INTRODUCTION TO FINANCIAL REPORTING

Financial reporting is one of major tools for external observers for identifying and evaluating the economic position of the firm in order to make appropriate decisions regarding future functioning. However, it is important for all the companies operating in any market have to prepare all the finance documents as per the rules and regulations stated by several accounting institutions (Jara and et. al, 2011). There are various standards and policies which need to be undertaken at the time of framing all the major financial statements.

In addition to that, external decision makers are not only restricted to analyze financial statements but they should be presented with interim financial reports with the aim of providing appropriate information to make feasible decisions. In the present research report, study is regarding analyzing and evaluating the economic position of Kingfisher Plc by the means of their financial statements. Kingfisher Plc is one of the leading retailing organizations which operate with more than 1100 within 11 countries around the world (Kingfisher: About US, 2014). Thereafter, report highlights the several conceptual framework of IASB which focus providing appropriate guidance regarding broadcasting financial information.

In the later part of the report, study helps in evaluating the income statement and other major financial statement of Kingfisher Plc in order to assist corporate stakeholders of the firm in making future contingent decisions.

TASK 1

In references to the IASB’s conceptual framework, analyze the usefulness of kingfisher’s financial statement

Nowadays, it is very crucial for every company operating at large or small level to prepare all the major financial statement so that its stakeholders can understand the actual position of the firm and make feasible decisions regarding future aspects. However, as per the given guidance stated by IASB, financial statement of Kingfisher Plc should offer adequate and accurate information to its readers so that they make feasible judgment. The main objective besides preparing all the financial statements like income statement, cash flow, balance sheet and shareholder’s equity statement according to conceptual framework of IASB is to ensure that all the transaction regarding company’s operations and investment are recorded properly (Davison, 2004). After analyzing the financial report of Kingfisher Plc it can be stated that it is framed as per given set of rules and regulations by IASB and it is useful for both existing and potential investors to make decisions.

In addition to that, the main of preparing statement according to IASB is that it assists in evaluating actual financial position of firm. Furthermore, there are various types of pros that an individual can have after evaluating the financial report of Kingfisher Plc such as detailed information regarding, investments, dividend paid and earnings per share etc during the course of reporting period. Other than these, all the essential information is given in all three major statements such as income, cash flow and balance sheet (Bozcuk, 2012). However, by the means of these statements, corporate stakeholders can evaluate liquidity, profitability and solvency position of Kingfisher Plc.

The main aim of any organization regarding preparing the financial statements is to analyze the current position of firm in comparison to previous and desired one. The rule of IASB states that statements should be prepared on the basis of two years because it gives clear idea to the stakeholders about actual position of firm as compared to previous year. In the present report, financial report of year 2012-13 and 2013-14 of Kingfisher Plc has been evaluated.

In general terms, various stakeholders have different interest associated with the firm and for that they clinically analyze annual report. For instance, creditors and suppliers analyze balance sheet and income statement of Kingfisher Plc in order to generate information regarding time that company will take in paying their amount. Furthermore, these statements also highlights solvency and liquidity position of the firm through which creditors can make future decisions. Economic structure of Kingfisher Plc totally depends upon the investment made during the year. Therefore, it can be stated that it is very crucial for the top level management of the Kingfisher Plc to provide accurate information in financial statements so that corporate stakeholders can make appropriate decisions (Uyar, 2012). Along with that, by the means of such information investors like bank and other financial institution can make decisions whether their amount will be paid back or not.

TASK 2

A) Brief Notes on Kingfisher’s to meet the objectives of Abdul to outline the income statement and balance sheet of the company

Looking at the present condition of market it is very important for any individual or an entrepreneur to analyze and evaluate the actual financial position of any company before making any decisions regarding investments. As per the given case, Abdul is interested in investing his savings in listed company of London stock exchange. However, before doing so it is recommended to Abdul that he should analyze all the major financial statements in order to understand actual position of the firm.

Income statement is essential part of annual report because it provides accurate information regarding expenditure and income incurred by Kingfisher Plc during the course of reporting period (Abraham, Deo and Irvine, 2008). Furthermore, the main advantage of preparing income statement is that it assists in showing adequate information regarding revenue and profitability generated by the firm the present financial year.

Sales – It is one of the major elements of income statement because it shows the actual revenue earned by Kingfisher Plc in year 2013-14. Furthermore, it also highlights those sources by the means of which company was able to generate revenue for instance sale of fixed assets.

Gross profit – After analyzing the present situation of Kingfisher Plc it can be stated that workforce is constantly making valiant efforts which helped them in increasing overall gross profit of the firm. Present gross profit of Kingfisher Plc is £4120 million which is high as compared to previous year.

Operating profits – Looking at the present financial condition of Kingfisher Plc is can be stated that its operating profit is showing hike but at very slow rate. Therefore, it can be depicted that top level management is making valiant efforts in decreasing the operating expenses so that they can enhance profitability.

Net profit – It is defined as the actual profit earned by the company during the course of reporting period. According to present case, Kingfisher Plc having better net profits states that they are constantly increasing their sales by various methods and attracting large audience.

