Similarities and Differences of British Airways and G4s
Introduction
G4s is one of the leading companies when it comes to the security solutions. The company engages in specializing of the assessment of the future and current risks as well as developing the secure solutions in minimizing these impacts. It also works in the broad range of geographic markets and into the business sectors around the globe. The company is also considered to be the primary provider of risk protection and management to the major corporate customers and government worldwide. It is the expert in the entire aspects of international and local secure logistics. The company has been operated for 110 countries and formed the securities from the merger at the midst of Group 4 Flack and Securior Plc which are all security business. For the financial year of 2007, the company had continued to operate and recorded the total turnover of ₤ 4,490 million. On the other hand, for financial year of 2006, it had turnovers of ₤ 3,923.2 million which up higher of 16.8%. The company is listed in the London Stock Exchange and the secondary listing the Copenhagen while distinguished to be the largest employer in the London Stock Exchange for recording greater those 530,000 employees. Due to inclination of the growth and development of the company, there were the growing the trend for the pricing pressure for the core business services and to the demand of the customers for the company in taking the wider role of managing the risks. There are also strategies in adding up for the value of the core services that are already provided by the greater role in the areas of special security [1] These are the major reasons where the researcher made the decision in choosing the company in studying its financial growth and statement because it has the huge effect not only to the customers or user but to the investors as well. The analysis can be completed with the proper comparison to the financial analysis of one of the multinational companies which is the British Airways [2]
The British Airways is known to be the one of the largest international airlines in the world which carries the financial year of March 2008 of 33 million passengers in the whole world. The company is also considered to be the longest established airline in the world and definitely regarded as the industry. The two main bases operations of the airlines are the two principal airports or London which are the Heathrow (which is the one the biggest international airports of the world) and the Gatwick. In the financial year 2007/2008, the company recorded the revenue passenger kilometer which rose for 0.1 percent in contrast to the capacity increase of 0.8 percent which is being measured in the available seat kilometers. The figure had resulted the passenger load factor of the group of 75.6 percent and down at the 0.5 percentage points. For the same financial year, the airlines had carried out 805,000 tons of cargos. Over the year, the lengthy period of the company and its premium brand had strongly performed regardless the weak performance in the short haul premium whereas the overall premium cabins traffic had increased for 4.4 percent. The fleet of British Airways Group for the period of March 31, 2008 covered 245 aircraft. Though the company had experienced the well round growth, its revenues had still marginally down by 0.8 percent and the passenger slightly to ₤3.9 billion[3]. These and other reasons are the researcher’s justification in studying the financials of the company and its effect to the customers and to the investors. In this manner, base on the financial analysis, the users can have the idea on the plans and uncertainties of the company[4]
Theories of Financial Statement
There are the two basic financial statements that are suitable in the application to business and to the corporations, sole proprietorship, or partnership. These are the income statement and the balance sheet or the snapshots in time where it shows the liabilities and assets for the given specified date and the values are only valid at the specific point in time. The income statement or the profit and loss is showing the series of transactions which can occur for the period of time as in between the two dates of balance sheets. The entire transactions which occurred in the period shows the income statement of the cost of materials, the sales, operating expenses, interest paid, and the taxes. The other report though does not considered to be a financial statement in the accounting sense is still the schedule of the applications and sources of the funds which is the statement of cash flow. This can tell the performance of the company and the total cash disbursement and cash receipt of the company in the period of time as it covered by the income statement. The correlations between these three financial statement schedules can enable the reader to analyze and assess the complete financial performance of any company. Their correlations are primarily expressed by ratios and with the aide of the comparative analyses of the wide range listed companies. Most of the financial analyst had developed the several standards that are based on the ratios in order to judge the company’s solvency, liquidity, growth prospects, efficiency, and more other characteristics [5]
