NAME OF COMPANY: David Jones Limited.

YEAR END: 26th July 2008.

MAIN OPERATING ACTIVITIES: Department store retailing and providing

consumers with credit via the David Jones credit card.

CHAIRMAN’S NAME: Robert Savage.

CHIEF EXECUTIVE’S NAME: Mark McInnes.

AUDITORS NAME (not provided) AND AUDIT FIRM: Ernst & Young.

GICS INDUSTRY GROUP: Retailing

Chairman’s report:

According to the three first graphs given in the chairman’s report, from 2003 to
2008, an increase has been observed in different streams such as a rise of
$423.4 millions in the departments store sales, $71.8 millions in the profit after
tax and 21 cps in the dividends. Moreover, this chairman’s report is highly
optimistic, as a strategic plan has been set up in order to increase the company
net profit after tax by 5-10% each year, within 2012, which could be seen as a
first challenge for the company to realise. In addition, new shops opening, brand
mixing in stores as well as creation of a partnership with American Express are
factors that can be considered as a challenge to the company in the future.

Director’s report:

$78,476,000 is the amount of the recommended final dividend.

Accounting policies:

1. In order to prepare the financial statement, an historical cost basis has

been used. However, according to the basis of preparation “derivative
financial instruments are stated at their fair value” (Notes to financial
statements p.64). Moreover, according to the statement of compliance,
the annual report “complies with Australian Accounting Standards as
issued by the Australian board and International Financial Reporting
Standards as issued by the International Accounting Standards Board”
(Notes to financial statements p.64).

2. According to the depreciation policy, first, the useful life of each group of
non-current assets is defined:
-Leasehold improvements 10–25 years;
-Plant and equipment 5–25 years;
-Computer equipment 3–5 years;
-Fixtures and fittings 5–13 years;
 -Buildings 75 years.
3. Revenue from the sale of goods is recognized in the Income Statements when the
goods have been delivered to the buyers or when the goods have been lawfully
transferred to the customers.

4. Cost is determined by using the retail inventory method, and this method uses the
current selling prices of inventories and reduces prices to cost by the application of
average department mark up ratio. The inventory is, thereby, calculated by using the
lower of cost and net residual value.

Income statement and statement of changes in equity:

Total amount for:

1. Sales: $2,097,999,000

2. Gross profit: $829,772,000

3. Earnings before interest and tax: $209,615,000

4. Profit after income tax: $147,286,000

5. a) Basic earnings per share (cents per share): 30.6 ; b) Diluted earnings
per share (cents per share): 30.0

6. Net income recognized directly in equity: $3,343,000

7. Share capital at the end of the year: $619,790,000

The principal strength of the company income statement resides in the fact that
their revenue form sales of goods ($2,097,999,000) is almost covering the cost
of goods sold ($1,268,227,000), so the company’s gross profit is really
interesting ($829,772,000).

Balance sheet:

Total amounts for:

1. Non-current assets: $782,340,000

2. Cash and cash equivalents: $66,564,000

3. Current assets: $747,305,000

4. Trade payables (amounts falling due within one year): $274,608,000

5. Total provisions: $61,635,000

6. Retained earnings: $128,989,000

We can observe that the company has lost money between 2007 and 2008.
Indeed, we can notice a decrease of $104,998 in the total assets between years
ended 28 July 2007 ($1,634,643) and 26 July 2008 ($1,529,645), but also a loss
of $211,492 between years 2007 ($1,121,347) and 2008 ($909,855). However, a
new capital entry of $106,494 has been contributed in 2008 in order to boost the
firm economic activity.

Cash flow statement:

Total amounts for:

1. Opening balance of cash and cash equivalents: $161,308,000

2. Net cash flow from operating activities: $201,963,000

3. Net cash flow from investing activities: $(31,627,000)

4. Net cash flow from financing activities: $(266,440,000)

5. Closing balance of cash and cash equivalents: $65,204,000

It clearly appears that investing activities are crucial and vital for the company in
that they are the basis of any economical activity. For example, a company as big
as David Jones need infrastructures and equipment to generate any income.

In our opinion, the company is not managing their cash flow statement
adequately. In effect, the total outflow generated by their investing and financing
activities (an outflow of $298,067) overtakes the total income generated by their
operating activities (an income of $201,963).

Notes to the accounts:

1. Business analysis of profit before tax: $209,615,000

2. Geographical segment analysis of revenue: $2,205,516,000

3. Total accumulated depreciation and impairment losses for property, plant

and equipment : $670,687,000

4. Total accumulated amortization and impairment losses for intangibles

assets: $26,605,000

5. Auditors’ remuneration for non-audit work: according to the notes to the

financial statement (27. auditors’ remuneration p.93) no “non-audit
services have been undertaken by the Consolidated Entity’s external
auditors during the financial year”.

6. Contingent liabilities: Indemnities to third parties given in the ordinary

course of business: $1,182,000

7. Average number of employees during the year: information not provided.

8. Trade receivables: $414,980,000

 9. Loans and borrowings: a) in one year or less: $242,360,000 ; b) later than
one year: $270,000,000

10.Total number of ordinary shares issued: 483,452,861

11.Inventories: a) payments for property, plant and equipment: $73,289,000

; b) Payments for software: $338,000

Auditors’ report:

This report purpose is to testify that the annual report is conformed to the
accounting policies.

