Company Performance Analysis

The report is prepared with the objective for performing the financial evaluation of an entity listed in ASX in order to undertake decisions. Therefore, Dominos Pizza Enterprises Limited is selected as the entity. Different sections are prepared for effective presentation of the report. Dominos Pizza Enterprises Limited has sound profitability position because of the significant rise in both gross margin and net margin. However, the entity is needed to formulate strategies for enhancing its ROCE in future, since it is deemed to be a vital indicator of business profitability.

Running head: COMPANY PERFORMANCE ANALYSIS
Company Performance Analysis
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1COMPANY PERFORMANCE ANALYSIS
Abstract:
The report is prepared with the objective for performing the financial evaluation of an
entity listed in ASX in order to undertake decisions. Therefore, Dominos Pizza
Enterprises Limited is selected as the entity. Different sections are prepared for
effective presentation of the report. Dominos Pizza Enterprises Limited has sound
profitability position because of the significant rise in both gross margin and net
margin. However, the entity is needed to formulate strategies for enhancing its
ROCE in future, since it is deemed to be a vital indicator of business profitability. In
addition, Dominos Pizza Enterprises Limited is able to maintain its operating
efficiency as well as profitability that would maximise the wealth of the shareholders
as well as the investors. It could be observed that the dividend payout ratio of the
entity has increased massively in 2017 and it has fallen slightly in 2018. This implies
that Dominos Pizza Enterprises Limited is involved in following constant dividend
policy, as it distributes dividends based on the profit generated by the organisation.
Hence, the investor is recommended to invest in the shares of Dominos Pizza
Enterprises Limited.

2COMPANY PERFORMANCE ANALYSIS
Table of Contents
I. Introduction:...............................................................................................................3
II. Financial analysis of Dominos Pizza Enterprises Limited:.......................................3
2.1 Company description:.........................................................................................3
2.2 Computation and assessment of performance ratios:........................................3
2.3 Detection of marketable securities:.....................................................................7
2.4 Sensitivity analysis:.............................................................................................7
2.5 Systemic and un-systemic risks:.........................................................................9
2.6 Dividend payout ratio and payout policy:..........................................................10
III. Letter of recommendation:.....................................................................................10
IV. Conclusion:............................................................................................................11
References:................................................................................................................12

3COMPANY PERFORMANCE ANALYSIS
I. Introduction:
By assessing the financial health of the entities, it becomes possible to gauge
the ongoing financial performance along with gathering an idea of their future
performance (Amit and Villalonga 2014). Due to this reason, the investment
professionals conduct financial performance analysis of those entities so that
appropriate investment decision could be undertaken. For performing the evaluation,
there are different tools used such as sensitivity analysis, ratio analysis and others.
The qualitative aspects to be taken into account include risk analysis of the firms,
marketable securities as well as others (Atanasov and Black 2016). The report is
prepared with the objective for performing the financial evaluation of an entity listed
in ASX in order to undertake decisions. Therefore, Dominos Pizza Enterprises
Limited is selected as the entity. Different sections are prepared for effective
presentation of the report. Initially, a brief overview of the business operations of the
above-mentioned entity would be provided in the paper. The next section elaborates
on the financial health of the entity by performing ratio analysis related to profitability
and operating efficiency. The next section focuses on performing cash management
evaluation that is made with the help of identifying marketable securities. After this,
there has been conduction of sensitivity analysis so that the viability of the proposed
project could be analysed accordingly. The aim of the next section is to include a
discussion of systemic and un-systemic risks. In addition, dividend payout ratio is
computed for the chosen entity and accordingly, evaluation would be made of its
payout policy. Finally, the report would shed light on recommending the feasibility of
investing in the chosen entity.
II. Financial analysis of Dominos Pizza Enterprises Limited:
2.1 Company description:
Dominos Pizza Enterprises Limited is the biggest pizza chain in Australia in
terms of network sales and network store numbers and it is the biggest global
franchise for Dominos Pizza brand. In other words, it is involved in operating retail
food outlets. The organisation is involved in operating a network of nearly 2,400
stores. The first store of Dominos that opened in Australia has been in the year 1983
in Springwood, Queensland. It then offered home delivery after the concept was
used by the Pizza Oven Family Restaurant in the year 1981 in Holland Park
Brisbane. Silvio’s Dial-a-Pizza has bought the Master Franchise of Australia and
New Zealand in 1993 and in 1995, the two brands merged and they are rebranded in
the name of Domino’s Pizza. In the year 2018, Dominos Pizza Enterprises Limited
has been inducted into the “Queensland Business Leaders Hall of Fame”
(Dominos.com.au 2019).
2.2 Computation and assessment of performance ratios:
The assessment of operating efficiency and profitability could be taken into
account in the form of two significant aspects in order to determine the current
financial performance and standing of Dominos Pizza Enterprises Limited. The
below-stated discussion reveals the assessment of different ratios under operating
efficacy and profitability of the selected organisation:
Analysis of profitability:

