Assess the financial performance of William Hill over the last 4 years and discuss how management accounting can assist a service providing business like William Hill Free Essay Example, 3000 words

From an attractive 18.65% net profit margin in 2006, it came down to 16.86% in 2007, then a huge jump to 24.28% in 2008, and finally flopping down to poor 8.14% in 2009. May be recession has forced the gamblers to slow down because of decreasing liquidity. But that does not appear to be the real reason as the turnover of William Hills in 2009 was  £997.9 as compared to  £963.7 millions in 2008. However B. Solomon(March 4th, 2010)iv has even observed that â€Å"William Hills derives from three-quarters of its turnover from its retail arm and despite its revenue dropping 4% throughout 2009, the company’s recently remodeled joint venture online business with Playtech saw a 63% increase in revenue to  £203.5 million† Accordingly recession cannot be blamed for low net profitability in 2009, and probably it is the low margins on line gambling ( a comparative new venture) that is causing the real impact in lowering net margins. Return on total assets (ROA) is another pro fitability ratio that is used to discuss the profitability performance of William Hills. In fact â€Å"the return on total assets (ROA), often called return on investments measures the overall effectiveness of management in using its assets to generate returns. †(William L. Megginson, page 48)v From 2006 to 2008 ROA has shown a reasonable encouraging trend. We will write a custom essay sample on Assess the financial performance of William Hill over the last 4 years and discuss how management accounting can assist a service providing business like William Hill or any topic specifically for you Only $17.96 $11.86/pageorder now It has increased from 9.77% in 2006 to 12.75% in 2008. The management has shown effective management of using assets even though in 2007 the ROA dipped a little bit as compared to 2006. But 2009 appears to be an exceptional year. Even though investments in total assets have increased marginally from  £1835.9m in 2008 to  £1850.4m in 2009, the ROA has gone down from 12.75% to a mere 4.39% in 2009. The assessment of profitability shows similar scenario when Return on Equity (ROE) is used to assess the profitability. ROE â€Å"is widely reported and many money managers rely on it as a key gauge of a company’s profitability. †(Harry Domash, page 189)vi ROE was reasonably static after falling from 87.56% in 2006 to 67.52% in 2007, as it was 65.44% in 2008. However, 2009 showed a big fall and the ROE came down to just 10.74%. The reasons for such fall appear to be both mismanagement of resources as well the general economic recession fac ed by the world at large. Investment ratios are also good indicators of financial performance of an entity. Earning per share is considered both a profitability ratio as well as investment ratio. EPS is â€Å"simply the earnings of the company divided by the number of shares of stock outstanding.