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An Analysis of the Financial Performance of Truworths Limited

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Truworths Limited was incorporated in Zimbabwe in 1957 and has been operating as a retailer since then. The Company was listed on the Zimbabwe Stock Exchange in 1981, operating from 14 retail outlets comprising of Truworths Stores and Topic Stores.

The Company now operates under the following;
➢ Truworths Ladies which operates from 8 stand-alone outlets as well as from 2 other branches which are housed within Truworths Man. ➢ Truworths Man which operates from 6 stand-alone outlets and 2 other branches which are housed within Truworths Ladies. ➢ Topics which operates from 25 stores.

➢ Number 1 which operates from 21 outlets.
➢ Bravette, the manufacturing unit of the business is based in Harare and manufactures ladies wear sold through Truworths, Topics as well as Number 1. It also produces garments for the export market.

THE ANALYSIS OF THE FINANCIAL STATEMENTS OF TRUWORTHS LIMITED FOR THE THREE YEAR PERIOD 2010 TO 2012 The financial statements disclose the internal structure of the firm. They indicate the existing relationship between sales and each income statement account. They also shows the mix of assets that produce income and the mix of the sources of capital, whether by current or long-term debt or by equity funding. The primary objective of financial analysis is to forecast or determine the actual financial status and performance of a firm or project.


1. Profitability ratios
Profitability is the net result of a number of policies and decisions. These ratios, give users a good understanding of how well the company utilized its resources in generating profit and shareholder value. Profitability ratios show the combined effects of liquidity, asset management and debt on operating results. These ratios examine the profit made by the firm and compare these figures with the size of the firm, the assets employed by the firm or its level of sales.

a. Return on Capital employed (ROCE)
It compares input and output and hence assesses the effectiveness with which funds have been deployed. ROCE measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.

ROCE = (Net profit before interest and tax) X 100
Capital Employed

|Year |2012 |2011 |2010 | |Net Profit |881,566 |2,353,907 |774,599 | |Capital Employed |4,319,855 |3,672,177 |1,934,724 | |ROCE |0.20 |0.64 |0.40 |

Capital was employed into commitments which include all projects for which specific board approval has been obtained. These commitments where financed by cash generated from operations and existing facilities from financial institutions. These commitments included factory and stores development, purchase of motor vehicles and computer infrastructure. ROCE was 40% in 2010 and rose to 64% in 2011. It then rose at a decreasing rate by 20% in 2012. This meant that the organization was achieved a return of $20 net profit for every $100 invested. This decrease is attributed to the increase in capital employed. b. Gross Profit as a Percentage of sales

Gross profit is the difference between sales and costs of sales. The ratio measures the efficiency of buying and producing and selling of goods before other expenses are taken into account. Gross Profit as a Percentage of sales = Gross Profit X 100


|Year |2012 |2011 |2010 | |Gross Profit |11,166,480 |11,648,234 | 6,692,053 | |Revenue |22,014,401 |22,526,089 |13,184,174 | |GP as % of Sales |0.51 |0.52 |0.51 |

The company’s revenue increased from $13,184,174 in 2010 to 22,014,401 in 2012. This was attributed to an increase in credit sales which was boosted by an increase in credit terms from 3 months to pay to 6 months to pay. The increase in credit terms made the merchandise affordable, hence the increase in turnover. The gross profit was increasing at the same rate as revenue because demand absorbed more units at the same rate. This explained the constant percentage in the gross profit as a percentage of sales ratios. In 2010, gross profit as a percentage of sales ratio was 51%, rose to 52% in 2011, before decline to 51% in 2012. The ratio shows that for every $100 of sales revenue $51 was gross profit in 2012, $52 in 2011 and $51 in 2010. This was before subtracting any operating expenses. The gross margin was lower in 2012 than 2011 due to an increase in promotional activities.

c. Net Profit as a percentage of sales
Net profit ratio gives us the net profit that the business is earning per dollar of sales. This margin indicates the profit after all the costs have been incurred. It shows what percentage of turnover is represented by the net profit. An increase in the ratios indicates that a firm is producing higher net profit of sales than before.Net profit before interest and taxation is used as it represents the profit from trading operations before any costs of servicing long term finance are taken into account.

