This report has been assigned by the University of Western Sydney to analyse strategic review for Premier Investment Ltd that was introduced in 2011in relation to its wide cost efficiency program and long term gross margin expansion program. The comparison analysis of 2011 and 2012 for Premier will be performed to examine the success of strategic review. Finally, there will be an identification of any red flags that might be highlighted in ratios analysis from Premier recast financial statements.
This report examined the performance of Premier Investment Limited for 2012. Firstly, the income statement and the balance sheet were recast and justified using additional information available in financial statement footnotes. Secondly, an investigation and estimates of profitability and financial strength of Premier are discussed. The Results of data analysed show mix ratios. Most of this ratios showed strengths compared to previous year. The analysis result indicated Premier’s performance has improved in comparison to previous year. However, day’s inventory and asset utilization show poor position.
Cost of goods sold includes costs incurred in bringing product to its present location and conditions. They are raw materials, finished goods and work-in-progress, purchasing department’s freight, handling and warehouse costs incurred to deliver the goods to the point of sale (Premier, note 2(j)). Selling general and administrative expenses includes item that are related to continuing operation these including Employee expenses, Operating lease rental expense, Advertising and direct marketing (Premier, note 5). Other Income includes Membership program fees, dividends, Amortisation of deferred income, gain on financial instruments, Royalty and licence fees, and other income not directly related to continuing operations (Premier, note 4). Investment income includes share of loss in its investment in associate (not 14). Other expenses includes items from continuing operations, not related directly to operations, including Depreciation of plant and equipment, Amortisation of plant and equipment under lease, Impairment of plant and equipment and Amortisation of leasehold premiums (Premier, 2012, note 5). Other current asset includes forward currency contracts – cash flow hedges, Held for trading financial instruments, Income tax receivable (Premier, not 31). Other long term assets include Trade and other receivables, investment in an associate, and available-for-sale financial assets that consist of investments in ordinary shares with no fix maturity date (Premier, notes 8, 11, 14) Short term debt include interest bearing liability (note, 16) Other long term debt includes provisions Refer to note 2 (s) (t), other financial instruments.
The gross profit margin details how efficiently a business is using its materials and labor in the production process and gives an idea of the cost and production efficiency of the business. The higher the percentage, the more the business is able to hold each dollar of sales, which means more money, is left over for other operating expenses and net profit. On the other hand, low gross profit margin ratio shows that the business earns a low level of revenue to support its operating expense and net profit, and one of the reason behind it may be the business is struggling to control its production and inventory cost. (Gitman, L, et al, 2008). Premier 2012 gross margin is 60.57%. This means, for every one dollar generated in sales, 60.57 cents remain in the company to pay for its operating expenses. The gross profit margin has increased by 1.06% over 2011. The analysis shows the company's management team is improving price setting policies, and controlling its production cost this is consistent with the gross margin expansion program. The Return on Total Assets ratio measures how well a company is using its assets to generate after tax...