The Dixon Carphone Plc. is a multinational electrical and telecommunication retailer and services company which is headquartered in the London. The company primarily has its operations in the Consumer Electronics Industry and has its presence globally. The company has its presence in a variety of distinct marketplaces such as mobile phones, other types of consumer electronic products and various other types of business services. The operations of the company are usually carried on under various brands in the United Kingdom, Ireland and mainland European region.
Curry’s, PC World, Carphone Warehouse are some of the common brands under which the company usually carries on their operating activities. The company has a good employee base where around 43,000 employees directly work under the company. The company is listed in the London Stock Exchange and is also a part of the FTSE 250 Index. The future prospect of the company is dependent on the various brands under which the operations of the company is performed and the profitability generated from the same (Shouman, El Shenawy and Khattab 2016). There are various global business and macro-economic factors, which plays a significant role in the development of the company (Vogel 2014).
Discussion
Ratio Analysis
The ratio analysis of the company is performed in order to analyse the performance of the company. The ratio analysis is quantitative analysis tool used for analysing the financial performance of the company over the period of time. The application of the ratio analysis help in understanding the trend of the financial performance of the company. The key benefit of the ratio analysis is that it takes into account the financial data by indicating the financial performance of the company and indicates the profitability, liquidity position and the capital structure of the company (Cucchiella, D’Adamo and Gastaldi 2015).
The inclusion of financial data in the form of ratio helps the potential users of the data for the purpose of understanding and comparison of various kinds of data by the company. The limitation of the ratio analysis is that the same does not incorporate the various fundamental aspects of the company during the financial analysis of the company. Companies may easily manipulate the data at the year end to make the ratio more attractive for the potential investors and financial information users (Nesticò and Pipolo 2015).
Calculations
Gearing/Capital Structure Ratio
Gearing Ratio
The Gearing ratio or the debt to equity ratio is calculated by the formula (Total Debt/Total Equity). The level of debt in comparison to the equity level for the company has consistently decreased for the company and the company has switched over equity financing in this trend period analysed (Uechi et al. 2015).
|
Gearing/Capital Structure Ratio |
||||
|
Debt |
290000 |
409000 |
381000 |
329000 |
|
Equity |
880000 |
2860000 |
3055000 |
3196000 |
|
Workings |
(290000/880000) |
(409000/2860000) |
(381000/3055000) |
(329000/3196000) |
|
Gearing Ratio (Debt to Equity Ratio) |
33% |
14% |
12% |
10% |
Interest Coverage Ratio
(Earnings before Interest and Tax/Interest)
The interest coverage ratio shows the level of interest burden of the company on the operating income of the company. The Interest coverage ratio for the company has consistently increased for the company due to the falling interest and rising operating income of the company (Shah 2015).
|
Particulars |
2014-15 |
2015-16 |
2016-17 |
2017-18 |
|
Earnings Before Interest and Tax |
127000 |
472000 |
515000 |
368000 |
|
Interest |
17000 |
26000 |
24000 |
25000 |
|
Workings |
(127000/17000) |
(472000/26000) |
(515000/24000) |
(368000/25000) |
|
Interest Coverage Ratio |
7.47 |
18.15 |
21.46 |
14.72 |
Return on Capital Employed
(Operating Profit/Capital Employed)*100
The return on capital employed for the company shows the net return generated for the company by incorporating the operating profit of the company and the net capital employed by the company. The trend for the return has not been growing as the rise in the operating income o the company was not consistent with the rise in the capital employed of the company. The ROCE for the company has fallen from 14% to around 12% in the trend period 2015-18 (Omar et al. 2014).
|
Profitability Ratio |
||||
|
Operating Profit |
127000 |
472000 |
515000 |
368000 |
|
Capital Employed |
880000 |
2860000 |
3055000 |
3196000 |
|
Workings |
(127000/880000) |
(472000/2860000) |
(515000/3055000) |
(368000/3196000) |
|
Return on capital employed |
14% |
17% |
17% |
12% |
Gross Profit Margin
(Gross Profit/Sales)*100
The gross profit for the company shows the net operating profit of the company in contrast to the sales or revenue of the company. The gross profit of the company has not been consistent as the rise in sales or revenue of the company was not consistent with the rise in the operating margin of the company. Thereby the ratio showing downward trend from the year 2014-18 from 25.78% in the year 2014-15 to 20.51% in the year 2017-18 (Enekwe 2015).
|
Gross Profit |
664000 |
2185000 |
2337000 |
2160000 |
|
Sales |
2576000 |
9738000 |
10585000 |
10531000 |
|
Workings |
(664000/2576000) |
(2185000/9738000) |
(2337000/10585000) |
(2160000/10531000) |
|
Gross profit margin ratio |
25.78% |
22.44% |
22.08% |
20.51% |
Operating Margin Ratio
(Operating Profit/Sales)*100
The operating income of the company is dependent on the sale and the operating expenses of the company. The sales for the company has consistently increased for the period 2014-18 but the rise in the operating expenses of the company has been much larger than the rising revenue of the company. The operating margin of the company has fallen from in trend period hereby showing a downward trend in the time frame (Greco, Figueira and Ehrgott 2016).
