Net Profit In The Financial Year 2001 example essay topic

Financial Report Highlights f"U Sales of $23,799 m represent a 5.5% increase over 2000 (Excl. WST and 53rd week in 2000) f"U Retail Earning Before Interest and Tax fell by 29.1% to $586.3 m f"U Net profit after tax was reduced to $150.8 m compared with $300.7 m in 2000 f"U Annual ordinary dividend payment of 25.5 cents per share (2000: 27.0 cents per share) Financial Statement Analysis Key Ratio | Liquidity 2001 2000 Current ratio The current ratio for Coles Myer Group for the last two years maintained at the level of over 1: 1. The figure in financial year 2001 shows a slight improve from 1.234: 1 in 2000 to 1.325: 1 Quick ratio The group's quick ratio also shows an improvement from 0.25: 1 in 2000 to 0.328: 1 in 2001. Although the figure is still far away from the ratio of 1: 1. This is still acceptable since inventory contributes the largest part of current assets in Coles Myer Group. This is a characteristic of retailing industry.

Inventory turnover The inventory turnover ratio deteriorated slightly from 2000's 6.192 times to 2001's 6.140 times. Dividing 365 days by the turnover ratio, it gives 59.4 days and 58.9 days in 2001 and 2000 respectively. Which indicates average inventory was held one day longer in 2001 than in 2000. Key Ratio | Profitability 2001 2000 Return on total assets The group's return on total assets decreased from 2000's 7.1% to 2001's 4.18%, due to the reduced net profit caused by the significant restructuring cost and asset write-downs. Return on ordinary shareholder's equity (Provided by financial report) = 0.110 = 0.177 Figure from 2001's 11% shows a decrease in ordinary equity return compared with 2000's 17.7%.

The major cause is the significant decrease of net profit in the financial year 2001. Profit Margin The profit margin also shows an unfavorable figure. The profit margin in 2001 is 0.9% compared with 1% in 2000. Although a low profit margin is expected of supermarket industry.

The group shows a decrease in profit margin. Dividend yield Dividend yield remains at the level of approximately 4% for two reasons. First, the group remains a certain level of dividend payment although the group experienced a 49.9% decrease in net profit. Second, the decrease in closing share price which to some extend reflect the unfavorable situation faced by the group. Key Ratio | Stability 2001 2000 Debt ratio Debt ratio for year has improved by about 5% from 65% in 2000 to 60% in 2001.

This is the result of the market capitalization during to financial year which diluted to debt to total asset ratio. Equity ratio During the year, $700 m in Coles Myer Reset Convertible Preference Shares (ReCAPS) were issued. Together with share buy-backs and share issues, the group has recorded a $672 m cash proceed. This increased the equity to total asset ratio from 34% in 2000 to 39% in 2001. Times interest earned In 2001, the group's operating profit before interest and taxes was 2.75 x greater than the interest expenses. Compared with 4.47 x in 2000.

This is also a consequence of the sharp fall in net profit. Asset turnover ratio The asset turnover ratio for 2001 remains at about 2.9 x, compared with 3 x in 2000. Excluding the 53rd week and Whole Sales Tax in 2000 would give the asset turnover ratio at 2.8 x. Conclusion Generally speaking, Coles Myer Group has been facing a transitional period during financial year 2001. The introduction of GST results a discouragement in consumption to some extend affects the group's financial performance.

However, the group has maintained a certain sales level at about $24000 m and remained a dividend yield at approximately 4%. In financial year 2001, the group has recorded a 49.9% decrease in net profit, which is caused mainly by: f"U Increased payments to suppliers due to the introduction of GST f"U Acquisition cost of Australian Liquor Group and Leda Hotel Group f"U Significant restructuring cost and asset write-down CML WOW DJS EPS 10.5 c 40.16 c 7.1 c Dividend Yield 4.18% 2.45% 7.27% Debt Ratio 60.8% 69.9% 40.9% Current Ratio 1.32: 1 0.8: 1 1.86: 1 The sharp fall in net profit gives unfavorable effects to the group's profitability ratio. Despite the effect of net profit, the group shows a slight improvement in both liquidity and stability. By comparing Coles Myer group's liquidity, profitability and stability with other entities in the industry such as Woolworth (WOW) and David Jones (DJS), CML has provided a relatively attractive dividend yield to investors since the share price has reached at a very attractive level in terms of the group's future growth.

The group also showed a healthy liquidity and stability ratio compared with other companies in the retailing industry. Recently, the Coles Myer Group has recorded a significant restructuring cost in order to improve the group's general operating efficiency; the group has also completed a series of acquisition to maintain the group's market share. That includes the acquisition of Australian Liquor Group Ltd. and the Leda Hotel Group. These actions show the potential for profit restoration and it would become the key for future performance. Despite the global recession in most of the world's economy, Australia has shown a relatively good economic progress with approximately 3% growth over the past few years and the growth is expected to continue.

Coles Myer Group, as the Australia's largest enterprise in the retailing industry, will have no doubt been benefited from such economic growth with the Australian economy. With the expectation of the positive effects brought by the acquisitions and the constant sales growth, Coles Myer Group is likely to post earning growth of more than 20% over the next few years, well above earnings growth of All Industrial Market. Therefore, it is recommended for investor to invest in CML in terms of both short term and long term positions.