Joyce Company Financial Analysis

This assignment presents a comprehensive financial analysis of the Joyce Company, covering two fiscal years (2015 & 2016). It delves into profitability metrics like EBIT and interest coverage ratio, analyzes cash flow trends across operating, investing, and financing activities, and assesses market performance through the PE ratio. The report compares Joyce's financial health to competitors and highlights key insights derived from the analysis.

Accounting for Management
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Executive Summary
The present report has been developed in order to analyze and examine the financial
performance of Joyce Corporation Ltd in the past two financial years of 2015 and 2016. The report
has analyzed and examined the financial condition of the company through assessing its profitability,
liquidity, asset efficiency, and capital structure and market performance. The report has demonstrated
the profitability position of the company has not realized much increase in the financial year 2016 as
compared to the 2015. The ability of the company to generate profits from its asset base has also been
decreased in the financial year 2016. The liquidity position of the company has also shown a negative
trend in the year 2016 as compared to the past year. It has also been depicted from the analysis of
capital structure of the company that it has reduced the optimal leverage in the year 2016. The interest
expenses of the company have also been increased significantly while its market performance is not
estimated to be good as compared to competitors. Thus, it can be this that the company needs to
devise and implement effective growth strategies for improving its profitability position and sustain
the competitive retail industry of Australia.
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Contents
Executive Summary...................................................................................................................2
Company Overview...................................................................................................................4
Profitability................................................................................................................................5
Asset Efficiency.........................................................................................................................6
Liquidity.....................................................................................................................................7
Capital Structure.........................................................................................................................8
Interest servicing ratio (Interest Cover).....................................................................................9
Cash Flow.................................................................................................................................10
Market Performance.................................................................................................................10
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Company Overview
The Joyce Corporation Limited is an Australian company listed on ASX that
emphasizes on carrying out business-to-consumer market. The company carries out major
operation of foam manufacturing. The major segments of the company include franchising,
company owned stores and the operations of retail kitchen stores. The franchising segment of
the company carries out operations in relation to bed-shed operations, a bedroom furniture
retailer having varied stores in Australia. The company own stores of KWB Group Pty Ltd,
an Australian retailer involved in designing of kitchen. At last, the kitchen stores of the
company provides diverse range of products based on European design concepts such as
glass splash backs and other appliances. The company owns different retail stores involved in
providing varied products related to beds, mattresses, kid beds, bed linens, custom design
kitchens and wardrobes (Gibson, 2010). The company conducts it operations in highly
competitive retail industry of Australia that is dominated by several dominant players. As
such, the major competitor of the company in Australian retail market includes Fantastic
Holdings Ltd and Nick Scali Ltd. The company employees about 201-500 workforce and is
presently recognized as a successful retail company in the Australian market with 130 years
of business (Annual Report 2015 and 2016).
Financial Data Used to calculate the Ratios
Joyce Corporation Ltd
Amount in $000
Financial Data 2014 2015 2016
Net Profit After Tax $ 5,221.00 $ 3,981.00
EQUITY $ 22,730.00 $ 26,450.00 $ 25,990.00
Average Equity $ 24,590.00 $ 26,220.00
TOTAL ASSETS $ 36,618.00 $ 45,814.00 $ 38,610.00
Average Total Assets $ 41,216.00 $ 42,212.00
SALES REVENUE $ 34,737.00 $ 56,544.00
Gross Profit $ 17,259.00 $ 25,732.00
Trade Debtors $ 416.00 $ 577.00 $ 560.00
Average Trade Debtors $ 496.50 $ 568.50
Inventory $ 2,108.00 $ 2,185.00 $ 3,642.00
Average Inventory $ 2,146.50 $ 2,913.50
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Cost of Goods Sold $ 17,478.00 $ 30,812.00
Current Assets $ 32,866.00 $ 20,640.00
Quick Assets $ 30,681.00 $ 16,998.00
Current Liabilities $ 13,376.00 $ 11,341.00
Total Liabilities $ 19,364.00 $ 12,620.00
Finance Cost $ 262.00 $ 90.00
EBIT $ 1,170.00 $ 5,190.00
EPS (per dollar) $ 0.16 $ 0.08
Market Price (MPS) in dollar $ 0.86 $ 1.18
(Annual Report 2015 and 2016).
