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Financial Statement Analysis Of Indian Restaurant Group Finance Essay

Create a chain of restaurants providing authentic, home style Indian food on a consistent basis across the Indian Restaurants Group. The subsidiaries of the Company include Chandan Ltd, Rice & Spice Ltd, and Mela Redhill Ltd. 3 Monkeys restaurant based at Herne Hill had been underperforming, which had to be closed.

The add-on to the group is Mela which is situated in Redhill. The recession is affecting all the segments including the restaurant business.

Strategy to counteract on downturn

Incorporating local taste in the menu

Takeaway service

Approaching corporate sector#

Better utilization of Human resource

Increase in promotional activity

Increase brand awareness

Financial Analysis using annual report 2009

Ratio Analysis

Return on capital employed: ROCE reflects a company’s ability to earn a return on all of the capital that the company employs.

Year 2009

Profit before interest & Tax

28

Capital Employed

1949

ROCE

1.43% (0.0143)

Lower ROCE value shows that company’s financial position and growth is not healthy and it is not in a position to invest any further into the business (this could also be the result of the acquisition of Mela (Restaurant)

Current Ratio: The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets

Year 2009

Current Assets

2718

Current Liabilities

984

Current Ratio

2.78

Quick (Acid Test) Ratio: A stringent test that indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory.

Year 2009

Current Assets - Inventory

868

Current Liabilities

769

Quick Ratio

1.10

When comparing the current ration with quick ration we can see that QC is much lower which indicates current assets are highly depended on the inventory.

Debt to Equity Ratio: A measurement of a company's financial leverage, calculated as the company's debt divided by its total capital

Year 2009

Total Liabilities

984

Networth

1734

Debt to Equity Ratio

0.56

Above ratio is very low which indicates company has low funds to operate or finance its operations.

Gross Profit Margin: It is used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold

Year 2009

Gross profit

1813

sales

2470

Gross profit margin

73% (0.73)

Gross profit margin for this company is very high which when compared with quick ratio does not give the same information on the company operating funds.

Debtor Turnover ratio: A ratio used to work out how many days on average it takes a company to get paid for what it sells.

Year 2009

Dept

218

Sales

657

Debtor turnover ratio

0.33 x 356= 121 Days

Debtor Turnover ratio is high; company takes 4 months to credit itself. These results are worrying: especially when we know that small businesses in the UK are suffering because large businesses take too long to pay their accounts.

Stock Turnover ratio: The stock turnover ratio show how many times over the business has sold the value of its stocks during the year.

Year 2009

Cost of Goods Sold

657

Avg. Inventory

23

Stock Turnover ratio

28.57

28.57 is not a good sign for Stock turnover ratio, this shows it take company 28 days to get the money by sell the stocks.

Gearing: Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds.

Year 2009

Long term loans

215

Capital Employed

1949

Gearing Ratio

11% (0.11)

Chairman’s report

Mr. Haresh Kanabar (Chairman) has spoken about the huge revenue for this year twice as much as last year (2008). However, as per the analysis it is evident that company’s financial position is not very good and they incurred a loss. There share price has also fallen 5.0 pence compared to 3.6 pence last year.

Mr. Kanabar is optimistic about the business after acquiring the new restaurant Mela and the new strategy to boost the sales. This might not turn into his favour, since Mela’s performance is at a slow start and does not seems that it will pick up very quickly.

TT Electronic

Company background

TT electronics is a technology-based group providing components, sensors, integrated manufacturing services and secure power solutions to a broad base of customers worldwide. The business is underpinned by a blue chip global customer base, leading products and technologies, and world class engineering skills.

The Group's businesses are organised into the following divisions:

* Components

* Sensors

* Integrated Manufacturing Services

* Secure Power

* General Industrial

The Components division is focused on the delivery of niche, highly engineered, bespoke electronic components for a number of end markets including military, aerospace, medical, industrial, telecommunications and mass transit. These are custom designed for specific applications by our global network of applications sales engineers who support our customers' own design centres.

Mission

Development of new technologies is based upon understanding our customers' needs and providing solutions.

Financial Analysis using annual report 2009

Gross Profit Margin

Year 2009

Gross profit

79.2

Sales

499.6

Gross profit margin

15% (0.158)

Net Profit Ratio: The objective of margin analysis is to detect consistency or positive/negative trends in a company's earnings.

Year 2009

Profit after Tax

19.6

Revenue

499.6

Net profit ratio

3.9% (0.039)

Net profit compared to last year it has gone down compared to last year’s net profit and it also shows low earning generated from revenue.

ROCE: A ratio that indicates the efficiency and profitability of a company's capital investments.

Year 2009

EBIT

17.2

Capital employed

282.7

6.0% (0.0608)

Since the company is into manufacturing the electrical goods might be the reason for low ROCE.

ESR: The significance of EPS is viability of any business depends on the income it can generate. This ratio also helps in the measurement of an investor’s performance; the other is a method of stock technical analysis which can help you to determine if a company’s stock price accurately reflects its worth.

Year 2009

Net income

-17.2

Preferred dividend

0

Avg. Outstanding Shares

155

ESR

0.11

Current Ratio

Year 2009

Current Assets

194

Current liabilities

111

Current Ratio

1.77

Quick Ratio

Year 2009

Current Assets - Inventory

110.1

Current Liabilities

111

Quick Ratio

0.99

This is a worrying number, below 1 which indicates that company might not be in good position to pay off its immediate obligations.

Inventory turnover ratio

Year 2009

Cost of goods sold

420.4

Avg. Inventory

101.95

Inventory turnover ratio

4.124

Gearing Ratio

Year 2009

Dept

126.9

Capital employed

282.7

Gearing ratio

44% (0.448)

Gearing Ratio is about 44% which shows amount borrowed money, however to get a better idea it should be compared with companies from the same sector. Let’s look at debt-equity ratio for a better idea.

Debt- Equity Ratio

Year 2009

Total liabilities

237.9

Net worth

155.8

Debt- Equity Ratio

152% (1.52)

Debt- Equity ratio is 152% very high; company is mostly dependent of borrowed funds which intern might increase the company debt.

Chairman’s report

Chairman admits that recession’s effect on the group of companies and the low revenue compare to last year; Group revenue was £499.6 million (2008: £584.3 million). Even with reduced revenue company was able to reduce their long term debt a decrease of 49.7%. at 31 December 2009 was £56.9 million compared with £113.2 in 2008.

Strategy and measure taken to improve the company’s performance seems to be working in a positive way.

Company comparison

From an investor point of view Indian Restaurant group has been underperforming since the time they had started. Also their reserves has fallen 613.00k and net income by 115.04% from a loss of 492.00k despite a 122.92% increase in revenues from 1.11m to 2.47m. Also their share prices kept falling from the time of company was listed in LSE. From an investor point of view I will suggest wait and watch for this company.

For TT electronic although they lost 1.30 per share in 2009 but going forward it shows a stability and increase in the price value which is evident from the reduced debt and increase in the cash flow.

Out of above 2 companies TT Electronic will be a good choice to invest in.

Social Responsible

TT electronic have under taken few changes such as

Environment: to reduce the waste and increase the efficiency they are committed to ISO14001.

Health and Safety: Providing a workplace where our employees feel safe is not only a legal obligation, but a fundamental factor in building their engagement with the Group.

Low-carbon technology: Technological innovation ensures low carbon economy. For example, in 2009 established a team to look at opportunities in electric and hybrid vehicles and already working with customers to increase the efficiency of the systems.


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