Financial Review of QE11 Accounts - Example

Running head: FINANCIAL REVIEW FINANCIAL REVIEW OF QE11 ACCOUNTS FOR THE YEAR ENDED 31 MARCH By s name Professor’s name City, State Date Table of Contents Introduction 2 Part A 3 Retaining Cash 4 Part B 5 Part D 7 Part D of this report is concerned with sponsorship and gives a report on several factors that the centre needs to factor in before going out to seek sponsorship for its events and venues. These would also help the centre be more competitive in the industry, and thus, attain a competitive edge in its market. According to West (2010) “Sponsorship is an investment in cash of kind in the event, team or person in order to secure sponsors access to the commercial potential associated with that event, team or the person” (p.14). Sponsorship presents several benefits to the company, but has also some advantages as explored below. 7 Sponsorship 8 QE11 centre is at an advantageous position market, in which it is reputable as a leader and innovator. This gives the centre a great opportunity to seek sponsorship, and thus improve its revenue generating activities. Sponsorship can be through involvement in major events that would lead to promotion of the company’s brand. In addition, the centre can engage in CSR activities to enhance and maintain the reputable brand it commands in the industry (Mathews, 2000). Furthermore, this creates an opportunity whereby the company can extend its brand awareness to the untapped target market. For instance, the conference centre of QE11 can create and reinforce awareness of its events and venues through seeking sponsorship as this will attract more clients and customers to use the centre’s venues and participate in the events of the centre. 8 Sponsorship is essential for the centre in promoting good public relations and positive image of the organization. Therefore, in undertaking any sponsorship activity, the centre must first evaluate the expected outcome of the sponsorship, such as whether it would enhance the image of the brand or not. If the sponsorship activities that the company engages in result in a positive image, it will contribute significantly to attaining a competitive edge in the market (Jenkinson & Mathews, 2007). Since sponsorship promotes company activities, as well as brand image, they have the prospects of generating sales by attracting more customers to the centre, and thus, making the centre profitable. 8 Another positive aspect of sponsorship is an opportunity to form business ties with other corporates in the same industry, and across other industries. This opens business ventures and opportunities for the centre to extend its services to places which have not been reached. In addition, the centre will be able to form new and important business relationship. This further improves the image of the centre, and give opportunities of attaining more customers, which translates to more services offered, and thus, increase in revenues. Moreover, a good relationship with the centre will increase the centre’s consumers; hence, giving it high chances of increasing its market share and maintain a competitive advantage in the industry. 8 Limitations of seeking sponsorship 9 Though sponsorship is highly advantageous to the centre because it opens new opportunities that lead to the generation of more revenues, it also has some limitations. This includes the possibilities of attracting controversies that would destroy the centre’s image and create a negative attitude towards it. This is because once a company is riding high in the market, there will always be people trying to bring it down, and any slight negative news released to the public would destroy cause destruction. Other disadvantages of sponsorship are that it opens opportunities for competition, thus, increasing the competitor’s that the company has to deal with in the industry. In addition, it also creates a big challenge by focusing on high performance and achievement to be at the market top, and maintain its market position. 9 Another negativity associated with sponsorship is the absence of standardization. This is due lack of an effective way of measuring the benefits of partnership between the centre and its supported individual, organization, or event. Though the centre might apply several methods with respect to the needs of the parties, standard planning and evaluation would still be needed to measure the efficiency of the partnership. Finally, sponsorship consumes a lot of precious time that the centre can put into use for other activities. Sponsorship time is spent on planning and evaluation due to the nature of the business involvements. Nevertheless, if the outcome of the sponsorship generates good profits, then the time spent on evaluation and planning would be worth it. 9 Conclusion 9 Appendix 1 10 References 12 14 Introduction This work