Roehampton University and Renishaw plc: Accounting for Organisations - Essay Example

? Accounting for Organization Accounting for Organization Roehampton The of Roehampton is a registered charity under the charity act 1993. It works under the authority of the Higher Education Funding Council England. The basic purpose of the existence is to provide quality higher education and to become an institution for research and teaching. In preparing financial statements the board of governors has taken into account the guidelines of the Charity Commission and the basic purpose of the reporting is to show the benefits to the public (Roehampton University, 2011). The university is a non-profit entity, so it has prepared an income and expenditure account since there is no profit and no tax liability. The primary users of these statements include the Board of governors, Charity Commission, and Higher Education Funding Council etc. Renishaw plc Renishaw plc is a worldwide company which excels at measurement, motion control, precision machine and spectroscopy. The innovative products of the company enable better operational performance by enhancing manufacturing efficiencies and quality of the products as well as the efficiency of the medical procedures (Renishaw plc, 2011). The company exists to make profit from the operation, so a set of financial statements is produced taken into account the guidance provided by the IFRS and UK GAAP. The primary users of the financial statements include employees, investors both current and perspective, tax and other regulatory authorities, creditor, customers etc. The purpose of usage of every group differs from each other. Business and Environmental Factors There are many factors affecting the business in the education sector. One of the most important factor is financial factor since the university is not fully supported by the funding council grants. The total income in the year is 2010-2011 is ?74 million of which ?34 was the grant received. Another factor is the government intervention since the university is registered under the trust the rules and regulation may change over the period of time as mentioned the financial statements are produced according to the guidance of the Charity Commission. In addition to these, there are political factors, social factors for example the quality of education the society is looking for, technological factors, legal factors such as copy rights, union laws, and socio-cultural factors for example religious affiliations and education level and age distribution. Renishaw plc is a listed company under the laws and regulations which are different from those of charity. The company has to follow the law in order strictly in order to survive the business. These laws may include safety law, labor law, tax laws, and other regulation. Then there is always a danger from competitors taking the market share by providing better quality products. Economic factors are the most important since the company is globally established the currency exchange rates affect the company heavily. There are many challenges to Renishaw as mentioned in the Chairman’s report such as technological advancement, recruitment and absorption of the new employees. The directors expect to overcome these factors in future. Basis of Analysis The purpose of existence of both the organization differs significantly in terms of goals and objective. The purpose is of existence is also different. So, the performance measurement is based on two different methods. Renishaw’s performance has been evaluated with the help of key ratios and other information provided in the financial statements, while the Roehampton University is a non-profit organization the purpose of whose operations is not the generation of the profit, but it exists for the benefit of the masses. Te performance of the university has been evaluated in context the strategic target that were set and for the board of trustees. Renishaw plc Performance Evaluation Profitability The net profit represents the percentage of profit earned after deducting all the expenses (Fleming, 2004).There is a significant increase in the net profit ratio since 2010. In 2010 net profit ratio was 12.01% which increased to 22.90% in 2011. The major reason is the extraordinary increase in the sales revenue. According to the Chairman’s statement the group revenue increased to ?288.9 million in 2011 from ?181.6 million in 2010. The huge difference represents 59% increase in revenue. ?8.9 million revenue was generated from the newly acquired company. In addition to this, the company made efforts to control the cost. Operating profit ratio has also improved to 27.92% in 2011 from 14.55% in 2010 due to the same reasons. Return on capital employed reflects how well the company has utilized its resources to generate the profit from its activities (Lumby, 1988). There is a significant increase in the return on capital employed from 12.62% to 29.63% in 2011. This is a positive sign for the company. The major reason for improvement is the heavy increase in the profit while there is no major increase in the capital employed since 2010. Like other profit measures, EPS is one of the key indicators of the profitability. EPS in the year 2011 is more m than 3 times of the EPS in 2010. It is because of the fact that the number of outstanding shares is the same in both years, but the profit has increased to ? 