Games Workshop is one of the most successful tabletop fantasy and futuristic battle-games company in the world. Games Workshop Group PLC has been in business for about 30 years. Games Workshop deals with designing, manufacturing, distributing and marketing of a hobby based upon collecting, modeling, painting and tabletop gaming with model soldiers (the "Hobby"). The business of Games Workshop is about helping armies in the field of battle. The main brands of them are Warhammer and dark future Warhammer 40,000 game system. The company's headquarter is situated in Nottingham, in the UK. It has got direct sales operations in the UK, the US, Spain, Italy, Australia etc. The majority of the sales and profits of the Group is being contributed by the Games Workshop. ]Along with this, Games Workshop PLC has got other companies like BL publishing which is basically publisher of novels, background books etc.
Hornby is the UK's one of the leading model railway manufacturer brand. The founder of this company was Frank Hornby who applied for a patent in 1901. Soon he started production which, in 1907 led to the establishment of Meccano Ltd. The company had good time in their journey later on. They started with the production of classic toys to toy trains and electric train. Later on, they introduced lot of innovative toy product items down their way. The company, which is at present known as Hornby Hobbies Ltd, became an independent company and it was floated on the Unlisted Securities Market, on 29 October 1986. Now the company is simply called as "Hornby" and has become successful in establishing a firm reputation as a benchmark for the industries as far as quail.
4. FINANCIAL STATEMENTS
Hornby PLC
Consolidated Income Statement
2010
£'000
2009
£'000
2008
£'000
Revenue
64,736
61,569
55,692
Cost of sales
(32,636)
(32,168)
(26,297)
Gross Profit
32,100
29,401
29,395
Distribution costs
(2,702)
(2,454)
(2,138)
Selling and marketing costs
(13,602)
(13,641)
(11,551)
Administrative expenses
(8,243)
(7,976)
(6,268)
Other operating (expenses)/income
(1,549)
1,569
(52)
Operating Profit
6,004
6,899
9,386
Finance income
20
27
5
Finance costs
(809)
(805)
(374)
Profit before taxation
5,215
6,121
9,017
Taxation
(1,530)
(1,909)
(2,940)
Profit for the year after taxation
3,685
4,212
6,077
Other comprehensive income
Cash flow hedges, net of tax
848
(813)
-
Currency translation differences
19
(336)
-
Other comprehensive income for the year, net of tax
867
(1,149)
-
Total comprehensive income for the year
4,552
3,063
-
Earnings per ordinary share
Basic
9.76p
11.17p
16.15p
Diluted
9.60p
10.98p
15.62p
Consolidated Balance Sheet
2010
£'000
2009
£'000
2008
£'000
Assets
Non Current Assets
Goodwill
13,416
13,624
9,925
Intangible Assets
5,227
5,689
2,404
Property, plant and equipment
10,020
10,523
8,360
Investments
-
-
-
Deferred tax assets
140
67
123
28,803
29,903
20,812
Current Assets
Inventories
12,273
14,368
11,890
Trade and other receivables
13,291
13,119
10,699
Derivative financial investments
750
-
-
Current tax assets
175
124
152
Cash and cash equivalents
8,998
427
940
35,487
28,038
23,681
Liabilities
Current Liabilities
Borrowings
(1,718)
(5,138)
(2,220)
Derivative financial instruments
(3,342)
(3,960)
(1,350)
Trade and other payables
(10,363)
(8,270)
(6,851)
Provisions
(391)
(538)
(500)
Current tax liabilities
(1,020)
(999)
(1,723)
(16,834)
(18,905)
(12,644)
Net current assets/(liabilities)
18,653
9,133
11,037
Non current liabilities
Borrowings
(10,547)
(7,181)
(41)
Deferred tax liabilities
(281)
(301)
(346)
(10,828)
(7,482)
(387)
Net assets
36,628
31,554
31,462
Equity attributable to owners of the parent
Share capital
380
380
380
Share premium
5,340
5,278
5,278
Capital redemption reserve
55
55
55
Translation reserve
(514)
(533)
(197)
Hedging reserve
168
(680)
133
Other reserves
1,688
1,688
1,688
Retained earnings
29,511
25,366
24,125
