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Running head: FINANCIAL ANALYSIS OF MYER HOLDINGS 1

Financial Analysis of Myer Holdings

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Institution

FINANCIAL ANALYSIS OF MYER HOLDINGS 2

Introduction

Financial analysis is one of the ways of determining the growth of a company,

valuing a company, and marking financial, as well as, investment decisions (Bruce, 2015). There

are different financial analysis methods which are based on the financial statements. The

analysis, therefore, extracts useful information from the financial statements and models them in

such a way that they can provide meaningful use to the owners of the business, as well as, for the

consumption of the decision-makers for decisions that are central to the operations of any

business. This paper, therefore, provides an analysis of the financial statements of Myer holdings

with the objective of extracting useful information from the analysis.

The analysis that is used in analyzing financial statements includes all the statements which

show the link that exists between two or more variables in the financial statements. The financial

statements used are either statement of income or the statement of financial positions. The ratios

developed in the analysis indicates the profitability of the venture, the efficiency applied in the

business operations and the valuation which is used to get the value of different aspects of the

business which include the value of the machines and the value of the properties (Robinson et al.

2015). Financial analysis is one of the most important tools that are applied in the analysis of the

company, and it remains a decision-making tool that is used to make essential decisions.

Myer holding company is an Australian company which operates more than 50

stores. The company is estimated to be around 118 years old. It is a store chain company located

in Sydney. As a matter of policy, the company publishes its financial statements yearly. In the

recent past, the performance of the company has been under scrutiny. This is because of the

share prices and the fall in the earnings per share (Balakrishnan, 2016). The shareholders have

FINANCIAL ANALYSIS OF MYER HOLDINGS 3

also been complaining of the low returns and low dividends which they earn from the company.

However, the company has continued to produce and operate even at these tough financial

realities.

From the financial statements of Myer holdings, there is important information

that is obtained for two different financial years including 2016 financial year and 2015 financial

year. Sales for the two financial years include $3,289.6 for 2016 and $3,195.6 for 2015 which

represents a 2.9% change in sales. This implies that the total sales of the company have improved

positively and the implication is that it is 2.9% more products that were sold in the 2016 financial

year compared to the products that were sold in 2015 financial year. The change shows an

expanded sales base in the year 2016 compared to the sales base that existed during 2015

financial year.

The gross operating profit was $1,274.3 and $1,290.4 for the financial years

2016 and 2015 representing a change of 1.2%. This shows a decline by 1.2% from the initial

gross profit obtained during the previous year.2015 had a gross profit higher than the gross profit

of 2016. However, this is the profit that has been realized before any deductions have been made

on the profits. It can be said that the raw profit has decreased over the period of one year and this

can be attributed to several reasons for the company. Profits increase and decrease depending on

the change in the cost of conducting business and different incentives that are advanced by the

government. Government policy remains one of the major reasons for the decline of gross

profits.

EBIDTA change over the same period can be given as 7.6% while EBIT stands

at 15%.EBIDTA is the earnings before interests, tax, depreciation, and amortization. Increased

FINANCIAL ANALYSIS OF MYER HOLDINGS 4

EBIDTA implies that before calculating the costs of depreciation on the properties and

equipment of the company, tax calculations and deducting several interests then the earnings of

the company has increased by 7.6% over the period of one year. EBIT means earnings before

interests and the tax are calculated, and this has also improved by 15% for the company. This

implies a positive change and gives a positive growth to the company (Albassami et al. 2015).

The company, however, has witnessed a decreased net profit after tax from

$77.5 to$ 69.3 in the years 2015 and 2016 respectively. This represents a change which is

estimated to be a decrease in 10.6%.Net profit after tax shows the profits that the company has

held after submitting the tax requirements and meeting all other tax obligations. Myer holding

has decreased in net profitability, and this can also be attributed to several factors which are at

play. However, a decrease in net profit by 10.6% is not a sustainable change and can only

warrant radical changes within the company. This will warrant essential decisions for the

company.

The operating gross profit margin for Myer holdings was estimated to be 37.8%

and 40.38% for the years 2016 and 2015 respectively. Gross profit margin ratio refers to the ratio

between the difference between total revenue and cost of sales to the total revenue (Bourlakis et

al. 2016). A higher profit margin indicates that total cost of goods sold is lower the revenue

while vice versa exists for the lower profit margin (Sheets, 2016). The profit margin shows the

worthiness of an investment, and it shows how health the investment becomes. A higher profit

margin indicates healthy and steady business while a lower profit margin shows unhealthy

business operations. For the case of Myer holdings, the business was steady and healthier in

2015 when it stood at a profit margin of 40.38% compared to the year 2016 when the gross profit

margin stood at 37.8%.

FINANCIAL ANALYSIS OF MYER HOLDINGS 5

EBIT margin between 2016 and 2015 represents a change from 4.18% in 2015

to 3.45% in 2016.EBIT margin refers to the ration between EBIT and total revenues of the

company. This ratio rakes in the impact of such activities as amortization, interests, and tax. A

higher EBIT margin implies a steadier and healthier business. The changes indicate the steady

operations of the business hence essential decisions can be made around the operations of the

company based on the EBIT margin ratios and the gross profit margin ratios that are computed

from the gross profits and the net revenues that are obtained by the company.

