David Jones Company Analysis

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Table of Contents

Introduction
Asset Efficiency
Liquidity
Capital Structure
Repayment Ratios
Market Performance Ratios
Reference List

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.

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