Chapter 1 + 3: Here's what I think

So you've all read the chapters, and you've all made your own understanding of the theory, so I'm not going to bore you with a recap of everything that you have all already seen before. Instead, let me tell you what I felt as I attempted to untangle my thoughts about the my studies so far, and help you to understand my perspective (so far) on this "game" we know as accounting. 

Perhaps the thing that I found most crucial from the two chapters, the thing that has shaped my learning and all my workings so far, was the recognition that learning will not deepen unless we have an interest in the topic. When you attempt to connect a new concept to your own prior knowledge and previous life experiences, then it will become much easier to understand and will ultimately become easier to remember. As you will notice throughout my blog, I have made a conscious effort to try to connect my learning to my own experience, in an attempt to turn accounting, which at first seemed boring and complex, into something that I can relate to my every day life. I would recommend this method to anyone else who is finding it difficult to get into this subject. It is one thing to regurgitate information from a page, its another to make your own understanding and retain your knowledge of accounting for future reference. 

Chapter one recognises that the purpose of any business is to create value. It then goes on to define value in a qualitative manor and states that it is something that truly matters to us. I found this contradictory to chapter three which argues that the only way we establish something's value or worth is by placing a quantitative figure on it. In my personal opinion, both of these definitions are relevant to accounting and both would be considered by an equity investor or shareholder when evaluating an annual report. If both were not important, then why would a firm bother to include not only the financial statements within the annual report, but also the glossy marketing attributes of a firm, which highlight their consideration for the environment and their contribution to the community, among other things? 

So on that note, I think I am now ready to put it out there, to offer you my view of accounting so far. So here it is; accounting in my opinion, is partially a form of marketing. Sure I can appreciate that accounting is essential in terms of keeping track of transactions, and knowing if you are working at a profit or a loss, but everything else about it just screams manipulation of perception. As a marketing student, I have been taught that the important and persuasive information within any campaign should be mentioned early and often. So tell me again why all of the financial highlights and positive information about a firm's contributions to the society/environment always come first in an annual report. Of course, investors need to know that a firm is producing profits and is financially stable, however unless they themselves have an accounting background, it is not the financial statements that help them understand what is truly happening in the firm, it's all that 'glossy' stuff that comes first. 

Ultimately, understanding accounting is the key to understanding a business, which completely explains why so many directors within firms have accounting backgrounds. There are still so many elements that I have read and am struggling to understand. Particularly, I initially tore my hair out understanding why debits are recorded as positives and credits as negatives. It wasn't until I began to understand the entity rule that I started to see this concept more clearly. Please correct me if I am wrong here, because there's still so much I need to learn, but my own understanding is that everything a business does is to the consequence of the equity investors. Furthermore, despite an actions effect on the firm itself, a revenue of expense is only considered if it is to add or take value from the equity investors.

So how does one truly know what is a safe investment? With which company should you buy shares and when? Chapter three discusses the use of ratios, and evaluating the financial statements and turning the raw data into information which assists in predicting a firm's longevity and future successes or downfalls. But this all makes me question, how much can you truly trust numbers? Sure a ratio would accurately predict a firms future with the assumption that all other variables remained the same, however a firms value is forever changing, as is the market within which it operates, as is the tastes of the consumers. Other factors, other than financial data must also be considered, like how responsive a firm is to change in tastes, or how resilient it is to a rise in raw material costs. What counter plans, if any, does a firm have set in place?

At this point in time, I am unsure as to how important I believe accounting is in reflecting what is really going on in a firm. Accounting certainly is essential element of every business, however there are other elements that are crucial in evaluating a firm and its future successes. I would love to hear your feedback and I look forward to continuing this journey with all of you, and further developing my opinion of this "game" known as accounting. 

BPI Annual Report: KCQs

Firstly, I would like to apologise for being so distant lately, particularly to those of you who were kind enough to select my blog in your top 3’s. I am going to begin with my key concepts. These concepts were not directly related to the financial statements themselves, but rather areas of the annual report which highlighted BPI's scope, consideration for their future, consideration for innovation and also their consideration for the community and environment within which the operate. I suppose for myself, due to my non accounting background, these were the areas that stood out to me, more so than the technicalities of the financial statements. 

