Accounting Representation of Private and Public Sector - Example

accounting representation of private and public sector al Affiliation) Task 1650 words Task 2: 710 words Key words: Strategy Analysis, Balance Sheet, Income statement Executive Summary Alliance Boots is a beauty product and Pharmacist retailer located in the United Kingdom with over 2500 branches around United Kingdom and 80000 employees. The company formed in 2006 from Alliance UniChem and Boot chemist merge it owns more than 170000 companies both nationally and internationally. Alliance Boots have the most successful card system in the United Kingdom with more than seventeen thousand cardholders. Consequently, Alliance Boot has a blue print as a reward system, which its competitors have imitated. Last year, the company recorded 23 Billion pounds as revenue, 1443 Million pounds as EBITDA, and 1195 Million pounds as trading profits. When the joint ventures and the share of associates are included, the company records a revenue of 25.4 Billion pounds, 1568 Million pounds EBITDA, and 1300 Million pounds as the trading profit. This is an indicator that Alliance Boots is performing perfectly well. Table of Contents Executive Summary 2 Table of Contents 2 Context and Strategy Analysis 3 Industry 3 Industry Growth Rate 3 Concentration 4 The Balance of Competitors 4 Degree of Differentiations 5 Competitors 5 The Strategy of the Organization 5 Evaluation 6 Company’s Performance 6 Overall Performance 7 Health and Beauty Division 8 Pharmaceutical Division 8 Accounting Policies and Audit Report 8 Performance on Strategies 9 Public Sector Organizations 10 Question 1 10 Question 2 10 Reference 12 Appendix 14 Context and Strategy Analysis Industry Industry Growth Rate The United Kingdom’s pharmaceutical industry is expected to record growth of 0.4 percent until 2015. The United Kingdom experiences growth below 1% in real term due to savings targets, recession, and cuts in the public expenditure. The high spending in health care have had a negative effect on the industry with NHS recording less capital to use on expensive drugs. The pharmaceutical industry has always been challenged to make 20 Billion pounds as annual productivity and efficiency savings (“White Book - Alliance Boots: The European Pharmacy Supply Chain - How It All Really Works”. 2007). Despite the cost cutting measures in the industry, the government of the United Kingdom has pumped in additional funds in the industry that was later implemented last month. The issue of UK’s patent box has generated growth in the industry. The government is planning to cash in more than 500 million pounds when the Cancer Drug Fund programme is implemented. The programme is destined to create over1000 new career opportunities. The industry is recording magnificent growth; this is because in 2010, the industry incurred revenue worth 214 Billion Pounds. The figure represents the annual growth of 4.6 per cent since 2006 – 2010. However, the industry is expected to decelerate its growth of 3.2 per cent from 2010 – 2015. This means that the pharmaceutical market of the United Kingdom will record a market share of 6.7% (“Alliance Boots company profile” 2006). Concentration The pharmaceutical industry in the United Kingdom is somehow concentrated. The ten largest companies and played in the industry accounted for approximately 30 per cent of worldwide sales of pharmaceutical drugs in 1970. Generically, the drug market is fairly fragmented. More than fifty UK firms are found in this industry, including more than twelve generic divisions of pharmaceutical companies that are largely branded (Morgan, 2009). The Balance of Competitors The industry has attempted to balance the intellectual property rights and the competition law in the industry. The industry increases follow-on the question if the balance is consistent with the objective and rationale of the IP law and competition. The industry has looked into ways of patenting the strategies of pharmaceutical firms. The industry has prevented such strategies from the beginning, by penalizing the firms that use them; when using the patent right. To balance the competitors, the company has shunned companies from maintaining the patents for abusive needs. Therefore, the existence of patents has created the barrier to entry (Pederson, 2007). Degree of Differentiations The pharmaceutical industry in UK is diversified and most companies in the industry produce more than one product. The degree of differentiation in the industry is based on the