Balance sheet

Balance sheet of an organization consists of three major elements such as assets, liabilities and equity capital. the rationale behind preparing balance sheet is that it assist in evaluating all the liabilities and all the assets to overcome those liabilities during the financial period. As per the rules and regulations stated by IASB it is important to have the similar amount of both side liabilities and assets.

Current assets – In general terms, current assets can be defined as the assets which can be easily converted in to cash in order to overcome current liabilities (Evans and Porter, 2010). According to several experts, it is essential for a firm to have high currents assets because it play significant role in maintaining liquidity of Kingfisher Plc.

Non-current assets – Noncurrent assets are considered to be as the major assets because they are associated with goodwill of the firm. Therefore, it is important for top level management of Kingfisher Plc to maintain noncurrent assets to attain sustainability.

Current liabilities – Current liabilities of Kingfisher Plc can be defined as the borrowing taken by firm to perform its routine operations in effective and efficient manner. However, current liabilities of Kingfisher Plc would be associated with creditors, taxation etc.

Non-current liabilities – Non-current liabilities for any firm can be associated with derivates, deferred liabilities and other payables. However, it can have major impact on the overall financial structure of the firm.

Equity – The main aim of showing equity is to evaluate the total amount invested by owner of the firm in order to start the business operations (Bonaci, Matiş and Strouhal, 2008). On the other hand, it can also be defined as the retained earnings generated by firm from previous year’s functioning.

B) Discussing the extent to which management commentary fills the information gap based on annual report of Kingfisher

At times, information presented in the financial statements of the firm is not useful for the stakeholders as this information are unable to fulfill the gaps. Sometimes, it does not offer all the major and valuable information regarding the financial position of the firm. Whereas, information given in annual report is considered to be the most important and valuable because it gives each and every detail regarding the transaction taken place within the firm during the course of reporting year. Furthermore, after evaluating the annual report of Kingfisher plc it can be stated that top authorities are showing all the major information adequately which fills all the gaps and helps stakeholders in making appropriate decisions regarding future functioning as well as increasing the loyalty (Melville, 2008). In addition to that, the most significant information given in the annual report is regarding the amount of dividend declared for the shareholders. It is important to show all these information because it attracts existing and potential investors to invest within the business.

While analyzing the financial report of Kingfisher Plc, top level management has announced the expansion of globe. This statements itself depicts that top authorities have specified future corporate aims and objectives which will leads to satisfy the needs and wants of every stakeholders of Kingfisher Plc. Therefore, it can be stated that, for an investor it is very crucial to analyze annual report because it provides detailed information related to financial position of the firm. Furthermore, all the data and facts presented in financial report depict economic performance of Kingfisher Plc (Pederson, 2007). Therefore, from the above study it can be illustrated that analyzing annual report is quite beneficial for the stakeholders.

TASK 3

Explaining the extent to which Kingfisher’s information on revenue (note 2d) and its segmental information (note 4) can be considered to be useful for the purpose of performance analysis

Being a retailing giant in home appliances, Kingfisher Plc is placed in several parts of world. However, in order to identify the actual position of the firm it is essential for an entrepreneur to analyze the balance sheet. Therefore, in such case, note 2d play significant role as it assist in understanding the balance sheet of Kingfisher Plc in adequate manner. In the present given scenario with the help of note 2d it has been identified that financial position of Kingfisher Plc is much better as compared to previous year’s performance (Zoan, 2014). However, it is because if having better sale of home appliances in domestic market. In addition to that, undertaking qualitative data analysis approach will ensures in providing appropriate results regarding evaluating the actual performance of the firm as well as help in generating information regarding different source through which Kingfisher is improving its revenue generation. Apart for this, note 2d also show sales in income statement which in terms determines the amount excluding several financial factors such as taxes, net returns and discounts or fringe benefits given to the employees. Furthermore, with the help of note 2d cash receipts of Kingfisher Plc can be easily evaluated and analyzed (Maynard, 2013).

However, from the above study it can be depicted analyzing annual report is beneficial to an individual as it provides various information regarding each aspect of the business and helps top authorities as well as associated stakeholders to make accurate decisions regarding future functioning. Along with that, it is assist in generating valuable information regarding different sources of revenue generation for Kingfisher Plc which helps them in sustaining in such a competitive market.

Segmental information:

The main aim of note 4 segmental analysis is to provide valuable information to different stakeholders of Kingfisher Plc so that they can fruitful decisions for the firm. However, after analyzing the financial statements of Kingfisher Plc of 2014 it can be stated that, there are various other sources available for the firm from which they generated their sales. In addition to that, net value of Kingfisher Plc can be analyzed and evaluated from note 4. On the other hand, by the means of note 4 top level management of Kingfisher Plc can identify the countries from which they are generating the highest revenue (Vickerstaff and Johal, 2014). Furthermore, note 4 also provide detailed information regarding balance sheet of the firm in which both assets and liabilities segments are undertaken. In addition to that, information generated through note 4 assists in evaluating the position of cash and goodwill of the company. Therefore, it is essential for manager to analyze note 4 in order to evaluate the variance between cash and goodwill within a specific period. However, it also shows the detailed information regarding capital expenditure that Kingfisher Plc incurred during the reporting period.

