HBX CORe

January 17, 2016

HBX CORe Weekly Assignment 1

Purpose: Share a photo of a business that would have a significant amount of deferred revenue. Briefly
describe the business and what its deferred revenue would be.

Contents
1

Introduction .................................................................................................................................... 2

Business Description ....................................................................................................................... 2

Deferred Revenue Financial Statements ..................................................................................... 3

Conclusion ....................................................................................................................................... 5

JOEL CARVALHO HBX ID 201500025986

HBX CORe

January 17, 2016

1 Introduction
While thinking about the businesses that have a considerable deferred revenue, and after doing a little
research, I decided to use the magazine example. In this case, I will be using the Economist Group,
were a good part of the revenues are coming from the Economist Magazine and other subscriptions,
and digging a little through the 2015 Annual Report to have an idea how deferred revenue is treated
in the financial statements and reports.

2 Business Description
The Economist Group is one of the main source of analysis on international business and world affairs.
They use a range of formats to deliver their information, from newspapers and magazines to
conferences and electronic services. The structure of the Economist Group is the following:

Apparently, the group might have been investing in The Economist brands, due to the range of
diversified brands we find in it. Not surprisingly, most of the brands have inherited The Economist
in their name.
In a magazine with print and digital subscriptions, it is expected that a good part of its revenue will be
coming from subscriptions. The following subscriptions are available on The Economist online website:

JOEL CARVALHO HBX ID 201500025986

HBX CORe

January 17, 2016

The subscriptions are offered in 12 week periods and the digital ones come with some extras, like the
possibility to listen to the audio version. The subscription is available to several countries on the 5
continents, which means they should have a big and organized distribution department.

3 Deferred Revenue Financial Statements

In the 2015 groups annual report, a five-year summary is presented. This work is only going to focus
on the numbers from 2015.

The total revenues for 2015 are recorded at 328 m with an operating profit of 60 m. The revenues
breakdown shown in the report is the following:

The revenue on subscriptions/circulation of 166 m represent 50,6% of the total revenues. Therefore,
it is expected that deferred revenue will play a big role in the companys financial statements.
Having a further look at the report, where the consolidated balance sheet per March 31st is shown,
the amount of deferred revenue can be found under the liabilities described as unexpired
subscriptions and deferred revenue.
JOEL CARVALHO HBX ID 201500025986

HBX CORe

January 17, 2016

The 109,6 m reported represents 66% of the total income generated by subscriptions/circulation
(166 m), shown in the revenues breakdown above.
As a curiosity, the table below shows how the revenue and operating profit are distributed between
the groups within the Economist Group.

From the analysis of the table, it can be concluded that 84,7% of the total revenue for 2015 was
originated by the groups belonging to the Economist brand family.

JOEL CARVALHO HBX ID 201500025986

HBX CORe

January 17, 2016

4 Conclusion
By the analysis of the financial statements, it can be concluded that the deferred revenue of 109,6 m
are indeed a good part of the total revenue and, therefore, essential for this company. Considering
the total revenue of 328 m reported for 2015, the deferred revenue should represent 33,4%,
approximately one third of the revenues.

JOEL CARVALHO HBX ID 201500025986