Herfindahl Index of Diversification. From the statistics instead of multiple productions, the pharmaceutical companies are gradually specializing in their production over the years. The industry has divided its firm into various groups based on their diversification degree. The highly diversified companies have recorded a fall in their proportion. Meaning that, the highly diversified companies have reduced in number over the years and have turned as specialized groups. It therefore, appears that rather than producing multiple products, the pharmaceutical companies have specialized in core products (Rush, 2006). A rise in the number of specialized companies in the industry is attributed to many reasons. Recently, a huge number of new companies have entered the market with new technology. Generally, the new companies come with specialized products which they have cemented their competence. Additionally, if the firms are specialized in a certain product, their chances of success are very high. Competitors The top competitors for Alliance Boots include the Sun Store SA, Galenica Ltd., Proreo Pharma AG, TRIN Pharma GmbH, Coop Genossenschaft, UDG Healthcare Plc. Celesion AG, and Ventana Biotech Inc. For the purposes of this paper, the analysis of Alliance Boots performance is analyzed against Galenica Ltd (Hara, 2003). . The Strategy of the Organization The strategy for Alliance Boots is to concentrate on the two main core tasks of pharmacy led beauty and health retailing and pharmaceutical distribution and wholesaling, while rising the internationalizing and developing the brands of products to come up with a different dimension. Additionally, the strategy of the company include growing and developing the core business in the existing industry, continue to deliver the improvement of production, cost savings, and pursuing growth opportunities in specified growth industries. Consequently, the company launches their product brands in delivering synergies and new markets through transformational partnership. The strategy of the company is underpinned on their continuous concentration on the needs of the customer, the selective partnership and their strong financial disciplines (Howells & Neary, 1995). Evaluation Company’s Performance Alliance Boots marked a double-digit growth in their trading profits through acquisition of previous years and the organic growth. In 2011/2012 for instance, the revenue of Alliance Boots increased by 18.4% this is equivalent to 1443 Million pounds. Constantly, the revenue of the company increase by 19% this is a rise of 0.6% based on like for like. The revenue of Alliance Boots includes joint ventures and associate’s revenue, which increased at a rate of 12.5%. Meaning the revenue rose to 25,383 Million pounds. Similarly, EBITDA of the company increased with a significant rate of 8% to 1,568 Million Pounds, with a 10.5% increase of trading profit; 1,300 Million Pounds. The underlying profit of Alliance Boot increased yearly by 10.2% to 693 Million pounds. The health and beauty section recorded an outstanding overall performance in the regulatory measures, which specifically had an impact on its profitability in the pharmaceutical firm. The performance of Alliance beyond the country was also noted, attained through expansion of product sales and opening of new stores. The revenue of the division increase yearly by 0.6%, trading profit shoot by 6%, and the trading margin rose by 0.5% to 10.6%. In 2012/2013, the company delivered growth in the profit after tax (double-digit growth). The good performance was seen in all the division, similarly developing a very strong cash flow. They enabled a net borrowing to reduce and let the fund investment to drive growth of the company. The revenue of Alliance Boots totaled to 22406 Million pounds. This was 0.6 per cent rise but 2.6% down due to currency translation. The trading profit was 1,265 Million pounds, up by 7.4% from the previous year and 6.1% on reported basis not forgetting the adverse currency translation. EBITDA amounted to 1,505 Million pounds; (5% constant currency and 4.5% reported basis). The underlying profit was 805 Million pounds. The amount generated from the company’s operation was very strong. They spent 200 million pounds on the capital expenditure especially on retail stores, information technology logistics, and projects. 