Research Korner: Financial Performance Analysis

The Hong Kong banking sectors does have innovate opportunities for small and medium-sized enterprises

Abstract The Hong Kong banking sectors does have innovative opportunities for small and medium-sized enterprises upon extending the customer base within the global marketplace. However, SCB and HSBC will need to adopt such approach to financial planning and management which deploy an effective banking network by linking towards a better financial approach determining financial statement in its value and strength. This research represents better framework for analysis and crafting of financial patterns of SCB and HSBC in their business strategy pointing to the management as well as execution of finance factors into SME context. This research investigation can be that the banks involved can achieve better financial status and competence without experiencing much delinquency of such financial statements found in cash flows and balance sheets with HK banking competencies for managing business relations as well as engagements with other banking sectors (in, Venkatraman and Henderson 1998).           INTRODUCTION   1.1  INTRODUCTION Financial statement is an important indicator wherein the strength of SCB and HSBC is looked upon in its business strategy towards SMEs in Hong Kong, there can accounts for delinquency and such pricing relationships in such financial statement understanding. The comparative analysis of SCB and HSBC can be supported by such case study evaluation and is backed up with qualitative and quantitative approach for research study as the banking sector in HK is aware of determining strength over delinquency when talking to effective presentation of financial statements in such cash flows and balance sheets of the two banks that can be ideal for SME assimilation into the HK region.             Background for the research Financial Institution such as the SCB and the HSBC incurs a useful potential to play major role in finance through SME companies in Hong Kong. With increased global competition, the finance function can be exploited to allow HSBC for instance, to gain financial advantage in the HK market stance as there can be delinquency of banking operations affecting the overall indication of the financial statement and its ways.  There has to be comparative case study between SCB and HSBC respectively. The methodology value by then, can be based on literature studies of the two banks through such reviewed studies on small and medium-sized in HK with the objective of understanding the background of the bank’s financial strength and how it relates to pricing opportunities as the banks do strive to become more finance competitive. The data required for case analysis have been collected by interviewing several senior managers of SCB and HSBC within a standard questionnaire. Aside, SCB and HSBC’s annual reports and statements have been referred for the collection of accurate data. The main objective of the research is to understand how the two banks developed good financial strength over the years, avoiding delinquencies to the financial statements. Thus, analyzing history of the company, its strategy and goals, strategies as well as the process they used to bring the company to the position as of the present.   For example, major banking decisions should involve the volume and timing of orders and deliveries and the packing of items in consolidation. There are several constraints influencing the level of stock and the speed of the material flow along the banking logistics chain. The level of stock and the speeds the material flow also depend upon the nature of the supply and demand. Transportation or shipping involves such matters as the modes of transportation, utilization of available capacity, scheduling of transportation equipment and maintenance of transportation facilities. Next comes capacity planning. The management of both long-term and short-term demand drives the level of capacity required.  The study examines different banking approaches to determine whether a bank will be associated with good financial concepts and will focus on certain clients. Hong Kong is a Chinese-dominated society with different types of banks and this allows for cross-section of cases in order to test the reality and applicability of research over financial statements with specific relationships such as pricing within the banking service ways. In order to clarify objectives of whether there is a indication of delinquency of SCB and HSBC statements that can adhere if there impose a good borrower of the banks into customer awareness and such hypothesis are developed as below.             RESEARCH HYPOTHESES H1. There is effective strength into financial approach of SCB in comparison to HSBC knowing whether certain profitable company shown in the financial statement would be more attractive borrower H2. There is no effective strength into financial approach of SCB in comparison to HSBC knowing whether certain profitable company shown in the financial statement would be more attractive borrower   CONTRIBUTIONS TO RESEARCH AND PRACTICE   The research calls for precise execution of factual knowledge supporting financial strength over delinquency within SCB and HSBC as geared towards SME’s in HK. Hence, for practice the recognition of resources to research and its evidences will amiably be a part of the whole continuum basically, achieving details of banking finance statements through cash flows and balance sheets and the underlying issues within finance sectors of SCB and HSBC in order to fully adopt and execute in the hope of maintaining good banking business in Hong Kong.   RESEARCH APPROACH The ideal research approach significant for this study is by means of vivid realization and precise applications of a comprehensive and detailed research paradigm through assimilation, collation and clear understanding of research information and evidences in forms of relevant research materials as directed to financial aspect of the banks as supported by reliable case studies presented through academic journals and articles as based on the topic. The content involvement within the literature plays a vital factor also for the research approach to value application of financial approaches within SCB and HSBC case patterns and such financial context and principles.             THE REVIEW OF LITERATURE   SMALL AND MEDIUM SIZED ENTERPRISES The ability of SMEs to gain competitive advantage is thought to be related to issues of marketing, market research, marketing strategy, new product development, the technologies and processes and, the manufacturing and operations strategy adopted and not only have SMEs limited financial resources in terms of acquiring suitable technology, but they also lack human capabilities, which contribute to a general lack of skills and knowledge within the organization to cope with new ideas, concepts and technologies. The relevance of innovation in gaining and maintaining enterprise competitiveness has been widely addressed in the managerial literature (in, Freeman, 1997; Chan et al., 1993; Grosse, 1996; Medina, 1996). Successful enterprise analysis clearly shows that triumph mainly derives from innovation oriented managerial and organizational processes. First, the innovation process involves huge financial resources, and is quite risky (in, Baldwin and Scott, 1987). Then, such elements are undoubtedly better managed by big firms because of the greater funds available and the possibility of diversifying risks implementing several research projects. Moreover, it often happens that innovations allow diversification strategies which may be better pursued by large organizations rather than SMEs. With specific respect to product innovation, it is critical to have already established commercial channels enabling economies of scale in production and sales activities. In particular, the primary research highlighted that the banks inability to allocate better finance ways will be in favour of more banking growth in certain areas. INFORMATION ON SCB AND HSBC   Standard Chartered Bank (SCB) SCB is known and trusted for having high standards of corporate responsibility as the bank is committed to building sustainable business through social inclusion, environmental protection and good governance, by combining the global capabilities with deep local knowledge, SCB develop innovative products and services to meet the diverse and ever-changing needs of individual, corporate and institutional customers in some of the world's most exciting and dynamic markets. There is about SCB in terms of their SME Banking which offers variety of products and services to help small and medium-sized enterprises manage the demands of growing business through providing global support in Standard Chartered, the bank knows that doing business in today's economic climate is challenging and situations as well as business needs can change overnight as the SCB can help SMEs in HK for such business expansion plans. The SME Banking team is dedicated to the people and the business thus, helping SME business reach ample potential by means of customize product packages, responsive services and access to expert advice incurring effective business operations. Thus, at SCB such benefits are possible such as enjoying of preferential pricing on business transactions, gain rewards on banking services rendered and have unlimited access to products and services through SCB  relations executives. Thus, there can be about cash management when dealing to SME ways such as for example, when making important business decisions, it's vital that the business have accurate and updated financial information in Standard Chartered, the bank provide tools needed to manage business cash flow efficiently and effectively. Then, at SCB SME Treasury Services plays a vital role, by having such international network of more than 1,500 branches in 50 countries across Asia, SCB gives unlimited access to expert advice and regular market updates at SME Treasury Services, the services and solutions are designed to help minimize foreign exchange risks and have competitive rates for a range of foreign currencies. Standard Chartered Bank, in their products will help businessmen to manage their exposure on the foreign currencies and interest rates that are associated with international trade. Thus, allowing cross-border financing by having products and services in order to meet cross-border financing needs of subsidiaries, affiliates or associates that are incorporated in diverse jurisdiction to that of the parent company. The presence of SME Mortgages can be effective through loans to help finance owner-occupied and investment property purchases ideal for commercial use within Hong Kong. Adopted at: <http://www.standardchartered.com/about-us/en/index.html> As the Standard Chartered Bank is one of the pace setters in Asian and African corporate citizenship. Its chief operating officer presented some of the company’s work at Ethical Corporation’s recent Asia conference in Hong Kong with the fact that Ben Hung, the Hong Kong-based chief operating officer of Standard Chartered bank, is well versed in corporate responsibility bodes well for the future of corporate citizenship awareness across the region. Hung’s brief was to discuss how the company handles its approach to corporate social responsibility across region where differences in operating environments are particularly marked. Standard Chartered has 12 senior managers in Hong Kong, the other of its two main bases being London. One third of the Hong Kong senior team are women. Hung acknowledged that although this is a start the company is “by no means perfect” on this area of diversity.   