The financial statements are being prepared with the purpose of presenting the periodical report or review in the progress of the management. The primary objective of the financial management also is the provision of information in the process of decision making all the people who are interested in the business enterprise affairs. Several people who are interested in the financial statement are the investors, the management, creditors, and the prospective investors, and other. Nevertheless, this need not to be tailored made and must compromise to the preparation of the financial statements so that it can meet the requirements of its shareholders. This must need to give the significance and material information that can benefit the other parties and to those who make the future decisions [6]
For the investors, they are interested in knowing the amount of the dividends into is shares which are going to earn as well as the market value for the specific shares. In similar terms, the suppliers of the credit goods are all interested n knowing the amount due to him which will be paid in the specified time. The definite needs of the several parties which must be satisfied by the single set of the financial statements can use in the in providing the reliable financial information with regards to the economic obligations and resources as in inflows and outflows. This can also provide the net result arising activities of the enterprise and provide the financial information which can assist the capacity earnings of the business. The financial statement is also applicable in providing the needed information regarding the changes of the economic obligations and resources including the change in the working capital and the information that are needed and related in the financial statement and to other who needs it [7]
The Use of Financial Statement
The prepared financial statement can be use in serving the needs of the broad variety of people. The people who can benefit on the financial statements of the companies are the management. This means that the figures and facts that provided by the financial management can help the management in formulating the policies and to discharge the everyday activities of the business. The comparison of the financial statement for the period of time can help the management to determine the trends and the policies in order to avoid the unfavorable situation. The shareholders are also interested in the financial statement of the company due its future prospects and profitability and serves as their guide. The creditors and the suppliers can also use this in determining the liquidity position of the business and the repay of the debts in revealing the financial statements. The tax authorities need to figure the paying sales and the tax valorem duty of the companies while the employees and the trade unions can be determined the wage fixation and the payment of the bonus and other things. Of course the customers need to determine the financials of the company due to the fact that they are interested in the prices of the goods and services. This can also guided the customers in the selection of the suppliers for the production, the prices and the profit margin. The financial statements are all important for the financial analyst in advising the client in whom the company is interested to. The stock exchange can quote the price of the shares that can be use by the shareholders. Lastly, the government is all interested in the financial statements of the companies that can review the formulation of policies that relates to the taxation, wage, price, and to the national plans while the public wants determine the extent of the social responsibility of the business in the society [8]
The Financial Information of the Two Companies
The financial information of the British Airways is in accordance to the International Financial Reporting Standards (IFRS) and included in the International Accounting Standards (IAS) with the standing interpretations that are issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB which was adapted by the European Unions. The company’s financial reporting is Financial Accounting which is for the benefit of the supplier, the government, employers, employees, and the bankers as well as the other people who are interested in its financial statements. The preparation of the financial statements is the historical cost for the convention in the excerpt to the certain financial liabilities and assets which includes the derivative of the financial instruments as well as the available-for-sale in the financial assets which are being measured by the fair value. The carrying value that are being recognized assets and its liabilities are the subject of the fair value hedges and they are adjusted in recording the changes of the fair values which attributes the risk and being used as the supportive measure. There are also two formats that the company is using, the business segments which are based on the structure of the internal management and the system of the internal financial reporting. These are also the reflection of the components of the group with the distinguishable costs and assets the revenues, and the subject to the risks. On the other hand, the geographical segments are the origin of turnover through the allocation of the revenue in the sales area [9]
