Topic: BusinessAccounting

Last updated: June 15, 2019

Paddy Power & Betfair AcquisitionUniversity of AffiliationNamePaddy Power operate in the United Kingdom and Ireland where it is the largest and most popular betting brand. It is use apps which consumers can understand combined with retail betting shops which is known for entertaining customers. On the other hand, Betfair is an international online sports betting and gaming which controlled the betting exchange in 2000. Betfair is well known because of its innovation, partnership and value which it delivers to its consumers.

The Merger of Paddy Power and Betfair was completed on 2nd Feb, 2016. It was recorded as an acquisition of Betfair by Paddy Power on that acquisition date. The reported statutory comparative results for the year ended 31st Dec 2016 was done in accordance with Generally Accepted Accounting principles GAAP. The report will analyze key financial results three years before the acquisition and at the acquisition and at the first reporting date post.Return on Capital EmployedIt is a profitability ratio which compares profitability across different companies, based on the capital they use.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

Return on Capital Employed is calculated by dividing the EBIT by the Average Capital Employed. IBIT is also operating income shows how much a company earns without considering interest and taxes. EBIT is the cost of goods sold and operating expenses from the sales revenues. It shows the amount of capital utilized in order to generate revenue. Capital Employed is the Total Assets from Current Liabilities. Betfair Paddy PowerYear 2013 2014 2015 2013 2014 2015Operating Profit -69 61.

6 94.3 137386 163806 170205Capital Employed 133.6 172.1 69.3 327978 397278 274574Return On Capital Employed -51.65% 35.79% 136.08% 41.

89% 41.23% 62.00%Return on Capital for Betfair has been increasing since 2013 to 2015. ROCE for Paddy Power has also been increasing since 2013 to 2015. However, ROCE of Betfair was more than Paddy Power before the Merger. Operating Profit MarginIt shows the proportion of revenues that are able to cover operating expenses. It is calculated by dividing operating profit by the total revenues.

BetFair Million E Paddy Power Million EYear 2013 2014 2015 2013 2014 2015Operating Profit -69 61.6 94.3 137386 163806 170205Revenues 387 393.6 476.5 745195 881640 1093950Operating Profit margin -17.

83 15.65 19.79 18.44 18.

58 15.56Current RatioThese are liquidity ratios that indicates how well a company is able to meet its short term obligations using the current assets. Current liabilities include items like creditors, short term obligations whereas current assets include items like short term investments, account receivables, prepaid, cash and cash equivalents and inventories.

On the other hand, Quick ratio is used to determine the ability of a company to pay its current liabilities without using inventories and prepaid BetFair in millionsPaddy Power Year 2013 2014 2015 2013 2014 2015Current Assets 186.8 232.8 128.4 257113 317394 232653Current Liabilities 142.7 137.4 162.7 218988 236274 283548Current Ratio 1.

31 1.69 0.79 1.17 1.34 0.

82From the analysis, the current ratio for both companies before the merger were decreasing. However, Betfair had a higher Current ratio than Paddy Power before the merger. Inventory Holding Period in DaysIt determines the ability of a company to convert its inventory after the sales are made. At first, inventory turnover must be calculated to determine the number of times the inventory is converted into sales. BetfairPaddy PowerDetails 2013 2014 2015 2013 2014 2015Cost of sales 49.

8 50.4 90.6 128243 167746 276273Prepayment 12.6 15.4 14.6 2903 1972 23778Inventory Turnover 3.

95 3.27 6.21 44.18 85.06 11.62Inventory Holding Period 365/Inventory Turnover 92.35 111.53 58.

82 8.26 4.29 31.41From the Analysis, Paddy Power is able to convert its inventory within a short period of time as compared to Betfair. However, this period has been deteriorating from 2013 to 2015.

Day’s sales OutstandingIt refers to the duration that pass before a company is paid by creditors. It is calculated by dividing the number of days in a year by the day’s sales turnover. This is determined by dividing sales by account receivables. Betfair in MPaddy PowerYear 2013 2014 2015 2013 2014 2015Revenues 387 393.6 476.5 745195 881640 1093950Trade receivables 18.7 23 23.2 29262 32410 30940Sales turnover20.

70 17.11 20.54 25.47 27.20 35.

36Days Sales Outstanding 17.63 21.33 17.77 14.33 13.52 10.32Paddy Power has a better Days Sales Outstanding than Betfair for the three years from 2013 to 2015.

