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1101AFE Accounting Principles

tag 0 Download 0 Pages / 0 Words tag 20-06-2022
  • Course Code: 1101AFE
  • University: Griffith University
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  • Country: Australia

Answer:

MYER Holdings limited’s Business Profile

MYER Holdings limited is the Australian largest departmental store group, with over 60 stores in the prime retails areas across Australia. It was founded in 1900 with its headquarter in Docklands, Australia. Its stores are usually visited by clients over 130 million times every year and its loyalty program, has over 5 million members. It strategy delivers fresh assessment of its brand, re-energized as well as relevant range, in-store experiences as well as improved service experiences. The company generated a total of $3.2 billion in the financial year 2016 in sales. It has valuable reputation of stores which are supplemented by the well-recognized brands as well as supported by its digital, mobile and online platforms (Marketwatch.com 2017).

The company is focused on offering inspiration to each one, including its clients, its 50,000 shareholders, its 12,500 team members, its 1,200 suppliers as well as several communities which it engage with its strong brand. Its merchandise offer comprises of around 11 key product categories; that is, menswear, children wear, beauty, cosmetics and fragrance, miss shop, women wear, electrical goods, footwear, general merchandise, home wares, toys as well as handbags and accessories (Investors.com 2017). It also owns women wear bide, sass and designer brand. The company also offers consumer loyalty program.

Its brands comprise of Seed, Mimco, TOPSHOP TOPMAN, Veronika Maine and French Connection. Its subsidies include NB Russell Pty Ltd, the Myer Group Finance Limited, Myer Pty Ltd, Myer Travel Pty Ltd, NB Elizabeth Pty Ltd, the Warehouse Solution Pty Ltd as well as Myer Group Pty Ltd.

Financial Ratio Analysis

Ratio analyses are usually mathematical comparison of the financial statements categories or accounts. Ratios are the widespread and most common tool utilized in analysing an organization’s financial standing (Capon, Farley & Hoenig 1990). They are usually used in comparing numerous firms operating in different sectors. They are utilized in comparing different firms across different sectors. As financial ratios are mathematically comparison mainly based on the proportions, different firms could utilize financial ratios in comparing their financial data. In addition, financial ratio analysis is crucial since they assist in comparing organizations across different sectors, small and large, in identifying their weaknesses and strengths. In this case, profitability, solvency, efficiency, liquidity as well as share market performance.

Profitability

These are financial ratios used in comparing net income statement accounts in displaying organization’s capacity in generating incomes from its operations (Capon, Farley & Hoenig 1990). They focus on an organization’s return on investment in its inventories as well as other assets. Such financial ratios display how well organizations could accomplish income from their main operations (Wild, Bernstein, Subramanyam & Halsey 2004). In addition, profitability ratios are used in judging an organization’s return on the investment mainly based on relative levels of assets and resources. The most important profitability ratios that would be evaluated in this case would be return on equity as well as return on assets. This is computed by subdividing net income by assets.

Return on equity

ROE is the financial ratio in measuring the capacity of an organization in generating income from shareholders’ equity. In essence, it helps in measuring how much income of the shareholder’s equity could generate (Capon, Farley & Hoenig 1990). This is computed by dividing net income by total equity. With these consideration ROE for MYER Holdings limited for the last three years is as follows;
2014 =11.01%

2015 = 3.4%

2016 = 6.14%

From the above analysis it is clear that MYR ROE experienced a decreasing and increasing trend as from 2014 to 2016. This is evident by a decrease from 11.01% in 2014 to around 3.4% in 2015. The trend later increased to 6.14% in the year 2016. This is clear signal that MYR is not efficient or effective in the manner in which it utilizes its shareholder’s equity in generating income.

Return on assets

ROA are those ratios measuring net profit produced by assets during a specific period of time. In essence, ROA helps in measuring how effective an organization could manage their assets in producing income (Capon, Farley & Hoenig 1990). This ratio is quite important in assisting investors and management to analyse how well an organization could convert its assets into income.

With these consideration ROA for MYER Holdings limited for the last three years is as follows;
2014 = 5.06%

2015 = 1.56%

2016 = 3.23%

Based on the above analysis, it is evident that MYR ROA experienced a major decrease as from 5.09% in 2014 to around 1.56% in the year 2015. This ratio later increased in the year 2016 to around 3.23%. The trend in ROA is a clear indication that MYR is not effective or efficient enough in generating income using its net assets.

Efficiency

These are financial ratios in measuring how well an organization uses its assets in generating profit. These ratios look at period it could take an organization to collect money from its clients (Capon, Farley & Hoenig 1990). Basically, these ratios are used by the management to assist them improve the firm and outside creditors and investors in looking at profitability operation of an organization (Kothari & Ball 1994). In this case, the most important ratios that would be evaluated include inventory turnover as well as asset turnover ratio.

