financial evaluation of debenhams plc

8/18/2019 Financial Evaluation of Debenhams plc

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Financial Evaluation of Financial Evaluation of

Debenhams plcDebenhams plc

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Evaluation of Debenhams plc

Word count: 2988


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TABLE O !O"TE"T#

!ompan$ Bac%&round'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''(

Tas% ): *rund$ )) #tep +rocess''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''(

Overvie, of - $ear record''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''(

.uic% revie, of current and last $ear/s pro0t''''''''''''''''''''''''''''''''''''''''''-

.uic% revie, of director/s revie, hi&hli&hts'''''''''''''''''''''''''''''''''''''''''''''1

ncome statement Anal$sis''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''1

balance sheet Anal$sis'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''3

4atio anal$sis'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''8

!ash 5o, and statement'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''9

nterrelatin& Business Drivers''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''9

uture Outloo%'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''')6

#ummar$ 7 !onclusion'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''')6

Tas% 2: Evaluatin& the bene0ts of module B33-('''''''''''''''''''''''''''''''''''))

Accurac$'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''))

Accountabilit$'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''))

inancin& decisions''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''))

inancial health'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''')2

Other bene0ts'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''')2

4eferences''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''')(

Biblio&raph$'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''')(


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!O+A" BA!;*4O"D

Debenhams is a multinational retailer head6 stores' 1> stores are outside the; and reland' Debenhams en&a&e more than )66 successful desi&ners'4ecentl$ it received an a,ard of multi?channel retailer of the $ear' Thecompan$ supports man$ @not for pro0t/ or&anisations in the ;' Besides=the compan$ has sound ethical corporate social responsibilit$Debenhams 26)>'

TA#; ): *4"D )) #TE+ +4O!E##

+rofessor *rund$ ,ith collea&ues proposed )) step procedure to anal$sethe 0nancial information of an or&anisation' These are the fundamentalsteps that can be used to evaluate an$ compan$ includin& its businessstrate&$= 0nancial health= 0nancial position= cash 5o,s= revenues=business drivers 7 future prospects *rund$ et al' )998' This assi&nmentis based on eCplorin& the 0nancial information and strate&$ of Debenhamsplc usin& *rund$/s model'

OE4EW O - EA4 4E!O4D

The overvie, of - $ear record of Debenhams is presented in this section'As sho,n in 0&ure ) that the revenue in last 0ve $ears raised enormousl$and this is a &reat achievement of Debenhams particularl$ durin& theeects of 0nancial crisis' ECplorin& the 0nancial statements and accountsof last 0ve $ears= it is found that the store has adopted sound policies andadvertisin& techni


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i&ure 2 illustrates the &ross pro0t= operatin& pro0t and net pro0t of Debenhams for the last 0ve $ears' t is clearl$ illustrated in the line chartthat &ross pro0t and net pro0t increased ,ith the passa&e of time'Fo,ever= the operatin& pro0t line indicates a fall of operatin& pro0t inafter 26))' This is mainl$ due to a considerable rise in distribution costs

as indicated in 0&ure ('

2669 26)6 26)) 26)2 26)(?

-6'6

)66'6

)-6'6

266'6

2-6'6

(66'6

(-6'6

*4E 2: *4O## +4OT= O+E4AT"* +4OT 7 "ET+4OT

2669 26)6 26)) 26)2 26)(?

26'6

>6'6

16'6

86'6

)66'6

)26'6

Distribution costs

*4E (: D#T4BTO"!O#T#

#ome ups and do,ns are evident in 0&ure > in total assets of Debenhamsover the period of last 0ve $ears' The total assets ,ent do,n from 2669 to26)) probabl$ due to the impact of recession and then compan$ mana&edto recover them in 26)2 and then in 26)( as ,ell'

