Financial

Management

and Accoun

tancy

Justin Mosel

ey

Table of Contents

ContentsPart (i)............................................................................................................................................5

Introduction...............................................................................................................................5

Preamble....................................................................................................................................5

(A) Profitability Ratios...........................................................................................................5

Return on Capital Employed....................................................................................................5

Return on Shareholders’ Funds...............................................................................................6

Gross Profit Percentage...........................................................................................................7

(B) Liquidity and Efficiency Ratios...............................................................................................8

Working Capital Cycle and Inventory Holding Period...............................................................8

Trade Receivables and Trade Payables....................................................................................9

Current and Quick Ratios........................................................................................................9

(C) Gearing Ratios.....................................................................................................................10

Gearing.................................................................................................................................10

Interest Cover.......................................................................................................................10

(D) Investment Ratios...............................................................................................................11

Dividend Cover Ratio and Dividend Pay-out Ratio.................................................................11

Dividend Yield.......................................................................................................................11

Earnings per Share & P/E Ratio..............................................................................................12

Conclusion................................................................................................................................12

Part (ii).........................................................................................................................................14

(A) Users...................................................................................................................................14

(B) Conventions........................................................................................................................15

(C) Application..........................................................................................................................16

Negatives..............................................................................................................................16

Positives...............................................................................................................................17

Conclusion............................................................................................................................17

Bibliography.................................................................................................................................18

Appendices...................................................................................................................................20

1. Persimmon........................................................................................................................20

2006 Statements...................................................................................................................20

2007 Statements...................................................................................................................21

2008 Statements...................................................................................................................23

2009 Statements...................................................................................................................24

2010 Statements...................................................................................................................26

2. Bellway.............................................................................................................................27

2006 Statements...................................................................................................................27

2007 Statements...................................................................................................................29

2008 Statements...................................................................................................................30

2009 Statements...................................................................................................................31

2010 Statements...................................................................................................................33

3. Calculations.......................................................................................................................35

Persimmon...........................................................................................................................35

Bellway.................................................................................................................................36

Table of Figures

Figure 1: Return on Capital Employed.............................................................................................6Figure 2: Return on Shareholders’ Funds.........................................................................................6Figure 3: Gross Profit Percentage....................................................................................................7Figure 4: Inventory Holding Period and Working Capital Cycle........................................................8Figure 5: Trade Receivables and Payables.......................................................................................9Figure 6: Current and Quick Ratios..................................................................................................9Figure 7: Gearing..........................................................................................................................10Figure 8: Interest Cover................................................................................................................10Figure 9: Dividend Pay-out & Cover Ratios....................................................................................11Figure 10: Dividend Yield..............................................................................................................11Figure 11: Dividend Yield..............................................................................................................11Figure 12: Earnings per share and P/E Ratio..................................................................................12

Executive Summary

The following Financial and Accountancy Management report is decomposed into two sections.

The first part reviews two UK construction industry organisations, Persimmon and Bellway. Their financial statements from 2006 – 2010 are reviewed and compared. Ratio analysis is completed on both organisations. This analysis takes into account factors of Profitability, Efficiency, Liquidity, Gearing and Investment.

It is apparent from the analysis that the companies have had a turbulent period and that for shareholders their returns have not been ideal.

However the organisations have negotiated these challenges and returned to profitability.

The second part of the report reviews the financial statements from the perspective of the users. Following this analysis accounting concepts are reviewed.

Finally the report discusses whether the users’ needs are matched by the concepts.

Part (i)

IntroductionThe companies which were selected for this paper are Persimmon and Bellway, two of the UK’s largest residential house builders. The period 2006 – 2010 has been a challenging time for both

organisations due to early strong growth, followed by severe profit losses and latterly a return to stability caused by the recession.

PreambleIn early 2006 Persimmon acquired Westbury homes plc. This strategic acquisition increased the intangible values of goodwill, brand and tangibles of inventories etc. Within the construction sector the prime inventory is land; Persimmon accrued sufficient land for 4.5 years supply which equates to 78,000 homes (Blitz, 2006). Furthermore, they gained a net increase of assets of £464 Million.

The costs involved in this acquisition were not inconsequential, for example, the acquisition cost was £664 million and a further amount of £15 million for restructuring to there was an increase in debt due to borrowing to fund the acquisition.