Net Profit as a percentage of sales = Net Profit X 100

|Year |2012 |2011 |2010 | |Net Profit |881,566 |2,353,907 | 774,599 | |Revenue |22,014,401 |22,526,089 |13,184,174 | |Net as % of Sales |0.04 |0.10 |0.06 |

In 2010, net profit as a percentage of sales ratio was 6%, it rose to 10% in 2011, before decline to 4% in 2012. Thus, for every $100 of sales revenue the organization earned $4 as net profit in 2012, $10 in 2011 and $6 in 2010. This was after deduction all the operating expenses.

d. The level and percentage changes of total revenues, the components of revenues, cost of sales, major expenses, operating income, net income

Absolute and percentage changes in total revenue
| |Year 2012 |Year 2011 |Year 2010 | |Revenue |23,058,976 |23,647,422 |13,397,235 | |Absolute change from prior year |(588,446) |10,250,187 | | |Percentage % from prior year |(2, 49) % |76, 51% | |

There was a marked increase of $10,250,187 is revenue from the year 2010 to 20111. This represented a 76, 51% increase. However, for the period 2012 revenue decreased by 2, 49%, an absolute decrease of $588,446. This was because a six month credit facility was introduced in the financial period ended 2010 and 2011. This was characterized by a high demand for credit and this pattern was not repeatable in the financial period 2012.

Absolute and percentage changes in the components of revenue The revenue of Truworths Limited is composed of sales for the retail merchandise, interest received from the accounts receivable (debtors), dividend received from subsidiary and other income. Other income is made up of management fees from subsidiaries and profit from the sale of plant, property and equipment.

Retail merchandise sales
| |Year 2012 |Year 2011 |Year 2010 | |Retail merchandise sale |22,014,401 |22,526,089 |13,184,174 | |Absolute change from prior year |(511,688) |9,341,915 | | |Percentage % from prior year |(2, 27) % |70, 86% | |

Retail merchandise sales increased by $9,341,915 from the year 2010 to 2011. This represented a 70, 86% increase. However, for the period 2012 the retail merchandise sale decreased by 2.27%, an absolute decrease of $588,446. This was because a six month credit facility was introduced in the financial period ended 2010 and 2011. This was characterized by a high demand for credit and this pattern was not repeatable in the financial period 2012.

Factory sales to 3rd parties
| |Year 2012 |Year 2011 |Year 2010 | |Factory sales to third parties |57,729 |57,321 |4,193 | |Absolute change from prior year |408 |53,128 | | |Percentage % from prior year |0, 71% |1,267% | |

Factory sales to 3rd parties increased by 1.267% from $4,193 to $57,321 from the financial period 2010 to 2011. This was an increase of $53,128. From the financial period 2011 to 2012 the sales increased relatively by 0.71%.

Interest receivable and other interest
| |Year 2012 |Year 2011 |Year 2010 | |Interest receivable & other |917,709 |1,028,064 |187,057 | |Absolute change from prior year |(110,355) |841,007 | | |Percentage % from prior year |(10, 73) % |449, 6 % | |

Finance income rose by $841,007 from the financial year 2010 to $1,028,064 in financial year 2011 (449, 6% increase). For the financial year ending 2012, finance income decreased by 10, 73%. The decrease is attributed to better performing debtors.

Absolute and percentage changes in the cost of sales
| |Year 2012 |Year 2011 |Year 2010 | |Cost of sales |10,847,921 |10,877,855 |6,492,121 | |Absolute change from prior year |(29,934) |4,385,734 | | |Percentage % from prior year |(0. 26)% |67. 56% | |

Costs of sales increased by 67, 56% from the financial year 2010 to 2011. For the period 2012, the cost of sales declined by 0.26%.

