Financial Statements and Stakeholders

Introduction In this report vi variant users of pecuniary statements pass on be identified. Each user group go forth be described and the reasons why they use monetary statements go away be examined. Analysis and calculations of relevant and specific fiscal information go away be performed to reflect the exercise of the lodge, and how this is seen by the distinguishable stakeholder groups.The two companies I ca-ca chosen are J.Sainsbury plc and WM Morrisons Supermarkets plc, hereafter known as Sainsburys and Morrisons. This is because these two companies are two which have a large material body of stakeholders who leave be affected by the social clubs pecuniary statements. Sainsburys and Morrisons also compete within the corresponding sphere of influence and thus the financial statements and companies are plain comparable, this will help with benchmarking to gagevas the data .(Mclaney and Atril.2008). This will help to determine, along with the relevant analysi s and calculations, which stakeholders will be more gay with the financial statements come to the fore of the two supermarkets. As of May 2014, Morrisons had 11% of the market, and Sainsburys 16.6% (Garner.2014).The financial statements we will be assessing are income statements and balance sheets. These are the two statements which are of greatest grandeur to the majority of stakeholders. I have attained the most recent financial statements from the two companies from their recent annual reports. This report will use financial balances to assess the profit major power, efficiency, Liquidity, Financial Gearing and Investment latent within Morrisons and Sainsburys.(Mclaney and Atril.2008.). Boards of Directors The owners and boards of directors of both(prenominal) Sainsburys and Morrisons would use financial statements to review the performance of management and assess the over entirely performance of the corporation. For the strike operation of the organisation, the managers and owners also need the financial reports to make essential worry decisions. For example the current debt to equity ratio is important in decision making the standard of long term capital that would be essential to be raised for making certain business decisions.This groundwork be fixed by using the following formula. Total liabilities Total assetsx atomic number 6%Sainsburys (?m)Morrisons (?m) 10535 16540 x 100% =63.7% 6037 10792x 100%= 55.9%As tush be seen Sainsburys debt to equity ratio is 63.7% with Morrisons at 55.9%, a difference of 7.8%. This ratio is one of the key set of 10 identified by Laurent (2006) in being able to predict a firms performance. This thus means that they are financing their growth more by debt than they are by their current assets than Morrisons. However this is not necessarily a bad thing, and this could mean that they growing more than if they did not utilise this impertinent financing. If this increases earnings by a greater amount than the debt interest that would be incurred then it is definitely estimable to do so, thus the board would be satisfy with what they have seen from the financial statements.ShareholdersShareholders receive a set of financial statements as a right, and are the only stakeholders to do so. The stockholders interest will be in what the company is doing with the bullion they have invested, and whether it is making a profit or loss. If it is profitable, they will want a return in the form of dividends, so they will be concerned with the level of dividends the company is honorariuming fall out class on year and the potential for rising profits and dividends. If profit levels and dividend pay-outs diminish noticeably, or if no dividends are paid out because the company has made a loss, then they will share interchange their shares and investing in something else which will give them a higher(prenominal) return. Obviously operating profit margin is also needed to account overall perform ance and this can be reckon as follows. net before interest and tax Sales x 100%Sainsburys (?m) Morrisons (?m) 1009 23949 x 100%=4.2% (95) 17680 x 100%=-0.5%Supermarkets normally as certainly at low operating margins, so these results are not completely surprising (McLaney and Attril.2008) Morrisons extremely poor performance this year is mow to incredibly high administrative costs, this could be seen as possibly due(p) to a new initiative or launch of service which required high costs to get this off the ground, and therefore this may pay dividends in the future. Thus it will be imperative to see how they will perform in the next year without these high administrative costs. Sainsburys operating profit margin can be compared with the previous year to see how they are progressing, and this was 3.8%. Thus their net profit margin has increase and the shareholders will be pleased with this performance as it could increase shareholder dividends.BanksBanks are extremely interest i n a companies such as Sainsburys or Morrisons financial statements. For example if a company has an overdraft or a bank loan, then the banks need to make sure that a company can afford to pay these loans it owes off (Palepu and Healy.2008). If a company is applying for a loan, similar considerations apply, although the bank would in addition importune on sense of smelling at more up to date information than the last set of statutory accounts as these could be rather out of date. The banks would calculate this by with the acid test ratio. This shows the companys ability to pay its current liabilities from liquid assets. This is work out as follows. Current assets little entry Current liabilitiesSainsburys (?m) Morrisons (?m) 4362-1005 6765= 0.5 1 1430-852 2873= 0.2 1Supermarkets by nature have very low acid test ratio scores due to some stock on their shelves not selling as quickly as they would like. However Morrisons at 0.21 is much lower than the company would be wanting t o have, whereas Sainsburys at 