Pets at Home Plc Cash Flows: Increase Between 2014-2018 - Essay Sample

Introduction

The cash flows statement of Pets at Home Plc will give details on the purchase and sales of the company's capital assets.

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Analyzing the cash flows from the operating activities: there is an increase between the period of 2014 to 2018. The growth of the company might be attributed to its purchase of Vets4Pets which has boosted its sales and stabilized its operation, the increased operation in the UK also attracted high corporate tax

Cash flow from investing activities: Also there is an increase under the Cash flow from investing activities, this shows the growth of the business for the last 5 years. Since the company's operation has expanded, hence the Cash flow from investing activities had to grow respectively. Cause: The increase it is attributed to the purchase of plant and equipment that were used in the new branches to increase the production of the pet foods, and for veterinary services, and other equipment that is used to operate the recently opened distribution centers that were meant to meet the market demands. Advice on improvement: The company should increase its competitive advantage and embrace new technology in its operation to stay ahead of its competitors.

Cash flow from financing activities: there is an increase from PS35,752 in 2014 to PS61,114.0 in 2018, apart from 2015 where there was a decline of 18,133. Most importantly, there is a steady decline in the net interest from 2014 with 32,261 to 2018 with 4,576. Cause: the decline is attributed to low profit in sales of the pet foods and the high cost of production in the production areas of the medicines and pet foods. Advice to improve: This can be maintained by increasing advertisement and campaigns that will enlighten many of the pet owners to embrace their services by having their pets consume nutritious foods that they sell and get quality vet services.

Conclusively, from the entire the cash flow statement analysis, the Pets at Home Plc has a decrease from 59,230 in 2014 to 3,479 in 2018. Cause: this might be due to low interest from the business activities due to low sales and high competition from new upcoming veterinary like the Petvet. veterinary The profit the company generated is inequivalent to its liabilities, this can be reduced by the company to close down some of its stores and retrench workers to reduce the cost of operation. Also, the company should change how it produces and sales its accessories and foods which are not performing well in generating revenue.

The Key Ratios of Income Statement

Gross Margin

According to financial data given for the company, there is a continues, but slow growth of the Gross profit between the years 2014 to 2018. The years 2017 and 2018 recorded the lowest, with the growth margin of 19,458 and 12,726 respectively, which translates to 4.50% and 2.82% growth respectively. Cause: The cost of production is high, high overhead cost and high direct cost, all of them might be due to lack of modern technology than reduce the cost of manufacturing foods, medicines, and accessories for the pets. Advice to improve: Some of the measures that can be taken to improve the growth of the gross profit include: change the supplier and seek the one who is affordable, reduce the overheads, reduce the inventory, review the current pricing structure, seek new customer segment in the market to increase the sales, and remove the unprofitable products and services.

Operating Margin

This is simply the revenue generated (considering the business gross profit minus its operating expense) before the taxes and interest deductions, which in the perspective of this company, it is dropping significantly. There was only a slight increase in 2015 and 2016, of 8.22% and 5.69% respectively; but since that time, there is a significant drop in 2017 and 2018 which were at the rates of -1.31% and -12.01% respectively, and there are no signs of better performance in the future. Cause The income generated from the business activities of the company is relatively low because of factors like, increased competition from pet planet, Viovet, VetUK, and Medic Animals, also, the competitors have the modern equipment that makes their products more favorable to the market. Advice to improve: However, Pets at Home Plc can promote its revenue in a competitive market by improving on research and development, investing in modern technologies, strengthening its economic of scales to lower its fixed cost per unit, as well as building economies of scale so that it can lower the fixed cost per unit.

Distribution Cost to Revenue

The revenue generated is declining because of the increase in the administration expense of the business. This will need the streamlining of the business operation in order to reduce the administrative expense and improve revenue.

Administration Expense to Revenue

In Pets at Home Plc, there is a substantial increase in the Administration expense, from the years2014 to 2018, at the rates difference of 16.88% in 2015, 25.00% in 2016, 8.02% in 2017 and 20.70 in 2018. In economic and financial perspective, is not proper for the administration cost to keep on increasing, unlike its revenue growth. Cause: such a scenario might be caused by having distribution centers that consume a lot of expenses but fail t generate the respective income. Advice to improve: The business has to consider closing some further shops which are unprofitable that consume a lot of administration expenses rather than generating revenue. Also, the company can consider retrenching some of the workers, who are either incompetent or old enough not to work.

Interest Cover

There is a weak interest cover in the business which is attributed to poor performance in sales which is supposed to generate revenue. Advice to improve: proper measure should be taken to streamline the sales and widen the market operations.

Numerical analysis of historic profitability

There is a steady growth in the profit generated by the Pets at Home Plc, from its main products and services segment, food, accessories, and services. Food for the pet had significant growth from 327,101, to 421,894 between the years 2014 and 2018, making 6.62 percent growth. While for the accessories section the growth between 2014 and 2018 is from 288,017 to 343,508, with an average growth of 4.53 percent. Cause: This means that the customers prefer other competitors for the foods and accessories, showing that the competitors are gaining popularity in the market. While Service and other, such as vet service made tremendous growth from 50,277 in 2014 to133,522 in 2018, with 28.07 percent growth. Cause: This is because people have trust in the quality of medication they have for their ill pets. Advice to improve: The company can consider improving the nutrition content of their products and research more on the other attractive forms of accessories that are different from their competitors.

Numerical Analysis of Revenue

However, despite the growth in profitability, the revenue stream was declining. Food along has a descending growth from 49.2% in 214 to 46.9% in 2018. While the accessories had a decline of 43.3% in 2014 to 38.3% in 2018. Such declines are caused by an increase in the cost of goods. The growth in revenue can be increased if the price of goods is increased to compensate for the rise in the cost of production and streamlining the operation to eradicate unnecessary expenses. The growth of service and other increased in the years between 2014 to 2018, there was a growth from 7.6% to 14.9% respectively.

Performance of Other Aspects of Income Statement

Gross profit and margin are growing relatively slow by 6.77%, while the operating profit and margin decreased significantly by 0.15%, while the administrative expenses increased by 17.66%. According to the analysis the company is making a relatively low profit while it spends a lot in the other business expenses. Therefore, the company's performance is generally poor and it needs to reduce its operation cost and streamline its business activities to reduce its administrative expenses.

Performance of The Cash Flow

As summarized under the quality of earnings, there is a significant reduction as follows: 2014 with 9.88, 2015 with 1.39, 2016 with 1.73, 2017 with 1.73, and 2018 with 2.02 making an average of 2.08. this shows some weakness of the business as the time moves by, and some measure needs to be taken to save the situation.