This topic relates to assessing the business and financial performance of a company and how the operations of the company affect the financial and business perspectives. All twenty topics were having their own importance and attraction but because of my personal interest in this topic and current financial crisis in the global industry I finally chose this topic that would explore my analytical expertise as well. There were many topics that were required more internal knowledge of organisations in order to carry out the research which is barely accessible by public that was one more reason to choose this topic because to evaluate the performance of the company you can have the information from financial statements which are easily available to public.
1.2 Rationale for choosing organisation
Once the topic has been chosen the next task was to choose the type of Industry and that was also not an easy task because it's still easy to choose a topic from a limited list of twenty topics but there are a number of different type of Industries in the world and that makes your life bit harder.
After choosing a garments sector I had to decide which organaisation should I choose to carry out the research but finally I chose PRIMARK STORES LIMITED because of its market share holding and different approach to business in garments industry.
"Primark" is known for selling clothes at the budget end of the market. The company's success is based on sourcing supply cheaply, making clothes with simple designs and fabrics, only making them in the most popular sizes, buying stock in huge bulks and varieties and not advertising) http://en.wikipedia.org/wiki/Primark
Primark (or Penny's) is a clothing retailer, operating in Ireland, the United Kingdom, the Netherlands, Germany, Spain and Portugal. It operates a total of 188 stores. Whilst the company's main headquarters are based in Ireland where it trades as Penneys, the chain is a subsidiary of Associated British Foods plc (ABF), and is ultimately controlled by the Weston family through Wittington Investments. The company positions itself as marketing fashionable clothing at competitive prices.
In England the name is generally pronounced /ˈpraɪmɑrk/ PRY-mark. http://en.wikipedia.org/wiki/Primark.
Arthur Ryan the founder of Primark and now the chairman is a driving force and inspiration behind the business.
Ryan is said to be a workaholic and an inspirational leader. Friends say that, like his friend Sir Philip Green, he eats, sleeps and dreams about his business. "He is an old-style merchant who spends a lot of time on store visits. He walks the high street more than anyone else I know," said one former insider. The http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article1687148.ece
Even It has been one of the high street's top performers during the recession, with like-for like sales up 7% this year. http://www.guardian.co.uk/business/2009/sep/11/primark-founder-arthur-ryan-resigns.
Primark has been growing rapidly since commencement and competing successfully with the major garment stores like Marks and Spencer, Next, Debenhams, Zara etc. According to Primark own website it has won most of the awards from 2006 till to date.
1.3 Project objectives
The objective of this research and analysis report is to evaluate the organisation's financial and business Performance over the last three years and this would be achieved by:
The objectives of this project are:
To analyse the financial performance of Primark Stores Ltd over the last three years. This will be achieved by performing ratio and trend analysis.
To evaluate the business performance of Primark Stores Ltd, by using a ..... technique called SWOT Analysis.
Deeply assessing the strategies of the business and calculating the financial ratios plus the reasons for changes in those ratios and that would help me for better understanding of the business and to make comments on the performance.
1.4 Ethical issues
The research has been carried out on the basis of secondary data. No questionnaires have been used because of unwillingness of the company to allow admission in the premises and enquire from staff. Using primary data could rise a question of confidentiality so I decided not to use primary data without company's permission. Therefore the research has been taken place using the secondary data only to stay away from ethical issues.
1.5 Structure of the report
CHAPTER 3
Analysis, results and conclusions
In this part the strategic and financial analysis has been taken place by using different academic models. Firstly I have explained the history of the company as how it started. Prior to actually evaluating the performance of the Primark the mission of the company has been recognised in order to establish track in which the company is plaining to move in the future.
Background
Primark Store has been one of progressing achievement founded on a exclusive combination of fast fashion and lean operation
From the first Penneys store in Ireland to the latest flagship store in Liverpool, the Primark story has been one of continuing success founded on a unique combination of fast fashion and lean operations.
In June 1969, the first Penneys store opened in Mary Street, Dublin. Within a year, four more stores were added - all in the Greater Dublin area.
In 1971, the first large store outside Dublin was opened in Cork and by the end of that year there were 11 more stores in Ireland and one in Northern Ireland with the first UK Primark store opening in 1973. In the early 1990s, Primark acquired BHS Republic of Ireland stores and rebranded them as Penneys.
