This report is to provide a clear and understandable analysis and comment on the performance and the financial position of Matalan, a well known out of town retailer offering quality clothing and homewares at half price, as well as an explanation on the importance of cash management.
Ratios are used as they are effective tools to interpret accounts. In order to provide a clear and in-depth view, the most relevant ratios are benchmarked with:
the prior/previous year results: the analysis is a 3 year based, it is then possible to provide a trend (data come from Matalan report and Matalan website)
the results of its main competitors: Next and Woolworth are considered to be relevant business to be compared with, we are then able to position Matalan in relation to them (data for competitors come from Fame)
the expectations of Matalan to see if it managed to reach them
This report is divided in three parts, first the analysis of Matalan's performance, second the analysis of its financial position and finally the importance of cash management.
Appendix 1 shows the calculations, appendix 2 shows the formula and appendix 3 presents the results clearly.
PART 1: Analysis of Matalan's performance
To analyse and comment the first part of the report on performance, four ratios are used:
Return on capital employed
Return on sales
Return on shareholders' funds
These ratios are relevant in the sense that they are profitability ratios. They evaluate the performance of a business, in this case Matalan and if it is worth investing in it. They are briefly explained to better understand which information they provide and why they are used.
1. Return on capital employed (ROCE)
The ROCE indicates the efficiency with which Matalan utilizes its capital to generate revenue. This is a vital ratio...