Introduction
Primark is a subsidiary company of Associated British Foods and its head office is located
Dublin Ireland where it was founded in June 1969.It trades in clothing, cosmetics and home
ware. Primark has over 257stores globally and more than 29753 employees. The sales revenue in
the financial year that ended 2013 amounted to £2583.52m while the net profit amounted to
£178.36m in the same year. The major retail shops are located in France, Germany, Ireland,
Belgium, Austria, Portugal, United Kingdom, Spain, Netherlands and United States. The branded
apparels of Primark Stores consist of differentiated products which range from new born attires,
toddlers, school kids, women and menswear, footwear and other accessories. Primark registered
an increase of 34.65% in its adjusted operating profit margin in the year 2013 while its return on
average capital employed increased by 26.1% in the same year. Primark trades in Ireland under
the name Penneys and it offers exclusive and unique combinations of the latest fashion in the
apparel industry as well quality designs which fetch value for money in term of up-to-the minute
designs. The total revenue for Primark increased by 12.43% in 2013 and which can be directly
related to the euro’s strengthening in the financial market.
The Primark’s store in France commence in the month of December 2013 which brought the
FINANCIAL ANALYSIS AND MODELLING 2
whole shopping and selling floor that Primark controls globally to 9 million square feet but it’s
still expanding.
Primark’s Financial Position
Primark’s gross profit margin in the year 2013 grew by 34.65% compared to the year 2012. The
growth can be directly attributed to the superior sales densities that were delivered during that
period while the main focus remained to be the minimization of operating costs. The operating
profit for the year 2013 was £178.36 million compared to £116.78 for the same period in 2012.
Compared to the other industries in the same sector, Primark achievements were satisfactory.
TJX companies in the US registered an increase of 6% in its gross profit in 2013 compared to
16% in 2012. The total sales revenue increased by 6% in 2013 compared to 12% in the previous
year.
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17-Sep-
11
15-Sep-
12
1-Sep-13
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
Primark’s Turnover Trend
Compared to Employee
Remunerations
Total Turnover
Number of employees
Employees
Remuneration
The total assets for Primark Stores increased by 5% and the current assets grew by 14 while the
current liabilities decreased by 1% respectively 2013. The rates of growth for liabilities seem to
FINANCIAL ANALYSIS AND MODELLING 3
be lower than the rate of growth for current assets. The total liabilities decreased by 3% in 2013
as compared to a reduction of the same amount in 2012. The largest decrease was however
registered in 2010 where Primark registered a decrease of 7% in its total liabilities. Primark’s
fixed assets increased by 2% in 2013 while in 2012 it increased by 3%. In 2011 the fixed assets
increased by 9% while the current liabilities increased by 21% for the same period. The current
assets increased by 31% in 2011.
Primark’s Financial Growth Trend Between 2013 and 2010 in Percentage
Growth
Trend %
18-Sep-
10
17-Sep-11 15-Sep-12 1-Sep-13
Total Turnover 14 6 10 12
Cost of Sales 12 9 11 8
Total Expenses -16 -4 4 33
Operating Profit 126 -11 2 35
Exceptional Items
Interest Payable -71 13 34 -96
Pretax Profit 274 -12 0 42
Profit After Tax 229 26 -5 53
Dividends Payable 104 547 -35 -26
Retained Profits 319 -157 -121 1020
Number of employees 9 8 6 10
Employees Remuneration 12 4 17 14
Directors Remuneration 139 25 43 -18
Highest Paid Director
Fixed Assets 2 9 3 2
Current Assets 3 31 -13 14
Total Assets 2 14 -1 5
Total Current Liabilities -3 21 -2 -1
FINANCIAL ANALYSIS AND MODELLING 4
Total Long Term Liabilities -7 -3 -3 -3
Capital Reserves
Issued Share Capital 0 0 0 0
Share Premium Account
Retained Earnings
Other Reserves 74 -24 7 72
Total Shareholders’ Funds 49 -19 5 53
Stocks 4 33 -10 14
The total shareholders’ funds increased by 53% in 2013 while in 2012 it increased by 5%. In
2011, however, the shareholders funds increased by 5% while in 2010 it registered a decrease of
19% from the previous increase of 49% in 2010 (Luenberger, 1997).
18-Sep-1017-Sep-1115-Sep-121-Sep-13
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-20.00
0.00
20.00
40.00
60.00
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100.00
120.00
140.00
Primark Financial Trend
Total Turnover
Cost of Sales
Total Expenses
Operating Profit
TJX Companies registered an increase of 7% in 2013 compared to 15% for the year 2012. The
current liabilities for the year 2013 decreased by 6.5% in 2013 compared to an increment of 23%
for the same period in 2012 while the current assets increased by 6% in 2013 and 11% in 2012.
