Financial Statement Analysis Of Myer Holdings

Industry Situation and Myer Plans

Discuss about the Financial Statement Analysis of Myer Holdings.

Myer is an Australia company established in 1900. It is the largest Australian departmental store with over 60 stores operating across Australia. Basically, Myer Holding is the public limited company which is ranked in number 131 out of 2000 top organisations in Australia (Myer Holdings Ltd 2013). Its chief executive officer is Richard Umbers while its chairman is Paul McClintock who is also referred to non-executive chairman. The company usually generates most of its revenue from departmental stores in the Australian industry. Basically, Myer Holdings engages in numerous operations of departmental stores across Australia. In essence, Myer offers a wide range of products ranging from men’s wear, home wares, youth wear, furniture, footwear, children’s wear, electrical goods, general merchandise, women’s wear, toys, handbags, beauty as well as cosmetic products (Myer Holdings Ltd 2016). In addition, Myer offer some retail customer loyalty programs. Myer operates around 67 stores under its brand name Myer Holdings Limited. It has stores across six Australian states and Australian Capital Territory. In essence, it locations comprise a mixture of key suburban shopping centres, city stores, and as well as shopping centres in the regional New South Wales, Tasmania, Victoria and Queensland. The company operates under retail sector and like other retail companies; this company’s shares have been affected greatly during the mass exodus of the investors from retail sector. In the financial year 2016, it generated a total of $2.8 billion in revenue with a total of 12,500 employees across Australia (Myer Holdings Ltd 2016). Further, its share price is now down with 36% since the beginning of this year.

Its independent auditor is PwC which ensure that the company’s financial statements are audited compliant with the Australian Auditing Standards (Myer Holdings Ltd 2010). According to the auditor Myer’s financial statements are in accordance with Corporations Act of the year 2001 including abiding by the Australian Accounting Standards, providing a true and fair outlook of its financial status in 2016.

Australian retailing industry has increased by around 3% in the current value in 2016 which is in consistence with growth observed during the previous year.  Further, the industry experience high competition with subdivision firms struggling to compete against cheap online stores.  Despite the comparison with global retail industry, Australian retail industry is a significant and large part of Australian retail economy. Further, in Australian retail industry, foreign retailing firms are strongly represented with retailing firms such as Gap, Apple and Fossil capitalizing on the increasing sale potential. With these considerations, domestic retailing firms such as Myer Holding are required to come up with better plans to overcome the stiff competition being experienced in the industry. Myer Holding Limited future plans is to grow by 0.6% in the next one year (Myer Holdings Ltd 2016). This seems to be possible since the company has outperformed in the retail industry for the last one year. In addition, it ROE for the last one year left a significant mark to be desired. Furthermore, its future plans include a $480,000,000 capital investments as well as over 3% improvement every year in its total sales in the next three to five years. It also plans to reduce its costs through store rationalisation and lifting it sales via refurbishment of its stores and shifting towards bigger brand sold via in-store concessions (Myer Holdings Ltd 2016).

Financial Statement Analysis

From Myer Holding income statement, it is clear that for the last five year, the company experienced a decreasing trend in its gross profit. This is evident by a increase in its gross profit as from as from $1,285.9 million in 2014 to around $1,290.4 million in 2015 and decreased to around $1,274.3 million in 2016 (Myer Holdings Ltd 2016). Its net income in the past five years experienced a decreasing and increasing trend. This is evident by a decrease as from $98.5 million in 2014 to around $30 million in 2015 and an increase to around $61 million in 2016. Its income from operations also experienced a decreasing and increasing trend for the past five years decreasing as from $160.3 million in 2014 to around $71.80 million in 2015 and then increasing to around $95.20 million in 2016 (Myer Holdings Ltd 2016).

