Financial Analysis

Bringing all together, what we had learned so far about managing the business, it’s hard to disagree with the quote above. However, clearer not always means, without any doubts and if comparing business to a driving a vehicle than blockades, especially when other companies are blocking the traffic are like cars in a traffic jam. It is better to say that the similar situation took place in the floor-coverings market some time ago, when majority of British companies were facing serious recession problems in the carpet market spectrum they were operating on.

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Regarding UK floor-covering market it could be said that the ‘moderate increases’ had been indicated between 1999 and 2006 (http://www. marketresearch. com, Access date: November, 27, 2007). Although, some of the analyzed data are suggesting that dropping trend had been the major fashion for the whole market. Therefore the main aim of this analysis is to show that although the companies in overall market were facing serious problems, some of them were able to operate in a way that they were still generating profits.

Its is also worth to add that Carpetright’s business is not only operating in a field of carpet but it also sales laminate, vinyl flooring systems in about 350 UK stores and approximately 90 in Belgium, Holland and Luxembourg, which makes it the largest carpet retailer in Europe. (http://www. digitallook. com, Access date: November, 27, 2007)It could be said that the ROCE analysis is one of the most important ratios when it comes to examining the company’s profitability comparing to its rivals operating in the same area of business.

Therefore it is good to start from one that is the most relevant. It had been observed that each of the examined companies were experiencing rapid drops in ROCE indicator, it might mean that the whole market was facing similar problems in the same interval of time, especially in 2006-2007. It could be also observed that Carpetright’s drop in the ROCE ratio was not as significant as its rivals. This may indicate that even when facing similar difficulties, company was able to use its assets to generate the profit in a slightly better way than its competitors.

Although sometimes this ratio is not always saying all about company’s condition on the market in this case we are moderately confident about this value indication because 53. 43% (2007) is definitely higher than the rate at which money is borrowed. Therefore even some increase in borrowings will not reduce the shareholders’ earnings. (http://www. investopedia. com, Access date: December, 01, 2007) We can scrutinize that in the last two years Carpetright had been encountering some obstacles in terms of the sales turnover value.

On the other hand, they had been still doing relatively well among their rivals. We can see that despite their decreasing tendency they were still able to efficiently generate quite crucial sales turnover from assets. Carpetright has quite significant profit margins (14. 08% in 2007, 14. 22 in 2006) so actually they do not need to have enormous asset turnover value. It could mean that they had just decided to use a different pricing strategy. On the other hand for companies with low profit margins, the asset turnover should be greater.