Asset turnover

These financial ratios used in measuring an organization’s capacity in generating revenues from assets by comparing the net revenue with the total assets (Capon, Farley & Hoenig 1990). It shows how effectively an organization could use assets in generating revenue. With these consideration asset turnover for MYER Holdings limited for the last three years is as follows;
2014 = 1.42

2015 = 1.45

2016 = 1.48

From the above analysis, it is evident that MYR asset turnover experienced an increasing trend over the past three years. This is evident by an increasing trend from 1.42 in 2014 to around 1.45 in 2015 and later to 1.48 in 2016. This is good indicator that MYR management is efficient enough in utilizing its assets to generate sales.

Inventory turnover

This financial ratio is used in measuring how effectively or efficiently inventories are managed by comparing the costs of the goods sold by inventories. It measures how many times inventories are turned into sales (Capon, Farley & Hoenig 1990). It helps in measuring how many times an organization sold its inventories during one year (Kothari & Ball 1994). With these consideration inventory turnover for MYER Holdings limited for the last three years is as follows;
2014 = 3.93

2015 = 3.94

2016 = 3.93

The above result is a clear indication that MYR inventory turnover increased from 3.93 in 2014 to around 3.94 in 2015. This trend later decreased from the 3.94 to around 3.93 in 2016. Such sign is a clear indication that MYR is doing relatively good in in terms of how it sells its inventory or convert its inventories to cash.

Liquidity

These are financial ratios used in analysing the capacity of an organization in settling both its short-term liabilities with short-term assets (Capon, Farley & Hoenig 1990). They show or displays cash levels of an organization and capacity in turning assets into cash in order to settle their current liabilities. It is also the measure of the total amount of cash an organization has. These ratios also assist in measuring how easy it would be for an organization to raise sufficient cash using its assets. In this case, liquidity ratios that would be utilized include quick ratio as well as current ratio.

Current ratio

This ratio is used in measuring an organization’s capacity in settling short-term liabilities with the total current assets (Capon, Farley & Hoenig 1990).  This is a crucial measure of the liquidity due to the short-term liabilities. This is computed by dividing current assets by the total liabilities. With these consideration current ratio for MYR for the last three years is;
2014 = 0.91

2015 = 1

2016 = 0.92

From the above analysis, it is evident that MYR current ratio increased from 0.91 in 2014 to around 1 in 2015. Later the current ratio of MYR in the year 2016 decreased in 0.92. This trend is a clear signal that MYR is experiencing some troubles on how its settle its short-term obligations. In essence, the results show that MYR was undergoing some difficulties in settling its short-term obligations with the short-term assets.

Quick ratio

These are financial ratios used in measuring the capacity of an organization in paying of current liabilities when they are due (Capon, Farley & Hoenig 1990). They are current assets which is convertible to cash in the next three months. It shows how quickly an organization could convert its total assets into cash in paying off current liabilities (White, Braentner, & Towery 1993). This is computed by dividing quick assets with the current liabilities. With these consideration quick ratio for MYR for the last three years is;
2014 = 0.17

2015 = 0.17

2016 = 0.14

Based on the above analysis, it can be stated that MYR quick ratio decreased as from 0.17 in 2015 to around 0.14 after a constant trend in 2014 and 2015. This is a clear signal that MYR is undergoing some issues in settling its liabilities using its most liquid assets.

Solvency

These are financial ratios used in measuring the capacity of an organization in comparing its debt level with assets and equity. These are financial ratios used in identifying the going concerns problems as well as an organization’s capacity in paying or settling the bills in long-run (CÁO & CHÍNH 1999). Though they both assess capacity of an organization is settling off its debts, these ratios focus more on long-term sustainability of an organization rather than current liability (White, Braentner, & Towery 1993). These financial ratios indicate an organization’s capacity in paying off its long-term debts to bondholders, banks and creditors (Drake & Fabozzi 2010). Higher solvency financial ratio shows financially stable or more creditworthy of an organization in the long-run. Utilize solvency ratios can be utilized in determining an organization capacity to settle its debts. The most important solvency ratios that would be utilized in this case would be debt to equity as well as debt ratio.  

