 1st January 2018. IFRS 9 substituted provision of IAS 39 that is associated with
measurement, classification and recognition of financial asset as well as financial liabilities,

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impairment of the financial assets, de-recognition of the financial assets as well as hedge
accounting. Adoption of the IFRS 9 since 1st January 2018 led to changes in the accounting
policies as well as adjustments for the amounts reported under financial statements. However, for
the transitional provision of IFRS 9 the entity did no restate the comparative figures (Travis
Perkins | Builders Merchants, Building Supplies & Material 2020).
IFRS 15 – Revenue from the contracts with customers
The entity adopted IFRS 15 since 1st January 2018that resulted in alterations in the
accounting policies as well as reclassification of the recognised amounts under financial
statements. However, none of the adjustments had its effect on retained earnings of the group
and this standard does not have notable impact on the entity. Further, previously the provisions
for the customers returns were used to be presented on the net basis as the part of deferred and
accrual income. Since the adoption of IFRS 15 the same are presented on gross basis whereas the
liabilities for entire amount likely to be repaid are added under trade and other receivables
(Travis Perkins | Builders Merchants, Building Supplies & Material 2020).
IFRS 16 – Leases
IFRS 16 was released by IASB in January and the same was endorsed by EU in 2017
October. It has material impact on the entity as value for operating lease entered by the entity
will be reported in the balance sheet in future period. The entity has one project team that works
for implementing procedures as well as systems required for complying with the requirements.
Effect of adopting standard on 1st January 2019 may alter the present estimates as the lease
portfolio of the entity is changing frequently and new accounting policies are tend to alter until
the entity presents the 1st financial statement that involve date for initial application. Exemption

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for elective recognition is there for the short term leases and for the leases with low value items.
However, the accounting for lessor remains same with the current standards. Lessor will classify
the leases as operating lease or finance lease (Travis Perkins | Builders Merchants, Building
Supplies & Material 2020).

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2. Comment on financial performance and financial health

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Financial statements offer information those are significantly useful in context of the
financial performance based on the structure of liabilities, assets, equities, income and expenses.
Hence, financial statement offers summarized view in context of the entity’s financial position.
Ratio analysis is used on wide basis for analysing the financial performance and can be applied
for comparing the risks as well as returns association for the entities of different sizes (Faello
2015).
Liquidity ratio – it is notably important as sufficient liquidity is crucial for any firm to meet the
short term obligation while they become due for the purpose of payment. In other sense, liquidity
is pre-requisite for any firm’s survival. Liquidity status implies from viewpoint of using the
firm’s fund. Major liquidity ratios considered for measuring the liquidity are current ratio and
quick ratio. The current ratio measures total current assets against the total current liabilities and
is computed through dividing the current assets by the current liabilities. If the current ratio of
the entity is more than 2 it is considered to be adequately liquid (Arkan 2016). On the other hand,
quick ratio measures the quick assets against the current liabilities. Here, only the liquid asset
that is assets those are readily convertible into cash are considered. If the quick ratio of the entity
is more than 1 it is considered to be adequately liquid. It can be identified from the data provided
in the balance sheet of the entity that current ratio for both the years are less than 2 and quick
ratio for both the years are less than 1. Further, both the ratios in 2018 have been reduced as
compared to the preceding year. Hence, it can be stated that the liquidity status of the entity has
been deteriorated (Boyas and Teeter 2017)
Leverage ratios – long term creditors as well as lenders judge the firm’s soundness on the basis
of long term financial strength that is measured through the proportion of debt raised by the
entity as against proportion of equity. Debt ratio is the solvency ratio used for measuring total

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liabilities of the entity as a percentage of total assets. It represents the ability of the entity in
paying off the liabilities with the help of assets. It assists the creditors as well as investors to
analyse overall debt burden on entity along with the ability of the firm to make the payment of
debt in the future period or during economic downtimes (Williams and Dobelman 2017). Lower
debt ratio is preferable as the lower ratio signifies that the entity is solvent. On the other hand,
debt to equity ratio compares the total debt of the entity against total equity. It further reveals the
proportion of financing for the entity that has been received from investors and creditors. Higher
debt to equity ratio signifies that the company is highly leveraged. Debt ratio of the entity though
is increased from 44.37% to 46.90% and debt to equity ratio has been increased from 79.76% to
88.31% over the years from 2017 to 2018 both these ratios are representing that the entity is
lower leveraged and major portion of the capital is raised through equity (Travis Perkins |
Builders Merchants, Building Supplies & Material 2020).
Profitability ratio – it measures profitability which in turn helps in measuring the entity’s
performance. It is simply the ability of the entity to earn profit that is the amount left over from
the earnings made by the entity after making all the deduction for the business expenses. ROE
offers the investors with the insight regarding the efficiency with which the entity managing
money contributed by the shareholders. It is generally used for comparing the entity with the
competitors and with overall market (Oshoke and Sumaina 2015). As the net earnings of the
entity for 2018 was in negative, ROE for the same year was also negative 3.07% as against
8.18% in 2017. On the other hand, net profit margin is the revenue proportion remaining after
payment of all the expenses made. It reveals profit amount that can be extracted by a business
from total revenue. As the net earnings for the year 2018 is in negative, net profit margin for the

