NAME:

WHITBREAD

FINANCIAL MANAGEMENT REPORT

Table of Contents
Section A: Analysis of Share Price Behavior of the company......................................2
Market Return.......................................................................................................... 2
Standard Deviation of Market Return......................................................................3
Correlation of the Monthly Returns with Returns on the FTSE-100 index.................4
Portfolio................................................................................................................... 7
Section B: Investigation of the financial structure and the cost of capital of the
Whitbread................................................................................................................... 7
Systematic risk of Whitbread...................................................................................7
Cost of capital using Capital Asset Pricing Model (CAPM)........................................9
Price-to-earnings ratio of Whitbread & Interpretation.............................................9
Whitbread........................................................................................................... 10
Appropriateness of the companys choice of capital structure and its implications
for its market value from a stockholders points of view.......................................11
Capital Structure................................................................................................ 11
Interest coverage............................................................................................... 11
Section C: Concluding Remarks................................................................................12
References................................................................................................................ 13

Section A: Analysis of Share Price Behavior of the

company
Market Return
Market return of Whitbread has been calculated for each of last 60 months using
formula =C3/C4-1.

Source: (yahoo finance, 2014)

Market Return (Whitbread)

Return

Standard Deviation of Market Return

Standard Deviation attempts to explain the historical volatility of shares of
particular company.
Standard Deviation of Market Returns has calculated using formula =STDEV.P
(C2:C61)

Whitbread PLC
Date
1

5/1/2014

4/1/2014

3/3/2014

2/3/2014

1/1/2014
12/2/201
3
11/1/201
3
10/1/201
3

9/2/2013

6
7

1
0
1
1
1
2
1
3
1
4
1
5
1
6

8/1/2013
7/1/2013
6/3/2013
5/1/2013
4/1/2013
3/1/2013
2/1/2013

Retur Average
Differenc
n
Return
e
Square
0.00
%
3.00%
3.00%
0.000899
1.97
0.0024700
%
3.00%
4.97%
9
7.24
0.0104857
%
3.00%
10.24%
6
19.62
0.0276224
%
3.00% -16.62%
4
0.00
%
3.00%
3.00%
0.0009
5.16
0.0004665
%
3.00%
-2.16%
6
4.56
0.0002433
%
3.00%
-1.56%
6
15.82
0.0164352
%
3.00% -12.82%
4
3.77
0.0045832
%
3.00%
6.77%
9
4.64
0.0058369
%
3.00%
7.64%
6
5.69
0.0007236
%
3.00%
-2.69%
1
6.00
%
3.00%
-3.00%
0.0009
14.44
0.0130873
%
3.00% -11.44%
6
0.51
0.0012320
%
3.00%
3.51%
1
1.78
0.0001488
%
3.00%
1.22%
4
1.83
0.0023328
%
3.00%
4.83%
9

1
7
1
8
1
9
2
0
2
1
2
2
2
3
2
4
2
5
2
6
2
7
2
8
2
9

1/1/2013
12/3/201
2
11/1/201
2
10/1/201
2
9/3/2012
8/1/2012
7/2/2012
6/1/2012
5/1/2012
4/2/2012
3/1/2012
2/1/2012
1/2/2012

3
0

12/1/201
1

3
1
3
2
3
3

11/1/201
1
10/3/201
1
9/1/2011

3
4

8/1/2011

3
5

7/1/2011

3
6
3
7

6/1/2011
5/3/2011

5.03
%
2.00
%
2.90
%
3.62
%
6.48
%
0.28
%
5.33
%
8.86
%
1.53
%
4.50
%
8.66
%
3.22
%
5.12
%
4.87
%
0.78
%
5.70
%
5.18
%
3.21
%
3.65
%
0.98
%
0.93