Trading Expenses
| |Year 2012
|Year 2011 |Year 2010 | |Depreciation and amortization |419,763 |394,265 |217,966 | |Absolute change from prior year |25,498 |176,299 | | |Percentage % from prior year |6.47% |80.88% | | | |Year 2012 |Year 2011 |Year 2010 | |Employment costs |3,526,937 |2,999,779 |1,981,737 | |Absolute change from prior year |527,158 |1,018,042 | | |Percentage % from prior year |17.57% |51.37% | | | |Year 2012 |Year 2011 |Year 2010 | |Occupancy costs |2,717,134 |2,403,423 |1,777,892 | |Absolute change from prior year |313,711 |625,531 | | |Percentage % from prior year |13.05% |35.18% | | | |Year 2012 |Year 2011 |Year 2010 | |Trade receivable costs |405,579 |650,977 |284,393 | |Absolute change from prior year |(245,398) |366,584 | | |Percentage % from prior year |(37.7)% |128.90% | | | |Year 2012 |Year 2011 |Year 2010 | |Other operating costs |3,008,964 |2,924,491 |1,554,053 | |Absolute change from prior year |84,473 |1,370,438 | | |Percentage % from prior year |2.89%%
|88.19 | |

The trading expenses are mainly made up of depreciation and amortization, employment costs, occupancy, trade receivable and other operating costs. From the financial period 2010 to 2011, trading expenses increased by 61.16%. For the financial year 2012, the trading expenses increased by 7.53%. This was attributed to; ➢ Depreciation and amortization increased by 6.5% owing to capital expenditure of $899,323 in the period, as well as the capital expenditure of $895,784 in the prior year that was depreciated for the full financial period. ➢ Occupancy costs (13.1% growth). A net 3 stores opened from July 2011 to June 2012. Basic rental went up combined 30 ➢ Employment costs (17.6% growth). Basic salaries up 18.18%, medical aid went up 51% due to increase in tariff and more staff joining the scheme. Additional pension due to combining transport with basic salary in line with National Employment Council ruling.

Absolute and percentage changes in net income
| |Year 2012 |Year 2011 |Year 2010 | |Net income |1,067,853 |2,326,474 |963,460 | |Absolute change from prior year |(1,258,621) |1,363,014 | | |Percentage % from prior year |(54.10)% |141.47% | |

Net income increased by 141.47% from the financial year 2010 t0 the financial year 2011, before decreasing by 54.10% in the financial year 2012.

Trends in relationships
In analyzing trends, a firm’s present ratio is compared with its past and expected future ratios to determine whether the company’s financial condition is improving or deteriorating over time. By looking at the trend of a particular ratio, one sees whether the ratio is falling, rising, or remaining relatively constant. This helps to detect problems or observe good

Cost of sales as a percentage of revenue
| |Year 2012 |Year 2011 |Year 2010 | |Revenue |23,058,976 |23,647,422 |13,397,235 | |Cost of sales |10,847,921 |10,877,855 |6,492,121 | |Cost of sales as a % of revenue |47.04 % |46 % |48.46 % |

Cost of sales as a percentage of sales was 48.46% in the financial year ending 2010. The ratio decreased slightly to 46% in 2011 and increased to 47.04% in 2012.

Other income as a % of revenue
| |Year 2012 |Year 2011 |Year 2010 | |Revenue |23,058,976 |23,647,422 |13,397,235 | |Other operating income |647,677 |1,737,453 |714,487 | |Other income as a % of revenue |2.81 % |7.35 % |5.33 % |

The ratio was 5.33% in 2010 and rose to 7.35% in 2011. The was a significant decrease in 2012 to 2.81%

Net income as a % of revenue
| |Year 2012 |Year 2011 |Year 2010 | |Revenue |23,058,976 |23,647,422 |13,397,235 | |Operating profit/net income |387,654 |1,464,990
|661,081 | |Net income as a % of revenue |1.68 % |6.2 % |4.93 % |

The ratio was 4.93% in 2010 and rose to 6.2% in 2011. The was a significant decrease in 2012 to 1.68%

2. The causes of changes in the components of income statement accounts

Revenue – Revenue comprises all sales of retail merchandise, factory sales to third parties and interest receivable. Increases of retail merchandise sales and an increase of interest receivable had the effect of increasing the composite income.

Cost of sales – Cost of sales includes all costs of purchase, costs of conversion, and other costs incurred in bringing inventories to their present location and condition. Costs of purchase comprise the purchase price, royalties paid, import duties and other taxes and transport costs.

Trading Profit – Trading profit or operating income from continuing operations – This comprises all revenues net of returns, less the cost and expenses related to the generation of these revenues. The costs deducted from revenues are the costs of sales and trading expenses.