Profitability
The profitability position of the company can be analyzed though calculation of the
following ratios:
Return on Equity (ROE): The ROE ratio depicts the profitability of a company by assessing
its capacity to provide profits in comparison to the equity invested by the shareholders. The
formula for calculation is:
ROE=Net Income/Shareholder Equity
Return on Assets: The ratio shows the profit realized by a company in relation to its overall
assets. The formula for its calculation is:
ROA=Net Income/Total assets
Gross Profit Margin: The ratio assess the financial condition of a company through depicting
the amount of revenue realized after deducting cost of goods sold (COGS). It is calculated as:
Gross Profit=Gross Profit/Revenues (Weil, Schipper and Francis, 2013)
Net Profit Margin: The profit realized by a company after meeting all its business operations
expenditures such as interest, taxes and dividends. It is calculated as:
Net Profit=Net Income/Net Sales
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1 Return on equity Net profit after tax *100 $ 5,221.00 2015 $ 3,981.00 2016
Average equity $ 24,590.00 21.23% $ 26,220.00 15.18%
2 Return on assets Net profit after tax *100 $ 5,221.00 12.67% $ 3,981.00 9.43%
Average total assets $ 41,216.00 $ 42,212.00
3 Net profit margin Net profit after tax *100 $ 5,221.00 15.03% $ 3,981.00 7.04%
Sales revenue $ 34,737.00 $ 56,544.00
4 Gross profit margin Gross profit *100 $ 17,259.00 49.68% $ 25,732.00 45.51%
Sales revenue $ 34,737.00 $ 56,544.00
(Annual Report 2015 and 2016)
Profitability position of the Joyce Company faced the downturn in year 2016 as
compared to year 2015. All the above profitability ratios has been decreased in year 2016 as
compared to year 2015 which shows company has failed to keep the increased trend in the
profitability position.
Asset Efficiency
The asset efficiency ratios measure the efficiency of a company to use its asset for
achieving profits. It can be measured through analysis of following ratios:
Asset Turnover Ratio: It measures the company’s ability to generate sales in relation to its
asset base. The formula for calculation is:
Asset Turnover=Total Revenue/ Average Assets
Days Inventory: It measures the average number of days of holding inventory before its sales.
It is calculated through the following formula:
Days Inventory= (Average Inventory / Cost of Goods Sold) x 365 (days)
Days Debtors: The ratio measures the ability of a company to collect the cash from its
debtors. The formula for calculation is:
Days Debtors= (Average Debtors/ Sales Revenue) x 365 (days)
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1 Asset turnover Sales revenue $ 34,737.00 2015 $
56,544.00
2016
Ratio Average total assets $ 41,216.00 0.84 $
42,212.00
1.34
2 Days debtors Average trade debtors *365 $
496.50
5.22 $
568.50
3.67
Sales revenue $ 34,737.00 $
56,544.00
3 Days inventory Average inventory *365 $
2,146.50
44.83 $
2,913.50
34.51
Cost of goods sold $ 17,478.00 $
30,812.00
(Annual Report 2015 and 2016)
Assets efficiency of the company was excellent in year 2016 as compared to year
2015. It can be said through analysis of the above ratios. Assets turnover ratio has been
increased in year 2016 that clearly indicates that less assets has been used to earn more
revenue. Debtor’s collection and inventory conversion period has also been decreased in year
2016 that shows healthy consumption of assets.
Liquidity
The liquidity position of the company can be analyzed through the help of following
ratios:
Current Ratio: It measures the ability of a company for meeting its short and long-term
financial obligations. It is calculated as:
Current Ratio=Current Assets/Current Liabilities
Quick Ratio: It measures the ability of a company to meet its short-term obligations and is
calculated as:
Quick Ratio= (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
Liquidity ratios 2015 2016
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1 Current ratio Current assets $
32,866.00
2.46 $
20,640.00
1.82
Current liabilities $
13,376.00
$
11,341.00
2 Quick ratio Quick assets $
30,681.00
2.29 $
16,998.00
1.50
Current liabilities $
13,376.00
$
11,341.00
(Annual Report 2015 and 2016)
There is decrease in the current ratio from 2.46 times in year 2015 to 1.82 times in
year 2016 that shows value of current assets has been decreased to pay the short term
liabilities. Same liquidity position is seen in the quick ratio as well. So overall it can be said
that liquidity position in year 2015 was much stronger as compared to year 2016. So it there
is decreasing trend in the liquidity position.
