Myer Holding Ltd and Madison Stores Ltd - Profitability Ratios, Efficiency Ratios, and Financial Stability Ratios - Example

Answer Page No “What date is the end of the financial year” 30 June, 2009 10 “Who is the chairman and Executive director of Village Road show Ltd” Chairman- John R. Kirby, Executive Director- Graham W. Burke 10 “List one principal activity of Village Road show during the past financial year” Theme park and other leisure operation activities 11 “How many members of board of director are qualified with a Bachelor of Commerce or Bachelor of Business Studies” 3 11 “what is the Basic earnings per share in 2009” 2.17 cents 15 “Is there a statement on the impact of adopting IFRS or their equivalent” Yes 41 “What is the name of external auditor of Village Road show Ltd” Ernst & Young 16 “As at 30th June 2009 what is Village Road show Ltd ownership in Austereo Group Limited” 52.52% 14 “which countries has Village Road show Ltd entered into agreements to sell its investments” Greece & Czech Republic 12 “How much is Profit from operation before income tax expenses” 33,744,000 36 “what is the figure of total noncurrent assets” 1,802,906,000 37 “what is the figure of total equity” $709.1 million 15 “what is the figure for retained earning” -123,189,000 37 “what Is the figure of Net cash flow from operating activities” 187,581,000 38 “how much is film distribution royalty” 56,094,000 37 “Does Village road show include a report by business segment” Yes 81 Report on Myer Holding Ltd and Madison Stores Ltd Executive Summary Madison Stores Ltd shows improvement. Most of the ratios indicate that the company is improving. The profitability has improved. This highlights efficiency. Companies’ performance is growing. Sales have grown. Even the efficiency ratios speak high. They have shown improvement. It highlight that the company is well managed. The company short term obligation has gone down but still it still manageable. The long term debt is a problem. The debt is high. It is improving. It has decreased from previous years. Still ways needs to be look to improve it. It is a good avenue for creditors but when it comes to investor the decision is a bit circumspect. There is a risk involved for investor but a few more years data would like to come up with a better decision. Table of Content Introduction 6 Analysis 7 Profitability Ratios 7 Efficiency Ratios 8 Financial Stability Ratios 9 Limitations 11 Recommendations 12 Reference 13 Appendix 14 Introduction Myer Holding Ltd is the “largest departmental store in Australia dealing in all type of merchandise including women’s, man, children, flower, home ware, fragrance and many others”. It has been in operation for long. The company thrives on many programs and services. One of those is reward programs. Here customer gets cash reward on purchase. They are refunded certain sum. It has also gone online. It deals in a lot of stuffs. It sells women’s wear, man’s wear, fashion apparel and much other stuff. It has grown. The company has come with shares and raised money. They have a broad horizon. Even presence with 65 stores speaks volume. A company has vested interest of many people. Some are shareholders, customers, creditors, employee, society, government and so on. Each one looks for certain factors. A shareholders look for growth prospects, future programmes, liquidity of investment, safety of fund, growth rate. This helps him to decide whether he wants to invest. His decision is governed by this. Financial data plays a huge role. Creditors also look for certain things. They look for safety of funds, the growth, time when the payment is made, period of payment, how many times the amount is rolled in a year and terms in case of delay in payment. This helps to take decision. Analysis A company’s financial statement helps to understand its performance. “It gives an indication for the future. It shows how the funds were used. When ratios are used a more comprehensive analysis is provided. It helps to bring every change in one base. It thus helps the user. They are better able to analyse it”. (James, 2007) Creditors and Investor look for certain important ratios. They take decision on the basis of the following ratios Profitability Ratios This helps the investor and creditor to see how well the company is doing. “It helps them to know how the growth is helping their funds to be safe. Everyone likes a profitable company. Creditors and investors can take decision on this basis”. (Rosemary, 2009)The ratios which help in decision making are Net Profit Margin: This has grown. It is 22.33% in 2009 as compared to 19.02% in 2008. (Appendix) This is a good sign. The company has reduced the indirect expenses. Their operation has improved. Efficiency has grown. This would seem a good sign for both the investor and creditor as the company is growing. Return on Equity: It is a very important indicator for investor. It will help favour his decision for the company as it has increased to 10.21% in 2009 as compared to 7.65% in 2008. (Appendix) This shows a good return. Investors have good return. It is more than government bond. Investor would like to invest. Return on Assets: It is an indicator for both. Creditors look more towards it. This helps them find out how well the assets were managed and will help in future generation. The ratios also indicate that it has improved to 6.55% in 2009 from 4.78% in 2008. (Appendix) This is a good sign but more is needed. This will help in future earning The overall profitability ratios indicate a favourable investment option. Looking at this it would be wise but we need to look at other ratios to have concrete results. Efficiency Ratios This ratios hold importance for creditors. Their decision depends a lot on the outcome of this. This ratio helps to “find out how efficiently the resources were used and managed”. (Jennifer, 2005) It helps to find the efficiency. The details are as follows Inventory Turnover Ratio: It indicates a favourable condition for creditor as it has improved and is 1.52 in 