Financial Analyst’s Report on Laura Ashley Group

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Laura Ashley Group 2014 Annual Report and Accounts

Financial Analysis

Directory

Financial Analyst’s Report on Laura Ashley Group..................3

Brief introduction to the Next plc group..........................3

The main body..........................................3

  1. overall...............................................3
  2. Markets and products.....................................3
  3. Growth in the last five years.................................4
  4. Current year analysis......................................5
  1. Profitability.........................................5
  2. Liquidity...........................................6
  3. Efficiency...........................................6
  4. Operating cycle.......................................6

6. Financing...........................................7

7. Future prospects.......................................8

8. Financial analysis......................................8

Financial Analyst’s Report on Laura Ashley Group

Introduction:

Laura Ashley Group is a Welsh textile design company in British, was created in 1953 by Laura & Bernard Ashley couple. For its romance and elegance of style with English designs reflect the representative of England from ladies clothing to furniture supplies. Laura Ashley Group was one of the world's top 100 brands in the last five decades. Its revenue totalled over £294.5 millions in 2014. This essay will focus on the Laura Ashley Group’s growth in the last five years to a part of research, in additions the financial statements between the 2014 and 2013 to the main analysis, including ratios on profitability, liquidity, efficiency and gearing, and the calculation of the operation cycle.

The main body

  1. Overall

Laura Ashley Group has a wide range of products,from ladies clothing to senior interior furnishings. As the slogan of Laura Ashley Group declared that “A Place For Everything”. Laura Ashley is a premium brand which offers high standards of quality products that appeal to the more discerning consumer, could offer high-quality fabrics, paint to enhance people's quality of life is elegant and unique as the destination.

  1. Markets and products

Laura Ashley Group provide the range of product is a lifestyle statement for Clothing, household goods, perfumes, handbags, mirrors, lighting, furniture, especially household items including curtains, towels, chairs, tables, linens, pillows, carpets, floor, Laura Ashley also has several Licensing co-partners manufacturing and supplying manufactured items such as carpets, tiles and cookware in the UK, Europe, Japan, America and Australia. (Page 14)

The UK business is split into four main categories, the furniture product category, home accessories, decorating and fashion products (Page 9) .There are Over 40% of Accessories products manufacture in the UK.

On the other hand, the marketing channels for Laura Ashley Group remain admissible and positively respected in a changeable consumer environment. There are a variety of sales, including the traditional retail stores, online and social media to mail order catalogues, a stylish website and design Consultancy services, Laura Ashley Group try to obtain a comprehensive collection for consumers to purchase and be stimulated by its products (Page 16). For example, for the online experience Laura Ashley Group regular maintenance and reviews the website to keep customer demands.

  1. Growth in the last five years(table 1)

For the last five years shows that the profit from operations has significant increased from 11.8 million pounds to 19.1 million pounds which report profits of that enterprise has a strong ability to obtain cash and a relatively reasonable profit structure. In additions, for Laura Ashley Group majority in earnings apart from 2010 years compare with the share of operating profit / (loss) of associate so that the totally revenue has stable growth from 2010 to 2014 years.(page 62)

However, the net assets are at the slight reduction even the net assets are positive (page 62).A net asset in the balance sheet is the owner's equity which is affiliated enterprises of all, and assets can be discretionary. It consists of two parts, one part is the original capital invested in start-up companies, including the premium part, the other part is being built in the business enterprise profits, as well as donations of assets.In the financial statements, net assets equal that the total assets - Total liabilities, which belong the nature of interest . So reducing the net assets represents the interests of reducing which is maybe due to increased debt. A net asset doesn’t necessarily represent the cash a company would have leftover if it sold all of its assets and paid all of its liabilities. Part of the assets of the balance sheet items contains inaccurate ingredients. Balance sheet "in the" net assets "is only as a reference number, rather than the actual number of all. Mere statements cannot make accurate judgments.

Overall, for Laura Ashley Group the Profit from operations as a percentage of revenue was significantly improved (page 62) it could effective response the company's main business of the contribution of earnings. Furthermore the net income is based on operating profit plus investment income, net income and subsidies to get business expenses, while sustained poor or loss of these revenues, therefore excluding these impacts to better reflect changes in the company's profitability and differences in the profitability of different companies.

  1. Current year analysis(2014)
  1. Laura Ashley’s profitability

a. Return on Capital Employed (ROCE) %= operating profit *100 / Capital employed

= Group operating profit x 100% / Shareholders’ funds + non-current liabilities

Therefore-Year ended 25 January 2013’s ROCE is 27.22% and 2014’s ROCE is 32.59% (stage 1). A business should generate higher returns than would be available if money were placed on deposit at a bank. Laura Ashley’s ROCE is significantly higher than returns from interest-bearing deposits. The number of ROCE is at 32.59% shows that there is effective use of the capital, and its 5.37% increase in 2014 is positive.

b. Gross Profit Margin % = Gross profit * 100% / Sales

Therefore-Year ended 25 January 2013’s Gross Profit Margin is 42.17% and 2014’s Gross Profit Margin is 42.51% (stage 1). The margin is very high, and indicates that the sale of goods is most to be the source of profits.

c. Operating Profit Margin %= Operating profit * 100 / Sales

Therefore-Year ended 25 January 2013’s Operating Profit Margin is 6.46% and 2014’s Operating Profit Margin is 6.49% (stage 1). Operating Profit Margin ratio records how much profit is made by the business as a percentage of sales after the cost of sales and overheads (other than finance charges) have been taken into account. The group’s operating profit margin has climbed slightly to a respectable 6.49%. Although the group’s margin is still low, it has at least remained constant over the period and not dropped.

