Your parents are considering investing in David Jones Ltd DJ

Your parents are considering investing in David Jones Ltd (DJS) shares. They ask you, an accounting expert, to make an analysis of the entity for them. An extract from the five-year summary included in David Jones Ltd 2013 annual report is presented below. All figures are in thousands DAVID JONES LTD Flve-year summary 2009-2013 2013 $1 845 012 706 144 99532 49 466 148 998 101 554 1 237 785 436 689 801 096 19.2 17 2010 2012 $1 867 817 699 830 04 995 49 418 54 413 101 103 1 240 897 465 193 775 704 194 2011 Sales Gross proft Department store-EBIT Financial services-EBIT Total EBIT Profit after tax Total assets Total liabilities Total equity Basic earnings per share (cents) Dividends per share (cents) $1 961 744 767 269 199 003 47 707 246 710 168 139 1 214 550 429 070 785 480 $2 053 087 815 729 204 798 44 379 249 177 170 766 1 194 921 450 683 744 238 34 30 2009 $1 985 490 786 146 184 377 41 274 225 651 156 522 124 674 439 832 684 842 31.5 28 28

Solution

a). Trend Analysis of David Jhones Ltd.( in $ 000\')

Result

b.1. Debt to Asset Ratio:The debt to total assets ratio is an indicator of financial leverage. It tells you the percentage of total assets that were financed by creditors, liabilities, debt. The debt to total assets ratio is calculated by dividing a corporation\'s total liabilities by its total assets.

b.2.) Profit margin is a profitability ratios calculated as net income divided by revenue, or net profits divided by sales. Net income or net profit may be determined by subtracting all of a company\'s expenses, including operating costs, material costs (including raw materials) and tax costs, from its total revenue.

b.3.)Asset turnover is a financial ratio that measures the efficiency of a company\'s use of its assets in generating sales revenue or sales income to the company. Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.

b.4.Return on equity (ROE) is the amount of net income returned as a percentage of shareholders\' equity.Return on equity measures a corporation\'s profitability by revealing how much profit a company generates with the money shareholders have invested.

b.5) The dividend payout ratio is the amount ofdividends paid to stockholders relative to the amount of total net income of a company. The amount that is not paid out in dividends to stockholders is held by the company for growth. The amount that is kept by the company is called retained earnings.

c. Profitability: Over the years the profit of the company is gradually decreasing, Which will effect the solvency position of the company in future.Investment in the company for the short term period is viable as the company is paying the best dividend payout.

d.Other Information required as follows:

1.Price to Book value ratio

2.Debt Equity Ratio

3.Operating Profit Margin

4.Price earning growth ratio

5.Interest Coverage ratio

Year	Sales	Departartment Store EBIT	Financial Services EBIT	Profit After Tax
2009	1985490	184377	41274	156522
2010	2053087	204798	44379	170766
Result	Increased	Increased	Increased	Increase
2011	1961744	199003	47707	168139
Result	decreased	Increased	Increased	Increased
2012	1867817	104995	49418	101103
Result	Decreased	Decreased	Increased	Decreased
2013	1845012	99532	49466	101554
Result	Decreased	Decreased	Increased	Decreased