Same with British Airways, the G4S also is presenting its financial statement also in accordance to the applicable law and to the International Financial Reporting Standards as it’s adopted also by the European Union. Its financial statements were also prepared for the benefit of the supplier, employers, government, investors, the public and etc. Same as the British Airways, its consolidated financial statement were all in accordance to the UK GAAP and under the concern basis of the historical basis. Though, at the British Airways, the fair value hedges were the supportive measures in attributing the risk, in G4S, the fair value hedge are the instruments that are related in the portion of the hedged items and recognized at the income statement while the cash flow hedge is the portion of the fair value that are determined in the effective hedge to be recognized in the equity and to the recycled income statement [10]
The Managerial Accounting and Financial Accounting
The financial accounting can help the users to emphasize the preparation of the reports which includes the income statements and the balance sheet for the purpose of external use which includes the investing of the public and the banks. This implies that the information being presented is historically and typically focused on the comparison of the management accounting in accordance to its past performance. On the other hand, the management accounting can help the users in emphasizing for the preparation of the reports for the internal users in making the management and operating decisions for the future and current operations [11]
The Publish Profit and Loss Account of G4S
Consolidated income statement of G4S
For the year ended 31 December 2007
Notes
2007 £m
2006 £m
Continuing operations
Revenue
5.6
4,490.40
4,036.80
Profit from operations before amortization of acquisition-related intangible assets and share of profit from associates
309.1
271.6
Share of profit from associates
3
2.8
Profit from operations before amortization of acquisition-related intangible assets (PBITA)
6
312.1
274.4
Amortization of acquisition-related intangible assets
-41.6
-36
Profit from operations before interest and taxation (PBIT)
6.8
270.5
238.4
Finance income
12
92.6
79.5
Finance costs
13
-146.3
-118.4
Profit before taxation (PBT)
216.8
199.5
Taxation:
– Before amortization of acquisition-related intangible assets
-71.1
-67.4
– On amortization of acquisition-related intangible assets
14.9
10.8
14
-56.2
-56.6
Profit after taxation
160.6
142.9
Loss from discontinued operations
7
-33
Profit for the year
160.6
109.9
Attributable to:
147.2
96.5
Equity holders of the parent
13.4
13.4
Minority interests
160.6
109.9
Profit for the year
Earnings per share attributable to equity shareholders of the parent
16
For profit from continuing operations:
Basic
11.5p
10.2p
Diluted
11.5p
10.2p
For profit from continuing and discontinued operations:
Basic
11.5p
7.6p
Source: Annual Report of G4S
Consolidated Income Statement of
British Airways
2007
2006
Other Revenue, Total
611
651
Total Revenue
8,492.00
8,213.00
Cost of Revenue, Total
6,150.00
5,807.00
Gross Profit
1,731.00
1,755.00
Selling/General/Admin. Expenses, Total
1,054.00
Research & Development
–
–
Depreciation/Amortization
714
715
Interest Expense, Net – Operating
–
–
Interest/Investment Income – Operating
18
-19
Interest Expense(Income) – Net Operating
18
-19
Unusual Expense (Income)
–
–
Other Operating Expenses, Total
-46
0
Total Operating Expense
7,890.00
7,519.00
Operating Income
602
694
Interest Expense, Net Non-Operating
-183
-214
Interest/Invest Income – Non-Operating
164
127
Interest Income(Exp), Net Non-Operating
-38
Gain (Loss) on Sale of Assets
47
27
Other, Net
–
–
Net Income Before Taxes
611
616
Provision for Income Taxes
173
152
Net Income After Taxes
438
464
Minority Interest
-14
-16
Equity In Affiliates
–
–
U.S. GAAP Adjustment
–
–
Net Income Before Extra. Items
424
448
Accounting Change
–
–
Discontinued Operations
-134
3
Extraordinary Item
–
–
Tax on Extraordinary Items
–
–
Net Income
290
Preferred Dividends
–
–
General Partners’ Distributions
–
–
Miscellaneous Earnings Adjustment
–
–
Pro Forma Adjustment
–
–
Interest Adjustment – Primary EPS
–
–
Income Available to Com Excl ExtraOrd
424
448
Income Available to Com Incl ExtraOrd
290
451
Basic Weighted Average Shares
1,141.13
1,116.18
Basic EPS Excluding Extraordinary Items
0.372
0.401
Basic EPS Including Extraordinary Items
0.254
0.404
Dilution Adjustment
0
0
Diluted Weighted Average Shares
1,151.94
1,138.55
Diluted EPS Excluding ExtraOrd Items
0.368
Diluted EPS Including ExtraOrd Items
0.252
0.396
DPS – Common Stock Primary Issue
0
0
Gross Dividends – Common Stock
0
0
Total Special Items
-47
-27
Normalized Income Before Taxes
564
589
Effect of Special Items on Income Taxes
-13
-7
Inc Tax Ex Impact of Sp Items
160
145
Normalized Income After Taxes
404
444
Normalized Inc. Avail to Com.
