External Audit: Can the Company Continue to Operate

Subject: Accounting
Pages: 3
Words: 513
Reading time:
2 min

There are several factors which show that the company will be in business in the next financial year. The factors show the main successes recorded by the company in the previous years and might contribute to the continued operation of the company (Wright & Noe, 1996).

The number of active store cardholders has been increasing since the service was introduced. This service offers customers multichannel options which are available online for its registered clients. The customers are offered three, six, and 12 months ‘buy now and pay later’ plans to fit their financial abilities and income. In 2009 the number of cardholders was 1.168 million. The number increased the following year to 1.2 million and 1.264 in 2011.

This resulted in a gradual increase in card receivables in all major stores over the years. According to Home Retail Group plc financial reports (2011), 2009 recorded £488 million increased to £497 million, and finally £530 million in 2011. This shows that the customer base is growing with time. When a company records an increase in customer base, the future of the organization may be considered as good (Wright & Noe, 1996).

Multi-channels sales grew over the years for Argos. As of 2009 £40 million was recorded it increased to £43 million in 2010 and then £46 million in 2011. This represented 46% of Argos sales. Growth in multi-channel sales showed that the future of this company relies on these products. Internet sales of Argos products increased to 26% in the past year. Customers would check and reserve various products and pay for them through the internet. This is expected to reduce operational costs.

Over the last year, the company reported a pre-tax profit of £256 million and a basic earning per share was 23.1%. The company is making a profit despite the reduction in sales in the last year showing that it was stable and would run for a longer time (Porter et al. 2008). According to Home Retail Group plc financial reports (2011), a Full-year dividend to the shareholders maintained at 14.7 % and a final 10% dividend was recommended showing that there was a realization of their purposes (Helmkamp et al, 1986).

Home Retail Group plc financial reports (2011), shows that the company had a strong net cash and cash equivalent position at the end of the year 2011 of £259 million.

There was a reduction in operating profit of both major products of Home Retail Group plc. Argos recorded a reduction of £47 million which represented an 18 percent while Homebase had a £6 million operational profit reduction in the last financial year. Overall operating profit was down by 13% in the 2011 financial year. Since 2009, the operating profit has been on the decline from £398 million in 2008 to £300 million in 2009, £290 million in 2010, and finally £251 in 2011. The trend shows reduced expenditure in the company. Operating profit margins reduced gradually over the three years from 5.1% in 2009 to 4.8% in 2010 and finally 4.3% in the year 2011 (Home Retail Group plc, 2011).

Reference List

Helmkamp, J, Imdieke, F & Smith, R, 1986, Principles of Accounting, John Wiley & Sons, New York.

Porter, B, Simon, J & Hatherly, D 2008, Principles of External Auditing. 3rd edn, Wiley.