FINANCIAL ANALYSIS

Interpretation of Company Financial Information and Ratio Analysis

Interpretation of Company Financial Information and Ratio Analysis

Financial analysis is an integral part of the decision making process. Analyzing the financial stability of the large departmental stores such as House of Fraser (Stores) Limited is immensely important.  Financial ratio analysis not only helps gauge a firm's performance, it also helps decision making for investors and creditors. Financial performance refers to the methodical evaluation of the financial situation of an organization, person or a project.  Several methods of financial analysis exist; however, ratio analysis is considered the most efficient in determining the financial position and performance of an organization.

Financial Ratios

A detailed financial analysis of the House of Fraser (Stores) Limited is provided here onwards, which encompasses various aspects of financial information. Financial ratio analysis will cover the profitability, efficiency, liquidity and the leverage of the. The financial performance that follows is evaluated and analysed from the perspective of shareholder.

Profitability Ratios

Profitability ratios explain the performance of an organization in terms of the profit it earns. They include return on assets, return on equity, profit margin and gross margin.

Return on Assets = Net income /Total assets

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Profit (Loss) after Tax

5,600

6,000

8,200

-89,300

72,700

Total Assets

562,200

616,100

567,400

463,500

669,400

Return on Total Assets (%)

0.01

0.01

0.01

-0.19

0.11

Return on equity = Net income / Shareholders' equity

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Profit (Loss) after Tax

5,600

6,000

8,200

-89,300

72,700

Shareholder Funds

8,200

43,100

57,700

38,000

137,600

Return on Shareholders' Funds (%)

0.68

0.14

0.14

-2.35

0.53

Gross profit margin = Gross income / Sales

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Gross Profit

351,300

341,100

341,300

296,700

314,900

Turnover

581,400

578,200

596,000

663,200

640,100

Gross Profit Margin

0.604231

0.589934

0.572651

0.447376

0.491954

Net profit margin = Net income / Sales

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Profit (Loss) after Tax

5,600

6,000

8,200

-89,300

72,700

Turnover

581,400

578,200

596,000

663,200

640,100

Net Profit Margin

0.009632

0.010377

0.013758

-0.13465

0.113576

Fixed Asset Turnover = Net Sales/Fixed Assets

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Turnover

581,400

578,200

596,000

663,200

640,100

Fixed Assets

296,600

314,000

280,000

243,700

447,100

Fixed Asset Turnover

1.960216

1.841401

2.128571

2.721379

1.431671

Operating & Administrative expense to Sales

Operating Expense to Administrative Expense Ratio = Operating & Administrative expense / Sales

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Admn & Op. Expenses

311,400

316,400

330,500

452,400

218,100

Turnover

581,400

578,200

596,000

663,200

640,100

Admn Exp to Sales

0.535604

0.547215

0.55453

0.682147

0.340728

Efficiency Ratios

Efficiency ratios or activity ratios, explain the performance of an organization. They include inventory turnover and total asset turnover. (Guilding, 2002, pp 64 - 87)

Inventory Turnover = Cost of Goods Sold / Inventory

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Cost of Sales

230,100

237,100

254,700

366,500

325,200

Stock & W.I.P.

65,000

75,200

90,000

86,300

109,600

Inventory turnover (times) 

3.54

3.152926

2.83

4.246813

2.967153

Total Asset Turnover = Sales / Total Assets

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Turnover

581,400

578,200

596,000

663,200

640,100

Total Assets

562200

616100

567400

463500

669400

Assets Turnover

1.034152

0.938484

1.050405

1.430852

0.956229

Liquidity Ratios

Liquidity ratios enable the organizational management to analyze their position to meet the day-to-day requirements of the organization and to pay off its short-term debts. These include net working capital, current ratio and quick ratio. (Medlik & Ingram, 2000, pp 137 - 141)

Net Working Capital = Total Current Assets - Total Current Liabilities

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Current Assets

265,600

302,100

287,400

219,800

222,300

Current Liabilities

-159,200

-432,400

-407,500

-328,800

-239,400

Working Capital

106,400

-130,300

-120,100

-109,000

-17,100

Current Ratio = Total Current Assets / Total Current Liabilities

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Current Assets

265,600

302,100

287,400

219,800

222,300

Current Liabilities

159,200

432,400

407,500

328,800

239,400

Current Ratio

1.668342

0.698659

0.705276

0.668491

0.928571

Quick Ratio = (Total Current Assets - Inventory)/ Total Current Liabilities

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

Current Assets

265,600

302,100

287,400

219,800

222,300

Stock & W.I.P.

65,000

75,200

90,000

86,300

109,600

Quick Assets

200,600

226,900

197,400

133,500

112,700

Current Liabilities

159,200

432,400

407,500

328,800

239,400

Acid Test Ratio

1.26005

0.524746

0.484417

0.406022

0.47076

Gearing Ratios

Gearing, also termed as leverage, portrays the organizational financing policies. It reflects the way an organization raises funds for investments and other organizational purposes. Gearing ratios includes debt to assets ratio and debt to equity ratio. (Guilding, 2009, pp 74 - 79)

Total Debt to Assets Ratio = Total Debt / Total Assets

 

1/31/2010

1/31/2009

1/31/2008

1/31/2007

1/31/2006

1/31/2005

Long Term Liabilities

166,200

140,600

102,200

96,700

292,400

358,000

Current Liabilities

159,200

432,400

407,500

328,800

239,400

211,200

Total Debt

325,400

573,000

509,700

425,500

531,800

569,200

Total Assets

562200

616100

567400

463500

669400

614300

Debt to Assets

0.578798

0.930044

0.898308

0.918015

0.794443

0.926583

Financial Analysis and Interpretation

In attempting to analyze financial statements through the use of financial ratios organizations should have the expertise to interpret them in order to bring about positive changing in the organizational ...