Financial analysis is very important factor in order to analyze the financial performance of company. However, capital structure is the main body which depicts the manner in which a corporation is finance for its business activities. In the starting of this report a complete adamantine study has been prepared over the financial data of Nick Scali Furniture Retail Company. In this analysis two years data has have been taken to evaluate how well organization has deployed its assets in its value chain activities.
Nick Scali Furniture is a retail public company having business of import and export of furniture’s business around the world. The main headquarter of company is in lindcombe Australia. All the business decision of company is highly depended upon its CEO Anthony
It helps in evaluation of liquidity position of company by considering operating, investing and financial activities of company.
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Cash Flow statement of Nick Scali Ltd |
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Computation of cash flow statement |
2016 |
2015 |
% Change in cash flow |
|
Particular |
$’000 |
$’000 |
|
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Cash flow From operating activities |
32,018 |
18,821 |
70% |
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Cash flow From investment activities |
-23,567 |
-14,578 |
62% |
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Cash flow from Financial activities |
-5,093 |
-6,466 |
-21% |
Operating profit margin- It was observed that Nick Scali Ltd has increased its inflow from operating activities by 70% as compared to last year. It reflects that company has increased inflow from operating profit margin by increasing receipt from clients and decreasing payment to debtors.
Investing activities- Investing activities of Nick Scali Ltd has been reflecting negative cash outflow in both years. It is evaluated that company has increased its cash outflow from its investing activities by 62% in 2016 as compared to last years. Company has made cash outflow from investment activities due to high amount of payment has been made acquire plants and machinery in current year.
Financial activities- by evaluating these activities it could be found that company has high amount of cash outflow from its financial activities. Nonetheless, company has decreased its cash outflow from its financial activities by 22% in current year as compare to last year (Brigham and Ehrhardt, 2016).
Free cash flow of company- It reflects amount of cash which is generated by company from its business operation. Nick Scali Ltd has increased its net profit by 30% as compared to last year earning. In addition to this, cash inflow from operating activities have also been increased to AUD $ 32018000 in 2016 which is 70% more as compare to last year data. It is analyzed that Nick Scali Ltd has been maintain good amount of free cash flow from its business functioning.
Net operating profit after tax- It is the profit which is available for shareholders.net operating profit of company of company is .12 in 2016 which is 2% more as compare to last year. It is analyzed that company has deployed its assets in efficient manner and consistently increasing its profit year by year.
Operating capital- It is the amount of capital which is deployed in the business functioning of Nick Scali Ltd. it is analyzed that company has engaged operating capital of AUD 22,885000 in its operating activities in 2016 which is less than 2% as compared to last years. It reflects that company has used its strategic planning effectively to decrease the amount blockage so that cost of capital could be reduced.
Return on capital invested- It is the amount of return that is earned by company beyond its cost of capital. It is analyzed that return on capital employed of Nick Scali Ltd has been increased to 50% in 2016 which is 5.8% more as compare to last year. The main key driver for the increment in return on capital invested is related with company’s efficiency in deployment of resources which increase total revenue in 2016.
It is the amount of return which is earned by company and in order to identify the efficiency of company this rate of return of company has been computed on the book value of all the assets engaged in company. By analyzing the data of Nick Scali Ltd. it is found that company is having 49% returns on equity. Nonetheless, company should endeavor toward increasing its ROE to provide more benefits to its shareholders. All the analyzed has been given as below (Nizam and Hoshino, 2016).
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DuPont Model: What If Analysis |
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Income Statement |
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Sales |
$203,045 |
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Expenses (COGS/Oper. Exp.) |
$79,676 |
Net Profit After Taxes |
$26,150 |
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Interest Expense |
$423 |
divided by |
Net Profit |
12.88% |
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Income Taxes |
$65,658 |
Sales |
$203,045 |
Margin |
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multiplied by |
ROA = |
21.54% |
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Balance Sheet |
Sales |
$203,045 |
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Current Assets |
$63,269 |
divided by |
T. Asset |
1.67224 |
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Total Assets |
$121,421 |
Turnover |
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Long Term Assets |
$58,152 |
ROE |
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mult. by |
45% |
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Current Liabilities |
$40,384 |
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Total Liabilities |
$63,677 |
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Long Term Debt |
$32 |
T. Assets |
$121,471 |
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Stockholder Equity |
$57,794 |
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divided by |
Fin. Lev. |
2.10 |
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Multiplier |
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Equity |
$57,794 |
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Before Tax Cost of Debt |
10.00% |
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Tax Rate |
30.00% |
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After Tax Cost of Debt |
7.00% |
Liquidity ratio
This ratio establishes relation between company’s ability to pay off its all short term and long term debts.
Current ratio of company has decreased to 1.57 from 1.66. Company has decreased its current assets from its business operation in order to reduce the amount of blockage in its value chain activities.