4COMPANY PERFORMANCE ANALYSIS
The evaluation of profitability ratios is made with the objective of determining
the capability of the business in generating income compared to the expenses
required to be incurred fir carrying out business operations (Benson, Faff and Smith
2014). Profitability ratios are of various types and in this case, three key ratios are
considered, which are evaluated briefly as follows:
Profitability Ratios
Particulars
Detail
s
2016 (in
$'000)
2017 (in
$'000)
%
Chang
e
2018 (in
$'000)
%
Chang
e
Revenue A 705,702 790,861 794,072
Gross profit B 419,633 436,734 408,397
Operating profit C 119,358 137,605 165,223
Net profit D 86,592 105,804 121,693
Total assets E 1,125,728 1,132,793 1,302,411
Current liabilities F 260,955 230,146 201,045
Gross margin B/A 59.46% 55.22% -7.13% 51.43% -6.87%
Net margin D/A 12.27% 13.38% 9.03% 15.33% 14.55%
Return on capital employed
(ROCE)
C/(E-
F) 13.80% 15.24% 10.45% 15.00% -1.59%
Table 1: Profitability ratios of Dominos Pizza Enterprises Limited for the years
2016-2018
(Source: Annualreport2018.dominos.com.au 2019)
2016 2017 2018
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Profitability Ratios
Gross margin
Net margin
Return on capital employed
(ROCE)
Figure 1: Profitability ratios of Dominos Pizza Enterprises Limited for the years
2016-2018
(Source: Annualreport2018.dominos.com.au 2019)
Based on the above table and figure, it could be stated that the first ratio is
gross margin, which represents the proportion of profit remaining to the organisation
after all the production payments are settled by the organisation (Brown 2014). In
accordance with the 2018 annual report of Dominos Pizza Enterprises Limited, the
main expense includes food costs disclosed under expenses in the income

5COMPANY PERFORMANCE ANALYSIS
statement. From the above figure, it could be seen that Dominos Pizza Enterprises
Limited has experienced a falling trend in gross margin from 2016 to 2018 and rise in
food expenses has been a crucial reason behind the downfall of the ratio and this is
not a sound indicator for Dominos Pizza Enterprises Limited.
Net margin implies the ability of any firm to produce profit after it has cleared
its non-direct payment of expenses (Decisions 2015). In case of Dominos Pizza
Enterprises Limited, net margin is observed to increase over the stated period and
this is a favourable signal to the profitability of the organisation. The minimisation in
some significant expenses such rise in interest income and marketing costs could be
adjudged as the major reasons for such increase.
ROCE gauges the capacity of an entity to derive profit from the employed
capital by contrasting net operating income to total assets less current liabilities
(Easton and Sommers 2018). From the above figure, it could be seen that after
ROCE has increased from 2016 to 2017, it has fallen slightly in 2018 owing to the
considerable amount of increase in operating income. However, the decline in the
ratio could be observed in 2-18 and excess increase in current liabilities could be
adjudged as the primary reason behind the same.
It is noteworthy to state that depending on the above discussion, Dominos
Pizza Enterprises Limited has sound profitability position because of the significant
rise in both gross margin and net margin. However, the entity is needed to formulate
strategies for enhancing its ROCE in future, since it is deemed to be a vital indicator
of business profitability.
Analysis of operating efficiency:
The internal efficacy of the firms in using assets and liabilities could be
ascertained by analysing operating efficiency. This aids in determining the overall
business performance of an organisation (Gallo 2014). There are four ratios that
have been used in evaluating the operational efficacy of Dominos Pizza Enterprises
Limited, which include the following:
Operating Efficiency Ratios:-
Particulars Details
2016 (in
$m)
2017 (in
$m)
%
Change
2018 (in
$m)
%
Change
Revenue A 705,702 790,861 794,072
Cost of sales B 286,069 354,127 385,675
Opening inventories C 12,282 16,675 21,098
Closing inventories D 16,675 21,098 19,271
Average inventories E=(C+D)/2 14,479 18,887 20,185
Opening receivables F 43,883 72,143 72,615
Closing receivables G 72,143 72,615 78,181
Average receivables H=(F+G)/2 58,013 72,379 75,398
Opening payables I 108,826 150,665 136,376
Closing payables J