Total equity
36,628
31,554
31,462
4.2 Games Workshop PLC
Group Income Statement
2010
£000
2009
£000
2008
£000
Continuing operations
Revenue
126,511
125,706
110,345
Cost of sales
(30,683)
(35,919)
(33,731)
Gross profit
95,828
89,787
76,614
Operating expenses
(82,839)
(84,325)
(75,798)
Other operating income-royalties receivable
3,056
3,471
1,736
Operating profit
16,045
8,933
2,552
Finance income
442
333
425
Finance costs
(367)
(1,808)
(1,918)
Profit before taxation
16,120
7,458
1,059
Income tax expense
(1,040)
(2,107)
(613)
Profit for the year from continuing operations
15,080
5,351
446
Discontinued operations
Profit/(loss) for the year from discontinued operations
-
118
1,186
Profit attributable to equity shareholders
15,080
5,469
(740)
Group Balance Sheet
2010
£000
2009
£000
2008
£000
Non- current assets
Goodwill
1,433
1,433
1,433
Other intangible assets
5,889
5,811
6,059
Property, plant and equipment
23,264
25,380
26,422
Trade and other receivables
1,678
1,570
1,234
Financial assets-derivative financial instruments
-
-
14
Deferred tax assets
5,917
4,704
3,005
38,181
38,898
38,167
Current assets
Inventories
10,138
10,678
10,392
Trade and other receivables
10,043
9,959
9,870
Assets held for sale
-
-
464
Current tax assets
301
32
854
Financial assets - derivative financial instruments
-
210
17
Cash and cash equivalents
17,089
10,355
7,723
37,571
31,234
29,320
Total assets
75,752
70,132
67,487
Current liabilities
Financial liabilities - borrowings
-
(2)
(2,791)
Financial liabilities - derivative financial instruments
-
(550)
(1,401)
Trade and other payables
(15,550)
(14,092)
(15,351)
Current tax liabilities
(1,027)
(2,233)
(222)
Provisions
(1,848)
(1,046)
(1,155)
(18,425)
(17,923)
(20,920)
Net current assets
19,146
13,311
8,400
Non-current liabilities
Financial liabilities-borrowings
-
(12,000)
(15,001)
Other non-current liabilities
(582)
(632)
(723)
Provisions
(1,442)
(1,586)
(1,317)
(2,024)
(14,218)
(17,041)
Net assets
55,303
37,991
29,526
Capital and reserves
Called up share capital
1,557
1,556
1,556
Share premium account
7,837
7,822
7,822
Other reserves
3,722
1,837
(321)
Retained earnings
42,187
26,776
20,469
Total shareholders' equity
55,303
37,991
29,526
RATIO ANALYSIS
5.1 Profitability Ratios
(i) Ratio on Capital Employed
In any business, the main aim of investing in any business is to acquire sufficient benefit on capital invested. The term used to measure the success of a business is Return on capital employed. Return on capital employed is a ratio that implies the success and profitability of a company's capital investments. This ratio is expressed as Profit Before Interest and Tax (PBIT) over the long term investment made in the business.
ROCE = PBIT / [share capital + reserves + long term loans] x 100
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
12.65%
27.99%
2009
17.67%
17..11%
2008
29.47%
5.48%
(ii) Net Profit Margin
A profitability ratio computed as profit before interest and tax over sales. It shows the company's ability to produce at a appropriate sales level. Net profit margin tells us how exactly the operations are being carried out in a company. The higher the net profit margin, greater is its efficiency of making actual profit.
Net Profit Margin = PBIT / Sales x 100
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
9.27%
12.68%
2009
11.21%
7.11%
2008
16.85%
2.31%
Asset Turnover ratio
The asset turnover ratio is a measure of the amount of sales that a company generates using the assets available. It is calculated as sales over capital employed. Asset turnover simply explains how efficient a firm is in utilizing its assets for generating income. The higher the asset turnover ratio, the better is its efficiency. The profit margins and asset turnover ratios are inversely proportional, that means a company with a low profit margin will have a high asset turnover ratio and vice-versa.
