Ratio Analysis

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To: Syed Naqavi

From: Thu Chu

Date: 2nd December 2011

Title: A year-on-year comparison between Kingfisher PLC year end 31 January 2011 and Home retail group PLC year end 28th February 2011.

Contents

Introduction3
Kingfisher PLC3
Home Retail Group3
Analysis4
Profitability Ratios4
Liquidity Ratios5
Gearing Ratios5
Investment Ratios6
Performance Factors6
Kingfisher PLC7
Home Retail Group7
Appendix8
Profitability Ratios8
Liquidity Ratios9
Gearing Ratios9
Investment Ratios10
Bibliography11

Introduction

The aims and objectives of this report are to compare the two companies, Kingfisher Plc. and Home Retail Group Plc., using their annual report published for the year 2011. With the help of the financial statements, it will be possible to calculate different ratios that are relevant to the comparison between the two businesses. Through this comments can then be made on the performance of both companies for the year, stating some of the possible factors that could have made affected this. Comparison will be on a year-to-year basis and then between the two companies as a whole.

When comparing two companies like Kingfisher and the Home Retail Group, there are a few limitations needed to be considered before this is possible. The first would be the different accounting policies that each corporation have chosen to adapt to their financial statements; this could be in regards of the depreciation or inventory valuation method used for the preparation of relevant statements.

Another important point to note is that financial statements are based on historical information and therefore this would not be as objective to when we come to use them for the comparison. Expanding on this, the closing balances on the statement may make the ratios appear misleading when comparing the two companies for the period, i.e. seasonal sale boost; Christmas and New Year promotion. The main issue that should be considered is the date that they have published their account Kingfisher being 31st January 2011 and Home Retail Group at 28th February 2011. So it would not be possible to make a more accurate comparison, as the economic conditions may have changed for that one month Kingfisher did not trade.

Although it would suggest comparing the two businesses is not ideal, the two companies are somewhat similar. Therefore this should make the approximation more accurate and thus the comparison more meaningful.

Kingfisher PLC

Kingfisher is a company that focuses on mainly offering its customers home improvements products for DIY and such likes. Its main retail brand in the UK is B&Q with a market share of 14% and they are currently top of the market. They are also making a respectable breakthrough in France with their brands, Castorama and Brico Depot taking 21% of the market share with the top place. Moreover they have expanded to Germany, Turkey, Spain, China, Poland and Russia

Home Retail Group

Analysis

When comparing two companies like Kingfisher and the Home Retail Group, there are a few factors that need to be considered before this is possible.

Profitability Ratios

[Gross Profit (GP)]

[Net Profit (NP)]

[Return on Capital Employed (ROCE)]

[Asset Turnover]

Liquidity Ratios

[Working Capital Ratio]

[Acid Test Ratio]

[Inventory Ratio]

[Receivable Ratio]

[Payable Ratio]

Gearing Ratios

[Debt Ratio]

[Interest Cover Ratio]

Investment Ratios

[Earning per Share (EPS)]

[Price/Earnings (P/E) Ratio]...
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