Table 1: Trend analysis of the income statement

	2012	2013	2014	2015	2016	Change 2013	Change 2014	Change 2015	Change 2016
Revenue	100.00%	100.00%	100.00%	100.00%	100.00%	0.32%	-0.33%	1.58%	-0.54%
Cost of revenue	56.06%	55.34%	55.70%	56.34%	57.86%	-0.96%	0.30%	2.69%	2.11%
Gross profit	49.31%	50.04%	49.22%	48.61%	48.27%	1.77%	-2.00%	-0.35%	1.26%
Other income	1.03%	0.94%		4.07%	2.69%
Operating expenses
Sales, General and administrative	40.51%	41.84%	43.33%	43.59%	43.95%	3.50%	3.10%	2.17%	0.28%
Other operating expenses	0.71%	0.00%	0.00%	23.36%	0.00%	0	0	-100.00%	0
strategic review, restructuring	0.88%	0.00%		2.32%	0.69%
Total operating expenses	42.10%	41.84%	43.33%	-69.27%	-44.64%	-0.30%	3.10%	-161.56%	56.02%
Operating income(EBIT)	8.98%	8.19%	6.14%	2.70%	3.61%	-9.22%	-34.00%	-123.26%	24.58%
Interest Expense	0.06%	0.05%	0.04%	0.03%	0.03%	-7.14%	-35.92%	-37.33%	17.58%
Other income (expense)	1.20%	1.14%	0.88%	0.89%	0.58%	-5.03%	-29.96%	2.43%	-52.60%
Income before income taxes	7.83%	7.12%	5.30%	1.85%	3.06%	-9.76%	-34.75%	-182.28%	39.24%
Provision for income taxes	2.44%	2.16%	1.53%	0.72%	0.77%	-12.72%	-41.85%	-107.81%	4.95%
Net income from continuing operations	5.40%	4.96%	3.77%	1.13%	2.31%	-8.62%	-31.88%	-228.33%	50.82%
Net income	5.40%	4.96%	3.77%	1.13%	2.31%	-8.62%	-31.88%	-228.33%	50.82%
Net income available to common shareholders	5.40%	4.96%	3.77%	1.13%	2.31%	-8.62%	-31.88%	-228.33%	50.82%
Earnings per share
Basic
Diluted

Based on Table 2 below, it is evident that Myer Holding total current assets for the year 2014 was 24.83% of the total assets, while in 2015 and 2016 it was 25.49% and 25.70% respectively. On the other hand, the total non-current assets for the year 2014 was 75.12% of the total assets while in 2015 and 2016 it was 74.51% and 74.30% respectively. This means that total non-current assets as compared to total assets for the last five years experienced an increasing and decreasing trend. Further, the total current liabilities for the year 2014 was 27.47% of the total assets while in 2015 and 2016 it was 25.49% and 27.89% respectively. Its total non-current liabilities for the year 2014 were 26.28% of the total assets while in 2015 and 2016 it was 28.72% and 12.85% (Myer Holdings Ltd 2016). On overall, the total liabilities for the company in 2014 was 53.75% of the total assets while in 2015 and 2016 they were 54.27% and 40.69%. On the other hand, its total equity for the year 2014 was 46.25% of the total assets while in 2015 and 2016, it was 45.73% and 59.31% respectively. This proves the fact that total assets of Myer for the past five years were equal to total liabilities plus total equities.

Table 2: Trend analysis of balance sheet

	2012	2013	2014	2015	2016
Current assets
Cash and cash equivalents	1.99%	4.20%	3.83%	2.81%	2.41%
Short-term investments	0.00%	0.00%	0.00%	0.79%	0.00%
Total cash	1.99%	4.20%	3.83%	3.66%	2.46%
Receivables	0.92%	1.26%	1.56%	1.61%	2.03%
Inventories	20.11%	18.76%	19.49%	20.24%	21.22%
Prepaid expenses	0.00%	0.00%	1.40%	1.80%	0.96%
Other current assets	0.00%	0.48%	-20.18%	-21.14%	-21.68%
Total current assets	23.02%	24.70%	24.83%	25.49%	25.70%
Non-current assets
Property, plant and equipment
Other properties	0.00%	0.00%	89.39%	94.54%	99.20%
Property and equipment, at cost	26.87%	26.24%	89.39%	94.54%	99.20%
Accumulated Depreciation	0.00%	0.00%	-37.35%	-44.83%	-51.50%
Property, plant and equipment, net	26.87%	26.24%	52.04%	49.71%	47.70%
Equity and other investments	0.00%	0.00%	0.00%	0.00%	0.48%
Goodwill	0.00%	0.00%	38.95%	39.90%	40.31%
Intangible assets	48.80%	48.00%	57.53%	57.18%	56.48%
Deferred income taxes	1.10%	0.87%	1.40%	1.91%	2.89%
Other long-term assets	0.21%	0.19%	-74.81%	-74.24%	-73.55%
Total non-current assets	76.98%	75.30%	75.12%	74.51%	74.30%
Total assets	100.00%	100.00%	100.00%	100.00%	100.00%
Liabilities and stockholders’ equity
Liabilities
Current liabilities
Accounts payable	20.70%	19.99%	21.06%	20.30%	20.18%
Deferred income taxes	0.79%	0.98%	0.78%	0.05%	0.75%
Deferred revenues	0.13%	0.00%	0.62%	0.74%	1.18%
Other current liabilities	4.59%	5.98%	5.02%	4.40%	5.78%
Total current liabilities	26.22%	26.95%	27.47%	25.49%	27.89%
Non-current liabilities
Long-term debt	26.50%	26.29%	43.66%	46.74%	15.79%
Other long-term liabilities	1.53%	0.07%	-17.38%	-18.02%	-2.94%
Total non-current liabilities	28.03%	26.36%	26.28%	28.72%	12.85%
Total liabilities	54.24%	53.31%	53.75%	54.27%	40.69%
Stockholders’ equity
Common stock	27.10%	26.82%	27.16%	27.82%	39.56%
Retained earnings	18.94%	19.58%	19.61%	17.75%	20.29%
Accumulated other comprehensive income	-0.77%	0.21%	-0.52%	0.16%	-0.59%
Total stockholders’ equity	45.76%	46.69%	46.20%	45.73%	59.31%
Total liabilities and stockholders’ equity	100.00%	100.00%	100.00%	100.00%	100.00%