Whilst this acquisition has made the study interesting to interpret, it is felt that this purchase contributed to Persimmons challenges through the following periods and thus adds context to the final analysis.

(A) Profitability Ratios

Profitability ratios are based on the resources used to generate a profit and the actual profit. Three ratios have been used to analyse the profits for the two companies, ROCE, ROSF and GPP. NPP has not been utilised as it isn’t particularly useful (Ciancanelli et al., 2009) (Abraham et al., 2010).

Return on Capital EmployedThe ROCE graph below indicates that the “master ratio” (Abraham et al., 2010) performances were returning circa 23% on the capital invested, until 2008 where Persimmons ROCE dropped severely. This was due to Persimmon taking a double hit, one from the massive loss; due to, a) less houses being sold, a reduction in 36% on the previous year and b) those houses which were sold were sold at a reduced price, a reduction of 8.7% (Persimmon, 2012). These loses were further exacerbated by the reduction in shareholders’ equity from £2345 to £1555.2 million. This reduction was due to the following; the loss of retained earnings and the loss in value of inventories, circa £650 million, to exceptional impairment, i.e. the value of the land owned by the company was revalued. Finally, intangible assets were also reviewed and a write-down of £203 million was recorded. In 2009 Persimmon returned to a positive ROCE due to the following; there was no dividend pay-out due to cash conservancy, sales growth of 4.5% and a unit selling price increase of 6% (Persimmon, 2012). Furthermore, operational costs were reduced from £313 million to £78 million and they halved their borrowing in 2009 and again in 2010.

In contrast, whilst Bellway had poor ROCE results 2007–2009 they were not as spectacular as Persimmon. This can be attributed to the loss in profits, an increase in long term loans and that inventories were reviewed over two years (2008-2009) resulting in write downs and exceptional charges of £130 and £66 million respectively. The loss in profits is attributed to a reduction of sales of 30%, the organisation proscribed to a volume versus price strategy to keep the amount of sales as high as possible (Milner, 2008); those houses which did sell had a price reduction of 9%. To reduce the cash outflows in 2009 Bellway reduced their borrowing by 66%. In 2010 they returned to profit due to a combination of profit driven by improved sales, increased sale prices (Bellway, 2010) and static borrowing.

Return on Shareholders’ Funds.The returns for shareholders for Persimmon in 2008 and in 2009 for Bellway were poor. However, it could be argued that for shareholders outside of these years the return on both companies was better than purchasing a zero risk rate T-bill.

The reasons for the variations in the curves between the two companies is due to the differences in timing of their reduction in profits; Persimmon made a loss in 2008 which was further exacerbated by the reduction in equity value due to land write downs; Persimmon has a relatively larger land bank and thus the write down was commensurately higher. Bellway had a reduction in profits in 2008 but managed to stay in the black as previously discussed.

Bellway made a loss in 2009; furthermore they paid a dividend (6.0p) in 2009 which resulted in a negative ROSF. Persimmon vetoed dividends to conserve cash due to their cautious outlook (Persimmon, 2012) and they returned to a positive ROSF.

Figure 2: Return on Shareholders’ Funds

Figure 1: Return on Capital Employed

Gross Profit Percentage. The comparison in 2006 and 2007 suggests that both businesses were trading at an equivalent level of gross profit. However in 2008 the dip in gross profit of Persimmon was due to the relatively high cost of sales exacerbated by the exceptional £650 million cost of land write down in proportion to the low revenues received. In 2008 – 2009 the influence of the recession and the requirement to make sales resulted in a revised pricing strategy and incentivisation scheme culminating in a 15% sales price reduction (Persimmon, 2012) thus reducing GPP severely. In 2009 and 2010 GPP returned to a positive due to a write back of £78 million, increases in sales, sales prices and the retraction of incentivisation schemes (Persimmon, 2012).

2006 2007 2008 2009 2010

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.0023.48 24.42

-24.10

13.97 17.5223.57 23.04

9.82

3.04

11.69

PersimmonBellway

GPP

Figure 3: Gross Profit Percentage

In 2008, Bellway too had a reduction in sales, however due to the reduction in building material costs this helped offset the losses from incentive schemes (Bellway, 2008). Furthermore, rather than follow the same strategy of Persimmon, Bellway had a two land write downs over two years, these costs were incurred from revaluation and letting options to buy expire (Bellway, 2008). Bellway further cut costs through a redundancy program resulting in a 35% workforce reduction and house building only commences if a there is a definite sale. The result of this strategy is a less pronounced decline in GPP and a slower return.