SAMPLE SCB FINANCIAL STATEMENTS Cash flows from operating activities Profit before taxation 629,526 561,759 Adjustment for : Dividend income ( 713) ( 713) Depreciation 18,491 30,372 Gain on disposal of property, plant and equipment (81) (259) Gain on disposal of securities available-for-sale (33,479) (17,416) Amortization of premium less accretion of discount on securities available for sale 25,081 29,394 Operating profit before working capital changes 638,825 603,137 Changes in working capital: Deposits and placements with banks and other financial (5,027,400) (1,486,186) institutions Securities purchased under resale agreement 13,524 862,851 Securities held for trading (1,034,043) 81,126 Loans, advances and financing 249,170 (2,257,691) Other receivables (533,417) (254,483) Statutory deposits with Bank Negara Malaysia (13,441) (92,000) Deposits from customers 5,366,317 5,700,099 Deposits and placements of banks and other financial (597,271) (2,661,184) institutions Securities sold under repurchase agreements (1,177,842) 1,345,942 Bills and acceptances payable 136,865 347,201 Recourse obligations on loans sold to Cagamas (189,263) (10,750) Other payables 571,000 306,527 Cash (used in)/generated from operations (1,596,976) 2,484,589 Income taxes paid (219,891) (201,763) Net cash (used in)/generated from operating activities (1,816,867) 2,282,826 Cash flows from investing activities Dividend received 713 713 Purchase of property, plant and equipment (12,845) (21,424) Proceeds from disposal of property, plant and equipment 81 259 Purchase of securities available-for-sale (14,603,129) (12,133,870) Proceeds from disposal of securities available-for-sale 16,067,641 10,782,002 Net cash generated from/(used in) investing activities 1,452,461 (1,372,320)   Assets   Cash and balances at central banks 8,991 11,813 7,698 Financial assets held at fair value through profit or loss 9 19,344 13,082 15,715 Derivative financial instruments 10 18,441 12,721 13,154 Loans and advances to banks 11 21,108 16,750 19,724 Loans and advances to customers 11 151,953 119,550 139,307 Investment securities 13 52,230 46,037 49,497 Interests in associates 257 206 218 Goodwill and intangible assets 6,217 4,459 6,179 Property, plant and equipment 2,302 1,767 2,169 Deferred tax assets 522 492 519 Other assets 11,890 7,653 8,601 Prepayments and accrued income 3,571 3,618 3,268 Total assets 296,826 238,148 266,049 Liabilities Deposits by banks 14 26,846 21,994 26,233 Customer accounts 15 160,242 130,176 147,382 Financial liabilities held at fair value through profit or loss 8 13,117 8,420 9,969 Derivative financial instruments 10 19,235 13,390 13,703 Debt securities in issue 16 27,254 24,953 23,514 Current tax liabilities 131 410 68 Other liabilities 17 13,733 11,198 11,357 Accruals and deferred income 3,008 2,430 3,210 Provisions for liabilities and charges 42 56 45 Retirement benefit obligations 18 356 466 472 Subordinated liabilities and other borrowed funds 19 13,279 10,805 12,699 Total liabilities 277,243 224,298 248,652 Equity Share capital 20 701 667 692 Reserves 21 18,324 12,683 16,161 Total parent company shareholders’ equity 19,025 13,350 16,853 Minority interests 22 558 500 544 Total equity 19,583 13,850 17,397 Total equity and liabilities 296,826 238,148 266,049 * Amounts have been restated as explained in note 30 on page 61.             Indeed, in Hong Kong, where Standard Chartered Bank PLC generates approximately one-third of its revenues, the banking environment has changed rapidly in recent years. This has forced financial institutions to become more nimble and creative with customer offerings or to pay  high price for failing to do so. Beginning in the mid-1990s, the Hong Kong Monetary Authority (HKMA) deregulated interest rates on short-term time and savings accounts, as well as demand deposit (checking) accounts. Interest rates became highly competitive, but parity products made it much more difficult to attract or retain customers based on rates alone. At roughly the same time, virtually all of Asia was impacted by the “Asian Economic Crisis,” a major economic downturn that sent property values plummeting by up to 60%. Sales volumes slowed to a trickle, creating fierce competition among banks for a smaller number of loans. This squeezed margins razor thin, as financial institutions fought to retain their customers.  There was also a considerable amount of industry consolidation, as financial institutions merged or acquired other banks that were a good fit. Even Standard Chartered got into the act, acquiring the assets of Chase Manhattan Bank’s Hong Kong-based retail banking business. Thus, Standard Chartered Bank knew that to stay ahead of some of its more agile competitors and retain its best customers, it needed to reinvent itself in the area of service. The company turned to Oracle [Siebel] to address these many challenges. “In the past, it was fine to have relatively standard products and sell them in standard ways--and the ample margins would ensure a profit,” Parker remarked. “We decided that, strategically, the ground that we needed to play on was brand assurance, customer focus, and quality service.” The bank recently moved swiftly and decisively to develop and implement a sweeping change program called Customer One. Designed to achieve market differentiation and enhance employee satisfaction, the ambitious business transformation strategy sought to strengthen the bank’s brand identity and help the bank become more customer-focused and performance-oriented. Apart from the Bank's on-going support in extending loans to small and medium-sized enterprises, SCB has also joined with the government and private sectors to set up various activities in support of SMEs, such as radio programs, exhibitions, seminars, advice on investment opportunities and SME fairs to promote the distribution of quality SME goods. In addition, the Bank has SMEs Online services, which allows SME customers to conduct financial transactions with the Bank through their personal computers.     HSBC HSBC’s strategic direction reflects its position as ‘the world’s local bank’ with its uniquely cosmopolitan customer base. Group strategy is aligned with the key trends shaping the global economy. HSBC recognizes that emerging markets are growing faster than developed economies, world trade is expanding at a greater rate than GDP, and life expectancy is increasing virtually everywhere. HSBC is, therefore, reshaping its business by investing primarily in the faster growing emerging markets and, in developed markets, focusing on businesses which have international connectivity. The first half of 2008 saw the most difficult financial markets for several decades, marked by significant declines in profitability throughout much of  industry, with consequent recapitalization and restructuring as the HSBC was not immune from the turmoil.       Financial strength maintained HSBC’s commitment to maintaining its financial strength is unwavering. HSBC remains both strongly capitalized and liquid. The tier 1 capital ratio was 8.8 per cent and tier 1 capital grew by US$6.2 billion during the period. We have maintained our key credit ratings, generated good profitability in adverse market conditions and continued to focus investment on our strategic priorities. The principal concerns in this environment have been risk management, strict cost control, supporting customers and continued investment to support long-term strategic ambitions in broad-based and resilient revenue streams continue to provide stable platform from which to achieve strong, long-term performance. The economic and financial environment in the first half of the year deteriorated progressively. In the major developed economies where we operate, economic growth slowed as asset prices, particularly of residential property, declined; this in turn affected consumer confidence and hence spending. In credit markets, illiquidity remained a major issue, with trading volumes low and no sign of resumption of normal activity levels in the securitization markets.             HSBC’s strategic direction reflects its position as ‘The world’s local bank’, combining the largest global developing markets banking business and a uniquely cosmopolitan customer base with an extensive international network and substantial financial strength. The Group’s strategy is aligned with key trends which are shaping the global economy. In particular, HSBC recognizes that, over the long-term, developing markets are growing faster than the mature economies, world trade is expanding at a greater rate than GDP and life expectancy is lengthening virtually everywhere.  HSBC’s strategy is focused on delivering superior growth and earnings over time by building on the Group’s heritage and skills. Its origins in trade in Asia have had a considerable influence over the development of the Group and, as a consequence, HSBC has an established and longstanding presence in many countries.  HSBC is progressively reshaping its business by investing primarily in faster growing markets and, in the more developed markets, by focusing on businesses which have international connectivity. Central to these reshaping activities is a policy of maintaining HSBC’s capital strength and strong liquidity position.                       HSBC FINANCIAL STATEMENT     Depreciation, amortization and impairment ................................................ 1,766 1,184 1,338 Gains arising from dilution of interests in associates ................................. – (1,076) (16) Revaluations on investment property .......................................................... (27) (48) (104) Share-based payment expense .................................................................... 427 413 457 Loan impairment losses gross of recoveries ............................................... 10,436 6,635 11,547 Provisions for liabilities and charges .......................................................... 107 282 707 Impairment of financial investments .......................................................... 418 18 86 Charge for defined benefit plans ................................................................. 234 342 385 Accretion of discounts and amortization of premiums ............................... (461) (392) (57) 12,900 7,358 14,343 Change in operating assets Change in prepayments and accrued income .............................................. 2,294 (2,280) (2,789) Change in net trading securities and net derivatives .................................. (29,675) 10,487 (15,459) Change in loans and advances to banks ...................................................... 1,605 (357) (8,565) Change in loans and advances to customers ............................................... (76,452) (66,739) (65,147) Change in financial assets designated at fair value .................................... 2,923 (5,872) (7,488) Change in other assets ................................................................................. (1,826) (924) (11,405) (101,131) (65,685) (110,853) Change in operating liabilities Change in accruals and deferred income .................................................... (4,219) 547 4,572 Change in deposits by banks ....................................................................... 20,947 29,661 2,933 Change in customer accounts ...................................................................... 63,277 84,496 115,310 Change in debt securities in issue ............................................................... (16,522) (1,086) (11,403) Change in financial liabilities designated at fair value ............................... (181) 5,755 6,549 Change in other liabilities ........................................................................... 6,093 3,875 8,886 69,395 123,248 126,847 Cash and cash equivalents comprise Cash and balances at central banks ............................................................. 13,473 16,651 21,765 Items in the course of collection from other banks...................................... 16,719 23,152 9,777 Loans and advances to banks of one month or less .................................... 244,608 220,136 232,320 Treasury bills, other bills and certificates of deposit less than three months ............................................................................. 28,067 32,684 41,819 Less: items in the course of transmission to other banks ........................... (15,329) (20,339) (8,672) 287,538 272,284 297,009 Interest and dividends Interest paid ................................................................................................. (31,752) (31,002) (32,624) Interest received .......................................................................................... 53,945 47,423 55,970 Dividends received ...................................................................................... 1,339 1,426 407             The HSBC Group has an international pedigree which is unique. Many of its principal companies opened for business over a century ago and they have a history rich in variety and achievement. The HSBC Group is named after its founding member, The Hong Kong and Shanghai Banking Corporation Limited, which was established in 1865 in Hong Kong and Shanghai to finance the growing trade between China and Europe.  The inspiration behind the founding of the Bank was Thomas Sutherland, a Scot who was then working as the Hong Kong Superintendent of the Peninsular and Oriental Steam Navigation Company. Then, HSBC helps SMEs grow as in addition to financial services, HSBC helps small and medium-sized enterprises grow their business by becoming more profitable and productive as well as by providing counseling services. Supported by the Business Environment Council and the Hong Kong Council of Social Service, the Living Business program have ideal components such as the annual HSBC Living Business Awards recognizes socially and environmentally responsible SMEs in Hong Kong, through seminars where SMEs can get practical advice on sustainable business practices and the website which provides information and advice on a range of corporate responsibility issues  The Bank provides various counseling services to help SMEs develop and grow their business. Since 2001, HSBC has supported the Business Advisory Service program organized by the Hong Kong Trade Development Council.   