Based on Table 3 below, it is evident that Myer ash flows from operations were relatively high than the new income for the last five years. On the other hand, it is evident that the company is expanding in terms of investing activities over the last five years. Besides, it is also evidence that the main source of financing for Myer Holdings is common stock issued. Further, based on the analysis, it is evident that Myer Holdings cash flow has decreased for the past five years as from $74 million in 2014 to around $45 million in 2016.

Table 3: Trend analysis of the cash flow

	2012	2013	2014	2015	2016
Cash Flows From Operating Activities
Other non-cash items	6.60%	8.24%	7.04%	3.50%	5.36%
Net cash provided by operating activities	6.60%	8.24%	7.04%	3.50%	5.36%
Cash Flows From Investing Activities	0.00%	0.00%	0.00%	0.00%	0.00%
Investments in property, plant, and equipment	-1.79%	-2.00%	-3.66%	-4.55%	-2.91%
Acquisitions, net	-0.31%	0.03%	-0.11%	0.00%	0.00%
Purchases of investments	0.00%	0.00%	-1.21%	0.00%	-0.32%
Purchases of intangibles	-0.37%	-0.68%	-1.98%	-1.33%	-0.86%
Sales of intangibles	0.10%	0.00%	0.00%	0.00%	0.00%
Other investing charges	0.27%	0.67%	3.19%	3.61%	1.98%
Net cash used for investing activities	-1.70%	-2.45%	-3.81%	-2.24%	-2.09%
Cash Flows From Financing Activities	0.00%	0.00%	0.00%	0.00%	0.00%
Long-term debt issued	0.00%	-0.07%	0.00%	0.65%	0.00%
Long-term debt repayment	0.00%	-0.01%	0.00%	0.00%	-10.61%
Common stock issued	0.01%	0.02%	0.18%	0.00%	7.62%
Cash dividends paid	-4.60%	-4.05%	-3.63%	-2.63%	-0.58%
Other financing activities	-0.28%	-0.09%	0.00%	0.00%	0.00%
Net cash provided by (used for) financing activities	-4.87%	-4.21%	-3.48%	-1.98%	-3.56%
Net change in cash	0.03%	1.59%	-0.29%	-0.72%	-0.29%
Cash at beginning of period	1.37%	1.39%	2.97%	2.67%	1.91%
Cash at end of period	1.40%	2.98%	2.71%	1.91%	1.62%

Ratio analysis is an important aspect that is used in analysis financial performance of a given organization in numerous areas. In addition, ratio analysis is an important tool in comparing an organization’s financial performance with the industry averages. It could also be utilized in form of the trend analysis in identifying some of the areas where financial performance of an organization deteriorated or improved over time (Chen & Shimerda 1981). In this case, the most common ratio that will be used in analysis Myer Holding financial performance would include; Liquidity ratios, market strength ratios, long-term solvency ratios, profitability ratios as well as cash flow adequacy ratios

Liquidity ratios:

This ratio is useful in measuring both an organization’s efficiency. It is usually computed by subtracting an entity’s total current liabilities from its current assets (Lev & Sunder 1979). In this case, the working capital for the past five years is as follows;

