BE167-7-AU: Accounting and Finance for Managers
BE167-7-AU: Accounting and Finance for Managers
Introduction
A complete study of Premier Foods plc’s financial performance will be done in this report, connecting theoretical principles from the Accounting and Finance for Managers course with actual implementation. Premier Foods’ current three consecutive years serve as the main point of our evaluation as a food industry cornerstone. The goal is multifaceted: assessing the company’s commercial dynamics, strategic moves, and market possibilities, as well as the risks connected with them. Following that, we go into the profitability environment, evaluating three selected ratios. The report expands its investigation into resource management efficiency using three selected efficiency ratios.
Discussion
Evaluation of company’s business dynamics, strategies and market prospects
Business Dynamics
Premier Foods holds a 4.5% market share in ambient food, making it the largest food maker in the United Kingdom. It has a solid market position. Many well-known UK food brands, including Mr. Kipling, Ambrosia, Batchelors, Loyd Grossman, OXO, and others, are owned by Premier. It enjoys strong consumer loyalty and brand awareness as a result. Major shops may be efficiently supplied by Premier because to its substantial production and delivery network in the United Kingdom. Product development has not always been innovative (Tkachenko et al., 2019). R&D investment has been minimal. For Premier to fuel further expansion, additional funding is required here. Accelerating branded growth, gaining market share in important categories, improving e-commerce and international sales, and strengthening innovation pipelines are some of the new CEO’s primary initiatives.
Strategies for premier foods Plc
In order to concentrate resources and attention on its main power brands Mr. Kipling, Ambrosia, and OXO that have great recognition and devoted followings in the UK market, Premier has been streamlining its assortment (Dalwai and Salehi, 2021). The goal of this is to increase revenue from its top local brands. Even though the UK is still its major market, Premier is working to diversify how it makes money as time passes by increasing exports, mostly to nations in Europe, the Middle East, and Asia.
Market prospects with associated risk
In the UK, Premier Foods holds prominent positions in the marketplace and enjoys high brand awareness in a number of ambient food categories, including pickles, sauces, gravies, and desserts. This offers a strong basis. Premier can maximize its development potential by utilizing its distribution system, customer knowledge, and brand equity by concentrating on its key power brands (Crick and Crick, 2020). The capacity to boost costs in a low-inflation climate is limited by the fiercely competitive UK grocery sector, which can lower the profits. Additionally, retailer concentration increases buyer power. Increased expenses and supply network interruptions brought on by Brexit may have a detrimental effect on operation and revenue.
Evaluation of company financial performance through Profitability ratios
The table demonstrates how Premier Foods’ profitability ratios have improved over the course of the last three years, demonstrating a rise in the company’s efficacy and efficiency in turning a profit on business operations, sales, and net income. From 32.7% in 2020 to 33.4% in 2022, the gross profit margin grew, indicating that the business either raised its selling price or decreased its cost of goods sold (Tajeddini et al., 2020). The corporation has either decreased operational expenditures or increased operating income, as seen by the operating profit margin, which climbed from 15.7% in 2020 to 17.1% in 2022. As 6.3% in 2020 to 8.6% in 2022, the net profit margin grew, indicating either a decrease in interest and tax charges or a rise in revenue from operations for the firm.
G.P ratio
The Gp ratio of the company in 2022 was 33% and in 2020 it was 32.664%. The company has increased its GP through managing the production cost and direct cost effectively. The ratio here indicated that the company’s price is also increasing tend and the company is becoming the more popular among the common people. The increasing trend in the sales figure can vouch for that.
NP ratio
From 6.33% in 2020 to 8.61% in 2022, the company’s pattern of growing profitability indicates that its profitability has improved (Husain and Sunardi, 2020). This shows that operational and non-operating expenditures may be effectively controlled, increasing the percentage of sales that go toward the company’s net profit.
OP ratio
Over the course of the three years, Premier Foods’ margin of profitability has steadily improved, hitting 17.14% in 2022. This indicates effective cost control and emphasizes the business’s capacity to generate a profit from its main activities.
Premier Foods Plc has advanced its benefit position over the three years, as shown by the rising pattern of its net revenue, working overall revenue, and net overall revenue (Ningsih and Sari, 2019). This demonstrates that the organization has had the option to produce additional benefits from its business, activities, and overall gain, comparative with its income. The organization has diminished its expense of merchandise sold and working costs, by carrying out different proficiency and efficiency measures, for example, streamlining its store network, working on its acquirement and obtaining, upgrading its assembling and conveyance processes, and defending its item portfolio (Arsyad et al., 2021). The organization has likewise diminished its revenue and duty costs, by renegotiating its obligation, further developing its income, and profiting from the public authority’s expense mitigation plans.
