Financial Performance of William Hill - Essay Example

Advices for Investors about Investment decision to William Hill plc Table of Contents Introduction 4 2. Financial performance of William Hill 4 2.1. Profitability 5 2.1.1. Operating profit margin 5 2.1.2. Net profit margin 6 2.1.3. Return on Asset (ROA) 7 2.1.4. Return on Equity (ROE) 8 2.2. Investment ratios 8 2.2.1 Earnings per share (EPS) 8 2.2.2 Dividends per share (DPS) 9 2.2.3. Payout ratio 10 2.3. Financial leverage 11 2.3.1. Long term debt / Equity 11 2.4. Liquidity ratios 11 2.4.1. Current ratio 11 2.4.2. Quick ratio 12 2.5. Efficiency ratios 13 2.5.1. Receivable turnover 13 2.5.2. Revenue/Employee 14 3. Reflection on the company 14 4. Corporate governance of William Hill 15 5. Investment advices 16 5.1. Net asset value per share 16 5.2. Share prices 17 6. Conclusion 18 Reference List 19 Appendix 23 1. Introduction William Hill is one of the largest and the most reputed bookmakers in the UK. The company has proven to be hugely profitable over the last decades or so and has a reported market capitalisation of £3.12 billion (Mann, 2014). The author has decided to conduct a fiscal study of this company. The underlying rationale behind the choice of this company is the fact that the UK government places increasing political pressure on the players in this industry. For example, all bets placed online in UK need to pay 15pc “point of consumption tax” from last December and players have to pay more£300m per year for the Treasury’s coffers (Thomas, 2014). The researcher endeavours to conduct an extensive analysis in order to see if the assessment of this company reveals a new perspective after these challenges. Henceforth what follows is a detailed financial performance evaluation where the researcher will be analysis various financial ratios to begin with. Thereafter, the corporate governance framework within the company will be analysed. This will allow the researcher to comprehend the corporate governance principles followed in a company that is associated with extensive bookmaking. Following that William Hill’s value in the market value will be analysed in order to provide investment advice to the readers. 2. Financial performance of William Hill Figure 1 given below reveals that William Hill’s revenue has increased gradually over the last 5 years. The company’s profit before tax has followed a same pattern as that of the company’s revenue during the same time period with an exception in the year 2013 where the profit dipped by nearly £20 million from the previous year. This goes to show the consistency demonstrated by the company in terms of its financial performance. Figure 1: Revenue and profit before tax of William Hill (Source: Global Business Browser, 2014) The management of William hill has done exceedingly well by shielding the company from any impacts of the 2007-08 financial crisis. This is precisely because of the fact that it was the period when majority of companies recorded huge loss. However, William Hill continued to exhibit a strong performance. It is believed that a lot of people resorted to bet their money to bookmakers in order to earn money in a short time during the time period between 2009 and 2013 and this is what helped William Hill to increase its revenue by a drastic margin. According to Key note (2014), the UK expenditure of household on games of chance increased more than 4% per year between 2009 and 2013 and it was recorded a highest growth in 2013 (8.3%). 2.1. Profitability 2.1.1. Operating profit margin When compared to the firm’s output, the operating profit margin has fluctuated moderately over the last five years. However the standard operating profit margin of William Hill considerably higher than the industry average. This explains the extent to which the company has outperformed majority of the companies operating in the same industry. A higher operating profit margin explains that the company has adequate amount of revenue stacked up after paying off the variable costs of providing the gods and services (Zack, 2013). This means that they are in a better position to get rid of its fixed costs (interests to be paid on debts) without much inconvenience (Will, Subramanyam, and Robert, 2001). Figure 2: Operating profit margin (2009-2013) (Source: Global Business Browser, 2014) 2.1.2. Net profit margin William Hill’s net profit was the least in 2009 as the company has to transfer 29% of William Hill Online to Playtech in 2008 and the increase of accounting charges (BBC News, 2010). This means that the company was unable to convert its sales to profit appropriately (Weygandt, Kimmel and Kieso, 2009). Unlike the company’s operating profit margin, William Hill was not able to outperform the industry average in terms of its average net profit margin. As a consequence, the company had to pay huge amount as debts which in turn depleted its net profit margin (Wahlen and Wieland, 2011). However, the management of William did exceedingly well to recover from this situation by using a good mix of equity and debt capital which is evident