Asset Turnover = Sales / Capital Employed x 100
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
1.36%
2.21%
2009
1.58%
2.41%
2008
1.75%
2.37%
Comparative analysis
ROCE of Hornby decreased drastically from 29.47% to 17.67% to 12.65% where as that of Games Workshop increased slightly from 5.48% to 7.11% to 12.68%. This fall in ROCE for Hornby can be attributed to the rise in borrowings during the three years. This fall can also be accounted for the rise in share capital and reserves. This fall can also be linked to the decrease in the operating profit by 63.96% from 2008 to 2010. The profit after tax for Hornby has increased. Both the companies have shown an increase in revenue.
The net profit margin figure of Hornby has fallen from 16.85% to 11.21% to 9.27%, where as that of Games Workshop has risen from 2.31% to 7.11% to 12.68%. Games Workshop is maintaining a higher net profit margin than Hornby. Since the ROCE of Games Workshop has been increased and its net profit margin has also risen, asset turnover ratio remains almost constant from 2.37 in 2008 to 2.21 in 2009. This shows the relation between ROCE, Net profit margin and Asset Turnover ratios.
5.2 Efficiency ratios
(i) Stock Turnover period
Stock turnover period indicates a particular time period, during which the company's stock is restored many times. The ratio is calculated as stock divided by cost of goods sold during the time period.
Stock Turnover Period = Stock x 365 / Cost of sale
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
137
121
2009
163
109
2008
165
112
(ii)Debtor Collection Period
The duration of time, on average, taken by the customers to pay for the goods sold. This ratio is also expressed as Trade Debtors over Credit sales. Debt control is an important area of business because even though a debt is considered as an asset of a company, it cannot be considered as liquid as other liquid assets.
Debtor Collection Period = Trade Debtors / Credit Sales x 100
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
75
29
2009
78
29
2008
70
33
Comparative analysis
In the last three years, the stock turnover period of Hornby has decreased from 165 days to 163 days to 137 days, where as that of Games Workshop has increased from 112 to 109 to 121 days. When comparing both the companies, Games Workshop has a lesser stock turnover period. This means that the movement of stock is faster than in Hornby. This indicates that Games Workshop is maintaining its stock more efficiently than Hornby.
There is a fall in the debtor collection period for both the companies in the last three years. It decreased from 70 to 78 to 75 days for Hornby and 33 days in 2008 to 29 days, which remained constant both in 2009 and 2010 for Games Workshop. Hornby can actually reduce the debtor collection period much further. Comparing both the companies, Games Workshop has higher efficiency.
5.3 Liquidity Ratios
(i) Current Ratio
The current ratio is an explanation of the company's capability to meet short-term liabilities. It shows the amount of current assets the company has to cover its current liabilities. The ratio is calculated as current assets over current liabilities. Current ratio is very much similar to the liquid ratio, except for the fact that liquid ratio is calculated exclusive of inventory.
Current Ratio = Current assets / Current liabilities
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
2.11
2.04
2009
1.48
1.74
2008
1.87
1.40
(ii) Liquid Ratio
The liquid ratio measures a company's ability to cover up its short-term liabilities using its liquid assets. Liquid ratio, also known as quick ratio, is calculated as currents assets less stock over current liabilities.
Liquid Ratio = Current assets - Stock / Current liabilities
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
1.38
1.49
2009
0.72
1.15
2008
0.93
0.90
Comparative analysis
For Hornby the current ratio is 1.87 in 2008 and 1.48 in 2009 and 2.11 in 2010. For Tesco the current ratio is 1.40 in 2008 and 1.74 in 2009 and 2.04 in 2010. Both the companies have shown improvement in the current ratio. Hornby is in a good position to clear its short term liabilities than Games Workshop. The standard current ratio is considered to be 2:1, since it is a bit higher, Hornby is not efficiently using its current assets.
Quick ratio for Hornby increased from 0.93 in 2008 to 0.72 in 2009 to 1.38 in 2010 . The ratio for Games Workshop increased from 0.90 in 2008 to 1.15 in 2009 to 1.49 in 2010. As a result the quick ratio of the company increased very well and On comparing both the figures, Games Workshop has higher liquid ratio and so, is in a better financial position to cover its short term liabilities.
