Myer Holdings Financial Analysis: Opportunities and Strategies

This case study report analyzes the financial health and potential growth strategies for Myer Holdings Limited, a major Australian department store. It begins by outlining basic accounting and management accounting principles, emphasizing their importance for business success. The report then evaluates the role of the four main financial statements (income statement, balance sheet, cash flow statement, and statement of change in equity) in management decision-making. A detailed financial analysis is conducted using ratio analysis based on Myer's financial data from the past five years, assessing long-term solvency, liquidity, profitability, and efficiency. The report identifies potential growth opportunities for Myer and recommends strategies for its success, while also considering the impact of the political environment and ethical considerations related to insolvency. External factors, such as the likelihood of mergers or acquisitions, are discussed. The report concludes with a recommendation on whether to invest in Myer based on the analysis, or under what circumstances the business could be saved.

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Financial Management

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Contents
Introduction......................................................................................................................................3
Basic Accounting principles and management accounting principles............................................3
Role of four financial statements in management decision making process...................................5
Analysis of the financial statements using the ratio analysis as a important financial tool.............5
Analysis of Potential Opportunities of Growth for Myer & Recommended Strategies for its
Success.............................................................................................................................................8
Impact of Political Environment on Business.................................................................................9
Ethical Considerations for an Organization to Become Insolvent...................................................9
External Factors need to be taken into Consideration and the Likelihood of Merger or
Acquisition.....................................................................................................................................10
Recommendation and Conclusion on the basis of above analysis................................................11
References......................................................................................................................................12

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Introduction
Every organization needs to follow the accounting principles and management principles
in order to get success in the business. There are many accounting principles that need to be
incorporated in the accounting process so that financial statement represents true and fair view.
In addition to accounting principles there are some management accounting principles that need
to follow by the management in order to get success in the business. If company follows all the
basic principles of accounting and management perfectly than there will more chances that
business organization will get success in future.
In this report the case of Myer Company has been evaluated in detail through using
economic and financial analysis. Financial analysis has been conducted using the ratios analysis
of the company for last five years.
Basic Accounting principles and management accounting principles
The most important basic accounting principles upon which modern accounting are based
are as follows:
 Accrual Principle: As per this principle accounting entries should be recorded as and
when they occurred rather than when the actual cash transactions have taken place.
 Conservatism Principle: According to this principle expenses and liabilities should be
recorded as earliest it is possible and records the revenues and assets when it is sure that
it will definitely occur.
 Consistency Principle: As per this accounting principle entity should perform the
accounting process use the same method as it was using until a better principle or method
has been introduced (Brealey, Myers and Marcus, 2007).
 Cost Principle: As per this concept entities should record all the assets, liabilities, and
other equity investment at the original purchase cost.
 Economic entity principle: This principle explains that transactions of business must be
kept separate from the owners and other businesses.
 Full Disclosure Principle: Entity must disclose all the material facts and information in
the financial statements and notes to accounts.

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 Going concern principle: According to this principle it is assumed that business will
remain to continue for the foreseeable future.
 Matching principle: According to this principle, it is certain that for recording any
revenue there should be expenses to matches the accounting transaction.
 Materiality Principle: It is important to record all the transaction in the books of accounts
so that it will help in decision making process. In case if any material information has
been missed from recording in the book of accounts that it will certainly impact the
decision for future period.
 Reliability Principle: Only those transactions should be recorded that can be proven.
 Revenue Recognition Principle: Entity must recognize the revenue when it is actually
earned and not when there is only assumption that revenue will arise (Brigham and
Michael, 2013).
Some important, but not limited to, management accounting principles are as follows:
 Designing and Compiling
 Management by Exception
 Control at Source Accounting
 Accounting for Inflation
 Use of Return on Investment
 Utility
 Integration
 Absorption of Overhead Costs
 Controllable and Uncontrollable Costs
 Utilization of Resources
 Forward Looking Approach
 Appropriate Means
 Personal Contacts

