Financial Statements and Stakeholders

Introduction In this report six different users of monetary statements pull up stakes be identified. Each user group depart be described and the reasons why they use financial statements pull up stakes be examined. Analysis and calculations of pertinent and specific financial information go forth be performed to reflect the murder of the association, and how this is seen by the different stakeholder groups.The ii companies I have 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 number of stakeholders who will be affected by the comp any(prenominal)s financial statements. Sainsburys and Morrisons in any case repugn indoors the equal sector and hence the financial statements and companies are obviously comparable, this will help with benchmarking to analyse the data .(Mclaney and Atril.2008). This will help to de margeine, along with the relevant analy sis and calculations, which stakeholders will be more rejoicing with the financial statements out 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 importance 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 profitability, efficiency, Liquidity, fiscal Gearing and Investment potential within Morrisons and Sainsburys.(Mclaney and Atril.2008.). Boards of Directors The owners and boards of directors of some(prenominal) Sainsburys and Morrisons would use financial statements to review the performance of management and assess the oerall performance of the company. For the smooth operation of the organisation, the managers and owners also need th e financial reports to make essential business decisions. For example the occurrent debt to equity ratio is classic in deciding the amount of long term capital that would be required to be raised for making certain business decisions.This keister be determined by using the following formula. numerate liabilities Total assetsx 100%Sainsburys (?m)Morrisons (?m) 10535 16540 x 100% =63.7% 6037 10792x 100%= 55.9%As mess 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 existence able to calculate a firms performance. This thus means that they are financing their growth more by debt than they are by their current assets than Morrisons. tho this is not necessarily a bountiful thing, and this could mean that they growing more than if they did not utilise this outside financing. If this increases earnings by a greater amount than the debt interest that would be incurr ed and because it is definitely beneficial to do so, thus the board would be pleased with what they have seen from the financial statements.ShareholdersShareholders get together a set of financial statements as a right, and are the only stakeholders to do so. The shareholders interest will be in what the company is doing with the money 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 paying out year on year and the potential for future 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 consider selling their shares and investing in something else which will give them a higher return. Obviously operating profit margin is also undeniable to measure overall performance and this can be calculated as follows. Profit b efore interest and tax Sales x 100%Sainsburys (?m) Morrisons (?m) 1009 23949 x 100%=4.2% (95) 17680 x 100%=-0.5%Supermarkets usually operate at low operating margins, so these results are not wholly strike (McLaney and Attril.2008) Morrisons extremely poor performance this year is down to incredibly high administrative costs, this could be seen as possibly due to a tender initiative or launch of service which required high costs to get this off the ground, and therefore this whitethorn 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 increased and the shareholders will be pleased with this performance as it could increase shareholder dividends.BanksBanks are extremely elicit in a companies much(prenominal) as Sainsburys or Morriso ns 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 insist on looking at more up to date information than the pass away 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 calculated as follows. Current assets less inventory Current liabilitiesSainsburys (?m) Morrisons (?m) 4362-1005 6765= 0.5 1 1430-852 2873= 0.2 1Supermarkets by nature have genuinely 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 to have, whereas Sainsburys at 0.51 is relati vely healthy for a company that operates as a supermarket.Creditors A companys trade creditors and suppliers will also obviously be interested in a companies financial statements such(prenominal) 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 centre to the cash position of the company its liquidity. 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 cash problems in the company which may render it an insecure buyer for the future.Creditors are also extremely interested in creditor long time. This is the average payment period to payables expressed in days. This can be calculated by the following formula. craftsmanship payables x 365 PurchasesSainsburys (?m)Morrisons (?m) 2272 x 365 16606= 50 days 2692 x 365 22562= 44 daysAs can be se en, 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 sudden than Morrisons creditors and thus will have a more efficient flow of cash. This could mean building a better 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. shell out debtors/customers. These persons would be interested in the companys likely continuance into the future as a secure source of supply, and so would look for any items affecting this, such as production difficulties, sales price increases etc.These will also be most interested in debtor (receivables) days, this is the modal(a) collection period for receivables expressed in days. It is calculated as follows. Trade receivables x 365 Sales RevenueSainsburys (?m)Morrisons (?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 rival in the same 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 income statement to compare this to their own performance. A rivals bad result, when its own is good, would enhance performance in the eyes 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 visual perception 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 terms 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 range of different stakeholders have reason to be i nterested in a companies financial statements. These stakeholders range from being interested in their own personal gain, those such as Shareholders, as well 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 access 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 hi-fi 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 stakeholders will be more pleased with the financial statements t han 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 Report 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. up 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 Using Financial Statements. MasonThomson LearningWM Morrisons Supermarkets plc , 2014. Morrisons Annual Report 13-14 Online. http//annualreport.marksandspencer.com/downloads/MS_AR2014_Annual_Report.pdf Accessed online on 01/11/2014