Debt ratio

This is a financial ratio that is used in measuring an organization’s total liabilities as the percentage of the net assets. In essence, this ratio is utilized in evaluating an organization’s capacity in settling its total liabilities with the total assets (Drake & Fabozzi 2010). Basically, debt ratio is used in measuring how many total assets an organization should sell in settling off its liabilities. It helps in measuring financial leverage of an organization. It helps creditors and investors in analysing the overall debt obligations on an organization as well as the company’s capacity in settling its debt in future.  With these consideration debt ratio for MYER Holdings limited for the last three years is as follows;
2014 = 2.16

2015 = 2.18

2016 = 1.69

From the above results it is evident that MYR debt ratio increased from 2.16 in 2014 to around 2.18 in 2015 and later to around 1.69 in 2016. This is a clear signal that MYR has been utilizing more debts in financing its assets rather than its shareholder’s equity.

Debt to equity

This ratio is crucial in measuring leverage level of an organization. It compares liabilities to the total shareholder’s equity. It usually presents percentage of an organization financing which comes from investors and creditors (Drake & Fabozzi 2010). In this case, a greater debt to equity shows that more debt financing is being utilized as compared to equity financing. It is computed by subdividing liabilities by shareholder’s equities. With these consideration debt to equity for MYER Holdings limited for the last three years is as follows;
2014 = 0.47

2015 = 0.51

2016 = 0.13

The above results shows that MYR debt to equity ratio for the past three years experienced an increasing and decreasing trend moving from 0.47 in 2014 to around 0.51 in 2015 and later to 0.13 in 2016. Despite this trend, the figures were relatively below 1 meaning that MYR has been overlying on equity financing instead of debt financing.

Share market performance

From Figure    1 below, it is evident that MYER Holdings limited share market performance for the past three years has been experiencing a decreasing trend. This is evident by a decrease in the company’s share price from 0.06 in the mid 2014 to around 0.07 in the end of 2014 which later decreased further to 0.02 in mid-2015. Later, the share prices decreased further in 2016 and have continued in this year and are expected to continue decreasing in this year.

Figure 1: Share market performance for MYER Holdings limited

Summary Based on the Ratios Analysis

On overall, it is evident that MYR has been experiencing some financial issues over the past three years. This is evidence by lower profitability ratios; that is, both ROE and ROA for the company for the last three years were relatively lower. In addition, based on the efficiency ratios, it is evident that MYR was not efficient enough on how it has been utilizing its assets and equities to generate revenue. Further, based on the above analysis, it is evident that MYR experiencing some liquidity issues for the past three years evidence by lower level of current ratios and quick ratios. In addition, based on share market performance analysis, it is also evident that MYR has been performing poorly for the past three years due to the decreasing trend in its share prices.  Therefore, there is need for the financial users to look at these issues very keenly before making any decision in regard to MYR.

Conclusion

MYER Holdings limited is the Australian largest departmental store group, with over 60 stores in the prime retails areas across Australia. It strategy delivers fresh assessment of its brand, re-energized as well as relevant range, in-store experiences as well as improved service experiences. It has valuable reputation of stores which are complemented by its well-recognized brand as well as supported by its digital, mobile and online platforms. Its merchandise offer comprises of around 11 key product categories. In conclusion, based on the financial analysis, it is evident that MYR is financially unstable. This is evident by lower profitability ratios poor efficiency ratios as well as lower level liquidity. In addition, it can be concluded that MYR is financially unhealthy due to the fact that it share market performance shows a decreasing trend in its share prices.

Recommendation

Based on the above analysis, it can be recommended that MYR is not financially stable and is performing poorly in terms of profitability, efficiency, share market performance as well as liquidity. Therefore, it is not recommendable for potential investors to select or invest in MYR for now until something is done to improve its performance and its financial position

References                                            

CÁO, ?., & CHÍNH, T. (1999). Financial statement analysis.

Capon, N., Farley, J. U., & Hoenig, S. (1990). Determinants of financial performance: a meta-analysis. Management science, 36(10), 1143-1159.

Drake, P. P., & Fabozzi, F. J. (2010). Financial ratio analysis. Handbook of Finance.

Investors.com 2017, Myer Holdings Limited; Viewed at 11th May 2017 from; http://investor.myer.com.au/Investor-Centre/

Kothari, S. P., & Ball, R. (1994). Financial statement analysis. Mcgrew-Hill Companies.

Marketwatch.com 2017, Myer Holding Ltd; Viewed at 11th May 2017 from; http://www.marketwatch.com/investing/stock/myr/profile?countrycode=au

Morningstar 2017, Myer Holdings Ltd. Viewed at 11th May 2017 from; http://financials.morningstar.com/ratios/r.html?t=MYR&region=aus&culture=en-US

White, B., Braentner, L., & Towery, E. (1993). Financial Statement Analysis. New York: Wiley.

Wild, J. J., Bernstein, L. A., Subramanyam, K. R., & Halsey, R. F. (2004). Financial statement analysis. McGraw-Hill.

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