Financial Statements Indeed, objective of financial statements is to provide information about the financial strength, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions and it should be understandable, relevant, reliable and comparable. Reported assets, liabilities and equity are directly related to an organization's financial position. Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently. Then, SCB and HSBC require financial statements to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures as these banks are external users can be outside the business but need financial information about the business for diverse number of reasons. They are financial institutions able to decide whether to grant company with fresh working capital or extend debt securities to finance expansion and other significant expenditures.         Cash Flow Statements In financial accounting, cash flow statement or statement of cash flows is a financial statement that shows company's incoming and outgoing money during a time period as the statement shows how changes in balance sheet and income accounts affected cash and cash equivalents, and breaks the analysis down according to operating, investing, and financing activities. As an analytical tool the statement of cash flows is useful in determining the viability of company, particularly there can be accounting standards that deal with cash flow statements. The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. The cash flow statement is intended for providing information on the bank's liquidity and solvency and its ability to change cash flows in future circumstances as well as improve the comparability of performance by eliminating the effects of different accounting methods  and to indicate the amount and probability of future cash flows as involved as the standard financial statement because it eliminates allocations which might be derived from different accounting methods. CONCEPTS OF FINANCIAL STRENGTH   The term “financial strength” is used in this paper to describe the extent to which an entity is constrained by its financial situation in pursuing its strategic goals or policies. An entity is financially strong when it is relatively unconstrained and weak when financial constraints are binding on policy choices. The financial strength of the banks is intimately linked to the successful management of the enterprise. Hence, enterprises with a large market capitalization have either been successful at generating earnings in the past and/or are expected to be profitable in the future. In a competitive market environment, profitability or market capitalization should be correlated with economic efficiency. Thus, these measures of financial strength would reflect efficient production of whatever good or service is produced by the enterprise. In less competitive markets, profitability is less likely to be correlated with economic efficiency and indeed, basic microeconomics demonstrates that a profit maximizing monopolist will produce an output at a lower than socially optimal level and charge a higher than socially efficient price. More generally, short-term profitability may not be reflective of economic efficiency. Random factors which management may not reasonably have been expected to hedge against can impact profitability even if management performance is exemplary and economic efficiency maintained. That said, enterprise financial strength and profitability over an extended period can be said to be accurate summary metrics of the relative efficiency and effectiveness of enterprise performance. Furthermore, what appears to be confusion over micro and macro performance is responsible for a certain lack of general understanding about the importance of central bank financial strength. SCB and HSBC financial accounts do provide useful information on the cost of achieving policy outcomes. Indeed they provide information vital to any discussion as to whether the outputs are being attained at least cost.  The bank deals in financial markets to achieve policy goals, not to maximize its revenues. For this reason the level of operating expenses is a better indicator of the bank’s stewardship of public resources.” In exploring precisely whether financial performance and financial strength of the bank impacts policy performance it must be noted that in a number of countries the bank is financially so strong that it is very difficult to imagine it becoming an obstacle to policy and the focus of the public discussion in those countries is squarely on the micro elements of central bank performance. When the issue of financial strength does arise in those countries, it is difficult to argue that a marginal deterioration in HSBC bank financial strength for instance would be inimical to macroeconomic performance—and indeed in those countries that is correct. For that reason, when central bank losses do occasionally arise there, the debate naturally tends to center not on policy constraints but on the rather remote notion of financial insolvency.         SCB and HSBC financial strength is positively associated with good policy performance. Financially weak central banks generate losses which undermine macroeconomic stability and call into question the credibility of their policies. In assessing central bank financial strength a careful examination of the policy regime and the volatility of the economic environment is necessary. Conventional measures of private enterprise financial strength, profitability and capital can be very misleading when applied to banks.   METHODOLOGY   Research Design The descriptive method of research was used for this study. To define the descriptive type of research, Creswell (1994) stated that the descriptive method of research is to gather information about the present existing condition. The emphasis is on describing rather than on judging or interpreting. The aim of descriptive research is to verify formulated hypotheses that refer to the present situation in order to elucidate it. The descriptive approach is quick and practical in terms of the financial aspect.  Moreover, this method allows a flexible approach, thus, when important new issues and questions arise during the duration of the study, further investigation may be conducted.      Quantitative data collection methods are centred on the determination of the weighted mean of the given statements. When these methods are used, the researcher is usually detached from the study and the final output is context free. Measurement, numerical data, and statistics are the main substance of quantitative instruments (2003). With these instruments, an explicit description of data collection and analysis of procedures are necessary. Quantitative approach is useful as it helps the researcher to prevent bias in gathering and presenting research data. Quantitative data collection procedures create epistemological postulations that reality is objective and unitary, which can only be realized by means of transcending individual perspective. This phenomenon in turn should be discussed or explained by means of data analysis gathered through objective forms of measurement. The quantitative data gathering methods are useful especially when a study needs to measure the perception of the respondents regarding the topic. The purpose of the quantitative approach is to avoid subjectivity by means of collecting and exploring information which describes the experience being studied (2003).             The questionnaire was structured in such a way that respondents will be able to answer it easily. Thus, the set of questionnaire was structured using the Likert format with a five-point response scale. A Likert Scale is a rating scale that requires the subject to indicate his or her degree of agreement or disagreement to a statement. In this type of questionnaire, the respondents were given five response choices. These options served as the quantification of the participants’ agreement or disagreement on each question item. The following output was revealed:   Recommendations In this research study, it becomes apparent that SCB and HSBC in their banking strategy is among the vital aspects for SMEs in HK to succeed and meet the goal of having satisfied clients. From this discussion, several important points had been suggested. In order for SCB and HSBC to stay competitive, their pricing strategy must comprise the requirements of the first two of the ten ways in varying the price (see, Appendix two) which are: keep the same price currently charged but give clients greater banking products quality and keep the same price currently charged but give  quantity of a particular item.  In this manner, SCB and HSBC are trying to keep their basic prices for that would meet the demands of the customers regarding music listening.  Great offers with affordable cost have been the basic pricing strategy used because SCB and HSBC knew that there are many competitors in the field.  SCB and HSBC must be able to utilize each chosen business model to generate loyalty among its customers.  They must have the capability of prioritizing their customers giving all they wanted and trying to provide a product that would get them involved in the process.               Appendix One   Research Questionnaire Part I.  Demographic Profile   Directions: Please fill up in all the necessary information about yourself.  Don’t leave any item unanswered. a.      Age  ________ b.      Gender Male ( )                 Female ( )   Part II. Perception of the Study Direction:       Check the number corresponding to your answer                           5          -           Strongly Agree                         4          -           Agree                         3          -           Uncertain                         2          -           Disagree                         1          -           Strongly Disagree     1. Perception of Respondents Regarding SCB and HSBC   Statements 5 4 3 2 1 1. With respect to banking strategy, SCB and HSBC has been able to initiate efficient and effective strategy to meet the needs of the customers.           2. Staff or employees understand the mission, vision, and goal of their present organization as part of their efficient finance strategy           3. SCB and HSBC adopts a financial driven strategy to satisfy the needs of the clients.           4. HK banking industry handles customer relations effectively.           5. With the help of the current SME realization, SCB and HSBC enables to understand and reach out to the needs of clients           6. The management of SCB and HSBC address the need to cope with different financial statement for finance strength and development.           7. The banking management does respond to such ample need to have qualified and competent auditors and finance personnel as part of the business strategy.           8. SCB and HSBC used efficient banking communication approach to satisfy customers.                                   Appendix Two   Examples of Ten ways to vary the Price <li class="MsoNormal" style="text-align: justify"> Keep the same price currently charged but give the customer greater (or lesser) product quality. </li> <li class="MsoNormal" style="text-align: justify"> Keep the same price currently charged but give the customer a smaller (or larger) quantity of a particular item. </li> <li class="MsoNormal" style="text-align: justify"> Change the time of payment, such as by allowing a customer four months to make payment. </li>   <li class="MsoNormal" style="text-align: justify"> Offer a rebate or a dollars-off coupon. </li> <li class="MsoNormal" style="text-align: justify"> Provide cash, quantity, and/or trade discounts. </li> <li class="MsoNormal" style="text-align: justify"> Charge different prices to different types of customers. </li> <li class="MsoNormal" style="text-align: justify"> Charge different prices based on the time of day, month, or year. </li> <li class="MsoNormal" style="text-align: justify"> Offer to accept a trade-in from the customer. </li> <li class="MsoNormal" style="text-align: justify"> Accept partial or full payment in the form of goods and services instead of money</li> <li class="MsoNormal" style="text-align: justify"> Bundle the product or service with other products and services and charge a single price lower than the combined individual prices.</li>           http://moneycentral.msn.com/investor/charts/chartdl.aspx?Symbol=hbc           http://www.corporateinformation.com/CompanySnapshot.aspx?cusip=C82641970

The Hong Kong banking sectors does have innovate opportunities for small and medium-sized enterprises

Abstract The Hong Kong banking sectors does have innovative opportunities for small and medium-sized enterprises upon extending th...

