StudentShare solutions
Triangle menu

Whitbread PLC Financial Summary - Essay Example

Not dowloaded yet

Extract of sample
Whitbread PLC Financial Summary

This report aims to yield a closer look at the financial performance of UK's leading hospitality company Whitbread Plc with the aim of conducting a financial SWOT analysis.

Financial ratios are grouped into five distinct categories, each showing a different aspect of a company's financial operations. These are profitability ratios, financial leverage ratios, liquidity/solvency ratios, efficiency ratios, and investor ratios (Fraser and Ormiston 2004).

Profitability ratios measure the ability of the company to generate income from its investments less the costs incurred (Keown et al 2005). In this analysis, gross profit margin, net profit margin, and asset turnover will be used.

Referring to Appendix 1, the profitability of Whitbread has significantly improved from 2007-2008 as indicated by the increase in gross profit margin and net profit margin. In 2007, it can be seen that 83% of the company's sales is recorded as gross profit margin while this figure jumped to almost 85% in the following year. This higher ratio is reflective of the company's efforts of sourcing out and producing less costly inventories to reduce cost of goods sold. Furthermore, net profit margin almost doubled from 0.24 in 2007 to 0.44 in 2008. This reflects a very remarkable performance as it shows the cost efficiency of the company by its enhanced ability of turning revenues into net income. In 2008, net income accounts for 44% of sales from 24% in the previous year. The rise in net income signals the company's ability to manage its resources more economically.
2. Leverage or Gearing
Financial leverage ratios provide an indication of the long-term solvency of the firm. They indicate the extent of non-owner claims on the firm's profits as well as the firm's operating capability to meet its obligation (Keown et al 2005).
Appendix 2 shows the computed gearing ratios of Whitbread in 2007 and 2008. As with the profitability ratios, the business organization's resource structure has significantly improved. As opposed to the recorded debt to asset ratio of 0.62 in 2007, this ratio declined to 0.48 in 2008. These ratios indicate that Whitbread has been dependent on debt as a primary source of financing in 2007 accounting for 62% of its assets. However, this changed in the following year when debt only comprises 48% of its resources. It should be noted that debt is seen as a more risky financial resource as it entails the regular payment of interest and face value at the end of its life. The shift from debt to equity therefore signals lower financial risk for Whitbread.
However, this improvement in resource structure fails to reflect in the company's interest coverage ratio which measures the proportion of interest expense to the business organization's income before tax. In 2007, this interest coverage ratio is 8.2 while it dropped to 3.3 in 2008. It should be noted though that in both years, the company has enough financial resource to cover its interest obligation.
3. Liquidity
Liquidity or solvency ratios are used as measures of the company's ability to finance its short-term obligations by its cash and near cash items (Keown et al 2005). Appendix 3 shows the computed liquidity ratios of Whitbread in 2007 and 2008.
The business organization is in danger in terms of liquidity. In both years, the company's current assets are meager compared to its immediate short term liabilities. If these current liabilities become due immediately, Whitbread will never be able to pay off all its short-term creditors. Furthermore, its liquidity ratios are deteriorating evidenced by the marked decline ...Show more

Summary

Financial ratio analysis is a very popular technique in the evaluation of the financial health of a business organization.This report aims to yield a closer look at the financial performance of UK's leading hospitality company Whitbread Plc…
Author : bernhardmaude
Whitbread PLC Financial Summary essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Whitbread PLC Financial Summary"
with a personal 20% discount.
Grab the best paper

Related Essays

Financial Report for Balance Plc
IASs 16 and 40 were adopted by IASB and have been through a number of amendments. These standards provide guidance on Property, Plant and Equipment and Investment Properties respectively. Ballance plc has carried out a number of a transactions during the year ended December 31, 2012, some of which are very technical and requires an understanding of both standards.
5 pages (1250 words) Essay
Financial Management : Koolson plc
Flow (3,700,000) 1,300,000 1,880,000 1,917,500 770,000 Note1 Consultancy fee of 150,000 is a sunk cost Note2 Depreciation is a non-cash item. Although if the tax rate would have been give, tax shield on depreciation would have been included in the cash flow projections Note3 Rent paid is an irrelevant cost as it would be paid in any case whether the project is undertaken or not (b) Payback Period Total cash flow after two years 3,180,000 Remaining cash flow (520,000) Percentage of third year cash flow 0.271 Payback Period 3.271 (c) Discounting factor 1.00 0.89 0.80 0.71 0.64 Present Value (3,700,000) 1,160,714 1,498,724 1,364,839 489,349 Net Present Value 813,626 (d) As apparent from the abov
3 pages (750 words) Essay
WPP PLC Financial Report
Profitability is all about analyzing whether the business making money and earning a satisfactory return on its investment or not. The following ratios would help us better understand the profitability of the WPP PLC. Profitability is the one area where, without exception, the higher the ratios the better.
12 pages (3000 words) Essay
Reg Vardy PLC financial analysis
This paper analyses the firm's financial health by deriving the relevant financial ratios as the basis for assessment. Furthermore, this paper provides a comparative analysis between the company and its rival Pendragon PLC (Pendragon). Apart from these, it also discusses the feasibility of the possible acquisition of Reg Vardy by Pendragon in light of the reported acquisition offer of the latter.
8 pages (2000 words) Essay
Financial Management - WHSmith PLC
While WHSmith News remains to be the market leader in newspaper and magazine distribution, with steady growth in sales and profits, WHSmith Retail's experience during the last year was not as favorable. Based on its 2004 Annual Report, WHSmith News experienced a 9% growth in profits increasing to 35m from the previous year's 32m, with a 6% increase in sales.
10 pages (2500 words) Essay
Financial Report on Crimson PLC
The financial statements and other information presented in the annual report fairly represent the state of affairs and results of the operations of Crimson Plc group. The annual financial statements have been prepared in accordance with the legal and regulatory framework, Generally Accepted Accounting Principles and the Accounting Standards.
4 pages (1000 words) Essay
Financial Forecasting TESCO Plc
To correct this, the management can initiate necessary action. Using the financial statements of Tesco Plc for the previous years, the performance of the company for 2010 has been forecasted. A comparison of the ratios for
6 pages (1500 words) Essay
Financial Management : Koolson plc
As apparent from the above investment appraisal analysis, all of the investment appraisal technique presents the fact that the capital expenditure decision can be fruitful for the company. If we consider the first investment appraisal technique of NPV (i.e. Net Present
3 pages (750 words) Essay
Equity Research Report on Whitbread plc
Thus, it can be summarized that preparation of financial statement does not comply with few rules of International Financial Reporting Standard. The report also elaborates a comparison between performance of Whitbread Plc and its
10 pages (2500 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation