Financial And Non-Financial Performance Analysis Of Kitchen Warehouse Limited

Company Overview

This report has been prepared to analyze and investigate the financial and non financial performance of KITCHEN WAREHOUSE LIMITED. This report depicts that how many changes have taken place into the stability and profitability position in the company in last 3 years. The performance of the company has been analyzed on the basis of the past year performance and the competitor’s position. For this report, study of ratio analysis has been concerned and the performance of the company has been analyzed accordingly. In this report, firstly, the ratio analysis has been evaluated and the performance of the company has been analyzed. Further, the cash conversion cycle of the company has been evaluated to identify that how much time would it take in the company to convert the products and current assets into cash.

Further, the investment opportunity of the company has been analyzed according to the nature and investment return of the company. Lastly, the capital structure of the company has been analyzed to make a better decision about the performance and position of the company. So that the optimal capital structure of the company could also be evaluated.  This report would help the company as well as the investors of the company to make a better decision.

Kitchen warehouse limited is the international company which operates its business in more than 10 countries. This company is manufacturing and delivering the luxurious kitchen equipment in international market. Currently, the head office of the company is in the UK market. Through the evaluation of the company, it has been analyzed that various changes have taken place into the performance of the company. The current financial position of the company depict that the performance of the company is enhancing continuously (Schlichting, 2013).

The study has been done over the financial ratios of the company to identify and evaluate the position, performance and the profitability of the company. In this study, various ratios have been calculated to identify the level of the company in terms of its current debt obligation, quick debt obligation. Profitability position, debt position, equity position, dividend position etc. through the reports of the company, it has been evaluated that the following are the calculation of the ratio analysis of the KITCHEN WAREHOUSE LIMITED:

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Description	Kitchen Warehouse  Limited (£)
	2014	2015	2016
Revenue	3,42,251	3,07,964	2,91,940
Cost of goods sold	2,49,794	2,20,234	2,04,265
Gross profit	92,457	87,730	87,675
Operating profit	67,164	60,681	62,382
Net profit	55,859	52,435	53,112
Dividends	28,345	22,871	18,589
Inventory	54,874	49,728	47,262
Current assets	3,61,139	3,27,731	3,75,820
Receivables	48,780	43,235	40,709
Current liabilities	1,07,839	97,390	90,690
Payables	41,936	38,589	36,106
Equity	3,09,092	2,79,528	2,87,005
Total liabilities	2,37,780	2,14,582	2,09,682
Total assets	5,46,872	4,94,110	4,96,687

Description	Formula	KITCHEN WAREHOUSE Limited
		2014	2015	2016
Profitability
Net margin	Net profit/revenues	16.32%	17.03%	18.19%
Return on equity	Net profit/Equity	18.07%	18.76%	18.51%
Liquidity
Current ratio	Current assets/current liabilities	3.35	3.37	4.14
Quick Ratio	Current assets-Inventory/current liabilities	2.84	2.85	3.62
Efficiency
Receivables collection period	Receivables/ Total sales*365	52.02	51.24	50.90
Payables collection period	Payables/ Cost of sales*365	61.28	63.95	64.52
Asset turnover ratio	Total sales/ Total assets	0.63	0.62	0.59
Solvency
Debt to Equity Ratio	Debt/ Equity	0.77	0.77	0.73
Debt to assets	Debt/ Total assets	0.43	0.43	0.42
Dividend payout	Dividend / Net profit	0.51	0.44	0.35
Effective tax rate		30.80%	31.70%	32.00%
Net cash flows		19525	17035	9623

 
Further, the study has also been done over the competitive company, HOWDEN JOINERY GROUP PLC to analyze the performance of the company on the basis of the industry:

Financial Data
Description	HOWDEN JOINERY GROUP PLC (£)
	2014	2015	2016
Revenue	10,90,800	12,20,200	13,07,300
Cost of goods sold	3,96,300	4,35,800	4,67,400
Gross profit	6,94,500	7,84,400	8,39,900
Operating profit	1,89,800	2,21,900	2,37,200
Net profit	1,57,800	1,75,400	1,85,600
Dividends	41,000	59,900	65,400
Inventory	1,43,100	1,77,100	1,83,700
Current assets	4,93,700	5,32,700	5,46,200
Receivables	1,02,900	97,100	99,200
Current liabilities	1,94,000	2,02,900	2,34,000
Payables	80,100	85,700	93,900
Equity	2,94,900		3,97,000
Total liabilities	3,49,900	2,64,000	3,50,800
Total assets	6,44,800	2,64,000	7,47,800

Description	Formula	HOWDEN JOINERY GROUP PLC
		2014	2015	2016
Profitability
Net margin	Net profit/revenues	14.47%	14.37%	14.20%
Return on equity	Net profit/Equity	53.51%		46.75%
Liquidity
Current ratio	Current assets/current liabilities	2.54	2.63	2.33
Quick Ratio	Current assets-Inventory/current liabilities	1.81	1.75	1.55
Efficiency
Receivables collection period	Receivables/ Total sales*365	34.43	29.05	27.70
Payables collection period	Payables/ Cost of sales*365	73.77	71.78	73.33
Asset turnover ratio	Total sales/ Total assets	1.69	4.62	1.75
Solvency
Debt to Equity Ratio	Debt/ Equity	1.19		0.88
Debt to assets	Debt/ Total assets	0.54	1.00	0.47
Dividend payout	Dividend / Net profit	0.26	0.34	0.35
Net cash flows		55794	0	0

(Morningstar, 2017)

Through the calculation and the evaluation over the financial data of the company, it has been found that the profitability position of the company has became better than the last 3 years financial performance of the company. Firstly, the net profit of the company has been analyzed to identify the changes and their impact over the position and the performance of the company. Through the study, it has been found that the net profit of the company was 16.32% which has been reduced to 18.19% due to various new policies and strategic position. At the same time, it has been found that the competitive company HOWDEN JOINERY GROUP PLC has enjoyed and average net profit from last 3 years (Phillips and Stawarski, 2016). The net profit rate of the company is decreasing with a lower rate but still the performance of the company is becoming better (Ackert and Deaves, 2009). 

Financial Ratios and its Analysis

Further, return on equity of the company depict about the net profit of the company in concern of the total equity of the company. The ratio of return on equity of KITCHEN WAREHOUSE LIMITED depicts that the return on equity of the company is 18.51% which was 18.07% in 2013. It depicts that the performance of the company is bit better in comparison of its competitors. 

More, the study has been performed over the  financial data of the company, it has been found that the liquidity position of the company has became better than the last 3 years financial performance of the company. Firstly, the current ratio of the company has been analyzed to identify the changes and their impact over the position and the performance of the company (Baker and Nofsinger, 2010). Through the study, it has been found that the current ratio of the company was 3.35 which have been reduced to 4.14 due to various new policies and changes into the current assets and liabilities. At the same time, it has been found that the competitive company HOWDEN JOINERY GROUP PLC has enjoyed and average net profit from last 3 years. The net profit rate of the company is decreasing with a lower rate but still the performance of the company is becoming better.

Further, quick ratio of the company depict about the quick obligation of the company in concern of the quick assets and current liabilities of the company. The ratio of quick liquidity of KITCHEN WAREHOUSE LIMITED depicts that the quick ratio of the company is 1.55 which was 1.81 in 2013. It depicts that the performance of the company is bit better in comparison of its competitors. 

Further, the study has been performed over the efficiency and solvency psoition of the companty to identify thar how the managment of the company is managing the workign capital of the company as well as it has also been found that how the chnages could be made to make the position and performence of the company better (Bhimani et al, 2008).

