Country Road (ASX: CTY) is an upscale store located in Australia and New Zealand clothing retailer, with 68 freestanding stores and 77 department store concessions. It is traded on the Australian Stock Exchange, with South African company Woolworths Holdings Limited owning 88%. The company produces women's clothing, footwear & accessories; men's clothing, footwear & accessories; children's clothing; and home wares. Country Road’s strategy for growth is to expand both product ranges and its retail footprint. In light of the current economic conditions, CTY has implemented several cost-saving initiatives. Management continues to focus on cost control and inventory management. This report looks at the Financial Performance of country road over the four-year period between 2008-2011. Emphasis is put on the analysis of the Fulton Accounting Ratios, which are used in this example to make general predictions on the overall financial wellbeing of the company. Financial Review – 2008
The cash adequacy ratio shows an entity’s ability to reinvest in its operations and to make distributions to owners from its operating cash flow. This ratio is calculated by using the company’s cash from operating activities divided by capital expenditure and dividends paid. As shown in figure one, the cash adequacy ratio of 113.72% for 2008 represents how successful the company was with covering its current capital investment and dividends. The company was able to cover its investments and dividends 1.13 times over. This figure shows the company’s well-rounded performance, with investors possibly having positive reactions to the high figure. Cash Flow
The cash flow ratio compares the cash flow from operating activities with the current liabilities, to assess liquidity. Looking at Country Roads 2008 financial report (figure 1), the company had a cash flow ratio of 59.26%. This figure allows the cash flow from operating activities to cover nearly 60% of Country Roads’ current obligations. The higher the ratio the better the entity’s ability to meet its obligations. This high percentage allows the entity to meet its obligations 0.59 times over. Debt coverage
The debt coverage ratio links the cash flows from operating activities with long term debt, in contrast to the cash flow ratio in which the link is to short term liabilities. This ratio is a measure of a firm’s ability to survive in the longer term and remain solvent. The entity’s debt coverage ratio for 2008 was 20.42% meaning that it would take 0.2 years to repay the existing long-term debts. This can be compared to previous years and the current loan term. Cash flow from operating activities
The cash flow from operating activities (sales ratio) measures the relative amount of cash flow generated by each sales dollar. It is used to help interpret the profitability of an entity. As shown in figure one, the cash flow from operating activities is 6.78%. This tells us that for every sales dollar received, the entity generated an operating cash flow of over 6 cents. Again, this ratio needs to be compared to previous and later years to determine whether it is reasonable or not. It also should be compared to the equivalent accrual based ratio of return on sales, which is calculated by profit divided by net sales. Gross profit
Gross profit refers to the revenue less the cost of sales and is applicable to manufacturing and retail operations like Country Road. As shown in figure one, the gross profit for Country Road in 2008 was 37.46%. This shows that the business can create a positive profit figure.
2008 Financial Summary
As shown in figure one, the entity has successfully been able to compete in the retail industry with its high net sale and profit figures. With its gross profit of $119,665,000, Country Road has shown itself to have a large customer loyalty base, with its net sales increasing every year.
FIGURE 1 - 2008 FINANCIAL RATIO ANALYSIS
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Investopedia ULC. (2012). (Multiple). Retrieved April 20, 2012, from Investopedia: http://www.investopedia.com/dictionary/
Oliver, J. (2012, April). Fulton Ratio Calculations - Lecture Slide. Hawthorn, Victoria: Swinburne University.
Table of Figures
Figure 1 - 2008 Financial Ratio Analysis 5
Figure 2 - 2009 Financial Ratio Analysis 7
Figure 3 - 2010 Financial Ratio Analysis 9
Figure 4 - 2011 Financial Ratio Analysis 11
Figure 5 - Gross Profit Over 2008-2011 Period 12
Figure 6 - Current to Non-Current Liabilities 12
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