Myers: Financial Statement Analysis and Future Forecast

This report provides a financial statement analysis of Myers, a departmental store located in Australia. The report includes a ratio analysis, future forecast, ethical considerations, external factors, and merger and acquisition discussions.

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FINANCIAL MANAGEMENT

Myers
Executive Summary
The performance of a business can be ascertained with the help of annual report. A balanced
view of the company can be done when the financial statements are analyzed. In this report,
the emphasis is provided on Myers that is a huge departmental store and located in Australia.
The report initiates with the introduction of the company followed by the highlight of the
financial statements together with the ratio analysis. Further, the future scenario of the
business is forecasted with the help of the prevailing situation. The ethical consideration, as
well as the external factors, are discussed together with a strong emphasis on merger and
acquisition.
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Contents
Introduction...........................................................................................................................................3
Financial statement highlight................................................................................................................3
Ratio analysis.........................................................................................................................................4
 Profitability ratios..........................................................................................................................4
 Liquidity ratios...............................................................................................................................4
 Solvency ratio................................................................................................................................5
Reasons why Myers will succeed in the future......................................................................................5
Political competitive environment - PESTEL analysis of Myer Ltd......................................................7
Concern for Ethical and sustainable issues............................................................................................9
Factors that impact acquisition and mergers......................................................................................10
Recommendation................................................................................................................................12
Conclusion...........................................................................................................................................13
References...........................................................................................................................................14
Appendix.............................................................................................................................................16
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Introduction
The departmental store groups of Myer are one of the largest departmental stores and also
have more than 60 stores in one of the best market locations in Australia. Also, the
departmental stores own one of the best women apparel suppliers of Australia like he David
Lawrence, Marcs, sass and bide. There are more than 130 million customers who visit their
departmental stores in a year, also the online business has improved with more than 70
million users visiting their site during FY2017. Myer has employed more than 11000
members of which about 6000 are having permanent status. The company also employs 3000
additional staffs during festive seasons. The main objective of the Myer groups is to grow and
integrate the operational strategies and also to maximize profit so as to make its investors
happy. It wants to inspire all its suppliers, customers and shareholders and thus improve their
sales of the main eleven product lines they sell. Myer was launched in September 2015 and
was having a capital investment of more $600 million for five years. They tried to use the
capital to make valuable customers and stakeholders and also to bring the love of shopping to
the customers.
Financial statement highlight
For the financial year 2018, the company Myer have decided to continue to make changes in
the consumer behavior and the environment of the firm. The firm also has prioritized the
propaganda relating to the investments and give greater productivity and efficiency across all
the assets. The company believes that the investments made will be the best for the
sustainable profit which will help the firm to improve its functioning. The last 12 months
resulted in the downfall of the sales by 1.4 percent. This may have been as a result of the
closure of the three stores and the space hand banks (Myers, 2017). This was also
accompanied by the great increase in the online business of the firm. The sales of the firm
were down by 1.5 percent and 0.2 percent in the fourth quarter on the basis of the comparable
stores. This period was also utilized by the firm to improve the efficiency and productivity of
the firm by the simplification of the working method of the office and the stores (Evans,
2018). Also, the CODB margin reduced to 31.85 percent.
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Ratio analysis
 Profitability ratios
The profitability ratio is computed under various type of ratios such as the gross profit margin
and the net profit margin. A company strives to reap profit with the capital and the capital
that is injected into the business. The capital helps to know the profit that is generated and
through these ratios the investor can know the profit margin of the business (Petersen &
Plenborg, 2012).
Gross profit margin is used to highlight the financial health of a business and indicates the
manner in which the business has utilized the labor and material. It projects how actively the
business utilizes the labor and capital. For Myers, the gross profit ratio remained settled in the
past years indicating a stagnant financial health.
On the other hand, the net profit margin (NPM) declined from 2.1% in 2016 to 0.45% in
2017. The ratio indicates that the profit scenario of the company is weak and can be attributed
to a higher degree of operating expenses. The Net profit scenario of Myer is weak and the
management should take steps in this regard.
2013 2014 2015 2016 2017
Gross Profit Margin [(Gross Profit /Sales
Revenue)*100] 47.00511 46.68377 46.06782 45.05574 45.82539
Net profit margin = net profit/ sales*100 4.638422 3.591059 1.082251 2.193456 0.457491
 Liquidity ratios
The liquidity ratio is used to project the ability of the company to meet the obligations. It
ascertains the company’s short term resources. The current and the quick ratio provides a
strong answer to the fact whether the company will be able to honor the obligations (Needles
& Powers, 2013).