Prior to 1997, Pennys often shared sites with Power Supermarkets, also at the time an ABF subsidiary; however this practice ceased after the sale of PSL to Tesco in 1997. ABF decided to maintain control of Primark rather than sell it on also, despite the fact that it is the only non-food part of the operation. In July 2005 Primark/Associated British Foods purchased the 120 branch Littlewoods retail chain for £409 million.
http://www.spiritus-temporis.com/primark/history.html
Business Analysis
To carry out the business analysis, first the mission of the company would be assessed and then its functional strategies with PESTEL and SWOT analysis would be attempted, and this way business performance will be assessed.
The mission Statement of Primark states that:
It targets young, fashion-conscious under 35's, offering them high quality at very competitive prices. Half of total sales comprises of Womenswear with remaining sales dedicated to Menswear and Childrenswear.Buying and Mechandision teams travels worldwide to buy that best that reflect each season's key fashion trends.Primark prides itself on its loyal customer base.
These strategies have been the basics of primark's success, strengthen its position and expansion throughout the UK, Ireland, Spain, Germany. They have coped well with the challenges of rising costs, hard conditions on some markets and competitors. They also have been successful due to their high concentrations on high margins with minimum costs.
SWOT ANALYSIS
The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. The SWOT analysis headings provide a good framework for reviewing strategy, position and direction of a company or business proposition, or any other idea. Completing a SWOT analysis is very simple, and is a good subject for workshop sessions. SWOT analysis also works well in brainstorming meetings.
A typical example of SWOT Analysis is as follows:
Strengths
Resource and Capabilities.
Competitive advantages.
Staffing.
Financial reserves, likely returns.
Size.
Innovative aspects.
Price, value, quality.
Managerial Expertise.
Environmental friendly.
Customer Satisfaction.
Weaknesses
Need more sales people.
Gaps in capabilities.
Lack of competitive strength.
Bad reputation
Financials.
Cash flow, start-up cash-drain.
Effects on core activities, distraction.
Customer service staff needs training.
Opportunities
Market developments.
Industry or lifestyle trends.
Profit margins will be good.
Niche target markets.
Business and product development.
Information and research.
Improved economic factors.
Seasonal, weather, fashion influences.
Failure of competitors.
Could seek better supplier deals
Threats
Political and Legislative effect.
Environmental effects.
Market demand.
New technologies, services, ideas.
Loss of key managerial staff.
Sustainable financial backing.
Economy - home, abroad.
Seasonality, weather effects.
Possible negative publicity.
The introduction of new products by competitors.
http://www.businessballs.com/swotanalysisfreetemplate.htm
Strengths
Competitive advantages
When a firm sustains profit that exceeds average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage.
It is one of the company strength and particularly in terms of Primark the most important competitive advantage is its low price and its trendy clothes as compare to other competitors like M&S or Peacock and BHS.
Michael Porter identified two basic types of competitive advantage:
Cost advantage
Differentiation advantage.
A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage). Thus a competitive advantage enables the firm to create superior value for its customers and superior profits for itself.
Cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation
Primark spokesman Geoff Lancaster said that:
People are generally very surprised at the quality of our merchandise.
In these difficult times, people appreciate that sort of value - there's a lot of food price inflation and the current credit squeeze.
Someone who provides guaranteed best value is going to do well.
We have opened a huge amount of additional space in the last few months; it's going from strength to strength."
The thirty year old shopper Tracy Brydon said that "It's really cheap and they do really nice clothes and accessories
http://www.northantset.co.uk/news/What-makes-Primark-the-top.3942947.jp
http://www.quickmba.com/strategy/competitive-advantage/
Resources and Capabilities
Resources are the firm particular assets helpful for developing a cost or differentiation advantage and that some of the competitors can obtain very easily. There are some examples of such resources:
Patent and trademarks
Installed customer Base
Reputation of the business
Management style
Capabilities refer the company's ability to make use of its resources efficiently. An example of a capability is the ability to bring a product to market faster than competitors such as any new style of clothes. Infect Primark is growing rapidly just because of its resources and capability of using those resources effectively such as bringing the new fashion styles in to market for very lower rates than anyone else and none of competitors and customers ever seen that before. And that's why this strategy leading Primark to new market with the existing product (Market Development).
