Burberry Group Plc, is in essence a publicly traded luxury fashion business headquartered in London, England. In essence, its chief fashion house concentrates on and allocates trench coats, diverse ready-to-wear outer dress, fashionable accessories, fine scent, sunglasses, as well as cosmetics (Burberryplc.com 2017).
Burberry Plc essentially established during the year 1856 mainly concentrated on the process of development of primarily outdoor attire. In essence, the fashion house has necessarily progressed to specifically high fashion market development as well as creation of innovative fabric known as Gabardine that is entirely breathable as well as waterproof. There are necessarily 45 degree selected pattern based scarves, different fashion accessories as well as trench coats. Primarily, the first shop was introduced in the Haymarket situated in London during the year 1891. As such, Burberry was necessarily a self-governing family controlled corporation till 1955 that is at the time when the firm was reincorporated. The exclusive check pattern can be considered as the most extensively copied trademarks. In essence, Burberry Plc can be regarded as a popular one for mainly trench coats. In addition to this, Burberry Plc has diverse branded stores as well as franchises throughout the globe and markets by means of concessions in different third party stores. Essentially, the coats were necessarily worn in different trenches during the period of First World War by British army. As per reports, during the period 2015, the company Burberry is rated at the 73rd in particularly Interbrand’s Best Global assessment and that is ahead of specifically Ralph Lauren as well as Hugo Boss. The company necessarily has over and above 500 stores in more than 50 nations.
Tiffany & Co also referred to as Tiffany is a well-known retailer of jewellery and speciality retailer, which has its headquarters situated in the New York City. Tiffany necessarily markets jewellery, crystal, watches, leather goods, sterling silver and water bottles. Fundamentally, Tiffany is well-known for luxury goods and is specifically known for diamond and different sterling silver jewellery (Tiffany.com 2017).
Tiffany & Co is essentially a holding corporation that functions by means of different subsidiary corporations (jointly known as company). The main principal subsidiary of Tiffany is necessarily Tiffany and Company is necessarily a jeweller as well as field retailer, whose product offerings comprise of extensive adoption of jewellery (that is approximately 92% of the global net sales in the year 2016). In addition to this, the product offerings of the company also include timepieces, china, fragrances, accessories, crystal, sterling silverware as well as stationary. By means of Tiffany and Company as well as other subsidiaries, the entire corporation is involved in the design of the product, manufacturing as well as retailing actions.
The corporation’s important growth tactics include selective expansion of distribution channels in significant markets all around the globe without disturbing the TIFFANY & CO’s long-term value of trademark. Furthermore, the strategy of the company is also to enhance the overall sales figure of the firm in subsisting stores by generating novel products. Moreover, the strategy is also to augment the overall control over firm’s supply of the product and attain superior margins of profit by means of direct sourcing of diamond as well as manufacturing of internal jewelry. Additionally the management of the firm is also to augment awareness among the customer by means of marketing as well as public associations programs. In addition to this, the company is to offer customer service that makes certain a finer shopping experience.
Operating Profit Ratio: As rightly indicated by Weygandt et al. (2015), the operating profit margin reflects the total amount of profit a particular corporation makes after making payments for diverse variable production costs namely wages, materials and many others. Essentially, this ratio also expresses as a percentage of total sales and thereafter replicates the overall efficiency of a corporation controlling costs and expends related with operations of business. Operating profit ratio is enumerated by dividing profit before interest and tax by the total sales of the corporation. A higher ratio reflects a desirable financial condition of the firm. Therefore, the financial condition of both Tiffany Plc and Burberry Group Plc is said to have deteriorated during the year 2016. However, Tiffany Plc is however said to have better financial condition in comparison to Burberry.
|
Tiffany |
Burberry |
||||
|
2015 |
2016 |
2015 |
2016 |
||
|
Operating Profit Margin Ratio |
|||||
|
Profit Before Interest and Tax |
891.4 |
760.1 |
440.3 |
402.9 |
|
|
Sales |
4249.9 |
4104.9 |
2523.2 |
2514.7 |
|
|
Ratio |
20.974611 |
18.51689 |
17.45006 |
16.02179 |
Weygandt et al. (2015) asserts that return on capital employed is necessarily a profitability ratio that enumerates the extent to which a corporation effectively functions in a bid to generate higher amounts of profit. This ratio is calculated by dividing by EBIT by the capital employed. A higher ratio can be considered to be more favourable. In case of both the firms, the return in capital employed declined during the year 2016 as compared to the year 2015 reflecting deterioration of financial condition. However, the financial condition of Burberry is said to have better financial condition in comparison to that of the competitor firm Tiffany Plc.
