StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

The Financial Position of Aytoun - Report Example

Cite this document
Summary
This report "The Financial Position of Aytoun" elaborates on and analyzes the financial position of Aytoun which has been prepared to keep in consideration the feasibility for MMU of increasing its equity investment in Aytoun. In order to significantly control the operations of Aytoun, MMC requires increasing its holding in the company to above 50% in total.  …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER98.3% of users find it useful
The Financial Position of Aytoun
Read Text Preview

Extract of sample "The Financial Position of Aytoun"

Manchester Money Universal plc (MMU) holds 20% equity investment in Aytoun plc (Aytoun) which was acquired through a share exchange transaction during the year 2002. Aytoun is a recognized name in the medium-sized supermarket chain industry and enjoys a considerable market share. The company is listed on London Stock Exchange (LSE) and has been classified as small and medium sized entity by the Securities and Exchange Commission (SEC). The company prepares its Financial Statements in accordance with the relevant International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). Since the last many years, Aytoun has been servicing the customers through its products and services which are considered synonym for high quality and customer satisfaction. With convenient stores spread throughout the London City, Aytoun is ready to facilitate its customer round the clock. However recently, the company has been facing financial and operational difficulties owing to the uncertain and volatile market conditions and augmented competition in the industry. It has always been observed that in the times of tough economic environment, the already aggravated financial position of medium sized entities is further downgraded due to the lack of enough cash flows and weak asset backing ability. This notion aptly justifies the poor financial and operational outlook of Aytoun in the past few years. The company had to lay off a considerable number of its work face in order to curb its operational expenses. Moreover, as the company was facing severe liquidity problems, its supply chain management was adversely affected. Suppliers are unwilling to conduct business with the company and those who do, are providing unfavorable credit terms. The company is unable to upgrade its Information Technology strategy in line with the latest trends in the industry and thus have lost competitive edge. This report elaborates on and analyzes the financial position of Aytoun which has been prepared keeping in consideration the feasibility for MMU of increasing its equity investment in Aytoun. As per International Accounting Standard 28 ‘Investment in Associate’, through holding of 20% voting shares, MMC is able to enjoy significant influence but not significant control.[1] In order to significantly control the operations of Aytoun, MMC requires increasing its holding in company to above 50% in total. In order to revive the company financially and operationally, Aytoun has reorganized its management to certain extent. Most notably, a new finance manager, John Smith was appointed on March 2008 who brings with him a diverse experience in accounting and financial reporting. Shortly after his appointment, four new super markets were acquired with a view to increase the market share of the company and to boost its turnover. The Board of Directors of Aytoun, in the annual general meeting of 2009, has decided to rebrand the acquired sites in order to create a new and differentiated outlook. Aytoun has declared its financial results for the half year ended June 30, 2010 which shows signs of improvement and stability owing to the changed corporate and business strategy. The ratio analysis of the financial statement of Aytoun has been enclosed (Appendix B). The current ratio of Ayton has improved owing to the increase in its current assets by 4% since the year ended December 31, 2009. The company incurred expenditure amounting to £3 million during the current financial year on account of rebranding expenditure which has started to deliver positive results. The customer base of the acquired supermarket sites has caused the turnover for the current half of the financial year to increase substantially as compared to the prior period which is reflected in the increase of Trade Receivables of the company which has increased by 17%. Although the cost of sales increased marginally, the trade payables of the company have decreased by 9%. Ayton has implemented new and improved integration methodologies with the suppliers which has enabled the company to make timely payment and avail attractive terms. Other payables, which reflect the tax payable, and Cash and cash equivalent have decreased by 80% and 20% respectively. The investment in rebranding and focus on operational management is delivering favorable results for Aytoun. The financial results for the half year ended June 30, 2010 is showing stable financial outlook of the company which can is represented by the improvement in gross profit ratio by 7%. For the half year ended June 30, 2010, Aytoun earned a gross profit of £109 million. Extrapolating this figure, the company is expected to report a gross profit of £218 million (£109 x 2) as at December 31, 2010 which is £21 million higher than the gross profit reported on December 31, 2009. Following the same trend, the net income ratio of the company has increased by 3%. The company has shown this result not only by increasing their sales but also through managing its operating expenses on sound and prudent policies. Better marketing strategy and effective logistics management has able the company to increase its turnover. During the current half of the financial year, Aytoun opened two new stores