Financial Report (Carpetright)

Topics: Generally Accepted Accounting Principles, Financial ratios, Financial ratio Pages: 7 (2070 words) Published: December 9, 2012
Principal Activities
In Europe, Carpetrightplc is the specialized leading floor covering retailer, which sells various rugs, vinyls, carpets and laminates together with related accessories. Additionally, in December 2008, after acquiring Sleepright, they extended to selling beds in the UK on product offering. The Group trades are managed in two geographical segments and organised from 679 stores. They are the “Rest of Europe”(Netherlands and Belgium), and the “UK&ROI”(United Kingdom and the Republic of Ireland).

Business Objective and Strategies
The basic financial target of the Group is to obtain long-term continuous increase in cash flow and earnings per share. Their goal is to achieve the strategies as following: Concentrating on floor coverings primarily

To make sure they sustainably develop and improve their product ranges to offer consumers with a market leading product choice which provides great value, and also backed up by superb customer service. Planning a competitive bed proposition

To increase the sales of beds and related products with the same standards of value, choice and service. Administrating their store organization
To administrate their store based on sustainable use chances which obtain better general profitability. Expanding into European countries
To discover and catch chances to increase Group profitability by expanding the brand power through Europe. Getting more customers through additional channels
To develop their online business and develop, sales through the insurance replacement market to extend the reach of the brand Carpetright.

Profitability analysis
Profitability | 2012| 2011|
Gross profit margin (GPM)| 58.5%| 61.2%|
Operating profit margin (OPM)| 3.8%| 2.2%|
Pre-tax profit margin (PreTPM)| 2.9%| 1.6%|
Post-tax profit margin (PostTPM)| 2.3%| 0.9%|
Return on capital employed (ROCE)| 3.2%| 15.2%|
Return on equity (ROE)| 9.8%| 10.6%|
The gross profit margin is 58.5% in 2012 which drops comparing with 61.2% in 2011. The reason of that is the cost of sales has a growth in 2012. To compare operating profit margin, 2.2% in 2011, it rises to3.8% in 2012. This is because the operating profit has a suitable increase in 2012, which spends less administration expenses in 2012. Additionally, other operating income also helps that improve. In similar, the PreTPM also improves from 1.6% in 2011 to2.9% in the year of 2012, due to the reducing of finance expenses. The PostTPM in 2012 is 2.3% which is almost 2.5 times of that (0.9%) in 2011. It is because Carpetright gets the closely tax in these two years but much higher profit in 2012. The ROCE is 3.2% in the year of 2012 which is only one fifth of that in 2011 (15.2%). The cause of that is the non-current borrowings have the similar ratio in these two years. The ROE illustrates a little bit declines from 2011 with 10.6% to 2012 with 9.8%. The data in this two year are very closely with few difference.

Liquidity analysis
Liquidity | 2012| 2011|
Working capital or current ratio (CR)| 0.601:1(or 60.1%)| 0.620:1(or 62.0%)| Liquid or acid test ratio (ATR)| 0.281:1(or 28.1%)| 0.319:1(or 31.9%)| Inventory days (IDs)| 72 days| 75 days|

Trade receivables days (TRDs)| 19 days| 25 days|
Trade payables days (TPDs)| 109.2 days| 106.9 days|
Both CR and ATR are not that healthy but stable at around 1.6 and 0.2 each. It demonstrates that Carpetright has some problem in this aspect about short-term financial obligation. The ratio between current assets and current liabilities is not in balance. Carpetright should take some measures to revise this condition. Inventory days are considerable modest which is between 72 and 75 days from 2011 to 2012. Two and half months are not very long time to store the products till they are sold out. TRDs are quite effective at 19 days in 2012 and 25 days in 2011 that has rose by 6 days. A part of the reason is due to the power of the customers. To...
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