ECONOMICS AND FINANCE essay
The risk financial performance will be followed by the conclusion which will give a different recommendation to the client on whether to invest in the company or not. Kathmandu Holding Company Kathmandu holding company is an outdoor retailer which specializes in retailing, designing and marketing of clothes and manufacturing of travel apparel; it provides both outdoors and accessories. The company was listed in the New Zealand Stock Exchange on 12th November 2009 as (KMD. NZ). The company has 163 stores in New Zealand, 47 stores IN Austria and one store in the United Kingdom (UK). 64% increase from 2016 financial year. The continuous increase in share price has led to stable dividend and share price. The total company assets and revenue are shown by the figures below.
After analysis of financial statements for the past three years the total assets have be noted to decrease consistently, the total liabilities have also been noted to decrease. The value of the equity has remained intact although the liability and assets decreased. Current Ratio We aim to evaluate a company to invest in long-term; the investment will depend on uncertain future which requires us to determine the ability of the firm to meet the short and long-term debt. Our fist ration for this analysis is the current ratio for the last three years. The current ratio helps to determine the firm’s ability to pay their short-term obligations. If the current ratio is below one, it is not advisable to invest in the company stock because the company has more current liability than current assets.
The formula for finding the current ratio is: total current assets divided by the total current liabilities. If the current ratio of the company is below one, it indicates that the company is struggling to pay its current liability. Since Kathmandu Holdings Limited has a current ratio above one, it is a good indication it is financially healthy. From the attached excel file, it can be noted for the last three years the current ratio has decreased significantly. Although the company is still financially healthy, the trend of decreasing current ratio should be examined carefully. For this reason, the current ratio cannot be the only ratio to rely on when determining whether to invest in shares or not, another ratio for this company should be examined.
Hence, the Quick ratio for the Kathmandu Holding Limited was 0. For the FY16, the current assets were 11. 92M with the Inventory of 9. 8m and the current liability of 59. 83M. Further analysis should be carried out on the financial statements of the Kathmandu Holding Limited. Debt-Equity Ratio Before investing in the company, it is prudent to check the leverage ratios of the company. These ratios measure the extent to which a company uses its assets that have been financed by non-owner supplied funds. The first leverage or gearing ratio to assist us in this analysis is the debt equity ratio. Debt Equity Ratio helps to measure the proportion of non-owner supplies funds in comparison to equity finance of the company. 12M and the Total Equity was 313.
31M hence the Debt-Equity Ratio was 41. Comparing the Debt-Equity Ratio for these three years, the ratios are below 100% this means that the company capitalizes most of its assets and operations from debt finance. The reliance on debt finance dilutes owner’s capital. If the company goes to liquidation debtors will be first to be paid and whatever is left is the shareholder's shares. For FY18, the cash equivalent of the statement of financial position was 3. 54M New Zealand Dollars, the current liability was 67. 24M the cash ratio is 0. For FY16, the cash and cash equivalent were 6. 89M therefore the cash ratio is 0. To calculate the Earnings Per Share (EPS), you use the net income to ordinary shareholders and divide it with total outstanding ordinary share.
For the FY18 the Net Income after tax was 38. 04M New Zealand Dollars, the outstanding shares as indicated by the financials notes was 201489 share therefor the Earning Per Share (EPS) was 18. 87cps. For the FY16 the net income after tax was 38. The financial performance analysis includes analysis and interpretation of financial reports. The financial performance indicates the profitability and financial soundness of the company. The best areas to concentrate on performing the financial performance is firm’s production and productivity performance, profitability performance, liquidity performance and working capital performance. The performance analysis of the company and compared to the related company in the same industry and different company in the same size in the different industry. The comparison will enable the investor to make an informed decision on whether to invest in the company.
6M NZD to $445. 3m in 2017. The inventory decreased from $95. 44 in 2017 to $89. They are satisfied with the increased salary which was indicated by increased payments to suppliers and employees in 2016 the payment to suppliers and employees was $336. The following chart shows the trend of liability for the last three years CONCLUSION After analyzing the financial ratios for Kathmandu Holding Limited the following have been noted. The value of assets is decreasing for the three years on the other hand the level of liability is increasing from 2015 to 2017. Moreover, the financial performance of the company is doing well as the profits margins are increasing and the company growth is projected to improve. Since the financial ratio are not pleasing at the moment it right time to invest at Kathmandu Holding Limited.
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