The Joyce Corporation Limited is an Australian company listed on ASX that emphasizes on carrying out business-to-consumer market. The company carries out major operation of foam manufacturing. The major segments of the company include franchising, company owned stores and the operations of retail kitchen stores. The franchising segment of the company carries out operations in relation to bed-shed operations, a bedroom furniture retailer having varied stores in Australia. The company own stores of KWB Group Pty Ltd, an Australian retailer involved in designing of kitchen. At last, the kitchen stores of the company provides diverse range of products based on European design concepts such as glass splash backs and other appliances. The company owns different retail stores involved in providing varied products related to beds, mattresses, kid beds, bed linens, custom design kitchens and wardrobes (Gibson, 2010). The company conducts it operations in highly competitive retail industry of Australia that is dominated by several dominant players. As such, the major competitor of the company in Australian retail market includes Fantastic Holdings Ltd and Nick Scali Ltd. The company employees about 201-500 workforce and is presently recognized as a successful retail company in the Australian market with 130 years of business (Annual Report 2015 and 2016).
Financial Data Used to calculate the Ratios
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Joyce Corporation Ltd |
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Amount in $000 |
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Financial Data |
2014 |
2015 |
2016 |
|
Net Profit After Tax |
$ 5,221.00 |
$ 3,981.00 |
|
|
EQUITY |
$ 22,730.00 |
$ 26,450.00 |
$ 25,990.00 |
|
Average Equity |
$ 24,590.00 |
$ 26,220.00 |
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|
TOTAL ASSETS |
$ 36,618.00 |
$ 45,814.00 |
$ 38,610.00 |
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Average Total Assets |
$ 41,216.00 |
$ 42,212.00 |
|
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SALES REVENUE |
$ 34,737.00 |
$ 56,544.00 |
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Gross Profit |
$ 17,259.00 |
$ 25,732.00 |
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Trade Debtors |
$ 416.00 |
$ 577.00 |
$ 560.00 |
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Average Trade Debtors |
$ 496.50 |
$ 568.50 |
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Inventory |
$ 2,108.00 |
$ 2,185.00 |
$ 3,642.00 |
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Average Inventory |
$ 2,146.50 |
$ 2,913.50 |
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Cost of Goods Sold |
$ 17,478.00 |
$ 30,812.00 |
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Current Assets |
$ 32,866.00 |
$ 20,640.00 |
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Quick Assets |
$ 30,681.00 |
$ 16,998.00 |
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Current Liabilities |
$ 13,376.00 |
$ 11,341.00 |
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Total Liabilities |
$ 19,364.00 |
$ 12,620.00 |
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|
Finance Cost |
$ 262.00 |
$ 90.00 |
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EBIT |
$ 1,170.00 |
$ 5,190.00 |
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EPS (per dollar) |
$ 0.16 |
$ 0.08 |
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Market Price (MPS) in dollar |
$ 0.86 |
$ 1.18 |
(Annual Report 2015 and 2016).
The profitability position of the company can be analyzed though calculation of the following ratios:
Return on Equity (ROE): The ROE ratio depicts the profitability of a company by assessing its capacity to provide profits in comparison to the equity invested by the shareholders. The formula for calculation is:
ROE=Net Income/Shareholder Equity
Return on Assets: The ratio shows the profit realized by a company in relation to its overall assets. The formula for its calculation is:
ROA=Net Income/Total assets
Gross Profit Margin: The ratio assess the financial condition of a company through depicting the amount of revenue realized after deducting cost of goods sold (COGS). It is calculated as:
Gross Profit=Gross Profit/Revenues (Weil, Schipper and Francis, 2013)
Net Profit Margin: The profit realized by a company after meeting all its business operations expenditures such as interest, taxes and dividends. It is calculated as:
Net Profit=Net Income/Net Sales
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1 |
Return on equity |
Net profit after tax |
*100 |
$ 5,221.00 |
2015 |
$ 3,981.00 |
2016 |
|
Average equity |
$ 24,590.00 |
21.23% |
$ 26,220.00 |
15.18% |
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2 |
Return on assets |
Net profit after tax |
*100 |
$ 5,221.00 |
12.67% |
$ 3,981.00 |
9.43% |
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Average total assets |
$ 41,216.00 |
$ 42,212.00 |
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3 |
Net profit margin |
Net profit after tax |
*100 |
$ 5,221.00 |
15.03% |
$ 3,981.00 |
7.04% |
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Sales revenue |
$ 34,737.00 |
$ 56,544.00 |
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4 |
Gross profit margin |
Gross profit |
*100 |
$ 17,259.00 |
49.68% |
$ 25,732.00 |
45.51% |
|
Sales revenue |
$ 34,737.00 |
$ 56,544.00 |
(Annual Report 2015 and 2016)
Profitability position of the Joyce Company faced the downturn in year 2016 as compared to year 2015. All the above profitability ratios has been decreased in year 2016 as compared to year 2015 which shows company has failed to keep the increased trend in the profitability position.