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same year was also negative 1.24% as against 3,64% in 2017 (Travis Perkins | Builders
Merchants, Building Supplies & Material 2020).
Market value ratio – these ratios are applied for evaluation current share price of any publicly
held entity. These ratios are utilised by the existing as well as potential investors for defining
whether the share price of the entity is under-priced or over-priced. Most widely used market
value ratios are price earnings ratios and earning per share. EPS is the profit available with the
entity for its shareholders divide by the number of shares outstanding. On account of negative
bottom line profit the EPS for the year 2018 is negative 34.4 pence against 93.10 pence for 2017
(Kanapickienė and Grundienė 2015). On the other hand, PE ratio is used to compare market
price of the entity’s stock against the EPS. High PE ratio indicates that the investors will be in
view that the share price of the entity will go up whereas low PE ratios designates that the share
price will come down. Negative PE ratio of 37.24 in 2018 against 16.53 in 2017 is signifying that
the investors will think that the entity’s share price will come down in future (Ping-fu and Kwai-
yee 2016).
3. Accounting standards for financial reporting
Accounting standard developed as well as established by standard setting bodies to
determine the manner in which the financial statements are prepared as well as presented.
Collectively these standards are known as GAAP (generally accepted accounting standards). It
is based on the established objectives, concepts, convention sand standards those are evolved
over the time for guiding how the financial statements are prepared as well as presented. GAAP
is set with the purpose of delivering useful information to users including lenders, investors or
those who offer resources to profit seeking concern or the non-profit entities (Bentley et al.
2016). Lenders, investors and other users are dependent on the GAAP based financial reporting

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for taking decisions regarding how to assign the capital and assisting financial markets in
efficient operating. At the time of establishing GAAP standard setters were majorly concerned
regarding the users of financial statements including lenders, potential as well as existing
investors those analyze the financial statements for taking investment related decisions.
Standards setters prefer making consistent standards for assisting end users in understanding as
well as using the financial data of the entity. Primary intention of GAAP is not assisting the
businesses but to assist the users (Isidro and Marques 2015).
IFRS set common rules for the financial statements for making the same transparent,
comparable and consistent all over the world. It was issued by IASB and it specifies the manner
in which the entities shall maintain as well as report the accounts, provides explanation regarding
various types of transactions along with various other events with the financial impact. It was
established for creating common accounting language that will in turn allow the businesses as
well as financial statements to be consistent as well as reliable from entity to entity and from
country to country (Cascino and Gassen 2015)
4. Significance of segmental analysis
Main purpose of segment reporting is delivering information to the creditors as well as
investors in context of financial results as well as position of most crucial operating units of the
entity. Segment reporting can be used as basis for making decisions associated with the entity.
Major advantage of the segment reporting is it provides transparency. Investors, analysts as well
as other stakeholders require information for analysing growth and sustainability of the entity
and monitoring performance of the management (Bugeja, Czernkowski and Moran 2015). From
the annual report of Travis Perkins it can be found out that the entity operates through different
segments including Merchanting, Retail, Plumbing & heating and Toolstation. Hence, segment

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reporting will assist the entity breaking the financial data of the entity by segments. It will further
deliver accurate picture of the entity’s performance to the shareholders. Further, it will help the
management in evaluating the assets, liabilities, incomes and expenses segment wise (Zimnicki
2016).
Conclusion
From above it is established that the financial performance of the entity has been
deteriorated in 2018 as compared to the preceding year 2017. It can be determined through the
fact that liquidity ratios, profitability ratios, leverage ratios and market value ratios have been
dropped in 2018 as against 2017. National as well as international accounting standards deliver
useful information to users including lenders, investors or those who offer resources to profit
seeking concern or the non-profit entities. Segment reporting will assist Travis Perkins in
breaking the financial data of the entity by segments.

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Reference
Arkan, T., 2016. The importance of financial ratios in predicting stock price trends: A case study
in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia, 79(1), pp.13-26.
Bentley, J.W., Christensen, T.E., Gee, K.H. and Whipple, B.C., 2018. Disentangling managers’
and analysts’ non‐GAAP reporting. Journal of Accounting Research, 56(4), pp.1039-1081.
Boyas, E. and Teeter, R., 2017. Teaching Financial Ratio Analysis using XBRL.
In Developments in Business Simulation and Experiential Learning: Proceedings of the Annual
ABSEL conference (Vol. 44, No. 1).
Bugeja, M., Czernkowski, R. and Moran, D., 2015. The impact of the management approach on
segment reporting. Journal of Business Finance & Accounting, 42(3-4), pp.310-366.
Cascino, S. and Gassen, J., 2015. What drives the comparability effect of mandatory IFRS
adoption?. Review of Accounting Studies, 20(1), pp.242-282.
Faello, J., 2015. Understanding the limitations of financial ratios. Academy of Accounting and
Financial Studies Journal, 19(3), p.75.
Isidro, H. and Marques, A., 2015. The role of institutional and economic factors in the strategic
use of non-GAAP disclosures to beat earnings benchmarks. European Accounting Review, 24(1),
pp.95-128.
Kanapickienė, R. and Grundienė, Ž., 2015. The model of fraud detection in financial statements
by means of financial ratios. Procedia-Social and Behavioral Sciences, 213, pp.321-327.