Category: David Jones

Profitability Ratios

Gross profit margin is a ratio that shows how much a company makes out of its total revenue. In 2010, out of the total revenue realized by Premier Investments Ltd, 59.09% were profits. This has increased to 59.51% in 2011, which makes it interesting to invest as compared to David Jones Ltd, which shows a diminishing margin from 39.73% to 39.11% in 2010 and 2011 respectively. Based on this, it is therefore prudent to invest in Premier Investments Ltd because it is profitable now and promises more profitability in future. Net Profit Margin shows how much a company can keep as reserves out of its total Revenue. If a company makes $100 worth of sales and retains $20 then its Net profit margin is 20/100=20%. This means that for every sales amounting to $100, Premier Investments makes $16.11 and $5.94 in 2010 and 2011 respectively (Das, Markowitz & Scheid 2010, p. 320). David Jones keeps $16.97 in 2010 and $12.62 in 2011.Both companies show a downward trend with Premier Investment showing a decline of 10.17% and a 4.35% for David Jones. In this case, David Jones is worth investing in since it gives an investor some hope for wealth optimization. Though it has low gross profit margins, it takes more than expected for Premier Investment Ltd to retained earnings. Based on the profitability, the investor would be advised to invest in David Jones Ltd since it portrays a company whose overheads are properly controlled.

Efficiency Ratios

The operations of a company can be used to assess whether it’s worth investing in or not. Efficiency ratios will always measure how well a company manages its assets, both fixed and current, as well as its short term liabilities. These ratios show how well debtors, creditors and the inventory of the company are managed. Asset Turnover ratio shows how the company has used its assets to generate revenue. This is expressed as the Total revenue divided by the total assets. Premier Investment shows that for every $1 of its assets, it generates $0.61 and $0.60 in 2010 and 2011 respectively. The decrease would be being $0.01 from 2010 to 2011. David Jones Ltd made $1.72 and $1.62 in 2010 and 2011 respectively. This is a decrease of $0.10 in 2011. Based on this, David Jones Ltd looks risky. Return on Assets is the relationship between the company’s profits and its average total assets. It is usually expressed as a percentage. The higher the percentage the more efficient is the management of that company in employing its assets in profit making. Both companies show a reduction in return on assets by 6.25% and 8.77%. David Jones Ltd looks a bit risky compared to premier Investment Ltd. Inventory Turnover shows the number of times a company takes to replenish its inventory. Premier Investment Ltd had 73 and 75 days respectively in 2010 and 2011 while David Jones Ltd took 83 and 88 days in 2010 and 2011 respectively. David Jones Ltd looks viable for the fact that its variations from 2010 to 2011 raised questions. Debtors Turnover shows the number of times a company takes to collect its debts. It is normally an expression of credit sales divided by the average debtors. In case the ration is high, the company would be performing well. Premier Investment took 4 days in 2010 and 3 days in 2011 (Reilly & Brown 2007, p. 65). This shows a decline of one day which raises efficiency issues. David Jones on the other hand moved up from 1.5 to 2 days. David Jones improved in terms of debt collection. Creditors Turnover is the number of times a company takes to pay its creditors. The company would be performing better in case the period is longer (Liu & Wang 2010, p. 80). Both companies show efficiency by showing a reduction in the number of days they take to pay their creditors. This shows a good cash flow for both companies. Looking at efficiency, it would be recommended that an investor ventures his or her capital in Premier Investment Ltd since it shows steady variations in all efficiency ratios.

Financial stability

These are ratios that show how well a company is able to pay off its debts as at a particular time should it face liquidation. Investors use these ratios to make decisions as regards to investment. The Current Ratio shows how well a company can meet its short-term liabilities when they fall due. Both companies have Current ratios of more than 100%, which show that both companies are able to meet their short-term liabilities when they fall due (Wittner 2003, p. 21). Premier Investment had bigger current ratios in 2010 and 2011 compared to David Jones Ltd. Premier Investment Ltd therefore looks less risky. Quick Ratio shows how well a company can meet its short-term obligations with its most current assets that is, without considering stock since most companies have challenges related to changing stock into cash. A quick ratio of 1 or 100% is normally recommended. In this case, Premier Investment Ltd passes the test with ratios of 351.29% and 140.07% in 2010 and 2011 respectively. Debt Asset Ratio shows how a company’s assets are used to secure debts. The Lower the percentage the better off the company is. In this case, Premier Ltd shows low advantage though increasing from 15.96% to 18.35% in 2010 and 2011 respectively. David Jones shows high figures though declining in 2011 (Bodie, Kane & Marcus 2008, p. 12). In this case, David Jones looks a bit risky compared to Premier Investments. Debt Equity Ratio shows how much a company has used external sources over its common stock to finance itself. In this case, lower percentages are recommended. In the case at hand, Premier Investment has very low figures at 18.99% in 2010 and 22.47% in 2011 as compared to David Jones’ 60.56% and 54.63% in 2010 and 2011 respectively. This makes David Jones a high-risk company since for every $100 it had as capital; $60.56 was debt in 2010.