reviews the financial performance of the Queen Elizabeth II Conference Centre (QE11). The review is based on the changes in equity and financial position statement, loss and profit account statement, and cash flow statement using the financial year ended 31 March 2013. In addition, the financial analysis of year 2013 will be compared with that of 2012, and consequently, advice on competitive factors necessary for scholarship given. These factors are necessary to help QE11 stay competitive in its industry. The report is divided into Part A, Part B and Part D. Part A Notably, there is improvement in cash flow for QE11 conference centre, and this is due operating surplus increase. The sources of revenue generation for the centre include conference activities including conferences and meetings, as well as occupation of the house, and another source are interest rates coming from investments made in other organizations. In addition, the increase in surplus was as a result of the robust marketing of the centre’s services both locally and internationally. As a result, this attracted the hosting of Casa Italia representing the Olympic committee of Italy. The second factor responsible for the increase in surplus is the increase in provisions. Provision is a given receipt found in the in the cash flow cash flow and thus, its increase stimulates an increase in cash flow position or statement (Elliot, 2008). Similarly, decrease in trade has a similar effect on the cash flow. This decrease in trade, as well as other account payables has a positive effect on the cash flow because it means that there was less payout of cash. Another factor contributing to increase in cash flow is the improvement in trade among other receivables. This resulted from efficient and effective measures of credit control during the financial year 2013, and thus, eliminating chances of falling into bad debts. In addition, another positive impact on the cash flow position was the increase in the interest received. The interest received for the company increased as a result of the increase in its investments in other organizations. The center increased its investments in various stocks that lead to an increase in interest earned and interest earned from the money in the bank. Finally, increase is cash flow of QE11 is attributed to the increase in depreciation (Elliot, 2008). This is an allowance set aside for the purpose of covering the wear and tear expenses of the organization’s fixed assets. A centre that deals with housing facilities expects some of the assets to depreciate as the items are used continuously. As a result, the increase in depreciation increases the cash flow of the centre. Retaining Cash At this point, it is evident that cash a crucial assets of the centre. Being that cash is one of the current assets of an organization, which is very liquid as explained by Harrison (2010), it is the lifeblood of the organization, QEII needs to retain it for its day today activities and operations due to the following reasons. First, cash is needed for transaction activities, which involves the day to day payments such as bills for the centre. For example, the centre requires various products and services for its day to day operations, which needs to be purchased using cash. Cash payment is mostly efficient for small or petty transactions that do not require huge bills (Harrison, 2010). Some of the payments that would fall into this category include transactions involving taxes, salaries, dividends, and trade debts. Cash for compensating balances is another reason why the centre needs to retain cash. The cash balances are kept at banks so that they compensate for the banking services rendered to the centre. Hence, the centre needs to retain cash for bank services such as interest on the loan given to the centre, as well as charges for the normal services rendered by the bank. Similarly, the centre needs to retain cash for precaution purposes. This is money designated to cater for emergencies and other unforeseen events. In every organization, there are some things may occur in the course of operations and rendering services that may require the use of cash. These are usually outside the centre’s budget as they are unforeseen events. In this category, we have accidents in the workplace, death of workers or even client among other unknown occurrences. Finally, cash should be retained for speculative reasons. This entails holding cash in order to grab the investment opportunities that may come up such as bargain purchases, attractive interest rate and favorable exchange rates, which are aimed at increasing revenue of the centre. Part B Statement of Profit and Loss Account for QE11 For the Year ended 31st March 2012 and 2013. 