A Comparison of the Financial Report - Essay Example

A comparison of the Financial Report Kingfisher Plc and Home Retail Group Plc (a) Introduction This is a report of the financial comparison of Kingfisher Plc Year ended 28 January 2012 and Home Retail Group Plc 53 weeks ended 3 March 2012. These two companies are both listed in the London Stock Exchange. Kingfisher Plc was changed three and half years ago with the objective of creating a more balanced business capable of facing all the market challenges that the business face. In addition, it was transformed to provide sustainable financial performance and provide new value to their patients. The records of the company shows tremendous success for the year 2011 given that during the year it delivered a sales growth of 4% and this was realized through strong cash generation, tremendous progress in research and development. The shareholders returns was increased by 8% through ordinary dividend growth and a supplement dividend of 5% as well as #2.2 billion share buy backs. A total of #5.6 billion was distributed to shareholders in cash in 2011 an increase of 75% as compared to the same in 2010 (Grant 2012). Home Retail Group, the UK’s leading home and general merchandise retailer is required for the financial year just ended to report its audited financial results for the 53-week statutory period ended 3 March 2012 as compared to those of Kingfisher Plc Year ended 28 January 2012. I a difficult operation environment the business have managed to its costs and cash effectively. The company is headed to for more success in the future through prioritization of their investments in its leading multichannel capabilities to shape how their customers shop in the future, ensure they bring unrivalled convenience while valuing their customer’s everyday lives irrespective of where they shop. In as much as the company recorded a cautious trading approach, the spending in its markets reduced tremendously than expected. In spite of this Argos, which is one of its channels has been successful in its product market such as laptops, tablets and home wares. The objectives of this financial report comparison of the two companies are to enable us find out the performance of each of the two companies in their markets of operations. This will be done through the comparison and interpretation of financial ratios, which will inform the decisions as to whether in the company an employee can be rewarded, decisions of borrowing or not as well as when the companies are due for expansion and so forth. This is all done through financial analysis, which is the selection, evaluation and interpretation of Financial data along with other pertinent information to assist in investment and financial decision making Analysis This analysis will involve the calculation, presentation and interpretation of the financial ratios of both companies. The ratios to be considered will be grouped in terms of Liquidity Ratios, Profitability ratios, Activity Ratios, Financial Leverage ratios and Shareholders ratios. The liquidity ratios will provide information about the two companies to meet their short term and immediate obligations. On the other hand, profitability ratios provide the amount of income by each company of the sales they make. Activity ratios on the other hand will show the stakeholders of the companies on the company’s ability to manage it assets efficiently hence its ability to operate into the future. There is also the Financial Leverage ratio, which provides information on the company’s degree of commitment to its fixed financial obligations and their ability to satisfy such obligations. Lastly, we will look at the shareholders ratios of the two companies, which are aimed at describing to the shareholders the company’s financial position in terms of the amounts per share of stock, held by the owners of the company (Kingfisher plc - Investors & Media - Results & presentations - Preliminary results for the year ended 28 January 2012. (2013, March 3). Ratio type Example Formula Kingfisher Plc Home Retail Group Plc Liquidity Current Ratio Current assets/Current Liabilities 16167/15010= 1.077 1898.7/1118.5= 1.7 Profitability Gross Profit margin Gross Income/Sales 5083/6978= 0.73 1881.2/5851.9= 0.32 Activity Inventory Turnover Cost of goods sold/Inventory 1895/3873= 0.49 3970.7/1016.8= 3.9 Financial Leverage Total debt to asset ratio Total debts/ Total Assets 32253/41080= 0.79 1396.6/4137.8= 0.34 Shareholders Earnings per share Net Income available to shareholders/Number of share outstanding 25.2 p 190.9/831.3*100= 22.9p As mentioned liquidity ratios gives the company an opportunity to access its ability to take care of its short-term financial obligation. In this case, I chose the current ratio that shows the company’s ability to take care of its current liabilities using the current assets. Using its current assets Kingfisher Plc can takes care of its Current Liabilities 1.07 times while Home Retail Group can do the same 1.7 times faster. This means that Home Retail group is more efficient in taking care of