WH Smith is Public Limited Company, one of the UK's leading retailers. WH Smith currently operates over 1000 stores, primarily in the UK, comprising 516 travel outlets at airport, train station, hospital, workplace and motorway service area locations and 573 high street stores. WH Smith is made up of two core businesses
Travel
High Street.
We have a presence in a wide range of locations including high streets, shopping centres, airports, train stations, motorway service areas, hospitals, workplaces and bus stations, primarily in the UK.
Travel stores sell a tailored range of products, to cater for people on the move or in need of a convenience offer. Travel's typical customer has less time to browse than the High Street customer and is more interested in reading materials for a journey as well as purchasing food, drink and confectionery. Due to their location and convenience nature, Travel stores are, on average, significantly smaller than those in the High Street portfolio.
High Street sells a wide range of products, which are divided into four categories: Stationery (including greetings cards), Books, and News and Impulse (including newspapers, magazines, confectionery and other impulse products), as well as a convenience offer of Entertainment products in some stores. High Street's trading is seasonal, peaking at Christmas, with other peaks at Easter and in August and September for the 'Back to School' range.
The main targets of WH Smith are:
Continue to reduce energy consumption, targeting a 15% reduction by August 2010 from 06/07 levels.
Build on the communication and reporting process with Area Managers, create further incentives to drive reductions in energy consumption through the store estate.
Reduce carbon dioxide emissions per skip by 3%.
Increase the number of suppliers involved in our Collection Service.
Expand the supplier engagement programme to target significant breaches. Engage with five new factories.
Begin a sub-contractor review process in India, focusing on homeworkers.
Continue to support WH Smith's ethical sourcing policies and targets by building on the buyer training programme.
Continue to introduce products with environmental or charitable benefits which support the commercial strategy.
Identify and actively promote a wider variety of learning portals.
Design and implement specialist learning and development solutions for line management in Head Office and distribution centre populations.
Financial Information
Company Sales Turnover, Gross Profit and Net Profit before Interest and Tax for the year 2009 and 2008 is given as follows-
2009 2008
£m £m
Sales Turnover
1340
1352
Gross Profit
655
632
Net Profit before interest and tax
83
74
Comparatively Sales Turnover for this year has decreased than last year.
The Gross profit is also called gross margin which is calculated as total sales of income or revenue minus cost of sales or production. The Gross Profit of WH Smith has increased in comparison to last year.
Gross Profit = Sales income- Cost of sales
The Net profit before interest and tax which is also called operating profit is calculated as gross profit minus Selling or distribution or Admin expenses. The Net Peofit of WH Smith has also increased in comparison to last year.
Net profit before interest and tax= Gross Profit- Selling or Distribution or Admin Expenses
The above figures show the position of sales turnover, Gross profit and Net profit before interest and tax for the year 2009 and 2008. From the above figure we can analyse that the sales has not been improved in 2009 in comparison to 2008 (i.e. from 1340 to 1352 respectively). Similarly, The Gross Profit and the Operating profit have gradually increased in 2009 in comparison to year 2008. The Group generated profit before tax and exceptional items of £89m (2009: £82m), an increase of 9% on the prior year. Total Group profit before tax1 was £89m (2009: £81m). Underlying earnings per share2 increased by 11% to 45.7p (2009: 41.3p), with earnings per share (including exceptional items) 3 of 45.7p (2009: 40.6p). The Group remains highly cash generative and has a strong balance sheet. Net funds were £56m versus net funds of £45m as at 31 August 2009. Group free cash flow4 was £82m (2009: £89m). The Board has proposed a final dividend of 13.3p per share, up 18% year on year, giving a total ordinary dividend per share of 19.4p, a 16% increase on the prior year. In addition, the Board today announces the return of up to £50m of cash to shareholders through a rolling share buyback programme. The proposed increase in final dividend, together with the return of cash to shareholders, reflects the cash generative nature of the Group and the Board's confidence in its future prospects. Travel delivered a strong performance, with operating profit5 increasing by 10% to £53m and now accounting for 51% of profit from trading operations. The division is well-placed for recovery in air passenger numbers. During the year we made further progress in both our established and newer channels and opened a total of 33 units. High Street continues to deliver consistent profit growth and strong cash generation with profits of £51m, up 4% on the prior year. We continue with our strategy to rebalance the mix of the business towards our core categories whilst reducing our presence in entertainment. Cost savings of £12m were delivered in line with our plan. A further £13m of cost savings have been identified making a
total of £25m over the next three years. Total Group sales were £1,312m (2009: £1,340m) with LFL sales down 4%. Travel sales grew by 1% to £452m, down 2% on a LFL basis. High Street sales were down 4% at £860m and down 4% on a LFL basis (excluding entertainment LFL sales were down 1%).
Market Share Price of WH Smith (2009/2010):
The graph above shows the Market share price of WH Smith from 10/11/2009 to 10/10/2010. We can figure out that there is not much fluctuation in the share price of WH Smith. The share price of WH Smith in the year 10/11/2009 to 10/10/2010 lies in between 400 pence to 500 pence. However, the market share price has decreased in comparison to previous year.