0.51 is relatively healthy for a company that operates as a supermarket.Creditors A companys trade creditors and suppliers will also obviously be interest in a companies financial statements such as the balance sheet and income statement. Such stakeholders will be concerned with whether the company can pay regularly for its purchases from them, so they will have an shopping centre to the currency position of the company its fluidness. They will also be interested consequently in any items in the accounts which may affect this liquidity such as bank overdrafts or loans, as such items would usually indicate hard currency problems in the company which may render it an precarious buyer for the future.Creditors are also extremely interested in creditor days. This is the average payment period to payables expressed in days. This can be calculated by the following formula. business deal payables x 365 PurchasesSainsburys (?m)Morrisons (?m) 2272 x 365 16606= 50 days 2692 x 365 22562= 44 daysAs can be seen, Sainsburys creditors will be the more pleased out of the two sets of stakeholders for both supermarkets. This is because they are paid on average six days red-hot than Morrisons creditors and thus will have a more good flow of cash. This could mean building a die relationship with these creditors. However Morrisons may also be pleased as it means they are able to hold on to this cash for longer and maximise cash flow with longer creditor days payable.Trade debtors/customers. These persons would be interested in the companys likely continuation into the future as a secure source of supply, and so would look for any items affecting this, such as production difficulties, sales expenditure increases etc.These will also be most interested in debtor (receivables) days, this is the Average collection period for receivables expressed in days. It is calculated as follows. Trade receivables x 365 Sales RevenueSainsburys (?m)Morriso ns (?m) 433 x 365316 x 365 23949= 7 days17680= 7 daysHere both Sainsburys and Morrisons debtors will be equally as pleased when analysing the financial accounts for both of these companies. This is because they both receive a similar amount of time in which to pay their debts. Equally both of the supermarket chains will be relatively pleased with this as they will be in a similar position to each other in receiving the money from debtors. Similarly this is much shorter than the time it takes both to pay their creditors, and thus their cash flow efficiency will be maximised.Competitors Competitors will also be interested in the financial results of a contender in the similar industry sector to see whether its results are better or worse than its own, whether it has brought new products to the market place and how these have been doing (Palepu and Healy.2008). Competitors of Sainsburys such as Asda and Tesco may also be interested to compare things such as costs of goods on the i ncome statement to compare this to their own performance. A rivals bad result, when its own is good, would enhance performance in the eye of its own shareholders. A rivals similar adverse performance may reflect that both are hit by the same business factors.In the retail business something that both Morrisons and Sainsburys would be interested in seeing is how their inventories turnover period compares with that of their rivals. It can be calculated as follows. Inventories x 365Cost of sales*Sainsburys Morrisons 1005 x 365852 x 36522562= 17 days16062= 20 daysHere Sainsburys will have the more pleased boards of the two supermarkets when analysing their competitors in hurt of inventory turnover. This is because on average they manage to turn over their inventory 3 days quicker than Morrisons. This demonstrates that they have a more efficient stock system and are selling their products at a faster rate, which could lead to a better overall performance.ConclusionAs can be seen, a ran ge of different stakeholders have reason to be interested in a companies financial statements. These stakeholders range from being interested in their own personal gain, those such as Shareholders, as wholesome as being interested in how it impacts upon other stakeholders, through the analysis of both debtor days and creditor days.Financial reports are important for all different stakeholders so they can decide whether or not it is beneficial to be involved with a certain company, they are always interested in the going concern of the company. It is important for numerous reasons that these stakeholders have regain to the accounts to gain clarity and for the continuation of the working relationship with companies such as Sainsburys and Morrisons. It is therefore important that the accounting is accurate and up to standards for these different stakeholders of financial statements, it is also useful for comparison of companies and as can be seen from the analysis Sainsburys stakehol ders will be more pleased with the financial statements than Morrisons.BibliographyGarner, E. (2014). Kantar, UK grocery growth at lowest level for 11 years, Onlinehttp//uk.kantar.com/consumer/shoppers/070514-kantar-worldpanel-uk-grocery-share-data-april-2014/ Accessed online on 01/11/2014J.Sainsburys plc, 2014. Annual publish and accounts 2013-2014. Online. http//www.j-sainsbury.co.uk/media/2064053/sainsbury_s_annual_report_and_ accounts_ 13-14.pdf. 2014. Accessed online on 01/11/2014Laurent, C.R. better the efficiency and effectiveness of financial ratio analysis. Journal of Business finance and Accounting. Online Vol 6(3). 2006. p401-413.McLaney, E. J., Atrill. P. (2008). Accounting and finance an introduction. Fourth edition. Harlow Pearson.Palepu, K. Healy, P. (2008) Business Analysis and Valuation exploitation Financial Statements. MasonThomson LearningWM Morrisons Supermarkets plc , 2014. Morrisons Annual Report 13-14 Online. http//annualreport.marksandspencer.com/downlo ads/MS_AR2014_Annual_Report.pdf Accessed online on 01/11/2014