Financial analysis

Profitability
Ratio

Equation

Explanation

Gross margin %

Gross profit/Sales

EBIT margin %

EBIT/Sales

Net profit margin %

NPAT/Sales

Return on
investment

EBIT/Total assets

- Want high
- Margin of profit on sales
- Shouldnt fluctuate between periods unless changes
to underlying data
- Without adequate GM, entity unable to pay its
operating and other expenses and build for the future
- Want high
- % of each dollar of sales revenue that is left after all
expenses have been removed, excluding net interest
and tax
- Measure of operating profitability
- Want high
- % of each dollar of sales revenue that is left after all
expenses have been removed, including net interest
and tax
- Measure of operating profitability
- Want high
- Account level of investment when assessing size of
profit generated
- Can increase by decreasing assets, increasing
revenue

Quarter ended
30/06/14
31,164/65,438 =
47.62%

Year ended
31/03/2014
133,962/277,750 =
48.23%

3,329/65,438 =
5.09%

14,622/277,750 =
5.26%

8.20%

1,551/65,438 =
2.37%

8,730/277,750 =
3.14%

4.95%

3,329/152,203 =
2.19%

14,622/145,245 =
10.07%

11.08%

Myer FY13
44.7%

Extrapolated =
8.75%

Activity
Ratio

Equation

Explanation

Inventory turnover

COGS/Inventory

- Shows many times an entitys inventory is sold and

replaced over a period
- Low implies poor sales and excess inventory
- High ratio implies strong sales or inefficient buying
- Shows many times an entitys inventory is sold and
replaced over a period
- High number of days may point to overstocking,
obsolescence, or deficiencies in the product line or
marketing effort

Inventory days

Inventory x
365/COGS

Quarter ended
30/06/14
35,102/43,564 = 0.81
Extrapolated =
3.22
(43,564 x 365)/35,102
= 452.99
Extrapolated =
113.25

Year ended
31/03/2014
147,208/42,730 =
3.44

42,730/147,208 * 365
= 105.95

Myer FY13
3.99

91.48

Fixed asset
turnover (times)

Asset turnover
(times)

Debtor days

Working capital
turnover (times)

Sales/Fixed assets

Sales / Total assets

Debtors x 365 / Sales

Sales / Working
capital

-Low number of days

Reduces holding costs

Increase net income and profitability

May indicate inadequate inventory levels

- Measures entitys ability to generate net sales from
fixed assets
- Higher = better
- Higher means company is generating a lot of sales
compared to the money it uses to fund the sales
- Amount of sales generated for every dollars worth of
assets
- Measures firms efficiency at using its assets in
generating revenue
- Higher = better
- Also indicates pricing strategy companies with low
profit tend to have high asset turnover
- Measures how quickly cash is being collected
- Higher = longer to collect = bad
- Lower indicates changes to credit terms or improved
collection processes
- If decrease and sales increase, AR decreasing
- Measures how effectively a company is using its
working capital to generate sales
- Higher = better
- Higher means company is generating sales
compared to money it uses to fund the sales

65,438/83,985 =
0.78

277,750/83,460 =
3.33

1.79

277,750/145,245 =
1.91

1.35

6,320 x 365 / 65,438 =

35.25

6,820 x 365 / 277,750

= 8.96

3.40

Extrapolated
8.81
65,438 / (50,64040,714) = 6.59

277,750 / (51,06039,920) = 24.93

4,435

Extrapolated =
3.12
65,438/152,203 = 0.43
Extrapolated =
1.72

Extrapolated =
26.37

Liquidity
Ratio

Equation

Explanation

Current ratio

Current assets/Current
liabilities

Quick ratio

(Current assets
inventory)/Current
liabilities

- Short-term ability to pay current liabilities

- Higher = better positions
- Low indicates pressure on cash levels
- Ability to meet its short-term obligations with its most
liquid assets
- Higher = better position

