21BSP302-2

Accounting and Performance

Management
By F113847
Table of Contents
Accounting.........................................................................................................................5
Kindred Group plc..............................................................................................................5
Return on Capital Employed (ROCE)...................................................................................5
Application...................................................................................................................................5
Analysis........................................................................................................................................5
Dupont deconstruction.......................................................................................................6
Operating Profit Margin...............................................................................................................6
Application......................................................................................................................................................6
Analysis...........................................................................................................................................................6
Asset Turnover ratio.....................................................................................................................6
Application......................................................................................................................................................6
Analysis...........................................................................................................................................................6

Profitability........................................................................................................................7
Gross profit margin......................................................................................................................7
Application......................................................................................................................................................7
Analysis...........................................................................................................................................................7
Operating Expenses......................................................................................................................7
Application......................................................................................................................................................7
Analysis...........................................................................................................................................................7

Efficiency............................................................................................................................8
Working capital analysis...............................................................................................................8
Revenue to non-current assets.....................................................................................................8
Application......................................................................................................................................................8
Analysis...........................................................................................................................................................8
Revenue to working capital..........................................................................................................8
Application......................................................................................................................................................8
Analysis...........................................................................................................................................................8
Receivable days............................................................................................................................9
Application......................................................................................................................................................9
Analysis...........................................................................................................................................................9
Inventory days..............................................................................................................................9
Application......................................................................................................................................................9
Payable days................................................................................................................................9
Application......................................................................................................................................................9
Analysis...........................................................................................................................................................9

Solvency...........................................................................................................................10
Current ratio...............................................................................................................................10
Application....................................................................................................................................................10
Analysis.........................................................................................................................................................10
Quick Ratio.................................................................................................................................10
Capital structure..............................................................................................................10
 Gearing ratio..............................................................................................................................11
Application....................................................................................................................................................11
Analysis.........................................................................................................................................................11
Interest cover.............................................................................................................................11
Application....................................................................................................................................................11
Analysis.........................................................................................................................................................11

Impact of betting duties...................................................................................................11

Mitigating betting duties.................................................................................................12
Key performance indicators (KPI’S)...................................................................................12
Financial KPI’s.............................................................................................................................12
Suggestions-..................................................................................................................................................13
Non Financial KPI’s.....................................................................................................................14
Conclusion........................................................................................................................15
References.......................................................................................................................15
Appendices......................................................................................................................16
Appendix 2: Kindred’s Consolidated Balance Sheet...........................................................16
Appendix 3: DuPont Ratios Calculations...........................................................................18
Executive summary
We will undertake a DuPont analysis of the group to analyse its financial performance and
position in the year 2020, using 2019 as the base year. The ROCE tree analysis revealed that
the group will be financially sound in 2020. The group's performance is assessed by dividing
the ROCE tree into Profitability and Efficiency ratios such as Operating Profit Margin, Gross
Profit Margin, Operational Expenses to Revenues, and Asset Turnover ratios. The group's
performance in 2020 is great, with higher profits generated than in 2019, thanks to
considerable reductions in operational expenditures in 2020. Furthermore, the liquidity and
stability ratios have been examined, and it has been determined that the organisation is
financially stable. Furthermore, the influence of betting responsibilities on group performance
has been explored, as have the group's measures to limit the impact of betting duties. Finally,
the financial and non-financial Key Performance Indicators affecting the group's performance
have been addressed and concluded.

Accounting
Accounting is the process of recording a company's financial transactions. Accounting entails
summarising, analysing, and reporting these transactions to oversight organisations, regulators, and
tax collection agencies.

Kindred Group plc

Kindred Group plc ('The Group') was founded in 1997 and is one of Europe's largest and fastest-
growing online gaming companies. In this study, the DuPont ratio analysis was performed using the
group's P&L account and balance sheet to determine the group's financial performance and position.

