Accountancy analysis of Bellway homes and Persimmon.

1. Financial Management and Accountancy
Justin Moseley

2. Table of Contents
Contents
Part (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
1

3. 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
2

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

5. 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.
4

6. Part (i)
Introduction
The 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.
Preamble
In early 2006 Persimmon acquired Westbury homes plc. Thisstrategic acquisition increased the
intangible values of goodwill, brand and tangibles ofinventories etc. Within the construction sector
the prime inventory is land;Persimmon accrued sufficientland 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 studyinteresting 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 Employed
The 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 wasrevalued. Finally,
intangible assets were also reviewed and a write-down of £203 million was recorded.In 2009
Persimmonreturned to a positive ROCE due to the following;there was no dividendpay-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.
5

7. Figure 1: Return on Capital Employed
In contrast, whilst Bellway had poor ROCEresults 2007–2009 they were not as spectacular as
Persimmon. This can be attributed to the loss in profits, an increase in long term loans andthat
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 onShareholders’ 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; furthermorethey 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
6

8. 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 salesexacerbated 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 andincentivisation scheme culminating in a 15%
sales price reduction (Persimmon, 2012)thus reducing GPP severely. In 2009 and 2010 GPP returned
to a positive due toa write back of £78 million, increases in sales, sales prices and the retraction
ofincentivisation schemes (Persimmon, 2012).
30.00
23.48 24.42
GPP
20.00 23.57 23.04 13.97 17.52
10.00 9.82
11.69
3.04 Persimmon
0.00
Bellway
2006 2007 2008 2009 2010
-10.00
-20.00
-24.10
-30.00
Figure 3: Gross Profit Percentage
In 2008, Bellway too had a reduction in sales, howeverdue 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. Theresult of this strategy is a less pronounced
decline in GPP and a slower return.
7

9. (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 Period
Current 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
8

10. Trade Receivables and Trade Payables
Both 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 statementsalso 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
9

11. (C) Gearing Ratios
Gearing
Both 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 Figure 7: Gearing
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 wroteland 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 theirprofitability 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 Cover
In 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 covenantsrelating to profit against
interest cover (Reuters, 2008) (Talako, 2006). As
such they had to restructure their debt. To
achieve this, a higher interest ratecirca 10%
(Pignal and A, 2008)was negotiated with the
banks. This led to more pressure to make Figure 8: Interest Cover
sufficient profit to cover the higher finance
payments. However, in 2009 the resultant opex cost cutting and corresponding cutting of loan
amounts as seen fromFigure 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.
10

12. (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 Ratio
Reviewing 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 comparisonpaid 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 dubiousdecision.
N.B. The following ratios were analysed with present day share prices, which may have
resulted in different figures.
Dividend Yield
This 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 of
England, 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 Figure 10: Dividend Yield
been bought during the low points of this period
11

13. the appreciation of the shares market value could completely outweigh the yield and are therefore a
good investment.
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 thatyields were modest, that there were
insufficient funds to cover the dividends allocated by Bellway. The EPS and P/E ratios which
12

14. areusually the primary investment ratios are challenging to analyse due to the losses which were
made 2008-2009.
13

15. Part (ii)
(A) Users
The 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.
14

16. (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)
15

17. (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 statementsmay have limitations. Finally, some
accounting conventions have restrictions which may counterbalance their “usefulness”.
Negatives
Consideration 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
competitionsfuture 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.
16

18. Positives
However, 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 shareholderscognizance 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.
Conclusion
The production of accounts is a time consuming and costly practice, it is difficult tomatchall 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.
17

19. 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].
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20. Talako, P. (2006) The Motley Fool, 20 April, [Online], Available:
http://www.fool.co.uk/news/comment/2006/c060420h.htm [28 Febriary 2012].
19

