Case Study: Smith City Financial Performance and Competitor Analysis

This case study analyzes the financial performance of Smith City, focusing on its 2018 annual report. The analysis begins with an examination of Smith City's income statement, highlighting a decline in revenue and profitability compared to 2017, resulting in a net loss. The study then conducts a comparative analysis with competitors Harvey Norman and The Warehouse Group, revealing that these companies performed significantly better in 2018, despite Smith City's relatively lower market share. The analysis covers key financial metrics such as revenue, cost of revenue, gross profit, EBITDA, and net profit after tax. The assignment brief requires the student to assume the role of a management consultant, identifying problems, analyzing the company's financial position, proposing courses of action, and outlining potential risks and implementation plans. The analysis of the company's financial position in a logical way, propose courses of action, and end off by outlining possible risks/contingencies and an implementation plan for the next coming years.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note:

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Contents
Income analysis an individual data explanation:.............................................................................2
Comparative analysis:......................................................................................................................2
References:......................................................................................................................................4

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Income analysis an individual data explanation:
As per the annual report 2018 of Smith City, the company has earned a gross revenue of
$215.9 million in 2018. This is slightly lower compared to the gross revenue of $227.4 million
earned by the company in 2017. Thus, a negative variation of 5.1% has been experienced by the
company in its revenue in 2018 from the previous year. In contrast the cost of revenue only
declined by 0.72% in 2018 compared to the cost of revenue of 2017. Thus, the gross profit of the
company in 2018 is only $64.1 million reduced by almost 14% from 2017. Net operating
expenses including the cost of revenue in 2018 is $207 million ensuring that the company’s
EBITDA for the year is $8.9 million as opposed to $17.4 million of 2017. Even worse indicator
of these all is the net profit after tax for the company in 2018. The company’s NPAT is in
negative in 2018 at $-7.2 million whereas it was in positive $2.4 million in 2018 (Green, 2013).
Thus, the analysis of income statement of the company clearly shows that the
performance of the company has deteriorated significantly in 2018 as it has incurred a net loss of
$7.2 million after tax compared to net profit of $2.4 million earned after tax in 2017. The main
reason behind this performance of the company was the inability of the company to keep its
gross revenue at the level of previous year as well as its inability to keep the cost revenue at the
level of 2017.
Comparative analysis:
Comparative analysis between Smith City and its competitors would further enlighten us
on the actual financial performance of the company. The income statements of Harvey Norman
shows that in 2018 the gross revenue of the company has increased by 8.76% from previous year
to $1993.76 million. Similarly the gross revenue of the Warehouse Group also shows an increase

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of 0.46% in gross revenue of the company in 2018 from previous year to $2994.57 million.
However, EBITDA and net profit of Harvey Normal surprisingly have reduced significantly in
2018 despite the increase in gross revenue. Net profit after tax of the Warehouse Group on the
other hand has showed significant improvement in 2018 by 11.52%. Thus, comparatively
speaking both Harvey Normand and the Warehouse Group have performed significantly better in
2018 than Smith City. It is however, important to note that the size of operations between Smith
City and the other two companies are significantly different with both Harvey and the
Warehouse Group are leaders in the industry whereas Smith City still has relatively low market
share (Green, 2013).

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References:
Green, J. (2013). Financial Statement Analysis and Equity Valuation. SSRN Electronic
Journal, 2(5), 18-64. doi: 10.2139/ssrn.2271238
Iatridis, G. (2016). Financial reporting language in financial statements: Does pessimism restrict
the potential for managerial opportunism?. International Review Of Financial
Analysis, 45(48), 1-17. doi: 10.1016/j.irfa.2016.02.004