QUESTION
Final Ratio Calculations
| Premier Investments Ltd | David Jones Ltd | |||
| KEY RATIOS |
2010 |
2011 |
2010 |
2011 |
| Gross Profit
Margin |
59.09% | 59.51% | 39.73% | 39.11% |
| Net Profit Margin | 16.11% | 9.54% | 12.11% | 12.62% |
| Return on Equity | 9.24% | 4.35% | 22.91% | 21.45% |
| Asset Turnover
(Times) |
0.61 |
0.60 |
1.72 |
1.62 |
| Return on Assets | 9.81% | 5.72% | 20.81% | 20.39% |
| Inventory
Turnover (Days) |
73 days | 75 days | 83 days | 88 days |
| Debtors Turnover
(Days) |
4 days | 3 days | 1.5 days | 2 days |
| Creditors
Turnover (Days) |
31 days | 24 days | 35 days | 30 days |
| Current Ratio | 426.57% | 173.81% | 104.72% | 122.91% |
| Quick Ratio | 347.61% | 140.07% | 12.88% | 11.78% |
| Debt Asset Ratio
(total debt) |
15.96% | 18.35% | 37.72% | 35.33% |
| Debt Equity
Ratio( total debt) |
18.99% | 22.47% | 60.56% | 54.63% |
| Times Interest
Earned (Times) |
17.99 times | 8.69 times | 35.21 times | 31.79 times |
Just write the half of the body for the report which contains these main points word limit(700-800 words)
- Financial stability – both short-term and long-term
- Share ratios
of both companies, using the ratios given and any other appropriate information.
Use sub-headings for the above areas of discussion (please see report format for sub-headings to be used). Your discussion must be an interpretation and analysis of results not merely a restatement of the ratio results.
Analysis and Interpretation of ratios
For both companies, review the financial ratios (as provided) for the 2010 and 2011 financial years on a consolidated basis. A summary of any additional calculations should be included by way of Appendix, although results are best reported in a Table (report style) within the Ratio Interpretation section. Your aim should be to guide the reader through your analysis in a professional report style manner. Use consolidated figures only. Interpret and compare the ratios by analyzing the potential factors and strategies driving the financial trends by referring to the notes to the financial statements and the financial press* or other documentation about Premier Investments Ltd and David Jones Ltd. In your analysis specifically address profitability, operating efficiency and financial stability (as per the attached marking sheet). Consider all factors you believe would be relevant to performance and future investment decisions such as customers, competitors, business strategy and markets.
Please ensure you appropriately reference all sources. Please number and label all tables and figures and make reference to the appropriate table or figure number in your discussion.
- Additional areas you may wish to investigate could include (but not be limited to) items such as what are the largest expenses and assets, profit margins and how, or why, do these compare or differ between these two companies and the industry sector. Are properties leased or owned? Are the two years representative, or comparable with earlier years? Are these potential investments suitable for all types of investors?
References suggested(Harvard style)
Companies websites
Theage.com.au, business news papers
Durie, J, 2012, David Jones Trading Halt Intensifies Concerns About Amex JV Profit, The Australian
Phillips, S, 2012, More Pain for David Jones Shareholders, The Motley Fool, N Band
EBSCO
Fin Analysis
Harper, J, 2012, David’s Goliath Task, Herald Sun, 22nd of March
SOLUTION
Final Ratio Calculations
| Premier Investments Ltd | David Jones Ltd | |||
| KEY RATIOS |
2010 |
2011 |
2010 |
2011 |
| Gross Profit
Margin |
59.09% | 59.51% | 39.73% | 39.11% |
| Net Profit Margin | 16.11% | 9.54% | 12.11% | 12.62% |
| Return on Equity | 9.24% | 4.35% | 22.91% | 21.45% |
| Asset Turnover
(Times) |
0.61 |
0.60 |
1.72 |
1.62 |
| Return on Assets | 9.81% | 5.72% | 20.81% | 20.39% |
| Inventory
Turnover (Days) |
73 days | 75 days | 83 days | 88 days |
| Debtors Turnover
(Days) |
4 days | 3 days | 1.5 days | 2 days |
| Creditors
Turnover (Days) |
31 days | 24 days | 35 days | 30 days |
| Current Ratio | 426.57% | 173.81% | 104.72% | 122.91% |
| Quick Ratio | 347.61% | 140.07% | 12.88% | 11.78% |
| Debt Asset Ratio
(total debt) |
15.96% | 18.35% | 37.72% | 35.33% |
| Debt Equity
Ratio( total debt) |
18.99% | 22.47% | 60.56% | 54.63% |
| Times Interest
Earned (Times) |
17.99 times | 8.69 times | 35.21 times | 31.79 times |
Gross Profit Margin: Gross profit margin ratio indicates the profit as percentage of total sales. Gross profit is also called operating profit of the businesses. In Premier Investments Ltd. The gross profit margin has increased from 59.09% in 2010 to 59.51% that is it has increased by 0.42% whereas it has decreased by 0.62% in David Jones Ltd. Thus during the financial year 2010-2011 Premier Investments Ltd. ‘s profit margin has increased and David Jones Ltd’ profit margin has decreased.
Net Profit Margin: Net profit margin ratio indicated profit after tax (PAT) as percentage of total sales during a financial year. It is a more accurate measure of profit than the gross profit margin ratio. In Premier Investments Ltd Net profit margin has reduced from 16.11% in 2009-2010 to 9.54% in 2010-2011 that it has decreased by 6.57% which is a large reduction in the net profit, whereas there was a increase of 0.42% in the gross profit margin.Net profit margin in David Jones Ltd has increased by 0.52%. Thus on the basis of net profit ratio we can say David Jones Ltd. Performed well during the financial year 2010-2011.