5.4 Gearing Ratio
(i) Gearing Ratio
A financial ratio that compares company's capital employed to borrowed funds. It relates to the amount of debt a company has. It is calculated as long term borrowings over capital employed.
Gearing Ratio = Long Term Borrowings / Capital Employed x 100
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
22.22%
0%
2009
18.40%
22.98%
2008
0.13%
32.21%
(ii) Interest Cover Ratio
The interest coverage ratio is used to measure how efficiently the company is able to pay the interest on its outstanding debt. It is calculated as company's profit before interest and taxes (PBIT) over interest payable for the same duration of time.
Interest Cover Ratio = PBIT / Interest Payable
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
7.42
50.94
2009
8.57
7.10
2008
25.10
1.52
Comparative Analysis
The gearing ratio of Hornby has increased largely from 0.13% to 18.40% to 22.22% while that of Games Workshop decreased drastically from 32.21% to 22.98% to 0%. Games Workshop has a much lesser gearing ratio, when compared to Hornby. This means that Games Workshop has not taken much debt, whereas Hornby has to decrease its gearing ratio or else it will have to pay a high interest.
The interest cover ratio for Hornby has decreased from 25.10 in 2008 to 8.57 in 2009 to 7.42 in 2010, while that of Games Workshop has increased from 1.52 in 2008 to 7.10 in 2009 to 50.94 in 2010. The low interest cover ratio of Hornby indicates the large amount of borrowings it has made to finance the business.
5.5 Investment Ratios
(i) Return on Share Holders Funds (ROSF)
ROSF is a ratio which measures the return to the share holders from the company's profit, in relation to the investments made. It is calculated as profit after tax over ordinary share capital and reserves. It can be considered as the measure of profitability, because the investors has been using this ratio from the every beginning as a measure of the profit for the period, in order to judge whether their investment would be worth making. ROSF is represented in percentage. Investors would look at the size of the return on share holders fund ratio on making analysis, but it is always better to take professional advice before making any decision related to investment on the basis of ROSF ratio.
ROSF = Profit after Tax / Ordinary Share Capital + Reserves
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
10%
32.33%
2009
13%
16.44%
2008
19%
3.59%
(Ii) Dividend Payout Ratio
It indicates the money that is paid out in the form of dividends by the company to its shareholders. It is calculated as net dividend over profit after tax. An investor will always prefer a company that shows a dividend payout ratio between 40 % and 60 %.
Dividend Payout Ratio = Net Dividend / Profit After Tax
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
51%
51.65%
2009
24.1%
0%
2008
52.5%
0%
(ii) Dividend Cover
It is a measure of the amount of profit generated by the company, in order to manage the level of dividend paid out. It is calculated as profit after tax over net dividend. It is called dividend cover as it explains how many times a dividend is being paid over the total profit of a company. Dividend cover ratio is an important tool for the investors as it reveals lot of information about the company which will be useful for making investment decisions.
Dividend Cover = Profit after Tax / Net Dividend
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
1.96
1.93
2009
4.15
0
2008
1.9
0
(iii) Dividend Yield
It is a ratio that interprets how much an investor may get as dividend, depending on the investment made in a company, in relation to the price per share. It is calculated as dividend per share over market price per share. For calculating an accurate dividend yield ratio, the latest share price is needed.
Dividend Yield = Dividend per Share / Market Price per Share
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
3.97%
7.2%
2009
3.97%
0%
2008
4.49%
0%
(iii) Price-Earnings Ratio
It is a valuation ratio of a company's market price per share over earnings per share. It is an important tool for making investment ratio. It is an indication of the confidence that investors have in the business of a company. As price -earnings ratio goes higher, the confidence of an investor in the business also shoots up. In order to take a decision, we cannot depend on a single P/E ratio, but a better analysis can be done by comparing P/E ratios of different companies in same industry. It has been used as an indicator of stocks value.
P/E Ratio = Market Price per Share / Earnings per Share
Using the above formula, the figures for Hornby and Games Workshop was obtained as follows:-
YEAR
HORNBY
GAMES WORKSHOP
2010
12.85
7.14
2009
6.07
11.88
2008
22.23
72.5
Comparative Analysis
Return on Share holders Funds (ROSF) for Hornby decreased from 19% in 2008 to 10% in 2010. It increased from 3.59% in 2008 to 32.33% in 2010 for Games Workshop. The variation in return on share holders fund ratio is due to short term influences. Games Workshop has a higher return on share holders fund than Hornby.
