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Financial analysis and risk management of Kingfisher Plc

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Financial trend analysis The financial trend analysis has been done on last five years, which is 2010-2014. The ratios included in the analysis are liquidity ratio, performance ratio and efficiency ratio. For calculation, refer to the excel sheet. The data related to financial statements have been collected from the company website (Kingfisher, 2011; Kingfisher, 2012; Kingfisher, 2014c). Table 1 (Source: Author’s creation) Liquidity ratio The liquidity ratio measures a firm’s ability to meet its short-term obligations. These obligations are generally met within a year’s time. One of the important liquidity ratios is the current ratio. The current ratio, which is also known as working capital ratio, helps in determining company’s capabilities to pay-off the liabilities, if and when they are due with the current assets.

The accepted standard of current ratio is 1. In Kingfisher Plc, current ratio has been calculated for last five years and represented graphically in figure 1. Figure 1 (Source: Author’s creation) The current ratio trend of Kingfisher Plc shows that working capital position has been quite stable and has increased consistently 2012 onwards. It was further observed that the firm had negative working capital during 2010, 2011 and 2012.

The reason for negative capital can be generation of quick cash; as a result, quick selling of inventory. Such a scenario is quite common in retail industry (Robinson, et al. , 2008). Efficiency ratio The efficiency ratio measures effectiveness of a firm, in terms of its operational activities such as, collection from debtors, paying-off creditors and turnover of inventory. Efficiency ratios are important as increase in efficiency denotes better profitability. The important ratios under efficient ratio are creditor turnover ratio, debtor turnover ratio and inventory turnover ratio. Creditor turnover ratio explains the pace at which a company pays off creditors.

If the ratio is declining, it indicates that the firm is taking longer time to pay off its creditors, whereas an increasing ratio reflects quick pay-off. The creditor turnover ratio is graphically represented in Figure 2. Figure 2 (Source: Author’s creation) The average turnover ratio for Kingfisher Plc in past five years is 2.76; if this is converted into number of months, then it will be a little above four months (12/2.76). The ratio has fluctuated considerably over the years, but not in extreme manner.

Keeping in view the kind of bulk purchase that the firm undertakes, the ratio is acceptable.

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