Financial statement analysis Essay

Financial education summary is a process which examines erstwhile(prenominal) and current mo salaryary selective information for the train of evaluating military ope ration and projecting future risks and dominance of a bon ton.Financial statement digest is employ by various lot and companies for different reasons, e.g. investors, creditors, lending officers, managers, employees and mevery early(a) equalityties who rely on pecuniary data for making economic decisions ab f either out a ships participation.The objective of this David J bingles financial statement synopsis is to identify the alliances murder issues, to provide suggestions and advocateations by employing the balance analytic thinking method and analysing internetability, Efficiency, compact and Long name Solvency, and by using stigmatizeet base Ratios.The fol let outing report out declivitys the financial act of David J one and only(a)s Limited based on the FY2011 & FY2012 annual Reports. Th e key measures used to assess ac association death penalty argon Profitability, Efficiency, Short & long Solvency and Market-Based Ratios. David Jones has performed well in a about nations which include having solid gold f pitiables, low debt, a strong balance saddlery and additions in prime locations however thither is definite room for value with regards to gross revenue capital punishment, and it needs to address the high appeal of gross gross gross revenue and sluggish scroll in order to turn about come with advantageability and surgical operation.We aver studied your 2011 and 2012 financial reports and statements and great deal see that your familys sales performance has been declining year on year. gross revenue revenue for FY2012 was down -4.8% when compared to FY2011, and FY2011 sales were down -4.45% vs. FY2010.Your chairman and management eat up blamed this on the depressed consumer cerebration and incrrestraintd global competition as a conduce of the strong Australian currency. The uncertainty of Europe and USA and irritability in global equity grocery store have contributed to a general mental picture of uncertainty, the strong Australian dollar similarly contributed to price deflation and encouraged spending offshore. (page 2, yearly Report)ProfitabilityIn FY2012, all measures of profitability were considerably down on immediate payment in ones chips year. thoroughgoing(a) Profit was down from $767m to $670m, and the uncouth Profit moulding (GP %) was down 160bp to 37.5% (-4.2% on FY2011 39.1%). The poor GP % has been the result of discounting in a competitive surroundings and transaction with nimiety size up on come about at the commencement of FY2012 (page 5, annual Report).When compared to your primary(prenominal) antagonist Myer (Market Capitalization 1.59b1 Vs. DJS 1.477b2), at that place is a large variance between the Gross Profit boundary lines of the dickens companies (Myer GP % FY2012 49.3%3 , +160bp from antecedent year, DJs-FY2012 37.47% -160bp). This can be attributed to Myers oftentimes refuse toll of Goods Sold (COGS) (Myer 56% Vs. DJs 62.5% in FY2012).Myer has a competitive service in the marketplace with a bigger network of stores and great buying power. Their big volume of purchases may mean they are able to obtain lower approach prices with suppliers. However, there are a few key areas you have identified in your hereafter strategic wariness be after which we feel leave assist in lowering your COGS and result in a emend GP % rate.Firstly, signing max brands to your portfolio will assure product none to nodes and meliorate fake everyplace supplier trading terms and prices. Secondly, the Cost damage Harmonisation that you are engaging in with suppliers (page 3, Annual Report) is key to maintaining your GP % and ensuring that your COGS do non produce and prices do non become uncompetitive with international retailers. Thirdly, discontinui ng lower gross profit categories and moving towards a greater product mix of higher molding categories (page 4, Annual Report) will subjoin your GP % in the long run and ensure you maximize the profit outcome from the fund you carry. For example, introducing to a greater extent than private label family line brands could be one system in which to plus the proportion of higher marge products in your portfolio.The remuneration Profit Margin in FY2012 drop-offped drastically compared to FY2011 (-36.9%, $101 vs. $168 one thousand thousand), with sales revenue drop -4.8% ($1.867b vs. $1.962b). It was however, on par with Myer at 5.4%.The main factor modify to the big celestial latitude in net profit were the high operating expenses over FY2012. Depreciation expenses were up by +13.23%, leasing expenses were up by +6.1%, advertising and marketing had deceased up +19%, administration expenses were up by +29.4%, and finance be were up +40%. Excess line of descent during t he headway period also resulted in heavier discounting and contributed to the fall in net profit.Whilst your company has say Cost of Doing Business (CODB) Reductions as one of the points in your Future Strategic Direction Plan, there are many bran-new(prenominal) areas that can be intercommunicate to ease operating represents. For example, a reduction in the coat of all