21. Appendices
1. Persimmon
2006 Statements

22. 2007 Statements
21

23. 22

24. 2008 Statements
23

25. 2009 Statements
24

26. 25

27. 2010 Statements
26

28. 2. Bellway
2006 Statements
27

29. 28

30. 2007 Statements
29

31. 2008 Statements
30

32. 2009 Statements
31

33. 32

34. 2010 Statements
33

35. 34

36. 3. Calculations
Persimmon
Persimmon
2006 2007 2008 2009 2010
Millions Millions Millions Millions Millions
Profit before deducting interest and
637 655 -715 128 204
taxation
Equity (shareholders funds) 2031 2345 1555 1623 1744
Long term borrowing 511 528 571 283 156
Net profit after taxes 396 414 -625 74 115
Revenue (sales) 3141 3015 1755 1421 1570
Gross profit 738 736 -423 198 275
Current assets 3108 3569 2706 2380 2260
Current liaibilites 841 1040 774 674 583
Inventory 2911 3387 2547 2188 2037
Cost of sales 2404 2279 2178 1222 1295
Trade receiveables 179 180 138 50 50
Trade payables 657 749 552 465 463
Interest expense 71 74 76 55 64
Interim dividend 0.12 0.185 0.05 0.05 0.03
Final dividend 0.327 0.327 0 0 0.045
Market value per share (Taken from
6.175 6.175 6.175 6.175 6.175
2010)
Financial structure ratios
Leverage
Long term borrowing 511 527.5 571.2 283 155.5
20% 18% 27% 15% 8%
Long term borrowing + equity 2542.2 2872.9 2126.4 1906.2 1899.5
Interest Cover
Profit before interest and tax 637.3 654.9 -714.6 128 204.3
9.0 8.8 -9.4 2.3 3.2
Interest expense 71.1 74.1 75.8 55 63.8
Profitability Ratios
ROCE
Profit before deducting interest and
654.9 -714.6 128 204.3
taxation 637.3 25% 23% -34% 7% 11%
Equity + Long term borrowing 2542.2 2872.9 2126.4 1906.2 1899.5
ROSF
Net profit after taxes 396.4 413.5 -625 74.1 115.3
20% 18% -40% 5% 7%
Equity 2031.2 2345.4 1555.2 1623.2 1744
NPP
Net profit before interest and taxes 654.9 -714.6 128 204.3
637.3 20% 22% -41% 9% 13%
Revenue 3141.3 3014.9 1755.1 1420.6 1569.5
GPP
Gross Profit 737.7 736.1 -422.9 198.4 275
23% 24% -24% 14% 18%
Revenue 3141.3 3014.9 1755.1 1420.6 1569.5
Liquidity Ratios
Current ratio
Current assets 3108.4 3568.9 2706.3 2379.6 2260
3.7 3.4 3.5 3.5 3.9
Current liabilites 841.3 1040.3 773.7 673.7 583
Quick ratio
Current assets - inventory 197.6 182.3 159.8 191.8 222.8
0.2 0.2 0.2 0.3 0.4
Current liaibilities 841.3 1040.3 773.7 673.7 583
Efficiency ratios
Inventory holding period
Inventory 2910.8 3386.6 2546.5 2187.8 2037.2
441.9 542.4 426.8 653.4 574.4
Cost of sales 2404.2 2278.8 2178 1222.2 1294.5
Receivables payment
Trade receiveables 178.7 180.2 138.2 50.2 50
20.8 21.8 28.7 12.9 11.6
Sales 3141.3 3014.9 1755.1 1420.6 1569.5
Payables Payment
Payables 657.3 749 551.9 464.5 463.3
99.8 120.0 92.5 138.7 130.6
Cost of sales 2404.2 2278.8 2178 1222.2 1294.5
Working capital cycle
Stock turnover 442 542.4 426.8 653.4 574.4
debtors turnover 21 362.9 21.8 444.3 28.7 363.0 12.9 527.5 11.6 455.4
creditors turnover 100 120.0 92.5 138.7 130.6
Take the land out of the equation to
gain a more realistic understanding
Investment payout ratios
Dividend payout ratio
Dividends announced for the year 114.1 113.1 0 22.6
59.6 15.0% 27.6% -18.1% 0.0% 19.6%
Earnings for the year available for
413.5 -625 74.1 115.3
dividends 396.4
Dividend cover ratio
Earnings for the year available for
413.5 -625 74.1 115.3
dividends 396.4
6.7 3.6 -5.5 0.00 5.1
Dividends announced for the year 114.1 113.1 0 22.6
59.6
Dividend yield
Dividend per share 0.447 0.512 0.05 0.05 0.075
7% 8% 1% 1% 1%
Market Value per share 6.175 6.175 6.175 6.2 6.175
Earnings per share
Earnings available to ordinary
413.5 -625 74.1 115.3
shareholders 396.4
1.3 1.4 -2.1 0.2 0.4
Number of ordinary shares in issue 303 303 302.6 302.6
299.2
P/E Ratio
Market value per share 6.2 6.2 6.2 6.18 6.175
4.7 4.52 0.0 25.2 16.2
Earnings per share 1.3 1.4 -2.1 0.2 0.4
35

