Analysis of The Unite Group Plc Financial Performance and Position

This report analyzes the financial performance and position of The Unite Group Plc, utilizing ratio analysis to assess profitability, efficiency, gearing, and liquidity. The analysis reveals insights into the company's Return on Capital Employed (ROCE), Return on Equity (ROE), operating profit margin, and other key financial metrics. The report also examines the company's efficiency ratios, including inventory days, debtor days, and creditor days, along with gearing and liquidity ratios. Furthermore, the report discusses the transition from IAS 17 to IFRS 16 in lease accounting, highlighting the impact on lessees and the benefits of the new standard. The analysis includes a comparison of financial data from 2017 and 2018, providing a comprehensive overview of The Unite Group Plc's financial health and performance.

The Unite Group Plc
(Financial Reporting)

Table of Contents
TASK...............................................................................................................................................1
(PART B). Performance and position of company.....................................................................1
(PART C) Change in the Lease accounting from IAS 17 to IFRS 16........................................3
REFERENCES ...............................................................................................................................6

TASK
(PART B). Performance and position of company.
In accounting term, ratio analysis is helpful in measuring the overall efficiency and
profitability of business in an accounting period. Different kind of ratios such as profitability,
efficiency, gearing and liquidity which determine weather a company business is profitable or it
need some improvement to reach the primary goals (Kotas, 2014).
From the calculation of different sort of ratio it has been analysed that overall
performance and Position of The Unite Group Plc is improving. It is consider to good and
improved for the previous year, however there are some business aspect which are still needed to
be worked and improved so that profit margin can be increased.
ROCE helps to define the company return on the total capital employed with different
business operation and processes. It has been determined that In year 2017 the ROCE was 11%
which reduces to 10% in year 2018 that states that there have been overall 9% decrease in
current year. The main reason for reducing return in capital employed to company is increasing
overall cost in order to generate sales or increase in tax liabilities (Liao, Morris and Tang, 2013).
Thus, it has been suggested to company that writing of non current liability can help The Unite
group plc to reduce the employed capital and improve the return on debt equity. It is also
determined that return on equity also gets decreased such as in year 2017 it was 13% and in year
2018 it reduce to 12% which shows that there is a overall reduction of 8 %. In case of ROE drop,
it has been determined the manager of respective company are not making good reinvestment
judgement thus not able to generate adequate enough cash for assets. It can be suggested to
respective firm that they might make investment to those assets which deliver better profit in
2017.
The operating profit margin is defined as the ability of company to earn profit after
making all relevant operating expenses. From operating profit margin it is analysed that there has
been a greater improvement such as in year 2018 it is 50% which was 43% in year 2017. The
gross profit margin also increase of The Unite group Plc such as in year 2017 the ratio was 66%
that grows to 69% that shows that there is total 5% improvement. Company is able to improve
the gross and operating profit by reducing the different expenses incurred to run operation. The
main reasons for improvement is reducing the operating expenses and improving the sales figure
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which reduces the cost of good sold in 2018. To increase profit company also relies now new
efficient ways of improving sales and assign labour at lower cost.
Efficiency ratio is a type of ratio that support to examine the overall capability of
company to utilise its available assets in order to generate sales and revenue (Mio, 2016). There
are various efficiency ratios that are calculated in the context of The Unite group Plc, such as the
inventory ratio is helpful in defining the total time company holds its stock in warehouses. From
the calculation, it has been determined that the inventories days increased by 108% from
previous year. Such as in year 2017 it was 40 days which grows to 83 days in 2018, the main
reason of increase in inventories days is increasing the frequencies of selling and purchasing of
material. Debtor ratio help to define the time taken by company to collect money from its
creditors, in the context of respective company this increase by 10%. In year 2017 it was 59 days
that increase to 65 days in the next year which states that company have provided more credit
time period to their outstanding customer. From the creditor days it has been also analysed that
in year 2017 it was 175 days which increase to 242 days in the current year. This shows that
different supplier have provided more credit time to The Unite Group Plc and they have more
capital to make investment in different project.
The term, gearing ratio is mainly used to measure the proportion of an organisation
borrowed funds in context of equity (Mukhlisin, Hudaib and Azid, 2015). From the calculation it
has been determined that gearing ratio of company decrease by 5% such as in year 2017 it was
23% and in year 2018 it was 22%. The main reasons for reduction in gearing ratio is that
company have borrowed more funds from bank and other parties and the level of equity is
decreasing as compared to borrowed funds. A strong gearing ratio is a massive debt-to-equity
proportion, whereas a low gearing ratio is a low debt-to-equity ratio. This is equal to the debt to
equity ratio, except that there are a number of variations in the formulation of the gearing ratio
that can yield slightly different outcome.
On the other side liquidity ratio is helpful in defining the actual ability of company to
convert its current assets in quick assets in order to meet the current liabilities. From the
calculation. It has been calculated that current ratio in year 2017 was 0.9:1 which increase 1.5:1
in 2018, this state that there is overall increase of about 66%. This state that The Unite Group Plc
have enough current assets in order to meet any type of future obligation. Similarly, the quick
