Ratios Analysis of ASOS Company - Coursework Example

? Ratios Analysis of ASOS Company Executive Summary ASOS is a global fashion Company that deals with 20-somethings.The company specializes in selling more than sixty five thousand products. In addition, ASOS provides an avenue where people exchange ideas and carry out business. The study has provided insight analysis financial ratios of ASOS Company. Whereby, a comparison of financial results for the two years was executed. It can be observed that the financial performance of ASOS Company was higher in 2013 than 2012 based on the financial statements and ratios computed below. In addition, the company performance was higher in reference to industrial average figures. Whereby, the key performance indicators such as; number of visitors, basket value and gross profit margin were put forth. On the contrary, a valuation of the uses of KPIs in assessing organization performance was discussed. The advantages and limitation of using financial ratios as a technique of assessing company performance were also discussed. 1. Comparison of Latest year results with previous year results; Below are the financial statements of ASOS Company for the last year two fiscal years that ended on 31st August 2012 and 31st August 2012. Therefore, based on the consolidated income statement it can be scrutinized that the revenues for 2013 were substantially higher as compared to those of 2012.In addition, the profits before and after tax was higher in 2013 than in 2012. On the other hands, the comprehensive income statement indicates that the total assets and total equity for the financial year 2013 was higher than in 2012. For example, the total equity in 2013 was $159,799,000 while in 2013 it stood at $105,987,000 a difference of $53,812,000. In above connection, the consolidated statement of cash flow indicates that, the net income generated from operating activities was higher in 2013 as compared to 2012.In addition, the net income obtained from financing activities was also higher in 2013 than in 2012. This indicates that the financial performance of ASOS was higher in 2012 than in 2013(ASOS Plc, 2013). ASOS CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 AUGUST 2013 Year to 5 months to 31 August 2013 31 August 2012 Note ?’000 ?’000 Revenue 2 769,396 238,023 Cost of sales (370,816) (117,892) Gross profit 398,580 120,131 Distribution expenses (115,172) (35,906) Administrative expenses (228,953) (70,883) Operating profit 3 54,455 13,342 Finance income 5 283 – Finance expense 6 (68) (97) Profit before tax 54,670 13,245 Income tax expense 7 (13,744) (3,341) Profit for the period 40,926 9,904 Net exchange adjustments offset in reserves (45) – Fair value gains on derivative financial assets 225 Other comprehensive income for the period 180 – Total comprehensive income for the period 41,106 9,904 Profit for the period attributable to: Owners of the Parent 40,928 9,904 Non-controlling interest 19 (2) – 40,926 9,904 Total comprehensive income for the period attributable to: Owners of the Parent 41,108 9,904 Non-controlling interest 19 (2) – 41,106 9,904 Earnings per share Basic 8 50.1p 12.5p Diluted 8 49.2p 11.9p Source :(ASOS Plc, 2013). ASOS CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST 2013 31 August 2013 31 August 2012 Note ?’000 ?’000 Non-current assets Goodwill 9 1,060 1,060 Other intangible assets 10 38,626 22,176 Property, plant and equipment 11 30,031 27,293 Deferred tax asset 14 8,902 8,111 78,619 58,640 Current assets Inventories 143,348 100,263 Trade and other receivables 15 18,420 19,066 Derivative financial assets 21 225 – Current tax asset – 425Cash and cash equivalents 20 71,139 27,884 233,132 147,638 Current liabilities Trade and other payables 16 (149,511) (100,291) Current tax liability (2,441) – (151,952) (100,291) Net current assets 81,180 47,347 Net assets 159,799 105,987 Equity attributable to owners of the Parent Called up share capital 18 2,890 2,854 Share premium 6,368 6,105 Employee Benefit Trust reserve (1,770) (2,464) Hedging reserve 225 – Translation reserve (45) – Retained earnings 152,133 99,492 Total 159,801 105,987 Non-controlling interest (2) – Total equity 159,799 105,987 Source :( ASOS Plc, 2013). ASOS CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 AUGUST 2013 Year to 5 Months to 31 August 2013 31 August 2012 Note ?’000 ?’000 Operating profit 54,455 13,342 Adjusted for: Depreciation of property, plant and equipment 3 7,005 2,542 Amortization of other intangible assets 3 6,479 2,511 Loss on disposal of non-current assets 298 – Increase in inventories (42,882) (19,689) Decrease in trade and other receivables 787 437 Increase in trade and other payables 47,486 18,068 Share-based payments charges 4,005 344 Other non-cash items (104) – Income tax paid (3,353) – Net cash generated from operating activities before exceptional items74, 176 17,555 Cash outflow relating to exceptional operating items – (935) Net cash generated from operating activities 74,176 16,620 Investing activities Payments to acquire other intangible assets (21,770) (5,672) Payments to acquire property, plant and equipment (9,558) (2,345) Finance income 240 – Acquisition of subsidiary 36 – Net cash used in investing activities (31,052) (8,017) Financing activities Proceeds from issue of ordinary shares 299 321 Net cash inflow relating to Employee Benefit Trust 160 9 Repayment of revolving credit facility – (5,000) Finance expense (328) (364) Net cash generated from/(used in) financing activities 131 (5,034) Net increase in cash and cash equivalents 20 43,255 3,569 Opening cash and cash equivalents 27,884 24,315 Closing cash and cash equivalents 71,139 27,884 Source :( ASOS Plc, 2013). 2. Ratio analysis of both Latest and Previous years RATIOS FORMULA COMPUTATION Year 2013 Year 2012 a).Liquidity Ratios i).Current Ratio =Current Assets ?Current Liabilities= 233,132?151,952= 147,638?100,291 1.53 1.47 ii).Quick Ratio (Current Assets-Inventory)? Current Liabilities= (233,132-143,348) ? 151,952= (147,638-100,263)? 100,291= 0.59 0.47 iii).Cash Ratio Cash & Equivalents ? Current Liabilities= 71,139?151,952= 27,884?100,291= 0.47 0.28 b).Solvency Ratios i).Debt Ratio Total Liabilities? Total Assets= 151,952?311751= 100,291?206278 0.49 0.49 ii).Interest Coverage Ratio Earnings Before Interest & Tax(EBIT)?Interest Expense 54,670?328= 13,245? 364= 166.7 364.1 iii).Debt to Equity Ratio (Rich, 2010) Total Liabilities? Shareholders Equity= 151,952?159,799= 100,291?105,987= 0.950 0.946 c).Profitability Ratios i).Net Profit Margin Net Income ? Sales/revenues 54,670 ?769,396= 13,245?238,023= 0.071 0.056 ii).Returns on Equity Net Income? Shareholders Equity 54,670?159,799= 13,245?105,987= 0.34 0.125 iii).Gross Profit Margin (Peavler,2013) Gross Profit? Net Sales 398,580?769,396 120,131?238,023 0.52 0.50 d).Asset Efficiency Ratios i). Total Asset Turnover = (Revenue)?(Average Total Assets) 311751?259014.5= 206,278?259014.5= 1.20 0.79 ii). Inventory turnover ratio =Net sales ? Inventories 311751?143,348= 206,278?100,263= 2.2 2.1 iii). Fixed Asset Turnover (Basu and Media, 2013). =Sales? Net Fixed Assets 311751? 78,619= 206,278?58,640= 3.96 3.52 3. Comparison with industry average figures as available; ASOS company was reported to have performed exceptionally well in 2013 above almost above the industrial average figure. The revenue was reported to rise by 39% to ?769.4m (2012: ?552.9m), a figure which was slightly higher than the industrial average figures. In addition, the Profit before tax and exceptional items up increased to 23% to ?54.7m (2012: ?44.5m) slightly closer to an industrial average figure of 30%. This was attributed to a strong emphasis of ASOS Company at investing on its company’s future growth especially in areas such as technology, customers, and logistics operations (Peterson Drake and Fabozzi, 2012). 4. Measurement against the organization’s KPIs; The ASOS Key performance indicators were as follows. The total visits as 31st August were as follows; 67,872(+46%) this indicates that the total visits grew by forty six percent. 