Comments and Calculation:
Liquidity Position Ratio:
The word Liquidity means that free available cash and Liquidity ratio means a company's ability to repay short term creditors out of its total cash. The liquidity ratio is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash.
Current Ratio:
The ratio of Current assets to Current liabilities is known as Current ratio. The current assets value is always expected to be equal to the current liabilities value. The ideal current ratio should be between 1.33 to 2.0.
Current ratio: Current Assets/ Current Liabilities
Quick Ratio or Acid test Ratio:
The ratio of Current assets minus Inventory to the Current liabilities is known as Quick ratio. If the ratio is lower there is danger of insufficient cash to debts as they fall due. If it is higher it suggests the firm has too much cash or debtors. Quick ratio should be more than 0.5.
Quick ratio: (Current assets- Inventory)/ Current Liabilities
Calculation:
Liquidity Ratio
Formula
2009
2008
Current Ratio
Current Assets/ Current Liabilities
0.93
0.79
Quick ratio
(Current assets- Inventory)/ Current Liabilities
0.39
0.31
Liquidity ratio in bar diagram of WH Smith (2009/2008)
From the above calculation, we can find that the current ratio of WH Smith in 2009 and 2008 is 0.93 and 0.71 respectively which is consistently lower than the ideal current ratio that is between 1.33- 2.0. So, it means that there is a danger of insufficient cash to pay off debts as they fall due (especially this situation occurs if there is high proportion of current assets consist of stock). Similarly, The Quick ratio in the year 2009 and 2008 is 0.39 and 0.31 respectively which is also lower than the average quick ratio as the quick ratio is concerned to be more than 0.5. From this we can analyse that due to less quick ratio there is danger of insufficient cash to debtors as they fall due.
Profitability Position Ratios:
This ratio show how profitable is the business. It examines the profits made by a firm and compares these figures with the size of the firm, the assets employed by the firm or its level of sales. It can also be used to observe how well the firm is operating. All the profitability ratios are expressed in term of percentage. There are four profitability ratios:
Gross profit Margin Ratio
Net Profit Margin Ratio
Return on Shareholders fund
Return on Capital Employed
Gross Profit Margin Ratio:
Gross profit margin ratio is gross profit divided by net sales or sales revenue expressed as percentage. It is better if the Gross Profit Margin is higher.
Gross Profit Margin: (Gross profit/ Sales Revenue)*100
Net Profit Margin Ratio:
Net profit margin ratio is Operating profit divided by sales revenue expressed in term of percentage. This margin indicates profitability after all cost has been included.
Net Profit Margin Ratio: (Operating profit/ Sales Revenue)*100
Return on Shareholders fund:
Return on Shareholders fund is Earning before Taxes (EBT) divided by Equity expressed in term of percentage. If the ratio is higher than the amount of returns for the shareholders also becomes higher.
Return on Shareholders fund: (EBT/Equity)*100
Return on Capital Employed:
Return on Capital Employed is earning before Interest and tax (EBIT) or Operating Profit divided by Equity plus Non-current Liabilities expressed in percentage.
Return on Capital Employed: (EBIT or Operating Profit)*100/ (Equity+ Non-Current liabilities)
Profitability Position Ratios
Formula
2010
2009
Gross Profit Margin Ratio
(Gross profit/ Sales Revenue)*100
48%
46.74%
Net Profit Margin Ratio
(Operating profit/ Sales Revenue)*100
6.19%
5.47%
Return on Shareholders fund
(EBT/Equity)*100
43.96%
47.20%
Return on Capital Employed
(EBIT or Operating Profit)*100/ (Equity+ Non Current Liabilities)
38.96%
40%
Profitability ratio in bar diagram of WH Smith (2009/2008):
From the above figures we can find that WH Smith has increased its profitability ratios in comparison to the previous years. The increased rate is not much bigger except in return on shareholders fund.
Efficiency ratio:
Efficiency ratio is the ratios that are typically used to analyse how well a company uses its assets and liabilities internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery.
Assets Turnover Ratio:
Assets Turnover Ratio =Sales / Average Total Assets
Receivable Turnover Ratio:
Receivable Turnover Ratio = Sales / Average Accounts Receivable
Inventory Turnover Ratio:
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventories
Efficiency ratio of WH Smith (2009/2008)
Efficiency Ratio
2009
2008
Assets Turnover Ratio
2.73
2.77
Gearing Ratio:
Gearing ratio is a general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds. Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds.
Debt Capital to Equity Capital:
Debt Capital to Equity Capital = Total Liabilities / Total Stockholders' Equity
Gearing Ratio
2009
2008
Debt Capital to Equity Capital
1.62
2.03
Conclusion:
Hence, we can analyse that WH Smith is not making as profit as it should make. However, profit percentage has increased from previous year. By going through the financial statement of the company, we have been able to calculate profit and losses for the company.
Above all, we came to know that WH Smith in order to make more profit and to compete in market has to reduce their stock as their quick ration and current is less than average.
