Course Title: Managing Financial Resources
Course: MSc. Finance
Date: 11th January 2010.
TABLE OF CONTENT
This report shows the analysis of the financial performance of Centrica Plc, one of the top energy business providers in UK. Based on my analysis from this report I can conclusively state that: Centrica Plc has an upper hand in the energy and gas market than it s competitor; Scottish Power. Centrica Plc’s turnover was very high in 2008 which shows that it made better sales than its competitor. Although Centrica’s sales turnover was high in 2008 but the profit margin dropped drastically. In the overall financial performance Centrica Plc made a loss of £645million in 2008 compared to the previous year 2007 when the company had a retained profit of £1088million. This was considered to be an impact of the global financial crises that hit the UK and US economy causing increase in oil prices and a drastic fall again as the level of global oil demand rises and at the same time causing a tight supply position. Centrica Plc’s Total shareholders return has an upper hand when compared with other 99 members of the FTSE 100 in 2008. INTRODUCTION
evaluate the impact of financial accounting concepts on corporate reporting of Centrica Plc. evaluate the limitations of ratio analysis
discuss the role of management accounting in the evaluation of Centrica’s business performance. I have been motivated to choose Centrica Plc because of the type of product they deal in, which is energy. It is a product that is essential for all, not just households. And it will be good to know if this company is actually doing well in terms of profitability and customer’s satisfaction. LITERATURE REVIEW
*PROFITABILITY RATIO ANALYSIS *OF CENTRICA PLC AND SCOTTISH POWER (Reference: FAME (Financial Analysis Made Easy)
FINANCIAL RATIO ANALYSIS OF CENTRICA PLC AND SCOTTISH POWER (Reference: FAME (Financial Analysis Made Easy)
GRAHPICAL PRESENTATIONS OF RATIOS
ANALYSIS AND DISCUSSION
FINANCIAL PERFORMANCE ANALYSIS BASED ON THE GRAHPS
According to Barry Elliot and Jamie Elliot, ratios show different items in the financial statements. A ratio is not useful in isolation and its usefulness depends on what aspects of the firm’s business affairs are being investigated. Ratios, according to them are a powerful tool in interpreting and understanding a company’s account. Therefore, the graphs above show the performance of the Centrica plc and its competitor; Scottish Power over a period of 5years and will be analyzed below. DEBTORS TURNOVER: This ratio shows how long it takes debtors of a company to pay back credit purchases. In as mush as credit facilities enhances sale turnover in a competitive market, it is very important to take adequate control of it because it is an essential part of working capital management.(Buz/ed, 2009) It is calculated as: Debtors' Turnover*= Average Debtors * × 365days Centrica Plc has been able to achieve a positive stock turnover ratio over the years with a 55% less time between 2004 and 2008 compared to its competitor that has a longer time of 18% to sell off its products. This shows that Centrica Plc has more sales turnover than Scottish Power. The trend on the graph show that Centrica Plc has been more liquid than Scottish power because the higher the ratio, the more liquid the business is said to be. It is obvious from the graph that Centrica Plc is more liquid than Scottish Power. That is Centrica Plc has a better capacity to pay it short term debt than Scottish Power, with reference to their current ratio of 1.12 to 0.59 respectively in 2008. DISCUSSION
IMPACT OF FINANCIAL ACCOUNTING CONCEPT UPON CORPORATE REPORTING OF...
References: Asmii Vernekar, 2009. Available at: http://www.buzzle.com/articles/basic-accounting –concepts-and –principles.html. Assessed on 15th December, 2009
Buz/ed, 2009. Available at: http://www.bized.co.uk/compfact/ratios/sdc5.htm Assessed on 13th December, 2009.
Centrica Plc, 2005. International Financial Reporting Standards. Available at: http://www.centrica.co.uk/files/results/2004_ifrs_transcript.pdf. Assessed on 15th December, 2009
FAME (Financial Analysis Made Easy), 2009. Available at: http://www.fame.bvdep.com/version-20091130. Assessed on 11th December, 2009
Peter Atrill, and Eddie McLaney (2008), Accounting and Finance for Non-Specialists, 6th ed. Prentice Hall, financial times.
David Alexander and Christopher Nobes. (2007), Financial Accounting, An International Introduction, 3rd ed. Prentice Hall, financial times.
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