Business Analysis for Home Exclusive

Business Analysis for Home Exclusive

Executive Summary

This Report is prepared exclusively for Mr. Alison Anderson. Its contents will assist the Mr. Anderson to make an informed decision as to the viability in purchasing Home Exclusive funded exclusively from debt, that is, a loan for $1 million.

The data was obtained from the years 2008 to 2010. The analysis for this Report considered the Profitability Ratio, Liquidity Ratio and Financial Stability ratio.

Although profit still continues to be made in 2010, there is a downward trend since 2008. Based on the trends analysis for the year 2008 to 2010 it appears that future profitability may deteriorate in coming years.

The entity has a weak liquidity position and barely able to meet its current liabilities when they arise. The collection of debts is taking a longer period than before. Inventory management is also slumping. Stock is not being turned over quick enough which has led to the number of inventory turnover days to increase above the industry average.

Both the liabilities and equity have decreased resulting in a decrease of retained earnings. The conclusion drawn is that the entity is not in a current strong financial position and a potential investor should be wary due to decreasing profits and a decrease in Times Interest Earned.

Although the entity is profitable, in these uncertain economic times, it is best to adopt a wait and see approach. Interest rates continue to rise in 2010. However, there is a likelihood that rates could come down towards the end of 201 0 as the Federaljl.9vernment relaxes monetary policy to stimulate the economy by generating spending.

Therefore, it is recommended to Mr. Anderson that the Home Exclusive not be purchased at this stage.

Introduction

This report outlines the feasibility of purchasing an existing business in the home-ware retailing industry up to $1 million. It is only intended for the prospective purchaser and has a shelf life of only two months due to global uncertainty.

Data was obtained from the years 2008 to 2010. Analysis for this Report considered the Profitability Ratio, Liquidity Ratio and Financial Stability Ratio to assess the past, present and future prospects of Home Exclusive as part of Andersons. Apart from these accounting techniques, the general economic outlook was considered as overall assessment in determining the viability of this investment.

Limitations

Profitability

This indicator was used to evaluate the enterprise's performance for the three year period (2009, p.1075).

Gross profit margin has decreased from 36.1 perce~08 to 30.1 percent in 2010 (ADA Assign, 2010 SP2) that is lower than industry average. On the other hand, a total expense has decreased from $705,000 to $600,000 (ADA Assign, 2Q1.0 SP2). It appears that the profitability from financial year 2008 - 2009 the profitability decreasing, this is mainly due to the increase in the cost of sale.

The Return on total assets and shareholders' equity both decreased from 2008 to 2010, then the lower efficiency in using the entity's assets to produce profits before tax and finance costs. The Earning Yield of ...