1. UMAD47-15-M Managing Finance
Answer:
Introduction
In 1981, John Wardle and David Makin founded the JD sports fashion firm. JD Sports
Fashion, established in the United Kingdom, is the world's largest multi-channel retailer and
supplier of branded and own-brand sportswear and fashionwear (Robinson 2021).
In Bury, Greater Manchester, the firm built its first store in 1981. JD Sports Fashion has
outlets all around the world, along with the Asia, Australia, United Kingdom, he United
States, and New Zealand Its headquarters are in Bury, Greater Manchester, England.
The company deal in sport and athletic-inspired fashionable clothing and footwear, as well
as outdoor gear, through over than 2,600 locations under more than 15 brands. JD Sports
stores carry Adidas, Puma, and Nike footwear and clothes for men, women, and children,
among other brands. JD Gyms is the name of a chain of gyms that has about 30 sites. JD
Sports Fashion is owned by Stephen Rubin's Pentland Group, which controls 55 percent of
the company. The United Kingdom accounts for the majority of JD Sports' sales (dnb.com
2021).
Background: JD Sports Fashion
JD Sports fashion is one of the largest companies in the world, with competitors like as Foot
Locker, Zumiez, Academy Sports + Outdoors, and Skechers. Sports Fashion and Outdoor are
the two sectors of JD Sports Fashion Plc. S ports Fashion segments include JD Sports Fashion
Plc, Spodis SA, JD Sprinter Holdings 2010 SL, JD Sports Fashion Germany GmbH, JD Sports
Fashion SRL, JD Sports Fashion BV, Focus Brands Limited, Kukri Sports Limited, Topgrade
Sportswear Limited, John David Sports Fashion (Ireland) Limited, and Champion Sports
Ireland, The Outdoor division is made up of Tiso Group Ltd, ActivInstinct Limited, and
Blacks Outdoor Retail Ltd. (Forbes 2021).
JD Sports Fashion Plc was purchased by the Pentland Group for 57.5 percent in 2005.
Chausport, a French sports store, was bought by JD Sports Fashion Plc in 2009, marking the
Group's first international presence and foray into Europe. Sprinter, a renowned Spanish
2. sports shop specializing in footwear, clothes, and equipment, was bought by The JD Group
in 2011, marking the Group's first foray into Spain. Hot-T, a South Korean retailer of sports
branded footwear, was bought by the JD Group in 2017. Finish Line, a sports clothes shop
with 44 locations in the United States, was bought by The JD Group in 2018. Columbus,
Houston, Washington, Chicago and Indianapolis were the first five JD Sports stores to open
in the United States. The JD Group bought DTLR and 80 percent of Greece-based Cosmos
Sport S.A. in 2021 (Jdplc.com 2021).
JD Sports Fashion increased its revenue to £3,885.8 million throughout the first half (H1) of
FY21, which concluded on July 31, 2021, compared to £2,544.9 million in the previous year.
A handful of newly acquired firms drove the group's achievement during the last six
months.
In 2009.
Objectives
JD Sports Fashion sells footwear and clothing for men, women, and children under many
brands and sub-brands all over the world. They maintain a high-level quality standard in
their products. JD Sports Fashion's main goal is to identify its target customer groups, as
well as about their requirements and expectation and how its products and services
contribute to its target consumers' increased satisfaction.
JD Sports Fashion is likewise putting a strong emphasis on employment creation.
The ultimate aim of JD Sports Fashion is to achieve long-term consistent profit growth
throughout order to enhance Total Shareholder Returns ('TSR'), which includes share price
performance and dividends, while keeping financial freedom to invest in the consistency
and expansion of their services.
Methodology
The variety of methods are available for analysing a company's overall performance,
including ratio not uncommon length regression analysis and finance ratio analysis. These
methods may be used to determine JD Sports Fashion's strengths and weaknesses within
the business. We apply the data from the annual report statements for ratio assessment in
the majority of the tactics that we use during the evaluation of JD Sports Fashion firms. To
gather all relevant information about JD Sports Fashion's financial statements by
conducting a search on the company's website.
