This paper examines the financial ratios of Wetherspoons, UKs largest leading pub company.

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Financial Performance Analysis of  JD Wetherspoon

This paper examines the financial ratios of Wetherspoons, UK’s largest leading pub company. The financial analysis is based on the assessment of the gearing, efficiency, share prices, liquidity and performance of investors in the company.

Key words: Profitability, ROA, returns, solvency, liquidity, leverage

  1. Introduction Company Over view

JD Wetherspoon is one of the country’s leading managed pub companies in United Kingdom with its head quarters in Watford, England, UK.  It was started by Tim Martin in the year 1979 (Martin, 2014).  The company also operates Hotels. The company opened approximately 46 pubs in the year 2014 which increased the number of pubs to 927 at the financial year end July 27, 2014. The company has plans to launch its successful pub chain in to the European continent starting with Paris. Wetherspoon went public in the year 1979 and is listed on the .  The company’s total revenue for the year 2014 was £1,409 million with an increase of 9.9% compared to the revenue for the year 2013. Wetherspoon are planning a major ramp up for the year end July 2015 by opening 30-40 pubs (Wetherspoons, 2015).

  1. Comprehensive Analysis of Financial Ratios

  1.  Profitability

Wetherspoon’s revenue increased by 9.99% in 2014, when compared to the revenue figure of 7.01 in the year 2013. The company has reported record sales, profit and earnings per share. However there was a drastic net income fall 10.86% from 46 million to 41 million despite a 9.99% of increase in revenues from 1.28 bn to 1.4 bn.  The declining gross margin might be due to a decline in sales prices or higher cost of sales. This is the main reason according to the Wetherspoon annual report (Morning star, 2015)

Table 2 Profitability Ratios

Graph 1 : JD Wetherspoon’s Revenue ( in £ million)

The company’s Return on capital (ROC) is a measure of performance for any organisation and determines how well the capital which is employed in the organisation is utilised (Bragg, 2012). Analysis of the ROC of Wetherspoons in the indicate that the figures have gone down over the last 3 years with the ratios being 10.84% in 2012, 10.55% in 2013 and 8.87% in 2014 (Fiancial times, 2015). This indicates that the company is still struggling to utilise the available resources. The capital employed is not being used to its fullest potential hence the increased net debt of 5.68% in 2012, 2.45% in 2013 and a whopping 17.37% in 2014 (Financial times, 2014). The return on equity ratio indicates the company’s return on investors’ money which is going down ever year. ROE for the year 2012 is recorded as 26.16 percent, 24.02 percent for the year 2013 and the least for the year 2014 which is 18.60 %. The company net debt has increased significantly during the last 3 years £ 462.6 million in 2012, £ 474.2 million in 2013 and with the highest being £ 556.6 million in the year 2014. The factors which lead to the increased debt are 46 new pubs, investment in current pubs, acquisitions of freehold reversions and investment properties, repurchase of shares etc. The declining trend has continued to the other profitability ratios as well.  The gross margins came down from 12.42% in 2013 to 11.9% in the year 2014.  Return of Assets declined from 4.40% in 2012 to 4.38% in 2013 to a further low of 3.62% in the year 2014 (Richard, 2015).

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Gross profit margin is a measure of the ratio between the gross profit and the net sales. Gross profit is defined as the profit earned by Wetherspoons before the exceptional items and taxes are deducted. Indication of growth in the gross profit margin suggests that the profit made through the net sales of the company is increasing and that the firm is progressing. From the profit analysis of J D Wetherspoon (Appendix 1), it can be analysed that there is a decrease of net profit margin and the possible reasons can be due to the external forces imposed such as ...

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