An Analysis of the Business and Financial Performance of Homebase between February 28, 2006 and February 29, 2008

An Analysis of the Business and Financial Performance of Homebase between February 28, 2006 and February 29, 2008       Table of Contents    TOC \o "1-3" \h \z \u I.      Project Objectives and Research Approach. PAGEREF _Toc225328141 \h 5 A.    Reasons for Choosing the Topic and the Organization. PAGEREF _Toc225328142 \h 5 B.    Aims and Objectives. PAGEREF _Toc225328143 \h 6 II.    Information Gathering and Accounting/Business Techniques. PAGEREF _Toc225328144 \h 7 A.    Methods of Gathering Data. PAGEREF _Toc225328145 \h 7 B.    Source of Information. PAGEREF _Toc225328146 \h 8 1.     Company website. PAGEREF _Toc225328147 \h 8 2.     Books. PAGEREF _Toc225328148 \h 8 3.     Journal PAGEREF _Toc225328149 \h 9 4.     Online Libraries. PAGEREF _Toc225328150 \h 9 5.     Online Articles and Forum.. PAGEREF _Toc225328151 \h 10 C.    Limitation of Information Gathering. PAGEREF _Toc225328152 \h 10 D.    Ethical Issue of Information Gathering. PAGEREF _Toc225328153 \h 11 E.     Ratio Analysis. PAGEREF _Toc225328154 \h 11 III.       Current Performance. PAGEREF _Toc225328155 \h 13 A.    Sales Growth. PAGEREF _Toc225328156 \h 13 IV.       Financial Analysis. PAGEREF _Toc225328157 \h 15 A.    Balance Sheet Ratio Analysis. PAGEREF _Toc225328158 \h 15 1.     Current Ratio. PAGEREF _Toc225328159 \h 16 2.     Working Capital PAGEREF _Toc225328160 \h 18 3.     Leverage Ratio. PAGEREF _Toc225328161 \h 20 B.    Income Statement Ratio Analysis. PAGEREF _Toc225328162 \h 23 1.     Gross Margin Ratio. PAGEREF _Toc225328163 \h 23 2.     Net Profit Margin Ratio. PAGEREF _Toc225328164 \h 25 C.    Management Ratios. PAGEREF _Toc225328165 \h 27 1.     Fixed Asset Turnover PAGEREF _Toc225328166 \h 27 2.     Return on Investment Ratio. PAGEREF _Toc225328167 \h 29 V.    Non-Financial Analysis. PAGEREF _Toc225328168 \h 32 A.    SWOT Analysis. PAGEREF _Toc225328169 \h 32 1.     Strengths. PAGEREF _Toc225328170 \h 34 2.     Weaknesses. PAGEREF _Toc225328171 \h 35 3.     Opportunities. PAGEREF _Toc225328172 \h 36 4.     Threats. PAGEREF _Toc225328173 \h 37 VI.       Future of Homebase. PAGEREF _Toc225328174 \h 37 References. PAGEREF _Toc225328175 \h 39 VII.     Appendices. PAGEREF _Toc225328176 \h 42 A.    Appendix A: Financial Ratio Analysis: HOMEBASE.. PAGEREF _Toc225328177 \h 42 B.    Appendix B Financial Analysis: B&Q.. PAGEREF _Toc225328178 \h 44 Table of Figures  TOC \h \z \c "Figure" Figure 1 Sales Growth of Homebase and B&Q.. PAGEREF _Toc224544657 \h 15 Figure 2 Current Ratio (2006 - 2008) PAGEREF _Toc224544658 \h 17 Figure 3 Working Capital (2006 - 2008) PAGEREF _Toc224544659 \h 20 Figure 4 Leverage Ratio (2006 - 2008) PAGEREF _Toc224544660 \h 21 Figure 5 Gross Margin Ratio (2006 - 2008) PAGEREF _Toc224544661 \h 25 Figure 6 Net Margin Ratio (2006 - 2008) PAGEREF _Toc224544662 \h 26 Figure 7 Fixed Asset Turnover (2006 - 2007) PAGEREF _Toc224544663 \h 29 Figure 8 Return on Investment Ratio (2006 - 2008) PAGEREF _Toc224544664 \h 31 Figure 9 SWOT Analysis. PAGEREF _Toc224544665 \h 33   Table of Tables  TOC \h \z \c "Table" Table 1 Sales Growth. PAGEREF _Toc224544666 \h 13 Table 2 Current Ratio. PAGEREF _Toc224544667 \h 16 Table 3 Working Capital PAGEREF _Toc224544668 \h 19 Table 4 Leverage Ratio. PAGEREF _Toc224544669 \h 20 Table 5 Gross Margin Ratio. PAGEREF _Toc224544670 \h 24 Table 6 Net Margin Ratio. PAGEREF _Toc224544671 \h 26 Table 7 Fixed Asset Turnover PAGEREF _Toc224544672 \h 28 Table 8 Return on Investment Ratio. PAGEREF _Toc224544673 \h 31   I.      Project Objectives and Research Approach A.   Reasons for Choosing the Topic and the Organization The reason why I have chosen the topic about the financial analysis is because it is considered as one of the most important topic which covered in all mainstream corporate finance textbooks. Furthermore, it is also considered as a popular agenda item in different investment club meetings; because it is use in order to summarize the different financial health of a given organization (Hsu n.d.). On the other hand, I am always fascinated regarding the global success of the retail industry, and it is considered as one of the most important industry or sector in the UK. In fact, the UK retail industry is set to increase in size by 15% over the next five years or will show a total value of £312 billion. The entire industry employs over 3 million people or equates to a total of 11% of the entire workforce of the UK. In addition, almost 8% of the total Gross Domestic Product or GDP of the UK is generated by the said industry. In 2008 alone, the total sales of the retail industry were more or less £265 billion that is larger than the combined economies of Denmark and Portugal (Prospects 2009). In addition, Homebase is considered as the second largest home improvement retailer in the UK and it is being recognized for choice, style as well as customer services across the wider home enhancement market. It was founded in October 1979 as a joint venture with the Belgium retailer GB-Inno-BM (GIB). J. Sainsbury Plc held a 75% controlling interest and GIB and other 25% (Retail Concession n.d.). It has more than 300 large, out-of-town stores in the entire UK and Republic of Ireland, and it is planning to add to its store chain with around 15 new stores every year. It sells more than 30,000 products across DIT and decorating, home and garden ranges, and has a growing Internet offering. The company serves more than 70 million customers every year through its stores and offers their customers the convenience of home delivery for bulky, high-value items. Its ideas magazine is considered as the number one home interest magazine in the UK, with a circulation of almost half a million. Homebase won the Britain’s Best Superstore Manager of the Year at Britain’s Best Retailer Awards, while in 2005; it was awarded DIY Retailer of the Year in the National Home Award. Thus, Homebase was the first UK DIY retailer to achieve Forest Stewardship Council Chain of Custody certification (Homebase n.d.).    Homebase was also the first in the UK to launch a loyalty card and have over many years build a vital customer data base of more than 5 million and its “10%” days are famous in the retailing industry and offer a vital tool to drive football (Retail Concession n.d.). B.   Aims and Objectives The main objective of this report is to evaluate the past financial performance of Homebase and the different factors that can affect the future of the company. It involves an analysis of the financial statements of the company, together with the flow of funds and financial aspects. It will focus on the current and future levels of its risk, liquidity, activity, debt as well as returns. This is because of the fact that these are the factors which affect the share price of the company. It will compare the past and current performance of B&Q, the major competitors of Homebase with the company. B&Q is considered as the leading DIY and garden centre retailer that offers more than 45,000 inspirational home improvement and garden products for homemaker, occasional to serious DIY’er, and trade professionals (Retail Concessions n.d.). It was founded in 1969 by Richard Block and David Quayle, discover how from small beginnings, B&Q has grown over the years in order to become the leading DIY retailer in the UK (B&Q Stores UK – DIY 2009). It is the number 1 DIY retailer in Europe and the third largest in the world, with more than 60 stores that are opened internationally, including the one in Beijing, which is the largest B&Q store in the world (Retail Concessions n.d.). II.    Information Gathering and Accounting/Business Techniques A.   Methods of Gathering Data All of the information that have been collected during the duration of the study were gathered using secondary resources or those written information found in different ways or approach. This information is old data which has been collected by other researches or organizations.  Furthermore, background information about the company and its competitor were also gathered from different resources, which serve as a support to the analysis of the current and past financial performance of both the companies. In addition, all of the information that were used in this study were from secondary resources primarily from different online websites, documents, journals and articles, together with the help of different books and studies, that can be found in online and traditional libraries. B.   Source of Information 1.    Company website All of the financial data presented in this paper were gathered from the annual report of the company which has been downloaded from their company website. The company website of Homebase was used in order to study the highlights or the important happenings and events in the company for a given period of time. Furthermore, it also gives different background information regarding the local management and customer relationship of the company in the UK. On the other hand, because Homebase is part of a successful group called the Home Retail Group, its website was used in order to retrieve information about the financial status and performance of the company from the years 2006 to 2008. The website offers information regarding the new development, opportunities and central activities of the company, together with the financial summaries, principal risks and uncertainties as well as corporate responsibilities, which are very important in order to analyze the current financial performance of Homebase.   2.    Books Books were used in order to focus on the different theories and information that are related to the process of accountancy. Most of the books that were used focus on the process of computing and interpreting the result of the financial ratio analysis and its impact on the overall performance and future of any company. This had also helped me to focus on the different financial ratio that will be needed or appropriate in the case of Homebase and B&Q, and what are the different ratio that can be computed by using the information that are available to be used. Most of the books I’ve used were available from our library. On the other hand, due to some difficulties in searching for appropriate and updated book references, I also used online books, or those books that are available in e-book format. This had helped me to save more time and effort. 3.    Journal Journals were very helpful to me because it enables me to have detailed information regarding the different theories that are associated to my topic. Furthermore, it also enables me to focus on a given aspect of the financial analysis, at the same time, learn with example. This enables me to have a sample analysis of any company which help or guide me to the entire process of analyzing the case of Homebase. 4.    