However, the statistics in an annual report do not necessarily foretell a company's future
performance since numerous external factors can influence a company's performance, such
as product design and range for specific customers, product quality, availability, and the
3. COVID-19 disaster. To the firm, but will also be able to generate new chances for it.
Data Collection And Calculations
JD Sports Fashion's most recent annual reports (2019, 2020, and 2021), as well as JD Sports
Fashion's share price history, were used to compile the data for this analysis. JD Sports
Fashion's ratios were determined using Microsoft Excel using the same methods to ensure
reliability and completeness. Microsoft Word will be used to construct the report.
Ratio Analysis: Profitability Ratio
Return On Capital Employed (ROCE)
An increase in ROCE is a positive indicator of a company's success (Corporate Finance
Institute 2021).
In the case of JD Sports Fashion, the ROCE in the year 2020 is 32% which is higher as
compare to the 29% in 2019. But in the year 2021, the ROCE is 23% which clearly indicates
that the ability to make profit by JD Sports Fashion is decreases.
Figure 1- Return on equity ratio % 2019-2021 comparison of JD Sports Fashion
Gross Profit Ratio
The Gross Profit ratio shows how much profit a firm makes after subtracting its Cost of
Goods Sold (COGS) (Corporate Finance Institute 2021).
According to the analysis, the gross profit ratio has increased marginally. The gross profit
ratio in 2021 is 48 percent, which is a slight rise over the gross profit ratio in 2020, which
was 47 percent. From the years 2019, 2020, and 2021, revenue has been steadily increasing.
This demonstrates that JD Sports Fashion's performance is improving.
Figure 2-Gross Profit Ratio 2019-2021 comparison of JD Sports Fashion
Net Profit Ratio
The net profit margin is a financial way of assessing a company's profit as a proportion of
total revenue. A decrease in net profit margin suggests that the firm is making a loss or that
it is operating at a high cost (Corporate Finance Institute 2021).
4. JD Sports Fashion's net profit ratio has been steadily declining year after year, with a net
profit ratio of 7% in 2019, 6% in 2020, and 5% in 2021. However, income has been steadily
growing over the last three years. The net profit ratio is decreasing due to increase is in
operating and other cost of the company.
Figure 3-Net Profit Ratio 2019-2021 comparison of JD Sports Fashion
Liquidity Ratio: Current Ratio
Current ratio indicates the higher the proportion, the much more liquid the company will be
(Readyratios.com 2021). The current ratio in 2020 is decreases as compare to the 2019. But
2021 current ratio is increases from 1.18 to 1.23.
Figure 4-Current Ratio 2019-2021 comparison of JD Sports Fashion
Quick Ratio
More assets may be quickly converted into cash as needed. This is excellent news for
investors, but it is even better news for creditors, as it ensures that they will be paid on
schedule (Bankrate 2021).
The quick ratio is 0.48 in the year 2019 which increase to 0.52 in 2020 and in 2021 it is
0.71. It clearly indicating that the quick ratio is continuously increases which means the
liquidity is also increases.
Figure 5-Quick Ratio 2019-2021 comparison of JD Sports Fashion
Cash Cover Ratio
The better your company's financial situation is, the greater its cash coverage ratio is (Bragg
2021). From 2019 to 2021, cash cover ratios were less than 1.0, showing that they didn't
have quite sufficient cash to pay down all of its creditors as rapidly as they could. I believe
that in the future, the JD Sports Fashion will have a tough time obtaining further loans or
money to expand their enterprises.
5. Figure 6- Cash Rover Ratio 2019-2021 comparison of JD Sports Fashion
Efficiency Ratio
Asset Turnover
When a company's turnover is high, it suggests the company's performance is also high. A
low asset turnover ratio indicates that a company's assets aren't being used effectively to
generate money. The assets turnover ratio of JD Sports Fashion is falling. In 2019, the assets
turnover ratio was 2.14, 1.41 in 2020, and 1.19 in 2021, the lowest in three years. This
research clearly shows that JD Sports Fashion is not maximizing the value of its assets to
generate income.
