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The Reject Shop Company

Discuss about the Uncertainty Shocks And Balance Sheet Recessions.

Each and every organization needs to make efforts to achieve its certain goals and objective. It is analyzed that ratio analysis, du Pont analysis and capital budgeting are the some of the financial tools which could be used to evaluate the past and future trend of business. In this report, The Reject Shop Company has been selected to analysis and evaluates the financial performance of company.  

It is an Australian discount variety stores chain which was incorporated in 1981 and operates its business on international level.

It is Australian Stock Exchange company and the market capitalization of the company is around 149 billion which has increased to 23% since last five years.  

The financial analysis reflects the relation between the two financial factors which assists in evaluating the financial performance of company.

This liquidity ratio analysis assists in evaluating the firm’s ability to redeem its short and long term debts out of the current assets.

It shows how well company could redeem its short and long term debts out of the current assets. .  The current ratio of The Reject Shop Company already gone down 1.63 points in 2017 which is 10% low as compared to last year data  (Robb, and Robinson, 2014).

Description

Formula

THE REJECT SHOP LTD  (TRS) Cash Flow Flag Ratio Analysis

2015`

2016

2017

Current ratio

Current assets/current liabilities

                    1.82

                                             1.49

                                    1.63

Quick Ratio

Current assets-Inventory/current liabilities

                    0.35

                                             0.31

                                    0.26

The quick ratio of The Reject Shop Company reveals its immediate ability to redeem its debts out of its available quick assets. The Reject Shop Company  has deceased its quick ratio to .26 in 2017 which is .09 points lower since last one year. It reflects that company has increased its current liabilities (The Reject Shop, 2015).

This ratio reflects the Reject Shop Company’s ability to create value or earn profit in its business.

The net profit ratio of The Reject Shop Company reveals that company has increased its net profit margin to 2.13% in 2016 which is 28% higher since last one year. The net profit margin decreased to 1.51% IN 2017 which is 1 % low since last one year (Di Tella, 2017).

Description

Formula

THE REJECT SHOP LTD  (TRS) Cash Flow Flag Ratio Analysis

2015`

2016

2017

Net Profit margin

Net profit/revenues

1.85%

2.13%

1.51%

Return on equity

Net profit/Equity

10.37%

12.59%

8.89%

Return on assets

Net profit/ Total assets

6.14%

7.36%

5.48%

The ROI of company reveals the profit distributed to its shareholders. It is observed that the return on equity of company has decreased to 8.89% in 2017 which is 4% low since last one year. It reflects that company has lower down its cost of capital. (The Reject Shop, 2016).

The ROA of The Reject Shop Company has increased to 5.48% in 2017 that is 1% low since last one year. It shows that company has increased its profitability as compared to its increased assets investment (Marley, and Pedersen, 2015).

Description

Formula

THE REJECT SHOP LTD  (TRS) Cash Flow Flag Ratio Analysis

2015`

2016

2017

Debt to Equity Ratio

Debt/ Equity

                    0.70

                                             0.70

                                    0.62

Gearing ratio

Interest/ EBIT

                   (0.01)

                                          (0.004)

                                 (0.004)

Financial Analysis of Company

The solvency ratio of The Reject Shop Company reveals that company has increased its financial risk since last one year. It has reduced its debt to equity to .62 points in 2017 which is .08 points lower as compared to last year data (Mudiyanselage, and Wijekoon, 2018). 

The gearing ratio of company has also decreased and shows the negative results throughout the time (Tayeh, Al-Jarrah, and Tarhini, 2015).

The efficiency ratio reflects how well company has managed its investment in its business (Robb, and Robinson, 2014).

Description

Formula

THE REJECT SHOP LTD  (TRS) Cash Flow Flag Ratio Analysis

2015`

2016

2017

Creditors payable  period

creditors / Total sales*365

                  31.29

                                           22.27

                                  23.26

Inventory Turnover ratio

COGS/ Sales*365

                202.51

                                         209.42

                                209.16

Asset turnover ratio

Total sales/ Total assets

                    3.32

                                             3.46

                                    3.63

The creditor’s turnover ratio has decreased to 23.26 times in 2017 which is not good indicators for the future growth of the business. Company has decreased its creditor turnover ratio to 10 points which has increased its overall cost of capital throughout the time (The Reject Shop, 2016).

The inventory turnover of The Reject Shop Company has increased to 209.16 times in 2016. It is 6.1 times higher as compared to last year data. It has shown that company has increased its inventory turnover throughout the time (Mwangi, and Murigu, 2015).

The assets turnover ratio of The Reject Shop Company has increased since last five years which reflects that company has been efficiently using its resources (Tayeh, Al-Jarrah, and Tarhini, 2015).

This ratio of The Reject Shop Company has shown how well company has increased the value of its investment (Uechi, et al., 2015).

Description

Formula

THE REJECT SHOP LTD  (TRS) Cash Flow Flag Ratio Analysis

2015`

2016

2017

PE Ratio

MPS/EPS

                  53.04

                                           52.41

                                  73.13

Dividend Payout

dividend payment/ Earning *100

5%

6.4%

10%


The market price of shares of The Reject Shop Company is AUD $ 6. It has increased with the increase rate of the PE ratio throughout the time.  

The dividend payout ratio has been increased to 10% in 2017 which shows the positive indicator for the future growth of the busienss (Uechi, et al. 2015).

There are several key points which have been found in the financial statement of company.

  • Company has increased its financial leverage since last five years. However, it will have positive impact on the cost of capital of the business.
  • The dividend payment of company has increased to 10% which reflects that company is planning to raise more funds in business.
  • The profitability of company has also increased which shows that company has increased its overall funding throughout the time.
  • The cost of capital of the busienss has increased which reflects that company will have to face low level of return on capital employed.
  • The general investment proposal of The Reject Shop Company will be high in the research and development department which will eventually increase the value of the investment at large.

Investors should invest their capital in The Reject Shop Company for the long run as it will assist them to create value in the long run.

The short term investment plan will add value of the investors but they might face high investment loss.

Conclusion

It is analyzed that the Reject shop Company has increased its value of investment and also created good return in its investment. However, company has good future outlook which will add value to clients in long run in effective manner.

References

Di Tella, S., 2017. Uncertainty shocks and balance sheet recessions. Journal of Political Economy, 125(6), pp.2038-2081.

Marley, S. and Pedersen, J., 2015. accounting for Business: An Introduction. Pearson Higher Education AU.

Mudiyanselage, W. and Wijekoon, H.N., 2018. Towards the development of a financial reporting framework for Sri Lankan SMEs (Doctoral dissertation, The University of Waikato).

Mwangi, M. and Murigu, J.W., 2015. The determinants of financial performance in general insurance companies in Kenya. European Scientific Journal, ESJ, 11(1).

Robb, A.M. and Robinson, D.T., 2014. The capital structure decisions of new firms. The Review of Financial Studies, 27(1), pp.153-179.

Tayeh, M., Al-Jarrah, I.M. and Tarhini, A., 2015. accounting vs. market-based measures of firm performance related to information technology investments.

The Reject Shop, 2015, Annual report, Available at https://www.rejectshop.com.au/aboutus/investorinformation/financialreport., Accessed on 2nd June, 2018,

The Reject Shop, 2016, Annual report, Available at https://www.rejectshop.com.au/aboutus/investorinformation/financialreport., Accessed on 2nd June, 2018,

Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y., 2015. Sector dominance ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421, pp.488-509.

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[Accessed 12 June 2024].

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