The Days Sales Outstanding has been improving for the last three years.Days Purchases OutstandingIt refers to the average number of days in which a Company is able to pay its suppliers. Before calculating this, Payables turnover must be calculated. This is determined by dividing average purchases by trade payables. A low DPO shows that working capital is efficiently managed by the company.

BetfairPaddy PowerYear 2013 2014 2015 2013 2014 2015Cost of sales 49.8 50.4 90.6 128243 167746 276273Inventory 12.

6 15.4 14.6 2903 1972 23778Purchases 62.4 65.8 105.2 131146 169718 300051Trade Payables 18.7 23 23.

2 29262 32410 30940Payables Turnover period 3.34 2.86 4.53 4.48 5.24 9.70Days Payable Outstanding 109.

38 127.58 80.49 81.

44 69.70 37.64From the above financial analysis, Paddy power was able to pay its creditors on time as compared to Betfair. The number of days to pay creditors have been decreasing meaning that the company was in a good liquidity position. Cash Conversion periodIt also known as operating cycle.

It is the period taken by a company to convert cash into products, sold and later turned to the company (My Accounting Course, 2018). It is calculated by adding the inventory days + Days sales outstanding + Days payables outstanding BetfairPaddy Power 2013 2014 2015 2013 2014 2015Days Sales Outstanding 17.63 21.33 17.77 14.33 13.

52 10.32Inventory Holding Period 365/Inventory Turnover 92.35 111.53 58.

82 8.26 4.29 31.

41Days Payable Outstanding 109.38 127.58 80.49 81.44 69.7 37.64Cash Collection period 219.36 260.

44 157.08 104.03 87.51 79.37It is evident that Paddy Power had a better collection period compared to Betfair before the merger.

Debt to Equity It is a liquidity ratio which compares the company’s total debt to total equity. It shows the percentage of the company which finance creditors and investors. A higher debt to equity ratio shows that indicates that more loans is used in financing compared to investor’s financing. Betfair Paddy Power Year 2013 2014 2015 2013 2014 2015Total Liabilities 144.3 138.

1 182.6 235964 246571 488834Equity Holders -64.5 47 87.9 311002 386981 69288Debt To Equity ratio -2.

24 2.94 2.08 0.76 0.

64 7.06Betfair has high levels of debt to Equity ratio for years 2013 whereas Paddy had the highest Debt to Equity ratio in 2015. FINANCIAL DATA BEFORE MERGERBetfairPaddy Power2013 2014 2015 2013 2014 2015Revenues 387.0 393.6 476.5 745195 881640 1093950Gross Profit 337.2 342.7 385.9 616952 713894 817677EBITD 51.2 91.1 120.2 166565 169497Trade receivables 109.6 118.8 128.1 180973 201419 250845Cost of sales 49.8 50.4 90.6 128243 167746 276273Operating Profit -69 61.6 94.3 137386 163806 170205Net income -66.3 51.0 86.4 123184 144909 147293Equity Holders -64.5 47 87.9 311002 386981 69288Current Assets 186.8 232.8 128.4 257113 317394 232653Current Liabilities 142.7 137.4 162.7 218988 236274 283548Total Assets 276.3 309.5 232 546966 633552 558122Total Liabilities 144.3 138.1 182.6 235964 246571 488834Trade Payables 18.7 23 23.2 29262 32410 30940Prepayment 12.6 15.4 14.6 2903 1972 23778FINANCIAL DATAAt the MergerAt Merger (Proforma)Items Proforma (At Feb 2) million 2016 Proforma at Dec 2016 2017Revenues 1551 1500 1745.4Cost of Sales 357 347 Gross Profit 1194 1154.3 1340Operating Profit 12 15.4 250Net Income -11 -5.7 217.7Equity Holders 4316.16 48.8Trade and Payables 184.9 Current Assets 369.9 430.8Current Liabilities 319.9 372.8 383.7Total Assets 888.2 4992 4928.5Trade receivables 22.9 55.2 48.8Prepayment 41.2 35.5Total Liabilities 319.9 675.1 533.1Ratios after MergerOperating Profit margin Operating Profit 12Sale revenues 1551Operating profit margin 0.773694391Current Ratio Current Assets 369.9Current Liabilities 372.8Current Ratio 0.99222103Debt to Equity Ratio Total Liabilities 372.8Total Debt 4316.16Debt to Equity Ratio 8.64

x

Hi!
I'm Piter!

Would you like to get a custom essay? How about receiving a customized one?

Check it out