from the increasing net profit margin in the subsequent years. Figure 3: Net profit margin (2009-2013) (Source: Global Business Browser, 2014) 2.1.3. Return on Asset (ROA) Figure 4: ROA (2009-2013 (Source: Global Business Browser, 2014) As is evident from figure 4 given above, William Hill’s ROA fluctuated considerably over the past five years thereby following a similar pattern as that of the company’s net profit margin. ROA denotes the earnings generated for every dollar of asset invested within the operations (Tan and Robinson, 2014; Tham, 2000). ROA was lowest in the year 2009 (4.41%), but thereafter it increased gradually to 8.48% in 2010 and 12.54% in 2012. Although the company was quite successful in generating higher ROA’s with lesser investment but it was not enough to outperform the industry average. 2.1.4. Return on Equity (ROE) Figure 5: ROE (2009-2013) (Source: Global Business Browser, 2014) William Hill’s ROE also followed a similar pattern as that of the company’s ROA with a marginal exception in the year 2013 where the ROE increased as opposed to a decreasing ROA. In this case as well the management has been able to generate higher income with every dollar of equity invested within the company but this performance was not sufficient enough to do better than the industry average (Ross, Westerfield and Jordan, 2008; Rose and Hudgins, 2008). The low ROA and ROE can be attributed to the rising leverage exposures of the company which depleted the company’s profit margin significantly (Romic, 2011; Palepu and Healy, 2007). 2.2. Investment ratios 2.2.1 Earnings per share (EPS) As is evident from figure 6 given below, William Hill’s EPS increased considerably over the past five years. EPS denotes the proportion of a company’s profit that is allocated to the shares of common stock that are outstanding. This explains that shareholders were able to accrue considerable amount of benefits from their investments in the company (Moles, Parrino and David, 2011). Figure 6: EPS (2009-2013) (Source: Global Business Browser, 2014) 2.2.2 Dividends per share (DPS) Figure 7 given below shows that William Hill’s dividend payout also increased over the last five years. This means that the management decided to distribute a proportion of its earnings as dividends as they did not have prospective investment opportunities at their disposal (Maguire, 2007; Li and Wu, 2009). The underlying strategy behind increasing the dividend payout was to restore the confidence of the shareholders during a period when the company was not performing so well (Konchitchki and Patatoukas, 2013; Kinney, 1971). Figure 7: DPS (2009-2013) (Source: Global Business Browser, 2014) 2.2.3. Payout ratio William Hill’s payout ratio decreased over the last five years. However, the management was able to outperform the industry average payout ratio marginally. The drastic fall in the company’s payout ratio can be attributed to the increase of earnings per share during the last five years. It can be said that the management was not able to compliment the rise in the earnings per share with an equivalent increase in the dividend payout (Hung, 2000). Figure 8: Payout ratio (Source: Global Business Browser, 2014) 2.3. Financial leverage 2.3.1. Long term debt / Equity Figure 9 given below denotes that William Hill’s leverage ratio increased considerably from 0.4 in 2009 to 0.65 in 2010. The debt exposure increased even further in the year 2013 when it reached a value of 0.88. The increasing leverage ratio was one of the major reasons behind the company’s depleting profit margins over the past few years (Hirshleifer and Teoh, 2003). The effect of increasing leverage was also evident in the company’s decreased ROA in the year 2013 (Han and Chen, 2014). But there is no doubt that the increase of leverage can bring more other incomes for the owners (Atrill and McLaney, 2011). Figure 9: Long term debt to equity ratio (2009-2013) (Source: Global Business Browser, 2014) 2.4. Liquidity ratios 2.4.1. Current ratio Figure 10 given below depicts a highly deteriorating performance demonstrated by the company in terms of its current ratio. Ideally a company’s current ratio should be 2 (Atrill and McLaney, 2011). Although different business requires different current ratio (Saminathan and Rani, 2013), the current ratio of the company is much less than it of average of industry. This is because of the increase of current liabilities. For example, the current liabilities of the company increased by 20.2% from 2012 to 2013 (Global business browser, 2014). Current ratio value of less than 1 indicates that William Hill management is not in a position to pay off its short term obligations. Such values depict the company’s deteriorating financial health (Fridson and Alvarez, 2011). Figure 10: Current ratio (2009-2013) (Source: Global Business Browser, 2014) 2.4.2. Quick ratio As is evident from figure 11 given below, William Hill’s quick ratio has followed a similar pattern as that of the current ratio. The corporation is not in a position to pay off its short term liabilities (Fridson