37. Bellway
Bellway
2006 2007 2008 2009 2010
000's 000's 000's 000's 000's
Profit before deducting interest
239340 253076 54130 -20733 51255
and taxation
Equity (shareholders funds) 903500 1035814 1001084 965012 1034798
Long term borrowing 159000 77000 295000 100000 100000
Net profit after taxes 155742 166714 27003 -27444 35813
Revenue (sales) 1240193 1354022 1149541 683813 768341
Gross profit 292272 311920 112891 20821 89794
Current assets 1462831 1608507 1667745 1306157 1340203
Current liaibilites 396029 473947 336901 246147 228494
Inventory 1433999 1537874 1503936 1211351 1148713
Cost of sales 947921 1042102 1036650 662992 678547
Trade receiveables 26503 45252 54496 41749 45801
Trade payables 349995 380895 284901 246147 225652
Interest expense 21339 22961 22683 20712 9103
Interim dividend 0.143 0.165 0.181 0.030 0.030
Final dividend 0.202 0.267 0.060 0.060 0.067
Market value per share (Taken
8.04 8.04 8.04 8.04 8.04
from 2010)
Financial structure
Leverage
Long term borrowing 159000 77000 295000 100000 100000
15% 7% 23% 9% 9%
Long term borrowing + equity 1062500 1112814 1296084 1065012 1134798
Interest Cover
Profit before interest and tax 239340 253076 54130 -20733 51255
11.2 11.0 2.4 -1.0 5.6
Interest expense 21339 22961 22683 20712 9103
Profitability Ratios
ROCE
Profit before deducting interest
239340 253076 54130 -20733 51255
and taxation 23% 23% 4% -2% 5%
Equity + Long term borrowing 1062500 1112814 1296084 1065012 1134798
ROSF
Net profit after taxes 155742 166714 27003 -27444 35813
17% 16% 3% -3% 3%
Equity 903500 1035814 1001084 965012 1034798
NPP
Net profit before interest and taxes 239340 253076 54130 -20733 51255
19% 19% 5% -3% 7%
Revenue 1240193 1354022 1149541 683813 768341
GPP
Gross Profit 292272 311920 112891 20821 89794
24% 23% 10% 3% 12%
Revenue 1240193 1354022 1149541 683813 768341
Liquidity Ratios
Current ratio
Current assets 1462831 1608507 1667745 1306157 1340203
3.69 3.39 4.95 5.31 5.87
Current liabilites 396029 473947 336901 246147 228494
Quick ratio
Current assets - inventory 28832 70633 163809 94806 191490
0.07 0.15 0.49 0.39 0.84
Current liaibilities 396029 473947 336901 246147 228494
Efficiency ratios
Inventory holding period
Inventory 1433999 1537874 1503936 1211351 1148713
552 539 530 667 618
Cost of sales 947921 1042102 1036650 662992 678547
Receivables payment
Trade receiveables 26503 45252 54496 41749 45801
7.8 12.2 17.3 22.3 21.8
Sales 1240193 1354022 1149541 683813 768341
Payables Payment
Payables 349995 380895 284901 246147 225652
135 133 100 136 121
Cost of sales 947921 1042102 1036650 662992 678547
Working capital cycle
Stock turnover 552.165882 538.64594 529.5293879 666.8905733 617.9089216
debtors turnover 7.800072247 425 12.198458 417 17.30346286 447 22.28443302 554 21.75774168 518
creditors turnover 134.7666894 133.40985 100.312415 135.512427 121.3813929
Take the land out of the equation
to gain a more realistic
understanding
Investment payout ratios
Dividend payout ratio
Dividends announced for the year 36889 41695 51364 10697 11230
23.7% 25.0% 190.2% -39.0% 31.4%
Earnings for the year available for
155742 166714 27003 -27444 35813
dividends
Dividend cover ratio
Earnings for the year available for
155742 166714 27003 -27910 35813
dividends
4.2 4.0 0.5 -2.6 3.2
Dividends announced for the year 36889 41695 51364 10697 11230
Dividend yield
Dividend per share 0.345 0.4312 0.241 0.09 0.097
4% 5% 3% 1% 1%
Market Value per share 8.04 8.04 8.04 8.04 8.04
Earnings per share
Earnings available to ordinary
155742000 166714000 -1873000 -27910000 37122000
shareholders
1.4 1.5 0.0 0.0 0.3
Number of ordinary shares in issue 113248814 114108350 114615661 114949883 120619800
P/E Ratio
Market value per share 8.04 8.04 8.04 8.04 8.04
5.8 5.5 0 0.0 26.1
Earnings per share 1.4 1.5 -0.02 0.00 0.3
36

38. 37