Financial Analysis Of Myer Limited: Case Study

Overview of Myer Limited

In this report, a case study of “Myer” has been studied and the financial analysis study has been conducted on the company. The report explains about the changes into structure of the company and the current performance of the company on the basis of the competitors of the company. The main competitor of the company is David Jones limited, subsidiary company of Woolworths limited. In the report, financial statement of the company of last 5 years has been evaluated and on the basis of that financial statement, ratio analysis study has been conducted to measure the financial performance of the comapny. The financial statement of the company has been compared with the financial statement of David Jones limited to make better decision about the position of the company.

The report has been prepared on the basis of Myer case study. This case study explains that the Myer is one of the largest full line department stores in Australia. The company has more than 60 stores in the Australia. The company has faced various mergers and acquisitions from 1900. Currently, the company is listed in Australian stock exchange. The case study explains about the several changes into the ownership of the company from 1990. And in this report, the financial statement of the company of last 5 years has been valuated to identify about the current performance of the company.

Myer is an upmarket departmental chain which is operating its business in Australian market. It is also operating its business in Australian territories. The main products of the comapny are women swear. Menswear, miss shop, baby products, children wear, beauty, cosmetics, furniture flooring, footwear, handbag, accessories, fragrance and cosmetics etc. currently, there are 64 stores of the company through which comapny is selling numerous range of products to the customers. The company has an interesting story of its ownership which has been stated in the case study as well. Current financial performance of the company has been lower

Financial analysis is a process to evaluate and analyze the financial statement of an organization. This process evaluates the entire financial figures and the transaction of the company to identify the changes into the organizational performance the position and the performance of the organization. Financial statement of an organization could be analyzed on the basis of various techniques such as ratio analysis, vertical analysis, trend analysis etc. the financial statement analysis process make it easy for the related parties to make decision about the position and the performance of the company.

Ownership Structure of Myer Limited

Financial statement analysis process takes the concern of income statement, balance sheet and cash flow statement of the company and generates the idea about the performance of the company. In the report, ratio analysis, a tool of financial analysis, has been conducted to recognize the financial performance of Myer limited.

Ratio analysis is quantitative analysis over the financial statements of an organization which contains the information about the financial statement of an organization. Ratio analysis study is based on the various items of financial statement which are cash flow statement, income statement and balance sheet. Ratio analysis study is conducted by the companies to recognize the performance of the company and the investment position of the company, the study is mainly conducted by the analysts and the investors to recognize the investment position in the company.

In the report, ratio analysis study has been conducted on Myer limited and the competitor David Jones, subsidiary company of Woolworths limited (the financial data of David Jones in not available so the financial data of Woolworths has been taken.). The ratio analysis study evaluates about the liquidity, profitability, efficiency, investment and capital structure position of the company. Following is the ratio analysis calculations and the analysis:

Profitability ratios are the part of ratio analysis. It is a financial metrics which are used to identify and assess the ability of an organization to make the earnings in context with the expenses and various other related costs that has been occurred in a particular period of time. The better the profitability ratios are the better they explains about the strong financial performance of the comapny. In the report, profitability ratios of the Myer limited has been compared with the profitability ratios of David Jones to measure the performance of the company. Following is the ratio of Myer limited and David Jones:

Return on capital employed express about the total earnings of an organization on the basis of total earnings of the organization. ROCE ratio of Myer limited express that the performance of the company has been lower from 2013 to 2017. The current ROCE of the company is -49.86% whereas the ROCE of David Jones limited express that the position of David Jones is worst. It express that the Myer is performing better than David Jones but few changes are required to be done to manage the performance of the company.

Gross profit margin express about the total sales less cost of sales amount of an organization on the basis of total sales of the organization. Gross profit margin ratio of Myer limited express that the performance of the company has been lower from 2013 to 2017. The current gross profit margin of the company is 45.8% whereas the gross profit margin of David Jones limited is 28.6%. It express that the Myer is performing better than David Jones and the industry position of the company is also good in terms of gross profit.

Financial Analysis Process

Operating profit margin express about the total sales less cost of sales and operating expenses amount of an organization on the basis of total sales of the organization. Operating profit margin ratio of Myer limited express that the performance of the company has been lower from 2013 to 2017. The current operating profit margin of the company is -26.46% whereas the operating profit margin of David Jones limited is -15.97%. It express that the David Jones is performing better than Myer Limited. Myer is suggested to reduce the level of operating expenses to manage the better performance.

Asset efficiency ratios are the part of ratio analysis. It is a financial metrics which are used to identify and assess the ability of an organization to manage the assets and the cash conversion cycle of the company. The ratio explains that an organization is required to manage the debit and credit policies in such a way that the daily operations of the company could be run effectively. Asset efficiency ratios of Myer limited and David Jones have been evaluated which are as follows:

Trade payable payment period ratio express about the total times in which the credit amount would be paid by the company. This ratio of Myer limited express that the total days of payment have been lowered. The current payment turnover days of the company are 46.78 days whereas the payment turnover days of David Jones limited is 46.55. It express that the Myer’s performance has been lower still, is performing better than David Jones and the cash conversion cycle of the company is also good.

