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Assignment is on AAF044-6 Accounting and Financeanalyse financial data and other relevant information of an organisation

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AAF044-6 Accounting and Finance

Case study

Introduction

The residential property developing sector has been very effective with respect to the factor of growth and opportunity. It has been taken into consideration that Bellway Plc has been a particularly interesting company would be a good option for a joint venture. This report will take the analysis and the critical evaluation of the company Bellway Plc in such a manner that the effectiveness of the company will be measured so that the venture is sounded. The background and the various corporate objective will be assessed and then the financial statement will be assessed for the last three years and finally comparing it with its competitors and then passing a conclusion for the venture that is to be carried out.

Background and objective of Bellway Plc

It has been stated that the company Bellway is one of the finest in the property development sector. The company is based on Newcastle as it's headquartered and has been effectively being traded in the stock exchange of London as well as the 250 Index of FTSE. The company deals in the construction of the house by the help of the people from the locality creating a job opportunity as well factor of trust in the local people where it is operating. It has been seen that the company has broken records that have been set by them in the year 2018 when they actually build 10,000 houses with respect to its previous records (Aubrey, 2015). The company has been providing the house building service with an added attribute of a good and flexible system of a finance system which is good but also providing them with lower interest rates for the company.

They have been taking into consideration that by creating good management in respect of the local they have been able to grow accordingly as they will increase the overall factor of the company in respect of understanding and gathering the local community needs and design for their home. This also helps them to gain more customers and increase their overall satisfaction level. The company has been rated five stars in respect of building a home by the Home Builders Federations and the survey of customer satisfaction accordingly. The company have a very good development program for their employees as they effectively support the development of them as well as have been one of the finest employers in the building sector. The company has been operating over key objectives to further enhance its company (Bradley, 2017). 

They have been following an objective to create a new and sustainable community by their development. They intend to have a good and sustainable practice so that they are promoted and developed accordingly. They intend to enhance the environment in which they are operating so that with time they can also increase the education and of the employees and also the training of them. The company intends that all the compounds of them are actually being fitted with the devices of energy saving by the end of 2020. It has been seen that they are effectively working so that they can be more economic towards the energy and its use. They intend to minimize resource waste (Tubanza, 2018). They have been improving the rate of diversion which has been achieved to be 97.8% in the year 2017 and 98.1% in the year of 2018.

The use of an effective waste management system they intend to be able to increase its profitability as well as cost-efficient. They have also set the objective of attaining a customer satisfaction better than the previous year as they have been maintaining the five-star rating for the last two years where it was up 90% last year and was 86% in the year 2017. They further intend to provide better and good support for the various accidents as well as the incidents which occur in the construction area (Cannon, Hillebrandt and Lansley, 2016). This objectives of the company will not only help them to develop a better responsibility towards the economy, society, construction and energy.

Every other building company has been facing many problems in respect to the factor of growth as well as the company reputation. Bellway has been found that they have been facing problems and limitations in respect of diversification in the segments of the product in the prospect of the culture that it has been following. It has also been found that the inventory of the company has been very hugging for the company which has been a major problem (Tubanza, 2018). It has also been found that the company goes through the factor of low planning in finance as well as there is less effective in it. It has been facing a problem that the company have not been good with its forecasting of the demand as a matter of fact that the company should use its cash in an effective manner. The opportunities for the company has been in the effect of the new market penetration as well as gathering new customers from online so that they can increase their sale. The use of effective technology, as well as a low rate of inflation, is a possibility for the company to thrive.

Evaluation of the Financial Statement

In contrast to the financial statement of the company, it has been found that Bellway Plc has been effectively managing its financial position in such a manner that the company is able to work towards the growth of the company. The company in respect of the construction sector it has been seen that the various aspects of the company are different financially (Robinson et al., 2015). The ratio analysis is a financial tool which will help correlate with the various parts of the company in such a way that the whole financial part of the company has been taken into consideration. The evaluation of the various ratios was done for Bellway Plc for the respective three years where it actually made its way for a more detail study of the statement of finance.