Return on Capital Employed (ROCE)

- Return on capital employed (ROCE) is a profitability ratio that compares net operating profit
to capital employed to determine how efficiently a company can generate profits from its
capital employed.
- ROCE tells investors how much profit is generated per dollar of capital utilised.
- The ROCE ratio combines data from the Profit and Loss Account and the Balance Sheet to
assess the group's profitability and efficiency.

Application-

Return on capital employed formula is calculated by dividing net operating profit by the employed
capital

ROCE = Operating Profit/Capital employed x 100

2020 2019
=205.8/586.5 x 100 =70.9/519.1 x 100
= 35.09% =13.66%

Analysis-

- The group's ROCE ratio is 13.66% percent in 2019 and 35.09% percent in 2020. This
demonstrates that the group was able to turn 13.66 % percent of capital employed into
operating profit in 2019 and 35.09% percent of capital employed into operating profit in
2020.
- The ROCE ratio differs by 21.43 percent between these two years. With the enormous
increase in ROCE and operating profit, this suggests that the group has performed extremely
well in terms of earning more profit and using capital employed more efficiently in 2020
than in 2019.
- In contrast, the group was able to achieve 13.66% percent return on capital in 2019,
indicating low performance and inefficient use of capital employed when compared to 2020.
The ROCE tree is expanded upon.

The ROCE tree is further dissected into Operation Profit Margin and Asset Turnover ratios.
Dupont deconstruction
Operating Profit Margin

- The operating profit margin (OPM) is a profitability or performance ratio that indicates the
percentage of profit generated by a company's operations before taxes and interest charges
are deducted.
Application

OPM = Operating profit/Total Revenue x 100

2020 2019
=205.8/1130.2 x 100 =70.9/912.8 x 100
= 18.21% =7.77%

Analysis

- The Kindred Group achieved an operating profit margin of 7.77% over revenue in 2019 and
18.21% in 2020, indicating a considerable improvement in the Operating Profit Margin from
2019 to 2020.

- It achieved all-time highs in gross winnings revenue and operational profit after a pandemic
dip in 2019.
- reduction of operational expenses.
- Less profit erosion.

Asset Turnover ratio

The asset turnover ratio compares the value of a company's sales or revenues to its assets. The asset
turnover ratio can be used to determine how efficiently a company uses its assets to produce
revenue.

Application

Asset turnover ratio = Revenue/Capital employed

2020 2019
=1130.2/586 =912.8/519.1
= 1.93 =1.76

Analysis
- In 2019, the group converted every pound of capital employed into £1.76 of income
- In 2020, every pound generated £1.93 of revenue.
- The capital-to-revenue conversion rate in 2020 is higher than it was in 2019.
Profitability
The two profitability ratios, Gross Profit Margin and Operational Expenses to Revenues, have been
examined to assess the company's performance.

Gross profit margin

Analysts use gross profit margin to measure a company's financial health by estimating the amount
of money left over from product sales after deducting the cost of products sold (COGS).
Application

Gross Profit Margin= Gross Profit/Revenue x 100

2020 2019
=665.2/1130.2 x 100 =502.6/912.8 x 100
= 58.86 % =55.72%

Analysis

- The Gross Profit Margin is the difference between the gross profit and the revenue.
- The group's Gross Profit Margin was 55.7 percent in 2019 and 58.9 percent in 2020.
- There is a modest increase of 3.2 percent in the group's Gross Profit Margin in 2020 which is
not particularly significant because the group's gross profit margins in both years are roughly
identical.

Operating Expenses

- Operating Expenses are the indirect expenditures incurred by a business to continue

operating on a daily basis.
- While not directly related to product/service income, operating expenses are an important
aspect of a company's basic operations.
- The percentage of revenue spent on the group's operational expenses is expressed as a ratio
of operational expenses to revenue.
- Some examples of operating expenses depreciation of tangible assets ,administrative costs
such as payroll, Marketing expenditures etc.
Application

Opex to revenues = operating expenses/revenue x 100

2020 2019
=-459.4/1130.2 x 100 =-437.7/912.8 x 100
= 40.65% =47.95%

Analysis

- In 2019 The group has spent 47.95 percent of its income on operating expenses, whereas
operational expenses is 40.65 percent in 2020.
- The extraordinary shift of 7.3 percent in the group's operating expenses in 2020 led in an
increase in the operating profit margin to 18.21 percent from 7.77 percent in 2019.