Share ratios

These ratios show the return on investment by an investor. The higher the number the better the investment is. Times Interest Earned shows the number of times the company is able to pay its debts. In this case, David Jones Ltd is a low risk company since it is able to pay interests many times that is, 49.33 times in 2010 and 31.79 times in 2011, as compared to Premier Investment’s 17.99 times and 5.41 times in 2010 and 2011 respectively (Elton, Gruber & Brown 2006, p. 91). Therefore, David Jones is an investment opportunity for risk takers while Premier investments Ltd is meant for the risk averse investors. In the end, I would advise an investor to venture in Premier Investments Ltd and advise short-term investors to venture in David Jones Ltd.

List of References

Bodie, Z, Kane A, & Marcus A 2008, Investments, McGraw-Hill Irwin, New York.

Das, S, Markowitz, H & Scheid J 2010, “Portfolio Optimization with Mental Accounts”, Journal of Financial and Quantitative Analysis, Vol. 45, no. 1, pp 311-334.

Elton, E, Gruber, M & Brown S 2006, Modern Portfolio Theory and Investment Analysis, John Wiley, New York.

Liu, Z & Wang J 2010, “Value, Growth, and Style Rotation strategies in the long- run”, Journal of Financial Service Professional, Vol. 4, no. 1, pp 67-90.

Reilly, K &Brown, C 2007, Investment Analysis and Portfolio Management, Southwestern Thomson.

Wittner, P 2003, The European Generics Outlook: A Country-by-Country Analysis of Developing Market Opportunities and Revenue Defense Strategies, Datamonitor, London.

Marketing is the process of strategising on selling a large volume to meet the demand and increase sales. Many businesses in a market have to develop an approach to make an improving sales pattern. This will result into increased revenues from the business. In the end, the business will benefit highly from an increase in profits. David Jones decided to increase his selling capacity. The business had several options to follow in order to attain a high volume of sales. However, he had no choice but to choose the best among the options for the business to realise its objective. Since the business had several competitors, it had to employ a unique business model.

Since the landlords had delayed their opening of two new stores, the company opted to change its entry strategy into the market. In their decisions, they decided to refurbish their stores. This was aimed at improving the pre-existing stores to make them modern. The initiative to refurbish stores was to ensure the market had access to better services from the company. In the refurbishing, the company had improved the new look of the stores. The stores were more decent and up-to-date. This was an appealing approach to customers as they were compelled to like the products of the company.

In refurbishing the stores, the company increased the amount of space available, thereby increasing its capacity. This would lead to higher sales in comparison to previous ones. Refurbishing the stores was an initiative designed to increase shopping space, which had all along been little. With this increase, there would be available space to accommodate more shoppers than the company previously had. Since the shoppers will have more time in the store, the sales are likely to increase with time. In actual sense, an increase in selling space was an initiative that would counter the opening of new stores by the company.

It has been argued in the past that retailing is in the theatre of the mind. An atmosphere that is conducive to business is the best atmosphere for success. For instance, customers are appealed by stores that have a compelling atmosphere. The customers are compelled to buy more goods and request for services when in an encouraging atmosphere. With such an approach, David Jones decided to initiate the same to the business with the aim of attracting customers. Therefore, it is evident that refurbishing the stores was an initiative that would attract a large number of customers.

David Jones decided to take a price-conscious approach to business as another marketing strategy. Customers in a market always have a soft spot for the pricing of goods and services. As such, customers demand goods and products with a slightly affordable rate.