  1. Laura Ashley’s liquidity
  1. Current ratio = Current assets / Current liabilities

Therefore-Year ended 25 January 2013’s Current ratio is 1.41:1, and 2014’s Current ratio is 1.32:1. The higher Current ratio indicate that the stronger the liquidity of corporate assets. Comparing with 2013, Current ratio decreases that the short-term solvency has decreased. Therefore, it is unhelpful to development for the company.

  1. Quick ratio = Current assets less inventory / Current liabilities

A more immediate measure of solvency, the quick ratio shows a decrease of 8% from 0.77 to 0.69, which reflects the ability of demanding and the level of debt of a unit capable of immediately. However Laura Ashley’s repayment capacity has diminished.

  1. Laura Ashley’s efficiency

Efficiencies ratios are analysed in ‘operating cycle’ below.

  1. Operating cycle
  1. Inventory days = Inventory x 365 / Cost of sales

Inventory days Shows period between the outlay of cash to buy supplies and the ultimate receipt of cash from the sale of goods, increased by 100 days to 113 days from 2013.

  1. Receivable days = Trade and other receivables x 365 / Sales

Receivable days have increased 12 days from 28 days to 40 days. Therefore, the managers should consider in particular how to compress the receivables days from 40 days.

  1. Payable days = Trade and other payables X 365 days / Cost of sales

The increase of Payable days is from 151 days to 172 days.

Therefore the operating cycle = Inventory days + Receivable days – Payable days, which evaluate funds occupancy, In general, the shorter operating cycle the better operations

  1. Financing

The capital gearing ratio shows the extent to which a company’s long-term funding is supplied by lenders. As a company, its gearing has moved from a moderate position in 2013 (19.16%) to the lower end of high in 2014 (20.58%). A highly geared company poses a higher risk to ordinary shareholders, as the company prioritises interest and loan commitments over shareholders’ equity interests. (Table 2)

Interest cover shows that the gains on business reflect several times on interest expense. The greater ratio shows the stronger ability to repay. Laura Ashley Group improved the ability to repay from the interest cover is 24.1 times in 2013 to 31.8 times.

  1. Future prospects

For Laura Ashley Group, the next strategy is increasing the competitiveness of their products to increase sales. In additions, Laura Ashley Group aim to expand the range of products (page 14), to increase sales volume. Laura Ashley Group should maintain a reasonable Current ratio to secure development. Then, managing the gross and net margins through efficient sourcing of products, stock management and cost control (page 14)

The Chairman’s statement Claim that Laura Ashley Group demand to enhance online business to improve people's purchasing power. (Page 1) The most basic financial goal of the Laura Ashley Group is the delivery of sustainable and sufficient long term return for the shareholders.

  1. Financial analysis

Table 1 is a common-size trend analysis of the results from 2010 to 2014. It calculates sales and operating profit as a percentage of the 2010 results, which are treated as base figures.

Table 2 sets out a ratio analysis of key financial data for the Laura Ashley Group for the year ended 25 January 2014, and comparatives calculated as appropriate with the previous year ended 25 January 2013. The figures are all derived from the 2014 Annual Report and Accounts, and all figures refer to the consolidated group accounts.

Table 1: Growth in the last five years

Common-size trend analysis

2014

2013

2012

2011

2010

(£m)

Sales

109.72

111.33

106.52

106.18

268.4

Operating profit (underlying)

161.86

163.56

155.08

167.8

11.8

Profitability

Formula

Year ended 25th January 2014

Year ended 25th January 2013

Page

Gross profit margin

Gross profit X 100%

Revenue

£125.2m X 100%= 42.51%

£294.5m

£126.0m X 100% = 42.17%

£298.8m

38

Operating profit margin

Operating profit X 100%

Revenue

£19.1m X 100% = 6.49%

£294.5m

£19.3m X 100% = 6.46%

£298.9m

38

Return on Capital Employed (ROCE)

Operating profit X 100%

Shareholder’s fund + non-current liabilities

£19.1m X 100% = 32.59%

(£48.6m+£10m)

£19.3m X 100% =27.22%

(£59.5m + £11.4m)

38 & 39

Liquidity

Current ratio

Current Assets

Current Liabilities

£108.6m = 1.32:1

£82m

£104.6m = 1.41:1

£74.1m

39

Quick ratio/ Acid-test ratio

Current Assets less inventories

Current liabilities

£108.6m – £52.3m = 0.69:1

£82m

£104.6m – £47.4m = 0.77:1

£74.1m

39

Efficiency

Inventory days

Inventory X 365 days

Cost of Sales

£52.3m X 365 days = 113 days

£169.3m

£47.4m X 365 days = 100 days

£172.8m

38 & 39

Receivable days

Trade and other receivables X 365 days

Revenue

£32.2m X 365 days = 40 days

£294.5m

£22.6m X 365 days = 28 days

£298.8m

38 & 39

Payable days

Trade and other payables X 365 days

Cost of sales

£79.9m X 365 days = 172 days

£169.3m

£71.6m X 365 days = 151 days

£172.8m

38 & 39

Operating cycle

Inventory days + Receivable days – Payable days

113 days + 40 days – 172 days

= -19 days

100 days + 28 days – 151 days

= -23 days

Gearing

Capital gearing

Non-current liabilities x 100%

Ordinary share capital + share premium + retained profit*

£10.0m X 100% = 20.58%

£48.6m

£11.4m X 100% = 19.16%

£59.5m

39

Interest cover

Operating profit

Interest expenses

£19.1m = 31.8 times

£0.6m

£19.3m = 24.1 times

£0.8m

38

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