7,078(+42%) This figure indicates that the total active customers grew by fourty two percent 21,260(+13%) Total unique visitors who visited the company grew by thirteen percent 2.74(+1%) Average visit frequency grew by one percent. While the number of people, who had shopped in this company within the twelve marches up to 31 August 2013, include: ?61.03(-1%) indicating that Average basket value declined by 1% 2.47(+5%) indicate that the Average units per basket grew by five percent ?24.69(-6%) Average selling price per unit declined by six percent 19,372(+43%) Number of orders (‘000) 63p (-11%) Labor cost per unit7.1%(-110bps) EBIT margin 51.8 %( +60bps) Gross margin grew by 60bps. Source :< http://www.companyspotlight.com/viewer/33871> 5. Evaluation of the uses of KPIs in assessing organization performance; The organization utilized several key performance indicators to evaluate its performance as discussed. The number of visitors was used as a key performance indicator to assess whether there was an increase in number of customers who visited the organisation to buy its products. It was observed that the total visit grew by 46% ,total active visit by 42%,total number of unique visitors grew at 13% while growth rate of frequent visitors increased by 1%. In connection to this, the average basket value was also used to indicate company performance (Finkler, Kovner and Jones, 2007). It was discovered that, the average basket value in 2013 declined by 1%, while the selling price declined by 6% and labor cost declined by 11%.However,the unit value in a basket increased by 5% while the number of orders increasing by 43%.Conclusively,the gross profit margin was reported to rise by 60bps( ASOS Plc, 2013). 6. Discussion and explanation of your results; The above results indicates that the performance of ASOS had improved between the two fiscal years (for the last twelve months).This can be substantiated by the fact that the number of active and frequent visitors as well as the in value of the basket and the number of order. This increase may be attributed to great improvements in areas such as technology, customers, and logistics operations which in turn attracted customers and hence increasing company returns. In addition, a decline in cost was as results of increased efficiency in companies cost management techniques (Brigham and Houston, 2012). 7. Discussion of the advantages and limitations of the analysis techniques you have used. Three categories of financial ratios were utilized as techniques for to analyzing the performance of ASOS Company. Among the advantages of using financial ratios include: they helps to indicate company trend on whether the company is making any improvement. In addition, they help to simplify financial reports for easier understanding by non-financial experts, it also help in comparing different firms to determine company’s strength against its competitors (Rajasekaran and Lalitha, 2011). On the other hand, this technique tends to have some limitations such as: Use of past data to predict present and future outcomes may not be relevant. In addition, the technique is based on some accounting assumptions and policies which might provide misleading information. Conclusively, the technique tends to compare firms in different regions, whereby, those firms tend to be affected by different factors and hence, such comparison might be misleading (Carpozzi, 2013). Reference List ASOS Plc. (2013). Annual Reports and Accounts. Retrieved :< http://www.companyspotlight.com /viewer/33871> on 14.11.2013. Carpozzi.C. (2013).Advantages and Disadvantages of Financial Ratios. Retrieved :< http://www.ehow.co.uk/about_7577808_advantages-disadvantages-financial-ratios.html> on 14.11.2013. Basu.C and Media.D.(2013). Four Basic Types of Financial Ratios Used to Measure a Company's Performance. Retrieved: < http://smallbusiness.chron.com/four-basic-types-financial-ratios-used-measure-companys-performance-25299.html> on 14.11. 2013. Brigham, E. F., and Houston, J. F. (2012). Fundamentals of financial management. Mason, Ohio, South-Western Cengage Learning. Finkler, S. A., Kovner, C. T., and Jones, C. B. (2007). Financial management for nurse managers and executives. Philadelphia, Pa, Saunders Elsevier. Rajasekaran, V., and Lalitha, R. (2011). Financial accounting. New Delhi: Dorling Kindersley. Rich, J. S. (2010). Cornerstones of financial accounting: current trends update. Australia, South-Western, Cengage Learning. Peavler.R.(2013).Assets Management in Financial Ratio Analysis. Retrieved:on14.11.2013. Peterson Drake, P., and Fabozzi, F. J. (2012). Analysis of financial statements. Read More