Financial Analysis of The Reject Shop

This report analyzes the financial performance of The Reject Shop using ratio analysis, du Pont analysis, and capital budgeting. The report evaluates liquidity, profitability, solvency, efficiency, and market ratios of the company.

the Reject Shop
Financial analysis of The Reject Shop
Business Financial analysis
Name of the Author
University Name-

Introduction
Each and every organization needs to make efforts to achieve its certain goals and
objective. It is analyzed that ratio analysis, du Pont analysis and capital budgeting are the some
of the financial tools which could be used to evaluate the past and future trend of business. In
this report, The Reject Shop Company has been selected to analysis and evaluates the financial
performance of company.
The Reject Shop Company
It is an Australian discount variety stores chain which was incorporated in 1981 and operates its
business on international level.
It is Australian Stock Exchange company and the market capitalization of the company is around
149 billion which has increased to 23% since last five years.
Financial analysis of company
The financial analysis reflects the relation between the two financial factors which assists
in evaluating the financial performance of company.
Liquidity ratio
This liquidity ratio analysis assists in evaluating the firm’s ability to redeem its short and long
term debts out of the current assets.
Current ratio
It shows how well company could redeem its short and long term debts out of the current assets. .
The current ratio of The Reject Shop Company already gone down 1.63 points in 2017 which is
10% low as compared to last year data (Robb, and Robinson, 2014).
Descriptio
n
Formula THE REJECT SHOP LTD (TRS) Cash Flow
Flag Ratio Analysis
2015` 2016 2017

Current
ratio
Current assets/current
liabilities 1.82 1.49 1.63
Quick
Ratio
Current assets-
Inventory/current
liabilities
0.35 0.31 0.26
Quick ratio
The quick ratio of The Reject Shop Company reveals its immediate ability to redeem its debts
out of its available quick assets. The Reject Shop Company has deceased its quick ratio to .26 in
2017 which is .09 points lower since last one year. It reflects that company has increased its
current liabilities (The Reject Shop, 2015).
Profitability ratio
This ratio reflects the Reject Shop Company’s ability to create value or earn profit in its
business.
Net profit margin
The net profit ratio of The Reject Shop Company reveals that company has increased its net
profit margin to 2.13% in 2016 which is 28% higher since last one year. The net profit margin
decreased to 1.51% IN 2017 which is 1 % low since last one year (Di Tella, 2017).
Descriptio
n
Formula THE REJECT SHOP LTD (TRS) Cash Flow
Flag Ratio Analysis
2015` 2016 2017
Net Profit
margin
Net profit/revenues 1.85% 2.13% 1.51%
Return on
equity
Net profit/Equity 10.37% 12.59% 8.89%
Return on
assets
Net profit/ Total assets 6.14% 7.36% 5.48%
Return on equity
The ROI of company reveals the profit distributed to its shareholders. It is observed that the
return on equity of company has decreased to 8.89% in 2017 which is 4% low since last one
year. It reflects that company has lower down its cost of capital. (The Reject Shop, 2016).

Return on assets-
The ROA of The Reject Shop Company has increased to 5.48% in 2017 that is 1% low since last
one year. It shows that company has increased its profitability as compared to its increased assets
investment (Marley, and Pedersen, 2015).
Solvency ratio
Descriptio
n
Formula THE REJECT SHOP LTD (TRS) Cash Flow
Flag Ratio Analysis
2015` 2016 2017
Debt to
Equity
Ratio
Debt/ Equity
0.70 0.70 0.62
Gearing
ratio
Interest/ EBIT
(0.01) (0.004) (0.004)
Debt to equity
The solvency ratio of The Reject Shop Company reveals that company has increased its financial
risk since last one year. It has reduced its debt to equity to .62 points in 2017 which is .08 points
lower as compared to last year data (Mudiyanselage, and Wijekoon, 2018).
The gearing ratio of company has also decreased and shows the negative results throughout the
time (Tayeh, Al-Jarrah, and Tarhini, 2015).
Efficiency ratio
The efficiency ratio reflects how well company has managed its investment in its business
(Robb, and Robinson, 2014).
Descriptio
n
Formula THE REJECT SHOP LTD (TRS) Cash Flow
Flag Ratio Analysis
2015` 2016 2017
Creditors
payable
period
creditors / Total
sales*365 31.29 22.27 23.26
Inventory
Turnover
ratio
COGS/ Sales*365
202.51 209.42 209.16
Asset
turnover
Total sales/ Total assets
3.32 3.46 3.63

ratio
Creditor’s turnover ratio
The creditor’s turnover ratio has decreased to 23.26 times in 2017 which is not good indicators
for the future growth of the business. Company has decreased its creditor turnover ratio to 10
points which has increased its overall cost of capital throughout the time (The Reject Shop,
2016).
Inventory Turnover ratio
The inventory turnover of The Reject Shop Company has increased to 209.16 times in 2016. It is
6.1 times higher as compared to last year data. It has shown that company has increased its
inventory turnover throughout the time (Mwangi, and Murigu, 2015).
Assets turnover ratio
The assets turnover ratio of The Reject Shop Company has increased since last five years which
reflects that company has been efficiently using its resources (Tayeh, Al-Jarrah, and Tarhini,
2015).
Market ratio (General investment proposal analysis)
This ratio of The Reject Shop Company has shown how well company has increased the value of
its investment (Uechi, et al., 2015).
Description Formula THE REJECT SHOP LTD (TRS) Cash Flow Flag
Ratio Analysis
2015` 2016 2017
PE Ratio MPS/EPS
53.04 52.41 73.13
Dividend
Payout
dividend payment/
Earning *100
5% 6.4% 10%