3.00%

-2.03%

0.0004120
9

3.00%

1.00%

0.0001

3.00%

0.10%

1E-06

3.00%

-0.62%

3.00%

-3.48%

3.844E-05
0.0012110
4

3.00%

3.28%

3.00%

-2.33%

3.00%

-5.86%

1E-03
0.0005428
9
0.0034339
6

3.00%

4.53%

0.0020520
9

3.00%

-1.50%

3.00%

-5.66%

3.00%

-0.22%

3.00%

-2.12%

4.8E-06
0.0004494
4

3.00%

7.87%

0.0061936
9

3.00%

3.78%

0.0014288
4

3.00%

-2.70%

3.00%

-2.18%

0.000729
0.0004752
4

3.00%

6.21%

0.0038564
1

3.00%

6.65%

0.0044222
5

3.00%
3.00%

3.98%
3.93%

0.000225
0.0032035
6

0.0015840
4
0.0015444
9

3
8
3
9
4
0
4
1
4
2
4
3
4
4
4
5
4
6
4
7
4
8
4
9
5
0
5
1
5
2
5
3
5
4
5
5
5
6
5
7
5

4/1/2011
3/1/2011
2/1/2011
1/4/2011
12/1/201
0
11/1/201
0
10/1/201
0
9/1/2010
8/2/2010
7/1/2010
6/1/2010
5/3/2010
4/1/2010
3/1/2010
2/1/2010
1/4/2010
12/1/200
9
11/2/200
9
10/1/200
9
9/1/2009
8/3/2009

%
1.82
%
7.41
%
2.71
%
3.07
%
5.98
%
0.30
%
4.99
%
16.33
%
0.85
%
0.07
%
1.73
%
8.13
%
4.34
%
3.80
%
0.78
%
0.14
%
9.98
%
0.79
%
5.47
%
16.14
%
20.97

0.0001392
4

3.00%

1.18%

3.00%

10.41%

3.00%

0.29%

3.00%

6.07%

3.00%

-2.98%

3.00%

3.30%

3.00%

-1.99%

3.00%

-13.33%

0.001089
0.0003960
1
0.0177688
9

3.00%

3.85%

0.0014822
5

3.00%

3.07%

3.00%

1.27%

3.00%

11.13%

3.00%

-1.34%

3.00%

-0.80%

3.00%

2.22%

3.00%

3.14%

3.00%

-6.98%

3.00%

2.21%

3.00%

-2.47%

3.00%
3.00%

-13.14%
-17.97%

0.0108368
1
0.0000084
1
0.0036844
9
0.0008880
4

0.0009424
9
0.0001612
9
0.0123876
9
0.0001795
6
0.000064
0.0004928
4
0.0009859
6
0.0048720
4
0.0004884
1
0.0006100
9
0.0172659
6
0.0322920

8
5
9

7/1/2009

6
0

6/1/2009

%
6.00
%
5.44
%

9
3.00%

-3.00%

0.0009

3.00%

8.44%

0.0071233
6

Standard deviation

0.2364104
8
60
0.0040069
57
0.0633005
32

Excel check

0.0627709
41

Sample Size
Square Root

(yahoo finance,
2014)

Correlation of the Monthly Returns with Returns on the FTSE-100 index

The market return of Whitbread is positively correlated to the as co-efficient
Correlation r is greater than Critical Region with sample size of 60. The coefficient
correlation of 0.5129 indicates that market return of Whitbread will increase or
decrease in relation to increase or decrease in FTSE-100 indexs market Return. This
expression is better communicated through the following chart indicating market
return of Whitbread and FTSE-100 index over the last 60 months.
Date

5/1/201
4
4/1/201
4
3/3/201
4
2/3/201
4
1/1/201
4
12/2/20
13
11/1/20
13

Return
(Whitbread)

Return
(FTSE-100)

0.00%

0.27%

-1.97%

2.75%

-7.24%

Correlation

Sample size
(n)