84 million was spent on acquisition related costs. At the end of the year, net borrowing amounted to 5,893 million pounds. Galenica Ltd recorded the annual net income of 223000, 255000, and 296000 in 2011, 2012, and 2013 respectively, the net income has been rising down the years. Meaning that, the financial performance of the company is on the rise annually. Alliance Boots on the other hand, recorded an annual income of 604000, 615000, and 572000 in 2011, 2012, and 2013. The figures are higher than its competitors are. The trend on the income has not been consistent; the lowest income was recorded in 2013, while the highest income was observed in 2012. The fluctuation of the company’s performance poses a threat to the financial position of the firm (Rampeltshammer, 2008). Comparing balance sheets in the appendix, the financial position based on the available capital is higher in Alliance Boots than its competitor is. Meaning that Alliance Boot is on a higher position of safeguarding its assets assuming it runs into a debt. The strong capitalization gives the company a higher chance to be a going concern company (“Blueprint for Europe The views of the UK pharmaceutical industry on the single European market in 1992”,1988).  Overall Performance Health and Beauty Division Pharmaceutical Division How fast the industry is growing How fast the company is growing Profit performance of the company C.-1% C. Currency Versus the previous year +1.5% C.Currency +8.2 % C.Currency -2.7% reported Vs. the previous Year +5.1%reported Vs. the previous Year Accounting Policies and Audit Report The principle accounting policies applied in preparing the consolidated financial statements include the basis of accounting where the statements used the sterling pounds indicating the currency denomination of the crucial proportion of cash flows and trade for two companies (Howells, 1990). The Going concern policy shows that the company has proper resources to be in operation in the near future. Additionally, there were no revisions or amendments done to the International Financial Reporting Standards during the first period on the year that ended on 31st December. Consequently, the consolidated of the financial statements for the year that ended of 31st Dec comprised of the company and subsidiaries and the interests in joint ventures and associates. Other consolidations include the subsidiary, Non-controlling interests, associates, and joint ventures. In terms of currency, the liabilities and the assets of non-sterling denominated transactions including fair value adjustments, and goodwill were translated into the sterling exchange rates at the end of the year (“International accounting standard, disclosure of accounting policies”. 1975).  Performance on Strategies The section examines the performance of the company based on the above statistics and gives the general picture of Alliance Boot’s strategic position. The analysis uses the SWOT analysis, and gives the comprehensive outlook of the firm’s position. Based on the data outlined in the table above, it can be concluded that the investments of the company in its operation have portrayed a significant rise and growth in the performance and revenue of the company. The strategy of outsourcing human capital gave the firm that power to concentrate on what is important to the clients. The company is the leading health care, beauty, pharmaceutical business, and an optical provider not only in UK in the surrounding countries. Outsourcing the human capital has enabled the company to focus on delivering high quality services to all its clients, which is a crucial aspect of any business. Investing in IS/IT has been the core force behind the company’s success. Additionally, the company has rolled the Client Advantage Card, enabling it manage the client purchasing behaviors and keeping on check the services and goods and a given group of client purchases (“Unusual and prior period items and changes in accounting policies”. 1978).  Alliance Boot has performed well despite the stiff competition. Its revenues’ including the joint ventures and the associate’s shares has been rising by 15 per cent since 2009. The trading profits which entails joint ventures and share associates has been rising up by 11.6%. Additionally, the one hundred million pounds target of cost synergy attained an 18 month ahead of the schedule. The health and beauty section has recorded an annual revenue rise of 4.4 percent and the trading profit of 11.6 percent. Alliance Boots is a beauty product and Pharmacist retailer found in the United Kingdom with over 2500 branches around the United Kingdom and 80000 employees. The company was formed in 2006 from Alliance UniChem