The firm's resources and capabilities together form its distinctive competencies. These competencies lead to improvement, efficiency, customer responsiveness and class.
According to Primark own site that they have very unique designs which can also lead them to differentiation.
Managerial Expertise
It is also one the important strengths of any organisation particularly of Garments sector. It explains that if management is good in the organisation it could lead to better position as compare to its competitors, and good management does have a effect on consumer satisfaction and managing the things in the way that suits the consumer demand and that would result in the higher sales with improved reputation of the business in the market.
There would be many theories about management styles but I came to know one XY theory by McGregor. He believed that there are two fundamental approaches to managing people. Many managers tend towards theory X and generally get poor result. Enlightened managers use theory Y, which produces better performance and results, and allows people to grow and develop.
Theory x: This theory is also referred to as "the authoritarian management style"
The average employee does not like work and will attempt to avoid it.
The average person prefers to be directed; to avoid responsibility; is relatively unambitious, and wants security above all else.
Individuals need to be closely supervised and controlled
Theory Y: Also known as "the participative management style"
Effort in work is as natural as work and play
People will apply self-control and self-direction in the pursuit of organisational objectives, without external control or the threat of punishment.
Employees can learn to not only accept but seek greater responsibility.
The capacity to use a high degree of imagination, ingenuity and creativity in solving organisational problems is widely, not narrowly, distributed in the population.
In industry the intellectual potential of the average person is only partly utilised.
http://www.businessballs.com/mcgregor.htm
In recent news Primark has appointed former Marks & Spencer director Julian Kilmartin as buying and merchandising director. Again this would be considered as a Primark's strength in the market as Kilmartin used to be a director in Marks & Spencer for seven years and also previously held positions at men's formalwear specialist Moss Bros and Next.
One retail headhunter said that Kilmartin's strengths in men's clothing may indicate that Primark intends to ramp up that category, building on its existing reputation in womenswear.
http://www.retail-week.com/careers/appointments/primark-appoints-former-marks-and-spencer-menswear-director/5004711.article
Environmental Friendly and Ethical Trading
Global warming. It's getting to us. We're all feeling it, worldwide. Taking measures to improve the quality of our planet is not an option anymore. It's become a necessity. Sadly, many people still believe that "nature will sort itself out" and tend to shirk on responsibilities to participate in improving the only planetary home we have for now. Many of us take for granted that the "next generations" will find the answers. This is unstable reasoning.
Infect organisations have big responsibility to help Global warming as well and they should contribute to their extent like reduce CO2 emission and promote recycling etc.
That's why Primark and it's parent company Associated British Food has made their priorities clear in helping Global Warming and they recoganise the fact that business has on its environment. Therefore, as a minimum, they comply with current applicable legislation of the countries in which they operate, and their operations will be conducted such that:
Emissions to air, releases to water and land filling ofsolid wastes do not cause unacceptable environmental impacts and do not offend the community;
Energy is used efficiently and consumption is monitored;
Natural resources are used efficiently;
Raw material waste is minimised;
Solid waste is reduced, reused or recycled where practicable;
The amount of packaging used for group products is minimised, consistent with requirements for food safety and product protection;
Products are transported efficiently to minimise fuel usage, consistent with customers' demands, production arrangements and vehicle fleet operations;
Effective emergency response procedures are in place to minimise the impact of foreseeable incidents.
http://www.abf.co.uk/uploads/hse_report_2006.pdf
Packaging Waste Regulations
Packaging Waste Regulations are designed to reduce the amount of packaging that goes into landfill. The Packaging Waste Regulations work on the principle of Shared Producer Responsibility - encouraging producers to take responsibility for their environmental impact. The Regulations require obligated producers to pay a proportion of the cost of the recovery and recycling of their packaging. The level of obligation depends on the stage of the chain at which the packaging is brought into the country.
Great Britain and Northern Ireland. Primark participates in a scheme operated by Valpak which ensures the company's full compliance with the obligations of the UK Waste Management Packaging Regulations to recover packaging waste.