Evaluation of company financial performance through Efficiency ratios
The table demonstrates that Premier Foods has generated revenue over the last three years by maintaining or slightly improving its efficiency ratios, which suggests that the company has made efficient use of its inventories, assets, and accounts receivable. The corporation has raised its revenue per unit of asset, as seen by the asset turnover ratio, which grew from 0.66 in 2020 to 0.71 in 2022. The firm has continuously controlled its inventory level and cost of products sold, as seen by the inventory turnover ratio, which has been around 6.00 (Permana, 2023). Additionally, the company’s accounts receivable turnover ratio has stayed consistent at 10.50, indicating that it has received income from clients on time.
AT Ratio
The Asset Turnover Ratio of Premier Foods plc illustrates the company’s capacity to produce income from its average total assets. The pattern that shows a decline in efficiency from 2020 (0.66) to 2022 (0.71) raises the possibility that the business is not making as good of use of its assets to produce revenue (Le et al., 2019). It is necessary to look at the elements affecting this tendency further.
IT ratio
Premier Foods’ inventory management effectiveness is gauged by the Inventory Turnover Ratio. The rising trend in inventory turnover from 5.97 in 2020 to 6.00 in 2022 suggests that the business is doing it more frequently.
ART ratio
Premier Foods’ turnover rate for accounts receivable remained mostly stable throughout the course over the three years, indicating that the company efficiently converts receivables into cash. Nevertheless, a careful analysis of industry standards is required to ascertain how well the business is performing in relation to its rivals.
The company has enhanced the supply network through enhanced sourcing and purchasing, manufacturing and shipping processes, and a more efficient product line (Ramadhani and Patimah, 2022). The company has also implemented a variety of efficacy and productivity projects, including increasing automation, improving quality, and reducing waste. The firm has benefited from the the federal government’s tax reduction schemes, which have reduced its tax expenses and enhanced cash flow.
Evaluation of financial performance through ratios of investment
The information indicates that Premier Foods has improved its EPS during the last three years, indicating a rise in net profit per share. The price to earnings ratio has fluctuated over the last three years, indicating that the stock’s price has not kept pace with the EPS (Rashid, 2021). The rate of return of the dividend climbed from 0.00% in both 2021 and 2020 to 0.93% in 2022, indicating that the company may have started paying out dividends to its shareholders.
Figure 6: Investment Ratio
(Source: Self-created in MS EXCEL)
EPS
Premier Foods plc’s earnings per share increased over time, rising from 6.17p in 2020 to 8.39p in 2022. This shows that the corporation can produce more earnings per outstanding share, which will increase the value of its shareholders.
P/E Ratio
The Price Earnings Ratio has demonstrated a volatile trend, signifying the market’s assessment of a company’s share value. The declining trajectory of Premier Foods’ stock from 17.30 in 2021 to 15.45 in 2022 may indicate a possible undervaluation, providing possibilities for value-seeking investors.
Dividend Yield
Premier Foods has consistently demonstrated a dividend yield, which reflects the return that investments generate for stakeholders via dividend payments (Alarussi, 2021). While the yield falls somewhat between 2020 to 2022, it remains advantageous, indicating an ongoing source of profit for shareholders.
Creative accounting techniques to manipulate financial statements
The practice of creating or misinterpreting accounting regulations in order to abuse the standards and procedures established by accounting organizations is known as “creative accounting.” It is an abuse of weaknesses in our audit and accounting systems following the completion of the accounts.
The techniques of creative accounting
Revenue recognition: Inflating the income statement by manipulating the amount and timing of revenue recognition.
Recognition of costing: Delaying or postponing the acknowledgment of expenses in order to lower stated costs and raise the net profit is known as expense acknowledgment.
Asset valuation: Declaring assets worth more or less in order to influence the financial statements and the balance sheet.
Liability assessment: It involves either overstating or understating the amount of obligations in order to influence the revenue statement as well as the balance sheet.
Off-balance sheet financing: Moving commitments or debt to companies that aren’t included in the financial reports’ consolidation.
Related party interactions: Making business dealings with organizations that are closely associated with the corporation, including affiliates, subsidiaries, or directors, in an effort to sway its economic outcomes.
