Analysing the Profitability and Liquidity of Super Retail Group Ltd (Sul) and the Reject Shop Ltd (Trs)
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Section B1: Financial ratio calculation and analysis
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…show more content… Meanwhile, it showed in TRS’s annual report (2011) that with the execution of Disaster Recovery Plan, together with the insurance coverage, the negative influence of the natural disaster can be minimized. TRS plans to open 16 new stores as well. It is believed that TRS also has a good opportunity for further profit growth.
2.2 Liquidity Analysis
2.2.1 Cash Flow to Sales Ratio (CFTSR)
|Company Name |2011 |2010 |Rate of change 10-11 |
|TRS |3.55% |6.88% |-48.4% |
|SUL |6.49% |5.60% |15.8% |
Generally speaking, the liquidity of SUL was worse than that of TRS in 2010. However, the position reversed in 2011. The CFTSR of SUL was 5.60% in 2010 and 6.49% in 2011. But for TRS, the CFTSR was decreased sharply from 6.88% (2010) to 3.55% (2011).
TRS experienced a drastic decline of its CFTSR from 2010 to 2011. According to TRS’s financial reports (2011), even though the sales revenue of TRS increased 7.3% in 2010, its cost of goods sold ascended dramatically by 16.0% as well. Meanwhile, its operating expenses increased by 9.5%.
For SUL, the situation is totally different due to the drop of its cost of sales by 11.6% and the drop of its operating expenses by 20.5% from