The asset efficiency ratios measure the efficiency of a company to use its asset for achieving profits. It can be measured through analysis of following ratios:
Asset Turnover Ratio: It measures the company’s ability to generate sales in relation to its asset base. The formula for calculation is:
Asset Turnover=Total Revenue/ Average Assets
Days Inventory: It measures the average number of days of holding inventory before its sales. It is calculated through the following formula:
Days Inventory= (Average Inventory / Cost of Goods Sold) x 365 (days)
Days Debtors: The ratio measures the ability of a company to collect the cash from its debtors. The formula for calculation is:
Days Debtors= (Average Debtors/ Sales Revenue) x 365 (days)
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1 |
Asset turnover |
Sales revenue |
$ 34,737.00 |
2015 |
$ 56,544.00 |
2016 |
|
|
Ratio |
Average total assets |
$ 41,216.00 |
0.84 |
$ 42,212.00 |
1.34 |
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|
2 |
Days debtors |
Average trade debtors |
*365 |
$ 496.50 |
5.22 |
$ 568.50 |
3.67 |
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Sales revenue |
$ 34,737.00 |
$ 56,544.00 |
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|
3 |
Days inventory |
Average inventory |
*365 |
$ 2,146.50 |
44.83 |
$ 2,913.50 |
34.51 |
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Cost of goods sold |
$ 17,478.00 |
$ 30,812.00 |
(Annual Report 2015 and 2016)
Assets efficiency of the company was excellent in year 2016 as compared to year 2015. It can be said through analysis of the above ratios. Assets turnover ratio has been increased in year 2016 that clearly indicates that less assets has been used to earn more revenue. Debtor’s collection and inventory conversion period has also been decreased in year 2016 that shows healthy consumption of assets.
The liquidity position of the company can be analyzed through the help of following ratios:
Current Ratio: It measures the ability of a company for meeting its short and long-term financial obligations. It is calculated as:
Current Ratio=Current Assets/Current Liabilities
Quick Ratio: It measures the ability of a company to meet its short-term obligations and is calculated as:
Quick Ratio= (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
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Liquidity ratios |
2015 |
2016 |
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1 |
Current ratio |
Current assets |
$ 32,866.00 |
2.46 |
$ 20,640.00 |
1.82 |
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|
Current liabilities |
$ 13,376.00 |
$ 11,341.00 |
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2 |
Quick ratio |
Quick assets |
$ 30,681.00 |
2.29 |
$ 16,998.00 |
1.50 |
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|
Current liabilities |
$ 13,376.00 |
$ 11,341.00 |
(Annual Report 2015 and 2016)
There is decrease in the current ratio from 2.46 times in year 2015 to 1.82 times in year 2016 that shows value of current assets has been decreased to pay the short term liabilities. Same liquidity position is seen in the quick ratio as well. So overall it can be said that liquidity position in year 2015 was much stronger as compared to year 2016. So it there is decreasing trend in the liquidity position.
