financial ratio analysis of John Lewis on profitability

Okikiola lookman imam 121396

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Greenwich School of

Management

Introduction to Accounting

Analysing of John Lewis Financial

Report on Profitability

Okikiola Lookman Imam

Tutor: ISAIAH OINO

Student Number: 121396

NOVEMBER 2012


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Contents

Introduction ............................................................................................................................. 3

Objectives .............................................................................................................................. 4

Brief history of John Lewis .............................................................................................. 4

Balance Sheet Statement…………………………………………………………………….5

Profit and Loss Account……………………………………………………………………..6

Profitability Ratio Results/Workings……………………………………………………….8

Analytical Findings…………………………………………………………………………10

Return On Capital Employed Margin………………………………………………11

Gross Profit Margin……………………………………………………………12

Operating Profit Margin……………………………………………………13

Net Profit Margin……………………………………………………….15

Limitation of using Financial Ration……………………………………..……………..16

Recommendation…………………………………………………………………….……..17

Conclusion…………………………………………………………………………..………18

Bibliography………………………………………………………………………………...19

Appendices/Keywords……………………………………………………………….…..…20


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Introduction

“Whether you're a do-it-yourself or rely on guidance from an investment professional, learning certain fundamental financial statement analysis skills can be very useful - it's certainly not just for the experts.” (Loth, 2012) hence why this analysed financial report of John Lewis PLC, has been prepared by me, to help with you coming to a good financial decision to invest or not

This Report will be analysing John Lewis Plc financial report, looking at Profitability on their performance ratios “Financial Ratios are pillars of Financial Statement analysis.” (INDEPENDENT INVESTOR, 2010). Finally will be going into some details and focusing on the return on capital employed, Gross Profit Margin, Operating Profit Margin and finally Net Profit Margin. This report will help you in coming to a decision to invest or not in John Lewis Plc.


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Objectives This report aims to provide conclusion detailing the result of analysis and a recommendation with

reasons why potential shareholders should buy shares in the John Lewis Partnership Plc that is

also part of London Stock Exchange from an analyst perspective. I will be analysing the profit and

loss account and balance sheet; the analysis will be covering John Lewis PLC financial report for

5years from 2008-2012.The analysis done by me will provide potential shareholders information

on profitability, before finally focusing on the operating profit margin, gross profit margin, net profit

margin and finally return on capital employed. Finally will be concluding if to invest or not in John

Lewis PLC and recommendation on reasons to buy shares or not with John Lewis Partnership

PLC.

Brief history of John Lewis

John Lewis is a chain of stores and opened its first shop on Oxford Street in 1864, in London. John

Lewis Partnership also has other subsidiary business within its enterprise which consists of:

Peter Jones department store

John Lewis department stores

Waitrose

Ocado online shopping

John Lewis is very popular for their saying ““Never Knowingly Undersold”, which promises to give customers value for money. John Lewis has over 40stores in the UK.

The first John Lewis store in Oxford Street is the biggest store out of the partnership. John Lewis refer to its employee as partners and it was the vision of its founder John Spedan Lewis “All 81,000 Partners have a say in how the Partnership is run, as well as an equal percentage share in the profits. Giving our Partners a voice is central to the principles of co-ownership, and we engage their views and opinions in a number of ways, including the annual Partner Survey, first started in 2003.” (JOHN LEWIS, 2010)


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Balance sheet

31/01/2012 th GBP

31/01/2011 th GBP

31/01/2010 th GBP

31/01/2009 th GBP

31/01/2008 th GBP

12 months Cons.

Unqualified IFRS

12 months Cons.

Unqualified IFRS

12 months Cons.

Unqualified

12 months Cons.

Unqualified

12 months Cons.