Dividend Payout Ratio for Hornby has increased from 52.5% in 2008 to 24.1% in 2009 and then shot up to 51% in 2010, and increased from 0% in 2009 to 51.65% in 2010 for Games Workshop . This indicates that the proportion of earnings Games Workshop pays out to its shareholders as dividends is more than what Hornby pays to its shareholders.
Dividend Cover ratio shows how much of profits are generated to cover the dividends. Dividend Cover for Hornby has increased from 1.9 in 2008 to 4.15 in 2009, and then decreased to 1.96 in 2010. The ratio for Games Workshop increased from 0 to 1.93 in 2010. This means for the year 2010 the profit generated by Hornby can cover its dividends by 1.96 times and profits earned by Games Workshop can cover its dividends by 1.93 times. Hornby is having more dividend cover than Games Workshop.
Dividend Yield of Hornby decreased from 4.49 % in 2008 to 3.997% in 2009 and 2010, where as it increased from 0% to 7.2% in 2010. Games Workshop has a higher dividend yield than Hornby. While looking at the scenario from an investor's point of view, he would prefer to invest in Games Workshop. .
Price Earnings (P/E) ratio has decreased from 22.23 in 2008 to 6.07 in 2009, and later on rised to 12.85 in 2010 for Hornby. It has decreased from 72.5 in 2008 to 11.88 in 2009 to 7.14 in 2010 for Tesco. Price earnings ratio is directly proportional to the expectation of the investors concerning future growth. Hornby has higher P/E ratio than Games Workshop for the year 2010.
INDUSTRY ANALYSIS
Hasbro, Inc is a company which performs in the same business as Hornby and Games Workshop. We can analyze the performance of Hornby and Games Workshop by comparing with the competitor i.e. Hasbro.
The ROCE of Hasbro was 23.53% in 2008 and 21.58% in 2009, where as for Hornby, the ratio was 29.47% in 2008 and 17.81% in 2009. Form this we can understand that there is a decreasing trend in ROCE for Hornby. So the profit will decrease in the coming years. The current ratio of Hasbro increased from 2.142% in 2008 to 2.5% in 2009, whereas that of Hornby decreased from 1.87% to 1.48% in 2009. In the year 2010, the current ratio for Hornby rose to 2.11%. so the financial position of Hornby to meet current liabilities is increasing. On comparing the stock turnover period of Hornby and Hasbro, Hornby has a higher stock turnover period, which decreased from 165 days to 163 days in 2009. This indicates that the efficiency of Hornby is increasing. The gearing ratio of Hasbro increased from 0.337% in 2008 to 0.415% in 2009, whereas that of Hornby increased from 0.13% to 18.40% in 2009. So when we consider Hornby, gearing ratio is increasing, which will be a loss for the company.
The ROCE of Games Workshop increased from 5.48% in 2008 to 17.11% in 2009. On comparing ROCE of Games Workshop with Hasbro, there is an increasing trend, and so the profit will increase. The current ratio of Games Workshop increased from 1.40% to 1.74% in 2009. This ratio on comparing with that of Hasbro, indicates that the financial position of Games Workshop is increasing. While comparing the stock turnover period of Games Workshop and Hasbro, it has been found that the ratio for Games Workshop is decreasing from 112 days in 2008 to 109 days in 2009, which later increased to 121 days in 2010. This means the efficiency of Games Workshop is increasing. The gearing ratio of Games Workshop decreased from 32.21% to 22.98% in 2009. The ratio further decreased to 0% in 2010. This will not be a loss for the company.
FUTURE PROSPECTUS
In the present technology driven world, you would hardly find people who are not familiar with the companies like Games Workshop PLC, Hornby PLC, Hasbro etc. Hobby enthusiasts who go crazy for technology, music, model toys, games etc are giving sheer push and great support to Hornby and Games Workshop. These industries have successfully made a mark on their respective wider industry. But they had to face many competitions with their competitors like Hasbro, Wizards of Coast etc . When the competition started going up, it automatically led to the diversification of the product lines like consumer products, mail orders, non-store retail, catalog, television sales etc..
