Annual Report and Accounts regarding the Financial Performance of the Qe11 - Example

Review of the Annual Report & Accounts regarding the financial performance of the QE11 for the year ended 31 March Contents Contents 2 Introduction 3 Methods used in the report 3 Part A 4 Part B 5 Commentary on the 2012/13 Income & Expenditure relative to the prior year 5 Variance analysis 6 Part D 8 Conclusion 9 References 11 Appendix 12 Introduction The project deals with the review of the annual reports and accounts of QE 11 Conference for the year ended 31st March, 2013 in order to determine the change in financial performance of the company from 2011/12 to 2012/13. QE 11 Conference is into the business of providing rents and services for organizing events and conferences in several venues and halls in various parts of London, UK. The organization supports the management of events conducted in the halls and venues maintained by the organization. The major sources of revenue for the organization come from the rentals received from the room services and exhibition centres maintained by the organization. The organization also incurs the cost of operations in terms of payments of wages and salaries, maintenance of the venues, hiring of equipments and conference related services provided to the customers. The review of the financial statements and subsequent variance analysis conducted in this paper reveals the changes in the position of income and expenditure of the company. The change in the net cash flows of the business and the importance of the net cash balance for the business has been explained in this work. The various issues related to the sponsorships available during the events organized in the venues have been discussed in the context QE 11 Conference’s business. Methods used in the report The methods used in this report include the preparation of the financial statements of QE 11 Conference and subsequent analysis of the financial statements in order to determine the changes in the income and expenses of the company in 2012/12 as compared to the previous year. The financial statements have been prepared for QE 11 Conference with the help of financial information and the notes available from the annual reports and accounts. The analysis of the financial statements of the company has been carried out by using the method of variance analysis. The variance analysis has been undertaken by using the formula: Variance (%) = (Budgeted value – Actual value)/ Actual value. The variance analysis has provided an idea of changes in the position of the income and expenses of the company and the various factors that have led to the changing financial position of the company from 2011/12 to 2012/13. Part A The review of the annual reports and accounts of QE 11 Conference revealed that the cash flows of the company have increased from 9.1 million pounds in 2011/12 to 10.7 million pounds in 2012/13. The three key reasons for the increase in cash flow of the company could be explained as follows. The operating profits earned by the company after payment of interests have increased from 2.4 million pounds in 2011/12 to 3.5 million pounds in 2012/13. The operating profits have increased as a result of the cost control of the company. The reduction in the payment of wages and salaries, reduction in the expenses from the hiring of equipments have resulted in the increase of operating profits of the organization from 2011/12 to 2012/13. The increase in operating profits has resulted in the increase of operational cash flow which has influenced the rise of cash flows of the company (Megginson and Smart, 2008, p.73). The next reason for increase in cash flow of the company is the increase in efficiency to recover the trade receivables from its debtors (Baker and Powell, 2009, p.28). The trade receivables have increased from 0.3 million pounds in 2011/12 to 0.4 million pounds in 2012/13. The increase in trade receivable has resulted in the increase in operating cash flows that have contributed to the increase in net cash flows of the company. The third reason for increase in the net cash flow of the company is that the trades payables of QE 11 Conference have decreased have decreased in 2012/13 as compared to 2011/12. The decrease in the trade payables of the company has influenced the increase in net inflow of cash to the company. The increase in the net cash flow is an important factor of consideration by QE 11 Conference. The increase in the net cash balance of the company would provide more liquidity and flexibility in the aspect of decision making in terms of investment. QE 11 conference would be able to allocate more funds for the development of infrastructure and IT support to the operations of the company. The advertising expenditures could also be increased for promotion and future financial growth of the company (Jones, 2007, p.64). Part B Commentary on the 2012/13 Income & Expenditure relative to the prior year The detailed profit and loss account of the Queen Elizabeth 11 Conference have been presented in Appendix 1. The analysis of the income statement prepared for QE 11 Conference reveals that the major components of revenue earning are from the rooms that are given on rent, commission from the catering services, audio-visual services and IT services. Apart from the activities of the conference, the rental income adds to the revenue earnings of the company. The total revenues have increased from £10,162,000 in 2011/12 to £10,646,000 in 2012/13. The total costs have decreased from £7727000 in 2011/12 to £7162000 in 2012/13. This has resulted in the increase of operating profit margin from 23.96% in 2011/12 to 32.73% in 2012/13. However, the net profit margin has decreased from 12.34% in 2011/12 to 11.84% in 2012/13 due to the increase in payment to the exchequer. Variance analysis The comparison of the income and expenditures of QE 11 Conference with that of the previous year have been conducted with the help of variance analysis as shown in the table given in appendix. The variance analysis has been conducted as: (Budgeted value-Actual value)/Actual value. Change in revenue mix The variance analysis revealed that in 2011/12, the actual revenues earned were 1.3% more than the budgeted amount of revenues that were target to be earned by the company. In comparison to 2011/12, the actual revenues earned by the organization have 14.97% with respect to the budgeted revenues. The three major components of revenue earner that have undergone prominent changes in 2012/13 as compared to 2011/12 are the incomes from hiring of rooms, audio visual services and commission from catering services. Change in cost profile