Inventory turnover period ratio express about the total times in which the inventory would be ordered by the company. This ratio of Myer limited express that the total days of inventory order have been enhanced. The current inventory turnover days of the company are 95.55 days whereas the payment turnover days of David Jones limited is 37.47. It express that the Myer’s performance is not better than David Jones as the huge amount is blocked by the company in inventory and thus huge working capital is required to manage the performance of the company.

Receivable turnover ratio express about the total times in which the debtors would pay back the debt amount to the company. This ratio of Myer limited express that the total days of receivable turnover have been enhanced. The current receivable collection turnover days of the company are 2.37 days whereas the receivable turnover days of David Jones limited is 2.69 days. It express that the Myer’s performance is better than David Jones as the debtors amount is received by the company quickly and thus less working capital is required to manage the performance of the company.

Ratio Analysis Study

Liquidity ratios are the part of ratio analysis. It is a financial metrics which are used to identify and assess the ability of an organization to pay the short term debts of the company. The ratio explains that an organization is required to manage the current assets and current debt in such a manner that at the time of liquidation, short term debt could be paid by the company easily. Liquidity ratios of Myer limited and David Jones have been evaluated which are as follows:

Current ratio express about the total times in which the current liabilities of the company could be paid back on the basis of current assets of the company. This ratio of Myer limited express that the current ratio have been lowered. The current liquidity ratio of the company is 0.89 whereas the current ratio of David Jones limited is 0.79. It express that the Myer’s performance is better than David Jones. Still, the liquidity position of the company is risky and company is suggested to enhance the level of current assets.

Acid test ratio express about the total times in which the current liabilities of the company could be paid back on the basis of quick assets (those assets which could be turned into cash at any time) of the company. This ratio of Myer limited express that the acid test ratio have been lowered. The current liquidity ratio of the company is 0.22 whereas the current ratio of David Jones limited is 0.33. It express that the Myer’s performance is not better than David Jones. The liquidity position of the company is risky and company is suggested to enhance the level of quick assets.

Capital structure ratios are the part of ratio analysis. It is a financial metrics which are used to identify and assess the ability of an organization to manage the long term debt obligation of the company. The ratio explains that an organization is required to manage the long term debts, assets and the equity in such a manner that the risk and the cost of the company could be lower. Capital structure ratios of Myer limited and David Jones have been evaluated which are as follows

Gearing ratio express about the long term liabilities and capital employed relations of the company. This ratio of Myer limited express that the gearing ratio have been lowered. The gearing ratio of the company is 0.23 whereas the gearing ratio of David Jones limited is 0.29. It express that the Myer’s performance is lower than David Jones. The company is required to enhance the level of the long term debts.

Profitability Ratios

Interest coverage ratio express about the total times in which the finance cost of the company could be paid to the debt holder of the company on the basis of EBIT. This ratio of Myer limited express that the interest coverage ratio have been lowered. The current interest coverage ratio of the company is -63.09 whereas the interest coverage ratio of David Jones limited is -45.83. It express that the Myer’s performance is not better than David Jones. The company is required to manage the profitability position to enhance the performance.

Investor’s ratios are the part of ratio analysis. It is a financial metrics which are used to identify and assess the ability of an organization to manage the investments of the investors and offer them higher returns against the total investment. The ratio explains that an organization is required to manage the dividends and the earnings in such a way that the performance of the organization could be managed. Investor’s ratios of Myer limited and David Jones have been evaluated which are as follows:

Earnings per share ratio are an investment ratio which express about the total earnings which have been generated by the company on the basis of outstanding shares. This ratio of Myer limited express that the EPS have been lowered. The current EPS of the company is 0.015 whereas the EPS of David Jones limited is 1.195. It express that the Myer’s performance is not better than David Jones. The company is required to manage the profitability position to enhance the performance.

Dividend coverage ratio is an investment ratio which express about the total income which have been generated by the company in context with the total dividend amount paid. This ratio of Myer limited express that the EPS have been lowered. The current dividend coverage ratio of the company is 0.245 whereas the dividend coverage of David Jones limited is 2.73. It express that the Myer’s performance is not better than David Jones. The company is required to manage the profitability position to enhance the performance.

Recommendation and Conclusion:

On the basis of the above study, it has been evaluated that the performance of the company is not at all good in the industry. The financial position and the financial performance level of the company have been lowered from the last 5 years and in context with the competitors of the company. On the basis of the evaluation, it is recommended to the company to manage the better performance in the market. The income generation capabilities are required to be enhanced by the company. It would help the company to manage better performance in the market.

References:

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