More, the study has been performed over the  financial data of the company, it has been found that the efficiency position of the company has became better than the last 3 years financial performance of the company. Firstly, the total days of the company has been analyzed to identify the changes and their impact over the position and the performance of the company. Through the study, it has been found that the efficiency position of the company depict that these changes are quite competitive for the company and depict about the better position of the company in the market. At the same time, it has been found that the competitive company HOWDEN JOINERY GROUP PLC has enjoyed the good working capital position as well. The efficiency ratios of the company are decreasing with a lower rate and making the working capital of the company is more impressive (Elton, Gruber, Brown and Goetzmann, 2009).

Lastly, the study has been performed over the financial data of the company; it has been found that the solvency position of the company has become better than the last 3 years financial performance of the company. Firstly, the position of debt and equity of the company has been analyzed to identify the changes and their impact over the position and the performance of the company (Drury, 2013). Through the study, it has been found that the solvency position of the company depict that these changes are quite competitive for the company and depict about the better position of the company in the market. At the same time, it has been found that the competitive company HOWDEN JOINERY GROUP PLC has enjoyed the good debt and equity position as well. The solvency ratios of the company are decreasing with a lower rate and making the optimal capital structure of the company. 

Competitive Analysis

Further, the study has been performed over the cash conversion cycle of the company. Cash conversion cycle is a metric which is used to collect the effectiveness and efficiency of a company and its management to administer the financial and liquidity health of the company. The calculation of cash conversion cycle depict that how rapidly an organization could convert the inventory, accounts payable and accounts receivable of the company and then again into the cash (Garrison et al, 2010).

The study has been performed over the KITCHEN WAREHOUSE LIMITED to analyze the cash conversion period. Following calculation depict about the total cash conversion period of the company.

Calculation of cash conversion cycle
Sales	£      3,42,251
COGS	£      2,49,794
Inventories	£         54,874
AR	£         48,780
AP	£         41,936
Days/year	365
Cash conversion cycle (CCC)	Inventory conversion period	+	Receivables collection period	–	Payables deferral period
		Inventory/Sales per day	+	AR/Sales per day	–	AP/COGS per day
		58.52	+	52.02	–	44.72
		65.82

(Hansen, Mowen and Madison, 2010)

The above calculation depict that the cash conversion cycle of the company is 65.82 days. Cash conversion cycle of the KITCHEN WAREHOUSE LIMITED is a metric which is used to collect the effectiveness and efficiency of the company and its management to administer the financial and liquidity health of the company. The calculation of cash conversion cycle depict that how rapidly KITCHEN WAREHOUSE LIMITED could convert the inventory, accounts payable and accounts receivable of the company and then again into the cash (Hansen, Mowen and Guan, 2007).

The given case depicts that it depends on the consumers that which services and the products, he or she wants from the company. According to the policies of the company, it has been found that if the products would be bought by the consumers than the services would be provided in zero cost so the CFO has decided to quit this services department. The decision of CFO is quite better in concern of the finance of the company. But according to the Krantz, (2016), the design department enhances the sales of the production department of the company. Customers get attracts towards the products of the company for availing the free services of the design (Hopper, Northcott and Scapens, 2007). Though, it has also been found through the study of Kinsky (2013) that it is requisite for the company to terminate the department which is continuously facing loss from a long period. Further Horngren, (2009) has depicted that the company must take the decision about continuing the operation and terminate the department on the basis of their nature and the impact of that department over other departments.

Through this analysis, it has been observed that it is required for the company to manage and identify the impact of the design department over the production department and must drop the idea of terminating the design department from the operations and functions of the company (Kruth, 2013). The CFO must use other techniques to enhance the performance of the design department through reducing the service provider employee of the company and through reducing the kevel of the fixed assets of the company. Either the CFO must think about outsourcing the design department so that the fixed cost and extra cost of the company could be controlled and further, the company would be able to make extra profits.