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Role of four financial statements in management decision making process
The four main financial statements are income statement, balance sheet, cash flow statement and
statement of change in equity. The roles of these statements in management decision making
process are as under:
 Income Statement: Income statement of any entity reflects the projected profitability
position over the period of time. Income statement consists of information like total
revenue, expenses occurred during the period and net profit earned in the similar period.
The content present in the income statement helps to make decisions that control the
operating expenses and cot expenses in order to increase the net profit of the company.
 Balance Sheet: The information presented in the balance sheet helps to take many
business decisions such as decision regarding the collection of receivables, capital
structure decisions and credibility decisions to keep proper liquidity in the company.
 Cash flow Statement: The content present in the cash flow statement help to take many
types of management decisions such as cash credit management, cash collection from the
customer and cash control decisions (Bromwich and Bhimani, 2005).
 Statement of change in equity: This statement contains information on the change in
shareholder equity over the year. Management can track the increase or decrease in
retained earnings, cash generated by the issues new capital and similar decisions through
use of statement if change in equity.
Analysis of the financial statements using the ratio analysis as a important financial tool
Financial Data for last five years
Myer Holding Limited (Amount in $ 000)
Particulars 2017 2016 2015 2014 2013
Shareholder's Equity
1072868.0
0
1107765.0
0 863016.00 893,413 896000
PBIT 109165.00 114035.00 133348.00 153,948 186000
Interest charges 11259.00 15447.00 23488.00 22,931 30000
Current Assets 430567.00 479738.00 480804.00 480,460 479000
Current liabilities 487014.00 520585.00 481389.00 530,881 523000

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Cost of sales
1421394.0
0
1527552.0
0
1495382.0
0
1,455,06
6
145100
0
Stock or Inventory 372374.00 396297.00 381907.00 376,763 364000
Accounts Receivables 17096.00 28944.00 13583.00 16,852 14000
Net Sales
2641826.0
0
2801843.0
0
2785774.0
0
2,740,93
6
273800
0
Total Assets
1878529.0
0
1956342.0
0
1886548.0
0
1,932,66
4
194000
0
Net profit 11939.00 60543.00 29826.00 98,542 130000
Cash flow from operating activities 149278.00 149490.00 96915.00 191,576 229090
Debt 143367.00 149804.00 445833.00 425,431 421000
EPS (Australian Dollar) 0.17 0.17 0.05 0.07 0.01
(Investor Relation: Myer Holding. 2018)
Ratio Analysis
Ratio Analysis 2017 2016 2015 2014 2013
Long term
Solvency Ratio: Formula
Debt to equity
Ratio Debt/Equity 0.134 0.135 0.517 0.476 0.470
Interest cover ratio
PBIT/Interest
charges*100 9.696 7.382 5.677 6.714 6.200
Liquidity ratios:
Current ratio
Current
assets/Current
liabilities 0.884 0.922 0.999 0.905 0.916
Working Capital
Current Assets -
Current
Liabilities -56447.00 -40847.00 -585.00
-
50421.0
0
-
44000.0
0
Receivables Sales /Accounts 154.529 96.802 205.093 162.648 195.571

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Turnover Ratio receivables
Accounts
receivable
collection period
Accounts
Receivable
/Sale*365 2.362 3.771 1.780 2.244 1.866
Inventory
Turnover Ratio
Cost of sale/
stock 3.817 3.855 3.916 3.862 3.986
Average Days
inventory in hand
Stock/ Cost of
sale*365 95.622 94.693 93.218 94.510 91.564
Profitability
ratios:
Net profit margin
Net
profit/sales*100 0.45% 2.16% 1.07% 3.60% 4.75%
Asset turnover
ratio
Sales/Total
Assets 1.406 1.432 1.477 1.418 1.411
Return on equity
Net Profit/
Shareholder's
Equity 1.11% 5.47% 3.46% 11.03% 14.51%
Return on assets
Net income/ total
assets 0.64% 3.09% 1.58% 5.10% 6.70%
Cash Flow
Ratios:
Cash Flow to Sales
Operating cash
flow / net sales 0.057 0.053 0.035 0.070 0.084
Cash to assets
Operating cash
flow / total assets 0.079 0.076 0.051 0.099 0.118
(Investor Relation: Myer Holding. 2018)
Financial performance of company on the basis of above ratios

