Country Roads Financial Performance - Assignment Example

? and Section # of 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. Step Two a. Appended figure 2 shows the respective ratios and their calculations for the period 2009-2012. b. Appended figure 2 shows the trend analysis of the respective ratios for the period 2009-2012. c. These analyses show us that the profitability of the company has declined over the years. 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 measures the support of the earnings for the paid dividends. A falling ratio provides a bad impression to the investors who look for the other shares with higher ratio. This leads to the fall in price. However, it cannot be 100% because the company retains certain profits for future growth and uncertain times. (Keiso 1999) c. The P/E ratio measures the expectation of the investors of the growth of the company’s earnings. A higher ratio signifies that the company will have stronger earnings in future. (Keiso 1999) d. Yes. The P/E ratio increased in 2010 which showed stronger growth in earnings and then fell in 2011 and 2012 signifying the poor growth in the future. Step Nine a. Appended figure 7 shows the calculations b. Days inventory measures the length of the days that the company takes to convert inventory into sales. Days Debtors measures the length of the says that the company takes to collect revenue from its debtors. Days payable measures the length of the days that the company takes to pay its bills to the creditors. (Keiso 1999) c. The company makes less credit sales in its business whereas majority of its purchases are on credit. It has very less debtors as compared to its creditors. d. Days Inventory e. The cash cycle measures the length of the time that the company takes to convert its resources in to the cash flows. Therefore, in this case, it represents a problem because the cycle is increasing over the period. The company took 47 days in 2009 to convert its resources into cash flows whereas it took 57 days in 2012 for the same thing signifying the increasing inefficiency in the operations. (Keiso 1999) Step Ten Country Road has had a fluctuating performance over the period 2009-2012. The company profitability has declined despite an increase in sales, equity as well as assets. Likewise, the company’s operational efficiency has also decreased over the period. The company has decreased in its ability to control expenses which has led to decline in the profits and has hurt its performance in the market. It has also decreased on its ability to efficiently use the resources for the benefit of the company. Similarly, the company poor financial performance reflected in the poor performance in the market. The company decreased the payout ratio which signaled the investors to move for better companies with stronger growth. Therefore, the analysis signal poor growth, poor profitability and diminished earnings in future. The company needs to work on better expense controlling, better inventory management systems as well as increased sales from better marketing orientation, if it wishes to see a bright future. . BIBLIOGRAPHY Foster, G. (1986) Financial statement analysis. Englewood Cliffs, N.J.: Prentice-Hall. Fridson, M. (1995) Financial statement analysis. New York: Wiley. Harrison, W. and Horngren, C. (2001) Financial accounting. Upper Saddle River, NJ: Prentice Hall. Weygandt, J. and Kieso, D., et al. (1999) Principles of financial accounting. New York: Wiley. Bloomberg (2013) CTY:ASE Stock Quote - Country Road Ltd. [online] Available at: http://www.bloomberg.com/quote/CTY:AU [Accessed: 10 May 2013]. Reuters.com (2013) Country Road Ltd (CTY.AX) Quote| Reuters.com. [online] Available at: http://www.reuters.com/finance/stocks/overview?symbol=CTY.AX [Accessed: 10 May 2013]. APPENDIX Step One Figure 1 Trend Analysis   2009 2010 2011 2012 2009 2010 2011 2012 Revenue 347,547 381,219 423,791 422,291 100.0% 109.7% 121.9% 121.5% Sales 343,078 372,120 