Unqualified

Fixed Assets

Tangible Assets 3,798,400 3,622,600 3,391,000 3,176,800 3,021,800

Land & Buildings 3,180,000 3,039,700

2,485,900

Freehold Land 3,180,000 3,039,700

Leasehold Land

Fixtures & Fittings 618,400 582,900

535,900

Plant & Vehicles 0 0

0

Plant

Vehicles

Other Fixed Assets 0 0

0

Intangible Assets 164,300 111,400 92,500 85,100 66,900

Investments 41,800 41,400 84,400 66,100 31,300

Fixed Assets 4,004,500 3,775,400 3,567,900 3,328,000 3,120,000

Current Assets

Stock & W.I.P. 465,200 422,000 399,000 352,300 344,900

Stock 3,600 5,100 398,200 351,600 344,200

W.I.P. 800 800 800 700 700

Finished Goods 460,800 416,100

Trade Debtors 77,100 78,600 65,600 45,800 40,500

Bank & Deposits 550,800 512,700 560,000 197,600 121,600

Other Current Assets 145,600 157,800 101,800 93,100 171,000

Group Loans (asset) 0 0 0 0 3,600

Directors Loans (asset) 0 0 0 0 0

Other Debtors 47,200 62,700 101,800 93,100 167,400

Prepayments 98,400 78,000

Deferred Taxation

17,100

Investments 2,700

13,600 23,400 13,800

Current Assets 1,241,400 1,171,100 1,140,000 712,200 691,800

Current Liabilities

Trade Creditors -530,100 -424,500 -358,200 -318,900 -342,500

Short Term Loans & Overdrafts -376,900 -223,200 -159,400 -108,300 -80,000

Bank Overdrafts -60,100 -165,300 -115,600 -75,800 -58,400

Group Loans (short t.) -74,200 -57,100 -43,100 -31,900 -20,900

Director Loans (short t.) 0 0 0 0 0

Hire Purch. & Leas. (short t.) -600 -800 -700 -600 -700

Hire Purchase (short t.)

Leasing (short t.) -600 -800 -700 -600 -700

Other Short Term Loans -242,000 0 0 0 0

Total Other Current Liabilities -705,300 -691,900 -599,700 -471,700 -533,800

Corporation Tax -9,200 0 -1,600 -17,900 0

Dividends 0 0 0 0 0

Accruals & Def. Inc. (short t.) -210,100 -193,200 -165,200 -95,800 -98,300

Social Securities & V.A.T. -143,100 -141,400 -117,200 -86,300 -120,400

Other Current Liabilities -342,900 -357,300 -315,700 -271,700 -315,100

Current Liabilities -1,612,300 -1,339,600 -1,117,300 -898,900 -956,300

Net Current Assets (Liab.) -370,900 -168,500 22,700 -186,700 -264,500

Net Tangible Assets (Liab.) 3,469,300 3,495,500 3,498,100 3,056,200 2,788,600


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Fame - company report of John Lewis PLC

Balance sheet

31/01/2012 th GBP

31/01/2011 th GBP

31/01/2010 th GBP

31/01/2009 th GBP

31/01/2008 th GBP

Working Capital -370,900 -168,500 22,700 -186,700 -264,500

Total Assets 5,245,900 4,946,500 4,707,900 4,040,200 3,811,800

Total Assets less Cur. Liab. 3,633,600 3,606,900 3,590,600 3,141,300 2,855,500

Long Term Liabilities

Long Term Debt -753,100 -847,200 -815,700 -29,200 -30,100

Group Loans (long t.) 0 0 0 0 0

Director Loans (long t.) 0 0 0 0 0

Hire Purch. & Leas. (long t.) -26,400 -28,000 -28,500 -29,200 -30,100

Hire Purchase (long t.)

