Financial Statements provided will present us financial health of the company. To fully
analyze firm, it is important to assess the value of the information supplied by
management (M.Fraiser and A.Ormiston, 2010). The financial statements are giving as
information of the financial position, performance and changes in the company.
Financial report includes the following components: balance sheet, income statement,
cash flow statement, a statement of changes in equity and notes to financial statements.
The balance sheet is a financial report of the financial position assets, liabilities or what
the firm owes to others and equity what the inside shareholders or owners own on
the particular date such as the quarter or year. Income or earning statement presents the
results of operations- revenues, expenses, non-profit and loss per share for the accounting
period (R.H.Parker, 2007).
Merlin Entertainment Company has showed in their accounts for 2009 that their profit
was £769 million, revenue, in this case represents the amounts received from customers
for the sale of goods specifically, admissions tickets, room revenue retail and food and
beverage sales of which they are directly invested or spent on the different kind of costs
£104.4 million, principal costs under this category represent the expense of food and
beverage and retail consumables according to this their gross profit was £664.6 million.
Their indirect costs were £428.9 million which means they earned £235.7 million before
finance income and costs, taxation, depreciation, amortization and impairment.
Their loss for the year 2009 was £30.8 million, we count total loss when we
subtract profit which is £769 million, cost of sales, which is £104.4 million and total
expenses. When we compare profit 2009 with profit in 2008 we can see that their
profit was £662.3 million which means that their total profit was less for £106.7 million
in 2008. Since their cost of sales were also less than in 2009 and they were £87.9
million their gross profit was £574.4 million when we subtract this amount with all
expenses which were £373.7 million we came to total of £200.7 million.
This means that the difference between profit in 2009 and 2008 is £35 million, they
made bigger profit in 2009 for this amount of money. Merlin Entertainment Group
also succeed to reduce their loss compared to the year 2008 for £49.1 million. As
provided in the Merlin Entertainment accounts on page 6 we can find more details
of exceptional and non-trading items in note 3 (Appendix 1).
By definition, ‘the account balances on the balance sheet must balance; that means
that total of all assets must equal the sum of liabilities and stockholders’ equity’
(M.Fraiser and A.Ormiston, 2010). In the statement of financial position of Merlin
Entertainment Company non-current assets represent long term investments and
intangible assets, such as goodwill recognized in business combinations, patents,
trademarks, copyrights, brand names, and franchise. Value of non-current assets as stated
is £1.891, 4 million. Details about assets are shown in notes 11, 12 and 13, goodwill
represents amounts arising on acquisition of subsidiaries and joint ventures (Appendix 2).
Current assets include cash, inventory, and marketable securities, prepaid expenses and
other liquid assets that can be readily converted into cash.
Value of current assets in 2009 is £139.1 million. Value of total assets is £2,030.5
million (Appendix 2).
Current liabilities are what a company currently owes to its suppliers and
creditors, and it shows that for 2009 current liabilities are £224.7 million. These are
short-term debts, all due in less than a year, bank overdrafts, interest bearing loans
and borrowings finance, leases, tax payable, and provisions (D. Adams, 1997).
Liabilities are: “Total of funds owed for assets supplied to our business or expenses
incurred but not yet paid” (Wood and Sangster, 2006, pg. 667).
Non- current liabilities are opposite than current liabilities, it is the obligation that is not
required to be satisfied in 12 months of the balance sheet date. With company’s ability to
pay its bills we measure a liquidity ratio. The denominator of a liquidity ratio is the
company's current liabilities, obligations that the company must meet soon, usually
within one year. We count liquidity ratio by dividing value of current assets and current
liabilities, and it would look like this £139.1 million / £224.7 million = £619.047.
(J. Robertson and W. Mills, 2000), (Appendix 2).
Anything the firm owns or has title to are assets.
Net assets are: Net Assets = Total Assets - Total Liabilities.
We use the net assets to measure value of the business, the value of everything
the business owns after all the debts have been taken account of.
Net assets of Merlin Entertainment Company are £481.6 million =£ 2,030.5 million – £
1,548.9 million. in 2009 while in 2008 net assets were £476.6
million excluding non-current shareholders loans. After the shareholders loan which is
£481.6 million and non-current shareholder loans net liabilities and total equity are
£114.3 million. Equity capital represents invested money which is not repaid to the
investors in the normal course of business, it is the risk capital stalked by the owners
through a purchase of the firm’s common stock (J. Robertson and W. Mills,
2000),(Appendix 2).
Calculating the Acid- Test ratio we can indicate whether the company has enough short
term assets to cover its immediate liabilities without selling inventory. Companies with
ratios of less than 1 cannot pay their current liabilities.