Trading expenses – Trading expenses are mostly composed of depreciation and amortization, employment cost, occupancy costs, trade receivable costs, and other operating costs. Other operating costs include audit fees, advertising and marketing, and insurance cost.

The development of 4 new stores and refurbishment of other stores led to the increase in depreciation and amortization charges, occupancy/rental costs. Also any increase in leases and rental also had the effect of increasing the occupancy costs. The purchase or investment of fixed assets also increased depreciation and amortization charges and insurance costs.

Net income from continuing operations – This component takes into account the impact of taxes from continuing operations.

3. The effect of “one-time” gains or losses on net income and on the calculation of trends in earnings There were no one-time gains during these financial periods.

4. The effect of major acquisitions or divestitures on revenues, expenses, or net income The financial year ending 2012 saw the organisation investing in non-current assets. The major acquisitions were store development (4 new stores) and refurbishment, investment in computer technology and infrastructure, fiscalisation printers, passenger motor vehicles, commercial vehicles, factory machinery and other appliances.

Effects on revenue
The development and refurbishment of stores has the effect of increasing revenue as more outlets will be available. The purchase of factory machinery and computer technology can also increase revenue since efficiency and productivity is improved. The purchase of passenger motor vehicle for the management will increase their morale and motivation, and hence ultimately improve productivity. Commercial vehicles will ensure faster delivery of products to our branches. This may/will increase sales as all the products will be available.

Effects on expenses
All the major acquire will generate running expenses, maintenance, and insurance and depreciation charges. New stores will incur new and higher rental/ leasing charging charges. Hence, the investment or these major acquisitions will result in an increase of trading expenses.

Effect on net income
An increase in revenue necessitated by these major acquisitions has the effect of increasing net profit. On the other hand the increase in trading expenses necessitated by these major acquisition tend to reduce net income as more expenses are subtracted from the gross income.


1. The level and percentage changes in cash, inventory, working capital, fixed assets, and debt

| |Year 2012 |Year 2011 |Year 2010 | |Inventory |5,634,378 |4,680,254 |2,543,541 | |Absolute change from prior year |954,124 |2,136,713 | | |Percentage % from prior year |20.39% |84.01 | |

Inventory increased by 84% from the prior year in the financial year 2011. In the financial year ending 2012, inventory increased marginally by 20.39%. This mainly attributable to an increase in finished goods. Trade receivables

| |Year 2012 |Year 2011 |Year 2010 | |Trade receivables |6,989,120 |5,670,562 |2,617,280 | |Absolute change from prior year |1,318,558 |3,053,282 | | |Percentage % from prior year |23.25% |116.66% | |

Trade receivable increased by $3,053,282 in the year 2011. This represented an increase of 116.66% by. This was attributed to the introduction of a six month credit facility. In the financial year 2012 trade receivable increased by 23.25% due to a net decrease in the credit facility.

Cash and cash equivalents
| |Year 2012 |Year 2011 |Year 2010 | |Cash and cash equivalents |369,042 |466,621 |414,165 | |Absolute change from prior year |(97,579) |52,456 | | |Percentage % from prior year |(20.91) |12.67 | |

Cash and cash equivalents are made up of cash and balances with banks. Balances with banks comprise current account balances and short-term deposits. The cash and cash equivalent rose to by 12.67 % in FY2011. It however, declined by 20% in the financial period 2012.

Working Capital
| |Year 2012 |Year 2011 |Year 2010 | |Working Capital |2,303,052 |1,762,708 |1,070,734 | |Absolute change from prior year |540,344 |691,974 | | |Percentage % from prior year |30.65% |64.63% | |

Working capital measures how much in liquid assets a company has available to for its business. In general, companies that have a lot of working capital will be more successful since they can expand and improve their operations. There was an increase of working capital as it rose to 64.63% in 2011. In the financial year 2012 the ratio decreased to 20%. This shows a good short term liquidity efficiency.