2012 = 441.5- 502.9 = -61.4

2013 = 479.2- 522.7 = -43.5

2014 = 480-531 = -51

2015 = 481 -481 = 0

2016 = 480 -521= -41

This financial ratio is obtained by dividing Myer’s current assets with its total current liabilities (Chen & Shimerda 1981). In this case, current ratio for the past five years is as follows;

2012 = 441.5/502.9 = 0.88

2013 = 479.2/522.7 = 0.92

2014 = 480/531 = 0.90

2015 = 481/481 = 1.00

2016 = 480/521= 0.92

Receivable turnover

It is computed by dividing net value of the credit sales by average account receivable. It shows the efficiency with which an organization manages its credit and how it collects on the credits (Barnes 1987). In this case, receivable turnover ratio for the past five years is as follows;

2012 = 147.61

2013 = 107.43

2014 = 86.70

2015 = 87.43

2016 = 69.69

The ratio is used in measuring when an organization would actually receive cash from sales. This is computed by dividing account receivable by net sales (Lev & Sunder 1979). In this case, average day’s sales uncollected for the past five years are as follows;

2012 = 2.47

2013 = 3.40

2014 = 4.21

2015 = 4.17

2016 = 5.24

The ratio is used in measuring number of times inventories in an organization is utilized or sold in a given period of time. It is obtained by dividing COGS by inventories (Barnes 1987). In this case, inventory turnover ratio for the past five years is as follows;

2012 = 3.80

2013 = 3.99

2014 = 3.86

2015 = 3.92  

2016 = 3.85

This is the financial ratio used in measuring the number of days an organization takes in selling its average balance of the inventories. In addition, it is an estimate of days for which balance of the inventories is adequate. It is obtained by dividing days in a year by inventory turnover (Lev & Sunder 1979).  In this case, the average day’s inventory ratio for the past five years is as follows;

2012 = 96.12

2013 = 91.55

2014 = 94.51

2015 = 93.22

2016 = 94.69

Profitability ratios

Profit margin

This shows dollars in income that an organization earns on every dollar of its sales. It is computed by subdividing Myer’s net income by its sales (Chen & Shimerda 1981). The ratio assists in detecting consistency in an organization’s earnings. In this case, profit margin for the past five years is as follows;

2012 = 5.40%

2013 = 4.96%

2014 = 3.77%

2015 = 1.13%

2016 = 2.31%

ROE

The ratio shows the amount of dollars of net income that is earned by an organization on its equity. It helps in measuring how profitable a given firm is by comparing its income to average equity (Barnes 1987). In this case, the ROE for the past five years is as follows;

2012= 16.08%

2013 = 14.34%

2014 = 11.03%

2015 = 3.48%

2016 = 5.51%

ROA

This ratio is used to measure amount of dollars in the net income earned by an organization on its total assets.  It usually helps in measuring how cost-effective a firm is comparative to its overall assets. In essence, ROA shows how well organization’s management is utilizing its total assets in generating profit (Chen & Shimerda 1981). In this case, the ROA for the past five years is as follows;

2012 = 7.36%

2013 = 6.70%

2014 =5.10%

2015 = 1.59%

2016 = 3.27%

The ratio is useful in measuring efficiency of an organization’s use of assets in generating revenue or income. This ratio is obtained by subdividing net revenue by assets (Altman 1968). In this case, asset turnover for the last five years is as follows;

2012 = 1.36

2013 = 1.35

2014 = 2,729/1,933 =1.35

2015 = 2,772/ 1,887 = 1.41

2016 = 2,781/1,868 = 1.41

Long term solvency ratios:

This is a type of long-term solvency ratio which is used in comparing an entity’s total liabilities or debts to its total equity (Lev & Sunder 1979). In essence, it is a tool for measuring the percentage of an organization’s balance sheet which is financed by lenders, obligors, suppliers and creditors versus what its shareholders have committed. It is obtained by comparing total liabilities of an organization by its total equity. In this case, the debt to equity ratio of Myer for the last five years was;

2012 = 1.19

2013 = 1.14

2014 = 1,039/893 =1.16

2015 = 1,024/863 = 1.19

2016 =760/1,108 = 0.69

This form of ratio is very crucial since it is used in determining how easily an organization could settle its interest expenses on the outstanding debts (Higgins 2012). It is obtained by dividing EBIT by an organization’s interest expenses. Here, a low ratio means that the company is having high burden of the debt expense. In this case, interest coverage ratio for the past five years is as follows;