Leasing (long t.) -26,400 -28,000 -28,500 -29,200 -30,100

Preference Shares -2,300

Other Long Term Loans -724,400 -819,200 -787,200 0 0

Total Other Long Term Liab. -85,800 -65,600 -49,800 -565,800 -444,700

Accruals & Def. Inc. (long t.) -85,000 -65,600 -49,800 -48,100 -40,100

Other Long Term Liab. -800 0 0 -517,700 -404,600

Provisions for Other Liab. -147,700 -207,600 -1,020,900 -823,800 -696,800

Deferred Tax -32,100 -94,700

-45,100

Other Provisions -115,600 -112,900 -1,020,900 -823,800 -651,700

Pension Liabilities -638,100 -414,000

Balance sheet Minorities

Long Term Liabilities -1,624,700 -1,534,400 -1,886,400 -1,418,800 -1,171,600

Total Assets less Liabilities 2,008,900 2,072,500 1,704,200 1,722,500 1,683,900

Shareholders Funds

Issued Capital 6,700 6,700 6,700 6,700 6,700

Ordinary Shares 6,700 6,700

Preference Shares

Other Shares

Total Reserves 2,002,200 2,065,800 1,697,500 1,715,800 1,677,200

Share Premium Account 300 300 300 300 300

Revaluation Reserves 0 0 0 0 0

Profit (Loss) Account 2,000,300 2,064,100 1,697,400 1,706,400 1,674,800

Other Reserves 1,600 1,400 -200 9,100 2,100

Shareholders Funds 2,008,900 2,072,500 1,704,200 1,722,500 1,683,900

Profit & Loss account

31/01/2012 th GBP

31/01/2011 th GBP

31/01/2010 th GBP

31/01/2009 th GBP

31/01/2008 th GBP

12 months Cons.

Unqualified IFRS

12 months Cons.

Unqualified IFRS

12 months Cons.

Unqualified

12 months Cons.

Unqualified

12 months Cons.

Unqualified

Turnover 7,758,600 7,361,800 6,734,600 6,267,200 6,052,200

UK Turnover

6,052,200

Overseas Turnover

Cost of Sales -5,166,500 -4,878,700 -4,460,400 -4,195,400 -4,007,600

Exceptional Items pre GP

Other Income pre GP

Gross Profit 2,592,100 2,483,100 2,274,200 2,071,800 2,044,600

Administration Expenses -2,260,700 -2,107,500 -1,937,500 -1,801,100 -1,676,100

Other Operating Income pre OP 59,600 53,700

Exceptional Items pre OP

Operating Profit 391,000 429,300 336,700 270,700 368,500

Other Income -165,200 -194,600 56,900 57,200 50,200

Total Other Income & Int. Received -132,400 -188,500 56,900 57,200 50,200

Fame (Data update 7269 - 26/10/2012) - © BvD

26/10/2012 Page 2


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Fame - company report of John Lewis PLC