Online Libraries Online libraries have helped me to save more time as well as effort in searching and looking for appropriate and helpful resources from books to journals as well as other magazine and newspaper articles. The main advantage of the online libraries compare with the traditional way is that it helps me to focus on one particular subject, at the same time, retrieve my desired books in easy and fast manner, with just one click of the mouse and within the vicinity of my home or even when I am out. Because of that, I have been able to focus on searching first for the books that I will need, and then go back to it, when I need it, and because it is in my computer, I only have to go online in order to retrieve it, no need to carry extra weight. 5.    Online Articles and Forum Online articles and forum have been very helpful to me, because it enables me to gather data straight from the opinion of those people who are directly and indirectly connected with the operation and the transaction of Homebase. This enables me to have an idea regarding the process and inflow and outflow of data and information as well as other important aspect of the company. Thus, it gives me the idea regarding the perspective of the people which can be considered as stakeholders of the company. Online articles were used in order to gather past information regarding the performance of the company in financial and non-financial way. Above all, it enables me to gather important or vital background information about the companies, from its foundation day, its founders and the different individuals or organizations that are connected to the local and international operations of the companies. C.   Limitation of Information Gathering One of the important limitations to be considered in the method that have been employed in gathering data and information is the limitations of the resources that are available. First is that, there are limited information that are available regarding the performance of B&Q, because B&Q is not doing its own annual report, because they are part of the group KingFisher. Aside from that, there are no primary data that was used, because of the time and cost constraints. D.   Ethical Issue of Information Gathering Because of the fact that there were no primary data gathered from any respondents or subjects, there can be no ethical issue involved in the study. Aside from that, all of the information that has been gathered from the different resources were properly referenced and acknowledge after it was used. In addition, annual report of both companies where uploaded in their website because it is important or vital for the different stakeholders of the company, and it is important to take note that academic aspect is one of the important stakeholders of a company. E.   Ratio Analysis             Ratio analysis helps different entities in a business that are involved in the decision making process to spot the different trends and changes in the performance and status of the business and compare it with the average performance of its competitors in the industry. It can be done by comparing the ratio of one company to others for several successive years, and watching for any unfavorable trends that may be starting. It will show all the important early warning indications that will enable a business to solve any business problems before it become a major problem and destroy the entire business (WebLedger n.d.). Thus it can be said that the ratio analysis can help to workout the profitability, solvency, operating efficiency and short-term financial position, analyze the financial statement, compare the performance of different companies, simplify the accounting information, and it can be used for different helpful forecasting. On the other hand, there are also some limitations in the said accounting techniques, primarily the limited comparability, false results, effect of the changes in the price level, some of the qualitative factors are ignored, the impact of window-dressing, considered as costly technique, can result to misleading results, and absence of standard university accepted terminology (Universal Teacher Publication n.d.).   III.   Current Performance A.   Sales Growth Table  SEQ Table \* ARABIC 1 Sales Growth 	 		 		 		Years 		 		 		2006 		 		 		2007 		 		 		2008 	 	 		 		 		% increase in Homebase in Sales 		 		 		-2.1% 		 		 		3.46% 		 		 		-1.83% 	 	 		 		 		% increase in B&Q in Sales 		 		 		- 		 		 		1.07 		 		 		1.09 	               Table 1 shows the % increase in sales of Homebase and B&Q. The said ups and downs of sales or turnover returns are affected by different factors such as the preferences of the customers, and the economic condition of the UK as well as the world. Based on that, it can be observed in the table that the UK market had been affected by these factors, both of the major players in retailing industry shows some ups and downs in sales performance. Table shows that in 2006, the sales of Homebase decreased by 2.1%, but the sales had recovered its sales by 3.46%, and received another decrease in its sales by 1.83%. On the other hand, the said event can also be seen on the performance of B&Q. This can be seen on the slow performance or increase in sales of B&Q. In 2007, B&Q recorded an increase in sales of 1.07%, and 1.09% in 2009. Thus, it can be said that B&Q has a better performance compare to Homebase in terms of sales increase, which can be said as a product of the company’s effort to innovation to their stores and relationship with their customers. Figure 1 shows the trend of the sales or turnovers of both companies. It can be observed that although the performance of B&Q is far from the financial performance of Homebase, it can be said that both of the companies are facing the same situation, and that, is the slow moving of sales from 2006 to 2008. This is because of the different factors and aspects. These factors are the consumer spending, thus the retail market conditions are likely to be more challenging in the short term. The rising costs of essential household bills that are driven and impacted by inflationary pressures, mean that discretionary spending will be squeezed. As a result, the current instability in the credit markets is also likely to constrain consumer spending and confidence which may affect bigger ticket home-related purchases in particular (Home Retail Group 2008). Furthermore, it is also important to consider the market growth because of the following factors: <ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Population growth and an increasing number 	of households;</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Rising overall household disposable income;</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Technology change and new product 	development (Home Retail Group 2008). </li> </ul> It is also important to consider the market consolidation in the UK, which is driven by the slowdown in the consumer spending but is underpinned by an overall structural shift in favor of more general and large scale retailers such as Home Retail Group (Home Retail Group 2008).   Figure  SEQ Figure \* ARABIC 1 Sales Growth of Homebase and B&Q IV.  Financial Analysis A.   Balance Sheet Ratio Analysis             The balance sheet ratio analysis helps to measure the liquidity and solvency or the ability of the company to pay its bills as they come due, as well as its leverage or the extent to which a business is dependent on the funding or its creditor. It will include ratios such as: current ratio, working capital and leverage ratio (WebLedger n.d.). It identifies different potential liquidity problems or the inability of a business to meet its financial obligations and aspects that are related to raising of future capital (Ameritrade Financial Services 2006). Liquidity is the ability of a company to quickly turn its assets into cash (Mladjenovic 2005, p. 312). 1.    Current Ratio             Current ratio is the most commonly used liquidity ratio (Mladjenovic 2005, p. 312). It analyzes the ability of the firm to pay their current obligations (Ameritrade Financial Services 2006). It compares what a business has with what it owes. It shows the relationship between the value of the current assets and the value of the current liabilities of a business (Bates & Goodman 2005, p. 152). Table  SEQ Table \* ARABIC 2 Current Ratio 	 		 		 		Years 		 		 		2006 		 		 		2007 		 		 		2008 	 	 		 		 		Current Ratio Homebase 		 		 		1.57 		 		 		1.60 		 		 		1.48 	 	 		 		 		Current Ratio B&Q 		 		 		3.71 		 		 		3.86 		 		 		3.92 	   Based on table 2, it shows that both of the companies show a health ratio of assets and liabilities. Thus, both companies enable to maintain a current ratio that is above the generally accepted current ratio which is 1 to 1. This is because a current ratio is that less than 1 is already considered as a red flag (Mladjenovic 2005, p. 312). The current ratio of Homebase had improved in 2007, from 1.57 to 1.60, however decline in 1.48. The said trend is because of the different factors such as the effort of the company to renovate its facilities, together with the decreasing sales and changing buying behaviors of the customers. On the other hand, B&Q shows great development or increase on its current ratio, from 3.71 in 2006, to 3.86 in 2007 and 3.92 in 2008. The said increase in current ratio will also help Homebase regarding their relationship with different investors as well as bank and lending institutions regarding the money that they will be needed for future capital or project. As a result, it will be important for the company to maintain their current strategies in order to maintain the increase in in-flow of money at the same time, lessen or balance the out-flow of money. Figure 2 shows the trends or movement of the current ratio of Homebase and B&Q. It can be observed that there is a huge difference between the performance of the two companies, where in B&Q is leading. The current ratio of both companies is stable, because there is no huge decline, but there is no huge increase either. However, B&Q had been able to sustain it growth in terms of current ratio. Figure  SEQ Figure \* ARABIC 2 Current Ratio (2006 - 2008) 2.    Working Capital             Working capital is the measurements of the capability of a company to pay its current obligations (Gorman 2003, p. 168). Thus, it can help to determine the working capitals that are needed in relations to projected sales or receipts (Troy 2009, p.xix). Thus, it can also be viewed as a security blanket.             Because it had been explained before that both of the companies have a good current ratio, it can also be said that both have better working capital. It can be seen that the working capital of Homebase increases every year from 2006, with £263,125, to £287, 498 in 2007. The said development can be attributed to the growing number of sales due to the increasing demands for home furnishing products and equipment. However, due to the same reason, the buying behavior of the customers, in 2008, the working capital decreases to £271,399. The said factor is important because bankers look at the net working capital over time in order to determine the ability of a company to weather financial crisis (WebLedger n.d.). Thus, the greater the amount of working capital, the more security an investor can have that they will be able to meet their financial obligations (Ameritrade Financial Services 2006). The said explanation can also be applied to the performance of the B&Q in terms of working capital. It shows that the company had been able to maintain their working capital, in a manner that there is a reasonable gap between the assets and liabilities. However, it can be observed that the performance of B&Q in the UK is being affected by the changing behavior of the customers, at the same time, the different economic factors.             