Mothercare's Business Analysis
1. Brief introduction to the company Mothercare is a British retailer specialising in products for parents, babies and children up to the age of eight (Wikipedia). The company has undergone several mergers and takeovers since 1982 to form Mothercare PLC today. At present, the company is comprised of 2 main retail brands – Mothercare and the Early Learning Centre (ELC). 2. Performance in the early years and problem years including causes of problems In general, the business has declined since 2011. Mothercare plc has shown lower profitability than its competitors such as M&S and Debenhams. This is shown in graphs of Return on Capital Employed (ROCE) for Mothercare plc and its competitors. However, negative cash flow from investing activities …show more content…
In 2013, there was a large decrease in tangible assets, which justified the company’s removal of some UK chain stores (Guardian, 2013). Sales revenue decreased but gross profit was higher; the loss was nearly 24% compared to that in 2012. Mothercare’s liquidity and efficiency also improved. Asset turnover increased by 0.4 percent, while current ratio increased by 0.15 to 1.31. In 2014, the company appointed Mark Newton-Jones as chief executive in the hope that his new policies would improve Mothercare’s performance. He mentioned that he would increase investment in infrastructure to boost Mothercare’s competitiveness (Guardian, 2014). Indeed, there was evidence showing his implementation and its success. In 2015, investments and other non-current assets increased by £4.7m. Looking at Mothercare’s financial ratios from 2014 to 2015, it can be seen that its performance in all aspects has improved. Intangible assets and goodwill also increased in 2015, reaching £63.4m in …show more content…
In 2016, there was a large cash withdrawal of £31.2m. In 2017, the cash and cash equivalents balance shown in the statement of financial position was zero. This lack of cash may be a result of the company’s high debt. In 2013, long term liabilities accounted for 44.8% of the company’s total assets. Gearing was highest in 2014, with debt/equity ratio at 2.37 and financial leverage at 19.74. Consequently, interest payments increased substantially and the company did not have sufficient capital to pay the interest. This is justified through negative interest coverage from 2012 to
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