Management Accounting Report: Whitebread Plc Financial Analysis

This report presents a comprehensive financial analysis of Whitebread Plc, a UK-based company in the Leisure and Hospitality sector. It begins with an income statement and balance sheet, providing a snapshot of the company's financial position as of August 30, 2017. The analysis then delves into various financial ratios, including profitability (gross profit margin, operating profit margin, and return on capital employed), liquidity (acid test ratio), efficiency (inventory turnover period), and capital structure ratios (interest cover ratio). The report interprets these ratios to assess Whitebread Plc's financial health, operational efficiency, and capital structure, offering insights into its strengths and areas for potential improvement. The conclusion summarizes the company's performance and highlights its growth in the leisure and hospitality sector, attributing it to factors such as reduced net debt and international expansion. The report references academic sources and includes appendices with detailed calculations.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................3
CONCLUSION................................................................................................................................6
REFERENCES ...............................................................................................................................7
APPENDIXES.................................................................................................................................8

INTRODUCTION
Management accounting is a process of identifying and analysing financial and non-
financial data (Aminbakhsh, Gunduz and Sonmez, 2013). This report is based on Whitebread
Plc, its is UK based company who is operating in Leisure and Hospitality sector. This report will
calculate and discuss about various financial ratios. Income statement and statement of financial
position will also become part of this assignment.
TASK 1
Income statement
Dr.
at the end of the year(30th Aug. 2017)
Cr.
Particulars Amount £,000 Particulars Amount £,000
Revenue 6700 Cost of Sales 3000
Gross Profit 3700
Total 6700 6700
Administrative
Expenses To balance c/f 3700
Administrative Expenses 700 Interest received 11
Other expenses:
Rent =
1300 less: Prepaid
rent = 248 Total
rent = 1052 1052
Interest paid 88
Depreciation (Fixture
and Fittings) 1000
Provision for doubtful
debts(2%) 17.6
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Net Income Before Tax 853.4
Total 3711 3711
Less: Tax Paid 190
Net Income After Tax 663.4
Total revenue earned by cited company was 6700000 pounds and the amount of cost of
goods sold was 3000. They earned a gross profit of 3700000 pounds which shows that their
performance has improved compare to last years gross profit. But one should not considered
gross profit for determining whether the company has earned more profit or not (Cokins, 2013).
The administration expenses of the firm for this year was 700000 pounds. The expenditure of
telephone is included in this figure. Cited company received an income of 11000 through the
interest. Other expenses done by the enterprise is 1052000. This amount was incurred on rent,
company actually had to pay the rent of 1300000 but the had a positive balance of prepaid rent
which was 88000 so actually the actual amount paid by the corporation was 1052000.
The amount paid for interest on loan was 88000. Depreciation is the decrement in the
value of fixed assets, this figure was 1000000. Every organisation make provision for doubtful
debt because it minimises the impact of unexpected losses from the side of debtors. 17600 is the
amount of provision on doubtful debts, it is ascertain by determining 2% of the total money was
debtors are going to the company. 853400 is the net profit before tax of Whitebread Plc and the
''Total'' the amount of income and expenditure is 3711000. The net profit of mentioned company
is 663400 and it can only be ascertained by deducting the amount of tax i.e. 190000 from the
new income.
Balance Sheet
as on 30th Aug, 2017
LIABILITIES Amount £,000 ASSETS Amount £,000
Equity Share Holders: Fixed Assets:
Share Capital =
3400
Retained Earnings =
2388
6451.4 Fixture and Fittings =
10000 Less: Dep.
= 1000 Less: Accum.
Dep. = 2500
6500
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Net Profit =
663.4
Fixed Liabilities:
Long-term Loan 1100 Current Assets:
Current Liabilities Inventories 80
Trade payables 129
Trade Receivables =
880 Less; Provision
= 17.6 862.4
Bank Overdraft 40 Cash 30
Prepaid Bill 248
Total 7720.4 Total 7720.4
Whitebread Plc has 6500000 pounds of fixed assets, this amount is calculated by
subtracting £1000000 (fixture and fitting) and £2500000 accumulated depreciation. This mean
that at the starting of this year the amount of fixed assets was £10000000. This firm have share
capital of £3400000, their retained earning is £2388000 and the net profit is £6631400. Their
long term liability is £1100000 and current liability is £129000. Trade payables is the component
which comes under the section of current liability, in present scenario trade payable is £129000
and the figure of bank overdraft is £40000 (Foster, Hart and Lewis, 2011). Inventory is
considered as the significant part of current assets, the stock at the end of the year is £80000.
Trade receivables of the cited company is £880000. But this is not the final amount as provision
of 17600 is needed to be subtracted from it in order to get correct sum of trade receivables.
Whitebread Plc has £30000 cash and they have prepaid bills of £248000.
TASK 2
a. Profitability ratios:
Gross Profit
Gross Profit
Margin
Gross Profit (A) 3700
Net Sales (B) 6700
Gross Profit 55.22%
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Margin{(A/B)*100}
Interpretation: This ratio shows how much is the percentage of net sale is gross profit.
Cited company has GP ratio of 55.22% which is remarkable. This mean that if they are selling
the goods of amount £100 that they will get £55.22 as gross profit. This ratio is very important
for investors and management of the company because it shows the profitability of core business.
