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INTRODUCTION
This report analyses the financial position and performance of the company for
the year 2009. It contains the key performance indicators in 2009 compared to 2008.
Some financial and non-financial information are described in detail from the
Chairman’s statement. The performance is elucidated based on the calculation of
financial ratios from the values taken from financial statements (income statement,
balance sheet and cash flow statement) in annual report. Then there is a brief
description of Corporate Governance dealing with the definition, principles and some
details about the board of directors and audit committee (responsibility and structure)
from the annual report and website.
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2. KEY PERFORMANCE INDICATORS
SUMMARY OF PERFORMANCE
• Total stores are 1,014 in 51 countries. Good news for customers as well as
investors and shareholders.
• Number of stores in UK has decreased from 425 to 405 and number of
international stores has increased from 494 to 609 from 2008 to 2009.
• 115 new international franchise stores added in 2009.
• 2 new countries added in 2009.
• UK product breakdown: Clothing – 28%, Home and Travel – 36%, Toys and
Gifts – 36%. Good news for owners because they had acquired ELC which
deals with toys mainly, and business is performing well.
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3. NARRATIVE SECTIONS IN ANNUAL REPORT AND
WEBSITE
It is good news for investors and shareholders since they are expanding
business inspite of closing some stores. Being debt free, investors would like to
invest more, thereby bringing revenue to company.
3.4 Website:-
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This information will help in increasing the sales revenue for the year 2010.
And hence make more profit from business.
4. COMPANY’S PERFORMANCE USING FINANCIAL RATIOS
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4.1 Profitability Ratios: -
These provide the degree of success in making profit for the business. A higher
value of the ratios is always preferred (Atrill and McLaney, 2008). To check the
performance of the business, the following ratios were taken.
The ROCE increased drastically from 1.91% to 16.82% and operating profit
margin also increased from 0.65% to 5.98% because of higher operating profit in
2009 with almost same equity and sales compared to 2008. In 2008, the company’s
profit from retail operations was less and loss on property interests was more,
because of which its operating profit was less. The gross profit margin also increased
from 9.5% to 12.02%, because of higher sales in 2009 compared to 2008. Hence
business is doing well.
These are used to study the ways in which different resources are being used in
business and managed (Atrill and McLaney, 2008). To check the performance, the
following ratios were taken: -
These ratios give the information about the ability of the business to meet its
short-term business needs (Atrill and McLaney, 2008). All the ratios are taken to
check the performance of the business.
• Current Ratio: It compares the liquid assets (which can be converted to cash)
to the current liabilities. Ideal value is 2:1.
• Acid Test Ratio: Sometimes it is not possible to convert the inventories into
cash very soon. So we calculate a ratio comparing the current assets apart from
the inventories to the current liabilities. Ideal value is 1:1.
• Cash generated from operations to current liabilities: It is the comparison of
cash generated from operating activities to the current liabilities.
From the calculations of current ratio (1.48:1), the business is having enough cash
for running smoothly. From acid test ratio, the value is quite below 1:1 (ideal value),
i.e. 0.71:1 in 2009. But it is not an issue for the business, because there is enough
inventories to meet the requirement of the increased stores worldwide. The main
issue that arises from cash generated from operating activities to current liabilities is
that the value has reduced from 0.46:1 to 0.33:1. This has happened due to increase
in inventories. But it should be kept in mind, since further decline may cause
problems in running the business smoothly.
Dividend cover ratio: It tells us how a business can pay its dividend from its profits.
The higher the cover, the better the ability to maintain dividends even if profit drops
(Atrill and McLaney, 2008). The cover has increased drastically in 2009 to 2.78 times
than 0.01 times in 2008. This is also good news for shareholders, directors and the
business.
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5. CORPORATE GOVERNANCE
The information is useful for shareholders, so that their money is not cheated
by the company and they get full information of what is being done with the fund in
the company.
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6. Conclusion
From the annual report and going through the financial statements, it is
concluded that Mothercare plc has done good profit in 2009 compared to 2008. It has
been successful in expanding its chain of stores worldwide and increased sales
drastically.
7. BIBLIOGRAPHY
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