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 Long term solvency or capital structure analysis: It has been found in case of Myer
Holding Limited the debt equity ratio has decreased a lot in year 2017 as compared to
previous years and interest coverage ratio is also increased a lot in current as compared to
past year results. It shows that there was improvement in the capital structure of company
in the current year as compared to previous years.
 Liquidity Analysis: On the basis of calculation of liquidity ratios of last five years it can
be said that liquidity performance of the company was decreased in current year as
compare previous year. It can be seen through decrease in current ratio, negative working
capital ratio (Damodaran, 2011)
 Profitability Analysis: Profitability position of Myer Holding in the current is decreased
a lot as compared to previous year profitability position. There is continuous decrease in
net profit ratio, return on assets ratio, and return on equity ratio. All these factors clearly
show the company was not able to earn the same revenue as it was earning previously.
There can be multiple reasons for this decrease in profitability ratios.
 Efficiency ratio: There in improvement in the efficiency ratios due to decrease in sales
figures in the current year. So the net improvement in the efficiency ratio will be offset
by the decrease in the profitability of the company (Davies and Crawford, 2011).
Analysis of Potential Opportunities of Growth for Myer & Recommended Strategies for its
Success
Myer has recorded a rise in its net profit by about 5.3% in the current times after it has
gone major restructuring of being listed as public company after it was sold by Coles to a private
equity group. However, it is still facing an issue of it stagnant sales growth as it has recorded an
increase of about 0.3% in comparison to the expectations of analysts of about 2%. The company
has set a target of increasing its sales by about 3% between the years 2016-2020. However, the
presence of a highly competitive retail environment within Australia can negatively impact its
sales growth in the future period of time.
The company needs to cut out its operational cost for improving its profitability position.
This can be achieved by the company by simplifying the administration processes that will
enable it to reduce the operational expenses to a large extent. The simplification of business

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model by the company will enable it to reduce the operational costs and improve the efficiency
of business processes. This will significantly help the company to improve its sales realization
and thus strengthen its profitability position (Cut GST threshold on overseas goods: Myer, 2012).
Impact of Political Environment on Business
The presence of political uncertainty in the Australian market can have a major impact on
the potential success and growth of Myer. The implementation of new tax such as carbon tax can
have a negative effect in the consumer spending. Also, the stagnation that can be caused before
an election is adding to the uncertainty in the political environment. This is causing the lack of
trust and confidence among investors and restricting the capital inflows. In addition to this, the
rising labor costs is also causing poor sentiment in the business sector and reducing the
investment in the sector. Thus, political uncertainty is causing the occurrence of situation in
Australia where investors, households and business are cutting the expenses till the election
results are declared. This can have a negative impact on the growth and success of the company
to large extent in future context (Political uncertainty weighs on Australian economy, 2013).
Ethical Considerations for an Organization to Become Insolvent
There are some ethical obligations that a business entity listed on ASX need to comply if
it’s on the edge of becoming insolvent as per the Corporations Act 2001. The identification of
strong risk of insolvency poses major obligations on the business directors. One of the major
obligations on the director in this context is to carry out the responsibilities in an ethical manner
and keep a record of all the economic operations carried out during the condition of insolvency.
Business leaders also need to maintain integrity in all the business operations for ensuring to
meet the legal obligations of all the stakeholders adequately. Director need to place emphasis
that they should not indulge themselves in any unethical behavior for promoting their own
interests. Directors must be aware of the ethical rules and standards that a business entity need to
comply effectively under the situation of insolvency. This is necessary because insolvency can
lead to punishment of the directors and also if found guilty of misconduct can got them
convicted. Also, it is the responsibility of a business director to ensure that the company is not
involved in any type of legal trading during the condition of insolvency. This is because the