Figure 7- Asset Turnover Ratio 2019-2021 comparison of JD Sports Fashion
Inventory Turnover
Inventory turnover is a metric that measures how rapidly a firm can transform its stock into
cash and earnings. The rise and decrease in inventory turnover will have an influence on the
selling of goods and services, and its products are in high or low in demand. As per the
analysis, inventory turnover ratio in 2019 was 3.24 which is increases to 3.99 in 2020. But
in 2021 it decreases to 3.94.
Figure 8- Inventory Turnover Ratio 2019-2021 comparison of JD Sports Fashion
Problems
There are a few reasons why JD Sports Fashion's Gross Profit Ratio and Net Profit Ratio are
declining. These are the following:
According to social media comments, customers have suffered purchase delays and bad
customer service. Negative public perception of the brand might impact profits.
'Sale will decline as a result of heightened social distancing measures and lockdown limits
in accordance with Covid guidelines.
JD Sports Fashion had to cut the number of associates functioning in the distribution centre
due to new government guidelines. However, it really has caused some occasional shipment
delays for online orders (SharesMagazine 2021).
6. Recommendation
After analysing financial statements and ratios of JD Sports Fashion we found that the
overall performance of profitability ratio of JD Sports Fashion is decreased. This happened
because of increase in operating cost and other cost by the company. Company maintains
the liquidity ratio but in the efficiency ratio, assets turnover ratio is continuously falling
from the year 2019. I believe that even after 2021, the company would be able to make and
sell more products to nations over the online as well as in stores, affecting the company's
profitability in the coming year, and that following the crisis, more physical labour
adjustments will be made. To save expenses in the future, the corporation may limit the
usage of human labour and operational expenditures, and it will also need to focus on online
market segments.
Conclusion
By examining JD Sports Fashion's financial statements and ratios, we discovered that the
return on capital employed and net profit ration will decrease in 2021 as compare to the
year 2020 and 2019. It happened because of the impact on product sales caused by Covid 19
and the increase in operating and other cost of the company. In addition, the current year's
cash cover ratio is decreasing. However, the current ratio and quick ratios have increased
after 2020. both the assets turnover ratio and the inventory turnover ratio have decreased.
This indicates that JD Sports Fashion's performance in the current year is declining.
Due to a negative brand value evaluation by consumers, social alienation and lockdown
throughout the covid period, and a shortage of employees in covid 19, JD Sports Fashion's
earnings and performance would suffer.
Reference
Bankrate, 2021. Quick ratio Definition | Bankrate.com. [online] Bankrate. Available at:
[Accessed 30 December 2021].
Bragg, S., 2021. Cash coverage ratio — AccountingTools. [online] AccountingTools. Available
at: [Accessed 30 December 2021].
Corporate Finance Institute, 2021. Gross Margin Ratio. [online] Corporate Finance Institute.
Available at: [Accessed 30 December 2021].
Corporate Finance Institute, 2021. Net Profit Margin. [online] Corporate Finance Institute.
Available at: [Accessed 30 December 2021].
Corporate Finance Institute, 2021. Return on Capital Employed (ROCE). [online] Corporate
Finance Institute. Available at: [Accessed 30 December 2021].
7. dnb.com, 2021. JD SPORTS FASHION PLC. [online] https://www.dnb.com/. Available at:
[Accessed 30 December 2021].
Forbes, 2021. JD Sports Fashion. [online] Forbes. Available at: [Accessed 13 May 2021].
Jdplc.com, 2021. Our History - JD Group. [online] Jdplc.com. Available at: [Accessed 30
December 2021].
Readyratios.com, 2021. Current Ratio: definition, formula, norms and limits. [online]
Readyratios.com. Available at: [Accessed 30 December 2021].
Robinson, J., 2021. JD Sports: Everything you need to know about the retail giant. [online]
Business Live. Available at: [Accessed 30 December 2021].
SharesMagazine, 2020. Crisis brewing at JD Sports as orders delayed | Shares Magazine.
[online] Sharesmagazine.co.uk. Available at: [Accessed 31 December 2021].