|
ROCE |
Tiffany |
Burberry |
|||
|
2015 |
2016 |
2015 |
2016 |
||
|
EBIT |
891.4 |
760.1 |
440.3 |
402.9 |
|
|
Capital Employed (Total assets-Current liabilities) |
4522.6 |
4391.7 |
1592.4 |
1775.3 |
|
|
Ratio |
19.709901 |
17.30765 |
27.65009 |
22.69476 |
The gearing ratio helps in comparing the debt of the firm with that of the total equity. Essentially, this reflects the total percentage of a corporation financing that mainly comes from the both creditors as well as financiers (Weil et al. 2013). In essence, higher gearing ratio replicates unfavourable financial condition for the corporation.
|
Gearing Ratio |
|||||
|
Tiffany |
Burberry |
||||
|
2015 |
2016 |
2015 |
2016 |
||
|
Non-current liabilities |
1671.9 |
1462.2 |
140.9 |
154.4 |
|
|
Shareholder’s Equity |
2850.7 |
2929.5 |
1451.5 |
1620.9 |
|
|
Ratio |
58.648753 |
49.91295 |
9.707199 |
9.525572 |
Warren et al. (2013) mention that the interest coverage ratio can be considered to be a financial ratio that helps in enumerating capability of a corporation to disburse interest payments on particularly the debt. As the measurement of coverage is more than 1 it reflects that the corporation is generating enough income for making payments for the interest obligations of the corporation. Burberry has a better interest coverage during the year 2016 and in comparison to Tiffany Plc.
|
Interest Coverage Ratio |
|||||
|
Tiffany |
Burberry |
||||
|
2015 |
2016 |
2015 |
2016 |
||
|
Profit Before Interest and Tax |
891.4 |
760.1 |
440.3 |
402.9 |
|
|
Interest Expense |
62.9 |
49 |
3.8 |
2.3 |
|
|
Ratio |
14.171701 |
15.51224 |
115.8684 |
175.1739 |
Warren et al. (2013) asserts that the return on assets is necessarily a profitability ratio that helps in enumeration of net income generated by the total assets during the specific period of time (that is 2015 and 2016). A higher ratio can be regarded to be more desirable as this reflects that the corporation is more effectually managing all the assets of the corporation for generating higher amounts of net income (Warren et al. 2013). The financial conditions of both the firms have deteriorated during the year 2016 in comparison to the year ago period. However, there is relatively higher ratio of the firm Burberry in comparison to that of Tiffany, representing undesirable financial condition of the corporation in comparison to the
|
Asset Turnover Ratio |
|||||
|
Return on Assets Ratio |
|||||
|
Tiffany |
Burberry |
||||
|
2015 |
2016 |
2015 |
2016 |
||
|
Average Net Income |
484.2 |
463.9 |
341.11 |
314.6 |
|
|
Average Total Assets |
5180.6 |
5121.6 |
2173.2 |
2314.3 |
|
|
Ratio |
9.3464078 |
9.057716 |
15.69621 |
13.59374 |
Price-earning ratio that is also referred to as PE ratio essentially enumerates overall market value of a specific stock in comparison to the earnings of the corporation. In this case, lower ratio reflects poor financial performance of the firm (Warren et al. 2013). However, the same has improved for both the firm during the specified period. However, this ratio is observed to be higher in case of Burberry in comparison to that of the competitor firm.
|
Price to Equity Ratio |
|||||
|
Tiffany |
Burberry |
||||
|
2015 |
2016 |
2015 |
2016 |
||
|
Current Share Price |
76.29 |
75.11 |
1129.6 |
1681.37 |
|
|
Earnings Per Share |
3.79 |
3.59 |
76.4 |
69 |
|
|
20.129288 |
20.92201 |
14.78534 |
24.36768 |
The financial ratio presented above can be grouped by the category of the information they present to the analyst. Essentially, the wide groupings enumerate liquidity else wise capability of the company to generate cash. Analysis of financial ratio helps in enumerating profitability along with activity of the company namely business cycle for the purpose of determining effectual usage of assets. The enumeration of financial ratio can help in enumerating leverage for testing potential of the company to grow (Otley and Emmanuel 2013). Ultimately, this too enumerate and arrive at outcomes that are utilized by shareholders namely earnings per share, price-earnings ratio and many others.
