Question 5: FINANCIAL STATEMENT ANALAYSIS

BRISCOES SAYS ANNUAL PROFIT ROSE AT LEAST 9%

Published: 11:09AM Thursday January 30, 2014 Source: BusinessDesk

Briscoe Group, the home-ware and sporting goods chain, expects its annual profit to rise by at least 9% after "particularly strong" Christmas sales and an overall steady fourth quarter.

Net profit will exceed $33 million in the 52 weeks ended January 26 from $30.5 million a year earlier, the Auckland-based company said in a statement. It had previously said it expected to exceed last year's earnings.

Fourth quarter sales were up 8.1% on the same quarter the previous year, totalling $162.7 million. Home-wares made up the majority of the group's sales, rising 7.3% to $111.9 million, while sporting goods sales rose about 10% to make up the remaining $50.7 million.

Annual sales rose 6.8% to $483.6 million, with the group's home-ware sales increasing 6.4% and sporting goods sales up 7.7%.

Managing director Rod Duke said performance in the final quarter had been driven by "aggressive promotional activity" and strong pre and post-Christmas sales had boosted fourth quarter profits.

The company also reported a near 100% lift in online sales over the past 12 months, with "no adverse impact on in-store sales".
"We are pleased with the growth we are generating in online sales across all three trading brands and especially with the significant lifts achieved during the fourth quarter," Duke said. "There is clearly considerable potential for strong on-going growth in our online sales for the foreseeable future."

On a same store basis fourth quarter sales increased 7.2% compared to the same quarter a year earlier. Fourth quarter home-ware sales increased 6.2%, and sporting goods sales rose 9.5% ahead of the same quarter a year earlier.
Shares in the retailer were unchanged at $2.37, and have declined 5.2% over the past 52 weeks.

The company expects to report its full year audited results on March 6.

5.1 Using the latest consolidated financial statements of Briscoes Ltd critically analyse the claims made by the company with supporting computations. Are the claims made in the report realistic?

5.2 Analyse the profitability of Briscoes Ltd by preparing a common-size income statement and by calculating any other ratios deemed necessary for the past two years.

5.3 Using the cash flow statements and all other relevant information contained in the annual report of Briscoe Ltd, evaluate the following :

5.3.1 The company's ability to generate cash flows in the future

5.3.2 Its capacity to meet obligations for cash

5.3.3 Its future external financing needs

5.3.4 Its success in productively managing investing activities

5.3.5 Its effectiveness in implementing financing and investing strategies

5.4 Assume you are a banker evaluating a loan request from Briscoes for $ 150 million. What would be your concerns when making a decision regarding approval or denial of the loan request? Justify.

5.5 Assume you are an investor in the shares of Briscoes Ltd and rely on receipt of regular cash dividends as part of your return on investment. You have $ 200,000 available for investment which is currently deposited in a term-deposit at an interest rate of 5.2% per annum which you would like to utilise to buy additional shares in Briscoe Ltd. The company's shares are trading at an average price of $3.30 per share. What would your decision be? Justify.