River Island in Kings Lynn UK - Essay Example

Financial Analysis of River Island in Kings Lynn UK Financial Analysis of River Island in Kings Lynn UK Part Calculating the Gross Profit Margins, Operating Profit Margins and Net Profit Margins 2006: Gross Profit Margin = Gross profit/Revenue = 180,362,050/670, 538, 155 = 0.27 Operating Profit Margin = Operating Profit/Revenue = 153,645,793/670,538,155 = 0.23 Net Profit Margin = Net Profit/Turnover = 156,539,550/670,538,155 = 0.23 Cash Conversion Circle = Average Inventory/Cost of goods sold per day = 178,814,944.

5/(490,176,105/365) = 178,814,944.5/1,342,948.233 = 133.15 2007: Gross Profit Margin = 155,053,275/652,257,262 = 0.24 Operating Profit Margin = 131,765,867/652,257,262 = 0.20 Net Profit Margin = 137,863,013/652,275,262 = 0.21 Cash Conversion Circle = 239,664,760/(497,203,987/365) = 239,664,760/1,362,202.704 = 175.94 2008: Gross Profit Margin = 165,588,865/677,359,466 = 0.24 Operating Profit Margin = 132,012,406/677,359,466 = 0.19 Net Profit margin = 137,875,559/677,359,466 = 0.

20 Cash Conversion Circle = 270,423,151.5/(511,770,601/365) = 270,423,151.5/1,402,111.236 = 192.87 2009: Gross Profit Margin = 168,785,159/735,570,248 = 0.23 Operating Profit Margin = 130,341,526/735,570,248 = 0.18 Net Profit Margin = 130,564,174/735,570,248 = 0.18 Cash Conversion Circle = 227,280,118/ (566,785,089/365) = 227,280,118/1,552,835.86 = 146.35 2010: Gross Profit Margin = 156,152,209/720,328,095 = 0.22 Operating Profit Margin = 113,885,312/720,328,095 = 0.

16 Net Profit Margin = 110,793,773/720,328,095 = 0.15 Cash Conversion Circle = 148,097,542.5/(564,175,886/365) = 148,097,542.5/1,545,687.359 = 95.81 2011: Gross Profit Margin = 131.1/720.7 = 0.18 Operating Profit Margin = 84.7/720.7 = 0.12 Net Profit Margin = 81.6/720.7 = 0.11 Cash Conversion Circle = 152,650,000/ (589,600,000/365) = 152,650,000/1,615,342.466 = 94.5 2012: Gross Profit Margin = 139.3/739.7 = 0.19 Operating Profit Margin = 95.6/739.7 = 0.13 Net Profit Margin = 93.3/739.7 = 0.

13 Cash Conversion Circle = 229,300,000/(600,400,000/365) =229,300,000/1,644,931.507 = 139.40 Part 2: Financial Performance River Island Clothing Company has recorded a steady rise in its annual turnover in the six-year period documented in this report. In 2006, the turnover was £670, 538, 155, a figure that is above the turnover reports shown in 2012 (£739.7). This reflected a 0.001% increase in turnover value. The gross profit margin in 2012 was 18%, a representation of a significant decrease by 9% compared to 2006 (the gross profit margin was 27%).

However, the cash conversion circle in 2012 increased to 139.40 compared to 2006 (133.5). Comparing the performances between 2006 (turnover was £670, 538, 155) and 2007 (turnover was £652,257,262); the company realized a decrease in the annual turnover and a decrease in profit before tax. This was a negative growth considering the fact that the company refitted 15 shops, relocated 11 stores to larger outlets, and opened 12 new outlets. In 2006, only 2 shops were refitted, 12 were relocated to larger outlets, and 14 new ones were opened.

This explains why there was a decrease in turnover and a decrease in net profit margin by 2.8% and 2% respectively in 2007. Turnover performance in 2008 was better than 2007 with an increase in the turnover by 3.7% (£677,359,466 in 2008 and £652,257,262 in 2007). Net profit margin decreased by 2% (19% in 2008 and 21% in 2007). The amounts spent on refitting, relocation and opening new stores in 2008 was less compared to 2007. Only 7 shops were refitted, 15 relocated to larger outlets, and 14 new stores opened.

The marketing strategy of River Island Clothing Company contributed to the rise in turnover and, revenue, and profit before tax throughout the period. There is a constant increase in the annual sales revenue starting from 490,176,105 in 2006 to 600,400,000-a representation of 22.5% increase. The rise in stock value also indicates growth in the company’s operations for the six-year period. Stocks were valued at £36.5 million in 2006 and £63.8 million in 2012. From these figures, it is evident that the company has tripled its stock value.

The rise in stock between this duration is 73.4%. Value of stock is attributed to refitting stores and opening new ones once the market has been established. In addition, closing several stores that are not performing as required by the board and other stakeholders also helped the company to record better performances. River Island Clothing Company’s decision to launch new products in the market has also enabled it to improve on its operations. The financial statements and opinions of the customers and the board indicate that the company is focused on improving its performance and profit acquisition in the competitive market of fashion merchandise.

The decision to increase its production has resulted to an increase in consumables and raw materials over the years. Firstly, £2,224,262 million of the consumables and raw materials were recorded in 2007 while £484,575 of the same materials was available in 2006. To manage the competition in clothing industry in the UK, the manager of River Island Clothing Co. notes that the company has to offer exclusively designed products at fair prices, but of high quality and by ensuring that the customers are provided high level services.

Another area of great significance in the company’s development lies in the debt amounts due in a single financial year. By December 2012, the company reported debt amounts of £251.9 million. In 2011, the debt was valued at £194.4 million. The company directors noted that credit risks are the primary contributors to trade defaulters, most of which are categorized under credit card costs used a few days before end of financial periods. The company’s performance focus based on factors such as trends in costs, margins and turnover indicates that there will be growth in future.

The constant fall and rise in turnover also affected the profits. In addition to the ratios used in analyzing the performance of River Island Clothing Co., the ‘Cash Conversion Cycle’ also a better insight in the company’s ability to ensure that cash is available in its accounts. Cash conversion cycle determines the amount of time needed to sell inventories to get enough cash for other business processes. Looking at the three-year range-that is, 2006, 2009 and 2012-it is notable that the company’s cash conversion cycle is not steady.

In 2006, the conversion was 133.5, 2009 and 2012 had 146.35 and 139.40 respectively. It means that the conversion rate in 2006 was better than the other years within the six-year period. The gross profit margin has also not been steady comparing the figures reported in all the six years. There is a significant drop, probably due to the increasing number of competitors and the introduction of cheaper merchandise. Gross Profit Margin in 2006 was 27%, in 2009, it was 23%, and 19% in 2012. Despite the constant rise and fall in turnover, the company’s performance in terms of gross profits and sales revenue needs revision.

Part 3 a) The business rate = multiplier × ratable value = 122000 × 870 = 106,140,000 b) Source: VALUATION OFFICE AGENCY (2013, p1) c) It is located near the ferry crossing and train station References RIVER ISLAND. Store Locater. Retrieved April 17, 2014, from http://www.riverisland.com/how-can-we-help/store-locator VALUATION OFFICE AGENCY. My valuation. Retrieved April 17, 2014, from http://www.2010.voa.gov.uk/rli/en/basic/find/valuation/2010/14805140000/14896765000 RIVER ISLAND.

Annual Reports. Retrieved April 17, 2014, from http://www.riverisland.com/