Context, overview, ratios and evaluation are regarded as four elements of CORE framework. Indeed, they are crucial for appraisal process.
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Private sector: WHSmith
WHSmith PLC, which mainly sells stationery, books, newspaper, magazine and impulse products, is one of the UK’s famous leading retailers. Its business primarily in the UK, but it has been expanding their business to international locations such as Copenhagen, Oman and Delhi.
WHSmith is the biggest book retailer in UK. Compared with sales of WHSmith (?1,312,000), Waterstone’s Booksellers Limited and Amazon.Co.Uk Ltd. generate ?488,901 and ?147,303 operating revenue respectively in 2010. Consequently, WHSmith has absolute advantage in this market.
WHSmith named Bookselling Company of the Year and General Retailer of the Year in the Bookseller Retail Awards 2009, and then it named Children’s Bookseller of the Year in 2010. These awards witnessed its outstanding competitive force in the market. However, along with internet developing rapidly, shopping online and eBooks are becoming increasingly prevailing in modern society. Although WHSmith has its own website to serve customers online shopping 24 hours a day and started to launch eBooks, internet selling seems not operate as well as stores. Hence, WHSmith is forced to face the transformation of sales model and lack of internet marketing strategy. Whilst, Amazon.Co.Uk Ltd. successful doubled their market share by selling books on their website from 2004 to 2007. That threats WHSmith seriously to some extent. Moreover, some competitors such as dedicated stationery stores and specialist card shops are threatening a part of WHSmith’s business.
Due to travel business and high street business are considered as core business of WHSmith PLC, WHSmith’s reporting segments are structured by that classification accordingly. Compared with 565 high street stores in 2009, WHSmith owns 573 stores in 2010. Whilst, travel opens 26 units (2009:490 units, 2010:516 units) in airports, railway stations, motorway service areas, hospitals, workplaces and bus stations in 2010, and 17units are opened overseas such as India, Oman and Australia. In short, WHSmith has a steady tendency to expand their business in recent years.
WHSmith aims to be Britain’s most popular stationer, bookseller and newsagent by growing travel business, strengthening high street business and delivering sustainable returns to shareholders. To be more specific, the travel business pays attention on distributing value to shareholders by maintaining organic growth in outlets, acquiring new contracts, conducting new formats tests, rising average sales volume and improving the trading efficiency. On the other hand, the high street plan concentrates on building authority in core categories, optimizing margins, controlling costs and ensuring it delivers the retail basics (page 6, Annual report 2010).
There are 10 corporation shareholders, who occupy more than 3 percent of the issued share capital individually, owning approximately 60 percent of total shares. But the biggest proportion which is 9.86% does not exceed the UK disclosure level. Consequently, WHSmith has responsibility to meet shareholders’ expectations.
There are numerous changes occurring on the board in 2010. Firstly, Walker Boyd is assigned non-executive chairman of WHSmith PLC when Robert Walker retired on 31 August 2010. Secondly, Luke Mayhew who is a non-executive director resigned from board and Henry Staunton joined the board with extensive finance and retail expertise. That might have impacts on subsequent operating process.
Some activities changes also happened in 2010. Initially, eBookstore with 30,000 eBooks which have competitive prices and easily accessibility is launched by WHSmith. Additionally, owing to the brands Funky Pigeon and The Gadgetshop are new required, WHSmith will offer a wide choice like some gadgets and gizmos through stores and website. Lastly, WHSmith found exclusive Richard and Judy Book Club in 2010.
Like seemingly all UK enterprises, WHSmith performs well on employee and community issues. It employs approximately 17,000 staff, and it provides learning and development programme to all employees. It also maintains the importance of health and safety in workplace. In addition, their community programme commits the responsibility to make positive effects which donated ?1.1m into local communities. Moreover, WHSmith trust which is a registered charity also contributes to local communities.