Profit & Loss account

31/01/2012 th GBP

31/01/2011 th GBP

31/01/2010 th GBP

31/01/2009 th GBP

31/01/2008 th GBP

Exceptional Items

-151,100 6,600 -180,900

Profit (Loss) on Sale of Operations

Costs of Reorganisation 2,100

Profit (Loss) on Disposal

Other Exceptional Items -2,100

Profit (Loss) before Interest paid 258,600 240,800 242,500 334,500 237,800

Interest Received 32,800 6,100

Interest Paid -70,500 -67,700 -87,600 -53,500 -39,200

Paid to Bank -2,600 -2,000

Paid on Hire Purchase

-1,300

Paid on Leasing -1,200

Other Interest Paid -66,700 -64,400

Net Interest -37,700 -61,600 -87,600 -53,500 -39,200

Profit (Loss) before Tax 188,100 173,100 154,900 281,000 198,600

Taxation -51,900 -45,600 -48,300 -47,700 -59,400

Profit (Loss) after Tax 136,200 127,500 106,600 233,300 139,200

Extraordinary Items

Minority Interests

Profit (Loss) for Period 136,200 127,500 106,600 233,300 139,200

Dividends -100 -100 -100 -100 -100

Retained Profit(Loss) 136,100 127,400 106,500 233,200 139,100

Depreciation 241,000 215,500 189,900 21,000 169,300

Depreciation Owned Assets 240,400 214,900

Depreciation Other Assets 600 600

Impairment Tangibles

Audit Fee 700 751 700 700 900

Non-Audit Fee 250 400 300 500 200

Tax Advice

100

Non-Tax Advisory Services 250 300

Other Auditors Services

Non-Audit Fees paid to Other Auditors

Total Amortization and Impairment 32,300 24,000 24,400 19,100 17,700

Amortisation 32,300 24,000

Impairment

Total Operating Lease Rentals 113,800 107,000

Hire of Plant & Machinery 400 300

Land & Building or Property Rents Other

113,400 106,700

Research & Development

Foreign Exchange Gains/Losses

Remuneration 1,526,000 1,425,800 1,299,000 1,233,000 1,220,300

Wages & Salaries 1,096,300 1,026,400 940,400 908,000 864,800

Social Security Costs 103,800 82,000 90,800 73,700 68,300

Pension Costs 124,000 122,900 267,800 251,300 287,200

Other Staff Costs 201,900 194,500

Directors' Remuneration 3,577 3,440 3,048 2,880 3,186

Directors' Fees 3,577 3,440

Pension Contribution

Other Emoluments

Highest Paid Director 954 950 868 924 889

EBITDA 664,300 668,800 551,000 310,800 555,500

Number of Employees 78,700 74,800 70,000 68,700 29,200

Fame (Data update 7269 - 26/10/2012) - © BvD

26/10/2012 Page 3


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PROFITABILITY

Profitability can be define as a measure of how well a company can make profit compared to expenses, it basically shows a company overall performance and efficiency.

Information that follows is the calculations of profitability ratios for John Lewis Partnership covering 2007 to 2012

2012 2011 2010 2009 2008

Return on Capital Employed (W1) 3.8 3.6 2.9 7.5 4.9 Gross Profit Margin (W2) 33.4 33.7 33.8 33.1 33.8 Operating Profit Margin (W3) 5.1 5.8 5 4.3 6.1 Net Profit Margin(W4) 1.8 1.7 1.6 3.7 2.3


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WORKINGS 1 Return on Capital Employed

Net income X 100% (NON Current Liabilities + Shareholders Funds) YEAR 2008. 139,200x100% 13920000

(1,171,600 + 1,683,900) = 2855500 = 4.87 or 4.9 YEAR 2009. 233,300 X 100% 23330000

(1,418,800 + 1,722,500) = 3141300 = 7.42 OR 7.5

YEAR 2010. 106,600 X 100% 10660000

( 1,886,400 + 1,704,200) = 3590600 = 2.96 OR 3

YEAR 2011. 127,500 X 100% 12750000 (1,534,400 + 2,072,500) = 3606900 = 3.53 OR 3.6 YEAR 2012. 136,200 X 100% 136,20000 (1,624,700 +2,008,900) = 3633600 = 3.74 0R 3.8

WORKING 2 Gross Profit Margin

GROSS PROFIT x 100% Sales YEAR 2008 2,044,600 x 100% 204460000

6,052,200 = 6052200 = 33.78 or 33.8 YEAR 2009 2,071,800 x 100% 207180000 6,267,200 = 6,267,200 = 33.05 OR 33.1 YEAR 2010 2,274,200 x 100% 227420000 6,734,600 = 6734600 = 33.76 OR 33.8

YEAR 2011 2,483,100 x 100% 248310000 7,361,800 = 7361800 = 33.72 OR 33.7 YEAR 2012 2,592,100 x 100% 259210000 7,758,600 = 7758600 = 33.40 OR 33.4


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WORKING 3 Operating Profit Margin

OPERATING PROFIT x 100% SALES YEAR 2008 368,500 x 100% = 36850000 6,052,200 6,052,200 =6.08 OR 6.1

YEAR 2009 270,700 x 100% = 27070000 6,267,200 6,267,200 = 4.31 OR 4.3

YEAR 2010 336,700 x 100% = 33670000 6,734,600 6734600 =4.99 or 5

YEAR 2011 429,300 x100% = 42930000

7,361,800 7,361,800 =5.83 or 5.8 YEAR 2012 391,000 x 100% 39100000 7,758,600 = 7,758,600 = 5.03 OR 5.1

Working 4

NET PROFIT MARGIN Net Profit x 100% Sales YEAR 2008 139,200 x100% 13920000 6,052,200 = 6,052,200 = 2.29 or 2.3

YEAR 2009 233,300 x 100% 23330000 6,267,200 = 6,267,200 = 3.72 OR 3.7 YEAR 2010 106,600 x 100% 10660000 6,734,600 = 6,734,600 = 1.58 or 1.6 YEAR 2011 127,500 x100% 12750000 7,361,800 = 7,361,800 = 1.73 or 1.7 YEAR 2012 136,200 x 100% 13620000 7,758,600 = 7,758,600 =1.75 or 1.8


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Return on Capital Employed

Return on capital employed (ROCE) “is a ratio that indicates the efficiency and profitability of a company's capital investments.” (Loth, 2012) In simple terms it is a measure of how much return a company can generates from its investment for those who have invested in the company such as bondholders and stockholders. ROCE can also identify if shareholders or owners should put their money in a bank deposit or leave it invested in the company (Waterston, 2010)

ROCE is calculated as net income times 100%, divided by (non-current liabilities + shareholders fund). ROCE is a very good indicator of how strong and big a company is.

