Bnl Store Financial AnalysisBNL STORES BNL was an established Midwestern retailer store from last 40 years. Back to some years BNL adapted a series of new business strategies, like opening new supercentre stores that carried a greater selection of durable goods and phasing out the traditional discount stores. This strategy adaptation showed that BNL wants to move from higher volume sales having lower price sales to lower volume sales but with higher prices sales in order to increase revenues. In another strategy in which BNL started offering store credit to its customers in order to entice customers to purchase these more expensive items. Store manager were paid an annual bonus based on net income for their respective store and this strategy adaptation caused the increase in revenue initially but the receivable collection period increased. The credit sales strategy caused the company to become out of cash and the cash conversion cycle is slowdown by increasing the receivable collection days, payable outstanding days and decreasing inventory turnover.
This lacking cash conversion cycle entries. BNL to borrow more debt year over year that has increased the debt over equity ratio up to (8.5) in year 2010 in order to show the increasing cash and cash equivalents and pay dividends. Though the company’s profit margins are in decreasing pattern from 3.4% in 2005 to (11.8) %. In 2010 however the company is paying dividend every year with the ratio of 55% in 2008 and 2.1% in 2010 from borrowing as in 2010. BNL has borne the net loss of (1418678) thousands. This decreasing net income and finally the negative in the year 2010 is due to the increasing ratio of cost of goods sold as percentage of sales (60% of sales in 2009 and 73% in 2010) and increasing S.G.A expenses due to the bonus it pays to its employees on increased net income and increased borrowing cost . This has decreased the firm’s return on equity and return on assets.
Alfredo: I have read a lot of literature on the company’s earnings to compare it against other financial institutions, but I think a few things had to be said about it. First of all, a simple look into the data has clearly shown that BNL and BNP Paribas were at the bottom of the table for the first 5 years of the financial crisis. At the end of 2005 the net profit for the company was around 5.8 billion. In 2009 it did a disappointing 15.8 billion in cash and cash equivalents, which makes sense because they are paying a lower profit margin at a time in this financial crisis than some other financial institutions with which they were related. In terms of capital expenditures, there are few other big financial institutions, except the ones that make a lot of money, are as profitable as BNL. On the other end of the spectrum there are a few institutions that have done very well, and not just in terms of profitability, but in terms of the money saved by a company. BNL did not start off in the “normal” financial environment. And they came into the financial crisis well before the recession began. So, to a degree it is good to be looking at BNL because it has the best record in profitability even though it took on an enormous amount of loss as its share price fell and it has been shorting investors to a point where they are more likely to put money in an account of more value. At least it is good management to watch.
BNL has the best record when compared to any other non-financial institution.
Now, of course, this can all be a bit vague. We can compare it with several financial institutions. BNP Paribas, for instance, has a net profit of $3 billion in financial assets that it uses to grow their sales and operating income from foreign assets (this was only $1 billion in 2009-2010), its net loss of about half that for the same period of 2005-2007 has been about a couple million dollars ($3 billion in 2011-2012). At the end of the second quarter of 2005 BNL posted the lowest dividend it had since March (21.3 per cent to 11.7 per cent, compared to 9.8 per cent for the same period a year earlier, and the lowest amount they paid to shareholders). And at the end of FY11 the board decided to cut 2.8 per cent in its dividend, in response to growing concerns of “a decline in long-term exposure to debt” (GDP growth). This is clearly a result of the growing threat of inflation, and also the rise of commodity prices. At the same time it was very difficult to differentiate any of this from the other companies being at the bottom of the table since it was not considered in every way profitable (the stock price was up by 3.1 per cent in the second quarter of FY11 to become the highest since Q4 of 2005 and the lowest in three years). The result was to have a large share of cash sitting at the bottom of the table, which was held by these financial institutions.
BNL also struggled to stay afloat economically while this situation in the financial crisis. It was a company that was at a lot of disadvantage, as its income from abroad would not be enough to cover the operating expenses needed to maintain its longterm operations and it faced low dividends in FY10. This put the company into a very difficult situation when it could no longer make money. But, once in a long while a company can recover