Dick Smith Holdings Limited | DSH | Retailing | ASX
Performance | Valuation | Growth | Summary | Balance Sheet | Income Statement | Cash Flow
A$ in Million. Fiscal year ends in January. Figures are consolidated and restated.
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Profitability Ratios
Operating, Net Profit Margin
The most important ratio is Net Profit Margin percentage or net margin. It tells us how much out of every sale DSH gets to keep after everything else has been paid for. It is highly variable from one industry sector to another. A higher operating margin means that the company has less financial risk. Significant fluctuations can be a potential sign of fraud or accounting irregularities.
Operating Margin = ( Operating Income ) / Revenue
Net Profit Margin = ( Net Income - Preferred Dividend ) / Revenue
Net Profit Margin = ( Net Income - Preferred Dividend ) / Revenue
Return on Equity - Dick Smith Holdings Limited
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From an investor's perspective, ROE is a key ratio. The ROE (after subtracting preferred shares) tells common shareholders how effectively their money is being employed. Look for a ROE greater 10%.
Median 0 year ROE of Dick Smith Holdings Limited : 0%
Return on Equity = ( Net Income - Preferred Dividend ) / Average Shareholder's Equity
Free Cash Flow - Dick Smith Holdings Limited
Free Cash Flow is a measure which is ignored by most investors. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its Property, Plant and Equipment (PPE) also called as Capital Expenditure (Capex). FCF can be used by the company to invest in other projects, thus enhancing shareholder value.
Free Cash Flow = Cash flow from operations - Capital Expenditure
Leverage Ratios
Current Ratio
Current Ratio measures the company's current assets against its current liabilities. Ideally the current ratio should be greater than 1.5. Avoid investing in companies whose current ratio is less than 1. There are exceptions to this rule, some good companies can have less than 1 or even a negative current ratio when they receive money faster from their customers than they have to pay to their vendors.
Current Ratio = Current Assets / Current Liabilities
Interest Coverage Ratio
An interest coverage ratio less than 1.5 is a red flag. The higher the ratio the less a company is burdened by debt. If a company has no debt or the loan interest is being paid by interest income from investments or other activities the ratio is zero which of course is excellent. A negative ratio tells us that the company cannot even pay its interest on loans from its operating income, stay far away from such companies.
Interest Coverage Ratio = Operating Income / Interest
Debt to Equity Ratio - Dick Smith Holdings Limited
Debt-to-Equity ratio varies across industries but many companies have a ratio larger than 1, that is they have more debt than equity. A high debt to equity ratio (2, for example) is worrisome, as it indicates a high amount of leverage. Capital intensive industries such as auto manufacturing tend to have a debt/equity ratio above 3, while IT companies have a debt/equity of under 0.5. A negative debt to equity ratio means that the company has accumulated loss on its balance sheet, stay far away from such companies.
Debt to Equity Ratio = (Short term debt + Long term debt) / Shareholder's Equity
Overall Performance
Company Performance
Watch the overall performance of revenue and profit, needless to say you should invest in a company whose numbers are going up.
Net Income & Cash from Operations Dick Smith Holdings Limited
Operating cash flow is a better metric of a company's financial health for two main reasons. Cash flow is harder to manipulate than net income (although it can be done to a certain degree). Second, "cash is king", a company that does not generate cash over the long term is on its deathbed. Investors can avoid a lot of bad investments if they analyze a company's operating cash flow.
Net Income (Income Statement) and Cash from operations (Cash Flow Statement) should ideally be parallel. If you see major deviations between the two it signals an accounting red flag.
Note - This is one of the most important financial chart. A consistently falling or negative operating Cash Flow(OCF) despite a rising net profit is a cause for concern because of aggressive accounting techniques or high working capital requirements. An ideal company has a higher operating cash flow than its net profit (income).
Stock Dilution & Debt - Dick Smith Holdings Limited
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Stock dilution occurs when a company issues additional shares. The above chart tells you if the company is issuing additional shares thus decreasing your ownership. An ideal company should not even issue a single additional share after an IPO.
Keep an eye on Dick Smith Holdings Limited's total debt (short and long term), leases, debentures. All of these are expenses which the company has to repay with interest. If you see a huge spike, you should know why.