Directors’ declaration:

This report purpose is to testify that the content of the annual report is fair and
veridical, in order to ensure the creditors that any debts are in the ability to be
paid.

Accounting Ratios:

RATIO TYPE Ratio (Finanalysis database) Calculated Ratio

1) CURRENT RATIO 1.24 times 1.3 times

2) QUICK RATIO 0.81 times 0.8 times

3)RETURN ON ASSETS 10.84 % 13.2%

4) RETURN ON EQUITY 22.11 % 32.5%

5) NET PROFIT MARGIN 12.41 % 10%

6) DEBT TO EQUITY 83% 146%

1. 747,305,000 / 603,533,000 = 1.3 (times)

2. 482,248,000 / 603,533,000= 0.8 (times)

3. 209,615,000 / 1,582,144,000 x 100 = 13.2 (%)

4. 147,286,000 / 453,816,000 x 100 = 32.5 (%)

5. 209,615,000 / 2,097,999,000 x100 = 10 (%)

6. 909,855,000 / 619,790,000 x 100 = 146 (%)

General information:

On Monday April 27th 2009, the highest price was $3.02 for a share, and the
lowest $2.95.
The name of the 5 competitors of David Jones:

• Harvey Norman Holdings Ltd. .; ROE= 15.53% (FinAnalysis, 2008)

• Warehouse Group; ROE = 27.14% (Finanalysis, 2008)

The main purpose of the Corporate Governance Statement is to provide its

reader, especially the shareholders, with the way that the director uses to run
the company.

Overall assessment:

Profitability evaluates the success of a business in generating wealth. In order

to measure the profitability of the company David Jones, three ratios are useful.
First, the return on assets ratio (ROA) which goal is to compare the amount of the
net profit generated by the business with the total of assets owned by the
business gives a good idea of the capacity of the assets to generate profit;
moreover, ROA do not take taxes and interests into account. In fact, David Jones
company assets have generated between 10.84% and 13.2% of the net profit
before taxes and interests in 2008, which is a good financial performance for a
retail store. Indeed, this statement takes importance when it comes to analysis of
the return on equity ratio, which goal is to compare the amount of profit for the
period available to the owners with the owners stake in the business. It refers to
the capacity of the business to generate wealth in favour of the shareholders.
Between 22.11% and 32.5% of the net generated profit is available to the
shareholders, which in fact, represent an average amount of $57,235,500 owed
by the entity to the shareholders, which is a huge benefit for the owner’s equity.
We can notice a big difference between David Jones (between 22.11% and
32.5%) and Harvey Norman (15.53%): it is much more profitable to be a
shareholder of David Jones. Then, the net profit margin ratio relates the net profit
for the period to the sales during that period, which also does not take into
account taxes and interests. This ratio provides a good idea of the company
capacity in terms of saving a significant part of the profit generated by sales.
Indeed, David Jones company has the capacity of saving between 10% and
12.41% of the total amount of sales, which is a good average for a company as
big as it is. Those facts inform us that the David Jones has a healthy profitability
and that shareholders should be satisfied from the performance of the firm.
However, because the goal of the company is to improve its financial
performance in favour of the shareholders, these latest should expect better
results within the next years.
 The current ratio compares the business liquid assets with current liabilities in
order to express how many times the current assets will cover the current
liabilities. A high result is not the best expected, but in the case of David Jones
(between 1.2 and 1.3 times) figures reveal a strong liquidity, which is confirmed
by the quick ratio that represents a more stringent test of liquidity. Indeed, the
average of a correct quick ration is 0.9 times and David Jones quick ration is 0.8
times.

Finally, the financial leverage of David Jones is more than very high, in effect,
though higher levels of gearing implies higher risks of financial losses, the
returns generated from the borrowed funds exceed the interest cost of borrowing
between 83% and 146%, which results in a huge considerable increase in the
return to equity and the annihilation of any risks of financial losses.

518 words

Conclusion:

In order to provide information about a company strengths and weaknesses, an

analysis of different data such as its ratios and operating trends have been
effectuated. In that way, it was important to focus on a global vision of the
business operations on a short term and a long-term basis. In effect, on the one
hand, creditors will tend to pay attention to the ability of the business to pay
their debts, on a short run basis. Liquidity ratios are then the factors that they
will mostly rely on in order to make their minds up about this capacity. But as
described previously, one of the strength of David Jones resides in its strong
liquidity. On the other hand, shareholders will pay more attention to the amount
of their dividend. But David Jones firm, has a high level of profitability as
revealed by the Return on Equity, the Return on Assets and the Net Profit Margin
ratios. Moreover, the financial gearing of the company is more than highly
performing in that all the loans and finances from external parties have been
judiciously used in order to generate greater income.

Then, focussing on the cash flow statement, investments of $495,645,000 have

been performed in 2007, which enabled the company to increase the total of
their sales of $64,863,000 in 2008, according to the income statement. Here
resides another strength of the company in that investments have been well
managed and expenses covered by the 2008 sales. On a long term basis,
McInnes, the director of the company has set up a strategic plan in 2007 in order
to increase the firm profit within 2012, and yet, results are already noticeable in
2008, thanks to the creation of new stores and the creation of the American
Express Card for example. This is really promising about the company’s future.