(B) Liquidity and Efficiency Ratios

Managing cash flows and liquidity for a building company whose inventories are predominantly tied up in land banks, and whose payments received are for homes which have not only to be built but then purchased must be a challenge in a positive market. In a recession when no one wishes to acquire property but the organisations finance payments must still be paid would be concerning at best.

Working Capital Cycle and Inventory Holding PeriodCurrent assets are usually considered in terms of one year or less, however throughout the analysis period the Working Capital Cycle (WPP) and Inventory holding period (IHP) are much longer than this. However, due to the fact that a house must be constructed and purchased it is a probable quirk of this industry.

In 2009 it took over 500 days for both Organisations to receive a return on their capital and over 650 days for them to sell stock. This period shows the increased challenges both companies were facing from having their cash tied up in inventories. Regardless of the underlying causes, the challenge for both companies was to ensure that there is sufficient liquidity during this difficult period. Persimmon succeeded by conserving cash.

In 2009 Persimmon revalued their inventories (note 6) and trade receivables. This changed the statement figures from previous years, they restated revised figures for 2007 and 2008 in year 2009. For this paper the original values have been kept from the aforementioned years.

Figure 4: Inventory Holding Period and Working Capital Cycle

Trade Receivables and Trade PayablesBoth companies ensure that liquidity is maximised by squeezing their suppliers to an extreme degree, at worst paying after 139 days. Interestingly, in 2008 was the year where suppliers of both companies were paid in the shortest time span, this could be attributed to the fact their suppliers were also having severe liquidity issues. Furthermore, both companies receive payments in a much shorter time frame, generally in two to four weeks. By utilising this strategy the organisations liquidity is maximised.

Figure 5: Trade Receivables and Payables

Current and Quick Ratios The current ratio the figures appear to be reasonable as any ratio over 2 is ideal (Atrill and McLaney,2011). However this analysis is disingenuous; the “current” assets take over a year to receive a return on capital. This point is proven when the quick ratio is reviewed; once inventories are removed it can be seen that there is very little liquidity for either company and that the “liquid current” assets do not cover the current liabilities.

Reviewing the cash flow statements also correlates with the liquidity issues. Persimmon had negative net cash equivalents at the end of 2007 and 2008. In 2009 the company became profitable and positive net cash was generated from operations. To cover any liquidity issues Persimmon have several facilities with various institutions to cover circa £1000 million (Persimmon Plc, 2010).

Bellway had equivalent challenges, they had negative cash equivalents at the end of their accounting periods 2006 and 2007, and to alleviate this in 2008 they borrowed heavily. Considering their liquidity issues, it could be argued that allocating a dividend in 2008 was not the most judicious action, as conservation of cash during this difficult period should have been a priority.

Figure 6: Current and Quick Ratios

(C) Gearing Ratios

GearingBoth companies are both geared to a certain extent. Prior to the Westbury acquisition Persimmons long term debt was £233.6 Million. The debt once the acquisition was completed totalled £511 million resulting in a higher gearing ratio than Bellway. However, even at 15 and 20% this is relatively low by finance standards.

In 2006 Persimmons gearing is higher than Bellway due to the acquisition of Westbury where they doubled their long term debt. An interesting point to consider is that these figures are taken at the end of 2006, Persimmon purchased Westbury in the beginning of 2006 and have already cut gearing level sources reported an 80% gearing (Talako, 2006) (Persimmon Plc, 2006) on the acquisition of Westbury. However during year Persimmon reduced their debt to present levels to ensure liquidity and

In 2008 both companies wrote land inventories down, resulting in reduction of shareholder equity. Bellways issues were further compounded by having to increase their level of debt to cover their cash flow issues as previously discussed. This proportional change affected the gearing ratio resulting in the increase shown in Figure 7. The target for both companies from 2008 onwards was to cut gearing to levels which were equivalent to their profitability and cash flow. As part of the restructuring strategy both companies pursued, the results in 2010 show that the reduced gearings were of a level more commensurate to the revised earnings.