during the year which are expected to further enhance its operating results. One of the major concerns of the management during the current half of the financial year was the management of operating cash flows. The operating cash flow to sales ratio has shown improvement of 3% as compared to the prior period. Opening of new stores and implementation of e-commerce has enabled the company to reach out to its customer more conveniently and efficiently. The company recently implemented the renowned supply chain management software JDA, which has been used by more than 6,000 organizations worldwide, offering optimization of resources. [2] With the implementation of state of the art information system, the company has been able to decrease its debtor turnover ratio and thus boosting its operational cash flows. Moreover, during the year the company incurred heavy capital expenditure on the renovation of the acquired sites and also on the purchase of furniture and fixture, which has caused the free cash flow ratio of the company to decrease by 54%. In the annual general meeting of the company pertaining to the year ended December 31, 2009, the Board of Directors of Aytoun declared a dividend of 12p per share which was paid during the year in March. An interim of 2p per share has been proposed during the current year which will be paid in December 2010. The increase in dividend per share advocates the strengthening financial condition of the company. Although the company is showing promising results, its market price has been decreased from 0.91p per share to 0.87p from February 2010 to October 2010. As per the financial market analysts, the decrease in the share price is due to the overall turbulence in the market. The company’s positive fundamentals are in place and its share price is expected to hit higher in coming periods. Dividend yield, which is one of the most important ratio as far as investment in a company is concerned, has increased considerably by 74% during the current year. Apart from that, market price to earnings and market price to cash flow have also improved. The debt ratio of the company has marginally decreased but improvement in the interest coverage ratio has been observed. As per latest development, the company is under negotiation for obtaining loan faculties from several banks and financial institution which is expected to increase its finance charge in the future periods. Overall Aytoun’s financial analysis shows promising results and the company is on the inclining trend. The company has reorganized its management and operational structure and is adopting policy which will allow it to gain competitive advantage in the future. The company has acquired 3 stores in August which shows its firmness towards achieving higher market share. Increasing the holding in the company will be beneficial for MMU as the profit margins of the company are rising and also we will be able to exercise sufficient control over its operations. Consolidating the financial results of Aytoun as a subsidiary will substantially enhance the financial outlook of MMU. However, there are certain areas which must be investigated before making such decision. As per the scrutiny of financial results, taxation related issue is in progress with HMRC which can cause penalties and increased tax expenses in future. The company has recently reassessed the useful life some property plant and equipment from 4 to 5 years. It must be ensured that the company has reasonable justification for doing so as the same type of assets are depreciated over a useful life of 4 years by similar companies. Moreover, it must be ensured that the company does not have any related party relation with the bank from which the debt facilities will be acquired, as defined by International Accounting Standard 24 “Related Party Disclosure”. In case of any such relation, proper disclosure will be required in the financial statements. [4] APPENDIX A References [1] Deloitte 2010, “IAS 28 investment in associates” [online], 20th November 2010 [2] JDA Software – The Supply Chain Company 2010,”About JDA” [online], 20th November 2010, < http://www.jda.com/company/company-index/> [3] Richard Loth, “Financial Ratio Tutorial, article” [online], 20th November 2010, [4] Deloitte 2010, “IAS 24 Related Party Disclosures” [online], 20th November 2010 APPENDIX B Aytoun plc Ratio Analysis Liquidity Measurement Ratio June 30 2010 December 31 2009 1 Current Ratio 0.650 0.641 2 Quick Ratio 0.138 0.141 3 Cash Ratio 0.050 0.064 Profitability Indicators Ratio 4 Gross Profit Ratio 0.427 0.400 5 Net Profit Ratio 0.129 0.126 6 Return on Assets (ROA) 0.114 0.225 7 Return on Equity (ROE) 0.238 0.611 Cash Flow Indicators Ratio 8 Operating Cash Flow/Sales Ratio 0.235 0.228 9 Free Cash Flow/ Operating Cash Flow 0.333 0.723 10 Dividend Coverage 5.000 9.333 Investor Ratios] 11 Price/Book Value Ratio 0.584 0.711 12 Price/Cash Flow Ratio 1.450 0.813 13 Price/Earnings Ratio 0.026 0.015 14 Price/Sales Ratio 0.341 0.185 15 Dividend Yield 0.230 0.132 Debt Ratios 16 Debt Ratios 0.503 0.540 17 Debt -Equity Ratio 1.013 1.172 18 Interest Coverage 7.375 5.353 Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(The Financial Position of Aytoun Report Example | Topics and Well Written Essays - 1500 words, n.d.)
The Financial Position of Aytoun Report Example | Topics and Well Written Essays - 1500 words. https://studentshare.org/finance-accounting/1744782-atp-coursework
(The Financial Position of Aytoun Report Example | Topics and Well Written Essays - 1500 Words)
The Financial Position of Aytoun Report Example | Topics and Well Written Essays - 1500 Words. https://studentshare.org/finance-accounting/1744782-atp-coursework.
“The Financial Position of Aytoun Report Example | Topics and Well Written Essays - 1500 Words”. https://studentshare.org/finance-accounting/1744782-atp-coursework.
  • Cited: 0 times

