I. Abstract
Henwell PLC has recorded a decline in its financial performance due to different factors. One of the main factors appears to be the companyâ€™s decision to enter the US market. The joint venture required a substantial capital outlay which resulted in the company issuing both debt and equity. Additionally, the declining market share in the UK resulting from the entry of German discount stores has resulted in lower profit margins because the company has had to reduce prices. This report presents an analysis of Henwellâ€™s financial statements. The report highlights feature of the companyâ€™s financial statements, and presents an interpretation of the SOCI, SOFP and SOCF.
1.0 Features of Henwellâ€™s Financial Statements
This section discusses the companyâ€™s financial statements. It highlights where specific transactions would appear in the financial statements
1.1.1 Description 1 relates to the SOFP because the principal balance of a loan is a liability, thus it should be recorded in the balance sheet.
1.1.2 Description 2 relates to the SOCI because performance bonuses are an expense that a company incurs to generate revenue.
1.1.3 The Â£50 million bank loan would be specifically allocated in the non-current liabilities section of the Equity and Liabilities part of the SOFP. In comparison, the Â£5 million paid for meeting performance targets would be allocated in the operating expenses section of the SOCI.
1.2 Transactions that appear in the SOCI are used to determine the balances that appear in the SOFP. For example, depreciation which as an expense in the SOCI is deducted from the long-term assets to ascertain their net value as reflected in the balance sheet. On the other hand, the balances in the SOFP are used in the SOCF to ascertain net cash flows and confirm that the amount of cash and cash equivalents shown in the balance sheet is correct.
2.0 Interpreting Henwellâ€™s Statement of Comprehensive Income (SOCI)
2.1.1 Movement in total revenue
[(Â£57,643 - Â£63,916) / Â£63,916] x 100% = -9.81%
2.1.2 Movements in revenue in the UK, US and Rest of the World
UK
[(Â£39,532 - Â£47,632) / Â£47,632] x 100% = -17.01%
US
[(Â£2,946 - Â£1,392) / Â£1,392] x 100% = 111.64%
Rest of the World
[(Â£15,165 - Â£14,892) / Â£15,165] x 100% = 1.80%
2.1.3 One of the key reasons why Henwellâ€™s revenue has decreased is the entry of German Discount retailers into the UK market which has resulted in a reduction in Henwellâ€™s UK market share.
2.2.1 The gross profit figure tells us that the financial performance of the company is getting worse as compared to previous years.
2.2.2.1 Gross margin ratio
UK
2014/15 2013/14
(Â£2,409 / Â£39,532) x 100% = 6.09% (Â£3,806 / Â£47,632) x 100% = 7.99%
US
2014/15 2013/14
(Â£104 / Â£2,946

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