Analysis Clive Peters Assignment Help
Analysis Clive Peters Assignment Help is Australian retail company that sells electrical, kitchen, computer and white goods appliances. Its first store opened in Melbourne in 1973. Today it is one of the biggest names in retail industry in Australia. It has presence all over the country with stores in Victoria, Queensland and Tasmania. Clive Peeters store carries 140 brands and more than 20,000 individual models.
The report is covered in three parts. In the first part, we analyse the financial health of the company by comparing the financial ratios of the company for three consecutive years 2007, 2008, 2009. The changing trend in the major financial ratios will give valuable insight about direction in which the company is headed.
In the next part, we analyse the management practices based on various sections of the annual report. These sections should reveal to us the management opinion of the company’s financial health and the promises it holds for the shareholder.
In the third part we will use various other media sources to deduce the current condition of the company and its future growth plans.
- These ratios give a measure of the capability of the company to fulfil its short term debt obligations. In general a higher liquidity indicates better ability to pay short term debt. Bankruptcy analysts often use these ratios to determine if the company can continue to run as a going concern. (creditguru, 2011)
- Current Ratio
This ratio is regarded as a test of liquidity for the company. Higher value here indicates better capability to furnish its short term debts.
Current Ratio = Total Current Assets/ Total Current Liabilities
Current ratio in the year 2007 – 1.2233
Current ratio in the year 2008 – 1.3711
Current ratio in the year 2009 – 1.4284
The ratio comparison among the three years indicates that the current ratio is increasing. This is generally a good sign and implies that the company will be able to fulfil short term debt in case of bankruptcy.
- Quick Ratio: This ratio is obtained by dividing the ‘Current assets – Inventory’ of a company by its ‘Total Current Liabilities’. Very often it may happen that a company could be carrying heavy inventory as part of its current assets, which might be obsolete or slow moving. Thus eliminating inventory from current assets and then doing the liquidity test is measured by this ratio.
Quick Ratio = Current asset – Inventory / Total Current Liabilities
Quick ratio in the year 2007 – 0.3623
Quick ratio in the year 2008 – 0.4182
Quick ratio in the year 2009 – 0.4565
Quick ratio is increasing through these years which is a good indication. It means that the inventory is also getting cleared at the same rate as the rate of growth of other current assets
- Cash ratio: Finally, the cash ratio is the most conservative liquidity ratio. It excludes all current assets except the most liquid: cash and cash equivalents.
Cash Ratio = (Cash + Marketable Securities) / Current Liabilities
Cash ratio in the year 2007 – 0.0976
Cash ratio in the year 2008 – 0.1238
Cash ratio in the year 2009 – 0.041
Cash ratio declined in 2009 and implies that the readily available cash is reducing. This is not a good sign since it could lead to insolvency of the company.
Any ratio which is used to calculate the financial leverage (dependency on debt) of a company to get an idea of the company’s methods of financing or to measure its ability to meet financial obligations is called leverage ratio. (netmba, 2009)
- Debt to Equity ratio
The debt to equity ratio is the most popular leverage ratio and it provides detail of the amount of leverage (liabilities assumed) that a company has in relation to the monies provided by shareholders. The lower the number, the less leverage that the company is using.
Debt Equity Ratio of year 2007 – 0.3548
Debt Equity Ratio of year 2008 – 0.583
Debt Equity Ratio of year 2009 – 0.671
The ratio clearly shows the increasing dependency on debt. Additional debt is taken mostly for expansion purposes. It is to be noted that as increase in DE ratio along with an increase in ROA is good for the company but if the ROA does not improve it may mean that the investments are proving to be detrimental. (Bragg, S. 2007)
- Interest Coverage Ratio
The interest coverage ratio gives us a measure of how easily a company is able to pay interest expenses associated to the debt they currently have. The interest coverage ratio is very closely monitored because it is viewed as the last line of defence in a sense that the company can get by even when it is in a serious financial bind if it can pay its interest obligations.
Interest Coverage Ratio in the year 2007: 14.78
Interest Coverage Ratio in the year 2008: 5.88
Interest Coverage Ratio in the year 2009: -1.35
The interest coverage ratio has been declining constantly and significantly. This is again a bad sign since it means that the company is finding it more and more difficult to furnish its debt obligation. It can also lead to loss of debtor confidence and their refusal to further invest in the company.
Analysis Clive Peters Assignment Help
These ratios are the ones used to analyse how well a company uses its assets and liabilities internally. Efficiency ratios are important because an improvement in the ratios generally translates to improved profitability.
It is to be noted that although debtor’s turnover ratio is an important efficiency ratio for most companies, in our case it has little significance because payments are made in cash. As such this ratio is not considered for the analysis.
- Fixed Asset Turnover Ratio
- It is the ratio of total sales to the value of fixed assets. It gives an indication of how well the fixed assets are used to generate revenue. Generally speaking, the higher the ratio, the better, because a high ratio indicates the business has less money tied up in fixed assets. A declining ratio may indicate that the business is over-invested in assets, assets are not used efficiently and there is a need for streamlining. (mysmp, 2011)
Fixed asset turnover ratio for the year 2007: 24.37
Fixed asset turnover ratio for the year 2008: 22.97
Fixed asset turnover ratio for the year 2009: 23.27
This turnover ratio has remained nearly constant over the years. Therefore it can be inferred that the assets continue to perform well to generate sales.
- Inventory Turnover Ratio
It is the cost of goods sold in a time period divided by the average inventory level during that period. It is an indication of how fast the retailer is able to get rid of the inventory.
Inventory turnover ratio for the year 2007: 3.404
Inventory turnover ratio for the year 2008: 2.997
Inventory turnover ratio for the year 2009: 3.47
Inventory turnover ratio has also remained nearly constant with a slight downfall in 2008. This can be attributed to opening up of new stores wherein sales have not picked up very well and hence stocks are still piled up.
- Accounts Payable Turnover
A short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period.
Accounts payable turnover for the year 2007: 4.144
Accounts payable turnover for the year 2008: 3.434
Accounts payable turnover for the year 2009: 4.11
The company has done reasonably well to pay its suppliers timely. This also means that the company continues to get good terms of sales from the supplier. An established supply chain with reliable partners is the reason. Order Now