Efficiency
Working capital analysis
Working Capital is used to determine the sufficiency of Current Assets in relation to Current
Liabilities, as well as their liquidity. We need this information to determine whether a company
requires additional money for its operations in the long run or if it has excess cash that we may
redirect toward long-term investments.

Working capital analysis includes the calculation and analysis of ratios such as revenue over non-
current assets, revenue over working capital, inventory days, receivable days, and payable days to
further analyse the group's efficiency.

Revenue to non-current assets

The non-current asset turnover ratio measures the efficiency with which a company uses its non-
current assets to generate revenue.
Application

Revenue to non current assets = Revenue/Non Current assets

2020 2019
=-1130.2/553.5 =912.8/569.7
= 2.04 =1.60

Analysis
- In 2019, the group's ratio is £1.60, and in 2020, it is £2.04.
- The group has utilised non-current assets efficiently to produce income in both years,
however in 2020, the group has done better in creating more revenue by using non-current
assets more efficiently than in 2019.
Revenue to working capital
- The working capital turnover ratio assesses how well a company uses its working capital to
sustain a given level of sales.
- A high turnover ratio suggests that management is utilising a firm's short-term assets and
liabilities to drive sales in an exceedingly effective manner.
- A low ratio, on the other hand, suggests that a company is investing in too much accounts
receivable and inventory assets to sustain its sales, which may eventually result in an excess
of bad debts and obsolete inventory write-offs.
Application
Revenue to working capital = Revenue/working capital
2020 2019
=1130.2/33 =912.8/-50.6
= 34.25 =-18.04
Analysis-
- In 2019, the group's revenue-to-working-capital ratio was -£18.04, indicating a negative
performance due to inefficient use of current assets to produce revenue.
- the group's 2020 ratio is £34.25 which is exceptionally good and demonstrates the effective
utilisation of existing assets.
- The reason for the organization's poor performance in 2019 is that current liabilities exceed
current assets since the firm has failed to produce greater working capital in terms of tax
recoverable and cash equivalents.
- In 2020, the current assets are greater than the current liabilities, indicating that the
organisation has been able to inject more working capital into the firm in the form of tax
recoverable and cash equivalents, hence increasing revenue.
Receivable days
Accounts receivable days are the amount of days a client invoice remains unpaid before being
collected.
Application
Receivable days = Trade receivables/revenue x 365
2020 2019
=46.9/1130.2 x 365 =46.8/912.8 x 365
= 15.15 =18.71
Analysis
- Their has been a significant increase in producing current assets because of the group's
ability to negotiate receivable days with customers to lower the days from 19 in 2019 to 15
in 2020.

Inventory days
The average number of days in inventory is the amount of time a company retains its goods before
selling it.
Application

Inventory days = Inventory/ Cost of sales x 365

2020 2019
NA NA

Payable days
Days payable outstanding (DPO) is a financial statistic that represents the average time (in days) it
takes for a firm to pay its bills and invoices to its trade creditors, which may include suppliers,
vendors, or financiers.

Application

Payable days = Trade payable/cost of sales x 365

2020 2019
=162.1/465 x 365 =126.6/404.2 x 365
= 127.24 =114.32
Analysis
The group has agreed with its suppliers to raise payable days from 114 days in 2019 to 127 days in
2020. As a consequence, current assets are received rapidly and utilised in the firm as working
capital to increase revenue.

Solvency
A liquidity ratio is a financial statistic that is used to evaluate a company's capacity to fulfil its short-
term debt obligations. The metric determines whether a company's current, or liquid, assets can pay
its current obligations.

