FINANCIAL REPORTING

Financial Reporting

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Table of Contents

Rolls Royce - Task One2

Introduction2

Discussion3

Earning Management - Task Two7

Introduction7

Earnings Management9

Motivations for Earnings Management11

How Earning management Works13

Benefits of earning management13

Negativities of managing earnings14

Conclusion14

References16

Rolls Royce - Task One

Introduction

The company which is chosen for the report is Rolls-Royce Company. The company is a global company, which provides energy and power solution to it valued customers in marine, aerospace and energy markets. The customer base of the company is quite strong, it has 650 airlines, 4000 utilities and corporate aircrafts, 160 armed forces , more than 2500 marines users and energy users in more than 160 countries (Helfert, 2001 pp 33). The operations of the company are carried out through four segments they are defense aerospace, energy, marine and civil aerospace.

The civil aerospace segment is involved in the manufacturing, development and sales of commercial engines. The defense aerospace sector is involved in developing, manufacturing, sales and marketing of military engines. The marine segment is into the development, manufacturing, sales and marketing of marine propulsion system. The last segment which is manufacturing is related to the development, marketing, sales and manufacturing of diesel power units, compressors , electrical power generation and power unit for offshore oil rig.

The success of the company is hidden in its extensive portfolio of products. The organization increased its order book in the year 2010 to £59.2 billion, which increase the profit after tax by 4 percent to £955 million. The company operates in many places all over the world like Europe, Asia, Africa, America and Australia (Helfert, 2001 pp 33). The head office of Rolls Royce is in London. The company employees around 38,900 people.

Discussion

Rolls Royce if we look from above with analyzing on its financial position looks solid. However, nothing can be known about the company without its financial analysis. This is the reason we are doing a ratio analysis of the Rolls Royce.

Financials

2011

2010

2009

2008

2007

Shares Mil

1,875

1,870

1,865

1,820

1,838

Book Value Per Share GBP

3.72

3.28

 

Operating Cash Flow GBP Mil

1,306

1,378

859

1,015

705

Cap Spending GBP Mil

-775

-675

-258

-675

-598

Free Cash Flow GBP Mil

531

703

601

340

107

Free Cash Flow Per Share GBP

0.43

0.58

 

Working Capital GBP Mil

1,399

2,646

3,062

839

2,499

The organization increased its share capital in the fiscal year 2011. The book value per share of the company increased to 3.72 as against 3.28 pounds in last year. The operating cash flow of the company decreased due to the rising operating activities of the group. The company was able to reduce its working capital by more than 100%.

Margins % of Sales

2011

2010

2009

2008

2007

Revenue

100

100

100

100

100

COGS

77.99

80.15

79.73

80.5

80.74

Gross Margin

22.01

19.85

20.27

19.5

19.26

Operating Margin

10.66

10.19

11.27

9.41

6.91

Net Int Inc & Other

-0.73

-3.86

17.12

-30.25

2.95

EBT Margin

9.93

6.33

28.39

-20.83

9.86

The following schedule shows different cost as percentage of sales. The group was able to bring down its Cost of goods sold. This was due to improvement in the operations of the company and reduced cost of materials. Therefore, in the end the company was able to increase its earnings before tax by more than 3.5%. This is quite a remarkable growth keeping in view the strict industry growth.

Profitability

2011

2010

2009

2008

2007

Tax Rate %

23.26

22.65

25.03

18.14

Net Margin %

7.64

4.86

21.33

-14.75

8.15

Return on Assets %

5.21

3.41

14.49

-10.04

5.55

Financial Leverage (Average)

3.64

4.08

4.08

6.04

3.24

Return on Equity %

20.02

13.9

70.46

-44.23

19.38

Return on Invested Capital %

12.47

8.12

45.29

-23.69

13.92

The organization tax percentage increased by ...