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Managing Retail Productivity And Profitability

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Question:

Discuss about the Managing Retail Productivity and Profitability.
 
 

Answer:

Introduction:

The company Bellamy’s Australia, formerly known as the Tasmanian Pure foods had been started up a Tasmanian Family in the year 2004. The company offers a wide variety of the organic food and products for the toddlers, young babies and children. The company provides a wide variety of products ranging from the birth to the childhood of an early age. Bellamy believes the providing of nutrition that is uncomplicated in nature. The company provides the best food that is nutritious and wholesome for the care of the children. It always has the pursuit of providing the purest form of food to nourish the mild and gentle stomachs of the younger generations (Vickerstaff and Johal 2014).

The company has a belief in the instilling of the healthy and mindful food choices for the babies in the path of growing healthy and intelligent children and adults in the near future. The company is a certified company by the NASAA, the most leading organic certifier of the nation. The company makes and packs all the products in Australia and maintains the highest requirements of the safety of food wherever in the world. The families at any places in the country have a trust and confidence that the products produced in Australia, will surely have a highest quality of the products (Cotching et al. 2014).

 

The company has ingredients sourced out with a commitment of utilizing the most fresh, higher quality and certified ingredients being organic in nature. The company also focuses on the maintenance of the most economical, social and ecological sustainability in the mind that extends the preparation and packaging of the organic foods.

The company is listed on the Australian Stock Exchange and the company takes control of the Corporate Governance structure. The following are maintained by the company:

  • The crucial link between the corporate culture and governance is maintained by the company.
  • The diversity in the composition of the Board is presented by the company and the innovation for the competitive environment and technological advancements and the growth of the security of the same (Berry and Gribble 2016).
  • The environmental, governance and social considerations has been reported by the company and the same has been reported and managed under the exposures of risks and responsibilities of social structure.
  • There is a continuous disclosure of the series of the developments and other important information in the company.
  • The oversight of the management and important foundations are presented in the accounts of the company (Bamber and Parry 2014).
 

Analysis of the company

Particulars

2014

2015

2016

Net Profit Margin

5.59%

12.62%

5.68%

Return on asset ratio

11.75%

18.79%

5.12%

Return of ordinary shareholders’ equity(B/D)

14.92%

24.98%

9.13%

Net profit margin ratio: The ratio helps in measuring the total of net profits produced with the amount of sales. The higher the ratio, the better is the position of profitability of the company. The revenue of Bellamy marked a change of a downfall of 7% in approx from the year 2015 to 2016. Even though, the company had been able to increase the ratio from 6% to 12% in 2014 and 2015 respectively, it became unsuccessful in the year 2016 (Holland et al. 2016). Thus, there must be effective control in maintaining the same for the better performance and profitability.

Return on assets: The ratio measures the net profits created by the amount of total assets i.e. the average of the opening and closing amount of the total assets. The return on assets ratio considers the effective management of the assets to construct profits throughout a stage. In 2015, the year marked a successful increase in the return that meant a good situation for the financial position of the company. In 2016, there was a major downfall in the ratio i.e. again a major defect in the effectiveness of the procedures of a business (Johal et al. 2014).

Return on common stockholders’ equity ratio: The return of the equity determines the success of the company in earning the incomes for benefitting the ordinary investors of the company. The company has again showed a decline in the ratio i.e. the profitability as it has shown a decline from 25% to 9% in the years 2015 to 2016 respectively (Špi?ka 2016).

Particulars

2014

2015

2016

Accounts receivable turnover

5.91

2.44

4.70

Inventory Turnover

6.29

18.79

5.12

Accounts receivable turnover:  It is the ratio that measures the receivables from the debtors and the time decides the efficiency of the ratio. The more the ratio, the more the efficiency of collecting the receivables and the company is efficient as the ratio is 4.70 i.e. 5 times approx in a year.

Inventory turnover:  the ratio measures the movement of the inventory and the ratio compares the cost of goods sold or cost of sales with the average inventory of the company. The movement of the inventory is represented by the ratio and the higher the ratio, the more efficient the company. The ratio has decreased from 19 to 5 in the year 2015 and 2016 that must be checked and controlled by the management (Karunaratne et al. 2014).

 

Short-term solvency Ratios

Particulars

2014

2015

2016

Current Ratio

4.68

3.62

1.85

Quick Ratio

3.59

2.76

0.73

Current ratio: The current ratio must be 2 in minimum for the best effectiveness; the company is maintaining the liquidity. The company had a ratio of 5 and 4 in approx for the years 2014 and 2015 that has decreased in the year 2016. Hence, the ratio must be maintained.