TASK 4

Critically evaluating the accounting policies stated by Kingfisher with regard to goodwill and other intangible, to satisfy the needs and wants of users of financial reports

In general, there are several individual which are majorly concerns regarding analyzing the financial statements of the firm in order to make accurate decisions regarding future aspects. Furthermore, it is very crucial for the users of the annual report of evaluate all the accounting policies and regulations incorporated by top level management of Kingfisher Plc regarding goodwill and other intangible assets before showing them into financial statements. However, for the every firm operating in the market it is essential to prepare all the major financial statements as per given set of rules and regulations by IFRS (International Financial Reporting Standards). However, after analyzing the annual report of Kingfisher Plc it can be stated that their statements are prepared as per standards stated by IFRS along with that all the policies regarding accounting are followed during the course of action (Wahlen, Baginski and Bradshaw, 2010). IFRS 13 can be used in order to measure the fair value of goodwill and other intangible assets. Apart from this, other accounting policy that has been used is IAS 38 which ensures that all the intangible assets of Kingfisher Plc are measured in effective and efficient manner. Therefore, it can be stated that by the means of both IFRS 13 and IAS 38 needs and wants of users are satisfied in effective and appropriate manner.

In addition to above study, company has also considered new discloser policy of IFRS 13 in order to ensure that goodwill and other intangible assets are measured in accurate manner and result generated are fruitful for every users. Therefore, it can be stated that if top level management of Kingfisher Plc is undertaking both accounting policies IFRS 13 and IAS 38 then they are ensuring in providing fair value measurement of all the intangible assets (Kingfisher Plc: Annual Report and Accounts, 2014). At last, it needs to be evaluated that, by using these policies at the time of preparing T accounts of goodwill and other intangible assets leads to increase faith and loyalty of the user.

TASK 5

Illustrating the difference between the income statement and cash flow statement in reference to the financial statements of Kingfisher plc

In general terms, as per the given companies act and accounting standards it is the responsibility of top authorities of Kingfisher Plc to frame all four major financial statements in order to provide adequate information to all stakeholders. However, income statement assists in showing all the income generated and expenses incurred by the firm during the financial period. Furthermore, this statement also ensures in providing detailed information regarding profit and loss generated by Kingfisher Plc in the existing year (Gibson, 2012). Income statement includes all the transaction taken place in the company whether they are cash or non-cash. The main objective besides preparing this statement is to show cash inflow and cash outflow.

Furthermore, this statement shows the profitability of the firm at different levels so that managers can identify variance and indulge potential measures. Firstly, gross profit which is acquire after deducting cost of sales. On the other hand, operating profits is generated after deducting all the operating expenses made by Kingfisher Plc to accomplish its routine operations. At last net profit is also termed as retained earnings that are kept reserved after paying all the taxes and dividends to the stakeholders (Jara and et. al, 2011). The main aim of keeping this amount in reserve is to ensure that company has funds to overcome its future liabilities.

Cash flow statement assist in segregating the activities of firm in to three categories such as cash flow from operating activities, cash flow from investing activity and cash flow from financing activities.
Ratio analysis play significant role in evaluating the actual economic position of the firm.

Calculation of ratios from statement:

Gross profit margin = gross profit / net sales * 100

2014: gross profit ratio = 4120 / 11125 *100 = 37.03%
2013: gross profit ratio = 3955 10573 *100 = 37.41%

Operating profit margin = operating profit / net sales * 100

2014: operating profit ratio = 746 / 11125 * 100 = 6.71%
2013: operating profit ratio = 718 / 10573 * 100 = 6.79%

Net profit margin = net profit / net sales * 100

2014: net profit ratio = 579 / 11125 * 100 = 5.20%
2013: net profit ratio = 589 / 10573 *100 = 5.457%

CONCLUSION

From the entire study it has been evaluated that, company operating in private or public sector it is important for them to prepare all the four major financial statements so that users and stakeholders can make appropriate decisions. However, through these statements decision making of managers becomes easy as they can analyze each and every aspect of business operations in effective and efficient manner. After evaluating the annual report of Kingfisher plc it can be stated that top authorities are showing all the major information adequately which fills all the gaps and helps stakeholders in making appropriate decisions regarding future functioning as well as increasing the loyalty. At last, ratio analysis play significant role in generating actual figures regarding financial position of the firm.

REFERENCES

  • Abraham, A., Deo, H. and Irvine, H., 2008. What lies beneath? Financial reporting and corporate governance in Australian banks. Asian Review of Accounting.
  • Bonaci, G. C., Matiş, D. and Strouhal, J., 2008. Financial reporting paradigms for financial instruments: Empirical study on the Czech and Romanian regulations. Journal of International Trade Law and Policy.
  • Bozcuk, E. A., 2012. Internet financial reporting: Turkish companies adapt to change. Managerial Finance.
  • Davison, J., 2004. Sacred vestiges in financial reporting: Mythical readings guided by Mircea Eliade. Accounting, Auditing & Accountability Journal.
  • Evans, M. and Porter, R., 2010. Real estate financial reporting and accounting. Journal of Property Investment & Finance.

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