Financial Analysis of John Lewis Partnership Performance

This report provides a comprehensive financial analysis of the John Lewis Partnership, examining its performance through various financial ratios and key metrics. The analysis covers revenue, gross profit, operating profit, and net profit, along with an evaluation of liquidity, stability, and efficiency ratios such as current ratio, quick ratio, debt-equity ratio, and inventory turnover. The report includes interpretations of the financial data from 2012 to 2015, highlighting trends and providing insights into the company's financial health, including its ability to manage expenses, generate profits, and utilize its capital effectively. The study also includes a discussion of growth strategies like market development and limitations of trend analysis. Finally, the report uses income statements in both tabular and vertical/horizontal formats to illustrate the financial performance.

Accounting for Decision Makers

Table of Contents
Introduction of company..................................................................................................................3
B.)...........................................................................................................................................3
A.)...........................................................................................................................................9
References......................................................................................................................................11

Introduction of company
The John Lewis partnership is a visionary and successful business. It begins trading in
1864 on London Oxford street. Now it grew up and became the largest Omni chain retailer in the
UK. Further, John Lewis announced that it will open 10 new stores in another smaller format.
Apart from this, some challenges which were faced by John Lewis is related to lack of new
technology (de Lecea, Cooper and Smit, 2016). For solving this problem firm introduce new
technology which helps to meet the needs of the customer. Its main aim is to keep its customer
satisfied and it focuses on providing excellent services to its customer. Now John Lewis can
meet this challenges and continued to succeed.
B.)
Ratio of John Lewis
Particulars 2015 2014 2013 2012
Revenue 9701 9027.8 8465.5 7758.6
Gross profit 6426.9 6008.9 2825.4 2592.1
Operating profit 450.2 423.6 452.4 393.3
Net profit 143.5 101.6 151.7 136.2
Total capital employed 1518.8 1781.7 1782.7 1783.7
Gross profit ratio 66.25% 66.56% 33.38%
33.41
%
Operating profit ratio 4.64% 4.69% 5.34% 5.07%
Net profit ratio 1.48% 1.13% 1.79% 1.76%
% growth in revenue 7.46% 6.64% 9.11%
Return on capital employed 9.45% 5.70% 8.51% 7.64%
Gross profit of John Lewis company is can be determined after deducting the cost which
is associated with making and selling the product. Gross profit of John Lewis company in 2015

is 66.25%, in 2014 is 66.56% and in 2012 is 33.41 %. It shows that company gross profit
increases in 2015 and 2016. This means company profit is increasing every year.
Operating profit is that profit which company earned by its normal business operation.
There is no value cover in any profit earned from the firms' investment. Hence, above table show
operating profit ratio of John Lewis company is decreases in 2014 and 2015 as compare to 2012
and 2013. It shows company needs to improve its normal business operations so that it can easily
earn operating profit.
Net profit ratio:
The net profit ratio is that ratio which came after deducting the tax profits to net sales.
The net profit ratio also shows link between net profit after deduction of tax and sales. John
Lewis company net profit in 2015 is 1.48%, 2014 is 1.13%, 2013 is 1.79% and in 2012 is 1.76%.
it shows that profit is high in 2012 and 2013 and in 2014 it decreases. But in 2015 company net
profit is increased as compare to 2014.
Return on capital employed: It is a ratio which measures the company profitability and the
efficiency with which its capital is engaged. If there is higher ratio, then it indicates more
effective use of capital.
John Lewis company return on capital employed ratio is 9.45% in 2015 and in 2013 it
was 7.64%. in 2012 is 7.64% and in 2014 it was 5.70%. This show that 2015 company return on
capital employed ratio is high which means John Lewis is efficiently using its capital.
Expenses to revenue
Operating expenses 2917.9 2622.2 2437.1 2258.4
Cost of sales 6426.9 6008.9 5640.1 5166.5
Operating expenses to revenue 30% 29% 29% 29%
Cost of sales to revenue 66% 67% 67% 67%
Operating expense to revenue: The operating expenses to revenue ratio is equal to operating
expenses divided by its revenues. It is a cost which is associated with running core business on
daily basis. Along with this if there are lower operating expenses then it will generate more
profit. John Lewis company operating ratio is 30% in 2015 and in 2014 it is 29% while from
20122 to 2014 it is continuously same and in 2015 it increases. This show that company is
earning a high profit in 2015 because it operating expense ratio is high.

Liquidity ratios
Current assets 1173.3 1139.5 1247.6 1232
Current liabilities 1694.9 1705.6 1633.9 1539.9
Closing stock 580.7 554 514 465.2
Current ratio 0.69 0.67 0.76 0.80
Quick ratio/acid test ratio 0.35 0.34 0.45 0.50
Current ratio: The current ratio is referred as a liquidity ratio which shows the ability of
the company to pay short term and long term obligation. The current ratio of John Lewis
company is 0.69% in 2015, in 2014 it 0.34 %. It shows that it is not much different in both years
in current ratio.
The quick ratio is that ratio which shows capability of the company to meet its short-term
liabilities. In 2015 Quick ratio of John Lewis company is 0.35% and in 2014 it is 0.34 % while
in 2013 and 2012 it is 0.45% and 0.50%. This show that company in 2015 is not much capable of
meeting the short-term capabilities as compare to a year in 2012 and 2013.
Stability/Gearing ratios
Long term debt 1030.2 728.2 714.7 799.2
Total equity 1518.8 1781.7 1901.5 2008.9
Total debt 2641.7 2036.7 1828.2 1697.2
Debt Equity ratio 0.68 0.41 0.38 0.40
Long term debt to capitalisation 0.40 0.29 0.27 0.28
Total debt to capitalisation 0.63 0.53 0.49 0.46
The debt-equity ratio: Debt equity ratio is that ratio which used to measure a company financial
leverage. in 2015 John Lewis company debt-equity ratio is 0.68% and in 2014 it is 0.53%. as
from the above report, it is clear that company earned capabilities of paying the debt in 2015 is
high as compare to 2014.

