David Jones Case Study
The achieve the objective, five key financial ratio analysis: Profitability, Liquidity, Asset Efficiency, Capital Structure has been use throughout the report Davit’s Jones profit margin has declined by 9% In year 201 2 with SO. 8 cent of net profit derived from every dollar of total sales in year 2012. Declined result in Return on Equity (ROE), Return on Asset (ROAR) and gross profit suggest that company having hard time during this financial period and is not able to optimized its resource to support revenue growth. From the liquidity perspective, the company has weaker liquidity compare to year 011.
Cash flow ratio indicates 7% declined from previous year, which could impact the company’s cash flow to meet the short term liabilities.
The current ratio also show dropping by 01. 7 time compare to year 2011, suggesting slowdown in inventory turnover and Increased borrowing in year 2012. Though facing with tough challenges, the company had started to Implemented number of strategic Annihilative to counter the continue challenging trading environment. The company had adopted the change to Omni Channel Retail, extending reach to its quickly evolving customer base.
The company also growing its tore network at major city in Australia. Despite the fact the failing of revenue, profits and dividends as indicated in the detail analysis in the report, David Jones is a solid company with strong backing of 760 Millions of tangible asset including its premium properties at Sydney and Melbourne metro, that should limit the risk of invest.
With current share price (dated 30th May 2013), David Jones is certainly a value buy and should provide good returns on long terms when economic climate are better. * Table of Contents 1. 0 Executive Summary 2 2. 0 Introduction of the Company 4 3. Ratios Analysis 5 Analysis AT Hannibal statements 4. 1 Profitability Analysis 6 4.
2 Asset Efficiency Analysis 8 4. 3 Liquidity Analysis 11 4. 4 Capital Structure Analysis 12 4. 5 Market Performance Analysis 13 5. 0 Recommendation & Conclusion References 16 Introduction of the Company 15 Just 50 years after the founding of the Colony, Mr.
. David Jones, a Welsh-born immigrant, opened large and commodious premises on the corner of George and Barrack Streets on 24 May 1838. Mr.. Jones’ mission was to sell the best and most exclusive goods and to carry stock that embraces the everyday wants of mankind at argue.
The founding store’s location on the main artery of the new town, opposite the General Post Office, was a brilliant choice and the small store prospered.
David Jones and Co. Received patronage from not only the Sydney gentry, but also the country settlers. Everyone flocked to the store to buy buckskins, ginghams, waistcoat fabrics, silks and cotton tick. David Jones eventually retired and left the management of the store to his business partners. Unfortunately, the store faced difficulties and the assets of David Jones were assigned to Trustees.
He came back out of retirement, arrowed heavily, and with the help of new partners and his son Edward Lloyd Jones, managed to recreate the store’s success. Edward Lloyd Jones had traveled widely overseas, and brought back to Sydney new ideas in retailing, including the European concept of a department store. David Jones Limited is Australia’s oldest department store, in operation since 1838 when settlers came to buy buckskins and ginghams. The national retail chain operates about 35 stores offering Australian and international brands of apparel, accessories, footwear, cosmetics, home furnishings, and food.
Ratios Analysis Ratios analysis examines the relationship between two quantitative amounts with the aim of expressing the relationship in ratio or percentage form (Birth et al. , 2010).
The details calculation is showed in Appendix 1. Analysis of Financial Statements The following financial analysis for David Jones is based on the five categories of ratios which include profitability ratios, efficiency ratios, liquidity ratios, capital structure ratios, and market performance ratios. The detailed calculation for each category of ratios can be obtained in Appendix 1 .
Figure 1: Asset Profitability of Analysis Source: Own Built Profitability Analysis An .NET to generate pronto Ana return on Investment Is one AT ten prime indicators of its financial health (Birth et al. , 2010).
Profitability ratios inform users as to the profit returns associated with their equity investment. In the case of David Jones, the Return on Equity (ROE) is higher in 2011 than 2012 as the company is experiencing a higher profitability on sales, this indicates that the owners and the shareholders are able to gain returns faster in 2011.
Referring to appendix 1, in 2011 the Return on Equity (ROE) of the company was reported at 22% which mean that room every $1 invested there is a return of $0. 22. This value has decrease to $0.
13 for every $1 invested in 2012. Over the last two years, David Jones has seen significant decrease in revenue from USED$ 1,961,744 million in 2011 to USED$ 1,867,817 million in 2012. While analyzing the ROE it is also good to note on the movement of the debt or total borrowings.
This is because a higher debt could also indicate a high ROE when really the firm Just has more obligations to creditors which could cause trouble in the future. However in the case of David Jones, the debt has decrease in the past 2 years, 2011 reported total borrowings of $ 120. 2 million and 2012 reported $ 115.