One of the most crucial aspects for a going concern company is its working capital. It has been found that the current ratio and the quick ratio for the company has been effectively growing for the last three years from 3.55 to 3.86 and 0.18 to 0.24 respectively. The ratio states that the company have been effectively using its current assets for covering the current liabilities so that the company is able to have no deficiency in the day to day operation of the company (Bellway Plc, 2018). On the other hand, it has been taken into consideration that the company has been very good in the market return as the P/E ratio and the earning per share (EPS) are also effectively good for the company. In the context of the earning from the share and the P/E the P/E have grown from 6.39 to 8.89 in the year 2017 and then again gone down to 6.92 during the next year. The earning per share has been significantly growing for the last three years which can only sum up that the company have seen a sharp fall in the price of the share.

There has been a fall in the gearing ratio consecutively for the last three years but it saw an increase in the interest coverage ratio of the company. The increase in the interest coverage ratio is a reason that the company have been able to manage its interest and they are more efficient than the previous years in the repayment of the interest that is due to the company. The return on the assets of the company has also increased over the last three years which showed the factor that the company is using its assets more effectively so that they are able to generate more income and expand in the future. On the other hand, since the company is facing through the problems that are stated in the above discussion it did not saw an effective change in the profitability ratio of the company (Bellway Plc, 2018). The gross profit for the company has ranged down from 25.65 to 25.47 during the last year which is a negative impact for the company and the operating income was also varying from 21.96 to 22.07 in the last three years. Finally, the net profit which derived at the end showed a margin range from 17.98 to 17.58 during the year.

It has been found that since the company is dealing in the construction sector it sees a higher inventory ratio which is actually good for the company as it saw a decrease in the ratio which means the house is delivered faster and the company is able to generate the revenue faster. The ratio was 513 days for the current year, whereas it was 556 days during the year of 2016. The debtors are collected faster as it ranges between 12 to 14 days and the payments are made by 95 to 97 days as per the ratio to the creditors of the company (Bellway Plc, 2018). The company have been effectively managing its various factors of the financial statement which helps it earn more profit.

Comparing With the Competitors

The context of the Bellway’s efficiency will only be understood only when it is compared directly with its competitors. The financial ratios play an important role when they are to be discussed accordingly taking the different factors that affect them. The competitors will be discussed with respect to the financial ratios of them. Three years data has been taken into consideration in respect of the same type of companies which are the competitors for Bellway Plc. The Morgan Sindall and Barratt Development Plc are the two competitors who are to be taken into consideration.

Overall it can be stated that the Morgan Sindall and the Barratt Development Plc has been outperformed by Bellway Plc in respect of profitability that is earned by the company. In an aspect of creditor and debtors’ payment, Bellway has been leading but have been behind the Barratt development in the context of stock days (Morgan Sindall Group, 2018). The company has been effectively using the current assets and the quick ratios of the company as they have been on a competitive advantage during the year 2016. It has been taken into consideration that the gearing ratio and the capital employed has also been effectively good as the company manages them effectively. Finally, the P/E and the EPS has been favourable and good with respect to the other two companies.

In the year 2017, it has been seen that Bellway Plc has been effectively grown in the year and the company have been found to have less use of the asset in respect of Morgan Sindall. Moreover, it has been found that the profitability of the company has been able to grow over the last years where the company have been maintaining the same quality as compared to the last year. The Debtor days reduced significantly for the year (Barratt Development Plc, 2018).

Finally, it can be seen that in the recent year of 2018 the liquidity of the company has been effective in compared to Morgan Sindall and Barratt Development as the company has seen significant growth in the profit. Moreover, it can be stated that the company have better interest coverage compared to the other two companies and has seen a decrease in the stock days which is a positive result for the company. The company effectively uses the asset better than the other companies (Morgan Sindall Group, 2018).

It can be stated that over the last three years the company have been growing significantly and saw a rise in the profit as well as effectively captured more market and increased the production in compared to Barratt development and Morgan Sindall who are its main competitors.

Conclusion

It can be concluded from the assessment that Bellway Plc has been one of the finest company to opt for a joint venture as it will open up new opportunities for the company to get better flexibility as well as an increase in the revenue. The reason for the proposal of the joint venture is that the ratio of the company has been effectively good for the last three years and has been using their assets for increasing the revenue source of the company. Moreover, it has been seen that the company have a good return of profit which means they have a good customer base and effective management who helps in attaining the organizational goal. Furthermore, it can be seen that the company have been compared to its competitor Morgan Sindall as well as Barratt development so that the efficiency of the company can be measured. The company have been comparatively better than them as it has better profitability as well as good liquidity. The company also have better market performance and effectively uses its assets and equity. This is the factors which make the company suitable for the joint venture.


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