The current ratio also known as working capital working ascertains the funds rotation through
the business to confirm that the debtors and inventories can be transformed into cash so that
the creditors can be paid. The determination is done by dividing the current assets with the
current liabilities (Peirson et. al, 2015). The standard ratio is 2:1 and in any scenario this ratio
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must be 1:1. However, for Myer the ratio lacks behind and remains below 1:1. Hence, there is a
problem with the current assets.
2013 2014 2015 2016 2017
Current Ratio (Current Assets/Current Liabilities) 0.902072 0.997921 0.923225 0.985626 0.88501
Acid Test [(Current Assets-Inventory)/Current
Liabilities)] 0.22 0.19 0.21 0.16 0.12
The acid test ratio is a better version as it exclude inventory. In this scenario, the ratio must
be 1:1 that projects adequate liquidity. However, for the company the ratio is very poor
indicating a funds scarcity and difficulty in making payments.
 Solvency ratio
The solvency ratio ascertains the company’s long term liability and then it projects about the
expenses and long term liabilities.
The debt equity ratio project the composition of debt and equity in the company. As per the
computation, it is seen that the company has higher level of debt that is more than .50
meaning Myer has a major reliance on the debt factor. This will lead to more payment of
interest (Parrino et. al, 2012).
Similarly, the debt ratio stands more than .50; however in 2016 and 2017 the ratio declines to
less than .50 indicating that the company repaid the debts.
2013 2014 2015 2016 2017
Debt Equity Ratio 1.154018 1.163494 1.186559 0.685921 0.751165
Debt Ratio 0.53299 0.537506 0.54266 0.406852 0.428952
Reasons why Myers will succeed in the future
There are several reasons why the company can sustain in such competitive industry and
witness success in the future.
 Focus on customers
The experiences of Myers’ customers have been developing from enhanced retail services to
lifestyle affairs like wine bars, cafes, grooming, and beauty. Moreover, the company’s new
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Warringah store at Sydney has been the first physical embodiment of it that shows enhanced
focus on localization processes. Further, the store features played a key role in developing
dwell cafes like a barber and cafe. Further, throughout the year, the company has collaborated
with various innovative brands to provide accessibility to customers to unique shopping
experiences, contemporary services, and products (Merchant, 2012). Nevertheless, the
company became the first departmental store of Australia to join hands with an international
car innovator Tesla for bringing electric cars to their customers at their showrooms present in
Adelaide, Melbourne, and Brisbane.
 Click and continue operations
Myers’s click and continue affairs continued to enhance and in the present scenario, it
represents around fifteen percent of all the online orders. These operations have assisted the
company in offering convenient locations and with the help of packing, picking, and
dispatching facilities, the company has become capable in offering same-day pick up
facilities to consumers. Nevertheless, the company has also enhanced such operations with
the advent of inter-store transfer of its products.
 Innovative stores
In the year 1985, Myer Emporium merged with Coles to form Coles Myer. Further, in 2006
Coles sold the company to a private equity group. Thereafter, in 2009, it was listed as a
public company. The company’s stores of operating project are terminating waste and
ineffectiveness to enable its store teams to focus on relevant affairs. In the initial stages, the
company’s project has significantly decreased redundant affairs, centralized other works, and
simplified the in-store procedures. Such innovative way of operating stores has allowed the
company to focus on customer satisfaction and overall experiences (Myers, 2017). Besides,
decreasing store administration offices has also been a key achievement of the company’s
affairs. Further, a new model of store leadership undertaken by the company supported by
comprehensive training has offered role clarity, introduced concise metrics, and role
expectations respectively. These variations can play a role in allowing store leadership teams
to be cost efficient in nature.
 Pairing or collaboration
The company has a unique opportunity to create a positive influence (social) by allowing its
team members, customers, and suppliers to contribute towards addressment of significant
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social concerns. Further, the company’s partnership and community investment are
associated with the ideology of supporting and empowering women and strengthening
families. Therefore, Myers work with national partners like Global Sisters, White Ribbon
Australia, and Salvation Army to decrease family violence and its impacts (Evans, 2018).
