BU5574/ BU5575 Financial Analysis and International Accounting
Part A.
Debenhams’ Cash Flows Horizontal Analysis.
Horizontal analysis is used in evaluations of a company to compare its historical financial data over a period of time, (Penman, 2013). Hence, it shows changes in the amount reported by the company in its annual report, (Elhauge, 2015).
|
Note |
2018 |
2017 |
horizontal Analysis | ||
|
Cash flows from operating activities |
£m |
£m |
Change |
% change | |
|
Cash generated from operations |
32 |
137.5 |
200.4 |
62.9 |
-31.4% |
|
Finance income |
0.1 |
0.1 |
0.0 |
– | |
|
Finance costs |
-11.1 |
-11.2 |
-0.1 |
-0.9% | |
|
Tax received/(paid) |
1.3 |
-16.3 |
-17.6 |
-108.0% | |
|
Net cash generated from operating activities |
127.8 |
173.0 |
45.2 |
-26.1% | |
|
Cash flows from investing activities | |||||
|
Purchase of property, plant, and equipment |
-105.3 |
-72.6 |
32.7 |
45.0% | |
|
Purchase of intangible assets |
-30.7 |
-52.2 |
-21.5 |
-41.2% | |
|
Proceeds from the sale of property, plant, and equipment |
7.1 |
0.0 |
-7.1 |
– | |
|
Investment in associate |
-7.5 |
0.0 |
7.5 |
– | |
|
Net cash used in investing activities |
-136.4 |
-124.8 |
11.6 |
9.3% | |
|
Cash flows from financing activities | |||||
|
Drawdown/(repayment) of revolving credit facility |
22 |
66.0 |
-25.0 |
-91.0 |
-364.0% |
|
Dividends paid |
12 |
-35.6 |
-42.0 |
-6.4 |
-15.2% |
|
Purchase of shares by Debenhams Retail Employment Trust 2004 |
29 |
0.0 |
-0.8 |
-0.8 |
– |
|
Finance lease payments |
-1.6 |
-1.6 |
0.0 |
– | |
|
Debt amendment costs |
-0.8 |
0.0 |
0.8 |
– | |
|
Net cash generated from/(used in) financing activities |
28.0 |
-69.4 |
-97.4 |
-140.3% | |
|
Net increase/(decrease) in cash and cash equivalents |
19.4 |
-21.2 |
-40.6 |
-191.5% | |
|
Net cash and cash equivalents at beginning of the financial year |
19.7 |
40.8 |
21.1 |
-51.7% | |
|
Foreign exchange (losses)/gains on cash and cash equivalents |
-0.2 |
0.1 |
0.3 |
-300.0% | |
|
Net cash and cash equivalents at the end of the financial year |
33 |
38.9 |
19.7 |
-19.2 |
97.5% |
The above horizontal analysis results have been generated by subtracting the amount of cash flow reported in the year 2017 as the base year from the current year which is 2018. The ............................................
Part B.
Discussion of Debenhams Cash Flow Statement.
The cash flow statement of Debenhams for the current year shows that there have been more inflows than outflows as compared to the previous financial year 2017. From the statement analyzed above, ........................................................
Cash flows from operating activities
The horizontal analysis shows a negative 26% change from the base year (2017) to the current year 2018..................................................
Cash flows from investing activities
In 2018, the company invested more compared to the previous year. .....................................................
Cash flows from financing activities
The current year 2018 shows positive results from the net cash flow from financing activities............................................
The above change in cash flow from financing activities is attributed to the net increase in cash and cash equivalent change ...............................................
Part C.
- Has Debenhams been engaged in earnings management or income smoothing?
.................................
- The overall revenue collected by the company has been steady .................................................
Source: (Debenhams – Vertical Analysis)
The only year 2018 had a shift to 89% while the rest four years were stable at a maximum variance of 0.8%.
- Analyzing the financing structure from the notes to the financial statement, ...........................................
Source: (Debenhams – Vertical Analysis)
Current liabilities have been consistent between 31.4% and 41% of the company’s equity.
With the results of the high outflows analyzed in the cash flow statement, it shows that there has been income smoothing in the company to report the steady revenues on the income statement.
- Should Debenhams be considered a “going concern”?
.............................................................
Therefore Debenhams is not a going concern and needs immediate action taken to prevent insolvency.
(Word Count Part B&C: 1000)
References.
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