Financial evaluation carried out for the two corporations can help in selection, analysis and interpretations of pecuniary data together with other relevant information to aid in the process of investment as well as financial decision making (Palepu et al. 2013).
Operating profit margin ratio calculated for analysis of the profitability conditions of the two firms in this report compares elements of income with corporation’s sales figure. The outcomes hereby replicate the amount of each dollar that remains after incurrence of operating expenditure has declined for both the firm, reflecting undesirable condition in terms of profitability considered over the period 2015 and 2016. As mentioned in the annual report of the firm Tiffany Plc, it can be hereby stated that sales of the company are very much sensitive to the alterations in the economic conditions (Tiffany.com 2017). As per declarations of the company’s reports, challenges in the global economic circumstances and associated lower levels of consumer confidence over a drawn out time period have adverse effects on the sales as well as earnings of the firm (Repetti and Jung 2014). Annual report of Tiffany plc also adds that consumer spending for particularly discretionary good normally falls during decrease in consumer confidence and this can be cited as a reason behind the fall in sales from 4249.9 to 4104.9 as well. Furthermore, it can be hereby mentioned that Tiffany Plc has made investment for operation of a considerably number of firm’s stores in the area of Greater China and expects to continue in undertaking the same. The hold back in the entire Chinese economy might have exerted negative influence on the company’s sales as well as profitability of firm’s stores in especially Greater China (Tiffany.com 2017). The annual pronouncements of the firm Tiffany Plc assert that uncertainty regarding present economic environment makes it complicated for the corporation to forecast various operating outcomes. Again, the annual report of the firm Burberry Plc reflects that comparable sales of the firm has dropped by -1% since the entire business invested in particularly customer insight for driving product as well as service initiatives, assisting in the process of enhancement of conversion. The comparable sales of the company Burberry Plc decreased by 1% approximately. Essentially, the luxury segment of the company became challenging. However, retail segment of the firm accounted for 2/3rd of the EIMA earnings. Reports suggest that comparable sales of the year enhanced by a single-digit percentage.
A unfavourable return on capital employed registered for the firm Tiffany Plc reflects that the earnings before interest and tax (EBIT) of the firm has declined during the period 2016 as compared to the year ago period. The declarations of the firm reveal that strengthening of the US dollar against various foreign currencies might have negatively affected the overall profitability. As per the yearly pronouncement of Tiffany Plc, alterations in the product else wise geographic sales mix might have affected overall profitability of the firm. Furthermore, enhancement in the costs incurred for diamonds along with other precious metals otherwise decreased supply might possibly unfavourably affect the capability of the firm to manufacture and market products at anticipated margins of profit (Sherman and Young 2016). Firm failure to secure and the same time retain locations for store in prime locations as per fitting terms and if investments for constructing or renovating subsisting stores do not necessarily produce, the sales of the corporation might be in jeopardy. Material disruption, failure of the firm to successfully execute and carry out alterations might perhaps lead failure of the information system that in turn could have negative effect on the overall business of the firm. The capital employed of the firm decreased during the year 2016 in comparison to the previous year’s figure. The EBIT also decreased significantly in comparison to the capital employed that led to the decline in the ratio. In case of Burberry Plc as well, the EBIT of the firm declined, however, the capital employed of the firm increased significantly during the period 2016 as compared to the year 2015. The decline reflected an undesirable financial condition for the firm (Sherman and Young 2016). The decline can be attributed to decrease in overall licensing profit associated to the planned expiry of the Japanese licenses. The slowdown of the Chinese economy, enhanced geopolitical concerns in particularly the Middle East as well as Russia, uncertainty prevailing in particularly the Euro zone are cited as the primary factors behind the decrease in the yearly report of the firm. Therefore, analytical review of the annual declarations of the firm Burberry Plc provides the validation behind the decline in the return in capital employed.
