Analysis of Financial Statements of Nick Scali Furniture Limited

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SPA 242 Assignments

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Executive Summary
The present report has been undertaken for the purpose of recognizing the importance
and significance of financial statements developed by an entity to analyze its financial
performance. The significance of the accounting standards for demonstrating real world
application as such has been illustrated with this report. IN this context, the report has extracted
the information from the financial statements of an ASX listed entity for reporting on its specific
financial position. The company selected for the purpose is Nick Scali Furniture Limited. It has
been analyzed form the general overview of the company that it is presently in a expansion phase
as depicted by the increase in its share prices over the past 5 years. The revenue section ahs
depicted that company’s operating profit is on rise with increasing sales being derived from its
new stores. The property, plant and equipment section has depicted it has impaired the value of
land and buildings as the recoverable amount of these assets have been reduced in comparison to
the carrying value. The company has maintained two provisions in the liability side of balance
sheet. There were no contingent assets and liabilities recognised by the company. Also, its
sustainability performance is not adequate as the company has not disclosed any information in
this regard. This can proved to a major risk for the company’s future growth and development by
negatively impacting its goodwill in the eyes of its stakeholders.

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Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Part 1: General Information about the Company.............................................................................5
Part 2: Revenue................................................................................................................................7
Review of Gross Profit during last two years..............................................................................7
Review of articles related to Nick Scali Earnings........................................................................8
Strength and weakness of Nick Scali as per Chairman and CEO Report and revenue
forecasting for next two years......................................................................................................9
Part 3: Property, Plant and Equipment..........................................................................................11
Different categories of property, plant and equipment..............................................................11
Revaluation or Impairment on assets.........................................................................................11
Part 4: Provisions, contingent assets and liabilities and leases......................................................12
Provisions...................................................................................................................................12
Contingent assets and Contingent liabilities..............................................................................12
Leased Assets.............................................................................................................................12
Part 5: Responsibility & Sustainability..........................................................................................13
Conclusion.....................................................................................................................................14
References......................................................................................................................................15
Appendix 1: Financial Statements of Nick Scali...........................................................................17
Appendix 2: Other significant items..............................................................................................21

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Introduction
The present report is developed for the purpose of carrying out an analysis of the
financial statements of a public listed company. This is carried out by gaining access to its latest
financial report (Year- 2018) and conducting an evaluation of its income statement, balance
sheet, statement of changes in equity and cash flow statement. The information extracted from
the general purpose financial statements of the company is used for addressing the various
sections of the report. The report is divided into four sections, that is, general information,
revenue, property plant and equipment, provisions, contingent assets and liabilities and
responsibility. The company selected for the purpose of evaluation is an ASX listed entity that is
Nick Scali Furniture, a public-listed Australian company involved in import and retailing of
furniture products. The overall evaluation carried out with the use of information disclosed in the
annual report by the company will help in depicting the applicability of the accounting standard
to analyze the realistic phenomena’s of business entities.

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Part 1: General Information about the Company
The company selected for the evaluation purpose is ‘Nick Scali Furniture’ listed on the
ASX (Australian Securities Exchange). The company was established in the year 1962 by Nick
D. Scali and thus its ASX code is NCK (ASX). The company is headquartered in Lidcombe in
Australia employing about 360 people. The company’s operations mainly includes import and
retail sell of furniture products such as lounges, dining tables, coffee tables, chairs and
entertainment units. It is recognized to being a specialist in manufacturing of leather and fabric
lounges and providing dining room and bedroom furniture products. The company is known to
import about 5,000 containers of furniture products on an annual basis from across the world and
have its retail showrooms and distribution centers across Australia. The main brands of the
company include Nick Scali Furniture, Nick Scali Online and Sofas2Go. The company has an
official website https://www.nickscali.com.au/ for disclosing the pertinent information to all its
stakeholders (Nick Scali Limited, 2018). The company operates within the Furniture Retailing
Industry of Australia that is estimated to provide about $7bn of revenue on an annual basis. The
industry is regarded to be highly labor-intensive as large number of employees is needed for
carrying out daily operational activities (Furniture Retailing - Australia Market Research Report,
2018).
As depicted from the graph (See in appendix Figure 1) reflecting the share price of the
company for the past 5 years, there has been sharp rise and decline in the share prices of the
company from the selected financial period of 2014-2018. There is a sharp decline in the share
price of the company in the year 2015 and a steep increase in the year 2017 with a gradual
decline in the year 2018. The declining performance of the company’s stocks during the financial
years 2014-2015 can largely be explained on account of depreciating value of Australian dollar
that has significantly resulted in increasing the supply costs. However, Nick Scali at present is
realizing higher growth on account of increasing consumer spending power supported by lower
level of inflation within the country. This is supporting the company to yield consistent sales that
has enabled it to deliver high-quality products to the customers at competitive prices. The steep
increase in the share price of the company in the year 2017 can be attributed to opening of its
new stores that has increased its profit to a large extent driven by improved sales (Wilson, 2015).

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The company is able to maintain its profitability position in the year 2018 with attaining higher
profit margin supported by the reduction in its operational expenses and supporting the future
growth. The decline in share price in the year 2018 in respect of the year 2017 can be explained
due to reduced sales growth of its new stores in comparison to the previous year (Pash, 2018).
However, it can be expected that the share price of the company has significantly
improved over the financial years 2014-2018. The main reason for the large growth realized by
the company is its ability to effectively position itself within a retail niche and providing
sustainable growth for its investors. This has been achieved by the company by opening new
retail stores that have delivered huge sales and significantly improving its gross positive margins.
This has enabled the company to become one of the largest importers of high-end furniture
products and translate them into high quality at relatively low prices as compared with that of its
competitors (Pash, 2018). The increasing profit margins enabled the company to declare higher
dividends over the period 2014-2018 and thus leading to increase in the share prices. The
company is further emphasizing to open new stores in the coming period of time and as such it is
expected to maintain its higher profitability position in the future also delivering higher returns
for the shareholders (Nick Scali Limited: Results Announcement, 2018).