Interest CoverIn 2006/2007 both companies had sufficient interest cover, however 2008 caused some challenges for Persimmon due to the massive drop in profits they were in danger of breaching their banking covenants relating to profit against interest cover (Reuters, 2008) (Talako,2006). As such they had to restructure their debt. To achieve this, a higher interest rate circa 10% (Pignal and A, 2008) was negotiated with the banks. This led to more pressure to make sufficient profit to cover the higher finance payments. However, in 2009 the resultant opex cost cutting and corresponding cutting of loan amounts as seen from Figure 7 the gearing levels were reduced to a more manageable level. With a return to profits and further cuts in debt in 2010, both companies appear to have weathered the storm and have returned to state where they can be reasonably comfortable knowing that they have sufficient earnings to cover their interest repayments.

Figure 7: Gearing

Figure 8: Interest Cover

(D) Investment Ratios

This group of ratios are a method of analysing the financial data to answer an existing or potential investors questions regarding whether the stock has been or will be a potential money maker.

Dividend Cover Ratio and Dividend Pay-out RatioReviewing the dividend cover and pay-out confirms the differing strategies which were employed by the companies. Prior to the volatile periods the dividends paid out could be considered solid, if unspectacular but in line with the industry (Morningstar, 2012).

In 2008 Persimmon was unable to cover their dividend due to the large losses posted. In an effort to conserve cash and maintain financial stability Persimmon took the step of not awarding a dividend in 2009 thus weathering the worst of the crisis to emerge in a resilient manner in 2010.

Figure 9: Dividend Pay-out & Cover Ratios

Bellway, by comparison paid dividends in both 2008 and 2009 when there were reduced earnings (2008) and a loss recorded (2009), hence the disparate figures of 190% and -39%. In both periods there were inadequate earnings to cover the dividends, thus insufficient cash was being invested and conserved within the business and awarding a dividend could be considered a dubious decision.

N.B. The following ratios were analysed with present day share prices, which may have resulted in different figures.

Dividend YieldThis ratio shows the return you are getting for each unit invested. Prior to the crash the Persimmons Dividend Yield could be considered to be cautious return on investment (average Bank of England Base rate 2006-2007 5.25) (Bank ofEngland, 2012) or in the case of Bellway a poor ROI as the Banks rate is risk free.

However this may be too simplistic, if shares had been bought during the low points of this period the appreciation of the shares market value could completely outweigh the yield and are therefore a good investment.

Figure 10: Dividend Yield

Earnings per Share & P/E Ratio. EPS serves as an indicator of a company’s profitability.

P/E Ratio; A valuation ratio of a company's current share price compared to its per-share earnings

By analysing these ratios in tandem it is possible to link the earnings attributable to the cost of purchasing a share for an owner (Abraham et al., 2010). However, the results are skewed by the issues in 2008. In the preceding years it is apparent that the companies EPS and P/E ratios were of an equivalent performance. However, post 2008 the figures are difficult to analyse due to the losses posted which resulted in low EPS, or zero, giving a rise to unrealistic P/E ratios.

Figure 12: Earnings per share and P/E Ratio

Conclusion

It can be concluded that both organisations went through difficult times and had their own individual challenges. In hindsight, Persimmons purchase of Westbury Homes in late 2005 may not have been the most prudent.

Persimmons losses in 2008 were huge, not only from a profitability perspective but also due to intrinsic land value write downs. Their gearing proportion added to their challenges. Through cost cutting and financial restructuring they were able to weather the storm and posted good profits in 2010.

Bellway, by comparison, posted losses in 2009 and these were not as severe as Persimmons due to the land write-downs being smaller and over a period of two years. They too cut costs and followed a volume strategy; furthermore they made agreements with the government to supply social housing.

The liquidity and efficiency ratios for this industry are anomalous to the norm, due to inventories being land and houses. However both organisations maintain general parity with one another suggesting that this, whilst not ideal, may be typical of the industry.

By analysing the investment ratios it should be apparent whether the organisations are worth putting money into or not. The analysis suggests that yields were modest, that there were insufficient funds to cover the dividends allocated by Bellway. The EPS and P/E ratios which are usually the primary investment ratios are challenging to analyse due to the losses which were made 2008-2009.

Part (ii)

(A) UsersThe informational requirements of the users change dependent upon which group they belong to. Below are the most important groups.