2669 26)6 26)) 26)2 26)()=9-6'6

2=666'6

2=6-6'6

2=)66'6

2=)-6'6

Total as sets

*4E >: TOTAL A##ET#

"o maGor chan&e is evident in current assets and current liabilitiesaccounts see 0&ure - apart from a sin&le note,orth$ rise in 26)6 ,hencurrent liabilities increased si&ni0cantl$ due to the term loan facilit$ of H->-'3 million Annual report and accounts 26)('


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2669 26)6 26)) 26)2 26)(6'6

266'6

>66'6

166'6

866'6

)=666'6

)=266'6

*4E -: !44E"T A##ET# 7 LABLTE#

i&ure 1 indicates chan&es in net assets and retained earnin&s' t is clearl$sho,n in the dia&ram that net assets and retained earnin&s of

Debenhams continuousl$ eCpanded throu&hout the period of - $ears' Theretained earnin&s ,ere continuous ne&ative till 26)2 but the storemana&ed to achieve positive 0&ure in 26)( due to a successful bu$bac%pro&ram ,hich ,as initiated in April 26)2' This pro&ram led Debenhamsto purchase >3=>>)=833 ordinar$ shares for H>-'2 million total cost from,hich 2(=882=322 ordinar$ shares ,ere purchased durin& the 0nancial$ear of 26)( Annual report and accounts 26)('

2669 26)6 26)) 26)2 26)(

?866'6

?166'6

?>66'6

?266'6

6'6

266'6

>66'6

166'6

866'6

)=666'6

*4E 1: "ET A##ET# 7 4ETA"ED EA4""*#

.!; 4EEW O !44E"T A"D LA#T EA4/# +4OT

This section provides a 93'2 million in 26)( due to reduction ininvestments in several subsidiar$ or&anisations Annual report andaccounts 26)(' This has resulted in H>93'2 million reduction in 0Cedasset account' An immense chan&e is also evident in 0&ure 8 ,ithretained earnin&s increase H3>'8 million' The reasons of increase inretained earnin&s are eCplained in the previous section'


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26)2 26)(2=666'6

2=266'6

2=>66'6

2=166'6

2=866'6

(=666'6

4evenue iCed assets

Total assets

*4E 3: 4EE"E#= IED 7 TOTAL A##ET#

26)2 26)(?26'6

6'6

26'6

>6'6

16'6

86'6

4etained earnin&s

*4E 8: 4ETA"ED EA4""*#

oreover durin& the 0nancial $ear of 26)(= ne, Debenhams stores areopened in Lib$a= Estonia= and ala$sia and the division in 4omania ,as

closed due to massive continuous fall in eCpected sales and revenue overthe $ears Annual report and accounts 26)('

.!; 4EEW O D4E!TO4/# 4EEW F*FL*FT#

The p price per share at the end of the $ear'@#hare bu$bac% pro&ramme/ section hi&hli&hts the importance of thispro&ram ,hich has resulted to increase the retained earnin&s ,ith thepurchase of >3=>>)=833 ordinar$ shares of 6'6)p at a total cost of H>-'2million Annual report and accounts 26)(' The report mentions (6=666emplo$ees in reland= ;= Denmar% 7 Fon& ;on&' Apart from that thereport mentions no essential contract in 26)(J conceal of information fromindependent auditorsJ and no &oin& concern ,hich obstructs theoperations of store in future'

"!OE #TATEE"T A"AL##

The horiKontal and vertical anal$ses are applied on income statement of Debenhams for comparin& 26)2 and 26)( 0nancial $ears' The horiKontalanal$sis is based on a line item comparison of t,o or more accountin&periods ,hereas vertical anal$sis reveals the correlations amon&components of one 0nancial statement measured in percenta&es Falpinand #enior 26))'

Table ) contains the horiKontal and vertical anal$ses of income statement'n the horiKontal anal$sis= each income statement item is compared ,iththe revenue' This is done b$ ta%in& the dierence of current and previous$ear and dividin& this dierence b$ the previous $ear 0&ure' The