Two ratios that represent the liquidity of the business namely the Current ratio and Quick ratio
Current ratio
The current ratio, commonly known as the working capital ratio, assesses a company's ability to
meet short-term commitments due within a year. The weight of total current assets versus total
current liabilities is taken into account in the ratio.
Application
Current ratio = Current assets/Current liabilities
2020 2019
=438.8/405.8 =226.1/276.7
= 1.08 = 0.82
Analysis
- In 2019, the group's ratio is 0.82, which is less than one, suggesting that current liabilities
outweighed current assets, indicating that the firm was significantly riskier.
- In 2020, the ratio is 1.08, showing that current assets exceeded current liabilities, propelling
the company into a safer zone.
- Furthermore, the ratio has been determined for the years 2017 and 2018, which are 0.81
and 0.83, respectively, to determine the business's stability through time.
- When the ratios are compared over four years, the group's business has been steady and
under control because the ratios have been almost constant from 2017 to 2019, indicating a
risk as the ratios are less than one throughout this period. 

Quick Ratio
Quick ratio is a financial indicator of short-term liquidity or the ability to raise cash to pay bills due in
the next 90 days. 

Quick ratio = quick assets/Current liabilities

2020 2019
=438.8/405.8 =226.1/276.7
= 0.9 = 0.7

Capital structure
Stability research looks into how much debt the firm can support and if debt and equity are
balanced. To investigate the long-term stability of the group, there are two more ratios analysed
which are the Gearing ratio and Interest Cover.

Gearing ratio

Gearing focuses on the business's capital structure, or the percentage of financing given by debt
against finance provided by equity (or shareholders). The gearing ratio considers liquidity as well.
However, it focuses on a company's long-term financial stability.

Application

Capital gearing = Debt/ Debt + Equity x 100%

2020 2019
 =180.6/180.6+412.1x100 =290.4/290.4+234x100
= 30.47 = 55.38
Analysis

- The group's gearing ratio is 55.4 percent in 2019 and 30.5 percent in 2020.
- This demonstrates that the group used more debt for long-term financing in 2019 and less in
2020, as the group used more equity for long-term finance in 2020.
- The ratio was 39.6 percent in 2017 and 40 percent in 2018, and when contrasted, the
company has made the best use of debt finance with low-interest rates across the four
years, ensuring the organization's stability.

Interest cover

An Interest Coverage Ratio assesses a company's capacity to make needed payments (particularly,
interest expenditure) on schedule in relation to its existing debt commitments.

Application
Interest cover = Operating profit/ Net financing costs
2020 2019
=205.8/-5.8 =70.9/-6.6
= 35.48 = 10.74
Analysis
The interest cover ratio in 2019 is 10.7, which is extremely low due to the company's low operating
profit, while the ratio in 2020 is 35.5, which is very excellent and safe because the group made
greater operational profit in 2020.

Impact of betting duties

- Betting duties are direct costs that have a direct influence on income.
- Total betting duties in 2020 were £231.0 million, up from £204.3 million in 2019.
- In 2020, there is a rise of £26.7 million, which is over 13% higher than in 2019.
- Overall income from locally regulated markets remained steady between 2019 and 2020,
according to the group's annual report, with a rise in total revenues naturally leading to an
increase in betting charges.
- However, because to market dynamics, betting duties have risen at a slower rate than
income.

Mitigating betting duties

- Trade and other payables totaled 162.1 million in 2020, up from 126.6 million in 2019.
- The significant increase in trade payables over 2019 is attributable to increased activities at
the end of 2020.
- The accrual amounts for betting responsibilities, employee incentives, and commissions have
been raised for 2020.
- To compensate for the betting duties, the group boosted provisions from 11.8 million in
2019 to 21.8 million in 2020, as well as increased trade payables.
 - Furthermore, as the group's share of local revenues grows, it has a track record of
generating consistent long-term profit margins while mitigating short-term regulatory
obstacles and growing betting levies.