Efficiency ratios
Opening inventory 554 514 465.2
Closing inventory 580.7 554 514 465.2
Average inventory 567.35 534 489.6
Cost of goods sold 6426.9 6008.9 5640.1 5166.5
Inventory turnover ratio (in times) 11.33 11.25 11.52
Inventory turnover ratio (in days) 4134.69 4107.21 4204.73
Inventory turnover ratio: it is a ratio which show that how many time company sold its total raw
-material. In 2015 John Lewis company inventory, turnover ratio is 11.33% and in 2014 it is
11.25
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0500100015002000
Liquidity position
Current assets Current liabilities

The purpose for using techniques and method for ratio analysing so that company final
position can be identified (Kogadeeva and Zamboni, 2016.). Ratio analysis is based on line items
in a financial statement such as balance sheet and income statement and cash flow statement.
Further ratio analysis also help in evaluating the various aspects of a company.
Table 1: Income statement of John Lewis partnership
Particulars 2012 2013 2014 2015
Revenues 7758.6 8465.5 9027.8 9701
Cost of goods sold 5466.5 5640.1 6008.9 6426.9
Gross profit 2592.1 2825.4 3018.9 3274.1
Operating income 59.6 64.1 74.2 86.1
Total operating
expenses 2260.7 2439.8 2624.6 2920.4
Operating income 391 449.7 421.2 447.7
Interest expenses 70.5 81 95.6 101
Other
income/Expense 32.8 40.1 3 2.8
Income before 188.1 198 126.1 193.3
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0
10000
Profitability
Revenue Gross profit Operating profit Net profit

taxation
Provisions for
income taxations 51.9 46.5 24.4 50.2
Net income 136.2 151.5 101.7 143.1
Particulars 2012 2013 2014 2015
Revenues 7758.6 8465.5 9027.8 9701
Table 2: Vertical income statement
Particulars 2012 2013 2014 2015
Revenues 100.00% 100.00% 100.00% 100.00%
Cost of goods sold 70.46% 72.69% 77.45% 82.84%
Gross profit 33.41% 36.42% 38.91% 42.20%
Operating expenses 0.77% 0.83% 0.96% 1.11%
Total operating expenses 29.14% 31.45% 33.83% 37.64%
Operating income 5.04% 5.80% 5.43% 5.77%
Interest expenses 0.91% 1.04% 1.23% 1.30%
Other income/Expense 0.42% 0.52% 0.04% 0.04%
Income before taxation 2.42% 2.55% 1.63% 2.49%
Provisions for income taxations 0.67% 0.60% 0.31% 0.65%
Net income 1.76% 1.95% 1.31% 1.84%
Interpretation: The aforementioned table shows that gross profit increase in 2015 which reflect
that company has controlled its direct expense this lead to increase in profit. While the net
income of company increases but its growth rate is very slow which show that company does not
have any control on its direct indirect expense.

Table: Horizontal income statement
Particulars 2012 2013 2014 2015
Revenues 100.00% 109.11% 106.64% 107.46%
Cost of goods sold 100.00% 103.18% 106.54% 106.96%
Gross profit 100.00% 109.00% 106.85% 108.45%
Operating income 100.00% 107.55% 115.76% 116.04%
Total operating expenses 100.00% 107.92% 107.57% 111.27%
Operating income 100.00% 115.01% 93.66% 106.29%
Interest expenses 100.00% 114.89% 118.02% 105.65%
Other income/Expense 100.00% 122.26% 7.48% 93.33%
Income before taxation 100.00% 105.26% 63.69% 153.29%
Provisions for income taxations 100.00% 89.60% 52.47% 205.74%
Net income 100.00% 111.23% 67.13% 140.71%
Interpretation: From the aforementioned chart show that in horizontal income statements
revenues decline in 2015. On the other hand, other expenses decline in 2015 which show that
John Lewis company have control on its expenses. Further, Interest expenses decrease in 2015
which show that company pays debt on time.
A.)
Discuss the reason given in annual report and additional factors obtained
The annual report is chosen for getting detailed information of John Lewis company. This
annual report was selected because in this report detailed information is provided for company
financial stability, the ratio of the company and other information. There is the different method
used for calculating the ratio which is used by researchers (Mahendra, Alice and Gopal, 2016). In
the annual report, lots of information is provided of company profits, its expansion etc. This all
information help in identifying the financial position of the company and its market share. Along

with this, it includes company financial statement, income statements, cash flow statements and
balance sheet. This show all show company overall expenses, current assets and current
liabilities.
B.)
There is a different type of growth strategy which company can use for analysing its
business that is as follows:
Market Development: Market Development is one of the best strategies for growth of
business. According to this strategy, John Lewis can expand its business in the different
geographical sector. The expansion of business leads to increase in market share by entering new
market (Mahendra, Alice, and Gopal, 2016). John Lewis can sale its existing product in the new
market for increasing the sale of business. This strategy main aim is to increase sale and
capturing market share. John Lewis is one of the successful company which operates its business
in different countries.
C.)
There is some limitation of trend analysis because all the information derived from actual
historical results. Along with this it also uses for pro forma information and compares with the
historical result for getting the consistency (Kogadeeva and Zamboni, 2016).