2008/2009: Looking at the above column chart, there was an increase from 2008 to 2009 and this is down to high increase in net profit for 2009 than the other five years, this was due to interest receive by John Lewis from their finances could have been in form of interest from money kept in bank. Managerial decision in lowering their long term debt also had a positive effect on ‘kicking’ the ROCE up on 2009, even though for the 5year shareholders fund keep a steady increase.

2009/2010 A different story for 2010 as we see from the column, ROCE came ‘crashing down’ and this was down to lower net profit on the year before, because of lower sale(down to cause highlighted above), higher administrative expenses with managers not keeping cost down and their long term liability went from 1,418,800 to 1,886,400 and finally their interest paid to banks/other lending was at its highest for 2010. All this couple together make their ROCE lower than it was in 2009.

2010-2011 Very interesting to see for the year 2011, managers significantly cut their non-current liabilities 1,886,400 to 1,534,400 and this will probably to make sure their non-current


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liabilities is not more than their cash flow. Other reason that saw the rise of ROCEis substantial increase in revenue/sales in turns affecting net profit and increase in shareholders fund is other reason for the increase of ROCE for 2011.

2011-2012 We see same trend for 2012 as 2011, turnover/sales increase hence pushing the net profit up as well.

Future prediction Potential investors like yourself, want to know what they likely to get back from every of their pound invested, ROCE was at the highest for 2009 but decrease very low in 2010 and its on the rise again till date, from the information available to me it can be predict or assume that the ROCE will increase for the coming year.

Gross Profit Margin

2012 2011 2010 2009 2008

Gross Profit Margin 33.4% 33.7% 33.8% 33.1% 33.8%

The gross profit is the total of turnover or sales/revenue subtracted by cost of sales (what it cost in generating that revenue). Gross Profit Margin (GPM) a measure of how a company is doing in terms of production and distribution efficiency Looking at the above income statement, it is very visible to see that in (2009) there was high ‘jump’ in cost of sales hence making GPM drop to 3.1 and this could be down to the financial crisis of 2009 or loose of consumer confident in the market, affecting John Lewis turnover and cost of sales in turns or vice versa “Figures this morning from John Lewis, showing a sharp fall in profits from its department stores, further underlined the difficulties facing the high street.” (Guardian plc,

http://www.guardian.co.uk/business/2009/sep/17/john-lewis-profits-drop

http://www.guardian.co.uk/business/2009/sep/17/john-lewis-profits-drop


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2009) Other factor that could have affected john lewis GPM is changes in cost of sales, because labour cost are major part of cost of sales and this could come in form of increase in insurance of labour, badly manage HR, government regulation in changes to minimum wage. John Lewis could have change inventory method because inventory method adopted by a company does have effect on their gross profit, is either they use the first in, last out system or last in, first out with the later causing a decrease in gross profit. Lastly, marketting strategy of John lewis could have been the reason for some drop on their Gross Profit in some years

Future Prediction

Nevertheless, looking at their GPM for the following years, it can be assumed that the tough times are over for John Lewis as their turnover increase snappishly and the same for 2011 and 2012, even though their cost of sales also increase a fracture(this is not alarming as its expected and only a small percentage increase).