Republic of Ireland. Penneys, the name under which Primark operates in Ireland, participates in a similar scheme operated by Repak. This ensures the company's full compliance with the obligations of the Republic of Ireland Waste Management Packaging Regulations. Repak is an approved body for the recovery of packaging waste and assumes responsibility to fund the recovery/recycling of packaging on Penneys' behalf.
Carrier bags
We are progressively replacing plastic carrier bags with paper bags, thus reducing further our impact on the environment.
http://www.primark.co.uk/aboutus/CSR
Weaknesses
Dissatisfied Staff
Staff is a very important asset in any organisation particularly in garments sector where good sale persons could enhance the sales dramatically if they have the right skills, proper training and proper working environment and if we talk about the production staff then they play very important role, as the end product does totally depends on their skills and expertise.
Primark has considered this factor very seriously and they have trying continuously to provide safer environment to keep motivate their staff as much as they can to get the better results.
According to Primark's code of conduct:
A safe and hygienic working environment shall be provided, bearing in mind the prevailing knowledge of the industry and of any specific hazards. Adequate steps shall be taken to prevent accidents and injury to health arising out of, associated with, or occurring in the course of work, by minimizing, so far as is reasonably practicable, the causes of hazards inherent in the working environment.
Workers shall receive regular and recorded health and safety training, and such training shall be repeated for new or reassigned workers.
Access to clean toilet facilities and to potable water, and, if appropriate, sanitary facilities for food storage shall be provided.
The company observing the code shall assign responsibility for health and safety to a senior management representative.
.
.
http://www.primark.co.uk/Ethical/Values/Code_of_Conduct
Unethical Trading
It could not be just dangerous for the environment or the wider community but it could also the business as well.
By considering social and environmental objectives as well as your economic aims when trading overseas, you can:
build sales, as customers increasingly choose to base their purchasing decisions on more than strict financial factors
attract investment, as ethically motivated investors grow in number
maintain staff loyalty and motivation, by treating people f airly and offering them chances of development
Enhance trust in your business, by fostering good relations and being transparent in your activities
boost revenue, by opening up your business to new ideas
save money, for example by implementing better waste-management procedures
http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCESHYPERLINK "http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1074299810"&HYPERLINK "http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1074299810"itemId=1074299810
They have been criticised for paying their labour as little as 7P per hour. War on Want, the anti-poverty charity, argues that the Irish chain, famed for its cheap prices, has ignored the rise in basic living costs affecting workers who make its products in Dhaka, the capital of Bangladesh.
Primark has taken a serious consideration of this issue and try their level best to sort out this ethical issues in its working environment and overall as well. Which are as follows:
Wages and benefits paid for a standard working week meet, at a minimum, national legal standards or industry benchmark standards, whichever is higher. In any event wages should always be enough to meet basic needs and to provide some discretionary income
All workers shall be provided with written and understandable information about their employment conditions in respect to wages before they enter employment and about the particulars of their wages for the pay period concerned each time that they are paid.
Deductions from wages as a disciplinary measure shall not be permitted nor shall any deductions from wages not provided for by national law be permitted without the express permission of the worker concerned. All disciplinary measures should be recorded.
As they launched a organic cotton range with an 'Eco-friendly' tag and promised to reduce plastic bag usage.
They have strictly disallowed child labour.
They don't allow children and young persons under 18 to work at night or in hazardous conditions.
Opportunities
This step is designed to assess, among others, the socio-economic, political, environmental and demographic factors which affect organisational performance. The aim is to identify circumstances which the organisation can exploit and to evaluate the possible benefits to the organisation.(Chartered Management Institute)
http://www.managers.org.uk/client_files/user_files/MIC/Checklists/CHK-005.pdf
Market Development
It is one of the company's business strategy with same product to new markets. But the company must have sufficient resources to compete with the new markets.
Primark has realised this fact very closely and trying to expand their business around the world since its first pennys store in Dublin to the latest store in Germoney.
The first acquisiton took place in 1984 in Ireland of five wooworth stores,the second acquisitio was in 1992 with the major purchase of BHS(the major flagship store in Dublin. The next major development occurred in 1999 with the acquisition of 11 stores from the Co-Op, including Reading etc. And focused on the specific markets such as UK and Spain.