KC. Much of BPI’s success can come down to their strength and resilience as a result of their wide geographical coverage, while supplying to diverse end user markets. When reviewing BPI’s turnover by sector, it is notable that no more than 33% turnover is obtained from one single end user market, with the retail food chain market leading on 33% turnover, the agriculture and horticulture industry following closely behind on 32%, and the other 35% turnover being split between industrial, construction, healthcare and waste services, and non-food retail industries. Alternatively, when looking at turnover by destination it can be seen that BPI supplies to over 50 countries worldwide, with the UK leading on 54%.

KC. BPI have recognised that through the manufacturing and supply of polythene, they maintain the responsibility to operate with concern for the environment and also the communities within which they function. In consideration for the environment, BPI promote the re-use and recycling of their materials, process new products from recycled materials, provide environmental information for employees, customers and the community, and also support initiatives which benefit the environment. Below you will find two examples of BPI’s support to environmental and community initiatives, and also a diagram explaining their recycling process. 

BPI and its employees participated in the Great Scottish Run and presented a cheque of their money raised to Down's Syndrome Scotland. >>>

<<< BPI employees together with children from Ysol Primary School planting 150 trees at the school's Eco project. 

KC. A key concept which I wanted to highlight was that of the price volatility of raw materials within the polythene industries. You will find that I have already discussed this in a previous post entitled "The polythene industry, it's risky business". If you haven't already engaged in this post, I recommend you check it out as it does highlight an ongoing barrier for BPI and how they are hoping to overcome these volatile prices and maintain their profit margins. 

KC.  BPI have been focusing investments on the innovation of thinner and stronger polythene films. When reviewing the graph to the right, it can be seen that while in 2013 the Sales Volume per square metres had increased, the Sales Volume per tonne had alternatively decreased. This innovation is allowing for the reduction of weight in packaging, ultimately increasing cost benefits and advances in packaging and extrusion technology. 

KC. BPI project that they will be able to maintain operations comfortably and expect that they have adequate resources to operate in existence for the foreseeable future. Under these grounds, BPI continue to adopt the going concern basis in preparing the financial statements. 

Q. I noted that in the income statement it showed profit from operations before restructuring costs to be 24£'m, with the restructuring costs being 1£'m. I was unsure of the exact implications and reasons for restructuring so I did some digging. In the beginning of 2013, BPI were advised that a major contract for supplying bread bags would not be renewed. As a result of this, there were 90 redundancies at the end of the year and 1£'m worth of structural changes were implemented, which they project will enhance performance for 2014. 

To be honest with you, I found these KCQs to be a nightmare, with so much information in the annual report, how do you narrow down what is truly important. Which brings me to my final query...

Q. For myself, having absolutely no accounting background, I have found the annual report very difficult to read, particularly in areas which use heavy accounting terminology. Also, much of the annual report appears to be made up of the same information, just displayed in different ways and contributed by different people. So if you were looking to buy shares in a company, how do you narrow down this bulk of information? What is the key financial data that gives an honest view of a company's stability and position in the market?

So what are these so called polymer products I speak of?

So I was speaking to another student about how at first taste, I wasn't particularly enjoying the 'flavor' of my company, and I was ready to put down the spoon before I had even given myself a chance to dig in. This student gave me another perspective, and really got me thinking about how this company may be relevant to my own life and my own interests. So I started to read more deeply into the specific polymer products which BPI produce, and boy, was I hooked. This tub, it seemed, had a mix-in to suit almost every taste. In fact, if next week when I do my grocery shopping, I opt for Magnum ice blocks rather than this tub which I have been frequently referring to, each individual treat may in fact be wrapped in the frozen food polymer film, a common product manufactured by BPI for the food and drink industry. 

