Ratio Analysis of Kathmandu Holding Limited

Running Head: Kathmandu Holding Limited
RATIO ANALYSIS

Kathmandu Holding Limited 1
Introduction:
Kathmandu holding Limited is a company that is listed on New Zealand Stock Exchange
however it operates its business from three major segments: New Zealand, Australia and
United Kingdoms. The company was established in the year 1987 and is located in
Christchurch, New Zealand. The business in which Kathmandu group is engaged is of
designing, marketing as well as retailing the wide range of clothing and equipment that are
required for the tour and travel purpose. The product range of the company covers variety of
apparels such as waterproof jackets, fleece jackets, thermals, merino thermals and jackets. It
also manufactures shoes and shocks for the travelling purposes. The travelling and touring
equipment includes bag-backs, sleeping bags, tents and various other travelling accessories
that are used for camping and trekking. In all Kathmandu Group has around, 160 stores out of
which 110 stores are located in Australia, over 46 stores are located in New Zealand and
around 4 stores are operated in United Kingdom. The subsidiaries of the company are
Milford Group Holdings Limited, Kathmandu Limited, Kathmandu Pty Limited and
Kathmandu (U.K.) Limited.
The purpose of this report is to carry out the evaluation of financial performance of
Kathmandu Holding Limited in last 5 years. To evaluate the company’s performance, the use
of Ratio analysis technique is made which is the key technique of financial management. As a
part of ratio analysis, various ratios in regards to various important components of the
financial statements of the company has been taken into account and their impact on the
overall financial position and performance of the business of Kathmandu Ltd. has been
analysed.
Application of Ratio Analysis

Kathmandu Holding Limited 2
In order to identify the overall financial health of the business, ratio analysis has been carried
in four major aspects of financial position i.e. the liquidity position, profitability position,
operating efficiency position and solvency position of the business. The use of different sorts
of ratio will allow the managers of the company to pay more attention to the areas where the
financial ratios are indicating irregularity or any sort of risk on the company (Gibson, 2011).
All the financial results of preceding 5 financial years have been represented through graphs
to allow the managers or users of this information, to understand each result in the convenient
and clear manner. Along with the analysis of results of each individual year, a comparative
study has been made to understand the changes in the financial performance of the business
so that any required changes or recommendations for the subsequent periods could be made
for the purpose of achieving better results (Godwin and Alderman, 2012).
Liquidity Position:
First of all, liquidity position of the business has been analysed using the two key liquidity
ratios i.e. the current ratio and the liquid ratio. Generally, in regards of current ratio, a ratio of
2:1 is considered as ideal. In the present case of Kathmandu Holdings, it has been identified
that the current ratio of the company in 2013, 2014 and 2015 was satisfactory as it has
already achieved the ideal standards in these standards (Kathmandu, 2014). Therefore, it can
be said that the company had sufficient amount of current assets to meet the short term
liabilities that were supposed to be due in next 12 months from the date on which such
liabilities were entered into. The results of current ratio of shows that the company had sound
liquidity position till the end of 2015. After, 2015, both the current and quick ratios of the
company started declining and the declining liquidity ratios of the company clearly indicates
that the liquidity position of the company has worsened in last two reporting years. The
declining liquidity position of the business is faced when the company is not able to
efficiently manage and utilise its current assets to pay off its current liabilities. Thus to meet

Kathmandu Holding Limited 3
the current liabilities, Kathmandu Ltd would have required the disposal of its fixed assets that
were not held in the business for the sale purpose. Looking at graph below, it can be observed
that the liquidity position of the company was strongest among all the five years and it was
weakest in year 2017.
2017 2016 2015 2014 2013
Current
ratio 1.47 1.79 2.90 2.64 2.42
Quick
ratio 0.15 0.20 0.42 0.25 0.36
2017 2016 2015 2014 2013
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Current and quick ratio
Current ratio
Quick ratio
Profitability Position
After analysing the liquidity position of the company, the profitability position of the
business has been analysed using various ratios such as net profit margin, gross profit margin,
return on assets, return on equity, earning per share and asset turnover ratio.
2017 2016 2015 2014 2013