Figure 3 shows the trends and changes in the working capital of Homebase and B&Q from 2006 to 2008. It can be observed that the company had been able to maintain the consistency of managing and controlling the different resources that are important for the company.             Table  SEQ Table \* ARABIC 3 Working Capital 	 		 		 		Years 		 		 		2006 		 		 		2007 		 		 		2008 	 	 		 		 		Working Capital Homebase (£ million) 		 		 		263.1 		 		 		287.4 		 		 		271.4 	 	 		 		 		Working Capital B&Q (£ million) 		 		 		3,053.5 		 		 		3,055.1 		 		 		3,284 	   Figure  SEQ Figure \* ARABIC 3 Working Capital (2006 - 2008)   3.    Leverage Ratio Leverage is a second vital ratio that is used in the finance company analysis. By the nature of the business, finance companies are typically and acceptably more highly leveraged than industrial companies. The leverage is necessary to earn a sufficient return on capital (Fabozzi 2001, p. 453). Table  SEQ Table \* ARABIC 4 Leverage Ratio 	 		 		 		Years 		 		 		2006 		 		 		2007 		 		 		2008 	 	 		 		 		Leverage Ratio Homebase 		 		 		0.93 		 		 		0.98 		 		 		1.09 	 	 		 		 		Leverage Ratio B&Q 		 		 		0.37 		 		 		0.35 		 		 		0.34 	   Figure  SEQ Figure \* ARABIC 4 Leverage Ratio (2006 - 2008)     Table 4 shows the leverage ratio of Homebase and B&Q. Leverage is vital in order to earn an adequate return on capital. The development or trends in the leverage ratio of both the company is affected by different factors such as the parental support, portfolio quality as well as the type of the business. It is important to consider that in a diversified company with high portfolio quality, a leverage ratio of 5 to 1 is acceptable. While a ratio of 10 to 1 is also acceptable for a captive with a strong support from the parent company and agreements regarding maintenance (Fabozzi 2001, p. 454). It can be observed that the company had been able to maintain the level of its leverage ratio from 0.93 in 2006, to 0.98 in 2007, and 1.09 in 2008. Thus, it shows to which Homebase is reliant on debt financing or creditor money versus the owner’s equity. In three years performance of the company, it can be said that 2006 is considered as the year, where in the creditor are not that at ease with the business. This is because of the fact that the higher the ratio, the more risky a creditor will perceive its exposure in the business, thus making it correspondingly harder to obtain credit (ZeroMillion 2008).  As a result, it can be said that the company had been able to focus on the different strategic movements and plans which focus on the process of balancing the total capital provided by the owner’s equity with the current total assets. On the other hand, regarding the performance of its competitor, B&Q, the company had been able maintain a lower level or rate of Leverage, from 0.37 in 2006, to 0.35 in 2007, and 0.34 in 2008. It shows the company had been able to maintain a consistent decrease in its leverage ratio. Figure 4 shows the trends and changes in the leverage ratio of Homebase and B&Q. Just like the first financial ratios that have been analyzed, it can be observed that there is no massive change in terms of the leverage ratio or level of the company.     B.   Income Statement Ratio Analysis The income statement ratio helps to measure the profitability of a business (WebLedger n.d.). Unlike the balance sheet ratio analysis, statement of income ration analysis focuses on the different in-flow of money or other financial factors inside the organization. 1.    Gross Margin Ratio Gross margin ratio or also known as the gross profit margin ratio shows how much a firm has left over after paying its cost of goods sold. Thus, the gross margin is what pays the operating expenses, financing expenses or interest, and the profits (Nelson 2005). The said ratio is very important because it has a great impact on the continuation of services, performance or production of any business. Based on table 5, it can be seen that the gross margin ratio of Homebase are almost half of the entire sales dollars. Meaning there are huge amount of money that can be used by the company in other important activities that will be important for the operations of the company, as well as the different stores that are connected with them. However, the performance of B&Q is a lot better because the gross margin ratio is above 50% or half of the entire sales or revenue. Thus, it means that both of the companies have the ability to pay all of its operating and other important expenses that can be encountered in the future. In addition to that, the gross margin ratio of Homebase is stable and not fluctuates much from one period to another (Investopedia 2009). It can be observed that the gross margin of Homebase did not go to a drastic change with just 5.71% change from 2006 to 2008. This can also be attributed to the slow movement or development in the prices of the different products that are being offered by the industry, this is even the said industry is facing different problems that are related to the perception of the customers, population as well as economic aspects.   Table  SEQ Table \* ARABIC 5 Gross Margin Ratio   	 		 		 		Years 		 		 		2006 		 		 		2007 		 		 		2008 	 	 		 		 		Gross Margin Ratio Homebase (%) 		 		 		43.19 		 		 		46.52 		 		 		48.90 	 	 		 		 		Gross Margin Ratio B&Q (%) 		 		 		68 		 		 		72.4 		 		 		76.7 	        Figure  SEQ Figure \* ARABIC 5 Gross Margin Ratio (2006 - 2008)     2.    Net Profit Margin Ratio The net profit margin ratio measures how much profit out of each sales dollar is left after all of the expenses are subtracted, that is, after all of the operating expenses, interests and income tax expenses are subtracted (Gallagher & Andres n.d., p. 92). Thus, it relates the net profit for the period to the sales revenue during a given period of time (Atrill & McLaney 2006, p. 177). The better managed companies record higher relative net profit margins, due to the fact that they can manage their resources in more efficient and effective manner (Groppelli & Nikbatkth 2000, p. 444). Because of the fact that both of the companies are from strong, huge and important industry, which is the retailing industry, Homebase and B&Q showed a high net profit margin ratio. Table Table  SEQ Table \* ARABIC 6 Net Margin Ratio   	 		 		 		Years 		 		 		2006 		 		 		2007 		 		 		2008 	 	 		 		 		Net Margin Ratio Homebase (%) 		 		 		14.9 		 		 		26.2 		 		 		22.4 	 	 		 		 		Net Margin Ratio B&Q (%) 		 		 		50.9 		 		 		40.7 		 		 		61.0 	     Figure  SEQ Figure \* ARABIC 6 Net Margin Ratio (2006 - 2008)             It can be seen in figure 6, that both Homebase and B&Q faced a huge change in their net margin ratio. From 2006 to 2007, there is a great decline for the net margin ratio of B&Q, while the situation is the other way around. However, from 2007 – 2008, B&Q had been able to focus on the different important aspects of the company that are related in managing the important resources of the company, primarily those that are directly needed in terms of inventory and delivery. As a result, the net margin ratio of B&Q increased and even surpassed their record in 2006. On the other hand, the said situation is different with the Homebase, after a huge increase from 2006 to 2007, the company faced different problems that are related to value chain and supply chain, together with customer relationship, which resulted to the slight decline of the net profit margin. C.   Management Ratios Management ratios are group of ratios is designed in order to measure how effectively management is making use of the assets of the company. It seeks to determine and discover whether the investment in assets is justified in connection to the different activities as measured by turnover (Correia & Flynn n.d., 5 – 13). 1.    Fixed Asset Turnover The fixed asset turnover ratio indicates the utilization of plant, machinery and equipment that is connected to operating levels as reflected by turnover (Correia & Flynn n.d., p. 5 15). It measures how effectively sales are generated by fixed asset investments and ignores the current assets and it is useful in a capital intensive industry (Pietersz 2009). Table 7 shows the fixed asset turnover of Homebase and B&Q. It can be seen that both of the companies have the same trend of development in terms of fixed asset turnover. It can be observed that in 2007, both of the companies experience minor increase in their fixed asset turnover, but, in 2008, both of the companies had showed a huge down fall. In 2006, the fixed asset turnover of Homebase is 4.48, and then increase to 4.57. This means that the company is generating a higher level of sales from its fixed assets than it had done in the past (Correia & Flynn n.d., p. 5 – 15). However, in 2003, major decline had been encountered by the company, which means that the number of sales that the company is generating from its fixed asset had decrease to a huge number or 3.73. The said situation can also be observed in the situation of B&Q, from 22.99 in 2006 to 24.72 in 2007 and to 16.08 in 2008. It is important to consider that the higher the fixed asset ratio, the better (USBusiness n.d.). Table  SEQ Table \* ARABIC 7 Fixed Asset Turnover 	 		 		 		Years 		 		 		2006 		 		 		2007 		 		 		2008 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Homebase Fixed Asset Turnover 		 		 		 		4.48 		 		 		4.57 		 		 		3.73 	 	 		 		 		B&Q Fixed Asset Turnover 		 		 		22.99 		 		 		24.72 		 		 		16.08 	   Figure  SEQ Figure \* ARABIC 7 Fixed Asset Turnover (2006 - 2007) 2.    Return on Investment Ratio Return on Investment Ratio is considered as the most important ratio of all because it shows the percentage of return on funds invested in the business by its owners and other important shareholders and investors. It shows the owner whether or not all of the effort put up into the business has been worthwhile (ZeroMillion 2008). It is a performance measure that is used in order to assess the number of different investments. Return on investment is considered as a very popular metric due to its versatility and simplicity (Investopedia 2009). The return on investment ratio is also sometimes called as the total asset ratio (Gaughan 2002, p. 481). Table 8 and figure 8 shows the return on investment ratio of Homebase and B&Q from 2006 to 2008. It can be observed that the trends of the two companies in terms of return on investment ratio is the same in the trends in the net profit margin ratio, where in Homebase experienced an increase in from 2006 – 2007, but experience down fall in 2007 to 2008. On the other hand, B&Q experience the other way around, where in it experienced down fall in 2006 – 2007, but enable to cope with it and experienced increase in 2007 – 2008. In 2006, the return on investment ratio was 0.17; the said number is somewhat small, because it only signifies less than 20% of the entire investment of the company. However the said number had increase to almost half in 2007 or .33, which means that the company had been able to manage their investments in different strategies for growth and expansion. However, due to the different factors such as economic and customer behavior, the return on investment ratio of Homebase had decreased and resulted to 0.27 in 2008. The said explanation can also be relate to the situation of B&Q, where in from 2006 to 2007, the company faced a massive decrease in the return on investment ration, from 0.70 to 0.56. However, it can be said that the company had been able to learn from their past experience and enable to manage their investment activities, that’s why it had been able to survive from the huge fall down in 2007, from 0.70 of the prior year to 0.56, up to a major recovery of 0.79 in 2008.     