200821 Financial Analysis of Kathmandu Holdings Limited: Part B Assignment Answer
(a) The analysis has been done on the Australian company Kathmandu Holdings Limited. The sales aspects of the company have been focused on. The article referred to the profit figure of sales, as the sales of Kathmandu Holdings Limited grew by 11.6% in Australia.
There is an increase in the same store sale by 4.4%. Increase in the sales margin has contributed to more profit margins. Gross margin of the group increased to 63% and gross margin of Kathmandu was 64.1% in 2018 (Kathmandu holdings, 2018). Improvement in the profit can be attributed to the increased sale of fuel. From the financial report of 2018, it is clear that the sales of the company have made a significant improvement. The sales have increased by 11.7% in 2018 from the previous 2017. In 2017, the sale was $445.3m and in 2018 this sale figure increased to $497.4m (Kathmandu holdings, 2018).
The shareholders of Kathmandu are interested in improvement in sales. The shareholders of the company get benefited from increased profit generation.
Thus, improvement in sales of Kathmandu can help the company to increase its profit. Thus, the shareholders are bound to get a dividend from a better profit figure. According to Holsapple et al. (2014), the share of the company also increases with improvement in sales performance. There is a dividend of 11% per share for the shareholders. Increased share margin has helped the company to improve its dividend by 15.4% in 2018 from the previous year 2017.
Improvement in sales is believed to contribute to the enhanced shareholder value. Thus, the ability of the organisation to increase sales leads to an increase in dividends and it can further encourage better capital gains for the equity owners. The shareholders are equity owners and they are benefited from increased sales.
Shareholders of the company also are likely to benefit form return on equity generated. In 2017 the Kathmandu Holdings have been able to generate a ROE of 8.67% in 2017 and 8.23% in 2018. This means the Kathmandu holdings is generating a profit of $8.67 for every $100 of sales in 2017 and $8.22 for $100 of ales in 2018. As shareholders equity is total assets less debts owed by the company the ROE can be viewed as the return on the net assets employed by the company. As can be seen the Kathmandu Holdings is not able to grow the ROE in 2018 and in spite of a general growth revenue by 11.7%. both EBIT and Net income of the firm has increased sizably in 2018 but despite the same the ROE has declined in the most current year. Also, in comparison the ROE is slightly lower than the peer group in 2018. However, the ROE is not too conservative in both 2017 and 2018 and if the management can reduce the unemployed assets in the coming years the return on equity can be increased significantly in the coming 2-3 years (KathmanduHoldingsLimitedAR, 2017-2018).
It can be finally said that there is a strong correlation between improvement in sales and shareholders' Value created. Thus, management of Kathmandu needs to be careful in this respect and a better ROE coupled with an improving generation of revenue growth can be more value enhancing.