Customers;

Customers are interested in the company’s statements, if they wish to purchase goods or services, will the company still be solvent and able to respond to their future needs?

Employees

Employees will be interested to know whether they will still be employed/paid in the future, if the company is doing well and if so whether they can negotiate an improved package.

Government

The Government is interested as by perusing the statements they can quantify the tax liability and whether the company is following approved regulations regarding pricing, solvency and competition

Public

The ability to assess economic and social impact of the firm on the community

Investment analysts

This group will analyse the statements to ensure that the company is financially strong and advise clients whether to invest or not.

Suppliers

Suppliers will be most concerned that the company is solvent and able to pay their bills.

Managers

Managers utilise the statements to benchmark themselves against competitors to ascertain if improvements can be made.

Shareholders

Will review the statements to review the viability of their investment and whether it will continue to make them money.

Competitors/Predators

Competitors will peruse the statements to ascertain whether they can gain a competitive advantage or possibly leave the market as it is uncompetitive.

Predators will be looking for under-priced companies that can be bought, asset stripped or possibly managed in a more effective manner.

(B) Conventions

Main conventions.Business Entity Convention

The business and its owner are treated as two separate entities.Historic cost convention

The value of assets should be based on their acquisition cost.Prudence Convention

All potential and actual losses should be recorded, whilst profits are only recorded when they arise.Going concern convention

The assumption is that the organisation will continue to trade in its present form.Dual Aspect convention

Any transaction will have two effects on the financial statement, thus balancing the statement.Cost concept

Assets occur in the statements at their cost minus any depreciation.Money Measurement

Any item in the statements must be able to be measured objectively in monetary terms.Realisation Accruals

Income is recognised at point of invoice, not when the money is received.Matching

Expenses are recorded in the same period as revenues are recognised.Materiality

Statements should be informative and add information to be able to make decisions on.Consistency

Accounting statements should be comparable from one period to the next.Accounting Period

The accounting period should be over one year.True and Fair

The financial statement should present a true and fair view of the businesses financial position. (Black, 2009)

(C) Application

As seen in part (a) financial statements have a variety of users and whilst there may be some commonality of informational needs, an investor, for example, requires different information than a manager. Moreover, the information generated within statements may have limitations. Finally, some accounting conventions have restrictions which may counterbalance their “usefulness”.

NegativesConsideration should be given that statements are a snapshot of the organisation at a particular moment, thus the view may not be representative of the “norm”. For users this may mean that the liquidity is generally poor but is masked by the time within which the statements are generated. Furthermore accounts are retrospective and not a prediction of the organisations or the competitions future operations.

The historic cost convention is dubious as it is based on a figure in the past which is outdated. If land, for example, was purchased a decade ago and its price thus shown on the statements it would not be a “fair” reflection its present value. (Millichamp, 1997). Conversely, the time value of money requires consideration and the valuation and depreciation of assets differ dependent upon the derivation method. This can affect the pattern of profit for an organisation and whilst it does not ultimately affect the bottom line it may lead organisations to “massage” figures for short term benefits. (Atrill and McLaney, 2011). Obviously the reconciliation of these figures is challenging at best to ensure the correct value is stated and and figures derived should be treated with some caution.

The prudence convention whilst understandable may lead to a bias of financial strength resulting in users making poor decisions, e.g. selling shares in a company at a lower price due to erroneous information.

The money measurement concept regards organisational resources to be quantified in terms of money. However, goodwill, brands and personnel are unidentifiable in monetary terms; attempts to value them within the statements are subjective leading to over or under reporting of their true value.

With regard to the realisation and the accruals concepts; revenues and expenses are shown within the books prior to them being received or deducted in reality, indicating potential over or understatement of accounts. This can lead to a difference in profits and cash flow statements.

Finally, due to the short term performance requirements of the users the accounting period has to be decomposed annually which shows great variance from one period to the next, it would be far more accurate to use day one and closure figure to determine exactly the profits have made, although that would not balance the requirements of users.

PositivesHowever, due to the fact that companies still prepare statements of financial position even when they are not required to do so by law (Atrill and McLaney, 2011) there must be an argument that there are elements which can be considered useful.

Being able to evaluate how revenues are generated; be it the amount of sales or the expenses accrued, through the analysis of the financial statements gives shareholders cognizance of how the business is performing. They can utilise this evidence to challenge the board if there are poor results.