Key performance indicators (KPI’S)

Key Performance Indications (KPIs) are crucial (key) indicators of progress toward a goal. KPIs serve
as a focal point for strategic and operational improvement, serve as an analytical foundation for
decision making, and aid in focusing attention on what is most important.

Financial KPI’s

- A financial KPI or metric is a measurable number that reflects a company's financial

outcomes and performance, including information on spending, sales, profit, and cash flow,
in order to optimise and fulfil the financial goals and objectives of the firm.

Analysis of existing KPI’s-

KPI Performance
Gross winning revenue Impressive GWR growth of 24% year on year, achieving over
GBP 1 million as a result of its varied product offering and
active client growth.
EBITDA Notable EBITDA growth of 114% because of strong GWR
growth and cost control across all areas of income statement
Earnings per share High EBITDA resulted in higher earnings per share, resulting in
a 191 percent rise.
Capital expenditure on Their is a decrease in CEIA as their is a planned reduction in
intangible assets employee headcount.
 Dividend per share A new dividend and share repurchase programme has been
implemented. For the fiscal year 2020, the board proposed a
dividend of GBP.330 per share.
Equity per share Because there was no dividend paid in 2020 and the company
did well, the equity per share grew.
Other operating Other operational expenditures have been decreased as a
expenses share consequence of tight cost management, rationalisation of
consultant spending, and cost reductions owing to covid
restrictions.
Free cash flow per Increased EBITDA has resulted in higher cash flow per share.
share
Operating margin In comparison to the previous year, the operating margin has
been normalised. The group has opted to prioritise cost-cutting
initiatives.

Suggestions-

I believe that the financial KPI are not adequate and diverse enough to give a clear picture to
potential investors and to reflect the group’s strengths. Here are some the KPI’s that should
be included in the annual report -

1. Accounts payable turn over

This financial KPI measures how quickly a firm pays its average due amount to
suppliers, banks, and other creditors.

2. Accounts receivable turnover

Accounts Receivable (AR) Turnover shows a company's capacity to collect debts and
extend credit.

3. Budget Variance
Budget Variance is another often used project management KPI that shows how
planned budgets differ from actual budget totals.

4. Cost of managing process

Business departments can use this financial KPI to calculate the cost of managing
people's work and planning for the future.

Non Financial KPI’s

- Knowledge, skills, brands, corporate reputation, relationships, information, and data, as well
as patents, procedures, trust, and an innovative organisational culture, are all examples of
non-financial KPIs.
- The group, , has only looked at two non-financial KPIs: active consumers in the last quarter
of the year and staff satisfaction in terms of a wonderful place to work.
- Despite a decrease in active clients, the group benefited from the optimization of marketing
strategy and spending, as well as the shift from offline to online.
- When it comes to working from home, one of the most difficult obstacles is employee
engagement. To address this, the business increased the frequency of its feedback loop and
created measures to help employees stay engaged and supported.
 - Aside from the two non-financial KPIs, the group might use other metrics to assess success,
such as customer satisfaction, employee training and development, internal process
productivity, and service quality.

Conclusion
In conclusion, based on the Kindred group's DuPont ratio study for 2019 and 2020, the group's
profitability and efficiency performance in 2020 is good when compared to prior years, as the group
has been able to manage financial resources efficiently and effectively to improve profitability.
The group, on the other hand, has been able to retain its consistency in terms of liquidity and
stability throughout time, therefore preserving the firm's financial health and position.
References
Kindredgroup.com. 2021. Annual Report and Accounts 2020. [online] Available at:
<https://www.kindredgroup.com/globalassets/documents/investor-relations-related-
documents/financial-reports/kindred-group-annual-report-2020-a.pdf> [Accessed 15 November
2021].

Appendices
Appendix 1: Kindred’s Consolidated Income Statement (Profit & Loss Account).
Source: Kindredgroup.com. 2021. Annual Report and Accounts 2020.
Appendix 2: Kindred’s Consolidated Balance Sheet.
Source: Kindredgroup.com. 2021. Annual Report and Accounts 2020.
Appendix 3: DuPont Ratios Calculations.