Financing

Quarter ended
30/06/14
50,640/40,714 =
1.24

Year ended
31/03/2014
51,060/39,920 =
1.28

(50,640-43,564)/40,714
= 0.17

(51,06042,730)/39,920 =
0.21

Myer FY13
0.92

0.21

Ratio

Equation

Explanation

ROE

(NPAT preference
dividends)/Share capital

- Measures profitability how much profit generated

with the money shareholders have invested
- Higher = good
- If declines when profit increases, means
shareholder funds increased and this indicates
retained profits rather than dividends
- A financial ratio that measures a company's
profitability and the efficiency with which its capital is
employed.
- Capital employed = Share capital + LT debt
- Higher ROCE indicates more efficient use of capital.
ROCE should be higher than the companys capital
cost; otherwise it indicates that the company is not
employing its capital effectively and is not generating
shareholder value.
- % of companys asset financed by debt and hence
companys reliance on debt
- Higher = greater risk
- Compare with movement in current and quick ratio

If current ratio = low, debt ratio = high, then

debt is predominately current and assets are
non-current

If current ratio = increased, debt ratio =

decreased, possibly increased LT borrowings
- Should be aligned to current ratio
- Companys financial leverage
- Proportion of equity and debt the company is using
to finance its assets
- Low is better
- How easily a company can pay off o/s debt
- Lower = more the company is burdened by debt
expense
- Below 1 indicates company is not generating
sufficient revenues to satisfy interest expenses

ROCE

(NPAT preference
dividends)/(LT debt + share
capital)

Debt ratio

Total liabilities/Total assets

Debt-equity
ratio

Total liabilities/Total share

capital

Interest
coverage ratio

EBIT/(Interest expense)

Cash flow

Quarter ended
30/06/14
(1,551)/22,500 =
6.89%

Year ended
31/03/2014
(8,730)/22,500 =
38.88%

Myer FY13
14.34%

Extrapolated =
28%
(1551)/
(22,500+56,908) =
1.95%

(8,730) /
(22,500+48,590) =
12.28%

9.17%

104,547/152,203 =
0.69 : 1

95,430/145,245 =
0.66 : 1

0.53

104,547/22,500 =
4.65

95,430/22,500 =
4.24

1.14:1

3,329/1,189 =
2.80

14,622/4,035 =
3.62

7.21

Extrapolated =
7.81%

Ratio

Equation

Free cash flow

Cash from operations

capital expenditure
Cash from
operations/Cash from
operations
Cash from
operations/Total
liabilities
Cash from
operations/Net sales

Capital expenditures

Cash debt coverage

Cash return on sales

Quarter ended
30/06/14

Year ended
31/03/2014

Myer FY13
151,181
3.03:1

0.22

8.60%

Investment return
Ratio

Equation

Explanation

EPS

Price earnings ratio

Net income
preference shares /
Average outstanding
shares
Market price/EPS

Dividend payout
ratio

Dividends/Net profit
after tax

Dividend yield

Dividend per
share/Market price

- Portion of a company's profit allocated to each

outstanding share of common stock.
- EPS serves as an indicator of a company's
profitability.
- Valuation ratio of a companys current share price
compared to its per-share earnings
- High P/E suggests that investors are expecting
higher earnings growth in the future compared to
companies with a lower P/E
- Provides idea of how well earnings support the
dividend payments.
- A reduction in dividends paid is looked poorly upon
by investors, and the stock price usually depreciates
as investors seek other dividend-paying stocks.
- A stable dividend payout ratio indicates a solid
dividend policy by the company's board of directors.
- Shows how much a company pays out in dividends
each year relative to its share price.
- In the absence of any capital gains, the dividend
yield is the return on investment for a stock.

Quarter ended
30/06/14

Year ended
31/03/2014

Myer FY13
21.8

12.20

3,710/1,551 =
2.39

7,500/8,730 =
0.86

0.87

7.30%