The demand of games and toy industry will shoot up in the near future due to the increase in demand for entertainment. All kinds of toys has been a demand among children of age grouped 12 and below. But the main threat for the toy industry is the hiking competition from other source of entertainment like internet, television etc. There has been a drastic difference of demand in the electronic gaming products. Gaming industry is one which always welcomes innovation. In the past 10 years, lot of innovations has happened in this sector and it has led to the introduction of lot of product items into the market. There is a wide range of market for this sector and the most interesting part is that, the demand for electronic gaming products has always shown a rise and it has now become an unavoidable part of entertainment for the customers of almost age group.
If we take Games Workshop PLC into consideration, it has made an appreciable contribution to the whole British Gaming Industry. Games workshop has been planning new projects and proposals. Games Industry and Fantasy Flight games have entered an agreement. As per the agreement, the Fantasy Flight becomes the exclusive publisher of card games, board games and role playing games. The company has got an expectation of achieving a 20% growth in profit behind the making of this contract. The company' revenues hiked as 13.5pc to £61.2m for the six months to November 30, as the company swung into a £3.1m pre-tax profit from a £300,000 the year before and is expecting a higher rate in the coming years. Hornby Plc, has announced that it has entered into a contract with Humbrol Limited for acquiring a few assets. The contract has been made worth 6.5 million pounds. The company is thereby forecasting a significant growth in the near future. They have got plans to launch a series of new products with better performance. The company is expected to have an upward growth after having received the rights for the production for the Olympics in the year 2012. Hornby has also got plans to re-construct their present business, after relocating some of its centre to its own site in Kent and their manufacturing and assembling processes to third parties which will help the company to focus on the other aspect of sales.
The success of all companies is in identifying the most appropriate market, fixing their target, identifying the market trend and developing products which could satisfy the present customer wants. Games Workshop and Hornby has the ability to provide a wide selection of product items and have scale advantages in purchasing, producing, distributing, marketing and selling of products. Both the games and Hornby are expecting a bright and successful future laid before them.
CONCLUSION
After conducting a thorough financial analysis, we have found that Games Workshop have a great Return on Capital Employed which is of 28% as compared to Hornby. Both the companies that have displayed average liquidity, Hornby has got variation on both of their liquid and current ratios that denotes instability. Games Workshop has got a good Return on Shareholders funds which is of 27.3% and it has gone higher considerably in 2008 from 1.5%. On the other hand, the ROCF of Hornby in 2008 has decreased from 19.3% to 10.1% on 2010 and this will be a non satisfactory gain of an investor.
Tom Kirby (Chairman of Games Workshop), has been found quoted in its Annual Report 2010 that there will be only an inadequate growth because of the low borrowings in Games Workshop . By reading this statements, we get a clue that both of the companies have different aspects of business future.
The dividends calculation has pointed out the best EPS and the dividends in 2010 for Games Workshop which might become a conclusion of all profits that has being restored in 2008 and 2009.The ratio analysis of the Price /Earnings shows that the growth of Games Workshop is been on a fast pace and which may become higher in the future, when Hornby shows a fixed growth. In all ways, we have come to a conclusion that making an investment in Games Workshop will be always better than Hornby for Stephen Curry to make a safer.