The increase in gearing ratio of the corporation Tiffany Plc reflects an undesirable financial condition of the corporation. The non-current liabilities of the firm Tiffany Plc has declined while the shareholder’s equity of the firm has increased leading to decline in the gearing ratio. This low gearing ratio reflects a higher proportion of firm’s debt in comparison to the equity of the corporation (Sherman and Young 2016). The increase in the shareholders’ equity of the corporation Tiffany Plc essentially replicates that the common stock of the firm (having $0.01 par value, 240.0 authorised shared, 124.5 as well as 126.8 outstanding shares) increased, supplementary paid in capital also increased. Furthermore, retained earnings of the corporation Tiffany Plc also increased and the accumulated comprehensive loss also decreased directing towards overall increase in the shareholders’ equity. Again, as per the annual report of the firm Burberry Plc, it can be hereby stated that ordinary share capital of the firm remained at the same level that is £0.2 million. Again, share premium account enhanced while the capital reserve of the firm Burberry Plc declined. Besides this, as per the yearly pronouncement of the corporation, the hedging reserves of the corporation enhanced to £8.1 million from the level of (0.3). In addition to this, the foreign currency translation reserve also augmented to £ 164.9 million.
The interest cover ratio enumerated for the two firm helps in comprehending overall capacity of the corporation to pay off the interest obligations on the recorded debts of the corporation (Sherman and Young 2016). Calculations for interest coverage ratio of Tifanny Plc show that profit before interest and tax of the firm has declined and at the same time interest expense has declined. Annual report of the firm asserts that interest expense along with financing costs of the corporation Tifanny Plc has decreased to $3 million (that is to say 6%) during 2016 owing to low amount of interest expenditure. Low interest expense on particularly long term debt was observed. This has led to the increase in the ratio. However, decrease in the interest expense of the firm reflects that the company has improved potential to disburse the debts (Otley and Emmanuel 2013). Again, analytical review of the financial circumstances of the firm Burberry Plc replicates that the profit before interest and tax has decreased, while the interest expense of the firm has also decreased directing the way towards increase in the ratio.
Analysis of the turnover ratio of the firm shows that financial condition of both the corporation has deteriorated as the average net income of both the firms has declined. In particular, average total assets of Tiffany declined while the average total assets of the firm Burberry Plc increased. There is comparatively superior ratio of the corporation Burberry Plc as compared to the firm Tiffany Plc replicating unfavourable financial state of affairs.
Moreover, price-earnings ratio that is indicated as P-E necessarily calculates market value of a specific stock in comparison to the income of the firm (Otley and Emmanuel 2013). As lower price earnings ratio reveals comparatively poor financial condition of the firm, it can be said that condition of Tiffany Plc and Burberry Plc has improved. Analytical review of the financial condition of the firms reflects that this ratio is witnessed to be higher for Burberry Plc as compared to the rival firm. The current share price of the firm is comparatively higher as well as earnings per share.
The management of Burberry intends to invest 25% of the net assets that is employed by the corporation. As such, this can be considered to be aligned to the expansionary plans of the firm that in turn can help in building a solid foundation of the firm.
Net Assets is calculated by subtracting the total liabilities of the firm from the total assets of the firm.
NET ASSETS = Total assets – Total liabilities (here, total liabilities= (Current Liabilities + Long Term Liabilities)
= £1620.9m
Net assets are necessarily the same amount as that of the shareholders’ equity of the corporation. In effect, both represent the variance between what the firm owns and what the company owes. However, 25% of the net assets =25/100*1620.9=£405.225m
Companies can generate profit by selling its product at a price that can help in covering the costs of production. However, this can be considered as the fundamental source of finance for any organization and hopefully can be regarded as the mechanism that generates higher amount of money. Again, just like individuals, corporations can also borrow funds. As such, this can be carried out privately via loans from bank or else it can be carried out publicly by means of debt issue (Maas et al. 2016). Nevertheless, the drawback of borrowing money is that there is an interest charge that the firms need to pay to their lenders. In addition to this, a corporation can generate fund by selling a certain part of itself to investors by issuance of shares and this is referred to as equity financing. Essentially, the advantage of this is that financiers do not have the need for interest payments as is required in case of bondholders. The demerit is that additional profit of a firm can be divided among different shareholders. In an idyllic situation, a company can bring in cash simply by selling different goods as well as services for generating a profit. However, at the time of analysing firms, it is important to study the balance of different major sources of financing (Bebbington and Thomson 2013). For instance, excessive amount of debt can lead the company into trouble as the company would have to bear the liability of payments of interests along with the principal amount borrowed. On the other hand, a corporation might not succeed to achieve growth potential in case if it fails to utilize a specific amount of money that it has the capacity to borrow.