Capital Structure
The capital structure ratios indicate the proportion of debt and equity in the overall
capital of a company and can be analyzed through the use of following formulas:
Debt to Equity Ratio: It measures the overall debt proportion in the capital structure of a
company in comparison to the equity and is calculated as:
Debt to Equity Ratio=Debt/Equity (Weygandt, Kieso and Kimmel, 2010)
Gearing Debt Ratio: It measures the leverage structure of accompany by comparing the
owner’s equity to funds borrowed. It is calculated as:
Gearing Debt Ratio=Debt/ (Debt + equity)
Equity Ratio: It measures the total assets that are financed by stockholders and is calculated
as:
Equity Ratio=Total Equity/Total Assets
1 Debt to equity ratio Total liabilities *100 $
19,364.00
2015 $
12,620.00
2016
Total equity $ 73.21% $ 48.56%
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26,450.00 25,990.00
2 Debt ratio Total liabilities *100 $
19,364.00
42.27% $
12,620.00
32.69%
Total assets $
45,814.00
$
38,610.00
3 Equity ratio Total equity *100 $
26,450.00
57.73% $
25,990.00
67.31%
Total assets $
45,814.00
$
38,610.00
(Annual Report 2015 and 2016)
Debt to equity ratio of the company has been decreased in year 2016 to 48.56% but
the debt to equity ratio of competitors has increased in year 2016 that shows that Joyce has
more equity capital as compare to debt capital. Same has also been reflected from the equity
ratio and debt ratio. There is no change in the equity ratio of the competitors but the equity
ratio of the Joyce increased a lot in year 2016 because of payment of debt capital. So it can be
said that capital structure of the Joyce Company is less leveraged as compared to its
competitor (Stickney, 2009).
Fantastic Holdings Ltd Nick Scali Ltd
2016 2015 2016 2015
Debt Equity Ratio (TL/TE) 72% 70.3% Debt Equity Ratio
(TL/TE) 110.5% 108.4%
Gearing/Debt Ratio
(TL/TA) 41.8% 41.3% Gearing/Debt Ratio
(TL/TA) 52.4% 52%
Equity Ratio (TE/TA) 58.2% 58.7% Equity Ratio (TE/TA) 47.6% 48%
Interest servicing ratio (Interest Cover)
The ratio measures the ability of a company to meet its interest expenses on
outstanding debt. It is calculated through the following formula:
Interest Coverage Ratio=Earnings before interest and taxes (EBIT)/ Interest Expenses
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1 Interest coverage
ratio
EBIT $
1,170.00
2015 $
5,190.00
2016
Net finance costs $
262.00
4.47 $
90.00
57.67
Interest coverage ratio has been increased in year 2016 as compared to year 2015 that
indicates that company has more profits available to pay the finance cost on the debt
financing (Palepu, 2007).
Cash Flow
The three sections of the cash flow statement are cash flow operating activity, cash
used or flow from investing activity and cash flow or used in financing activity. Investing
activity shows highest cash inflow in the company in year 2016. The reason for this is that
company has sold its major assets in year 2016.
Market Performance
The PE ratio of the Joyce Company in year 2015 was 5.31 times and it was increased
a lot to 14.22 times in year 2016 (Yahoo Finance: Historical Data, 2017). The increase in PE
ratios can be due to increase in market price per share or decrease in earnings per share. To
be more clear decrease in EPS is not beneficial for investor’s point of view. Looking at the
competitor PE ratio it can be said that market performance was low as compare to other
players in the same industry.
P/E ratio of Fantastic Holdings Ltd P/E ratio of Nick Scali Ltd
2016 20.3 times 14.5 times
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References
Annual Report 2015. Joyce Corporation.
Annual Report 2016. Joyce Corporation.
Gibson, C. 2010. Financial Reporting and Analysis: Using Financial Accounting
Information. Cengage Learning.
Palepu, K. et al. 2007. Business Analysis and Valuation: Text and Cases. Cengage Learning
EMEA.
Stickney, C.P. et al. 2009. Financial Accounting: An Introduction to Concepts, Methods and
Uses. Cengage Learning.
Weil, R., Schipper, K. and Francis, J. 2013. Financial Accounting: An Introduction to
Concepts, Methods and Uses. Cengage Learning.
Weygandt, J., Kieso, D.E. and Kimmel, P.D. 2010. Financial Accounting: IFRS. John Wiley
& Sons.
Yahoo Finance: Historical Data. 2017. Joyce Corporation. [Online]. Available at:
https://au.finance.yahoo.com/quote/JYC.AX/history?
period1=1349634600&period2=1507401000&interval=1mo&filter=history&frequency=1mo
[Accessed on: 8 October, 2017].
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