Operating Profit Margin

2012 2011 2010 2009 2008

Operating Profit

Margin 5.1 5.8 5 4.3 6.1


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Operating Profit is what is left over after a company has taken out their cost such as the cost of production i.e. wages, distribution cost, operation cost, raw materials etc. “Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each pound of sales.” (Loth, 2012) 2008-20012 Increase in the cost of sales and administrative expense from 2008 to 2009 affected total operating profit for 2009, making it drop and this will be down to some aspect that will affect cost of sales such as economic situation like the 2009 recession or managerial decision in not keeping operational cost down or cost above John Lewis managerial control such as increase in price of raw material. 2009 to 2010 turnover/sales went up and this was down to a marketing campaign by managers or increase in consumer confidence and this had a positive effect on operating profit even though cost of sales keep increasing but not as high as the increase from 2008 to 2009. Steady increase in revenue/turnover allow a steady increment in operating profit from 2010 to 2011 due to the changes mentioned above, even though cost of sales and administrative expenses continue to rise and this will be down to some management factors such as unable to control spending, inability to delayering to reduce operational cost, lack of needed marketing strategy, and non-management factor such as the increment in the cost of natural resources. 2011 to 2012 Administration expense Increase from 2,107,500 to 2,260,700 one of the highest percentage rise within the last 5years and as mention above this could be down to managers not being able to keep their expenses down by delayering when needed or things outside of their power such as increment in fuel prices, even with a very high turnover, it had a negative effect on John Lewis Operating Profit for 2012

Future Forecast Good news is that the UK is now out of one of the worst recession ever seen “Official figures


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today showed economic output or GDP rose by 1 per cent between July and September” (HAWKES, 2012) this is good new for John lewis of course and consumers confidence is now on the increase again “Global consumer confidence increased one index point to 92 in Q3 2012, and is up four index points from the same period the previous year (Q3 2011), according to global consumer confidence findings from Nielsen” (Nielsen Holdings , 2012). This can only mean good news for prospective investors, even though John Lewis are failing to keep operating cost down but the percentage at which operating cost is rising is nothing alarming, because in reality a higher revenue or sales normally comes with some increase in in cost.

Net Profit Margin

Net profit margin are calculated by multiplying Net Profit by 100% divided by sales, so in simple terms it is a total of how much profit a company is making “Net profit margin indicates how well the company converts sales into profits after all expenses are subtracted out” Looking from the above column chart, there was different increase or decrease from 2008 to 2012 and this was probably down to some factors that can affect net profit margin such as interest receive on John Lewis capital in banks or subsidiary investment. Interest paid is interest on hire purchase, interest on leasing and some interest paid on bank loans. Finally tax paid in a given year will affect total net profit and turnover/revenue of the company and cost. 2008-2012 John Lewis did receive some interest for the year 2008 to 2010 probably due to having spare capital in savings or investments for this period, but instead of John Lewis Plc to receive profit on other income from 2010 to 2012 they were paying out more interest, this had an effect on. The interest paid to bank and on their other loan agreement rise from 2010-2012 was at its highest in 2010.

2012 2011 2010 2009 2008

Net Profit Margin 1.8 1.7 1.6 3.7 2.3


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According to John Lewis Partnership the increase in sales for 2012 was primary down to 3 factors, firstly is the ceremonial such as the diamond jubilee, Olympic and Paralympics “Firstly, we benefited from the more favourable conditions created by a number of one-off events, such as the Diamond Jubilee, the lead up to the London 2012 Olympic and Paralympic Games” (John Lewis, chairman, 2012)

Future Prediction Looking at the above income statement and balance sheet, the highest interest paid for the years was 2009 and it was a rise from 2008, but it start coming down in 2010 and at its lowest for 2012. I can therefore predict that the interest paid for the next accounting year and thereafter will be lower. Turnover is on the increase from 2009 to 2010 and it can therefore be assumed that this increase will continue for the following years. Inability of the senior managers in keeping cost down, because we keep seeing increase in operational cost and other cost, then I will also be predicting increase for the coming years in relation to cost.

