Financial Analysis of Primark: Performance, Competitors, and Forecast

This report provides a comprehensive financial analysis of Primark, evaluating its performance in 2016 through trend and ratio analysis. It examines profitability, solvency, stability, efficiency, and investment ratios, offering insights into Primark's financial position. The analysis includes a comparison with competitors like Next Ltd, H&M, and Marks & Spencer, assessing Primark's strengths and weaknesses within the retail industry. Furthermore, the report forecasts Primark's profit for 2017, evaluates financial techniques, and provides recommendations on the company's corporate governance structure. The study utilizes industry sector analysis and concludes with a summary of findings and recommendations for Primark's financial strategies.

Running head: FINANCIAL ANALYSIS
Financial Analysis
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1FINANCIAL ANALYSIS
Executive Summary:
The current report will be giving importance on the financial analysis of the Primark. To
begin with, the examination, the trend analysis of ratios will be used to measure the monetary
situation of Primark for the year 2016. The ratio analysis techniques are put into use to gain a
deep understanding of the financial performance of the Primark by facilitating comparison
with its competitors. Furthermore, a forecast of the profit for 2017 will be explained. The
study will further deliver the assessment of the techniques and commendations on the
corporate governance structure will be provided at the end of the report.

2FINANCIAL ANALYSIS
Table of Contents
Introduction:...............................................................................................................................4
Business and Financial Situation...............................................................................................4
Business Situation:.....................................................................................................................4
Financial Position:......................................................................................................................5
Profitability and Return:.............................................................................................................6
Solvency, Stability and Efficiency Ratios:.................................................................................6
Investment and Shareholders Ratio:...........................................................................................7
Industry Sector and Competitor Analysis:.................................................................................8
Industry Sector...........................................................................................................................8
Competitor Analysis:.................................................................................................................9
Profitability and Return:.............................................................................................................9
Solvency, Stability and Efficiency:............................................................................................9
Shareholder and Investment Ratios:.........................................................................................10
Financial Strength and Weakness of Primark:.........................................................................10
Strengths:..................................................................................................................................10
Weakness:................................................................................................................................11
Suitable Price ranges:...............................................................................................................11
Conclusion and Summary:.......................................................................................................11
2014 Forecast:..........................................................................................................................12
Financial Techniques Evaluation:............................................................................................12

3FINANCIAL ANALYSIS
Valuation affecting factors:......................................................................................................13
Corporate Governance Structure:.............................................................................................13
Reference List:.........................................................................................................................15
Appendix:.................................................................................................................................18
Primark:....................................................................................................................................18
Marks and Spencer...................................................................................................................20
H & M Hennes & Mauritz UK Ltd..........................................................................................23
Next Ltd...................................................................................................................................25

4FINANCIAL ANALYSIS
Introduction:
The present report will be placing emphasis on the financial analysis of the Primark.
To commence with the analysis, the trend analysis of ratios with the help of ratios is used to
measure the financial situation of Primark for the year 016. The ratio analysis techniques are
put into use to gain an in depth understanding of the financial performance of the Primark by
facilitating comparison with the Next Ltd, H & M Hennes & Mauritz UK ltd, Marks, and
Spencer Plc. Apart from this financial strength and weakness of the company will be
analysed. Additionally, by making use of the industry sector index Primark would be ranked
in terms of financially on the London Stock Exchange. Furthermore, a forecast of the profit
for 2017 will be explained. The study will further provide the evaluation of the techniques
and recommendations on the corporate governance structure will be provided at the end of
the report.
Business and Financial Situation
Business Situation:
The business of Primark is organized in a manner that they remain close to the market
and customers that is served by the business. Primark is the part of the Associate British
Foods and they are managed as the five business segments, which collectively combines the
industry expertise, operational ability and the market intelligence (Powers et al., 2014).
Considering the business situation, the operational decisions of the company is made locally
with people that have better understanding of the markets. The corporate centre targets to
provide the framework in which the business leaders possess the freedoms and decision
making authority to pursue the opportunities having entrepreneurial ability. The business
situations of Primark reflect that the corporate centre agrees strategy and budgets with the
business by closely monitoring the performance.

5FINANCIAL ANALYSIS
Financial Position:
The financial position of the firm in 2016 reflects that the influence of the Primark in
the UK market is experiencing growth and the company is gaining strength increasingly in
the strong global market with its business operations in UK, Sweden, and USA and in the
regions of Middle East (Oulasvirta, 2016). Similarly adjusted earnings per share increased by
5 % to 106.2p and the basic earnings per share increased by 55% to 103.4p.
Over the years Primark reported a strong year of financial growth and cash generation
as the revenue for the company stood 13.3bn pound with a rise of 9% and the adjusted
operating profit of Primark stood 1.185m pound which is up by 10% from the previous year.
The net capital investment of the company increased to 600 million pound with a fall in the
net debt to 804m pound (Zeff, 2016). Considering the financial performance in the year 2014,
Primark had reported an exceptional year with revenue increasing by 18% and the like for
like sales grew by 6%. The profit of Primark was ahead by 35%.
By improving the net profit margin, the company has been successful in strengthening
the order book that has ultimately increased with lower amount of loans. From the year 2014
to 2016 the current liabilities of the company have increased subsequently from 2684 million
to 2960 million. In addition to this the number of employees employed in the company has
gradually increased during this period from 124,000 in 2015.
However, in the year 2016 the revenue of the company increased by 5% to 13.3 bn
pound and the adjusted before tax stood 1071 which is again up by 5%. On the other hand, in
2016 the company gained grounds by reporting a higher operating profit of 1103 with an
increase of 18%.

