FINANCIAL RATIO ANALYSIS

JD Sport Performance Ratios

JD Sport Performance Ratios

Introduction

The paper provides an overview of the selected company for financial analysis. It analyzes financial performance of JD Sport for the past five years. Initially, the paper provides calculations of the selected financial ratios and then it analyzes JD Sport's performance based on these measures. Furthermore, the paper draws conclusion based on the evaluated company performance and justifies the recommendation on investor decision to investment in JD Sport.

Company Overview

JD Sport is a UK based publicly quoted company. It has an annual operating turnover of £1, 059, 523, and it operates in the market with prime business functions of retailing and distributing athletic and sports inspired footwear, accessories, fashion and apparels. As per 14-03-2013, the overall market capitalization of JD Store is £390, 510 (JD Sport, 2012, p. 2)).

Financial Ratios for the Five Years

Based on the information provided in financial statements of JD Sport, following are the financial ratios.



Profitability Ratio

These ratios are the measure of an overall company performance and efficiency by drawing a comparison between expenses and the revenue generated by the company.

Return on Capital Employed

It can be named as Return on Capital Investment (ROI) that measures the degree of net profit or income earned on the invested capital, which can be calculated as follows:

Return on Capital Employed = Net Profit X 100%

(Non Current Liabilities + Shareholders Funds)

Return on Capital Employed (%)

2012

25

2011

35

2010

35

2009

30

2008

35

Gross Profit Margin

It measures the extent to which annual turnover of an organization is contributed by its gross profit (Acron, n.d., p. 12). It can be calculated by the following formula:

Gross Profit X 100%

Sales

Gross Profit Margin (%)

2012

49

2011

49

2010

36

2009

49

2008

49

Operating Profit Margin

This ratio of profitability measures the degree of annual turnover turned into operating profit for the year (DeVick, n.d., p. 13). The value of operating profit margin can be calculated as:

Operating Profit X 100%

Sales

Operating Profit Margin (%)

2012

6.30

2011

8.56

2010

5.88

2009

5.69

2008

6.01

Net Profit Margin

Net profit margins shows that how much of sales revenue is transformed into net business profit for a given year (Drake, n.d., p. 14). It measures an overall profitability performance of the company and efficiency of business operations.

Net Profit X 100%

Sales

Net Profit Margin (%)

2012

6

2011

9

2010

8

2009

6

2008

6

Working Capital

A ratio to measure the ability of a firm to pay off its short term obligations and ability to generate enough money to finance its day to day activities.

Working Capital Ratio

Stocks + Debtors - Creditors

Sales

Working Capital Ratio

2012

0.05

2011

0.05

2010

0.04

2009

0.04

2008

0.05

Stock (Inventory) Days

Inventory days shows that how many times stock is replenished or rotated throughout a given business year. Stock value can be calculated in days, as follows:

Stocks X 365

Sales

Inventory Turnover

2012

44.91

2011

34.90

2010

35.36

2009

31.71

2008

36.16

Debtor (Receivable) Days

This ratio of working capital shows that how quickly a firm can collect its receivables. The value for DSO can be affected by a firm's credit policy for credit and cash sales to its customers. Following is the formula for calculating debtor days:

Trade Debtors X 365

Sales

Days Sales Outstanding

2012

6.11

2011

5.63

2010

5.00

2009

1.36

2008

1.38

Creditor (Payable) Days

Creditor days or payment days indicates the number of days taken by a firm to pay off its business obligations and liabilities. It can be calculated as follows:

Trade Creditors X 365

Sales

Payable ...