Debenhams in Depth Financial Analysis.

Debenhams in Depth Financial Analysis

Debenhams department store group, a diversified organization, is operational at an aggregate of more than 140 stores in the UK and Ireland with inclusion of some of its other smaller stores that are located in over sixteen countries (DATAMONITOR 4). Debenhams in essence is a company that majors in distribution of products ranging from cosmetics to household goods. The company’s headquarter is found in London, united kingdom. The diverse nature of the company allows it to employ an aggregate of 30, 417 employees as indicated by data collected in the year 2010 in which 9019 of the total number are employed on full term basis. The company recorded an average of £21199 million or an approximate of $ 3318.5 million as per the trading trends at the financial year of august 2010 recording an increase of over 10.7% from records of the financial year of 2009(DATAMONITOR 4). As per the companies trading profit and loss accounts, the company recorded a profit margin of GBP (Great Britain pound) 189.7 million apparently 297 million US dollars in the financial year of 2010. This was an increase from the previous year at a percentage of 4.1% as per financial year records of the year 2009. On aggregate, the profits amounted to GBP 97 million or $ 151.8 million as per trading status at the record year to amount to an average increase of 2% from financial year record of 2009 (DATAMONITOR 6).                                                                                                                    The internet being a key player in the business world as at the present age, the company has realized its potential ergo investing heavily in the sector as a way to suffice for the traditional in-store shopping. This has allowed the company to tap into the shift in customers trading habits into non-conventional out of shop business transaction. The process though profitable has suffered adversities such as the rise in the cost of cotton, which in turn has led to the pressurizing of profitability margins in the financial reports of 2010 as an attribute of increased VAT inevitably impacting organization growth. The use of multi retail has led to increased channels of trading for the company by creating a multilateral market. The method has been implemented through the application of its online store via the website www.deenhams.com (Collins 18). The company is also recognized for pioneering the use of online stores by introducing kiosks that act as a conduit to access of items that the customers might not find in store but are readily available online. The Company also embraced the use of an application accessed through a smart phone in the year 2010 to allow for easy online shopping.

Statistics by merit has proven the company to being at the pinnacle of the department stores available in the UK. This is testament to its 17% composite share in the clothing shoppers available in the country, an almost double of the trailing second. The company’s market share increase in 2010 is also greatly attributed by their re-launch of the clothing line “principles” to the new label name “principles by Ben de Lisi” seemingly receiving great adoration from customers especially of the female gender making it the first choice of preference for a majority of them (Collins 18). The company’s ability to stay conscious of the emerging trends in fashion and staying relevant has helped it gain and maintain the market share that it considerably enjoys.

The company’s debt, which as at 2010 stood at GBP 516.8 million in comparison to GBP 994 million as at financial books of 2008 clearly indicates the companies initiatives to reduce its over reliance to loan funds. The reduction in the debt estimated at 28% per annum reduction rate from years 2008 to 2010 was greatly enabled by the payment of subsequent amounts of money (DATAMONITOR 8). This is evident from £100 million payments transacted in 2009 in October, another similar amount in the same year in the month of May and $ 117.4 million the following year in the month of January. In the financial year of 2009, the company was able pay for a loan due in may the following year through the sale of some of its ordinary shares to amount to an approximate of $ 475.4 million(Debenhams 20) . Funds collected also allowed the companies acquire debt with par value of $96.1 million with a 5.6% allowance for discount for the financial year 2009. The following year the company was also able to acquire debt of $ 47.3 million with par value receiving a reduced discount of 1.3%. Through clearance of debt, the company was able to increase its borrowing capability in essence creating opportunity for the company to exploit on expansion (Debenhams 59). Even with the considerate reduction in debt of the company, the expansion of the company is still not to its full potential to a point of considering it as  immature as a player in the big league of competitors. However, there is notable agility in the companies’ determinacy to stay afloat in the market dominance. This is evident from the companies’ strategy to cumber the economic unpredictability as is evident in the present times through renovation of old stores to rekindle their lost relevance in turn increasing the company market share. In the financial year of 2009, the company increased on sales from the method by refurbishing departments in Glasgow and Manchester.

One of the challenges that affected the market share of the company was the increased prizing of cotton considering that it is one of the vital raw materials of the company. The increased price of cotton greatly affected the manufacturing cost company products with the cost transferred to the company products. A substantial increase in the cost of cotton was caused by the a significant increase of 169 cents per pound as at January 2011 in New York futures contract responsible for delivery from the usual 77 pounds per pound. The transfer of the cost to the customer of the product has led to them adopting conventional shopping habits that restrain their usual spending habits obviously adversely reflecting on the company’s financial books. With no hope for the reduction of the cotton prices any time soon the company has predicted a cause for alarm from prevalence of depressed customers and eventual preference of customers to goods of a lower cost regardless of quality. With the eventuality of this happening the company has desisted from attaching the whole cost of production to the customers in essence increasing deficit; an aspect that could greatly affect the company’s growth in the foreseeable future. Far from the increased cost  production, the companies prizing of products is also affected by the increase in the VAT to 20% as at January 2011 from the original 17.5% in 2010 from government policy to reduction of deficit. The increased VAT has led to reduced profit margins from the effect the policies have influenced customers spending.