The selected corporation intends to invest 25% of the overall net assets for the purpose of buying of land and building. Essentially, this involves elaborate analysis of different internal as well as external sources of finance before deciding a particular source of financing.
The internal sources of a finance also referred to as capital suggests about the nature of funding. Essentially, this is finance or else capital that a firm generates internally out of the business activities. This is dissimilar to funds such as bank loans that are externally arranged by firms from different external sources such as from banks else financial institutions. As such, the internal source of funds mainly includes the retained profits, proceeds from the sale of company’s assets and reduction or else control of firm’s working capital (Christ and Burritt 2013). The main features as well as characteristics of the internal source of funds are that there exists no outside dependence for catering to the requirements of capital. Main sources of internal source of capital are:
The external source of financing refers to different venues for acquiring finances that come from outside the purview of a specific corporation. Fundamentally, external sources of funding might perhaps take into consideration different novel business partner else wise issue different equity or else bonds to generate long term requirements, commercial paper to assume short term debt (Bodie 2013).
Equity Financing:
Equity financing refers to process of funding in a business
One specific category of external debt financing is essentially the long term debt of the corporation. Basically, long term loans normally comprise of debts that a firm expects to accept over and above a year to pay back. Essentially, a benefit of long term financing is that the firm can pay off the loan over an extended period, which lessens the monthly payment requirement. In addition to this, interest earned on property purchases can be considered to be tax deductible (Otley and Emmanuel 2013).
The interest expense on firm’s bank loan of the firm Burberry Plc is recorded to be £ (1.5)m during the year 2016. However, the interest expense on bank loans was registered to be £ (1.8) m during the year 2015. Thus, it can be hereby mentioned that firm’s expense on bank loans reduced in 2016 as compared to the year 2015. In addition to this, the bank charges of the firm also dropped from £ (1.8)m in 2015 to £(0.7)m in 2016.
The firm can make use of short term loans along with lines of credit to finance diverse ongoing functions of the firm. Williams (2014) asserts that the short term loan refers to money borrowed and mainly repays the same within a specific year. Essentially, this loan scenario can be applied at the time of emergency requirement. Analysis of annual report of the selected firm Burberry reveals that the short term loan of the firm presented as bank overdrafts and borrowings under the current liabilities of the firm has decreased from £ 65.2 m to £51.5 m.
Again, line of credit implies a financial instrument that is normally utilized for short term working capital necessity of a corporation, namely, inventory purchases, costs of future projects or else payroll of company. However, this can be borrowed only at the time it is required.
Another uncomplicated type of external debt funding is outgoings on accounts. At the time of purchasing supplies inventory and supplies, particular suppliers often provide payments on different accounts as against the direct cash (Hopper and Bui 2016).
Analysis of the company’s financing shows that the debt figure of the corporation has decreased considerably. On the other hand, equity figure of the firm has increased. At present, the management of the firm uses greater proportion of equity financing as compared to debt financing for funding its activities. However, profitability of the firm has declined despite the decline in debt structure of the firm. Additionally, return on assets of the firm Burberry Plc has also declined in 2016 as compared to the year ago period. Therefore, it is important for the firm to determine the optimal capital structure that presents the ideal mix of debt and equity that can maximize the overall value (Christ and Burritt 2013).
The management of the firm Burberry can consider the advantages and disadvantages of both debt and equity financing before zeroing down on a particular financing source. As such, the optimal structure of capital lies in between maximum amount of profitability of the firm and the financial burden. The goal of majority of the companies is to use a mix of debt as well as equity and function at a specific optimal structure in order to maximize the level of profit of the firm (Maas et al. 2016).
As Equity does not have the need to be paid back, nonetheless, an aspect of exchange of ownership is associated to equity. Contrarily, debt normally has lower costs than equity owing to tax benefits, particularly, when the interest rates are lower. Nevertheless, debt is an obligation for the firm to disburse a specific proportion of firm’s future earnings, even though the income is decreasing. Although the optimal debt equity mix varies between industries, however, as per general consensus, the optimal debt equity ratio needs to be within 2. Debt equity ratio of 2 indicates that company obtain two-thirds of capital funding from debt and one-third from equity of shareholders (Bebbington and Thomson 2013).