ratio in year 2017 was 0.9 times which increase to 1.4 in 2018, that shows there have been total
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increase of 56%. The main reason for increase is reduction in prepaid expenses as company rely
on making payment at the same date when a business transaction happen actually.
(PART C) Change in the Lease accounting from IAS 17 to IFRS 16.
In present time, the International accounting standard board have published IFRS 16
which stated that there have been change in the lease accounting which give a huge impact on
the lessees business system, control and processes. The new format of lease accounting states
that lessees now have to be depended more on the data around their leases that is needed to be
included into balance sheet. It might also promote current market improvement in the context of
leasing, since it focus on improving services rather than physical assets.
IAS 17: As per the international accounting standard 17 leases are the reporting
disclosure and policies that are related to finance and operating leases for lessor and lessees (IAS
17, 2019.). The primary objective of this standard is applicable to all kind of leases rather than
agreements related with minerals, natural gas and other same generative resources. It also does
not apply to the leases agreements for videos, patents, copy rights etc. As defined in the IAS 17 a
contract is consider to be finance leases in which the transfer of each contingency and rewards
incidental to ownership and all other leases are being treated as operating contract. This standard
states that an agreement is always depended upon substance of the business transaction instead of
its form to be called as operating or financial lease. There are some specific criteria that essential
classify the leases such as
 The agreements that gives the ownership of the physical assets to the lessee in the end of
reporting year.
 There are situation in which lessee have an option to buy the assets on the cost that is
consider to be lesser than actual market vale when it is being valued.
 In case if the possession of an assets is not transfer than lease condition is the main
portion of assets life.
 When lease are incepted the fair value of the minimal lease payment is consider to be the
less substances in regard to present value of the contracted assets.
 The lease agreed by the lessee of specific nature can only be used by them without
making any modification (Mullinova and Simonyants, 2016).
IFRS 16: From 1st January 2019, IASB announced that there will be only single lessee
accounting model that help lessee to identify assets and liability related with each lease that are
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for 12 or more months, unless the underlying assets have lower value (IFRS 16, 2019). This new
lease standard would greyly impact the account of lessees and the lessors reporting will remain
the same as classified in IAS 17.It is observed that IFRS 16 would be beneficial for investors and
stakeholder which will give them more transparency to reckon the financial status and strength of
company. There are some respective transaction provision which mainly replace the IAS 17 from
1st Jan 2019 such as:
 All current financing agreements are continued to be treat as a finance leases.
 While all operating leases will have an option to fully of partially implement the new
standard and show them in the financial statements (Rupley, Brown and Marshall, 2017).
In the context of company, the implementation of new reporting for lease does nor impact
the company financial position in relevance to make cash payments, that are mainly recognised
by the lender. It is also assumed that IFRS 16 would let to facilitate and improve allocation of
capital by developing more and more investment and credit facilities by both business entity and
investors. There are some major benefit of new accounting standard to lessee and lessors some of
these are mention below:
Lessees:
 The price related with implementing and complying of the new leases is regarded as
crucial for most of the leaseholder, in case if they don't have a specific in house lease
information system.
 Companies leasing bigger assets such as real estate, aircraft, ships and advance technical
devices are anticipated to get impacted largely. On the other side, it is defined that low
worth assets below $5000 are not require to show this transaction on the annual balance
sheet.
Lessor:
 For all the current and upcoming contract the lessors and lessees are not required to
restructure the accounting reports.
 It is also stated that accounting for lessor will be the same as mentioned in IAS 17, but in
some case the lessor gets affected because of the changes in the nature of customer to buy
good and services (Rupley, Brown and Marshall, 2017.).
From the balance sheet of The Unite Group PLC the operating lease rental comes from
the assets that the company have sold out and is preparing to lease back. In 2018 the total rental
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income of £M 18.6 and property operating expenses of £M7.0 are related with sale and leaseback
properties. On the other side, in 2017 the rental income of £18.6 million and property operating
expenses of £7.0 million relating to sale and leaseback properties. The total operating expenses
related to lease within an accounting year 2016 was £13.8 million which was £14.5 million in
2017.
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REFERENCES
Books and Journals:
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Liao, L., Morris, R .D. and Tang, Q., 2013. Information asymmetry of fair value accounting
during the financial crisis. Journal of Contemporary Accounting & Economics. 9(2).
pp.221-236.
Mio, C. ed., 2016. Integrated reporting: A new accounting disclosure. Springer.
Mukhlisin, M., Hudaib, M. and Azid, T., 2015. The need for Shariah harmonization in financial
reporting standardization: The case of Indonesia. International Journal of Islamic and
Middle Eastern Finance and Management. 8(4). pp.455-471.
Mullinova, S. and Simonyants, N., 2016. Reflection of a deferred tax liability in the credit union
reporting according to IFRS (IAS) 12" Income taxes". Modern European Researches,
(1), pp.83-88.
Rupley, K. H., Brown, D. and Marshall, S., 2017. Evolution of corporate reporting: From stand-
alone corporate social responsibility reporting to integrated reporting. Research in accounting
regulation. 29(2). pp.172-176.
Online
IAS 17. 2019. [Online] Available Through:
<https://www.ifrsbox.com/ifrs-16-ias-17-leases/>.
IFRS 16. 2019. [Online] Available Through:
<https://www.pwc.com/gx/en/services/audit-assurance/assets/ifrs-16-new-leases>.
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