Financial Report for Briscoe Group and Michael Hill

Financial Report for Briscoe Group and Michael Hill

This report is to give financial analysis of two New Zealand companies: Briscoe Group Limited (BG) and Michael Hill International Limited (MH) for the period between 2003 and 2007. The analysis is divided into six broad categories: Liquidity Analysis, Debt Management, Asset Management, Profitability Analysis, Return to Investment, and Recommendations.

1. Liquidity analysis

The liquidity ratios are used to test the firm’s ability to pay debts immediately. For MH, the current, quick, and cash flow liquidity ratios fluctuated from in the last 5 years. They are gradually declining due to declining cash flow from operation and increased borrowings. However, the quick ratio showed a dive in 2006 and 2007, and vertical analysis shows that it is caused by decreased cash on hand in 2006 and increased inventories in 2007. Those liquidity ratios are comparatively stable for BG though they fluctuated slightly and deteriorated in 2007. This can be explained by increased liabilities in 2007 because of business expanding. Though MH shows a high current ratio than BG, BG managed to generate better cash flow to milk the business. In other words, MH needs to improve its inventory management as inventories comprise a large portion of the company’s current assets.

BG shows a better average collection period ratio than MH. Though MH’s performance is improving in terms of average collection receivables, it is not as stable as BG. MH’s low account payable days is an advantage to get prompt payment discount or negotiate better trade terms, but it is increase in 2006 and 2007.

2. Debt management

The very low level of debts to assets and equity ratios show that BG managed very good in retaining stable EBIT and lower negligible borrowing to fund operation. Due to business expanding and high inventory holdings in 2007 the debt ratio increased. On the other hand, though debt to assets ratio of MH remains at a reasonable level, the debt to equity ratio stays at an uncomfortable level. By looking down to the statement, it is found that MH had long-term borrowings from bank to finance the business operation which comprise big portion of the total liabilities. Investor would have lower risks in BG than MH as BG uses equity method to raid operating funds rather than using a debt method.

3. Asset management

Both companies managed assets efficiently in generating sales from investment in assets. While BG’s main activity is retailing homewares and sporting goods, this company performs quite well and. Though those assets turnovers are fluctuating and deteriorating slightly in 2007, as explained before, the increased liabilities due to business extension affected those ratios. However, MH still outperforms BG in terms of fixed assets turnover and total assets turnover. Those turnovers remain stable and slightly increased in 2007 even a decrease in sales in 2006 and increase in inventory in 2007 occurred. As a jewellery store, MH shows its high ability in converting assets into net profit.

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