66.1 million from ?21.8 million in 2010. Efficiency Ratios Inventory turnover indicates the number of time the inventory is sold and repurchased in a year (Brigham & Houston, 2009). Inventory turnover has decreased to 2.58 in 2011 times from 3.05 in 2010. The company is holding more inventory than the previous years, but the reason for the decline is the extraordinary increase in sales revenue since last year. Trade receivable collection period indicates the number of days taken by the customers to pay for the credit sales (Palepu, et al., 2007). Receivable collection period has also declined from 92.2 days in 2010 to 77.78 days in 2011. This reasonable decline shows the efforts made by the management regarding credit control. Trade payable days represent the number of days taken by the company to pay for the credit purchases (Koen & Oberholster, 1999). There are no such changes in the payable period. It moved from 40.61 days to 39.28 days in 2011. Volume of the credit purchases has increased as well as the trade payable due to the increased demand of the products. Liquidity Ratio Current ratio represents the availability of the current assets to pay the current liabilities when due (Stickney, et al., 2010). As far as this ratio is concerned the company is in very strong position to pay the current liabilities. Although it has declined slightly in 2011 from 3.87 to 3.34 but still the company is able to maintain a good current ratio. Quick ratio on the other hand, represents only the liquid resources available to pay the current liabilities (Jackson, et al., 2008). Acid test ratio has also fallen since 2010. It has reached to 2.28 in 2011 from 2.84 in 2010 due to the increase in trade payable and other payable. The company still maintains a good acid test ratio to pay the current liabilities in time. Investment Ratio Dividend payout ratio shows the amount of the profit that is distributed amongst the shareholders (Baker & Powell, 2009). It the primary concern of the shareholders that how much return they are getting on their investments. It is a good sign that the company has distributed 26.31% of its earning in 2011 in contrast to 13.35% in 2010, due to the extraordinary profits. Dividend per share has also improved significantly from 4 pence to 23.3 pence in 2011. The reason for the change is that higher dividend has been announced and there no change in the number of shares. Dividend cover reflects the company’s ability to pay the dividend out of profit (Norton, et al., 2006). Although the dividend cover has declined sharply since last year, but there is no significant issue. It is because of the reason that the company has announced dividend twice as much as the last year. Cash Position The company holds a stronger cash flow position than last year. The cash generated from operations in 2011 is more than double the cash flow last year. Cash flow shows ?58.8 million cash inflow from operating activities in contrast to ?24.5 million in 2010 (Renishaw Plc, 2010). The liquidity position is solid and, the company has sufficient cash and liquid resources available to finance its operations. Roehampton University Performance Evaluation As describe earlier that the university is registered under the charity act so instead of profit and loss account an income and expenditure account have been produced. The total income for the year 2011 is ?74.2 million as compared to ? 68.1 million last year. Although the aggregate expenses have raised since 2010, but the management is able to save 4% of the total income as compared to 2% last year which is slightly economical. Staff cost has increased a little since 2010 due to inflationary effects (Roehampton University, 2010). The targets set by the board of governors were achieved by the University and also reported to council. The detail of which is mentioned below. Key Targets Results (1) 50 % increase in income from part time students, post graduate and overseas students. 111% increase was achieved in 2011 (2) 25% increase in external research income 78% increase achieved (3) One private study per 10 student 1.14 private room per 10 students (4) 100% of student bedroom networked 100% rooms now have internet facility both cabled and wireless. (5) Growth in the other sources of income to have less reliance on the grant from Higher Education Commission and TDA. Now the total grant from the commission and the TDA represent 44% of income as compared to 61% in 2005. Cash Position At the end of year 2011, the total cash reserves are ?16.5 million as compared to the last year balance of ?13.36 million. The university is able to maintain a reasonable liquidity position. The trade creditors falling within one year are ?8.4 million. There is no major change in the cash flow from operating activities. Cash flow from operating activists is ?4.8 million in 2011 as compared to ? 