Assessing the Utility of Financial Information for Non-Management External Users: A Case Study of Whitbread Plc

  • 16 Pages
  • Published On: 02-11-2023


The report herein lies under the field of business accounting. As a starting point, it is best to note that accounting is defined as, “the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions, and events which are, in part at least, of financial character, and interpreting the results thereof” (Ahmed, 2008,p3). On the other hand, accountancy is described as a process through which accountants or developers of accounting records/information communicate about an enterprise’s financial information to users of which the most privileged users are shareholders and the management team of the enterprise (Smith, 2011).

This report seeks to establish through evidence how the financial information generated by Whitbread Plc is able to meet the needs of five different non-management external users. The selected external users will consist of creditors, the national government and relevant agencies, suppliers, customers, and the public. Whilst presenting the detailed discussion, this report will incorporate a mention of the qualitative characteristics that makes Whitbread’s financial information useful to its five selected non-external users and even the weaknesses that are evident in the provision of information to these users.


The report will commence with the brief background/history of Whitbread Plc, which will act as the case study for the report and subsequent section will be the main body whereby the discussion will also assess the extent to which external users of Whitbread Plc are satisfied with the financial information produced by the company.

Whitbread Plc.

In the writings by Evans (2015), he stated that the history of Whitbread Plc is traced back to 1742 (275 years ago) when a partnership was formed between Samuel Whitbread, Thomas Shewell, Godfrey Shewell. The partnership was formed with the intent of purchasing a small brewery and a brew house. Later on Godfrey withdrew from the partnership while Thomas and Samuel went on to purchase a large site of King’s head brewery in 1750. Godfrey Shewell equally withdrew from the partnership leaving behind Whitbread as the sole owner who later grew the brewery to become the largest in the World during the 1780s. Whitbread Plc made its entrance to the hospitality industry in 1987 when it opened the first Travel Inn; later on in 1974, the company opened the first Beefeater. However, it is in 1995 when it made a milestone towards establishing itself as a powerhouse in the restaurant industry by acquiring Costa Coffee.

The year 2001, also marked a major shift in the business model of the company as it sold-off its breweries and related interests to Interbrew (InBev) marking its end in the alcohol industry. In 2003, it diversified its portfolio by acquiring Cannons Health & Fitness BV and in the subsequent year, it acquired Premier Lodge Hotels, which has since grown to become its flagship division. By 2008, the company had established the first international Premier Inn Hotel and in 2011, it acquired Coffee Nation, and later on launched the Costa Express brand (Whiteside et al, 2012).

Presently, the company is listed on the London Stock Exchange its’ Premier Inn remains to be the largest hotel brand in the United Kingdom boosting of 730 hotels while Costa Coffee has 3277 branch locations spread across in more than thirty countries making it the second-largest international coffee shop chain in the World. The other brands operated by the company include the Table Table, Beefeater, Brewers Fayre, and Whitbread Inns (all are restaurant brands). In the financial report of 2015-2016, the hotels and restaurant division of the company posted a profit of £1,822million while the Costa division posted a profit of £1,103 million (Whitbread, 2016).


With reference to the writings by Gurau & Grigore (2016), creditors who consist of banks and other financial institutions that offer credit facilities are the key non-management external users of companies’ financial statements. Lenders will be keen to analyse Whitbread’s financial statements in order to establish its position on repaying an existing loan or acquiring a new credit facility (Pattaguan, 2016). According to Gheorghe (2014), lenders will use the financial information to evaluate Whitbread’s ability to generate cash and even sustainability of profit generation, which will assert whether the company can comfortably pay either a long-term or a short-term debt. In particular, lenders using the liquidity ratio, which compares current assets versus current liabilities, can assess the ability of Whitbread to repay its short-term debt. For example, in the last financial year, Whitbread Plc posted current assets worth £245.1 while current liabilities were £692.5; this means liquidity ratio was 1:2.8 whilst the recommended ratio is 1:1 (Whitbread Plc; Barton & Bruder, 2014). Considering, Whitbread’s current liabilities are more than double of its current assets it means that it is not in a good position to pay a short-term debt. Another key feature of Whitbread’s financial report that will be of great importance to lenders is profitability level and in the financial year ending 2015, it generated a profit £366.1, which increased to £387.3 in the financial year that ended in March 2016.This means Whitbread is profitable enough to qualify for a substantial amount of loan.

