City Chic Collection deals in the retail sale of plus size women’s apparel, footwears and accessories. The company is having its 104 retail stores across Australia and New Zealand and is offering its product online across USA, Australia and New Zealand.
Company’s headquarter is in Sydney in the suburb of Alexandria. Its share is listed on Australian Securities Exchange and represented by symbol CCX.
ROE= Profit Margin* Asset Turnover* financial Leverage
(Marshall Hargrave, 2019)
So, for calculating Return on Equity, following figures have been extracted from the annual report as follows:
Particulars |
2019 |
Annual Report Reference |
Net Income |
15,978 |
Page 54 |
Sales |
148,432 |
Page 54 |
Total Assets |
84,980 |
Page 56 |
Equity |
44,266 |
Page 56 |
Return on Equity calculated by using above formula is:
= 10.80% * 174.66% * 191.97% = 36.09%
This first part i.e. profit margin indicates that profit earned by the company on the overall sale.
The profit margin can be improved if costs are reduced or if prices are raised, which ultimately effect ROE. This is one of the reasons that a company's stock will experience high levels of volatility when management makes a change to its guidance for future margins, costs, and prices.
The Second Part i.e. Asset turnover it indicates the efficiency of the company’s use of its assets in generating revenue.
Presently, company is having 174.66% as asset turnover ratio, if this ratio increases, the company will be able to generate more sales per asset owned.
The third part i.e. Financial Leverage indicated the amount of debt company utilizes to finance its operations. If the company is using substantial amount of debts then its financial leverage will be high as the company has to pay interest on loan which is tax deductible while dividend payments are not tax deductible.
= Market Value per share/ Earning per share
= 2.16 / 8.3 (EPS taken from annual report page 55 & Market price taken from ASX website)
= 26.02
This indicates that an investor is willing to pay $ 26.02 for $1 of current earnings.
This ratio also helps to ascertain whether the price of the share is undervalued or overvalued (Chris B. Murphy, 2020).
Particulars |
2019 |
2018 |
Interim Dividend Per Share |
1.5 Cent per share |
Nil |
Final Dividend Per Share |
2.5 Cent per share |
Nil |
(data taken from page no 86 of annual report)
The City Chic company has paid dividend to its shareholders in the year 2019 while no dividend is being paid in 2018. Growing DPS over time is a sign that the company’s management believes that the its earning growth can be sustained. Moreover, investors are satisfied as dividend is the direct earning a investor gets on its shares.
Market capitalization is nothing but market price of shares multiplied by the number of shares outstanding, in other words, it can also be called as total market value of the company.
The market Capitalization of City Chic is 477.04m
The companies having higher market capitalization is considered to be more established and have captured more market than other.
Return on Equity by Du Pont ($’000)
Particulars |
2019 |
2018 |
2017 |
Net Income |
15,978 |
-9,306 |
-8,389 |
Sales |
148,432 |
131,870 |
125,054 |
Total Assets |
84,980 |
196,105 |
202,545 |
Equity |
44,266 |
37,101 |
44,075 |
Profit margin |
0.11 |
-0.07 |
-0.07 |
Asset Turnover |
1.75 |
0.67 |
0.62 |
Financial Leverage |
1.92 |
5.29 |
4.60 |
Return on Equity |
36.10 |
-25.08 |
-19.03 |
The return on equity increasing each year, this is a positive indicator that the company is growing and earning profit.
Let’s do a deeper analysis, since the company started earning profit in 2019, that increases the profit margin of the company and increase in profit margin increase the return on equity.
Also, asset turnover is increasing which shows that the company is efficiently able to generate more revenue from its assets while in the earlier year, the company was not efficiently using its assets for revenue generation.
However, the financial leverage has reduced this indicates that the company is relying more on shareholders funds to finance its assets. Company do not wish to borrow funds from the market.
Extract from Annual Report ($ ‘000)
Particulars |
2019 |
2018 |
2017 |
Borrowings |
Nil |
12,860 |
25,714 |
Company has brought down its long-term borrowings to Nil in 2019, which is leads to decrease in financial leverage as there is no interest expense as per statement of profit and loss.
Financial leverage allows the company to earn a disproportionate amount on its asset and also allows the company to take tax advantage on interest paid on loans while the city chic company is not taking advantage of the same, it prefers to pay dividend to shareholders which is not tax deductible.
(Cent per Share)
Particulars |
2019 |
2018 |
2017 |
Interim Dividend Per Share |
1.5 |
Nil |
Nil |
Final Dividend Per Share |
2.5 |
Nil |
Nil |
Earnings Per Share |
7.4 |
7.8 |
0.3 |
In the year 2019, City Chic company has delivered strong results and has laid the foundation for ongoing growth. They worked on their strategic priorities, which is to grow both, their Australian as well as International businesses across multiple channels.
The sale through online channel increased from 36% in FY 2018 to 44% in FY 2019 with the strong growth in both Australia and USA.
Company has also opened 9 new stores, out of which 3 large format stores performed ahead of expectations.
Also, the stock in hand at the end of the year is clear as the company was able to sale all its stocks.
During the year FY2019, the board of the company has declared a fully franked ordinary dividend of 4 cents, in addition to a fully franked special dividend of 2.5 percent per share. This depicts that the net cash position of the company is strong.
All these factors have laid to increase in sale of the company and company has preferred to distribute dividends to its shareholders which could not be done in the previous years due to lack of profits.
The other company who is having similar scope of operations are:
Particulars |
CCX |
AX1 |
KMD |
PRICE |
2.310 |
1.165 |
0.735 |
MCAP |
477.04m |
639.76m |
521.12m |
YIELD |
1.73% |
7.73% |
19.54% |
PE RATIO |
27.050 |
11.370 |
3.470 |
Sectoral Comparison as done by ASX is as follows:
The higher PE ratio indicates that investors expect high returns on its investment.
Particulars |
% of Sale in FY 18 |
% of Sale in FY 19 |
Online Marketplace |
31% |
38% |
Stores |
59% |
50% |
Online Website |
5% |
6% |
Wholesale |
5% |
6% |
The company’s major sale is being done through its 104 stores which are situated across Australia and New Zealand. However, with online website products are offered in USA also.
The online website reaches across the world and products can be offered worldwide. Though the company is in its growth stage and finding avenues for expansion. Focusing on website and increasing sale through online market can be one of the avenues for company’s growth.
2019 Annual Report of City Chic Collection , retrieved on 03-05-2020, retrieved from https://www.asx.com.au/asx/share-price-research/company/CCX
Marshall Hargrave, 2019, DuPont Analysis, retrieved on 03-05-2020, retrieved from https://www.investopedia.com/terms/d/dupontanalysis.asp
Chris B. Murphy, 2020, Using the Price-to- Earning Ratio and PEG to assess a stock, retrieved on 03-05-2020, retrieved from https://www.investopedia.com/investing/use-pe-ratio-and-peg-to-tell-stocks-future/
Sector Comparison, ASX website, retrieved on 03-05-2020, retrieved from https://www.asx.com.au/asx/share-price-research/company/CCX
James Chen, 2020, Market Capitalization, retrieved on 03-05-2020, retrieved from https://www.investopedia.com/terms/m/marketcapitalization.asp
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