2009 as compared to 1.10 in 2008. (Appendix) It shows that the stocks were rolled were. This indicates that the company has stocks that it requires which stresses that creditors are paid on time. Account Receivable Turnover Ratio: This has decreased to 1.06 in 2009 as compared to 1.24 in 2008. (Appendix) This is not much of a worry for creditor because the debtors are collected at delayed time. This shows that the policy has faltered and needs to be worked on. Account Payable Turnover Ratio: This shows a healthy picture. It has improved to 1.13 in 2009 as compared to 0.98 in 2008. (Appendix) It shows that creditors are paid more frequently. It is good news and shows that the company is efficient in paying of it short term debt. The ratio indicates that creditors should be ready to work with the company. The company has favourable terms. It works for their wellbeing. It is a company which has shown good progress and should be preferred by creditors. Financial Stability This is important for anyone related to the company. Creditors and investors look at it to find the growth prospect and how safety the fund is. It helps to determine “the company’s ability to meet its short and long term obligations easily”. (Andrew, 2007) It helps to find out “the ability to pay debts without any cash flow”. (Andrew, 2007) The details are as follows Short term obligation: It helps to the creditor and investor to see whether the firm is running out of cash or not. The ratio is Current ratio: This has decreased to 1.21 in 2009 as compared to 1.48 in 2008. (Appendix) This is not a bad sign. A ration of above 1 is good. “This shows that company has sound policy. It has been able to use cash efficiently”. This is a good sign for investors and creditor Long Term Obligation: this helps investors a lot. “It helps them to find out return in long run. They come to know about safety of fund”. Investors prefer this ratio. The details are as below Debt Asset Ratio: This has shown improvement. It is 62.30% in 2009 as compared to 64.12% in 2008. (Appendix) The company has shown improvement. It needs to improve it more. It should look to make it come below 50%. These will helps investor as then 50% will be financed by outer source. This needs to be worked on to make it favourable. Debt Equity Ratio: the ratio has improved. It is 165.26% in 2009 as compared to 178.72% in 2008. (Appendix) The company needs to improve it. It is showing signs. It shows the company has lot of debt. It needs to improve it to make investments safe. This is a concern for investor. Interest Coverage Ratio: This has fallen. It is 4.74 in 2009 as compared to 8.87 in 2008. (Appendix) It shows that the company is not able to pay it interest charges easily. This is a concern. Companies need to make it high. It is a concern factor. The overall stability ratio shows concern for investors. Short term obligation is good. Long term obligation is a concern. The company needs to improve. It would be risky for investor. Conditions are not fully favourable. Limitations The study has certain limitation. They are Analysis is on historical data. It doesn’t consider the market situation. It does not consider the situation that was prevalent then. “It does not look into the future growth prospects”. Future growth prospect is not reflected “Different accounting type will give different results”. Thus there is objectivity. Recommendations The company shows a bright picture. It is growing. “The performance is improving. Ratios indicate a bright prospect”. It is a good company for the future. There are certain areas that needs to ne worked on. It is a good company for creditors. The efficiency ratios indicate the same. Creditors should be ready to deal with them. They pose a bright future. Even the funds are safe. Creditors are also paid quickly. Even the short term obligation is good. The company has sufficient sources to generate revenue. This is a good company for creditors to invest. The long term obligation raises fear for investors. There is high debt. The short term indicators are good. Even profitability is moving up. But the concern is long term debt. The company has a long term debt. It won’t be wise to invest. The risk is high. But investors should watch for some time as the prospects are good. The ratios are improving. So, in some time it might seem a good investment avenue. Presently it is risky for investors. Reference Andrew, 2007, “Essential Business Formula: Solvency Ratio”, Business Plan Success, Vancouver, UT James D, 2008, “analysis of financial statement”, The Malawi College of Accounting, Malawi Jennifer F, 2005, “Interpreting the numbers: efficiency ratios”, Centre for learning & Teaching, John Wiley & Sons, California Rosemary P, 2009, “Using Profitability ratios”, New York Times Company, New York Appendix 1. Calculation of Profitability Ratios a. Net Profit Margin = Net Profit / Net Sales For 2008 = 404.1 / 2124.1 * 100 = 19.02% For 2009 = 598.1 / 2678.5 * 100 = 22.33% b. Return on equity = Net Income / Equity For 2008 = 232.3 / 3034.7 * 100 = 7.65% For 2009 = 351.6 / 3442.9 * 100 = 10.21% c. Return on Asset = Net Profit / total asset For 2008 = 404.1 / 8458.4 * 100 = 4.78% For 2009 = 598.1 / 9132.7 * 100 = 6.55% 2. Efficiency Ratios a. Inventory Turnover Ratios = Cost of goods sold / Inventory For 2008 = 1051.3 / 952.3 = 1.10 For 2009 = 1458.8 / 959 = 1.52 b. Account Receivable Turnover Ratio = Credit Sales / Account Receivable For 2008 = 1062.05 / 858.5 = 1.24 For 2009= 1339.25 / 1257.9 = 1.06 c. Account Payable Turnover Ratio = Credit Purchase / Account Payable For 2008 = 1051.3 / 1067.9 = 0.98 For 2009 = 1458.8 / 1296.3 = 1.13 3. Financial Stability ratios a. Current Ratio = Current assets / Current Liabilities For 2008 = 2524.2 / 1709.7 = 1.48 For 2009 = 2789.2 / 2304.8 = 1.21 b. Debt Asset ratio = Debt/ Asset For 2008 = 5423.7 / 8458.4 * 100 = 64.12% For 2009 = 5689.8 / 9132.7 * 100 = 62.30% c. Debt Equity ratio = Debt / Equity For 2008 = 5423.7 / 3034.7 * 100 = 178.72% For 2009 = 5689.8 / 3442.9 * 100 = 165.26 Read More