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horiKontal chan&es in 26)( are more clearl$ evident in 0&ure 9 ,hichillustrates some note,orth$ dierences' or eCample= a 26 increase indistribution costs aected the operatin& pro0t and it ,as decreased b$?>' A 2- increase in 0nance income is prominent but its eect isreduced on @pro0t before taCation/ because of reduction of )( in 0nance

cost' inall$= the income statement horiKontal anal$sis reveals 2increase in the net income of 26)('

On the other hand= the vertical anal$sis sho,s similarities bet,een theincome statement components of 26)2 and 26)(' The vertical anal$sis isconducted b$ dividin& each item ,ith revenue and multiplies b$ )66 forta%in& percenta&e' Therefore= no maGor dierence is identi0ed durin&vertical anal$sis in table )'

TABLE ): FO4MO"TAL 7 E4T!AL A"AL#E# O "!OE #TATEE"T

-$#& -$#-Hori.ont

al /ertical

£000 £000 % change 2013 2012

0evenue 2=282'2 2=229'8 2 )66 )66

!ost of sales

?

)=932')

?

)=923'- 2 ?81 ?811ross pro2t ()6') (62'( ( )> )>

Distribution costs ?93'> ?8)'6 26 ?> ?>

Administrative eCpenses ?>>'3 ?>1'( ?( ?2 ?2

3perating pro2t )18'6 )3-'6 ?> 3 8

inance income )'- )'2 2- 6 6

inance costs ?)-'- ?)3'9 ?)( ?) ?)

Pro2t before ta4ation )->'6 )-8'( ?( 3 3

TaCation ?21') ?(('6 ?2) ?) ?)

5et income )23'9 )2-'( 2 1 1


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2L 2L (L

26L

?(L ?>L

2-L

?)(L

?(L

?2)L

2L

ForiKontal anal$sis AL chan&eB

*4E 9: T4E"D L"E *4A+F O FO4MO"TAL A"AL## "!OE #TATEE"T

BALA"!E #FEET A"AL##

#imilar to income statement= table 2 demonstrates the horiKontal andvertical anal$ses applied on balance sheets of 26)2 and 26)(' WhilehoriKontal anal$sis= each balance sheet item is compared ,ith the total

assets' Table 2 and demonstrates onl$ one hu&e chan&e in retainedearnin&s ,hen retained earnin&s account increased b$ H3>'8 million dueto bu$bac% pro&ram throu&h ,hich ordinar$ shares for H>-'2 million ,erepurchased in 26)( Annual report and accounts 26)('

The vertical anal$sis reveals absolutel$ no dierence apart from sli&htdierences in non?current liabilities and net assets or total e-9'- 2 22 22

6otal Assets 2=)(2'8 2=69)'2 2 )66 )66

!urrent liabilities?3>)'9

?323'6 2 ?(- ?(-

5et current liabilities?23)'>

?213'- ) ?)( ?)(

"on?current liabilities?1>1'-

?36('2 ?8 ?(6 ?(>


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5et assets 3>>'> 11)'6 )( (- (2

4etained earnin&s 1>'9

?9'9 ?--1 ( 6

6otal e7uit+

3>>'> 11)'6 )( (- (2

"on?current assets Total Assets "et current liabilities "et assets Total e


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+s on n )

1earingratio

N Total liabilities N )=(88'>6 N

#)9'

)=>(6'26 N

-)##hareholders/ e>'> 11)'6

EPS N "et income N )23'9 N

#$)-p

)2

-'( N

;)9p

#hares outstandin&)66)=2->'-)

66 )=28)'()