However, the total assets in 2013 and 2012 increased by 7% and 15% respectively. The total
FINANCIAL ANALYSIS AND MODELLING 5
liabilities increased by 2% and 15% for the years 2013 and 2012 respectively.
The net profit for TJX amounted to $2137.40 million 2013 compared to $1906.7 million in the
previous year which represented an increase of 12 and 27.5% for the years 2013 and 2012
respectively. The earnings before interest and taxes amounted to $3350.57 million in 2013 and
$3106.53 million in 2012. These figures represented an increase of 7.9 and 26.95% in 2013 and
2012 respectively. The gross profit for TJX plc grew by 6.26% in 2013 while in 2012 it grew by
16.1%. The gross profit amounted to $7817.66 million and $7356.97 million in 2013 and 2012
respectively. TJX had a market capitalization of $46.82 million by the end of the year 2013.
The shares of TJX are currently trading at $67.96 while its P/E ratio and earnings per share were
22.49 and 3.02 respectively.
The highest paid employee for Primark amounted to £0.806 million while the highest paid
executive in the industry is Marks and Spencer’s CEO compensation for the year 2013 which
amounted to £1.682 million.
Financial ratios assist in valuation of a company’s financial position as they determine and
provide accurate information on the analysis of a company. They reveal the major weaknesses
and also strengths of organization i.e. the company’s liquidity, gearing ratios and the profitability
ratios. Ratio analysis provides a basic diagnostic tool that clearly identifies the areas that are
prone to problems and they evaluate all the opportunities and threats within the company, its
competitors and the external market (Vance, 2003).
Liquidity
The current and the quick ratio for Primark for 2012 were 0.27 and 0.03 respectively while for
FINANCIAL ANALYSIS AND MODELLING 6
2013 they were 0.32 and 0.037 respectively. The standard average strategy for sustainable and
reliable liquidity is mostly around 1:2 that’s the total current liabilities should be at least covered
twice by the total current assets. These ratio however does not categorically state the best
position of the company as other factors like intangible assets are not included in its composition
however should there be an emergency or cash funding requirement, then the liquid assets would
be quickly available to be converted into cash to cover all the liabilities that may be required
hence the company’s liquidity position is assured (Drucker, 1999). Primark plc has a ratio that’s
lower than the average ratio of most of the industry’s average which is 1.35 on the current ratio
hence the company’s ratio of 0.32 is relatively low compared to the industry’s data and it
represents a position of weakness. In 2013, Primark Plc recorded an increase of 18.5% in its
current ratio compared to the 2012. The Company also achieved a quick ratio of 0.037 for the
year 2013 while in 2012 it was 0.0.031. This ratio represented an increment of 19.63% in 2013
compared to 2012. Primark plc should also have an equivalent position of liquid assets like the
industry’s average that is adequate and can be quickly or conveniently converted into cash or any
other form that can be applied in case the company has liquidity problems (Hermanson, Edwards
& Invacevich, 2011).. The average industry’s data also indicate that the industry’s ratios on
average are higher than those of Primark Company. The average industry’s data in 2013 was
1.03 against the company’s ratio of 0.47. It indicates that the acid test ratios represent a position
of weakness to the company. The average acid test ratio for the industry is 0.8 against the
companies 0.04. Garrison, Noreen & Brewer, 2009).
The debt to the total assets ratio of 10% that Primark has achieved reflects a position of
weakness as other companies in the same industry have posted average debt to total assets ratio
that’s 200%, a total difference of close to 190%. It shows that Primark is accumulating additional
FINANCIAL ANALYSIS AND MODELLING 7
debts at the rate of 10% per annum which is reasonable hence it’s a represents position of
relative strength as the industry average debt ratio in the global market is 24% while the Primark
has 10% which implies that the company is managing and also utilizing its debt opportunities
effectively and hence it indicates a position of strength to the company. The company’s liquidity
position is generally fair as reflected by the industry liquidity ratios.
