Briscoe’s 2009 anal & interp soln

(a) Selecting non-financial information

Chairman's review

  • Major restructuring of operational and merchandising activities
  • Improved inventory control and reduced levels held, and refinement of product ranges
  • Community and social responsibility recognised through sponsorship of Cure Kids and other community-based charities and sports clubs.
  • Acknowledgement of contributions of directors, management and staff to Group's performance in a difficult year

Managing Director's review

  • 89 stores operating - 57 homeware, 32 sporting goods
  • 3 new homeware stores opened
  • Consolidation of prior year's expansion of sporting goods subsidiary
  • Operations and merchandise restructured by function rather than by brand
  • Stores re-grouped into geographic regions leading to improved cooperation and cost savings between neighbouring stores
  • Recognition of staff via a values-managed business
  • Creation of dual or multi- store sites overseen by experienced managers

Corporate Governance

  • Board aspires to highest standards of principles in Code of Proper Practice for Directors and ethical conduct by directors and employees
  • Outline of Board responsibilities - setting objectives, strategy and key policy, monitor management performance against budget
  • Significant detail on corporate governance procedures and practices
  • Corporate code of conduct
  • NZX corporate governance Best Practice Code
  • Risk management - emphasis on controlling operating, business and external risks
  • Effective communication - to employees, shareholders and market generally
  • [10]

(b) Analysis of financial information

20092008

Gross profit to sales

Sales388,467407,750

Cost of sales238,380242,933

Gross profit150,087164,827

Ratio38.6%40.4%

Net profit to sales

Sales388,467407,750

Operating profit before tax (EBIT)15,11331,744

Ratio3.9%7.8%

NPAT to average shareholders' funds

NPAT11,63422,441

Shareholders' funds 2007112,062

Shareholders' funds 2008117,979117,979

Shareholders' funds 2009121,550

Average shareholders' funds 119,764115,020

Ratios9.7%19.5%

EBIT to total assets

EBIT15,11331,744

Total assets117,184180,389

Ratio8.5%17.6%

Cost of sales to average inventory

Cost of sales238,380242,933

Closing inventory 200759,208

Closing inventory 200867,82667,826

Closing inventory 200957,460

Average inventory62,64363,517

Ratio3.8 times3.8 times

Current ratio

Current assets127,676123,190

Current liabilities55,20762,061

Ratio2.311.98

Proprietary ratio

Shareholders' funds121,550117,979

Total assets177,184180,389

Ratio68.6%65.4%

Gearing ratio

Shareholders' funds121,550117,979

Non-current liabilities427249

Ratio284.7:1338:1

Earnings yield

NPAT11,63422,441

Number of ordinary shares issued (000s)212,150212,150

Earnings per share5.5c10.6c

Closing market price$0.75$1.30

Ratio7.3%8.2%

Price earnings ratio

Earnings per share5.5c10.6c

Closing market price$0.75$1.30

Ratio13.612.3[10]

(c) Report to Madoff Investment Trust

There is no set answer for this report. Students should not be penalised for repeating information, ratios etc that were incorrectly calculated above. Marking is to be based on:

  • Format and readability 3 marks
  • Interpretation of results12 marks
  • Main aspects expected are:
  • store expansion – leads to increased non-current assets
  • inventory management and product refinement – inventory levels reduced over year, greater concentration on functions of products being sold
  • operational productivity – regrouping of stores leading to increased cooperation and cost savings
  • strong balance sheet - no debt and substantial cash balance
  • community concerns – is involved in communities through sponsorship
  • good employer requirement – recognises value of good staff
  • ethical trading with customers and suppliers
  • financial performance in tough economic circumstances

A key factor for Briscoe is that its sales are nearly all cash sales but its purchases are on credit. Therefore, the company does not require a high current ratio, or indeed, a liquidity ratio greater than 1:1 for it to remain solvent

Clear conclusion and recommendation 5 marks [20]