Financial Analysis Of Card Factory And WH Smith: An Essay In Comparison.

You work for an executive recruitment firm which specialises in advising and placing senior managers in the retailing industry. The Card Factory plc is looking for a new Strategic Development director and one of your clients is considering leaving a well paid and secure senior position at WH Smith plc and applying for the post.

The client has commissioned you to write a report advising her on the financial position and financial strength of Card Factory. Your client is particularly interested in how Card Factory compares with WH Smith (a company she knows well). She has provided you with some WH Smith ratios she has access to which are based on an average of the last three years annual reports. You are also aware that the post offers the likelihood of a significant reward package that includes stock options.

Write the requested report analysing the financial performance and position of Card Factory, as well as commenting on the attractiveness or otherwise of the share options. Ensure that you make clear recommendations.

Summarised figures from the annual report of Card Factory and Compare then Card Factory ratios with the average ratios for WH Smith plc.

Card Factory began processes in 1997 with just a single store and has expanded its store estate primarily through biological development into a market-leading value shop with a nationwide attendance. The Group’s stores are in an extensive range of sites including on high roads in small municipalities through to main cities, shopping centre growths, out-of-town retail commons and sweatshop outlet centres. Card Factory emphases on the worth and mid-market segments of the UK’s huge and tough welcoming cards market, which also gives wide variety of other excellence goods, which includes small gifts that can be given at parties or other celebrations.

Strength:

1.Very great competence in organization

2. The corporation has over 6500 staffs or employees and above
3. Great number of appreciated store system
4. Strong Organization with good result making capabilities

Weakness

1. Veryweakpricerange
   2.  Not fine-tuning fast to the change happening in the area of greeting cards
   3.  Incomplete or limited  cards range online means limited share

Oppurtuinties

1. It has growth in Up including other countries as well
2. Online is on the way nowadays everywhere , therefore due to online card market there is a huge business
3. There is actually  much product variety all over  and proper marketing is also done

Threats:

1.Delivery charges are much more compared

2. Online competition is much more nowadays.

3.The British greeting cards  are actually not growing

Pestel

Political:  More pressure from the environment,

Economic: Less income in low season, low growth as there is more competition , there is  weak consumer expenditure.

Social: Social needs and wants changes  so it’s difficult to cope with it.

Technological: Today the technology is fast, technology is to be updated., Marketing, Market investigation tools.

Legal: Wellbeing and protection law, Customer rights, Service law

Environmental: Ecologically friendly, Recycling accommodations, High left-over one-use

• Threat of extra merchandises – High.
• Threat of entry of new contestants – High.
• Modest rivalry within the manufacturing – High.
• Haggling power of clienteles – High.
• Bartering power of contractors – Low

Core Context

• Operations: Card Factory inaugurated processes in 1997 with just a single store and has extended its store estate mainly through animate growth into a market-leading value vendor with a general occurrence. Card Workshop works a unique precipitously combined commercial perfect which includes design, sourcing, reproduction, warehousing, delivery, a large bodily store network and an a presence which is online. The Cluster has industrialized and wired this model since it was first recognized in 2005, capitalizing over £50m in the procedure and structure important management know-how in all of these professional areas, outside the old-style retail processes. The Group’s connected or online  processes are currently absorbed on Getting Personal, learned in 2011. Our online processes have had additional strong year with total Group online incomes growing by 22.8% to £19.2m
• Vision : TO be the best online seller  (Mba skool, 2017)
• Plans for 2017 : The Group aims to expand its store selection spontaneously from its current store plantation to up to 1,200 supplies in total which includes up to about 100 potential new stores in the State of Ireland. The Board means to linger this forthcoming roll out at a alike rate to the Group’s past rate of organic store beginnings of c50 net new stores per annum. They are actually sure of the future sales and viability.
• Mission: TO become the country’s best online seller  and the purpose is to grow the company with good employees and every other aspect required.
• Strategic development : Makes investment to expand
• Dividend techniques : In 2016 tree is a decrement in dividend from 2015
• Strategy: Our strategy has been industrialized with the aim of attaining long-term worth for our stockholders. The Board identifies that if the plan and vision for the occupational are not appropriately advanced, joined or carried there could be an adversative impact on the Collection
• Competitors:  Paper chase products limits,  WH smith

Internal context :

Chief Executive officer: Richard Hayes

Non-executive director: Geoff Cooper

Chief executive officer designate: Karen Hubbard

Chief financial officer: Darren Bryant

Company secretary :Shiv  Sable

Chairman : Geoff Cooper

Substantial shareholders

KPMG LLP 1 Sovereign Square, Sovereign St, Leeds LS1 4DA Tel: 0113 231 3000 serve as an auditor

They will linger to control our investment in EPOS and our augmented ability to analyse more gritty sales data has donated to the robust LFL performance in FY16. The new organization is now organized in around 60% of stores and, given the features of our trade estate, we can use this data to advance the presentation of the whole land. The commercial aims to border a noteworthy proportion of intentional distant coinage stock acquisitions. A number of onward privets (counting organized options) are in residence and, where suitable, hedge accounting is adopted by the Group.

