Advanced Sport Management of Norwich City Football Club - Case Study Example

Financial Analysis of Norwich City Football Club The policies and strategies adopted by the Norwich City Football Club owe its origins to the disturbing financial position of the organization. A cursory study of the balance sheet and the profit & loss statements for the organisation shows us that the club is running at a loss. Operating losses pose a major threat to the organization’s financial health. In order to face this threat realistically, a pragmatic approach had to be adopted, and our endeavor in this analysis is to explain the strategies of the organization in light of the present financial position. Financial risk management is the first and foremost goal for this organization, and certain objectives have been drawn up and policies have been devised to achieve a watertight financial position. The arduous task of bringing the club back on keel does not stop with theorizing. These policies and strategies are implemented on a war footing. The Norwich City Football Club management looks upon the grave financial situation from the point of view of the board of directors of a business house. Like a business management policy, their first step of action is the reduction of financial risk. A perceived business risk, the principal among many risks, is the attendance of the team at events where its performances are below par. It doesn’t help anybody when the team takes the trouble of spending meager resources in attending events where its success not a possibility. Cutting out this principal risk by not attending such events is a sure way of taking a huge financial burden off the collective shoulders of the management. Another perceived and real risk is the paucity of cash flow to meet the obligations of the club in the next season. The directors of the club are well aware of the issues pertaining to this they are working on it to mitigate the risks involved. The directors have implemented a strategy for fire fighting with immediate effect. Every year, the group creates eighteen month rolling budgets. They also monitor the real time and actual performances against these shoe string budgets. Belts are being tightened in all possible outflows of cash in the organization. Rolling cash flows forecasts are also drawn up to effectively manage the cash. Several initiatives have been implemented towards achieving this goal by the club as part of its overall strategy. These initiatives will ensure the organization has sufficient cash resources to meet its day to day requirements. Exposure to financial risk for the group owes its origins to two major financial assets; namely, its cash and trade debtors. The cash is stashed away safely in a reputed and creditworthy institution – the Bank of Scotland. As for the trade debtor balance, a large proportion of it is due from other football clubs. These are safe, because the risk of non-payment is considered minimal due to football clubs’ status as football creditors under the Football league articles of association. To minimize the risk of bad debts, all other trade debtors are monitored closely. The board of directors does believe that the risks associated with the group’s financial liabilities are minimal. Next, we move over to bondholders. The group’s interest commitments, a significant proportion of it, are to its bondholders. Back in 2003, the interest rate on the bonds was fixed for the duration of the bonds. This reduces any risk associated with the Bank of England base rate increases. For all other borrowings, the associated interest rate is reviewed on a regular basis. No slack in this matter is tolerated. Wherever it is deemed appropriate, the rates are fixed to decrease significantly the unprotected exposure to rate fluctuations. Predictable expenses are always preferable to unforeseeable expenses. We move onto studying the strategies devised in reference to payments to suppliers. The group has a policy in place in relation to all its suppliers. This policy is to settle the terms of payments when agreeing the transaction. The group strictly abides by those agreed terms. Off course, for the group to keep its end of the bargain, it has to be satisfied that the supplier has provided the goods or service in accordance with the agreed terms and conditions. However, it is important to be noted that the group does not follow any code or standard of payment practice. We now delve into the hard financial jargon bit, but let’s keep it short. The ratio expressed in days between amounts invoiced to the group by its suppliers in the year and the amounts owed to its trade creditors at the end of the year was 44 (2007:29) days. Obviously, this calls for immediate action as the mounting facts are rightly the cause of alarm. Tightening of belts across the board, i.e., frugality measures in running the club are the call of the day, and that clarion call is being paid a heed to. There is also the angle of making every effort at commercial ventures to raise funds, and such initiatives are being undertaken. All in all, the strategies devised and implemented are all in regard to fighting the bush fire at the door of the club, and beyond that to ensure that the future is free of such hazards. Namely, the strategies are both a result of the reaction to an emergency as well as a serious effort at preemptive management that will ensure the smooth running of the club in the future with adequate financial health. PROFIT AND LOSS ACCOUNT DATE: 31ST MAY, 2008 TURNOVER 2008 2007 GROUP TURNOVER £18,960 £23,771 GROUP OPERATING LOSS £4,857 £377 GROUP OPERATING (LOSS)/PROFIT INCLUDING SHARE OF POINT VENTURE £1,184 £2,158 (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION £2,772 £627 (LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION £2,292 £95 (LOSS)/PROFIT FOR THE FINANCIAL YEAR £2,297 £91 BALANCE SHEET 31ST MAY 2008 YEAR 2008 2009 FIXED ASSETS £37,417 £39,444 INTANGIBLE FIXED ASSETS £2,225 £3,540 TANGIBLE FIXED ASSETS £34,866 £35,528 FIXED ASSET INVESTMENTS £326 £376 CURRENT ASSETS £9,141 £9,981 STOCK £266 £392 CASH £1,285 £2907 DEBTORS £7,590 £6,682 NET CURRENT LIABILITIES £4,463 £2,813 NET ASSETS £15,391 £17,650 SHAREHOLDERS’ FUNDS £15,218 £15,921 Conclusion Thus, we see that there is a clear decline in the profit of the Football club. The Football club was suffering a minor loss in the year 2007 which increased to a substantial sum in the year 2008. The Return on Capital for the year 2007 was -.627% whereas that for the year 2008 was -2.772%. The organisation states its primary aim is to make an immediate return to the Championship. It will view the problem areas of loss incurred and take necessary steps to check this loss and convert it into a profitable enterprise. The liquidity ratio shows that this is an organisation with serious financial and cash flow problems. Thus, the primary aim of the organization should be to take corrective actions in this direction without sacrificing the name and need of this institution. This could be done with a number of ways- most importantly by winning championships and making a name for itself in the international level.   Meaning of the Return on Capital The Primary aim of any business is to show profit to the investors. Hence, ROCE is taken as a standard measure for success realized by an organization. ROCE establishes the relationship between the profit and the capital employed. It indicates the percentage of return on capital employed in the business and it can be used to show the overall profitability and efficiency of the business. Return on Capital= Pre Tax Profit / Capital Employed. Pre Tax Profit is the satisfactory return on capital invested. YEAR 2008 2007 RETURN ON CAPITAL -2.772% -627% PRE TAX PROFIT £2772 £627 LIQUIDITY 9141\4463 9981\2813 SALES AVERAGE STOCK £1285 £2907 WORKS CITED Web: www.bized.co.uk Web: www.accountingformanagement.com Web: www.investorwords.com Read More