Finansial analysis report generated by Finstanon.com

Analysis of RetailTrade's financial statements for the period from quarter I to quarter IV

This report analyzes the balance sheets and income statements of RetailTrade. Trends for the major balance sheet and income statement items and ratio analysis are used to understand the financial position and financial effectiveness of the company. The report studied the quarter I - quarter IV period.

1. The Common-Size Analysis of the Assets, Liabilities and Shareholders' Equity

Table 1. Assets Trend Analysis, in million USD

It can be noticed from Table 1 that there was a tendency to decrease in the total value of the assets. The percentage change was equal 4.46% in quarter IV. The value of the assets totalled USD 198,620 million at the end of quarter IV.

The overall decrease of the assets reflects both a reduction in the noncurrent assets by 1.1% and a reduction in the current assets by 11.71%.

The change of the noncurrent assets value in quarter I-quarter IV was connected with a negative change of the following assets:

- Property, plant and equipment (-0.83%)

- Goodwill (-5.77%)

The change of the current assets value in quarter I-quarter IV was connected with a negative change of the following assets:

- Cash, cash equivalents (-14.39%)

- Receivables (-13.4%)

- Inventory (-12.61%)

- Prepaid expense (-100%)

Table 2. Sources of Finance (Equity and Liabilities) Trend Analysis, in million USD

Similar to the value of total assets, the liabilities and equity value amounted to USD 198,620 million in quarter IV, 4.46% less than in quarter I.

There was a decline in the stockholders' equity value in quarter I-quarter IV, which indicates that the company's assets would worth less after all claims upon those assets were paid. This means that RetailTrade was degrading.

The change of the stockholders' equity value in quarter I-quarter IV was related to the decline of the following sources:

- Common stock (-0.62%)

- Additional paid-in capital (-10.98%)

- Other Equity Accounts (-840.98%)

The change of the liabilities value in quarter I-quarter IV was related to the decline of the following sources:

- Current accounts payable (-6.13%)

- Current accrued liabilities (-2.57%)

- Current debt (-71.34%)

- Long-term debt and capital lease obligations (-6.33%)

Table 3. Assets Structure Analysis, %

At the end of quarter I the assets consisted of 68.33% noncurrent assets and 31.67% current assets. The most significant items of the current assets were cash, cash equivalents (3.23% of total assets), inventory (24.77% of total assets), etc. The following noncurrent assets had the highest values: property, plant and equipment (56.52% of total assets), goodwill (9.09% of total assets), while the other items did not play a significant role.

Over the period under review the assets structure changed. At the end of quarter IV the assets consisted of 70.73% noncurrent assets and 29.27% current assets. Total current assets composed mostly of: inventory (22.66% of total assets), etc. The most significant items of the noncurrent assets were property, plant and equipment (58.66% of total assets), goodwill (8.96% of total assets), etc.

Table 4. Equity and Liabilities Structure Analysis, %

By looking at Table 4 it can be noticed that the sources of finance consisted of 40.43% shareholders' equity, 25.15% noncurrent liabilities and 34.42% current liabilities. The average share of the equity in quarter I means the financial risk level was acceptable. The total equity consisted mostly of retained earnings (USD 80,814 million), etc. The company's liabilities included current accounts payable (19.08% of the total sources of finance), current accrued liabilities (9.03% of the total sources of finance), other current liabilities (3.42% of the total sources of finance), long-term debt and capital lease obligations (20.14% of the total sources of finance), long-term tax liability (3.68% of the total sources of finance), etc.

At the end of quarter IV the sources of finance comprised 41.35% shareholders' equity, 25.79% noncurrent liabilities and 32.86% current liabilities. This shows that the share of the equity was in the area of critical values, meaning that the financial risk level was average. The most significant items of the equity were following: retained earnings (USD 84,959 million), etc. The following liabilities had the highest values: current accounts payable (18.74% of the total sources of finance), current accrued liabilities (9.21% of the total sources of finance), other current liabilities (4.04% of the total sources of finance), long-term debt and capital lease obligations (19.74% of the total sources of finance), long-term tax liability (3.9% of the total sources of finance), etc.