or some of your retail stores will result in savings in store represents such as leasing, staff, utilities, and so on. This could be implemented in conjunction with the Omni line of descent Retailing strategy as highlighted as the first point in your Future Strategic Direction Plan (page 3, Annual Report), as customers move away from traditional bricks and mortar shops and increasingly to online shopping destinations. The gauzy growth rate in HY2013 of your online store4 highlights the opportunities in the online channel and the change in customer shopping behaviour.With regards to the Asset overturn ratio, your company performed slightly violate than Myer Holdings in FY2012 (1.5 Vs 1.34, call to Appendix B). Internally, there was an 8% drop that was collectable to sluggish sales performance (1.5 Vs. 1.63, Refer to Appendix A).Since your Net Profit Margin dropped dramatically in FY2012, the drive off on Assets (ROA) followed suit and decreased by -41% (from 13.96 to 8.23, refer to Appendix A) non a correct result in asset management performance. Your companys property portfolio consists of 4 buildings valued at $612 meg (page 5, Annual Report). All of these buildings are in the prime locations, with two in the Sydney CBD and two in the Melbourne CBD. The rental income is assumed to be in the vicinity of $39 one million million million per annum (page 5, Annual Report). If a reduced size store was considered, a potential income of $10-15 million could be generated per annum, increasing the net profit percentage by 9-14% (Net Profit FY2012 $101,103,000). Your companys re-devel opment consideration is a semipermanent process and we believe it will be successful in generating positive ROA with the beguile planning.Improving the Gross Profit margin while maintaining current overheads will result in a positive increase in the Net Profit margin position and rise the overall performance of the company.EfficiencyEfficiency is much than important when compared to peers in the same industry and can assist in identifying businesses that are repair managed relative to opposites.By comparing your figures with Myer, your company performed better in Inventory Turnover (89 solar days vs 96 days, Appendix A & Appendix B), which kernel you have a better storehouseturn and are generating revenue from your inventory in a shorter period of time. However, 89 days is still a sanely high measure as it means you are sitting on stock for an average of 3 months before it is change through. To improve your inventory derangement, you could consider dropping your bestsel ling items more(prenominal) frequently to stores, but with littler quantities each time. This will ensure that the stores which are selling through the stock fast remain in stock at all times, without a large union of unsold stock building up in the slower performing stores and change your inventory turnover. It also means you will be generating sales and cash more quickly from your stock investment.Myer performed slightly better on Average Days sales Uncollected (DJS 3.5 days vs. Myer 2.5 days, Appendix A & B). To improve this measure for example, you could encourage more online sales to generate faster turnover into cash than store card sales which are monthly billings.Internally, FY2012 performed slightly better than FY2011 in Average Days Sales Uncollected (FY2012 3.5 vs. FY2011 4 days) but worse in Inventory Turnover (FY2012 89 vs. FY2011 87 days). The differences were negligible.Short-Term SolvencyDavid Jones has a good ability to meet its short-run financial obligation s, with a flow rate Ratio of 1.05 in FY2012 (Appendix A) outperforming Myer at 0.88 (Appendix B). However, since the Quick Ratio is not high at 14.4% (Appendix A), short-term fluidness could be an issue. When compared with Myer at 11% (Appendix B), David Jones has performed better.The Current Ratio performed better in FY2011 than FY2012 by 14.6% (Appendix A). The main reason for this is the 15.1% increase in Current Liability ($306 million Vs. $266 million), with the $40 million difference due to an increase in Account Payables. There is no change in the Quick Ratio from FY2011 to FY2012 (14.4%), i.e. on the low side and short-term liquidity can be an issue, should not allow it to be deteriorate.The cash in & Cash Equivalents and Receivables figures corresponded $36.935 million which represented about 14% of Payables in the 2012 Annual Report. In order to achieve a better short-term liquidity position, a more efficient ordering & inventory control system should be implemented. Less inventory on hand equates to more cash and liquidity. Excess inventory can adventure a companys liquidity, in addition to causing stock problems and markdowns at the end of a season as was evidenced in FY2012.Long-Term SolvencyYou company performed much better than Myer Holdings in the area of Long-Term Solvency. Your company has demonstrated consistency in this area and long-term solvency should not be an immediate issue with your organization.The Debt to beauteousness ratio showed that there was an increase of 11% in FY2012 compared with FY2011 (Refer to Appendix A), i.e. the liability has kaput(p) up relative to allotholders equity. The main donation to the increase is due to the +22.3% ($265m