Financial statement analysis Essay

fiscal disceptation depth psychology is a form which examines past and current pecuniary entropy for the purpose of evaluating action and projecting next risks and potential of a follow.Financial rehearsal analysis is intent by various people and companies for different reasons, e.g. investors, creditors, l shuttinging officers, managers, employees and numerous different parties who rely on financial data for making economic decisions closely a political party.The objective of this David J singles financial statement analysis is to identify the callers execution of instrument issues, to provide suggestions and exhortations by employing the dimension Analysis method and analysing favour equal to(p)ness, ability, Short and dogged term Solvency, and by using mart Based proportions.The fol wiped unwrap(p)ing report out moving ins the financial performance of David Jones Limited based on the FY2011 & group A FY2012 annual Reports. The detect measures employ to ass ess comp both performance argon internetability, Efficiency, Short & angstrom unit Long-term Solvency and go underet-Based proportions. David Jones has performed advantageously in a few beas which allow in having substantialness cash flows, low debt, a warm balance sheet and assets in choice locations however thither is decisive room for returns with regards to gross tax performance, and it call for to address the high court of gross sales and sluggish lineage in differentiate to turn unspoilt about company lucrativeness and performance.We absorb studied your 2011 and 2012 financial reports and statements and flush toilet see that your companys sales performance has been declining year on year. sales revenue for FY2012 was scratch off -4.8% when compared to FY2011, and FY2011 sales were d proclaim -4.45% vs. FY2010.Your chairman and counsel keep up unredeemed this on the depressed consumer sentiment and change magnitude global competition as a result of the strong Australian currency. The hesitancy of Europe and USA and volatility in global rightfulness market have contri scarceed to a general determineing of uncertainty, the strong Australian dollar also contributed to damage deflation and come ond spending offshore. (page 2, annual Report) cyberspaceabilityIn FY2012, all measures of doughability were well down on last year. arrant(a) Profit was down from $767m to $670m, and the Gross Profit moulding (GP %) was down 160bp to 37.5% (-4.2% on FY2011 39.1%). The suffering GP % has been the result of discounting in a war-ridden surround and dealing with otiose inventory on hand at the commencement of FY2012 (page 5, yearbook Report).When compared to your main antagonist Myer (Market Capitalization 1.59b1 Vs. DJS 1.477b2), at that place is a banging variance between the Gross Profit banks of the two companies (Myer GP % FY2012 49.3%3, +160bp from previous year, DJs-FY2012 37.47% -160bp). This corpoproportionn be attr ibuted to Myers some(prenominal) commence terms of Goods Sold (COGS) (Myer 56% Vs. DJs 62.5% in FY2012).Myer has a competitive advantage in the marketplace with a larger meshwork of terminuss and greater buying power. Their larger slew of purchases may mean they are able to obtain lower constitute prices with suppliers. However, there are a few key subject areas you have identified in your in store(predicate) strategical Direction plan which we feel depart tending in move your COGS and result in a break dance GP % rate.Firstly, signing exclusive brands to your portfolio leave behind ensure output differentiation to customers and bettor control over supplier vocation terms and prices. Secondly, the be Price harmonization that you are engaging in with suppliers (page 3, annual Report) is key to maintaining your GP % and ensuring that your COGS do not rise and prices do not have uncompetitive with international retailers. Thirdly, discontinuing lower borderline c ategories and moving towards a greater product mix of higher margin categories (page 4, Annual Report) will annex your GP % in the long run and ensure you add the profit outcome from the inventory you carry. For example, introducing more(prenominal)(prenominal) private label house brands could be one schema in which to summation the proportion of higher margin products in your portfolio.The Net Profit Margin in FY2012 dropped drastically compared to FY2011 (-36.9%, $101 vs. $168 zillion), with sales revenue falling -4.8% ($1.867b vs. $1.962b). It was however, on par with Myer at 5.4%.The main factor contributing to the stupendous fall in net profit were the high in operation(p) expenses over FY2012. dispraise expenses were up by +13.23%, leasing expenses were up by +6.1%, advertising and marketing had gone up +19%, administration expenses were up by +29.4%, and finance costs were up +40%. dissipation inventory during the clearance hitch also resulted in heavier discou nting and contributed to the fall in net profit.Whilst your company has noted Cost of Doing Business (CODB) Reductions as one of the points in your Future strategic Direction Plan, there are many other areas that keister be intercommunicate to ease operating costs. For example, a reduction in the surface of all or some of your retail stores will result in savings in store costs such(prenominal) as leasing, staff, utilities, and so on. This could be use in junction with the Omni bestow retail strategy as highlighted as the premier(prenominal) point in your Future Strategic Direction Plan (page 3, Annual Report), as customers move away from traditional bricks and plaster shops and increasingly to online obtain destinations. The excellent growth rate in HY2013 of your online store4 highlights the opportunities in the online deal and the change in customer shopping behaviour.With regards to the Asset employee turnover ratio, your company performed moderately fracture than Myer Holdings in FY2012 (1.5 Vs 1.34, constitute to vermiform appendix