|
Particulars |
2014-15 |
2015-16 |
2016-17 |
2017-18 |
|
Earnings Before Income and Tax |
127000 |
472000 |
515000 |
368000 |
|
Sales |
2576000 |
9738000 |
10585000 |
10531000 |
|
Workings |
(127000/2576000) |
(472000/9738000) |
(515000/10585000) |
(368000/10531000) |
|
Operating profit margin ratio |
4.93% |
4.85% |
4.87% |
3.49% |
Current Ratio
(Current Assets/ Current Liabilities)
The current ratio for the company shows the liquidity position of the contrast to the current liabilities or the current obligations of the company. The current ratio for the company is not consistent with the current liabilities of the company as the ratio should be equal to 1 and the company has not maintained adequate amount of current assets in corresponding to the current liabilities of the company. The current ratio for the company was around 0.93 times in the year 2015-16 and the same has increased marginally to 0.95 times in the year 2017-18 (Uechi et al. 2015).
|
Particulars |
2014-15 |
2015-16 |
2016-17 |
2017-18 |
|
Liquidity Ratio |
||||
|
Current Assets |
1355000 |
2322000 |
2463000 |
2571000 |
|
Current Liabilities |
981000 |
2491000 |
2714000 |
2720000 |
|
Workings |
(1355000/981000) |
(2322000/2491000) |
(2463000/2714000) |
(2571000/2720000) |
|
Current Ratio |
1.38 |
0.93 |
0.91 |
0.95 |
Quick Ratio
((Cash + Accounts Receivables/Current Liabilities))
|
Particulars |
2014-15 |
2015-16 |
2016-17 |
2017-18 |
|
Liquidity Ratio |
||||
|
Cash |
283000 |
166000 |
147000 |
168000 |
|
Accounts Receivable |
– |
– |
– |
– |
|
Current Liabilities |
981000 |
2491000 |
2714000 |
2720000 |
|
Workings |
(283000/981000) |
(166000/2491000) |
(147000/2714000) |
(168000/2720000) |
|
Quick Ratio |
0.29 |
0.07 |
0.05 |
0.06 |
The Quick Ratio or the Acid Test Ratio shows the net liquidity position of the company in terms of the most liquid assets of the company. The quick ratio is also called the pure liquid ratio of the company as it does not incorporate inventory into account while evaluating the liquidity position of the company. The quick ratio for the company has fallen consistently for the company from the trend period analysed for the company. The quick ratio for the company has fallen consistently from 0.29 times in the year 2014-15 to around 0.06 times in the year 2017-18 (Umobong 2015).
Conclusion
The financial analysis of the Dixon Carphone was evaluated for the trend period 2014-18 and the relevant financial data and the performance of the company was taken into account for the trend period. The analysis of the company in the field of operating margin, liquidity position of the company and the gearing or the debt structure of the company was evaluated.
The profitability ratio for the company has fallen consistently for the company and the company should recognize various areas where it can reduce the operating expense so the company thereby increasing the net gross margin of the company. It is also essential for the company to maintain a sound liquidity position in the business so that the operations of the company does not get hampered. However it is crucial to note that the company on the other hand has also tried to reduce the debt of the company thereby reducing the financial risk of the company. Dixons Carphone overall has a wide range of portfolio of products from where the company can increase the revenue base for the company and examine the possibility of reducing the operating costs for the company.
Cucchiella, F., D’Adamo, I. and Gastaldi, M., 2015. Financial analysis for investment and policy decisions in the renewable energy sector. Clean Technologies and Environmental Policy, 17(4), pp.887-904.
Enekwe, C.I., 2015. The relationship between financial ratio analysis and corporate profitability: a study of selected quoted oil and gas companies in Nigeria. European Journal of Accounting, Auditing and Finance Research, 3(2), pp.17-34.
Greco, S., Figueira, J. and Ehrgott, M., 2016. Multiple criteria decision analysis. New York: Springer.
Nesticò, A. and Pipolo, O., 2015. A protocol for sustainable building interventions: financial analysis and environmental effects. International Journal of Business Intelligence and Data Mining, 10(3), pp.199-212.
Omar, N., Koya, R.K., Sanusi, Z.M. and Shafie, N.A., 2014. Financial statement fraud: A case examination using Beneish Model and ratio analysis. International Journal of Trade, Economics and Finance, 5(2), p.184.
Shah, M.B., 2015. A financial ratio analysis of Hindustan Unilever Limited (HUL). RESEARCH HUB-International Multidisciplinary Research Journal (RHIMRJ), 2(5), pp.1-5.
Shouman, E.R., El Shenawy, E.T. and Khattab, N.M., 2016. Market financial analysis and cost performance for photovoltaic technology through international and national perspective with case study for Egypt. Renewable and Sustainable Energy Reviews, 57, pp.540-549.
Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y., 2015. Sector dominance ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421, pp.488-509.
Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y., 2015. Sector dominance ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421, pp.488-509.
Umobong, A.A., 2015. Assessing the impact of liquidity and profitability ratios on growth of profits in pharmaceutical firms in Nigeria. European Journal of Accounting, Auditing and Finance Research, 3(10), pp.97-114.
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
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