Vs. $216m) increase in the Payables account. It is important to ensure that this trend does not continue and that debt does not continue to rise when compared to equity levels.With strong non-current assets of $917 million & total assets in excess of $1.24 billion, the Debt to To tal Assets ratio is healthy, with FY2011 at 35% and FY2012 at 37% (Refer to Appendix A) respectively. The extra 2% was due to the liability increase and it was the fallout of excess inventory as discussed in the short-term solvency section.Market-based RatiosTo calculate the Price/ sugar (P/E) Ratio, we used the share price on 16/5/2013 ($2.80). This equates to a PE ratio of 14.43, with the meshing give back ratio at 6.93% and the Dividend yield ratio at 6.25% (dividend was 17.5c).Myer Holdings dividend yield was around 7% (dividend of 19c with share price at $2.70). The market-based ratio is higher than your main competitor (Myer PE ratio is 11.8)5. However the Price/Earnings ratio indicates that todays share price of the company is on the low side as it is infra 15. The mass of analysts believe that the company is performing below par and do not recommend buying or holding David Jones shares at the irregular.Eva Brocklehurst of FNArean.com is quoted as saying in shew 2013, David Jones (DJS) is transforming. For brokers its not a moment too soon, as department stores have been plagued by a soft consumer environment and a need to respond to new trends in shopping. In its first one-one-half results the company has flagged progress with its strategic plan, reduce bells and expanding margins. Earnings were ahead of expectations for the half but sales growth was not. What delighted was the increased margin. What concerns brokers? Most importantly, a privation of sales momentum.Theres no Buy rating on the FNArena database. dickens brokers have downgraded ratings to wander in the awake of the results. There are five Sell ratings. There was one upgrade to Hold, and there are three Hold ratings. The consensus stooge price is $2.73, suggesting 11.5% downside to the last traded share price. A dividend yield of 5.5% is reflected in consensus earnings forebodes for FY13.6Performance IssuesAs highlighted above, your declining sales performance is the bigges t concern for shareholders and needs to be addressed immediately. Whilst earnings were ahead of expectations, this was managed by cost reductions and a move towards increased margins. An improvement in sales in conjunction with the efforts youre undertaking to reduce expenses and the cost of doing business will result in an improvement in the bottom line and signal confidence in the company and a turnaround for investors.David Jones has been labelled as an up-market department store. Australias $12 billion fashion retail industry is forecast to grow by only 0.5% in FY2012 with only an average 1.2% annualised growth expect for the next 5 years, according to analysis group IBISWorld. Furthermore, IBISWorld says shoppers are now more likely to buy low to mid-range priced array which has contributed to the declining value of retail sales. In general, the brain is not too positive for the industry.7greater differentiation is required between David Jones and Myer in order to attract and retain customers. Mark Ritson, Associate Professor of Marketing at Melbourne Business School commented, David Jones and Myer are respectable two sides of same boring coin. He says, I still believe to this day that most people coming out of either David Jones or Myer on Bourke path dont know which one they just come out of.7Some of the issues have been addressed by your companys Future Strategic Direction Plan, for example, a move towards Omni cable Retailing, building a Home of Brands strategy which differentiates David Jones from Myer, and cost improvements including GP margin improvements, CODB reductions and Cost Price Harmonisation with suppliers (pages 3-6, Annual Report). endingA thorough review of your companys FY2011 and FY2012 Financial Report & Statements has indicated that David Jones has a strong balance sheet, solid cash flows, low debt, and assets in prime locations. David Jones has performed on par, or better than Myer in the areas of Net Profit Margin, Asset Turn over, Inventory Turnover, and Short & Long-term Solvency.However, the companys declining sales performance is the biggest area of concern. Almost all measures of profitability were worse than Myer and have been travel when compared to David Jones own performance in preceding years. We believe that further differentiation from Myer, cost reductions & margin improvements, harmonization of prices to become more competitive with international competitors, better inventory management & a reduction in excessive stock, reduced retail radix space, and the move towards Omni-Channel Retailing will enhance the value of your company and result in better performance for all stakeholders.We intrust this report has provided insightful recommendations into improving the performance of your company.This report has been generated for your companys own reference and not for any other purposes. Other companies or individuals should not use or rely on any material contained within this report withou t the live with of our office.