In the writings by Rooney & Cuganesan (2015), they added that the technical, personal, and moral value of the directors is of critical importance to lenders since it will determine their expertise in sustaining the profitability and growth of the company, secondly, their personal reputation and moral values will equally be a determinant of the company’s success. According to Gurau & Grigore (2016), cases of financial improprieties or unethical practices by directors of companies have increased the severity of assessing the personality and morality of directors in lenders’ decision-making process. The infamous Enron scandal is a good example where the founder and the chief executive officer were guilty of financial improprieties that led to the company filing for bankruptcy (Joann & Kunkel (2012). Whitbread’s financial report has a weakness that is attributed to lack of psychometric information that could inform lenders about the personality and morality of its directors (Rooney & Cuganesan, 2015). However, it is important to note that the report provide detailed information about the technical skills and valuable contribution the directors make to the company.

The fact that Whitbread liquidity level is above the recommended limit of 1:1 it puts the lenders in a dilemma since it will contravene lending requirements if they proceed to advance a new short term loan. Secondly, there is no substantial information to gauge the personality and morality of directors, which means the lender cannot be satisfied as to whether the directors will not at one point in time engage in financial misconduct that could endanger the survival of the company. However, the fact that its profitability increased within the year means it is able to increase its revenue.


With reference to the writings by Gheorghe (2012), he stated that as part of due diligence, suppliers regularly evaluate financial reports of companies that they have a tender with in order to gauge their solvency, and liquidity levels. These two indicators can inform the suppliers on the company’s ability to comply with payment fixed dates. In the writings by Loughran (2011), he stated that acidity test is a good measure on the capability of a company to meets its debt obligation within a fixed date period i.e. 30 or 90 days. For example, acidity test for Whitbread in the year ending 2016 was as follows: current assets – inventories/current liabilities = £245.1-£44.8/692.5=1:0.28. This ratio is below the recommended limit of 1.5:1, and based on these figures, Whitbread Plc has a higher amount of current liabilities that cannot be easily covered by its short-term current assets. This means it will have a challenge in paying short-term debts. Moreover, compared to the 2015 statement, the current assets increased in equal proportion to current liabilities, which means it has not been able to lower its current liabilities to a point that it can be easily covered by current liabilities.

Another aspect of Whitbread financial statement that will be of major importance to suppliers is its future prospects, which will hint to the suppliers on the probability of continued business with the company. Everett et al (2012) stated that companies through their explanatory notes attached to financial statements normally indicate on future growth plans that they are planning on implementing. These plans demonstrate on the company’s commitment to sustain its operations, grow in terms of revenue, profit, and market share. With reference to Whitbread’s financial statement, it is noted that under the Chief Executive’s review there is a summarised strategic report on how the company plans on improving and growing its brands (Whitbread, 2016). Consequently, its suppliers are assured of a continued business but the report fails to acknowledge its low solvency and there is no strategic plan on reducing its current liabilities whilst building up on current assets.


Tewari (2012) stated that customers analyse financial statements to gauge its probability of continuity and growth, which also indicates the risk associated with supply originating from the company. Between the periods 2015 to 2016, Whitbread reported to have increased its revenue from hotels & restaurants by 9.8% and 15.9 in the Costa brand. The company also reported to have grown its Premier Inn hotel chains by adding 6,123 new rooms, it also added 4 restaurants, there were 197 new Costa stores opened during this period, and 924 new express machines were installed (Whitbread, 2016). Cumulatively, customers can be assured of Whitbread‘s continuity and growth. A commendable effort in this regard is the fact that Whitbread ensure this information is easily understandable, relevant, readable, and comparable (2015 versus 2016 figures) to the customers.

Dumitru et al (2015) stated that customers also assess company’s financial statements to know if there are reductions in prices, new offers on after sales services, and changes of time the payment can offer credit to customers. However, the 2015 to 2016 financial statements does not offer such information, which means that customers have to rely on adverts to get such information.