Further more 6 stores were acquired from Allders in 2005, three of which opened in 2006. In July 2005, the acquisition of Littlewoods stores by ABF plc which comprised an estate of 120 premises was completed, of which 41 stores were transferred to Primark.
As the store is trading in very small countries therefore there are tremendous oppoutunities are available to expand the business in other countries like USA, India or China.
http://www.primark.co.uk/page.aspx?pointerid=eb44df4565934edca627dac6ec12145a
Failure of competitors
This is an other oppourtunity for the organisation to make its position stronger in the market. For example as Primark did because due to the recession most of its competitors couldnot compete in terms of cost so were failed to enforce compition and thats why customers turned towards the Primark to help increase in its profits while most of the companies were reported down pecentage in profits.
Threats
.
Threat of ETI sanctions over employing illegal labour:
In recent past, Primark has been accused by various organisations of employing illegal and child labour at some of its factories. Due to these allegations, in January 2009, Primark agreed to remove all references to the Ethical Trade Initiatives, the trade body that monitors Britain's top retailers, from its 140 storefronts across England, Scotland, Wales and Northern Ireland.
The allegations on Primark are being investigated by ETI, as to whether Primark failed to implement ETI base code. If such failure were established, this would be grounds for formal sanctions.
Furthermore, if illegal labour allegations are proved, other political and legislative sanctions could also be imposed.
Possible loss of customer base due to environmental awareness:
The modern day consumers are becoming more and more conscious of the environmental effect of the products they are buying. Primark has been targeted by environmental campaigners for giving rise to landfill waste dumps due its "buy and bin" culture.
This could lead to a substantial loss of customer base, due to the present day consumer being extremely environmentally conscious.
Retirement of Arthur Ryan:
After forty years as the Chief Executive of Primark, Arthur Ryan stepped down from his post recently.
Arthur has been mainly responsible for Primark's rapid expansion in the recent years. Over the last decade, Mr Ryan's hands on experience paid dividends to the firm, and the chain saw substantial increase in profits, while many of the best known names on the high street have struggled.
Mr Ryan's stepping down as the chief executive could create a gap in the top management, which can be very difficult to fill.
Financial Analysis
I have calculated professional, liquidity and solvency ratios and trend analysis has been carried out to compare the performance with the previous years. The results then compared with one of its competitors M&S to assess the performance more closely and adequately.
Sales Growth
Turnover for each period has seen a rising trend over the three year period.
In the period ended 16 Sept 06, the turnover increased by 21%. This was due to strong economic conditions and in particular, consumer spending and confidence.
In the period ended15th September 2007 turnover increased by 41.9%. This was mainly due to opening of new stores and more retail selling space. 29 new stores were opened during the year.
Increase in sales was again seen in the period ended 13/09/08 by 18%, benefiting from the input of the management team in Ireland. It was also due to opening of more retail selling space and increase in like for like sales. Four new stores were opened and three stores were extended during the period.
Gross Profit margin
This ratio relates to the gross profit to the sales revenue for the period and higher the gross profit margin means higher profitability and is a good indicator of performance. This can only achieved by higher sailing price/turnover or reduction in cost of good sold. It is calculated as follows:
Gross profit margin = Gross profit ÷ Sales revenue x 100
The GP ratio shows slight fluctuation in 2007 and changes to 18% from 21% in 2006. However between 2007 and 2008, the GP ration remains constant at 18%. This shows that even thought the sales have increased considerably over the three year period, the increase in cost of sales in comparison to the sales remains more or less constant.
Net Profit margin
The purpose of this ratio is to measure the impact of fixed and variable overheads on sales. It actually tells us the amount of net profit per £1 of turnover the business has earned. The net profit is the profit out of which a company will pay interest, tax, dividends and so on. It is calculated as follows:
Net profit margin = Net profit ÷ Sales revenue x 100
The net profit margin decreases throughout the three years between 2006 and 2008. The ratio decreases from 7% to 3% in 2007, and then to 1% in 2008. The decrease is caused by a number of factors, including a higher depreciation due to increased investment in new stores, an increasing strategic management cost in the recent years, and higher levels of discounting of the summer season stock in 2007 and 2008, to make way for the autumn range.