2. Financial Sustainability and Long-Term Debt-Paying Ability

Table 5. Key ratios of the company's financial sustainability

The times interest earned ratio indicates that RetailTrade had no difficulty generating enough cash flow to pay interest on its debt at the end of quarter IV. Company's ability to pay interest on debt was better in quarter IV comparing to quarter I.

The debt ratio tells us that in quarter I each USD 1.00 of the assets was financed by USD 0.6 of debt (and USD 0.4 of equity). In quarter II 57.81% of the sources of finance were liabilities. For every USD 1.00 of the assets there were USD 0.6 of liabilities at the end of quarter III. The debt ratio lies in the area of critical values (from 0.4 to 0.6) at the end of the period, meaning that there was an acceptable financial and credit risk. An increase in the long-term debt ratio suggests that the company was progressively becoming more dependent on debt to grow a business. 26% of the sources of finance were a long-term debt at the end of quarter IV.

The value of the long-term debt to total capitalization ratio was 0.99 at the end of quarter I, 0.99 in quarter II, 0.99 in quarter III and 0.99 in quarter IV. Total capitalization consists of the long-term debt, preferred stock, and common stockholders' equity. Lower ratio shows lower risk.

The debt/equity ratio is another computation that determines the entity's long-term debt-paying ability. At the end of quarter IV this ratio was 142%, meaning that creditors were protected in case of insolvency.

The debt to tangible net worth ratio is a more conservative ratio than the debt/equity ratio. It eliminates intangible assets because they do not provide resources to pay creditors. The table 5 shows that the ratio changed from 1.9 in quarter I to 1.81 in quarter IV. This shows that the creditors' protection was getting better.

The value of the long-term debt to equity ratio was 161.85 at the end of quarter I, 162.53 in quarter II, 158.31 in quarter III and 159.61 in quarter IV.

3. Liquidity of Short-Term Assets

Table 6. Liquidity Ratios

The current ratio was 0.92 in quarter I, meaning that RetailTrade had 0.92 times as many current assets as current liabilities. The value of the ratio lies below the area of critical values. The current ratio was 0.97 at the end of quarter II and 0.89 at the end of quarter III. The value of the ratio was unacceptable at the end of the period under review. This means that RetailTrade had problems with paying its suppliers and creditors in due time.

The quick ratio for quarter I was 0.18, showing there were USD 0.18 of the quick assets for every USD 1.00 of the current liabilities. The ratio for period quarter IV from Table 6 shows USD 0.19 of the quick assets were available for every USD 1.00 of the current liabilities. The decrease in the quick ratio from quarter I to quarter IV indicates that the company has been losing its ability to pay its short-term debt.

The company's quick liquidity was unsatisfactory at the end of the period.

The cash ratio shows that the company was able to pay off 8.81% of its debt immediately as for the end of quarter IV. It indicates an immediate problem with paying bills.

Table 6 presents the working capital for RetailTrade at the end of quarter I-quarter IV. RetailTrade had USD -5,719 million in the working capital in quarter I, USD -1,994 million in the working capital in quarter II and USD -7,491 million in the working capital in quarter III. Overall, the value of the working capital had dropped over quarter I-quarter IV.

The working capital value was negative at the end of the period under review, meaning low flexibility, since noncurrent assets may not be modified easily as the sales volume changes.

The sales to working capital ratio increased from quarter II to quarter IV. This indicates a more profitable use of the working capital in quarter IV in relation to quarter II.

4. Overview of the Financial Results

Table 7. Financial Results Trend Analysis, in million USD

The comparative income statement given above shows there has been an increase in the net sales of 1.03% over the reported period. At the end of quarter IV the cost of goods and services totaled USD 90,056 million. This has resulted in an increase in the gross profit by 1.41%. EBIT was positive at USD 6,093 million in quarter IV. The EBIT decline was 3% during quarter I-quarter IV. On the whole, quarter IV was a good period as the company recorded USD 3,475 million comprehensive income.

