Solution
David answered on
Dec 21 2021
Introduction:
Introduction:
Myer Holdings Ltd (ASX: MYR) is a Melbourne; Australia based company, and is Australia’s largest departmental stores chain. Its offerings include womenswear, cosmetics, fragrance & personal care, fashion accessories, electrical, homewares, toys, stationaries, food & confectionaries, travel goods, miss shop (youth). It has network of about 68 retail stores in vintage locations across Australia. Its
and composition consists three segments: Myer Exclusive
anch, National and International Brand, Concessions.
Harvey Norman Holdings Ltd (ASX: HVN) is a New South Wales, Australia based company, leading retail chain store. It offers electrical, furniture, computerized communication, computer, bedding goods and home improvements. It has unique organization structure of franchise for each of its offering. So, typically its super store consist 3-4 franchise operator offering different goods, with common warehouse, but different staff and administration. Its leading
and names include Harvey Norman, Domayne and Joyce Mayne. It has its franchises in Australia, New Zealand, Ireland, Singapore, Malaysia, Slovenia and Crotia.
The below report give the comparative overview of various financial aspects of above-mentioned two companies. The evaluation is relative to each other and aims at analyzing the financial detail of both in order to provide assistance in making judgments about potential investment opportunity.
Ratio:
A) Profitability: The profitability ratios measure the performance of an entity in terms of profit generated relative to revenues, equity, assets and/or capital.
a. Gross profit margin indicates the sales minus direct cost incu
ed for sale. Higher the gross profit margin, better the company’s profitable ability. Myer holding has quite higher gross profit margins than that of Harvey. Further, the gross profit margins of Myer have improved from 2011 to 2012, while the ratio has declined in case of Harvey. That means the Myer has been able to control or reduce its direct cost of selling goods, while Harvey could not keep the cost control.
. Net profit margin considers deduction of all operating and non-operating expenses from revenues and hence, indicates the net profiting ability of an entity. The net profit margins of both companies declined from 2011 to 2012, which may be caused due to higher costs or reduction in selling price. However, it is unclear that the increase in operational cost or non-operational cost (like interest) caused net profits to decline.
Despite having higher gross profit margins, the net profit margins of Myer are significantly lower than Harvey. One reason can be the higher interest expenses, as the debt to assets ratio of Myer is quite higher than that of Harvey.
c. Return on equity and return on assets:
In case of return on assets, the Myer definitely has edge over Harvey with higher return on assets in both 2011 and 2012. The possible reason for higher return is lower asset base. The return on assets = Assets turnover X Net profit margins
Despite of having lower net profit margins, the Myer could achieve higher return on assets due to high asset turnover, which indicate its superior operational efficiency.
Return on equity of Myer is quite higher (largely double) than that of Harvey, thanks to its (Myer’s) lower equity base and financial leverage.
Return on equity = Return on assets X financial leverage
Both the return on assets and financial leverage are higher Myer, and contributing to higher return on equity.
Due to net profits decline from 2011 to 2012, the return on assets and return on equity decreased for both the companies in 2012 from 2011. In nutshell, from profitability point of view, the Myer is superior to Harvey due to higher return on assets and equity, mainly on account of operational efficiency and resort of financial leverage. The concern is lower net profitability of Myer, which if decline further; the return on equity would decrease faster than that of Harvey.
B) Efficiency: The efficiency of an entity can be measure by analyzing the activity ratios, also known as asset utilization ratios. These ratios indicate the efficiency of an entity in managing its assets.
a. Assets turnover ratio: The ratio shows the times of revenues generated from given total asset base over a reporting period. If it is 1 time, then implies revenue equal to total assets used in a reporting period.
The...