6FINANCIAL ANALYSIS
Profitability and Return:
To understand the financial position of the Primark the profitability and return ratios
is computed to gauge into the five-year trend of the company. The gross profit margin
reported by Primark over the five years stood somewhat stable with 23.6% in 2015 and
23.4% in 2016 respectively. On the other hand, the net profit ratio stood 6.1 for the financial
year ended 2016 (Williams, 2014). The operating profit margin though represented a stable
trend with operating profit ratio in 2016 stood 8.23 respectively. The return on asset and
return on equity represented a strong trend. Return on assets for 2016 stood 7.56. The return
on equity of the firm stood 8.33 in 2015 and gain strength in 2016 as the same was reported
to be 12.22.
Solvency, Stability and Efficiency Ratios:
Under the solvency ratio the current ratio is computed to understand the liquidity
position of the firm in order to pay its short term obligations and long term obligations. As
evident the current ratio reported by Primark has been medium with the company reporting
the current ratio of 1.40 in 2016. The company has reflected that it has not been very
successful in meeting its short term and long-term debt obligations (Beatty & Liao, 2014).
The quick ratio of the firm determines how quickly the company uses it to meet its short term
credit. Similarly, the quick ratio of Primark stood very low over the trend of five years with
the lowest quick ratio of 0.57 in the year 2016 and highest quick ratio of 0.65 in the year
2015.
The efficiency ratio is computed to determine the performance of the firm in respect
of the assets and liabilities used internally. An effective efficiency ratio helps in gauging into
the general use of the inventory and machinery (Warren & Jones, 2018). The accounts
receivable ratio of Primark for the financial year of 2016 stood 13.88 and represented a strong
trend of growth during the financial year of 2016. The fixed asset turnover ratio represented a

7FINANCIAL ANALYSIS
somewhat stable trend with the ratio standing 2.78 for the financial year 2016 as Primark has
been utilizing the fixed asset to mobilize the resources and earnings of the firm.
The inventory turnover of the firm stood 5.65 in the year 2015 and marginally
declined to 5.32 in 2016. The inventory turnover representing the effectiveness of the firm by
comparing the cost of the goods that is sold with the average period of inventory for the year
ended 2016. The asset turnover ratio of the firm stood 1.24 during the financial year of 2016.
It can be said that Primark has somewhat been stable in generating the sales revenue
generated from the asset. From the asset turnover ratio, it can be stated efficiency of the
company has been better in generating sales revenue or the sales income to the company.
Investment and Shareholders Ratio:
The investment ratio for Primark is computed to determine the performance of the
Primark shares its earnings per share and its yield (Cohen & Lys, 2015). The ratio serves the
greatest interest to the ordinary shareholders in understanding the return on their investment.
The earnings per share of the company has been gradually increasing over the five-year span
as the EPS stood relatively lower. Though Primark reported a falling EPS in the year 2015 to
0.67 but gained grounds in 2016 to 1.03. The company reported the EPS that stood highest in
the year 2016 of 1.03. The return on invested capital for the firm stood 10.96% in the year
2014 and subsequently increased in the following years to 11.29 in the year 2016.
The return on invested capital has been stable reflecting that the company has been
successful in generating profitability and return from its capital employed. The debt to equity
ratio of the firm stood relatively in the year 2016 with the company reporting debt to equity
ratio of 0.09. On the overall it can be said that the appropriate return from the investment has
been drawn by the firm with appropriate return to the shareholders. The debt ratio too

8FINANCIAL ANALYSIS
represented a fall since the debt ratio for the year 2016 stood 5.51 with the company reported
that amount of debt has gone down to 315 m pound.
Industry Sector and Competitor Analysis:
Industry Sector
The section of this report places emphasis on the industry sector and the financial
situation of the Primark by comparing the company with its three competitors namely, Mark
and Spencer, H & M Hennes & Mauritz UK Ltd and Next Plc. The financial ratio tools will
be put into the use to asses and evaluate these three firms. Industry can be defined as the
manufacturing of economic goods and service within the economy. Essentially, industry
sector generally refers to the organization functioning within the same organizations. In the
present research, Primark is listed under the retail industry (Bushman, 2014).
The morning star of the company intelligence clearly illustrates the four main areas of
the retail industry sector index that comprises of the market, capitalisation, turnover, and total
number of employees and PER prospective (Grant, 2016). With increased operations the
garment industry has experienced a growth. Primark became the first UK brand to sign the
accord that is designed to make sure that the sustainable improvements is made in the
working conditions in the retail industry.
According to Henderson et al. (2015), it is believed that collaborations with the other
stakeholders is key to locate the sustainable and effective solutions concerning the challenges
that is faced by the garment industry. With approximately around 95% of the factories shared
by the other high street brands. Several companies have collaborated with the other retailers
and non-governmental organizations in order to address the industry challenges both with the
help of Ethical Trading Initiative and externally with the help of non-ETI members.