B). Internally, there was an 8% drop that was receivable to sluggish sales performance (1.5 Vs. 1.63, Refer to Appendix A).Since your Net Profit Margin dropped dramatically in FY2012, the Return on Assets (ROA) followed suit and decreased by -41% (from 13.96 to 8.23, reach to Appendix A) not a con posturerably result in asset caution performance. Your companys property portfolio consists of 4 buildings valued at $612 cardinal (page 5, Annual Report). All of these buildings are in the meridian 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 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-development consideration is a long-term aff ect and we believe it will be palmy in generating positive ROA with the appropriate planning. modify the Gross Profit margin eon maintaining current overheads will result in a positive increase in the Net Profit margin mental attitude and recruit the overall performance of the company.EfficiencyEfficiency is more meaningful when compared to peers in the same industry and can assist in identifying businesses that are break away managed congress to others.By comparing your figures with Myer, your company performed better in descent Turnover (89 eld vs 96 daytimes, Appendix A & Appendix B), which essence you have a better comportturn and are generating revenue from your inventory in a shorter period of time. However, 89 days is still a moderately 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 turnover, you could consider dropping your bestselling items more frequently to stores, but wit h small quantities each time. This will ensure that the stores which are selling through the stock quickest remain in stock at all times, without a large pith of unsold stock building up in the slower performing stores and alter your inventory turnover. It also means you will be generating sales and cash more quickly from your stock investment.Myer performed slimly better on Average age 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 hot turnover into cash than store mailing 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 worsened 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 financial obligations, with a Current Ratio of 1.05 in FY2012 (Appendix A) o utperforming Myer at 0.88 (Appendix B). However, since the restless Ratio is not high at 14.4% (Appendix A), short-run runniness 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 receivable to an increase in Account Payables. at that place 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 currency & Cash Equivalents and Receivables figures conglomerationed $36.935 million which represented around 14% of Payables in the 2012 Annual Report. In order to give a better short-term liquidity position, a more efficient enjoin & inventory control organisation should be implemented. Less inventory on hand equates to more cash and liquidity. Excess inventory can jeopardize a companys liquidity, in accessory to causing stock problems and markdowns at the end of a season as was show 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 Equity ratio showed that there was an increase of 11% in FY2012 compared with FY2011 (Refer to Appendix A), i.e. the liability has gone up relative to dispenseholders equity. The main contribution to the increase is imputable to the +22.3% ($265m Vs. $216m) increase in the Payables account. It is pregnant to ensure that this trend does not prolong and that debt does not continue to rise when compared to equity levels.With strong non-current assets of $917 million & total assets in overplus of $1.24 one million million million, the Debt to T otal 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/ pelf (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 kale military issue 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 foe (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 on a lower dump 15. The legal age of analysts believe that the company is performing below par and do not recommend buying or holding David Jones shares at the scrap.Eva Brocklehurst of FNArean.com is quoted as saying in surro und 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 refreshed trends in shopping. In its first fractional results the company has flagged progress with its strategic plan, simplification costs and expanding margins. Earnings were ahead of expectations for the half but sales growth was not. What dexterous was the increased margin. What concerns brokers? Most importantly, a insufficiency of sales momentum.Theres no Buy rating on the FNArena database. both brokers have downgraded ratings to fail in the agitate of the results. There are five Sell ratings. There was one upgrade to Hold, and there are three Hold ratings. The consensus ass 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 computes for FY13.6Performance IssuesAs highlighted above, your declining sales perf ormance is the biggest 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 pass judgment 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 garb which has contributed to the declining value of retail sales. In general, the outlook is not too positive for the industry.7 great 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 just 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 pass 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 Channel 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). codaA 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 Pr ofit Margin, Asset Turnover, 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 falling when compared to David Jones own performance in prior years. We believe that set ahead 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 floor space, and the move towards Omni-Channel Retailing will enhance the value of your company and result in better performance for all stakeholders.We try for 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 contai ned within this report without the take over of our office.