The Industry’s ratios
Details Primark Next TJ M & S Indus
Av
Current Ratio Total Current Assets/Total current liabilities 0.32 1.76 1.73 0.57 1.35
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities 0.04 1.30 0.88 0.22 0.80
Receivable turnover Annual credit sales/average receivables 20 4.63 – 40.27 22.45
Inventory Turnover Cost of goods sold/Avg inventory 5.65 7.83 6.61 0.28 4.91
Asset turnover Sales/Average total assets 1.60 1.74 2.69 1.35 1.93
Dividend yield Div per Share / Current Share price 0.03 0.03 0.03 0.03 0.03
Dividend cover EPS/ Dividend per Share 4.55 4.55 4.55 4.55 4.55
Net assets turnover Net assets / total sales 0.13 0.08 0.14 0.00 0.11
Times interest earned EBIT/Annual Interest Expense 364.85 25.19 106.80 2.59 44.86
Debt to total Asset Debt/Assets 0.01 0.37 0.12 0.23 0.24
Interest cover EBIT/Annual Interest Expense 364.85 25.19 106.80 2.59 44.86
Profit margin on sale
%
GP/sales 9.60 19.26 28.51 97.82 48.53
R.R return on assets EAT/Total Assets 0.11 0.26 0.21 0.06 0.18
R.R com stock equity Profit after taxes/Shareholders equity 0.62 1.93 0.51 0.18 0.87
Earnings per share Profit after taxes-pref div)/No. of comm O/S 3.57 1.54 1.54 1.54 1.54
Payout Ratio cash dividends/income 0.45 0.00 0.00 0.59 0.20
ROE Return On Equity (ROE) 0.62 1.93 0.51 0.18 0.87
ROA Return on average Assets 0.11 0.26 0.21 0.06 0.18
Efficiency ratios
FINANCIAL ANALYSIS AND MODELLING 8
The company is managing its operations fairly well when compared to the industry’s average
performance on accounts receivable turnover which is an average shelf life of 20 days compared
to the average industry’s rate of 22.45 days. Primark plc is managing fairly when compared to
the other companies in the same industry or market. The efficiency ratios are mostly applied on
the general operations of the company not on the technical production details like cost of
materials and labor costs (Bodie, Kane, Marcus, 2008).
The times interest earned in 2013 were 364.85 compared to 10% in 2012. It represents an
increase of 3552.6% from the previous year i.e. 2012 (Khan, 1993). The increment suggests that
the Primark plc is increasing its efficiency considerably and it’s gaining even more strength. The
company’s return on common equity (ROCE) remained constant at 62% for both years
respectively. The industry’s average return on common equity for 2013 was 87% hence the
position of Primark reflected a position of weakness compared with the other companies in the
market. However, the average return on the assets (ROA) represented a fair average based on
the industry’s average reflected a position of relative strength to the company. The return on
assets for Primark was 11% as compared to the 18% of the average return on assets for the other
companies in the industry. The company had a price earnings ratio of 3.57 increased by 52.73%
in 2013 compared to 2.34 in 2012. It reflects a position of strength to the company as it shows
that the company has a pricing policy that track records that are attractive to investors compared
to its competitors. The average industry’s P/E has an average of 1.54 against the company’s 3.57
as was registered in 2013.
The efficiency of Primark plc can be analyzed based on several ratios i.e. for example the Days’
Sales in Receivables is 20 compared to the average in the industry’s which was 22.45. This is a
decreased of 12.25% from the previous year. The company’s performance is slightly below
FINANCIAL ANALYSIS AND MODELLING 9
average when compared to the industry’s average. It indicates a position of relative weakness.
The accounts receivable ratios for 2013 amounted to 22 days hence the company’s trend shows
that Primark is getting stricter in collecting its debts while most its competitors are more flexible.
It indicates that the company is managing its creditors efficiently and effectively as compared to
its other competitors in the market. This factor represents a position of strength and reliability to
the company. The inventory turnover for Primark plc was 5.65 times in a year compared to 5.9
times in 2012 representing an a decrease of 4.76% from the previous year. The inventory
turnover in the Company is almost the same compared to the previous year while the averages in
industry’s are much lower. The company’s performance on inventory turnover represents a
position of relative strength to the company. Primark’s efficiency ratios reflect a position of
strength and the company is relatively efficient in handling its resources. The company is
managing most of its resources effectively.