The chart above shows that the gross profit to net sales ratio increased in quarter IV by 0.09% comparing to quarter I. This growth of the gross profit to net sales ratio over the period of quarter I-quarter IV indicates that the company was either becoming more efficient with the manufacturing or distribution process by decreasing the cost of production of the goods, or finding ways to make the goods generate more revenue (increasing the price, promo-activities, etc.). Quarter IV also witnessed the decrease of the company's EBIT to sales ratio comparing to quarter I. The dynamics of the EBIT to sales ratio over the period of quarter I-quarter IV demonstrate the company's declining earning ability and its cost management became worse. The share of the comprehensive income in the company's net sales decreased in quarter IV by 0.23% comparing to quarter I. This should notify the company's management about the negative trend of its profitability indicators.

5. Profitability Ratios

Table 8. Profitability Ratios, %

By looking at Table 8. 'Profitability Ratios' it can be seen that the net profit margin was positive in quarter I-quarter IV. At the end of quarter IV the net profit margin was 3.02%, showing USD 0.03 of the net profit per USD 1.00 of sales.

The RetailTrade's operating performance was robust in quarter IV. For every dollar of the net sales the company earned USD 0.05 in the operating income.

Gross profit margin shows that the company earned USD 0.25 of the gross profit per dollar of sales in quarter IV. Sales increased much more than the cost of goods sold, resulting in a higher gross margin in quarter IV comparing to quarter I.

For RetailTrade the ROA shows that the company was earning a profit of about 1.82 cents per dollar of the asset value in quarter IV.

The operating assets were yielding a 3.43% return in quarter IV. This ratio was 0.94% lower at the end of quarter IV.

Higher ROIs suggest better performance. Overall, ROI declined from 4.23% in quarter II to 3.18% in quarter IV.

The ROE represents the increase in the value of the stockholders' wealth.

Table 9. Dupont Analysis

Company's return on assets decreased from 2.52% in quarter II to 1.82% in quarter IV. The explanation for this trend can be found, as both net profit margin and total asset turnover declined in quarter IV comparing to quarter II. Net profit margin decreased from 3.94 in quarter II to 3.02 in quarter IV, indicating the amount of the net profit generated by 1 dollar of sales became smaller. Total asset turnover declined from 0.64 in quarter II to 0.6 in quarter IV, meaning the company has been deteriorating the efficiency of managing its assets, turning them over less frequently.

6. Activity Ratios (Turnover Ratios)

Table 10. Activity Ratios (Turnover Ratios)

By looking at Table 10 it can be seen that the company produced USD 0.6 of products and services for every dollar of the assets used at the end of the period.

The fixed assets turned over 1.12 times in quarter II and 0.99 times in quarter IV. At the end of quarter IV fixed assets turned over 1.04 times. Within the period under review, on average, the current assets were turned over at least 1 times. The improvement in the current asset turnover ratio during the quarter II-quarter IV was due to an increase in the net turnover figure and a decrease in the current assets.

It can be seen that the working capital turnover was -34.12 in quarter II, -24.21 in quarter III and -16.45 in quarter IV. The quarter II accounts receivable turnover of 20.45 indicates RetailTrade collected its average receivables 20.45 times that period. The higher the turnover is, the faster the collection process. Each dollar invested in the accounts receivable generated USD 21.69 in sales in quarter IV. As a result, the average collection period grew up from 17.61 days to 21.69 days. This means that it took an average of 21.69 days to collect a receivable in quarter IV. The accounts payable turned over 2.54 times in quarter II and 2.42 times in quarter IV. The turnover of the accounts payable was raised from 141.77 days to 148.81 days. By comparing the turnover data of the accounts receivable and accounts payable during quarter IV it can be seen the accounts receivable were turned over slower than the accounts payable.

RetailTrade's inventory was less active in quarter IV than in quarter II. The company was holding the inventory almost a 7.01 day(s) longer in quarter IV than in quarter II. The cash turnover ratio was 16.6 in quarter II and 17.8 in quarter IV.

It took the company 193.12 days from a moment of buying inventories until getting cash for selling goods and services in quarter II. The operating cycle was 199.12 in quarter IV. Longer operating cycle indicates worse performance. The cash conversion cycle shows how long it takes for a company to convert the resource inputs into cash flows. According to the data it can be seen that the cash conversion cycle was 51.34 days long in quarter II and 50.32 days long in quarter IV.

