AN ANALYSIS OF THE FINANCIAL STATEMENTS OF TRUWORTH LIMITED
THE COMPANY PROFILE
Truworths Limited was incorporated in Zimbabwe in 1957 and has been operating as a retailer since then. The Company was listed on the Zimbabwe Stock Exchange in 1981, operating from 14 retail outlets comprising of Truworths Stores and Topic Stores.
The Company now operates under the following;
➢ Truworths Ladies which operates from 8 stand-alone outlets as well as from 2 other branches which are housed within Truworths Man. ➢ Truworths Man which operates from 6 stand-alone outlets and 2 other branches which are housed within Truworths Ladies. ➢ Topics which operates from 25 stores.
➢ Number 1 which operates from 21 outlets.
➢ Bravette, the manufacturing unit of the business is based in Harare and manufactures ladies wear sold through Truworths, Topics as well as Number 1. It also produces garments for the export market.
THE ANALYSIS OF THE FINANCIAL STATEMENTS OF TRUWORTHS LIMITED FOR THE THREE YEAR PERIOD 2010 TO 2012 The financial statements disclose the internal structure of the firm. They indicate the existing relationship between sales and each income statement account. They also shows the mix of assets that produce income and the mix of the sources of capital, whether by current or long-term debt or by equity funding. The primary objective of financial analysis is to forecast or determine the actual financial status and performance of a firm or project.
A. INCOME STATEMENT TREND ANALYSIS
1. Profitability ratios
Profitability is the net result of a number of policies and decisions. These ratios, give users a good understanding of how well the company utilized its resources in generating profit and shareholder value. Profitability ratios show the combined effects of liquidity, asset management and debt on operating results. These ratios examine the profit made by the firm and compare these figures with the size of the firm, the assets employed by the firm or its level of sales.
a. Return on Capital employed (ROCE)
It compares input and output and hence assesses the effectiveness with which funds have been deployed. ROCE measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.
ROCE = (Net profit before interest and tax) X 100
|Year |2012 |2011 |2010 | |Net Profit |881,566 |2,353,907 |774,599 | |Capital Employed |4,319,855 |3,672,177 |1,934,724 | |ROCE |0.20 |0.64 |0.40 |
Capital was employed into commitments which include all projects for which specific board approval has been obtained. These commitments where financed by cash generated from operations and existing facilities from financial institutions. These commitments included factory and stores development, purchase of motor vehicles and computer infrastructure. ROCE was 40% in 2010 and rose to 64% in 2011. It then rose at a decreasing rate by 20% in 2012. This meant that the organization was achieved a return of $20 net profit for every $100 invested. This decrease is attributed to the increase in capital employed. b. Gross Profit as a Percentage of sales
Gross profit is the difference between sales and costs of sales. The ratio measures the efficiency of buying and producing and selling of goods before other expenses are taken into account. Gross Profit as a Percentage of sales = Gross Profit X 100
Please join StudyMode to read the full document