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Myer Financial Analysis

Myer Financial Analysis

Executive Summary

The report summarizes the financial performance of Myer’s Ltd. The company has one of the largest chain of departmental stores in the country. There are around 61 departments that are functioning within the country of the company. The company’s profitability has improved since 2018 as the margin of profits have improved in the year 2019. In the year 2018 the company has losses. The liquidity and solvency position of the company is appropriate. To attract and retain the investors, company should keep growing and increase its value over the years.

 

 

 

 

Table of Contents

Contents

Introduction. 4

Financial Analysis. 4

Profitability. 4

Efficiency. 5

Liquidity. 6

Solvency ratios. 7

Cash Flow.. 9

Recommendation. 9

Conclusion. 9

References. 11

 

 

 

 

Introduction

Myer Ltd is a departmental store business which is one of the largest in Australia . There are around 61 stores for the company across Australia. The product line of the store includes Womenswear, Menswear, and Children wear, Homeware, Beauty, Toys and General Merchandise. The major operations of the company lies in Australia while in China and Hong Kong they have their sourcing offices. The company’s online business is an asset that delivers growth which is strong. In the year 2019 due to its focus on profitable sale, the company’s sales were down by 3.5% (Myer Annual report, 2019). Yet doing the business cost decreased by 3.1% that showed the improvement in efficiencies for the company. This report aims at analyzing the financial data of Myer and as per the results derived a forward plan is to be devised for the company as the times are critical and stakeholders are looking for increased rates of growth and profits for the company.

Financial Analysis

Profitability

The ratios for profitability describe the capacity of the business for generating the profits. The profits are analyzed as per the revenue that has been generated through sales. If the profitability ratios show an increase than it means that company is making profits in comparison to the previous year (Pate, 2019).

The revenue of Myer has declined since the year 2015. The revenue was at the lowest in the year 2019.

(Fig.1 Revenue of Meyer Ltd.)

But, the profitability for company has improved. The net margin ratio for company was negative in the 2018 but in 2019, the company has gained momentum again and profits have increased as depicted in Figure.2.

(Fig. 2. Net profit for the company from last 5 years)

The profitability ratios have also shown an increase. Gross profit ratio depicts the relationship between total revenue and gross profit, it helps in evaluating the performance that is operational in business. The gross margin in year 2018 was at 49% while in 2019 it increased marginally by 1% and reached to 50%. This happened because operational cost reduced for the company.

Net margin of profits depicts the revenue percentage that is left after the expenses has been reduced from the sales. In the year 2018 the company was in losses due to which net profit margin was negative and stood at -20% while for the year 2019 the profits improved and came in positive leading to a net profit margin of 1%. This shows the growth in profitability of the company (Laitinen&Laitinen, 2018)
. The main cost that reduced was restructuring and store exit cost in the year 2019 due to which the profits improved for the company. Also, Administration expenses reduced for the company and from -$486002000 in 2018 the profits increased to $24474000.

Return on assets depicts the profitability of the company with respect to its total assets. It shows how effectively company’s assets are being utilized. ROA for the company improved from           -111%  2018 to 6% in the year 2019.

Efficiency

Efficiency ratios shows the capability for company to manage its liabilities by use of assets effectively. The company’s efficiency ratio includes turnover ratio of inventory and days held in an inventory (Quaranta, Tartufoli & Zifaro, 2018).

Inventory turnover ratio shows the movement of inventory in a year by selling. The number of times the inventory is sold the better it is for the company. The inventory turnover ratio of the company has declined a bit for the company. In the year 2018 it was at 3.76 while in the year 2019 it came down to 3.74. The difference is marginal means the inventory revolved around 3 times in both the year. Figure 3 shows the change in Inventory turnover ratio for the company.

(Fig.3. Inventory turnover ratio)

Days held in inventory ratio depicts days for which the inventory was withhold with the company. The company’s days held in inventory has also remained the same approximately. The number of days inventory was withhold in the year 2018 was 97.20 days while for the year 2019 it reached to 97.49 days. This depicts that the company’s efficiency for both the years has stayed the same for the company. A higher inventory turnover ratio indicates higher efficiency. Inventory turnover ratio is very low, which indicates that management is not able to manage inventory well.

Liquidity

Liquidity ratios are financial metric that help in analyzing the ability of the company to pay off its creditors or obligation of debt in case of emergency. These ratios help in maintaining a margin of safety for the company in case of emergency.

Current ratio refers to a liquidity ratio that helps in measuring the ability of the company in paying off its debt in short term. These debts are to be paid in one year. This ratio shows whether the company will be able to return or payback all its current debt through current assets or not (Chiaramonte & Casu, 2017). The company’s current ratio is appropriate and stayed the same for the year 2018 and 2019. In the year 2018 the company’s ratio was at .95 that means company was able to cover 95% of its current debt. In the year 2019 the ratio improved by .01 and reached to .96 depicting that company has sufficient funds to cover 96% of its debt obligation in the year 2019 (Fig. 4). There was not much difference and company has been able to maintain its liquidity in spite of profits being less in the year 2018.