Fixed Assets/ non-current assets
| |Year 2012 |Year 2011 |Year 2010 | |Fixed Assets |3,215,822 |2, 947,259 |1,281,520 | |Absolute change from prior year |268,563 |1,665,739 | | |Percentage % from prior year |9.11% |129.98% | |

There was an increase in fixed assets as there were major acquisition during 2011 and 2012. Fixed assets increased by 129.98 % in 2011 and it also increased on a low rate of 9.11% in 2012.

| |Year 2012 |Year 2011 |Year 2010 | |Debt |7,456,258 |6,112,295 |2,870,191 | |Absolute change from prior year |1,343,963 |3,242,104 | | |Percentage % from prior year |22% |112.96% | |

Short-term borrowings increased by 112.96% in 2011. This cash was used to fund operations. For the period 2012, debt increased by 22%.

2. The trend in the current, acid test, debt-to-assets, and debt-to-equity ratios

Current Ratio
This ratio indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. Current assets are important to businesses because they are the assets that are used to fund day-to-day operations.

Current Ratio = Current Assets / Current Liabilities

| |Year 2012
|Year 2011 |Year 2010 | |Current Assets |13,792,591 |11,410,433 |6,019,945 | |Current Liabilities |10,576,770 |8,463,174 |4,949,211 | |Current Ratio |1.30 |1.35 |1.22 |

The current ratio for the financial year 2012, 2011 & 2012 is 1.30, 1.35 & 1.22 respectively. Compared to standard ratio 2:1 this ratio is lower which shows low short term liquidity efficiency. At the same time holding less than sufficient current assets mean inefficient use of resources

Acid test ratio
This shows that, provided the creditors and debtors are paid at the same time, a view can be made as to whether the business has sufficient liquid resources to meet its current liabilities.

Acid test ratio = (Current assets –inventory) /current liabilities

| |Year 2012 |Year 2011 |Year 2010 | |Current Assets – inventory |8,158,213 |6,730,179 |3,476,404 | |Current Liabilities |10,576,770 |8,463,174 |4,949,211 | |Acid test Ratio |0.77 |0.80 |0.70 |

The acid test ratio for the financial year 2012, 2011 & 2012 is 0.77, 0.80 and 0.70 respectively. This indicates that the business is in trouble as it may find it difficult to pay its current liabilities on time.

Inventory Turnover
This measures how efficient the business is in maintaining inventory at an appropriate level. Inventory Turnover = (Cost of sales/average inventory) X 365

| |Year 2012 |Year 2011 |Year 2010 | |Inventory |5,634,378 |4,680,254 |2,543,541 | |Cost of sales |10,847,921 |10,877,855 |6,492,121 | |Average stock turnover |189.58 days |157.04 days |143.00 days |

The inventory turnover ratio for the financial year 2012, 2011 & 2012 is 189.58 days, 157.04 days and 143 days respectively. This indicates that the business is holding on to inventory for a long period.

Account receivable/sales ratio
This shows the length of time debtors take to pay.

Account receivable/sales ratio = (Trade receivable/sales) X 365

| |Year 2012 |Year 2011 |Year 2010 | |Trade receivables |6,989,120 |5,670,562 |2,617,280 | |Sales |23,058,976 |23,647,422 |13,397,235 | |Accounts receivable/sales ratio |115.88 days |91.88 days |72.46 days |

The ratio increased from and was 72.46 days, 91.88 days and 115.88 days in the year 2010, 2011 and 2012 respectively. This shows an increase in the length of time debtors are taking to pay.

Creditors/ purchases ratio
This shows the length of the company is taking to pay its creditors.

Creditors/ purchases ratio = Trade receivables/ purchases

| |Year 2012 |Year 2011 |Year 2010 | |Trade creditors |1,920,719 |1,281,418 |1,125,247 | |Cost of sales |10,847,921 |10,877,855 |6,492,121 | |Creditor/purchases ratio |64.66 days |43 days |63.26 days |

The ratio for the three financial years shows that on average the company is taking to money to pay its creditors.

Debt Ratio
This ratio measures the percentage of funds provided by the creditors. The proportion of a firm’s total assets that are being financed with borrowed funds. The higher the ratio, the more leverage the company is using and the more risk it is assuming.

Debt Ratio = Total Debt / Total Assets

| |Year 2012 |Year 2011 |Year 2010 | |Total Debt |7,456,258 |6,112,295 |2,870,191 | |Total Assets | 5,340,578 |4,660,554 |2,352,254 | |Debt Ratio |1.39 |1.31 |1.22 |

The debt ratio for the three financial years is indicating that the company is leveraged. This means that the debt is higher than its total assets and the company is financing its operations through debt.