Critical Region

10

-0.632 to +0.632

11

-0.602 to +0.602

-3.10%

12

-0.576 to +0.576

19.62%

4.60%

13

-0.553 to +0.533

0.00%

-3.54%

14

-0.532 to +0.532

15

-0.514 to +0.514

20

-0.444 to +0.444

5.16%
4.56%

0.5129

1.48% Sample
-1.20%

60

10/1/20
13
9/2/201
3
8/1/201
3
7/1/201
3
6/3/201
3
5/1/201
3
4/1/201
3
3/1/201
3
2/1/201
3
1/1/201
3
12/3/20
12
11/1/20
12
10/1/20
12
9/3/201
2
8/1/201
2
7/2/201
2
6/1/201
2
5/1/201
2
4/2/201
2
3/1/201
2
2/1/201
2
1/2/201
2
12/1/20
11
11/1/20
11
10/3/20

15.82%

4.17%

30

-0.361 to +0.361

-3.77%

0.77%

40

-0.312 to +0.312

-4.64%

-3.14%

60

-0.254 to +0.254

5.69%

6.53%

80

-0.220 to +0.220

6.00%

-5.58%

100

-0.197 to +0.197

14.44%

2.38%

120

-0.180 to +0.180

-0.51%

0.29%

140

-0.166 to +0.166

1.78%

0.80%

160

-0.155 to +0.155

-1.83%

1.34%

180

-0.146 to +0.146

5.03%

6.43%

200

-0.138 to +0.138

2.00%

0.53%

250

-0.124 to +0.124

2.90%

1.45%

300

-0.113 to +0.113

3.62%

0.71%

350

-0.105 to +0.105

6.48%

0.54%

400

-0.098 to +0.098

-0.28%

1.35%

450

-0.092 to +0.092

5.33%

1.15%

8.86%

4.70%

-1.53%

-7.27%

4.50%

-0.53%

8.66%

-1.75%

3.22%

3.34%

5.12%

1.96%

-4.87%

1.22%

-0.78%
5.70%

-0.70%
8.11%

11
9/1/201
1
8/1/201
1
7/1/201
1
6/1/201
1
5/3/201
1
4/1/201
1
3/1/201
1
2/1/201
1
1/4/201
1
12/1/20
10
11/1/20
10
10/1/20
10
9/1/201
0
8/2/201
0
7/1/201
0
6/1/201
0
5/3/201
0
4/1/201
0
3/1/201
0
2/1/201
0
1/4/201
0
12/1/20
09
11/2/20
09
10/1/20
09

5.18%

-4.93%

-3.21%

-7.23%

-3.65%

-2.19%

-0.98%

-0.74%

-0.93%

-1.32%

1.82%

2.73%

-7.41%

-1.42%

2.71%

2.24%

-3.07%

-0.63%

5.98%

6.72%

-0.30%

-2.59%

4.99%

2.28%

16.33%

6.19%

-0.85%

-0.62%

-0.07%

6.94%

1.73%

-5.23%

-8.13%

-6.57%

4.34%

-2.22%

3.80%

6.07%

0.78%

3.20%

-0.14%

-4.15%

9.98%

4.28%

0.79%

2.90%

5.47%

-1.74%

9/1/200
9
8/3/200
9
7/1/200
9
6/1/200
9
5/1/200
9

16.14%

4.58%

20.97%

6.52%

6.00%

8.45%

-5.44%

-3.82%

-5.51%

4.10%

Portfolio

Section B: Investigation of the financial structure and the

cost of capital of the Whitbread
Systematic risk of Whitbread
It is very important to determine the volatility of stock in relation to market. The
equity beta is most widely used statistical tool to assess the risks attached to stock.
It explains the degree of risk an investor is accepting by holding a particular stock
or portfolio as compared to market as whole. The Beta of Whitbread indicates that
the company is 16 percent less volatile than FTSE-100 index. This means that if
FTSE-100 index increase by 10 percent, the share price of Whitbread will increase
by 8.4 percent. Both the high and low beta have their place in portfolio therefore
the shareholder will need to reconsider the composition of their investment
portfolio. The low beta companys trend remain below the trend of the market, if
FTSE-100 increases the Whitbreads price increases by lesser proportion and if FTSE100 decreases the Whitbreads price decreases by lesser proportion. However, the

high beta companys price increases by greater proportion, as if FTSE-100 increases

the companys price by greater proportion and if FTSE-100 decreases the
companys price decrease by greater proportion. This high beta company faces high
risk and therefore makes higher return while low Beta Company faces low and
therefore low returns. A risk averse investor is likely to have consideration for
Whitbreads share as the risk of volatility is lower and therefore the returns.
The beta presented below is calculated using following formula in excel;
=COVARIANCE.P (D3:D63, G3:G63)/VAR.P (G3:G63)
Calculation of Equity Beta

