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Strengths and Weaknesses of David Jones

Essay by   •  September 11, 2011  •  Research Paper  •  6,052 Words (25 Pages)  •  4,199 Views

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STRENGTHS AND WEAKNESSES:

DAVID JONES AND CONSOLIDATED ENTITIES.

(09.5.2011)

1.0 EXECUTIVE SUMMARY

The purpose of this report was to analyse the financial position of David Jones and its consolidated entities. Specific objectives were to identify key strengths and weaknesses and offer recommendations to a potential investor.

Strengths were broad across the board, often rising from David Jones's partnership with American Express which has benefited them greatly. However, problems were mainly located within the short-term solvency of the company, slow-down of sales and many external factors. The report recommends these problems are fixed by increasing quick assets and inflows, and the improve the overall position of the company in the market.

TABLE OF CONTENTS

2.0 Introduction 4

3.0 Conclusions

3.1 Strengths

3.2 Weaknesses

3.3 Limitations 5

5

5

6

4.0 Recommendations 7

5.0 Discussion

5.1 - Issues associated with bench marking against David Jones, Myer and Woolworths

5.2 - Profitability

5.3 - Efficiency

5.4 - Short-Term Solvency

5.5 - Long-Term Solvency

5.6 - Market Prices

5.7 - Other Issues 8

8

8

12

13

14

15

15

6.0 References 19

7.0 Appendixes

6.1 - Appendix 1: Trend Analysis

6.2 - Appendix 2: Common Size Statements

6.3 - Appendix 3: Ratio Analysis

6.4 - Appendix 4: Graphs 21

21

45

69

85

2.0 INTRODUCTION

Its purpose is to analyse and discuss David Jones and its consolidated entities strengths and weakness by interpreting the financial reports of David Jones, Myer and Woolworths.

David Jones is a high end market retailer, which provides a wide range of goods and services throughout Australia. As David Jones is a publicly listed company there are many sources of information available regarding the huge department store but without a conjunction of all resources, benchmarking to attain a current picture of the retail giant against similar companies it is difficult to gain a picture of the position of the company.

This report addresses this issue and collectively analyses David Jones's strengths and weaknesses (with explanation for observed changes) and lists these clearly for a potential inventor. Through analysing ratio analysis, a judgement is made on the profitability liquidity and leverage of David Jones. Comments made on the prospects of the company, and certain recommendations will help potential investors make an informed decision of whether to invest in David Jones.

These observations made and discussed do have limitations which could affect the conclusion and recommendations of this report. These limitations include a large array of problems associated with information problems (including limited information) and comparison problems over time and between firms. Limitations will be noted in the report where necessary.

3.0 CONCLUSIONS

3.1 STRENGTHS

* Strong earning power from assets - David Jones is effectively working their assets to produce a profit before any payments to equity, debts or providers. (Graph 1.1 shows a comparative graph)

* David Jones is becoming more profitable- Steady increase of earnings per share reflects this. (Graph 1.4).

* Paying creditors efficiently - David Jones has a decreasing amount of average days in which they pay their bills meaning their credit worthiness is increasing. (Graph 1.6 shows a comparative graph)

* Strong interest and finance paying ability - the protection that operating profitably provides to lenders and creditors are very good. (Graph 1.9 shows a comparative graph)

* Low P/E - (FY10) and increasing (1H11), meaning that investors are paying less for a return and therefore less expensive than investing in some other companies. (Graph 1.10)

* Distinct position in the market - loyal customers and a strong history in the retail market ensures a distinctive position in the market with a strong brand.

* Increased efficiency from employee's - decreased employee benefits mean David Jones is now able to get a higher value out of staff for every dollar of sales.

3.2 WEAKNESSES

* Pay short term debts with quick assets - without a sufficient amount of quick assets on hand to pay short-term obligations, David Jones could gain a bad credit ranking.

* Ability to pay fixed costs - a smaller gross profit margin compared to major competitor indicates a weakness in their ability to pay fixed costs.

* Large amount of commitment to operating leases - doesn't appear in balance sheet but apparent in notes as quite a significant liability to David Jones of which they will have to incorporate into their balance sheet when the Accounting Standards change.

* Slowdown of sales - Sales are increasing at a slower rate than

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