 People
The community fund of Myers has been overseen by an independent Board and the efficiency
of fund raising strategies and influence of investments are also assessed annually. The
capable and talented people of the company have assisted in the delivery of its strategy.
Further, the company has been developing skills in sales, product, and services through the
mobile learning platform wherein more than 13000 users can access learning approaches. The
company has also invested in store leadership ability so that it can focus on performance
management and developments (Myers, 2017).
Political competitive environment - PESTEL analysis of
Myer Ltd
PESTEL analysis plays a crucial role in offering enhanced information about operating issues
encountered by Myer is facing in its macro environment instead of competitive forces.
• Political factors
These factors play a key role in ascertaining the factors influencing the company’s long-term
profitability in a country or industry. Since the company is functioning in a retail
environment in various countries, it has exposed itself to a various political system and
environmental risks (Myers, 2017). The attainment of success in such dynamic retail
environment throughout these countries is to diversify several systematic risks of the political
scenario. Hence, the company must evaluate some factors before investing in a market
(Edward & Moutchnik, 2013). For example, it must assess trade regulations associated to
retailing, risks of military invasion, corruption level in the retailing sector, intellectual
protection of properties, etc.
• Economic factors
Macro environment factors like interest rates, inflation rates, economic cycles, forex rates, etc
assist in ascertaining the aggregate investment and demand in an economy. Moreover, while
micro environment factors like competition norms influence the company’s competitive
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advantage. Nevertheless, the company can utilize economic factors like inflation and growth
rate to anticipate the growth path of not only name of the sector but the also of the
organization respectively (Philips, 2017). Factors like the type of economic system in
operating countries, exchange rates, infrastructure quality in retailing in the industry, etc must
be considered by Myers.
• Social factors
A society’s culture and way of operating things influence an organization’s culture as well.
Further, attitudes and shared beliefs of population n also play a key role in how marketers in
the company can understand their customers and how they create an enhanced marketing
message for retailing industry customers (Myers, 2017). Various social factors that must be
accounted for by Myers are skill level and demographics of a population, attitudes, culture,
education level in the industry, leisure interests, etc.
• Technological factors
Over the past few years, the industry of Myers has been developing very fast and not giving
possibilities to the established participants to cope with the variations. For instance, taxi
industry has been dominated by Lyft and Uber. Moreover, the industry is also developing
towards automation because of technology firms like Google and electric cars manufactured
by Tesla as well. Overall, technology evaluation consists of determining the following
influences namely rate of technology diffusion, technology influence on product offering,
recent developments by the competitors of Myers, etc.
• Environmental factors
Different industries possess distinct environmental standards or policies that can influence an
organization’s profitability. Further, even within a country, various States can pursue varied
environmental laws and regulations. For instance, in the US, Florida and Texas possess
distinct liability of clauses in the event of environmental disasters or issues. Similarly, many
European countries provide healthy tax breaks to companies performing in the renewable
segment (Philips, 2017). Hence, before entering newer markets or starting a fresh market in
a currently prevailing market, Myers must assess different environment standards needed to
perform in these markets (Megel, 2018). For example, factors like climate change, weather,
recycling, regulations of air and water pollution, endangered species, management of waste in
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retailing industry, perceptions and support towards renewable sources of energy, etc must be
considered by Myers.
• Legal Factors
In various countries, institutions and legal framework are not effective to safeguard the IPR
of a company. Therefore, companies like Myers must properly assess before entering such
markets because if not undertaken may result into the theft of its secret sauce, thereby
resulting in its competitive edge (Megel, 2018). Nevertheless, few legal factors that must be
accounted for by the company while entering a new market are discrimination laws,
employment laws, laws related to intellectual property rights, anti-trust laws in the retail
market and country on a whole, e-commerce laws and consumer protection laws, data
protection laws, and safety and health laws.
The businesses in Australia have played a major role in helping the country to attain
sustainability. According to the people of Myer, sustainability is defined as a responsible
business development which has improved the social, economic and all other environmental
impacts of the firm’s strategies and operations (Leo, 2011). In order to maintain the
environmental impacts and remove the risks, the firm has worked according to the National
Greenhouse and Energy Reporting Act (NGER). The company emphasizes to look after the
environmental issues and thus have minimized the greenhouse emissions, energy usage and
have improved the energy-saving opportunities. The company also have tried to improve the
value of the investors, customers, suppliers, creditors, etc with the help of the Triple Bottom
Line Reporting. When a person tries to invest in a particular firm, then he analyzes the social
and environmental performance of the company to make the investment and purchase
decisions. They try to get the maximum information relating to the company’s performance
which leads the company to improve its financial position.