its short-term liabilities than the Kingfisher Plc. As indicated the profitability ratios gives the picture of the amount of profits a company is able to make given a sales margin. Kingfisher Plc is able to make 0.73 times the profit of the sales margin while Home Retail Group can only afford to convert 0.32 of the sales into profitability. This shows that Kingfisher Plc is the more profitable of the two. Activity ratios inform the investors of the ability of the corporation to manage its assets efficiently for the sake of the going concern. I chose the inventory turnover, which is expressed as the cost of goods sold against the inventory. The ratio shows how many times inventory is created and sold in the period. Kingfisher Plc ratios for this is 0.49 while that for Home Retail Group is 3.9 therefore, Kingfisher Plc can only produce and sell inventory 0.49 times as compared to that of the Home Retail Group which is 3.9 times. Home Retail Group shows a stronger opportunity of continuing its operations into the future hence a higher going concern. Financial Leverage ratio provides the ability of the firm’s commitment to its fixed financial obligations. I chose the total debt to assets ratio, which is expressed as a ratio between the Total Debts and the Total Assets. This ratio shows the proportion of assets which is financed by debt whether Long term or short term. This proportion for Kingfisher Plc we have 0.79 of its assets being financed by debt while only 0.34 of Home Retail Group assets is financed by debt. This shows that Kingfisher Plc has higher obligations as compared to Home Retail Group hence most of the profits by Kingfisher Plc are used to repay the debt leaving the margin lower. Lastly, we have the shareholders ratios which is meant to show the shareholders of the company the financial position of the company as compared to the amount per share of stock. In this case I chose the Earning Per Share Ratio which shows each of the shareholders what they should always expect from the company at the end of a year. For Kingfisher Plc the earning per share is 25.2% while Home Retail Group gives the shareholders a lesser amount of only 22.9%. (b) Performance factors Kingfisher Plc has achieved its tremendous growth because of effective management and tranquil business environment both internal and external. This enabled the corporation to achieve a sales growth of 4% together with a very strong cash generation and substantial progress in Research and Development. Shareholders returns increased by 8% while at the same time the company distributed a total of 5.6 billion Euros to shareholders in cash. The company is also aware of the pressures present as it ventures into the years 2012 which is largely impacted upon by the global, political and economic environment. The company anticipates driving further the shareholders returns as they seek to record another growth in sales across the board. They would in this process improve on the operational Leverage and financial efficiency to continue delivering a strong cash generation. The company will employ strict return criteria to invest appropriately and as a result generate sustainable and appropriate sales and profitable growth. Further delivery is also anticipated in the R&D section of the company through the development of all the relevant sections (Home Retail Group plc Full-Year Results. (2012, May 2). Home Retail Group on the other hand has witnessed a decline in the spending in their markets. This is because the customers have faced pressures on their amounts of disposable incomes hence less is available for their spending on discretionary items. However, some of the sections of the multi-business have flourished and among these is the Argon. Argon has been successful in product markets such as those for laptops and tablets including home wares. This has happened despite the fact that other product areas have to suffer due to this and most specifically in the consumer electronics which has suffered a drop of about 20% at the end of the year. The continued market share gained by the company despite these challenges depicts a robust performance in these difficult trading environs. As the UK’s leading multi-channel retailer, Home Retail group have continued to invest to improve our customer proposition in an environment where customer-shopping behaviors are changing rapidly hence unpredictable. Both businesses have expanded product choice and services, enhanced store and product presentation and delivered further value for our customers through invention and innovation of the product industry (Home Retail Group plc Full-Year Results. (2012, May 2). References Home Retail Group plc Full-Year Results. (2012, May 2), media. Retrieved March 3, 2013, from http://www.homeretailgroup.com/media/131788/2012_may_02_full_year_results_statement.pdf Kingfisher plc - Investors & Media - Results & presentations - Preliminary results for the year ended 28 January 2012. (2013, March 3), Kingfisher plc. Retrieved March 3, 2013, from http://www.kingfisher.com/index.asp?pageid=247 Read More