The capital structure ratios indicate the proportion of debt and equity in the overall capital of a company and can be analyzed through the use of following formulas:
Debt to Equity Ratio: It measures the overall debt proportion in the capital structure of a company in comparison to the equity and is calculated as:
Debt to Equity Ratio=Debt/Equity (Weygandt, Kieso and Kimmel, 2010)
Gearing Debt Ratio: It measures the leverage structure of accompany by comparing the owner’s equity to funds borrowed. It is calculated as:
Gearing Debt Ratio=Debt/ (Debt + equity)
Equity Ratio: It measures the total assets that are financed by stockholders and is calculated as:
Equity Ratio=Total Equity/Total Assets
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1 |
Debt to equity ratio |
Total liabilities |
*100 |
$ 19,364.00 |
2015 |
$ 12,620.00 |
2016 |
|
Total equity |
$ 26,450.00 |
73.21% |
$ 25,990.00 |
48.56% |
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|
2 |
Debt ratio |
Total liabilities |
*100 |
$ 19,364.00 |
42.27% |
$ 12,620.00 |
32.69% |
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Total assets |
$ 45,814.00 |
$ 38,610.00 |
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3 |
Equity ratio |
Total equity |
*100 |
$ 26,450.00 |
57.73% |
$ 25,990.00 |
67.31% |
|
Total assets |
$ 45,814.00 |
$ 38,610.00 |
(Annual Report 2015 and 2016)
Debt to equity ratio of the company has been decreased in year 2016 to 48.56% but the debt to equity ratio of competitors has increased in year 2016 that shows that Joyce has more equity capital as compare to debt capital. Same has also been reflected from the equity ratio and debt ratio. There is no change in the equity ratio of the competitors but the equity ratio of the Joyce increased a lot in year 2016 because of payment of debt capital. So it can be said that capital structure of the Joyce Company is less leveraged as compared to its competitor (Stickney, 2009).
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Fantastic Holdings Ltd |
Nick Scali Ltd |
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|
2016 |
2015 |
2016 |
2015 |
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Debt Equity Ratio (TL/TE) |
72% |
70.3% |
Debt Equity Ratio (TL/TE) |
110.5% |
108.4% |
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Gearing/Debt Ratio (TL/TA) |
41.8% |
41.3% |
Gearing/Debt Ratio (TL/TA) |
52.4% |
52% |
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Equity Ratio (TE/TA) |
58.2% |
58.7% |
Equity Ratio (TE/TA) |
47.6% |
48% |
The ratio measures the ability of a company to meet its interest expenses on outstanding debt. It is calculated through the following formula:
Interest Coverage Ratio=Earnings before interest and taxes (EBIT)/ Interest Expenses
|
1 |
Interest coverage ratio |
EBIT |
$ 1,170.00 |
2015 |
$ 5,190.00 |
2016 |
|
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Net finance costs |
$ 262.00 |
4.47 |
$ 90.00 |
57.67 |
Interest coverage ratio has been increased in year 2016 as compared to year 2015 that indicates that company has more profits available to pay the finance cost on the debt financing (Palepu, 2007).
The three sections of the cash flow statement are cash flow operating activity, cash used or flow from investing activity and cash flow or used in financing activity. Investing activity shows highest cash inflow in the company in year 2016. The reason for this is that company has sold its major assets in year 2016.
The PE ratio of the Joyce Company in year 2015 was 5.31 times and it was increased a lot to 14.22 times in year 2016 (Yahoo Finance: Historical Data, 2017). The increase in PE ratios can be due to increase in market price per share or decrease in earnings per share. To be more clear decrease in EPS is not beneficial for investor’s point of view. Looking at the competitor PE ratio it can be said that market performance was low as compare to other players in the same industry.
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P/E ratio of Fantastic Holdings Ltd |
P/E ratio of Nick Scali Ltd |
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2016 |
20.3 times |
14.5 times |
References
Annual Report 2015. Joyce Corporation.
Annual Report 2016. Joyce Corporation.
Gibson, C. 2010. Financial Reporting and Analysis: Using Financial Accounting Information. Cengage Learning.
Palepu, K. et al. 2007. Business Analysis and Valuation: Text and Cases. Cengage Learning EMEA.
Stickney, C.P. et al. 2009. Financial Accounting: An Introduction to Concepts, Methods and Uses. Cengage Learning.
Weil, R., Schipper, K. and Francis, J. 2013. Financial Accounting: An Introduction to Concepts, Methods and Uses. Cengage Learning.
Weygandt, J., Kieso, D.E. and Kimmel, P.D. 2010. Financial Accounting: IFRS. John Wiley & Sons.
Yahoo Finance: Historical Data. 2017. Joyce Corporation. [Online]. Available at: https://au.finance.yahoo.com/quote/JYC.AX/history?period1=1349634600&period2=1507401000&interval=1mo&filter=history&frequency=1mo [Accessed on: 8 October, 2017].
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