Inancial Performance of National Folk Festival Ltd - Essay Example

Management Report on Financial Performance of National Folk Festival Ltd Introduction The management of a company must analyse the Financial Reports for each financial year and compare them to those of previous years. This is in order for the management to know how the company is fairing and whether or not improvements should be made on which specific areas. This paper aims to make an analytical report on the financial reports of National Folk Festival Ltd. Working Capital Working Capital includes all the items that are in the short term part of the balance sheet and includes the money available to a firm for the day-to-day operations. For example cash, investments, inventory, debtors, creditors etc. Net Working Capital is therefore the difference between current assets and current liabilities. (Carey and Towers-Clark 2011) Working capital is relevant since it is a measure of the firm’s liquidity and efficiency because it involves all current assets and current liabilities. (Adams 2006) It is a reflection of the results of a number of other company activities like revenue collection, inventory management, payment to suppliers and debt management. A positive working capital in a firm would be an indicator of its ability to pay off its short-term obligations quickly. On the other hand, a negative working capital indicates that the business is struggling to pay off these short-term liabilities fast enough. (Atrill and McLaney 2011) In the case study of National Folk Festival Ltd, its working capital position for both 2007 and 2006 can be evaluated and compared. The comparison is to ascertain how liquid the firm was in these two years. The working capital of the company can be calculated as shown below: Working Capital (WC) = Current Assets – Current Liabilities 2007 2006 WC = 558,839 – 120,452 WC = 448,369 – 185,187 = 438,387 = 263,182 The year 2007 had a higher working capital than 2006. This means that in the year 2007, National Folk Festival Ltd was more liquid than in 2006 since it had more money to pay off its short-term liabilities as and when they fell due. A closer look at the current assets and liabilities for both years reveals that in 2007, the company had more current assets and fewer current liabilities compared to 2006. This was what attributed to the higher working capital in 2007 than in 2006. Variance Analysis of Income Statement Items A comparison of the income statement items for the years 2007 and 2006 shows that the company made significant improvements in 2007. In Appendix 1, a variance analysis shows the increase or decrease of incomes and expenses from 2006 to 2007. An increase in income or decrease in expense is a favourable variance while a decrease in income or an increase in expense is an adverse variance. The Change in Sales Mix The tickets sales in the year 2007 were higher than those in 2006. This also represented a larger percentage of the total income for the company as compared to the previous year. This was because the number of tickets sold in 2007 was 33,534 which were higher than the 32,372 tickets sold in 2006. The average price per ticket sold in 2007 was AUS$ 37 which was also higher than in 2006 when the price was AUS$ 35. The change in sales mix could also have been attributed to the increase in number of attendees from 50,740 in 2006 to 53,784 in 2007 as well as the increase in the average price per attendee from AUS$ 22 in 2006 to AUS$ 23 in 2007. The Change in Cost Profile In general the total costs incurred in 2006 were higher than those incurred in 2007. This could have been due to the fact that the company became more efficient and identified ways of reducing costs. Most expenses reduced in 2007 compared to 2006 with the exception of volunteer costs, repairs and maintenance, rental expense, employee wages and salaries, employee benefits and audit, legal and consultancy which all increased in 2007. Doubtful debts on the other hand remained the same in 2007 as in 2006. The expenses that increased were mostly due to the increase in the number of attendees in the year 2007 which led to the organisers increasing those expenses to cater for the growth of the event. The Change in Total Revenues Total revenues were higher in 2007 than in 2006. The bulk of the revenues came from ticket sales whose proportion increased in 2007 compared to 2006. Donations received subsidies and grants in 2007 accounted for a lower portion of the total income than in the year 2006 while concessions relatively contributed the same proportion in 2007 as was the case in 2006. Revenue from government reduced in 2007 compared to 2006 but other revenue and grants were significantly higher in 2007 than in 2006. The Change in Profit (Loss) The year 2007 yielded a profit, a change from the loss made in 2006. The profit made was