Through the analysis of financial statements users are able to determine to what extent the organization is geared, the decomposition of that investment and whether it is efficient or not.

ConclusionThe production of accounts is a time consuming and costly practice, it is difficult to match all users’ needs with the statements. The challenge is to produce something clear, coherent and useful(Abraham et al., 2010) (Atrill and McLaney, 2011). However, with accounting concepts leading to subjective valuations of assets, the retrospective view of the organisation and that figures are entered when cash in reality may not be received it is difficult to concur with the statement that users’ needs are met within the annual reports.

Furthermore, even when detailed ratio analysis is completed some caution must be exercised as they are a tool not a panacea. Without context they are just a set of numbers and the “true” information held within the notes should be reviewed.

Bibliography

Abraham, A., Glynn, J., Murphy, M. and Wilkingson, W. (2010) Accounting for Managers, 4th edition, Andover: Cengage.

Atrill, P. and McLaney, E. (2011) Accounting and Finance for Non-specialists, 7th edition, Harlow: Prentice Hall.

Bank of England (2012) Bank of England, 03 March , [Online], Available: http://www.bankofengland.co.uk/boeapps/iadb/Repo.asp [3 March 2012].

Bellway (2010) Bellway 2010 annual report, 18 October, [Online], Available: http://www.bellwaycorporate.com/companyReports [12 February 2012].

Berry, A. and Jarvis, R. (2011) Accounting in a Busniess Context, 5th edition, Andover: RR Donelley.

Black, G. (2009) Introduction to Accounting and Finance, 2nd edition, Harlow: Prentice Hall.

Blitz, R. (2006) Financial times, 28 February, [Online], Available: http://www.ft.com/cms/s/0/4a2aa480-a800-11da-85bc-0000779e2340.html#axzz1nhnbheXc [28 February 2012].

Ciancanelli, P., Dunn, J., Koch, B. and Stewart, M. (2009) Financial and Management Accounting, 1st edition, Glasgow: University of Strathclyde.

Millichamp, A. (1997) Foundation Accounting, 5th edition, London: Letts educational.

Milner, M. (2008) The Guardian, 15 August, [Online], Available: http://www.guardian.co.uk/business/2008/aug/15/bellway.construction?INTCMP=ILCNETTXT3487 [23 February 2012].

Morningstar (2012) Morning Star, 01 March, [Online], Available: http://www.morningstar.co.uk/uk/ [01 March 2012].

Persimmon (2012) Persimmon PLC, [Online], Available: http://corporate.persimmonhomes.com/psn/investor/reports/ [23 February 2012].

Persimmon Plc (2006) Persimmon Plc, 12 February, [Online], Available: http://corporate.persimmonhomes.com/ [23 February 2012].

Persimmon Plc (2010) Persimmon Annual Accounts, [Online], Available: http://corporate.persimmonhomes.com/psn/investor/reports/2010/ [03 March 2012].

Pignal, S. and A, S. (2008) Financial Times, 1 December, [Online], Available: http://www.ft.com/cms/s/0/8884c444-bfe1-11dd-9222-0000779fd18c.html#axzz1nnytNqfl [28 February 2012].

Reuters (2008) Reuters UK, 2 December, [Online], Available: http://uk.reuters.com/article/2008/12/02/idUKPTIP32270320081202 [2012 February 2012].

Talako, P. (2006) The Motley Fool, 20 April, [Online], Available: http://www.fool.co.uk/news/comment/2006/c060420h.htm [28 Febriary 2012].

Appendices

1. Persimmon

2006 Statements

2007 Statements

22

2008 Statements

2009 Statements

2010 Statements

2. Bellway

2006 Statements

2007 Statements

2008 Statements

2009 Statements

2010 Statements

Profit before deducting interest and taxationEquity (shareholders funds)Long term borrowingNet profit after taxesRevenue (sales) Gross profitCurrent assetsCurrent liaibilitesInventoryCost of salesTrade receiveablesTrade payablesInterest expenseInterim dividendFinal dividendMarket value per share (Taken from 2010)

Long term borrowing 511 527.5 571.2 283 155.5Long term borrowing + equity 2542.2 2872.9 2126.4 1906.2 1899.5

Profit before interest and tax 637.3 654.9 -714.6 128 204.3Interest expense 71.1 74.1 75.8 55 63.8

