Edition 11: This case study helps students understand the process of setting, reporting and evaluating financial performance. Financial statements and reporting
A Cadbury Schweppes case study
Page 1: Introduction
Limited companies (those owned by shareholders) are required by law to produce Financial Statements. These statements must be published and made available to shareholders as part of a company report. Cadbury Schweppes aims to produce clear financial statements that give a valuable insight into the company's strategy and performance. Cadbury Schweppes is a major international company that manufactures, markets and sells confectionery and non-alcoholic beverages. With origins stretching back over 200 years, Cadbury Schweppes' brands are enjoyed today in almost every nation in the world. They include regional and local favourites such as Cadbury Dairy Milk, Trident, Halls, Dentyne, Bubblicious, Bassett's and Trebor in confectionery and Dr Pepper, Schweppes, Snapple and 7Up in beverages. The company employs around 50,000 people. Cadbury Schweppes' Head Office accounts team collects the information required to create these statements from the company's accountants and financial teams around the world. The legal responsibility for producing financial statements that present an accurate picture of the company's performance over the period lies with the company's directors. These statements must be checked by an external audit, where the company hires a firm of accountants to verify that it provides a true and fair record and complies with legal requirements. The exact statutory requirements for limited companies to prepare and publish accounts are laid down for limited companies through the Companies Act 1985, regulated by Companies House, and for publicly listed companies through European law, the Listings Rules, regulated by Financial Services Authority (FSA). Some leading public companies, like Cadbury Schweppes, include reports to shareholders on their success in meeting self-set financial goals within their financial statements. The three main Financial Statements are: Profit and Loss Account
Cash Flow Statement.
Page 2: Establishing financial goals
Businesses need to have a clear direction to work towards, so that their employees know what they are seeking to achieve and what they need to do. The directors of a company (with the Finance Director or Chief Financial Officer playing a prominent role) establish financial goals which are used by investors, financial analysts and other external parties to monitor the performance of a company. Because these financial goals can be set out in numbers, it is relatively easy to compare actual performance against the set targets. For example, by setting sales growth goals, it is possible to check progress in meeting sales targets. Cadbury Schweppes has established three performance goal ranges for the period 2004-2007. These are: 1. Net Sales Value (NSV) growth of between 3% and 5%. NSV growth refers to the growth in sales of the company - for example by selling more soft drinks, chocolate or chewing gum to supermarkets, which in turn sell to consumers. 2. Operating margin growth of between 50 and 75 basis points per year. Operating margin growth refers to making more profit for each £1 of sales made - for example by buying ingredients and packaging materials as efficiently as possible. 3. Free cash flow of £1.5 billion over the four-year period. Free cash flow reflects how much cash is generated within the business, for example by increasing profits. Free cash flow is important to enable the company to have the money available to meet its financial commitments. 4. Page 3: Cadbury Shweppes´ Profit and Loss Account
A Profit and Loss Account is a table compiled at the end of an accounting period, to show gross and net profit or loss. It is very useful for helping readers to understand the financial performance of a company. A review of the Profit and...
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