Acid- Test Ratio is calculated by: Current Assets – Stocks / Current Liabilities
Accounting ratios are useful when used to compare: one company's results over a period
of time, company’s results with another company. The best way is to compare it with the
best company in the same sector, such as a world class company, or to compare with
the industry standard for that kind of business, or with forecasted results (Lyn and
Ormiston, 2010).
Return on Investment, or ROI is a measure used to evaluate the efficiency of an
investment or to compare the efficiency of a number of different investments. The ROI
measures how much of income is returned to the company based on how much money
are they using to put into an effort. ROI is important to consider because if an investment
does not have a positive ROI, or if there are other opportunities with a higher ROI, then
the investment should be not undertaken.
We calculate ROI: Net Profit / Capital x 100 = X per cent
Cash Flow Statements and projections express a business's results or plans in terms of
cash in and out of the business, without adjusting for accrued revenues and expenses.
The Cash Flow Statements allows us to understand how a company's operations are
running, where is the money coming from, and how is it being spent(M.Fraser and A.
Ormiston, 2010).
In the cash flow statement of Merlin Entertainment Company in the section of
operating activities we can find transactions which include providing services and cash
effects of transactions and other events that enter into a determination of income.
Investing activities include productive assets that are expected to benefit for a long period
of time, lending money and collecting on loans. We use depreciation to allocate the cost
of tangible fixed assets, and amortization to allocate the intangible assets.
Merlin Entertainment Group has a net cash inflow for the last year from operating
activities value of £223.6 million, their net cash outflow from investing activities was
£100.8 million for a current year and from financing activities £161.8 million. Cash and
cash equivalents, net of bank overdrafts, at the end of the year was £86.6 million
in comparison with the year 2008 when the same was £114.9 (Appendix 3).
Cash flow statement is important for creditors, investors and others who use this data
because it helps to determine financing needs in the future, success in productively
managing investing activities and effectiveness in implementing financing and investing
strategies, aim of the cash flow statement is to measure business liquidity. Profit is
different from cash because profit is the money earned by the business, and is represented
on paper while cash is the inflow of money it is a liquid asset of the business. We can
count cash days in hand when we subtract Cash/ Total Expenditure/ 365 and it tells us, if
business would have stop tomorrow for any reason, how many days could we continue
paying our bills (M.Fraser and A. Ormiston, 2010).
In conclusion, we can say after analysing annual report, and research we made about
Merlin Entertainment Company, that it is highly profitable. They succeed to increase the
number of visitors and reduce debt whilst at the same time they continued to invest in
projects and new business developments for the future. (annual report, 2009. notes 11,13)
As a result of the previous year they have bought at the beginning of the year 2010,
Cypress Gardens Theme Park and Botanical Gardens in Florida, and converted
them into Legoland Park which will be the biggest Legoland created, opening is
announced for October 2011, they have also opened two new sites in 2010 in two
continents, LEGOLAND Discovery Centre which is situated in Manchester, UK, and
North America in Phoenix, Arizona, and already have plans to expend their business in
2011 (financial review of Merlin Group, 2010).
However, does this mean that an annual report, which always include Balance
Sheet (SOFA), Income Statement-Profit and Loss, Cash Flow Statement, can
always show us the real economic situation of the company?
Could be something wrong with the way financial results are reported?
First thing we can notice is that annual accounts are not up to date, and company could
always manage the results to show the better situation than it really is. If a company is
operating in an environment which is constantly changing or in a highly competitive
environment, past results of the company reflected in historical financial statements, may
not be an indicator of results in future. Analysis of historical financial statements will
not identify operational issues or inefficiencies, any favorable or adverse changes in
business. Financial statement analysis is just one tool for reviewing the business.
Revision of the financial statements with other analytical tools from the one we used can
easily overcome the limitations of using only one method of analysis, and show us maybe
the better situation of where the company is, and where is it going. In the end ‘If you
don’t know where are you going you will probably end up somewhere else’(Dr. L. J.
Peter and R. Hill, 1998).
References:
A. J. Bowdin at all, 2010 Events Management 3rd edition, London
Berridge, G. 2007, Events Design and Experience, London
D. Adams, 1997, Management Accounting For the Hospitality Industry, London and
Washington
D. Adams, 2006, Management Accounting for the Hospitality, Tourism and Leisure
Industries: A strategic Approach, 2nd edition, London
F.Wood and A. Sangster, 2006, Business Accounting 2nd edition, pg. 667
Merlin Entertainment Group annual report for 2009
Merlin Entertainment Ltd., 2010, Available from : < www.merlinentertainment.biz>
M.Fraser and A. Ormiston, 2010, Understanding Financial Statements 9th edition, New
Jersey
W. Mills and J. Robertson, 2000, The Bath Press/Bookcraft, Great Britain
