Specialty Fashion Group Ltd and Noni B Ltd's Financial Analysis - Example

Overview and Contents of the Annual Report USE ONLY THE 2010 CONSOLIDATED FIGURES Answer Page No. What date is the end of the financial year? State the Day, Month and Year 30 June 2010 20 Who is the largest shareholder of Specialty Fashion Group Ltd and how many shares do they hold? NAAH Pty Ltd 37,913,596 share 89 Who is the Chief executive officer of Specialty Fashion Group Ltd? Gary Perlstein 33 During 2010, how many underperforming stores did Specialty Fashion Group close? 26 23 What were the dividends per share in 2010? 8 cents 4 How much was the total bonus paid to chief financial officer for the year 2010? 210,000 34 What is the name of the external auditor for Specialty Fashion Group Ltd? PricewaterhouseCoopers 27 What were the basic earnings per share? 16 cents 31 Does the report contain a summary of significant accounting policies? Yes 50 How much is the profit before income tax? 42,797,000 45 What is the figure of total assets? 147,502,000 47 What is the figure from proceeds from sale of Property, Plant & Equipment? 432,000 49 What is the figure net book amount for Land & Buildings? 2,634,000 65 What is the figure from net cash flow from financing activities? (33,025,000) 49 How many subsidiaries does Specialty Fashion Group Ltd own in Australia? 13 79 Name the most recent brand to be acquired by Specialty Fashion Group and in which month it was bought? La Senza in August 12 Executive Summary Specialty Fashions Group Ltd and Noni B ltd have been successful as retail cloth players. Their market has grown which is reflected by the growth in sales. There is even scope for the company to move further as this sector is showing improvement. The financial analysis also highlights some important fact related to liquidity and capital structure. The findings shows the positives and negatives of both based on financial analysis. The ratios like liquidity ensures to find liquidity and the capital financed by the company are demonstrated by capital structure ratios. The efficiency ratio indicates the area where Specialty Fashions Group Ltd needs to work to stay ahead of Noni B ltd. The capital market ratio indicates the companies which are favoured by shareholders and also help to look into the future prospects of the company. The recommendations highlights areas where both the companies need to improve which will help them face competition and help in proper strategy execution. The analysis shows that Specialty Fashions Group Ltd performance has improved drastically in 2010. It still needs to work on certain areas to stay ahead of Noni B ltd as the company has shown stability and Specialty Fashions Group Ltd need to inculcate those so that it is able to withstand competition and capture a bigger market. Content Introduction 4 Financial Analysis 4 Liquidity ratio 6 Capital Structure ratio 6 Profitability Ratios 7 Asset Efficiency Ratios 10 Market Performance Ratio 12 Findings 13 Conclusion 14 Recommendations 14 Limitations 15 References 16 Appendix 17 Introduction Speciality Fashion Group Ltd is a company having a presence in “women’s clothing and operates in Australia and New Zealand”. (Speciality Fashion Group Ltd, 2010) The company has a wide market and operates under various brands like Millers, Crossroads, Katies and a few others. The apparel industry attracts women of different ages and suits the latest changing trends Noni B Ltd is also retail clothing giant. The company deals in “women’s cloth and operates in Australia and New Zealand”. (Noni B Ltd, 2010) The company with their policy to satisfy customers has grown and is able to capture a good market in Australia, and has 216 stores. The company has been growing and the clothes attract women of 40+ continuously. The financial statement of both the companies reveals so. Even the share prices shows improvement. With more consumers moving towards supermarkets gives an opportunity to expand in overseas. Financial Analysis Financial analysis helps a business unit to understand the manner in which it has performed and also helps to “plan, forecast for the future so that the company is able to deliver on the promises”. (Petroff, 2000) It helps the business units to identify the strengths and areas which will help them grow. The following is the ratios for Specialty Fashions Group Ltd and Noni B ltd. Liquidity Ratios This ratio plays an important part and helps “to find the short term strengths and obligations”. (Ward, 2010) The ratios for Specialty Fashions Group Ltd and Noni B ltd are Current Ratio: “It helps to whether