Horizontal and Ratio Analysis of Retail Food Group Limited

The article provides a detailed analysis of Retail Food Group Limited including horizontal and ratio analysis. It covers profitability, efficiency, liquidity and investment ratios. The analysis shows that the company has progressed a lot in recent years and has been moving in the right direction. However, there are some areas where the company needs to improve. The article is based on the annual reports of the company and other relevant sources.

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ACC00724 (Accounting for Managers) S2, 2018

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Horizontal Analysis of Retail Food Group Limited
Income Statement of RETAIL FOOD GROUP LIMITED
Particulars 2013 2014 2015 2016 2017
Amount in $ ' 000
Revenue from sale of goods
100.00
%
124.75
% 267.86%
365.61
% 545.34%
Cost of sales
100.00
%
129.04
% 330.70%
428.91
% 736.71%
Gross Profit
100.00
%
120.38
% 203.73%
301.01
% 350.02%
Other revenue
100.00
%
116.94
% 131.82%
114.92
% 107.79%
Other gains and losses
100.00
% 0.00%
-
2536.36
%
227.27
%
-
55472.73
%
Selling expenses
100.00
%
188.27
% 136.52%
120.79
% 79.08%
Marketing expenses
100.00
%
115.35
% 112.30% 15.46% 10.30%
Occupancy expenses
100.00
% 80.24% 429.73%
297.14
% 311.11%
Administration expenses
100.00
%
110.18
% 295.91%
334.22
% 424.95%

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Operating expenses
100.00
%
108.72
% 158.16%
162.37
% 155.13%
Finance costs
100.00
% 64.89% 98.78%
129.57
% 129.38%
Other expenses
100.00
% 85.39% 547.70%
568.12
% 607.09%
Profit before tax
100.00
%
115.85
% 106.26%
168.19
% 192.42%
Income tax expense
100.00
%
117.47
% 104.72%
174.61
% 189.89%
Profit for the year from continuing
operations
100.00
%
115.17
% 106.91%
165.48
% 193.49%
(Annual Report, 2013, 2015 and 2017)
Comment on the changes for 5 years
On the basis of analysis it has been found that revenue from the sale of goods increased
more than 5 times in year 2017 as against year 2013 which means company is progressed a lot in
recent years. The increase in cost of goods shows that company fails to manage the cost expenses
as cost has increased a lot as compared to proportionate cost. Gross profit shows increasing trend
from year 2013 to year 2017 that indicates excellent profitability position of Retail Food Group
Limited in the current year. Apart from the revenue from sale of regular goods, company also
depends upon the other revenue and it is essential part of total income earned by the company.
The trend analysis of profit before tax shows increasing trend in all the years which means
company has been successful in maintaining the required growth in profit (Damodaran, 2011).

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The overall profitability position of Retail Food Group Limited has been very excellent in
current year as compared to past years. So it can said that there is increasing trend in all the
financial components of income statement which means company has been moving in right
direction and has been successful in turning its assets into revenue (Brigham and Michael, 2013).
Ratio Analysis of Retail Food Group Limited
Ratio Analysis of Retail Food Group Limited
Particulars 2013 2014 2015 2016 2017
Return on total assets 8.62% 9.26% 5.03% 7.03% 6.66%
Rate of return on ordinary equity 13.31% 11.89% 8.47% 14.08% 13.31%
Operating profit margin
124.14
% 106.93%
59.92
% 62.77% 47.04%
Gross profit Margin 49.49% 47.75%
37.64
% 40.75% 31.76%
Inventories turnover period (In days) 70.79 94.84 75.11 68.30 47.98
Settlement period for debtors (In days) 142.27 132.87 95.85 90.88 92.34
Current ratio 2.34 2.66 0.93 1.92 1.48
Quick ratio (acid test ratio) 2.08 2.13 0.71 1.57 1.17
Debt to assets ratio 0.35 0.22 0.41 0.50 0.50
Interest cover ratio (Times interest
earned) 7.16 12.00 7.63 9.00 10.16
Assets turnover 0.121 0.141 0.178 0.219 0.264
Earnings per share $ 0.260 $ 0.265
$
0.221
$
0.323
$
0.357

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Price-earnings ratio 15.19 17.13 24.57 17.12 13.17
Dividend yield 4.68% 4.63% 4.19% 4.48% 6.22%
(Annual Report, 2013, 2015 and 2017)
Profitability Ratios
The ratios help in determining the extent to which a business yields profitability or
financial gain. The profitability position of the company can be accessed by the use of following
ratios:
Return on total assets (ROTA): It indicates the effectiveness of a company in utilizing its
assets for revenue realization and is calculated by the use of following formula:
ROTA= Earnings before interest and taxes (EBIT)/total net assets
The ROTA of the company in context is having a decreasing trend over the year 2013-
2017 indicating that its ability to utilize assets for generating earnings has been reduced (Arnold,
2013).
Rate of Return on Ordinary Equity (ROE): This ratio will help in determining the ability of a
company to realize profits from the investments made by the shareholders and is calculated by
the use of following formula:
ROE=Net Income/Average Shareholder’s equity
The ROE ratio of the company is good as it is high over the year 2013-2017 but the ratio
is not having an increasing trend over this time-period. The ratio has decreased from the year
2013-2015 but has increased them from the year 2016-2017.