Mont
h
1
2
3
4

Whitbread
Adjust
ed
Retur
Date
Close
n
0.00
5/1/2014
4033
%
1.97
4/1/2014
4033
%
4114.0 7.24
3/3/2014
6
%
4435.3 19.62
2/3/2014
1
%
1/1/2014
12/2/201
3

3707.7
9
3707.7
9

0.00
%
5.16
%

11/1/201
3
10/1/201
3

3525.9
1
3372.0
7

9/2/2013

2911.3
9

10

8/1/2013

11
12

7/1/2013
6/3/2013

4.56
%
15.82
%
3.77
%
4.64
%
5.69
%
6.00
%

5
6
7
8

3025.3
3
3172.6
7
3001.7
6

FTSE-100
Adjust
ed
Date
Close
5/1/2014

6798.6

4/1/2014

6780

3/3/2014

6598.4

2/3/2014

6809.7

1/1/2014
12/2/201
3

6510.4

11/1/201
3
10/1/201
3

6749.1
6650.6
6731.4

9/2/2013

6462.2

8/1/2013

6412.9

7/1/2013
6/3/2013

6621.1
6215.5

Retur
ns
0.27
%
2.75
%
3.10
%
4.60
%
3.54
%
1.48
%
1.20
%
4.17
%
0.77
%
3.14
%
6.53
%
5.58

Equity Beta
0.8403775
24

13

5/1/2013

14

4/1/2013

15

3/1/2013

16

2/1/2013

17

20

1/1/2013
12/3/201
2
11/1/201
2
10/1/201
2

21

9/3/2012

22

8/1/2012

23

7/2/2012

24

6/1/2012

2046.5
1
2052.2
8
1948.5
1

25

5/1/2012

1789.9
8

14.44
%
0.51
%
1.78
%
1.83
%
5.03
%
2.00
%
2.90
%
3.62
%
6.48
%
0.28
%
5.33
%
8.86
%
1.53
%

26

4/2/2012

1817.8
6

4.50
%
8.66
%
3.22
%
5.12
%
4.87
%
0.78
%
5.70
%

18
19

2831.8
3
2474.5
5
2487.1
4
2443.5
6
2489.0
8
2369.9
5
2323.4
6
2257.8
9
2179.1
1

27

3/1/2012

28

2/1/2012

29

1/2/2012

1739.5
6
1600.8
8
1550.8
9

30

12/1/201
1

1475.4
2

11/1/201
1
10/3/201
1

1550.8
9
1563.1
5

31
32

5/1/2013

6583.1

4/1/2013

6430.1

3/1/2013

6411.7

2/1/2013

6360.8

1/1/2013
12/3/201
2
11/1/201
2
10/1/201
2

6276.9

9/3/2012

5742.1

8/1/2012

5711.5

7/2/2012

5635.3

6/1/2012

5571.2

5/1/2012

5320.9

4/2/2012

5737.8

3/1/2012

5768.5

2/1/2012

5871.5

1/2/2012

5681.6

12/1/201
1

5572.3

11/1/201
1
10/3/201
1

5897.8
5866.8
5782.7

5505.4
5544.2

%
2.38
%
0.29
%
0.80
%
1.34
%
6.43
%
0.53
%
1.45
%
0.71
%
0.54
%
1.35
%
1.15
%
4.70
%
7.27
%
0.53
%
1.75
%
3.34
%
1.96
%
1.22
%
0.70
%
8.11
%