2016-92.2 Million

2015 84.9 MILLION

The turnover of  Card factory has increased by 8 present in 2016 as compared to 2015.

The net debt has increased by around 20 million in 2016 by taking more loans to expand the business

The profit has increased by 6 million as compared to 2015

Operating cash flow has increased by 8.59 present. This is may be for the meeting of the investment plans. 

It is an important tool for judging the performance of the company. It is important the company’s condition can be noted down. Ratio is analysed for Card factory for 2015 and 2016 and is gauged on the results of presentation ratios, working money ratios, liquidity and creditworthiness ratios. In the subsequent controls, the exceptional items are encompassed because they are distressing the cost of auctions and therefore, the complete operating profit and presentation of the Business.

PESTEL Analysis

We see that there is an increment in the  Return on capital employed  which actually indicates good performance  and also includes good return on investments. Operating profits has also increased which is actually a very good sign. Whereas if we see WH smith profits , there is not much increase from the last year profit , however there is an increase in ROCE for WH smith.

Below is the assessment of Card factory presentation by taking figures of both years 2015 and 2016 and compared it with the WH smith imperfect ratios and to the average competitors’ ratio

Return on capital employed : Return on capital employed (ROCE) is a monetary ratio that helps in movements of company's effectiveness . A higher ROCE means higher utilisation of the capital. We see that the ROCE should always be higher than the company’s total capital cost , if it’s not happening than we would think that the company is not employing its capital effectively. ROCE is actually higher for 2016 as compared for 2015

Asset turnover : This ratio expresses about how resourcefully the company uses its assets to produce income. The higher Asset income ratio shows better enactment of the company. In this case, ATO of CARD FACTORY in 2016 is more than 2015 which indicates CARD FACTORY has  professionally and effectively  uses their possessions to generate more revenue. The asset turnover is much more for the factory than for WH smith

Net profit : This tells us about the net profit . We see that the factory net profit was higher in 2016 as compared to 2015 . But if we see overall the net profit for Card factory is less than WH smith. Overall Card factory performance is not that sound as compared to WH smith

Return on assets: It measures the business ability to adapt assets into incomes. Though for Card factor the ROA is increasing from 2015 to 2016 . But if we see as a competition point of view the ROA for WH smith is much better than Card factory. We see that the management of card factory does not manage their assets much productively.

Return on equity : Return on equity (ROE) is the amount of net revenue refunded as a percentage of stockholders equity. Return on equity procedures a corporation's effectiveness by see-through how much profit a corporation generates with the cash stockholders have invested.

For the card factory the ROE has almost increased double  and it is a good indication. If we compare both , the card factory is actually  at a profit as there for WH smith is low as compared to Card factory (Annual report, 2017) 

We see that current ratio as decreased for the card factory which actually does not indicate sound performance by the company. But if we see overall , the current ratio is 0 for WH smith . So the Card factory  financial health is actually  nice. Current ratio and acid test ratio is 0 for WH smith which is actually not good

This ratio is calculated to determine the accuracy of long-term monetary location of the company.

 Interest Coverage : It measures company’s aptitude to meet its interest expenditures dues. In this case, Card factory Interest coverage ratio has increased over the year and it was also higher than WH smith ratio. This designates that Card factory has better monetary advantage compared to its competitor.

Gearing: Gearing Ratio quantify the monetary risk of the company. In this case, Card factory Gearing ratio has decreased minutely over the year but it was lower than the average competitor’s ratio. Hence, it shows that Card factory assets are adequate to meet its compulsions or requirements (Annual report, 2017)

Conclusion

By doing all the ratio analysis we get to company’s financial position. By ratio calculation all the position of the company is disclosed which actually helps in deciding as to where to invest. By doing the ratio analysis, it has shown that the overall 2016 financial performance and position of Card factory has increased.  WH smith is a good investment as ROCE is better in WH smith.

Below is the attached Balance sheet  and Income Statement for Card factory 

 

Below attached balance sheet for WH smith

 

References :

Annual report (2017).Card factory. [online] Available at: https://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_CARD_2016.pdf [Accessed  9^th April. 2017].

Annual report (2017).WH smith. [online] Available at: https://www.whsmithplc.co.uk/docs/20203_WH_Smith_AR16_WEB_2016-11-04.pdf [Accessed  9^th April. 2017]

MBA school  (2017).Card factory. [online] Available at: https://www.mbaskool.com/brandguide/lifestyle-and-retail/9236-card-factory.html [Accessed  9^th April. 2017]