Goods and products that have an affordable pricing are highly sort after in the market. In many occasions, businesses use the scalping technique to accrue substantial profits. Scalping is where a business garners low profits on a large sales volume. For instance, David Jones discovered that customers compare prices in the market. Since their pricing is low, they will definitely attract a large customer base. In essence, a business that is price conscious is at a helm of attracting a larger market share.

David Jones developed an initiative where customers would get value for their money in the products. The customers are appealed to the goods and services of a company from the quality and quantity offered. Therefore, a business that offers high quality products will benefit from this approach. When most customers discover the quality of a good or service, they will be compelled to make a constant demand for them.

As such, the business will have a constant niche market that demands for the products of the company. The company is, therefore, justified in increasing the value of its goods and services. However, the company has to ensure there is a slight change in the pricing. In many cases, such techniques come with no change in pricing. The pricing of the commodity remains stable while there is a change in the quality.

Scorptec initiated the same strategy in their marketing. The store decided to create a big room for a display of their products. The business has a large store that is used as a display for all their products. During shopping, customers have a clear view of all products offered by the company. With such a display, the customers have a variety of products to make their choice. The choice for a single product will be due to the display of a range of products.

A customer only chooses a product as it is singled out from the rest. Customers are also given discretion to ensure the functionality of the product is apt. This has helped the store in gaining success in the market. In conclusion, using a greater display space is a positive initiative. It guarantees an increase in sales as many customers are appealed by the sight of the products.

Table 1: Profitability ratios

Gross profit margin is the ratio of gross profit to sales in percentage form. This ratio shows a business’s ability to control sales expenditure. In figure 1 above, premier investments are more profitable than David Jones limited. Premier Investments limited profit increased marginally by 0.42 percent from 2010 figures. The 2011 figure of 59.51 percent indicates that 40.49 percent of sales revenue was consumed by cost sales with only 59.51 percent as the gross profit. However, David Jones recorded negative profitability of 0.62 percent from its 2010 figures due to its renewal of AMP lease, financial crisis and pending legal claims against the company.

Net profit margin represents a company’s earnings after tax plus interest divided by sales expressed as a percentage. This ratio indicates a firm’s ability in controlling financing obligations- interest charges. From table 1 above, David Jones was more excellent in managing its expenses than Premier Investments limited. Specifically, for Premier Investments, in 2010, much of its expenditures (83.87 percent) were due to financial, operating expenses and cost of sales with only 16.11 percent as net profit. In 2011, expenditure increased by 6.59 percent, while net profit decreased by 6.57 percent as a result of acquisitions and restructuring of loss-making branches. In 2010, David Jones’s expenses consumed 87.89 percent of its total sales. This was attributed to the impact of the financial crisis, heavy discounting and promotional activities and finally the opening of more branches. In 2011, expenditure decreased by 0.51 percent with a net profit increment of 0.51. Premier Investments in 2010, recorded a higher profit (16.11 percent) due to the firm’s good cost control practices.

Return on equity (ROE) is a ratio of net profit to equity expressed as a percentage. It shows the profitability return of equity capital invested by shareholders. From table 1 above, under David Jones limited, one shilling investment gave a better return than Premier Investment limited. In 2010 estimates, under David Jones, a shilling of equity invested generated 0.229 profits attributable to ordinary shareholders. However, during 2011, this contribution was reduced to 0.214. Under Premier Investments 2010, a shilling of equity invested generated 0.0924 profits attributable to ordinary shareholders while in 2011, the firm recorded 0.0435 percent return to ordinary shareholders which was lower by 4.89 percent. Across these companies, David Jones recorded higher profit returns.

Return on asset is net profit over total asset expressed as a percentage. This ratio indicates the return on profits from investing a shilling of total assets. From table 1 above, David Jones was highest in both years. In 2010, under premier investments, a shilling invested in total assets generated 0.0981 of net profit. This figure decreased in 2011 to 0.0572 of the net profits. For David Jones in 2010, a shilling invested in total assets generated 0.2081 shillings of net profit which in 2011 decreased to 0.2039 shillings.

Asset turnover is annual sales divided by total assets. The ratio indicates sales revenue generated from using a shilling of total assets. Under premier investment limited, a shilling of fixed assets generated 0.61 shillings of sales in 2010 while in 2011 a shilling of fixed assets utilized generated 0.60 shillings of sales. In David Jones, one shilling invested generated 1.72 shillings in 2010 while in 2011, a shilling of fixed assets invested generated 1.62 shillings of sales.