2013 2012 £ (000) £ (000) REVENUE Room Hire 6100 5750 Audio visual services 2289 2440 Catering commission 1485 1285 IT Services 230 238 Other minor income 221 201 Income from conference activities 10325 9914 Other rental income 321 248 Interest receivable 26 19 TOTAL REVENUE 10676 10181 EXPENSES Wages and salaries (1554) (1637) Social security costs (128) (163) Pension costs (282) (284) Holiday pay accruals - (9) Temporary agency staff 1 (11) Maintenance and cleaning (884) (1322) Subcontracted services (903) (915) Utilities (547) (498) Rates (477) (472) Equipment hires (349) (415) Advertising and marketing (163) (126) Travel and subsistence (43) (36) Auditors remunerations’ (38) (35) Entertainment (7) (7) Self-insurance losses (26) (2) Other costs (932) (978) Depreciation (805) (796) Amortization (5) (5) Provision for the doubtful debts (20) (16) TOTAL EXPENSES (7162) (7727) Operating income before tax 3514 2454 Tax (payment to exchequer) (2250) (1200) NET INCOME 1264 1254 The Profit and Loss Account. There is a positive change in revenue mix, then negative, then positive, then negative then lastly positive from the first item to the last as they are arranged in the profit and loss statement respectively. The revenues items that have influence are: rooms hire other rental income and catering commission; this is because they have big changes that influence the decision making of the QE11. There is also a positive change of +491 in the total revenue compared to the previous year. For the first seven items, the change in cost profile is negative, positive for the next two items, negative for the following tenth item, positive for the next five items after tenth item, negative for the sixteenth item and then positive for the last three items (West, 2010). Consequently, the items that emerge as the most significant are the maintenance and equipment hires, as well as wages and salaries. This is because they record the most reduction in costs leading to more profit. Therefore, they play a critical part in decision making at QEII centre as they have the ability to create more profit for the centre. The change in profit is positive of £ 10, which reveals that QEII profit increased by £10 compared to the year 2012. Positive and negative factors to influence future revenue are: advertisement, government support and clients cost conscious and competition respectively. Part D Part D of this report is concerned with sponsorship and gives a report on several factors that the centre needs to factor in before going out to seek sponsorship for its events and venues. These would also help the centre be more competitive in the industry, and thus, attain a competitive edge in its market. According to West (2010) “Sponsorship is an investment in cash of kind in the event, team or person in order to secure sponsors access to the commercial potential associated with that event, team or the person” (p.14). Sponsorship presents several benefits to the company, but has also some advantages as explored below. Sponsorship QE11 centre is at an advantageous position market, in which it is reputable as a leader and innovator. This gives the centre a great opportunity to seek sponsorship, and thus improve its revenue generating activities. Sponsorship can be through involvement in major events that would lead to promotion of the company’s brand. In addition, the centre can engage in CSR activities to enhance and maintain the reputable brand it commands in the industry (Mathews, 2000). Furthermore, this creates an opportunity whereby the company can extend its brand awareness to the untapped target market. For instance, the conference centre of QE11 can create and reinforce awareness of its events and venues through seeking sponsorship as this will attract more clients and customers to use the centre’s venues and participate in the events of the centre. Sponsorship is essential for the centre in promoting good public relations and positive image of the organization. Therefore, in undertaking any sponsorship activity, the centre must first evaluate the expected outcome of the sponsorship, such as whether it would enhance the image of the brand or not. If the sponsorship activities that the company engages in result in a positive image, it will contribute significantly to attaining a competitive edge in the market (Jenkinson & Mathews, 2007). Since sponsorship promotes company activities, as well as brand image, they have the prospects of generating sales by attracting more customers to the centre, and thus, making the centre profitable. Another positive aspect of sponsorship is an opportunity to form business ties with other corporates in the same industry, and across other industries. This opens business ventures and opportunities for the centre to extend its services to places which have not been reached. In addition, the centre will be able to form new and important business relationship. This further improves the image of the centre, and give opportunities