and Alvarez, 2011). The average quick ratio value of the company is considerably lower than the industry average. The company’s deteriorating liquidity position puts it under tremendous risk of being insolvent if large proportion of debt obligations crops up. Figure 11: Quick ratio (2009-2013) (Source: Global Business Browser, 2014) 2.5. Efficiency ratios 2.5.1. Receivable turnover Figure 12 given below denotes that the company’s account receivable days are considerably higher than it of industry average. The receivable turnover for William Hill has decreased considerably over the past few years which in turn imply that the management should start re-evaluating its credit policies so as to make sure that all of the imparted credits (which are not earning any interest for the firm) are collected on time. Failure to do so will make it difficult for the firm to pay off its short term obligations. Figure 12: Receivable turnover (2009-2013) (Source: Global Business Browser, 2014) 2.5.2. Revenue/Employee As is evident from figure 13 given below, the revenue per employee has increased steadily for William Hill over the past five years. This entail that the corporation has been able to generate higher revenue with fewer employees. Although the revenue per employee for William Hill increased gradually over the last five years but it was not enough to outperform the average revenue per employee in the industry. This implies that the company’s productivity is considerably lower than majority of the companies that operate in the same industry. Figure 13: Revenue/employee (2009-2013) (Source: Global Business Browser, 2014) 3. Reflection on the company According to Bloomberg’s evaluation of William Hill, the company has performed exceeding well particularly in year which did not have any international football event. In addition to that the company’s financial performance in the year 2011 has been praised by many analysts provided that the management had to £9 million as value added tax as a result of a sudden increase in the VAT rate (Bloomberg, 2012). This indicates the firm’s inner strengths which have resulted from the management’s continuous endeavour towards innovation and making smart investment choices. The company’s strategic emphasis has always been on developing their products in order to improve the customers’ experience as well as on strengthening and widening their network distributions. The underlying rationale behind this is to maximise their reach to the customers as well as to develop their business on a global scale. The company has proven to be largely successful in building on the moment created through their previous year’s performance and in emulating the same in the ongoing year. William Hill’s present endeavour is to expand its online services through Smartphone applications and text-betting offerings (Bloombeg, 2012). 4. Corporate governance of William Hill The board members of William Hill assumes the responsibility of monitoring the company’s internal control framework. Their primary role is to implement, maintain and review the internal control system. The internal control system involves a framework for operational, compliance and financial controls as well as risk management system. The management also supervises the ongoing process identifying, evaluating and managing the critical risks that the company is exposed to. Reports regarding the effectiveness and adequacy of the company’s internal control system are published and sent to the risk management and audit committee in order for them to be able to review the potential of William Hill’s corporate governance framework. Such is the internal control framework of William that it allows the managers of the company to manage instead of eliminating the risk exposures. The system is only designed to provide rational assurance against the misrepresentation of loss. The board members also emphasizes a lot on assessing the actual and predicted performance of the company by comparing it to the actual annual plan formulated by the company. Till date no noteworthy weaknesses or failings have been identified within the company’s internal control (William Hill, 2011). William Hill’s management has done exceedingly well in order to establish a robust corporate governance framework within the company. The management has emphasized a lot on conducting transparent business with the shareholder and stakeholders and the company has been largely successful in this endeavour. The corporate governance framework within the company has made it possible for the management to make sure that each and every employee strictly adheres to the ethical code of conduct (U. Hoitash, R. Hoitash, and Bedard, 2009). The effectiveness of William Hill’s corporate governance framework is evident in the company’s idea of sharing important aspects of the company’s internal control with the stakeholders. This enables the managers to identify the areas of improvement within the company’s internal control framework which in turn puts them in a better position to tackle the risk exposures efficiently (Core, Holthausen and Larcker, 1999). 