Owing to the group concentrates on profitability and cash generation in two core businesses, WHSmith is highly cash generative with a strong balance sheet. Although revenue of WHSmith declined ?28 million from 2009 to 2010 which is approximately 2 percent, like-for-like sales decreased 4 percent at that time. Indeed, that decrease of total sales is caused by ?32 million decline of high street sales in 2010, whilst travel sales have a slight growth from ?448m to ?452m between 2009 and 2010. Additionally, there is nine percent increase of profit before tax and exceptional items from 2009 to 2010. That is worth ?7m from ?82m in 2009 to ?89m in 2010. Moreover, the rise of net funds which is ?11m (2009: ?45m, 2010: ?56m) also proves highly cash generative of WHSmith. Furthermore, a slight rise of total asset, same figure of total liabilities and increase of total equity seems make WHSmith’s capital structure much better in 2010. Also, the underlying diluted earnings per share increased from 41.3p in 2009 to 45.7p in 2010. Lastly, WHSmith focuses on efficient cost control and did successful in 2010. It delivered ?12m savings from all areas of the business.
To coincide with data mentioned before, the increase of ROCE and profit margin also indicate a better efficiency and profitability in 2010. Whilst, low current ratio under 1 might indicate that the shortage of the liquid resources tend to fail to achieve the short-term payments. In addition, slight changes of other ratios prove that WHSmith has ability of sustained growth.
Generally, the group has delivered a good profit performance in 2010.It is noticeable that using distinct strategies on high street and travel business is an efficient way to maximize value creation for shareholders. Hence, based on the performance in decades, WHSmith has enough capacity to operate business sustainably and successfully.
Public sector: University of Glasgow
The University of Glasgow, which was established in 1451, is considered as the fourth oldest university in the English-speaking world. It also is a member of the Russell Group of 20 major research universities. It is ranked amongst the top 1% of universities in the world. Moreover, it has outstanding performance in cultivating talents which fostered seven Nobel laureates, one Prime Minister and Scotland’s inaugural First Minister.
University’s mission which set in “Glasgow 2020 – A Global Vision” is to undertake world leading research and to provide an intellectually stimulating learning environment thus delivering benefits to culture, society and the economy (page 3, Annual Report 2010). Additionally, focus, global reach and multi-disciplinarity are main strategy of that.
There is a crucial change structuring its operations from 2009 to 2010. The university applies a College structure instead of previous Faculty structure from the date of 1 August 2010. The new four colleges are: College of Medical, Veterinary and Life Sciences, College of Science and Engineering, College of Social Sciences and College of Arts.
In the world rankings of universities 2010 by Times Higher Education, University of Glasgow placed at 19th in the UK and 128th in the world. To be more specific, it is worth to notice that the value of student satisfaction, research quality, student staff ratio, service and facilities spend, entry standards, completion, good honors and graduate prospects are 79%, 2.2, 13.2, 1377, 412, 86.6, 71.3, 75.4 respectively. These data can indicate its good competitive forces.
From teaching aspect, University of Glasgow has an excellent reputation on the teaching and learning environment from both angles of student and academic. Firstly, 90% of final year students are satisfied with their teaching and learning in 2010 National Student Survey. Secondly, student staff ratio is regarded as a proxy for teaching quality. Compared with University of Nottingham (2010:13.7), students of Glasgow might get more personal attention from the institution’s faculty. Thirdly, 16,588 undergraduate students, 5,366 postgraduate students and more than 5,000 adult learners are educated by University of Glasgow in 2010. Moreover, these students are from more than 100 countries around the globe. Indeed, the University has achieved its goal of home undergraduate recruitment, whilst the number of enrolled postgraduate students has increased 10%. Lastly, University has 6,334 staff, and there are approximately 2,000 researchers included.
Form research perspective, University of Glasgow has an outstanding performance. More than ?116m is annual research contract income, which makes University become UK’s top 10 earners for research. Additionally, according to the latest national Research Assessment Exercise 2008, University which involved 48 subject areas was one of the broadest submissions in the UK, and some of them were ranked in UK’s top 10 or were rated best in Scotland. In short, the University is 14th in Research Fortnight’s Research Power Table in the UK. Furthermore, according to the pan-UK Postgraduate Research Experience Survey, levels of research student satisfaction with university experience rose 5.6% in University of Glasgow.
