An Analysis on Debenhams

Topics: Generally Accepted Accounting Principles, Stock market, Financial ratios Pages: 12 (3433 words) Published: March 14, 2011
An analysis on Debenhams

We have taken the company Debenhams for our analysis. The methodology adopted for the analysis includes ratio analysis and a comparative study with Lewis, a leading apparel company in U.K Company profile: Debenhams

Debenhams plc engages in the operation of department stores. The company’s stores provide a range of products, including women’s wear, men’s wear, children’s wear, lingerie, health and beauty, and home ware products, as well as gifts and accessories. It offers its products under its own brands comprising Red Herring, Mantaray, Maine New England, Debut, and Bluezoo. The company also provides its products under the international brands, such as Chanel, Clarins, Denby, Levi Strauss, Radley, and Ben Sherman; and concession brands consisting of Coast, Jacques Vert, Oasis, Phase Eight, Wallis, and Warehouse. It operates approximately 166 stores in the United Kingdom, the Republic of Ireland, and Denmark, as well as operates approximately 60 international franchise stores in 23 countries. In addition, the company offers its products through an online store, Debenhams plc was founded in 1778 and is headquartered in London, the United Kingdom.” (Debenhams plc (DBHMY.PK), 2009). Ratio Analysis of Debenhams

Ratio analysis is considered to be a powerful method for analyzing the financial health of a company. We are analyzing Debenhams with the help of some key ratios in the below section. Sales (top line) growth:

| Growth of Debenhams| |
 | 1 yr| 3 yr| 5 yrs|
Sales| 10.67| 6.11| 5.67|
EPS| -24.67| -5.98| -21.67|
(Financials: Debenhams Plc. (DBHMY.PK), 2010).
Description: the data given above shows that company’s last one year sales is higher than the average of last five years. The EPS is showing a negative growth. The sales growth of the company in the last one year gives an indication of the better growth of the firm. Profit margins

 | 2010| 2009| 2008| 2007| |
Gross Profit | 281| 264.9| 267.6| 266| |
Gross Profit margins | 13.25534| 13.82857| 14.5498| 14.99098| | Operating Profit | 189.7| 182.2| 176.1| 179.8| |
Operating Profit margins | 8.948535| 9.51138| 9.574815| 10.133| |

Description: company’s gross profit margin ratio is 13% in 2010 and showing a decreasing trend compared to previous year. Also the operating margin shows a consistency and the ratio stand between 8% to 13% for the last 5 years. Gearing Ratios:

Operating leverage is a tool in finance to estimate the percentage change in operating income for a one percent change in revenue. Financial leverage is used to estimate the percentage change in net income for a one percent change in operating income. We can see variations in the computation of these ratios from industry to industry. Gearing Ratios of Debenhams|

 | 2010| 2009| 2008| 2007|
Operating leverage= (Revenue- Variable cost)/Operating income|  | 1.486031| 1.457739| 1.522998| 1.481646|
Financial Leverage= Operating Income/ Net Income|
 | 1.95567| 1.917895| 2.287013| 2.275949|
Description: operating leverage of the company is showing a consistent trend for the last four years. In 2010, the operating leverage shows a number of 1.48, i.e., 1% change in the revenue leads to 1.49% change in operating profit. It is definitely a good sign of company’s growth. Also the Financial leverage also shows a company’s financial strength. In 2010, it is standing at 1.96%. Interest coverage ratio:

Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to repay its debt obligations. Times Interest Earned or Interest Coverage is a great tool when measuring a company's ability to meet its debt obligations. If the interest coverage ratio is less than 1, it indicates that the company is not generating enough cash from its operations to meet its interest obligations. If this is the case, then the Company would then have to either use cash on...

Bibliography: Debenhams plc. (DBHMY.PK), 2009. [Online] Yahoo. Finance. Available at:[Accessed 1 January 2011].
Financials: Debenhams Plc (DBHMY.PK), 2010. [Online] REUTERS. Available at:[Accessed 1 January 2011].
India heads for 9 per cent growth in 2011, 2009. [Online] yahoo. Finance. Available at:[Accessed 1 January 2011].
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