References

David Jones Limited annual report 2010, Financial report. Web.

David Jones Limited annual report 2011, Financial report. Web.

Premier Investments Limited 2010, Financial report. Web.

Premier Investments Limited 2011, Financial report. Web.

Introduction

Return on Equity remained constant in 2010. This can be attributed to the increase in profit and a corresponding proportional increase in the average equity. The Return on Assets improved from 16.9% in 2009 to 21.48% in 2010. It is evident from the figures that the increase in the Profit before Interest and Taxation was more than the increase in average assets. This is a sign that David Jones made better use of the assets at their disposal to earn a profit. The Gross Profit margin was better in 2010 than 2009 by 0.01%, an indicator of a slight improvement in the management of cost of goods sold. The Net Profit margin was higher in 2010 than in 2009 by 0.83%. This is as a result of better deals from suppliers and the increase in revenue. The major cause for the increase in revenue was the opening of the two new Bourke Street Malls. These malls offer clients a personalized shopping experience and have attracted the elite market. David Jones also refurbished their Kotara store in the Hunter region. This contributed to the increase in sales revenue (David Jones Company, 2010).

Asset Efficiency

The asset Efficiency ratio was better in 2010 than 2009 by 0.23 times. This was a result of the increase in sales revenue. The inventory turnover times reduced in 2010 to 136.9 times, from 169.27 times in 2009. This is an indicator of the slower movement of inventory (Kathleen, 2008). The Inventory days increased by 0.51 as expected. This could be attributed to the increase in the Inventory Turnover Times. The cause of this could have been the difficult macroeconomic conditions. The debtor’s turnover increased from 14times to 16 times. This shows that debtors paid their debts to David Jones better in 2010 than in 2009. As expected, the debtors’ days then decreased from 24 to 22. David Jones seems to have employed better credit screening and collection methods in 2010 (David Jones Company, 2009).

Liquidity

The 2010 current ratio was better than the 2009 ratio by 0.1. This shows a slight improvement in David Jones’ ability to meet their current liabilities on demand. However, the quick ratio shows a drastic decrease. This could be a result of the slow-moving inventory. The cash flow ratio improved to 0.65 from 0.62. This is a good sign as it indicates better cash management by the company. Lenders and Creditors would be pleased (Barrow, 2006).

Capital Structure

David Jones managed to reduce the debt in their capital structure as shown by the Debt to Equity ratio which dropped from 64% to 60%. The company prides itself on its low debt levels. This is also reflected in the Debt ratio which decreased to 37.7% from 39.1%. The slight change in the capital structure is evident in the equity ratio which increased from 60% to 62%. The company raised additional equity to replace the debt paid off in the capital structure (Magal & Word, 2009).

Repayment Ratios

Two ratios were computed for this section. The debt coverage ratio decreased slightly by 0.03. This was due to a less than proportional increase in net cash flow from operating activities. However, the interest coverage ratio showed a positive change by 2.15. This is an indicator that David Jones can be able to pay interest 2.15 more times than in 2009. This could also be a result of the decrease in debt (Hooks, 2010).

Market Performance Ratios

The Earnings per Share and Dividend Per-share remained unchanged in the two years under study. However, the operating cash flow per share reduced from 0.42 to 0.39. The Price Earnings ratio improved slightly from 14.44 to 14.15 despite the bad publicity the company received with the dismissing of the previous CEO. The company has done slightly better in 2010 than 2009 according to these ratios.

Reference List

Barrow, C. J. (2006). Environmental Management for Sustainable Development (Routledge Environmental Management). Toronto: Routledge.

David Jones Company. (2009). Annual Report. Sydney: David Jones.

David Jones Company. (2010). Annual Report 2010. Sydney: David Jones.

Hooks, K. L. (2010). Auditing and Assurance Services: Understanding the Integrated Audit. Chicago: Wiley.

Kathleen, B. H. (2008). From Analyst to Leader: Elevating the Role of the Business Analyst Management Concepts. New York: Free Press

Magal, S. R., & Word, J. (2009). Essentials of Business Processes and Information Systems. Toronto: Wiley.