Conclusion
Once investors are convinced of the qualitative aspects of retailers by store visits, they can pick the winners and losers by the numbers in the annual reports. Financial analysis of retailers requires simplicity.
Investors should understand that retailers are capital intensive with respect to current assets but not fixed assets. Most retailers’ assets are tied up in inventory and receivables. Thus, other than cash flow statement, investors should analyse and understand the balance sheet and cash conversion cycle of a retailer.
The following balance sheet items are the most important: cash, receivables, inventory, other assets, short-term debt, payables, long-term debt, and equity. The “Other Assets” category is important because if retailers are deferring costs, it usually shows up in “Other Assets”. On the other hand, a well managed cash conversion cycle will lead to increase in earnings which will be reflected in the share price.
The 160% appreciation in AEON’s share price over the 5 years period is a good return by any standard. This goes to show that the market rewards companies with strong balance sheet and quality management.
Table: Selected Key Financial Data
RM million |
Feb-01 |
Feb-02 |
Feb-03 |
Feb-04 |
Feb-05 |
Feb-06 |
Income Statement |
|
|
|
|
|
|
Sales |
990.0 |
1200.6 |
1368.3 |
1523.8 |
1784.6 |
1962.4 |
Profit Before Tax |
69.4 |
80.3 |
90.8 |
96.3 |
99.0 |
112.2 |
PBT margin |
7.01% |
6.69% |
6.64% |
6.32% |
5.55% |
5.72% |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Cash |
101.4 |
70.4 |
87.1 |
82.6 |
92.4 |
53.4 |
Receivables |
34.0 |
25.1 |
23.7 |
30.4 |
26.7 |
26.7 |
Inventory |
82.6 |
93.0 |
114.7 |
146.3 |
139.3 |
159.1 |
Other Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Payables |
236.8 |
262.2 |
299.3 |
409.0 |
413.5 |
547.2 |
Short-term debt |
86.0 |
1.0 |
- |
- |
0.3 |
0.6 |
Long-term debt |
10.1 |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Operating cash flow |
138.9 |
104.7 |
120.7 |
182.7 |
141.9 |
252.1 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
Receivables |
0.8 |
8.9 |
1.4 |
(6.7) |
3.7 |
0.0 |
Inventory |
0.6 |
(10.4) |
(21.7) |
(31.6) |
7.0 |
(19.8) |
Payables |
7.5 |
25.4 |
37.1 |
109.7 |
4.5 |
133.7 |
Working capital |
8.9 |
23.9 |
16.8 |
71.4 |
15.2 |
113.9 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Days |
|
|
|
|
|
|
Receivables |
11.12 |
8.99 |
6.50 |
6.48 |
5.84 |
4.96 |
Inventory |
28.12 |
26.70 |
27.71 |
31.26 |
29.20 |
27.75 |
Payables |
73.12 |
75.86 |
74.90 |
84.83 |
84.11 |
89.34 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Cash Conversion Cycle |
(33.88) |
(40.17) |
(40.69) |
(47.09) |
(49.07) |
(56.63) |
Source: Annual reports
See charts
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