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Stonegate pub company performance Essay

The Stonegate pub company is privately owned which concentrates in pubs and bars in the UK. It was started in the year 2010 and currently have more than 620 bars and pubs all over in the country. In the same year the company acquired over 330 managed pubs from M and B. This gave the company operational power to run. The company takes great care of all its target customers as it has various joints as in: student bars, traditional pubs, night clubs and all kinds of pubs. This makes the company attract all kinds of customers depending on their needs. In 2011, the company joined with the Town and pub company forming a large pub operator which would become the largest in the country. This in return led to the company acquiring lettuce brands, Yate’s and slug. Stonegate company also involves itself in selling of drinks and food that is seasonal favorites. Being one of the largest companies in the country, Stonegate company keeps books of accounts which can be evaluated.

The company’s return on capital in the year 2012 is far much higher than that of 2011. This in return has increased the shareholders amount in the year. Since the return on capital in 2012 is greater than in 2011, the company indicated growth. The Gross profit of the company increases from 8.7% to 12.3% due to the increase of sales from 264,671 to 484623. The gross profit of the company indicates that the company is in the right direction towards its development. Net profit margin of any company will show how much it earns after tax deductions per dollar. When it is high, the firm comfortably controls its costs and favorably competes (BAKER, 2005, 62). In 2011 it had 0.41% compared to 4.5% in 2012 and could therefore earn more in 2012 after the tax had been deducted per dollar. The company, hence records higher amount of sale as time goes by.

Gearing measures the financial leverage of a company and compares the ration between financial aid by lenders and shareholders. In 2011 it was 47.9% as compared to 159% indicating the country borrowed more than in the previous year. Interest cover shows the ability of a company to repay interest on an outstanding debt. In 2012 the ratio is at 3.5 times as compared with 0.95 in 2011. This indicates the ability of the company to repay has increased. On the other side the company’s current ratio came from 0.77:1 in 2011 to 0.74:1 in 2012. This shows that it was in a position to pay debts comfortably in 2011 while it struggles in 2012 which is not a comfortable place for any company in theworld.

Liquidity ratio of a company shows its ability to pay short term debts. Stonegate company had a ratio of 0.69: 1 in 2011 and 0.62: 1 in 2012 showing the ability to repay short term debts reduced in 2012. Stock turnover is the amount of times that stock is sold over a given period of time. The company had a stock turnover of 9 times in 2011 as compared to 6 times in 2012. This indicates that the stock is sold at a fast pace in 2012 as compared to 2011. Debtor collection period is the period in which the business receives money sold on credit. Many businesses sell on credit to increase their sales. In 2011, Stonegate company had a debtor collection period of 43 as compared to 25 in 2012. This shows that the company would be able to get money sold on credit more often in 2012 which leads to development.

Credit payment period on the other side represents the number of days a company takes to repay a credit transaction. The shorter the period the busy the business, hence faster development since this indicates faster inflow of cash. In 2011 it was 24 days compared to 12 in 2012. In 2012 therefore, Stonegate company had the power to repay back its debts within half the time spent in the previous year. This indicates growth in financial aspects of the company. The number of days a company takes to realize cash from its inventory is operating ratio. The company has an operating ratio of 28 days in 2011 and 19 days in 2012. The company enjoys fast money in the latter year,which in turn leads to faster development as compared to 2011.

Stonegate company compares with other companies in the market and competes effectively. In the year 2011, Net Profit before interest and tax on sales is 0.64% compared to 12.3% in 2012. The company records growth in the latter year as compared to other companies. Labor cost of sales in 2011 is at 26.5% as compared to 28% in the year 2012. In comparison to other companies, the company is paying more of its money in wages and salaries in 2011 than in 2012. This poses dangers in any company. Overhead costs of sales refer to other costs other than labor. These costs may include rent and insurance. In relation to other companies, the company had a figure of 8.2% and 6.7% in 2012 indicating a reduction in the rate of overhead cost. Reduction in overhead costs which may be escapable, benefits the company as it is an additional expense on the side of the company’s budget (Tracy, 2013, 237) .

The company’s current ratio in 2011 is at 0.77 and 0.74 in 2012 compared to other companies. This shows lack of strength to pay its debts faster as the years progress. On the side of acid test, the company had a ratio of 0.69: 1 in 2011 and 0.62:1 in 2012. It shows that the company could not comfortably depend on its current asset to pay its current debts in the year 2012 as compared with 2011 in relation to other countries. It therefore shows that the company depends on its own inventory in paying these debts. Stonegate company recorded a favorable rate of stock turnover as compared between the two years 2011 with 9 times and 2012 with 6 times. This shows effective competition with other companies in the market.

The company may be lagging behind other companies due to the use of some strategies it takes in its dairy production. The company records tremendous improvement in the financial sector as witnessed by the large amount of profits and sales in 2012 compared to 2011. This shows improvement in the management part of the company which brings aboutbetter methods of production. This is what in return brings the positive change experienced in the company. According to Davenport (2013, p. 27), IT IS due to data-keeping in the company that parties may be able to know where the company is going astray and where they are right. This also helps in decision making . Although the company seems to be walking in the right direction, the business still lags behind other companies in the market due to its strategies.

Some of these strategies include gearing. For instance Stonegate company depended much on the lenders as opposed to the shareholders in 2012 as compared to the year 2012. Lenders require a large amount of interests on loans given to the companies and may even ask for repayment within a short period of time (Moles et al, 2011, p. 642). Interests associated with these loans reduces the profit margin as evidenced in the Stonegate company. Other competing companies used the money from the shareholders as this would be somehow permanent as compared to money from the lenders. In this regard, the rate of gearing went up from 47.9 in 2011 to 159 in 2012. This is one of the areas where the company is lagging behind its peers and care must be taken to avoid collapse of the company in the future.

