Dick Smith 2015 Financial Analysis• Full year results released in August 2015

Jul 2014

Aug 2014

Sep 2014

Oct 2014

Nov 2014

Dec 2014

Jan2015

Feb 2015

Mar 2015

Apr 2015

May 2015

Jun 2015

Jul 2015

Aug 2015

Sep 2015

Oct 2015

Nov 2016

Dec 2015

Jan2016

Reporting PeriodJul

2014Aug

2014Sep

2014Oct

2014Nov 2014

Dec 2014

Jan2015

Feb 2015

Mar 2015

Apr 2015

May 2015

Jun 2015

Jul 2015

Aug 2015

Sep 2015

Oct 2015

Nov 2016

Dec 2015

Jan2016

Enters administration in January 2016

All stores closed by May 2016

Dick Smith2015 Financial Reports

Let’s analyse the Financial Reports to see if there were any clues.

The Key Numbers

The Key NumbersIn $millions This Period Last Period Variance

Sales 1319.7 1227.6 +7%

Cost of Goods Sold 992.8 919.6 +8%

Gross Profit 326.8 308.0 +6%

Net Profit 37.9 19.8 +91%

Current Assets 390.0 335.9 +16%

Non-Current Assets 118.5 115.3 +3%

Current Liabilities 316.5 266.8 +19%

Non-Current Liabilities 22.8 17.4 +31%

Owner's Equity 169.1 166.9 +1%

In $millions This Period Last Period Variance

Sales 1319.7 1227.6 +7%

Cost of Goods Sold 992.8 919.6 +8%

Gross Profit 326.8 308.0 +6%

Net Profit 37.9 19.8 +91%

Current Assets 390.0 335.9 +16%

Non-Current Assets 118.5 115.3 +3%

Current Liabilities 316.5 266.8 +19%

Non-Current Liabilities 22.8 17.4 +31%

Owner's Equity 169.1 166.9 +1%

In $millions This Period Last Period Variance

Sales 1319.7 1227.6 +7%

Cost of Goods Sold 992.8 919.6 +8%

Gross Profit 326.8 308.0 +6%

Net Profit 37.9 19.8 +91%

Current Assets 390.0 335.9 +16%

Non-Current Assets 118.5 115.3 +3%

Current Liabilities 316.5 266.8 +19%

Non-Current Liabilities 22.8 17.4 +31%

Owner's Equity 169.1 166.9 +1%

In $millions This Period Last Period Variance

Sales 1319.7 1227.6 +7%

Cost of Goods Sold 992.8 919.6 +8%

Gross Profit 326.8 308.0 +6%

Net Profit 37.9 19.8 +91%

Current Assets 390.0 335.9 +16%

Non-Current Assets 118.5 115.3 +3%

Current Liabilities 316.5 266.8 +19%

Non-Current Liabilities 22.8 17.4 +31%

Owner's Equity 169.1 166.9 +1%

In $millions This Period Last Period Variance

Sales 1319.7 1227.6 +7%

Cost of Goods Sold 992.8 919.6 +8%

Gross Profit 326.8 308.0 +6%

Net Profit 37.9 19.8 +91%

Current Assets 390.0 335.9 +16%

Non-Current Assets 118.5 115.3 +3%

Current Liabilities 316.5 266.8 +19%

Non-Current Liabilities 22.8 17.4 +31%

Owner's Equity 169.1 166.9 +1%

In $millions This Period Last Period Variance

Sales 1319.7 1227.6 +7%

Cost of Goods Sold 992.8 919.6 +8%

Gross Profit 326.8 308.0 +6%

Net Profit 37.9 19.8 +91%

Current Assets 390.0 335.9 +16%

Non-Current Assets 118.5 115.3 +3%

Current Liabilities 316.5 266.8 +19%

Non-Current Liabilities 22.8 17.4 +31%

Owner's Equity 169.1 166.9 +1%

In $millions This Period Last Period Variance

Sales 1319.7 1227.6 +7%

Cost of Goods Sold 992.8 919.6 +8%

Gross Profit 326.8 308.0 +6%

Net Profit 37.9 19.8 +91%

Current Assets 390.0 335.9 +16%

Non-Current Assets 118.5 115.3 +3%

Current Liabilities 316.5 266.8 +19%

Non-Current Liabilities 22.8 17.4 +31%

Owner's Equity 169.1 166.9 +1%

In $millions This Period Last Period Variance

