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Analysis of Country Road's financial performance - Assignment Example

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Analysis of Country Road’s financial performance Step One a. Appended figure 1 shows the trend analysis for the period 2009-2012 for the respective items. b. The trend analysis shows that gross profits have increased by 22.9% over the period whereas net profits increased by mere 2.9% over the same period…
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Download file to see previous pages The company net profitability declined in 2012 as compared to the 2009; whereas the gross profitability increased by a mere 0.7% in 2012 as compared to 2009. This signifies the growing inefficiencies and disabilities in the company to control costs and expenses. Step Three The profitability provided a better measure as compared to the profits. This is because the profitability analyses the profits with terms to the growing sales; and therefore, helps in measuring the efficiency of the company in controlling costs and expenses with the increasing sales. (Keiso 1999) Step Four a. Appended figure 3 shows the extended trend analysis on the expenses for the period 2009-2012. b. Depreciation and Amortization expenses have increased the most over the period. The expense has increased by 57% in 2012 as compared to the expense in 2009. The second most increased expense is the occupancy expense which increased by 38.4% over the same period. Step Five a. Appended figure 4 shows the vertical analysis performed on the identified items of the income statement. b. Cost of goods sold, employment expense, marketing expenses and other expenses as a percentage of sales have decreased over the period 2009-2012 whereas occupancy expense and depreciation and amortization expense as a percentage of sales have increased over the same period. c. The company has been efficient in controlling certain costs and expenses with the increase in sales. The increase in depreciation and amortization is due to increase in total assets. Step Six Over the period, the sales have increased 22.1 percent showing improved performance by the company. However, the profit margins have declined because of the increasing expenses over the same period. The company has proved to be inefficient in controlling its administrative and selling expenses which have all increased compared to the base year 2009. The company has been holding too much inventory in its warehouses which has increased its management expenses. On the other hand, the company has been prudent in controlling its direct costs which has helped them improve their gross margins. Similarly, this could also happen due to the accumulated inventory which would be priced lower in the inflationary period. Step Seven a. Appended figure 5 shows the trend analysis on several balance sheet item totals from 2009-2012. b. This clearly explains the trend which signifies that the falling ROE is due to the increase in the equity by 26.2 % but with no cumulative effect on the net profits which have been declining during the same time. On the other hand, the assets have increased by 3.3% whereas the earnings before interest and tax have declined over the period; again the reason for the falling ROA. c. ROE measures the return to the equity holders- the owners of the company where as ROA measures the ability of the company in using its resources to make profits for the all stakeholders-owners as well as creditors. (Keiso 1999) d. ROA would be considered a better measure by the investors. It is because is measures the returns to all the stakeholders- the owners as well as lenders. Likewise, it also measures the ability of the company in the usage of the resources. It helps in evaluation the management of the company as well. (Keiso 1999) Step Eight a. Appended figure 6 shows the calculations and the ratios. b. The dividend payout ratio ...Download file to see next pagesRead More
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