Concern for Ethical and sustainable issues
The company wants its employees to work as a team and thus improve the performance as a
whole. The company wants to create a sustainable work environment where the employees
have positive morale and don’t feel bad about working. Thus the company introduced a group
named 800 Thrives which helps it to enhance the work environment of the firm and thus
improve the day to day business of the firm by organizing new and fun ways in which the
employees can interact. Also, the company helps to preserve the rights of the employees to
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create a clean environment (Hatch, 2018). It has also introduced the whistleblower policies
which have encouraged the employees to report any kind of misbehavior within the firm. In
the relation to achievement proof a sustainable environment, the company has tried the
publicity disclosed standards like the Global Reporting System. It has followed the G4 index
that helps the firm to improve the understandings of performance to the stakeholders. It also
has started to introduce systems like recycling which will help it to prevent the environmental
from degradation (Goodstein, 2011). However, if the business becomes insolvent, there are
various ethical consideration involved with it. The business needs to pay off the due by
selling the assets. Further, the debts needs to be repaid together with the outstanding to
employees and staffs.
Factors that impact acquisition and mergers
 Market share and branding
Fierce competition over the share of market prevails betwixt the competitors operating in the
same segment. Further, when the opportunity to admix operations presents itself, leaders of a
company witness a feasible growth in the market share on the horizon. Thus, whether
combining affairs turn to be as profitable as projected by hopeful numbers, it depends on how
effectively the process of acquisition or merger is undertaken (Adra & Barbopoulos, 2018)
 Strategic fit
One of the major concepts related to acquisitions and mergers is strategic fit. Moreover,
companies functioning in the same segment must have some alignment in relation to strategy,
competitive situation, leadership style, and organizational structure. Moreover, greater
overlap of such segments betwixt the organizations can assist in creating a more conducive
environment for merging two distinct companies into a single company (Dyson, 2010).
 Weaknesses and strengths
Understanding the weaknesses and strengths every company like Myers brings to the table is
another segment in ascertaining the viability of significant acquisitions and mergers. This is
the reason why bigger companies having higher balance sheets and very little amount of debt
can make an attractive partner in the context of capital. On the other hand, smaller companies
with active level of management may be eyed for originality prowess. Nevertheless,
excessive reliance on debt also factors into such equation.
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 Motivation of merger and acquisition
Decision-makers who study the viability of acquisitions and mergers are properly served in
understanding the players’ motivation. Therefore, during the deal-making procedures, the
motivation level of both seller and the buyer can play a key role in influencing the financials
of the company (Alexandridis & Travlos, 2010). In relation to this, a buyer who is going into
the procedure of negotiation or who is particularly influenced of a company’s value, for
example, is more likely to expend a higher amount of price so that the deal can be closed on a
whole. It can also happen that such transaction may be a result of highly motivated seller may
settle for a lesser price as a means of closing the entire deal.
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Recommendation
Going by the overall analysis, it can be commented that Myer is a company with strong
fundamentals. However, in the present scenario, there is high level of debt composition for
the company and the liquidity stands low. This is a strong indication that the management
must make effort to reduce the same. Further, the company is facing huge competition from
the external environment meaning that the company need to have adequate resources and
strategy to face the situation. However, from the investors perspective, it is not the
appropriate time to invest in the company because the analysis shows that the debt
composition of the company is high together with a weak liquidity. Both this factor will lead
to difficulty for the investors and hence, the current position of the company is not correct to
invest.
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Conclusion
From the discussion in the report, it can be commented that Myers in lacking few ratios,
however, has strong fundamentals and operate in the profit zone. But, as per the current
scenario, the company must stress on important ratios such as liquidity and solvency as that
determines the long-term perspective of the company. On the other hand, the company has
ensured a proper compliance with the Global Reporting Initiative (G4) requirements that will
support the company in enhancing the performance and the same can be compared with the
major environmental indicators.