and Boot UK chemist merge, and owns more than 170000 companies both nationally and internationally. The company is known to have the most successful card system in the United Kingdom with more than seventeen thousand cardholders. The pharmacy section is the department that faces a lot of competition. Despite the competition, the department has recorded annual revenue of 17.8 per cent, training up by 4.4 percent (Hightower, 2008). Public Sector Organizations Question 1 Fund Accounting is an accounting system that is normally applicable in non-business entities like the hospitals, government agencies, churches, universities, colleges, and non-profit organizations. Fund accounting is different from the conventional business accounting that concentrates on finding how successful an organization is in making profits. Since Yorba Linda is not designed to make profits, the fund accounting offers them a fitting approach to report and track its finances. At its core, fund accounting will enable Yorba Linda to break down its revenues into separate funds. Each revenue is seeing as its own, therefore, having its own balance sheet. Fund Accounting is also important because it allows Yorba Linda to manage the different streams of revenue that they get and monitor the limitations that are attached to revenues. Additionally, fund accounting shows Yorba Linda the current financial position for external audiences. This also enables the decision makers of Yorba Linda to make plans for the future. For a single thing, it demonstrates if Yorba Linda has cash on hand to move forward. It also shows size and types of cash inflows to be expected in a given period by informing the financial budget for the coming year. For evaluation purposed, fund accounting offers Yorba Linda with the tools and instruments to consider how good they meet their objectives. In the case of Yorba Linda, fund accounting offers the organization’s view relative to its success offering the services that it was meant to be. It also assists in identifying the revenue sources of the organization and indicates how efficiently, Yorba Linda is transforming inputs to expenses that are in line with the aspiration of the company (Merchant & Van der Stede, 2012). Conversely, fund accounting does not reflect the intrinsic and true value of the funds. Additionally, its accounting method fails to fulfill the demand of various group simultaneously among them being the tax authorities, potential partners, investment managers, and the auditors. Question 2 City of Yorba Linda is not expecting a smooth year in financial year 1991-1992. According to the management control system, the main strength and objective of a proper management control system is to improve the manager’s ability to manage, release the potential of management, and act on a positive attitude to achieve the objectives and aims of the company. From the case study, the City of Yorba Linda is yet to control its management. The management of the City of Yorba Linda ought to make the individual managers of the company accountable and they should not be seen as a constraint on the decision-making freedom on the delegated sections. City of Yorba Linda has not yet guaranteed the effectiveness of the municipals program, mismanagement, absence of waste, or fraud. However, they lack the ways of managing the risks that are linked to the municipal’s operation and programmes. The municipal is yet to make the control appropriate, cost effective, and backing up the risk assessment and appropriate analysis. The City of Yorba Linda has not yet developed the complex risk management methods to offer professional support to the municipality in that area. Operations management needs information gotten from within and outside the municipality. Some of the information is connected to using resources and some other matters of concern like goods and services delivery and the customer’s needs. The management information is a crucial part in the management control of a municipality, but not every control needs the information for it to be very effective. The proper management control is most firms begin from the idea that the managers of the municipal are accountable and responsible for the timeliness and quality of the programmes and operations they manage. They need to be managed with integrity and in conformity with the legal guidelines that are promulgated by the local government (Granof & Khumawala, 2011). The City of Yorba Linda will not expect a god fiscal 1991/1992 because the top management has