2012 = 156.40

2013 = 153.43

2014 = 155.63

2015 = 95.73

2016 = 104.62

Cash flow adequacy

It assists in measuring how well an organization generates cash from the current operations. It is obtained by dividing an organization’s cash flow from its operations by the net income (Lev & Sunder 1979). In this case, cash flow yield for the past five years would be;

2012 = 1.29

2013 = 1.78

2014 = 192/98 =1.96

2015 =97/30 = 3.23

2016 = 149/61 = 2.44

The ratio helps in comparing an organization’s cash flow to net sales. This assists in determining its capacity to turn revenues into cash (Higgins 2012). In this case, cash flow to sales for the past five years is as follows;

2012 = 1.40%

2013 = 2.98%

2014 = 74/2,729 =2.71%

2015 = 53/2,772 = 1.91%

2016 = 45/2,781 = 1.62%

The ratio is useful in rating cash flow to total assets without any instance of affecting income measurements or income recognition (Higgins 2012). It is obtained by diving cash flows from the operating activities by average total assets. In this case, cash flow to assets for the past five years would be;

2012 = 1.99%

2013 = 4.20%

2014 = 74/1,933 =3.83%

2015 = 53/1,887 =2.81%

2016 = 45/1,868 =2.41%

The ratio is used in measuring an organization capacity to maintain its efficiency and competiveness. It is an essential aspect in an organization which is computed by subtracting capital expenditure from operating cash flow (Lev & Sunder 1979). In this case, free cash flow is as follows;

2012 = 45

2013 = 77

2014 = 192-155 = 37

2015 = 97-163 = -66

2016 =149-105 = 45

Market strength Ratios

Price/earnings per share

The ratio usually shows how much an inventor is willing to pay off per each dollar of the current earnings. As a result, high price/earnings per share are linked with growth stocks (Altman 1968). It is obtained by dividing an organization’s market price of each share by EPS. It usually In this case, P/E per share ratio for the past five years is as follows;

2012 = 23.68 = 19.41%

2013 = 21.97 = 19.33%

2014 = 228/15.3 =14.9

2015 = 126/4.77 = 26.42

2016 = 133.5/7.7 =17.34

This is the percentage of the cash dividend per share organization by its current price per share. It is used in measuring how much an entity pays in dividends every year in relation to its share prices (Altman 1968). With these considerations, Myer dividend yield for the past five is;

2012 = 12.57%

2013 = 9.35%

2014 = 6.4%

2015 = 7.00/126= 5.56%

2016 = 5/133.5= 3.75%

Conclusion

From the above analysis, it can be concluded that Myer Holdings is financial stable and healthy. This is evident by its relative in its ROA, ROE, profit margin as well as its increase in interest coverage in the financial year 2016. The increase is a clear indication that the company is regaining and is now able to generate high profit in its daily operations. Furthermore, its liquidity and solvency ratios are also clear indication that the firm is equipped in settling both its short and long-term debt obligations. In spite of its decreasing trend in P/E ratio as well as its dividend yield, there is still some proof that the company is financially healthy with increased net income in 2016.Therefore, While Myer Holding is not a speedy growing firm, it could still provide interesting investment opportunities. This is based on the fact that its financial ratios shows that the company has a lot to be desired ranging from its profitability to its leverage level. Hence, Myer Holding could be considered a strong performer in the market.

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Barnes, P 1987, ‘The analysis and use of financial ratios: a review article,’ Journal of Business Finance & Accounting, 14(4), 449-461.

Chen, KH & Shimerda, TA 1981, ‘An empirical analysis of useful financial ratios,’ Financial Management, 51-60.

Higgins, RC 2012, Analysis for financial management. McGraw-Hill/Irwin.

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Myer Holdings Ltd 2013, Myer Holdings Ltd annual report 2013; Viewed at 8^th September 2017 from; https://www.annualreports.com/HostedData/AnnualReportArchive/M/ASX_MYR_2013.pdf

Myer Holdings Ltd 2015, Myer Holdings Ltd 2015 annual report and notice of annual general meeting; Viewed at 8^th September 2017 from; https://www.annualreports.com/HostedData/AnnualReportArchive/M/ASX_MYR_2015.pdf

Myer Holdings Ltd 2016, Myer Holdings Ltd 2016 annual report and notice of annual general meeting; Viewed at 8^th September 2017 from; https://investor.myer.com.au/FormBuilder/_Resource/_module/dGngnzELxUikQxL5gb1cgA/file/Myer_Annual_Report_2016.pdf