Debt to Equity Ratio:
The ratio provides detail of the amount of leverage that a company has in relation to the monies provided by shareholders. The debt to equity ratio gives the proportion of a company (or person’s) assets that are financed by debt versus equity.

Debt to Equity Ratio = Total debt / Total Equity
| |Year 2012 |Year 2011 |Year 2010 | |Debt |7,456,258 |6,112,295 |2,870,191 | |Total Equity |4,319,855 |3,672,177 |1,934,724 | |Debt to equity ratio (Gearing) |1.73 |2.03 |3.85 |

A high debt to equity ratio implies that the company has beenaggressively financing its activities through debt and therefore must pay interest on this financing. We can see from the above calculations that this ratios continuously decreasing in the last three years.

Earnings per Share
The portion of a company’s profit allocated to each outstanding ordinary shares. Earnings per share serve as an indicator of a company’s profitability.

Earnings per Share: Earnings Per Share = Profit after Taxation | |Year 2012 |Year 2011 |Year 2010 | |Profit after tax |647,678 |1,737,453 |714,487 | |Ordinary shares in issue |373,570,622 |373,570,622 |373,570,622 | |EPS
|0.002 | 0.005 |0.002 |

The ratio shows that returns for ordinary shareholders were 0.002, 0.005 and 0.002 for the financial period 2010, 2011 and 2012 respectively.

Price / Earnings Ratio
The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings. As such, high P/E Ratios are associated with growth stocks. The P/E Ratio also indicates how expensive the particular shares are.

Price / Earnings Ratio = Market Price Per Share/Earning Per Shares

| |Year 2012 |Year 2011 |Year 2010 | |Market Price |0.0351 |0.073 |0.016 | |Earnings per share |0.002 |0.005 |0.002 | |Price/earnings ratio |20.25 |15.7 |8.10 |

The P/E ratio increased from 8.10 in the year 2010 to 20.25 in the year ending 2012.

Due to the prevailing liquidity constraints, the company did not declare any dividend.

3. The relationship between cash and investments, cash and current liabilities, and investments and debt;

Relationship between cash and current liabilities
| |Year 2012 |Year 2011 |Year 2010 | |Cash |369,042
|466,621 |414,165 | |Current liabilities |10,576,769 |8,463,174 |4,949,211 | |Cash as a % of current liabilities |3.49% |5.51% |8.37% |

Cash as a percentage of current liabilities was 8.37% in the final year 2010. In 2011 it increased by 5.51% and again by 3.49% in 2012.

4. The relationship between changes in receivables or inventory and changes in revenues

Relationship between trade receivables and revenues
| |Year 2012 |Year 2011 |Year 2010 | |Trade receivables |6,989,120 |5,670,562 |2,617,280 | |Revenue |23,058,976 |23,647,422 |13,397,235 | |Receivables as a % of revenue |30, 31 % |23, 98 % |19, 54 % |

Trade receivables as percentage of revenue were 19.54 % in 2010, increased to 23.98% in 2011 and finally 30.31% in 2012. Relationship between inventory and revenue
| |Year 2012 |Year 2011 |Year 2010 | |Inventory |5,634,378 |4,680,254 |2,543,541 | |Revenue |23,058,976 |23,647,422 |13,397,235 | |Inventory as a % of revenue |24, 43 % |19, 79 % |18, 99 % |

Inventory as percentage of revenue were 18.99 % in 2010, increased to 19.79%
in 2011 and finally 24.43% in 2012.

5. The relationship between increases in fixed assets and a company’s desire to expand operations The companies fixed assets as at end of financial period 2012 was $2,303,052, $1,762,708 in 2011 and $1,281,520 in 2010. This shows a trend of increase in the value of fixed assets.

6. The potential implications of having large cash balances, in terms of acquiring other companies or being an acquisition target

A cash balance refers to any liquid assets available to the business. The most common types of liquid assets are cash and short-term loans. The implications of having large cash balance are;

Cash flow
One advantage to having a large amount of cash on hand is it is easier to manage cash flow. The business has enough resources of acquiring the target company.