Expense Ratios
This ratio shows that how the operating, distribution cost effects the net profitability of the company. It actually tells us the proportion of expenses per £1 of turnover. The lower the percentage the more efficient company would be.
Distribution expense to sales ration remains the same for three year in consideration. However Admin expenses to sales ratio was increased from 6% in 2006 to 7% in 2007 and 10% in 2008. The reasons for the increase in admin expenses ratio would be similar to those of the decrease in net profit margin. It is calculated as follows:
Expense Ratio = Expense ÷ Sales revenue x 100
Return on capital employed
This is the fundamental ratio which is used to monitor business performance. It measures the amount of profit earned as a percentage of capital employed. It shows that, is the profit sufficient considering the amount of capital invested to earn that profit?
(Janat Walker, Accounting in a nutshell Third Edition, PN 156)
The return on capital employed in 2006 was 54% which has remained same in 2007. This is mainly because of income from disposals in 2007 which has kept the profit before interest at the same level as the previous year. If the effect of this income was not taken it would have reduced the ROCE, but reduced to 46% because of reduction in Profit before interest and tax in 2008. It is calculated as follows:
ROCE = Profit before interest and tax__________ x 100
Total Assets less Current liabilities
LIQUIDITY RATIOS
Current Ratio
The current ratio is a test of a business's short-term solvency. It capability to pay its liabilities that come due in the near future (up to one year). The ratio is a rough indicator of whether cash on hand plus the cash to be collected from accounts receivable and from selling inventory will be enough to pay off the current liabilities.
(John A. Tracy,CPA. Accounting for Dummies 4th Edition)
The current ratio in 2006 was .20 which was then increased to .21in 2007 and .26 in 2008 which is seems to be weaker than averages accepted by most of the creditors. This could be because of very low current assets against high current liabilities. The reason for current assets being low could be high expenditures on fixed assets and high dividends paid. Also, as mentioned above, a big proportion of current liabilities include amount owed to group undertakings. It is calculated as follows:
Current Ratio = Current assets ÷ Current liabilities x 100
Quick Ratio
The purpose of this ratio is almost same as current ratio but it mainly use to show the company's ability to pay its liability with easily convertible assets.
The quick ratio in 2006 was .05 which is constant in 2007 and increased to .06 in 2008. The slight increase in 2008 was because of increase in quick assets. It is calculated as follows:
Quick Ratio = Current assets - Inventory ÷ Current liabilities x 100
Year
Current
Ratio
Quick
Ratio
2008
.26:1
.06:1
2007
.21:1
.05:1
2006
.20:1
.05:1
Efficiency Ratios
Creditor's payable period.
The receivables collection period could be compared with the payables payment period and management sometime try to ensure that the two periods are roughly equal, or that the payable period is slightly longer, that is the organisation take longer to pay its bills than it takes to collect money from its customers, resulting in interest free credit for a period.
(Janat Walker, Accounting in a nutshell Third Edition, PN 166)
It was 26.51days in 2006 which then reduced to 20.13 days in 2007 and again rose to 25.19 days that is closer to and even longer than receivables period which kept around 13 days over three years.
The reduction in 2007 was because of slightly increased in creditors against very high percentage increase of cost of sales as compare to previous year. But overall creditor's days are better than average that is 27 days.
It is calculated as follows:
Payables period = Trade payables ÷ Cost of sales x 365
Solvency Ratios
Gearing Ratios
The purpose of this ratio is to show the relative reliance of the business on external or internal sources of finances.
Business with higher gearing are usually regarded as more risky greater danger of being financially overstretched, but the opportunity of greater rewards for individual shareholders.
(ACCA course text book Advanced Performance Management P5)
It is calculated as follows:
Gearing = Debt ÷ (Debt + Equity)
The debt figure includes operating and finance lease, Deferred taxation.
The gearing of the company was 19%, 24%, 29% in the year 2006, 2007, 2008 respectively. The company has increased the debt element of finance in its capital structure and consequently the gearing has turned up continuously year on year. The retail store got some of its long term debt in the year 2007 and got further debt in the next year but did not raise additional equity capital. As a result of this the company became more risky to investors in each year. This is bad indicator as the risk of insolvency has increased.
