Analysis of Kathmandu Holdings Limited's Financial Performance

Kathmandu Holdings Limited has reported a dividend paid to shareholders that is higher than the previous year's payment. The company's financial health can be assessed through various ratios, including profitability, liquidity, leverage, and asset turnover. The analysis shows that the company's return on sales and return on equity are moderate, but there is a need for improvement in expenses. The current ratio meets industry standards, but working capital and accounts receivable turnover have declined. The debt-to-equity ratio indicates a high reliance on debt financing, while the assets turnover ratio remains stable.

FINANCIAL STATEMENT ANALYSIS
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Table of contents
1) Brief introduction of Kathmandu Holdings Limited...................................................................3
2) Identifying the key aspect of the annual report...........................................................................3
3) Identifying the key directors and analyzing the directors report.................................................4
4) Defining auditors, their opinion and discussing the summary of auditor's report.......................4
5) Comparative analysis of sales for the year 2017 and 2016 and explaining the reason behind the
changes............................................................................................................................................5
6) Discussion on net cash flows of the company.............................................................................6
7) Discussing the debt and equity structure of the company...........................................................7
8) Computation of the financial ratios for identifying the financial health of the company...........7
Reference list.................................................................................................................................11
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1) Brief introduction of Kathmandu Holdings Limited
Kathmandu Holding Limited is the professional outdoor wholesaler. It was established in
1987.The company is hooked in designing, marketing, wholesaling of clothes and material for
travel and adventure. The company’s sector consists of the country’s like New Zealand,
Australia, and the United Kingdom. It offers a range of garments like fleece jacket, waterproof
jacket, shirt pants and footwear and socks. It also provides equipment consist of bags, sleeping
bag, tents, camping accessories and travel accessories. The company works approximately 110
stores in Australia, over 46 stores in New Zealand and approximately 4 in the United Kingdom.
The company’s subdivision includes Kathmandu (U.K) Limited, Kathmandu Ply Limited,
Kathmandu Limited, and Milford Group Holding Limited (www.kathmanduholdings.com,
2017).
2) Identifying the key aspect of the annual report
Annual report of any company includes all the relevant and compulsory information for the users
(both internal and external) of the report. The annual report specifically includes, directors
report, interim report, media announcement, strategic performance report, etc. However, the
interim report is the most dominating section of the annual report, followed by the director’s
report and media announcement (Zadek et al. 2013).
Similarly, interim report is the most dominating section of the annual report of Kathmandu
Holdings Limited. Financial statement and Auditor's report are the most significant part of it,
since it brings material and required information for the users of the report. Here it has been
found that the PWC has audited the financial statement of the company, stating that the company
has followed the guidelines of AASB and the statement is showing true and fair view (de Villiers
et al. 2014).
The report has made individually to the company’s shareholder. The audit work has been
tackled so that it might shape to the company’s shareholders the matter which are required to
state to the shareholders for the review report and for no other desire. To the fullest extension
allowed by the law, the company do not accept or guess the duty anyone other than the
shareholder.
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3) Identifying the key directors and analyzing the directors report
The director is the prime of the organization, they are either appointed or elected, who mostly
has the power and duties link to administration and management (Cassim, 2016).
The three-significant director of this company are David Kirk, Xavier Simonet and John Harvey.
The directors report analysis that majority of Kathmandu’s year ended sale are obtained from
three major sales promotions each year appearing in the part of the months of March and April
(Autumn), June and July (Winter) and December and January (Christmas). Among these three
developments the Largest sales is Winter sale and the remaining two sales occur in the second
half of the financial year. As the outcome, in the second half of every financial year the largest
proportion of the Kathmandu sales and EBITDA is obtained. However, the fee structure of the
directors is represented below in a diagram.
Figure 1: Directors remuneration
(source: www.kathmanduholdings.com, 2017)
4) Defining auditors, their opinion and discussing the summary of auditor's
report
Auditor is someone who is responsible for calculating the validity and security of a company's or
management’s financial statements (Tang et al. 2017).
The only financial statement which was occurred by the Group that are estimated at the fair value
are over the counter derivatives. These derivatives have all been resolve to be in the level two of
the fair value position. As all the powerful inputs are needed to find out the fair value of these
derivatives. Pwc has audited the financial statements of the company and found that the report
has been prepared in relationship with group interest and accounting guidelines. Thus, the
Accounting firm, Pwc has given unqualified report. The report is individually made to the
company’s shareholder as a body (Christ et al. 2015). The audit work has been so that it might
state to the company’s shareholder, the matter which are required to state to the shareholder for
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the review report. The company do not accept or assume responsibility to anyone other than
shareholder.
5) Comparative analysis of sales for the year 2017 and 2016 and explaining the
reason behind the changes
Based on the audited financial statements of Kathmandu Holdings Limited, it can be seen that
the total sales for the year ended 31 January is almost similar to the previous year. Total segment
sales in the Australia domain is around $ 279,704. The company specifically recognizes the sales
whenever the payment is made (Ordanini, Parasuraman & Rubera, 2014). However, the credit
sales contribute 80% of the total sales. In addition, the group sales also contribute 80% of the
total credit sales. It can easily be understood from the sales graph shown below, that how the
company efficiently performed in the previous five years to increase sales. This, is the reason
why Kathmandu Holdings have never faced losses in the past five years.
Figure 2: Segment sales in the domain of New Zealand
(source: www.kathmanduholdings.com, 2017)
With respect to the above context, the sales revenue in the UK domain has faced struggle in
increasing its sales, because the region has very strict belief in accepting the products offered by
the company. However, the segment sales are well described in the context of three different
countries.
