Accounting report
Introduction
I am analysing the accounts of Pumpkin Patch for the year ended 31st of July 2011. This report is prepared for Patrice who is considering purchasing shares from Pumpkin Patch. Pumpkin Patch was established in New Zealand in 1990 and is known for its reputation for fashionable childrenswear. Pumpkin Patch now has developed itself further internationally with retail stores in New Zealand, Australia, UK, Ireland and the United States.
Liquidity
The current ratio of Pumpkin Patch Limited (PPL) has decreased from 1.42:1 in 2010 to 1.28:1 in 2011. This is largely due to the increase of $18.7m of current liabilities. The main reason PPL current ratio decreased was because of the derivatives financial instrument, which increased by $18.4m. The derivatives financial instrument is a foreign exchange contract and PPL are locked in a deal with the bank because when they purchase their stock they pay in US dollars. Their contract is stated that for every $1 NZ they would get $0.63 cents US. This was not good because the NZ dollar became stronger and was therefore worth more. The NZ dollar was worth 0.87 cents US at the end of July 2011 and therefore they were losing money because they locked themselves into the deal. PPL also set up a provision for estimated costs for closing stores. This was because they were pulling out of their 20 stores in the United States in the next financial period. The provision was set up because of the costs that are going to be incurred. There was also an increase in inventory as it went up from $71.4m to $84.4m, this was because PPL had low amounts of inventory in August and September 2010 and they therefore increased the amount of inventory delivered to better match the demand for it. However the inventory turnover decreased from 1.81 times to 1.62 times. Inventory turnover measures the number of times inventory is sold in one accounting period. The inventory of PPL is high; however the inventory turnover means that
I am analysing the accounts of Pumpkin Patch for the year ended 31st of July 2011. This report is prepared for Patrice who is considering purchasing shares from Pumpkin Patch. Pumpkin Patch was established in New Zealand in 1990 and is known for its reputation for fashionable childrenswear. Pumpkin Patch now has developed itself further internationally with retail stores in New Zealand, Australia, UK, Ireland and the United States.
Liquidity
The current ratio of Pumpkin Patch Limited (PPL) has decreased from 1.42:1 in 2010 to 1.28:1 in 2011. This is largely due to the increase of $18.7m of current liabilities. The main reason PPL current ratio decreased was because of the derivatives financial instrument, which increased by $18.4m. The derivatives financial instrument is a foreign exchange contract and PPL are locked in a deal with the bank because when they purchase their stock they pay in US dollars. Their contract is stated that for every $1 NZ they would get $0.63 cents US. This was not good because the NZ dollar became stronger and was therefore worth more. The NZ dollar was worth 0.87 cents US at the end of July 2011 and therefore they were losing money because they locked themselves into the deal. PPL also set up a provision for estimated costs for closing stores. This was because they were pulling out of their 20 stores in the United States in the next financial period. The provision was set up because of the costs that are going to be incurred. There was also an increase in inventory as it went up from $71.4m to $84.4m, this was because PPL had low amounts of inventory in August and September 2010 and they therefore increased the amount of inventory delivered to better match the demand for it. However the inventory turnover decreased from 1.81 times to 1.62 times. Inventory turnover measures the number of times inventory is sold in one accounting period. The inventory of PPL is high; however the inventory turnover means that
Bibliography: Pumpkin Patch Annual Report 2011 Analysis Measures for Pumpkin Patch 2011 Postie Plus Annual Report 2011 Hallensteins Glassons Holding Ltd Annual Report 2011 Pitu, E. January 2011, NCEA level 3 Accounting Book 3 Cash Flow Statements, Analysis Interpretation and the Conceptual Framework. October 12th 2011, ‘Pumpkin Patch lands itself in forex pickle’. The Press Christchurch www.craigsip.com share price https://www.nzx.com/markets/NZSX/securities/PPL?icharts=true share price Saturday June 16th 2012, ‘Market Prices’, The Press Christchurch