The Premier Foods plc had a total debt of £408.4 mm in 2020, a decrease of £134.6 million over the year before 2022. But the primary cause of this decrease was the £200 million sale of its Ambrosia brand, which was categorized as a ceased operation (Luthfan et al., 2021). Additionally, the business exploited a £13.9 million favorable shift in currency rates to reduce its net debt. These elements covered up the company’s operating operations underlying growth in net debt.
The business recorded a profit from operations of £132.6 million in 2020, a 28.7% rise over the year before. But the realization of a £42.8 million benefit from its sale of its Ambrosia Company, which was reflected in the operational profit, was primarily responsible for this rise. Additionally, the business subtracted £25.5 million from operating profit due to extraordinary items such as restructuring expenditures, depreciation charges, and legal fees. The operating profit adjustment was only 6.9% higher than the same period last year, at £106.8 million, as a result of these issues.
The business posted a net profit of £53.6 million in 2020, a significant improvement after the £42.7 million net loss incurred the year before. But the primary reason for this improvement was the inclusion in the net profits of an additional £42.8 million profit on the disposal of its Ambrosia brand. Additionally, the business deducted £25.5 million from net income due to extraordinary items such as restructuring expenditures, depletion charges, and legal fees. Due to these charges, the adjusted net profit was just £10.8 million, down £31.9 million over the prior year.
Conclusion
Growing gross, operating, and earnings margin over the last three years demonstrate Premier Foods’ consistent increase in profitability. Lower expenditures combined with cost savings in both production and distribution have helped the firm. Although there is room for improvement, asset and working capital management efficiency has remained steady. With a rise in earnings per shares and a restoration of dividend distributions, returns to investors have also improved. Reliance on one-time benefits through disposals and advantageous changes in currency rates, however, suggests that underlying operational revenue growth is still restrained. Stricter accounting procedures are required to disclose the real quality of earnings. Prospects can change if innovation and exports are given more attention.
Reference List
Journals
Alarussi, A.S.A., 2021. Financial ratios and efficiency in Malaysian listed companies. Asian Journal of Economics and Banking, 5(2), pp.116-135.
Arsyad, M., Haeruddin, S.H., Muslim, M. and Pelu, M.F.A., 2021. The effect of activity ratios, liquidity, and profitability on the dividend payout ratio. Indonesia Accounting Journal, 3(1), pp.36-44.
Crick, J.M. and Crick, D., 2020. Coopetition and COVID-19: Collaborative business-to-business marketing strategies in a pandemic crisis. Industrial Marketing Management, 88, pp.206-213.
Dalwai, T. and Salehi, M., 2021. Business strategy, intellectual capital, firm performance, and bankruptcy risk: evidence from Oman’s non-financial sector companies. Asian Review of Accounting, 29(3), pp.474-504.
Husain, T. and Sunardi, N., 2020. Firm’s Value Prediction Based on Profitability Ratios and Dividend Policy. Finance & Economics Review, 2(2), pp.13-26.
Le, T.H., Chuc, A.T. and Taghizadeh-Hesary, F., 2019. Financial inclusion and its impact on financial efficiency and sustainability: Empirical evidence from Asia. Borsa Istanbul Review, 19(4), pp.310-322.
Luthfan, T.C., Manda, G.S. and Sosrowidigdo, S., 2021. Application of risk management to the level of financial efficiency in BPD JAWA TENGAH. Jesya (Jurnal Ekonomi dan Ekonomi Syariah), 4(1), pp.458-471.
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Permana, R.M., 2023. Financial Performance Analysis of SHIP Before and After the IPO Based on Liquidity, Solvency and Profitability Ratios. Indonesian Journal of Contemporary Multidisciplinary Research, 2(4), pp.643-654.
Ramadhani, L. and Patimah, S., 2022. ANALYSIS OF LIQUIDITY RATIO AND PROFITABILITY RATIO IN ASSESSING FINANCIAL PERFORMANCE OF PT. INDAL ALUMINIUM INDUSTRY, Tbk. Jurnal Ekonomi, 11(03), pp.1403-1410.
Rashid, C.A., 2021. The efficiency of financial ratios analysis to evaluate company’s profitability. Journal of Global Economics and Business, 2(4), pp.119-132.
Tajeddini, K., Martin, E. and Ali, A., 2020. Enhancing hospitality business performance: The role of entrepreneurial orientation and networking ties in a dynamic environment. International Journal of Hospitality Management, 90, p.102605.
Tkachenko, V., Kwilinski, A., Tkachenko, I. and Puzyrova, P., 2019. Theoretical and methodical approaches to the definition of marketing risks management concept at industrial enterprises. Marketing and Management of Innovations.
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