Unit-2 Analysis Clive Peters Assignment Help
Unit-2 Analysis Clive Peters Assignment Help These ratios measure how profitable the business is. Profitability can be determined in terms of the total sales made, money invested, or capital employed during that particular period of time.
- Net Profit Margin
A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.
Net profit margin for the year 2007: 0.03
Net profit margin for the year 2008: 0.019
Net profit margin for the year 2009: -0.018
The profitability of the company has kept falling over these years. As per the MD’s report, the decline in profit is mostly because of newly opened stores especially in Sydney which are yet to pick up sales as expected. Till 2008, the management insisted that these investments will yield fruitful results in future. However in 2009 and later they admitted to having over estimated their expectation.
- Return on Asset (ROA)
The Return on Assets of a company determines its ability to utilize the Assets employed in the company efficiently and effectively to earn a good return. The ratio measures the percentage of profits earned per dollar of Asset and thus is a measure of efficiency of the company in generating profits on its Assets.
ROA for the year 2007: 0.069
ROA for the year 2008: 0.0493
ROA for the year 2009: -0.041
ROA too has fallen over the years and is a bad sign. The assets, although performing well to give good turnover are becoming more and more expensive to maintain and hence operational costs in them have increased. There is a desperate need to streamline their assets so as to keep the operational costs low. (James, D 2011)
- Return on Equity (ROE)
ROE measures the amount of profit that a company generates through the use of shareholders’ equity. For a shareholder this is the most important ratio since it a direct measure of the return he gets for his investment.
ROE for the year 2007: 0.1744
ROE for the year 2008: 0.128
ROE for the year 2009: -0.129
ROE has reduced significantly and this has reduced investor confidence. Global recession and other macroeconomic factor are to be partly blames whereas inefficient management is also responsible for this.
Inference from the Ratio Analysis
From the ratio analysis we infer that the company’s financial health was sound till 2007. From 2007 onwards the company has made growth plans and invested in unprofitable business which has resulted is declining profit margins. The debt taken has also increased whereas the ability to pay them has reduced. This can make debtors wary. The shareholders too must be concerned by the declining profitability and ROE.
The overall financial health of the company is declining and a drastic change in management or processes is required to correct things gone wrong.
ANNUAL REPORT ANALYSIS
Managing Director’s report
2007: In general the report gives a feeling of optimism with a blend of scepticism. While the director is upbeat about all other areas where store is located, the newly opened outlet in New South Wales has taken a beating and income statement has been affected for the same reason. New store in South Wales lead to decline in profit. This was due to inexperienced staff and overestimating the forecasts. (wotnews, 2011) Also, the competition is high in retail business. In other areas the stores did reasonably well.
Even for the next year, loss is expected for New South Wales but breakeven will be achieved in 2009.
Management saw significant changes in recent times with senior level management being strengthened.
FY 07 was impacted by high fuel cost, rising interest rates, flat housing markets and other macroeconomic factors.
2008: New acquisition and expansion lead to reduced margin in 2008 but is expected to yield returns in later years. The new stores, as expected, did not reach there full potential. But with increased spending on marketing activities, as the director writes, it is bound to grow exponentially.
Additional debt was taken this year. This was used to fund opening of new stores. This is an indication that the relationship with debtors has improved.
New South Wales loss reduced and was better than expectation.
Technology products were doing better while kitchen and whitegoods segments had been sluggish yet profitable. Air conditioning business was disappointing and more so because it is a huge margin product and their focus has been on margins growth. The reduced demand in air conditioner is largely attributed to seasonal change. (Roth, M 2011)
Net cash flow in the year is positive despite many investment activities undertaken. IT implementation is a part of one such activity. This year also saw the company entering e commerce business
Overall while there are areas of concern to be looked upon financial health and the general outlook of the company remains good
2009: In this year for the first time in 15 years, gross margin went negative. Various factors have contributed to this. Rising unemployment, depressed housing market, global recession, credit squeeze midway in the year have all been unfavourable for the company. The industry, and indeed the economy, has on a whole suffered tremendously.
However, the real downside is the fact that although there was an increase in demand for home entertainment and technology products, the company failed to produce profit in these products. Managing director’s candidness in revealing the same is noteworthy. One can infer this as a sign of honesty or a sign of helplessness but it is easy to see that the company’s financials are suffering. The increase in sales force over the past year and marketing activities have failed to translate into revenue.
It has been a testing time for all companies across all industries due to global recession and waning consumer confidence. As such the general outlook of Clive Peeters looks grim. Order Now