Sales 1319.7 1227.6 +7%

Cost of Goods Sold 992.8 919.6 +8%

Gross Profit 326.8 308.0 +6%

Net Profit 37.9 19.8 +91%

Current Assets 390.0 335.9 +16%

Non-Current Assets 118.5 115.3 +3%

Current Liabilities 316.5 266.8 +19%

Non-Current Liabilities 22.8 17.4 +31%

Owner's Equity 169.1 166.9 +1%

In $millions This Period Last Period Variance

Sales 1319.7 1227.6 +7%

Cost of Goods Sold 992.8 919.6 +8%

Gross Profit 326.8 308.0 +6%

Net Profit 37.9 19.8 +91%

Current Assets 390.0 335.9 +16%

Non-Current Assets 118.5 115.3 +3%

Current Liabilities 316.5 266.8 +19%

Non-Current Liabilities 22.8 17.4 +31%

Owner's Equity 169.1 166.9 +1%

In $millions This Period Last Period Variance

Sales 1319.7 1227.6 +7%

Cost of Goods Sold 992.8 919.6 +8%

Gross Profit 326.8 308.0 +6%

Net Profit 37.9 19.8 +91%

Current Assets 390.0 335.9 +16%

Non-Current Assets 118.5 115.3 +3%

Current Liabilities 316.5 266.8 +19%

Non-Current Liabilities 22.8 17.4 +31%

Owner's Equity 169.1 166.9 +1%

The Key Numbers

Operating

Investing

Financing

Operating

Investing

Financing

─3.9m

─31.6m

+35.0m

Cash BalanceThis Period

Operating

Investing

Financing

Operating

Investing

Financing

+52.2m

─54.0m

Cash BalanceLast Period

─15.0m

─0.5

m

Change in Cash Balance

─ 16

.8m

Change in Cash Balance

Analysis of the Financial Reports

Analysis of the Financial ReportsProfitability

Gross Profit Margin

This Period Last Period Comparison

24.8% 25.1% Worse

Sales$1.00

Gross Profit24.8c

COGS75.2c

Income StatementWhat does this mean?

For every $1 the firm generates in sales:

• A Gross Profit of 24.8 cents is earned

• Once the Cost of Goods Sold is deducted.

Analysis of the Financial ReportsProfitability

Net Profit Margin

This Period Last Period Comparison

2.9% 1.6% Better

Income Statement

$1.00 of Sales

Gross Profit24.8c

COGS75.2c

Net Profit 2.9c

Other Expenses

21.9c

What does this mean?

For every $1 the firm generates in sales an overall Net Profit of 2.9 cents is earned.

Analysis of the Financial ReportsThis Period

Sales$1.00

Gross Profit24.8c

COGS75.2c

Net Profit2.9c

Other Exp21.9c

─

=

─

=

Last Period

Sales$1.00

Gross Profit25.1c

COGS74.9c

Net Profit1.6c

Other Exp23.5c

─

=

─

=

Higher COGS… possible causes?

• Suppliers ↑ prices

• Mark-ups ↓

But a better Net Profit Margin… possible causes?

• ↓ Other Expenses

• E.g. lower wages

Analysis of the Financial ReportsProfitability

Return on Assets

This Period Last Period Comparison

7.5% 3.9% Better

What does this mean?

For every $1 of Assets the firm has, the business is earning a Net Profit of 7.5 cents.

Business

Net Profit7.5c

Balance Sheet

Assets Liabilities

Owner’s Equity

Balance Sheet

Assets Liabilities

$1 Owner’s Equity

Analysis of the Financial Reports

Return on Investment

This Period Last Period Comparison

22.6% 11.9% Better

What does this mean?

For every $1 of Capital invested in the firm, the business is earning a Net Profit of 22.6 cents.

Net Profit22.6c

Balance Sheet

Assets Liabilities

Owner’s Eq.

$1

BusinessBalance Sheet

Assets Liabilities

Owner’s Eq.