66

Accountpa+ableda+s

N

Trade and otherpa$ables

N->-'8

N #$#da+s

-2-'>

N ;;da+s

!ost of sales (1-)=932')(

1- )=923'-(

1-

Accountreceivable da+s

N

Trade and otherreceivables

N38'(

N #&da+s

3-'>

N #-da+s

4evenue (1-2=282'2(

1- 2=229'8(

1-

nventor

+da+s N

nventor$

N

(-3'9

N

da+s

((2'2

N

&

da+s!ost of sales (1-

)=932')(1-

)=923'-(1-

!A#F LOW A"D #TATEE"T

The consolidated cash 5o, statement of Debenhams demonstrates H2>')million net cash and cash e'1 millionin 26)2' This sho,s ?H)6'- million ?(6'> decrease' This decrease in

cash is the result of cash 5o,s from investin& activities ,hich sho,s thatDebenhams used H)(('( million cash in 26)( and this 0&ure ,as H))8'1million in 26)2' Also the account of cash 5o,s from 0nancin& activitieseCpanded from H36'8 million to H31'- million'

"TE44ELAT"* B#"E## D4E4#

The industr$ anal$sis reveals that each H) spends on mobile but furtherH)6 spend in?store' Debenhams assist their customers to use their mobiledevices b$ &ivin& them W facilit$ in stores' t is mentioned in the annualreport and accounts 26)( that Debenhams/s @mobile/ customers areincreasin& and the compan$ has achieved >6 &ro,th due to onlinevisits' This &ro,th represents H2>) million revenue in 26)( from ,hich ourH(11 million 2- came throu&h smart?phones and tablets' This &ro,this the result of encoura&ement from Debenhams to their customers to usemobile applications ,hich ,ere do,nloaded more than 1 million times inlast couple of $ears'

Additionall$ some other factors also contributed to the &ro,th of Debenhams in 26)(' These factors include: renovation of ; and relandbased stores to attract customers on hi&h streets= international eCpansion=

&lobal 5a&ship plan= and closure of the 4omanian franchise stores Annualreport and accounts 26)('


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T4E OTLOO;

Loo%in& for,ard= several techni93'2 million dueto reduction in investments in several subsidiar$ or&anisations' AnothermaGor chan&e is evident in the retained earnin&s ,hich increasedsi&ni0cantl$ in 26)(' The ratio anal$sis reveals that &earin& ratio is decrease is found in the cash and cash e


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TA#; 2: EALAT"* TFE BE"ET# O ODLE B33-(

This module has been bene0cial for me in various ,a$s' or eCample=

stud$in& this module become a,are of ho, to anal$se 0nancialinformation that deals ,ith balance sheets= income statements= cash 5o,statements= capital eCpenditures= and business trends etc' believe thatthis information ,ill be hi&hl$ bene0cial for me as a proGect mana&er inm$ compan$'

A!!4A!

n fact ever$ compan$ has accountants and taC advisersJ and thus m$compan$ also has particular accountin& and 0nance department ,hereprofessionals ensure error?free reportin& of taC and accounts to&overnment' $ Gob role is dierent and related to the proGectmana&ement' After stud$in& this module= no, believe that it is importantfor me to have an idea about ho, to anal$se compan$/s 0nancialstatements in order to verif$ that all information is correct to the best of m$ %no,led&e' This could be a plus point for me to mana&e the proGectsmore eectivel$' or eCample= no, am sure that ,ill be able to controlcash 5o, and capital eCpenditure at proGect level' n addition= ,ill be ableto estimate costs more accuratel$ to assist 0nance department to raisefunds for the proGect'

A!!O"TABLT

The module ,ill also help me in future to encoura&e accountabilit$ on thepart of accountin& and 0nance individuals b$ constantl$ anal$sin& the0nancial statements' n fact= it is the Gob of internal and eCternal auditorsbut anal$sin& the statement at m$ end ,ill &ive me con0dence formana&in& proGect costs and 0nances more eectivel$' n addition= basedon the nature of the Gob and contract ,ith eCternal 0nancial advisors 7companies to crunch compan$/s 0nancin&= evaluatin& 0nancialinformation after this &round,or% accountin& ma$ also ma%e sureaccountabilit$ !ooper et al' 26)2'

