Nick Scali Cashflow Analysis
Nick Scali Limited
Question 1. Discuss the overall performance of NCK in 2014 based on the forecast data.
Even thought NCK’s top line reflected a 7% increase in sales, the EBIT declined by 4% and gross profit remained in the 11-12% range and pretax profit remained steady. With dividends factored in the retained earnings fell by over 200% to just $4,655,975.
The investment in PPE, the reduction of LTD and the dividend had a substantial impact on the 2014 forecast. These three combined shifted a total of $27,125,943.08 from the financials. With the working capital changes all going in the wrong direction the resultant cash cycle dropped by 42.97 days to a 30 day cash cycle, this will require funding of 8% of revenue will need to be raised in funding. This change is significant and will need to be investigated further.
Question 2: A board member notes three main discretionary cash outlays in 2014: an investment in PPE, the repayment of a large amount of debt and the payment of a dividend to shareholders. The board member wants to know where the funds will be coming from to enable these outlays to be made. Using the information from your forecast, provide a response to the board member.
The investment in PPE has indicated that perhaps if we extended out the accounts for a few years we would be able to show the depreciation against this CAPEX outlay. We tend to look for 4 years cycles on assets & depreciation of those assets.
The large debt repayment has reduced the debt/equity ratio under 1:1. It could be argued that NSK is not utilising is balance sheet to its advantage with regard to investment.
The dividend repayment has also weakened the cash position meaning the increase in retained earnings was only around 25% of the previous years RE’s.
These adjustments have reduced the cash on hand and as previously mentioned the writer feels this could have been better managed with both a dividend repayment and by borrowing against the company to
Question 1. Discuss the overall performance of NCK in 2014 based on the forecast data.
Even thought NCK’s top line reflected a 7% increase in sales, the EBIT declined by 4% and gross profit remained in the 11-12% range and pretax profit remained steady. With dividends factored in the retained earnings fell by over 200% to just $4,655,975.
The investment in PPE, the reduction of LTD and the dividend had a substantial impact on the 2014 forecast. These three combined shifted a total of $27,125,943.08 from the financials. With the working capital changes all going in the wrong direction the resultant cash cycle dropped by 42.97 days to a 30 day cash cycle, this will require funding of 8% of revenue will need to be raised in funding. This change is significant and will need to be investigated further.
Question 2: A board member notes three main discretionary cash outlays in 2014: an investment in PPE, the repayment of a large amount of debt and the payment of a dividend to shareholders. The board member wants to know where the funds will be coming from to enable these outlays to be made. Using the information from your forecast, provide a response to the board member.
The investment in PPE has indicated that perhaps if we extended out the accounts for a few years we would be able to show the depreciation against this CAPEX outlay. We tend to look for 4 years cycles on assets & depreciation of those assets.
The large debt repayment has reduced the debt/equity ratio under 1:1. It could be argued that NSK is not utilising is balance sheet to its advantage with regard to investment.
The dividend repayment has also weakened the cash position meaning the increase in retained earnings was only around 25% of the previous years RE’s.
These adjustments have reduced the cash on hand and as previously mentioned the writer feels this could have been better managed with both a dividend repayment and by borrowing against the company to