$1

Profitability

Analysis of the Financial ReportsEfficiency

Asset Turnover Ratio

This Period Last Period Comparison

2.60 times

2.41 times Better

Business

$2.60 of Sales

Balance Sheet

Assets Liabilities

Owner’s Equity

Balance Sheet

Assets Liabilities

$1 Owner’s Equity

What does this mean?

For every $1 of Assets the firm has, the business generates $2.60 of sales

Analysis of the Financial ReportsEfficiency

This Period

Last Period

Profitability and

DuPont Formula

2.60 times

2.41 times

2.9%

1.6%

7.5%

3.9%

= X

= X

Asset Turnover

Net Profit Margin

Return on Assets

= X

Better ROA

More efficient at

making sales

And each sale made at a higher Net

Profit

Analysis of the Financial ReportsEfficiency

Stock Turnover Ratio

This Period Last Period Comparison

101 days 101 days Same

What does this mean?

The firm takes, on average, 101 days to sell all of its inventory

Analysis of the Financial ReportsLiquidity

Working Capital Ratio

This Period Last Period Comparison

1.23 1.26 Worse

What does this mean?

For every $1 of Current Liabilities the firm has, there are $1.23 in Current Assets to pay them

Balance SheetCurrent Assets Current Liabilities

$1.53 $1.00Balance SheetCurrent Assets Current Liabilities

$1.53 $1.00Balance SheetCurrent Assets Current Liabilities

$1.23 $1.00

Analysis of the Financial ReportsLiquidity

Quick Asset Ratio

This Period Last Period Comparison

0.30 0.29 Better

What does this mean?

For every $1 of Urgent Liabilities the firm has, there are $0.30 in Quick Assets to pay them

$0.30

Quick Assets

$1.00

Urgent Liabilities

Analysis of the Financial ReportsLiquidity

Cash Flow Ratio

This Period Last Period Comparison

─0.01 0.20 Worse

What does this mean?

For every $1 of Current Liabilities the firm has, the firm’s Operating Activities are generating -1 cents to pay them

Operating

Investing

Financing

─$0.01

Cash Balance

$1.00

Current Liabilities

$1.01 needed

from here

Analysis of the Financial ReportsStability

Debt Ratio (Gearing)

This Period Last Period Comparison

67% 63% Worse

What does this mean?

67% of the firm’s Total Assets have been financed with debt (Liabilities)

Balance SheetAssets Liabilities

$1.00 $0.60Owner’s Equity

$0.40

Balance SheetAssets Liabilities

$1.00 $0.60Owner’s Equity

$0.40

Balance SheetAssets Liabilities

$1.00 $0.67Owner’s Equity

$0.40

Balance SheetAssets Liabilities

$1.00 $0.67Owner’s Equity

$0.33

Summary of Results

Summary of ResultsThis Period Last PeriodProfitability

Gross Profit Margin 24.8% 25.1%

Net Profit Margin 2.9% 1.6%

Return on Assets 7.5% 3.9%

Return on Investment 22.6% 11.9%

Efficiency

Asset Turnover Ratio2.60

times2.41

times

Stock Turnover Ratio101 days

101 days

This Period Last PeriodLiquidity

Working Capital Ratio 1.23 1.26

Quick Asset Ratio 0.30 0.29

Cash Flow Ratio ─0.01 0.20

Debt Ratio (Gearing) 67% 63%

Liquidity

Any Clues?

Any Clues?This Period Last PeriodProfitability

Net Profit Margin 2.9% 1.6%

Gross Profit Margin 24.8% 25.1%• Very small GPM – high level of

COGS (75.2% of sales)

• Despite the improvement, very thin NP margins on each sale.

• Was there old stock they couldn’t move and had to mark down?

• Retail usually works in 90 day cycles for stock

Stock Turnover Ratio101 days

101 days

Any Clues?This Period Last PeriodLiquidity

Debt Ratio (Gearing) 67% 63%

Stability

Working Capital Ratio 1.23 1.26

Quick Asset Ratio 0.30 0.29

Cash Flow Ratio ─0.01 0.20

• Very poor liquidity – barely enough Current Assets to repay Current Liabilities

• And taking out stock, the firm will struggle to meet its Urgent Liabilities

• Operating Activities are actually losing cash – the Current Liabilities must be paid from other sources

• High debt levels – incurring interest and requiring constant repayments