The debt equity ratio of the firm Burberry Plc is considerably low that indicates lesser dependence of the firm on borrowed funds and lesser financial obligations. As debt is intrinsically risky, lenders as well as financiers favour lower debt equity ratio as for lenders a lower ratio implies a lower level loan default risk. However, for shareholders, it implies a decreased possibility of bankruptcy in the occasion of an economic depression. Thus, the management of Burberry Plc in this case is observed to ignore debt financing completely that subsequently adversely affects growth opportunities of the firm. Debt capital permits businesses to specifically leverage a small amount of money into a much larger sum and reimburse the same over a certain time period (Figge and Hahn 2013).
Based on analysis of the financial assertions of the firm Burberry Plc, it can be said that the corporation does not appropriately make use of the particular leveraging potential of debt financing. Thus, the management of the firm might perhaps be doing a disservice to specifically ownership as well as shareholders by restricting the potential of the firm to generate optimal profits.
Therefore, the current observation is that debt figure of the corporation has decreased considerably. On the other hand, equity figure of the firm has increased. At present, the management of the firm uses greater proportion of equity financing as compared to debt financing for funding its activities. In view of the current circumstance, it can be hereby recommended that the optimal capital structure be used by the management. Thus, debt financing can be increased to presenting an ideal mix of debt and equity that can maximize the overall value. Bearing in mind advantages of debt financing, the use of debt financing can prove to be effectual. Debt financing can help the company to retain entire control and administrative would not face the need to allot stake in the enterprise. Also, tax can also decrease the rate of interest and interest.
As rightly put forward by Figge and Hahn (2013), management accounting also known as internal accounting can be considered as the sphere of accounting activity that delivers interested internal users with significant pecuniary as well as financial information. This assists in arriving at effectual decisions. This can be associated to implementing basic procedures of accounting to specific business data, recognizing, enumerating, collecting, categorising, registering, evaluating, preparing, summarizing, interpreting as well as communicating information as regards cost accounting. Thus, management accounting can be utilized to plan, analyse, control business entity, makes certain effective as well as efficient utilization of resources in a bid to meet specific strategic business objectives of the firm. Essentially, efficiency as well as efficacy of management accounting relies on the capability of the business to apply theoretical mechanisms into real practice, integrate information into processes of decision making, augment and change procedures in response to altering external conditions as well as internal potential of the corporation (Repetti and Jung 2014).
Again, the theoretical structure of management accounting is founded on two different theories namely contingency as well as complexity. Contingency theory can help in analysing the way management accounting can match the external environment and identifying facets of environment that affects the same (Entwistle 2015). Yet another theoretical advance is the complexity theory that can help in comprehending changes in organization, diverse innovations, and divulging internal environment of the firm.
As correctly put forward by Wang (2014), management accounting can be considered to be a unitary as well as universal practise that is independent of time as well as space in which firm operates. The management accounting practice in the firm Burberry Plc can also be evaluated from the technical-managerial view point. Analysis of financial declarations as well as functionalities of the business shows that management accounting is a social in place of a set of technical as well as practical instrument. Management accounting in Burberry Plc also undertakes a specific set of functionalities by appropriately defining different techniques developed on the basis of theory as well as practise. This in turn helps in supporting decision making along with controlling functions by delivering financial as well as non-financial information. The management of the firm provides a feedback that plays a significant part in management accounting (Brigham and Ehrhardt 2013). The primary form of feedback provided by management of Burberry includes performance report that can deliver comparison of various results. Utilizing historical as well as environmental information, forecasts are presented that sequentially act as an input in the process of decision making, activities and evaluation of performance. Particularly, in this context, information regarding the environment can be considered as uncontrollable facets that have an effect on the success of the business procedure of the corporation.