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Liquidity ratio |
2016 |
2015 |
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Current ratio |
1.566684826 |
1.655138479 |
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Quick ratio |
0.92665412 |
0.974356811 |
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Working capital |
22,885.0 |
23,300.0 |
Quick ratio
It reflects the company’s ability to pay off its all debts with the assets which could be converted into cash in short span of time. In 2016 company has .93 quick ratios which is .4 points less as compare to last year quick ratio
Profitability ratio
It establishes the relation between total revenue and net profit earned by company throughout the time.
Operating profit margin
Nick Scali Furniture Retail Company has increased its expenses and simultaneously by increasing its turnover has also increased its operating profit by around 2%. However, as compare to industry operating profit margin this is very less percentage of amount.
Net profit margin
Nick Scali furniture retail Company was having 10.96% net profit margin which increased to 12.98% in 2016. This shows that company has increased its net profit by increasing total turnover of company in 2016.
Return on equity
Nick Scali furniture retail Company had 36.94% returns on equity in 2015 which increased to 45.25% in 2016. The key drivers for increment in return on equity is related with the fact that company has increased its long term debts and increased its leveraged which results into reduction in total cost of capital. In addition to this, company has also increased its total revenue in 2016 as compared to last year.
Return on capital employed
Nick Scali furniture retail Company has increased its return on capital employed to 50% in 2016. However, in order to create value from its investment Nick Scali furniture retail Company has to maintain return on its capital employed more than its cost of capital.
Return on total assets- currently Nick Scali furniture retail Company has 21% return on total assets which is 4% as compared to last years. The main key driver for increment in return on assets is related with efficiency of company to deploy its assets which results into increment in total revenue and reduction in fixed assets with the increment in turnover.
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Profitability Ratios |
2016 |
2015 |
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Operating Profit Margin |
0.186535005 |
0.159544891 |
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Net Profit Margin |
0.128789185 |
0.109648588 |
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Return on Capital Employed |
0.5 |
0.4 |
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Return on Equity |
0.452469114 |
0.369424134 |
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Return on Total assets |
0.21536637 |
0.177263149 |
Efficiency ratio
Company has increased its efficiency to earn profit from it business operation. Efficiency of company could be described with the following ratios.
Creditor turnover ratio
It divulges the how well company has used its credit purchase in its business function. In 2014 company had 4.21 creditor turnover ratios which decreased to 4.21 in 2016. This means that company has been purchasing its entire inventory on credit basis. The decrease in creditor turnover ratio reflects that company has been blocking more assets in its operation activities.
In this ratio total credit sales of company and average debtor turnover are being considered for evaluating how well company has been using its capital resources. This ratio is very high which reflects that company has not been selling its goods on credit basis and having all cash sales throughout the time.
Stock turnover ratio
Stock turnover ratio reflects that amount blocked in stocks of company throughout the time. However, in both years company was having 2.60 stock turnover ratios which it increased to 3.183in 2016. It is further observed that stock turnover ratio of the company is very effective but if company increases its inventory then stock turnover ratio would be increased simultaneously
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Efficiency ratio |
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Efficiency ratio |
2016 |
2015 |
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Receivable turnover ratio |
940.0231481 |
780.6666667 |
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Creditor turnover ratio |
2.262044687 |
4.212842018 |
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Inventory turnover ratio |
3.183283725 |
260.7659574 |
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Assets turnover ratio |
1.86486834 |
1.762167422 |
Solvency ratio
It is the ratio which establishes relation between debt and equity of company. However, there is no set capital structure which is prudent to keep by company.
Gearing ratio
Gearing ratio reflects how well company’s earning covering its financial cost from its business functioning. Nonetheless, gearing ratio of company in 2016 is 89.53 in 2016 which is very high as compare to last year. However, Net profit of company has increased more as compare to its financial cost in 2016 as compared to last year (Brigham and Ehrhardt, 2016).
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Debt equity ratio |
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Capital structure ratio |
2016 |
2015 |
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Debt- equity |
1.102746606 |
1.084043612 |
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Interest coverage ratio |
89.53900709 |
58.3286385 |
Step- 5 Conclusion:
It is analyzed that Nick Scali Furniture Retail Company has been performing very effectively in the retail business market. Despite of sluggish condition of retail Market Company has increased its profit significantly. Nonetheless, by analyzing financial statement of company it is evaluated that cash flow statement of company provides that company has good liquidity position to pay its debts. In addition to this other rivals in retails industry are suffering from loss and providing around 15 % to 20% negative return on capital. At the same time Nick Scali Furniture Retail Company provides 45% return on equity to its shareholders. Now in the end it would be inferred that investors who want to create the value from their investment should invest their money in Nick Scali Furniture Retail Company (Roth, 2017).
Brigham, E.F. and Ehrhardt, M.C. 2016. Account Finance. Cengage Learning, PP 1-549.
Nizam, N. Z., & Hoshino, Y. 2016. Corporate Characteristics of Retail Industry among 11 Asian and American Countries. Journal of Management Research, 8(1), 224-247.
Roth, M., 2017. Top Stocks 2017: A Sharebuyer’s Guide to Leading Australian Companies. John Wiley & Sons.
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