Financial statement is the presentation of financial information related to economic activities carried out by a business, person or an entity. The prominent types of financial statements are the balance sheet, income statement and statement of cash flows. The financial statement provides detailed information about the financial performance, potential, and positioning of the business entity. There are primarily two sets of accounting standards including IFRS (International Financial Reporting Standards) and GAAP (Generally Accepted Accounting Principles) that are followed by companies to prepare financial statements This document aims to develop an understanding of financial statements by comparing and contrasting financial statements of two companies including Danish Crown and Panera Bread.
The Danish Crown was established in 1970. The company primarily deals in meat processing (pork and beef). Danish Crown is the largest meat processing company in Europe and it is also the largest agricultural exporter in the region (Danish Crown, 2012). Analysis of the financial statements of Danish Crown (2012) indicates that the company uses the International Financial Reporting Standards of European Union for preparing its financial statements, and for disclosure the company follows the Danish Financial Act (Bragg, 2012). In addition, the company’s revenues are reported using IFRS 8.
In 1981, Bon Shaciha established Panera Bread, formerly known as ‘Au Bon Pain’. The company runs a chain of bakery / casual restaurants in United States and Canada (Bragg, 2012). The financial statements of the company are prepared in accordance with the US Generally Accepted Accounting Principles (GAAP) and are reported as per the regulations of US Securities and Exchange Commission (SEC). The reporting of certain financial elements is done on the basis of estimates that might differ from the actual figures to some extent.
Auditing standards – External
The Danish Crown has its external audit according to the International Auditing Standards (IAS) as required by the Danish Auditing Legislation (Panera Bread, 2012). The external auditing standards require Danish Crown to report CSR related key figures in its annual report (Rosenfield, 2006). Over the years, the number of audits in the company has increased in order to ensure accurate reporting and high level of compliance with accounting standards. The auditing standards require the company to perform audits on a regular basis to provide assurance related to its financial reporting (Rosenfield, 2006).
Panera Bread conducts its audits in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB). The company aims to make integrated audits and maintain effective internal controls for preparing its financial statements (Bragg, 2012). The preparation of financial statements for external users is carried out on the basis of the US General Accepted Accounting Principles. The company emphasizes internal controls over financial reporting of its business activities and information procedures. This ensures accurate maintenance of the company’s records, assurance of transactions, and timely detection of any unauthorized acquisition.
Differences in annual statements
By analyzing the financial statements of Danish Crown (2012) and Panera Bread (2012), significant differences in the financial periods of both companies can be identified. Danish Crown provides comparative information of last one year with its current financials; whereas, Panera Bread presents comparative financial statements of previous two or three years. Another major difference is in the layout of the balance sheet and income statement. Danish Crown has minimum line items; whereas, Panera Bread’s balance sheet and income statement are more detailed. Despite the required classification of expenses in the income statement by accounting standards, Danish Crown’s financial statement does not generally classify items according to their function. On the other hand, Panera Bread uses classification of expenses for recording and reporting of different line items. The nature and basis of disclosure are further explained in the notes (Bragg, 2012). Moreover, Panera Bread uses criteria that require classification of extraordinary items on the basis only those items are recognize which do not occur on a frequent basis and they have an unusual nature; whereas, Danish Crown does not recognize any extraordinary items.
Comparison of financial statements
There are several similarities between the financial statements of Danish Crown and Panera Bread. Both companies have provided a complete set of financial statements including the statement of financial positioning (balance Sheet), statement of profit or loss account (Income statement), statement of comprehensive statement, statement of cash flows, and notes to financial statements (Rosenfield, 2006). The framework used for reporting financial information by both companies is similar related to materiality and consistency (Bragg, 2012). In addition, both companies have provided the statement of changes in shareholders’ equity, which reflects additions or deductions in the company’s total equity. Panera Bread’s annual report includes the statement of changes in shareholders’ equity in notes to financial statements. On the other hand, Danish Crown presents changes in shareholders’ equity in a separate statement (Danish Crown, 2012). Both companies use accrual based accounting methods for recording and preparing financial statements with an exception of the cash flow statement (Bragg, 2012).
|Balance Sheet||Danish Crown||Panera Bread|
|Income Statement||Danish Crown||Panera Bread|
|Cash Flows Statement||Danish Crown||Panera Bread|
|Cash Flows from operating activities||2,529||289,456|
|Cash flows from investing activities||-2,529||-195,741|
|Change in cash and cash equivalents||404||297,141|
|Danish Crown||Panera Bread|
|Gross Profit Margin||Gross Profit / Total Sales||12.99%||29.63%|
|Operating profit||Operating Profit/ Total Sales||3.55%||13.28%|
|Net Profit margin||Net Profit/ Total Sales||3.07%||8.14%|
Profitability of companies
By analyzing the financial information of Danish Crown and Panera Bread, it can be determined that both companies have been operating in different business segments of the international market. According to the profitability indicators provided in the table, Panera Bread has remained more profitable as compared to Danish Crown (Danish Crown, 2012). This has been the outcome of low profit margin of Danish Crown, which remained relatively lower than that of Panera Bread (Panera Bread, 2012). The major contribution in Danish Crown profits has been made through its core business; it seems that the income from other investment of the company has remained insignificant (Bragg, 2012). Moreover, Panera Bread’s operating profits have remained much higher than its net profit margin. This reflects that interest expenses, tax expenses, and other expenditures of the company have suppressed its net profit margins.
Growth revenues and income over time
The analysis of both companies’ financial information for the year 2012 indicates that the revenue growth of Danish Crown is more than 20 percent or DKK 1 million; whereas, the revenue growth of Panera Bread is 17 percent that is approximately $529 million (Danish Crown, 2012; Panera Bread, 2012). Therefore, the revenue growth of Danish Crown has remained relatively higher than Panera bread. As the Danish market was challenging for the Danish Crown, the company has concentrated on its international expansion. The international operations of the company have played a major role in generating high profits. Revenues generated from pork meat processing have contributed to about 57 percent of the revenue growth of the company. In addition, the company has managed to increase its prices for commodities and at the same time sustained positive purchasing trend of customers (Danish Crown, 2012). On the other hand, Panera Bread is now focusing on its franchise and international business to enhance its profitability. The company is currently facing problems with its suppliers, which is negatively affecting its business, and it is emphasizing more on advertisement and other marketing activities to sustain its revenues (Panera Bread, 2012). In addition, high inflation and subsequent higher prices of commodities and dairy products have increased the company’s cost of operations and other expenses.
Differences in the profitability of two companies
Both companies are operating in the food industry as Danish Crown deals in meat processing, and Panera Crown operates a chain of bakery food restaurants. The difference in the profitability of these organizations can be suggested on the basis of their different business nature and operations (Rosenfield, 2006). In addition, both companies operate in different regions of the world due to which the profitability of both companies is different from each other (Bragg, 2012). It is reflected from the annual reports of both companies that the operating profit and net profit of Panera Bread are higher than those of Danish Crown.
Bragg, S. M. (2012). Financial analysis: A controller’s guide. New Jersey: John Wiley & Sons.
Danish Crown. (2012). Annual report 2012. Web.
Panera Bread. (2012). Annual report 2012. Web.
Rosenfield, P. (2006). Contemporary issues in financial reporting: A User-Oriented Approach. New York: Routledge.