dick smith 2015 financial analysis (full year ended 30 june)
TRANSCRIPT
Dick Smith 2015 Financial Analysis• Full year results released in August 2015
Jul 2014
Aug 2014
Sep 2014
Oct 2014
Nov 2014
Dec 2014
Jan2015
Feb 2015
Mar 2015
Apr 2015
May 2015
Jun 2015
Jul 2015
Aug 2015
Sep 2015
Oct 2015
Nov 2016
Dec 2015
Jan2016
Reporting PeriodJul
2014Aug
2014Sep
2014Oct
2014Nov 2014
Dec 2014
Jan2015
Feb 2015
Mar 2015
Apr 2015
May 2015
Jun 2015
Jul 2015
Aug 2015
Sep 2015
Oct 2015
Nov 2016
Dec 2015
Jan2016
Enters administration in January 2016
All stores closed by May 2016
Dick Smith2015 Financial Reports
Let’s analyse the Financial Reports to see if there were any clues.
The Key Numbers
The Key NumbersIn $millions This Period Last Period Variance
Sales 1319.7 1227.6 +7%
Cost of Goods Sold 992.8 919.6 +8%
Gross Profit 326.8 308.0 +6%
Net Profit 37.9 19.8 +91%
Current Assets 390.0 335.9 +16%
Non-Current Assets 118.5 115.3 +3%
Current Liabilities 316.5 266.8 +19%
Non-Current Liabilities 22.8 17.4 +31%
Owner's Equity 169.1 166.9 +1%
In $millions This Period Last Period Variance
Sales 1319.7 1227.6 +7%
Cost of Goods Sold 992.8 919.6 +8%
Gross Profit 326.8 308.0 +6%
Net Profit 37.9 19.8 +91%
Current Assets 390.0 335.9 +16%
Non-Current Assets 118.5 115.3 +3%
Current Liabilities 316.5 266.8 +19%
Non-Current Liabilities 22.8 17.4 +31%
Owner's Equity 169.1 166.9 +1%
In $millions This Period Last Period Variance
Sales 1319.7 1227.6 +7%
Cost of Goods Sold 992.8 919.6 +8%
Gross Profit 326.8 308.0 +6%
Net Profit 37.9 19.8 +91%
Current Assets 390.0 335.9 +16%
Non-Current Assets 118.5 115.3 +3%
Current Liabilities 316.5 266.8 +19%
Non-Current Liabilities 22.8 17.4 +31%
Owner's Equity 169.1 166.9 +1%
In $millions This Period Last Period Variance
Sales 1319.7 1227.6 +7%
Cost of Goods Sold 992.8 919.6 +8%
Gross Profit 326.8 308.0 +6%
Net Profit 37.9 19.8 +91%
Current Assets 390.0 335.9 +16%
Non-Current Assets 118.5 115.3 +3%
Current Liabilities 316.5 266.8 +19%
Non-Current Liabilities 22.8 17.4 +31%
Owner's Equity 169.1 166.9 +1%
In $millions This Period Last Period Variance
Sales 1319.7 1227.6 +7%
Cost of Goods Sold 992.8 919.6 +8%
Gross Profit 326.8 308.0 +6%
Net Profit 37.9 19.8 +91%
Current Assets 390.0 335.9 +16%
Non-Current Assets 118.5 115.3 +3%
Current Liabilities 316.5 266.8 +19%
Non-Current Liabilities 22.8 17.4 +31%
Owner's Equity 169.1 166.9 +1%
In $millions This Period Last Period Variance
Sales 1319.7 1227.6 +7%
Cost of Goods Sold 992.8 919.6 +8%
Gross Profit 326.8 308.0 +6%
Net Profit 37.9 19.8 +91%
Current Assets 390.0 335.9 +16%
Non-Current Assets 118.5 115.3 +3%
Current Liabilities 316.5 266.8 +19%
Non-Current Liabilities 22.8 17.4 +31%
Owner's Equity 169.1 166.9 +1%
In $millions This Period Last Period Variance
Sales 1319.7 1227.6 +7%
Cost of Goods Sold 992.8 919.6 +8%
Gross Profit 326.8 308.0 +6%
Net Profit 37.9 19.8 +91%
Current Assets 390.0 335.9 +16%
Non-Current Assets 118.5 115.3 +3%
Current Liabilities 316.5 266.8 +19%
Non-Current Liabilities 22.8 17.4 +31%
Owner's Equity 169.1 166.9 +1%