An operating is a part of an element that participates in business exercises which wins income
and brings about costs and where the central leader audits the working outcomes all the time and
settles on choices on asset allotment (Hambrick and Quigley, 2014). The Group is composed into
three working portions, portraying the three land areas the Group works in.
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6) Discussion on net cash flows of the company
The operating cash flow for the year 2017 decreased significantly to $ 10,033, also the cash used
in investing. Compare to 2016 and 2017 the net cash flow from operating activities has decreased
from 24,187 to 10,033 because in 2017 they paid more to the supplier and the employee, they
paid more income tax, also paid interest more as compare to 2016. Receipt from customers
remained unchanged, payments to suppliers and employees slightly rose, but income tax and
interest paid in the current year is slightly less. This made the operating cash flow less than 2016.
However, the net cash used in investing activities has increased in 2017 compare to from
(12,875) to (6,792), this is because they purchased less fixed assets, but they purchased more
intangible assets. Moreover, proceeds from loans and advances considerably rose to $ 41,921.
Similarly, the net cash (outflow) from financing activities has increased in 2017 as compared to
2016, because the company paid less dividend in the current year, also provided less loan as
compare to 2016. This is because the cash and cash equivalent is less as compare to 2016 (Ball et
al. 2016).
However, the computation of net cash inflows from operating activities is shown below.
Figure 3: Changes in net profit after taxation with cash inflow
(source: www.kathmanduholdings.com, 2017)
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7) Discussing the debt and equity structure of the company
Kathmandu Holding’s total debt is amounted to $ 103,838, which consist of fixed interest-
bearing liabilities of $ 51,595 and derivative financial instruments of $ 3,199 for the year 2017.
On the other hand, total debt for the year 2016 was $ 48,591 which was less than the current.
Thus, it can be said that the company is raising funds to finance their business operation.
However, the total equity for both the year remained almost same, which includes unchanged
total equity shares (Bradley and Roberts, 2015). Moreover, retained earnings slightly increased,
but reserves and surpluses significantly rose in the current year. Therefore, it can be said that
Kathmandu Holdings has efficiently managed its equity shares and performed up to the
expectations of the shareholders. Since, the dividend paid by the company is considerably higher
than that of previous year.
However, the consolidated statement of changes in equity with respect to the debt and equity
structure is given below.
Figure 4: Changes in equity
(Source: www.kathmanduholdings.com, 2017)
8) Computation of the financial ratios for identifying the financial health of
the company
KATHMANDU
HOLDINGS
LIMITED
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Profitability ratios
Particulars 2017 $ 2016 $
Rate of return on
net sales
Operating profit / net
sales
14830/196316 15139/195977
0.075541474 0.077248861
7.50% 7.70%
Rate of return on
equity
Net profit / total equity 10045/303328 9410/305782
0.033115967 0.030773558
0.03 0.03
Earnings per share given in the annual
report
4.9 cents 4.6 cents
Liquidity ratios
Particulars 2017 $ 2016 $
Working capital Current assets-current
liabilities
107202 - 51930 123204 - 48591
55272 74613
$ 55272 $ 74613
Current ratio Current assets/current
liabilities
107202 / 51930 123204 / 48591
2.064355864 2.535531271
2.0:1 2.5:1
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Accounts
receivable
turnover
Net credit sales/Avg.
receivables
((196316/
(5399+7313)/2))
((195977/
(7313+5031)/2))
7.721680302 7.938148088
7.72 times 8 times
Leverage ratios
Particulars 2017 $ 2016 $
Debt ratio Total liabilities/total
assets
103838 / 407166 119919 / 425701
0.255026206 0.281697717
25.50% 28.00%
Debt to equity
ratio
Total liabilities/total
equity
103838 / 303328 119919 / 305782
0.342329096 0.392171547
34.23% 39.21%
Assets turnover
ratios
Particulars 2017 $ 2016 $
Assets turnover
ratios
Net sales / average
total assets
((196316/ (407166 +
425701)/2))
((195977/ (425701 +
413253)/2))
0.117855552 0.116798418
0.12 0.12
Table 1: Financial ratios
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(Source: Self-created)
Based on the computation of different financial ratios of Kathmandu Holdings Limited, for the
year ended 31 January 2017, relevant information regarding the financial health of the company
have been found, which are commented below.
Company’s return on sales and return on equity both remain almost same, but the return on sales
slightly declined by 0.2% in 2017. Thus, it can be concluded that company is moderately doing
well, but it need to put more focus on its unnecessary expenses (Delen et al. 2013). However, the
current ratio has shown satisfactory result in 2017, which meet the industry standard of 2:1, but
the working capital and accounts receivable turnover declined in 2017 to $ 55272 and 7.72 times
respectively. Thus, it can be said that the company is still struggling in paying off its debt
obligations. However, the liquidity of current assets gives a sense of relief. On the counter part,
the organization’s debt-equity mix is quite high, indicating that the entity is largely relying on the
debt capital for financing their operation (Kou et al. 2014). However, the assets turnover ratio
remained unchanged, indicating that the company is quite stable in generating sufficient revenue
with its assets.
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Reference list
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www.kathmanduholdings.com, (2017). Available from:
https://www.kathmanduholdings.com/wp-content/uploads/2017/03/1H-FY17-ASX-release.pdf
[Accessed on 11 Sep. 2017].
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