9FINANCIAL ANALYSIS
Competitor Analysis:
In the present context companies such as Next Ltd, H & M and Mark and Spencer Ltd
as these companies are based in UK with relatively being the retail companies. Next Ltd, H &
M and Mark and Spencer is listed on the London Exchange Market. The financial ratios offer
the quick and relative method of evaluating the financial situations of the organization. Ratios
can be helpful at the time of comparing the financial health of the organization with respect to
different firms and it helps in describing the associations amid the different items in the
financial statement (Pratt, 2016). By computing the ratios, it would help in creating a better
vision of the firm’s financial position along with the financial performance of the
organization. Ratio analysis includes the areas of profitability, efficiency, liquidity and
investment.
Profitability and Return:
The financial position of the Primark is not as good as the Next Ltd, Mark and
Spencer and H & M particularly during the period of 2016 as the profit margin, return on
assets and equity is relatively lower and the company is could still be facing the problems of
liquidity in the recent years (Marshall, 2016). The analysis represents that there could be a
shortage of cash and weak paying off capability even though the net profits, volume of sales
and return on equity is increasing sharply in the year 2015 the company reported a fall in the
sales revenue and posted a lower amount profit after tax in respect of its competitors. Primark
though reported a higher net profit ratio in 2015 but it is still weaker than its other
competitors.
Solvency, Stability and Efficiency:
Considering the solvency ratios, the current ratio and quick ratio of Primark is greater
than its competitor Mark and Spencer however its other competitor namely the H & M has

10FINANCIAL ANALYSIS
reported a better solvency ratio. Lower solvency ratio can be attributed to the lower amount
of cash generated from the business in meeting its short-term debt obligations while its
competitors have been successful in meeting the short-term business needs (Macve, 2015).
Companies such as Mark and Spencer, H & M and Next Ltd have reported a better efficiency
ratio than Primark particularly during the year 2016.
Shareholder and Investment Ratios:
The shareholder and the investment ratio of Primark is better in the areas of EPS since
its competitor Marks and Spencer have reported a relatively lower EPS. Other areas such as
Return on Invested Capital, Debt Equity Ratio and Debt Ratio of the firm has been relatively
lower than Marks and Spencer. Primark does not report any pay-out ratio since the companies
does not reported any dividend being the subsidiary of Associate British Food Plc, however
its competitors namely, Next Ltd, H & M and Marks and Spencer have better dividend pay-
ratio.
Financial Strength and Weakness of Primark:
The financial ratios help in highlighting the financial strengths and weakness of the
business (Hoskin et al., 2014). By taking into the considerations financial ratios it is apparent
that Primark has numerous financial strength and weakness.
Strengths:
Strong ability of paying off interest: As evident the company has reported lower amount of
interest expenses and the results have suggested that the ability of the firm in paying off its
interest is better (Jordan, 2014).
Stable increase in profitability: As evident from the analysis the gross profit margin, net
profit margin and the operating profit margin of the firm has been increasing over the years.
However, the inventory turnover ratio has been declining and the asset turnover has been

11FINANCIAL ANALYSIS
robust representing that the efficiency of the organizations is getting better (Mullinova,
2016). Considering the Return on Invested Capital it has been increasing sharply over the
years along with the robust return on assets.
Weakness:
Poor liquidity: The current ratio of the Primark is relatively lower reflecting that the Primark
does not have sufficient amount of cash to meet their short term commitments to pay off their
current liabilities (Schipper et al., 2017). On the other hand, the lower amount of quick ratio
has reflected that Primark could be facing a recent cash trouble.
Insufficient long term borrowings: The lower amount of investment ratios reflects that the
company lacks the long-term investment. Given the business has higher amount of
investment ratios, which implies that the company is having large sum of money invested in
the business coming from the long-term loans (Dutta & Patatoukas, 2016). Hence, the long
term borrowings represents that the investors are confident with the development of the
organizations.
Suitable Price ranges:
Primark has not passed on the high cotton price to its customers hence the profit of the
company has been somewhat unsatisfactory. The decision of not passing the price of the
cotton to the customers might lower the profit of the firm but may provide Primark with the
improved price advantage. Commencing from the month of April to September the price of
cotton has fell back to the basic level (Warren, 2016). On the other hand, the other problems
that contributes to the unsatisfactory is the weakness in the consumer demand in UK. Since
the product of the Primark has lower price in comparison to the other competitor companies,
the consumer purchasing power may have the minimum impact on Primark. With lower