Return on Equity: Return on Equity ratio indicates net profit of profit after tax (PAT) as percentage of equity capital of the company. It is a measure of shareholders’ distributable profit. In Premier Investments Ltd. It has decreased from 9.24% in the financial year 2009-2010 to 4.35% in 2010-2011. That means there is a reduction of 4.89% during the financial year 2010-2011.We can see reduction in return on equity is less (4.89%) than reduction in net profit margin (6.57%). In David Jones Ltd. Decreased by 1.46%, whereas there was a increase net profit margin by 0.52%. It shows there is increase in the equity capital of the firm.
Asset Turnover: Asset turnover ratio is the sales divided by total assets that are sales as number of times of the total assets. Asset turnover ratio has decreased in Premier Investments Ltd by 0.01 times which indicates the decreased efficiency of the assets. In David Jones Ltd. It has decreased by 0.10 times. Thus reduction in the efficiency of assets is more in David Jones Ltd. Compare to Premier Investments Ltd.
Return on Assets: It is net profit as percentage of total assets. This is more accurate of measuring asset efficiency than the asset turnover ratio. It has decreased by 4.09% in Premier Investments Ltd and by 0.42% in David Jones Ltd. It can be seen asset turnover ratio showed more reduction in David Jones asset efficiency than in Premier Jones Ltd. While return on assets ratio indicates a different condition.
Inventory Turnover (Days ) :- It indicates the number of days taken in converting row material into finished goods. It is a measure of operating efficiency. In Premier Investments Ltd. It has increased by 2 days which is not a good indicator. In David Jones Ltd. It has increased by 5 days. Thus operating cycle of David Jones Ltd. Has become more inefficient than of Premier Investments Ltd.
Debtors Turnover (Days) :- It is number of days taken collecting receivables. Higher debtors turnover ratio is not good. In Premier Investments Ltd. It has decreased by 1 day ,which is good while it has increased by half a day in David Jones Ltd. That means David Jones Ltd. is not able to receive payments as it was in the previous year.
Creditors Turnover (Days) : It indicates number of days taken in paying to the creditors or payables. Higher creditors turnover is a good sign because it shows that the firm is able to delay the payables. It has decreased by 7 days in Premier Investments Ltd which is not a good indicator and in David Jones Ltd also it has decreased by 5 days which is not a good sign but is better than Premier Investments Ltd. in this context.
Current Ratio : It is current assets divided by current liabilities.It has redcued by 253% in Premier Investments which shows reduction in liquidity position of the firm by 253% whereas it has increased in David Jones Ltd.
Quick Ratio : It is current assets minus inventory divided by current liabilities. It is a more acceptable ratio for measuring liquidity than the current ratio. In Premier Invetsments Ltd it has decreased by 207.54% which shows reduced liquidity and it has decreased by 1.1.% in David Jones Ld. Which is very less than in reduction in the liquity of Premier Invetsments Ltd.
Debt Asset Ratio : It is portion of total debt in the total capital of the firm. It has increased by 2.39% in Premier Jones Ltd. whereas it has reduced by 2.39% in David Jones Ltd. It shows that David Jones ltd. has reduced its debt proportion in total capital.
Debt Equity Ratio : It indicates debt as percentage of equity capital of the firm. It has increased by 3.48% in Premier Investments Ltd. whereas it has decreased by 5.93% in David Jones Ltd.
Times Interest Earned (Times) :- It shows profit before tax as percentage of interest payable. It has decreased in Premier Investments Ltd by 9.3% and in David Jones by 3.42%. Higher it is more good it is for the firm and the creditors.
Just write the half of the body for the report which contains these main points word limit(700-800 words)
- Financial stability – both short-term and long-term
- Share ratios
of both companies, using the ratios given and any other appropriate information.
Use sub-headings for the above areas of discussion (please see report format for sub-headings to be used). Your discussion must be an interpretation and analysis of results not merely a restatement of the ratio results.
Analysis and Interpretation of ratios
For both companies, review the financial ratios (as provided) for the 2010 and 2011 financial years on a consolidated basis. A summary of any additional calculations should be included by way of Appendix, although results are best reported in a Table (report style) within the Ratio Interpretation section. Your aim should be to guide the reader through your analysis in a professional report style manner. Use consolidated figures only. Interpret and compare the ratios by analyzing the potential factors and strategies driving the financial trends by referring to the notes to the financial statements and the financial press* or other documentation about Premier Investments Ltd and David Jones Ltd. In your analysis specifically address profitability, operating efficiency and financial stability (as per the attached marking sheet). Consider all factors you believe would be relevant to performance and future investment decisions such as customers, competitors, business strategy and markets.
Please ensure you appropriately reference all sources. Please number and label all tables and figures and make reference to the appropriate table or figure number in your discussion.
- Additional areas you may wish to investigate could include (but not be limited to) items such as what are the largest expenses and assets, profit margins and how, or why, do these compare or differ between these two companies and the industry sector. Are properties leased or owned? Are the two years representative, or comparable with earlier years? Are these potential investments suitable for all types of investors?
References suggested(Harvard style)
Companies websites
Theage.com.au, business news papers
Durie, J, 2012, David Jones Trading Halt Intensifies Concerns About Amex JV Profit, The Australian
Phillips, S, 2012, More Pain for David Jones Shareholders, The Motley Fool, N Band
EBSCO
Fin Analysis
Harper, J, 2012, David’s Goliath Task, Herald Sun, 22nd of March
LB37
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