"A"!"* DE!#O"#

inancin& decisions is the %e$ advanta&e that ,ill &et durin& m$ Gob interms of 0nancin& of oil and &as proGects' inancin& is a lon& process inm$ compan$ and it has lots of bureaucratic processes' n m$ department=hardl$ an$bod$ is a,are of the accountin& and 0nancin& insi&hts= so it ,illbe advanta&eous for me to have %no,led&e of 0nance and ma$be ,ill beable to assist mana&ers in their 0nancin& decisions'

With the help of 0nancial statement anal$sis that have done durin& thisassi&nment= hope ,ill be able to anal$se the 0nancial health and


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position of an$ or&anisation for ,hich m$ or&anisation ,ill be &oin& tocontract ,ith' or eCample= before en&a&in& a contractor or subcontractfor the proGect= mi&ht be able to anal$se their 0nancial statementsthrou&h ratio anal$sis' ore speci0call$= ,ill be able to observe theaccounts pa$able and receivable da$s to discover ,hether the$ have

better reputation in the mar%et' n addition their lon&?term and short?termliabilities ,ill &ive me the idea ho, much the$ rel$ on debt'

"A"!AL FEALTF

An$ compan$/s success primaril$ relies upon its 0nancials Besle$ andBri&ham 26))' The s%ill of anal$sin& the compan$/s 0nancial statements,ill &ive me a better idea of the 0nancial health of the compan$' oreCample= durin& m$ Gob role ,ill be able to calculate pro0tabilit$=levera&e= li


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4EE4E"!E#

Annual report and accounts 26)(' Debenhams plc

Annual report and accounts 26)2' Debenhams plc

Annual report and accounts 26))' Debenhams plc

Annual report and accounts 26)6' Debenhams plc

Annual report and accounts 2669' Debenhams plc

Besle$= #' and Bri&ham= E' 26))' Principles o Finance' -th Edition=!en&a&e Learnin&

!ooper= ;'= unnell= W' and Lee= P' 26)2' Public ector !ccounting and !ccountability" "#W +ress

Debenhams 26)>' About us' Available from:http:,,,'debenhams'comabout?debenhams Accessed: )6 arch 26)>

*rund$= T'= Pohnson= * and #choles= ;' )998' #$ploring strategic fnancialanageent ' London= +rentice Fall

Falpin= D' W' and #enior= B' A' 26))' Financial &anageent and !ccounting Fundaentals or 'onstruction' "e, Perse$= Pohn Wile$ 7 #ons

;asunic= T' ;' and ;asunic= ' T' 2669' upersi(e )our all *usinessProfts+, -o. to urvive the 'urrent /ecession and &anage )our all*usiness Proftably uring urbulent #conoic ies' Traord +ublishin&

Trac$= A' 26)2' /atio !nalysis Fundaentals, -o. 1 Financial /atios 'an !llo. )ou to !nalyse !ny *usiness on the Planet" 4atioAnal$sis'net

BBLO*4A+F

Bhattachar$$a= A' ;' 2661' Financial !ccounting For *usiness &anagers'(rd Edition= +F Learnin& +vt' Ltd

!hoi= ' D' #' 266(' nternational Finance and !ccounting -andboo4 ' (rd

Edition= Pohn Wile$ 7 #ons

*riQn= ' +' 2669' &*! Fundaentals !ccounting and Finance' ;aplan+ublishin&

*upta= A' 2668' Financial !ccounting or &anageent, !n !nalyticalPerspective' +earson Education ndia


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Foman= W' ' )991' he #thics o !ccounting and Finance, rust5/esponsibility5 and 'ontrol' *reen,ood +ublishin& *roup

ittal= 4' ;' 26))' &anageent !ccounting and Financial &anageent ' ; +ublications

+itts= !'= #har&hi= *' ;' and *onKales= L' )999' !ccounting and Finance or &anagers' 2nd Edition= niversit$ of +hoeniC= #chool of nder&raduateBusiness and ana&ement

4$an= B' 266>' Finance and !ccounting or *usiness' !en&a&e Learnin&EEA

financial evaluation of debenhams plc

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