Quick ratio is an acid test ratio and depicts the capability for the company in meeting its current liabilities through liquid assets. It shows instant result means the liquid assets that are lying with the company are considered. The company’s quick ratio for both the years has stayed the same. In the year 2018 and 2019 the ratio was at .19 (Fig. 4). The company has managed to keep liquid assets in its hand. But quick ratio for the company should be at .25 as per the industry average. Thus it is bit low according to the industry. Yet the company has certain very liquid asset at its disposal.

 

(Fig 4. Current ratio and Quick ratio of Myer Ltd.)

Solvency ratios

Solvency ratio depicts the company’s ability in meeting its debt obligation. It depicts whether the cash flow of the company is sufficient in covering all of its short and long term obligations of debt (Abdul, 2017).

Debt ratio refers to the ratio that helps in measuring the extent of leverage a company has. It is a ratio that is calculated by using total debt to total assets and shows how much of asset in the company are financed by the debt. The debt ratio of the company in the year 2018 is at .57 while for the year 2019 it is at .53 (Fig. 5). The company Debt ratio is appropriate as ratio more than 1 shows that company has more of liabilities than assets but the ratio for both the years is lower than 1. Also, 2019 the company’s position has improved which means the company’s assets has improved and debts can be covered in a better way.

Debt to equity ratio is the ratio that shows the leverage of  finance for the company. It shows the measurement of company’s operation that are being financed by debt versus wholly owned funds. The equity financing was 1.32 times the debt in the year 2018 but in the year 2019 it reduced to 1.14 (Fig. 5). This means company can cover whole of its debt by shareholder’s fund in case of need. This is a sign of stability for the company in the market.

 

 

 

(Fig.5 Solvency ratio)

Interest coverage ratio depicts the earning which the company is generating for every 1 dollar it is paying as an interest. In the year 2018 the company interest coverage ratio was in negative due to negative profits for the year. In the year 2018 the interest coverage ratio was at -51.29 while in the year 2019 the company improved a lot and has made $3 for every $1 of interest it is paying (fig. 6). This shows a healthy return for the company.

 

(Fig. 6 Interest coverage ratio)

                                                                                                                                      

 

Cash Flow

The cash flow for the company improved from the year 2018 to 2019. The cash flow from operating activities improved. The reason for improvements include decrease in the payments of suppliers. This helped in improving the operating cash flow for the company. Cash flow from investing showed a very good growth from the year 2018 to 2019.  The reason for that was payments that were reduced significantly. Payments from property plant and equipment and payments for intangible assets reduced due to which the company showed a lesser outflow of cash.

Financing activities expenditure in turn increased from the year 2018 to 2019. Yet when considered overall in cash and cash equivalents of the company, it improved in the year 2019 in comparison to 2018.

                       (Fig. 7 Cash flow at the end of year)

Recommendation

For increase in profitability the company needs to increase its sale. The company needs to increase its sale in order to achieve more margins of the profit. Also, the company needs to improve its inventory turnover ratio in order to attain better results as its inventory turnover ratio is low. The more number of times inventory revolves, the more will be the sales for the company. For improving its interest coverage ratio, company should invest the funds in a manner where they generate more returns. This will help in improving the functionality of the company.

Conclusion

Myer Ltd showed a huge loss in the year 2018 due to which the profitability ratios declined but in the year 2019, the company again made profits and improved its position. Overall the value of company is good but to keep investor interested in the company, it needs to improve its business by increasing the sales and generating more profits. Also, the company has showed a decline in 2018 due to which the investors might be bit worried, so the company should create and launch plans in a manner that will increase its profits and generate better returns for the investors.

 

 

References

Abdul, A. A. A. (2017). The Relationship between Solvency Ratios and Profitability Ratios: Analytical Study in Food Industrial Companies listed in Amman Bursa. International Journal of Economics and Financial Issues7(2), 86.

Annual report. 2019. Myer’s Ltd. Retrieved from: https://v3au.zone-secure.net/drive/14268/1069461/#page=6

Chiaramonte, L., &Casu, B. (2017). Capital and liquidity ratios and financial distress. Evidence from the European banking industry. The British Accounting Review49(2), 138-161.

Laitinen, E. K., &Laitinen, T. (2018). Financial reporting: profitability ratios in the different stages of life cycle. Archives of Business Research6(11).

Patel, J. (2019). Study of Profitability Ratios of Nationalized Banks and Private Banks Operating in India. International Journal of Trend in Scientific Research and Development2(6).

Quaranta, A. G., Tartufoli, S., &Zifaro, M. (2018). An Alternative Proposal based on Organizational Effectiveness and Efficiency Ratios for Forecasting the Financial Status of a Firm. International Review of Business Research Papers14(1).

 

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