Quick ratio: It is also known as acid test and computes the position of convertibility in meeting the current liabilities and assets, thus making it better for evaluating in comparison to the current ratio. It has a conservative nature in contrast to the current ratio and the same helps towards demarcating and ruling the stock and prepaid expenses leading to a structuring of conversion difficulty to get the cash ready for availability. The better position of a business is the result of a greater quick ratio. The ratio has declined i.e. 0.73 from 2.76 in the years 2015 and 2016 respectively, to a bad position that needs to be checked and controlled (Laffy and Walters 2016).

Long-term solvency Ratios

Particulars

2014

2015

2016

Debt-to-equity ratio

0.01

0.00

0.17

Debt-to-total assets

0.01

0.00

0.08

Debt to equity ratio: The ratio calculates the total debts by the total equity possessed by the company. The ratio helps in the determination of the solvency of the company in viewing the meeting of the debts or borrowings with the possessed equity of the company. The debt to equity ratio is too low that represents that the debts are too low and easily met by the company which is definitely a sign of a best policy used by the management and the company (Maynard 2013).

Debt to total assets: The ratio considers the total debts divided by the total assets i.e. the position of the company in maintaining the debts of the company through the total amount of assets present. The company is maintaining the debts as the ratio is zero in the years and hence the company is being able to manage the debts from the total assets of the organization (Moustafa 2014).

 

Market based Ratios

Particulars

2014

2015

2016

Price earnings ratio

1.23

0.31

0.59

Dividend yield

0.00

0.19

1.47

Earning yield

0.82

3.22

1.70

Price/Earnings ratio: The market price and the Earning per share of the company are measured by the division of the price to earnings. The price to earnings ratio specifies the price expected from the earnings of a stock. Higher Price/Earnings ratio more often than not indicates a positive performance and makes the investors invest in stocks. The ratio has increased from 2015 to 2016 and thus, it must control and manage the same (O'Hare 2013).

Earnings yield: The yield obtained by the earnings or the total profits of the firm determines the ratio of the earnings yield. The higher the ratio, the better are the earnings and the yields from the above. The yield has decreased but is at a stable level and hence must try to enhance or maintain the same.

Dividend yield: The ratio measures the total cash dividends circulated to the ordinary shareholders and that is comparative to the per share market value of the firm. The ratio has increased comparatively and must try to maintain and keep up the position.

Conclusions

The company is maintaining its efficiency of paying off its debts and also the position of liquidity. Based on the above evaluation, it has been found that Bellamy has been going through tough financial situations. Even though, it is recovering from such conditions in the current year, there are various lacks in the other scenarios discussed above.

For providing effective information to the investors, dividend yield ratio and price/earnings ratio have been computed and evaluated critically. After the conduction of such critical evaluation, it is found that Bellamy has not paid any dividend to its investors over the two-year period due to fall in net income. Thus, investing in this organisation might not assure the investors to obtain yearly returns, which would further attribute to their investments. Along with this, the price/earnings ratio obtained suggests that the share price of Bellamy is highly overvalued with unstable rate of return.

 

References

Bamber, M. and Parry, S., 2014. Accounting and Finance for Managers: A Decision-making Approach. Kogan Page Publishers.

Berry, N.J. and Gribble, K.D., 2016. Health and nutrition content claims on websites advertising infant formula available in Australia: A content analysis. Maternal & child nutrition.

Cotching, W.E., Oliver, G., Downie, M., Corkrey, R. and Doyle, R.B., 2014. Land use and management influences on surface soil organic carbon in Tasmania. Soil research, 51(8), pp.615-630.

Holland, K., Lindop, S. and Zainudin, F., 2016. Tax Avoidance: A Threat to Corporate Legitimacy? An Examination of Companies’ Financial and CSR Reports.

Johal, P., Vickerstaff, B. and McAuliffe, E., 2014. Unlocking Financial Accounting. Routledge.

Karunaratne, S.B., Bishop, T.F.A., Odeh, I.O.A., Baldock, J.A. and Marchant, B.P., 2014. Estimating change in soil organic carbon using legacy data as the baseline: issues, approaches and lessons to learn. Soil Research, 52(4), pp.349-365.

Laffy, D. and Walters, D., 2016. Managing Retail Productivity and Profitability. Springer.

Maynard, J., 2013. Financial accounting, reporting, and analysis. Oxford University Press.

Moustafa, A.E., 2014. The Debatable Distance between Theory and Practice: An Analysis of Financial Ratios Theory.

O'Hare, J., 2013. Analysing Financial Statements for Non-specialists. Routledge.

Špi?ka, J., 2016. Market Concentration and Profitability of the Grocery Retailers in Central Europe. Central European Business Review, 5(3), pp.5-24.

Vickerstaff, B. and Johal, P., 2014. Financial Accounting. Routledge.

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