of attaining more customers, which translates to more services offered, and thus, increase in revenues. Moreover, a good relationship with the centre will increase the centre’s consumers; hence, giving it high chances of increasing its market share and maintain a competitive advantage in the industry. Limitations of seeking sponsorship Though sponsorship is highly advantageous to the centre because it opens new opportunities that lead to the generation of more revenues, it also has some limitations. This includes the possibilities of attracting controversies that would destroy the centre’s image and create a negative attitude towards it. This is because once a company is riding high in the market, there will always be people trying to bring it down, and any slight negative news released to the public would destroy cause destruction. Other disadvantages of sponsorship are that it opens opportunities for competition, thus, increasing the competitor’s that the company has to deal with in the industry. In addition, it also creates a big challenge by focusing on high performance and achievement to be at the market top, and maintain its market position. Another negativity associated with sponsorship is the absence of standardization. This is due lack of an effective way of measuring the benefits of partnership between the centre and its supported individual, organization, or event. Though the centre might apply several methods with respect to the needs of the parties, standard planning and evaluation would still be needed to measure the efficiency of the partnership. Finally, sponsorship consumes a lot of precious time that the centre can put into use for other activities. Sponsorship time is spent on planning and evaluation due to the nature of the business involvements. Nevertheless, if the outcome of the sponsorship generates good profits, then the time spent on evaluation and planning would be worth it. Conclusion Evidently, the conference centre is not doing badly as the financial performance reveals a positive trend. In addition, the centre appears to be the leader in its industry, and thus, has a competitive edge in the market. The innovative nature of the centre is a great strength that can be utilized to create opportunities for growth and enhance revenues through attracting more customers. This would increase its revenue performance, and consequently, increase in cash flow. In addition, sponsorship activities also creates an opportunity to build beneficial relationships, as well as promote revenue generating activities for the centre. As a recommendation, the centre needs to carry out robust marketing to popularize its products, and this will be easy given the already reputable brand that it has in the market. This together with sponsorship will make the company more competitive, and thus, maintain a competitive edge it commands in the market. The Total Word account is 2040 Appendix 1 Variance analysis that compare the Income and Expenditure for QE11 For the Year ended 31st March 2012 and 2013. 2013 2012 variance £ (000) £ (000) £ (000) REVENUE Room Hire 6100 5750 350 Audio visual services 2289 2440 -151 Catering commission 1485 1285 200 IT Services 230 238 -8 Other minor income 221 201 20 Income from conference activities 10325 9914 411 Other rental income 321 248 73 Interest receivable 26 19 7 TOTAL REVENUE 10676 10181 491 EXPENSES Wages and salaries (1554) (1637) -83 Social security costs (128) (163) -35 Pension costs (282) (284) -2 Holiday pay accruals - (9) -9 Temporary agency staff 1 (11) -10 Maintenance and cleaning (884) (1322) -438 Subcontracted services (903) (915) -12 Utilities (547) (498) 49 Rates (477) (472) 5 Equipment hires (349) (415) -66 Advertising and marketing (163) (126) 37 Travel and subsistence (43) (36) 7 Auditors remunerations’ (38) (35) 3 Entertainment (7) (7) 0 Self-insurance losses (26) (2) 24 Other costs (932) (978) -46 Depreciation (805) (796) 9 Amortization (5) (5) 0 Provision for the doubtful debts (20) (16) 4 TOTAL EXPENSES (7162) (7727) -565 Operating income before tax 3514 2454 1060 Tax (payment to exchequer) (2250) (1200) 1050 NET INCOME 1264 1254 10 References Elliott, B and Elliott, J, 2008, Financial accounting and reporting, 12th ed, Harlow, Financial Times Prentice Hall. Harrison, W, T & Horngren, C, T 2010, Financial accounting, 4th ed, Upper Saddle River, NJ, Prentice Hall. Jenkinson, A. & Mathews, . B., 2007. Integrated Marketing And Its Implications For Personalised Customer. Journal of Direct, Data and Digital Marketing Practice, 8(3), pp. 193-209. Mathews, V. E., 2000. Competition in the international hotel industry. International Journal of Contemporary Hospitality Management , 12(2), pp. 114-118. West, D, 2010, Project sponsorship an essential guide for those sponsoring projects within their organizations, Farnham, Surrey, England, Gower. Read More