CHECK THESE SAMPLES OF The Financial Position of Aytoun

Homelessness and the Failure of the Welfare System

The four articles under discussion in this paper present homelessness from different perspectives and offer an overview of the welfare system that sets forth its shortcomings.... The argument as set forth below indicates more shortcomings than positive features and calls for a welfare system that focuses on individuals and offers them the ability to make decisions for themselves....
4 Pages (1000 words) Essay

The importance of cultural diversity in one's life

A culture that is completely homogenous may view cultural diversity as a threat to social life, education, or financial well being (Rendon).... In the modern world, cultural diversity within communities is a common occurrence.... Groups of people can be diverse based on many criteria including but not limited to age, race, gender, religion, and economic status....
3 Pages (750 words) Essay

The Reluctant Workers

Being a little bit disappointed, Tim starts to doubt whether an idea of project management really suits his leadership skills.... The… Hence, Tim complaints that every employee is not interested in staying at work a little bit longer for brainstorming or proposing relevant suggestion that will be able to improve the performance of As soon as the working day ends, the entire collective goes home not willing to have a meeting or discuss impending tasks and plans....
4 Pages (1000 words) Essay

TARGET CORPORATION FINANCIAL ANALYSIS AND INTERPRETATION

d] TARGET CORPORATION financial ANALYSIS AND INTERPRETATION Target Corporation Target Corporation Perform their business as Target, is an American department store.... Target Corporation's financial Analysis:In order to define whether an organization is doing sound we must go through a few things.... onsolidated Statement Of financial PositionAmount in Millions200620052004AssetCash & Cash Equivalents$1,648 $2,245 $708 Account receivable 5,666 5,069 4,621 Inventory5,838 5,384 4,531 Other current assets1,253 1,224 1,000 current asset discontinuous operations -2,092 Total Current Assets14,405 13,922 12,952 Property & EquipmentsLand4,449 3,904 3,312 building and improvement14,174 12,518 11,022 Fixture & Equipments5,433 4,988 4,577 construction in progress1,168 982 969 Accumulated Depreciation(6,176)(5,412)(4,727)Property & equipments-Net19,038 16,860 15,153 other Non Current Assets1,552 1,511 1,377 Non Current Assets discontinued operation0 -1,934 Total Assets$34,995$32,293$31,416Liabilities & Share Holders InvestmentAccounts Payable$6,268 $5,779 $4,956 Accrued Liabilities2,193 1,633 1,288 Taxes Payable374 304 382 Notes Payable753 504 863 Current Portion of Long Term notes Payable0 825 9,588 8,220 8,314 Long Term Debt9,119 9,034 10,155 Deferred Income 851 973 632 Other Non Current Liabilities1,232 1,037 917 Non Current liabilities of discontinued operations-266 Shareholders InvestmentCommon Stock73 74 76 Additional Paid in Capital2,121 1,810 1,530 Retained Earning12,013 11,148 9,523 accumulated other income(2)(3)3 Total14,205 13,029 11,132 Total Liabilities & Shareholder's Investment$34,995$32,293$19,446Works CitedFirestone, Mary....
2 Pages (500 words) Essay

Ratio Analysis in Comparison of Company in Industry and with Its Chief Competitors

The decision makers may be internal (management, shareholders, employees,… the financial statements in isolation are not enough to give meaningful information unless it is compared with other financial statements.... When such relationships are derived from the financial statements, they are called accounting ratios (Kim & Ayoun, 2005, p.... Accounting ratios is an important tool for financial statement analysis.... Accounting ratios have immense application in interpretation of financial statements by helping perform both intra-firm and inter-firm comparison....
4 Pages (1000 words) Essay

Methods of Analysis in Health Care

Ratios are useful in evaluating the position of a business in a particular area.... This sort of analysis focuses on how a company performs over many years and time is the most relevant factor through which the Methods of Analysis in Health Care Methods of Analysis in Health Care There are different methods of analysis used in financial decision making.... ertical AnalysisVertical analysis is a form of financial analysis in which elements of financial statements are presented in a percentage form of total elements (Haber, 2004)....
2 Pages (500 words) Research Paper

A Subsidiary Company in a European Union Country

ext plc's business strategies include developing and upgrading Next products, improving the company's financial strength by promoting secure financing structure and increasing the number of online sales globally.... In the paper “A Subsidiary Company in a European Union Country” the author analyzes various challenges for clothing industry which include increased expenses for operating costs and raw material....
5 Pages (1250 words) Essay

Shareholders Rights in Qatar

The minority shareholders are denied the chance to actively participate in the voting process putting them in a position of being voiceless in the company affairs (Baydoun, #7).... "Shareholders Rights in Qatar" paper focuses mainly on the rights of shareholders in Qatar and the remedies of a shareholder....
6 Pages (1500 words) Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us