Table  SEQ Table \* ARABIC 8 Return on Investment Ratio   	 		 		 		Years 		 		 		2006 		 		 		2007 		 		 		2008 	 	 		 		 		Return on Investment Ratio Homebase 		 		 		0.17 		 		 		0.33 		 		 		0.27 	 	 		 		 		Return on Investment Ratio B&Q 		 		 		0.70 		 		 		0.56 		 		 		0.79 	   Figure  SEQ Figure \* ARABIC 8 Return on Investment Ratio (2006 - 2008)   V.   Non-Financial Analysis A.   SWOT Analysis SWOT analysis is a tool that is used for auditing an organization and the different important factors that are related to the internal and external environment. It is considered as the initial and vital stage in planning which helps decision-makers to focus on the important issues. SWOT analysis stands for Strengths, Weaknesses, Opportunities and Threats (Marketing Teacher 2000). This can help to focus on the internal characteristics of an organization or business, at the same time focus on the different external factors which can be encountered in the external environment, where in a specific organization or business operates.    Figure  SEQ Figure \* ARABIC 9 SWOT Analysis                                       1.    Strengths One of the most important strengths of Homebase is its powerful retail brand or the strong position and image of the brand in the market. This can be seen on the position of the company as the second largest and leading brand in terms of DIY and appliance retailer in the UK. A brand image is a vital aspect of the bundle of products attributes. Thus, a strong brand image can sometimes overshadow the physical product shortcomings and temporarily support market share, while a weak brand image may keep an otherwise competitive product from ever getting its foot in the door with the customers (Barabba & Zaltman 1990, p. 90). Furthermore, the company also has a high reputation for value for money, convenience and wide range of products that are available. Homebase has opened 17 new stores and closed 4, which brings the total number of stores to 310 and most of the new stores were of a smaller store format and in new catchments. Currently, Homebase has 10% of its portfolio in a smaller store format or around 20,000 sq feet internal ground floor sales area, typically with an 8,000 square foot mezzanine and an 8,000 square foot garden centre. These smaller stores are able to provide an authoritative range across the broader home enhancement categories, and are often the only national retailer in smaller catchments such as market towns for categories including core DIY, garden and showroom (Home Retail Group 2008). 50 range reviews have been completed in 2008 which include homewares and furnishing, horticulture and core DIY and decorating categories (Home Retail Group 2008). Furthermore, the company is considered as a very profitable organization with a gross profit of £724,105 in 2008 or 2.20% profit margin in 2008. Another thing is the issue regarding the price competitiveness, this is because of the fact that both of the major players in the industry, B&Q and Homebase focuses on the pricing strategies in order to maintain their competitiveness or customer relationship. In addition, because of the fact, the Homebase had been in the industry for a long time, it had already acquired retail knowledge and experiences and it holds an advantage of an existing infrastructure, at the same time, enables the company to focus on the process of brand development and innovation. In connection to that, because of the different issues and factors that are affecting the external environment of the company, primarily the issue of globalization, the company had been able to apply different Information Technology in their system, at the same time, offer new medium of marketing, which is the Internet or e-Business, where in their customers, anywhere, can order and avail of their products and services anytime they want it at the comfort of their homes. Above all, the company had been able to have their loyal customers. 2.    Weaknesses There is no doubt that the company had been able to hold different advantages or strengths, which can help them to maintain their position in the market, however, it is also important to focus on the different weaknesses which must be given priority by the company in order to come up with the different preventive measures that will help them to use it in their advantage. Although, the company had already exerted all their effort in order to come up with different strategies and plan, still due to the different factors, primarily competition, the company maintains its position as the second best DIY dealers in the UK. This will somewhat affect the image of the company. Thus, it can be attributed to the inefficiency of the company and its lack of vision, primarily on the top management. Another important aspect is the huge size of the company, although there are different technologies and strategies that are being applied by the company, there are still chances that some minor aspects of the company will be taken for granted. Above all, the lack of aggressiveness is considered as the opposite of the characteristics of its major competitor which is the B&Q, that enables the company to come up with the different ideas and product that will be loved by the customers. 3.    Opportunities The growth of the market and industry will be the primarily opportunity for the company. The bigger the number of the possible markets or customers, the greater the chance to expand and grow. Thus, it will help the company to focus on the different areas of the UK, and other important parts of the world, in order to build their stores and introduce their brand and products to the selected market. Furthermore, it will also be important to focus on the development of a product which will be unique or differentiated products will help the company to ensure that their products are different from other competitors, thus it can help to drive up the sales and popularity of the brand. Above all, it will be important to consider the growing popularity of mobile Internet in the world. Thus, it will be important for the company to focus on building a website that can be accessed via mobile phone. 4.    Threats The economy has a major impact on the consumer spending and it focuses on the different aspect of employment, inflation, taxation, consumer debt levels and interests rates (B&Q 2008). However, it is important to consider that the global financial crisis or recession is considered as one of the most important factors that may affect the overall performance of all the players in any business and industry. Primarily, because Europe is one of the major region in the world that is being affected by the said event. Above all, the current growing number and intensity of competition is also another threat, this is because of the fact that the companies have to focus on the different preventive and maintaining strategies which will help them to ensure their position in the industry and in the market. VI.  Future of Homebase Due to the different economic and financial factors that are going on in the world, primarily the issue of recession, it can lead to more serious problems and trends such as the changes in the buying behavior of the customers. Thus, it will be important for the company to focus on the different strategies which will help them to maintain their good reputations and good relationship with the customers. Thus, it will be important, to first focus on training and educating their staffs and crews regarding proper connection and relationship with the customers. Thus, it will be important for each and every employee to have a complete knowledge regarding the company as well as the different products and services that they are offering, in order to ensure customer relationship. Furthermore, it will be important to focus on the aspect of applying Information Technology in the different aspects of the company, primarily supply chain, which is considered as one of the most important aspects of any company. Thus, it will be important to focus on applying some centralized processing of the financial and other company data, that can help to ensure that all of the in-flow and out-flow will be connected, and at the same time, data will be easily retrieved which can help in the process of decision-making. In connection, it will be very important for the company to focus on the different aspects that are related to the Internet, due to the growing demand of the customers in online shopping. This can be done by expanding their website, enabling different types and means of payment and delivery. Thus, it will be important to consider the growing demand of the mobile Internet, where in customers can browse the Internet, at the same time transact online anywhere and anytime, without the hassle of wired connection. This can be done by focusing on redesigning a website which can be browse via mobile phones. References Ameritrade Financial Services (2006), Balance Sheet Analysis, Available from: http://www.ameritradefinancial.com/educationv2/fhtml/learning/balsheetanalysis.fhtml. [Accessed 9th March, 2009]   Atrill, P. & McLaney, E. J. (2006). Accounting and Finance for Non-Specialists, Pearson Education   Barabba, V. & Zaltman, G. (1990). Hearing the Voice of the Market: Competitive Advantage Through Creative Use of Market Information, Harvard Zaltman   Bates, B., Goodman, S. Ladzani, W., de Vries, C & Botha, S. (2005), Business Management: Fresh Perspective, Pearson South Africa   BNET. HomeBase, Inc (HBI) – A Case Study, Available from: http://jobfunctions.bnet.com/thankyou.aspx?&docid=88658&view=88658&load=1&authId=iGHQFwhxkT/YamRWCmITNzppVAIbRi5phk2BviEv5qJ3tJOPYw2qxlAAXVXqNc8w. [Accessed 11th, 2009]   B&Q Stores UK – DIY (2009), B&Q Stores UK – DIY, Available from: http://wwp.greenwichmeantime.co.uk/time-zone/europe/uk/website/stores/b&q/index.htm. [Accessed 9th March, 2009]   Correia, C., Flynn, D, Uliana, E. & Wormald, M., Financial Management, Juta and Company Limited   Datamonitor (2008). Global Home Improvement Retail, Available from: http://www.reportbuyer.com/consumer_goods_retail/house/home_improvement_diy/global_home_improvement_retail.html. [Accessed 9th March, 2009]   Fabozzi, F (2001) The Handbook of Fixed Income Securities, McGraw-Hill Professional   Gallagher, T & Andrew, J. Financial Management, Principles and Practice, Freeeload Press   Gaughan, P. (2002). Mergers, Acquisitions and Corporate Restructuring, John Wiley and Sons   Gorma, T. (2003). The Complete Idiot’s Guide to MBA Basics, Alpha Books   Groppelli, A. & Nikbakht, E. (2000). Finance, Barron’s Educational Series   Hermanson, R., Edwards, J. D. & Maher, M. (2005). Accounting Principles, Freeload Press, Inc.   