Financial Analysis of JJB Sports PlcIntroductionJJB Sports Plc’s main business is retailing in sportswear and sports equipment. Its predecessors JJ Broughton had been running it from 1900 to 1971. It was in 1971 that JJB Sports acquired it. JJB Braddock first acquired and later JJ Bradburn acquired it. Lastly it was bought by David Whelan but he retained the name of JJB. From 4 stores in 1976 it grew to 120 stores by 1994. At this juncture the company was listed in the London Stock exchange. (Corporate Information) And now it has 409 stores out of which 65 stores have been since closed down in April 2008, 49 health clubs and 6 indoor soccer centres through out the U. K.
Total employees’ strength is 12,040. Their reported sales for the year 2008 are £ 811,754,000. Previous years sales were £ 810,287,000. (Annual Report, 2008)Following is the Common Size Statement prepared from the Balance Sheet of the company for the year 2008.(Figures are expressed as percentages of total figures)JJB Sports Plc£'000£'000Fiscal year 20082007Assets Total Assets 789,548772,806Cash 1.80%3.05%Short term investments 24.85%21.76%Receivables (net)5.75%4.94%Inventories-Total14.56%16.57%other current assets 0.19%0%Current Assets -Total47.15%46.32%Loan to associate undertaking 0.51%0Investments in associated companies0.21%0Property Plant and Equipment -Net25.12%25.74%Intangible Other Assets3.22%3.55%Goodwill23.79%24.39%Total Assets 100%100%Liability & Shareholders’ equityTotal Liabilities & Shareholders Equity789,548772,806Accounts Payable14.04%14.69%Loan Notes21.29%21.75%Income Taxes payable00.78%Provisions2.87%1.60%Current Liabilities Total38.20%38.82%Long Term Debt -Bank Loans7.14%4.25%Deferred Lease Incentives5.06%5.00%Deferred Taxes 3.07%3.03%Other Liabilities 0.29%0.11%Total Liabilities53.76%51.21%Share capital1.51%1.54%Share premium account21.69%21.91%Retained Earnings23.36%25.53%Capital redemption reserve0.14%0.14%Investment in own shares-0.39%-0.40%Share based payment reserve0.09%0.04%Foreign currency translation reserve-0.16%0.03%Total Liabilities & Shareholders Equity100%100%LIQUIDITY Trends noticed over 2007-08, and JJB’s s liquidity position.
Current ratio of the company for the last two years is worked out as below: Current Ratio for JJB Sports Plc£’000 27 January2008Current Assets: Current Liabilities372,348:301,6471.23: 1 28 January 2007Current Assets: Current Liabilities357,970 : 300,0281.19: 1The above position indicates that the company’s liquidity position is stronger than in the previous year.
Acid test (quick) ratio for JJB Sports Plc£’000 27 January2008Stocks: Current Liabilities114,984: 301,6470.38:1 28 January 2007Stocks: Current Liabilities128,082 : 300,0280.43: 1The slight decrease in the quick ratio may indicate slow moving stock in the inventory for the year 2008 which the management needs to look into. Accounts receivables turnover and inventory turnover of JJB Sports Plc and patterns of the firm’s conversion of accounts receivable and inventories to cash.
Receivables for the years 2008 and 2007 are £ 45,412 and £ 38,205 respectively as against the turnover of £ 811,754 (including fitness club revenue of £ 66,280 and £ 810,287 (including fitness club revenue of £ 55,799) respectively. They represent 20 days and 17 days of sales respectively. Inventories for the years 2008 and 2007 are £ 114,984 and £ 128,082 against the respective turnover of £ 745,474 and £ 754,488.both exclusive of fitness club revenues. They represent 56 days and 62 days of sales.
As regards receivables, the conversion appears abnormal for a retail industry where there can be only cash and carry operations. In case the receivables include credit card sales and respective dues from credit card companies are included as receivable from debtors, the amount locked up in receivables is not abnormal and not unsecured. The inventory stocking period of 56 days and 62 days are also abnormal unless the lead time is as much. If latter is not the case, there must be non-moving and slow moving items.
The non moving items must be identified and removed from the stocks and value of inventory and to that extent profit will stand reduced. Overall assessment of JJB Sport’s’s liquidity position. Altogether 76 days of sales are blocked in the receivables and inventories. This is more than offset by trade and others payables of £. 283, 692 for the year 2008 which represent 138 days sales. Actual trade payable is £ 21,523 representing 10 days sales. Strictly speaking, the receivables’ conversion period of 56 days for the year 2008 can only be offset by this 10 days sales equivalent of trade payables.
Company has reported availing of credit period of 27 days for 2008 and 26 days for 2007. If cost of sales £ 405,642 is considered, trade payable of £ 21,523 equals 19 days. But the company has actually availed 27 days of credit period as per the report.