The variance analysis reveals the total actual cost incurred by the company were below the budgeted costs by 11.95% in 2011.12 while the total actual costs fell by 40.88% as compared to the budgeted values in 2012/13. This is because the company has been able to control the cost more effectively in 2012/13 as compared to the previous year. The three major components of cost that have reduced prominently include the cleaning and the maintenance charges, salaries and wages of staffs and security costs of the company (Warren, Reeve and Duchac, 2008, p.37). Change in profit and loss The variance analysis revealed that the actual profits earned by QE 11 Conference have exceeded the budgeted profits by 84.05% in 2011/12 while in 2012/13; the actual profits have exceeded the budgeted profits by 94.44% in 2012/13. Despite the shortfall of the actual revenue earnings of the company against its budgeted value in 2012/13 as compared to the performance of the previous year, the actual cost has been controlled in a greater proportion in relation to the budgeted cost. This has resulted in the increase in profit margin of the company in 2012/13 as compared to the previous year. Factors affecting future financial performance The two positive factors that is likely to impact the future financial performance of the company is the decrease in expenditure for hiring of equipments and the inclusion of IT services by the company. With time, the company would able to increase its fixed assets and reduce hiring of temporary equipments. This would help them to attain economies of scales in terms of future financial stability. The implementation of IT services would also help to improve the performance of the business and help them to earn more revenues and profits in future (Khan, 2004, p.83). The two negative factors are the decrease in the room hiring services offered by the company and the increase in advertisement and promotional costs. The decrease in room services would lead to reduction of revenue earnings. Also the advertisement and promotional costs for increasing the business of conference halls and services would be additional expenditures that may put burden on the business in case the revenues do not increase to the desired range (Pandey, 2006, p.52). Part D The business of QE 11 Conference faces high level of competition in the markets due to which the company faces various challenges in the increase the sales turnover and also in terms of funding their business operations. In order to attain a sustainable business and financial performance, the company has decided to seek sponsorships for the conference hall venues and the events to take place in these venues. The aspect of seeking sponsorships is associated to several issues that could be both favourable to the organization or may have certain limitations as well. The seeking of sponsorships by QE 11 Conference would provide the business with sources of funds that would be required for organizing the conferences and managing the events to be held in the venues. The sponsorships obtained for the events could be utilized for the development of the services to the customers as a result of overcoming the limitations of fund requirement (Baker and Powell, 2009, p.47). The sponsorship funds would be received in lieu of the rights granted to the sponsors for promoting their business in the same events. QE 11 Conference would not be required to repay the funds or undertake any obligation for the receipt of the funds which is advantageous to the business. Apart from this, the increase in sponsorship would lead to the enhancement of the brand value of the business of QE 11 Conference. This would also lead to the promotion of their business among the target segment of customers and result in the enhancement of their business performance. The issues of concern for QE 11 Conference in case of seeking sponsorships include the decision over selection of the right sponsor for the event to be organized in the venues of the conference halls. The sponsorships are to be invited from the companies that have products which are in line with the business of the QE 11 Conference. In case of wrong selection of the sponsorships, the brand image of QE 11 Conference could be damaged and this may result in additional cost as well as risk for the business. Another issue is concerned with the terms and conditions of the sponsorship that is entered by the sponsors and QE 11 Conference. The company should be alert in accepting the terms and condition so that the sponsorship arrangement are valid only for the event and the venues for which it has been agreed. QE 11 should not allow any condition that allows the sponsors to impose limitation in the functioning of the venue in long term perspective. Conclusion Based on the review of the financial statements from the annual reports and accounts of QE 11 Conference, the following findings have been obtained. The variance analysis revealed that the actual revenues earned by the organization in 2011/12 was more than the budgeted revenues while the actual revenues earned by the company have fallen short of the budgeted revenues. Due to the increasing competition in the industry, the revenues have decreased in 2012/13 as compared to the revenue earnings in 2011/12. The reduction of cost has been at a higher rate than the reduction of the revenues. This has laid to the increase in operating profit margin of the company from 2011/12 to 2012/13. However, the increase in the payment to the exchequer has led to the decrease in net profit margin of the company. In order to promote the business and revive the growth of revenues, the business has opted to invite sponsorships from agencies. Although the funds received from the sponsorship agreements have improved the liquidity of the company, the business needs to be careful in signing the sponsorship agreements so that the agreement terms and conditions do not limit the functioning of the business in the long run. References Baker, H. K. and Powell, G. 2009. Understanding Financial Management: A Practical Guide. New Jersey: John Wiley & Sons. Jones, C. P. 2007. Investments: Analysis And Management, 9Th Ed. New Jersey: John Wiley & Sons. Khan, M. Y. 2004. Financial Management: Text, Problems and Cases,4e. Delhi: Tata McGraw-Hill Education. Megginson, W. L. and Smart, S. B. 2008. Introduction to Corporate Finance. Stamford: Cengage Learning. Pandey, I. M. 2006. Finance: A Management Guide For Managing Company Funds And Profits. Delhi: PHI Learning Pvt. Ltd. Warren, C. S., Reeve, J. M. and Duchac, J. E. 2008. Financial & Managerial Accounting. Stamford: Cengage Learning. Appendix Appendix 1 Read More