Financial Analysis- Approach to solve finance Assignment

1: Introduction:

Public companies especially those which are listed on the different stock exchanges worldwide, use substantial quantities of financial and other resources preparing and presenting financial statements. Their aim is to make the information contained therein available to interested stakeholders. The annual report is also meant to fulfil the regulatory requirements of reporting the financial performance and situation of the entity. “Financial statements are the main and often the only source of information to lenders and outside investors regarding a business’s financial performance and condition.” (The Fast Forward MBA in Finance; John A. Tracy: 2002; 2^nd ed. Pg. 39)

While such reports may contain quite a lot of relevant information about the performance and financial health of the entity, they very often conceal more than they reveal.

Those seeking to fully understand the performance of the entity at a more meaningful level need to not only observe the information, but to drill down into the detail and extract the essence. Such evaluations can be assisted with the utilization of key ratios.

The aim of this report is to provide a financial analysis of the Annual Report and Financials Statements of Specialty Fashion Group Limited, a company listed on the Australian Stock Exchange. It will attempt to examine the relevant ratios relating to the entity’s profitability, efficiency, short term solvency, long term solvency, and shareholders’ investment returns. Comparisons will be made to previous reporting periods to analyze emerging trends and developments and to identify factors which may or have impacted on the entity’s performance. Conclusions will then be drawn as to whether overall performance has improved or not and suggestions will be made as to how the entity can improve its performance when going forward.

2: A Brief History of the Company:

Specialty Fashion Group (SFG) is the largest retailer of women’s fashion in Australia, making women everywhere look good and feel great through five diverse brands that offer style and value.  The company’s brands include Autograph, City Chic, Crossroads, Katies and Millers.

The founding management team - Sam Moss, Ian Miller and Gary Perlstein opened the company’s first two stores in 1993 in Surry Hills and Wollongong under the trading name of Miller’s Fashion Club. By December 2003, 20 stores were trading as Miller’s Fashion Club in NSW and the ACT.

SFG sells a garment every second in Australia, New Zealand or the United States through our portfolio of about 900 stores and our seven online businesses.

SFG has one of the largest women’s customer communities in Australasia with 6.2 million members and can reach over 1.5 million members through email. Our members’ loyalty is high, representing over 80% of sales.

On 28th May 1998, the business was listed on the Australian Stock Exchange with 147 stores across Australia under the name of Miller’s Retail Limited.

3: Main Objectives of the Report:

The objectives of this report are

·         To critically evaluate the performance of the entity for the financial year 2013.

·         To compare the entity’s performance over a two year period to identify strengths, weaknesses and emerging trends.

·         To calculate the necessary ratios and use them as tools in the financial analysis

·         To draw conclusions from the analysis and make relevant recommendations for future improvement of the entity.

4: Financial Analysis of Specialty Fashion Group Limited:

Financial analysis is the basis for investment and financing decisions. In order to evaluate the entity we need to do such an analysis. “Financial analysis is one of the many tools useful in valuation because it helps the financial analyst gauge returns and risks.” (Fabozzi F. J. and Patterson P.P. 2^nd edn; 2003; pg. 721) This analysis is conducted by calculating ratios and comparing the business’ performance over time in this case as explained by financial accounting homework help service providers. Rratios cannot be viewed in isolation; we thus need to look at several different aspects of a firm’s presented data at the same time in order to make judgments regarding its operating performance and financial condition.

“Accounting ratios summarize financial relationships. They allow comparisons over time, with other firms, and with internal budgets. There are problems in using ratios; they raise questions rather than providing definite answers.” (Myddelton D. R. 1996; pg.124) A ratio by itself is useless, their usefulness comes from the relationships that they allow us to establish between different variables, thereby permitting comparisons and enabling the analyst to draw conclusions. This means that their usefulness is limited by the accuracy of the data from which they have been calculated and they can be misleading because data can be distorted by inflation for example. In order to complete the analysis, the examination of the data will be divided into five areas each of which will be assessed with a different set of ratios as explained by accounting homework helpers. The five groups of ratios are:

·         Profitability ratios

·         Efficiency ratios

·         Short term solvency/liquidity ratios

·         Long term solvency ratios

·         Shareholders’ Investment  ratios