Profit before deducting interest and taxation 637.3

654.9 -714.6 128 204.3

Equity + Long term borrowing 2542.2 2872.9 2126.4 1906.2 1899.5

Net profit after taxes 396.4 413.5 -625 74.1 115.3Equity 2031.2 2345.4 1555.2 1623.2 1744

Net profit before interest and taxes637.3

654.9 -714.6 128 204.3

Revenue 3141.3 3014.9 1755.1 1420.6 1569.5

Gross Profit 737.7 736.1 -422.9 198.4 275Revenue 3141.3 3014.9 1755.1 1420.6 1569.5

Current assets 3108.4 3568.9 2706.3 2379.6 2260Current liabilites 841.3 1040.3 773.7 673.7 583

Current assets - inventory 197.6 182.3 159.8 191.8 222.8Current liaibilities 841.3 1040.3 773.7 673.7 583

Inventory 2910.8 3386.6 2546.5 2187.8 2037.2Cost of sales 2404.2 2278.8 2178 1222.2 1294.5

Trade receiveables 178.7 180.2 138.2 50.2 50Sales 3141.3 3014.9 1755.1 1420.6 1569.5

Payables 657.3 749 551.9 464.5 463.3Cost of sales 2404.2 2278.8 2178 1222.2 1294.5

Stock turnover 442 542.4 426.8 653.4 574.4debtors turnover 21 21.8 28.7 12.9 11.6creditors turnover 100 120.0 92.5 138.7 130.6

Take the land out of the equation to gain a more realistic understanding

Dividends announced for the year59.6

114.1 113.1 0 22.6

Earnings for the year available for dividends 396.4

413.5 -625 74.1 115.3

Earnings for the year available for dividends 396.4

413.5 -625 74.1 115.3

Dividends announced for the year59.6

114.1 113.1 0 22.6

Dividend per share 0.447 0.512 0.05 0.05 0.075Market Value per share 6.175 6.175 6.175 6.2 6.175

Earnings available to ordinary shareholders 396.4

413.5 -625 74.1 115.3

Number of ordinary shares in issue299.2

303 303 302.6 302.6

Market value per share 6.2 6.2 6.2 6.18 6.175Earnings per share 1.3 1.4 -2.1 0.2 0.4

20%

25%

Leverage

Interest Cover

Inventory holding period

Financial structure ratios

Liquidity Ratios

Efficiency ratios

ROCE

ROSF

NPP

GPP

-41% 9% 13%

24% -24% 14%

Profitability Ratios

22%

655

2345528

Investment payout ratios

Quick ratio

Current ratio

Receivables payment

Payables Payment

Working capital cycle

64

204128

Persimmon

3108738

3141396511

2031

637

2006Millions Millions Millions Millions Millions

741421198

2007 2008 2009 2010

-715

50463

2260

12952037

1744156115

1570275

583

465

6742380

5012222188

1555571

552

-423

7742706

55657

29112404

841

179

71

1%

414

74

-6251755

22793387

180749

3015736

10403569

76

25472178138

1623283

0.0%

0.00

1%

0.2

25.2

19.6%

5.1

1%

0.4

16.2

P/E Ratio

Earnings per share

Dividend yield

Dividend cover ratio

27.6%

3.6

8%

1.4

4.52

-18.1%

-5.5

3.5

-2.1

0.0

3.5

23% -34% 7%

455.4

542.4 426.8 653.4 574.4

21.8 28.7 12.9 11.6

120.0 92.5 138.7

11%

18% -40% 5% 7%

18%

4.7

362.9

99.8

441.9

20.8

0.2

3.7

23%

20%

Dividend payout ratio

15.0%

6.7

7%

1.3

3.9

0.2 0.2 0.3 0.4

130.6

444.3 363.0 527.5

3.4

0.120.327

20% 8%15%18% 27%

9.0 8.8 -9.4 2.3 3.2

6.175 6.175

0.1850.327

0.050

0.050

0.030.045

6.175 6.175 6.175

3. Calculations

Persimmon

43

Profit before deducting interest and taxationEquity (shareholders funds)Long term borrowingNet profit after taxesRevenue (sales) Gross profitCurrent assetsCurrent liaibilitesInventoryCost of salesTrade receiveablesTrade payablesInterest expenseInterim dividendFinal dividendMarket value per share (Taken from 2010)