the firm is able to meet its current liabilities out of its current assets”. (Ward, 2010) It helps to plan for the short term. It is calculated as “Current Assets / Current Liabilities”. The current ratios for both the companies are as (appendix) The graph looks as follows The ratio shows that Noni B ltd has a better liquidity position as compared to Specialty Fashions Group Ltd both in 2010 and 2009. Specialty Fashions Group Ltd needs to improve the ratio as it is a concern as the short term obligations are higher. This might make investors and suppliers stay away. Noni B ltd on the other hand is in a better position but still needs to keep it similar or increase it a little. When we consider the two companies together it shows that Noni B ltd has better policies and strategies as compared to Specialty Fashions Group Ltd. The positive for Specialty Fashions Group Ltd is that they have improved it drastically. They need to work more and ensure that it reaches around 2. Specialty Fashions Group Ltd on the other hand needs immediate strategy as it is showing the business in not liquid and facing obstacle. This might make investors stay away. Noni B Ltd on the other hand has shown consistency highlighting proper execution of policies. Quick Ratio: “It measures the ability of the firm to meet its short term obligation when inventories are removed as inventories take some time to be converted into cash”. (Ward, 2010) It is calculated as “(Current Assets – Inventories) / Current Liabilities”. The ratios for both the companies are as The graph looks as follows The ratio also indicates that Noni B ltd is better positioned than Specialty Fashions Group Ltd both in 2010 and 2009. Still the quick ratio for both Specialty Fashions Group Ltd and Noni B ltd indicates the inefficiency of the company to meet its immediate debt. Specialty Fashions Group Ltd need to take immediate steps and improve this as it is a concern and presenting a bleak picture. The ratio when compared to current ratio also indicates huge inventories. Since, both the companies deal in products where the inventory has to be high so having a low ratio is predictable. Still, both the companies especially Specialty Fashions Group Ltd need to improve it so that it presents a better picture. Capital Structure Ratio This ratio “identifies how much of the firm’s assets are financed through debt”. (Debt to equity, 2010) The ratios which help to determine it are as Debt to Equity Ratio: “It helps to find how much percentage long term debt are in proportion to equity fund”. (Debt to equity, 2010) It shows the soundness of the business firm. It is calculated as “Total liabilities / Equity X 100”. The ratios for both the companies are as The graph looks as follows The ratio indicates soundness on the part of Specialty Fashions Group Ltd. It shows that the company has a scope for more investment through debts. This is a good sign and shows the company has a space for future projects. Noni B ltd has reduced its debt a lot by paying off is a worry and needs to raise it so that it can save on taxes. Noni B ltd needs to ensure that it keeps with the industry standard. As both the companies work in a type of market where to grow large debt is needed so the ratio seems to be sound. Profitability Ratios Profitability ratios help to understand the profit which can be attributed to the different factors which work in tandem to achieve the desired results. Comparing it with the previous years and the competitors’ helps to evaluate the shortcomings, and shows area which needs to be improved. The profitability ratios are as follows Net Profit Margin: “It is the profit which is calculated after all the expenses has been accounted for and is based on the sales achieved by the organisation”. (Net Profit margin, 2010) A high ratio shows high profits for the owners. It is calculated as “Earning before Interest and taxes (EBIT) / Sales X 100.” The ratios for both the companies are as The graph looks as follows The ratio indicates Specialty Fashions Group Ltd is better placed than Super Noni B ltd both in 2010 and 2009. It is seen that the net profit has increased for Specialty Fashions Group Ltd and Noni B ltd. This is a good sign and reflects efficiency to maintain the indirect expense. When we compare it to the gross profit margin it shows a huge dip signifying the amount of indirect expenses like marketing, distribution and other expenses the company incurs. The ratio for Specialty Fashions Group Ltd and Noni B ltd has improved in 2010 as compared to 2009 signifying better management and control of cost. When we