390
428
Basic Normalized EPS
0.342
0.383
Diluted Normalized EPS
0.339
0.376
Source: Annual Report of British Airways
Consolidated Cash Flow of British Airways
2007
2006
Net Income/Starting Line
602
694
Depreciation/Depletion
834
717
Amortization
–
–
Deferred Taxes
–
–
Non-Cash Items
-124
23
Changes in Working Capital
-556
-95
Cash from Operating Activities
756
1,339.00
Capital Expenditures
-367
-283
Other Investing Cash Flow Items, Total
403
-736
Cash from Investing Activities
36
-1,019.00
Financing Cash Flow Items
-14
-14
Total Cash Dividends Paid
–
–
Issuance (Retirement) of Stock, Net
38
21
Issuance (Retirement) of Debt, Net
-485
-479
Cash from Financing Activities
-461
-472
Foreign Exchange Effects
-16
1
Net Change in Cash
315
-151
Source: Reuters.com
Consolidated cash flow statement of G4S
For the year ended 31 December 2007
2007 £m
2006 £m
Profit before taxation
216.8
199.5
Loss before taxation from discontinued operations
-0.3
31.6
Adjustments for:
Finance income
-92.6
-79.5
Finance costs
146.3
118.4
Finance costs attributable to discontinued operations
3.3
3
Depreciation of property, plant and equipment
91.1
82.3
Amortisation of acquisition-related intangible assets
41.6
36
Amortization of other intangible assets
8.5
7.4
Impairment of other intangible assets
0
2.5
Profit on disposal of property, plant and equipment and
intangible
assets other than acquisition-related
144.4
(Profit)/loss on disposal of discontinued operations
-12
-14
Share of profit from associates
-3
-2.8
Equity-settled transactions
4.1
5
Operating cash flow before movements in working capital
389.4
353.1
Increase in inventories
-9.6
-6.9
Increase in receivables
-69.7
-17.7
Increase/(decrease) in payables
84.1
13.5
Decrease in provisions
-36.7
-47.6
Cash generated by operations
357.5
267.4
Tax paid
-66.2
70.3
Net cash flow from operating activities
291.3
197.1
Investing activities
Interest received
24.9
11.5
Cash flow from associates
1
2.7
Purchases of property, plant and equipment and intangible assets other than acquisition-related
134.5
-93.2
Proceeds on disposal of property, plant and equipment and intangible assets other than acquisition-related
25.50
10.7
Acquisition of subsidiaries
-151.6
-96.7
Net cash balances acquired
11.6
3.5
Disposal of subsidiaries
7.9
9.9
Purchase of investments
-0.3
-21.8
Own shares purchased
-3.1
-3.1
Net cash used in investing activities
-218.6
-176.5
Financing activities
Share issues
0.9
9.1
Dividends paid to minority interests
-3.8
-3
Loan to minority interests
-13.3
0
Dividends paid to equity shareholders of the parent
-59.3
-49.8
Proceeds on issue of loan notes
280.6
0
Repayment of revolving credit facilities with proceeds from issue of loan notes
280.6
0
Other net movement in borrowings
140.4
95.1
Interest paid
-79.9
Net cash flow from hedging financial instruments
-4.3
11.8
Repayment of obligations under finance leases
-4.6
-8.4
Net cash flow from financing activities
-23.9
4.5
Net increase in cash, cash equivalents and bank overdrafts
48.8
Cash, cash equivalents and bank overdrafts at the beginning of the year
Effect of foreign exchange rate fluctuations on cash held
11.9
-11.2
Cash, cash equivalents and bank overdrafts at the
end of the year
210
270.7
Source: Annual Report of G4S
The Comparison and Contrast of G4S and British Airways
There are certain similarities and differences for the preparation of the financial statement of British Airways and G4S. One of these is the goodwill wherein the British Airways has the goodwill which is the tested and capitalized for impairment whenever the indicators exist and carry the recoverable value while for the G4S its goodwill is arises upon the acquisition of the additional interest form the minority of its subsidiary which represents the excess of the cost and the additional investment of the carrying amount of the net assets which are being acquired at the date of change. For their employee benefits, the post retirement benefits and other pensions are being presented in the financial statement and are measured in the discounted present value while