Home Retail Group (2008), What’s Inside? Home Retail Group PLC: Annual Report and Financial Statements 2008. Available from: http://www.kingfisher.com/managed_content/files/reports/annual_report_2006/managed_content/files/pdf/ar06.pdf. [Accessed 9th March, 2009]   Homebase, Homebase website, Available from: http://www.homebase.co.uk/webapp/wcs/stores/servlet/HomebaseStaticPageSecondLevel?langId=-1&storeId=20001&includeName=HBCustomerServiceArticles/abouthomebase.htm. [Accessed 6th March, 2009]   Investopedia (2009). Gross Profit Margin, Available from: http://www.investopedia.com/university/ratios/grossprofitmargin.asp. [Accessed 7th March, 2009]   Lopes, R. (2007), Asset Management Ratios, Connexions, Available from: http://cnx.org/content/m15609/latest/. [Accessed 8th March, 2009]   Marketing Teacher (2000). SWOT Analysis, Available from: http://www.marketingteacher.com/Lessons/lesson_swot.htm. [11th March, 2009]   Mladjenovic, P. (2005), Stock Investing For Dummies, For Dummies   Nelson, S. (2005). QuickBooks All-in-One Desk Reference For Dummies: All-in Desk Reference for Dummies, For Dummies   NetMBA 2007, Financial Ratios, Available from: http://www.netmba.com/finance/financial/ratios/. [Accessed 7th March, 2009]   Pietersz, G. (2009). Fixed Asset Turnover, Available from: http://moneyterms.co.uk/fixed-asset-turnover/. [Accessed 8th March, 2009]   Prospects (2009), Retail: Overview, Available from: http://www.prospects.ac.uk/cms/ShowPage/Home_page/Explore_job_sectors/Retail/overview/p!egiLLL. [Accessed 6th March, 2009]   Retail Concessions, Homebase: Homebase Operates in the Wider and More Creative Home Enhancement Market. Available from: http://www.retailconcessions.co.uk/retail_parks/outlets.htm. [Accessed 7th March, 2009]   Troy, L. (2009). Almanac of Business and Industrial Financial Ratios, CCH   Universal Teacher Publications. Ratio Analysis. Available from: http://www.universalteacher4u.com/cbse/xii/acctheory/ch11/page1.htm. [Accessed 20th 2009]   USBusiness. Understanding Financial Ratio, Available from: http://www.activemedia-guide.com/busedu_finrat.htm. [Accessed 9th March 2009]   WebLedger, Financial Ratio Analysis, Available from: http://www.villagemall.com.au/content/smallbus/financial_management-Ratios.htm. [Accessed 9th March 2009]   ZeroMillion (2008), Financial Ratio Analysis, Available from: http://www.zeromillion.com/business/financial/financial-ratio.html. [ Accessed 9th March 2009]     VII. Appendices A.   Appendix A: Financial Ratio Analysis: HOMEBASE 	 		 		 		Homebase Ratio Analysis (2006 – 2007) 	 	 		 		 		Years 		 		 		2006 		(2005 = 1,488,665) 		 		 		2007 		 		 		2008 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Sales (£ million) 		 		 		1,458.1 		 		 		1,508.5 		 		 		1,480.9 	 	 		 		 		% Increase (Current Year Sales – Last 		Year Sales/Last Year Sales) 		 		 		-2.1% 		 		 		3.46% 		 		 		-1.83% 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Liquidity Ratio 		 		 		  		 		 		  		 		 		  	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Current Assets (£ million) 		 		 		727.5 		 		 		766.0 		 		 		835.9 	 	 		 		 		Current Liabilities (£ million) 		 		 		464.4 		 		 		478.5 		 		 		564.5 	 	 		 		 		Current Ratios = CA/CL 		 		 		1.57 		 		 		1.60 		 		 		1.48 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Current Assets 		 		 		727.5 		 		 		766.0 		 		 		835.9 	 	 		 		 		Current Liabilities 		 		 		464.4 		 		 		478.5 		 		 		564,5 	 	 		 		 		Working Capital = CA - CL 		 		 		263.1 		 		 		287.4 		 		 		271.4 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Fixed Asset 		 		 		325.8 		 		 		330.2 		 		 		397.3 	 	 		 		 		Current Assets 		 		 		727.5 		 		 		766.0 		 		 		835.9 	 	 		 		 		Total Assets 		 		 		1,053.5 		 		 		1,096.2 		 		 		1,233.2 	 	 		 		 		Current Liabilities 		 		 		464,405 		 		 		478,549 		 		 		564,530 	 	 		 		 		Long Term Liabilities 		 		 		43,281 		 		 		64,734 		 		 		78,564 	 	 		 		 		Total Liabilities 		 		 		507.7 		 		 		543.3 		 		 		643.1 	 	 		 		 		Net Worth = Total Assets – Total 		Liabilities 		 		 		545.8 		 		 		552.9 		 		 		590.1 	 	 		 		 		Leverage Ratio = Total Liabilities / 		Net Worth 		 		 		0.93 		 		 		0.98 		 		 		1.09 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Gross Profit 		 		 		629.8 		 		 		701.8 		 		 		724.1 	 	 		 		 		Sales 		 		 		1,458.1 		 		 		1,508.5 		 		 		1,480.9 	 	 		 		 		Gross Profit Margin (%) = GP/Sales * 		100 		 		 		43.19 		 		 		46.52 		 		 		48.90 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Revenue 		 		 		  		 		 		  		 		 		  	 	 		 		 		Turnover 		 		 		1,458.1 		 		 		1,508.5 		 		 		1.480.9 	 	 		 		 		Gross Profit 		 		 		629.8 		 		 		701.8 		 		 		724.1 	 	 		 		 		Operating Profit 		 		 		12.1 		 		 		33.5 		 		 		31.7 	 	 		 		 		Other Income 		 		 		5.2 		 		 		.525 		 		 		8.8 	 	 		 		 		Total Revenues 		 		 		2,105.2 		 		 		2,244.3 		 		 		2,245.5 	 	 		 		 		Expenses 		 		 		  		 		 		  		 		 		  	 	 		 		 		Cost of Sales 		 		 		829.2 		 		 		806.8 		 		 		756.8 	 	 		 		 		Administration Expenses 		 		 		617.6 		 		 		668.3 		 		 		724.1 	 	 		 		 		Exceptional Items 		 		 		5.9 		 		 		.753 		 		 		5.9 	 	 		 		 		Profit Loss before Interest 		 		 		16.1 		 		 		33.2 		 		 		34.7 	 	 		 		 		Interest Paid 		 		 		1.2 		 		 		2.6 		 		 		2.1 	 	 		 		 		Taxation 		 		 		3.1 		 		 		24.0 		 		 		4.6 	 	 		 		 		Profit Loss after Tax 		 		 		21.3 		 		 		6.6 		 		 		37.2 	 	 		 		 		Depreciation 		 		 		58.9 		 		 		64.9 		 		 		58.6 	 	 		 		 		Audit Fee 		 		 		.162 		 		 		.216 		 		 		.197 	 	 		 		 		Non Audit Fee 		 		 		.001 		 		 		.001 		 		 		.008 	 	 		 		 		Total Amortization and Impairment 		 		 		  		 		 		  		 		 		.463 	 	 		 		 		Remuneration 		 		 		228.2 		 		 		225.5 		 		 		228.3 	 	 		 		 		Wages and Salaries 		 		 		207.4 		 		 		205.4 		 		 		206.5 	 	 		 		 		Social Security Costs 		 		 		15.9 		 		 		14.8 		 		 		15.4 	 	 		 		 		Pension Costs 		 		 		5.2 		 		 		5.4 		 		 		6.4 	 	 		 		 		Director’s Remuneration 		 		 		.819 		 		 		1.2 		 		 		1.2 	 	 		 		 		Highest Paid Director 		 		 		.641 		 		 		.968 		 		 		1.0 	 	 		 		 		Total Expenses 		 		 		2,011.6 		 		 		2,060.6 		 		 		2,083.5 	 	 		 		 		Net Profit = (TR – TE) 		 		 		93.6 		 		 		183.7 		 		 		162 	 	 		 		 		Sales 		 		 		1,458.1 		 		 		1,508.5 		 		 		1.480.9 	 	 		 		 		Cost of Sales 		 		 		829.2 		 		 		806.8 		 		 		756.8 	 	 		 		 		Net Sales (S - CoS) 		 		 		628.9 		 		 		701.7 		 		 		724.1 	 	 		 		 		Net Profit Margin = NP/NS (%) 		 		 		14.9 		 		 		26.2 		 		 		22.4 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Sales (£ million) 		 		 		1,458.1 		 		 		1,508.5 		 		 		1,480.9 	 	 		 		 		Fixed Asset 		 		 		325.8 		 		 		330.2 		 		 		397.3 	 	 		 		 		Fixed Asset Turnover = S/FA 		 		 		4.48 		 		 		4.57 		 		 		3.73 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Net Profit 		 		 		93.6 		 		 		183.7 		 		 		              162 	 	 		 		 		Net Worth 		 		 		545.8 		 		 		552.9 		 		 		590.1 	 	 		 		 		Return on Investment = NP/NW 		 		 		0.17 		 		 		0.33 		 		 		0.27 	   B.   Appendix B Financial Analysis: B&Q 	 		 		 		B&Q Ratio Analysis (2006 – 2007) 	 	 		 		 		Years 		 		 		2006 		 		 		2007 		 		 		2008 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Sales 		 		 		4,172.0 		 		 		4,216.5 		 		 		4,262.0 	 	 		 		 		% Increase (Current Year Sales – Last 		Year Sales/Last Year Sales) 		 		 		  		 		 		1.07 		 		 		1.09 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Liquidity Ratio 		 		 		  		 		 		  		 		 		  	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Current Assets (£ million) 		 		 		4,182.6 		 		 		4,123.7 		 		 		4,409 	 	 		 		 		Current Liabilities (£ million) 		 		 		1,129.1 		 		 		1,068.6 		 		 		1,125 	 	 		 		 		Current Ratios = CA/CL 		 		 		3.71 		 		 		3.86 		 		 		3.92 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Current Assets (£ million) 		 		 		4,182.6 		 		 		4,123.7 		 		 		4,409 	 	 		 		 		Current Liabilities (£ million) 		 		 		1,129.1 		 		 		1,068.6 		 		 		1,125 	 	 		 		 		Current Ratios = CA/CL 		 		 		3,053.5 		 		 		3,055.1 		 		 		3,284 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Total Assets 		 		 		4,182.6 		 		 		4,123.7 		 		 		4,409 	 	 		 		 		Total Liabilities (£ million) 		 		 		1,129.1 		 		 		1,068.6 		 		 		1,125 	 	 		 		 		Net Worth = Total Assets – Total 		Liabilities 		 		 		3,053.5 		 		 		3,055.1 		 		 		3,284 	 	 		 		 		Leverage Ratio = Total Liabilities / 		Net Worth 		 		 		0.37 		 		 		0.35 		 		 		0.34 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Gross Profit (million) 		 		 		2,845.0 		 		 		3,052.2 		 		 		3,271.0 	 	 		 		 		Sales 		 		 		4,172.0 		 		 		4,216.5 		 		 		4,262.0 	 	 		 		 		Gross Profit Margin (%) = GP/Sales * 		100 		 		 		68 		 		 		72.4 		 		 		76.7 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Revenue 		 		 		  		 		 		  		 		 		  	 	 		 		 		External Revenue 		 		 		4,172.0 		 		 		4,216.5 		 		 		4,262.0 	 	 		 		 		Profit 		 		 		139.0 		 		 		338.4 		 		 		272 	 	 		 		 		Total Revenue 		 		 		4,311.0 		 		 		4,554.9 		 		 		4,534 	 	 		 		 		Expenses 		 		 		  		 		 		  		 		 		  	 	 		 		 		Depreciation 		 		 		90.8 		 		 		98.8 		 		 		111 	 	 		 		 		Amortization 		 		 		22.8 		 		 		20.7 		 		 		14 	 	 		 		 		Impairment Losses 		 		 		41.8 		 		 		- 		 		 		- 	 	 		 		 		Reorganization Costs 		 		 		205.3 		 		 		- 		 		 		- 	 	 		 		 		Financial Services Termination Fee 		 		 		19.0 		 		 		- 		 		 		- 	 	 		 		 		Remuneration 		 		 		2.7 		 		 		3.6 		 		 		3.0 	 	 		 		 		Corporation Tax 		 		 		9.0 		 		 		29.9 		 		 		9 	 	 		 		 		Impairment Tests for Goodwill 		 		 		1,796.1 		 		 		1,796.1 		 		 		1,796 	 	 		 		 		Total Expenses 		 		 		2,187.5 		 		 		2,838.3 		 		 		1,933 	 	 		 		 		Net Profit 		 		 		2,123.5 		 		 		1,716.6 		 		 		2,601 	 	 		 		 		Sales 		 		 		4,172.0 		 		 		4,216.5 		 		 		4,262.0 	 	 		 		 		Net Profit Margin = NP/NS (%) 		 		 		50.9 		 		 		40.7 		 		 		61.0 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Sales 		 		 		4,172.0 		 		 		4,216.5 		 		 		4,262.0 	 	 		 		 		Fixed Assets 		 		 		181.5 		 		 		170.6 		 		 		265 	 	 		 		 		Fixed Asset Turnover = S/FA 		 		 		22.99 		 		 		24.72 		 		 		16.08 	 	 		 		 		  		 		 		  		 		 		  		 		 		  	 	 		 		 		Net Profit 		 		 		2,123.5 		 		 		1,716.6 		 		 		2,601 	 	 		 		 		Net Worth 		 		 		3,053.5 		 		 		3,055.1 		 		 		3,284 	 	 		 		 		Return on Investment = NP/NW 		 		 		0.70 		 		 		0.56 		 		 		0.79

An Analysis of the Business and Financial Performance of Homebase between February 28, 2006 and February 29, 2008

An Analysis of the Business and Financial Performance of Homebase between February 28, 2006 and February 29, 2008 ...