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Tokmanni Report Financial Statement Analysis

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Ismael Delgado Lara

on 1 November 2013

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Transcript of Tokmanni Report Financial Statement Analysis

Questions...?
Tokmanni Report
Financial Analysis
Financial Analysis
Conclusions
Conclusion: Problems
Conclusion: Solutions
Final Conclusions
Cash Flows from Operating Activities
Vertical Analysis
Ratio Analysis
Horizontal Analysis
History
Products and Service Mix
Corporative Information
Brief intro
Tokmanni
Tokmanni owns more than 140 shops being the largest discount shop chain in Finland
It offers mainly regional brands of products further more international ones
Tokmanni is positioned in every of the major towns and cities of Finland
Tokmanni is in the TOP100 of the NTR (National Turnover Ranking)
Electronic and leisure
Household, detergent, cosmetics
and toiletries
Clothing
Grocery
Houseware and home improvement
The main point of performing a horizontal analysis on your financial state-ments is to see how things have changed from one period to the next.

Let's consider a growth and trend analysis of the turnovers, total assets and personnel (wage and salary expenses).
Common-size Financial Statement Analysis
Ratios are measurement methods which give us substantial information and overview about a company's situation
In order to improve the financial analysis
of the company it´s so important to examine critically
the inflows and outflows of the year and contrast it with the last period, what will let us make predictions for the next period as well, and solve cash problems from one year to another.
With reference to the bad financial situation the Tokmanni Group is confronted with several problems:
The results of bad liquidity
The liabilities based on the low owner’s equity.
We as a group share the opinion that investments have to be thought through very carefully before spending more money and again weakening the financial issues of the company.
The company should rather focus on improving its liquidity and increasing its owner's equity.
Cost cutting and still trying to reach higher profits with already existing assets would be good starting points.
Outsourcing, looking for better delivery and payment conditions, keeping stocks low (just in time) are just a few fields which should be considered.
Profits can be increased by focusing on the most profitable goods, by improving the effectiveness of the business and also by advertising in an effective and purposeful way.
Moreover we thought about certain methods how to improve liquidity and increase owner's equity. Factoring, for example would be a very effective tool in order to increase short term, current liabilities.
Looking for new investors would help to give the company higher owner's equity, also Mezzanine financing would be a special form supporting the improvement of owner's equity.
Despite the Revenues grew, and the operating profit was increased more than a 45%, and the losses decreased a 67% the company is insolvent.
Founded in 1989 by the brothers Kyösti and Kari Kakkonen
Change of the company structure in 2004, when CapMan became Tokmanni's major shareholder
In 2006 adquired the entire share capital of TarjousmaxiOy and Robinhood
In 2008 Tokmanni become the largest retail company in Finland.
Revenue
Continuous growth through that period
The first two years growth is of 11,1%
Afterwards reduction of the growth to the 4,6% in 2009
Increment of the growth thought the last year to 5,4% in 2010
Total Assets
Assets decrease every year:
Firstly by 13,6%
Secondly by 4,5%
Finally, in 2010 decreased by
10,8%
Personnel
(wage and salary expenses)
Wage and salary expenses increased through that period of time as turnovers did.
In 2008 the relative increment was 18'3%
In the next two years the company just increased by 5,7%
Profit
Operating profit has increased a 45,61% in 2010 in contrast with 2009
Profit for the period was negative in both years but in 2010 the looses have been reduced in a 67,55% from 2009.
Is a technique that financial managers use to analyze their financial statements
Is an excellent tool to compare companies of different sizes or to compare different years of data for the same company
100 * Compared Figure
------------------------
Base Figure (Revenue)
There are general standards to be considered as good, fair or bad and one can easily compare the ratios with those of previous years or other companies within the same field of business
Profitability
Ratios show a company's overall efficiency and performance. We can divide profitability ratios into two types:
Margins represent the firm's ability to translate sales euros into profits at various stages of measurement
Returns represent the firm's ability to measure the overall efficiency of the firm in generating returns for its shareholders.
Profit Margin
It looks at cost of goods sold as a percentage of sales
In 2008 the profit margin of Tokmanni was considered to be fair. Unfortunately the figures decreased and are below fair in 2009 and 2010.
The larger the gross profit margin, the better for the company.
Profit Margin =
Gross Profit
___________
Net Sales
Return on Assets
It measures the efficiency with which the company is managing its investment in assets and using them to generate profit.
The higher the percentage, the better, because that means the company is doing a good job using its assets to generate sales.
ROA =
EBIT
_______ x _______
Revenue
Return on Equity
It is the most important of all the financial ratios to investors in the company.
ROE measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company.
ROE =
The Profit margin was fair in 2008, but it decreased in 2009 and 2010.
Despite ROA was decreasing last years, in 2009 and 2010 the situation became alarming.
A negative ROE is most of the time a bad sign. It can also be the result of high investments which are going to be profitable only on the long run. In 2010 the result is getting better, so maybe now the investments start to get profitable. Nevertheless this can just be a guess as we found that big investments were made only in 2007, not in 2009.
What we can say from our point of view is that in combination with all the other financial analysis results, the negative return on equity does not look good.
Liquidity
Liquidity is the ability of the firm to convert assets into cash. It is also called marketability or short-term solvency.
The liquidity of a business firm is usually of particular interest to its short-term creditors since the liquidity of the firm measures its ability to pay those creditors.
Current Ratio
The current ratio is calculated from balance sheet data as Current Assets/Current Liabilities.
The current ratio is considered to be good above a result of 2. According to Tokmanni's results within this ratio, liquidity is not good enough
Quick Ratio
It is a more stringent test of liquidity than the current ratio.
This is because it removes inventory from the equation. Inventory is the least liquid of all the current assets. A business has to find a buyer if it wants to liquidate inventory, or turn it into cash.
Unfortunately the quick ratio standard interpretation says that liquidity is good if the company gets figures above 1 and fair if the company gets figures above 0,5.
Tokmanni has bad liquidity and the trend cannot signify any improvement, after 2009, regarding liquidity, the company is doing as worse as in 2007.
Solvency analysis
Using the Static and Dynamic analysis we are able to know the level of indebtedness of a firm. That process indicates if the firm is able to support its commercial activity through the years contrasting the financing level that the liabilities of the company offers to its own assets ensuring their financial stability and giving information about the capability of the firm to support their payment obligations in the future.
The profitability ratios shown tells that profit margin, ROA and ROE are unfair. Especially ROA is alarming, and ROE is negative. The profit margin is also decrasing year by year
Balance Sheet Structure
This chart visualizes the capital structure of the company. It shows the poor portion of equity very clearly. Unfortunately the biggest part of capital of the company is represented by current and non-current liabilities. Therefore, Tokmanni is considerably indebted. The company needs to use all profit for repayments and is restricted in terms of investments and profit distribution to shareholders.
Ratios
The assets decrease year by year, showing an asset stripping that is not good for the company.
The company is not doing well in its capital structure. The average percentage of owner's equity is 4% out of total capital, therefore, 96% of the company's fortune or assets is owned by our creditors.
Thanks for your attention
In 2008 the relative debt ratio was alarmingly high, however one can see that the company is improving its figures within this field.
Revenue
Assets
ROA + D * (ROA-i)
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