The market price of shares of The Reject Shop Company is AUD $ 6. It has increased with the
increase rate of the PE ratio throughout the time.
Dividend payout ratio
The dividend payout ratio has been increased to 10% in 2017 which shows the positive indicator
for the future growth of the busienss (Uechi, et al. 2015).
Evaluation of the key points found in this financial analysis
There are several key points which have been found in the financial statement of company.
 Company has increased its financial leverage since last five years. However, it will have
positive impact on the cost of capital of the business.
 The dividend payment of company has increased to 10% which reflects that company is
planning to raise more funds in business.
 The profitability of company has also increased which shows that company has increased
its overall funding throughout the time.
 The cost of capital of the busienss has increased which reflects that company will have to
face low level of return on capital employed.
 The general investment proposal of The Reject Shop Company will be high in the
research and development department which will eventually increase the value of the
investment at large.
Recommendation
Investors should invest their capital in The Reject Shop Company for the long run as it will assist
them to create value in the long run.
The short term investment plan will add value of the investors but they might face high
investment loss.

Conclusion
It is analyzed that the Reject shop Company has increased its value of investment and also
created good return in its investment. However, company has good future outlook which will add
value to clients in long run in effective manner.

References
Di Tella, S., 2017. Uncertainty shocks and balance sheet recessions. Journal of Political
Economy, 125(6), pp.2038-2081.
Marley, S. and Pedersen, J., 2015. Accounting for Business: An Introduction. Pearson Higher
Education AU.
Mudiyanselage, W. and Wijekoon, H.N., 2018. Towards the development of a financial
reporting framework for Sri Lankan SMEs (Doctoral dissertation, The University of Waikato).
Mwangi, M. and Murigu, J.W., 2015. The determinants of financial performance in general
insurance companies in Kenya. European Scientific Journal, ESJ, 11(1).
Robb, A.M. and Robinson, D.T., 2014. The capital structure decisions of new firms. The Review
of Financial Studies, 27(1), pp.153-179.
Tayeh, M., Al-Jarrah, I.M. and Tarhini, A., 2015. Accounting vs. market-based measures of firm
performance related to information technology investments.
The Reject Shop, 2015, Annual report, Available at
https://www.rejectshop.com.au/aboutus/investorinformation/financialreport., Accessed on 2nd
June, 2018,
The Reject Shop, 2016, Annual report, Available at
https://www.rejectshop.com.au/aboutus/investorinformation/financialreport., Accessed on 2nd
June, 2018,
Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y., 2015. Sector dominance
ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421,
pp.488-509.

Appendix
Descriptio
n
THE REJECT SHOP LTD (TRS) Cash Flow Flag
Financial details
2015` 2016 2017
Revenue 757.00 800.00 794.00
Cost of
goods sold 420.00 459.00 455.00
Gross profit 336.00 341.00 339.00
Operating
profit (247.00) (257.00) (264.00)
Net profit 14.00 17.00 12.00
Interest 2.00 1.00 1.00
Inventory 100.00 99.00 93.00
Current
assets 124.00 125.00 111.00
Receivables - - -
Current
liabilities 68.00 84.00 68.00
Payables 36.00 28.00 29.00
Equity 135.00 135.00 135.00
Total
liabilities 94.00 95.00 84.00
Total assets 228.00 231.00 219.00
Market
price 5.50 6.60 6.50
Descriptio
n Formula
THE REJECT SHOP LTD (TRS) CashFlowFlag
Ratio Analaysis
2015` 2016 2017
Profitabilit
y
Net margin Net profit/revenues 1.85% 2.13% 1.51%

Return on
equity Net profit/Equity 10.37% 12.59% 8.89%
Return on
assets
Net profit/ Total
assets 6.14% 7.36% 5.48%
Liquidity
Current
ratio
Current
assets/current
liabilities 1.82 1.49 1.63
Quick Ratio
Current assets-
Inventory/current
liabilities 0.31 0.26
Efficiency
Creditors
payable
period
creditors / Total
sales*365 31.29 22.27 23.26
Inventory
Turnover
ratio COGS/ Sales*365 202.51 209.42 209.16
Asset
turnover
ratio
Total sales/ Total
assets 3.32 3.46 3.63
Solvency
Debt to
Equity
Ratio Debt/ Equity 0.70 0.70 0.62
Gearing
ratio Interest/ EBIT (0.01) (0.004) (0.004)
Market
Ratio
PE Ratio MPS/EPS 53.04 52.41 73.13
Dividend
Pay-out
dividend payment/
Earning *100 -0.5 -0.647058824 -1