The company’s current ratio went down and it could not be able to repay short-term debts as it used to do in the previous year. Decrease in the current ratio of a company may be brought about by such factors as an increase in the amount borrowed reducing the company’s current assets due to repayment of the debts (Kaya & Banerjee, 2014, p. 25). Although this money leads to increase in the level of profits, the company should avoid it. Net profit margin, which increases due to this approach helps in the payment of the debt, though it does not fit the amount borrowed. Another rich area that the company is lagging behind is in the payment of wages and salaries. The amount used in 2012 was far much more than the amount spent in the year 2011. This is even after keeping all the other factors constant.

Stonegate company’s acid tests proved that it could not depend on its current assets to pay its current liabilities. The company could therefore depend on its inventory to pay these debts.Being unable to pay short term debts by the company is a concern that needs to be addressed in order to prevent collapse of the company.On the other side, the company enjoys improvement in the rate of stock turnover indicating that the products are moving at a higher speed in 2012 compared to 2011. The overhead costs also go down,adding up to the profit margin of the company. Care must be taken to avoid doing away with an overhead cost that is vital to the business for example insurance. This is because overheads costs are an important part in the running of businesses.

Stonegate company has adopted strategies that make it compete favorably with other competitors. This has enabled it to remain relevant in the market. It has offered services to all round customers with the number of joints that supply drinks and food. To have powers in the market, the company joined hands with the Town and pub company to form a large company and the largest private company that is in the pub business. It also acquired more than 330 pubs from M and B which gave the company powers to enter the market in full force leading to almost forming a monopoly. In return, Stonegate company has continued to record high amount of profit associated with an increase in the amount of total sales. Due to this factor, it has recorded tremendous development and growth of the structures and the number of workers.

An increase in the amount of profits as time goes may be attributed to the increase in the amount of sales sold (Kumar, 2008, p. 62 ). As compared with other companies in both 2011 and 2012, the company records an increase in the amount of profit and sales. This has given the company more resources to deal with the operations of its duties that lead to efficiency and growth. This accounts for the increase in the number of employees’ salaries who increases in number due to increase in the operation of the company. This has in return increased net profit margin of the company showing the positive trend the company is heading to. Rate of stock turnover also reduces in the years under scrutiny. This has led to faster movement in and out of inventory which results in higher returns indicated in the working ratios of the company.

The ratio between the shareholders and the lenders also increases during the latter year. This indicates that the company has resulted in the use of the lender’s money as opposed to shareholders’. This in return has made Stonegate company unable to pay short term debts using its current assets since most of its money is borrowed money. This is a major concern for the company to consider and correct. Relying on lenders money may seem risky in the event that they give out money with a lot of requirements that leaves the company in a servant position. The loans also attractthe interest that is additional cost which adds to the expenses of the company in return reducing the profit. Using money from the shareholders who are somehow long time as compared to loans is more easier and efficient. They ask for interests after an agreed period of time without their investment value as opposed to lenders who asks for both (Jiang et al 2010, p. 3602).

Stonegate’s debt collection period has reduced in the years in discussion. This indicates good mechanisms and strategies in debt collection and incredit selling. This has enabled the company to reduce its credit repayment period. Managing these important trading strategies by the company has led to growth and improved operations a great achievement in the side of the company and its associates. An area of concern is the ratio of wages and total sales that increased in the year 2012 as compared to 2011. This increase in the ratio indicates that the company would be using more money to pay labor in the latter year as compared to the total output in the same year. This is a point of consideration that Stonebic company should take into account and make the necessary improvements.Stonegate company,continues to report increased revenues as in 2003 it stood at £470.3m (Wingett & Williams, 2014, p. 168).

Conclusion

        The Stonegate pub company is a competitive company in the market that offers drinks to its esteemed customers. The company keeps records of its finances an indication of a company that follows the set regulations for success in business. The company continues to grow in the amount of sales and profits attributed by the reduction in the rate of stock turnover, debt recollection period and debt repayment period. The company also uses a lot of funds from lenders, which increases its operating capital which in return results in the growth of its structures. The company through its many joints holds all kinds of customers in its different joints as involvement in fresh foods gives it additional customers who do not drink.

References

Baker, H. K., & Powell, G. E. (2005). Understanding Financial Management A Practical Guide. Oxford, Blackwell Pub.

Davenport, T. H., & Kim, J. (2013). Keeping Up With The Quants: Your Guide To Understanding And Using Analytics Firms’, Journal Of Accounting, Business & Management, 21, 2, Pp. 23-35

Jiang, W, Li, K, & Shao, P 2010, ‘When Shareholders Are Creditors: Effects Of The Simultaneous Holding Of Equity And Debt By Non-Commercial Banking Institutions’, Review Of Financial Studies, 23, 10, Pp. 3595-3637

Kaya, H, & Banerjee, G 2014, ‘The Impact Of Monetary Policy And Firm Characteristics On Firms’ Short-Term Assets, Liabilities, Term Structure Of Debt And Liquidity Ratios: Evidence From U.S. Industrial

Kumar, V. (2008). Managing Customers For Profit: Strategies To Increase Profits And Build Loyalty. Upper Saddle River, N.J., Wharton School Pub.

Moles, P., Parrino, R., & Kidwell, D. S. (2011).Corporate Finance. Chichester, Wiley.

Tracy, J. A. (2013). Accounting Workbook For Dummies.Hoboken, N.J: John Wiley & Sons.

Wingett, M, & Williams, R. 2014, ‘Stonegate performance in line with peers’, Publican’s Morning Advertiser. Business Source Complete168, p. 15

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