6COMPANY PERFORMANCE ANALYSIS
150,665 136,376 156,045
Average payables K=(I+J)/2 129,746 143,521 146,211
Days inventory
turnover L=365/(B/E) 18.47 19.47 5.38% 19.10 -1.87%
Days receivables
turnover
M=365/(A/
H) 30.01 33.40 11.33% 34.66 3.75%
Days payables
turnover
N=365/(B/
K) 192.24 140.56 -26.88% 147.68 5.06%
Cash conversion cycle L+M-N
-
143.76
-
87.69 -39.00%
-
93.92 7.10%
Table 2: Operating efficiency ratios of Dominos Pizza Enterprises Limited for
the years 2016-2018
(Source: Annualreport2018.dominos.com.au 2019)
Days inventory
turnover Days receivables
turnover Days payables
turnover Cash conversion
cycle
-200.00
-150.00
-100.00
-50.00
-
50.00
100.00
150.00
200.00
250.00
Operating Efficiency Ratios
2016
2017
2018
Figure 2: Operating efficiency ratios of Dominos Pizza Enterprises Limited for
the years 2016-2018
(Source: Annualreport2018.dominos.com.au 2019)
By using inventory turnover days, it becomes possible to gauge the efficiency
of a firm to manage inventory (Gaur and Kesavan 2015). In accordance with the
above figure, it could be seen that inventory turnover days after increasing from 2016
to 2017 has fallen slightly in 2018 denoting that it is efficient in receiving its due
amounts from the customers. This implies that the company has managed to
discharge its inventory at a slightly higher rate.
Receivables turnover days imply the efficiency of an entity in settling the
amounts owed to the suppliers (Gippel, Smith and Zhu 2015). In accordance with the
above figure, it could be seen that the receivables turnover days after increasing
from 2016 to 2017 has risen again in 2018 denoting that it is not efficient in receiving
its due amounts from the customers. Thus, it has not managed to reduce the time in
collecting the receivables.
Payables turnover days signify how efficient an entity is when it comes to
settlement of its dues (Gitman, Juchau and Flanagan 2015). This ratio has fallen
significantly in 2017; however, slight increase could be observed in the year 2018.
Since the fluctuations are severe, they denote that the creditors are paid either after

7COMPANY PERFORMANCE ANALYSIS
or before the stipulated time, which might have unfavourable impact on the business
operations in future.
Cash conversion cycle implies how capable an entity is when it comes to
converting business resources into cash (Hillier et al. 2014). The cash conversion
cycle of Dominos Pizza Enterprises Limited is found to be negative in all the years
denoting that lower time is required for sale of inventory along with obtaining cash
from the customers against the time where the inventory supplier payments have to
be settled.
Based on the above discussion, it could be stated that Dominos Pizza
Enterprises Limited is able to maintain its operating efficiency as well as profitability
that would maximise the wealth of the shareholders as well as the investors.
2.3 Detection of marketable securities:
The current assets include certain marketable securities, which are deemed to
be the type of liquid assets on the statement of financial position, which is possible to
be transferred into cash (Hirshleifer 2015). Based on the 2018 annual report of
Dominos Pizza Enterprises Limited, cash at bank and in hand along with short-term
deposits could be categorised under marketable securities. Considerable increase
could be observed in cash and other short-term deposits of the entity in 2018
compared to 2017.
It is noteworthy to state that the organisations are engaged to utilise such
instruments for earning return on assets and this is applicable in case of Dominos
Pizza Enterprises Limited as well. It has been identified that the entity makes interest
on floating rates depending on daily rates of bank deposits made in its business
accounts. This denotes that the firm uses the securities as cash sources so that it
could maintain credible policies related to cash management (Iooss and Lemaître
2015). It is not possible to ignore the significance of sound cash management policy.
The rise in marketable securities in the balance sheet statement represents the
policy of Dominos Pizza Enterprises Limited for improving the cash collection in
order to boost the liquidity position, which is beneficial for cash management.
Moreover, maintaining adequate cash balance provides the firm with the chance of
combating with the economic downturns coupled with financial stability in order to
undertake investments when suitable price is present. The big investors could make
Dominos Pizza Enterprises Limited in undertaking effective acquisition target when
large balance of cash balance is used for productive measures (Khadafi, Heikal and
Ummah 2014).
2.4 Sensitivity analysis:
In this case, a situation is assumed where Dominos Pizza Enterprises Limited
is intending to develop a new product. Two different scenarios are taken into account
that comprises of the normal scenario and sensitivity analysis with identical value
drivers when there are a number of changes.
Normal situation:

8COMPANY PERFORMANCE ANALYSIS
Net present value is calculated for finding out the feasibility of the project for
Dominos Pizza Enterprises Limited. From the above table, it is evident that the net
present value of the proposed project is found to be positive, In this context, it is
noteworthy to mention that higher the NPV, the more profitable would be the project
for any business (Kim and Zhang 2016). Therefore, in terms of NPV under the
normal situation, the project would be profitable for Dominos Pizza Enterprises
Limited.
Sensitivity analysis:

9COMPANY PERFORMANCE ANALYSIS
For conducting the sensitivity analysis of the project, selling price unit and unit
sales have been declined by 10% per annum, while variable cost per unit has
increased by 10% and cash fixed cost would rise by 10% as well. Based on the
above tables, it could be seen that there would be decrease in cash inflows and cash
outflows would rise accordingly. However, the NPV of the project is still found to be
positive implying that the project would still yield benefits to Dominos Pizza
Enterprises Limited. Hence, the firm is advised to accept the project.
2.5 Systemic and un-systemic risks:
The main reason of occurrence of systemic risk is due to the variations in
macroeconomic factors such as changes in interest rate, inflation as well as others
(Kuttner and Shim 2016). The main systemic risks of Dominos Pizza Enterprises
Limited include the following:
Equity price risk:
The entity is prone to this particular risk on listed investments, which are
categorised and measured at fair value with the help of other comprehensive
income. The entity is not engaged in hedging such risk. The management of the firm
is involved in monitoring the specific risk exposure by contrasting the quoted stock
price movements in relation to long-term investments (Lee, Sameen and Cowling
2015).
The relation of un-systemic risk could be observed with the particular industry
and such risks of Dominos Pizza Enterprise Limited are represented as follows:
Supply chain:

10COMPANY PERFORMANCE ANALYSIS
The ability of the firm in maintaining product supply could be tarnished, if there
is adverse and material change in operation of one or additional suppliers and
minimisation in support from them.
Hike in rivalry:
Since Dominos Pizza Enterprises Limited functions in an increasingly
competitive sector, since hike in rivalry could act as barriers to the business
operations. These risks are identified to be one of the un-systemic risks in the
operations of the entity (Liu et al. 2013).
2.6 Dividend payout ratio and payout policy:
Particulars Details 2016 2017 2018
Dividend per share A $ 0.39 $ 0.93 $ 1.08
Earnings per share B $ 0.94 $ 1.16 $ 1.39
Dividend payout
ratio A/B 41.49% 80.17% 77.70%
Table 3: Dividend payout ratio of Dominos Pizza Enterprises Limited for the
years 2016-2018
(Source: Annualreport2018.dominos.com.au 2019)
This is deemed to be a significant criterion for the entities as well as the
investors that gauge the proportion of net income distributed to the shareholders as
dividends during the period (Yazdanfar and Öhman 2014). More precisely, the ratio
assists in denoting the percentage of income distributed to the shareholders. The
investors have significant interest in the ratio since they want to have an
understanding of whether the firms are providing adequate profit proportion to the
investors (Žižlavský 2014).
According to the above table, it could be observed that the dividend payout
ratio of the entity has increased massively in 2017 and it has fallen slightly in 2018.
This implies that Dominos Pizza Enterprises Limited is involved in following constant
dividend policy, as it distributes dividends based on the profit generated by the
organisation.
III. Letter of recommendation:
To,
Mr. XYZ
Date: 31st May 2019
Subject: Letter of recommendation
Based on the above analysis, it could be seen that it is noteworthy to state
that depending on the above discussion, Dominos Pizza Enterprises Limited has
sound profitability position because of the significant rise in both gross margin and
net margin. However, the entity is needed to formulate strategies for enhancing its
ROCE in future, since it is deemed to be a vital indicator of business profitability. In
addition, Dominos Pizza Enterprises Limited is able to maintain its operating
efficiency as well as profitability that would maximise the wealth of the shareholders
as well as the investors. It could be observed that the dividend payout ratio of the
entity has increased massively in 2017 and it has fallen slightly in 2018. This implies
that Dominos Pizza Enterprises Limited is involved in following constant dividend
policy, as it distributes dividends based on the profit generated by the organisation.

11COMPANY PERFORMANCE ANALYSIS
Hence, the investor is recommended to invest in the shares of Dominos Pizza
Enterprises Limited.
IV. Conclusion:
By taking into consideration all the possible aspects, it could be seen that
Dominos Pizza Enterprises Limited is the biggest pizza chain in Australia in terms of
network sales and network store numbers and it is the biggest global franchise for
Dominos Pizza brand. In other words, it is involved in operating retail food outlets.
The organisation is involved in operating a network of nearly 2,400 stores. Moreover,
the firm is advised to accept the project, as it would yield significant benefits to them.
It could be observed that the dividend payout ratio of the entity has increased
massively in 2017 and it has fallen slightly in 2018. This implies that Dominos Pizza
Enterprises Limited is involved in following constant dividend policy, as it distributes
dividends based on the profit generated by the organisation. Hence, the investor is
recommended to invest in the shares of Dominos Pizza Enterprises Limited.

12COMPANY PERFORMANCE ANALYSIS
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