EXTERNAL ENVIRONMENT There are certain external factors that affect a business and this is not what John Lewis managers will have much control over and this is what is called in business management as the PESTEL analysis Political: changes to the Vat by the government or changes in the fiscal policy or monetary policy will have some sort of effect on John Lewis sales as a whole Economical: the 2009 recession had a big effect on the total turnover for the company. Social/Cultural: the social changes happening nowadays are having some negative effect on big company such as John Lewis as consumer confidence is low, hence why allot of 1£ shop are thriving in this day and age. Technology: John Lewis has tried not to be ‘overtaken’ on the online market shares but they couldn’t rival with the introduction of website such as Amazon or eBay. Environment: Everyone nowadays want to know where their product is coming from and how energy efficient the company they dealing with his Legal: this can be interlink with laws that has been made the government and such laws does affect business overall productivity


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Limitation of using Financial Ration Financial ratio analysis is mostly used by banks, investment analyst, accountants in coming to a decision about the performance of a business or considering to loan or invest money. However I will like you as potential shareholders to know some drawbacks or limitation that might come from the using financial Ratio analysis.

Ratios mostly deals with numbers: so they don’t consider the quality of goods or services offered or employee morale/relation are good or bad, customer service of the company is not put into consideration too which could have effect on turnover/sales for the future. (Riley, 2012)

This Ratios analysis done by me is historical in nature, looking at the past and not the future and future forecast is only base on prediction and assumption

Financial ratios doesn’t put inflation or changes in the value of money into consideration, inflation affect the money we have in our banks or in our pocket and thus it work for business too. Example consider a business with turnover of £350,000 last year and sales for the this year was £400,000 financial ratios analysis would interpret this as an increase in turnover of 14% and not until we are informed that the increase was down to inflation, let’s say of 12% then the increase in turnover was only 2% (Waterston, 2010)

Recommendation


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Share prices of John Lewis for last 5years (LSE, 2012)

As seen from the above line graph that John Lewis did have some problems in the initial years, some possible managerial fault (no keeping cost down, not reducing liability and inability to catch on with recession sales i.e. pound land, pound saver etc) and some out of managerial control (such as recession of 2009, and after careful analysis of the information available to me, it can be said that the ‘bad times’ are somewhat over for John Lewis PLC. This report hereby recommended, practical diversification of your investment portfolio, diversification meaning the distribution of risk by putting your money in a variety of investment opportunity “asset allocation is the most strategically important aspect of a client’s investment portfolio” (Waterston, 2010)


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Conclusion

John Lewis has had some problems when it comes to making profit in the past but recent financial

figures that the good old days are back for john Lewis. There are some areas in which john Lewis

can improve or change strategy such as keeping cost down and looking from the above analysed

information then it can be assume managers are getting better at keeping their cost down and

improving turnover.

These reports hereby conclude that John Lewis will be a good and potential ‘Gold mine’ for

potential investors thinking of investing in the company, as their future forecast shows John Lewis

will return to making profit and return substantial dividends to shareholders.


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Bibliography Unsupported source type (Report) for source LSE12.

Guardian plc (2009) Guardian.co.uk, 17 September, [Online], Available: HYPERLINK

"http://www.guardian.co.uk/business/2009/sep/17/retail-sales-recession-consumer-spending"

http://www.guardian.co.uk/business/2009/sep/17/retail-sales-recession-consumer-spending [29 October 2012].

HAWKES, S. (2012) thesun.co.uk, 25 October, [Online], Available: HYPERLINK

"http://www.thesun.co.uk/sol/homepage/news/4608737/UK-out-of-recession-after-the-fastest-growth-in-5-

years.html" http://www.thesun.co.uk/sol/homepage/news/4608737/UK-out-of-recession-after-the-fastest-growth-

in-5-years.html [29 October 2012].

INDEPENDENT INVESTOR (2010) http://www.independent-stock-investing.com, 9 February, [Online], Available:

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Appendices

Keywords

Cost of sales: this is the main cost directly link to the goods sold by a business or company and this is

calculated thus: opening stock + purchases –closing.

Turnover/Sales/Revenue: this represent the total money value of goods or services sold or offered between

a given period of time

Formation/Equation: is a mathematical statement or logical statement and it expresses the equality of two

or more expression

Shareholders fund: this is the total money value on the balance sheet that shows shareholders interest in a

company

Long-term liabilities/Non-current Liabilities: this is what the company owes and they are only due only

after a one year and example of long-term liabilities in this report is hire purchase, long term leasing, loan,

pension obligation

Documents

financial ratio analysis of John Lewis on profitability