From the balance sheet, the most important information that can be extracted

includes the working capital ratio, operating cash flow, and net cash flow. The working capital

from the balance sheet from the period of 2016 represents $10 million and for 2015 is given by

$33 million. The working capital is the amount that remains in current assets after subtracting the

current liabilities from the current assets. When the working capital is high, then it means the

company can meet its short-term obligations without problems. This also implies that the

company cannot face liquidity problems as it has the liquid amount to sustain its operations.

The operating cash flow between the years included $186 million and $150

million for the years 2016 and 2015 respectively. However, the net cash flow in the company

was estimated to stand at $287 million and $10 million between 2016 and 2015 financial years.

The other important financial ratios that can be revealed during the same period include returns

on the total funds employed, gearing ratio, net debt/EBIDTA, stock turn, and creditor days. The

financial ratios are important in making essential decisions on the company which include

essential investment decisions. Each of the ratios is essential in making the decisions required by

the company.

FINANCIAL ANALYSIS OF MYER HOLDINGS 6

Return on capital employed for the year 2016 was calculated as 9.1% and

10.7%. This measures how efficient the company operations are during the financial year. The

return on capital employed also measures the profitability of the company. According to the

report, the company was more efficient in 2015 having a return on capital employed as 10.7%

compared to the return on capital employed during 2016. The profitability as given by the return

on capital employed was also higher in 2015 than in 2015.2015 exhibited the highest efficiency

regarding resource use and the terms of profitability. In the calculation, the ration of EBIDT to

capital employed gives the return on capital employed.

The gearing ratio between the years 2016 and 2015 stood at 8.4% to 31%. This

ratio is the ratio that exists between long-term debts and the equities of a company. In 2015 the

gearing ratio was calculated and categorized as normal geared since it falls between 25% to 50%.

This implies that the holding was well grounded in 2015 compared to 2016. Gearing ratio defines

the investment as it gives the essential ratio that exists. A lower ratio implies that the company is

unable to meet its long-term obligations. That is not desired in most businesses as it can create an

unending negative perception of the image of the company and also hamper the operations of the

company.

Net debt to EBIDTA was estimated to be 0.5 times in 2016 and 1.7 times in

2015. This further indicates that the company was grounded in 2015 that it was grounded during

2016 operations with the operations being 0.5 times in 2015 as compared to 1.7 times during

2015. The company could be depended upon during the 2015 financial year.2015 presented a

good year for the company compared to the year 2016. The stock turn remains the same at 3.4

times during both 2015 and 2016. This is the ratio of average stock compared to sales. The rate at

which the stock turns over in the company.

FINANCIAL ANALYSIS OF MYER HOLDINGS 7

In a period of 5 years starting 2017 to 2013 financial years, the sales recorded

by the company were as follows $3.2 billion, $3.3 billion, $3.2 billion, $3.1 billion, and $3.1

billion for the financial years 2017, 2016, 2015, 2014, and 2013. During the same period, the

gross profit margin was estimated to stand at 38.1%,38.7%, 40.4%, 40.9%, and 41.5% for the

years 2017 to 2013 in that order. The net profits after tax of the holding then were $67.9 million,

$69.3 million, $77.5 million, $98.5 million, and $127.2 million for the years 2017 to 2013

respectively. The order has shown decreasing profitability and a reduced base on the profits.

Earnings per share refer to the portion of the company profit which is allocated

to each of individual shareholder of the company. The earnings per share have been reducing on

the company since 2013. This implies that the shareholders have been receiving a reduced

amount of the earnings from the company's profits, the profits have also been declining with

time. Earnings per share are essential to companies as it enables the company holders to make

important decisions that concern the company. In the company, the earnings per share from 2017

to 2013 have been 8.3, 8.8,13.2,16.8, and 21.8 cents for 2017,2016,2015,2014,and 2013

respectively. This implies that for every share held the cents would reduce from 21.8 cents in

2013 to 8.3 cents per share in 2017.

Comparing the performance of 2016 financial year and 2017 financial year

reveals a pattern in which gross profit margin reduced from 38.7% in 2016 to 38.1% in 2017.

Even though there is a decline in profit margin, the decline is reducing marginally from the

decline witnessed from 2015 to 2016 financial years. The company seems to have adopted ways

of reducing the adverse effects on their economy. They have also adopted some of the best

efficiency mechanisms that are geared towards promoting the efficiency and profitability.

FINANCIAL ANALYSIS OF MYER HOLDINGS 8

From the income statements for 2017 and 2016, the EBIDTA margin is given

by 6.19% and 6.29% representing a change of 10 bps. The decrease implies that the company has

generally performed worse than it performed during the previous financial year. However, the

decline seems also to reduce. The amortization and depreciation have also increased during the

same period. Depreciations reduce the value of properties and equipment; on the balance sheet

and the original books, therefore, the depreciation is subtracted from the original value of the

property as they have a negative effect. In 2017, the depreciation and amortization are recorded

as 91.5 down from the 90.8 which had been recorded in the previous year.