33

9/1/2011

1478.8
7

34

8/1/2011

1406.0
4

35

7/1/2011

1452.7
2

36

6/1/2011

1507.8
1

37

5/3/2011

38

4/1/2011

39

3/1/2011

40

2/1/2011

1509.5
9
1630.3
6

41

1/4/2011
12/1/201
0

1587.3
6
1637.6
8

42

1522.7
5
1537.0
4

44

11/1/201
0
10/1/201
0

45

9/1/2010

1545.2
7
1549.8
5
1476.1
4

46

8/2/2010

1268.9

47

7/1/2010

48

6/1/2010

1279.8
1280.7
1

49

5/3/2010

50

4/1/2010

51

3/1/2010

43

1258.9
1370.3
1
1313.2
9

5.18
%
3.21
%
3.65
%
0.98
%
0.93
%
1.82
%
7.41
%
2.71
%
3.07
%
5.98
%
0.30
%
4.99
%
16.33
%
0.85
%
0.07
%
1.73
%
8.13
%
4.34
%
3.80
%

4.93
%
7.23
%
2.19
%
0.74
%
1.32
%
2.73
%
1.42
%

9/1/2011

5128.5

8/1/2011

5394.5

7/1/2011

5815.2

6/1/2011

5945.7

5/2/2011

5990

4/1/2011

6069.9

3/1/2011

5908.8

2/1/2011

5994

2.24%

1/3/2011
12/1/201
0

5862.9

-0.63%

5899.9

6.72%

5528.3

-2.59%

5675.2

2.28%

9/1/2010

5548.6

6.19%

8/2/2010

5225.2

-0.62%

7/1/2010

5258

6.94%

6/1/2010

4916.9

-5.23%

5/3/2010

5188.4

-6.57%

4/1/2010

5553.3

-2.22%

3/1/2010

5679.6

6.07%

11/1/201
0
10/1/201
0

1265.1
8

52

2/1/2010

53

56

1/4/2010
12/1/200
9
11/2/200
9
10/1/200
9

57

9/1/2009

1134.2
1075.3
9

58

8/3/2009

925.93

59

7/1/2009

765.42

60

6/1/2009

722.08

61
62

5/1/2009
4/1/2009

763.65
808.22

54
55

1255.3
8
1257.1
6
1143.1
1

0.78
%
0.14
%
9.98
%
0.79
%
5.47
%
16.14
%
20.97
%
6.00
%
5.44
%
5.51
%

2/1/2010

5354.5

3.20%

1/1/2010
12/1/200
9
11/2/200
9
10/1/200
9

5188.5

-4.15%

5412.9

4.28%

5190.7

2.90%

5044.6

-1.74%

9/1/2009

5133.9

4.58%

8/3/2009

4908.9

6.52%

7/1/2009

4608.4

8.45%

6/1/2009

4249.2

-3.82%

5/1/2009
4/3/2009

4417.9
4243.7

4.10%

Sources:
For Whitbread (yahoo finance, 2014)
For FTSE-100 (yahoo finance, 2014)

Cost of capital using Capital Asset Pricing Model (CAPM)

Risk Free Rate of Return: Risk free rate is the rate of return available on the
government bond rate. It is considered to be the lowest rate of return acceptable to
investor. Since the Whitbread is the UK Company, the appropriate risk free return
would be the amount of interest receivable on UK government bonds. So risk free
rate receivable on 10 year UK Gilt bond of 2.65 percent per year is being used for
the purpose of calculation of cost of equity (bloomberg, 2014).
Cost of equity
Market Return
Risk Free Rate
Equity Risk Premium
Equity Beta
Risk Free Rate

%
0.27
0.221
0.049
0.84
0.04116
0.221

Cost of Equity

0.26216

Price-to-earnings ratio of Whitbread & Interpretation

Price to earnings ratio is a simple measure that has the ability to show the market
perception of companys earnings growth. It attempts to interpret the amount of
investment that the investor makes in return for investment in stock. Like the
price/earnings ratio of 20 can interpreted as that the investor will have to pay 20
pounds for one pound of current earnings. it also explains the time required to
breakeven on investment, for example, the price/earnings ratio of 5 with share price
of 100 pounds and earnings per share of 20 pound suggest that other things being
remained same it will take 5 years to recover investment on 1 share and later share
can sold or retain. The investor may be expecting high earnings growth of company
with high Price/earnings ratio as compared to company with low price/earnings ratio
in the future. It is very important to understand the fact that the comparative
company must be in the same industry and business (Anderson, 2012).

