FINANCIAL STATEMENT ANALYSIS NICK SCALI LIMITED 15 FINANCIAL STATEMENT ANALYSIS NICK SCALI LIMITED 2/9/2020

FINANCIAL
STATEMENT ANALYSIS
NICK SCALI LIMITED
2/9/2020
Student’s Name:

FINANCIAL ANALYSIS- NICK SCALI LIMITED
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Contents
Introduction............................................................................................................... 2
Organisation background and the Outlook.........................................................................2
Ratio Analysis............................................................................................................ 3
Profitability Ratios................................................................................................... 3
Asset turnover......................................................................................................... 7
Cash Flow Position...................................................................................................... 8
Liquidity Ratios:...................................................................................................... 8
Solvency ratio..................................................................................................... 9
Cash debt coverage ratio.......................................................................................... 11
Cash flow return on asset......................................................................................... 11
Forecasting.............................................................................................................. 12
Valuation................................................................................................................ 16
Recommendations..................................................................................................... 19
References.............................................................................................................. 20
Appendix................................................................................................................ 22

FINANCIAL ANALYSIS- NICK SCALI LIMITED
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Introduction
The enhanced globalisation has made the business activities more complex, and a need of
more detailed and efficient presentation of the financial statements to the varied stakeholders.
The process of reviewing the financial statements of an organisation to guide the internal and
external stakeholders is called as the Financial Analysis. The relevancy of the financial
analysis to the external stakeholders is that the same aids in the evaluation of the business
value and value of the investments. In contrast to this, the internal stakeholders use the
financial statement as a monitoring tool, to efficiently manage the varied resources of an
entity. It is imperative to understand the financial figures present in the financial statements
in conjunction with the happenings in the business environment, such as changes in the
political, economic, technological and legal environment and others. Further, the data of
multiple years needs to be analysed to understand the overall trend of the financial
performances. Often the trends are analysed in comparison to the industry benchmarks or the
competitor data.
The following report is prepared with an aim to present a comprehensive financial analysis of
the company Nick Scali Limited. The analysis would be divided into two parts namely the
Part A and the Part B. The Part A would touch the various aspects of the business, and would
be guided by the various financial techniques. In addition to the above, a set of reformatted
financial statements would be provided to guide the detailed analysis of varied items of the
financial statements. The ratio analysis would shed light on the liquidity, solvency,
profitability and overall efficiency of the conduct of the business operations of the entity.
Apart from the above listed; the Part B of the report is inclusive of the evaluation of the
future performances of the entity. This part would include the determination of the forecasted
financial values with the aid of different models such as dividend discount model. An overall
conclusion along with a set of recommendations would be provided at the end to summarise
the key findings and address the issues if any.
Organisation background and the Outlook
The organisation Nick Scali Limited is a public limited company that has been listed on the
Australian Stock Exchange, and the foundation of which was laid down 50 years ago. The
organisation’s chief business is the retailing and the importing of the quality furniture

FINANCIAL ANALYSIS- NICK SCALI LIMITED
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products, to provide the household furniture and the associated accessories (Nick Scali
Limited, 2020). The headquarters of the company is located at Lidcombe, New South Wales,
and the listing of the company shares is done on ASX under the symbol “NCK.” Some of the
chief products of the company include lounges, dining tables, cabinets, rugs, mirrors and
others. The organisation operates under the two brands namely the Sofas2Go and the Nick
Scali Furniture. Over the years, the company has earned the status of a respected and trusted
brand of furniture in terms of the finest quality and the low prices.
PART A
Ratio Analysis
There are various ways to analyse a set of financial statement comprehensively, such as the
trend analysis, vertical analysis and ratio analysis. The technique used in the presented report
is that of the ratio analysis. Computation of ratios is one of most fundamental financial
analysis techniques in which the various ratios give insights about the various aspects of the
financial health. The following report involves the computation of the various ratios for the
period of five financial years, descending from the most recent that is the year 2019. The
analysis of the key ratios is presented as follows.
Profitability Ratios
Determination of the profitability ratios is an important exercise not only for the external
stakeholders such as the regulators and the investors of the company for the decision making
process, but for the internal stakeholders to review the business processes. There are varied
kinds of profitability ratios as computed on the various stages of profitability. The said
earnings are examined against the different elements of the financial statements such as the
assets, revenue, equity and others, and useful insights are gained by comparing and
evaluating the trends (Edmonds, 2013).
Thus, the chief objective of the computation of the said group of ratios is to adjudge the
efficiency of the results of the business operations as against the different items of statement
of financial position and the income statement. The table below is representative of the
various profitability ratios of the organisation Nick Scali Limited.
Financial Ratio Analysis - Nick Scali Limited
Profitabi
lity
Formul
a
2015 2016 2017 2018 2019