From international mix angle, the number of international students has a significant 11 percent rise between 2009 and 2010. Also, international applications for entry increase 35% in 2010-11. Those growths indicate that the oversea promotion of the University is successful. In addition, it is obvious that international student community satisfies with the quality of education and support available at Glasgow through International Student Barometer 2010.
Moving to consolidated income and expenditure account, it is worth to focus some values. Tuition fees and education contracts have 10.3% growth which might be caused by the increase income from oversea students. Moreover, owing to a sharply decline of short-term investments and growth of endowment funds, endowment and investment income decrease slightly from 6,612 to 5,526 in 2009-10. In addition, both rise of staff costs and other operating expenses lead total expenditure have a 3.9% increase. Hence, the historical cost surplus for 2010 is 10,949.
Overall, based on all analyses above, University of Glasgow has delivered a good performance in 2010. It performs well not only on its financial aspect, but also on its strategic ambitions which includes academic targets and students recruitment goal.
“The accounting profit figure is the only simple and comparable measure of the performance of an organization”
In recent decades, along with economy developing rapidly, some issues about corporations’ performance seems to be discussed frequently. Although a number of indicators can be applied for assessing the performance of an organization, it is misty that how to measure a company’s performance accurately and comprehensively. Accounting profit figure is considered as a simple and comparable indicator for assessment. Employing profit figure might be right and easy for financial report users to some degree. However, it is not accurate and whilst it is necessary to analyze other possible indicators. This article aims to present some factors which might be one of measurement methods of a company’s performance.
Firstly, different sectors, such as nonprofit organizations and for-profit organizations, assess their performance in various ways. As Epstein & McFarlan (2011) point out, owing to nonprofit organizations and for-profit organizations have different missions, it is apparent that they have dissimilar financial metrics. To be more specific, the main objective and mission of nonprofit groups is to achieve their social or service targets. Contrarily, for-profit organizations concentrate on whether they obtain an appropriate return on invested capital for their shareholders or not. However, ancillary services are also offered by them. Consequently, most non-profit organizations insist that assessing whether they accomplish their overall long-term targets or not is more crucial than only measuring their fundraising and budget achievement in short-term. On the contrary, performance assessment of for-profit groups heavily relies on the income statement, earnings per share, profit, growth in market capitalization and other financial data.
Epstein & McFarlan (2011) give an illustration of Dana Hall School. It is a girls’ school which has history of 129 years. Its goal is “committed to fostering excellence in academics, the arts and athletics within a vibrant caring community…[It] provides its students with a unique opportunity to prepare themselves for challenges and choices as women”. Indeed, from financial aspect, it met continuous operating losses for ten years in 1995. Additionally, in order to build a world-class science center, Dana Hall School still borrowed $8 million to achieve its original target in 1995. Several years later, it took on more debt for the sake of building a world-class athletic center. Although the school has financial stress in 2010, it is still flourishing in the academic field. It is evident that the provided social services of one non-profit group have significant impact on its investment. Simultaneously, it also exerts vital effect on judgment of performance. In short, from nonprofit organizations perspective, assessing financial data such as profit is not essential measure of performance.
Secondly, CORE framework which is presented by Moon and Bates (1993) seems like a comprehensive framework to better assess the performance of an organization. CORE framework has four stages: context (C), overview (O), ratios (R) and evaluation (E). This framework is based on numerous previous case studies (see e.g., Simmonds, 1986; Rickwood et al., 1990; Shank and Govindarajan, 1992) which concern about ratio analysis and have significant contribution to the development of strategic management accounting. Through a case study of appraising the performance of Tesco which illustrated by Moon and Bates (1993), it is obvious that CORE is a good and comprehensive measure of a company’s performance by assessing the performance not only from its internal aspect but also from its external angle.