Debenhams in a bid t increase production has taken the initiative of diversifying its market share through acquisition of new brands rather than having to form consensus with private companies. Through acquiring of new brands, the company has seemingly increased on profit margins and overall control of the company’s products. Debenhams was able to acquire one of Denmark’s leading companies Magasin du Nord in 2010, which is composed of six departmental stores with the flagship store at the heart of Copenhagen. The acquisition of the chain store has contributed greatly to the financial status of the company by immensely increasing the company’s gross sales. It is estimated that transactions at the company increased by 9.6% with inclusion of statistics from Magasin unlike 1.4% without inclusion of the new partner in the financial statements. There is a substantial increase in revenue by 10.7% with inclusion of Magasin income with 5.3% with its exclusion. Magasin in essence contributed to an estimate £191.1 million gross transaction value with its online store increasing by 88.4% to amount £103.8 million contributing to an overall gross transactional value of 4%.

Mark down management and strict control of available stock implementation with emphasis on product mix as performance strategy saw an increase in margin to 70 basis points to indicate the companies growing cash margin constantly and effectively improving. This was also greatly influenced by the presence of Magasin as a conduit to the company as with its exclusion the company garnered 160 basis points (Debenhams 14). Basic costs that enable the company to run are also of implication to the company’s financial statements. The basic costs for the company include salaries, rent, cost of warehousing and distribution of products. with the inflation rate at an estimate of 0.5% and the company increasing its space led to the increase in rent to $17.2 million to accrue 6.7% with respect to gross transactional value as at 2010. This was an increase from £ 15.4 million of the previous year. On the other hand ware housing and distribution cost amounted to £55.1 to indicate an increase by 21.6% from the prior year attributed by increased number of direct transactions (Debenhams 21).

 

 

Change in sales

Increase(decrease) 2010 2009 amount percentage Sales revenue 2564000000 2340000000 224000000 9.6

 

Comparative income statement

Increase(decrease) 2010

£ mill

2009

£ mill

change percentage Sales revenue 2564 234 224 9.6 Cost of goods sold 1838.9 1650.7 188.2 11.4 Gross profit 281 264.9 16.1 6.1 Operating expense 55.1 45.3 9.8 21 Interest expenses 56.5 62.7 6.2 10 Income tax expenses 42.9 25.7 17.2 40 Net income 97 95.1 1.9 2

 

Comparative balance

Increase(decrease) 2010

£ mill

2009

£ mill

Change percentage Assets Current assets cash 69.5 188.2 (118.7) (63.1) Accounts receivable, net 73.4 68.5 4.9 7.2 inventory 295.3 270.9 24.4 9 Other current assets 8.9 9.5 (0.6) (6.3) Total current assets 447.1 437.1 (10) (2.2) Property, plant and equipment net 676.1 669.2 (6.9) (1) Other noncurrent assets 846.2 839.9 6.3 0.75 Total assets 2416.5 2483.3 66.8 2.6 Liabilities Current liabilities Account payable 494.2 458.6 35.6 7.8 Notes payable 545.7 92.6 453.1 49 Accrued liabilities 1.8 24.2 22.4 92.6 Total current liabilities 1041.7 575.4 466.3 81 Long term liabilities 500.3 1099 (598.7) (54.5) Total liabilities 2583.7 2249.8 333.9 14.8 Stock holder equity Common stock 12009 1504 10505 69.8 Retained earnings 176.2 546.6 (370.4) 67.7 Total stockholder equity 12185.2 2050 10135 49.4 Total liabilities and equity 14768.9 4299.8 10469.1 24.3

 

 

 

 

 

 

 

Trend percentages

2010

£ mill

2009

£ mill

2008

£ mill

2007

£ mill

2006

£ mill

2005

£ mill

Sales revenue 2564 2340 1839.2 2772 1707.7 1608 Trend percentage 62 68 8.7 58 94 100

 

Income statement for year ended

amount

£ mill

percentage

 

Sales revenue 2564 100 Cost of goods sold 1838.9 71 Gross profit 281 88.5 Operating expense 55.1 2.1 Interest expenses 56.5 2.2 Income tax expenses 42.9 1.6 Net income 97 3.8

 

 

Balance sheet

2010

£ mill

Percentages Assets Current assets cash 69.5 2.8 Accounts receivable, net 73.4 3 inventory 295.3 12 Other current assets 8.9 0.3 Total current assets 447.1 18.5 Property, plant and equipment net 676.1 2.8 Other noncurrent assets 846.2 35 Total assets 2416.5 100 Liabilities Current liabilities Account payable 494.2 20.5 Notes payable 545.7 22.6 Accrued liabilities 1.8 0.07 Total current liabilities 1041.7 48.5 Long term liabilities 500.3 23.3 Total liabilities 2583.7 93 Stock holder equity Common stock 12009 49.7 Retained earnings 176.2 7.2 Total stockholder equity 12185.2 17.6 Total liabilities and equity 14768.9 16.4

 

 

 

 

 

Ratio analysis

Working capital= current assets – current liabilities

2416500000- 1041700000

=1374800000

Current ratio = current assets

Current liabilities

2416500000/1041700000

2.3

Acid test ratio = quick assets/ current liabilities

(69500000+ 74300000)/1041700000

=0.14

Inventory turnover = cost of goods sold/ average inventory

(1838900000)/ (259300000+12000000)

1838900000/271300000

6.8

 

Accounts receivable turnover ratio = net credit sale/ average net accounts receivable

2564000000/ (74300000+3000000)

2564000000/ (77300000)2

16.6

Work cited

“DATAMONITOR: Debenhams Plc.” Debenhams Plc SWOT Analysis (2011): 1-10. Business           Source Complete. Web. 29 Mar. 2012.

Collins, Josephine. “Debenhams.” License! Global 11.2 (2008): 18. MasterFILE Premier. Web.        29 Mar. 2012.

Debenhams. Annual reports and accounts 2010  (2010): 59-114,13-21[Pdf file]. Retrieved from             http://ar10.debenhamsplc.com/pdf/Debenhams%20AR2010.pdf. 29 Mar 2012

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