94 ACCOUNTING FOR MANAGERS
Table 7.9 Ottakar’s five-year summary of performance
in £’000 1997 1998 1999 2000 2001
Turnover 23,710 38,649 57,316 72,922 86,287
Gross profit 9,100 14,988 22,343 28,371 33,532
Operating profit 1,276 2,619 3,312 1,678 3,516
Earnings per share 7.78p 10.61p 12.36p 2.31p 8.91pTable 7.10 Ottakar’s ratios based on five-year summary of performance
in £’000 1997 1998 1999 2000 2001
Sales growth +63% +48.3% +27.2% +18.3%
Gross margin 38.4% 38.8% 39.0% 38.9% 38.9%
Operating profit/sales 5.4% 6.8% 5.8% 2.3% 4.1%2000 year experienced a fall in profits that was outside the trend. By calculating
the ratios in Table 7.10 we can see this more clearly.
Although sales continue to increase, the rate of sales growth is slowing. The
rate of gross profit to sales is very steady (an indication of the margin allowed
by book publishers), while operating profits fluctuated (probably a reflection of
costs incurred in opening new bookshops, since location, in common with most
retail businesses, is a key aspect of success). Ottakar’s annual report explains that
the book market should experience an annual growth of 4 – 5%, but that the larger
chains should gain market share at the expense of their weaker competitors.
It is important to remember that ratio analysis can be undertaken not only in
relation to the manager’s own organization, but also in relation to the financial
statements of competitors, customers and suppliers. This is an aspect of strategic
management accounting that was discussed in Chapter 4.
Alternative theoretical perspectives on financial statements.........
Chapter 6 described the traditional theoretical perspective that has informed
financial statements, that is agency theory. We now consider some alternative per-
spectives: social and environmental reporting, intellectual capital and institutional
theory. We also introduce creative accounting and ethics.
Social and environmental reporting..........................
The concern with stakeholders rather than shareholders (introduced in Chapter 2)
began in the 1970s and is generally associated with the publication in 1975 ofThe
Corporate Report, a publication by the Accounting Standards Steering Committee.
Accounting academics began to question profit as the sole measure of business