The UK government and other relevant agencies

According to Lion (2012), the UK government through relevant agencies assesses companies’ financial information to ensure they meet the needs of different users, which is in the spirit of promoting accountability and transparency within both private and public companies. By publishing the financial statements, Whitbread ensures that it meets the minimum requirement of financial disclosure that is in line with the law. Thus providing a guarantee that its operations are above board, subsequently, affirming shareholders’ funds are safe. However, it is of essence to note that it is not always a guarantee that financial statements represent the true position of a company since there are numerous case examples of companies that misinterpreted their financial statements despite the fact that registered auditors certified the reports. For example, Toshiba was found guilty of overstating its operating profit by £960 million, while Tesco and Olympus have been accused of the same fraudulent practice (Saha & Roy, 2015).

Secondly, and most importantly, to the UK government, they rely on Whitbread’s published reports to know the amount tax the company is required to pay and to confirm whether it has being paid. In 2015, the tax expense for the company was £97.7 million and it rose to £100.4 million to 2016 meaning its contribution to the exchequer increased with the period (Whitbread, 2016). Numerous companies have been reported to engage in financial misrepresentation to lower their tax obligation whilst increasing their profitability. Companies such as Amazon, Starbuck s, Facebook, Google, Apple Inc, and eBay have once being reported to manipulating their books to avoid paying taxes in the UK (Hopkins, 2013).

Thirdly, Richardson & Eberlein (2011) stated that the national government requires companies to post published reports in order to assess various demands that are from the business community such as low interest rates, tax subsidies, and loans. In addition, the national government uses these reports to produce national accounting reports such as macroeconomic statistics, which aid in the development of economic forecasts. Considering, the Whitbread report stated that it was developed based on guidelines stipulated under the International Accounting Standards Boards it is safe to assume all the data required by the government have been captured within the financial report.

General Public

This cluster of users has not been mentioned explicitly among the other non-management external users. Examples of these users include politicians concerned with societal and environmental contribution of the business organisation. The second category of users include consumers whose interest is knowing the true position of the company within the market i.e. is it having a monopolistic power that it can use to exploit consumers.

In the writings by Rahim & Idowu (2015), it is noted that the general public interest on a company’s financial reporting is mostly aligned towards its societal and environmental impact. This is commonly known as corporate social responsibilities (CSR). According to Barton & Bruder (2014), increased criticality of CSR has created a new trend whereby large corporation such as Whitbread Plc are expected to produce a separate document that is labeled ‘social and environmental report’ that is also required by law to be audited. Consequently, this means the present report does not contain in-depth information on its social and environmental impact and that this group of users can only rely on its CSR/ Social and Environmental report in order to obtain satisfying information.

Conclusion and recommendations

The privileged users of financial statements are shareholders and the management teams, which mean the statements, are normally designed in a manner that will satisfy all of their needs as stipulated under the guidelines of the International Accounting Standards Board. As for the other non-management external users, they have to extrapolate the pertinent information based on the generalized financial statements. In this regard, the report has noted that they are obvious limitations/weaknesses within the statements, which means the five selected external users cannot obtain all the pertinent information that they might require in their decision making or to form an opinion about Whitbread.

In conclusion, based on Whitbread’s 2015 -2016 financial report it is noted that lenders are not able to gauge the personality and morality of the directors, which is crucial when making a decision on whether to lend or not. Secondly, based on the report, lenders will find it hard to advance credit to Whitbread due to failure of meeting the set limit of current ratio, which is prerequisite for lending. For suppliers, the report indicates the company has low solvency level, which means it is likely to face a challenge when meeting its short-term debt obligations. Customers on their part are not able to learn on any new promotional offers through the report. On its part, the UK government ought to subject the report to additional auditing in order to ensure there is no misrepresentation of facts to avoid paying the required tax. Lastly, this report seemingly does not contain in-depth information to satisfy the needs of the public. However, it is noted that information designed for the public is normally contained within CSR or Social and Environmental reports.

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As a personal opinion, the report was able to meet the qualitative characteristics of understandability since simple language was used and additional explanatory notes were offered. In addition, in circumstances where it met the needs of the external users it was relevant and comparable since the report also contained information from the previous financial year (2015). As for reliability of the report this is subjective since even despite being an audited report users cannot be fully guaranteed that there was no misrepresentation of facts as it has been previously witnessed in other large corporations.

Lastly, this report recommends for heightened use of explanatory notes in order to capture the additional information that has been deemed missing by the aforementioned five non-management external users.


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