EBIT margin which is the ratio between EBIT to net revenue was 3.33% in

2017 and 3.49% during 2016 financial year. This has also declined from the change witnessed

during 2015 and 2016. The net profit before tax obtained in 2017 was estimated to stand at $95.8

million, and in 2016 it was estimated to stand at $99.1 million for the company. The net profit

after tax during the 2017 financial year was then estimated to stand at $67.9 million from $69.4

million giving a percentage decline estimated to stand at 2.2 %. The Company, however,

continue to show a decline in the profits and the earnings per share also indicates declining

profits.

As at the close of 2017, the inventories held by the company stood at $372

million while towards the end of 2016 the inventories stood at $396 million. The total funds

employed during the same period stood at $1,186 million at 2017 and $ 1,210 million during

2016 financial year.

The dividends per share for both periods of time stood at 5 cents per share for

the 2017 financial year and 2016 financial year. This returned the lowest dividend per share for

FINANCIAL ANALYSIS OF MYER HOLDINGS 9

the company in the recent times. A dividend which only fetches 5 cents per dividend is not

attractive to the investors. This causes the existing investors also to rethink their investments

with the company. The market capitalization for the company for the five years from 2017 to

2013 is given by $632.4 million, $1100.5 million, $694.0 million, $1311.9 million, and $1552.4

million over the same period.

Share price at the beginning of each year has also been fluctuating with the

lowest share price being $1.34 which was the share price at the beginning of 2017 and towards

the end of 2016. For the 2014 financial year, the share price at the beginning stood at $2.66. The

average share price at the beginning of each of the yeas has been $1.5 per share. The share price

is also an essential indicator of the performance of the business. High share price at the

beginning of the year indicates the previous performance of the business during the previous

years while low share price indicates a previous low performance of the business in the previous

year. In the case of Myer holding it has been performing mildly and one of the strongest

performances was in 2014. The 2014 performance has been manifested in various financial

ratios.

Myer holding company faces the problem than any other company might face.

Based on the returns and profits before tax and the profits after tax, the company can boast of

revenue that runs into millions of dollars. However, the company continues to face the reality of

declining profits. A decrease indicates the declining net profits in the net profit margin which has

been reducing over time and the EBIT margin. Revenue generation is also affected as indicated

by the earnings per share which have been reducing over time. Essential decisions can be

obtained by the experts from the books of financial statements. The books have also provided the

FINANCIAL ANALYSIS OF MYER HOLDINGS 10

much-required analysis as they have shown the financial position of the business in various

instances.

The balance sheet of the company as given from the year 2013 has given the

financial position of Myer from 2013 including the position on the debts and inventories. The

balance sheet has also provided essential information for analysis of the equity and the EBIT

requirements. The financial statements also give important ratios in the end which can be used to

indicate the profitability such as gross profit margin, net profit, and EBIT margin which are also

essential in determining the efficiency and profitability of the business. The core values in

accounting include the ethical considerations have been adhered to when analysing the statement

of finance for the company. This includes the passion value, principle of teamwork and the

principle of independence.

Recommendations

In order to return back to the normal profitability and improve the operations the

company must implement far reaching implementations which are geared towards improving the

efficiency of the operations and increase the value of activities. The company must manage its

costs , this includes the proposal of disposing off the methods of production which is considered

costly and reviewing the operations of the company. The company must also invest in sales and

review the sales mechanisms employed during sales of the products. Hiring staff which have the

prerequisite knowledge and disposing off the human resource which is redundant must be

employed as one of the cost management mechanism. Expansion of the market is also one of the

proposals that the company must work on if it is to ensure increased profits. Marcum’s values

should also be adhered to by the professionals in the company.

FINANCIAL ANALYSIS OF MYER HOLDINGS 11

FINANCIAL ANALYSIS OF MYER HOLDINGS 12

References

Albassami, F. A., Al-Meshal, S. A., & Bailey, A. A. (2015). An investigation of internal

marketing and its effects on employees in the banking sector in Saudi Arabia.

Journal of Financial Services Marketing, 20(3), 176-190.

Balakrishnan, K. P. (2016). A Study On Impact Of Earnings Per Share, Dividend Per Share Price

Earnings Ratio on Behavior Of Share Market Price Movements (Pharma Sector)

with reference to NSE. International Journal Of Advanced Research And

Innovative Ideas In Education, 2(1).

Bourlakis, M., Maglaras, G., Aktas, E., Gallear, D., & Fotopoulos, C. (2016). Does firm size

influence sustainable performance in food supply chains: Insights from Greek

SMEs. In Developments in Logistics and Supply Chain Management (pp.

253265). Palgrave Macmillan, London.

Bruce-Twum, E., & Mensah, C. C. (2015). Financial Statement Analysis.

SHEETS, F. (2016). LEVEL I.

Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial

statement analysis. John Wiley & Sons.

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