Thirdly, although profit figure is a simple and comparable measure of the performance of an organization, it can be altered by accounting techniques and then mislead the users of financial report. Sharma (1992:1) cited by Weston & Brigham (1991) describes profit as “to the financial management profit is a measure of control and the test of efficiency in the organization; to the investors the profit is the measure of weather worth to invest; to the government the profit is a basis of legislative action”. That is to say, profit figure is essential measure of enterprise’s performance to a large degree. However, the case of Enron exposes the limitation of accounting figures such as profit figure. As Solomon (2007) points out, negative angles of accounting and auditing profession are represented in the collapse of Enron. In addition, Pierce-Brown (2002) claims that each accounting policies are legal and Enron has being obeyed the GAAP. She complements that Enron employs the policies of revenue recognition, off-balance-sheet financing and mark-to-market accounting to hide the growing losses. It declines $600 million profits when the accounts are restated in 2002 (Solomon, 2007). To be more specific, during the period of 1997-2000, the decrease of cumulative profit and increase of debt are $591 million and $628 million respectively. Although Enron’s financial statement seems have a good performance, the figures are unreliable for the sake of removing liabilities and rising earnings per share actually. Hence, under this circumstance, profit figure cannot reflect a company’s performance factually to some extent.
Fourth, although for-profit groups focus on financial data to assess their performance, accounting profit figure is not the only assessment approach to a large extent. As Elliott and Elliott (2008) demonstrate, interpreting a company’s financial statement can apply financial ratios analysis. It is useful to judge the economic performance of an enterprise. They implement that six ratios are considered as key ratios whilst there are lots of subsidiary ratios. The six ratios are operating return on equity, financial leverage multiplier, return on capital employed (ROCE), asset turnover, net profit margin and current ratio. Specifically, the ratios of ROCE, asset turnover and net profit margin tend to reflect the profitability of companies and current ratio intends to indicate the liquidity. Hence, combining these figures might measure the performance of an organization more accurate than just using profit to judge. In addition, cash flow is another crucial account to measure the performance.
To sum up, this essay standing upon the point of view of comprehensive analysis to analyze possible factors for assessing an organization’s performance. In the first section, it represented different sectors have dissimilar judgment standards of performance. Secondly, it was trying to connect CORE with performance measurement. Additionally, it detailed researched whether or not accounting profit figure is reliable to assess an enterprise’s performance. Finally, ratio analysis and focusing on cash flow might help the analysis of performance. Hence, based on above discussion it can be concluded that there is no one specific standard measure of the performance of an organization. As a consequence, it seems that different industries and sectors might choose various methods or indicators to assess their performance. However, due to it considers not only the internal aspect but also the external perspective, CORE framework tends to be the better approach to apply than employing accounting figures solely.
Elliott, B. & Elliott, J. (2008) financial accounting and reporting 12th edition, Harlow: Pearson Education Limited
Epstein, M. J. & McFarlan, F. W. (2011) ‘Nonprofit vs. For-Profit Boards: Critical Differences’ Strategic Finance, 92(9), pp. 28-35
Moon, P. and Bates, K. (1993) ‘Core analysis in strategic performance appraisal’ Management Accounting Research, 4, pp. 139-152
Pierce-Brown, R. (2002) ‘Another nightmare on Wall Street’, Asian Chemical News, September, pp. 30-34.
Rickwood, C.P., Coates, J.B. and Stacey, R.J. (1990) ‘Stapylton: strategic management accounting to gain competitive advantage’ Management Accounting Research. 1 (1): 37–49
Shank, J.K. & Govindarajan, V. (1992) ‘Strategic cost management: the value chain perspective’ Journal of Management Accounting Research. Fall, pp. 179–197
Simmonds, K. (1986) ‘the accounting assessment of competitive position’ European Journal of Marketing, 20 (1): 16-31
Solomon, J. (2007) Corporate Governance and Accountability 2nd Edition. Portland: John Wiley and Sons.
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