Investor Friendly
Many investors prefer companies that have a large cash reserve. The cash reserve means the company can weather an economic storm and is a good bet for investment. In publicly traded companies, increased investment can lead to greater share. For smaller companies, large cash reserves can signal to potential investors that the company is well capitalized and might be a good investment.


| | 2012 | 2011 |2010 | |Cash generated from trading and cash EBITDA |1,568,449 |2,918,504 |1,223,072 | |Working capital movements |(1,912,602) |(5,250,552)
|(3,093,995) | |Cash utilised in operations |(344,153) |(2,332,048) |(1,870,923) | |Net interest (paid) / received |(186,287) |27,433 |(188,861) | |Interest paid |(1,103,996) |(1,000,631) |(375,918) | |Interest received |917,709 |1,028,064 |187,057 | |Taxation paid |(50,509) |(35,604) |(15,561) | |Net cash utilized in operating activities |(580,949) |(2,340,219) |(2,075,345) | |Acquisition of property, plant and equipment |(828,761) |(750,968) |(369,031) | |Acquisition of intangible assets |(70,562) |(144,817) |- | |Proceeds on disposal of PPE |38,730 |46,355 |13,318) | |Net cash utilized in investing activities |(860,593) |(849,430) |(355,713) | |Increase in short term borrowings |1,343,963 |3,242,104 |2,784,107 | |Cash flows from financing activities |1,343,963 |3,242,104 |2,784,107 | |NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS |(97,579) |52,455 |353,049 |

1. The appropriateness of increasing fixed assets in order to expand The use of cash for the acquisition of fixed asset for expansion decrease liquid cash that would have been used for other investment projects. Cash was used for the acquisition of various fixed assets. These assets include motor vehicles, computer infrastructure, store development and factory development and distribution facilities.

2. The appropriateness of divestitures of businesses in underperforming areas Divestiture of underperforming assets gives us an inflow of cash from the proceeds of the sale. This is also necessary because cash is saved that would have been used for maintaining the underperforming assets.

3. The risks and appropriateness of obtaining financing through debt Finance obtained through debts has a cost attached to it in the form of interest. The interest has to be paid and it reduced our cash balances. The cash so received will be will the cash balances.


1. The importance of customer service and customer satisfaction Customer service and satisfaction is important because keeping customers satisfied is a competitive advantage against competitors. Customer satisfaction carries great importance to the organization for it is considered that gaining new customers create more costs than protecting existing customers from leaving. Customers are loyal, prepared to pay more, cost less to serve and satisfied customers are likely to recommend our products and services. Retaining our existing customers prevents competitors from gaining market share. Thus, customer satisfaction plays a great role for the company because of the above given reasons. The organization has made sure that it gives quality services and product of high quality to its customers. All the merchandise products are brand products.

2. The relative standing of the company in customer satisfaction rankings and in market share The products of the company are well sought after as evidence by the increase in sales. The company is facing stiff competition from other high market retail stores like Edgars Stores and Meikles. Edgars Stores with its 32 branches control about 45% of the market share with the remaining share being shared between Meikles Limited and Truworths Stores. If Truworths invest in customer satisfaction it can win back the market share that has and become the market leader. An increase in market share means an increase in total revenue.

3. The importance of marketing campaigns to maintaining and increasing market share Through marketing campaigns the company can win a significant portion of the market share. Marketing campaigns are necessary for they make sure that all our customers, whether old or new, know about the new changes in your company. In addition, the cohesiveness of the campaign will make it even stronger and believable. The marketing campaigns can be done at corporate function and use of fliers.

4. The importance of proper geographic selection and political stability Geographic location of the business is the most important factor influencing its success or failure. It is a long-term decision which should take into consideration not only the present requirements of the organisation but also its future expansion plans. Errors in location may be very difficult and expensive to rectify. The retail shops are located in major towns in the central business districts across Zimbabwe. This brings our products and services closer to the market. Customers do not have to travel to other towns in search of our products. There are also many branches that are dotted around major cities.