largely due to the higher revenues obtained in 2007 than in 2006 and also the reduction of expenses incurred in 2007 relative to those in 2006. Sponsorship Funding Indeed sponsorship can be an alternative tool to increase future revenues by the organisers of the National Folk Festival but the company must forecast the opportunity that the sponsorship provides for it and the potential for return on investment for the sponsor. If the company decides that sponsorship funding is the appropriate source of extra revenues, then it must consider a number of factors that come into play while seeking and managing sponsorship funding. First and foremost, the organisers must identify the requirements for potential sponsors. This should be done early enough so that the company has enough time to get sponsors. The organisers must also take into consideration the type of sponsor they are looking for. (How to seek Sponsorship 2012) It would be advisable for them to look for sponsors who fund similar events or get as many other alternatives as possible so as to lengthen the list of the potential sponsors. The organisers should research on every sponsor’s background information before approaching them with reasons why it would be beneficial for them to sponsor the event. Another factor that is fundamental in seeking and managing sponsorship funding is the commercial opportunity that the event offers to the sponsor. The event should be able to fulfill the sponsor’s business need and should be a marketing tool for the sponsoring company. (Jagels 2007) Therefore substantial research should be undertaken by the organisers of the event so that they can know what they can offer their sponsors in terms of return on investment. The event should also be a platform for branding to the sponsor, for example, through the naming rights of the event. The sponsor can also use the event as a Corporate Social Responsibility (CSR) medium where the company’s staff can engage to volunteer in the event. (How to seek Sponsorship 2012) The target audience or “market” for the event is also another factor to consider. Identifying the demographic for the event enables the organisers of the event to source sponsorship form companies whose products also target a similar market. By identifying the company that would be a good fit with the event, the organisers can form a mutually beneficial partnership with that company. (Tribe 2005) The sponsor provides funding while the event provides an available market for them to sell their products. The amount of funding required for the event must also be put into consideration. How much do the organisers require for funding the event? This amount should be broken down to give the amount from different sponsors. Different sponsorship levels can also be formed where a sponsor can choose which package to subscribe for. By so doing the organisers can target a variety of companies of different sizes so that they ensure that they receive as much funding for the event as is required. APPENDIX 1 2007 2006 VARIANCE INCOME Ticket sales 1,227,075 1,137,888 89,187 F Camping 170,091 130,856 39,235 F Concessions 20,000 10,500 9,500 F Subsidies and grants 65,808 93,491 27,683 A Donations received 50,003 65,813 15,810 A Interest income 17,634 16,795 839 F TOTAL INCOME 1,550,611 1,455,343 95,268 F EXPENDITURE Administration 75,906 78,018 2,112 F Marketing and promotion 70,757 75,023 4,266 F Performance costs 260,793 330,610 69,817 F Volunteer costs 86,655 58,691 27,964 A Doubtful debts 1,405 1,405 0 Repairs and maintenance 5,732 4,951 781 A Rental expense 9,217 9,155 62 A Training expense 1,858 2,199 341 F Employee wages & salaries 423,496 390,136 33,360 A Employee benefits 283,316 215,181 68,135 A Depreciation and amortization 15,710 20,938 5,228 F Audit, legal and consultancy 6,350 3,559 2,791 A Other costs 150,310 286,240 135,930 F TOTAL EXPENDITURE 1,391,505 1,476,106 84,601 F PROFIT (LOSS) 159,106 (20,763) 179,869 F Key: A – represents ‘Adverse’ which means either a reduction of incomes or an increase in expenses F – represents ‘Favourable’ which means either an increase in incomes or a reduction in expenses References Atrill, P. and McLaney, E. (2011) Accounting and Finance for Non-Specialists. 7 th Edition. Harlow: Prentice Hall Adams, D. (2006) Management Accounting for the Hospitality, Tourism and Leisure Industries: A Strategic Approach. 2nd Edition. UK: Thomson Learning Jagels, M. (2007) Hospitality Management Accounting. 9th Edition. New Jersey. Wiley Tribe, J. (2005) The Economics of Recreation, Leisure and Tourism, Oxford: Butterworth-Heinemann Managers: A practical Approach. Oxford. Goodfellow Publishers Limited Carey, M. Knowles, C. Towers-Clark, J. (2011) Accounting a Smart Approach, Oxford University Press inc., New York. How to seek Sponsorship (2012) Available at: http://www.wikihow.com/Seek-Sponsorships Read More