In $millions This Period Last Period Variance
Sales 1319.7 1227.6 +7%
Cost of Goods Sold 992.8 919.6 +8%
Gross Profit 326.8 308.0 +6%
Net Profit 37.9 19.8 +91%
Current Assets 390.0 335.9 +16%
Non-Current Assets 118.5 115.3 +3%
Current Liabilities 316.5 266.8 +19%
Non-Current Liabilities 22.8 17.4 +31%
Owner's Equity 169.1 166.9 +1%
In $millions This Period Last Period Variance
Sales 1319.7 1227.6 +7%
Cost of Goods Sold 992.8 919.6 +8%
Gross Profit 326.8 308.0 +6%
Net Profit 37.9 19.8 +91%
Current Assets 390.0 335.9 +16%
Non-Current Assets 118.5 115.3 +3%
Current Liabilities 316.5 266.8 +19%
Non-Current Liabilities 22.8 17.4 +31%
Owner's Equity 169.1 166.9 +1%
In $millions This Period Last Period Variance
Sales 1319.7 1227.6 +7%
Cost of Goods Sold 992.8 919.6 +8%
Gross Profit 326.8 308.0 +6%
Net Profit 37.9 19.8 +91%
Current Assets 390.0 335.9 +16%
Non-Current Assets 118.5 115.3 +3%
Current Liabilities 316.5 266.8 +19%
Non-Current Liabilities 22.8 17.4 +31%
Owner's Equity 169.1 166.9 +1%
The Key Numbers
Operating
Investing
Financing
Operating
Investing
Financing
─3.9m
─31.6m
+35.0m
Cash BalanceThis Period
Operating
Investing
Financing
Operating
Investing
Financing
+52.2m
─54.0m
Cash BalanceLast Period
─15.0m
─0.5
m
Change in Cash Balance
─ 16
.8m
Change in Cash Balance
Analysis of the Financial Reports
Analysis of the Financial ReportsProfitability
Gross Profit Margin
This Period Last Period Comparison
24.8% 25.1% Worse
Sales$1.00
Gross Profit24.8c
COGS75.2c
Income StatementWhat does this mean?
For every $1 the firm generates in sales:
• A Gross Profit of 24.8 cents is earned
• Once the Cost of Goods Sold is deducted.
Analysis of the Financial ReportsProfitability
Net Profit Margin
This Period Last Period Comparison
2.9% 1.6% Better
Income Statement
$1.00 of Sales
Gross Profit24.8c
COGS75.2c
Net Profit 2.9c
Other Expenses
21.9c
What does this mean?
For every $1 the firm generates in sales an overall Net Profit of 2.9 cents is earned.
Analysis of the Financial ReportsThis Period
Sales$1.00
Gross Profit24.8c
COGS75.2c
Net Profit2.9c
Other Exp21.9c
─
=
─
=
Last Period
Sales$1.00
Gross Profit25.1c
COGS74.9c
Net Profit1.6c
Other Exp23.5c
─
=
─
=
Higher COGS… possible causes?
• Suppliers ↑ prices
• Mark-ups ↓
But a better Net Profit Margin… possible causes?
• ↓ Other Expenses
• E.g. lower wages
Analysis of the Financial ReportsProfitability
Return on Assets
This Period Last Period Comparison
7.5% 3.9% Better
What does this mean?
For every $1 of Assets the firm has, the business is earning a Net Profit of 7.5 cents.
Business
Net Profit7.5c
Balance Sheet
Assets Liabilities
Owner’s Equity
Balance Sheet
Assets Liabilities
$1 Owner’s Equity
Analysis of the Financial Reports
Return on Investment
This Period Last Period Comparison
22.6% 11.9% Better
What does this mean?
For every $1 of Capital invested in the firm, the business is earning a Net Profit of 22.6 cents.
Net Profit22.6c
Balance Sheet
Assets Liabilities
Owner’s Eq.
$1
BusinessBalance Sheet
Assets Liabilities
Owner’s Eq.
