ACCOUNTING RATIO ANALYSIS

Introduction to Accounting (Level 4) - JD Sports Fashion Plc

Introduction to Accounting (Level 4) - JD Sports Fashion Plc

Introduction

The paper aims at evaluating financial statements and relevant information of JD Sports Fashion Plc. In accord with the information need of four groups of key users, the paper calculates four main sets of accounting ratios including liquidity, profitability, efficiency, solvency and working capital. Then, the paper conducts comprehensive ratio analysis of each ratio in order to determine its impact on the overall business performance. Ratios are calculated for the past four years' financial performance of JD Sports. Moreover, graphs and tabular forms of data are used to support the analysis. Finally, the paper provides conclusion on the overall performance analysis of JD Sports Fashion Plc.

Overview of JD Sports Fashion Plc

JD Sports Fashion Plc is an eminent player of the UK speciality retail industry (JD Sport, 2012, p. 5). Since existence, the firm has well branded its image as the leading retailer of fashionables both own branded and branded casual wear and sports. The company is engaged in the main business of retailing and distributing footwear, athletic and sports inspired fashion, accessories and apparel (FT, 2013, p. n.d.). During FY 2013, the company posted sales turnover of £ 1059.5m, which was 19.89% higher than the previous year (figure 1).

Figure 1: Trend of Revenue (JD Sports, 2012, p. 1)

JD Sports operates in three business segments fashion retailing, distribution business and sports retailing. The company offers products and services related to footwear, clothing, apparel and sportswear. Trend analysis of the company stock price shows considerable improvement over the past two years (figure 2). As of 28th July, 2013, the company posted 0.68% increase in the share price by closing index at 885 GBX (FT, 2013, p. n.d.).

Figure 2: Three Years' Trend of Stock Price (FT, 2013, p. n.d.)

Users of JD Sport's Financial Statements

In a typical scenario, numerous users of financial statements are identified with differing needs to acquire the financial information. These groups of users belong to internal and external business environment. These groups of users may include, employees, government agencies, current and potential investors, shareholders, management, activists, customers, suppliers, analysts, public and lenders (Kaplan, 2013, p. 1). Each of the identified group seeks financial statements to satisfy their individual information needs. In case of JD Sports Fashion Plc, following are the four key groups of users, who would be interested in utilizing these financial statements:

Shareholders

It is a group of users who seek financial information related to profitability and market performance of JD Sports. Since shareholders are the providers of risk capital, they need information to determine the inherited risk and expected return on their investments in JD Sports. They use financial statements to make investment decision regarding buying, holding or selling the stock of JD Sports. In addition to this, shareholders use financial statements to examine the ability of the firm to pay off dividends with a keen look at the future prospects of the ...