4.4 million in 2011. The net increase in cash is ?2.7 million. The overall performance of the university is better than previous years since there is a better liquidity position and the target set for the financial year has been achieved. The efficiency has improved together with the increase in reserves. Social and Environmental Factors Social and environmental factors both are important for an organization to deal with proper care. Social factors include fashion, trend ageing of population etc (Jacks, 2012). Ageing of the population are the most important factor because it will decide the turnover rate for example, if the population is lacking young employees they might retire at some point of time, and there might be effects on the productivity. As mentioned in the corporate social responsibility, the staff turnover has decreased to 6% in Renishaw as compared to the 12 % in the UK. Numerous jobs were created for undergraduates during the year, and the company has induction plan for the future. The Renishaw has invested in energy saving system to reduce the damage done by the carbon. There is also an increase in the sponsorships community based programmes. Donation of ?130,000 was made to Red Cross to facilitate the earthquake relief activities. The management has made efforts to carry operation without damage to the environment to sustain the growth. On the other hand, the social and environmental factors for the university are different. The perception regarding the quality of education may be different. Some people may prefer to join the expensive universities for the quality of education that desire. The students completing education from the university would surely have affects on the society in the form of educating people as well as contributing to the growth in the country. In both sectors social and environmental factors differs then each other because of the nature of the business for example there in no danger of pollution in the environment from university operation but the manufacturing industry spreads pollution although the effects can be minimize. The product has the effect on the society for example, as discussed earlier the student may educate people and the manufacturing product may have effects on efficiency. So they these factors vary with the nature of the industry. List of References Baker, H. K. & Powell, G., 2009. Understanding Financial Management: A Practical Guide. Victoria, Australia: Blackwell Publishing Ltd. Brigham, E. F. & Houston, J. F., 2009. Fundamentals of Financial Management, Mason, USA: Litten Publishing. Fleming, L., 2004. Excel HSC Business Studies: With HSC Cards. Sydney: Patris Joannou. Jacks, B. L. M. M., 2012. Education as a Social Factor (RLE Edu L Sociology of Education). New York: Routledge. Jackson, S. R., Sawyers, R. B. & Jenkins, J. G., 2008. Managerial Accounting: A Focus on Ethical Decision Making. Mason, USA: Newgen. Koen, M. J. & Oberholster, G. I., 1999. Analysis and Interpretation of Financial Statements. Cape Town: Creda Communications. Lumby, S., 1988. Investment Appraisal and Financing Decisions, Berkshire, England: Van Nostrand Reinhold Interntional Co Limited. Norton, C. L., Diamond, M. A. & Pagach, D. P., 2006. Intermediate Accounting: Financial Reporting and Analysis. Boston, USA: George Hoffman. Palepu, K. G., Healy, P. M., Peek, D. E. & Bernard, V. L., 2007. Business Analysis and Valuation: Ifrs Edition. Bath, UK: Patrick Bond. Renishaw Plc, 2010. Financial Statements. Gloucestershire, UK: Renishaw Plc. Renishaw plc, 2011. Financial Statements , Gloucestershire, UK: Renishaw plc. Roehampton University, 2010. Financial Statements. London: Roehampton University. Roehampton University, 2011. Financial Statements, London: Roehampton University. Stickney, C. P., Weil, R. L., Schipper, K. & Francis, J., 2010. Financial Accounting: An Introduction to Concepts, Methods and Uses. Mason, USA: Lachina Publishing Services. Appendix 1 Renishaw plc Ratios 2011 2010 Profitability ratios         Net profit ratio 22.90% 12.01% Operating profit ratio 27.92% 14.55% Return on capital employed 29.63% 12.61% Earnings per share (Pence) 90.30 29.30 Efficiency Ratios Inventory Turnover (Times) 2.58 3.04 Trade receivable collection period (Days) 77.78 92.20 Trade payable payment period 39.28 40.61 Liquidity Ratios Current ratio (Times) 3.34 3.87 Acid test ratio (Times) 2.28 2.84 Investment ratios Dividend payout Ratio 26.31% 13.35% Dividend per share (Pence) 23.3 4 dividend cover (Times) 3.88 7.33 Read More