Profitability ratios
The profit margin for the company was 9.6% in 2013 compared to the average in the industry’s
external market rate of 48.53%. The company indicates a position of weakness as the company
far below its competitors. The nearest company in the market compared to Primark is Next Plc
which registered a profit margin of 19.26% compared to 9.6% that has been posted by Primark
plc. The company’s rate of return on total assets is 11% compared to the previous year rate of
7%, an increase of about 45.4% while the industry’s average of 18%. Primark’s return’s
represents an average of 11% return on every dollar invested in the company hence it’s a position
of strength to the company even though the industry average is slightly higher. The trend
indicates that the return on assets increased by 45.4% in 2013 compared to 2012. The earnings
per share of common stock were £3.57 in 2013 compared to £2.34 in 2012 and the average
FINANCIAL ANALYSIS AND MODELLING 10
industry’s P/E of 1.54. These represented an increase of 52.73% in 2013. The investors eyeing
the IPO would be interested in stocks from organizations and companies that have higher growth
potentials. The profit margin of 9.6% represents a fair growth prospect but compared with the
other companies in the same industry whose averages are almost five times more that the
Primark’s average then it indicates that the company’s performance is below average and a lot of
work must be carried out to bring the company to be at par with the rest of the companies in the
same industry. A profit margin of 9.6% is satisfactory for a company the size of Primark but
compared to the industry’s performance it still has a long way to go. The Company’s general
position is strong and its represents a fair position of strength to the company. The profitability
ratios reflect a position of relative strength to the company. The limitation of the profitability
ratios are prevailing economic and market conditions make it unreliable as changes in micro
economic environment can result in huge losses or profits for the company. For example, a
change in the prices of oil in the global markets affects most business that had all along predicted
favorable profits (Ross, Westerfield & Jaffe, 2013).
Primark’s 2014 Financial Forecast
Primark’s after tax profit is expected to increase based on its past financial performance trend
and it’s expected to reach close to £272.41 million in 2014 (Hermanson, Edwards & Invacevich,
2011).
Primark’s 2014 Forecast Based on The Historical Trends
12-Sep-
09
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1-Sep-
13
1-Sep-
14
Operating Profit 89.68 202.92 181.19 184.27 248.11 334.07
Interest Payable 37.81 11.07 12.52 16.77 0.65 0.025
Pretax Profit 51.29 191.9 168.06 167.51 237.15 335.74
FINANCIAL ANALYSIS AND MODELLING 11
Profit After Tax 29.8 98.05 123.48 116.78 178.36 272.41
12-Sep-
09
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1-Sep-13
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50
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150
200
250
300
Primark’s Profit AfterTax
Forecast
Operating Profit
Interest Payable
Pretax Profit
Profit After Tax
Primark’s market capitalization is among the least in the industry’s average. It closely follows
Next plc in terms of market capitalization while the highest in the group is Marks and Spencer.
The shares of Primark would draw almost similar reactions to Next plc financial investors as it
compares relatively with its financial performance. The shares should be floated at a rate that’s
lower than Next’s current ordinary shares prices that are selling at 10pper share.
Recommendation
Agency theorists consider ownership concentration and other governance factors that may assist
in reduction of agency costs that are mostly associated with diffused diluted owner patterns and
which enhance performance. Fewer owners concentrate power on a few hands which may result
in reduced coordination costs but it limits significantly the managerial discretion and which
affects the efficient management of the company. The traditional agency conditions present only
a portion of the world view on organization research that may benefit the merging and
FINANCIAL ANALYSIS AND MODELLING 12
institutional agency theories (Douma, George and Kabir, 2006). Large blocks of shares may be
retained to reduce the risk or chances of adverse selection. Most IPO end up with lock-up
arrangements that mostly result in retained control by the original investors who restrict
ownership rights (Adams, 2008).
Conclusion
On average the financial performance of Primark plc is generally strong though its ratios reflect a
position that’s fairly below the industry’s average. The company is can generate enough profit to
sustain and manage its operations effectively but it still has to improve its operations and
productivity to be at par with the industry’s averages.
FINANCIAL ANALYSIS AND MODELLING 13
References
Adams, S. (2008) Fundamentals of business economics. Financial Management (UK), 46–48.
Bodie, Z., Kane, A., Marcus, A. J. (2008). Investments (7th International ed) Boston: McGraw-
Hill. 303.
Drucker, F. (1999) Management Challenges of the 21st Century. New York, NY: Harper
Business. 150 – 55
Douma, S., George, R. and Kabir, R. (2006) Foreign and domestic ownership of business groups
and firm performance. Evidence from a large emerging market, Strategic Management
Journal 27: 637-657
Garrison, R., Noreen, W. & Brewer, P. (2009) Managerial Accounting , New York, NY:
McGraw-Hill Irwin. 65 -70
Khan, M. (1993) Theory & Problems in Financial Management, New York, NY: McGraw Hill
Luenberger, D. (1997). Investment Science, Oxford University Press, Oxford: 48 – 75.
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013) Corporate finance (10th Ed.) New York, NY:
McGraw-Hill Irwin. 175.
Vance, D. (2003) financial analysis and decision making: tools and techniques to solve financial
problems and make effective business decisions. New York, NY: McGraw-Hill.
Hermanson, R.H., Edwards, J.D., & Invacevich, S.D. (2011) Accounting Principles: A Business
Perspective. First Global Text Edition, Volume 2 Managerial Accounting, 37-73.