the plan asset are measured in the fair value of the balance sheet. On the other hand, for the G4S, the retirement benefits which is the obligation of the recognized balance sheet only represents the present value of the certain defined benefits which is being adjusted for the unrecognized past cost service and the fair value assets had reduced. With regards to the share-based payment, for the G4S is determine its payments at the duty of the grant expensed and corresponds to the increase of the equity for the basis of straight line for the period of vesting period while the British airways, its fair value of the employees options can be measured in the date of the grant and the option using the appropriate model of valuation. For the British Airways, its impairment in the financial assets at every balance sheet date are being impaired whether they are the financial asset while the impairment of the G4S is the carrying value of the asset of the group aside from the differed tax assets and inventories are being reviewed in the continues obligation in the indication of the impairment and if it exists, the recoverable assets are estimated. The current tax of the G4S is base primarily on the taxable profit for the certain year. This means that the taxable profit are differs from the net profit which was reported in the income statement due to the exclude items of the income or expenses which are taxable or even deductible in the other years. Its liability on the current tax is calculated in the tax rate which are being enacted on the substantively and enacted in the balance sheet. The two companies have also their similarities with regards to the financial instruments which include the trade receivables, the PFI assets, the current asset investments, the cash and cash equivalents, the interest bearings borrowings, the equity investment and the trade payable.
Conclusion
Although different type of companies, the process of their basis in doing their financial statement are almost the same though some have sort of differences. The British Airways have to follow the International Accounting Standard as well as the G4S. Some differences are beyond their control of audit though had to be clear in accordance to the benefit of the readers and the user. Their financial statements also are always use by the investors and the customers to be their guide in investing and supporting their products and service.
Bibliography
British Airways Corporate Website 2008, British Airways Corporate Profile. http://www.bashares.com/. (Accessed July 29, 2008).
British Airways 2007/2008. Annual Report of British Airways 2007/2008
British Airways Cash Flow 2007/2006. Reuters. http://www.reuters.com/finance/stocks/incomeStatement?stmtType=CAS&perType=ANN&symbol=BAY.L. (Accessed July 29, 2008).
G4S Corporate Website 2008, G4S, http://www.g4s.com/. (Accessed July 29, 2008).
G4S 2007/2008, G4S Annual Report for the Financial Year 2007/2008.
Kesavan, R. et. al. Engineering Economics and Financial Accounting, Firewall Media, United Kingdom, 340-342.
Thomson, Knight. N 2001. Understand Infrastructure Research, Taylor and Francis, United Kingdom.
Tuller, Lawrence W. 2007. Finance for Non-Financial Managers: And Small Business Owners, Adams Media, United States.
[1] G4S Corporate Website 2008, G4S Corporate Profile, http://www.g4s.com/.
[2] Ibid.
[4] British Airways Corporate Website 2008, British Airways Corporate Profile. http://www.bashares.com/. (Accessed July 29, 2008).
[5] Tuller, Lawrence W. 2007. Finance for Non-Financial Managers: And Small Business Owners, Adams Media, United States. 217.
[6] Kesavan, R. et. al. Engineering Economics and Financial Accounting, Firewall Media, United Kingdom, 340-342.
[7] Ibid, 341.
[8] Ibid, 342.
[9] British Airways 2007/2008. Annual Report of British Airways 2007/2008
[10] G4S 2007/2008. Annual Report of G4S 2007/2008.
[11] Thomson, Knight. N 2001. Understand Infrastructure Research, Taylor and Francis, United Kingdom. 213.
Credit:ivythesis.typepad.com
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