$1
Profitability
Analysis of the Financial ReportsEfficiency
Asset Turnover Ratio
This Period Last Period Comparison
2.60 times
2.41 times Better
Business
$2.60 of Sales
Balance Sheet
Assets Liabilities
Owner’s Equity
Balance Sheet
Assets Liabilities
$1 Owner’s Equity
What does this mean?
For every $1 of Assets the firm has, the business generates $2.60 of sales
Analysis of the Financial ReportsEfficiency
This Period
Last Period
Profitability and
DuPont Formula
2.60 times
2.41 times
2.9%
1.6%
7.5%
3.9%
= X
= X
Asset Turnover
Net Profit Margin
Return on Assets
= X
Better ROA
More efficient at
making sales
And each sale made at a higher Net
Profit
Analysis of the Financial ReportsEfficiency
Stock Turnover Ratio
This Period Last Period Comparison
101 days 101 days Same
What does this mean?
The firm takes, on average, 101 days to sell all of its inventory
Analysis of the Financial ReportsLiquidity
Working Capital Ratio
This Period Last Period Comparison
1.23 1.26 Worse
What does this mean?
For every $1 of Current Liabilities the firm has, there are $1.23 in Current Assets to pay them
Balance SheetCurrent Assets Current Liabilities
$1.53 $1.00Balance SheetCurrent Assets Current Liabilities
$1.53 $1.00Balance SheetCurrent Assets Current Liabilities
$1.23 $1.00
Analysis of the Financial ReportsLiquidity
Quick Asset Ratio
This Period Last Period Comparison
0.30 0.29 Better
What does this mean?
For every $1 of Urgent Liabilities the firm has, there are $0.30 in Quick Assets to pay them
$0.30
Quick Assets
$1.00
Urgent Liabilities
Analysis of the Financial ReportsLiquidity
Cash Flow Ratio
This Period Last Period Comparison
─0.01 0.20 Worse
What does this mean?
For every $1 of Current Liabilities the firm has, the firm’s Operating Activities are generating -1 cents to pay them
Operating
Investing
Financing
─$0.01
Cash Balance
$1.00
Current Liabilities
$1.01 needed
from here
Analysis of the Financial ReportsStability
Debt Ratio (Gearing)
This Period Last Period Comparison
67% 63% Worse
What does this mean?
67% of the firm’s Total Assets have been financed with debt (Liabilities)
Balance SheetAssets Liabilities
$1.00 $0.60Owner’s Equity
$0.40
Balance SheetAssets Liabilities
$1.00 $0.60Owner’s Equity
$0.40
Balance SheetAssets Liabilities
$1.00 $0.67Owner’s Equity
$0.40
Balance SheetAssets Liabilities
$1.00 $0.67Owner’s Equity
$0.33
Summary of Results
Summary of ResultsThis Period Last PeriodProfitability
Gross Profit Margin 24.8% 25.1%
Net Profit Margin 2.9% 1.6%
Return on Assets 7.5% 3.9%
Return on Investment 22.6% 11.9%
Efficiency
Asset Turnover Ratio2.60
times2.41
times
Stock Turnover Ratio101 days
101 days
This Period Last PeriodLiquidity
Working Capital Ratio 1.23 1.26
Quick Asset Ratio 0.30 0.29
Cash Flow Ratio ─0.01 0.20
Debt Ratio (Gearing) 67% 63%
Liquidity
Any Clues?
Any Clues?This Period Last PeriodProfitability
Net Profit Margin 2.9% 1.6%
Gross Profit Margin 24.8% 25.1%• Very small GPM – high level of
COGS (75.2% of sales)
• Despite the improvement, very thin NP margins on each sale.
• Was there old stock they couldn’t move and had to mark down?
• Retail usually works in 90 day cycles for stock
Stock Turnover Ratio101 days
101 days
Any Clues?This Period Last PeriodLiquidity
Debt Ratio (Gearing) 67% 63%
Stability
Working Capital Ratio 1.23 1.26
Quick Asset Ratio 0.30 0.29
Cash Flow Ratio ─0.01 0.20
• Very poor liquidity – barely enough Current Assets to repay Current Liabilities
• And taking out stock, the firm will struggle to meet its Urgent Liabilities
• Operating Activities are actually losing cash – the Current Liabilities must be paid from other sources
• High debt levels – incurring interest and requiring constant repayments