OTHER INDICATORS

7. Investor Analysis

Table 11. Investor Analysis

The net value of the enterprise's assets was USD 82,124 million at the end of quarter IV, about USD 2,134 million more than declared at the end of quarter III. Overall, the net worth dropped from USD 84,053 million to USD 82,124 million. This means that RetailTrade is degrading.

If earnings before interest increase, the financial leverage will be favorable. The degree of financial leverage was 1.1 in quarter IV. This means that any change in the EBIT will be accompanied by 1.1 times that change in the net income. This is a low degree of financial leverage.

8. Forecasting Financial Failure (Bankruptcy Test) (Financial Distress Prediction)

Table 12. The Z-Score Model for Private Firms

RetailTrade was in the gray area between 1.20 and 2.90 in quarter I. The Altman Z-score for quarter II shows an average bankruptcy risk. At the end of quarter IV the Altman Z-score was 1.33 (within the gray area). The increase of the company's Z-Score value over the period of quarter I-quarter IV showed that RetailTrade has been improving its financial condition and declining the risk of bankruptcy. It also witnessed that the company did not perform well enough to move its Z-Score value to the safe area, and so it stayed within the gray area in quarter IV.

9. Labor productivity

The labor productivity in RetailTrade improved from quarter I to quarter IV by 9.75%.

10. Financial Rating

A rating helps to sum up the current financial position and future expectations with one word.

Table 13. Financial Rating

Table 14. Financial condition scale

As a result we can confirm an unsatisfactory (CCC) financial situation.

The comparison with the major competitors

Different industry variables create the unique financial conditions, in which the company is currently working. This is why a comparison with the major competitors helps to get a precise estimation of the RetailTrade's financial position and effectiveness.

RetailTrade was generating less gross profit for every dollar of revenue than it's major competitors in quarter IV. 

 In quarter IV RetailTrade's equity utilization was the least efficient. Return on equity after tax was 4.48%, while TechIndustries (the most effective competitor) demonstrates 128.01%.

RetailTrade shows lower ability to pay it's short-term debt comparing to TechIndustries, but better liquidity comparing to DPS Market. The company had 0.89 of current assets for every dollar of current liabilities. 

 Sales to net working capital ratio shows how effectively companies are using it's working capital to generate sales. On the other hand, low or negative value indicates the dependency of the operating process on the external sources of finance. A stable value of this ratio is desirable.

 58.65% of RetailTrade's sources of finance were liabilities in quarter IV. This reflects the highest dependence of RetailTrade from the external sources of finance among the major competitors. If any unpredictable financial turmoil happens (in the industry or in the financial market), RetailTrade will be the first to meet problems with the attraction of financial resources or refinancing current loans.

 RetailTrade generated 0.6 of sale for every dollar of assets used in quarter IV. The worst value of this ratio in comparison to the major competitors reflects the lowest quality of assets management and threats for it's current market position.

 The inventory management was the least efficient in RetailTrade in quarter IV and the inventory turnover equaled 1.97 times per quarter IV.

Conclusion

By assessing the financial position of RetailTrade the following can be concluded:

- RetailTrade's financial sustainability ratios indicate good financial health at the end of quarter IV. This company was able to generate enough cash flow to pay interest on its debt while the debt ratio laid in the area of critical values (from 0.4 to 0.6).

- There is a serious concern about company's liquidity. This is why it must urgently start looking for additional resources to be able to improve its liquidity. Company was not able to pay its suppliers and creditors in due time.

- The positive profitability provides evidence of a good work during quarter IV. The ROA shows that the company was earning a profit of about 1.82 cents per dollar of the asset value. The return on equity after tax was 4%.

- An average accounts receivable collection period dropped from 17.61 days to 16.6 days. This means that it took an average of 16.6 days to collect a receivable in quarter IV. Comparing the turnover data of the accounts receivable and accounts payable during quarter IV it can be seen that the accounts receivable were turned over faster than the accounts payable.

- The net value of the enterprise's assets was USD 82,124 million at the end of quarter IV, about USD 2,134 million more than declared at the end of quarter III. Overall, the net worth dropped from USD 84,053 million to USD 82,124 million. This means that RetailTrade was degrading.

- At the end of quarter IV the Altman Z-score was 1.33 (within the gray area).

- The overall financial position of the company was unsatisfactory (CCC).