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Operating Profit Margin: The ratio determines the percentage of profit realized by a company
after meeting all its operational expenses and is calculated by the use of following formula:
Operating Profit Margin=Operating earnings/Revenue
The operating profit margin of the company has decreased from the year 2013-2017
indicating that there is increase in its operational expenses which has lead to decline in its
operating earnings.
Gross Profit Margin: It determines the amount of money realized from the overall revenue after
meeting up the cost of goods sold and is calculated by the following formula:
Gross Profit Margin=Gross Profit/Revenues
This ratio has decreased subsequently from the year 2013-2017 indicating that its ability
to generate revenue after covering the expenses incurred in cost of goods sold has reduced.
It can be stated from the overall analysis of profitability ratio’s that it is having a high
profitability over the year 2013-2017 but it has been declined over the years as indicated from
the results of different ratios.
Efficiency Ratios
It provides a measurement of the ability of the company to utilize its assets and managing
its liabilities efficiently.
Inventories turnover period: It measures the number of times an inventory is sold in a specific
time-period and is calculated by the use of following formula:
Inventories turnover period: Cost of goods sold/Average inventory

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The ratio has increased over the year from 2013-2014 but has reduced then in the
consecutive years from 2015-2017. This indicates that the sales of the company have reduced in
the years over 2015-2017 which implies excess inventory and low inventory turnover period
(Arnold, 2013).
Settlement period for debtors: The ratio indicates the time required for realizing the amount
owned by the trade debtors and is calculated by the following formula:
Settlement period=Amount owned by trade debtors/Annual sales on credit
The ratio has shown a decreasing trend for the company over the year 2013-2017 which
is not good as its ability to realize the amount owned by debtors has reduced considerably.
The efficiency of the company has weakened over the selected time-period implying that
its efficiency to manage its assets and liabilities is reducing.
Liquidity Ratio
It determines the ability of a company to meet its current debt obligations with its liquid
assets. The liquidity position of the company can be accessed by the following ratios:
Current ratio: It is a liquidity ratio that measures the ability of a company to meet its financial
liabilities and is assessed by the following ratios:
Current ratio=Current assets/Current liabilities
The current ratio has decreased over the period 2013-2017 which states that its ability to
meet its financial obligations from the liquid assets has reduced.

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Quick Ratio: It determines the ability of a company to meet its financial obligations from
meeting its most liquid assets and is calculated with the use of following ratios:
Quick Ratio= (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
The ratio has declined over the financial period from 2013-2017 indicating that its cash
inflows have reduced with decline in its liquid assets.
Financial Gearing Ratios
Debt to asset ratio: This ratio provides information about the leverage effect on company as it
defines total amount of debt as against the assets. If higher the ratio higher will be degree of
leverage (Ross, Jaffe and Kakani, 2008).
Formula: Total Debt (Total liabilities) / Total assets
The debt to total asset ratio of Retail Food Group Limited has been 0.35 times in year
2013 that indicates 35 % of assets has been financed from the debt capital but in year 2017 this
ratio has increased to 0.50 times that shows that degree of financial leverage has increased in
current year as compared to past years.
Interest Coverage Ratio: This ratio defines the gearing impact of finance cost on the company
as it tells how many times company can bear the liability of finance cost.
Formula: EBIT / Finance Cost (Interest Expenses)
Interest coverage ratio has been increased from 7.16 times in year 2013 to 10.16 times in
year 2017 that indicates better profitability position of company in current year as company can
pay 3 times more its finance liability in current year as compared to year 2013.

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Asset Turnover Ratio: This ratio defines the efficiency of company to use the assets for earning
the revenue. This ratio measures the value of company sales as generated relative to the assets of
the company (Weston and Brigham, 2015).
Formula: Net Revenue / Total Assets
On the basis of analysis of this ratio for last five years it can be there has been increase in
this ratio in current year as compared to previous years that indicates better efficiency of
company in using the assets to turn them into net revenue.
Investment ratios
Earnings per Share: This ratio tells net income earned by the company per shareholder. This
ratio is important from the investor’s point of view.
Formula: Profit attributable to shareholders/number of shareholders
There has been increase in earnings per share in current year as compared with previous
year that shows better profitability position of company.
Dividend Yield: This is the important investment ratio as it tells percentage of dividend paid by
the company as relative to the share price (Moles and Kidwekk, 2011).
Formula: Annual Dividend per share/Price per share
There has been increase in this ratio in current year as compare previous year that
indicates better market position of company and ability to attract more investors.

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References
Annual Report. 2013. Retail Food Group Limited. [Online]. Available at:
http://www.rfg.com.au/shareholder-center/annual-reports/ [Accessed on: 11 August, 2018].
Annual Report. 2015. Retail Food Group Limited. [Online]. Available at:
http://www.rfg.com.au/shareholder-center/annual-reports/ [Accessed on: 11 August, 2018].
Annual Report. 2017. Retail Food Group Limited. [Online]. Available at:
http://www.rfg.com.au/shareholder-center/annual-reports/ [Accessed on: 11 August, 2018].
Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.
Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Cengage
Learning.
Damodaran, A, 2011. Applied corporate finance. John Wiley & sons.
Moles, P. and Kidwekk, D. 2011. Corporate finance. John Wiley &sons.
Ross, A., Jaffe, J. and Kakani, R.K. 2008. Corporate Finance. Pearson.
Weston, J.F. and Brigham, E.F., 2015. Managerial finance. Hinsdale, IL: Dryden Press.