Financial Analysis of Specialty Fashion Group Ltd

Running head: FINANCIAL ANALYSIS OF SPECIALTY FASHION GROUP LTD 1
Financial Analysis of Specialty Fashion Group Ltd
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FINANCIAL ANALYSIS OF SPECIALTY FASHION GROUP LTD 2
Executive Summary
Paper presents financial analysis of Specialty Fashion Group Limited over the last
three financial years; that is, 2015, 2016 and 2017. This would be based on horizontal,
vertical and ratio analysis. Specialty Fashion Group Limited is an Australian listed company
that operates as specialty retailer of the women’s fashion products. It operates several
women’s clothing brands comprise of Miller’s Retail, Katies, Rivers, Crossroads, City Chic
and Autography. Based on the financial analysis above; that is, horizontal, vertical and
financial ratio analysis, it can be concluded that Specialty Fashion Group Limited has been
experiencing some financial challenges over the past three financial years. In essence, based
on the profitability ratios, it is evident that the company has not been profitable over the past
three years. In addition, based on the gearing ratios it is evident that Specialty Fashion Group
Limited has been financially weak and therefore risk going bankrupt or being liquidated.
Therefore, there is a need for the management to undertake the necessary measures in
improving its financial performance.

FINANCIAL ANALYSIS OF SPECIALTY FASHION GROUP LTD 3
Introduction
Specialty Fashion Group Limited is an Australian listed company that operates as
specialty retailer of the women’s fashion products. It operates several women’s clothing
brands comprise of Miller’s Retail, Katies, Rivers, Crossroads, City Chic and Autography. Its
miller brands is said to operate around 350 store while its Katies delivers clothing for all form
of occasions, from the work wear and fashion pieces to denim and loungewear. On the other
hand, its autography entails design, styling and filling plus-size women (Specialty Fashion
Group Limited, 2017). The company has over 3 million members who are reached via email.
It operates around 1,080 sites across Australia, United States, South Africa and New Zealand.
With these considerations, the paper aims to present financial analysis of Specialty Fashion
Group Limited over the last three financial years; that is, 2015, 2016 and 2017. This would be
based on horizontal, vertical and ratio analysis.
Financial Analysis
Horizontal analysis
Based on the horizontal analysis in Appendix 2, it is evident that the company
experienced slight decrease in its assets, especially in 2017. Further, based on Appendix 4, it
is evident that the company experienced slight decrease in its revenue in 2017 in comparison
to 2016. Its gross profit also decreased over the same period with 3.03%. This decrease could
have been attributed by relatively high cost of sales. In addition, the company net loss is said
to have decreased over the period with a significant margin. Additionally, based on Appendix
6 below, it is evident that the company cash flows from the operating activities decreased in
2017. This trend was also observed in its cash from the investing activities. Nonetheless, the
cash flow used from the financial activities increased with a significant margin in 2017.
Vertical analysis

FINANCIAL ANALYSIS OF SPECIALTY FASHION GROUP LTD 4
From the vertical analysis in Appendix 3 and Appendix 5, it is clear that the company
has been struggling over the years. This is evident by negative percentage of the net income
over sales in the last three years.
Financial Ratio Analysis
Ratio analysis is considered as mathematical comparison of the financial statement
categories or items. This assist in understanding how well an organization is performing. In
other words, ratio analysis is one of the most widespread and common financial tool utilized
in examining an entity’s financial standing (Daniel, 2015). It gives room to compare
organizations across sectors, small and big, in identifying their weaknesses and strengths. In
this case, financial ratios which would be analysed are categorized into profitability, gearing,
profitability and efficiency ratios.
Profitability
Rate of return on net sales
The ratio helps in measuring proportion of the net profit or loss earned for every
amount of dollar of sales. It is used in measuring profitability of an organization over a
specified period. It is usually computed as;
Rate of return on net sales = Net income/total sales
As such return on net sales over the last three years was;
2015 =-0.56%
2016 = -0.27%
2017 = -1.04%
Rate of return on total assets
This ratio examines the relationship that exists between net income of the
organization and its total assets (Daniel, 2015). It assists in measuring how efficiently the
company utilized its assets in generating income. The ratio is computed as;