Analysing the Profitability and Liquidity of Super Retail Group Ltd (Sul) and the Reject Shop Ltd (Trs)
Section B1: Financial ratio calculation and analysis
1. Introduction
In this report, the profitability and liquidity of Super Retail Group Ltd (SUL) and The Reject Shop Ltd (TRS) will be compared by analysing these ratios-- return on assets, profit margin, gross profit rate, cash flow to sales ratio and acid ratio. In addition, we will also focus on the ratios change between the two companies from year 2010 to 2011 and reveal what these ratios illustrate and how they would influence the future performance and which company performs better.
2. Financial ratios analysis
1. Profitability Analysis
2.1.1 Return on Assets (ROA)
|Company Name |2011 |2010 |
|TRS |18.08% |N/A |
|SUL |16.00% |N/A |
According to the calculated result, SUL’s ROA was 16.00%, which was 2.08% less than TRS (18.08%). It indicates that every dollar invested in assets of TRS will generate 2.08 cents more than SUL.
The main reason contribute to the difference is the composition of assets. As the annual reports showed, SUL’s inventories, property, plant and equipment and intangible assets took proportion of 51.2%, 19.1% and 19.4% of the total assets in 2011 respectively, while those of TRS were 40.7%, 49.5% and 0%. Basically, assets like inventories and intangible assets seldom contribute to the gained profit during the period. Thereby, a larger proportion of these kinds of assets may cause a lower ROA.
2.1.2 Gross Profit Rate (GPR)
|Company Name |2011 |2010 |Rate of change 10-11 |
|TRS |38.95% |43.53% |-10.5%
1. Introduction
In this report, the profitability and liquidity of Super Retail Group Ltd (SUL) and The Reject Shop Ltd (TRS) will be compared by analysing these ratios-- return on assets, profit margin, gross profit rate, cash flow to sales ratio and acid ratio. In addition, we will also focus on the ratios change between the two companies from year 2010 to 2011 and reveal what these ratios illustrate and how they would influence the future performance and which company performs better.
2. Financial ratios analysis
1. Profitability Analysis
2.1.1 Return on Assets (ROA)
|Company Name |2011 |2010 |
|TRS |18.08% |N/A |
|SUL |16.00% |N/A |
According to the calculated result, SUL’s ROA was 16.00%, which was 2.08% less than TRS (18.08%). It indicates that every dollar invested in assets of TRS will generate 2.08 cents more than SUL.
The main reason contribute to the difference is the composition of assets. As the annual reports showed, SUL’s inventories, property, plant and equipment and intangible assets took proportion of 51.2%, 19.1% and 19.4% of the total assets in 2011 respectively, while those of TRS were 40.7%, 49.5% and 0%. Basically, assets like inventories and intangible assets seldom contribute to the gained profit during the period. Thereby, a larger proportion of these kinds of assets may cause a lower ROA.
2.1.2 Gross Profit Rate (GPR)
|Company Name |2011 |2010 |Rate of change 10-11 |
|TRS |38.95% |43.53% |-10.5%
References: 3. Beest, F. Van., Braam G. and Boelens S. 2009, Quality of Financial Reporting: measuring qualitative characteristics, Radboud University, Nijmegen. 4. Johnson T. 2005, Relevance and Reliability, FASB report, viewed 11th October 2012, .