An Analysis of the Financial Situation of Bread Talk Group Ltd for the Period

Topics: Financial ratios, Generally Accepted Accounting Principles, Inventory Pages: 7 (2254 words) Published: March 8, 2011
3.1 Turnover growth and profitability

3.1.1 Overview

The company has experienced a high level of growth during the three year from FY2004 to FY2007 that was fueled by broad-based growth across all business segments and the successful expansion drive across all business divisions. Group operating profit rose 42.9% to $12.0 million in FY2007, up from $7.4 million in FY2006 with the bakery business recording the strongest growth. Net profit increased by 69.8% from $4.3 million in FY2006 to $7.3 million in FY2007 on broad-based profit growth across all business segments. Net profit margin rose from 3.5% in FY2006 to 4.7% in FY2007.

3.1.2 Gross Profit Ratio

Gross profit ratio remains constant at 55% in FY2007 compared to FY2006 and FY2005 which was in line with the increase in the revenue. The company had a group’s strategy to improved sales by maintaining the selling price in order to gain more sales in the great competitive market. However, due to the soaring cost of wheat and personnel costs, the price of bread rose correspondingly. Thus, the gross profit margin remains consistent.

3.1.3 Operating Profit Ratio
The operating profit ratio of the company increased by 72% from $2.7 million in FY2004 to $4.4 million in FY2007. The reason is that the distribution and selling expenses and administrative expenses has decreased .Thus the operating profit increase by good operation cost of control. The net profit before tax of FY 2005 has grown by196 % to 2666 that compared to FY2004. This is caused by investment of associate and joint venture and food court business in China. In FY2006, the Group revenue grew 29.7% to reach $123.6 million and compared with $95.3million in FY2005. These have driven mainly by strong contributions from the bakery and food court segments across all geographical segments, the Group achieve an 81.3% increase in operating profit from $4.7million in FY2005 to $8.5 million in FY2006. Operating profits surged 64.3% from $7.4 million to $12.2 million in FY2007 on the back of all-round improvements. Net profit attributable to shareholders soared 110.6% to $7.3 million for the year in review, while net margins improved from 2.8% in FY2006 to 4.7% in FY2007

3.1.4 Asset Utilization Ratio
The company has experienced a high level of growth during the four year from FY2004 to FY2007. However, the asset utilization ratio of the company change from 3.9 times in FY2005 to 3.5 times in FY2007.This was caused by increased the deprecation from $8.5m in FY2006 to $10.3m and group of property and equipment The increase in total asset in line with the expansion strategy of the group such as more franchise outlet in china 3.1.5 Return On Capital Employed

Return on capital employed which states the operating profit as a percentage of the amount of capital employed .It significantly increased from 11% to 25% as compared to prior year. This was due to the following reason: -The Company of capital employed increased by $ 24.6 million to $44.9 million as at 31 December 2007 due to group’s expansion strategy -The operating profit also increased by 64.3% to $12.2 million for the year ended 31 December 2007, which was in line with the increase in total revenue.

3.2 Short-term liquidity

A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations .Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts。 Liquidity ratios are concerned with the company’s current financial position. The two main ratios are current ratio quick ratio

3.2.1 Current Ratio

The Current Ratio (CR) states that a company should have enough current assets that give a promise of ‘cash to come’ to meet its commitments to pay its current liabilities. Obviously, a ratio in excess of 1 should be expected. The current ratio of the company reduced significantly from FY2004 to FY2007. In FY2005,...
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