Analysis of management accounting divulges different functions in the context of business environment. As such, efficiency as well as efficacy of management accounting relies on the capability of a corporation. There also exists certain uncertainty as well as complexity. Thus, evaluation of management accounting in terms of the environment is useful. Environmental pressures are also said to exert an influence on the process of designing management accounting. The upshots of company’s operating procedures along with decisions are essentially under the influence of the business environment. As such, predictions with decisions are carried out in the world of uncertainty. Weil et al. (2013) asserts that uncertainty can be referred to as a likelihood that an actual situation might deviate from what is anticipated. Again, the contingency theory also needs to be assessed to illustrate management accounting alterations that mentions that performance of diverse corporations can lead to different results under the influence of same environmental facets. As rightly indicated by Warren et al. (2013), the contingency theory in the area of management accounting also indicates towards the premise that there exists no universally fitting accounting system applicable to different business concerns in different state of affairs. Nonetheless, accounting system is designed by diverse environmental facets. Fundamentally, as per the premises of the contingency theory, environment of the corporation can be conceptualised in context of perceived uncertainty. Therefore, with greater level of environmental uncertainty, it becomes more intricate in configuring the system for effectual performance analysis. Warren et al. (2013) pinpoint that there are several environmental factors that exert impact on the overall design of management accounting in organization or industries. As such, the environmental factors can be considered as the uncertainty.
As correctly indicated by Vogel (2014), the complexity theory can be regarded as an important theory that can help in explaining management accounting in corporation. It is essentially an extension of the general theory that became the leading model of managerial theory during the 1960s. Again, an appropriate usage of the complexity theory can help in comprehending organizational development and might be regarded as a metaphor that delivers novel insights.
The annual report of the firm Burberry Plc presents industry analysts forecast in the outlook section. In addition to this, annual corporate planning procedure of the group comprises of preparation as well as presentation of a strategic plan of three-year period, reforecasting of the present period as regards business performance of Burberry Plc during the current year and presentation of an illustrative budget for the subsequent year. Furthermore, Directors of the firm have assessed the tactics, estimates and budget counting suppositions as regards the products as well as markets of the Group, commitments concerning expenditure and estimated flows of cash. Moreover, the Group also has all-inclusive planning, reports on budgeting, forecasting along with monthly reporting procedures in place. These reports based on approximated budget can assist in evaluating the performance of the company founded on actual records from previous years (Warren et al. 2013).
As such, the management accounting reports of Burberry Plc namely forecast performance takes into account business environment, actual historic outcomes of the business, growth forecasts of the economy, risk adjusted rate of discounts and discount rate of different business areas. This in turn assists in recognition of different higher earning areas of business worldwide. Subsequently, this helps the management of the company to concentrate all its efforts on the identified areas of high performance instead of wasting both time as well as money with lower margins of profit (Weil et al. 2013). Having evaluated current and estimated beauty performance, the management of the firm has undertaken a fitting assessment of whether any kind of impairment indicator subsists for the beauty license. Again, having compared the future plans of the group along with forecasts for different beauty products with the actual outcomes as well as market conditions, the management of the firm can assess the future performance of the company. The future performance of the company is approximated to support the present carrying value of the business license. Annual report of the firm Burberry Plc also takes into account the value-in-use models utilized to determine the overall amount of any kind of impairment charge. Essentially, these are founded on suppositions counting different factors such as revenue forecasts, together with the gross as well as operating margins and rates of discount. All these factors are also said to be country and store specific. The stores of the company Burberry Plc might possibly be located in emerging markets that are normally more unstable than the ones situated in different developed markets (Lisowsky et al. 2017). Fundamentally, this specific group has a material functioning asset base that might be vulnerable to impairment at the time when trading performance is below anticipations. As such, similar judgements are utilized in the process of determination whether an burdensome provision of lease is necessary and in enumeration of appropriate provision amount. Additionally, judgements are also utilized in the process of assessment of different alternative uses of stores that in turn might affect the overall amount of burdensome lease provision.
The board sanctions different strategies of the group in the three year plan along with annual budget. These reports are important part of the management accounting reports that include decisions on strategy of the group approved by the board (Vogel 2014). These reports include annual budget and functional plans, capital expends and business transactions, financial outcomes, and dividend. However, the board also takes into consideration the different risk factors along with the control requirements as per the study of the market in which the business operates (Weygandt et al. 2015). The management of the firm Burberry Plc also takes into account diverse market conditions for designing figures on forecast reports. This can help in bridging the differences between the estimated and actual figures in the financial assertions. For instance, management of the firm analyses the marketing performance and observes that the firm receives 71% revenue from retail and company has 17 million face book followers. This has directed the management to put more emphasis on retail operations, higher investment in the retail functionalities, more investment on social media marketing for developing the brand image (mainly in the online platform).
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