look at the broader picture it shows that Specialty Fashions Group Ltd and Noni B ltd despite having a higher gross profit has a lower net profit showing the amount of indirect cost incurred. It signifies improper management and strategies to cut cost is required. Return on Assets: It is the profit attributable to assets in per dollar term”. (Cleveland & Alim, 2007) It helps business to analyze the manner in which assets are used. It is calculated as “Earning before Interest and Taxes (EBIT) / Average assets X 100).The ratios for both the companies are as The graph looks as follows Here we see that the return on assets for both Specialty Fashions Group Ltd and Noni B ltd have improved in 2010 as compared to 2009. The worrying factor for Noni B ltd is that their assets are underutilized when compared to Specialty Fashions Group Ltd. This has resulted in having more assets that warranted. Specialty Fashions Group Ltd on the other hand has a better return showing proper utilization of assets. The other important part to note is that players have huge assets which results in the ratio being lower. Still, on an overall basis we see that Noni B ltd need to improve their return as it is have very heavy assets and needs to improve it as compared to the competitors. Return on Equity: It is defined as the profit attributed to the shareholders after all expenses have been paid for”. (Little, 2010) It is calculated as “net profit available to ordinary shareholders / Average Equity (excluding minority interest and preference capital) X 100”. The ratios for both the companies are as follows The graph looks as follows We see that Specialty Fashions Group Ltd has a very high return on equity as compared to Noni B ltd both in 2010 and 2009. The return for Noni B ltd has improved but is far beyond Specialty Fashions Group Ltd. This is a worrying factor and shows the strategies and policies implemented hasn’t been successful. The return for Noni B ltd is very low which might lead to shareholders moving out to other companies or investing in risk free securities. The other concern for Specialty Fashions Group Ltd is that the return has fallen in 2010 as compared to 2009. This requires some introspection and strategies to be taken to improve those. Asset Efficiency Ratios Operating ratios forms a very important part as it helps to “show the efficiency of the management and also indicates the company’s efficiency to manage its capital”. (Joseph, 2010) this ratios help to find the efficiency when it comes to turnover. The following ratio helps to calculate the operating efficiency. They are as Asset Turnover Ratio: It is defined as “sales which is generated due to the manner in which assets are used”. (Asset Turnover ratio, 2010) It is calculated as “Sales Revenue / Average Total Assets”. The ratios for both the companies are as follows The graph looks as follows The ratio indicates improvement for Specialty Fashions Group Ltd in 2010 as compared to 2009. Specialty Fashions Group Ltd has been able to use its assets better in 2010. This has made the ratio to improve. Specialty Fashions Group Ltd on the other hand shows soundness in the use of assets. It needs to continue similarly. Noni B ltd on the other hand needs to improve this ratio and look towards matching Specialty Fashions Group Ltd. Inventory Turnover Ratio: “It is defined as the rotation inventory makes in an accounting cycle”. (Little, 2010) Companies prefer it to be high. It is calculated as “Cost of Goods Sold / Average Inventory”. The ratios for both the companies are as The graph looks as follows The above ratio indicates that Noni B ltd has revolved its inventory more compared to Specialty Fashions Group Ltd both in 2010 and 2009. Specialty Fashions Group Ltd and Noni B ltd have also been consistent and show proper management. This is a sign of a good company but it needs to be replicated so that the inventory levels come down. This will ensure less money in inventory and help to ensure that the funds are not blocked. Specialty Fashions Group Ltd needs to improve it and match Noni B ltd. Market Performance Ratio This ratios help to find the shareholders confidence in the company. A company having sound capital market ratios ensures that people prefer this companies and this is seen by the growth in share prices. The ratios which will help to find the capital market are as follows Earnings per Share: “It is the profit which is attributed to each individual share”. (Little, 2010) It is calculated as “Net profit available to ordinary shareholders / weighted number of ordinary shares on issue”. The ratios