Long term borrowing 159000 77000 295000 100000 100000Long term borrowing + equity 1062500 1112814 1296084 1065012 1134798

Profit before interest and tax 239340 253076 54130 -20733 51255Interest expense 21339 22961 22683 20712 9103

Profit before deducting interest and taxation

239340 253076 54130 -20733 51255

Equity + Long term borrowing 1062500 1112814 1296084 1065012 1134798

Net profit after taxes 155742 166714 27003 -27444 35813Equity 903500 1035814 1001084 965012 1034798

Net profit before interest and taxes 239340 253076 54130 -20733 51255

Revenue 1240193 1354022 1149541 683813 768341

Gross Profit 292272 311920 112891 20821 89794Revenue 1240193 1354022 1149541 683813 768341

Current assets 1462831 1608507 1667745 1306157 1340203Current liabilites 396029 473947 336901 246147 228494

Current assets - inventory 28832 70633 163809 94806 191490Current liaibilities 396029 473947 336901 246147 228494

Inventory 1433999 1537874 1503936 1211351 1148713Cost of sales 947921 1042102 1036650 662992 678547

Trade receiveables 26503 45252 54496 41749 45801Sales 1240193 1354022 1149541 683813 768341

Payables 349995 380895 284901 246147 225652Cost of sales 947921 1042102 1036650 662992 678547

Stock turnover 552.165882 538.64594 529.5293879 666.8905733 617.9089216debtors turnover 7.800072247 12.198458 17.30346286 22.28443302 21.75774168creditors turnover 134.7666894 133.40985 100.312415 135.512427 121.3813929Take the land out of the equation to gain a more realistic understanding

Dividends announced for the year 36889 41695 51364 10697 11230

Earnings for the year available for dividends

155742 166714 27003 -27444 35813

Earnings for the year available for dividends

155742 166714 27003 -27910 35813

Dividends announced for the year 36889 41695 51364 10697 11230

Dividend per share 0.345 0.4312 0.241 0.09 0.097Market Value per share 8.04 8.04 8.04 8.04 8.04

Earnings available to ordinary shareholders

155742000 166714000 -1873000 -27910000 37122000

Number of ordinary shares in issue 113248814 114108350 114615661 114949883 120619800

Market value per share 8.04 8.04 8.04 8.04 8.04Earnings per share 1.4 1.5 -0.02 0.00 0.3

000's

1148713228494

134020389794

76834135813

1000001034798

51255

0.0300.060

8.04

0.0300.067

8.04

22565245801

678547

0.1430.202

8.04

0.1650.267

8.04

Bellway

23.7% 25.0% 190.2% -39.0% 31.4%

4.2 4.0 0.5 -2.6 3.2

9% 9%

11.2 11.0 2.4 -1.0 5.6

21339 22961 22683 20712 9103349995

1.4 1.5 0.0 0.0 0.3

5.8 5.5 0 0.0 26.1

P/E Ratio

Dividend cover ratio

Earnings per share

2006 2007 2008 2009 2010

4% 5% 3% 1% 1%

15% 7% 23%

Profitability Ratios

Dividend payout ratio

Dividend yield

NPP

ROCE

Interest Cover

0.1810.060

8.04

135 133 100 136 121

425 417 447 554 518

539 530 667 618

7.8 12.2 17.3 22.3 21.8

380895 284901 246147

947921 1042102 1036650 66299226503 45252 54496 41749

1433999 1537874 1503936 1211351

1667745 1306157396029 473947 336901 246147

1462831 1608507

1149541 683813292272 311920 112891 20821

295000 100000155742 166714 27003 -27444159000 77000

1240193 1354022

000's 000's

239340 253076 54130 -20733

903500 1035814 1001084 965012

000's 000's

Investment payout ratios

Current ratio

Quick ratio

Inventory holding period

Receivables payment

Payables Payment

Working capital cycle

3.69 3.39 4.95 5.31 5.87

0.07 0.15 0.49

Efficiency ratios

GPP

23% 23% 4% -2% 5%

12%

7%

24% 23% 10% 3%

Financial structure

Liquidity Ratios

0.39 0.84

552

Leverage

17% 16% 3% -3% 3%

ROSF

19% 19% 5% -3%

Bellway

44

45