So let's take our trolley further through the supermarket. You know those super convenient, already packaged bags of potatoes and carrots in the fresh produce section? Or how about the film which covers each delicious punnet of strawberries? Yep, you guessed it! BPI manufacturers a particular film for the packaging of fresh produce. So why stop our trolley here? I smell fresh bread waiting over in the baked goods section. BPI's products include wicketed bags or film on the reel for use on fully automatic lines and to package everything from part baked baguettes to hot cross buns. 

Okay, so after I had covered one of my hobbies; delicious, delicious food, I started looking at my next best addiction. So I think a lot of my lady classmates are going to connect with this next one. I love to shop, I mean c'mon, what woman doesn't? Particularly I love shopping online, ohhh the convenience of buying a whole new outfit before my partner even wakes up next to me. Actually, I received some packages in the mail just today and I think you know where I am going with this one...yes you've probably guessed it. BPI manufacturers polymer products to market to the supply-chain industry. Not only was the post bag itself made from a strong, durable polymer film, but each individual clothing item was also wrapped in a similar product. Think of any area of modern retailing and chances are, BPI plays a role in it. 

Once I had furiously ripped open my package, tried on all my new pretties, and made an exceptional mess of my room, I realised I needed a garbage bag to put all this polymer waste into. Luckily for me, BPI also manufacturers products for waste management. Not only do they provide the well known Green Sack for regular waste control, they also manufacturer bio-degradable and compost bags for when I also feel like ripping out some weeds and messing up my yard, however this is far less frequent than the former. Furthermore, for those of you who are not in fact familiar with the green sack, it is a product which is created inline with BPI's staunch commitment to sustainability. The Green sack is made in the UK from 100% recycled British farm waste that might otherwise be burnt and sent to landfill.

So my dad bought a farm once, I believe he wanted to grow cane as a hobby, I never really understood this, strange man my dad. Anyways, when he first bought the property and before he turned it into a cane farm, it was used to grow tomatoes. Now I distinctly remember that there was rows and rows of black plastic covering the tomato crops, little bits of plastic that I would continue to find for months to come. I never understood, or even questioned for that matter, the purpose of this plastic until now. With a product portfolio that includes such globally respected brand names as Visqueen and Silotite, BPI supplies agriculture and horticulture films that enhance the productivity for farmers and growers across the world. 

You may have heard the name Plaswood, an award winning BPI product made from 100% recycled polythene waste. Plaswood is used in construction to replace wood in many applications, it can be fabricated into fencing, walkways, decking and many more everyday, around the house things. Also, on the topic on construction, BPI's Viqueen Building Products is a market leader in the supply of structural waterproofing products and gas protection membranes. 

Wow, as I type this out it sure makes me realise just how versatile BPI's market is. If you are still reading this then I am glad that I haven't lost you and I hope you have found the relevance of BPI in your everyday life as interesting as I do. So thank you for sticking around, I would love to hear from you if you can relate to the products that I have touched on. But for now it's off to bed for me, and you are free to go on with your life, no longer being blissfully unaware of the polymer products that surround you. 

The polythene industry, it's risky business..

The higher the price volatility, the riskier the business, and when considering the inevitable price volatility of raw materials within the polythene industry, I'm sure BPI would give Tom Cruise's dance moves a run for their money when they celebrate their continual above satisfactory profit margins each year. 

Despite prices of raw materials sitting at an all time high at the end of 2013, BPI were able to achieve a total equity of 68.2 £'m, this being an increase of 10.3£'m from the balance date of the previous year. BPI has identified that there is a clear differential in profits among polymer producers, with oil-based producers making low margins or a loss, and those producers with access to cheap gas are making substantial gains. In reaction to these findings, BPI has increased their interest in North America with investment in polymer plants based on shale gas extraction. It is anticipated that by making North America a major exporter of polymer within the next few years, the industry will see a downward price pressure on polymers made from oil in many global markets. 

This is an example of a company which has been able to invest in the security of their future, despite uncertain conditions. But what actions have they also been taking at present time to maintain their current margins? Of course, with prices of raw materials being so volatile, there is a risk of reduction in margins if they are unable to immediately pass through increases to customers. In mitigation, BPI have ensured the coordinated instruction to sales teams on forward pricing. Additionally, there has been strong management on stock levels depending on anticipated price movements. 