In the given case, it has been analyzed that the company is trying to make a contract worth of £25 million to make an operating lease. Currently, the capital structure of the company is as follows:

Current capital structure
Debt	84814	0.223362847
Equity	294900	0.776637153
	379714

Further, if this contrct would be accepted by the company than the follwoing chnages would take place into the capital strcuture of the company:

Changes in the capital structure
Debt	109814	0.27133729
Equity	294900	0.72866271
	404714

This depict that the psoitoon fo the debt would be bit hogher and the risk factors of the company would be enhanced but at the same time, the return factors of the company would be better. After the changes into the capital structure of the company, the psoition of the company would be better and would offer a good optimal capital strcuture (Palicka, 2011).

In concern of stockholder of the company, it has been analyzed that the chnages into the capital structure of the company would make an impact over the dividends of the compay but at the same time, the worth of the stock of the company would also be better. Thus it has been found through this study that the agreement is good for the capital structure of the company as well as the stockhodlers of the company (Madhura, 2014).

Through the above study and evaluation, it has been found that the performance and position of the company is bit better in the market. Further, it has also been analyzed that the, financial position of the company has became better than the last 3 years financial performance of the company. Firstly, the ratio analysis of the company has been analyzed to identify the changes and their impact over the position and the performance of the company. Through the study, it has been found that the various positive changes have taken place into the position and stability of the company due to various new policies and changes into the current assets and liabilities.

Further, various cases has been analyzed over the company to identify that how the performance of the company could be better and through the analysis, it has been found that the Cash conversion cycle of the KITCHEN WAREHOUSE LIMITED is a metric which is used to collect the effectiveness and efficiency of the company and its management to administer the financial and liquidity health of the company. It depict that the current position of cash conversion cycle of the company is quite good.

Further, the study has been performed over the CFO’s decision and through the literature review, it has been analyzed that it is required for the company to manage and identify the impact of the design department over the production department and must drop the idea of terminating the design department from the operations and functions of the company. Lastly, the capital structure of the company has been analyzed and it has been found that the chnages into the capital structure of the company would make an impact over the dividends of the compay but at the same time, the worth of the stock of the company would also be better.

References:

Morningstar. 2017. HOWDEN JOINERY GROUP PLC. Retrieved from https://financials.morningstar.com/balance-sheet/bs.html?t=HWDN&region=gbr&culture=en-US available as on 15^th Nov 2017.

Ackert, L. and Deaves, R. 2009. Behavioral Finance: Psychology, Decision-Making, and Markets. Cengage Learning.

Baker, H.K. and Nofsinger, J.R. 2010. Behavioral Finance: Investors, Corporations, and Markets. John Wiley and Sons.

Bhimani, A., Horngren, C. T., Datar, S. M., and Foster, G. 2008. Management and cost accounting (Vol. 1). Pearson Education.

DRURY, C. M. 2013. Management and cost accounting. Springer.

Elton, E.J., Gruber, M.J., Brown, S.J., and Goetzmann, W.N. 2009. Modern Portfolio Theory and Investment Analysis. John Wiley and Sons.

Garrison, R. H., Noreen, E. W., Brewer, P. C., and McGowan, A. 2010. Managerial accounting. Issues in Accounting Education, 25(4), 792-793.

Hansen, D. R., Mowen, M. M., and Madison, T. 2010. Cornerstones of cost accounting. Issues in Accounting Education, 25(4), 790-791.

Hansen, D., Mowen, M., and Guan, L. 2007. Cost management: accounting and control. Cengage Learning.

Hopper, T., Northcott, D., and Scapens, R. 2007. Issues in management accounting. Pearson education.

Horngren, C. T. 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India.

Kinsky, R. 2011. Charting Made Simple: A Beginner’s Guide to Technical Analysis. John Wiley and Sons.

Krantz, M. 2016. Fundamental Analysis for Dummies. John Wiley and Sons.

Kurth, S. 2013. Critical Review about Implications of the Efficient Market Hypothesis. GRIN Verlag.

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Phillips, P.P. and Stawarski, C.A. 2016. Data Collection: Planning for and Collecting All Types of Data. John Wiley and Sons.

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