FINANCIAL ANALYSIS- NICK SCALI LIMITED
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Ratios
Return
on
Equity
Profit /
Averag
e equity
17077/
(46226+4013
0)/2
26150/
(57794+462
26)/2
37236/
(70384+577
94)/2
40979/
(83663+7038
4)/2
42116/
(85183+836
63)/2
=0.09887558
5
=0.1256969
81
=0.1452511
35
=0.13300810
8
=0.1247171
98
9.89% 12.57% 14.53% 13.30% 12.47%
Return
on Net
Operatin
g Assets
Net
profit /
Net
Operati
ng
Assets 17077/60772
26150/8108
7 37236/93746
40979/10264
3
42116/11141
0
=0.28100111
9
=0.3224931
25
=0.3972009
47
=0.39923813
6
=0.3780271
07
28.10% 32.25% 39.72% 40% 38%
Net
Profit
Margin
Net
profit /
Sales or
revenue
17077/15719
5
26150/2044
73
37236/23448
2
40979/25271
6
42116/27021
0
0.108635771 0.127889746 0.158801102 0.162154355 0.155863958
10.86% 12.79% 15.88% 16% 16%
The following segment is descriptive of the analysis of the varied profitability ratios as
computed in the above parts.
Net Profit Margin: It can be observed that there is an increasing trend in the net profit
margin of the company. The said increasing trend can be attributed to the increment in the
sales of the company which has increased from $ 157 million in year 2015 to $ 207 million in
the year 2019. This increment accounts for around 72 per cent. Though the operating
expenses have also increased consistently over the period of five years, yet the revenues have
increases at a higher pace and hence the results of increasing trends. It can be stated there are
positive conditions for the core business of the entity.
0.00%
4.00%
8.00%
12.00%
16.00%
Net Profit Margin
Net Profit
Margin

FINANCIAL ANALYSIS- NICK SCALI LIMITED
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Return on Equity: The said ratio is a measure of the efficiency of the company to generate
the returns against the overall equity or the investments. The investors of the company are of
the prime interest in the said ratio. As stated in the ratio table above the highest ROE was in
the year 2017, to the tune of 14.53 per cent. Since then, the ROE is on a slight declining
trend. The reason for the said decline is while the average equity has increased at a higher
pace because of the increased retained profits, the return per year have not increased
proportionately to the retained profits. The consistent retained profits and the increment in the
equity are a positive sign for the entity and highlight a possible expansion in the future.
Return on Net Operating Assets: The said financial metric is a good indicator of how
efficiently the operating assets of an organisation are used in the generation of the revenues.
It is vital to note that the return on the net operating assets has improved considerably over
the last five years period. While the return in the net operating assets was 28.10 % in the year
2015, the same had increased to 40 % in the year 2018. However, the ratio has reduced
slightly in the year 2018, because of the considerable increase in the net current assets of the
company. The three items that have improvised in the year 2019 as against the year 2018
which led to the increment in the operating assets are the reduction in the short term
borrowings, increment in the prepayments, and the slight improvement in the inventories of
the company. The following graph highlights are overall movement of the said returns over
the period of five years.
2015 2016 2017 2018 2019
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Return on Equity
Return on
Equity