9. APPENDIX
CALCULATIONS OF RATIOS FOR HORNBY PLC: -
PROFITABILITY RATIOS:
Return on Capital Employed = Profit before Interest and Tax
Share capital + Reserves + Long term loans
For 2010, ROCE = 6004 / [ 36,628 + 10,547 ]
= 12.72 %
For 2009, ROCE = 6899 / [ 31,544 + 7,181 ]
= 17.81 %
For 2008, ROCE = 9386 / [ 31,462 + 41 ]
= 29.47 %
Net Profit Margin = Profit before Interest and Tax x 100
Sales
For 2010, NP margin = 6004 / 64,736 x 100 = 9.2 %
For 2009, NP margin = 6899 / 61,569 x 100 = 11.2 %
For 2008, NP margin = 9386 / 55,692 x 100 = 16.85 %
Asset Turnover = Sales
Capital Employed
For 2010, Asset turnover = 64,736 / 47,175 = 1.37 times
For 2009, Asset turnover = 61,569 / 38,735 = 1.589 times
For 2008, Asset turnover = 55,692 / 31503 = 1.76 times
EFFICIENCY RATIOS:
Stock Turnover Period = Stock x 365
Cost of sale
For 2010, Stock turnover = 12,273 / 32,636 x 365 = 137.26
For 2009, Stock turnover = 14,368 / 32,168 x 365 = 163.02
For 2008, Stock turnover = 11,890 / 26,297 x 365 = 165.03
Debtor collection period = Trade Debtors x 365
Credit Sales
For 2010, Debtor collection = 13,291 / 64,736 x 365 = 74.94 days
For 2009, Debtor collection = 13,119 / 61,569 x 365 = 77.77 days
For 2008, Debtor collection = 10,699 / 55,692 x 365 = 70.12 days
LIQUIDITY RATIOS:
Current ratio = Current assets
Current liabilities
For 2010, Current ratio = 35,487 / 16,834 = 2.108
For 2009, Current ratio = 28,038 / 18,905 = 1.483
For 2008, Current ratio = 23,681 / 12,644 = 1.872
Liquid ratio = Current assets - Stock
Current liabilities
For 2010, Liquid ratio = [ 35,487 - 12,273 ] / 16,384 = 1.378
For 2009, Liquid ratio = [ 28,038 - 14,368 ] / 18,905 = 0.723
For 2008, Liquid ratio = [ 23,681 - 11,890 ] / 12,644 = 0.932
GEARING RATIOS:
Capital Gearing = Long Term Borrowings x 100
Capital employed
For 2010, Capital Gearing = 10,547 / 47,175 x 100 = 22.35 %
For 2009, Capital Gearing = 7,181 / 38,735 x 100 = 18.53 %
For 2008, Capital Gearing = 41 / 31,503 x 100 = 0.13 %
Interest Cover Ratio = Profit before interest and tax x 100
Interest
For 2010, Interest cover = 6004 / 809 = 7.42
For 2009, Interest cover = 6899 / 805 = 8.57
For 2008, Interest cover = 9386 / 374 = 25.09
INVESTMENT RATIOS:
Return on Shareholder Funds = Profit after Tax x 100
Ordinary Share Capital + Reserves
For 2010, ROSF = 3685 / 36,628 x 100 = 10.06 %
For 2009, ROSF = 4212 / 31,554 x 100 = 13.34 %
For 2008, ROSF = 6077 / 31,462 x 100 = 19.31 %
Dividend payout ratio = Net dividend x 100
Profit after tax
For 2010, DPR = 5 / 9.76 x 100 = 51.22 %
For 2009, DPR = 2.7 / 11. 17 x 100 = 24.17 %
For 2008, DPR = 8.5 / 16.15 x 100 = 52.63 %
Dividend cover = Profit after tax
Net dividend
For 2010, Dividend cover = 9.76 / 5 = 1.95
For 2009, Dividend cover = 11.17 / 2.7 = 4.13
For 2008, Dividend cover = 16.15 / 8.5 = 1.9
(iv) Dividend yield = Dividend per Share
Market Price per Share
For 2010, Dividend yield = 5 / 126 x 100 = 3.96 %
For 2009, Dividend yield = 2.7 / 68 x 100 = 3.97 %
For 2008, Dividend yield = 8.5 / 189 x 100 = 4.49 %
(v)Price-earnings ratio = Market Price per Share
Earnings per Share
For 2010, PE ratio = 126 / 9.76 = 12.90 %
For 2009, PE ratio = 68 / 11.17 = 6.08 %
For 2008, PE ratio = 189 / 16.15 = 11.70 %
