Compare woolworths group to hmv group

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Introduction

In this report I will be examining and quoting information taken from the annual reports of 'Woolworths Group' and 'HMV Group'. I will be comparing the profitability, liquidity, efficiency and investment ratios of these two companies and evaluating the financial performance of each in order to review the major factors that have contributed to the financial well being of the two companies.

A1, Business Activities

Both of these companies are high street stores, you can usually find both in most city and large town centres. They both retail goods which most people want to buy such as CDs, DVDs, books and games but Woolworths retails magazines, house-ware, lottery tickets etc that also sell extremely well. The main function of these stores is to sell goods at a reasonable price in order to make profit, and to expand.

A, Definitions

Fixed Assets

Fixed assets are items such as buildings and property that hold a tangible value and investments that won't really change that much in price. Investments such as buying own shares are also considered fixed asset all though they can go up and down in value.

Current Assets

Current assets are variable, they depend on how much the debtors owe, how much stock is available, and how much cash is in hand and at the bank. These kinds of assets can quickly be cashed if needed and they are also used to calculate the liquidity of the companies to give a liquid ratio.

Current Liabilities

Current Liabilities are the opposite of the current assets, these are again variable but depend on how much money is owed out to creditors and possible charges and hidden liabilities.

Long Term Finance

The long-term finance of a company such as HMV will be the money taken for the goods in the stores, cash is paid which is then used to run the company, cover overheads and make profit.

B Summary of progress

When comparing the financial statements from the two companies I notice that HMV has a much higher return on capital employed with 0.8% being over four times greater than Woolworth's only being 4.6%. The reason for this could be that HMV has much bigger bank loans than Woolworth's which will result in having much higher payments to make each year. Having taken this into consideration, HMV has a much bigger profit margin due to lower sales costs meaning they can afford a bigger percentage in payments. HMV have a slightly lower asset turnover rate than Woolworth's who had a rate of .56 times compared with just times by hmv, this could be due to HMV having more tangible assets, possibly owning more premises than Woolworth's.

Woolworth's have a much higher liquid ratio than HMV, simply because the current assets out weigh the current liabilities more, but when looking at the acid test there is only a small difference. This is due to Woolworth's holding a lot more stock, this is also evident in the stock turnover, where Woolworth's take up to 50% longer to turn over than HMV. Woolworth's pay their creditors quicker, but it takes them longer to receive payments from their debtors.

When looking at the investment ratios by themselves you can see what has happened during the financial year 00, and what the shareholders fund is like. During this financial year HMV group have made a good earning on share value whereas Woolworth's have made a loss, but if you consider the shareholders fund you will see that HMV are heavily in debt and need to gain in order to increase the value of the shares. Woolworth's on the other hand have taken a loss, but when considering the shareholders funds the share value is strong, when looking at the profit and loss sheet (pg annual report 00) I notice there are a few large payouts to kingfisher group because there has been a demerger. These large payments to kingfisher will apply to this year only, and with these payments being the blame for the loss made by Woolworth's, if they have a similar year in terms of making profit the share prices will gain asset value. The future for both of these companies looks good, HMV is making a large profit making good earnings on their shares, if business continues the same, being a music and games store this is quite likely, HMV will recover the asset value of these shares. Woolworth's now finished paying the extra costs of the demerger from kingfisher group can expect to cover all costs if business continues the same.

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