Political stability of a country is very important for investment decisions. The analysis of the business is mainly based on its political stability. Political grand standing like the apparent divisions in the inclusive government do not auger well for a stable business environment. Also the conflicting government policies or stances on policies not only confuse the business community but also stall the current economic recovery process. A good example would be the indigenization law whose implementation has raised more uncertainty. The uncertainty over the timing of the elections, combined with the mixed policy messages coming from the current inclusive government negates the business environment and is weighing heavily on the country’s ability to attract much-needed foreign investment. It also affects the growth aspects on the organisation.

Hence political instability has a greater impact on business and it may make them reluctant to invest in new capital or enter new markets. Political instability entails that customers limited access to high quality products and services; it entails a breakage in the supply chain distribution system.

5. The impact of government regulations
Government regulations are imposed for several reasons. There are some regulations which are instituted to control monopolies and anti-competition. This means that the business expansion is affected and profit minimum under such conditions as the laws are very much restrictive. Government regulations have the effect of reducing innovation, investment in plant and equipment and increased pressure on small business. The benefit of government regulation is that it ensures fair treatment of employees, safer working conditions, safer products and cleaner and healthy environment.

6. The impact of changes in general economic conditions
Despite the economic stability prevailing, difficulties remain in the overall economy characterized by low productive economic activity. This manifests itself in liquidity problems, low employment levels and low disposable incomes. High unemployment levels and relatively low disposable incomes continue to hinder a sustainable recovery in consumer spending. Against this background, retail trading conditions are expected to be difficult. Management continues to focus on driving quality sales growth, prudent credit management, containing expense growth and reducing borrowings. However, an improvement in the economic condition will mean that employees have more disposal income. This will translate into increased cash sales, a decrease in the credit environment and increase in productive economic activities. The current liquidity crisis will subside and new investment initiatives will be undertaken.

7. The quality and stability of senior management
The management and directors of the company are very much experienced in the nature and operations of the business. The board is composed of seasoned business executives of high moral character. There has been retirement by some board member on AMG when their term has expired. This is necessary for good corporate governance. The management possesses sufficient relevant experience and knowledge to operate the business effectively. They also have the sufficient relevant experience and knowledge in their areas of responsibility. The management has also established clear operating and financial objectives for the organization. The control system includes written accounting and control policies and procedures, clearly defined lines of accountability and delegation of authority, and comprehensive financial reporting and analysis against approved budgets. The responsibility for operating the system is delegated to the Executive Directors who confirm that they have reviewed its effectiveness. The effectiveness of the internal financial control system is monitored through management reviews and a comprehensive programme of internal audits.

8. The company’s emphasis on social responsibility and ethical business practices The company is committed to high levels of corporate governance which is essential for the sustainable development of the company and for long term shareholder value creation. The responsibility to safeguard and respect the interests of all stakeholders is recognized by management. The company’s objective is to be profitable in a manner which conforms to strict requirements for transparency, acknowledges its accountability to broader society and complies with all legislations, relevant International Financial Reporting Standards (IFRS’s) and sound management practices.

The company has a policy on business conduct, which covers ethical behavior, compliance with legislation and sound accounting practice. This underpins the company’s internal financial control process.

The company is headed by a Board which leads and controls the company. The Board is made up of 3 Executive and 4 Non-Executive Directors. The Chairman is a Non-Executive Director. The Board meets at least quarterly with the responsibility for strategic and policy decisions, the approval of budgets and the monitoring of the performance of the Company. Executive Management presents structured reports, to allow the Board to evaluate performance. The Board has constituted the Audit and Remuneration Committees to assist it in the discharge of its responsibilities.


The financial statements of Truworths Limited reveal the following;

➢ Profitability
The company has been obtaining ROCE above 20% for the past three periods. This means that management is efficient in utilizing its equity base and is giving better return to its investors.

➢ Liquidity
The liquidity ratios although less than the standard shows that the company is fairly liquid.

➢ Efficiency
The company should improve on the efficiency utilization of working capital. The creditors to purchases ratio indicates that we are paying our creditor in two months period. However, the debtors are taking to long to pay. This creates a miss match of.

➢ Debt
The debt ratio for the three financial years is indicating that the company is leveraged. This means that the debt is higher than its total assets and the company is financing its operations through debt.

➢ Earnings per Share
The earnings per share for the company indicate that the company is making profits.

I recommend that it is worthwhile to make an investment in Truworths Limited for the company has got the potential of increasing shareholder value.

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