Finance & Accounting

An accounting riddle – sales down, profits up…

WHSmith has reported a slightly better than expected 8% increased in first half pre-tax profit and said that despite a tough trading climate it is confident about its full year prospects. “The economic environment remains uncertain and, whilst we continue to be cautious, we are confident in the outcome for the full year,” said Chief Executive Kate Swann.

For the six months to 29 February 2008 the newspapers, books and stationery retailer made a pre-tax profit of £64m. However, “like-for-like” sales in the High Street operation continued to fall, down 3% over the period.

How can this be possible?

Is a Jaffa Cake food?  What about a Marks and Spencer Teacake?

This question isn’t as daft as it sounds – and it actually relates to Business Studies.  In fact, I ask my students this question every year….

This is actually a question about tax.  The introduction of value added tax (VAT) was complicated by the decision to ‘zero rate’ some products so that VAT wouldn’t be charged on them.  The best examples are children’s clothes, books, newspapers and food.

So what is food?  The definition matters.  The UK Treasury is facing a £3.5m bill, because of VAT wrongly imposed on a Marks and Spencer teacake, the European Court of Justice (ECJ) has ruled.

Customers paid VAT for 20 years before the authorities accepted the product was a cake, which does not command VAT.  UK tax officials acknowledged that chocolate teacakes had been wrongly classed as biscuits in 1994, prompting M&S to launch a legal battle to have the wrongly-paid VAT returned.

Thanks to a BBC article (some of which is outlined below) that’s helpful in answering this question for yourselves – and the truth about (utterly revolting) Jaffa Cakes is revealed…..

Credit crunch gets personal for small business owners

A common source of finance for small businesses is an unsecured bank loan taken out by the entrepreneur which gets invested in the fledgling business.  Now the credit crunch threatens to make life very tough for this kind of finance.

Woolies slashes dividend to conserve cash

Another example of a quoted company deciding to cut its dividend in order to retain cash in the business.  Except that this time, Woolworths plc has cut its final dividends by 90%

B&Q looks to conserve cash by cutting the shareholders’ dividend

What is a good way for quoted companies to save cash for a rainy day?  Cut the annual dividends paid to shareholders.  DIY retailer B&Q is the latest example of a company that has decided to take this action in the face of a downturn in consumer spending.

More evidence of rising raw materials costs affecting profit margins

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A recurring theme of business news stories from the UK and abroad is the impact of rising raw material costs on the profitability of manufacturers.  There was another good example today when food supplier Uniq announced its latest results

A good example of price elasticity of demand

A great news article about the problems faced by Hovis bread would make a useful example of price elasticity of demand for business students.

Late payment is strangling the cash flow of small businesses

We had a good day for customer cheques and BACS payment today.  However, a new report from Barclays suggests that we are lucky.  Small businesses are being submerged under the increasing burden amounts owed by trade debtors.

Most small businesses would reject an offer from the Dragons

An interesting survey of small business owners suggests that investment offers on Dragon’s Den represent poor value for money.

Glenda hits the finance-raising trail

You may remember Glenn Hoddle as the sophisticated, non-tackling England midfielder who went on to manage the national team (with little success).  Now Hoddle has turned into an entrepreneur, looking to raise share capital for his new football academy.

Question marks over the future of Digital Radio

Heavy losses and poor returns on investment are threatening the future of digital radio channels.

Manchester United 2nd in the ‘rich league’ – but what do the reports mean by ‘rich’?

We all take notice of some of the eye popping sums of money changing hands in the world of professional football.  Yet despite the heavy coverage of the subject in the recent press, I can’t help but think that some crucial figures are missing from most reports.

Hopefully those of you learning about Business are beginning to steer away from using the word ‘money’.  You need to be a bit more precise.  What does it really mean to talk about a firm making lots of ‘money’?

According to recent reports, Manchester United have moved from fourth to second in the list of the world’s richest clubs, as Real Madrid stayed top for the third straight year. 

The slow decline of those unprofitable red boxes

When was the last time you used a public payphone?  When you tried to use the phone, did it work?  According to BT, the use of public pay-phones is in rapid decline and they argue that they can no longer afford to sustain the loss-making pay-phone network.

Balance sheet blinkers

Many owners of small and medium-sized businesses in the UK are burying their heads in the sand when it comes to their business debts. As the credit crunch takes hold, it is worth those entrepreneurs keeping a close eye on their balance sheets.

What do the record profits of Royal Dutch Shell tell us?

The Anglo-Dutch oil firm Royal Dutch Shell has reported annual profits of £13.9bn, a record for a UK-listed company.  Not everyone is pleased, of course! Some trade unions have objected to the level of Shell’s profits at a time when consumers and businesses have to cope with the effects of high oil prices.  One union leader described the level of profits in the oil industry as, “quite frankly obscene.  Shell shareholders are doing very nicely whilst the rest of us, the stakeholders, are paying the price and struggling.”