Ratio Analysis Caffe Nero
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Ratio Analysis
A tool used to conduct a quantitative analysis of information in a companys financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry to judge the performance of the company.
Financial performance based on may 2006 interim report
Caffи Nero Group plc, the leading independent UK coffee house operator of 282stores, which has been voted the top rated brand by consumers for the last six consecutive years. It had another year of solid progress, again achieving revenue and profit growth.
Its revenue gone up by 29% to Ј90.7 million where as in year 2005 it was Ј70.1 million. Earning before interest, tax , depreciation and amortization has increased by 38% to Ј15.6 million where as it as Ј11.3million in year 2005. Operating profit (before prior year goodwill write off) improved by 38% to Ј8.2 million where as in year 2005 it was Ј6.0 million). Over all Operating profit improved by 74% to Ј8.2m from Ј4.7million in 2005.
Pre-tax profit has improved by 92% to Ј7.3m where as in year 2005 it was Ј3.8 million
Earning per share grew by 25% to 6.60p where as in year 2005 it was 5.26p. Its present Cash balance is Ј7.1 million. Sales increased 29% to Ј90.7million from Ј70.1 million in 2005. Store Profit (EBITDA before central overheads) rose by 37% to Ј23.0million where as in year 2005, it was Ј16.8million. EBITDA, the critical measurement of cashflow profit, jumped 38% to Ј15.6m where as in year 2005, it was Ј11.3million. In addition, it has adjusted operating profit (before prior year goodwill write off) grew by 38% to Ј8.2million. Adjusted pre-tax profit (before prior year goodwill write off) rose by 44% to Ј7.3million from Ј5.1million in year 2005. Profit after tax climbed to Ј4.5m, representing a 28% increase. Basic earnings per share rose from 5.26p in 2005 to 6.60p in 2006, a 25% uplift. Over the past 12 months, the companys share price has risen 120%. All in all, this was a very respectable financial performance.
Analysts forecast for Caffe Nero – 2007
Collins Stewart
Numis Securities
KBC Peel Hunt
Teather & Greenwood
Altium
Shore Capital
Average
Sales (Јm)
108.1
109.9
107.4
109.7
109.9
111.3
109.4
EBITDA (Јm)
18.9
PBT (Јm)
EPS (p)*
pre-IFRS2 option charge
As shown analysts forecast for caffe nero for the year 2007 shows a further rise in sales. As per Collins Stewart (worlds second largest inter-dealer broker) has predicts caffe nero sales upto Ј108.1 million, earning before interest, tax, depreciation and amortizations (EBITDA) upto Ј18.5 million, profit before tax (PBT) upto Ј9 million and earning per share at 7.4. Same is in the case of Numis Securities, it is predicting a total sales of Ј109.9 million, EBITDA upto Ј10.1 million, PBT upto Ј10.1 million and EPS at 7.9. Various other stock broking firms has analysis financial position and overall market composition of caffe nero and has given their reports as per their point of view but on a average of all forecast of sales in 2007 can be Ј109 millions, earning before interest, tax, depreciation and amortizations at Ј18.9 million, PBT at Ј9.6 million and EPS at 7.7p. All these analysts forecasts are showing a very good strong growth of business of caffe nero in year 2007.
Ratio analysis of Caffe Nero
Capital Structure Ratio
Gearing ratio – In year 2004 gearing ratio was 52% where as in 2005 it goes down to 50%. This shows that the weight of the debt is decreasing for the company. The comparison between Caffe Nиro total long term debts of year 2004 with 2005 shows a direct increase by Ј4,369 million. So by this we cannot say that company is decreasing its total debt liability. However, gearing ratio is showing a decrease only because the profit made in year 2005 is up to Ј1,596 million which is added in calculating total equity where as in 2004 profit and loss account was showing a loss of Ј 3,392 million. So if we calculate debt equity ratio without adding up profits in equity, it will show a direct increase in the debt liability of caffe Nero. so as we think before making any decision based on ratios, it should be evaluated how ratios are calculated. Different companies usually adopts different methods for calculating ratios and other financials reports. As some uses long term debt plus equity where as some only uses equity against long term debt.
Interest cover – It is profit before interest and tax divided by interest expenses. This determines, how much interest company in giving out of its profits. In Caffe Nero Interest cover ratio has gone up to 7.17% in year 2005 where as in year 2004 it was 4.65%. This implies that company is paying interest capacity has increased by almost 3%. This is a sign of strong growth. Caffe Neros operating profit has almost doubled from Ј 3,076 million to Ј 6,511 and in compile to it has paid
more interest in 2005 that amounts to Ј908 million.
Investment Ratios
It determines the relationship between the investment and the gain from it. Generally investors and bankers are in interested in it.
It comprises of earnings per share, price earnings ratio (P.E. Ratio) and dividend yield. In caffe nero all these ratio are giving a favourable look to invest in company. Earnings per share has increase tremendously from 3.37 to 7.49 from year 2004 to 2005. This is mainly because of double increase in the distributable profit of the company. The investment ratios show that there has been a big increase in the earnings per share ratio, and specifically an increase of 100%. Moreover, there was an increase of the share price from 96.75p (31/05/04) to 203p (31/05/06) but the P/E ratio had a slight increase of 5% because the earnings per share had a proportional increase. The current price of the share has gone upto 250p as on 27, November 2006 (source –