5 million). This could indicate the company has been raising capital by increasing its shareholders equity rather than borrowings. This is an important fact to note as the firm has reduced its obligations from creditors.
In 2012, the Return on Assets (ROAR) has had a decrease of 7% having reported 20% in 2011 and 13% in 2012. This indicates that in 2012, for every $1 the firm has invested in assets, the company produces $0.
13. The ratio reflects the results of the company’s ability to convert sales revenue into profit earned relative to the company’s bevel of investment in total assets measuring the company’s earnings in relation to all of the resources it had at its disposal. Overall ROE and ROAR performance for David Jones is still considered better compare to the average industry performance as seen from Figure 1 below.
Figure 2: Industry Comparison Source: Retrieved on May 2013, Bloomberg Business Week The Gross Profit illustrates the percentage of revenue left after subtracting the cost of goods sold. In year 2012, the gross margin ratio of the company has decrease by 2% from 39% in 2011 to 37%. This indicates that every $1 of sales revenue resulting in 39 .
NET of gross profit in 2011 and 37 cents in 2012. Investors tend to pay more for businesses that have higher efficiency ratings than their competitors, as these business should be able to make a decent profit as long as the overhead cost are controlled.
However David Jones is considered to be performing as almost on par comparing to other players in the industry as shown in figure 2. Figure 3: Industry Comparison Net Pronto margin Implicates now well ten Dustless NAS manage Its operating expenses and whether the business is generating enough sales volume to cover minimum fixed costs and still leave an acceptable profit. In 2011, David Jones shows 13 cents of net profit derived from every $1 of total sales, and this decrease to 8 cents in year 2012.
This indicates that the company has better control over its cost in 2011. The cash flow to sales ratio for David Jones indicates that every dollar of sales revenue generated 11 cents of net operating cash flows excluding net interest paid and tax paid in 2012, In comparison with the ratio of 9 cents in 2011, this shows the company has improve in its cash flow. Garrison, Noreen ; Brewer (2008) highlights “A positive cash flow from operating activities is necessary to avoid squatting assets or borrowing money Just to sustain day-to-day operations’.
Asset Efficiency Analysis Asset efficiency ratios measure the efficiency of a company in managing its current and non-current investments, and convert its investing decisions into sales dollars (Birth, Chalmers, Byrne, Brooks, & Oliver, 2012; Jones et. Al, 2011 & Stick et.
Al, 2011). Figure 4: Asset Efficiency Analysis Based on the analysis (Refer Figure 1), David Jones Group’s ability to convert a dollar investment in assets into sales revenue dollars has deteriorated over the two years. In 2012, an investment of $1. 0 in assets generated $1. 2 of sales revenue compared to $ 1.
63 in 2011 which gives a delta of declining -$0. 11 per dollar. Although the asset turnover ratio for David Jones Group deteriorated from 2011 to 2012, David Jones Group seems to perform at a level above that of the average companies under the multiplier retail industry (Refer Figure 2). Figure : 5 : David Joneses Assets Efficiency vs. Industry Average Source : Retrieve from Bloomberg Businesslike(BLOOMBERG L. P.
, 2013) As mentioned in “The Jones Group’s CEO Discusses SQ 2012 Results – Earnings Call Transcript” by their CEO, Wesley R.
Card, the main reason for declining is due to Domestic Direct Retail segment is having high competitor challenge within the country due to price competitiveness and at the same time slight impact due to changes in the management team happened in the last quarter of the year 2012 (Seeking Alpha, 2012). Next, we analyze at number of days inventory in David Jones Ltd. Days inventory measures the number of days of inventory stays in the system. Inventory is also subject to obsolescence and shrinkage.
On the other hand, too little inventory means a company may not be able to meet customer needs.
Days inventory for David Jones Group has a 89 day of inventory in year 2012, comparing 87 days in year 2011. The times of inventory turnover ratio for David Jones Group in 2012 was 4. 11 times, which is lower than 4. 18 times of 2011. According to the report from Bloomberg Businesslike (2013), David Jones Group performer slightly Deanna t industry standard in inventory turnover.
Days debtors indicate the average period of time it takes for David Jones Group to collect the money from its trade-related accounts receivable (Birth, Chalmers, Byrne, Brooks, & Oliver, 2012).
In both 2012 & 2011, Days debtors of David Jones remain constant – 4 days. Accordingly, the higher inventory turnover days and debtors’ turnover days in 2012 indicated that the company has deteriorated on its management efficiency as compared to the previous years. Liquidity Analysis Liquidity ratios show the relationship of a firm’s current assets to its current liabilities, and thus its ability to meet maturing debts. Two commonly used liquidity ratios are the current ratio and the quick or acid test ratio. Figure 6: Analysis of Asset Efficiency of David Jones Source: Own built