for both the companies are as follows The graph looks as follows The above ratio indicates soundness on the part of both the companies. Specialty Fashions Group Ltd has a higher earnings per share indicating that the shareholders are getting a good return. The return for Specialty Fashions Group Ltd and Noni B ltd has increased in 2010 as compared to 2009 which shows that the profit has increased. The overall result for both the giants seems sound and is a good prospect to invest. Findings The liquidity position especially the current ratio is sound for Noni B ltd and Specialty Fashions Group Ltd needs to improve it. Both the companies due to the nature of business have a huge inventory which are affecting the quick ratio but is according to industry standards. The long term debt ratios are sound for Specialty Fashions Group Ltd and the company have the scope to take loan for further development. The companies have used their short term debt to finance long term assets is a worrying factor and steps needs to be taken. Specialty Fashions Group Ltd and Noni B ltd profit has improved in 2010 as compared to 2009 but it needs to reduce its indirect expenses so that it stays ahead of comptition The capital market analysis ratio shows wide improvement for Specialty Fashions Group Ltd in 2010 and when we compare it to Noni B ltd it shows better performance highlighting that they have better projects and this can help them The financial analysis shows that Specialty Fashions Group Ltd and Noni B ltd performance have improved in 2010 as compared to 2009. Specialty Fashions Group Ltd needs to improve its strategies so that it can stand better that Noni B ltd who has been performing on a consistent basis. Conclusion Specialty Fashions Group Ltd and Noni B ltd both have been performing on similar lines and have been successful. The financial statement even highlights similar facts. Both the companies can improve with better strategy. The financial ratios of both the companies show some demarcating things and also highlight the different strategies taken by each. This even highlights that companies similar in nature use different strategies and improve their performance. Both this companies have room for improvement and with the growth this sector is showing it gives them opportunity to capture a good market and grow. Recommendations Specialty Fashions Group Ltd needs to improve its current ratio so that it reflects soundness in its policies and strategies Both the companies need to reduce the amount held in inventories as it is high leading to a lot of money being invested Both the companies need to take more debt especially long term so that they are able to save on the taxes Specialty Fashions Group Ltd needs to improve its operating ratios so that it can match its competitor Specialty Fashions Group Ltd and Noni B ltd needs to reduce its indirect cost, improve efficiency, bring down assets and improve their management Specialty Fashions Group Ltd need to improve the inventory turnover ratio Specialty Fashions Group Ltd need to ensure that to stay ahead of competition it comes with new projects so that the assets are used properly and ensure better efficiency Limitations Inflation is a concern and causes the financial data to be biased Using historical cost makes it difficult to gauge the actual present performance Changes in technology for production, distribution, marketing has not been accounted for which might give different result References Asset Turnover Ratio, (2010), “asset turnover ratio”, retrieved on December 11, 2010 from http://www.buzzle.com/articles/asset-turnover-ratio.html Cleveland D & Alim W, 2007, “Return on Assets”, about.com Guide, The New York Times Company Debt to equity, 2010, “Debt to equity ratio”, retrieved on December 11, 2010 from http://www.valuebasedmanagement.net/methods_debt_to_equity_ratio.html Little K, 2010, “Understanding Return on equity”, about.com Guide, The New York Times Company Little K, 2010, “Understanding Inventory turnover ratio”, about.com Guide, The New York Times Company Little K, 2010, “Understanding Earning per share”, about.com Guide, The New York Times Company Net profit Margin, 2010, “Net Profit Margin”, retrieved on December 11, 2010 from http://www.bized.co.uk/compfact/ratios/profit4.htm Noni B ltd, 2010, retrieved on December 11, 2010 from http://www.nonib.com.au/ Petroff J, 2000 “Financial analysis’, retrieved on December 11, 2010 from http://www.peoi.org/Courses/Coursesen/finanal/FN501EN.html Specialty Fashions Group Ltd, 2010, retrieved on December 11, 2010 from http://www.specialtyfashiongroup.com.au/ Ward S, 2010, “Is Your Business Sick: Current Ratio”, about.com Guide, The New York Times Company Appendix 1. Calculation of Current Ratio for Speciality Fashion Group Ltd Current Ratio for 2010 = Current Assets / Current Liabilities = 55,415 / 66,075 (in $ 000) = 0.83 Current Ratio for 2009 = Current Assets / Current Liabilities = 62,417 / 110,110 (in $ 000) = 0.57 2. Calculation of Current Ratio for Noni B Ltd Current Ratio for 2010 = Current Assets / Current Liabilities = 21,408 / 16,948 = 1.26 Current Ratio for 2009 = Current Assets / Current Liabilities = 18,951 / 14,839 = 1.27 3. Calculation of Quick Ratio for Speciality Fashion Group Ltd Quick ratio for 2010 = (Current Assets – Inventories) / Current Liabilities = (55,415 – 45,802) / 66,075 = 0.14 Quick ratio for 2009 = (Current Assets – Inventories) / Current Liabilities = (62,417 – 43,985) / 110,110 = 0.16 4. Calculation of Quick Ratio for Noni B Ltd Quick ratio for 2010 = (Current Assets – Inventories) / Current Liabilities = (21,408 – 14,545) / 16,948 = 0.32 Quick ratio for 2009 = (Current Assets – Inventories) / Current Liabilities = (18,951 – 14,545) / 14,839 = 0.29 5. Calculation of Debt to Equity for Speciality Fashion Group Ltd Debt to Equity Ratio for 2010 = Total Debts / Equity *100 = 86911 / 60,591 *100 = 143% Debt to Equity Ratio for 2009 = Total Debts / Equity *100 = 121361 / 30,771 * 100 = 394.4% 6. Calculation of Debt to Equity for Noni B Ltd Debt to Equity Ratio for 2010 = Total Debts / Equity *100 = 19278 / 25,642 *100 = 75.1% Debt to Equity Ratio for 2009 = Total Debts / Equity *100 = 20400 / 23,534 * 100 = 86.6% 7. Calculation of Net Profit Margin for Speciality Fashion Group Ltd Net Profit Margin for 2010 = Net Profit / Sales * 100 = 35,116 / 572,228 * 100 = 6.13% Net Profit Margin for 2009 = Net Profit / Sales * 100 = 27,456 / 560,554 *100 = 4.89% 8. Calculation of Net Profit Margin for Noni B Ltd Net Profit Margin for 2010 = Net Profit / Sales * 100 = 3,867 / 117,368 * 100 = 3.29% Net Profit Margin for 2009 = Net Profit / Sales * 100 = 2,296 / 118,153 *100 = 1.94% 9. Calculation of Return on Assets for Speciality Fashion Group Ltd Return on Assets for 2010 = Net Income / Total Assets * 100 = 35,116 / 147,502 * 100 = 23.80% Return on Assets for 2009 = Net Income / Total Assets * 100 = 27,456 / 152,132 * 100 = 18.04% 10. Calculation of Return on Assets for Noni B Ltd Return on Assets for 2010 = Net Income / Total Assets * 100 = 3,867 / 44,920 * 100 = 8.60% Return on Assets for 2009 = Net Income / Total Assets * 100 = 2,296 / 43,934 * 100 = 5.22% 11. Calculation of Return on Equity for Speciality Fashion Group Ltd Return on Equity for 2010 = Net Income / Equity * 100 =35,116 / 60,591 * 100 = 57.95 % Return on Equity for 2009 = Net Income / Equity * 100 = 27,456 / 30,771 * 100 = 89.22% 12. Calculation of Return on Equity for Noni B Ltd Return on Equity for 2010 = Net Income / Equity * 100 = 3,867 / 25642 * 100 = 15.08% Return on Equity for 2009 = Net Income / Equity * 100 = 2,296 / 23534 * 100 = 9.76% 13. Calculation of Inventory Turnover Ratio for Speciality Fashion Group Ltd Inventory Turnover Ratio for 2010 = Cost of Goods Sold / Average Inventory = 245848 / 45,802 = 5.37 Inventory Turnover Ratio for 2009 = Cost of Goods Sold / Average Inventory = 238106 / 43,985 = 5.41 14. Calculation of Inventory Turnover Ratio for Noni B Ltd Inventory Turnover Ratio for 2010 = Cost of Goods Sold / Average Inventory = 113991 / 15914 = 7.16 Inventory Turnover Ratio for 2009 = Cost of Goods Sold / Average Inventory = 118141 / 14545 = 8.12 15. Calculation of Earning Per Share for Speciality Fashion Group Ltd Earning per Share for 2010 = Net Income / Outstanding shares = 16.0 cents (given in financial statement) Earning per Share for 2009 = Net Income / Outstanding shares = 11.8 cents (given in financial statement) 16. Calculation of Earning Per Share for Noni B Ltd Earning per Share for 2010 = Net Income / Outstanding shares = 12.1 cents (given in financial statement) Earning per Share for 2009 = Net Income / Outstanding shares = 7.1 cents (given in financial statement) 17. Calculation of Asset Turnover Ratio for Speciality Fashion Group Ltd Asset Turnover Ratio for 2010 = Sales Revenue / Average Total Assets = 572,228 / 147,502 = 3.89 Asset Turnover Ratio for 2009 = Sales Revenue / Average Total Assets = 560,554 / 152,132 = 3.68 18. Calculation of Asset Turnover Ratio for Noni B Ltd Asset Turnover Ratio for 2010 = Sales Revenue / Average Total Assets = 117368 / 44920 = 2.61 Asset Turnover Ratio for 2009 = Sales Revenue / Average Total Assets = 118153 / 43934 = 2.69 Read More