BNL Stores Case Solution

Financial Analysis

It involves the collection of financial information about a company and evaluate and interpret it to assist in decision-making. It can be usedboth internallyand externally. Internal uses may include assessing employee performance, operational efficiency and the credit policies of the companies.  External uses may include assessing the potential investments and the credit-worthiness of borrowers(Drake, n.d.).

Information about a company can be found from many sources. The most reliable source is the information provided by the company itself in its annual reports. The annual report includes the income statement, the balance sheet, and the statement of cash flows and thenotes to the accounts(Drake, n.d.).

Some information about listed companies is easily available such as the stock prices of securities, the stock price indices for industries and for the market in the financial
Press. Gross domestic Product and Consumer Price Index can be used to assess the future performance of an industry. In order to analyze the financial performance of a retail store like BNL stores, one may need the information on consumer spending, consumer prices, the competition and other set of information beside the financial statements(Drake, n.d.).

BNL Stores Case Solution & Answer

Profitability Ratios

These ratios show the ability of the company to earn profits and return on investments. It also shows the financial health of the company as well as its effectiveness to manage assets. These ratios include Net Profit Margin, Return on Equity and Return on Assets(Lesáková, n.d.).

 

Net Profit Margin

            Net Profit is the amount that results by deducting all the costs of the business from the Sales revenue. This ratio compares the net profit to sales revenue. A company is said to be highly competitive if it produces a high margin consistently(Fundamental Focus, n.d.).

The net profit margin of BNL storeshas declined from 2% to -12% from 2008 to 2010.However, it has achieved a gross profit margin of above 25% from 2008 to 2010. Despite the Gross profit Margin of 32%, 31%, and 26% in three years from 2008 to 2010, the net profit margin has fallen over the period to 2%, 1% and -12%.

Although, the revenue has risen by 28% over the period, the selling, general and admin expenses had risen by 105%. The management of BNL was unable to curtail its administrative expenses which had converted its profit into loss in 2010. The new strategy of opening Supercenter stores may have led to these results because bigger stores cost more to be managed.

Return on Equity

This ratio measures a company’s ability to generate profits from the money the shareholders have invested. In this ratio, the net income is shown as the percentage of the Shareholders’ equity (Return on Equity – ROE, n.d.).

This ratio had declined continuously for BNL Stores from 11% to -95% from 2008 to 2010. In 2009, the net profit fell by 71% and the company suffered a loss in 2010. The ratio results indicate that shareholders would lose as they would not get expected dividends. This trend is seen when the dividends paid declined by 2010 by79%. Moreover, the growth potential of the company has also deteriorated as the management is unable to generate profits from the invested shareholders’ money. These results may urge shareholders to withdraw their investments from BNL stores and invest somewhere else.

Return on Assets:

It shows how effectively a company has used its assets by calculating profit as a percentage of the average of  total assets.

The management of  BNL stores has been ineffective in utilizing its assets as the ratio has considerably fallen over three years. Even though the total asset base of the company has fallen by 3% over three years but the ratio has deteriorated drastically.

Turnover Ratios

These ratios show the liquidity of assets and the effectiveness of a company in managing it. These ratios include Days Receivables,  Inventory Turnover and total asset turnover(RATIO ANALYSIS-OVERVIEW, n.d.).

Days Receivables

It shows how quickly receivables have been converted into cash. The receivable days have fallen from 120 days to 90 days.  The management of BNL stores is able to improve its credit management systemand has been successful to collect its receivables from debtors.

 

 

Inventory Turnover

This ratio shows how many times the inventory is sold during a period. This ratio has been the same over the three-year period and has been there around 3. In order to ascertain BNL performance, it is necessary to compare it with competitor results or industry standards……………………………

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BNL Stores Case Solution
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