Whitbread

whitbread
InterContinantal

The

following

information has been gathered from the annual reports of both companies with the
Exception of Share price which has been taken from Yahoo Finance. As it is very
important to choose a suitable company within the same industry of Whitbread so
that the price earnings ratio of Whitbread can be analyzed. The company chosen to
be compared against is intercontinental (IHG, 2014). The price-to-earnings Ratio of
Whitbread increased by 54 percent from 2012 to 2013 and 89.8 percent to 25.24

times from 2008 to 2013. It indicates increase in confidence of investors in the

company as the share price has increased significantly over the last 6 years. The
market price of Whitbread has almost doubled from 2012. The company has also
continued to improve its profitability which is evident from the gradual increase in
the Earnings per shares of the company. The investors are ready to invest 25.24
pound in return for one pound of current earnings.
The price-to-earnings Ratio of intercontinental increased by 28 percent from 2012 to
2013 and 126.4 percent to 13.42 times from 2008 to 2013. During 2010 to 2012,
the company was very successful in increasing its profitability that led to surge in
earnings per share. Investors have considered this stock to be part of their portfolio
as the share price continued to increase during past years. Important thing to note
is that the restaurant industry has been growing profitably as more and more hotels
& restaurant are being opened by companies. The Whitbreads stock is most
expensive which yields more earnings when compared to Intercontinental Hotels &
Restaurants group. The former is reports in British sterling while later reports in US
dollar.

Appropriateness of the companys choice of capital structure and its

implications for its market value from a stockholders points of view
Capital Structure

Whitbread
InterContinantal

Interest coverage

InterContinantal
Whitbread

Whitbread maintains good capital structure which normally between 15-25% over
the period of five year while finance cost fluctuated for period of 2009-2013. The
company has enough ability to pay off the financial charges because it have higher
interest coverage ratio while IHG has slightly low ratio but not too much worrying
factor. IGH has higher debt ratio as compared to Whitbread which effect clearly
show from Profits of IGH that is higher than Whitbread.

Section C: Concluding Remarks

Overall Whitbread performs better and shows fluctuating trends over the period of
60 months in returns as well as in Beta coefficient. The Whitbread should focus on
capital of the company because IGH has profitability as compared to Whitbread. IGH
is higher leverage company but posted higher profits and provide more coverage to
their financial charges. Whitbread should restructure their capital structure and
increased the funding through debt finance. Currently company around 25% which
should increase up to 40-50% along with IGH because Debt finance is cheaper than
equity finance.

References
Anderson, K., 2012. The Essential P/E: Understanding the Stockmarket Through the
Price Earnings Ratio. peterfield,Hampshire: Harriman House Limited.
bloomberg, 2014. United Kingdom Government Bonds. [Online]
Available at: http://www.bloomberg.com/markets/rates-bonds/government-bonds/uk/
[Accessed 7 May 2014].
IHG, 2014. Intercontinantal Hotels & resorts. [Online]
Available at: http://www.ihg.com/intercontinental/hotels/gb/en/reservation
[Accessed 8 May 2014].
yahoo finance, 2014. FTSE-100. [Online]
Available at: https://finance.yahoo.com/q/hp?s=
%5EFTSE&a=03&b=3&c=2009&d=04&e=7&f=2014&g=m
[Accessed 7 May 2014].
yahoo finance, 2014. Whitbread PLC. [Online]
Available at: http://finance.yahoo.com/q/hp?
s=WTB.L&a=03&b=1&c=2009&d=04&e=7&f=2014&g=m
[Accessed 7 May 2014].