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Matalan Plc Report

1727 words - 7 pages

This report is to provide a clear and understandable analysis and comment on the performance and the financial position of Matalan, a well known out of town retailer offering quality clothing and homewares at half price, as well as an explanation on the importance of cash management.Ratios are used as they are effective tools to interpret accounts. In order to provide a clear and in-depth view, the most relevant ratios are benchmarked with:the prior/previous year results: the analysis is a 3 year based, it is then possible to provide a trend (data come from Matalan report and Matalan website)the results of its main competitors: Next and Woolworth are considered to be relevant business to be compared with, we are then able to position Matalan in relation to them (data for competitors come from Fame)the expectations of Matalan to see if it managed to reach themThis report is divided in three parts, first the analysis of Matalan's performance, second the analysis of its financial position and finally the importance of cash management.Appendix 1 shows the calculations, appendix 2 shows the formula and appendix 3 presents the results clearly.PART 1: Analysis of Matalan's performanceTo analyse and comment the first part of the report on performance, four ratios are used:Return on capital employedReturn on salesAssets turnoverReturn on shareholders' fundsThese ratios are relevant in the sense that they are profitability ratios. They evaluate the performance of a business, in this case Matalan and if it is worth investing in it. They are briefly explained to better understand which information they provide and why they are used.1. Return on capital employed (ROCE)The ROCE indicates the efficiency with which Matalan utilizes its capital to generate revenue. This is a vital ratio to measure performance.ROCE continuously and significantly decreased from 58.34% in 2002 to 24.68% in 2004, which corresponds to a fall of nearly 60%. For each pound of capital invested in Matalan, more profit was generated in 2002 (58.34p) compared with 2004 (24.48p) to pay the interest, the taxation and the dividend. Sales increased, however the costs of sales and the administrative expenses increased quicker than them, which explains why the profit before interest and tax (PBIT) resulting of them decreased. Capital employed having increased due to the store opening programme and investment in systems, this ratio decreased.Compared with its competitors, Matalan is less performant than Next (62.22%) but better than Woolworth (10.83%).In terms of expectation, ROCE is not as good as the previous years, however it is higher than bank interest rate (appendix 4) It is then still better to invest in the business than putting money in a bank.2. Return on sales (ROS)This ratio measures how much profit Matalan produces for each £ of sales used to pay the different costs. It is an indication of the operational performance.ROS continuously and significantly decreased between 2002 and...

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