5. Investment advices 5.1. Net asset value per share Figure 14: Net asset value per share (Source: London Stock Exchange, 2014a; 2014b; 2014c) William Hill’s net asset value per share is significantly lower than its competitor companies Ladbrokes and Rank Group plc. A lower net asset value per share does not always indicate a deteriorating financial performance of a company. However, the management of William Hill could easily repurchase a bulk of its shares from the shareholders. In that way the company will be able to achieve a twofold objective. Firstly, due to circulation of lesser number of shares, the share price of William Hill will be augmented and secondly the net asset value per share will also increase (Berk and DeMarzo, 2007). Given the fact that a company’s net asset value per share is also an indicator of the company’s share price performance, its value enables investors to make informed judgements (Grullon and Ikenberry, 2000). However comparing the movement of net asset value per share is not equivalent to comparing to the stock price movement of a company. This is precisely because the funds have to distribute capital gains intermittently to the shareholders (Cornett and Saunders, 2003). Considering the fact that the net asset value per share of the company decreased further in the year 2014, the assets held by the company are not performing in a way that they were anticipated to. Therefore, it will never be a viable option to invest. 5.2. Share prices Figure 15: William Hill share price (Source: Yahoo Finance, 2014) The share price movements depicted in figure 15 indicates that William Hill’s shares are traded at a considerably higher price than that of Ladbrokes and Rank Group. However, the share price has fluctuated a lot between 2013 and 2014 which can prove to be discouraging for potential investors. In addition to that the company’s financial performance has not been consistent over the last five years. This is evident from the company’s annual financial figures reported by the company in its yearly financial statements. The company has failed to outperform the industry average and more than one factors. The management has not been able to keep control over its acquisition of debt finances which has exposed the company higher degree of risks (Global Business Browser, 2014). This is evident from the company’s increasing leverage ratios over the last five years (Global Business Browser, 2014). Moreover, as FTSE fell due to worries about the Chinese and Ukrainian economic slowdown, bookmaking companies in the UK continued to show deteriorating performance (The Guardian, 2014). Consequently the price per share of William Hill dipped in the last quarter of 2014 (The Guardian, 2014). Therefore, taking into account all these factors, it would always be better for the investors to not invest in William Hill currently. The variations in the share price and net asset value per share are not encouraging at all. In fact investing in this company may increase the risk exposures of the investors. 6. Conclusion Even though William Hill’s profits increased gradually over the past five years but this increase did not compliment the company’s revenues equivalently. This goes to show the company’s deteriorating productivity and efficiency. High operating expenses and acquisition of debt depleted the company’s margin of profit significantly. Majority of the financial performance indicators revealed that the company under performed when compared to most of its competitors which operated in the same industry. William Hill’s performance declined greatly over the last five years or so. Even the robust corporate governance framework that exists in the company was not able to increase the company’s value in the market which is highly evident from the company’s decreasing share price and net asset value per share in the market. Therefore, considering all these factors investors are recommended to not invest in William Hill currently. They should be patient in their assessment of the company’s performance over the next year or two and thereafter consider making an investment. Reference List Berk, J. B. and DeMarzo, P. M., 2007. Corporate finance. New York: Pearson Education. Bloombeg, 2012. William Hill PLC WMH William Hill Final Results. [online] Available at: [Accessed 8 January 2015]. Core, J. E., Holthausen, R. W. and Larcker, D. F., 1999. Corporate governance, chief executive officer compensation, and firm performance. Journal of financial economics, 51(3), pp. 371-406. Cornett, M. M. and Saunders, A., 2003. Financial institutions management: A risk management approach. New York: McGraw-Hill/Irwin. Fridson, M. S. and Alvarez, F., 2011. Financial statement analysis: a practitioners guide. New York: John Wiley & Sons. Global Business Browser, 2014. William Hill plc [online]. Available at: [Accessed 28 December 2014]. Grullon, G. and Ikenberry, D. L., 2000. What do we know about stock repurchases? Journal of Applied Corporate Finance, 13(1), pp. 31-51. Han, S. and Chen, R. C., 