411,652 418,981 100.0% 108.5% 120.0% 122.1% Gross Profit 197,803 207,331 240,396 243,138 100.0% 104.8% 121.5% 122.9% EBIT 21,400 17,861 23,106 20,617 100.0% 83.5% 108.0% 96.3% Net Profit 15,649 12,331 18,218 16,103 100.0% 78.8% 116.4% 102.9%           COGS 145,275 164,789 171,256 175,843 Profit before tax 21,888 17,459 22,690 20,495 Finance Cost 118 597 787 563 Finance Revenue 606 195 371 441 Gross Profit = Sales – COGS EBIT = Net Profit +Finance Cost - Finance Revenue Step Two Figure 2   2008 2009 2010 2011 2012 Revenue   347,547 381,219 423,791 422,291 Sales   343,078 372,120 411,652 418,981 Gross Profit   197,803 207,331 240,396 243,138 EBIT   21,400 17,861 23,106 20,617 Net Profit   15,649 12,331 18,218 16,103 Total Assets 108,512 141,668 129,194 149,280 146,282 Total Equity 69,989 74,981 84,792 91,724 94,629 Trend Analysis   2009 2010 2011 2012 2009 2010 2011 2012 ROE 21.6% 15.4% 20.6% 17.3% 100.0% 71.5% 95.6% 80.1% ROA 17.1% 13.2% 16.6% 14.0% 100.0% 77.1% 97.0% 81.5% GPM 57.7% 55.7% 58.4% 58.0% 100.0% 96.6% 101.3% 100.7% NPM 4.6% 3.3% 4.4% 3.8% 100.0% 72.6% 97.0% 84.3% ROE = (Net Profit/Average Equity) *100% ROA = (EBIT/Average Assets *100% GPM = (Gross Profit/Sales) *100% NPM = (Net Profit/Sales) *100% Step Four Figure 3 Trend Analysis 2009 2010 2011 2012 2009 2010 2011 2012 Revenue 347,547 381,219 423,791 422,291 100.0% 109.7% 121.9% 121.5% Sales 343,078 372,120 411,652 418,981 100.0% 108.5% 120.0% 122.1% Gross Profit 197,803 207,331 240,396 243,138 100.0% 104.8% 121.5% 122.9% Employment Exp 84,207 85,755 97,352 97,577 100.0% 101.8% 115.6% 115.9% Occupancy Exp 60,480 70,603 80,373 83,689 100.0% 116.7% 132.9% 138.4% D&A Exp 8,507 11,247 16,297 13,355 100.0% 132.2% 191.6% 157.0% Marketing Exp 10,709 13,535 14,147 11,400 100.0% 126.4% 132.1% 106.5% Other Exp 17,234 17,234 20,889 19,389 100.0% 100.0% 121.2% 112.5% EBIT 21,400 17,861 23,106 20,617 100.0% 83.5% 108.0% 96.3% Net Profit 15,649 12,331 18,218 16,103 100.0% 78.8% 116.4% 102.9% Step Five Figure 4 Vertical Analysis   2009 2010 2011 2012 2009 2010 2011 2012 Sales 343,078 372,120 411,652 418,981 100.0% 100.0% 100.0% 100.0% COGS 145,275 164,789 171,256 175,843 42.3% 44.3% 41.6% 42.0% Employment 84,207 85,755 97,352 97,577 24.5% 23.0% 23.6% 23.3% Occupancy 60,480 70,603 80,373 83,689 17.6% 19.0% 19.5% 20.0% D&A 8,507 11,247 16,297 13,355 2.5% 3.0% 4.0% 3.2% Marketing 10,709 13,535 14,147 11,400 3.1% 3.6% 3.4% 2.7% Other 17,234 17,234 20,889 19,389 5.0% 4.6% 5.1% 4.6% Step Seven Figure 5 Trend Analysis   2009 2010 2011 2012 2009 2010 2011 2012 Current Assets 70140 53315 73597 75288 100.0% 76.0% 104.9% 107.3% Non-Current Assets 71528 75879 75683 70994 100.0% 106.1% 105.8% 99.3% Total Assets 141668 129194 149280 146282 100.0% 91.2% 105.4% 103.3% Current Liabilities 63242 40223 51035 45641 100.0% 63.6% 80.7% 72.2% Non-Current Liabilities 3445 4179 6521 6012 100.0% 121.3% 189.3% 174.5% Total Liabilities 66687 44402 57556 51653 100.0% 66.6% 86.3% 77.5% Total Equity 74981 84792 91724 94629 100.0% 113.1% 122.3% 126.2% Step Eight Figure 6   2009 2010 2011 2012 Earnings per share (cents) 22.66 17.86 26.38 23.32 Dividends per share (cents) 13.32 8.1 18.57 7.58 Share price as at 30 June (cents) 300 350 360 305   2009 2010 2011 2012 Dividend Payout Ratio 58.8% 45.4% 70.4% 32.5% P/E Multiple 13.2 19.6 13.6 13.1 Dividend Payout Ratio = DPS/Share Price P/E Multiple = EPS/Share Price Step Nine Figure 7   2008 2009 2010 2011 2012 Trade Creditors 11,160 21,294 15,581 20,378 21,309 Trade Debtors 3,441 2,851 2,585 5,652 1,858 Inventory 28,553 38,758 39,113 48,085 45,396 COGS   145,275 164,789 171,256 175,843 Sales   343,078 372,120 411,652 418,981   2009 2010 2011 2012 Days Inventories 84.6 86.2 92.9 97.0 Days Debtors 3.3 2.7 3.7 3.3 Days Creditors 40.8 40.8 38.3 43.3 Casy Cycle 47.1 48.1 58.3 57.0 Days Inventories = 365/(COGS/Average Inventory) Days Debtors = 365/(Sales/Average Debtors) Days Creditors = 365/(COGS/Average Creditors) Cash Cycle = Days Inv + Days Debt -Days Cred Read More