not yet be provided with the timely and credible information including the financial data on the crucial aspects of the municipal’s performance. The implication of this is that the management control systems need to be developed in a proper manner beginning from the top position in the municipal. Reference Alliance Boots company profile 2006. (2006). Great Britain: Verdict. Blueprint for Europe The views of the UK pharmaceutical industry on the single European market in 1992.. (1988). London: ABPI.. Granof and Khumawala (2011), Government and Not‐for‐Profit Accounting. Chap. 2 p. 37‐44;  Chap. 11 p. 473‐481. Hara, T. (2003). Innovation in the pharmaceutical industry the process of drug discovery and development. Cheltenham, U.K.: Edward Elgar. Hightower, R. (2008). Accounting and finance policies and procedures. Hoboken, N.J.: J. Wiley. Howells, G. G. (1990). Product liability, insurance, and the pharmaceutical industry: an Anglo-American comparison. Manchester, UK: Manchester University Press in association with the Fulbright Commission, London ;. Howells, J., & Neary, I. (1995).Intervention and technological innovation: government and the pharmaceutical industry in the UK and Japan. Basingstoke, Hampshire: Macmillan. International accounting standard, disclosure of accounting policies. (1975). London (3 St Helens Place, EC3A 6DN): The Committee. Merchant and Van der Stede (2012), Management Control Systems, Prentice Hall. Chap. 17 Morgan, J. (2009). Private equity finance: rise and repercussions. Basingstoke: Palgrave Macmillan. Pederson, J. P. (2007). International directory of company histories. Detroit, Mich.: St. James Press. Rampeltshammer, L. (2008).Globalization and industrial relations: the pharmaceutical industry in Germany and the United Kingdom. Frankfurt: Campus. Rush, R. S. (2006). Multinational operations, alliances, and international military cooperation: past and future : proceedings of the fifth workshop of the Partnership for Peace Consortiums Military History Working Group, Vienna, Austria, 4-8 April 2005. Washington, D.C.: Center for Military History, U.S. Army. Unusual and prior period items and changes in accounting policies. (1978). London: International Accounting Standards Committee. White Book - Alliance Boots: The European Pharmacy Supply Chain - How It All Really Works. (2007). S.l.: Bernstein Global Wealth Management. Appendix Income Statement Alliance Boot income statement for the years ended 31 March 2013, 2012 and 2011                  2013 2012 2011   £million £million £million Continuing operations:               Revenue   23,009   19,428   16,911    Profit from operations before associates and joint ventures   1,036   977   659    Share of post-tax earnings of associates and joint ventures   58   73   98    Impairment of investments in associates   -   (4   -    Net gain on acquisitions of controlling interests in associates   -   19   -    Profit from operations   1,094   1,065   757    Finance income   307   311   393    Finance costs   (741   (700   (689 )  Profit before tax   660   676   461    Tax   (31   (21   135    Profit for the year from continuing operations   629   655   596    Discontinued operations:               (Loss)/profit for the year from discontinued operations   (57   (40   8    Profit for the year   572   615   604    Attributable to:               Equity shareholders of the Company   550   595   608    Non-controlling interests   22   20   (4 )      572   615   604    Galenica LTD Income Statement in (,000) Period Ending 31/12/2013 31/12/2012 31/12/2011   Total Revenue 3,543   3,554   3,423     Cost of Revenue 2,208   2,165   2,134         Gross Profit 1,336   1,390   1,289           Operating Expenses     Research Development -   -   -       Selling General and Administrative -   -   -       Non Recurring -   -   -       Others -   -   -           Total Operating Expenses 3,155   3,208   3,096     Operating Income or Loss 388   346   327           Income from Continuing Operations     Total Other Income/Expenses Net -   -   -       Earnings Before Interest And Taxes 388   346   327       Interest Expense -31 -37 -40     Income Before Tax -   -   -       Income Tax Expense 28   47   44       Minority Interest -39 -21 -33         Net Income From Continuing Ops 335   276   256       Non-recurring Events     Discontinued Operations -   -   -       Extraordinary Items -   -   -       Effect Of Accounting Changes -   -   -       Other Items -   -   -             Net Income 296   255   223     Preferred Stock And Other