Paddy Power

Paddy Power & Betfair Acquisition
University of Affiliation
Name
Paddy 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 Employed
It is a profitability ratio which compares profitability across different companies, based on the capital they use. 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 Power
Year 2013 2014 2015 2013 2014 2015
Operating Profit -69 61.6 94.3 137386 163806 170205
Capital Employed 133.6 172.1 69.3 327978 397278 274574
Return 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 Margin
It 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 E
Year 2013 2014 2015 2013 2014 2015
Operating Profit -69 61.6 94.3 137386 163806 170205
Revenues 387 393.6 476.5 745195 881640 1093950
Operating Profit margin -17.83 15.65 19.79 18.44 18.58 15.56
Current Ratio
These 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 2015
Current Assets 186.8 232.8 128.4 257113 317394 232653
Current Liabilities 142.7 137.4 162.7 218988 236274 283548
Current Ratio 1.31 1.69 0.79 1.17 1.34 0.82
From 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 Days
It 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 Power
Details 2013 2014 2015 2013 2014 2015
Cost of sales 49.8 50.4 90.6 128243 167746 276273
Prepayment 12.6 15.4 14.6 2903 1972 23778
Inventory Turnover 3.95 3.27 6.21 44.18 85.06 11.62
Inventory Holding Period 365/Inventory Turnover 92.35 111.53 58.82 8.26 4.29 31.41
From 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 Outstanding
It 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 Power
Year 2013 2014 2015 2013 2014 2015
Revenues 387 393.6 476.5 745195 881640 1093950
Trade receivables 18.7 23 23.2 29262 32410 30940
Sales turnover
20.70 17.11 20.54 25.47 27.20 35.36
Days Sales Outstanding 17.63 21.33 17.77 14.33 13.52 10.32
Paddy 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 Outstanding
It 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 Power
Year 2013 2014 2015 2013 2014 2015
Cost of sales 49.8 50.4 90.6 128243 167746 276273
Inventory 12.6 15.4 14.6 2903 1972 23778
Purchases 62.4 65.8 105.2 131146 169718 300051
Trade Payables 18.7 23 23.2 29262 32410 30940
Payables Turnover period 3.34 2.86 4.53 4.48 5.24 9.70
Days Payable Outstanding 109.38 127.58 80.49 81.44 69.70 37.64

From 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 period
It 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 2015
Days Sales Outstanding 17.63 21.33 17.77 14.33 13.52 10.32
Inventory Holding Period 365/Inventory Turnover 92.35 111.53 58.82 8.26 4.29 31.41
Days Payable Outstanding 109.38 127.58 80.49 81.44 69.7 37.64
Cash Collection period 219.36 260.44 157.08 104.03 87.51 79.37
It 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 2015
Total Liabilities 144.3 138.1 182.6 235964 246571 488834
Equity Holders -64.5 47 87.9 311002 386981 69288
Debt To Equity ratio -2.24 2.94 2.08 0.76 0.64 7.06
Betfair 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 MERGER
BetfairPaddy Power
2013 2014 2015 2013 2014 2015
Revenues 387.0 393.6 476.5 745195 881640 1093950
Gross Profit 337.2 342.7 385.9 616952 713894 817677
EBITD 51.2 91.1 120.2 166565 169497
Trade receivables 109.6 118.8 128.1 180973 201419 250845
Cost of sales 49.8 50.4 90.6 128243 167746 276273
Operating Profit -69 61.6 94.3 137386 163806 170205
Net income -66.3 51.0 86.4 123184 144909 147293
Equity Holders -64.5 47 87.9 311002 386981 69288
Current Assets 186.8 232.8 128.4 257113 317394 232653
Current Liabilities 142.7 137.4 162.7 218988 236274 283548
Total Assets 276.3 309.5 232 546966 633552 558122
Total Liabilities 144.3 138.1 182.6 235964 246571 488834
Trade Payables 18.7 23 23.2 29262 32410 30940
Prepayment 12.6 15.4 14.6 2903 1972 23778
FINANCIAL DATA
At the Merger
At Merger (Proforma)
Items Proforma (At Feb 2) million 2016 Proforma at Dec 2016 2017
Revenues 1551 1500 1745.4
Cost of Sales 357 347 Gross Profit 1194 1154.3 1340
Operating Profit 12 15.4 250
Net Income -11 -5.7 217.7
Equity Holders 4316.16 48.8
Trade and Payables 184.9 Current Assets 369.9 430.8
Current Liabilities 319.9 372.8 383.7
Total Assets 888.2 4992 4928.5
Trade receivables 22.9 55.2 48.8
Prepayment 41.2 35.5
Total Liabilities 319.9 675.1 533.1
Ratios after Merger
Operating Profit margin Operating Profit 12
Sale revenues 1551
Operating profit margin 0.773694391
Current Ratio Current Assets 369.9
Current Liabilities 372.8
Current Ratio 0.99222103
Debt to Equity Ratio Total Liabilities 372.8
Total Debt 4316.16
Debt to Equity Ratio 8.64