The particularly volatile pricing of raw materials within the polymer industry is just one of the risk factors which BPI has been exposed to. I wanted to highlight and discuss it in particular with you as I felt it was specifically relevant to the polymer industry and could provide a further insight into the industry itself, more so than if I were to highlight more generic issues such as poor economic conditions, energy costs and credit risks which are common across the majority of industries. So I hope as we dig further into this tub which is BPI, you have begun to acquire a taste for the polymer 'flavor' as I have. Stay tuned, because it only becomes increasingly moreish from here.  

Introducing BPI

Strength through quality...

Admittedly, at first glance of my company's website I was a little dawned and disappointed that I would be analysing a company which specialised in manufacturing plastic. However, when I finally began my deeper analysis of the British Polythene Industries, it was clear how much broader their scope was and also the extent to which they give back to the community and the environment. I look forward to sharing this insight with you, so that you can also gain an appreciation for a company which is achieving constant success in spite of some pressing ongoing issues within their industry. 

British Polythene Industries PLC is one of the most responsive and dynamic polythene film businesses in the world and is a major player in the global industry. Having received its centenary certificate from Companies House in 2010, recognising  the 100th anniversary of BPI's registration as a company, it is clear that the company has already had a longstanding success. There is a commendable number of qualities which have attributed to this success, and much of it can be put down to the company's belief in strength through quality, as a result from building expertise, corporate responsibility, and the building of its brands through innovation and investment. 

BPI offers broad geographic coverage with three effective businesses operating across the UK and Ireland, Europe and also North America. Furthermore, BPI's many successful brands service to an exceptionally diverse market, including agriculture and horticulture, retail food chain, healthcare and waste management, construction, manufacturing, and retail supply-chain. You can find more information about these market specific products and the true depth and scale of BPI as a business if you follow the links. 

The image to the left displays the logos of many of BPIs brands. It wasn't until I saw some of these logos that I realised I was in fact familiar with some of their products. You may also recognise some of their more familiar brands, such as The Green Sack, bpi.healthcare and Visqueen. 

                        

Commendably, not only does BPI supply 270 000 tonnes of polythene products to their global market each year, they also recognise their responsibility to operate with due concern for the environment within which they live and work. In later posts I will highlight the many regulations they have set in place to ensure the minimisation of the impact of their activities on the environment. However, for now I will just bring rise to the 65 000 tonnes of UK waste which their recycling plants source and reprocess each year, as well as the constant research and investment in innovation to create thinner and more durable polythene films in order to reduce the total wastage. 

So now that we have just opened the lid, and scraped at the surface for a tiny taste of what is the British Polythene Industries, I will leave you with a link to their website as well as a link to their most recent annual report for 2013. Please view these links at your leisure, and I will be back soon to discuss BPI in more depth, with a stronger focus on their current financial standing, as well as some of the key challenges that they currently face within the polythene industry, and what procedures and plans they have in place to protect the interests of their employees, clients and shareholders. 

Hi and welcome to my blog, I’m Lauren!

I had initially planned to provide you all with the typical ‘about me’ dot points, such as a brief insight into myself as a person, my interests and my current employment status. However, I understand this subject to be about discovering, about taking a journey through learning and changing who we are and how we analyse the world around us as a result of our study. So instead of telling you who I am now and what it is that I hope to get out of this course, I instead intend to go on this voyage with you,  with an open mind and the intent to actively make sense of the intriguing world of accounting. So as you read my reflections on our weekly topics, and my attempts to understand the financial technicalities of this course through my analysis of my company, the British Polythene Industries, I hope that you will be able to gain a better understanding of who I am and how I view the world, than any dot points could have provided. So let’s take this leap together. Let’s establish a true community of scholarship, and let’s start creating our personal views of the role and importance of accounting in the real world.  

“Education is not the learning of facts, but the training of the mind to think.”    --  Albert Einstein