9.2 CALCULATIONS OF RATIOS FOR GAMES WORKSHOP PLC:
PROFITABILITY RATIOS:
Return on Capital Employed = Profit before Interest and Tax
Share capital + Reserves + Long term loans
For 2010, ROCE = 16,045 / [ 55,303 + 0 ]
= 27.99 %
For 2009, ROCE = 9014 / [ 37,991 + 12,000 ]
= 17.11 %
For 2008, ROCE = 2552 / [ 29,526 + 15,001 ]
= 5.48 %
Net Profit Margin = Profit before Interest and Tax x 100
Sales
For 2010, NP margin = 16,045 / 126,511 x 100 = 12.68 %
For 2009, NP margin = 9014 / 125,706 x 100 = 7.11 %
For 2008, NP margin = 2552 / 110,345 x 100 = 2.31 %
Asset Turnover = Sales
Capital Employed
For 2010, Asset turnover = 126,511 / 55,303 = 2.21 times
For 2009, Asset turnover = 125,706 / 49,991 = 2.41 times
For 2008, Asset turnover = 110,345 / 44,527 = 2.37 times
EFFICIENCY RATIOS:
Stock Turnover Period = Stock x 365
Cost of sale
For 2010, Stock turnover = 10,138 / 30,683 x 365 = 120.6 days
For 2009, Stock turnover = 10,678 / 35,919 x 365 = 108.5 days
For 2008, Stock turnover = 10,392 / 33,731 x 365 = 112.45 days
Debtor collection period = Trade Debtors x 365
Credit Sales
For 2010, Debtor collection = 10,043 / 126,511 x 365 = 28.97 days
For 2009, Debtor collection = 9,959 / 125,706 x 365 = 28.91 days
For 2008, Debtor collection = 9,870 / 110,345 x 365 = 32.64 days
LIQUIDITY RATIOS:
Current ratio = Current assets
Current liabilities
For 2010, Current ratio = 37,571 / 18,425 = 2.039
For 2009, Current ratio = 31,234 / 17,923 = 1.74
For 2008, Current ratio = 29,320 / 20,920 = 1.4
Liquid ratio = Current assets - Stock
Current liabilities
For 2010, Liquid ratio = [ 37,571 - 10,138 ] / 18,425 = 1.489
For 2009, Liquid ratio = [ 31,234 - 10,678 ] / 17,923 = 1.146
For 2008, Liquid ratio = [ 29,320 - 10,392 ] / 20,920 = 0.904
GEARING RATIOS:
Capital Gearing = Long Term Borrowings x 100
Capital employed
For 2010, Capital Gearing = 0 / 55,303 x 100 = 0 %
For 2009, Capital Gearing = 12,000 / 49,991 x 100 = 22.98 %
For 2008, Capital Gearing = 15,001 / 44,527 x 100 = 32.21 %
Interest Cover Ratio = Profit before interest and tax x 100
Interest
For 2010, Interest cover = 16,045 / 315 = 50.94
For 2009, Interest cover = 9014 / 1258 = 7.10
For 2008, Interest cover = 2552 / 1681 = 1.52
INVESTMENT RATIOS:
Return on Shareholder Funds = Profit after Tax x 100
Ordinary Share Capital + Reserves
For 2010, ROSF = 15,080 / 55,303 x 100 = 32.33 %
For 2009, ROSF = 5,550 / 37,991 x 100 = 16.44 %
For 2008, ROSF = 740 / 29,526 x 100 = 3.59 %
Dividend payout ratio = Net dividend x 100
Profit after tax
For 2010, DPR = 25 / 48.4 x 100 = 51.65 %
For 2009, DPR = 0 / 17.8 x 100 = 0 %
For 2008, DPR = 0 / 2.4 x 100 = 0 %
Dividend cover = Profit after tax
Net dividend
For 2010, Dividend cover = 48.4 / 25 = 1.93
For 2009, Dividend cover = 17.8 / 0 = 0
For 2008, Dividend cover = 2.4 / 0 = 0
Dividend yield = Dividend per Share x 100
Market Price per Share
For 2010, Dividend yield = 25 / 346 x 100 = 7.2 %
For 2009, Dividend yield = 0 / 209 x 100 = 0 %
For 2008, Dividend yield = 0 / 174 x 100 = 0 %
Price-earnings ratio = Market Price per Share
Earnings per Share
For 2010, PE ratio = 346 / 48.4 = 7.14
For 2009, PE ratio = 209 / 17.8 = 11.74
For 2008, PE ratio = 174 / 2.4 = 72.5
