Boots-PLC Financial Report Case Study Example | Topics and Well Written Essays - 2000 words

Boots-PLC Financial Report - Case Study Example 53). The net profit was 501.7 m in 2005 and 550.1 m in 2004 (Boots Group PLC Annual Report 2005, p. 46). The net profit margin has changed from 0.103 (2004) to 0.092 (2005). The following graph supports the information on the changes of group turnover, net profit, and net profit margin throughout the last 5 years. It is important to notice that while the group turnover is increasing (more goods are sold), the net profit are decreasing (non-operating costs are rising), and the profitability of the company is falling. Nevertheless it is high enough in compare with the main competitors: Alliance UniChem had the same net profit margin of 0.022 over two years (Alliance UniChem Key Financial Data, 2005); and J Sainsbury has decreased its net profit margin from 0.031 in 2004 to 0.020 in 2005 (J Sainsbury Financials, 2005). More detailed comparison is available in Appendix 1. Current assets of Boots PLC in 2005 were 1575.8 m, while the current liabilities were 1074.1 m (Boots Group PLC Annual Report 2005, p. 47). Therefore current liquidity ratio for 2005 is 1.47, which means that a company can meet its short-term obligations without serious troubles. The current liquidity ratio for the year 2004 was 1.52, which means the ratio of current assets to current liabilities has decreased - definitely, not a good sign for the company. Looking at the cash flow statement of the Boots PLC one can see that cash inflow from operating activities has significantly decreased from 637.8 m in 2004 to 514.7 m in 2005 (Boots Group PLC Annual Report 2005, p. 48) due to lower operating profit and larger increase in working capital. Still the main cash inflow comes from operating, which is a sign of financial health of a company. Also the company has increased its debt significantly by 668 m (Boots Group PLC Annual Report 2005, p. 64) returning funds to shareholders to make the balance sheet more efficient. Therefore overall closing net debt in 2005 was 594.1 m comparatively to 148.5 m in 2004 (Boots Group PLC Annual Report 2005, p. 48). Long-term debt/equity ratio=long-term debt/shareholders' equity Long-term liabilities of Boots PLC are 588.7 m (Boots Group PLC Annual Report 2005, p. 47). Equity shareholder's funds are equal to 1,609.4 m (Boots Group PLC Annual Report 2005, p. 47). Therefore debt-to-equity ratio is 0.37, which is a low number indicating that a capital structure of a company can be shifted more towards using debt. The high liquidity ratio shows that it is possible to use debt furthermore. 1b. Currently the company's use of retained earnings for financing its operations is low in compare to its use of debt. Nevertheless, high liquidity allows further use debt for financing. The capital structure of Boots PLC is not optimal; the company should take the opportunity of increasing its debt for financing. The other ways of financing operations of Boots PLC can be achieved through the use common or premium stock. 2a. I. 'Dividends