2014. Using SVM with Financial Statement Analysis for Prediction of Stocks. Communications of the IIMA, 7(4), pp. 8-8. Hirshleifer, D. and Teoh, S. H., 2003. Limited attention, information disclosure, and financial reporting. Journal of Accounting and Economics, 36(1), pp. 337-386. Hoitash, U., Hoitash, R. and Bedard, J. C., 2009. Corporate governance and internal control over financial reporting: A comparison of regulatory regimes. The Accounting Review, 84(3), pp. 839-867. Hung, M., 2000. Accounting standards and value relevance of financial statements: An international analysis. Journal of accounting and economics, 30(3), pp. 401-420. Kinney, W. R., 1971. Predicting Earnings: Entity versus Subentity Data. Journal of Accounting Research, pp. 127-138. Konchitchki, Y. and Patatoukas, P. N., 2013. Taking the Pulse of the Real Economy Using Financial Statement Analysis: Implications for Macro Forecasting and Stock Valuation. The Accounting Review, 89(2), pp. 669-694. Li, X., and Wu, Z., 2009. Corporate risk management and investment decisions. The Journal of Risk Finance, 10(2), pp. 155-168. London Stock Exchange, 2014a. William Hill plc [online]. Available from: [Accessed 28 December 2014]. London Stock Exchange, 2014b. Ladbrokes Plc. [online] Available at: [Accessed 28 December 2014]. London Stock Exchange, 2014c. Rank Group Plc [online]. Available from: [Accessed 28 December 2014]. Maguire, M., 2007. Financial statement analysis. California: GRIN Verlag. Moles, P., Parrino, R. and David K., 2011. Corporate Finance: European Edition. UK: John Wiley & Sons Ltd. Palepu, K. and Healy, P., 2007. Business analysis and valuation: Using financial statements. Connecticut: Cengage Learning. Romic, L., 2011. Financial statement analysis. International Journal of Management Cases, 13(3), pp. 149-151. Rose, P. S. and Hudgins, S. C., 2008. Bank Management and Financial Services. 7th edn. McGraw-Hill Education: New York. Ross, S. A., Westerfield, R. and Jordan, B. D., 2008. Fundamentals of corporate finance. New York: Tata McGraw-Hill Education. Tan, C. and Robinson, T. R. 2014. Asian Financial Statement Analysis: Detecting Financial Irregularities. New York: John Wiley & Sons. Tham, J., 2000. Practical Equity Valuation: A Simple Approach. [pdf] SSRN. Available at: [Accessed 28 December 2014]. The Guardian, 2014. William Hill and Ladbrokes hit again, as FTSE falls on China and Ukraine worries. [online] Available at: < http://www.theguardian.com/business/marketforceslive/2014/mar/24/william-hill-ladbrokes-ftse-ukraine-china> [Accessed 8 January 2015] Wahlen, J. M. and Wieland, M. M., 2011. Can financial statement analysis beat consensus analysts’ recommendations? Review of Accounting Studies, 16(1), pp. 89-115. Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2009. Financial accounting. New York: John Wiley & Sons. Will, I., Subramanyam, K. R. and Robert, F. H., 2001. Financial statement analysis. Newu York: McGraw-Hill International. William Hill, 2011. Statement on Corporate Governance. [online] Available at: [Accessed 2 January 2015]. Yahoo finance, 2014. William Hill plc [online]. Available at: [Accessed 28 December 2014]. Zack, G. M., 2013. Financial Statement Analysis. Financial Statement Fraud: Strategies for Detection and Investigation, pp. 209-213. Thomas, N. (2014) New gambling laws to be challenged through the courts [online]. The telegraph. http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/10912780/New-gambling-laws-to-be-challenged-through-the-courts.html Mann, H. (2014) William Hill set for FTSE 100 relegation [online]. Money observer. http://www.moneyobserver.com/news/03-06-2014/william-hill-set-ftse-100-relegation BBC News. (2010) William Hill profits take a dive http://news.bbc.co.uk/1/hi/business/8538220.stm Atrill, P. and McLaney, E. (2011) Accounting and Finance for non-specialists. 7th ed. Harlow: Financial Times Prentice Hall. AN ANALYTICAL INVESTIGATION ON FINANCIAL KEY FACTORS AND FORECASTING ANALYSIS OF BHARAT HEAVY ELECTRICAL AND ELECTRONICS LIMITED Saminathan, R; Rani, R Poornima. International Journal of Marketing and Technology3.12 (Dec 2013): 75-89. Appendix 　 2013 2012 2011 2010 2009 Industry Revenue £m 1486.5 1276.9 1136.7 1071.8 997.9 　 Profit before tax £m 257.0 277.7 187.4 193.3 120.9 　 Profitability 　 　 　 　 　 　 Operating profit margin 20.27% 24.32% 19.36% 23.45% 19.73% 16.91% Net profit margin 14.21% 14.86% 10.13% 12.10% 6.12% 14.46% Return on asset 10.56% 12.54% 8.06% 8.48% 4.41% 11.53% Return on equity 20.65% 19.87% 13.31% 16.34% 11.19% 27.95% Investment 　 　 　 　 　 　 Earnings per share £ 0.25 0.25 0.15 0.17 0.09 　 Dividends per share p 0.12 0.10 0.09 0.08 0.07 0.97 Payout ratio 46.05% 41.49% 58.21% 44.66% 78.73% 50.50% Financial Leverage 　 　 　 　 　 　 Long term debt/equity 0.88 0.39 0.52 0.65 0.40 0.64 Liquidity 　 　 　 　 　 　 Current ratio 0.83 0.70 0.64 0.70 0.32 2.53 Quick ratio 0.69 0.69 0.48 0.55 0.24 2.32 Efficiency 　 　 　 　 　 　 Receivable turnover 51.08 52.98 92.04 82.13 121.70 25.59 Revenue/Employee £ 86986 75632 71325 63420 60114 223921 (Source: Global business browser, 2014) Read More