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Sports Direct International Plc
Analysis of financial statements
Student Name
XXXX
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Table of Contents
Introduction……………………………………………………………………………….3
IASBs conceptual framework to prepare quality financial statements……………….3
Users of financial statements…………………………………………………………....5
Income statement evaluation…………………………………………………………...6
Analysis of non-current items in the balance sheet…………………………………….7
Analysis of statement of cash flows……………………………………………………9
Ratio Analysis……………………………………………………………………………10
Directors report analysis………………………………………………………………...11
References………………………………………………………………………………..13
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Sports Direct International
Sports Direct International PLC is a British retailing group which was founded by 1982 by
the country’s former squash coach Mike Ashley. The company has now evolved as the
largest sporting retailer in UK. Sports Direct International has expanded by opening its retail
subsidiaries and sports equipment brands. The company is headquartered at Shire brook,
United Kingdom and its CEO is Dave Forsey.
Sports Direct is one of the leading sports retailers in UK in terms of revenue as well as
operating profit. It owns a large number of significant global sports, fashion and lifestyle
brands. Outside UK, the group has retail presence in Belgium, France, Holland, Luxembourg,
Slovenia, Cyprus and the Republic of Ireland.
On July 8, 2011, it acquired 80% interest in West Coast Capital (USC) Ltd and 80% of the
ordinary share capital relating to Cruise Clothing Limited. On July, 25, 2011, the Company
acquired the remaining 50% of the ordinary shares of No Fear International Limited. On
January 17, 2012, it acquired the remaining 20% of share capital in West Coast Capital
(USC). On February 17, 2012, it acquired Delima Limited. On March 16, 2012, it acquired
Firetrap brand.
IASBs conceptual framework to prepare quality financial statements
In general, the overall objective of financial reporting is to provide information related to
financial matters in the company, in an organized and structured way that can be understood
and used by all the stakeholders in the company including but not limited to existing and
potential investors, creditors and lenders, employees and consumers which can help their
decisions regarding provision or investment of resources in the entity. These decisions can be
crucial for the company as these involve raising funds by selling, buying or holding equity as
well as debt instruments, as well as provision of or settlement of loans and other forms of
credit. Depending upon the degree of involvement in the company affairs, many existing as
well as potential investors and creditors have access to varying levels of information. In many
cases, they cannot demand the companies to provide information directly to them and thus
have to rely on general purpose financial statements for most of the financial information that
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is required by them. Keeping this in mind, the companies also target this segment of audience
while preparing the general purpose financial reports.
To support these general purpose objectives, the financial statements are prepared on the
accrual basis of accounting. Accrual accounting reflects the financial and related transactions
and its outcomes in the period in which they occur, even if the cash transfer takes place in a
different period. This piece of information is important because from an investors or a
lenders point of view, this provides an insight into entity’s resource availability and any
changes thereof, and therefore forms a good basis of assessment for the entity’s future
performance.
The IASB’s conceptual framework provides the set of concepts that serve as a foundation for
the preparation and presentation of financial statements. It defines how to recognize and
measure items that are recorded in financial statements prepared in accordance with IFRS.
This framework will be useful if it can help simplify complicated financial reporting matters
and present in an easy to understand way.
For the financial information to be useful, relevance and accurate representation are the
foremost requirements. In addition, if it is timely, verifiable, comparable and understandable
the quality of reports is enhanced.
In case of the company chosen, Sports Direct International PLC, the financial statements are
prepared on the basis of guidelines provided International Financial Reporting Standards
(“IFRS”) as adopted by the European Union. The consolidated financial statements of the
company have been prepared as per the historical cost convention, and have been modified to
include fair valuation of certain financial assets and derivative financial instruments. For
revenue recognition purposes the fair value of the consideration received or receivable is
recorded, net of discounts, returns and value added taxes.
The Board judgments for preparation of financial statements are on the basis of both
qualitative as well as quantitative factors. This prevents any unnecessary clutter of
information, thus enabling the presentation to be relevant and accurate. Also, the IASB
conceptual framework describes each item and its characteristics, which helps the Board in
assessment of nature of each item. To add to the quality of these reports the Board used IASB
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framework’s guidelines and prepares necessary disclosures to the investors without any
omission or misstatements.
Users of financial statements
Different stakeholders have different interests and hence have different needs for information
in the firm. The users of financial statements could include management of the entity and
employees/trade union, government/tax authorities, suppliers and lenders, shareholders,
customers and public in general, and non-governmental organisation/ welfare groups.
Each set of users have their own objectives. The management of the firm would like to know
the financials for their assessment of how well the firm is doing in achieving its objective.
They would like to identify the gaps and plan their future strategy accordingly. Employees
would look at the financial statements from a different perspective. They would like to know
about the financial sustainability for their own job security. Government and tax authorities
look for financial information as they seek appropriate allocation of resources which are
related to the activities conducted by firms.
In addition, they need finances related information to regulate the activities of enterprises and
formulate policies and regulations on taxation, and eventually serve as the basis for
determination of economic indicators such as national income and similar statistics.
For Sports Direct International, the key stakeholders include current and potential investors,
creditors and lenders and social and ethical groups.
The current as well as potential investors will look into the company standing among its
competitors in terms of growth, market size, profitability and capital structure. They will also
delve into the valuation ratios of the company to see what the market sentiment around the
same is. The investors would be interested in all events related to the company and the
company’s response in these situations.
Suppliers/Lenders are very important stakeholders for a company. They provide critical
inputs in terms of...