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References
Adra, S., & Barbopoulos, L.G. (2018). The valuation effects of investor attention in stock-
financed acquisitions. Journal of Empirical Finance. [online]. 45, 108-125.
https://doi.org/10.1016/j.jempfin.2017.10.001
Alexandridis, D.P., & Travlos, N. (2010). Gains from Mergers and Acquisitions Around the
World: New Evidence. Financial Management. [online]. 39(4), 1671-1695.
https://doi.org/10.1111/j.1755-053X.2010.01126.x
Dyson, J.R. (2010) Accounting for non- accounting students. Financial times prentice hall
Edward F & Moutchnik, A. (2013). Stakeholder management and CSR: questions and
answers. Oxford Press
Evans, S. (2018) Why Myer isn't the only retailer in a world of pain [online]. Available from:
http://www.afr.com/business/retail/why-myer-isnt-the-only-retailer-in-a-world-of-pain-
20180209-h0vu7h [Accessed 2 May 2018]
Goodstein, E. (2011). Ethics and Economics, Economics and the Environment. Wiley
Hatch, P. (2018) Feel the Bern: former Myer boss on how to save department stores.
[online]. Available from: https://www.smh.com.au/business/companies/feel-the-bern-former-
myer-boss-on-how-to-save-department-stores-20180216-p4z0lf.html [Accessed 2 May 2018]
Leo, K. J. (2011). Company Accounting. Boston:McGraw Hill
making: Achef’s quest for creative freedom. Long range planning. [online]. 43, 408-430.
Available from DOI April 2018https://doi.org/10.1002/job.461 [30 April 2018]
Megel, K. (2018) Myer once stood for the aspirational middle class but now it’s lost sight of
who its customers are [online]. Available from: https://theconversation.com/myer-once-
stood-for-the-aspirational-middle-class-but-now-its-lost-sight-of-who-its-customers-are-
91832 [Accessed 2 May 2018]
Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific
Accounting Review. [online]. 24(3), 1-34. Available from
https://pdfs.semanticscholar.org/6ccf/f78a452763f17ed5e4f4ddc6b96703801403.pdf
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Needles, B.E. & Powers, M. (2013) Principles of Financial Accounting. Financial
Accounting Series: Cengage Learning.
Myers. (2017) Sustainable Business Practices and Corporate Responsibility [online].
Available from: http://www.myersindustries.com/about-us/corporate-responsibility-and-
sustainability.aspx [Accessed 2 May 2018]
Myers. (2017) Myers annual report and accounts 2017 [online]. Available from:
http://www.meyerpaints.com/annualreports/NOTICE%20OF%20LATE%20FILING%20OF
%202017%20FINANCIAL%20STATEMENTS.pdf [Accessed 2 May 2018]
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Peirson, G, Brown, R., Easton, S, Howard, P. and Pinder, S. (2015) Business Finance, 12th
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Appendix
Ratios
Profitability
Net profit margin
2013 2014 2015 2016 2017
Net income 127 98 30 61 12
Revenue 2738 2729 2772 2781 2623
Net profit margin = net profit/ sales*100 4.638422206 3.591058996 1.082251082 2.193455592 0.457491422
Gross profit Margin
2013 2014 2015 2016 2017
Gross profit 1287 1274 1277 1253 1202
Revenue 2738 2729 2772 2781 2623
Gross Profit Margin [(Gross Profit /Sales
Revenue)*100] 47.01 46.68 46.07 45.06 45.83
Net profit margin = net profit/ sales*100 4.638422206 3.591058996 1.082251082 2.193455592 0.457491422
Liquidity
Current Ratio
2013 2014 2015 2
Current Assets 479 480 481 4
Current Liabilities 523 531 481 5
Current Ratio (Current Assets/Current Liabilities) 0.90 1.00 0.92 0
Acid Test Ratio
2013 2014 2015 2
Current Assets 479 480 481 4
Inventory 364 377 382 3
Current Liabilities 523.00 531.00 481.00 5
Acid Test [(Current Assets-Inventory)/Current Liabilities)] 0.22 0.19 0.21 0
Solvency
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Debt Equity Ratio
2013 2014 2015 2016 2017
Total Debt 1034 1039 1024 760 806
Total Equity 896 893 863 1108 1073
Debt Equity Ratio 1.154017857 1.163493841 1.186558517 0.685920578 0.751164958
Debt Ratio
2013 2014 2015 2016 2017
Total liabilities 1034 1039 1024 760 806
Total Assets 1940 1933 1887 1868 1879
Debt Ratio 0.532989691 0.537506467 0.542660307 0.406852248 0.42895157
18