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company is currently under the situation of debt and therefore should not engage itself in any
business activity that my further increase its insolvency.
Business leaders also need to hire a liquidator for meeting the claims and obligations of
the creditors who suffered financial loss due to company’s insolvency. Australian securities and
Investment commission has also established a Bankruptcy act under which a director would be
disqualified from managing nay corporation in the future in the condition of his company
becoming insolvent. In this context, it is essential for the director of Myer to identify the risk of
insolvency in advance and take necessary measures to mitigate the threats to prevent the
occurrence of condition of insolvency (Sydenham, 2004).
External Factors need to be taken into Consideration and the Likelihood of Merger or
Acquisition
The major external factors that need to be taken into consideration that can impact the
business functions are political stability such as trade regulation, anti-trust laws, labor
availability and employee laws and regulations. The economic factors that need to be taken into
consideration are exchange rates, financial markets efficiency, workforce skill level and labor
costs. The social factors can also impact the business functions such as education level, attitude
of people and income level of consumers. In addition to this, the technological factors that can
impact the business functions of the company are technology diffusion and developments that
have a wide impact on the business activities. Moreover, the environmental changes such as
rising pollution level or increasing shift towards sourcing green products in the retailing sector
can impact the growth and productivity of the company. The legal factors that can impact the
business operations are the laws related to intellectual property rights that can impact the
business activities (Bösecke, 2009).
Myer at present is not having a sound financial growth and therefore a potential corporate
merger or acquisition can have a major impact on the growth prospects of the company. The
company after being separated from Coles was on the verge of being merged with David Jones.
However, the merger did not take place but the company at present is recommended to undertake
a merger or acquisition for stabilizing its financial growth. This will help the company in
increase in size and also it is essential for its survival in the highly competitive retail sector of

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Australia. The financing condition of the company can significantly be improved after merger or
acquisition by realizing economies of scale and thus improving its profitability by decrease in the
operational cost. The company chances of being acquired or merged at present is high due to
uncertainty of its future growth potential and therefore it is more favorable if company enters
into a strategic alliance to improve its profitability (Cooper and Finkelstein, 2014).
Recommendation and Conclusion on the basis of above analysis
On the basis of above analysis I will not invest in the above business as profitability
position of the company is continuously decreasing and business is not performing as it was
planned by the management. Myer Holding Company is needed to restructure in order to get on
track and earn the good revenue in future. Unprofitable or loss making units need to be shut
down and investment needs to be made in the units that are providing good profits.

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References
Bösecke, K. 2009. Value Creation in Mergers, Acquisitions, and Alliances. Springer Science &
Business Media.
Brealey, R., Myers, S.C. and Marcus, A.J., 2007. FundamentalsofCorporate Finance. Mc Graw
Hill, New York.
Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Cengage
Learning.
Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima
publishing.
Cooper, C. and Finkelstein, S. 2014. Advances in Mergers and Acquisitions. Emerald Group
Publishing.
Cut GST threshold on overseas goods: Myer. 2012. Retrieved 29 April, 2018, from
https://www.smh.com.au/business/cut-gst-threshold-on-overseas-goods-myer-20121207-
2azgs.html
Damodaran, A, 2011. Applied corporate finance. John Wiley & sons.
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Investor Relation: Myer Holding. 2018. Annual reports. Retrieved 29 April, 2018, from
http://investor.myer.com.au/Investor-Centre/
Pash, C. 2017. Myer has returned to profit growth. Retrieved 29 April, 2018, from
https://www.businessinsider.com.au/myer-has-returned-to-profit-growth-2017-3
Political uncertainty weighs on Australian economy. 2013. Retrieved 29 April, 2018, from
http://www.instreet.com.au/content/political-uncertainty-weighs-australian-economy-
%E2%80%93-instreet-market-and-economic-opinion
Sydenham, P.H. 2004. Systems Approach to Engineering Design. Artech House.

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