But this ratio does not included indirect costs and this is main reason that one should not rely
only on gross profit ratio (Lambert and Sponem, 2012). Net sales of cited firm was £6700000
and their GP is £3700000.
Operating Profit Margin:
Operating Profit
Ratio
Net Income After Tax 663.4
Add: Tax 190
Add: Interest 88
Operating Profit (A) 941.4
Net Sales (B) 6700
Operating Profit
Ratio{(A/B*100} 14.05%
Interpretation: Operating profit ratio reveals the actual profit that is earned from
operational activity. If the company have net income after tax, then they have to add the amount
of tax and interest for finding this ratio. Cited company has OPR 14.05%, it reveal the
information about efficiency in their business operations. If this firm will focus on reducing their
cost and other insignificant expenses then they can improve this ratio. The components like tax
and interest have direct connection with operations of the company, this is main reason that they
included at the time of calculating this ratio (Financial Reporting Center. 2017).
Return on Capital Employed
Return on Capital
Employed
Operating Profit (A) 941.4
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Total Assets 7720.4
Less: Current Liabilities 169
Capital Employed(B) 7551.4
Return on Capital
Employed (A/B) 0.1246656249
Interpretation: Return on capital employed shows the efficiency of the companies
operations. Capital employed is nothing but long term debts and equity shareholders capital of
the company. This indicates how much return company is giving to its stakeholders and investors
(Parker, 2012). If the company is returning high returns than it will benefit the company in
enjoying less interest charged by bank because it credit rating will be improved. Here White
bread has 0.124 or 12.4% return on capital employed which means company is giving approx
12.4% return to the capital and funds invested by its stakeholders on it.
b. Liquidity ratios:
Acid Test Ratio
Acid Test Ratio
Current assets 1220.4
Less: Inventories 80
Quick Assets (A) 1140.4
Current Liabilities (B) 169
Acid Test Ratio (A/B) 6.7479289941
Interpretation: The ideal acid test ratio of every company is 1:1, but here White Bread
Plc has 6.74:1. Which is much advance from ideal ratio. This indicates that company is not
utilizing its fund properly and high cash is blocked by trade receivables which increases the risk
of doubtful debts. Hence company should avoid to block much cash in the debtors (Zoni, Dossi
and Morelli, 2012). White Bread's aim should be to decrease the cycle of receiving from debtors
and increasing the cycle of paying to the creditors. This practice can improve the efficiency of
the business of the firm.
c. Efficiency Ratios:
Inventory turnover period
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Inventory
Turnover Period
Cost of Goods Sold (A) 3000
Average Inventory* (B) 40
Inventory Turnover
Period (A/B) 75
75 days
Interpretation: Inventory turnover period tells about the turnover of the inventory
during the year. More turnover indicates that company is efficiently utilizing its inventory in
fulfilling the demand of the customers. Thus from the above calculation it can be concluded that
White Bread is placing order 75 times during the year. This indicates that every 5th day it placed
the order for new inventories, which is good sign for the companies growth. But sometimes
increasing in order rate can also increase the cost of placing the order. So company should adopt
EOQ techniques also called economic order quantity techniques to know what is the standard
quantity to be ordered at minimum cost to the firm.
d. Capital Structure Ratios:
Interest Cover Ratio
Interest Cover
Ratio
Operating Profit (A) 941.4
Interest Expenses(B) 80
Interest Cover Ratio
(A/B) 11.7675
Interpretation: Interest coverage ratio shows the weight-age of interest expense in
operating activities. Operating activities are the day-to-day production and operational functions
of the company. So White bread Plc has 1/12th part of its expenses over its operating profit which
indicates company is raising funds more from debt sources than equity sources. It means it has
stable income through which it can pay regular interests on long term debts (Moser, 2012). But
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there is opportunity by which company can improve its capital structure through a better mix.
For instance it can also raise its funds from equity to reduce the burden of interest expenses on it.
CONCLUSION
From the above report, it can be concluded that business of Whitebread plc is growing
because they are earning more revenue from Leisure and hospitality sector. The prime reason
behind registering more profit is that their net debt has gone down and they are successfully
expanding their company in other nations.
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REFERENCES
Books and Journals
Aminbakhsh, S., Gunduz, M. and Sonmez, R., 2013. Safety risk assessment using analytic
hierarchy process (AHP) during planning and budgeting of construction projects.
Journal of safety research. 46. pp.99-105.
Cokins, G., 2013. Top 7 trends in management accounting. Strategic Finance. 95(6). pp.21-30.
Foster, W., Hart, L. and Lewis, T., 2011. Costing study of two-year accelerated honours degrees.
Lambert, C. and Sponem, S., 2012. Roles, authority and involvement of the management
accounting function: a multiple case-study perspective. European Accounting Review.
21(3). pp.565-589.
Moser, C., 2012. Gender planning and development: Theory, practice and training. Routledge.
Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Zoni, L., Dossi, A. and Morelli, M., 2012. Management accounting system (MAS) change: field
evidence. Asia-Pacific Journal of Accounting & Economics. 19(1).
Online
Financial Reporting Center. 2017. [Online]. Available Through:
<http://www.aicpa.org/interestareas/frc/Pages/default.aspx>. [Accessed On 9th
November 2017].
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