Adjustments -   -   -     Alliance Boots Balance Sheet As at 31 Dec 2013       2013 £million   2012 £million               Assets             Non-current assets             Goodwill     4,771   4,514   Other intangible assets     5,533   5,460   Property, plant and equipment     3,147   3,078   Investments in associates and joint ventures     1,079   910   Available-for-sale investments     39   48   Other receivables     66   66   Deferred tax assets     103   66   Retirement benefit assets     316   317   Derivative financial instruments     –   1         13,953   13,460   Current assets             Inventories     1,543   1,433   Trade and other receivables     3,649   3,130   Cash and cash equivalents     473   413   Restricted cash     343   366   Derivative financial instruments     4   3   Assets classified as held-for-sale     11   –         5,033   4,333   Total assets     18,975   17,793   Liabilities             Current liabilities             Borrowings     -930   -733   Trade and other payables     -3,313   -3,509   Current tax liabilities     -14   -30   Provisions     -88   -31   Derivative financial instruments     –   -33         -4,345   -3,335   Net current assets     777   1,008   Non-current liabilities             Borrowings     -8,674   -8,585   Other payables     -31   -35   Deferred tax liabilities     -1,498   -1,545   Retirement benefit obligations     -38   -30   Provisions     -35   -57   Derivative financial instruments     -350   -188         -10,506   -10,430   Net assets     4,334   4,048   Equity             Share capital     1,065   1,005   Share premium     3,795   3,795   Retained earnings     131   137   Other reserves     191   76   Shareholders’ equity     4,183   4,013   Minority interests     43   35   Total equity     4,334   4,048   Galenica Balance Sheet in (,000) Period Ending 31/12/2013 31/12/2012 31/12/2011   Assets Current Assets   Cash And Cash Equivalents 216   348   339     Short Term Investments -   7   7     Net Receivables 549   544   552     Inventory 353   341   334     Other Current Assets -   1   -     Total Current Assets 1,203   1,331   1,262   Long Term Investments 95   57   63   Property Plant and Equipment -   -   -   Goodwill 1,066   1,052   1,039   Intangible Assets -   -   -   Accumulated Amortization -   -   -   Other Assets -   -   -   Deferred Long Term Asset Charges 17   21   6   Total Assets 3,069   3,152   3,114     Liabilities Current Liabilities   Accounts Payable 342   338   399     Short/Current Long Term Debt 730   885   1,106     Other Current Liabilities 100   177   130     Total Current Liabilities 750   920   828   Long Term Debt 613   644   937   Other Liabilities -   -   -   Deferred Long Term Liability Charges -   -   -   Minority Interest -   -   -   Negative Goodwill -   -   -   Total Liabilities 1,514   1,821   1,912   Stockholders Equity Misc. Stocks Options Warrants -   -   -   Redeemable Preferred Stock -   -   -   Preferred Stock -   -   -   Common Stock 1   1   1   Retained Earnings 1,637   1,412   1,301   Treasury Stock -132 -114 -144 Capital Surplus 1   1   1   Other Stockholder Equity -   -   -   Total Stockholder Equity -   -   -   Net Tangible Assets -   -   -   Financial Ratios Valuation Measures Galenica Alliance Boots Market Cap (intraday) 4.62B 4.80B Enterprise Value (12/05/2014): 5.04B 4.65B Trailing P/E (ttm, intraday): 13.77 12.67 Forward P/E (fye 31/12/2015): N/A N/A PEG Ratio (5 yr expected) N/A N/A Price/Sales (ttm): 1.15 1.25 Price/Book (mrq): 2.7 2.5 Enterprise Value/Revenue (ttm) 1.25 1.4 Enterprise Value/EBITDA (ttm) 9.79 9.88 Financial Highlights     Fiscal Year   Fiscal Year Ends: 31-Dec 31-Dec Most Recent Quarter (mrq): 31/12/2013 31/12/2013 Profitability   Profit Margin (ttm): 8.36% 9.20% Operating Margin (ttm): 10.96% 10.98% Management Effectiveness   Return on Assets (ttm): 7.80% 8.02% Return on Equity (ttm): 23.20% 23..40% Income Statement   Revenue (ttm): 4.03B 5.6B Revenue Per Share (ttm): 621.38 630 Qtrly Revenue Growth (yoy): -1.90% 0.50% Gross Profit (ttm): 1.34B 1.35B EBITDA (ttm) 515.18M 615.17M Net Income Avl to Common (ttm): 336.50M 348.40M Diluted EPS (ttm): 51.85 52.8 Qtrly Earnings Growth (yoy): 10.80% 11.60% Balance Sheet   Total Cash (mrq): 245.32M 280.40M Total Cash Per Share (mrq): 37.88 38 Total Debt (mrq): 828.86M 830.90M Total Debt/Equity (mrq): 46.91 47 Current Ratio (mrq): 1.6 1.8 Book Value Per Share (mrq): 264.19 278.32 Cash Flow Statement   Operating Cash Flow (ttm): 373.86M 420.67M Levered Free Cash Flow (ttm): 207.29M 206.78M Read More